20-F 1 d20f.htm FORM 20-F Form 20-F
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-146371

 

 

ARCELORMITTAL

(Exact name of Registrant as specified in its charter)

ARCELORMITTAL

(Translation of Registrant’s name into English)

(Jurisdiction of incorporation or organization)

 

 

19, Avenue de la Liberté, L-2930 Luxembourg,

Grand Duchy of Luxembourg

(Address of Registrant’s principal executive offices)

Henk Scheffer, 19, Avenue de la Liberté, L-2930 Luxembourg, Grand Duchy of Luxembourg. Fax: 011 352 4792 2675

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Shares   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is reporting obligation pursuant to Section 15(d) of the Act:

None

 

 

Indicate the number of outstanding shares of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Common Shares

1,421,570,646

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  x    No  ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x              Accelerated filer  ¨              Non-accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨    International Financial Reporting Standards as issued by the International Accounting Standards Board  x    Other  ¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨    Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

 

 

 


Table of Contents

TABLE OF CONTENTS

 

             Page

PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

   1

PART I

      

ITEM 1.

  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS    7

ITEM 2.

  OFFER STATISTICS AND EXPECTED TIMETABLE    7

ITEM 3.

  KEY INFORMATION    7
 

A.

  Selected Financial Data    7
 

B.

  Capitalization and Indebtedness    8
 

C.

  Reasons for the Offer and Use of Proceeds    8
 

D.

  Risk Factors    8

ITEM 4.

  INFORMATION ON THE COMPANY    20
 

A.

  History and Development of the Company    20
 

B.

  Business Overview    32
 

C.

  Organizational Structure    52
 

D.

  Property, Plant and Equipment    57

ITEM 4A.

  UNRESOLVED STAFF COMMENTS    81

ITEM 5.

  OPERATING AND FINANCIAL REVIEW AND PROSPECTS    82
 

A.

  Operating Results    93
 

B.

  Liquidity and Capital Resources    109
 

C.

  Research and Development, Patents and Licenses    114
 

D.

  Trend Information    114
 

E.

  Off-Balance Sheet Arrangements    115
 

F.

  Tabular Disclosure of Contractual Obligations    115
 

G.

  Safe Harbor    115

ITEM 6.

  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES    116
 

A.

  Directors and Senior Management    116
 

B.

  Compensation    125
 

C.

  Board Practices    131
 

D.

  Employees    137
 

E.

  Share Ownership    138

ITEM 7.

  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS    139
 

A.

  Major Shareholders    139
 

B.

  Related Party Transactions    141
 

C.

  Interest of Experts and Counsel    141

ITEM 8.

  FINANCIAL INFORMATION    142
 

A.

  Consolidated Statements and Other Financial Information    142
 

B.

  Significant Changes    151

ITEM 9.

  THE OFFER AND LISTING    151
 

A.

  Offer and Listing Details    151
 

B.

  Plan of Distribution    153
 

C.

  Markets    153
 

D.

  Selling Shareholders    153
 

E.

  Dilution    154
 

F.

  Expenses of the Issue    154

 

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             Page

ITEM 10.

  ADDITIONAL INFORMATION    154
 

A.

  Share Capital    154
 

B.

  Memorandum and Articles of Association    154
 

C.

  Material Contracts    163
 

D.

  Exchange Controls    166
 

E.

  Taxation    166
 

F.

  Dividends and Paying Agents    172
 

G.

  Statements by Experts    172
 

H.

  Documents on Display    172
 

I.

  Subsidiary Information    172

ITEM 11.

  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     173

ITEM 12.

  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES    177
 

A.

  Debt Securities    177
 

B.

  Warrants and Rights    177
 

C.

  Other Securities    177
 

D.

  American Depositary Shares    177

PART II

      

ITEM 13.

  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES    178

ITEM 14.

  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS    178

ITEM 15.

  CONTROLS AND PROCEDURES    178

ITEM 16A.

  AUDIT COMMITTEE FINANCIAL EXPERT    181

ITEM 16B.

  CODE OF ETHICS    181

ITEM 16C.

  PRINCIPAL ACCOUNTANT FEES AND SERVICES    181

ITEM 16D.

  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES   

ITEM 16E.

  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS    182

PART III

      

ITEM 17.

  FINANCIAL STATEMENTS    184

ITEM 18.

  FINANCIAL STATEMENTS    184

ITEM 19.

  EXHIBITS    184

 

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PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION

Definitions and Terminology

Unless indicated otherwise, or the context otherwise requires, references herein to “ArcelorMittal”, “we”, “us”, “our” and “the Company” or similar terms are to ArcelorMittal, formerly known as Mittal Steel Company N.V. (“Mittal Steel”) or as Ispat International N.V., and its subsidiaries (which include LNM Holdings N.V. and its subsidiaries and International Steel Group Inc. and its subsidiaries).

All references herein to “Arcelor” refer to Arcelor, a société anonyme incorporated under Luxembourg law, which was acquired by Mittal Steel on August 1, 2006, having its registered office at 19, avenue de la Liberté, L-2930 Luxembourg, Grand Duchy of Luxembourg, and, where the context requires, its consolidated subsidiaries. All references herein to “Arcelor Brasil” refer to the former Arcelor Brasil S.A. (the current ArcelorMittal Brasil S.A.), a majority-owned subsidiary of Arcelor. All references herein to “Sicartsa” refer to the operations of ArcelorMittal las Truchas S.A. de C.V. (formerly Siderurgia Lázaro Cárdenas las Truchas S.A. de C.V.) in Mexico, which was acquired by the Company on April 20, 2007. All references herein to “ArcelorMittal Kryviy Rih” refer to the operations of Kryvorizhstal in the Ukraine, which was acquired by the Company on November 25, 2005. “ISG” refers to International Steel Group Inc. and its subsidiaries as it existed prior to its acquisition by Mittal Steel on April 15, 2005. Following the acquisition of ISG by Mittal Steel, ISG’s name was changed to “Mittal Steel USA ISG Inc.”, the operations were merged with Ispat Inland on December 31, 2005 and the name of the surviving entity was changed to Mittal Steel USA Inc and then to ArcelorMittal USA following Mittal Steel’s acquisition of Arcelor. ArcelorMittal’s principal subsidiaries, categorized by operating segment and location, are as follows. For the purposes of this annual report, the abbreviated names of the following ArcelorMittal subsidiaries will be used where applicable.

 

Name of Subsidiary

  

Abbreviation

  

Country

Flat Carbon Americas

     

ArcelorMittal USA Inc.

   ArcelorMittal USA    USA

Companhia Siderúrgica de Tubarão S.A.

   CST    Brazil

ArcelorMittal Dofasco Inc.

   Dofasco    Canada

ArcelorMittal Lázaro Cárdenas S.A. de C.V.

   ArcelorMittal Lázaro Cárdenas    Mexico

Flat Carbon Europe

     

Aceria Compacta de Bizkaia S.A.

   Aceria Compacta de Bizkaia    Spain

Arcelor Produits Plats Wallonie

   Arcelor Produits Plats Wallonie    Belgium

Arcelor Steel Belgium N.V.

   Arcelor Steel Belgium    Belgium

ArcelorMittal Atlantique et Lorraine SAS

   ArcelorMittal Atlantique et Lorraine    France

ArcelorMittal Bremen GmbH

   ArcelorMittal Bremen    Germany

ArcelorMittal Eisenhüttenstadt GmbH

   ArcelorMittal Eisenhüttenstadt    Germany

ArcelorMittal España S.A.

   ArcelorMittal España    Spain

ArcelorMittal Flat Carbon Europe

   AMFCE    Luxembourg

ArcelorMittal Galati S.A.

   ArcelorMittal Galati    Romania

ArcelorMittal Méditerranée SAS

   ArcelorMittal Méditerranée    France

ArcelorMittal Ostrava a.s.

   ArcelorMittal Ostrava    Czech Republic

ArcelorMittal Packaging SA

   ArcelorMittal Packaging    France

ArcelorMittal Piombino S.p.a.

   ArcelorMittal Piombino    Italy

ArcelorMittal Poland S.A.

   ArcelorMittal Poland    Poland

Cockerill Sambre S.A.

   Cockerill Sambre    Belgium

Industeel Belgium S.A.

   Industeel Belgium    Belgium

Industeel France S.A.

   Industeel France    France

 

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Name of Subsidiary

  

Abbreviation

  

Country

Long Carbon Americas and Europe

     

Acindar Industria Argentina de Aceros S.A.

   Acindar    Argentina

Arcelor Huta Warszawa Sp.z.o.o.

   Arcelor Huta Warszawa    Poland

ArcelorMittal Belval & Differdange SA

   ArcelorMittal Belval & Differdange    Luxembourg

ArcelorMittal Bergara, S.A.

   ArcelorMittal Bergara    Spain

ArcelorMittal Brasil S.A.

   ArcelorMittal Brasil    Brazil

ArcelorMittal Commercial Sections SA

   ArcelorMittal Commercial Sections    Luxembourg

ArcelorMittal Hamburg GmbH

   ArcelorMittal Hamburg    Germany

ArcelorMittal Hochfeld GmbH

   ArcelorMittal Hochfeld    Germany

ArcelorMittal Madrid, S.L.

   ArcelorMittal Madrid    Spain

ArcelorMittal Olaberría, S.L.

   ArcelorMittal Olaberría    Spain

ArcelorMittal Ostrava a.s.

   ArcelorMittal Ostrava    Czech Republic

ArcelorMittal Point Lisas Ltd.

   ArcelorMittal Point Lisas    Trinidad and Tobago

ArcelorMittal Poland S.A.

   ArcelorMittal Poland    Poland

ArcelorMittal Rodange & Schifflange S.A.

   ArcelorMittal Rodange    Luxembourg

ArcelorMittal Ruhrort GmbH

   ArcelorMittal Ruhrort    Germany

ArcelorMittal USA Inc.

   ArcelorMittal USA    USA

Mittal Canada Inc.

   Mittal Canada    Canada

ArcelorMittal las Truchas, S.A. de C.V.

   Sicartsa    Mexico

Asia, Africa and CIS (AACIS)

     

ArcelorMittal Annaba Spa

   ArcelorMittal Annaba    Algeria

ArcelorMittal South Africa Ltd.

   ArcelorMittal South Africa    South Africa

ArcelorMittal Temirtau

   ArcelorMittal Temirtau    Kazakhstan

Mittal Steel Liberia Limited

   Mittal Steel Liberia    Liberia

OJSC ArcelorMittal Kryviy Rih

   ArcelorMittal Kryviy Rih    Ukraine

Société Nationale de Sidérurgie, S.A.

   Sonasid    Morocco

Stainless Steel

     

ArcelorMittal Inox Brasil S.A.

   Acesita or ArcelorMittal Inox Brasil    Brazil

ArcelorMittal Stainless Belgium

   AMSB    Belgium

ArcelorMittal Stainless France

   AMSF    France

Arcelor Mittal Steel Solutions and Services (AM3S)

  

ArcelorMittal Construction France

   ArcelorMittal Construction France    France

Arcelor International America, LLC

   Arcelor International America    USA

ArcelorMittal Auto Processing France SAS

   ArcelorMittal Auto Processing France    France

ArcelorMittal International FZE

   ArcelorMittal International FZE    United Arab Emirates

ArcelorMittal Stahlhandel Gmbh

   ArcelorMittal Stahlhandel    Germany

In addition, unless we have indicated otherwise, or the context otherwise requires, references in this annual report to:

 

   

“production capacity” are to the annual production capacity of plant and equipment based on existing technical parameters as estimated by management;

 

   

“steel products” are to finished and semi-finished steel products and exclude direct reduced iron (DRI), hot metal, coke, etc.;

 

   

“sales” include shipping and handling fees and costs billed to a customer in a sales transaction;

 

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“tons”, “net tons” or “ST” are to short tons and are used in measurements involving steel products, (short ton is equal to 907.2 kilograms or 2000 pounds);

 

   

“tonnes” or “MT” are to metric tonnes and are used in measurements involving steel products, as well as crude steel, iron ore, iron ore pellets, DRI, hot metal, coke, coal, pig iron and scrap (a metric tonne is equal to 1,000 kilograms or 2,204.62 pounds);

 

   

“Articles of Association” are to the amended and restated articles of association of ArcelorMittal, dated November 5, 2007;

 

   

“crude steel” are to the first solid steel product upon solidification of liquid steel, including ingots from conventional mills and semis (e.g., slab, billet and blooms) from continuous casters;

 

   

“gigajoules” is equivalent to 1,000,000,000 joules (where joules is a measure of energy);

 

   

“megajoules” is equivalent to 1,000,000 joules (where joules is a measure of energy);

 

   

measures of distance are stated in kilometers, each of which equals approximately 0.62 miles, or in meters, each of which equals approximately 3.28 feet;

 

   

“DMTU” or “dmtu” stands for dry metric tonne unit;

 

   

“real”, “reais” or “R$” are to Brazilian reais, the official currency of Brazil;

 

   

“US$”, “$”, “dollars”, “USD” or “U.S. dollars” are to United States dollars;

 

   

“C$” or “CAD” are to Canadian dollars;

 

   

“Rs” are to Indian rupees;

 

   

“HK$” are to Hong Kong Dollars;

 

   

“downstream” are to finishing operations, for example in the case of flat products the process after the production of hot rolled coil/plates, and in case of long products the process after the production of blooms/billets;

 

   

“upstream” are to operations that precede downstream steel-making, such as mining, coke, sinter, DRI, blast furnace, blast oxygen furnace (“BOF”), electric arc furnace (“EAF”), casters & hot rolling/plate mill;

 

   

“euro”, “euros”, “EUR” or “€” are to the currency of the European Union member states participating in the European Monetary Union;

 

   

“Significant shareholder” are to Mr. Lakshmi N. Mittal and his wife, Mrs. Usha Mittal, who together own approximately 44% of Mittal Steel’s outstanding voting equity as at December 31, 2007;

 

   

“brownfield project” means the expansion of an existing operation;

 

   

“greenfield project” means the development of a new project;

 

   

“coking coal”, by virtue of its coking properties, is used in the manufacture of coke, which is used in the steelmaking process;

 

   

“direct reduced iron” (“DRI”) is metallic iron formed by removing oxygen from iron ore without the formation of, or passage through, a smelting phase. DRI can be used as feedstock for steel production;

 

   

“energy coal” is used as a fuel source in electrical power generation, cement manufacture and various industrial applications. Energy coal may also be referred to as steam or thermal coal;

 

   

“metallurgical coal” is a broader term than coking coal which includes all coals used in steelmaking, such as coal used for the pulverised coal injection process;

 

   

“hot briquetted iron” (“HBI”) is densified direct reduced iron where the densification is carried out at a temperature greater than 650 degrees Celsius. The resultant product has density greater than 5g/cm3. HBI can be used as feedstock for steel production;

 

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“BRICET” means the countries of Brazil, Russia, India, China, Eastern Europe and Turkey;

 

   

“take or pay” means an obligation on a customer to pay for an agreed minimum quantity of a commodity even if it fails to “take” that agreed minimum quantity; and

 

   

the “Spanish Stock Exchanges” refer to the stock exchanges of Madrid, Barcelona, Bilbao and Valencia.

Financial Information

This annual report contains the audited consolidated financial statements of ArcelorMittal (of which Mittal Steel Company N.V. is the predecessor) and its consolidated subsidiaries, including the consolidated balance sheets as of December 31, 2006 and 2007, and the consolidated statements of income, changes in equity and cash flows for each of the years ended December 31, 2005, 2006 and 2007, which we refer to as the ArcelorMittal Consolidated Financial Statements. The ArcelorMittal consolidated financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”).

ArcelorMittal’s significant acquisitions in 2005, 2006 and 2007, including in particular Arcelor, ISG, Kryvorizhstal and Sicartsa, have been accounted for using the purchase method of accounting, with ArcelorMittal as the acquiring entity in accordance with IFRS 3 (“Business Combinations”).

Our results of operations and financial conditions as of and for the years ended December 31, 2006 and 2007, and the comparability between them, have been significantly affected by our August 2006 acquisition of Arcelor. For purposes of comparing our 2006 and 2007 results, we have prepared unaudited pro forma financial information for the year ended December 31, 2006 that present our results of operations as if the acquisition had taken place on January 1, 2006, as described under “Item 5. Operating and Financial Review and Prospects.”

The financial information and certain other information presented in a number of tables in this annual report have been rounded to the nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not conform exactly to the total figure given for that column. In addition, certain percentages presented in the tables in this annual report reflect calculations based upon the underlying information prior to rounding and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

Market Information

This annual report includes industry data and projections about our markets obtained from industry surveys, market research, publicly available information and industry publications. Statements on ArcelorMittal’s competitive position contained in this annual report are based primarily on public sources including, but not limited to, publications of the International Iron and Steel Institute. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of such information is not guaranteed and that the projections they contain are based on a number of significant assumptions. We have not independently verified this data or determined the reasonableness of such assumptions. In addition, in many cases we have made statements in this annual report regarding our industry and our position in the industry based on internal surveys, industry forecasts and market research, as well as our own experience. While these statements are believed to be reliable, they have not been independently verified, and we do not make any representation or warranty as to the accuracy or completeness of such information set forth in this annual report.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This annual report and the documents incorporated by reference in this annual report contain forward-looking statements based on estimates and assumptions. This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, among other things, statements concerning the business, future financial condition, results of operations and prospects of ArcelorMittal, including its acquired subsidiaries. These statements usually contain the words “believes”, “plans”, “expects”, “anticipates”, “intends”, “estimates” or other similar expressions. For each of these statements, you should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although it is believed that the expectations reflected in these forward-looking statements are reasonable, there is no assurance that the actual results or developments anticipated will be realized or, even if realized, that they will have the expected effects on the business, financial condition, results of operations or prospects of ArcelorMittal.

These forward-looking statements speak only as of the date on which the statements were made, and no obligation has been undertaken to publicly update or revise any forward-looking statements made in this annual report or elsewhere as a result of new information, future events or otherwise, except as required by applicable laws and regulations. In addition to other factors and matters contained or incorporated by reference in this annual report, it is believed that the following factors, among others, could cause actual results to differ materially from those discussed in the forward-looking statements:

 

   

ArcelorMittal’s ability to manage its growth;

 

   

ArcelorMittal’s ability fully to realize anticipated cost savings, revenue enhancements and other benefits from the acquisition by Mittal Steel of Arcelor;

 

   

Mr. Lakshmi N. Mittal’s ability to exercise significant influence over the outcome of shareholder voting;

 

   

any loss or diminution in the services of Lakshmi N. Mittal, ArcelorMittal’s President and Chief Executive Officer;

 

   

any downgrade of ArcelorMittal’s credit rating;

 

   

ArcelorMittal’s ability to operate within the limitations imposed by its financing arrangements;

 

   

ArcelorMittal’s ability to refinance existing debt and obtain new financing on acceptable terms to finance its growth;

 

   

mining risks;

 

   

the risk that non-fulfillment or breach of transitional arrangements may result in the recovery of aid granted to some of ArcelorMittal’s subsidiaries;

 

   

ArcelorMittal’s ability to fund under-funded pension liabilities;

 

   

increased cost of wages and the risk of labor disputes;

 

   

general economic conditions, whether globally, nationally or in the markets in which ArcelorMittal conducts business;

 

   

the risk of disruption or volatility in the economic, political or social environment in the countries in which ArcelorMittal conducts business;

 

   

fluctuations in currency exchange rates, commodity prices, energy prices and interest rates;

 

   

the risk of disruptions to ArcelorMittal’s operations;

 

   

the risk of unfavorable changes to, or interpretations of, the tax laws and regulations in the countries in which ArcelorMittal operates;

 

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the risk that ArcelorMittal may not be able fully to utilize its deferred tax assets;

 

   

damage to ArcelorMittal’s production facilities due to natural disasters;

 

   

the risk that ArcelorMittal’s insurance policies may provide limited coverage;

 

   

the risk of product liability claims adversely affecting ArcelorMittal’s operations;

 

   

international trade actions or regulations;

 

   

the risk that U.S. investors may have difficulty enforcing civil liabilities against ArcelorMittal and its directors and senior management;

 

   

the risk that a downturn in global economic conditions may have an adverse effect on the results of ArcelorMittal;

 

   

ArcelorMittal’s ability to operate successfully within a cyclical industry;

 

   

the risk that changes in demand for and supply of steel products in China and other developing economies may result in falling steel prices;

 

   

the risk of significant supply shortages and increasing costs of raw materials, energy and transportation;

 

   

increased competition from substitute materials, such as aluminum; and

 

   

legislative or regulatory changes, including those relating to protection of the environment and health and safety, and those resulting from international agreements and treaties related to trade, accession to the European Union (“EU”) or otherwise.

Some of these factors are discussed in more detail in this annual report, including under “Item 3D—Key Information—Risk Factors”.

 

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following tables present selected consolidated financial information of ArcelorMittal and, where relevant, of its predecessor company Mittal Steel Company N.V., as of and for the years ended December 31, 2004, 2005, 2006 and 2007, prepared in accordance with IFRS. Mittal Steel Company N.V. did not prepare financial statements in accordance with IFRS in 2003. This selected consolidated financial information should be read in conjunction with the ArcelorMittal Consolidated Financial Statements, including the notes thereto, included elsewhere herein.

 

Statement of Income Data         
(Amounts in $ millions except per share data and percentages)         
     For the year ended December 31,  
     2004     2005     2006(7)     2007  

Sales(1)

   $ 20,612     $ 28,132     $ 58,870     $ 105,216  

Cost of sales (including depreciation and impairment)(2)(3)

     14,422       22,341       48,378       84,953  

Selling, general and administrative

     676       1,062       2,960       5,433  

Operating income

     5,514       4,729       7,532       14,830  

Operating income as percentage of Sales

     26.8 %     16.8 %     12.8 %     14.1 %

Other income—net

     1,143       214       49       —    

Income from equity method investments

     149       86       301       985  

Financing costs—net

     (214 )     (353 )     (654 )     (927 )

Income before taxes

     6,592       4,676       7,228       14,888  

Net income (including minority interest)

     5,625       3,795       6,106       11,850  

Net income attributable to equity holders of the parent

     5,210       3,301       5,247       10,368  

Basic earnings per common share(4)

   $ 8.10     $ 4.80     $ 5.31     $ 7.41  

Diluted earnings per common share(4)

   $ 8.10     $ 4.79     $ 5.30     $ 7.40  

Dividends declared per share(5)

     —       $ 0.30     $ 0.50     $ 1.30  
Balance Sheet Data         
(Amounts in $ millions except share data)         
     As of December 31,  
     2004     2005     2006(7)     2007  

Cash and cash equivalents, including short-term investments and restricted cash

   $ 2,634     $ 2,149     $ 6,146     $ 8,105  

Property, plant and equipment

     11,058       19,045       54,573       61,994  

Total assets

     21,692       33,867       112,681       133,625  

Short-term debt and current portion of long-term debt

     341       334       4,922       8,542  

Long-term debt, net of current portion

     1,639       7,974       21,645       22,085  

Net assets

     11,079       15,457       50,228       61,535  

Basic weighted average common shares outstanding (millions)

     643       687       988       1,399  

Diluted weighted average common shares outstanding (millions)

     643       689       989       1,401  

 

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Other Data         
(Amounts in $ millions except volume data)         
     For the year ended December 31,  
     2004     2005     2006(7)     2007  

Net cash provided by operating activities

   $ 4,300     $ 3,874     $ 7,122     $ 16,532  

Net cash (used in) investing activities

     (656 )     (7,512 )     (8,576 )     (11,909 )

Net cash (used in) provided by financing activities

     (2,118 )     3,349       5,445       (3,417 )

Total production of crude steel (thousands of tonnes)

     39,362       48,916       85,620       116,415  

Total shipments of steel products (thousands of tonnes)(6)

     35,067       44,614       78,950       109,724  

 

(1) Including $2,235 million, $2,339 million, $3,847 million and $4,767 million of sales to related parties for the years ended December 31, 2004, 2005, 2006 and 2007, respectively. (see Note 12 to the ArcelorMittal Consolidated Financial Statements).
(2) Including $1,021 million, $914 million, $1,740 million and $2,408 million of purchases from related parties for the years ended December 31, 2004, 2005, 2006 and 2007, respectively.
(3) Including depreciation and impairment of $734 million, $1,113 million, $2,324 million and $4,570 million for the years ended December 31, 2004, 2005, 2006 and 2007, respectively.
(4) Earnings per common share are computed by dividing net income attributable to equity holders of ArcelorMittal by the weighted average number of common shares outstanding during the periods presented considering retroactively the shares issued by Mittal Steel in connection with the acquisition of LNM Holdings.
(5) This does not include the dividends declared by LNM Holdings to its shareholder prior to its acquisition by Ispat International.
(6) Shipment volumes of steel products for the operations of the Company include certain inter-company shipments.
(7) As required by IFRS, the 2006 information has been adjusted retrospectively for the finalization of the allocation of purchase price of Arcelor (see Note 3 to the ArcelorMittal Consolidated Financial Statements).

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business, financial condition, results of operations or prospects could be materially adversely affected by any of the risks and uncertainties described below.

Risks related to ArcelorMittal.

ArcelorMittal results from a recent merger of two companies and has continued to grow through acquisitions subsequently and expects to continue to do so. The failure to manage the company’s recent and expected future growth could significantly harm ArcelorMittal’s future results and require significant expenditures to address the additional operational and control requirements of this growth.

ArcelorMittal results from Mittal Steel Company N.V.’s acquisition of Arcelor, a company of approximately equivalent size, in August 2006 and the subsequent merger of the two companies in 2007. The combined company has continued, as did its predecessor companies, to make numerous and substantial acquisitions, with numerous transactions announced in 2007, and acquisitions and investments for a total value of $12.3 billion (including cash purchase price, assumed net debt and shares issued at fair market value) completed

 

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in 2007. ArcelorMittal’s growth strategy includes the acquisitions of complementary companies. Such growth entails significant investment and increased operating costs. Overall growth in ArcelorMittal’s business also requires greater allocation of management resources away from daily operations. In addition, managing this growth (including managing multiple operating assets) requires, among other things, the continued development of ArcelorMittal’s financial and management information control systems, the ability to integrate newly acquired assets with existing operations, the ability to attract and retain sufficient numbers of qualified management and other personnel, the continued training and supervision of such personnel and the ability to manage the risks and liabilities associated with the acquired businesses. Failure to manage such growth, while at the same time maintaining adequate focus on the existing assets of ArcelorMittal, could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects.

The former Mittal Steel and Arcelor may not successfully integrate their business operations to the fullest extent, which could result in ArcelorMittal’s failure to realize anticipated cost savings, revenue enhancements and other benefits expected from the acquisition.

Since the acquisition by Mittal Steel of Arcelor, the combined company has reached significant milestones in its operational integration process, having consolidated support functions, optimized its supply chain and procurement structure, and leveraged research and development services across a larger base, thereby achieving cost savings and revenue synergies, as well as other synergistic benefits. As of December 31, 2007, ArcelorMittal had realized $1.4 billion in synergies from the merger, as compared to the expected $1.6 billion in synergies to be achieved by the end of 2008 announced by Mittal Steel at the time of its acquisition of Arcelor. While the integration process has so far proceeded smoothly, further integration steps may not be achieved to the fullest extent or within the timeframe expected, which could have a material adverse effect on ArcelorMittal’s results of operations.

In particular, ArcelorMittal is continuing to integrate manufacturing best practices and to standardize management information systems across the ArcelorMittal group. The integration of these functions could interfere with the activities of one or more of the businesses of ArcelorMittal and may divert management’s attention from the daily operations of ArcelorMittal’s core businesses. If the combined company is unable to continue to integrate effectively its operations, technologies and personnel in a timely and efficient manner, then it may not fully realize the benefits expected from the acquisition. In particular, if the continued integration is not successful, ArcelorMittal’s operating results may be harmed, it may lose key personnel and key customers, it may not be able to retain or expand its market position, and the market price of its shares may decline.

Mr. Lakshmi N. Mittal has the ability to exercise significant influence over the outcome of shareholder voting.

As of December 31, 2007, Mr. Lakshmi N. Mittal owned 623,285,000 of ArcelorMittal’s outstanding common shares, representing approximately 44% of ArcelorMittal’s outstanding voting shares. Consequently, Mr. Lakshmi N. Mittal has the ability to influence significantly the decisions adopted at the ArcelorMittal general meetings of shareholders, including matters involving mergers or other business combinations, the acquisition or disposition of assets, issuances of equity and the incurrence of indebtedness. Mr. Lakshmi N. Mittal also has the ability to significantly influence a change of control of ArcelorMittal.

The loss or diminution of the services of the President and Chief Executive Officer of ArcelorMittal could have a material adverse effect on its business and prospects.

The President and Chief Executive Officer of ArcelorMittal has for over a quarter of a century contributed significantly to shaping and implementing the business strategy of Mittal Steel and subsequently ArcelorMittal. His strategic vision was instrumental in the creation of the world’s largest and most global steel group. The loss or any diminution of the services of the President and Chief Executive Officer could have a material adverse effect on ArcelorMittal’s business and prospects. ArcelorMittal does not maintain key man life insurance on its President and Chief Executive Officer.

 

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ArcelorMittal has a substantial amount of indebtedness. Credit rating downgrades, which could result from, among other things, substantial debt-financed acquisitions or cyclical downturns in the steel industry, could significantly harm ArcelorMittal’s refinancing capacity and increase its cost of funding. ArcelorMittal’s level of indebtedness, including the consequential high financing costs and restrictive covenants, could also limit its flexibility in managing its business.

As of December 31, 2007, ArcelorMittal had total debt outstanding of $30.6 billion, consisting of $8.5 billion of short-term indebtedness (including payables to banks and the current portion of long-tem debt) and $22.1 billion of long-term indebtedness. As of December 31, 2007, ArcelorMittal had $8.1 billion of cash and cash equivalents, including short-term investments and restricted cash, and, for the year ended December 31, 2007, ArcelorMittal recorded operating income of $14.8 billion.

Some of Mittal Steel’s credit ratings were put on ratings watch for possible downgrades following its acquisition of Arcelor in 2006. In late 2007 and early 2008, however, Standard & Poor’s Ratings Services raised its long-term corporate credit rating for ArcelorMittal to “BBB+” from “BBB” with a stable outlook, Fitch Ratings affirmed its rating of ArcelorMittal at “BBB” and revised its long-term Issuer Default Rating (IDR) outlook to Positive from Stable, and Moody’s Investors Service upgraded its rating of ArcelorMittal from Baa3 to Baa2.

Future downgrades resulting from factors specific to ArcelorMittal could be experienced. Credit rating downgrades could also result from a cyclical downturn in the steel industry, as ArcelorMittal has experienced in the past. Any decline in its credit rating would increase ArcelorMittal’s cost of borrowing and could significantly harm its financial condition, results of operations and profitability, including its ability to refinance its existing indebtedness.

ArcelorMittal’s principal financing facilities (that is, the $3.2 billion term and revolving credit facility, which was amended on February 6, 2007 (the “2005 Credit Facility”), the $800 million committed multi-currency letter of credit facility (the “Letter of Credit Facility”) and the €17 billion (approximately $22 billion) term and revolving credit facility entered into on November 30, 2006 (the “€17 Billion Facility”), contain provisions that limit encumbrances on the assets of ArcelorMittal and its subsidiaries and limit the ability of ArcelorMittal’s subsidiaries to incur debt. The Letter of Credit Facility requires compliance with a minimum interest coverage ratio. The 2005 Credit Facility and the €17 Billion Facility require compliance with a maximum gearing ratio. Limitations arising from these credit facilities could adversely affect ArcelorMittal’s ability to maintain its dividend policy and make additional strategic acquisitions.

The level of debt outstanding could have adverse consequences to ArcelorMittal, including impairing its ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, and limiting its flexibility to adjust to changing market conditions or withstand competitive pressures, resulting in greater vulnerability to a downturn in general economic conditions.

ArcelorMittal’s debt facilities and its guarantees have provisions whereby a default by any borrower within the ArcelorMittal group could, under certain circumstances, lead to defaults under other ArcelorMittal credit facilities. Any possible invocation of these cross-default clauses could cause some or all of the other guaranteed debt to accelerate, creating severe liquidity pressures.

Furthermore, most of ArcelorMittal’s current borrowings are at variable rates of interest and thereby expose ArcelorMittal to interest rate risk. Generally, ArcelorMittal does not use financial instruments to hedge a significant portion of its interest rate exposure. If interest rates rise, ArcelorMittal’s debt service obligations on its variable rate indebtedness would increase even if the amount borrowed remained the same, resulting in higher interest costs.

A substantial portion of ArcelorMittal’s debt is denominated in euro. Accordingly, ArcelorMittal is exposed to fluctuations in the exchange rates between the U.S. dollar and the euro. Any such fluctuations in the euro and, in particular, a further marked appreciation of the euro to the U.S. dollar would mechanically increase ArcelorMittal’s indebtedness.

 

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Because ArcelorMittal is a holding company, it depends on the earnings and cash flows of its operating subsidiaries, which may not be sufficient to meet future needs.

Because ArcelorMittal is a holding company, it is dependent on the earnings and cash flows of, and dividends and distributions from, its operating subsidiaries to pay expenses, meet its debt service obligations, and pay any cash dividends or distributions on its common shares. Some of these operating subsidiaries have debt outstanding or are subject to acquisition agreements that impose restrictions or prohibitions on such operating subsidiaries’ ability to pay dividends.

Under the laws of Luxembourg, the combined company will be able to pay dividends or distributions only to the extent that it is entitled to receive cash dividend distributions from its subsidiaries, recognize gains from the sale of its assets or record share premium from the issuance of shares.

The significant capital expenditure and other commitments ArcelorMittal has made in connection with past acquisitions may limit its operational flexibility and add to its financing requirements.

In connection with the acquisition of some of its operating subsidiaries, ArcelorMittal has made significant capital expenditure commitments and other commitments with various governmental bodies involving expenditures required to be made over the next few years. In 2007, capital expenditures amounted to $5.4 billion. As of December 31, 2007, ArcelorMittal and its subsidiaries had capital commitments outstanding of approximately $1.9 billion under privatization and other major contracts. ArcelorMittal expects to fund these capital expenditure commitments and other commitments primarily through internal sources, but ArcelorMittal cannot assure you that it will be able to generate or obtain sufficient funds to meet these requirements or to complete these projects on a timely basis or at all. In addition, completion of these projects may be affected by factors that are beyond the control of ArcelorMittal. See “Item 5F—Operating and Financial Review and Prospects—Tabular Disclosure of Contractual Obligations” and Note 22 to the ArcelorMittal Consolidated Financial Statements.

ArcelorMittal has also made commitments relating to employees at some of its operating subsidiaries. It has agreed, in connection with the acquisition of interests in these subsidiaries, including the acquisition of Arcelor, that it will not make collective dismissals for certain periods. These periods generally extend several years following the date of acquisition. The inability to make such dismissals may affect ArcelorMittal’s ability to coordinate its workforce and efficiently manage its business in response to changing market conditions in the areas affected.

ArcelorMittal may not be able to remain in compliance with some or all of these requirements in the future. Failure to remain in compliance may result in forfeiture of part of ArcelorMittal’s investment and/or the loss of tax and regulatory benefits.

ArcelorMittal’s mining operations are subject to mining risks.

ArcelorMittal has substantial mining operations and has recently increased their scope and intends to continue to do so. Mining operations are subject to hazards and risks normally associated with the exploration, development and production of natural resources, any of which could result in production shortfalls or damage to persons or property. In particular, hazards associated with open-pit mining operations include, among others:

 

   

flooding of the open pit;

 

   

collapse of the open-pit wall;

 

   

accidents associated with the operation of large open-pit mining and rock transportation equipment;

 

   

accidents associated with the preparation and ignition of large-scale open-pit blasting operations;

 

   

production disruptions due to weather; and

 

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hazards associated with the disposal of mineralized waste water, such as groundwater and waterway contamination.

Hazards associated with underground mining operations include, among others:

 

   

underground fires and explosions, including those caused by flammable gas;

 

   

cave-ins or falls of ground;

 

   

discharges of gases and toxic chemicals;

 

   

flooding;

 

   

sinkhole formation and ground subsidence;

 

   

other accidents and conditions resulting from drilling; and

 

   

blasting and removing, and processing material from, an underground mine.

ArcelorMittal is at risk of experiencing any or all of these hazards. For example, in September 2006, a methane gas explosion at ArcelorMittal’s Lenina mine in Kazakhstan resulted in 41 fatalities, and a production shutdown of two days to fully investigate the incident and in January 2008, a methane gas explosion at ArcelorMittal’s Abaiskaya mine in Kazakhstan resulted in 30 fatalities. It is estimated that it will take approximately six months before another unit is ready for production at the mine. The occurrence of any of these hazards could delay production, increase production costs and result in death or injury to persons, damage to property and liability for ArcelorMittal, some or all of which may not be covered by insurance.

Some of ArcelorMittal’s subsidiaries benefited from state aid granted prior to, or in connection with, their respective privatizations, the granting of which is subject to transitional arrangements under the respective treaties concerning the accession of these countries to the European Union. Non-fulfillment or breach of the transitional arrangements and related rules may result in the recovery of aid granted pursuant to the transitional arrangements.

ArcelorMittal has acquired formerly state-owned companies in the Czech Republic, Poland and Romania, some of which benefited from state aid granted prior to, or in connection with, their respective privatization and restructuring. Moreover, the restructuring of the steel industries in each of the Czech Republic, Poland and Romania is subject to transitional arrangements and related rules that determine the legality of restructuring aid. The transitional arrangements form part of the respective treaties concerning the accession of the Czech Republic, Poland and Romania to the European Union. See “Item 4B—Information on the Company—Business Overview—Government Regulations—State Aid”. Non-fulfillment or breach of the transitional arrangements and related rules may nullify the effect of the transitional arrangements and may result in the recovery of aid granted pursuant to the transitional arrangements that have been breached.

Under-funding of pension and other post-retirement benefit plans at some of ArcelorMittal’s operating subsidiaries, and the possible need to make substantial cash contributions to pension plans or to pay for healthcare, which may increase in the future, may reduce the cash available for ArcelorMittal’s business.

ArcelorMittal’s principal operating subsidiaries in Brazil, Canada, Europe, and the United States provide defined benefit pension plans to their employees. Some of these plans are currently under-funded. At December 31, 2007, the value of ArcelorMittal USA’s pension plan assets was $2,627 million, while the projected benefit obligation was $3,078 million, resulting in a deficit of $451 million. At December 31, 2007, the value of the pension plan assets of ArcelorMittal’s Canadian subsidiaries was $2,707 million, while the projected benefit obligation was $3,034 million, resulting in a deficit of $327 million. At December 31, 2007, the value of the pension plan assets of ArcelorMittal’s European subsidiaries was $623 million, while the projected benefit obligation was $2,486 million, resulting in a deficit of $1,863 million. ArcelorMittal USA also had an under-funded post-employment benefit obligation of $1,181 million relating to life insurance and medical benefits as of

 

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December 31, 2007. ArcelorMittal’s Canadian subsidiaries also had an under-funded post-employment benefit obligation of $983 million relating to life insurance and medical benefits as of December 31, 2007. ArcelorMittal’s European subsidiaries also had an under-funded post-employment benefit obligation of $507 million relating to life insurance and medical benefits as of December 31, 2007. See Note 18 to the ArcelorMittal Consolidated Financial Statements.

ArcelorMittal’s funding obligations depend upon future asset performance, the level of interest rates used to discount future liabilities, actuarial assumptions and experience, benefit plan changes and government regulation.

Because of the large number of variables that determine pension funding requirements, which are difficult to predict, as well as any legislative action, future cash funding requirements for ArcelorMittal’s pension plans and other post-employment benefit plans could be significantly higher than currently estimated amounts. These funding requirements could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects.

ArcelorMittal could experience labor disputes that could disrupt its operations and its relationships with its customers.

A majority of the employees of ArcelorMittal and of its contractors are represented by labor unions and are covered by collective bargaining or similar agreements, which are subject to periodic renegotiation. Strikes or work stoppages could occur prior to, or during, the negotiations leading to new collective bargaining agreements, during wage and benefits negotiations or during other periods for other reasons. ArcelorMittal has experienced strikes and work stoppages at various facilities in recent years. Any such breakdown leading to work stoppage and disruption of operations could have an adverse effect on the operations and financial results of ArcelorMittal.

ArcelorMittal is subject to economic risks and uncertainties in the countries in which it operates or proposes to operate. Any deterioration or disruption of the economic environment in those countries may have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects.

In recent years, many of the countries in which ArcelorMittal operates, or proposes to operate, have experienced economic growth and improved economic stability. For example, Eastern European countries, such as Poland, the Czech Republic and Romania, have initiated free-market economic reforms in connection with or in anticipation of their accession to the European Union. Others, such as Algeria, Argentina and South Africa, have attempted to reinforce political stability and improve economic performance after recent periods of political instability. Ukraine and Kazakhstan have implemented free-market economic reforms. ArcelorMittal’s business strategy was developed partly on the assumption that such economic growth and the modernization, restructuring and upgrading of the physical infrastructure in the developing countries in which it invested will continue, thus creating increased demand for ArcelorMittal’s steel products and maintaining a stable level of steel prices both in these countries and in other key product markets. While the demand in these countries for steel and steel products has gradually increased, this trend will not necessarily continue. In addition, the legal systems in some of the countries in which ArcelorMittal operates remain underdeveloped, particularly with respect to bankruptcy proceedings, and the prospect of widespread bankruptcy, mass unemployment and the deterioration of various sectors of these economies still exists. Reform policies may not continue to be implemented and, if implemented, may not be successful. In addition, these countries may not remain receptive to foreign trade and investment. Any slowdown in the development of these economies or any reduction in the investment budgets of governmental agencies and companies responsible for the modernization of such physical infrastructure could also have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects.

 

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ArcelorMittal is subject to political, social and legal uncertainties in some of the developing countries in which it operates or proposes to operate. Any disruption or volatility in the political or social environment in those countries may have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects.

ArcelorMittal operates, or proposes to operate, in a number of developing countries. Some of the countries in which it currently operates, such as Romania and the Ukraine, have been undergoing substantial political transformations from centrally controlled command economies to pluralist market-oriented democracies. Political and economic reforms necessary to complete such transformation may not continue. On occasion, ethnic, religious, historical and other divisions have given rise to tensions and, in certain cases, wide-scale civil disturbances and military conflict, as in Algeria, Bosnia and Herzegovina, China, India, Liberia, Russia, South Africa and Turkey. The political systems in these and other developing countries may be vulnerable to the populations’ dissatisfaction with reforms, social and ethnic unrest and changes in governmental policies, any of which could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects and its ability to continue to do business in these countries.

In addition, ArcelorMittal may encounter difficulties in enforcing court judgments or arbitral awards in some countries in which it operates because those countries may not be parties to treaties that recognize the mutual enforcement of court judgments.

A current example of these risks is the situation in Kazakhstan, where the government has placed into question certain development deals negotiated in the early years of the country’s independence. Following the Abaiskaya mine accident in Kazakhstan, the second mine accident at ArcelorMittal Temirtau in two years, the government of Kazakhstan has threatened to remove ArcelorMittal Temirtau’s operating license. In addition, tax claims (amounting to $2.5 billion including administrative charges) have been brought against ArcelorMittal Temirtau, despite ArcelorMittal Temirtau’s tax obligations being capped under the privatization agreements under which it was acquired from the government of Kazakhstan. The revocation of the operating license of ArcelorMittal Temirtau could disrupt ArcelorMittal’s operations and final assessment of tax payments in the amounts claimed would have a material adverse effect on ArcelorMittal’s results of operations.

ArcelorMittal may experience currency fluctuations and become subject to exchange controls that could adversely affect its business, financial condition, results of operations or prospects.

ArcelorMittal operates and sells products in a number of countries, and, as a result, its business, financial condition, results of operations or prospects could be adversely affected by fluctuations in exchange rates. Major changes in exchange rates, particularly changes in the value of the U.S. dollar against the currencies of the countries in which ArcelorMittal operates, could have an adverse effect on its business, financial condition, results of operations or prospects.

Some operations involving the South African rand, Kazakh tenge, Brazilian real, Argentine peso, Algerian dinar and Ukrainian hryvnia are subject to limitations imposed by their respective central banks. The imposition of exchange controls or other similar restrictions on currency convertibility in the countries in which ArcelorMittal operates could adversely affect its business, financial condition, results of operations or prospects.

Disruptions to ArcelorMittal’s manufacturing processes could adversely affect ArcelorMittal’s operations, customer service levels and financial results.

Steel manufacturing processes are dependent on critical steel-making equipment, such as furnaces, continuous casters, rolling mills and electrical equipment (such as transformers), and such equipment may incur downtime as a result of unanticipated failures or other events, such as fires or furnace breakdowns. ArcelorMittal’s manufacturing plants have experienced, and may in the future experience, plant shutdowns or periods of reduced production as a result of such equipment failures or other events. To the extent that lost

 

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production as a result of such a disruption could not be compensated for by unaffected facilities, such disruptions could have an adverse effect on ArcelorMittal’s operations, customer service levels and financial results.

Natural disasters could significantly damage ArcelorMittal’s production facilities.

Natural disasters could significantly damage ArcelorMittal’s production facilities and general infrastructure. In particular, a new plant planned in Mozambique is in a natural flood zone. In addition, ArcelorMittal Lázaro Cárdenas’s production facilities are located in Lázaro Cárdenas, Michoacán, Mexico and ArcelorMittal Temirtau is located in the Karaganda region of the Republic of Kazakhstan, both of which are areas that have historically experienced earthquakes of varying magnitude. Extensive damage to these facilities, or any other major production complexes, whether as a result of a flood, earthquake, hurricanes, tsunami or other natural disaster, could, to the extent that lost production as a result of such a disaster could not be compensated for by unaffected facilities, severely affect ArcelorMittal’s ability to conduct its business operations and, as a result, reduce its future operating results.

ArcelorMittal’s insurance policies provide limited coverage, potentially leaving it uninsured against some business risks.

The occurrence of an event that is uninsurable or not fully insured could have a material adverse effect on ArcelorMittal’s business, financial condition, results of operations or prospects. ArcelorMittal maintains insurance on property and equipment in amounts believed to be consistent with industry practices but it may not be fully insured against some business risks. The former Mittal Steel’s insurance policies cover physical loss or damage to its property and equipment on a reinstatement basis arising from a number of specified risks and certain consequential losses, including business interruption arising from the occurrence of an insured event under the policies. The former Arcelor maintained similar coverage, which will be fully consolidated under appropriate group-wide policies, which include insurance for property damage and business interruption, by June 1, 2008. Under these policies, damages and losses caused by certain natural disasters, such as earthquakes, floods and windstorms, are also covered. The coverage for the former Arcelor plants was similar to the coverage for ArcelorMittal’s plants, except as to natural hazards, earthquakes and windstorms, for which Arcelor relied on self-insurance where external insurance cover was not legally required, as its exposure to those risks was considered to be limited. Each of the operating subsidiaries of ArcelorMittal also maintains various other types of insurance, such as workmen’s compensation insurance and marine insurance. Notwithstanding the insurance coverage that ArcelorMittal and its subsidiaries carry, the occurrence of an accident that causes losses in excess of limits specified under the relevant policy, or losses arising from events not covered by insurance policies, could materially harm ArcelorMittal’s financial condition and future operating results.

Product liability claims could adversely affect ArcelorMittal’s operations.

ArcelorMittal sells products to major manufacturers who are engaged to sell a wide range of end products. Furthermore, ArcelorMittal’s products are also sold to, and used in, certain safety-critical applications. If ArcelorMittal were to sell steel that is inconsistent with the specifications of the order or the requirements of the application, significant disruptions to the customer’s production lines could result. There could also be significant consequential damages resulting from the use of such products. ArcelorMittal has a limited amount of product liability insurance coverage, and a major claim for damages related to products sold could leave ArcelorMittal uninsured against a portion or all of the award and, as a result, materially harm its financial condition and future operating results.

International trade actions or regulations and trade-related legal proceedings could reduce or eliminate ArcelorMittal’s access to steel markets.

ArcelorMittal has international operations and makes sales throughout the world, and, therefore, its businesses have significant exposure to the effects of trade actions and barriers. Various countries, including the United States and Canada, have in the past instituted, or are currently contemplating the institution of, trade actions and barriers.

 

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ArcelorMittal cannot predict the timing and nature of similar or other trade actions by the United States, Canada or any other country. Because of the international nature of ArcelorMittal’s operations, it may be affected by any trade actions or restrictions introduced by any country in which it sells, or has the potential to sell, its products. Any such trade actions could materially and adversely affect ArcelorMittal’s business by reducing or eliminating ArcelorMittal’s access to steel markets.

In addition to the more general trade barriers described above, if ArcelorMittal were party to a regulatory or trade-related legal proceeding that was decided adversely to it, its business, financial condition, results of operations or prospects could be adversely affected.

See “Item 4B—Information on the Company—Business Overview—Government Regulations”.

The income tax liability of ArcelorMittal may substantially increase if the tax laws and regulations in countries in which it operates change or become subject to adverse interpretations or inconsistent enforcement.

Taxes payable by companies in many of the countries in which ArcelorMittal operates are substantial and include value-added tax, excise duties, profit taxes, payroll-related taxes, property taxes and other taxes. Tax laws and regulations in some of these countries may be subject to frequent change, varying interpretation and inconsistent enforcement. Ineffective tax collection systems and continuing budget requirements may increase the likelihood of the imposition of arbitrary or onerous taxes and penalties, which could have a material adverse effect on ArcelorMittal’s financial condition and results of operations. In addition to the usual tax burden imposed on taxpayers, these conditions create uncertainty as to the tax implications of various business decisions. This uncertainty could expose ArcelorMittal to significant fines and penalties and to enforcement measures despite its best efforts at compliance, and could result in a greater than expected tax burden. See Note 19 to the ArcelorMittal Consolidated Financial Statements.

In addition, many of the jurisdictions in which ArcelorMittal operates have adopted transfer pricing legislation. If tax authorities impose significant additional tax liabilities as a result of transfer pricing adjustments, it could have a material adverse effect on ArcelorMittal’s financial condition and results of operations.

It is possible that tax authorities in the countries in which ArcelorMittal operates will introduce additional revenue raising measures. The introduction of any such provisions may affect the overall tax efficiency of ArcelorMittal and may result in significant additional taxes becoming payable. Any such additional tax exposure could have a material adverse effect on its financial condition and results of operations.

ArcelorMittal may face a significant increase in its income taxes if tax rates increase or the tax laws or regulations in the jurisdictions in which it operates, or treaties between those jurisdictions, are modified in an adverse manner. This may adversely affect ArcelorMittal’s cash flows, liquidity and ability to pay dividends.

If ArcelorMittal were unable to utilize fully its deferred tax assets, its profitability could be reduced.

At December 31, 2007, ArcelorMittal had $1,629 million recorded as deferred tax assets on its balance sheet. These assets can be utilized only if, and only to the extent that, ArcelorMittal’s operating subsidiaries generate adequate levels of taxable income in future periods to offset the tax loss carry forwards and reverse the temporary differences prior to expiration.

At December 31, 2007, the amount of future income required to recover ArcelorMittal’s deferred tax assets was approximately $5,072 million at certain operating subsidiaries. For each of the years ended December 31, 2006 and 2007, these operating subsidiaries generated approximately 43% and 29%, respectively, of ArcelorMittal’s consolidated income before tax of $7,228 million and $14,888 million respectively.

 

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ArcelorMittal’s ability to generate taxable income is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. If ArcelorMittal generates lower taxable income than the amount it has assumed in determining its deferred tax assets, then the value of deferred tax assets will be reduced. See “Item 5A—Operating and Financial Review and Prospects—Operating Results—Year Ended December 31, 2007 Compared to Year Ended December 31, 2006—Income Tax”.

U.S. investors may have difficulty enforcing civil liabilities against ArcelorMittal and its directors and senior management.

ArcelorMittal is organized under the laws of the Grand Duchy of Luxembourg with its principal executive offices and corporate seat in Luxembourg. The majority of ArcelorMittal’s directors and senior management are residents of jurisdictions outside the United States. The majority of ArcelorMittal’s assets and the assets of these persons are located outside the United States. As a result, U.S. investors may find it difficult to effect service of process within the United States upon ArcelorMittal or these persons or to enforce outside the United States judgments obtained against ArcelorMittal or these persons in U.S. courts, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. Likewise, it may also be difficult for an investor to enforce in U.S. courts judgments obtained against ArcelorMittal or these persons in courts in jurisdictions outside the United States, including actions predicated upon the civil liability provisions of the U.S. federal securities laws. It may also be difficult for a U.S. investor to bring an original action in a Luxembourg court predicated upon the civil liability provisions of the U.S. federal securities laws against ArcelorMittal’s directors and senior management and non-U.S. experts named in this annual report.

ArcelorMittal’s inability to successfully centralize various corporate and management functions could adversely affect its productivity and profitability.

ArcelorMittal is centralizing various corporate and management functions at its corporate headquarters in Luxembourg. These functions include the central sale of raw materials, purchase and sale of finished products, research and development functions as well as other functions. The process of centralizing these functions and of making changes to the Company’s existing operational business model may have various efficiency, organizational, operational and tax consequences. If ArcelorMittal is not able to centralize its functions successfully, this could adversely affect its productivity and profitability.

ArcelorMittal may not be able to realize the full book value of its assets held for sale.

ArcelorMittal has assets held for sale. If ArcelorMittal cannot sell them at their full book value, this would negatively affect its cash flow and consequently could affect its financial results.

Risks related to the steel industry.

A downturn in global economic conditions may have a material adverse effect on the results of ArcelorMittal.

ArcelorMittal’s activities and results are affected by international, national and regional economic conditions. In 2007, growing fears of an economic downturn affected consumer confidence and reduced the intensity of demand for steel products. If macroeconomic conditions worsen, the performance of steel producers could be affected. In particular, fears of a recession in the United States, sparked by uncertainty in the credit markets, have grown, as have concerns as to the effect a U.S. recession would have in Europe and elsewhere. Despite ArcelorMittal’s size and global breadth, regional declines in consumption caused by a recession in one or more major markets may have a material adverse effect on demand for its products and hence on its results.

 

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ArcelorMittal is susceptible to the cyclicality of the steel industry, making ArcelorMittal’s results of operations unpredictable.

The steel industry has historically been highly cyclical and is affected significantly by general economic conditions and other factors such as worldwide production capacity, fluctuations in steel imports/exports and tariffs. Steel prices are also sensitive to trends in cyclical industries, such as automotive, construction, appliance, machinery, equipment and transportation industries, which are the significant markets for ArcelorMittal’s products. Steel markets have been experiencing larger and more pronounced cyclical fluctuations, driven recently by the substantial increase in steel production and consumption in China. This trend, combined with the rising costs of key inputs, mainly metallics, energy, transportation and logistics, presents an increasing challenge for steel producers.

The volatility and the length and nature of business cycles affecting the steel industry have historically been unpredictable, and the recurrence of another major downturn in the industry would negatively impact ArcelorMittal’s results of operations and profitability.

See “Item 5—Operating and Financial Review and Prospects—Overview—Key Factors Affecting Results of Operations” and “—Consolidation in the Steel Industry”.

Rapidly growing supply of steel products in China and other developing economies, which may increase faster than increases in demand, may result in additional excess worldwide capacity and falling steel prices.

Over the last several years, steel consumption in China and other developing economies such as India has increased rapidly. Steel companies have responded by developing steel production capabilities in these countries. Steel production, especially in China, has been expanding significantly and China is now the largest worldwide steel producer by a significant margin. In 2006, China became a net exporter of steel, exerting downward pressure on steel prices in the European and American markets in that year. Chinese steel exports slowed in 2007 due to, among other things, rising input prices, Chinese government policies, growing internal demand and slowing worldwide economic growth. In the future, any significant excess Chinese capacity could have a major impact on world steel trade and prices if this excess production is exported to other markets.

Developments in the competitive environment in the steel industry could have an adverse effect on ArcelorMittal’s competitive position and hence its business, financial condition, results of operations or prospects.

The markets in which steel companies conduct business are highly competitive. Competition could cause ArcelorMittal to lose market share, increase expenditures or reduce pricing, any one of which could have a material adverse effect on its business, financial condition, results of operations or prospects. The global steel industry has historically suffered from substantial over-capacity. This has led to substantial price decreases during periods of economic weakness that have not been offset by commensurate price increases during periods of economic strength. Excess capacity in some of the products sold by ArcelorMittal will intensify price competition for such products. This could require ArcelorMittal to reduce the price for its products and, as a result, may have a material adverse effect on its business, financial condition, results of operations or prospects.

ArcelorMittal may encounter increases in the cost and shortages in the supply of raw materials, energy and transportation.

Steel production requires substantial amounts of raw materials and energy, including iron ore, coking coal, zinc, scrap, electricity, natural gas, coal and coke. Currently, there is a worldwide shortage of coke and coal, mainly as a result of the rapid growth in the demand for steel globally. In recent years, and particularly in 2006 and 2007, there was a sharp rise in the cost of a number of commodities essential for the process of steel-making. In particular, the prices of zinc and nickel fluctuated substantially, while the price of iron ore rose 65%, due

 

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among other things to dynamics of supply (including downstream concentration) and demand (including the surge in Chinese and Indian demand). The current concentration in the mining industry, as well as possible further consolidation (in particular the possible combination of BHP Billiton and Rio Tinto), has fostered and may also lead to further price increases in iron ore and other raw materials. The availability and prices of raw materials may be negatively affected by, among other factors, new laws or regulations; suppliers’ allocations to other purchasers; interruptions in production by suppliers; accidents or other similar events at suppliers’ premises or along the supply chain; wars, natural disasters and other similar events; changes in exchange rates; consolidation in steel-related industries; the bargaining power of raw material suppliers; worldwide price fluctuations; and the availability and cost of transportation. Any prolonged interruption in the supply of raw materials or energy, or substantial increases in their costs that steel companies are not able to pass on to customers, could adversely affect the business, financial condition, results of operations or prospects of steel companies.

In addition, energy costs, including the cost of electricity and natural gas, make up a substantial portion of the cost of goods sold by steel companies. The price of energy has varied significantly in the past several years and may vary significantly in the future largely as a result of market conditions and other factors beyond the control of steel companies, including significant increases in oil prices. Because the production of direct reduced iron and the re-heating of steel involve the use of significant amounts of natural gas, steel companies are sensitive to the price of natural gas.

ArcelorMittal will not necessarily be able to procure adequate supplies in the future. A portion of ArcelorMittal’s raw materials are obtained under contracts that are either short-term or are subject to periodic price negotiations. Any prolonged interruption, discontinuation or other disruption in the supply of raw materials or energy, or substantial increases in their costs, may harm ArcelorMittal’s business, financial condition, and results of operations or prospects.

Competition from other materials could significantly reduce market prices and demand for steel products and thereby reduce ArcelorMittal’s cash flow and profitability.

In many applications, steel competes with other materials that may be used as steel substitutes, such as aluminum (particularly in the automobile industry), cement, composites, glass, plastic and wood. Additional substitutes for steel products could significantly reduce market prices and demand for steel products and thereby reduce ArcelorMittal’s cash flow and profitability.

ArcelorMittal is subject to stringent environmental and health and safety regulations that give rise to significant costs and liabilities, including those arising from environmental remediation programs.

ArcelorMittal is subject to a broad range of environmental and health and safety laws and regulations in each of the jurisdictions in which it operates. These laws and regulations, as interpreted by relevant agencies and the courts, impose increasingly stringent environmental and health and safety protection standards regarding, among other things, air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, worker health and safety and the remediation of environmental contamination. The costs of complying with, and the imposition of liabilities pursuant to, environmental and health and safety laws and regulations could be significant, and failure to comply could result in the assessment of civil and criminal penalties, the suspension of permits or operations, and lawsuits by third parties.

Compliance with environmental obligations may require additional capital expenditures or modifications in operating practices, particularly at steel companies operating in countries that have recently joined the European Union. For example, U.S. laws and regulations and EU Directives, as well as any new or additional environmental compliance requirements that may arise out of the implementation by different countries of the Kyoto Protocol (United Nations Framework on Climate Change, 1992) and future, more stringent greenhouse gas

 

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restrictions and emissions trading schemes, may require changes to the operations of steel facilities, further reductions in emissions, and the purchase of emission rights.

ArcelorMittal also incurs costs and liabilities associated with the assessment and remediation of contaminated sites. In addition to the impact on current facilities and operations, environmental remediation obligations can give rise to substantial liabilities with respect to divested assets and past activities. ArcelorMittal could become subject to further remediation obligations in the future, as additional contamination is discovered or cleanup standards become more stringent.

Under certain circumstances, authorities could require ArcelorMittal facilities to curtail or suspend operations based on environmental or health and safety concerns. For example, following accidents in 2006 and 2007 that resulted in numerous fatalities, the Kazakh government has threatened to revoke the operating license of ArcelorMittal Temirtau unless certain additional safety measures are implemented at its facilities. Similarly, exceedance of ambient air quality standards or other environmental limitations can lead to sanctions including imposition of penalties or operational restrictions, particularly where human health may be compromised.

See “Item 4B—Information on the Company—Business Overview—Government Regulations—Environmental Laws and Regulations” and “Item 8A—Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings”.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

ArcelorMittal Overview

ArcelorMittal is the world’s largest and most global steel producer. It results from the combination in 2006 of Mittal Steel and Arcelor, at the time respectively the world’s largest and second largest steel companies by production volume.

ArcelorMittal had sales of approximately $105.2 billion, steel shipments of approximately 109.7 million tonnes and crude steel production of approximately 116.4 million tonnes for the year ended December 31, 2007. This compares to pro forma (after giving effect to the acquisition of Arcelor as if it had occurred on January 1, 2006) sales of approximately $88.6 billion, steel shipments of approximately 110.5 million tonnes and crude steel production of approximately 118.0 million tonnes for the year ended December 31, 2006. ArcelorMittal’s net income attributable to equity holders of the parent for the twelve months ended December 31, 2007, was $10.4 billion, or $7.41 per share, as compared with pro forma net income of $8.0 billion, or $5.76 per share, for the twelve months ended December 31, 2006 after giving full-year effect to its acquisition of Arcelor. As of December 31, 2007, ArcelorMittal had equity of $61.5 billion, total debt of $30.6 billion and cash and cash equivalents, including restricted cash, of $8.1 billion.

ArcelorMittal has been built on a management strategy that emphasizes size and scale, vertical integration, product diversity and quality, continuous growth in higher value products and a strong employee well being and customer service focus. ArcelorMittal intends to continue to play a leading role in the consolidation of the global steel industry and continue to remain the global leader in the steel industry. The Company’s three-dimensional strategy, as described below, is its key to sustainability and growth. ArcelorMittal has unique geographical and product diversification coupled with upstream and downstream integration designed to minimize risk caused by cyclicalities.

Geography: ArcelorMittal is the largest steel producer in the Americas, Africa, and Europe, the second largest producer in the CIS and it has a growing presence in Asia, particularly China. ArcelorMittal has steel-making operations in 20 countries on four continents, including 65 integrated, mini-mill and integrated mini-mill steel-making facilities. As of December 31, 2007, ArcelorMittal had approximately 311,000 employees.

 

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ArcelorMittal operates its business in six reportable operating segments: Flat Carbon Americas; Flat Carbon Europe; Long Carbon Americas and Europe; Asia, Africa and CIS; Stainless Steel; and Arcelor Mittal Steel Solutions and Services (trading and distribution). ArcelorMittal’s steel-making operations have a high degree of geographic diversification. Approximately 35% of its steel is produced in the Americas, approximately 46% is produced in Europe and approximately 19% is produced in other countries, such as Kazakhstan, Algeria, Morocco and South Africa. In addition, ArcelorMittal’s sales are spread over both developed and developing markets, which have different consumption characteristics.

Products: ArcelorMittal produces a broad range of high-quality finished, semi-finished carbon steel products and stainless steel products. Specifically, ArcelorMittal produces flat products, including sheet and plate, long products, including bars, rods and structural shapes, and stainless steel products. ArcelorMittal sells its products primarily in local markets and through its centralized marketing organization to a diverse range of customers in approximately 170 countries, including the automotive, appliance, engineering, construction and machinery industries.

As a global steel producer, the Company is able to meet the needs of different markets. Steel consumption and product requirements differ between mature economy markets and developing economy markets. Steel consumption in mature economies is weighted towards flat products and a higher value-added mix, while developing markets utilize a higher proportion of long products and commodity grades. To meet these diverse needs, the Company maintains a high degree of product diversification and seeks opportunities to increase the proportion of its product mix consisting of higher value-added products.

Value Chain: ArcelorMittal focuses on upstream and downstream integration. ArcelorMittal has a significant raw material and mining assets as well as certain strategic cost plus based long-term contracts with external suppliers. Through its captive sources ArcelorMittal believes that it is the fifth largest producer of iron ore in the world. In 2007, (assuming full production of iron ore at Dofasco for captive use), approximately 46% of ArcelorMittal’s iron-ore requirements and approximately 13% of its coal requirements were supplied from its own mines or from long-term contracts at many of its operating units. The Company currently has mining activities in Algeria, Bosnia, Canada, Kazakhstan, Mexico, the Ukraine and the United States.

ArcelorMittal is actively developing its raw material base to raise its self-sufficiency level. It has started implementing its iron ore mining projects in Liberia and Senegal, and has also initiated projects for expanding the capacity of iron ore production in the Ukraine and Mexico. The Company has signed a memorandum of understanding agreement to develop iron ore mining in the Republic of Mauritania. The Company is also pursuing other projects and has announced recent acquisitions to secure direct access to other raw materials, such as coal and molybdenum.

In addition, ArcelorMittal is the world’s largest producer of direct reduced iron, or DRI, which is a scrap substitute, used in the mini-mill steel-making process, with total production of approximately 9.9 million tonnes in 2007. ArcelorMittal’s DRI production is primarily used in its mini-mill facilities, to supplement external metallics purchases. ArcelorMittal is one of the world’s largest producers of coke, a critical raw material for steel-making produced from metallurgical coal, and it satisfies over 80% of its coke needs. ArcelorMittal’s facilities have good access to shipping facilities, including its eleven deep-water port facilities and its railway sidings.

History

ArcelorMittal is a successor to Mittal Steel, a business founded in 1989 by Mr. Lakshmi N. Mittal, the President and Chief Executive Officer of ArcelorMittal. We have experienced rapid and steady growth since then largely through the consistent and disciplined execution of a successful consolidation-based strategy. We made our first acquisition in 1989, leasing the Iron & Steel Company of Trinidad & Tobago. Some of our principal acquisitions since then include Thyssen Duisberg (Germany) in 1997, Inland Steel (USA) in 1998, Unimetal

 

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(France) in 1999, Sidex (Romania) and Annaba (Algeria) in 2001, Nova Hut (Czech Republic) in 2003, BH Steel (Bosnia), Balkan Steel (Macedonia), PHS (Poland) and Iscor (South Africa) in 2004, ISG (USA), Hunan Valin (China) and Kryvorizhstal (Ukraine) in 2005, three Stelco Inc. subsidiaries (Canada) and Arcelor in 2006.

Arcelor itself was created in February 2002 by the combination of three steel-making companies: Aceralia Corporación Siderúrgica (“Aceralia”), Arbed and Usinor, to create a global presence in the steel industry. At the time of its acquisition by Mittal Steel (the predecessor entity to ArcelorMittal) in 2006, Arcelor was the second largest steel producer in the world in terms of production, with 2005 production of 46.7 million tonnes of steel and 2005 revenues of €32.6 billion. It operated in all key end markets: the automotive industry, construction, household appliances, packaging and general industry. Arcelor enjoyed leading positions in Western Europe and South America, in particular due to its Brazilian operations.

In 2007, ArcelorMittal continued to pursue a disciplined growth strategy, with a total of 35 transactions announced in Argentina, Austria, Canada, China, Estonia, France, Germany, Italy, Mexico, Poland, Russia, Slovakia, South Africa, Turkey, United Kingdom, Uruguay, the United States and Venezuela, a number of which were completed in 2007. During the year, ArcelorMittal also announced or completed buy-out offers for minority interests in certain of its subsidiaries in Argentina, Brazil and Poland. ArcelorMittal also initiated development plans for its greenfield projects in India, Liberia and Senegal as well and announced new projects in Mauritania, Mozambique, Nigeria, Russia, Saudi Arabia and Turkey.

We have proven expertise in acquiring companies and turning around under-performing assets and believe that we have successfully integrated our previous key acquisitions by implementing a best practice approach in operations and management to enhance profitability.

Since the acquisition by Mittal Steel of Arcelor, a company of approximately equivalent size, the combined company has reached significant milestones in its operational integration process ahead of schedule, having consolidated support functions, optimized its supply chain and procurement structure, and leveraged research and development services across a larger base, thereby achieving cost savings and revenue synergies, as well as other synergistic benefits. As of December 31, 2007, ArcelorMittal had realized $1.4 billion in synergies from the merger, as compared to the expected $1.6 billion in synergies to be achieved by the end of 2008 announced by Mittal Steel at the time of its acquisition of Arcelor.

The Company continues to focus on capital expenditure programs and the implementation of improved management practices at acquired facilities, which have resulted in overall increases in production and shipment of steel products, reductions in production costs and increases in productivity. ArcelorMittal’s aggregate capital expenditures for the years ended December 31, 2005, 2006 and 2007 were approximately $1,181 million, $2,935 million and $5,448 million, respectively.

ArcelorMittal has grown through the acquisition of numerous steel-making and other assets, which currently constitute its major operating subsidiaries. ArcelorMittal’s principal joint ventures and acquisitions since the start of 2005 (including greenfield projects), which affected its results during the 2005-2007 period, are summarized below.

Investments and Acquisitions

 

   

On April 15, 2005, Mittal Steel acquired ISG (now part of ArcelorMittal USA) for a purchase price of approximately $2.1 billion in cash and 60,891,883 class A common shares, representing an aggregate purchase price of $3.8 billion, including estimated transaction costs and the settlement of ISG stock options.

 

   

On September 28, 2005, Mittal Steel acquired 36.67% of Hunan Valin from Hunan Valin Iron & Steel Group Co., Ltd., or the Valin Group, for a total consideration of $338 million. Hunan Valin is listed on the Shenzhen Stock Exchange and is one of the ten largest steel-makers in China, with annual

 

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production capacity of 8.5 million tons. Following certain subsequent transactions (conversion of pre-existing bonds and re-investments), ArcelorMittal held 29.19% of Hunan Valin as of December 31, 2007.

 

   

On October 8, 2005, Mittal Steel announced that it had signed a Memorandum of Understanding with the government of the state of Jharkhand in India for the development of a mining and steel-making complex. While ArcelorMittal has identified the plant location site, it remains in discussion with the local authorities with respect to the negotiation of definitive agreements and other pre-conditions to implementation, including the undertaking of a Detailed Project Report. ArcelorMittal previously announced that the project would entail estimated investments in the order of $9 billion.

 

   

On November 25, 2005, Mittal Steel acquired a 93% stake in Kryvorizhstal, the largest carbon steel long products producer in Ukraine, and associated iron ore and coal mining assets from the State Property Fund of Ukraine following a public auction, for a total consideration of approximately $4.9 billion. The transaction was financed from Mittal Steel’s own cash resources and credit lines.

 

   

On August 1, 2006, Mittal Steel acquired 91.9% of the share capital of Arcelor (on a fully-diluted basis). Through subsequent transactions, Mittal Steel increased its ownership to 94.2% of the issued and outstanding shares of Arcelor and 19.9 million of Arcelor’s convertible bonds; the remaining convertible bonds were redeemed on December 15, 2006. Mittal Steel and Arcelor subsequently merged in a two-step process to create ArcelorMittal, as discussed further below.

 

   

On September 25, 2006, the Comissão de Valores Mobiliáros (the “CVM”), the Brazilian securities regulator, ruled that, as a result of Mittal Steel’s acquisition of Arcelor, Mittal Steel was required to carry out a public offer to acquire all the outstanding shares in Arcelor Brasil not owned by Arcelor or any other affiliate of Mittal Steel, with the value offered to Arcelor Brasil shareholders determined based on the value of the part of the overall consideration paid for Arcelor by Mittal Steel attributable to Arcelor Brasil. In a mixed cash and share offer which opened on April 27, 2007 and closed on June 4, 2007, Mittal Steel acquired 29.5% of the total share capital and 89.7% of the free float of Arcelor Brasil as of June 5, 2007, increasing its then 67.1% shareholding in Arcelor Brasil to 96.6%, and paid for the shares with $3.7 billion in cash and approximately 27.0 million Mittal Steel class A common shares, for a total consideration of $5.4 billion. In a subsequent sell-out procedure and a redemption procedure, Mittal Steel paid an additional $0.5 billion in cash to acquire all of the remaining shares of Arcelor Brasil. Following several intra-group mergers, Arcelor Brasil is now named ArcelorMittal Brasil S.A. and is wholly-owned by ArcelorMittal subsidiaries.

 

   

On December 11, 2006, the Government of Liberia and Mittal Steel announced that they had successfully concluded the review of the Mining Development Agreement that they had entered into in August 2005. The conclusion of the review was formalized in an amendment to the agreement that was signed on December 28, 2006. The amendment raised Mittal Steel’s investment to approximately $1.5 billion and confirmed the parties’ commitment to the project. The agreement gives ArcelorMittal access to iron ore deposits in Western Liberia, and ArcelorMittal’s investment will cover development of the mines, related railway and port infrastructure and provides means for community development. Project implementation is in progress.

 

   

On December 21, 2006, Mittal Steel announced that it had signed a Memorandum of Understanding with the government of the state of Orissa in India to set up a steel-making operation in the Keonijhar District. ArcelorMittal has undertaken a Detailed Project Report based on the needs of the steel plant. ArcelorMittal remains in discussion with the local authorities with respect to the negotiation of definitive agreements and other pre-conditions to implementation. ArcelorMittal previously announced that the project would entail estimated investments in the order of $9 billion.

 

   

On February 14, 2007, Mittal Steel signed a joint venture agreement with the Bin Jarallah Group of companies for the design and construction of a seamless tube mill in Saudi Arabia. This facility will be located in Jubail Industrial City, north of Al Jubail on the Persian Gulf. The mill will have a capacity of 500,000 tonnes per year. Construction is planned to commence at the end of the second quarter of

 

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2008 and to be completed by the fourth quarter of 2009. ArcelorMittal (as successor to Mittal Steel) will hold a 51% interest in the company established for this project, with the Bin Jarallah Group holding the remaining 49%.

 

   

On February 23, 2007, Mittal Steel announced that it had signed agreements with the state of Senegal in West Africa to develop iron ore mines in the Faleme region of southeast Senegal. The project is expected to require an investment of approximately $2.2 billion. The project is an integrated mining project that will encompass the development of the mine, the building of a new port near Dakar and the development of approximately 750 kilometers of rail infrastructure to link the mine with the port. The government of Senegal officially handed the concessions to the Company on July 18, 2007. A feasibility study is in progress.

 

   

On March 16, 2007, Mittal Steel announced that it was investing in a new steel service center in Krakow, Poland. Incorporating two de-coiling lines and a slitting line, this facility will have a processing capacity of 450,000 tonnes per year and will strengthen ArcelorMittal’s network of steel service centers in Poland. Operations have started in February 2008.

 

   

On March 16, 2007, Mittal Steel announced that it had signed a definitive agreement with Noble International, Ltd. (“Noble”) for the combination of their laser-welded tailored blanks businesses. Under this agreement, Mittal Steel received $300 million from Noble, including 9,375,000 shares of Noble common stock, giving Mittal Steel a total of approximately 40% of Noble’s issued and outstanding common shares. Upon the completion of this transaction in August 2007, ArcelorMittal became the largest shareholder of Noble, with the ability to appoint four of the nine members of its Board of Directors.

 

   

On April 23, 2007, Mittal Steel announced that it had finalized the acquisition of Sicartsa, a Mexican integrated steel producer, from Grupo Villacero for an enterprise value of approximately $1.4 billion. Sicartsa, with production facilities in Mexico and Texas, is a fully integrated producer of long steel, with an annual production capacity of approximately 2.7 million tonnes. Sicartsa’s wholly-owned mine is linked directly to the plant through a slurry pipeline. In addition to a fully-integrated steel-making facility at Lázaro Cárdenas, next to Mittal Steel’s Lázaro Cárdenas site, the acquisition included Metaver, a mini-mill, Sibasa and Camsa, two rolling mills in Celaya, Guanajuato (Sibasa) and Tultitlán in the state of Mexico, as well as Border Steel, a mini-mill in the state of Texas in the United States.

 

   

On July 20, 2007, Mittal Steel announced that it had reached a preliminary agreement to acquire two steel tube businesses from Vallourec. Vallourec Précision Soudage produces about 100,000 tonnes of welded steel tubes for applications in the automotive industry from two sites in France. Also based in France, Vallourec Composants Automobiles Vitry specializes in the design and manufacturing of tubular components for the automotive industry. They will extend the product offering range of our existing pipes and tubes business available to our automotive customers. The transactions were completed in December 2007.

 

   

On July 26, 2007, Mittal Steel announced that it had reached an agreement with the Polish government to acquire the 25.2% of shares in ArcelorMittal Poland held by the Polish state and treasury ministry. Mittal Steel agreed to acquire the shares for additional consideration of $181 million. Mittal Steel initially acquired approximately 69% of the Polish company in March 2004 and as part of that agreement received an option to purchase a further 25% from the Polish state, which was exercised in this transaction.

 

   

On August 31, 2007, Mittal Steel announced that it had signed a definitive agreement with RAG Beteiligungs-AG, Essen (“RAG”) for the acquisition of the 76.88% stake held by RAG in Saar Ferngas AG, Saarbrücken for a purchase price of approximately €367 million. Saar Ferngas is the largest gas distribution company in Saarland and Rhineland-Palatinate and supplies natural gas to municipal power utilities, industrial plans and power stations. The transaction was completed in November 2007.

 

   

On September 5, 2007, ArcelorMittal announced that it would acquire all of the outstanding interests of Wabush Mines, an iron ore and pellet producer in northeastern Canada. The Company would acquire

 

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the remaining interests it did not own in the joint venture through the exercise of a right of first refusal over such interests held by its Dofasco subsidiary. Dofasco, which already held 28.6% of the mining venture, would acquire the interests of U.S. Steel Canada (Stelco) (44.6%) and Cleveland Cliffs (26.8%) for an aggregate cash element of approximately $67 million and the assumption of certain liabilities. The transaction was subject to regulatory approval.

 

   

On September 10, 2007, ArcelorMittal announced that it would acquire 51% of the shares of Rozak A.S., a Turkish steel company. Rozak specializes in H-profiles, sheets and plates and shipped approximately 450,000 tonnes of steel during 2006 with revenues of approximately €260 million. The transaction closed in November 2007.

 

   

On October 22, 2007, ArcelorMittal and Borusan, one of Turkey’s leading steel producers, announced a 50/50 joint venture partnership with a $500 million investment for the construction of a new hot strip mill in Gemlik. The mill, which will be located in Turkey next to ArcelorMittal and Borusan’s jointly operated Borçelik plant in Gemlik, on the Marmara sea coast, is expected to come online in the first half of 2010 with a capacity of 4.8 million tonnes. This project is subject to regulatory clearances.

 

   

On October 15, 2007, ArcelorMittal announced the acquisition of a 90% stake in Rongcheng Chengshan Steelcord, a privately-owned steelcord wire drawing company based in Shandong province, China for approximately $26.6 million. Rongcheng Chengshan Steelcord specializes in steelcord wire and bead wire (used in tire reinforcement). China is the largest steelcord wire market in the world and the leading tire manufacturing base in the world, with steelcord producers in close proximity to the tire manufacturers.

 

   

On November 14, 2007, ArcelorMittal announced the acquisition of a 100% stake in Galvex OÜ, a privately-owned steel galvanizing line based in Tallinn, Estonia on the Baltic Sea, subject to regulatory clearances and approvals. Regulatory clearance was obtained on March 10, 2008 and the transaction is expected to be completed during March 2008.

 

   

On November 20, 2007, ArcelorMittal announced it had entered into a strategic equity partnership with Kalagadi Manganese, a South African manganese development company, in order to develop Kalagadi’s manganese resources. The 50/50 joint venture aims to develop a manganese mine, a beneficiation plant and a sinter complex in the Northern Cape Province of South Africa, and a smelter complex in Coega. The Kalagadi Manganese project is situated in the Kuruman/Hotazel district of the Northern Cape Province. The parties intend to establish a manganese ore mine and sinter plant at Hotazel that is expected ultimately to produce 2.4 million tons of sinter product per year. In addition, the parties expect to establish a 320,000 ton per year ferromanganese alloy production facility in the Coega Industrial Development Zone in Port Elizabeth, which would account for at least 50% of ArcelorMittal’s needs in South Africa.

 

   

On November 20, 2007, ArcelorMittal announced it had signed an agreement to acquire a 12.6% equity stake (10% of fully-diluted shares) in General Moly, Inc. for a total consideration of $70 million. General Moly is a U.S. based molybdenum mineral development, exploration and mining company listed on the American Stock Exchange. Its primary asset is the Mt. Hope project in central Nevada. Combined with a second molybdenum property, the Hall-Tonopah project, also in central Nevada, the Company’s aim is to become the largest primary molybdenum producer worldwide by the middle of the next decade. In addition to the equity purchase, ArcelorMittal has signed a letter of intent to enter into a long term off-take agreement. This agreement, subject to final documentation, would allow for the supply of approximately 6.5 million pounds per year of molybdenum.

 

   

On November 20, 2007, ArcelorMittal announced it had signed a memorandum of cooperation with the Republic of Mozambique. The memorandum of cooperation aims to strengthen cooperation between ArcelorMittal and the Republic of Mozambique through further investment in primary and downstream steel industries, as well as the development of mining of raw materials in the form of iron ore and coal, with specific focus on metallurgical coal. In respect of downstream steel capacity, ArcelorMittal plans to build a new bar rolling mill in Mozambique with an annual capacity of 400,000 tonnes.

 

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On November 29, 2007, ArcelorMittal announced its intention to construct a 300,000 tonne per annum longitudinal submerged arc welded pipe mill in Nigeria.

 

   

On December 4, 2007, ArcelorMittal acquired NSD Limited, a leading steel distribution company specializing in sales of heavy sections and tubes based in Scunthorpe, North Lincolnshire, United Kingdom, in order to increase its commercial presence in the UK market. With sales of 130,000 tonnes per year of (100,000 tonnes per year of heavy sections and 30,000 tonnes per year of tubes) and €89 million (approximately £60 million) of turnover, NSD will form the basis of the drive to gain a significant market share for ArcelorMittal Distribution in the United Kingdom.

 

   

On December 4, 2007, ArcelorMittal announced its intention to launch a cash offer to acquire the 43% outstanding shares in ArcelorMittal Inox Brasil it does not currently own. The Company currently owns a 57% stake in ArcelorMittal Inox Brasil. The offer was formally launched on March 5, 2008 and will close on April 4, 2008. The price initially offered was R$100.00 per common share and R$100.00 per preferred share. This price will be adjusted to subtract the dividends and interest on equity declared by ArcelorMittal Inox Brasil from December 4, 2007 through the business day prior to the auction date. On March 3, 2008 the offer was registered with the CVM, and will close on April 4, 2008. Approximately 21 million shares have been committed to be tendered by certain major shareholders. On March 17, 2008, ArcelorMittal announced that the price offered in this offer would be reduced to R$94.55 per common share and R$94.00 per preferred share, plus interest at the rate of the Brazilian base savings account rate plus 6% per year from February 28, 2008 until the offer auction date, April 4, 2008. At the current exchange rate, this transaction will represent a cash disbursement of up to approximately $1.8 billion.

 

   

On December 6, 2007, ArcelorMittal announced that it had signed an agreement to acquire the assets of OFZ, a.s. (“OFZ”), one of the leading Central European manufacturers of ferro-alloys. OFZ is involved in the manufacture of a wide range of ferro-alloys on the basis of manganese and silicon, namely ferromanganese, ferromanganese silicon and ferro-silicon. Other activities include the production of cored wires. The plant, located in the north of Slovakia, is in close proximity to ArcelorMittal’s eastern European mills, including Ostrava and Poland, of which it has historically been a supplier. With an annual operating capacity of 150,000 tonnes, through the use of six furnaces, OFZ produced 141,000 tonnes of ferro-alloys in 2006. The transaction is subject to regulatory clearances.

 

   

On December 11, 2007, ArcelorMittal announced its acquisition of M.T. Majdalani y Cia. S.A., the leading stainless steel service center and distributor in Argentina. M.T. Majdalani y Cia. S.A., founded in 1941 and until now entirely owned by the Majdalani family, employs 75 people in one site located in Buenos Aires. It sold approximately 12,000 tonnes in 2006 with a turnover of $46 million. It specializes in flat stainless steel products with cut to length and slitting facility. Its sales of sheets and tubes create a highly complementary product mix and activity which is aligned with ArcelorMittal’s stainless steel activities in South America. The transaction was completed in December 2007.

 

   

On December 18, 2007, ArcelorMittal announced that it had signed an agreement with the administration of the Tver region in Russia that would lead to the creation of a greenfield long carbon steel production unit. Tver is located 180 km north of Moscow. The objective of the agreement is to make available to ArcelorMittal the land required to build a steel complex consisting of an electric arc furnace, with a capacity of one million tonnes of steel, and of two bar mills. This steel complex will be built in two phases. In the first phase, a bar mill with a capacity of 600,000 tons of rebars and merchant bars will be built. Work on the site is expected to start during the second quarter of 2008 and commissioning of the mill is scheduled for the beginning of 2010. This first phase represents an investment of approximately $100 million.

 

   

On December 24, 2007, ArcelorMittal announced the acquisition of Cínter S.A., an important stainless steel tube producer located in Uruguay. The purchase forms part of the strategy of ArcelorMittal to strengthen its stainless steel business in South America. Cínter S.A. enjoys a strong position in stainless steel tubes. It has also developed specialties that will complement the current offer of its stainless

 

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business. Its net sales for the year ended September 2007 were $47 million. Cínter S.A. employs approximately 200 people in three sites in Montevideo.

 

   

On December 24, 2007, ArcelorMittal announced that it had signed a share purchase agreement to acquire 100% of the shares of the Austrian steel distribution company Eisen Wagner GmbH from its current owners. The transaction was designed to further enhance ArcelorMittal’s presence in Central Europe and is subject to the approval of the competition authorities. Eisen Wagner is one of the leading steel distribution companies in Austria. It sold 140,000 tonnes in 2007, out of which 60,000 tonnes of steel products were processed.

Divestments

 

   

On August 1, 2006, the U.S. Department of Justice (the “DOJ”) announced that it had concluded that the acquisition by Mittal Steel of Arcelor was likely to lessen substantially competition in the market for tin mill products in the eastern United States and filed in the U.S. District Court in Washington, D.C. a consent decree that Mittal Steel had previously signed with the DOJ on May 11, 2006. The consent decree required the divestiture of Dofasco or, if Mittal Steel were unable to sell Dofasco, the divestiture of either Mittal Steel’s Sparrows Point facility in Maryland or Mittal Steel’s Weirton facility in West Virginia. The consent decree provided that the DOJ in its sole discretion would choose which plant would be sold.

On February 20, 2007, the DOJ informed Mittal Steel that the DOJ had selected the Sparrows Point steel mill located near Baltimore, Maryland for divestiture under the consent decree. On August 2, 2007 Mittal Steel announced that it had entered into an agreement to sell Sparrows Point and related railroad, intellectual property and other assets to E2 Acquisition Corporation (“E2”), a joint venture entity sponsored by Esmark Incorporated and Wheeling-Pittsburgh Corporation, with participation by industry and institutional investors. Although ArcelorMittal, as successor to Mittal Steel, received approval for the sale from the DOJ on September 5, 2007, it later terminated its agreement with E2 due to E2’s inability to secure financing. ArcelorMittal will continue to work closely with the DOJ and the court-appointed trustee (who has overall responsibility on behalf of the DOJ to effect the divestiture of the Sparrows Point) to satisfy the terms of the consent decree. ArcelorMittal will continue to operate the plant during the divestiture process.

 

   

In January 2007, Mittal Steel sold Travi e Profilati di Pallanzeno (“TPP”) and its 49.9% stake in San Zeno Acciai to Duferco for an enterprise value of €117 million (approximately $151 million). Such divestment was pursuant to a commitment made to the European Commission in connection with Mittal Steel’s acquisition of Arcelor.

 

   

On January 19, 2007, Mittal Steel announced that it had agreed to sell Huta Bankowa Spólka z.o.o. (“Huta Bankowa”) to Alchemia SA Capital Group for an enterprise value of approximately €37 million (approximately $48 million). Such divestment was pursuant to a commitment made to the European Commission in connection with Mittal Steel’s acquisition of Arcelor. The transaction closed during June 2007.

 

   

On March 5, 2007, Mittal Steel sold Stahlwerk Thüringen GmbH (“SWT”) to Grupo Alfonso Gallardo for an enterprise value of €591 million (approximately $768 million). Such divestment was pursuant to a commitment made to the European Commission in connection with Mittal Steel’s acquisition of Arcelor.

 

   

On December 3, 2007, ArcelorMittal and Severstal-metiz announced that they had agreed on the sale of ArcelorMittal Wire Solutions’ 50% stake in steelcord producer TrefilArbed Rus (“TA Rus”) to Severstal-metiz. TA Rus was established in 2005 as a joint venture between ArcelorMittal Wire Solutions and Severstal-metiz in the Russian steelcord market, with access to certain technologies of ArcelorMittal Wire Solutions. The sale will allow ArcelorMittal Wire Solutions to focus on its current wire growth markets in Asia. TA Rus, which will change its name to Orelcord, is located at Severstal-metiz’ Orel site. In 2006, its revenues totaled 843 million rubles (approximately $31 million).

 

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Recent Developments

 

   

On January 8, 2008, ArcelorMittal announced the signature of a Memorandum of Understanding with Société Nationale Industrielle et Minière (“SNIM”), Mauritania. Under the terms of the Memorandum of Understanding, SNIM and ArcelorMittal will jointly develop a large iron ore mining project, using the El Agareb iron ore resource in Mauritania. In the first phase of project development, ArcelorMittal will conduct exploratory works and a feasibility study. Onward project execution will be carried out by a joint venture company to be created by SNIM and ArcelorMittal. At the exploratory and prospecting stage, ArcelorMittal’s share will be 30% with an option to increase the stake to 70% once project execution starts.

 

   

On January 9, 2008, ArcelorMittal announced that it had signed a definitive agreement to acquire Unicon, the leading manufacturer of welded steel pipes in Venezuela. The purchase forms part of ArcelorMittal’s strategy to strengthen its welded steel pipes business in South America. Unicon supplies the oil and gas and industrial and construction sectors both domestically and overseas. Total shipments for the year ended March 2007 were 552,000 tonnes. Unicon employs 2,445 people across six pipe making facilities in Venezuela. The transaction is subject to customary closing conditions, which are in progress.

 

   

On January 11, 2008, ArcelorMittal announced that an accident had occurred at its Abaiskaya mine in Kazakhstan with a loss of 30 lives. The cause of the accident is not yet known. Emergency planning procedures in place at the mine were immediately implemented. A full investigation of the accident has been carried out and as a result the Company is working with the government of Kazakhstan on a program of additional investments to improve and further modernize the mines.

 

   

On January 16, 2008, ArcelorMittal initiated informational sessions and consultations with employee representatives regarding a reorganization plan for its wire rod operations in Gandrange (Lorraine, France) and in other European locations. At a meeting with the Select Committee of the European Works Council in Luxembourg, the Company outlined its analysis of its wire rod activities in northern Europe and presented a plan to improve the Gandrange plant and optimize this business segment, which is part of the ArcelorMittal group’s European long carbon steel activities.

The project, presented to the staff representatives, aimed to strengthen the specialization of the currently loss-making Gandrange site in the wire rod rolling processes to enhance its future results. This project would be part of ArcelorMittal’s vision for the steel industry in Lorraine, aimed at making it a profitable and sustainable industry. In a separate meeting, ArcelorMittal confirmed its commitment to the neighboring Florange operations in Lorraine (flat carbon steel) and announced further investments.

The Gandrange project presented has two aspects: development of the wire rod and bar mill, which would process billets supplied from other steel plants, in particular from Germany (ArcelorMittal Duisburg-Ruhrort) and Luxembourg (ArcelorMittal Schifflange), thereby enhancing the competitiveness of the overall wire rod business; and closure of the steel plant and billet mill. ArcelorMittal Gandrange intends to fully honor its social responsibilities during the implementation of this reorganization project. The Company, through dialogue with employee representatives, will give priority to the relocation of employees to its other sites (in particular in Florange and in Luxembourg).

At Florange, ArcelorMittal has decided to increase its capital investment budget for 2008 by more than 60%, to a total of €65 million (approximately $96 million). These investments will allow to extend the viability and effectiveness of steelmaking operations of this major integrated flat carbon steel production site.

 

   

On January 24, 2008, ArcelorMittal inaugurated Arceo, its industrial prototype vacuum plasma steel coating line, in Liège, Belgium. The technology behind this prototype was developed by the Company’s research and development department in partnership with the Walloon region of Belgium in order to provide new uses for flat steel products and to expand the Company’s product range. In

 

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addition to being environmentally friendly, the vacuum steel process enhances many properties of steel and can endow it with an anti-bacterial, self-cleaning or anti-corrosive properties.

 

   

On January 28, 2008, ArcelorMittal, through its steel service center subsidiary SSC Sverige, and BE Group finalized details on the creation of a 50/50 processed flat carbon steel joint venture in Sweden. The deal is subject to review by the competition authorities. This joint venture between ArcelorMittal SSC Sverige, located in Karlstad, and the BE Group facility, in Borlänge, will form the third largest producer on the Swedish market, with a market share of 20%, shipments of 120,000 tonnes and a turnover of more than €80 million. ArcelorMittal SSC Sverige is a facility processing 60,000 tonnes of cut-to-length and slitted products for general industry, the automotive industry, construction and stockists. BE Group is a leading steel, stainless and aluminum trading and service company in Northern Europe, which processes annually 60,000 tonnes of cut-to-length and slitted products for general industrial purposes. This project is subject to regulatory clearance.

 

   

On January 31, 2008, ArcelorMittal announced that it had signed agreements to acquire three coal mines and associated assets in Russia for a total consideration of $720 million. The Company will acquire a 97.59% stake in the Berezovskaya Mine together with a 99.35% stake in the Pervomayskaya Mine from OAO Severstal (“Severstal”) in Russia. Both mines produce coking coal and are located in the Kemerovo region in Russia. As part of the agreement ArcelorMittal will acquire the exploration and mining rights to the Zhernovskaya-3 coal deposit, which is a subsidiary of the Pervomayskaya Mine. It will also acquire the Severnaya Coal Preparation Plant which is part of the Berezovskaya Mine and three companies that provide the mines with associated services and 100% of the Anzherskoye mine. All the transactions are subject to regulatory approval. Annual production from the three operating mines, which combined have an estimated capacity of more than 140 million tons, was 3 million tons run of mill in 2007.

 

   

On February 1, 2008, ArcelorMittal announced the results of its cash tender offer to acquire the 35.5% of outstanding shares in Acindar Industria Argentina de Aceros S.A. (“Acindar”) it did not already own which resulted in; a total of 35.0% of Acindar’s capital stock being tendered. On February 14, 2008, the closing date, ArcelorMittal paid the tendering Acindar shareholders $552 million. As of January 31, 2008, ArcelorMittal was the holder of 99.5% of Acindar’s capital stock (including the 64.5% interest in Acindar it held through ArcelorMittal Brasil). Acindar is the largest publicly traded steel company in Argentina and has been listed on the Buenos Aires Stock Exchange since 1948.

 

 

 

On February 1, 2008, ArcelorMittal announced that it had agreed to a solution proposed by the federal and regional governments of Belgium regarding the CO2 quota allocation and will consequently prepare for the relaunch of the Seraing (Liège, Belgium) blast furnace number 6. ArcelorMittal is currently planning the actions necessary to relaunch the Liège blast furnace with a view to start producing hot steel starting in the first quarter of 2008.

 

   

On February 4, 2008, ArcelorMittal announced that it had acquired from Clarion Del Norte (Pujol Group) the 50% interest in Laminadora Costarricense S/A and Trefileria Colima S/A, the only major long carbon steel company in Costa Rica, that it did not already own. The other 50% stake was already owned by ArcelorMittal Brasil. Laminadora Costarricense S/A has a rolled products capacity of 400,000 tonnes per year of rebars and MBQ (merchant bar quality) steel, and Trefileria Colima S/A has a wire products capacity of 60,000 tonnes per year. Both entities employ around 400 people, and mainly serve the construction market in Central America and the Caribbean.

 

   

On February 5, 2008, ArcelorMittal announced the completion of its mandatory cash tender offer to shareholders in China Oriental Group Company Limited (“China Oriental”), which it had launched on December 14, 2007. ArcelorMittal had previously entered into a shareholders’ agreement with the controlling shareholders of China Oriental regarding their shareholdings in and the management of China Oriental, and in December 2007, ArcelorMittal entered into a business cooperation agreement with China Oriental and its subsidiaries. The transaction is subject to formal governmental approval. Prior to the offer, ArcelorMittal, together with its concert parties, held approximately 73% of the

 

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existing issued share capital of China Oriental. At the completion of the offer, ArcelorMittal, together with its concert parties, increased their aggregate share holding to approximately 92.1%. In consequence, China Oriental’s public float fell below the 25% minimum public float requirement of the Hong Kong Stock Exchange listing rules. Pending restoration to the required levels, trading in the shares of China Oriental on the Hong Kong Stock Exchange was suspended on February 5, 2008.

 

   

On February 6, 2008, ArcelorMittal announced that it had been awarded a license from the Industrial Development Authority (“IDA”) of Egypt’s Ministry of Trade and Industry to construct a steel plant in Egypt. The license was auctioned in a competitive bidding process and ArcelorMittal’s winning bid was approximately $60 million. Under the terms of the license, the plant will produce 1.6 million tons of steel using DRI technology, and 1.4 million tons of billets through the electric arc furnace. Construction of the plant, which will be located close to the northern Red Sea coast, is expected to start in 2009.

 

   

On March 6, 2008, ArcelorMittal announced that Romain Zaleski had resigned from its Board of Directors. Mr. Zaleski joined the Board of Directors of ArcelorMittal in October 2006. Mr. Zaleski indicated his sole reason for resigning was to pursue other commercial interests in the steel sector.

 

   

On March 7, 2008, the Brazilian mining company Vale, the world’s largest iron ore producer, announced that it had agreed with ArcelorMittal to price increases of 65 percent for iron ore, as well as a premium for higher-quality Carajas ore, in line with price increases agreed with other steel makers. Vale cited the continuity of very tight conditions still prevailing in the global iron market as the reason for this increase.

 

   

On March 13, 2008, ArcelorMittal announced that it had commenced legal action in the Ontario Superior Court in order to require U.S. Steel Canada and Cleveland Cliffs to comply with their commitments to sell their respective interests in Wabush Mines to Dofasco, which held a right of first refusal over such interests. As noted above, ArcelorMittal had previously entered into an agreement with U.S. Steel Canada and Cleveland Cliffs for the sale of their interests in Wabush Mines, but on March 4, 2008, both sellers announced they had repudiated the sale agreement.

 

   

On March 17, 2008, ArcelorMittal announced that the price offered in the delisting tender offer for all shares of Arcelor Mittal Inox Brasil would be reduced to reflect the interim dividends declared by ArcelorMittal Inox Brasil in a notice to shareholders dated March 14, 2008. The price initially offered by ArcelorMittal was R$100.00 per common share and R$100.00 per preferred share of ArcelorMittal Inox Brasil, and, after the subtraction of the interest on equity already declared on December 19, 2007 and the declaration of interim dividends discussed above, the offer price will be R$94.55 per common share and R$94.00 per preferred share, plus interest at the rate of the Brazilian base savings account rate plus 6% per year from February 28, 2008 until the offer auction date, April 4, 2008. At the current exchange rate, this transaction will represent a cash disbursement of up to approximately $1.8 billion.

Other Information

ArcelorMittal S.A. is a public limited liability company (société anonyme) that was incorporated under the laws of Luxembourg on September 24, 2001. ArcelorMittal is registered at the R.C.S. Luxembourg under number B 82.454.

The mailing address and telephone number of ArcelorMittal’s registered office are:

ArcelorMittal

19, Avenue de la Liberté

L-2930 Luxembourg

Grand Duchy of Luxembourg

+352 4792-2414

 

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ArcelorMittal’s agent for U.S. federal securities law purposes is:

ArcelorMittal USA Inc.

1 South Dearborn

Chicago, Illinois 60603

United States of America

ArcelorMittal shares are listed and traded on the NYSE (symbol “MT”), are admitted to trading on the Luxembourg Stock Exchange’s regulated market and listed on the Official List of the Luxembourg Stock Exchange (symbol “MTL”), and are admitted to listing and trading on Euronext Amsterdam by NYSE Euronext (symbol “MT”), Euronext Brussels by NYSE Euronext (symbol “MTBL”), Euronext Paris by NYSE Euronext (symbol “MTP”) and the stock exchanges of Madrid, Barcelona, Bilbao and Valencia (symbol “MTS”).

Arcelor

Arcelor became a subsidiary of Mittal Steel in August 2006 and its results of operations have been included in Mittal Steel’s (the predecessor entity to ArcelorMittal) consolidated results of operations from that date. Arcelor was created in February 2002 by the combination of three steel-making companies, Aceralia Corporación Siderúrgica, Arbed and Usinor. Prior to its acquisition by Mittal Steel (the predecessor entity to ArcelorMittal), Arcelor operated in four market sectors: flat carbon steel, long carbon steel, stainless steel and Arcelor Steel Solutions and Services. In 2005, the last full year prior to Arcelor’s acquisition by Mittal Steel, it produced 46.7 million tonnes of steel and had revenues of €32.6 billion and net income of €3.8 billion.

Summary of the Mittal Steel-Arcelor Combination and Merger

On August 1, 2006, Mittal Steel acquired 91.9% of the share capital of Arcelor (on a fully diluted basis). Through subsequent transactions Mittal Steel increased its ownership to 94.2%, which includes the issued and outstanding shares of Arcelor and all of Arcelor’s convertible bonds, which were acquired in exchange for approximately 680 million Mittal Steel class A common shares and approximately €8.0 billion ($10.4 billion) in cash. On August 1, 2006, Arcelor became a subsidiary of Mittal Steel and its results of operations were included in Mittal Steel’s consolidated results of operations from that date. The acquisition was accounted for using the purchase method of accounting, which requires that the assets acquired and liabilities assumed be recorded at their estimated fair values at the date of acquisition.

In a Memorandum of Understanding entered into among Mittal Steel, Arcelor, and Significant shareholder on June 25, 2006 (the “MOU”), Mittal Steel agreed that it would merge into Arcelor as soon as practicable following completion of its revised offer for Arcelor, and that the combined entity would be incorporated, domiciled and headquartered in Luxembourg. Following discussions at a meeting held on April 27, 2007, the Mittal Steel Board of Directors decided to organize a two-step process pursuant to which Mittal Steel would first be merged into ArcelorMittal, which would subsequently be merged into Arcelor as the ultimate surviving entity.

ArcelorMittal was incorporated on August 13, 2004 under the name Verger Investments S.A. It was a wholly-owned subsidiary of Mittal Steel from April 24, 2007 and was renamed “ArcelorMittal” on April 26, 2007. It did not conduct any operations prior to the merger summarized below. Effective September 3, 2007, Mittal Steel merged into ArcelorMittal, by way of absorption by ArcelorMittal of Mittal Steel and without liquidation of Mittal Steel, and the combined company was renamed “ArcelorMittal”.

On September 25, 2007, ArcelorMittal and Arcelor entered into a merger agreement providing for the merger of ArcelorMittal into Arcelor by way of absorption by Arcelor of ArcelorMittal and without liquidation of ArcelorMittal. On November 13, 2007, the merger became effective and shareholders of ArcelorMittal became shareholders of Arcelor, which was subsequently renamed “ArcelorMittal”. No additional consideration in cash or in kind was paid by Arcelor to the shareholders of ArcelorMittal in connection with the merger.

 

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Internet Site

ArcelorMittal maintains an Internet site at www.arcelormittal.com. Information contained in or otherwise accessible through this Internet site is not a part of this annual report. All references in this annual report to this Internet site are inactive textual references to this URL and are for your information only.

B. Business Overview

Competitive Strengths

We believe that the following factors contribute to our success in the global steel industry:

Market leader. ArcelorMittal is the world’s largest steel producer, with an annual production capacity of over 130 million tonnes of crude steel for the year ended December 31, 2007. Steel shipments for the year ended December 31, 2007 totaled approximately 110 million tonnes. ArcelorMittal is the largest producer of steel in both Western Europe and Eastern Europe, North and South America, Africa, and the second largest steel producer in the CIS region, with a growing presence in Asia, including a controlling stake in an integrated steel mill in China. We are the largest steel producers in the United States, Canada and Mexico. We are also the largest steel producers in the European Union, with significant operations in France, Germany, Belgium, Spain, Poland, the Czech Republic and Romania. In addition, many of our operating units have access to markets experiencing significant economic growth and which are expected to experience above-average growth in steel consumption (such as Central and Eastern Europe, South America, Africa and CIS). We have a diversified portfolio of products to meet a wide range of customer needs across all steel-consuming industries, including the automotive, appliance, engineering, construction and machinery industries. We sell our products in local markets and through a centralized marketing organization to customers in approximately 170 countries Our diversified product offering, including our distribution network and research and development (“R&D”) programs, enables us to build strong relationships with customers, which include many of the world’s major automobile and appliance manufacturers. With approximately 25% of the worldwide market share of flat steel sheets for the automotive industry, ArcelorMittal is a strategic partner for the major original equipment manufacturers (“OEMs”) and develops a capability to build long-term relationships with them based on long-term contracts, early vendor involvement, contributions to global OEM platforms and common value-creation programs. By operating a portfolio of assets that are diversified across product segments and geographical regions, we benefit from a number of natural hedges that have historically resulted in relatively stable cash flows weaknesses in any one particular country or region, significant recent world events, and volatility in commodity and currency markets over time.

At the same time ArcelorMittal has potential to create value addition and synergies in markets where it operates. In certain segments and products (such as Stainless Steel and Pipes and Tubes) where it may not be the largest producer, it is in a unique position to be selective in its acquisitions and thereby reduce risks.

Research and Development. Our research and development facilities (principally located in Canada, Brazil, Europe and the United States) help to strengthen our relationship with our customers as we work with them to meet their evolving product needs and developing new steel solutions. Our research and development centers support our business units in process improvement and innovation to produce the best quality steel at the lowest cost and environmental impact. ArcelorMittal’s expanded size has helped it to increase and strengthen the number of research partnerships in which it is involved with world-class scientific and technical universities. ArcelorMittal’s research and development facilities have focused on the following projects:

 

   

In the automotive sector engineering teams resident at customers’ plants work with OEMs from the design stage of new product launches, helping to create vehicles that are lighter, stronger, safer and more attractive to end-purchasers. ArcelorMittal has led the way with advanced high-strength steels (AHSS) and high deformability steels;

 

   

In the appliances industry, the focus has been on anticipating new legal and regulatory requirements and developing environmentally friendly solutions;

 

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In construction and civil engineering markets, ArcelorMittal works to develop new products and solutions that will improve safety and comfort, reduce cost or construction time, extend durability, improve architectural quality and, increasingly, reduce environmental impact;

 

   

In stainless, new ferritic grades have been developed to reduce the ArcelorMittal’s exposure to nickel prices; and

 

   

ArcelorMittal is taking part in the development of new energy-saving technologies with the production of new, fully processed grades of electrical steel a growing presence in the wind energy sector, and production of nine new products in a number of niches in the specialty plate market.

For the year ended December 31, 2007, research and development expense was approximately $214 million. With 14 major research centers in Brazil, Canada, Europe and the United States, ArcelorMittal possesses a research and development capability unique in the steel industry.

Low cost position. Due to our global penetration and leading position in many markets, we have a wide scale of operations, including upstream and downstream assets, which serves as a natural hedge to meet specific customer needs and be a low cost supplier in the regions where we do business.

 

   

Diversified production process. Approximately 85 million tonnes of crude steel are produced through the basic oxygen furnace route, approximately 28 million tonnes through the electric arc furnace route and approximately 4 million tonnes of crude steel through the open hearth furnace route. This provides us greater flexibility in the markets that we serve and provides us leverage to meet customer expectations.

 

   

Wide product portfolio. By operating a portfolio of assets that are diversified across product segments and geographical regions, we benefit from a number of natural hedges that have historically resulted in relatively stable cash flows despite significant recent world events, and volatility in commodity and currency markets over time.

 

   

Raw material self-sufficiency. We believe that our relatively high level of self-sufficiency in key raw materials (including 46% iron-ore self-sufficiency, as well as certain quantities of metallurgical coal) is a competitive advantage. Additionally, we benefit from efficient use of steel-making facilities, a global procurement strategy and the implementation of overall company-wide knowledge management practices, which help to make us one of the lowest cost steel producers in each of the regions in which we operate. Certain of our operating units also have access to infrastructure, such as deep-water port facilities, railway sidings and engineering workshops.

 

   

Downstream integration. Our downstream integration through AM3S enables us to service our markets and to provide steel solutions to our customers more directly. Our downstream assets have cut-to-length, slitting and other processing facilities, which helps us to maximize operational efficiencies. This helps to make us well-positioned to manage the cyclicality of the steel industry.

Business improvement through company-wide knowledge management program. Knowledge sharing and implementing best practices is an integral part of our management philosophy. Through our global Knowledge Management Program (“KMP”), we share, develop and utilize our knowledge and experience across our facilities to accelerate improvement in business performance. The KMP covers all key functional areas, such as procurement, marketing, logistics and health and safety, as well as the main steps in steel production and processing. The KMP includes ongoing detailed benchmarking, regular technical meetings and information-sharing at the corporate, regional and operating levels and inter-plant expert and operational support to drive performance improvement. The KMP enables each business unit to benefit from the scale and reach of our global presence and to have access to the best practices and experience within our company. We believe that the KMP provides a differentiating advantage to our business performance by continuously contributing to reduced procurement and conversion costs and enhanced quality, productivity and profitability.

Strong financial profile. We believe that our strong financial position and cash flow generation, as illustrated by our investment grade credit ratings, enable us to take advantage of acquisition and investment

 

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opportunities. We currently have a long-term corporate credit rating of “BBB+” from Standard & Poor’s Ratings Services, a BBB rating from Fitch Ratings and a senior implied rating of Baa2 from Moody’s Investors Service. On December 14, 2007, Fitch Ratings affirmed its rating of ArcelorMittal at “BBB” and revised its outlook for long-term Issuer Default Rating to Positive from Stable. On January 17, 2008, Moody’s Investors Service upgraded its rating of ArcelorMittal from Baa3 to Baa2. As of December 31, 2007, we had cash and cash equivalents (including short-term investments and restricted cash) of $8.1 billion and total debt of $30.6 billion. In addition, including our operating subsidiaries, we had available borrowing capacity of $8.6 billion at December 31, 2007. We are committed to maintaining our strong ratings.

Proven expertise in steel acquisitions and turnarounds. Our management team has proven expertise in successfully acquiring and subsequently integrating operations and turning around underperforming assets within tight timeframes. We utilize a disciplined approach to investing and have teams with diverse expertise from different business units across our company responsible for evaluating any new asset, conducting due diligence and monitoring integration and post-acquisition performance. Since the inception of our predecessor company Mittal Steel in 1989, we have grown through a series of acquisitions and by improving the operating performance and financial management at the facilities that we have acquired. In particular, we seek to improve acquired businesses by eliminating operational bottlenecks, addressing any historical under-investments and increasing acquired facilities’ capability to produce higher quality steel. We introduce focused capital expenditure programs, implement company-wide best practices, balance working capital, ensure adequate management resources and introduce safety and environmental improvements at acquired facilities. We believe that these operating and financial measures have reduced conversion costs of production, increased productivity and improved the quality of steel produced at these facilities.

Employees. Knowing them to be our most valuable assets, we devote considerable effort towards securing the right people and getting the best out of them in four key ways: (i) organization effectiveness, which means effectively aligning our organizational structure with our goals and operations; (ii) resourcing, in particular, ensuring that we have the right people in the right roles; (iii) succession planning and development; and (iv) performance management, in particular our management review and incentive programs.

Corporate responsibility. In recognition of the significance that ArcelorMittal places on corporate responsibility (“CR”) as an element of core business strategy, 12 over-arching commitments have been developed and communicated to employees and investors. Based on ArcelorMittal’s new values and vision, these commitments address specific areas of performance, such as reducing greenhouse gas emissions and improving health and safety, and also emphasize the Company’s commitment to excellence in areas such as corporate governance, social dialogue and labor standards and products stewardship. All units have been invited to assess their performance against global standards and to develop their roadmap accordingly. This responsibility also applies to local communities in which the Company operates. Given the wide-ranging extent of ArcelorMittal’s operations, the Company is committed to promoting local economic and social development. The ArcelorMittal Foundation was created in May 2007 to support social, educational and health projects for the communities surrounding our operations.

Business Strategy

ArcelorMittal’s success has been built on a consistent strategy that emphasizes size and scale, vertical integration, product diversity, continuous growth in higher value products and a strong customer focus. We intend to continue to play a leading role in the consolidation of the global steel industry and to be the global leader in the steel industry, in particular through the following:

Three-dimensional strategy for sustainability and growth. ArcelorMittal has unique geographical and product diversification coupled with upstream and downstream integration which reduces exposure to risk and cyclicality. This strategy can be broken down into its three major elements:

 

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Geography: ArcelorMittal is the largest producer of steel in Europe, North and South America, Africa and the second largest steel producer in the CIS region, with a growing presence in Asia, particularly in China. ArcelorMittal has steel-making operations in 20 countries on four continents, including 65 integrated, mini-mill and integrated mini-mill steel-making facilities. ArcelorMittal’s steel-making operations have a high degree of geographic diversification. Approximately 35% of its steel is produced in the Americas, approximately 46% is produced in Europe and approximately 19% is produced in other countries, such as Algeria, Kazakhstan, Morocco, South Africa and the Ukraine. ArcelorMittal is able to improve management and spread its risk by operating in six segments based on its geographical and product diversity.

Worldwide steel demand is driven by growth in developing economies, in particular in the BRICET countries. Our expansion strategy over recent years has given us a leading position in Africa, Central and Eastern Europe, South America and Central Asia. We are also building our presence in China and India. As these economies develop, local customers will require increasingly advanced steel products as market needs change.

Products: A global steel producer must be able to meet the needs of different markets. Steel consumption and product requirements clearly differ between mature economy markets and developing economy markets. Steel consumption in mature economies is weighted towards flat products and a higher value-added mix, while developing markets utilize a higher proportion of long products and commodity grades. To meet these diverse needs, we plan to maintain a high degree of product diversification. We also plan to seek opportunities to increase the proportion of our product mix consisting of higher value added products. We produce a broad range of high-quality finished, semi-finished carbon steel products and stainless steel products. With this high degree of product portfolio we are in a unique position to reduce exposure to volatile earnings.

Value Chain: ArcelorMittal plans to continue to develop its upstream and downstream integration. We intend to increase selectively our access to and ownership of low-cost raw material supplies, particularly in locations adjacent to or accessible from our steel plant operations. ArcelorMittal has access to high-quality and low cost raw material through its captive sources and long-term contracts.

Downstream integration is a key element of our strategy to build a global customer franchise. In high-value products, downstream integration allows steel companies to be closer to the customer and capture a greater share of value-added activities. As our key customers globalize, we intend to invest in value-added downstream operations, such as steel service centers and building and construction support unit services for the construction industry. In addition, we intend to continue to develop our distribution network in selected geographic regions. These downstream and distribution activities should allow us to benefit from better market intelligence and better manage inventories in the supply chain to reduce volatility and improve working capital management. Furthermore we will continue to expand our production of value-added products in developing markets, leveraging off our experience in developed markets.

Growth Plan: ArcelorMittal has initiated a strategic plan designed for growth by increasing shipments to 130 million tonnes by 2012, a 20% increase over 2006 levels (including the output of Sicartsa for that year). This plan is based on projected world steel production growth of 3-5% per year, translating into an increase of 20-30% over the period. ArcelorMittal has based its growth plan on the low end of this projected world market growth in order to support a healthy global supply/demand situation. Should global demand grow at more than 3% per annum, we will adjust our growth target to meet demand.

M&A/Greenfield growth: Mergers and acquisitions are a key pillar of our strategy to which we bring unique experience, in particular in terms of integration. While they do not create new capacity, they improve consolidation and offer synergies. ArcelorMittal has continued its predecessor companies’ policy of making strategic and substantial acquisitions and investments, with numerous transactions announced in 2007, and acquisitions and investments for a total value of $12.3 billion (including cash purchase price, assumed debt and shares issued at fair market value) completed in 2007.

 

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Business Overview

ArcelorMittal reports its operations in six operating segments: Flat Carbon Americas, Flat Carbon Europe, Long Carbon Americas and Europe, Asia, Africa and CIS (“AACIS”), Stainless Steel and AM3S (trading and distribution).

The following table sets forth selected financial data by operating segment:

The following table summarizes certain financial data relating to our operations in different reportable business segments:

 

    Flat
Carbon
Americas
  Flat
Carbon
Europe
  Long
Carbon
Americas
& Europe
  Asia &
Africa
CIS
  Stainless
Steel
  AM3S   Others /
Elimination**
    Total

Year ended December 31, 2005

               

Sales

  11,241   3,676   7,676   9,909   —     —     (4,370 )   28,132

Operating income

  1,289   367   641   2,335   —     —     97     4,729

Depreciation and impairment

  283   174   226   318   —     —     112     1,113

Capital expenditures

  304   190   206   479   —     —     2     1,181

Total assets

  11,180   3,028   10,283   13,158   —     —     (3,782 )   33,867

Total liabilities

  2,846   820   7,429   1,646   —     —     5,432     18,173

Year ended December 31, 2006*

               

Sales

  17,585   14,366   13,120   14,388   3,261   5,221   (9,071 )   58,870

Operating income

  1,912   1,005   1,797   2,584   353   171   (290 )   7,532

Depreciation and impairment

  641   642   393   447   99   42   60     2,324

Capital expenditures

  759   818   577   537   61   62   121     2,935

Total assets

  17,293   27,642   21,459   15,947   4,949   4,071   21,320     112,681

Total liabilities

  4,881   9,942   6,154   2,743   2,197   2,719   33,571     62,207

Year ended December 31, 2007

               

Sales

  22,895   34,562   23,830   18,229   9,349   16,241   (19,890 )   105,216

Operating income

  2,987   4,149   3,896   3,184   876   579   (841 )   14,830

Depreciation and impairment

  1,064   1,400   798   590   275   138   305     4,570

Capital expenditures

  1,297   1,742   974   872   263   222   78     5,448

Total assets

  19,945   33,421   22,598   11,923   5,564   5,692   34,482     133,625

Total liabilities

  6,626   13,181   8,336   4,145   2,278   3,926   33,598     72,090

 

* As required by IFRS, the 2006 information has been adjusted retrospectively for the finalization of the allocation of purchase price of Arcelor (see Note 3 to the ArcelorMittal Consolidated Financial Statements).
** Others / Elimination includes all operations other than those mentioned above, together with inter-segment elimination, and/or non-operational items which are not segmented.

See also Note 24 to the ArcelorMittal Consolidated Financial Statements.

Products

ArcelorMittal has a high degree of product diversification relative to other steel companies. Its plants manufacture a broad range of finished and semi-finished steel products of different specifications, including many difficult and technically sophisticated products that it sells to demanding customers for use in high-end applications.

ArcelorMittal’s principal products include:

 

   

semi-finished flat products such as slabs;

 

   

finished flat products such as plates, hot- and cold-rolled sheets, hot-dipped and electro-galvanized sheets, tinplate and color coated sheets;

 

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semi-finished long products such as blooms and billets;

 

   

finished long products such as bars, wire-rods, structural sections, rails and wire-products;

 

   

seamless and welded pipes and tubes; and

 

   

stainless steel products.

Steel-making Process

Historically, primary steel producers have been divided into “integrated” and “mini-mill” producers. Over the past few decades, a third type of steel producer has emerged that combines the strengths of both the integrated and the mini-mill processes. These producers are referred to as “integrated mini-mill producers”.

Integrated Steel-making

In integrated steel production, coal is converted to coke in a coke oven, and then combined in a blast furnace with iron ore and limestone to produce pig iron, which is subsequently combined with scrap in a converter, which is generally a basic oxygen or tandem furnace, to produce raw or liquid steel. Once produced, the liquid steel is metallurgically refined and then transported to a continuous caster for casting into a slab, which is then further shaped or rolled into its final form. Various finishing or coating processes may follow this casting and rolling. Recent modernization efforts by integrated steel producers have focused on cutting costs through eliminating unnecessary production steps, reducing manning levels through automation, and decreasing waste generated by the process. In recent years, integrated steel production has declined as a proportion of total steel production due to the high costs of building, operating and maintaining integrated steel operations, including lost production time associated with periodic blast furnace relinings. This reduction in integrated production capacity has increased the market share of the remaining producers of the highest value-added products that require the cleanest steel.

Mini-Mills

A mini-mill employs an electric arc furnace to directly melt scrap and/or scrap substitutes such as direct reduced iron, thus entirely replacing all of the steps up to and including the energy-intensive blast furnace. A mini-mill incorporates the melt shop, ladle metallurgical station, casting, and rolling into a unified continuous flow. Mini-mills are generally characterized by lower costs of production and higher productivity than integrated steel-makers. These attributes are due in part to the lower capital costs and lower operating costs resulting from the streamlined melting process and more efficient plant layouts of mini-mills. The quality of steel produced by mini-mills is primarily limited by the quality of the metallic raw materials used in liquid steel-making, which in turn is affected by the limited availability of high-quality scrap or virgin ore-based metallics for use in the electric arc furnaces. Mini-mills are substantially dependent on scrap, which in recent years has been characterized by price volatility, generally rising prices and limited availability.

Integrated Mini-Mills

Integrated mini-mills are mini-mills that produce their own metallic raw materials consisting of high-quality scrap substitutes, such as direct reduced iron. Unlike most mini-mills, integrated mini-mills are able to produce steel with the quality of an integrated producer, since scrap substitutes, such as direct reduced iron, are derived from virgin iron ore, which has fewer impurities. The internal production of scrap substitutes as the primary metallic feedstock provides integrated mini-mills with a competitive advantage over traditional scrap-based mini-mills by insulating the integrated mini-mills from their dependence on scrap, which is generally more expensive and has been subject to price volatility, generally rising prices and limited availability. The internal production of metallic feedstock also enables integrated mini-mills to reduce handling and transportation costs. The high percentage use of scrap substitutes such as direct reduced iron also allows the integrated mini-mills to take advantage of periods of low scrap prices by procuring a wide variety of lower-cost scrap grades, which can be

 

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blended with the higher-purity direct reduced iron charge. Because the production of direct reduced iron involves the use of significant amounts of natural gas, integrated mini-mills are more sensitive to the price of natural gas than are mini-mills using scrap.

Key Products

Steel-makers primarily produce three types of steel products; flat products, long products and stainless steel. Flat products, such as sheet or plate, are produced from slabs. Long products, such as bars, rods and structural shapes, are rolled from blooms and/or billets. Stainless steel products include austenitic stainless, ferritic stainless and martensitic stainless.

Flat Products

Slab. A slab is a semi-finished steel product obtained by the continuous casting of steel or rolling ingots on a rolling mill and cutting them into various lengths. A slab has a rectangular cross-section and is used as a starting material in the production process of other flat products (e.g., hot-rolled sheet).

Hot-Rolled Sheet. Hot-rolled sheet is minimally processed steel that is used in the manufacture of various non-surface critical applications, such as automobile suspension arms, frames, wheels, and other unexposed parts in auto and truck bodies, agricultural equipment, construction products, machinery, tubing, pipe and guard rails. All flat-rolled steel sheet is initially hot-rolled, a process that consists of passing a cast slab through a multi-stand rolling mill to reduce its thickness to less than 12 millimeters. Flat-rolled steel sheet that has been wound is referred to as “coiled”.

Cold-Rolled Sheet. Cold-rolled sheet is hot-rolled sheet that has been further processed through a pickle line, which is an acid bath that removes scaling from steel’s surface, and then successively passed through a rolling mill without reheating until the desired gauge, or thickness, and other physical properties have been achieved. Cold-rolling reduces gauge and hardens the steel and, when further processed through an annealing furnace and a temper mill, improves uniformity, ductility and formability. Cold-rolling can also impart various surface finishes and textures. Cold-rolled steel is used in applications that demand higher surface quality or finish, such as exposed automobile and appliance panels. As a result, the prices of cold-rolled sheet are higher than the prices of hot-rolled sheet. Typically, cold-rolled sheet is coated or painted prior to sale to an end-user.

Coated Sheet. Coated sheet is generally cold-rolled steel that has been coated with zinc, aluminum or a combination thereof to render it corrosion-resistant and to improve its paintability. Hot-dipped galvanized, electro-galvanized and aluminized products are types of coated sheet. These are also the highest value-added sheet products because they require the greatest degree of processing and tend to have the strictest quality requirements. Coated sheet is used for many applications, often where exposed to the elements, such as automobile exteriors, major household appliances, roofing and siding, heating and air conditioning equipment, air ducts and switch boxes, as well as in certain packaging applications, such as food containers.

Plates. Plates are produced by hot-rolling either reheated slabs or ingots. The principal end uses for plates include various structural products such as for bridge construction, storage vessels, tanks, shipbuilding, line pipe, industrial machinery and equipment.

Tinplate. Tinplate is a light-gauge, cold-rolled, low-carbon steel usually coated with a micro-thin layer of tin. Tinplate is usually between 0.14 millimeters and 0.84 millimeters thick and offers particular advantages for packaging, such as strength, workability, corrosion resistance, weldability and ease in decoration. Food and general line steel containers are made from tinplate.

Long Products

Billets/Blooms. Billets and blooms are semi-finished steel products. Billets generally have square cross-sections up to 155 millimeters by 155 millimeters, and blooms generally have square cross-sections greater than

 

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155 millimeters by 155 millimeters. These products are either continuously cast or rolled from ingots and are used for further processing by rolling to produce finished products like bars and wire rod sections.

Bars. Bars are long steel products that are rolled from billets. Merchant bar and reinforcing bar (rebar) are two common categories of bars. Merchant bars include rounds, flats, angles, squares, and channels that are used by fabricators to manufacture a wide variety of products such as furniture, stair railings, and farm equipment. Rebar is used to strengthen concrete in highways, bridges and buildings.

Special Bar Quality (SBQ) Steel. SBQ steel is the highest quality steel long product and is typically used in safety-critical applications by manufacturers of engineered products. SBQ steel must meet specific applications’ needs for strength, toughness, fatigue life and other engineering parameters. SBQ steel is the only bar product that typically requires customer qualification and is generally sold under contract to long-term customers. End-markets are principally the automotive, heavy truck and agricultural sectors, and products made with SBQ steel include axles, crankshafts, transmission gears, bearings and seamless tubes.

Wire Rods. Wire rod is ring-shaped coiled steel with diameters ranging from 5.5 to 42 millimeters. Wire rod is used in the automotive, construction, welding and engineering sectors.

Wire Products. Wire products include a broad range of products produced by cold reducing wire rod through a series of dies to improve surface finish, dimensional accuracy and physical properties. Wire products are used in a variety of applications such as fasteners, springs, concrete wire, electrical conductors and structural cables.

Seamless Tube. Seamless tubes have outer dimensions of approximately 25 to 508 millimeters. They are produced by piercing solid steel cylinders in a forging operation in which the metal is worked from both the inside and the outside. The final product is a tube with uniform properties from the surface through the wall and from one end to the other.

Welded Pipes and Tubes. Welded pipes and tubes are manufactured from steel sheet that is bent into a cylinder and welded either longitudinally or helically.

Structural Sections. Structural sections or shapes is the general term for rolled flanged shapes with at least one dimension of their cross-section of 80 millimeters or greater. They are produced in a rolling mill from reheated blooms or billets. Structural sections include wide-flange beams, bearing piles, channels, angles and tees. They are used mainly in the construction industry and in many other structural applications.

Rails. Rails are hot-rolled from a reheated bloom. They are used mainly for railway rails but they also have many industrial applications, including rails for construction cranes.

Stainless Steel

Stainless steel is steel with a carbon content less than or equal to 1.2%, together with a chromium content of at least 10.5%, possibly with additional alloying elements. The alloying elements most commonly used in stainless steels are chromium, nickel, molybdenum, titanium, niobium, manganese, nitrogen, copper, silicon, aluminum and vanadium. The addition of other elements provides further advantages, such as resistance to corrosion in highly aggressive media; resistance to oxidation at high temperatures; toughness and ductility at very low temperatures; high mechanical strength; and fabricability (including drawing, bending, hydroforming, welding and brazing). The following are main classifications of stainless steel:

 

   

Austenitic stainless steel is the most widely used grade and is characterized as non-magnetic and typically contains 19% chromium, as well as nickel, which increases its corrosion resistance;

 

   

Ferritic stainless steel is a grade characterized as being magnetic with low carbon content and chromium content of 13-17%;

 

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Martensitic stainless steel is a grade characterized as being magnetic and has a 12% chromium content and a moderate carbon content; and

 

   

Duplex 318 series stainless steel is a grade characterized as having greater strength and corrosion resistance properties than other grades.

Electrical steels

There are three principal types of electrical steel: grain-oriented steels, non-oriented fully processed steels and non-oriented semi-processed steels:

 

   

Grain-oriented steels are 3% silicon-iron alloys developed with a grain orientation to provide very low power loss and high permeability in the rolling direction, for high efficiency transformers. These materials are sold under the Unisil trademark. Unisil H is a high permeability grade which offers extremely low power loss.

 

   

Non-oriented fully processed steels are iron-silicon alloys with varying silicon contents and have similar magnetic properties in all directions in the plane of the sheet. They are principally used for motors, generators, alternators, ballasts, small transformers and a variety of other electromagnetic applications. A wide range of products, including a newly developed thin gauge material for high frequency applications, are available.

 

   

Non-oriented semi processed steels are largely non-silicon alloys sold in the not finally annealed condition to enhance punchability. Low power loss and good permeability properties are developed after final annealing of the laminations. These materials are sold under the Newcor and Polycor trademarks.

Direct Reduced Iron

Direct reduced iron is produced by removing the oxygen from iron ore without melting it. Direct reduced iron is used as feedstock for electric arc furnaces and is a high-quality substitute for scrap.

In 2007, ArcelorMittal was one of the world’s largest producer of direct reduced iron, with total production of 9.9 million tonnes. Direct reduced iron enables ArcelorMittal to control the quality and consistency of its metallic input, which is essential to ensure uniform high quality of the finished products. Direct reduced iron has historically given ArcelorMittal a cost advantage compared to scrap.

Raw Materials and Energy

Our principal raw material input items are iron ore, solid fuels, metallics, alloys, metals, energy and industrial gases.

Our purchasing strategy consists of:

 

   

Pursuing the lowest unit price available based on the principles of total cost of ownership and value in use models through aggregated purchasing, supply chain and consumption optimization;

 

   

Acquiring and expanding captive sources of certain raw materials, in particular iron ore, coal, bulk alloys and manufacture of refractory products;

 

   

Exploiting our global purchasing reach; and

 

   

Leveraging local cost advantages on a global scale.

Iron Ore

ArcelorMittal sources significant portions of its iron ore needs from its own mines in Kazakhstan, Ukraine, Bosnia, Algeria, Canada, the United States, Mexico and Brazil. Mines are also under development in among

 

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others Liberia, Mexico, the Ukraine and Senegal. ArcelorMittal also has in place certain strategic contracts providing long-term sources of iron ore. Together, these accounted for 46% of ArcelorMittal’s iron ore needs in 2007.

ArcelorMittal has long-term supply contracts with leading global and regional iron ore suppliers and enters into long-term agreements to meet a substantial portion of its iron ore requirements. ArcelorMittal’s principal international suppliers include Vale in Brazil, Cleveland-Cliffs Inc. in the United States, Metalloinvest in Russia, Kumba Iron Ore Ltd. in South Africa, Société Nationale Industrielle et Minière (S.N.I.M.) in Mauritania, Luossavaara-Kiirunavaara AB (LKAB) in Sweden and Rio Tinto Ltd. in Australia.

Solid Fuels

ArcelorMittal has its own coke-making facilities at most of its integrated mill sites, including in the United States, Canada, Mexico, Brazil, Spain, France, Belgium, Poland, Czech Republic, Kazakhstan, South Africa, Romania and the Ukraine. While ArcelorMittal meets most of its own coke requirements, certain of ArcelorMittal’s operating subsidiaries buy coke from other domestic or regional sources to optimize cost savings from transport efficiencies, and certain of its subsidiaries also sell excess coke at market prices to third parties.

ArcelorMittal USA produces approximately 30% of its coke requirement in its own batteries. An additional 55% is provided by long-term contracts from dedicated coke batteries owned by third parties. These contracts provide formula-priced coke independent of changes in the coke market. Part of this third-party coke comes from the environmentally friendly Jewell-Thompson design. The location of the batteries provides flexible and low-cost delivery to the ArcelorMittal USA’s mills. The residual coke requirement is filled by a mix of domestic contracts and foreign spot market purchases allowing ArcelorMittal USA to match its coke purchases with planned consumption.

ArcelorMittal also operates a stand-alone coke plant in Poland, Zaklady Koksownicze Zdzieszowice Sp. z o. o. which produces approximately 4 million tonnes of coke annually. 90% of this annual production is supplied to ArcelorMittal plants. The remainder is sold to external customers.

ArcelorMittal also has significant coking coal mines in Kazakhstan that supply all the coal requirements for its operations in Kazakhstan and a portion of its coal requirements primarily at its Ukrainian and Romanian plants. In addition, in the United States, we have access to coking coal pursuant to a strategic contract based on cost plus basis. In addition, ArcelorMittal has its own steam coal mines in South Africa used for power generation for the ArcelorMittal South Africa’s plants.

Metallics

ArcelorMittal procures the majority of its scrap requirements locally and regionally to optimize transport costs, or under short-term contracts. At its U.S. operations, there are no scrap contracts available as all purchases must be made in the spot market on a monthly basis. In Europe, ArcelorMittal is implementing long -term contracts for scrap recycling.

Alloys

ArcelorMittal purchases its requirements of bulk and noble alloys from a number of global, regional and local suppliers on contracts that are linked to generally accepted indices or negotiated on a quarterly basis.

Base Metals

All of our base metal needs, including zinc, tin and aluminum for coating as well as nickel for stainless steel production, are purchased under long -term volume contracts. Pricing is based on the London Metals Exchange prices. Material is sourced from both local and global producers.

 

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Electricity

ArcelorMittal generally procures its electricity through tariff-based systems in regulated areas such as parts of the United States and South Africa, or through bilateral contracts. The duration of these contracts varies significantly among the various areas and types of arrangement.

For integrated steel mills, plant off-gases from various process steps are utilized to generate a significant portion of the plant’s electricity requirements and lower the purchase volumes from the grid. This is either produced by the plant itself or with a partner in the form of a co-generation contract.

Natural Gas

ArcelorMittal procures much of its natural gas requirements for its U.S., Canada and Mexico operations from the natural gas spot market or through short-term contracts entered into with local suppliers of natural gas with prices fixed by either contract or tariff based on spot market prices. For its European operations, ArcelorMittal sources its natural gas requirements under prevailing oil based pricing systems. Contracts are either based on a tariff systems or long term contracts.

The remaining natural gas consumption represents less than 20% of the ArcelorMittal’s total consumption and is generally based in regulated markets.

Industrial Gases

ArcelorMittal procures its industrial gas requirements under long-term contracts with various suppliers in different geographical regions.

Shipping

ArcelorMittal Shipping Limited (“AMS”) provides ocean transportation solutions to ArcelorMittal’s manufacturing subsidiaries and affiliates. AMS determines cost-efficient approaches for the transport of raw materials, such as iron ore, coal, coke and scrap, and of semi-finished and finished products. It has an office in London, a key hub of the global shipping business.

AMS has a staff of 25 in London, whose key objectives are to ensure cost effective and timely shipping services to all units. AMS also acts as manager for a Mauritius-based shipping company, Global Chartering Ltd. (“GC”). GC handles approximately 15% of the Company’s raw materials which are transported by sea by chartering vessels on a short- to long-term basis. It has four Panamax vessels on bareboat charters and at any given time has approximately 25 ships under control, mainly for internal customers.

In 2007, AMS arranged transportation for approximately 95 million tonnes of cargo, which is expected to increase to approximately 110 million tonnes in 2008.

AMS is also involved in setting and implementing a strategy to limit exposure to the volatility of the shipping market by various hedging tools, including a mix of short- and long-term call on arrival, paper trades, own tonnage chartered as well as ownership of vessels.

AMS is also responsible in providing shipping services to the marketing organizations of the Company. This includes forwarding services and complete logistic services through ArcelorMittal Logistics, with offices throughout Western Europe. It provides complete logistic solutions from plants to customer locations using various modes of transport including ships.

 

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Purchasing

ArcelorMittal has implemented a centralized purchasing process for its major procurement requirements, including in the areas of raw materials, industrial services, industrial equipment, spares and maintenance as well as capital expenditure items, energy, shipping, and facility construction.

In doing so, ArcelorMittal seeks to benefit from economies of scale in a number of ways, including by establishing long-term relationships with suppliers that sometimes allow for advantageous input pricing, centralizing its knowledge of the market fundamentals and drivers for inputs and deploying specialized technical knowledge where required for the acquisition of industrial services and plant equipment and facilities.

This enables ArcelorMittal to achieve a balanced supply portfolio in terms of diversification of sourcing risk in conjunction with the ability to benefit from a number of captive raw materials sources.

During 2007, a global and integrated Total Cost of Ownership project was launched which builds on previous expertise employed in a number of sites. This project seeks to change the business approach from unit cost-based decision making to total cost of ownership-based decision making seeking to lower the total cost of production through innovative steps including minimization of waste, improve input material recovery rates and higher rate of recyclability and the total lifecycle cost.

Marketing

In 2007, ArcelorMittal sold approximately 110 million tonnes of steel products into a global market estimated to be approximately 1.3 billion tonnes.

Sales

The majority of steel sales from ArcelorMittal are destined for domestic markets. For these domestic markets, sales are usually approached as a decentralized activity, to be managed at production unit level. In instances where more than one production exists in relatively close proximity to each other, and where the market requirements are rather similar, the sales function is aggregated to serve a number of production units. In the EU region, ArcelorMittal owns a large number service and distribution centers. Depending on the level of complexity of the product, or the level of service required by the customer, the service center operations form an integral part of the supply chain to our customers. Distribution centers provide access to our products to smaller customers that cannot or do not want to buy directly from the operating facility.

Export sales are by preference executed through the activities of the in-house export trading arm to ensure co-ordinated market entry in the country of destination for all ArcelorMittal products.

Globally, all sales though executed at local level are coordinated strategically to ensure harmonized contract, price, rebate and payment conditions for the ArcelorMittal group as a whole.

For some global industries, with customers in more than one of the geographical areas ArcelorMittal services, dedicated sales and service organizations exist. This is most notably the case for the automotive industry and the packaging markets. The sales through these channels are also subject to global coordination with respect to contract, price, rebate and payment conditions.

Marketing

Marketing follows the sales activity very closely and is by preference executed at local level. In practice this translates mostly to regional marketing competencies, particularly in markets where a large amount of similarity exist between different markets in close geographical proximity with each other. At a global level, the objective is to share marketing intelligence with a view to identify new opportunities: either in new products or

 

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applications, or in new geographical demand. Where new product application is involved, the in-house research and development unit of ArcelorMittal is involved in developing appropriate products.

An important part of the marketing function in ArcelorMittal is to develop short-range outlooks that provide future perspectives on the state of market demand and supply. These outlooks are shared with sales in the process of finalizing the sales strategy for the immediate future.

Globally, sales and marketing activities are coordinated to ensure a harmonized approach to the market. The objective is to provide similar service experiences to all customers of ArcelorMittal in every market.

Insurance

ArcelorMittal maintains insurance on property and equipment in amounts believed to be consistent with industry practices. ArcelorMittal’s insurance policies cover physical loss or damage to its property and equipment on a reinstatement basis arising from a number of specified risks and certain consequential losses, including business interruption arising from the concurrence of an insured event under these policies. Former Arcelor entities have similar coverage through a separate insurance policy up to the next renewal date of June 1, 2008, when they will be consolidated under the above ArcelorMittal Companywide policies.

Each of the operating subsidiaries of ArcelorMittal also maintains various other types of insurance, such as public and products liability, directors and officers liability, commercial crime, marine and cargo, charters liability, workman’s compensation and various other types of local insurance as required.

Intellectual Property

ArcelorMittal owns and maintains a patent portfolio covering processes and steel products, including uses and applications thereof that it conceives of, develops and implements in territories throughout the world. Such patents and inventions are primarily in relation to steel solutions with new or enhanced properties and to new and more cost-efficient technologies.

ArcelorMittal also owns trademarks, both registered and unregistered, relating to the names and logos of its companies and the brands of its products. ArcelorMittal has policies and systems in place to monitor and protect the confidentiality of its know-how and proprietary information. After the current patent portfolio screening that is regularly implemented to optimize global efficiency of patent portfolio, the ArcelorMittal group patent portfolio includes more than 5,500 patents and patent applications, mostly young or middle aged, for more than 680 patent families, with more than 45 inventions newly protected in 2007. Because of this constant innovation, we do not expect the lapse of patents that protect our older technology to materially affect our current revenues.

In addition to our own patent portfolio and the ArcelorMittal group’s technical know-how and other unpatented proprietary information, we have also been granted licenses for technologies developed by third parties in order to allow us to propose very comprehensive steel solutions to our customers. Furthermore, we are not aware of any pending lawsuits alleging our infringement of others’ intellectual property rights that could materially harm our business.

Government Regulations

See “Item 3D—Key Information—Risk Factors” and “Item 8A—Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings”.

 

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ArcelorMittal’s operations are subject to various regulatory regimes in the regions in which it conducts its operations. The following is a discussion of the principal features of selected regulatory regimes that are or are likely to affect its operations.

Environmental Laws and Regulations

ArcelorMittal’s operations are subject to a broad range of laws and regulations relating to air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, and other aspects of the protection of the environment at its multiple locations and operating subsidiaries. As these laws and regulations in the United States, the European Union and other jurisdictions continue to become more stringent, ArcelorMittal expects to expend substantial amounts to achieve or maintain ongoing compliance. Furthermore, as an owner and operator of a significant number of mining assets, these operations will require rehabilitation expenditure upon closure. In addition to capital investments required for additional controls and other improvements ArcelorMittal has reserves of approximately $889 million for environmental remedial activities and liabilities.

ArcelorMittal has established corporate environmental guidelines requiring each of its business units to comply with all applicable laws and regulations. Compliance with such laws and regulations and monitoring changes to them are addressed primarily at the business unit level. In July 2007, ArcelorMittal launched its revised environmental policy. The policy establishes ten main principles that guide ArcelorMittal practices worldwide, including: the implementation of certified management systems for all production facilities; legal and regulatory compliance; continuous improvement in environmental performance; development and application of low impact production methods; efficient use of resources; and employee, supplier, and contractor awareness. ISO 14001, the internationally recognized standard for Environmental Management Systems (EMS), forms the basis for ArcelorMittal’s management arrangements. ISO 14001 certification is a mandatory objective for ArcelorMittal production facilities. By the end of 2007, 141 ArcelorMittal sites had attained formal certification. Further, to establish an environmental performance baseline, a database has been established which compiles air, water, energy and residues data for all facilities, worldwide. To minimize ArcelorMittal’s environmental impact, four major areas have been identified for specific management focus: atmospheric emissions; water flows; residues management; and contribution to climate change.

With regard to climate change, ArcelorMittal’s activities in the EU are subject to the EU Emissions Trading Scheme, and it is likely that requirements relating to greenhouse gas emissions will become more stringent and will expand to the United States, Canada and other jurisdictions. The post-2012 carbon market is presently very uncertain, but ArcelorMittal is closely monitoring regulatory and legislative developments and is endeavoring to reduce its own emissions. As part of the global challenge to climate change, ArcelorMittal supports and informs policy development, engaging with relevant regulatory bodies.

United States

In the United States, environmental laws and regulations include the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act (“RCRA”), Comprehensive Environmental Response, Compensation and Liability Act, also known as “Superfund”, the Safe Drinking Water Act, and the Toxic Substances Control Act, as well as applicable state and local environmental requirements. Under the Clean Air Act, for example, several of ArcelorMittal USA’s facilities are subject to new regulations requiring the application of maximum achievable control technology to reduce hazardous air pollutant emissions from integrated iron and steel manufacturing units. ArcelorMittal USA completed installation of these controls within the applicable time requirements at a cost of over $120 million. Several of ArcelorMittal USA’s facilities are subject to revised effluent regulations issued in 2002 under the Clean Water Act, and compliance with such regulations will be required as new facility discharge permits are issued for continued operation. ArcelorMittal USA anticipates spending over $40 million on wastewater treatment plant improvements during 2008.

 

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ArcelorMittal USA also anticipates spending approximately $80 million over the next 40 years, including $8 million during 2008, to address the removal and disposal of polychlorinated biphenyls (“PCB”) equipment and asbestos material encountered during the operation of its facilities.

ArcelorMittal is also conducting, or has liability for, significant remedial activities at various facilities. In some cases, soil or groundwater contamination requiring remediation is present at ArcelorMittal’s current facilities; in other cases, it is present at former facilities or third-party waste disposal sites. All of ArcelorMittal USA’s major operating and inactive facilities are or may be subject to a corrective action program or other laws and regulations relating to environmental remediation, including projects relating to the reclamation of industrial properties, also known as Brownfield Projects. Superfund and analogous U.S. state laws can impose liability for the entire cost of cleanup at a site upon current or former site owners or operators or parties who sent hazardous materials to the site, regardless of fault or the lawfulness of the activity that caused the contamination. ArcelorMittal USA is a potentially responsible party at several state and federal Superfund sites. ArcelorMittal USA could incur additional costs or liabilities at these sites if additional cleanup is required, private parties sue for personal injury or property damage, or other responsible parties sue for reimbursement of costs incurred to clean up sites. ArcelorMittal USA could also be named a potentially responsible party at other sites if its hazardous materials or those of its predecessor were disposed of at a site that later becomes a Superfund site.

European Union

For our operations in the European Union, significant EU Directives and regulations applicable to our production units include Directive 2008/1/EC of January 15, 2008 concerning integrated pollution prevention and control (the “IPPC Directive”), which applies common rules for permitting and controlling industrial installations; this directive is completed by E-PRTR regulation (EC) N° 166/2006 (European Pollutant Release and Transfer Register) of January 18, 2006 implementing the yearly reporting on release of pollutants and off-site transfer of waste; Directive 2004/35/EC of April 21, 2004 on environmental liability with regard to the prevention and remediating of environmental damage (or Environmental Liability Directive), which provides for a program to establish liability for remediation of damage to and contamination of the environment; Regulation (EC) N° 1013/2006 of June 14, 2006 on shipments of waste; and Directive 2003/87/EC of October 13, 2003, as amended by Directive 2004/101/EC (or Emissions Trading Directive), which established a program under which EU member states are allowed to trade greenhouse gas emission allowances within the European Union, subject to certain conditions.

The following EU Directives on environmental quality standards are also significant: Directive 1999/30/EC of April 22, 1999, 2000/69/EC of November 16, 2000, 2002/3/EC of February 12, 2002 and 2004/107/EC of December 15, 2004 relating to limit values and target values for pollutants in ambient air these directives will merge in a single directive on ambient air quality and cleaner air for Europe during the first half of 2008 and will be completed by thresholds on very fine particulates; and Directive 2001/81/EC of October 23, 2001 on national emission ceilings for certain pollutants. A new Directive governing ambient air quality, merging the current Directives and establishing limits for fine particulates, is expected to become effective in 2011.

EU Directives applicable to our products include those relating to waste electrical and electronic equipment (Directive 2002/96/EC of January 27, 2003), end-of-life vehicles (Directive 2000/53/EC of September 18, 2000) and packaging and packaging waste (Directive 2004/12/EC of February 11, 2004); and REACH regulation (EC) N° 1907/2006 (for Registration, Evaluation, Authorization and Restriction of Chemicals, adopted on December 18, 2006), which controls the chemical substances manufactured in or imported into the EU market in volumes over one tonne per year and came into effect in June 2007. In June 2007, ArcelorMittal set up at the corporate level a dedicated task force in charge of strategic aspects and a platform in charge of technical issues to achieve implementation of REACH and of the United Nations Globally Harmonized System of classification and labeling (GHS), which is being incorporated into REACH.

 

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During the next several years, ArcelorMittal anticipates that its capital investments for environmental matters in the European Union will relate primarily to installations of additional air emission controls and to requirements imposed in the course of renewal of permits and authorizations, including those pursuant to the IPPC Directive.

In particular, ArcelorMittal’s operations in the European Union are subject to the Emissions Trading Directive, which is the EU’s central instrument for achieving the EU member states’ commitments under the Kyoto Protocol by providing a European emissions trading system (“ETS”) for CO2 emissions. The ETS covers more than 10,000 installations across the EU, including combustion plants, oil refineries, coke ovens, iron and steel plants, and factories making cement, glass, lime, brick, ceramics, and pulp and paper. At the heart of the ETS is the common trading currency of emission allowances. One allowance gives the holder the right to emit one tonne of CO2. For each trading period under the ETS, EU member states draw up national allocation plans that determine how many emission allowances each installation will receive. Companies that keep their emissions below the level of their allowances can sell their excess allowances. Companies that do not keep their emissions below the level of their allowances must either reduce their emissions, such as by investing in more efficient technology or using less carbon-intensive energy sources, or buy the extra allowances that they need on the open market.

Although the National Allocation Plans (NAPs) are not finalized yet in all member states, the allowances assigned to ArcelorMittal operating subsidiaries in the EU are expected to be short for the trading period 2008-2012. ArcelorMittal plans to achieve compliance by the implementation of performance efficiency projects, the generation of the credits in non-EU countries and the purchase of emission rights on the market. For the period after 2012, the EU is considering the implementation of a more stringent ETS scheme. In January 2008, the European Commission proposed a number of changes, including centralized allocation rather than national allocation plans, auctioning a greater share of permits rather than allocating freely, and caps designed to achieve an overall reduction of greenhouse gases for the sector of 21% in 2020 compared to 2005 emissions.

In 2004, ArcelorMittal initiated, a legal action before the European Court of First Instance (CFI) against the Emissions Trading Directive. ArcelorMittal sought an order finding the Emissions Trading Directive to be partially void and providing compensation for the damages that it may suffer. In addition, national legal actions relating, inter alia, to the exclusion of steel installations from the emissions trading system were subsequently initiated in France, Belgium, Spain and Luxembourg, and national legal actions relating to the allocation of CO2 allowances were initiated in Germany. National proceedings have advanced furthest in France, where the “Conseil d’Etat” sought in 2007 a preliminary ruling before the European Court of Justice (CoJ) in relation to the principle of non-discrimination (equal treatment of steel with aluminum and plastics). In Luxembourg, the national court proceeding has been suspended until the judgment of the CFI is rendered. In Spain, a request A hearing at the CoJ took place on March 11, 2008, and another hearing is scheduled at the CFI on April 15, 2008.

Other Jurisdictions

Increasingly stringent environmental laws and regulations also have been adopted in other jurisdictions.

South Africa

A new Waste Management Bill was published in September 2006 placing a strong focus on avoidance, minimization at source, re-use, recycling and remediation of contaminated land. This Bill is expected to become an Act during the second half of 2008, and new disposal permits will be issued in terms of this Act.

The new Air Quality Act is still in a phase of partial implementation, and strict ambient standards (based on European Union standards) have been published. In the meantime, the authorities have engaged in a permit review process under the existing Atmospheric Pollution Prevention Act and new revised permits will be issued to all ArcelorMittal plants during the first half of 2008. The reviewed permits will be transferred into new

 

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licenses once the new Act is fully implemented. An important investment program is on track or will be completed over the next years to answer these new environmental requirements.

Ukraine

A new air regulation (No. 309) was published in Ukraine on June 27, 2006. The new regulation is significantly toughening the emission limits of 140 compounds for all types of plants. Priority pollutants are particulate matter, sulphur dioxide, nitrogen dioxide and carbon monoxide.

Brazil

A new federal resolution by CONAMA, the Brazilian National Environmental Council, published on April 6, 2006, sets forth guidelines for the environmental compensation plan pursuant to Law no. 9.985, of July 18, 2000. CONAMA resolution No. 382/2006, published on January 2, 2007, imposes more stringent limits on the steel industry for dust, sulphur dioxide and nitrogen oxide.

Algeria

An Executive Decree dated April 15, 2006 regarding atmospheric emissions and pollutants in effluent waters will require units exceeding regulatory values to comply before 2011.

Kazakhstan

A new environmental code is in application since February 2007 regarding regulations for air, water and residues. ArcelorMittal Temirtau has decided to install a new converter shop gas cleaning system for an investment of $120 million in 2008.

Bosnia and Herzegovina

A new set of laws and regulations entered into force on January 1, 2008. In order to restart full production at ArcelorMittal Zenica’s plant in 2008 and to obtain all relevant permits, an environmental protection plan has been submitted to federal and local authorities. The program of investments relating to that plan amounts to approximately €39 million for the 2008-2011 period and approximately €25 million for the 2012-2014 period.

Canada

Environment Canada released its Clean Air Regulatory Agenda framework in April 2007. Under the proposed legislation, emission-intensity reductions will be applied to greenhouse gases beginning in 2010, and absolute limits on emissions of certain conventional air pollutants will be in effect in 2015. The federal government has also introduced legislation which will oblige steelmakers and automakers to co-fund a national program to remove mercury-containing convenience switches from end-of-life vehicles before they enter the scrap stream. The mercury legislation will also oblige steelmakers to implement a mercury-free scrap purchasing policy.

In the Province of Quebec, the metallurgical sector facilities are negotiating new environmental permits that will apply to our Quebec Cartier Mining and ArcelorMittal Contrecoeur works. This program will force Quebec Cartier Mining to invest in some waste water treatment.

For further details regarding specific environmental proceedings involving ArcelorMittal, including a description of the more significant remediation sites, see “Item 8A—Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings” and Note 23 to the ArcelorMittal Consolidated Financial Statements.

 

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Health and Safety Laws and Regulations

ArcelorMittal’s operations are subject to a broad range of laws and regulations relating to protection of human health and safety. As these laws and regulations in the United States, the European Union and other jurisdictions continue to become more stringent, ArcelorMittal expects to expend substantial amounts to achieve or maintain ongoing compliance. ArcelorMittal has established corporate health and safety guidelines requiring each of its business units to comply with all applicable laws and regulations. Compliance with such laws and regulations and monitoring changes to them are addressed primarily at the business unit level. In March 2007, ArcelorMittal launched its revised health and safety policy aimed at reducing the rate and frequency of accidents on a continuing basis. The policy outlines the commitment ArcelorMittal has made to the Health and Safety of all employees and implements a common Health and Safety model across the entire organization which permits the Corporate Health and Safety department to define and follow-up performance targets and monitor results from every business unit. Further, an injury tracking and reporting database is being implemented to track all information on injuries, lost man days and other significant events. It incorporates a return-of experience system for disseminating lessons learned from individual incidents. The aim is to achieve faster and more accurate feedback on the cause of accidents in order to improve prevention and prevent recurrence.

Foreign Trade

ArcelorMittal has manufacturing operations in many countries and worldwide sales. In 2006, more than 16 countries (treating the EU as one country) had one or more trade remedies in place affecting various steel mill products. In 2007, the United States, the European Union and certain other countries, sought trade remedies against the injury and the threat of material injury originating specifically from China as well as other Far East steel mill products producing nations.

Under international agreement and the domestic trade law of many countries, trade remedies are available to domestic industries where imports are “dumped” or “subsidized” and such imports cause material injury (or threat of injury) to a domestic industry. Although there are differences in how the trade remedies are assessed, such laws typically have common features established in accordance with World Trade Organization (“WTO”) standards. Dumping involves selling for export a product at a price lower than that at which the same or similar product is sold in the home market of the exporter, or where the export prices are lower than a value that typically must be at or above the full cost of production (including sales and marketing fee) and a reasonable amount for profit. Subsidies from governments (including, among other things, grants and loans at artificially low interest rates) under certain circumstances are similarly actionable. The trade remedy available is an antidumping duty order or suspension agreement where injurious dumping is found and a countervailing duty order or suspension agreement where injurious subsidization is found. A duty equal to the amount of dumping or subsidization is imposed on the importer of the product. Such orders and suspension agreements do not prevent the importation of product, but rather require either that the product be priced at a non-dumped level or without the benefit of subsidies or that the importer pay the difference between such dumped or subsidized price and the actual price to the government as a duty.

Each year there typically are a range of the so-called “sunset” reviews affecting various countries of interest to ArcelorMittal (for example, in the United States we had hot dipped metallic coated and hot rolled coils sunset reviews in 2007).

All WTO members are required to review antidumping duty and countervailing duty orders and suspension agreements every five years to determine if they should be maintained, revised or revoked. This requires a review of whether the dumping or subsidization is likely to continue or recur if the order/suspension agreement is revoked and whether a domestic industry in the country is likely to suffer the continuation or recurrence of material injury within the reasonably foreseeable future if the orders are revoked. If the government finds both dumping or subsidization and material injury are likely to continue or recur, then the orders are continued.

 

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In a number of markets ArcelorMittal has manufacturing operations and hence may be a beneficiary of trade actions intended to address trade problems consistent with WTO regulation. In other situations, particular operations of ArcelorMittal may be a respondent in one or more trade cases and its products subject to duties or other trade restrictions.

In some developing countries where ArcelorMittal is producing, state intervention impacts on trade issues (for example, exports of steel mill products could require licenses from the Ministry of Industry and Trade , or could be required to domicile, or submit for registration, export contracts with the Central Bank).

State Aid

Under European Community law, any form of state aid (non-commercial state support including, for example, cash payments or the exemption from taxes) is generally prohibited unless approved by the European Commission (article 87 and 88 EC Treaty). Aid that has been granted contrary to European Community law must in general be recovered from the aid beneficiary by the member state that granted it. The general state aid rules of the European Community are applicable to steel products, and there are specific rules applicable to the steel industry. ArcelorMittal’s operating subsidiaries located in the European Union are subject to state aid rules.

Before the recent enlargement of the European Community in 2004, the European Community and its member states had concluded “Europe Agreements” with certain Central and Eastern European countries with a view of facilitating the subsequent accession of these countries to the European Union. These agreements contain rules that extended the substantive state aid rules to such future member states. However, the Europe Agreements provided for separate state aid rules for the steel sector, which allowed, under specific conditions and for a limited period of time, aid for the restructuring of the national steel industry of the Central or Eastern European country.

The regime governing public aid to the steel sector under the Europe Agreements was further implemented, and to some extent modified, as part of the transitional arrangements that were negotiated in the framework of the accession of ten Central or Eastern European countries (including the Czech Republic and Poland) to the European Union on May 1, 2004, and Romania’s accession to the European Union on January 1, 2007. The transitional arrangements became part of the respective treaty of accession to the European Union.

The transitional arrangements for each of the Czech Republic, Poland and Romania allow restructuring aids granted prior to the date of accession to certain steel undertakings (known as benefiting companies) if certain conditions are met. In particular, they impose restrictions on benefiting companies, the total amounts of aid (including limits for each benefiting company), and the time periods during which such aid can be granted, and require certain capacity reductions for finished products to be achieved within a specific time-frame. Moreover, the transitional arrangements provide that restructuring aid to benefiting companies is subject to national restructuring plans and individual business plans approved by the Council of Ministers of the European Union. Benefiting companies are also subject to certain rules concerning the merger with, or the taking-over of assets of, non-benefiting companies.

Certain of ArcelorMittal’s operating subsidiaries located in Central and Eastern Europe—ArcelorMittal Ostrava, Valcovny Plechu Frydek Mystek, ArcelorMittal Poland, ArcelorMittal Galati, ArcelorMittal Hunedoara and Arcelor Huta Warszawa—are benefiting companies subject to these transitional arrangements.

Foreign Exchange

ArcelorMittal South Africa’s operations are subject to exchange controls that are enforced by the South African Central Bank. Prior approval is required for foreign funding, hedging policies and offshore investments. Import payments are monitored by the Central Bank, and export receipts are subject to certain restrictions relating to the tenure for which these receipts may be held in foreign currencies. These restrictions have historically not had a significant impact on the operations of ArcelorMittal South Africa.

 

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The purchase and sale of foreign currency by Kazakh residents (including individuals and legal entities) is restricted by the National Bank of Kazakhstan. Purchases and sales of foreign currency may be conducted only by residents through authorized banks or other authorized organizations. Payments in “routine currency operations” may be made by residents of Kazakhstan to non-residents through authorized banks without restriction. Such “routine currency operations” include import/export settlements with payment within 180 days; short-term loans with terms of less than 180 days; dividends, interest and other income from deposits, investments, loans and other operations; and non-commercial transactions such as wages, pensions and alimony. Operations involving the movement of capital from residents to non-residents require a license from the National Bank of Kazakhstan, and transactions involving the movement of capital from non-residents to residents must be registered with the National Bank of Kazakhstan. Licenses are issued on a case-by-case basis and are valid only for a single transaction. These transactions include payments for exclusive rights to intellectual property; payments for rights to immovable property; settlements for import/export transactions and loans having terms of more than 180 days; and international transfers of pension assets and insurance and re-insurance contracts of an accumulative nature. Transactions in which ArcelorMittal Temirtau engages and which are subject to licensing or registration requirements are being complied with, and there is no violation of National Bank of Kazakhstan rules for any transaction.

The Algerian foreign currency market is regulated by the Central Bank of Algeria. Exchange control regulations do not permit capital account convertibility with a few exceptions involving Algerian companies investing in overseas projects. Currency outflows on current account, while freely permitted for the import of goods, are subject to controls for payments for service contracts. Dividend repatriation is permitted on overseas capital investments. Algerian companies are restricted from investing their cash surplus overseas. All overseas remittances have to be made through the Central Bank. Exporters are permitted to retain 50% of their proceeds in foreign currency accounts out of which 20% can be utilized freely and the balance can be utilized with certain restrictions. Hedging of currencies is tightly regulated and restricted.

Ukraine has an extensive legislative framework in the area of currency control and financial instruments that governs all aspects of transactions in local and foreign currency. The main regulatory body of the government is the National Bank of Ukraine (“NBU”), which has wide regulatory powers in this field. The NBU maintains the hryvnia in a narrow range against the U.S. dollar. Export of capital from Ukraine, offshore investments, and purchases of foreign currency by Ukrainian companies are heavily regulated and may be done provided the grounds for such types of transactions are in line with the requirements and within the limits provided by NBU regulations.

In Brazil, all foreign exchange transactions are carried out on a single foreign exchange market. Foreign currencies may be purchased or sold only through Brazilian financial institutions authorized to operate in such market and are subject to registration with the Central Bank of Brazil’s electronic system. Foreign exchange rates are freely negotiated, but may be influenced by Central Bank intervention. The Central Bank of Brazil allows the real/U.S. dollar exchange rate to float freely, although it has intervened occasionally to control unstable movements in foreign exchange rates. Exchange controls on foreign capital and international reserves are administrated by the Central Bank of Brazil. Foreign exchange policy is formulated by the National Monetary Council. Trade policy is implemented by the Ministry of Development, Industry and Foreign Trade through the Secretariat of Foreign Trade.

 

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C. Organizational Structure

Corporate structure

ArcelorMittal is a holding company with no business operations of its own. All of ArcelorMittal’s significant operating subsidiaries are indirectly owned by ArcelorMittal through intermediate holding companies. The following chart represents the current operational structure, including ArcelorMittal’s significant operating subsidiaries, and not the legal or ownership structure of ArcelorMittal.

LOGO

The following table identifies by operating segment each significant operating subsidiary of ArcelorMittal, including its registered office and ArcelorMittal’s percentage ownership thereof.

 

Flat Carbon Americas

     

ArcelorMittal Dofasco Inc.

  

1330 Burlington Street East

P.O. Box 2460

L8N 3J5 Hamilton, Ontario

Canada

   100%

ArcelorMittal Lázaro Cárdenas S.A. de C.V.

  

Fco. J. Mujica No. 1-B

Apartado Postal No. 19-A

C.P. 60950

Cd. Lázaro Cárdenas, Michoacán

Mexico

   100%

ArcelorMittal USA Inc.

  

1, South Dearborn

Chicago, IL 60603

USA

   100%

Companhia Siderúrgica de Tubarão S.A.

  

Av. Brigadeiro Eduardo Gomes, 930

Jardim Limoeiro

29163-970 Serra

Espirito Santo

Brazil

   100%

 

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Flat Carbon Europe

     

Aceria Compacta de Bizkaia S.A.

  

6, Chavarri

48910 Sestao

Vizcaya

Spain

   79.78%  

Arcelor Produits Plats Wallonie

  

Quai du Halage, 10

4400 Flemalle

Belgium

   100%  

Arcelor Steel Belgium N.V.

  

Avenue de l’Yser, 24

1040 Brussels

Belgium

   99.82%  

ArcelorMittal Atlantique et Lorraine SAS

  

1 à 5, rue Luigi Cherubini

93200 St Denis

France

   100%  

ArcelorMittal Bremen GmbH

  

Carl-Benz Str. 30

D-28237 Bremen

Germany

   100%  

ArcelorMittal Eisenhüttenstadt GmbH

  

Werkstr. 1

D-15890 Eisenhüttenstadt

Brandenburg

Germany

   100%  

ArcelorMittal España S.A.

  

Residencia La Granda

33418 Gozon

Asturias

Spain

   99.79%  

ArcelorMittal Flat Carbon Europe SA

  

Avenue de la Liberté, 19

L-2930 Luxembourg

Luxembourg

   99.82%  

ArcelorMittal Galati S.A.

  

Strada Smardan nr. 1

Galati

Romania

   99.65%  

ArcelorMittal Méditerranée SAS

  

1 à 5, rue Luigi Cherubini

93200 St Denis

France

   100%  

ArcelorMittal Ostrava a.s.

  

Vratimovska 689

707 02 Ostrava-Kunčice

Czech Republic

   85.47% (1)

ArcelorMittal Packaging SA

  

1 à 5, rue Luigi Cherubini

93200 St Denis

France

   100%  

ArcelorMittal Piombino S.p.a.

  

Via S.Egidio nr.16

50123 Firenze

Italy

   99.79%  

ArcelorMittal Poland S.A.

  

Ul. Chorzowska 50

40-121 Katowice

Poland

   98.99% (1)

 

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Cockerill Sambre S.A.

  

Rue Trasenster, 21

4102 Seraing

Belgium

   100%  

Industeel Belgium S.A.

  

Rue de Châtelet, 266

6030 Charleroi

Belgium

   100%  

Industeel France S.A.

  

1 à 5, rue Luigi Cherubini

93200 St Denis

France

   100%  

Long Carbon Americas and Europe

     

Acindar Industria Argentina de Aceros S.A.

  

2739, Estanislao Zeballos

B1643 AGY Buenos Aires

Argentina

   65.21% (3)

Arcelor Huta Warszawa Sp.z.o.o.

  

UL.Kasprowicza 132

01-949 Warszawa

Poland

   100%  

ArcelorMittal Belval & Differdange SA

  

66, rue de Luxembourg

4221 Esch sur Alzette

Luxembourg

   99.82%  

ArcelorMittal Bergara, S.A.

  

6, C/Ibarra

20570 Bergara

Spain

   99.79%  

ArcelorMittal Brasil S.A.

  

1115, avenida Carandai

24° Andar

30130-915 Belo Horizonte- MG

Brazil

   100%  

ArcelorMittal Commercial Sections SA

  

66, Rue de Luxembourg

4221, Esch-sur-Alzette

Luxembourg

   99.82%  

ArcelorMittal Hamburg GmbH

  

Dradenaustrasse 33

D-21129 Hamburg

Germany

   100%  

ArcelorMittal Hochfeld GmbH(2)

  

Wörthstrasse 125

D-47053 Duisburg

Germany

   100%  

ArcelorMittal Madrid, S.L.

  

Ctra. De Toledo KM 9,200

28021 Madrid

Spain

   99.79%  

ArcelorMittal Olaberría, S.L.

  

Carretera Nacional Madrid—Irun S/N

20212 Olaberría

Spain

   99.79%  

ArcelorMittal Ostrava a.s.

  

Vratimovska 689

707 02 Ostrava-Kunčice

Czech Republic

   85.47% (1)

 

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ArcelorMittal Point Lisas Ltd.

  

Mediterranean Drive

Point Lisas

Couva

Trinidad and Tobago

   100%  

ArcelorMittal Poland S.A.

  

Ul. Chorzowska 50

40-121 Katowice

Poland

   98.99% (1)

ArcelorMittal Rodange & Schifflange S.A.

  

1, rue de l’Industrie

BP 24

4801 Rodange

Luxembourg

   79.70%  

ArcelorMittal Ruhrort GmbH(2)

  

Vohwinkelstrasse 107

D-47137 Duisburg

Germany

   100%  

ArcelorMittal USA Inc.

  

1 South Dearborn

Chicago, IL 60603

USA

   100%  

Mittal Canada Inc.

  

4000, route des Aciéries

Contrecoeur

Québec J0L 1C0

Canada

   100%  

ArcelorMittal las Truchas, S.A. de C.V.

  

Francisco J Mujica 1

60950, Lázaro Cárdenas Michoacán

Mexico

   99.87%  

AACIS

     

ArcelorMittal Annaba Spa

  

Sidi Amar

El-Hadjar Complex

B.P. 2055 Annaba 23000

Algeria

   70%  

ArcelorMittal South Africa Ltd.

  

Main Building, Room N3/5

Delfos Boulevard

Vanderbijlpark, 1911

South Africa

   52.02%  

JSC ArcelorMittal Temirtau

  

Republic Ave., 1

101407 Temirtau

Karaganda Region

Republic of Kazakhstan

   100%  

Mittal Steel Liberia Limited

  

401, Ocean View Apartments, UN Drive, Monrovia

Liberia

   70%  

OJSC ArcelorMittal Kryviy Rih

  

1 Ordzhonikidze Street

Kryviy Rih

50095 Dnepropetrovsk Oblast

Ukraine

   94.67%  

 

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Société Nationale de Sidérurgie, S.A.

  

Route Nationale n° 2

Km 18

BP 551

Al Aarroui

Morocco

   32.34% (4)

Stainless Steel

     

ArcelorMittal Inox Brasil S.A.

  

Avenida Joao Pinheiro, 580

Centro

30130-180 Belo Horizonte

Minas Gerais

Brazil

   57.32% (5)

ArcelorMittal Stainless Belgium

  

Avenue de l’Yser, 24

1040 Brussels

Belgium

   99.82%  

ArcelorMittal Stainless France

  

1 à 5, rue Luigi Cherubini

93200 St Denis

France

   100%  

AM3S

     

ArcelorMittal Construction France S.A.

  

Immeuble Hermès

20, rue Jacques Daguerre

92500 Rueil Malmaison

France

   100%  

Arcelor International America, LLC

  

1, South Dearborn Street

60603 Chicago

USA

   100%  

ArcelorMittal Auto Processing France SAS

  

Route de Saint Leu d’Esserent

60160 Montataire

France

   100%  

ArcelorMittal International FZE

  

Jebel Ali Free Zone

LOB 15523. PO Box 17619, Dubai

United Arab Emirates

   99.82%  

ArcelorMittal Stalhandel Gmbh

  

Gutenbergstrasse 11

D-33790 Halle

Germany

   100%  

 

(1) Represents the percentage of shares to which ArcelorMittal has title or that are subject to an executed agreement providing for their transfer to ArcelorMittal at a fixed price and future date.
(2) ArcelorMittal Ruhrort and ArcelorMittal Hochfeld are together referred to as ArcelorMittal Duisburg.
(3) Acindar Industria Argentina de Aceros S.A. is controlled by ArcelorMittal Brasil, a subsidiary of ArcelorMittal.
(4) Société Nationale de Sidérurgie, S.A. is controlled by Nouvelles Sidérurgies Industrielles, a subsidiary of ArcelorMittal.
(5) Offer underway for outstanding shares.

 

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Operating Segments

ArcelorMittal operates its business in the following six operating segments:

 

   

Flat Carbon Americas;

 

   

Flat Carbon Europe;

 

   

Long Carbon Americas and Europe;

 

   

Asia, Africa and CIS;

 

   

Stainless Steel; and

 

   

AM3S.

Within its corporate headquarters and, where appropriate, segment or regional management there are specialized and experienced executives in fields such as finance, mergers and acquisitions, marketing, procurement, operations, shipping, human resources, communications, internal assurance, health and safety, information technology, strategic planning, performance enhancement, technology and law.

Flat Carbon Americas produces slabs, hot-rolled coil, cold-rolled coil, coated steel products and plate. These products are sold primarily to customers in the following industries: distribution and processing; automotive; pipes and tubes; construction; packaging; and appliances. In Flat Carbon Americas, production facilities are located at twelve integrated and mini-mill sites located in four countries. In 2007, shipments from Flat Carbon Americas totaled 27.9 million tonnes.

Flat Carbon Europe produces hot-rolled coil, cold-rolled coil, coated products, tinplate, plate and slab. These products are sold primarily to customers in the automotive, general industry and packaging industries. In Flat Carbon Europe, production facilities are located at 14 integrated and mini-mill sites located in eight countries. In 2007, shipments from Flat Carbon Europe totaled 34.4 million tonnes.

Long Carbon Americas and Europe produces sections, wire rod, rebars, billets, blooms and wire drawing. In Long Carbon Americas, production facilities are located at ten integrated and mini-mill sites located in six countries, while in Long Carbon Europe production facilities are located at 15 integrated and mini-mill sites in seven countries. In 2007, shipments from Long Carbon Americas and Europe totaled approximately 24.6 million tonnes.

Asia, Africa and CIS produces a combination of flat and long products and pipes and tubes. It has nine flat and long production facilities in six countries. In 2007, shipments from Asia, Africa and CIS totaled approximately 20.9 million tonnes, with shipments having been made worldwide.

Stainless Steel produces flat and long stainless steel and alloy products from its plants in Europe and South America. In the Americas, production facilities are located at one integrated site located in one country, while in Europe production facilities are located at four mini-mill sites in two countries. The products produced by Stainless Steel are sold to customers primarily in the following industries: domestic appliances and household equipment; automotive; construction; and general industry. In 2007, shipments from Stainless Steel totaled approximately 1.9 million tonnes.

Arcelor Mittal Steel Solutions and Services (“AM3S”) is primarily an in-house trading and distribution arm of ArcelorMittal. It also provides value-added and customized steel solutions through further steel processing to meet specific customer requirements.

D. Property, Plant and Equipment

ArcelorMittal

ArcelorMittal’s principal operating subsidiaries are grouped into six segments, and ArcelorMittal has production facilities in twenty countries in North and South America, Europe, Asia and Africa.

 

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All of its operating subsidiaries are substantially owned by ArcelorMittal through intermediate holding companies.

Unless otherwise stated, ArcelorMittal owns all of the assets described in this section.

See also “—Business Overview—Government Regulations—Environmental Laws and Regulations” and “Item 8A—Financial Information—Consolidated Statements and Other Financial Information—Legal Proceedings”.

Production Facilities of ArcelorMittal

The following table sets forth a general description of ArcelorMittal’s principal production units:

 

Facility

   Number of
Facilities
   Capacity
(in million tonnes
per year)
   Production in 2007
(in million tonnes)(1)

Coke Plant

   66    36.8    32.1

Sinter Plant

   35    107.9    90.5

Blast Furnace

   68    108.4    82.5

Basic Oxygen Furnace (including Tandem Furnace)

   80    111.8    87.7

DRI Plant

   15    12.3    9.9

Electric Arc Furnace

   51    38.5    31.0

Continuous Caster—Bloom / Billet

   49    39.4    28.5

Breakdown Mill (Blooming / Slabbing Mill)

   8    16.9    9.9

Billet Rolling Mill

   5    7.8    2.7

Section Mill

   28    15.1    12.1

Bar Mill

   28    9.6    6.5

Wire Rod Mill

   22    14.0    10.7

Continuous Caster—Slabs

   58    102.3    77.2

Hot Rolling Mill

   34    93.3    65.1

Pickling Line

   54    50.0    30.6

Tandem Mill

   46    43.4    29.6

Annealing Line

   69    20.0    13.1

Skin Pass Mill

   44    23.6    13.0

Hot Dip Galvanizing Line

   63    20.6    17.0

Electro Galvanizing Line

   16    2.9    2.0

Tinplate Mill

   21    5.3    3.6

Tin Free Steel (TFS)

   1    0.5    0.2

Color Coating Line

   16    2.6    1.5

Plate Mill

   7    5.5    3.9

Seamless Pipes

   13    2.1    1.2

Welded Pipes

   7    0.7    0.3

 

(1) Production facility details include the production numbers for each step in the steel-making process. Output from one step in the process is used as input in the next step in the process. Hence, the summation of production numbers does not equal the quantity of saleable finished steel products.

 

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Flat Carbon Americas

ArcelorMittal’s Flat Carbon Americas segment has production facilities in both North and South America, including the United States, Canada, Brazil and Mexico. The following two tables set forth a general description of ArcelorMittal’s principal production locations and production units in the Flat Carbon Americas segment:

Production Locations—Flat Carbon Americas

 

Unit

 

Country

 

Locations

 

Type of Plant

 

Products

Cleveland

 

USA

 

Cleveland, OH

 

Integrated

 

Flat

Warren

 

USA

 

Warren, OH

 

Coke making

 

Coke

Columbus Coatings

 

USA

 

Columbus, OH

 

Downstream

 

Flat

Hennepin

 

USA

 

Hennepin, IL

 

Downstream

 

Flat

IH

 

USA

 

East Chicago, IN

 

Integrated

 

Flat

I/N Tek and I/N Kote

 

USA

 

New Carlisle, IN

 

Downstream

 

Flat

Riverdale

 

USA

 

Riverdale, IL

 

Integrated

 

Flat

Burns Harbor

 

USA

 

Burns Harbor, IN

 

Integrated

 

Flat

Coatesville

 

USA

 

Coatesville, PA

 

Mini-mill

 

Flat

Conshohocken

 

USA

 

Conshohocken, PA

 

Downstream

 

Flat

Lackawanna

 

USA

 

Lackawanna, NY

 

Downstream

 

Flat

Weirton

 

USA

 

Weirton, WV

 

Downstream

 

Flat

Sparrows Point

 

USA

 

Sparrows Point, MD

 

Integrated

 

Flat

Gary Plate

 

USA

 

Gary, IN

 

Downstream

 

Flat

Double G

 

USA

 

Jackson, MS

 

Downstream

 

Flat

ArcelorMittal Lázaro Cárdenas

 

Mexico

 

Lázaro Cárdenas

 

Mini-mill

 

Flat

CST

 

Brazil

 

Vitoria

 

Integrated

 

Flat

ArcelorMittal Vega

 

Brazil

 

São Francisco do Sul

 

Downstream

 

Flat

Sol

 

Brazil

 

Vitoria

 

Coke Making

 

Coke

Dofasco

 

Canada

 

Hamilton

 

Integrated, Mini-mill

 

Flat

Production Facilities—Flat Carbon Americas

 

Facility

   Number of
Facilities
   Capacity
(in million tonnes
per year)
   Production in 2007
(in million tonnes)(1)

Coke Plant

   7    6.2    5.8

Sinter Plant

   5    14.0    11.8

Blast Furnace

   15    30.8    23.4

Basic Oxygen Furnace (including Tandem Furnace)

   21    34.4    24.8

DRI Plant

   2    4.1    4.0

Electric Arc Furnace

   6    6.1    5.8

Continuous Caster—Slabs

   20    38.9    29.4

Hot Rolling Mill

   8    30.3    20.52

Pickling Line

   15    18.1    10.6

Tandem Mill

   15    16.8    9.9

Annealing Line

   24    10.2    6.3

Skin Pass Mill

   15    11.9    6.1

Hot Dip Galvanizing Line

   19    7.1    5.1

Electro Galvanizing Line

   2    0.5    0.4

Tinplate Mill

   8    2.0    1.1

Tin Free Steel (TFS)

   1    0.5    0.2

Plate Mill

   4    2.2    1.8

 

(1) Production facility details include the production numbers for each step in the steel-making process. Output from one step in the process is used as input in the next step in the process. Hence, the summation of production numbers does not equal the quantity of saleable finished steel products.

 

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ArcelorMittal USA

ArcelorMittal USA has 14 major production facilities consisting of five integrated steel-making plants, one basic oxygen furnace/compact strip mill, four electric arc furnace plants and four finishing plants. ArcelorMittal USA owns all or substantially all of each plant. ArcelorMittal USA also owns interests in various joint ventures that support these facilities, as well as numerous raw material, railroad and transportation assets.

ArcelorMittal USA’s main operations include integrated steel-making plants at Indiana Harbor, Burns Harbor, Cleveland, Sparrows Point and Riverdale. The four electric arc furnace plants are located at Coatesville, Steelton, Georgetown, and the Indiana Harbor Bar operations. The four finishing plants are located at Conshohocken, Lackawanna, Hennepin and Columbus Coatings. The Cleveland plant covers an area of approximately 4.9 square kilometers and the Sparrows Point plant covers an area of approximately 12.5 square kilometers. As discussed elsewhere in this annual report, the Sparrows Point plant is currently in the process of being sold.

ArcelorMittal USA’s two Indiana Harbor facilities produce hot-rolled sheet, cold-rolled sheet, hot dip galvanized sheet and bar products for use in automotive, appliance, service center, tubular, strip converters and contractor applications. The Indiana Harbor West plant covers an area of approximately 4.9 square kilometers and the Indiana Harbor East plant covers an area of approximately 7.7 square kilometers. ArcelorMittal USA’s Burns Harbor facility produces hot-rolled sheet, cold-rolled sheet, hot dip galvanized sheet and steel plate for use in automotive, appliance, service center and construction and shipbuilding applications. The Burns Harbor plant covers an area of approximately 15.3 square kilometers.

ArcelorMittal USA operates a number of facilities on the Cuyahoga River in Cleveland, Ohio including blast furnaces, slab casters, ladle metallurgy and vacuum degassing facilities, a hot-strip mill, cold rolling mill, temper mill, a batch anneal shop and a hot dip galvanizing line. In addition, ArcelorMittal USA’s regional coke battery, the Warren Coke Battery, is able to supply approximately 40% of the Cleveland facilities’ coke needs. ArcelorMittal USA’s Weirton, West Virginia facility is a significant producer of tin mill products. ArcelorMittal USA’s Georgetown, South Carolina plant produces high-quality wire rod products, which are used to make low carbon fine wire drawing, wire rope, tire cord, high-carbon machinery and upholstery springs. ArcelorMittal USA also owns interests in various joint ventures that support its facilities, as well as raw material (including iron ore) and railroad assets, including (i) ArcelorMittal Tek, a partnership in which a subsidiary of ArcelorMittal USA owns a 60% interest, with a 1.7 million tonne annual production capacity cold-rolling mill on approximately 200 acres of land (which it owns in fee) near New Carlisle, Indiana; (ii) ArcelorMittal Kote, a partnership in which a subsidiary of ArcelorMittal USA owns a 50% interest with a one million tonne annual production capacity steel galvanizing facility on approximately 25 acres of land, which it owns in fee, located adjacent to the ArcelorMittal Tek site; (iii) PCI Associates (“PCI”), a partnership in which a subsidiary of ArcelorMittal USA owns a 50% interest with a pulverized coal injection facility on land located within the Indiana Harbor Works (ArcelorMittal USA leases PCI the land upon which the facility is located); and (iv) Hibbing Taconite Company, located in Hibbing, Minnesota, in which ArcelorMittal USA owns a 62.3% interest, which has iron ore reserves and operates mines and a pelletizing plant. ArcelorMittal USA also has research and development facilities in East Chicago, Indiana.

CST

CST is a wholly-owned subsidiary of ArcelorMittal Brasil, located in Espírito Santo state, Brazil. CST operates an integrated steel mill for the production and sale of iron and steel products, mainly slabs, semi-finished steel plates for export and HRC.

CST is strategically located and has infrastructure including a well-equipped road and railway system, as well as a port complex that includes the Praia Mole Marine Terminal. CST’s plant covers an area of approximately 13.7 square kilometers.

 

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CST’s steel-making plant is composed of a coke plant consisting of three batteries, a sinter plant machine, three blast furnaces, a steel-making shop consisting of three oxygen furnace converters, three continuous slab casters and a hot strip mill.

On July 23, 2007, CST began an expansion project, with the goal of increasing steel production capacity to 7.5 million tonnes per year. The first stage of the project will focus on to increasing slab production capacity. In a second stage, the hot strip mill will be expanded with the goal of coming on-line in early 2009 with an estimated investment amount of $85 million, absorbing part of the added slab capacity.

ArcelorMittal Vega

ArcelorMittal Vega is a wholly-owned subsidiary of CST. ArcelorMittal Vega produces cold roiled coil and galvanized steel primarily for the automobile industry and, to a lesser degree, for the household appliances, construction, pipe and coil formed shapes industries. Its facilities are located in São Francisco do Sul, in Santa Catarina, Brazil, and consist of a modern, state-of-the-art coil strip mill and a hot dip galvanizing line. ArcelorMittal Vega uses São Francisco do Sul Port to receive hot rolled coil, its main raw material, from CST. In August 2007, a new investment program was approved to increase ArcelorMittal Vega’s annual production capacity to 1.3 million tonnes by the beginning of 2010 estimated investment amount of $128 million.

ArcelorMittal Lázaro Cárdenas

ArcelorMittal Lázaro Cárdenas (“AMLC”) is the largest steel producer in Mexico. AMLC operates a Pelletiser plant, two direct reduced iron plants; electric arc furnace-based steel-making plants and continuous casting facilities. AMLC has advanced secondary metallurgical capabilities, including ladle furnaces refining, vacuum degassing and RH process with calcium and aluminum injection, which permit it to produce higher quality slabs that are used for specialized steel applications in the automotive, line pipe manufacturing, shipbuilding and appliance industries. AMLC utilizes direct reduced iron as its primary metallic input for virtually all of its production.

AMLC’s production facilities are located on approximately 4.4 square kilometers adjacent to a major deep-water port in Lázaro Cárdenas in Michoacán state, México, through which most of its slabs are shipped for export and its raw materials are received.

AMLC’s principal product is slab for the merchant market. AMLC’s product line mainly caters to the high-end applications of its customers, including heat-treatment grades for plate manufacturing, oil country tubular goods and high chromium grade for oil exploration applications and for the gas transportation industry. AMLC has the capability to produce a wide range of steel grades from ultra low carbon-IF to microalloyed, medium and high carbon.

Dofasco

Dofasco is a leading North American steel solution provider and one of Canada’s largest manufacturers of flat rolled steels. Its products include hot rolled, cold rolled, galvanized and tinplate as well as tubular products and laser-welded blanks. Dofasco supplies these products to the automotive, construction, packaging, manufacturing, pipe and tube and steel distribution markets, Dofasco’s Hamilton plant covers an area of approximately 3.1 square kilometers.

Dofasco has seven wholly-owned operating subsidiaries: Dofasco USA Inc, Dofasco Tubular Products Inc., Dofasco Tubular Products Corporation, Sorevco Inc, Powerlasers Limited, Powerlasers Corporation and Quebec Cartier Mining Company. Steel-making facilities are located at Dofasco’s Hamilton, Ontario plant and at its 50%-owned mini-mill facility, Gallatin Steel Company, located in Gallatin County, Kentucky. Products produced by Dofasco and its steel-related joint ventures and subsidiaries include: hot and cold rolled steels; galvanized,

 

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Extragal and Galvalume steel; prepainted steel; tinplate and chromium-coated steels in coils, cut lengths and strip; welded pipe and tubular steels; laser-welded steel blanks; and iron ore concentrate and pellets. Dofasco owns 100% of Quebec Cartier Mining and has a 28.6% ownership interest in Wabush Mines, each of which mines and processes iron ore for use in Dofasco’s steel-making operations and for sale to other steelmakers.

Dofasco’s steel-making plant in Hamilton, Ontario is adjacent to water, rail and highway transportation. The plant has two raw material handling bridges, ore and coal docks, storage yards and handling equipment, three blast furnaces, of which two are currently operating, three coke plants comprising six batteries, one basic oxygen steel-making plant, one two-strand slab caster and a single strand slab caster, one twin shell electric arc furnace and two ladle metallurgy stations associated with steel-making, a hot strip rolling mill including, slitting facilities for hot rolled steel, two cold rolling mill complexes each consisting of a coupled pickling line and tandem cold rolling mill, one continuous, stand-alone pickle line, one electrolytic cleaning line, and shearing, coiling, slitting, rewind and inspection equipment related to the cold mills, three temper mills, two continuous annealing lines, 140 conventional and 16 high hydrogen bases for batch annealing and 16 bases for open coil annealing, five continuous galvanizing lines, one of which is capable of producing Galvalume steel and another of which is capable of producing Extragal steel (this line is 80% owned by Dofasco), one continuous electrolytic tinning and chromium coating line, one coil preparation line and a tinplate packaging line and two tube mills.

Flat Carbon Europe

ArcelorMittal’s Flat Carbon Europe segment has production facilities in Western and Eastern Europe, including Germany, Belgium, France, Spain, Italy, Luxembourg, Romania, Poland and the Czech Republic. The following two tables sets forth a general description of ArcelorMittal’s principal production locations and production units in the Flat Carbon Europe segment:

Production Locations—Flat Carbon Europe

 

Unit

 

Country

 

Locations

 

Type of Plant

 

Products

ArcelorMittal Bremen   Germany   Bremen   Integrated   Flat
Cockerill Sambre   Belgium   Liège   Integrated   Flat
ArcelorMittal Atlantique   France   Dunkirk, Mardyck, Montataire, Desvres   Integrated and Downstream   Flat
ArcelorMittal Lorraine   France   Florange, Mouzon   Integrated and Downstream   Flat
ArcelorMittal Eisenhüttenstadt   Germany   Eisenhüttenstadt   Integrated   Flat
ArcelorMittal España   Spain   Avilés, Gijón   Integrated   Flat, Long
ArcelorMittal Méditerranée   France   Fos-sur-Mer, Saint-Chély   Integrated   Flat
Arcelor Steel Belgium   Belgium   Ghent, Geel, Genk, Huy   Integrated and Downstream   Flat
ArcelorMittal Piombino   Italy   Avellino, Piombino   Downstream   Flat
ArcelorMittal Sagunto   Spain   Sagunto   Downstream   Flat
ArcelorMittal Dudelange   Luxembourg   Dudelange, Giebel   Downstream   Flat
ArcelorMittal Packaging   Belgium, France, Spain   Liège, Basse-Indre, Florange, Aviles, Etxebarri   Downstream   Flat
ACB   Spain   Bilbao   Mini-mill   Flat
Industeel   France, Belgium   Charleroi, Le Creusot, Chateauneuf, Saint-Chamond   Mini-mill   Flat
ArcelorMittal Galati   Romania   Galati   Integrated   Flat, Long, Pipes and Tubes
ArcelorMittal Poland   Poland   Krakow, Swietochlowice   Integrated   Flat
ArcelorMittal Ostrava   Czech Rep   Ostrava   Integrated   Flat, Long, Pipes and Tubes

 

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Production Facilities—Flat Carbon Europe

 

Facility

   Number of
Facilities
   Capacity
(in million tonnes
per year)
   Production in 2007
(in million tonnes)(1)

Coke Plant

   20    11.9    10.8

Sinter Plant

   15    54.0    43.8

Blast Furnace

   24    41.3    32.4

Basic Oxygen Furnace (including Tandem Furnace)

   27    42.6    34.7

Electric Arc Furnace

   5    2.6    2.2

Continuous Bloom / Billet Caster

   6    3.0    1.2

Breakdown Mill (Blooming / Slabbing Mill)

   3    0.7    0.6

Billet Rolling Mill

   1    2.5    0.3

Section Mill

   1    0.6    0.6

Continuous Caster—Slabs

   23    43.2    34.0

Hot Rolling Mill

   15    44.5    31.0

Pickling Line

   25    23.1    14.0

Tandem Mill

   21    20.2    15.9

Annealing Line

   13    4.8    3.4

Skin Pass Mill

   14    8.0    5.0

Hot Dip Galvanizing Line

   33    11.7    10.5

Electro Galvanizing Line

   9    2.1    1.5

Tinplate Mill

   9    1.9    1.6

Color Coating Line

   13    2.0    1.3

Plate Mill

   2    2.7    1.7

 

(1) Production facility details include the production numbers for each step in the steel-making process. Output from one step in the process is used as input in the next step in the process. Hence, the summation of production numbers does not equal the quantity of saleable finished steel products.

Flat Carbon Western Europe

ArcelorMittal Bremen

ArcelorMittal Bremen is situated on the bank of the River Weser in the north of Bremen. Its plant covers an area of approximately seven square kilometers. ArcelorMittal Bremen is a fully integrated and highly automated plant, with four million tonnes of crude steel annual production capacity. ArcelorMittal Bremen produced 3.3 million tons of crude steel in 2007.

ArcelorMittal Bremen has upstream and downstream facilities and contains one sinter plant, two blast furnaces, one steel shop with two basic oxygen converters, one vacuum degassing line, one continuous slab caster and one hot strip mill for the upstream facility. The downstream plant has one pickling line, a four-stand tandem mill, a batch annealing and temper mill, and two hot dip galvanizing lines.

ArcelorMittal Bremen produces and sells a wide range of products, including slab, hot rolled, pickled, cold rolled and hot dip galvanized rolls to the automotive and primary transformation sectors.

Cockerill Sambre and Arcelor Produits Plats Wallonie

Cockerill Sambre’s facilities include the upstream facilities of the sub-operational unit of Liege, the downstream facilities being part of Arcelor Steel Belgium (“ASB”). The upstream facilities of Cockerill Sambre in Liège are located in two main plants along the Meuse River: the Seraing-Ougrée plant, which includes one coke plant, one sinter plant and two blast furnaces, and the Chertal plant, which includes a steel shop with three converters, ladle metallurgy with RH vacuum treatment, two continuous caster machines (one double strand and one single strand) and a hot strip mill.

 

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Most raw materials are shipped from Rotterdam and Antwerp through dedicated port facilities situated along the Meuse River next to the Liège installations. The pig iron produced is transported from Ougrée to Chertal by torpedo ladles. The coke and blast furnace gases are sent to the power plant which produces steam and electricity. In 2007, a decision was made to restart the main blast furnace in Liège, BF6, which had been stopped in 2005 as part of Arcelor’s “Apollo Plan” (a restructuring and cost-reduction initiative). The refiring took place at the beginning of March 2008. The downstream facilities located in the south of Liège consist of a coupled pickling rolling mill line and a pickling line and a five stand tandem mills (located in Tilleur), batch annealing furnaces and one continuous annealing line (located in Jemeppe), four hot dip galvanizing lines and two organic coating lines (located in the Flemalle/Ramet area) as well as three electrogalvanizing lines (located in Marchin).

Cockerill Sambre produces a large range of high-quality steel grades, ultra-low carbon steels to deep-drawing aluminum-killed steels, tinplate low carbon specifications, the whole range of from construction steels and micro-alloyed grades. A portion of its production is sent to the Liège downstream facilities, the rest being sold to ArcelorMittal Construction France and to Condesa Group. Some slabs are also sold to the Duferco Group. The Liège downstream facilities mainly produce higher added value products, such as products for automotive use (exposed and non-exposed parts), including high-strength steel, for household electrical devices, for general industry and construction applications, and also for packaging.

ArcelorMittal Atlantique et Lorraine

ArcelorMittal Atlantique

ArcelorMittal Atlantique is part of ArcelorMittal Atlantique et Lorraine, which is wholly-owned by ArcelorMittal France, with four plants in the north of France (Dunkerque, Mardyck, Montataire and Desvres).

The Dunkerque plant covers an area of approximately 4.6 square kilometers. The Mardyck plant covers an area of approximately 2.6 square kilometers. The Desvres plant covers an area of approximately 0.1 square kilometers. The Montataire plant covers an area of approximately 0.7 square kilometers.

The Dunkerque plant has a coke plant, two sinter plants, three blast furnaces, a steel plant with three BOF converters, one ladle treatment, one RH vacuum degasser, one tank vacuum degasser, four continuous casters for slabs and one hot strip mill.

The other three plants are downstream facilities: Mardyck has a high-capacity coupled pickling-rolling line, a push-pull pickling line, and two hot dip galvanizing lines; Montataire has three hot dip galvanizing lines, one organic coating line and one laminated composite line; and Desvres has one hot dip galvanizing line.

ArcelorMittal Atlantique produces and markets a large range of products, including slabs, hot rolled, pickled, galvanized, color-coated coils and composite products. ArcelorMittal Atlantique products are sold essentially on in the regional market (in France and Western Europe), in particularly in the automotive market.

ArcelorMittal Lorraine

The sites of Florange and Mouzon are the Lorraine facilities of ArcelorMittal Atlantique et Lorraine. Florange is the only fully integrated steel plant in France. Mouzon specializes in downstream hot dip coating operations and are fully integrated in the “Lorraine Cluster” of flat carbon steel plants.

The Florange site has a total annual production capacity of 3.2 million tonnes of hot rolled coils, which supply the downstream cold facilities and the coating lines of Mouzon and Dudelange, as well as the tinplate cold facilities of ArcelorMittal Packaging in Florange. The Florange site has upstream and downstream facilities mainly located along the Fensch River in Lorraine. It covers an area of approximately 6.2 square kilometers and contains a coke plant, two sinter plant, two blast furnaces, a steel-making division with two bottom blowing oxygen converters, ladle furnace and tank degasser facilities, and one continuous slab caster and a hot strip mill

 

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for the upstream portion. The downstream plant of Florange has a high-capacity coupled pickling-rolling line, the first in the world designed for this purpose, a continuous annealing line, batch annealing and temper mill, and three coating lines dedicated to the automotive market: a hot dip galvanizing line, an electro galvanizing line, and an organic coating line. The Mouzon site covers an area of approximately 0.9 square kilometers and has two hot dip galvanizing lines for the production of zinc-aluminum silicium coated products.

The sites of Florange and Mouzon produce and deliver a very large range of flat steel high-value finished products to customers, including cold-rolled, hot dip galvanized, electro-galvanized, aluminized and organic coated material. Certain of its products are designed for the automotive market, such as Extragal, Galfan, Usibor (hot dip), Bonazinc (organic coated) and others to the appliances market, such as Solfer (cold-rolled) for enameling applications or High Gloss (organic-coated). More than 93% of their total production supplies the French and EU market.

ArcelorMittal Eisenhüttenstadt

ArcelorMittal Eisenhüttenstadt is situated on the Oder river near the German-Polish border, 110 kilometers southeast of Berlin. The plant covers an area of about 8.8 square kilometers. ArcelorMittal Eisenhüttenstadt is a fully integrated and highly automated plant with two blast furnaces, one sinter plant, two oxygen converters, two continuous caster (slab and bloom), a hot strip mill with a coil box and a cold rolling mill with capacities for the production of cold rolled coils, hot dip galvanizing and organic coating products and facilities for cutting and slitting.

In 2007, ArcelorMittal Eisenhüttenstadt produced 2.4 million tonnes of crude steel. Its maximum production capacity is 2.7 million tonnes. ArcelorMittal Eisenhüttenstadt produces and sells a wide range of products, including hot-rolled, cold-rolled, electrical and hot dip galvanized and organic coated rolls to automotive, distribution, metal processing, construction and appliances industry customers in Germany, Central and Eastern Europe.

ArcelorMittal España

ArcelorMittal España consists of two factories, Avilés and Gijón, which are interconnected by ArcelorMittal España’s own railway system and cover an area of approximately 15.1 square kilometers. The two factories operate as a single integrated steel plant comprising coking facilities, sinter plants, blast furnaces, steel plants, hot-rolling mills and cold roll plants. Its product range includes rail, wire rod, heavy plates and hot-rolled coil, as well as more highly processed products such as galvanized sheet, tinplate and organic coated sheet.

The factories are connected by rail to the two main ports in the region, Avilés and Gijón. Raw materials are received at the port of Gijón, where they are unloaded at ArcelorMittal España’s own dry-bulk terminal, which is linked to the steel-making facilities by conveyor belt . A variety of products are shipped through the Avilés port facilities, both to other units of the ArcelorMittal group and to ArcelorMittal España’s customers.

ArcelorMittal España is connected to the other ArcelorMittal factories in Spain by two railway networks: the wide-gauge and narrow-gauge rail networks. Shuttle trains link the ArcelorMittal España facilities direct to the ArcelorMittal Sagunto and ArcelorMittal Etxebarri plants, which they supply with hot-rolled coils for subsequent processing into cold-rolled, galvanized and electrogalvanized sheet and tinplate. The ArcelorMittal Sagunto plant covers an area of approximately 0.3 square kilometers.

ArcelorMittal España operates two coking plants; two sinter plants; two blast furnaces, two steel plants, one in Aviles for flats products, with two continuous casters slab, and other one in Gijon for long products, with two caster for bloom and billet, a hot strip mill, a heavy plate mill, a wire rod mill and a rail mill. The cold roll plants include two pickling lines, two five stands cold tandem mills, annealing facilities for tinplate, tinning lines, two galvanizing lines and one organic coating line.

 

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ArcelorMittal Méditerranée

ArcelorMittal Méditerranée operates a flat carbon steel plant in Fos-sur-Mer. It also operates a downstream plant for electrical steels located in Saint-Chély, 300 kilometers north of Fos-sur-Mer. The Fos-sur-Mer plant is located 50 kilometers west of Marseilles on the Mediterranean Sea and covers an area of approximately 15 square kilometers. Arcelor Méditerranée’s principal equipment consists of one coke oven plant, one sinter plants, two blast furnaces, two basic oxygen furnaces, two continuous slab casters, one hot strip mill, one pickling line, one cold rolling mill and two continuous annealing lines located at Saint-Chély. A deep water private wharf, situated at one end of the plant, is equipped with two big unloader cranes to unload raw materials (iron ore, pellets and coal) and send them to the stock yard.

ArcelorMittal Méditerranée’s products include coils for direct transformation into wheels, pipes for energy transport (up to X 70 and 25 mm thick grade), the automotive industry, construction and coils for downstream facilities for car bodies (exposed and non exposed parts), for construction and general industry applications. The Saint-Chély plant produces electrical steel (with up to 3.2 % silicon content), mainly for electrical motors. 60% of its products are shipped from a private dedicated wharf, in part through a shuttle system (coils for Sagunto and La Magona); 30% are shipped by rail and the rest by truck.

Arcelor Steel Belgium (Gent, Geel and Genk)

ArcelorMittal Gent, Geel and Genk are part of Arcelor Steel Belgium. ArcelorMittal Gent is a fully integrated coastal steelworks which is located along the Ghent-Terneuzen canal, approximately 17 kilometers from the Terneuzen sea lock, which links the works directly with the North Sea. The canal is of the Panamax type and can accommodate ships of up to 65,000 tonnes. The Arcelor Gent plant covers an area of approximately 8.2 square kilometers. ArcelorMittal Gent has an annual production capacity of 5.0 million tonnes of crude steel. ArcelorMittal Geel consists of an organic coating line and ArcelorMittal Genk of an electrolytic galvanizing line. The Arcelor Genk plant covers an area of 0.2 square kilometers.

ArcelorMittal Gent, Geel and Genk’s principal equipment consists of one coke oven plant, two sinter plants, two blast furnaces, two basic oxygen converters, two continuous slab casters, one hot strip mill, one high capacity couples pickling and rolling mill line, one coupled pickling and rolling mill, one pickling line for pickled and oiled products, batch annealing furnaces, one continuous annealing line, three temper rolling mills, three inspection lines, three hot dip galvanizing lines, one electrozinc coating line and two organic coating line.

ArcelorMittal Gent produces flat steel products with high added value. A significant part of the production is coated, either by hot dip galvanizing, electrolytic galvanizing or organic coating. ArcelorMittal Gent’s products are mainly used in the automotive industry and in household appliances, tubes, containers, radiators, construction elements, etc. The products are sold through the Flat Carbon Western Europe commercial organization.

ArcelorMittal Piombino Spa

ArcelorMittal Piombino’s production facilities and headquarters are located in Piombino, Italy. It also has a production division in San Mango sul Calore in Avellino, Italy. ArcelorMittal Piombino manufactures galvanized and organic coated steel products. It operates one pickling line, a full continuous four stand tandem mill, four hot dip galvanizing lines and three organic coating lines, of which one is located in Avellino. The two oldest hot dip galvanizing lines will be shut down after the start up of a new hot dip galvanizing line. Arcelor Piombino’s products are sold to European customers, primarily in the distribution, appliance and construction industries.

ArcelorMittal Dudelange

The Dudelange site is located in Luxembourg, 25 kilometers north of Florange, which sources the plant for cold rolled products. Dudelange operates two hot dip coating lines, producing Alussi and Aluzinc, and two electro galvanizing lines for appliances and industry market.

 

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ArcelorMittal Sagunto

ArcelorMittal Sagunto is a Flat Steel finishing products plant located in the Spanish Eastern Mediterranean side. ArcelorMittal Sagunto has a maximum annual production capacity of 2 millions tons of cold and coated steel; in 2007, the site’s steel shipments reached 1.5 million tons mainly for automotive market. The facilities comprise a pickling line, a regeneration plant for HCl, a full continuous 5 stands tandem mill, H2 and HNX batch annealing, temper mill, an electro-galvanizing line, a hot dip galvanizing line, power station and energies and waste treatment plant.

Aceria Compacta de Bizkaia

Aceria Compacta de Bizkaia (“ACB”) is located inside the port of Bilbao, in a 0.5 square kilometer property. Most of its raw materials arrive through an owned port situated adjacent to the melt shop. ACB’s principal equipment consists of two electric arc furnaces, two continuous slab casters, one hot rolling mill and one pickling line.

ACB is a major supplier of hot rolled coils to the Spanish market. Coils are supplied both hot rolled and pickled and oiled and the range of production includes cold forming and drawing steels, structural steels, cold for re-rolling, direct galvanization, dual phase, weather resistant and floor plate. The compact steel production equipment, including a seven-stand hot rolling mill, enables ACB to supply low thickness hot rolled coil down to 1.0 millimeter. Sales outside Spain represent 20% of total shipments, most in Western Europe.

ArcelorMittal Packaging

ArcelorMittal Packaging is the world leader in steel for packaging production and sales. It operates five plants and two steel service centers. Its plants are located in Tilleur, Belgium, in France (Florange in eastern France and Basse-Indre in western France) and in Spain (Etxebarri in Basque country and Avilés in Asturias). Its steel service centers are located in Italy and in Turkey.

In 2006, ArcelorMittal Packaging began a “Transformation” program which led to the design of a new service and support standardization program. ArcelorMittal Packaging has also made significant investments in order to offer customers new generations of steel (such as Maleis in Basse-Indre and Wide DWI in Florange & Avilés), to maintain the excellence of its facilities (including revamping pickling lines in Florange & Basse-Indre, tinning lines in Etxebarri and the continuous annealing line in Avilés) and to optimize its transport between hot rolling facilities in Spain and cold rolling plants (by increasing the shipment capacity of coils from Avilés to Basse-Indre).

ArcelorMittal Packaging produces and delivers to can-makers a variety of steel for packaging in coils or in buckles, including tinplate, ECCS for ends & drawn cans & wide DWI for beverage cans. It also supplies high-specification products for sophisticated packaging requirements, such as extra-thin gauge steel.

Industeel Belgium and Industeel France

Industeel’s facilities consist of six plants: Industeel Belgium (“IB”), located in Charleroi, Belgium; Industeel Creusot (“IC”), located in Le Creusot, France; Industeel Loire (“IL”), located in Chateauneuf, France and Euroform, located in Saint-Chamond, France, Cockerill Forge&Ringmill in Seraing, Belgium and UF Aciers in Dunkirk, France. Industeel also owns a research and development (“ R&D “) center in Le Creusot, France.

IB, IC and IL are heavy plate mills. Each plant is fully integrated, from melt shop to finishing facilities. IB and IC are designed to produce 5-150 millimeter thick special steel plates, including stainless steel products, while IL is dedicated to extra heavy gauge products (120-900 millimeter thick) in alloyed carbon steel. Euroform operates hot forming facilities, mainly to transform extra heavy gauge products received from IL. The R&D center is fully dedicated to special plate products development.

 

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Industeel’s principal equipment consists of three electric arc furnaces, two ingot casting, one continuous caster, three hot rolling mills, heat treating and finishing lines. Industeel’s plants in Belgium cover an area of approximately 0.4 square kilometers, and its plants in France cover an area of approximately 0.7 square kilometers.

Industeel provides products for special steel niche markets, both in the form of alloyed carbon grades and in stainless steel. It mainly focuses on applications where tailor-made or added-value plates are needed.

Industeel’s main product segments are stainless steel, process vessels steel, wear-resistant steel, cryogenics steel, mold steel, high-strength steel, jack-up rig elements, protection steel, clad plates, tool steel for oil and gas, chemistry and petrochemistry, wear resistant steel, assembly industries, process industries and construction inside and outside of Europe.

Flat Carbon Eastern Europe

ArcelorMittal Poland

ArcelorMittal Poland is the largest steel producer in Poland, with an annual production capacity of approximately 8.4 million tonnes of crude steel. The major operations of ArcelorMittal Poland are based in Dabrowa Gornicza, Krakow, Sosnowiec and Swietochlowice, Poland. ArcelorMittal Poland’s Dabrowa Gornicza, Krakow, Sosnowiec and Swietochlowice plants cover areas of 12.4, 15.1, 0.7 and 0.8 square kilometers, respectively.

In 2007, ArcelorMittal exercised the option in its agreement with the Polish government to acquire an additional 25.2% interest (raising its shareholding to 92.2%) in ArcelorMittal Poland for additional consideration of $181 million. ArcelorMittal Poland also has interests in a number of companies, some of which operate rolling mills that engage in converting billets, slabs and other semi-finished products into a range of finished products, and one company which produces and supplies coke to other ArcelorMittal subsidiaries.

ArcelorMittal Poland produces a wide range of steel products, including both long products and flat products. Its product range includes slabs, billets, blooms, sections, rails, hot-rolled sheets and strips, cold-rolled sheets and strips, galvanized sheets, welded tubes, wire-rods and other wire products and coated sheets. More than 50% of ArcelorMittal Poland’s products are sold in the domestic Polish market, while the remainder is exported, primarily to customers located in other member states of the EU. ArcelorMittal Poland’s principal customers are in the construction, engineering, transport, mining and automotive industries.

ArcelorMittal Poland’s principal equipment consists of fourteen coke oven batteries, two sinter plants, five (four operational) blast furnaces, six basic oxygen furnaces, two continuous casters for blooms and billets, two continuous casters for slabs, one breakdown mill (bloom and slabs) one billet mill, one hot rolling mill, one cold rolling mill, one heavy section mill, one medium section mill, three galvanizing lines, two color coating lines, one wire rod mill, one pipe/tube mill and one cold rolling mill for narrow strips.

ArcelorMittal Galati

ArcelorMittal Galati’s principal facilities include of six coke oven batteries (five operational), two sintering plants, five blast furnaces, six basic oxygen furnaces, four continuous slab casters, five continuous bloom casters (two operational), one billet mill, two heavy plate mils, one hot strip mill, one cold rolling mill, one hot dip galvanizing line and. ArcelorMittal Galati’s plant covers an area of approximately 15.9 square kilometers.

ArcelorMittal Galati produces slabs, billets, plates, hot rolled, cold rolled and galvanized sheets. Approximately 31% of its products are sold in Romania.

In connection with its acquisition by Mittal Steel in 2001, Mittal Steel Galati agreed with the Romanian Government to make capital expenditures of approximately $271 million from November 2001 through

 

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December 2007, of which $76 million is to be used for environmental projects, as well as a further $80 million in capital expenditures from 2008 through 2011. These investments are secured by a pledge of a portion of Mittal Steel’s shares in Mittal Steel Galati.

ArcelorMittal Ostrava

See Long Carbon Europe.

Long Carbon

ArcelorMittal’s Long Carbon segment has production facilities in North and South America and Europe, including the United States, Canada, Brazil, Mexico, Trinidad, Spain, Germany, France, Luxembourg, Italy, Poland, Romania and the Czech Republic. The following two tables set forth a general description of ArcelorMittal’s principal production locations and production units in the Long Carbon segment:

Production Locations—Long Carbon

 

Unit

  

Country

  

Locations

  

Type of Plant

  

Products

ArcelorMittal Belval &Differdange

   Luxembourg    Esch-Belval Differdange    Mini-mill    Long / Sections, Sheet Piles

ArcelorMittal España

   Spain    Gijon    Downstream    Long / Rails, Wire Rod

ArcelorMittal Madrid

   Spain    Madrid    Mini-mill    Long / Sections

ArcelorMittal Olaberría

   Spain    Olaberría    Mini-mill    Long / Sections

ArcelorMittal Bergara

   Spain    Bergara    Mini-mill    Long / Sections

ArcelorMittal Zaragosa

   Spain    Saragossa    Mini-mill    Long / Light Bars and Angles

ArcelorMittal Rodange

   Luxembourg    Esch Schifflange, Rodange    Mini-mill    Long / Sections, Rails, Rebars

Arcelor Huta Warszawa

   Poland    Warsaw    Mini-mill    Long / Bars

ArcelorMittal Zumárraga

   Spain    Zumárraga    Mini-mill    Long / Bars, Wire rods

ArcelorMittal Hamburg

   Germany    Hamburg    Mini-mill    Long / Wire Rods

ArcelorMittal Duisburg

   Germany    Ruhrort, Hochfeld    Mini-mill    Long / Billets, Wire Rod

ArcelorMittal Hunedoara

   Romania    Hunedoara    Mini-mill    Long / Sections, Wire Rod

ArcelorMittal Ostrava

   Czech Republic    Ostrava    Integrated    Long / Sections, Wire Rod

ArcelorMittal Poland

   Poland    Dabrowa Gornica, Sosnowiec    Integrated    Long / Sections, Wire Rod

Mittal Steel Canada

   Canada    Contrecoeur East, West    Mini-mill    Long / Wire Rod / Bars

ArcelorMittal USA

   USA    Steelton, PA    Mini-mill    Long / Rail

ArcelorMittal USA

   USA    Georgetown, SC    Mini-mill    Long / Wire Rod

ArcelorMittal USA

   USA    Indiana Harbor Bar, IN    Mini-mill    Long / Bar

ArcelorMittal Point Lisas

   Trinidad    Point Lisas    Mini-mill    Long / Wire Rod

ArcelorMittal Brasil

   Brazil    João Monlevade    Integrated    Long / Wire Rod

Acindar

   Argentina    Villa Constitucion    Integrated    Long / Wire Rod / Bar

ArcelorMittal Brasil

   Brazil    Juiz de Fora, Piracicaba, Vitoria    Mini-mill    Long / Bar / Wire Rod

ArcelorMittal Brasil

   Costa Rica    Costa Rica    Downstream    Long / Wire Rod

Sicartsa(1)

   Mexico    Lázaro Cárdenas, Córdoba, Celaya, Tultitlán, Vinton    Integrated, Minimill and Downstraem    Long / Bar, Wire Rod

Wire Drawing

   Luxembourg, USA, Austria, Hungary, Poland, UK, Brazil, Canada, Costa Rica, Argentina    Bissen, Bettembourg, Arkansas, Szengotthard, Sycow, Sheffield, BBA, BMB, BBN, Montreal, Contagem, Vespasiano, Ferra de Santana, La Tablada, Shifflange    Downstream    Long / Wire Drawing

 

(1) Sicarta’s 2007 production figures are based on annual production as if its acquisition had occurred on January 1, 2007

 

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Production Facilities—Long Carbon

 

Facility

   Number of
Facilities
   Capacity
(in million tonnes
per year)
   Production in 2007
(in million tonnes)(1) 

Coke Plant

   14    6.8    6.0

Sinter Plant

   4    13.1    10.9

Blast Furnace

   11    11.6    9.5

Basic Oxygen Furnace (including Tandem Furnace)

   13    12.4    11.0

DRI Plant

   7    6.7    4.5

Electric Arc Furnace

   25    21.7    16.7

Continuous Caster—Bloom / Billet

   36    31.1    23.7

Breakdown Mill (Blooming / Slabbing Mill)

   3    6.2    1.2

Billet Rolling Mill

   3    3.8    1.1

Section Mill

   19    10.0    6.8

Bar Mill

   22    8.1    5.0

Wire Rod Mill

   15    10.0    6.9

Continuous Caster—Slabs

   3    5.2    2.7

Hot Rolling Mill

   2    2.0    1.7

Pickling Line

   3    0.7    0.5

Tandem Mill

   4    0.6    0.1

Annealing Line

   6    0.5    0.4

Skin Pass Mill

   2    0.5    0.1

Hot Dip Galvanizing Line

   4    0.0    0.0

Electro Galvanizing Line

   3    0.1    0.0

 

(1) Production facility details include the production numbers for each step in the steel-making process. Output from one step in the process is used as input in the next step in the process. Hence, the summation of production numbers does not equal the quantity of saleable finished steel products.

ArcelorMittal Brasil

ArcelorMittal Brasil (together with its subsidiaries, including Acindar in Argentina, Laminadora Costarricense and Trefileria Colima in Costa Rica) is the second largest long-rolled steel producer and the largest wire steel producer in Latin America in terms of both capacity and sales, and results in part from the combination in 2007 of the former Arcelor Brasil and Belgo Siderurgia. ArcelorMittal Brasil’s steel production facilities include one integrated plant (the João Monlevade plant in Brazil), one semi-integrated steel plant (the Villa Constitución plant in Argentina), three mini-mills (the Juiz de Fora, Piracicaba and Vitória plants—Brazil) nine wire plants and three plants that produce transformed steel products. In addition, ArcelorMittal Brasil, through its subsidiary ArcelorMittal Florestas, produces charcoal from eucalyptus reforestation operations that is used to fuel its furnaces in Juiz de Fora and or to exchange for pig iron with local producers, and through the jointly controlled entity Guilman Amorin, produces energy used to supply the João Monlevade plant. ArcelorMittal Brasil covers an area of approximately 1,322 square kilometers, including production plants and forested areas in Brazil.

ArcelorMittal Brasil’s current crude steel production capacity is 5.7 million tonnes. In 2007, ArcelorMittal Brasil produced a total of 5.1 million tonnes of rolled products, of which 1.3 million tonnes were processed to manufacture wire products.

ArcelorMittal Brasil’s long-rolled products are principally directed at the civil construction and industrial manufacturing sectors. Long-rolled products used in the construction sector consist primarily of merchant bars and rebars for concrete reinforcement. Long-rolled products for the industrial manufacturing sector consist principally of bars and wire rods. A portion of the wire rods produced are further used by ArcelorMittal Brasil to

 

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produce wire products such as barbed and fence wire, welding wire, fasteners and steel cords. In addition, ArcelorMittal Brasil uses wire rods (mostly low carbon wire rods) to manufacture transformed steel products, such as welded mesh, trusses, pre-stressed wires, annealed wires and nails sold to construction companies, as well as drawn bars for the automotive industry.

ArcelorMittal Brasil’s wire steel products are value-added products with higher margins and are manufactured by the cold drawing of low- and high-carbon wire rods into various shapes and sizes. ArcelorMittal Brasil’s subsidiary BBA—Belgo Bekaert Arames Ltda. and the wire steel division of Acindar manufacture wire products that are consumed mainly by agricultural and industrial end-users and are sold at retail stores. These wire steel products include barbed and fence wire, welding wire and fasteners. Wire products produced by ArcelorMittal Brasil’s subsidiary BMB—Belgo-Mineira Bekaert Artefatos de Arame Ltda., consist of steel cords that are consumed by the tire industry and hose wire that is used to reinforce hoses.

ArcelorMittal Brasil’s transformed steel products are produced mainly by the cold drawing of low-carbon wire rods. ArcelorMittal Brasil’s transformed steel products for the civil sector include welded mesh, trusses, annealed and nails. In addition, ArcelorMittal Brasil also processes wire rods to produce drawn bars at its Sabará facility sold to customers in the automotive industrial sector.

Acindar

Acindar is the largest long steel maker in Argentina. Its main facilities are located in Villa Constitution in Santa Fe province, Argentina. They include a direct reduction plant, an electric arc furnace, a ladle furnace and continuous casting, rolling mills, wires production and construction service facilities. The Acindar plant covers an area of approximately 2.8 square kilometers. Acindar sells products to the construction, industrial, and agricultural sectors in Argentina, and principally exports to the South American and U.S. markets. It produces rebars, wire rod, merchant bars, SBQ, wires, wire mesh, cut and bend and drawn bars. Acindar’s own distribution network can service end users. In 2007, Acindar implemented an investment plan to increase the capacity of its direct reduction and melt shop facilities, investing as well in a new SBQ rolling mill at the Villa Constitución plant with an estimated investment amount of $120 million.

ArcelorMittal Point Lisas

ArcelorMittal Point Lisas, located in Trinidad, is the largest steelmaker in the Caribbean, based on 2007 shipments. Its facilities are located on approximately 1.1 square kilometers at the Point Lisas Industrial Complex in Point Lisas.

ArcelorMittal Point Lisas’ principal production facilities are three direct reduced iron plants, two electric arc furnaces, two continuous casters for billets and one wire rod mill. ArcelorMittal Point Lisas receives its raw material imports and ships its steel products through a dedicated deep-water port facility within its production complex near the waterfront of the Gulf of Paria.

In 2007, ArcelorMittal Point Lisas exported substantially all of its wire rod shipments, primarily to steel manufacturers in South and Central America, the Caribbean and the United States. ArcelorMittal Point Lisas is also a significant producer, exporter, and user of DRI.

ArcelorMittal USA

See Flat Carbon Americas.

Mittal Canada

Mittal Canada is the largest mini-mill in Canada with 2.5 million tons of crude steel capacity. With eight major production facilities, Mittal Canada offers flexibility in production and product offering.

 

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Mittal Canada’s main operations include the semi-integrated Contrecoeur East site with two DRI plants, one steel plant operating two electric arc furnaces and a rod mill. It is the only site in Canada to make steel with self-manufactured DRI. The Contrecoeur East site has the flexibility in metallic management and it can use either DRI or scrap, depending on their respective economies. The Contrecoeur West mini-mill site operates one steel plant with one electric arc furnace and a bar mill. Its steel production is made out of recycled scrap.

Mittal Canada also operates a second bar mill in the Montreal area. It is engaged in further downstream production with three wire drawing mills, two in the Montreal area and one in Hamilton, Ontario. Mittal Canada produces a wide range of products with a focus on niche and value-added products. These products include wire rods, wire products and bars primarily sold in Canada and the United States. Mittal Canada principally serves the automotive, appliance, transportation, machinery and construction industries. The Contrecoeur East site also produces slabs that are resold within the ArcelorMittal to the Flat Carbon segment and to external clients.

In 2007, Mittal Canada restructured its flat business division by closing its flat mills and divesting its interests in two joint ventures producing pipes (Delta Tubes) and galvanized products (Sorevco). As part of its restructuring, it announced its intention to build a beam mill at its Contrecoeur East site. Mittal Canada also closed the production facility of Walker Wire, a wiring drawing plant near Detroit, Michigan. The site has been converted into a distribution facility and its production reallocated to the Hamilton site.

At December 31, 2007 Mittal Canada also owned interests in businesses producing processed scrap (Feruni and Dietcher).

Sicartsa

Sicartsa is an integrated maker of long steel products, with one of the largest single rebar and wire rod production facilities in Mexico. Sicartsa is the largest exporter of rebar and wire rod from Mexico. It is located in Lázaro Cárdenas, Mexico, with additional facilities elsewhere in Mexico and in Texas, and was acquired by ArcelorMittal in 2007 from Grupo Villacero for an enterprise value of approximately $1.4 billion.

Sicartsa extracts its own iron ore, and is self-sufficient in this material for its production needs. Its iron ore mines are located 26 kilometers from its plant. Sicartsa has an annual production capacity of up to 1.7 million tonnes of finished products and 2.35 million tonnes of liquid steel. Its integrated steel making complex at Lázaro Cárdenas includes an iron ore concentrating plant, a pelletizing plant, a coke oven, a blast furnace, an oxy-cupola furnace, basic oxygen furnaces (BOFs), continuous casters, rebar rolling mills, a wire rod rolling mill and port facilities. It also has industrial service facilities, including a power plant, a steam plant, and a lime plant. The adjacent port facilities on Mexico’s Pacific coast have berthing capacity for three incoming and two outgoing vessels at a time. This maritime access gives Sicartsa a privileged position to reach North American, South American and Asian markets.

Sicartsa’s other industrial facilities are in Córdoba, Celaya, Tultitlán and Vinton. Its Córdoba facility on the Gulf of Mexico has an electric arc furnace mini-mill (Metaver) that produces rebar, with production capacity of 160,000 tons per year of liquid steel and 150,000 tons per year of billets. It principally supplies billets to the Camsa rolling mill. The Celaya rolling mills (Sibasa), strategically located in the geographic center of Mexico, produce rebar by using billet from Sicartsa, including the Vinton site. Its annual rebar production capacity is 550,000 tons. Sicartsa is installing a wire rod block in Celaya expected to become operational by the end of 2008. The Tultitlán rolling mill (Camsa) processes billets from Sicartsa and Cordova (Metaver) to produce rebar. It has an annual rebar production capacity of 240,000 tons. Its location in Tultitlán, near Mexico City, allows it to function as a service and distribution center supplying rebar to central Mexico. The Vinton electric arc furnace mini-mill (Border Steel) produces rebar and grinding balls, with annual production capacity of 240,000 tons of liquid steel and 235,000 tons of finished products. Its steel making facility includes two electric arc furnaces, one continuous caster and a rolling mill. It services markets in the northern states of Mexico and the American southwest.

 

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Long Carbon Europe

ArcelorMittal Duisburg

ArcelorMittal Duisburg’s production facilities are located in Ruhrort and Hochfeld, Germany. The Ruhrort facilities include two oxygen converters, secondary metallurgy (including a ladle furnace, tank degasser and a RH degasser), a blooms caster, a billet caster and a billet mill. The Hochfeld facility is a wire rod mill. The Duisburg plants together cover an area of approximately 1.9 square kilometers. More than 90% of its production is sold in Europe, primarily to automotive, railway and engineering customers. In 1997, the former Mittal Steel Ruhrort (a predecessor to ArcelorMittal Duisburg) signed an agreement with ThyssenKrupp Stahl AG for the purchase of 1.3 million tons per year of hot metal, which in 2005 was extended through 2027, with an increase to 1.5 million tons per year from 2009.

ArcelorMittal Hamburg

The ArcelorMittal Hamburg plant covers a leased area of approximately 0.6 square kilometers. Its production facilities are one DRI (MIDREX), one electric arc furnace, one ladle furnace, one billet caster, one wire rod mill and one stretching plant. 94% of its production is sold in Europe.

ArcelorMittal Poland

See Flat Carbon Europe.

ArcelorMittal Ostrava

ArcelorMittal Ostrava’s production facilities are located in Ostrava, Czech Republic. It is approximately 72%-owned by the ArcelorMittal group, with the remaining 28% owned by third parties. Its principal production facilities three coke oven batteries, two sinter plants, four blast furnaces, four open hearth tandem furnaces, three continuous casters, one hot strip mill, two section mills, one wire rod mill, two seamless tube mills, one spiral welding shop and one power plant.

In connection with the 2003 sale of ArcelorMittal Ostrava by the government of the Czech Republic (as part of its initiative to restructure the Czech steel industry), ArcelorMittal made capital expenditure commitments totaling $243 million over 10 years (including $20 million for environmental improvements), including $135 million from 2003 through 2007. ArcelorMittal Ostrava has made capital expenditures of approximately $137 million as of December 31, 2007 towards this commitment. Upon the acquisition, ArcelorMittal rescheduled the debt obligations of ArcelorMittal Ostrava with a consortium of Czech and international banks led by the International Finance Corporation. In connection with the acquisition, ArcelorMittal Ostrava also agreed to follow the medium-term restructuring plan approved by the European Commission, which includes certain reductions in capacity and employment levels.

ArcelorMittal Ostrava produces long and flat products. Approximately 52% of ArcelorMittal Ostrava’s production is sold in the Czech domestic market, with the remainder sold primarily to customers in other European countries. ArcelorMittal Ostrava sells most of its production directly to end users primarily in the engineering, automotive and construction industries, as well as to small-lot resellers.

The significant downstream subsidiaries of ArcelorMittal Ostrava are all wholly owned and are: ArcelorMittal Tubular Products Ostrava a.s., Jakl Karvina a.s., Valcovny Plechu a.s. and Nova Hut-Valcovna za Studena, spol s.r.o. ArcelorMittal Tubular Products Ostrava a.s. has an annual capacity of 275,000 tonnes of seamless tubes and 45,000 tonnes of welded pipes, Jakl Karvina a.s. has an annual capacity of 255,000 tonnes of welded pipes. Valcovny Plechu, a.s. has an annual capacity of 210,000 tonnes of cold rolled products. Nova Hut-Valcovna za Studena, spol s.r.o. has an annual capacity of 42,000 tonnes of cold rolled strips.

 

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ArcelorMittal Belval & Differdange

ArcelorMittal Belval & Differdange has two facilities located in Esch Belval and Differdange, Luxembourg. The Differdange plant covers an area of approximately 1.2 square kilometers, and the Belval plant covers an area of approximately 1.1 square kilometers. ArcelorMittal Belval & Differdange’s principal production facilities currently in operation are two electric arc furnaces, two long section rolling mills and one sheet piles rolling mill. ArcelorMittal Belval & Differdange produces a wide range of sections and sheets piles.

ArcelorMittal Rodange

ArcelorMittal Rodange has one electric arc furnace and a continuous caster for billets located in Schifflange and 2 rolling mills in Rodange. ArcelorMittal Rodange is 80%-owned by ArcelorMittal Belval Differdange, with the remaining 20% owned by third parties. The Rodange plant covers an area of approximately 0.5 square kilometers and the Esch Schifflange plant covers an area of approximately 0.4 square kilometers.

ArcelorMittal Rodange manufactures special sections (track shoes, cathode bars, car building sections, mining sections and metro guide corners), crane rails, heavy angles and squares and rebars (Tempore, Krybar, Gewi and specials). In 2008, it will expand its range to include light sheet piles products.

Arcelor Huta Warszawa

Arcelor Huta Warszawa is located in Warsaw, Poland and produces long products. Its plant covers an area of approximately 3.0 square kilometers and includes an electric arc furnace, a continuous caster, a blooming mill and two rolling mills (producing special quality bars). A new rolling mill producing rebars and light merchant bars is expected to start production in the first quarter of 2008.

Arcelor Huta Warszawa produces special quality bars. Beginning in the second quarter of 2008, Arcelor Huta Warszawa will produce rebars of from 8 millimeters to 40 millimeters in diameter, flat bars of from 25 to 150 millimeters in diameter, equal angles of from 30 to 80 millimeters and round plain bars of from 10 millimeters to 50 millimeters in diameter.

ArcelorMittal Olaberría

ArcelorMittal Olaberría is located in northeastern Spain. Its facilities include an electric arc furnace, a continuous caster and a rolling mill. It produces sections from 140 to 450 millimeters in diameter with a length between 6.0 and 24.1 meters. Its plant covers an area of approximately 0.18 square kilometers.

ArcelorMittal Bergara

ArcelorMittal Bergara is located in northeastern Spain. Its facilities include an electric arc furnace, a continuous caster and a rolling mill. It produces sections and merchant bars from 80 to 220 millimeters in diameter with a length between 6.0 and 18.3 meters. ArcelorMittal Bergara plant covers an area of approximately 0.2 square kilometers.

ArcelorMittal Madrid

ArcelorMittal Madrid is located 15 kilometers south of Madrid. Its facilities include an electric arc furnace, a continuous caster and a rolling mill. It produces sections from 220 to 450 millimeters in diameter with a length between 9.0 and 18.3 meters. Its plant covers an area of approximately 0.2 square kilometers.

AACIS

ArcelorMittal’s AACIS segment has production facilities in Europe, Asia and Africa, Americas including Kazakhstan, Ukraine, South Africa, Algeria, Macedonia, Bosnia and Herzegovina, Morocco, Romania, Czech

 

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Republic, Poland, Canada, France, China and Venezuela. The following two tables set forth a general description of ArcelorMittal’s principal production locations and production:

Production Locations—AACIS

 

Unit

 

Country

 

Locations

 

Type of Plant

 

Products

ArcelorMittal Temirtau

  Kazakhstan   Karaganda   Integrated   Flat, Pipes and Tubes

ArcelorMittal Kryviy Rih

  Ukraine   Kryviy Rih   Integrated   Long

ArcelorMittal South Africa

  South Africa   Vanderbijlpark, Saldanha, Newcastle, Vereeniging   Integrated, Mini-mill   Flat, Long, Pipes and Tubes

ArcelorMittal Annaba

  Algeria   Annaba   Integrated, Mini-mill   Flat, Long, Pipes and Tubes

ArcelorMittal Skopje

  Macedonia   Skopje   Downstream   Flat

ArcelorMittal Zenica

  BH   Zenica   Mini-mill   Long

Sonasid

  Morocco   Nador, Jorf, Lasfar   Mini-mill   Long

ArcelorMittal Tubular Products

  Romania, Czech Republic,
South Africa, Algeria,
Poland, Canada,
Kazakhstan, France
  Roman, Ostrava, Vereeniging, Annaba, Krakow, Iasi, Galati, Contrecoeur, Temirtau   Downstream   Pipes and Tubes

Production Facilities—AACIS

 

Facility

   Number of
Facilities
   Capacity
(in million tonnes
per year)
   Production in 2007
(in million tonnes)(1)

Coke Plant

   25    11.9    9.4

Sinter Plant

   11    26.8    23.9

Blast Furnace

   16    24.0    16.5

Basic Oxygen Furnace (including Tandem Furnace)

   19    22.5    17.1

DRI Plant

   6    1.5    1.4

Electric Arc Furnace

   9    5.1    3.7

Continuous Caster—Bloom / Billet

   6    5.2    3.7

Breakdown Mill (Blooming / Slabbing Mill)

   2    10.0    8.1

Billet Rolling Mill

   1    1.5    1.3

Section Mill

   8    4.4    4.7

Bar Mill

   6    1.5    1.5

Wire Rod Mill

   7    4.0    3.8

Continuous Caster—Slabs

   8    12.0    8.6

Hot Rolling Mill

   5    11.9    8.4

Pickling Line

   6    6.0    3.9

Tandem Mill

   6    5.7    3.7

Annealing Line

   10    2.1    1.1

Skin Pass Mill

   6    1.9    0.9

Hot Dip Galvanizing Line

   7    1.7    1.5

Electro Galvanizing Line

   2    0.2    0.1

Tinplate Mill

   4    1.4    0.9

Color Coating Line

   3    0.2    0.2

Plate Mill

   1    0.6    0.3

Seamless Pipes

   13    2.1    1.2

Welded Pipes

   7    0.7    0.3

 

(1) Production facility details include the production numbers for each step in the steel-making process. Output from one step in the process is used as input in the next step in the process. Hence, the summation of production numbers does not equal the quantity of saleable finished steel products.

 

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ArcelorMittal South Africa

ArcelorMittal South Africa is the largest steel producer in Africa and has an installed capacity of approximately 8.2 million metric tonnes of liquid steel. ArcelorMittal, South Africa’s common shares are listed on JSE Limited in South Africa under the symbol “ACL”. Mittal Steel Holdings AG has a shareholding of 52.02%.

ArcelorMittal South Africa has four main production facilities which are supported by a metallurgical by-products division (Coke and Chemicals). Vanderbijlpark Steel is an integrated flat steel producer whose facility is located in Gauteng province, approximately 80 kilometers south of Johannesburg, and covers an area of approximately 23.0 square kilometers with a liquid steel capacity of approximately 4.4 million tonnes. Vereeniging Steel is a mini-mill located in Vereeniging, close to Vanderbijlpark Steel, producing specialty steel products and covering an area of approximately 0.8 square kilometers, with an annual liquid steel capacity of approximately 0.4 million tonnes of liquid steel. Newcastle Steel is an integrated long products facility located in Kwa-Zulu Natal province and covers an area of approximately 13.1 square kilometers. It produces sections and bars as well as billets for re-rolling and wire rod and has an annual liquid steel capacity of approximately 2.0 million tonnes. Saldanha Steel is a flat steel producer located in Cape Province, close to the deep-sea port of Saldanha, and covers an area of approximately 4.0 square kilometers. The facility has a liquid steel capacity of approximately 1.4 million tonnes per annum and utilizes the Corex/Midrex process.

ArcelorMittal South Africa’s range of products includes hot-rolled plates and sheet in coil form, cold-rolled sheet, coated sheet, wire-rod and sections as well as forgings. Approximately 76% of its products are sold in the South African domestic market while Asia is its largest export market. It also sells significant quantities of product into Europe and parts of Africa.

ArcelorMittal Kryviy Rih

The former Mittal Steel acquired the Ukrainian steel maker Kryvorizhstal in 2005 and subsequently renamed it ArcelorMittal Kryviy Rih.

ArcelorMittal Kryviy Rih’s integrated steel plant consists of eight coke oven plants (including one coke oven plant which began production at the end of 2007), three sintering plants, six blast furnaces (including two under reconstruction), six basic oxygen furnaces, two open hearth furnaces, two blooming mills and six light section/bar mills, three wire rod mills and covers an area of approximately 120 square kilometers including mines, agriculture division and various recreational centers.

ArcelorMittal Kryviy Rih is committed to invest at least $500 million through 2010 pursuant to the agreement under which it was acquired, which includes certain innovation, investment and environment-related undertakings. ArcelorMittal Kryviy Rih has spent approximately $269 million through 2007 against these commitments. ArcelorMittal Kryviy Rih also undertook certain labor obligations relating to preservation of headcount and average wages.

ArcelorMittal Kryviy Rih’s product range includes billets, rounds, rebar and light sections including squares, angles and strips. The products are sold to a range of industries such as hardware, construction, re-rolling and fabrication. The markets for the products are Ukraine, CIS and Russia, North Africa, Europe, the Middle East and the Gulf states.

ArcelorMittal Temirtau

ArcelorMittal Temirtau’s wholly-owned integrated steel plant consists of six coke oven batteries, three sinter plants, four blast furnaces, three basic oxygen furnaces, two continuous slab casters, one hot strip mill, three cold rolling mills and three tinning lines, two hot dip galvanizing and aluminum-zinc coating lines, one

 

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color coating line and two welded pipe mills. ArcelorMittal Temirtau also has iron ore mines which produce 5.35 million tonnes per year of iron ore for its needs and mines producing 1.14 million tonnes per years of coking coal and energy coal for its steel plant.

ArcelorMittal Temirtau is currently constructing a bar mill and is also upgrading its tinning line. In 2007, it completed a tinning line upgrade. ArcelorMittal Temirtau is planning to commission a new bar and section mill by the third quarter of 2008. It is also contemplating installing a galvanizing line with an annual production capacity of 400,000 tonnes and constructing another bar mill, and a billet caster. It is also considering adding 120 megawatts of generation capacity in order to add to its energy independence. Plans for ecological improvements are also being pursued, including the following major environmental projects: closure of the cooling pond (in order to improve water quality in the Samarkand reservoir); the addition of biological ponds at the water treatment facilities in order to improve the quality of water discharged to the Nura river; the installation of a new electric precipitator at one of the power station boiler outputs; the installation of two electric precipitators at blast furnace No. 4 in order to eliminate fugitive emissions; the installation of a gas cleaning facility at the output of the rotating kiln at a limestone calcination shop; and the installation of a converter gas cleaning facility.

ArcelorMittal Temirtau’s product range of flat steel products includes pig iron, continuous caster slabs, hot- and cold-rolled coils and sheets, black plates, covers, tin plates, hot dipped galvanized products, color coated products and welded pipes. It sells steel products to a range of industries, including the tube- and pipe-making sectors, as well as manufacturers of consumer goods and appliances.

ArcelorMittal Annaba

ArcelorMittal Annaba is located in Algeria. ArcelorMittal Annaba is the only integrated steel plant in Algeria. ArcelorMittal Annaba also owns port facilities at Annaba, which are located approximately 12 kilometers from its steel-producing operations, in order to handle exports of steel products and imports of raw materials.

ArcelorMittal Annaba’s production facilities consist of two basic oxygen furnaces with six converters and one electric arc furnace. It operates with two sinter plants, two blast furnaces, a hot-strip mill, a cold reducing mill, a bar and rod mill and a seamless tube mill.

ArcelorMittal Annaba produces both long and flat products. Its flat product range includes slabs, hot rolled and cold-rolled coils and sheets, hot-dipped galvanized products and tin plates, and its long product range includes billets, wire-rods, rebars and seamless tubes. ArcelorMittal Annaba supplies products primarily to the construction, housing, engineering, packaging and petrochemical industries.

Sonasid

Sonasid is the largest long steel producer in Morocco and has facilities in Nador, Jorf and Lasfar in Morocco. Sonasid principally produces steel bars and rods. These products include reinforcing bars (used in construction), wire rods (used to manufacture nails and springs) and merchant bars (used in mechanical construction and steel framework structures).

ArcelorMittal Tubular Products

In 2007 the former Mittal Steel separated its pipe and tube manufacturing operations into a separate division. This division included seamless pipe manufacturing plants in: Roman, Romania; Ostrava, Czech Republic; Vereeniging, South Africa; and Annaba, Algeria. This division also included welded tube and pipe plants in: Krakow, Poland; Karvina, Czech Republic; Iasi, Romania; Galati, Romania; Temirtau, Kazakhstan; and Contrecoeur, Canada. A new spiral welded plant was brought on line in Aktau, Kazakhstan as well.

Dofasco’s addition to the operating perimeter brought its subsidiary. Dofasco Tubular Products, which had a seamless facility in Shelby, Ohio and welded tube plants in: Hamilton, Canada; Brampton, Canada; Mississauga,

 

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Canada, Marion, Ohio; and Monterrey, Mexico. It had automotive components plants in: Woodstock, Canada; London, Canada; and Brantford, Canada. It also had a stainless tube manufacturing plant in Elizabethtown, Kentucky. The Brantford plant has since been shut down (end of part program life), and the Elizabethtown facility has been sold. The Mississauga plant production has been consolidated into the Brampton plant to improve efficiency.

In September 2007, ArcelorMittal Tubular Products combined the Pipes and Tubes operations with those of the former Dofasco Tubular Products. The operations within this new group are organized according to the markets they serve.

 

   

Energy—Ostrava, Roman, Galati, Annaba, Aktau, Vereeniging

 

   

Mechanical—Krakow, Iasi, Karvina, Temirtau, Contrecoeur, Shelby, Marion

 

   

Automotive—Hamilton, Brampton, Woodstock, London, Monterrey

In December 2007, the automotive tube and components operations of Vallourec in France were acquired. The tube plants in Hautmont and Chevillon and the automotive components in Vitry were added to the automotive group.

Stainless Steel

ArcelorMittal’s Stainless Steel segment has production facilities in South America and Europe, including Brazil, France and Belgium. The following two tables set forth a general description of ArcelorMittal Stainless Steel’s principal production locations and production units:

Production Locations—ArcelorMittal Stainless Steel

 

Unit

 

Country

 

Locations

 

Type of Plant

 

Products

ArcelorMittal Inox Brasil S.A.

  Brazil   Timóteo   Integrated  

Stainless Steel

Silicon Steel

Carbon Alloyed Steel

ArcelorMittal Stainless Europe

  France, Belgium   Châtelet (Carinox) Genk Gueugnon   Mini-mill   Stainless Steel

ArcelorMittal Stainless & Nickel Alloys

  France   Imphy   Mini-mill   Stainless & Nickel Alloys

Production Facilities for ArcelorMittal Stainless Steel

 

Facility

   Number of
Facilities
   Capacity
(in million tonnes
per year)
   Production in 2007
(in million tonnes)(1)

Blast Furnace

   2    0.7    0.6

Electric Arc Furnace

   6    3.0    2.2

Continuous Caster—Billets

   1    0.1    0.0

Continuous Caster—Slabs

   4    3.0    2.2

Hot Rolling Mill

   4    4.5    2.9

Cold Rolling Mill (Z mill)

   19    2.1    1.5

Pickling Line(2)

   5    2.1    1.5

Annealing Line

   16    2.4    1.8

Skin Pass Mill

   7    1.3    0.8

 

(1) Production facility details include the production numbers for each step in the steel-making process. Output from one step in the process is used as input in the next step in the process. Hence, the summation of production numbers does not equal to the quantity of saleable finished steel products.
(2) Allocation to pickling lines and annealing lines is based on “carbon steel process” logic, which means the “Pickling Line” category includes Hot Annealing Lines (anneal prior rolling for stainless steel). Annealing lines include final annealing and pickling lines plus bright annealing lines as similar to annealing lines for carbon steel.

 

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ArcelorMittal Inox Brasil S.A.

ArcelorMittal Inox Brasil (“AMIB”) is the only integrated producer of flat stainless and silicon steel in Latin America. It is leader of its business segment in Brazil, with a significant market share in the main South American markets. In 2007, it exported products to more than 60 countries. Its steel mill in Timóteo, in the Vale do Aço (Steel Valley), Minas Gerais state, Brazil, has an annual production capacity of 900,000 tons of liquid steel. In December 2007, ArcelorMittal announced its intention to launch a cash offer to acquire the 43% of outstanding shares in AMIB it did not currently own.

It also has several subsidiaries: Acesita Serviços, Comércio, Indústria e Participação LTDA. (“ASCIPAR”), which encompasses several companies involved in steel cutting, finishing, trading and distribution; as well as two entities acquired at the end of 2007, Cínter S.A., a tube manufacturer in Uruguay and M.T. Majdalani y Cia. S.A., the leading stainless steel service center and distributor in Argentina.

ASCIPAR controls the following companies: ArcelorMittal Serviços São Paulo, a service center in Ipiranga, São Paulo which also trades tubes and bars; ArcelorMittal Serviços Campinas, a service center; ArcelorMittal Seviços Timóteo-Industrial, a service center at the Timóteo plant that processes stainless steel; ArcelorMittal Serviços Timóteo-Commercial, also at the Timóteo plant, engaged in regional stainless flat and tubes commercial and distribution activities; ArcelorMittal Caxias do Sul—Serviços Aços Inoxidáveis e Elétricos, a service center in Caxias do Sul (RS); and ArcelorMittal Stainless Argentina S.A., which handles importing, exporting, purchasing and selling, distribution, representation and trading, processing and transformation of flat and non-flat stainless steel, silicon steels, high carbon steel, non-flat products (except tubes) and cast steel products, primarily in the Argentine market.

ASCIPAR also has a stainless tubes segment that conducts business through the following companies: Cetubos, a manufacturer of seam-welded stainless steel tubes; Inox Tubos, which serves customers with special welded seams needs; and Acesita Energética, which produces wood and charcoal from cultivated eucalyptus forests for steel-making applications. Acesita Energética is located in Vale do Jequitinhonha, Minas Gerais, and occupies an area of 1,263 square kilometers, including the cities of Capelinha, Minas Novas, Turmalina, Itamarandiba and Veredinha. AMIB also has a research center. AMIB’s export products are distributed worldwide by the ArcelorMittal Stainless International network.

AMIB’s integrated plant in Timóteo includes two blast furnaces, a melting shop area (including two electrical furnaces, one smelter, two converters and two continuous casting machines), a hot strip rolling mill (including one walking beam and one push furnace with one rougher mill and one steckel mill), stainless cold rolling (including one hot annealing pickling, two cold annealing pickling and one cold preparation line, three cold rolling mills and boxes annealing) and silicon cold rolling (including one hot annealing pickling line, two tandem lines, one decarb line, one carlite coating line and one cold rolling mill).

ArcelorMittal Stainless Europe

The upstream facilities of ArcelorMittal Stainless Europe (“AMSE”) consist of two steel-making plants in Belgium (Genk and Châtelet). The Genk plant includes two electric arc furnaces, vacuum and argon oxygen decarburizing facilities, ladle refining metallurgy and slab continuous caster. The Genk plant also includes a cold rolling mill facility. The Genk plant covers an area of approximately 0.8 square kilometers. The Châtelet plant is an integrated upstream steel-making plant with a melt shop and a hot rolling mill. The Châtelet melt shop includes an electric arc furnace, argon-oxygen decarburizing equipment, ladle refining metallurgy, slab continuous caster and slab grinders. In addition to this melt shop; the Châtelet plant includes a hot rolling facility. The Châtelet plant covers an area of approximately 0.5 square kilometers.

The AMSE downstream facilities consist of three cold rolling mill plants, located in Genk, Belgium, Gueugnon and Isbergues, France. All three plants includes annealing and pickling lines (with shot blasting and pickling equipments), cold rolling mills, bright annealing lines (in Gueugnon and Genk), skin-pass, and finishing operations equipments. In addition, the Isbergues plant also includes a direct rolling annealing and pickling

 

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(“DRAP”) line. The Genk plant is focused on austenitic products, Gueugnon on ferritic products, and Isbergues on products dedicated to automotive (mainly ferritic) and industry (mainly austenitic) markets. The Gueugnon plan covers an area of approximately 0.4 square kilometers and the Isbergues plan covers an area of approximately 0.9 square kilometers.

AMSE also has two plants in France which produce precision stainless strips. One in Pont de Roide and the other in Firminy. They are equipped with continuous annealing and pickling lines, cold rolling mills, bright annealing lines and finishing operations equipments. AMSE has also two plants in France which produce welded stainless tubes: AMS Automotive Tubes in Usti, Czech Republic, which makes tubes for exhaust systems, and AMS Tubes Europe in Ancerville, France which makes tubes for industrial applications (decoration and corrosion resistance).

AMSE’s in-house distribution network enables it to cover entire European market. Its steel service centers are AMSS France in Isbergues, AMSS Belgium in Genk, AMSS Luxembourg SA, AMSS Germany GmbH in Sersheim and Rheinhausen, Germany, AMSS Spain SL in Viladecans, Spain, AMSS Italy SRL and AMSS Podenzano SRL, respectively in Massalengo and Podenzano, Italy, AMSS Poland in Siemianowice Slaskie, Poland. All service centers have dedicated equipment to adapt products to local markets which includes slitters, coils packaging lines, cut to length lines and coils polishing lines. AMSE export products are distributed worldwide by ArcelorMittal Stainless International network.

AMSE produces and sells a wide range of products, including semi-finished products delivered by the upstream division (austenitic, ferritic and martensitic slabs and hot rolled coils) and finished products delivered by specialties, and the automotive & industry division. The specialties division provides products for the following markets: appliances, sinks, cooking utensils, cutlery, catering, auto decorative applications, building, heating systems. The automotive & industry division is a leading supplier in the markets of first transformation (tubes, flat and bars), food and process industry and the automotive industry (exhaust systems and structure).

ArcelorMittal Stainless & Nickel Alloys

ArcelorMittal Stainless & Nickel Alloys, formerly named Imphy Alloys, is a leader in the design, production and transformation of nickel and cobalt alloys as well as in certain specific stainless steels. Produced in the form of bars, cold-rolled strip, wire rod and plates, these products are intended for high-tech applications or applications addressing very specific requirements.

ArcelorMittal Stainless & Nickel Alloys’ production facilities are located in France, principally in Imphy. They include melt shop, cold rolling mill and wire hot rolling mill facilities.

ArcelorMittal Steel Solution Services

ArcelorMittal Steel Solutions and Services (“AM3S”) is primarily an in-house trading and distribution arm of ArcelorMittal. It is also provides value-added and customized steel solutions through further processing to meet specific customer requirements. AM3S is the largest customer of both the Flat and Long Carbon Steel business units (approximately 80% sourced internally). AM3S has numerous small- to medium-size service centers and warehouses. AM3S consists of four operational units: ArcelorMittal Distribution (“AMD”), ArcelorMittal Steel Service Centers (“AMSSC”), ArcelorMittal Construction (“AMC”), and ArcelorMittal International (“AMI”). ArcelorMittal Foundation Solutions (“AMFS”), which was a separate operating unit of AM3S in 2006, became part of AMD in 2007.

ArcelorMittal Distribution

AMD is a multi-customer, multi-service and multi-product distributor, expert in service and proximity. It has a regional network able to supply small customers locally, to meet the complex needs of industrial key accounts and to assist the worldwide development of multinational companies. AMD’s business consists of three activities: stockholding activity, processing activity and foundation solutions. AMD has locations in France,

 

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Belgium, the Netherlands, Luxembourg, Germany, the United Kingdom, Spain, Portugal, Italy, Central and Eastern Europe, China, Malaysia and Turkey, as well as in Asia and the United States.

AMD’s facilities include decoiling, shotblasting, painting, laser cutting, waterjet cutting, plasma cutting, flame cutting, sawing, bending, drilling and threading lines and machinery. In addition, AMD now includes the foundation services of AMFS, which designs and supplies solutions for large infrastructure projects. It supplies a complete range of foundation products and accessories, logistics, rental, stock, welding, leasing and coating. Its main foundation products are sheet piles, beams, tubes and heavy sheet piles, which are used in customized steel solutions for large projects, such as piled foundations, marine works and waterfront structures, landfill, underground car parks, tunnels and waste disposal.

AMD sells a broad range of metal products (primarily carbon steel, but also stainless steel, aluminum and other metals) in small lot sizes from stock to global solutions and tailor-made offers. Its main customers are in the building, civil engineering, boilerworks, shipbuilding and railway construction, lifting equipment and general industry markets.

ArcelorMittal Steel Service Center

AMSSC processes flat carbon steel products and logistics for the automotive and industrial markets. It provides tailor-made offers and on-time deliveries in ready-to-use dimensions and quantities. AMSSC has locations in France, Belgium, Italy, Spain, Germany, the United Kingdom, Sweden, Poland, the Czech Republic and Morocco. Its 49 facilities include approximately 160 production lines: 88 slitters, 64 cut-to-length lines and 13 cutting presses. Additionally, AMSSC has one pickling line, two galvanizing lines, one organic coating line, five cold rolling mills, 11 multi blanking lines, 15 punching lines, 14 bending lines and two painting lines. AMSSC supplies customers with an integrated offer of slit coils, sheets and blanks, mixing external sourcing and its products with technical expertise and innovation for the automotive and general industry markets. In 2007, AMSSC invested in a new steel service center in Krakow, Poland with two de-coiling lines and a slitting line for a processing capacity of 450,000 tonnes per year. Operations commenced in February 2008.

ArcelorMittal Construction

AMC provides its customers with light steel-based solutions for cladding, roofing, floors and gutters. It has locations in France, Spain, Belgium, the Netherlands and Luxembourg, Germany, Austria, Switzerland, the United Kingdom, Portugal, Greece, Poland, Czech Republic, Hungary, Russia, Lithuania, Norway, Denmark, Sweden, Romania, China, Brazil and Slovakia, as well as in Indian Ocean area and the Caribbean. Its facilities includes one pickling line, one cold roll mill, two integrated galvanizing/coating lines, two coating lines, 90 profiling lines and 17 panel lines. AMC sells three main types of products: profiles, floor elements and sandwich panels. Its ARCLAD brand provides standard cladding profiles and panels for construction with short lead times, on-time deliveries and competitive pricing for the largest standard product range. Its ARVAL brand serves architects’ and engineering firms’ most diverse requirements with cladding of various colors, shapes and qualities. Its ARMAT brand is focused on residential solutions, providing roof tiles, steel wall panels and gutters.

ArcelorMittal International

AMI is a worldwide sales network supplying ArcelorMittal products from over 30 mills outside of their home markets. AMI has over 50 sales offices on five continents serving more than 27 countries. AMI provides its customers with a wide range of flat and long products. AMI supplies steel products and technical support for complex projects, such as offshore and onshore drilling platforms, multi-purpose vessels, bridges, sports infrastructures, airports, electric power plants and skyscrapers.

ITEM 4A. UNRESOLVED STAFF COMMENTS

There are no unresolved written comments received from the staff of the Securities and Exchange Commission regarding ArcelorMittal’s periodic reports under the United States Securities Exchange Act of 1934, as amended.

 

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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

ArcelorMittal is the world’s largest and most global steel producer, with an annual production capacity of over 130 million tonnes of crude steel in 2007. ArcelorMittal had sales of $105.2 billion and steel shipments of 109.7 million tonnes for the year ended December 31, 2007. ArcelorMittal has steel-making operations in 20 countries on four continents, including 65 integrated, mini-mill and integrated mini-mill steel-making facilities. ArcelorMittal is the largest steel producer in North and South America, Europe and Africa, the second largest steel producer in the CIS and has a growing presence in Asia, particularly in China. As of December 31, 2007, ArcelorMittal had approximately 311,000 employees.

In 2006, our predecessor company Mittal Steel increased its size significantly by acquiring Arcelor, which, at the time of its acquisition, was the world’s second-largest steel producer by production volume. On a pro forma basis after giving effect to its acquisition of Arcelor as if the acquisition occurred on January 1, 2006, Mittal Steel had sales of $88.6 billion and steel shipments of 110.5 million tonnes for the year ended December 31, 2006.

ArcelorMittal produces a broad range of high-quality finished and semi-finished steel products. Specifically, ArcelorMittal produces flat products, including sheet and plate, long products, including bars, rods and structural shapes, and stainless steel products. ArcelorMittal also produces pipes and tubes for various applications. ArcelorMittal sells its products primarily in local markets and through its centralized marketing organization to a diverse range of customers in approximately 170 countries, including the automotive, appliance, engineering, construction and machinery industries.

Key Factors Affecting Results of Operations

The steel industry has historically been highly cyclical and is affected significantly by general economic conditions, such as worldwide production capacity and fluctuations in steel imports/exports and tariffs. Uptrends and downtrends may become less pronounced as the steel industry consolidates. The steel industry has experienced a cyclical uptrend in recent years, including the 2005-2007 period under review, primarily driven by the continued increase in Chinese production and Chinese and emerging market consumption of steel products. While blunted somewhat by recent economic uncertainty, this trend, combined with the growing upward pressure on the costs of key production inputs, primarily metals, energy, and transportation and logistics, presents an increasing challenge for steel producers. The key drivers for maintaining a competitive position and positive financial performance in this challenging environment are product differentiation, vertical integration, geographic diversification, customer service, and cost reduction.

ArcelorMittal’s revenues are predominantly derived from the sale of flat steel products, long steel products and stainless steel products. Prices of steel products, in general, are sensitive to changes in worldwide and local demand, which in turn are affected by worldwide and country-specific economic conditions and to available production capacity. Unlike other commodities, steel is not completely fungible due to wide differences in shape, chemical composition, quality, specifications and application, all of which impact prices. Accordingly, there is very limited exchange trading of steel or uniform pricing. Commodity spot prices may vary, and, therefore, export sales revenue fluctuates as a function of worldwide balance of supply and demand conditions at the time such sales are made.

Although steel prices typically follow trends in raw material prices, the percentage changes may not be proportional, and price increases in steel may lag price increases in production costs. Increases in production costs are driven by supply-demand dynamics and demand from alternative markets. Steel price surcharges are often implemented on contracted steel prices to recover increases in input costs. However, spot market steel prices and short-term contracts are driven by market prices.

 

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Economic Environment

Despite the sharp tightening in credit conditions starting in August 2007, the global economy recorded strong growth in 2007, with worldwide gross domestic product (“GDP”) increasing 3.8% in real terms1; as growth in the emerging markets recorded the highest rate of economic growth for at least a decade. This increase was due to rapid growth in Asia excluding Japan (8%), particularly in China and India, which grew by 11.4% and 8.5%, respectively, as well as in South America and Central and Eastern Europe. The recovery in the European Union continued in 2007 with growth of 2.9% after five years of relatively slow growth. Economic growth in the United States began to slow during the second half of 2006 as a tightening monetary policy began to take effect and was negatively affected by the credit crisis in the second half of 2007. The United States experienced only 2.2% real GDP growth in 2007, down from 2.9% in 2006.

High oil and natural gas prices continued to benefit the major oil- and natural gas-exporting countries of the Commonwealth of Independent States (the “CIS”) and the Middle East, while high commodity prices supported growth in both Africa and Latin America. Eastern Europe benefited from the recovery in Western Europe which lifted exports into the region.

Global manufacturing output increased a relatively strong 4% during 2007, buoyed by robust investment and an increase in global trade. This was down from 2006 (4.7%), the best year since 2000, as output growth weakened in the more mature economies of the United States, Japan and Western Europe. Production growth was particularly strong in non-OECD economies, rising 8.75% in 2007, the second highest growth rate of the previous two decades.

This economic growth, and with it the continuous growth in capital spending, led to strong worldwide steel demand, especially in developing countries, which account for two-thirds of global steel consumption.

Steel Production

In 2007, world crude steel production increased 7.2% to 1.32 billion tonnes, as compared with 1.23 billion tonnes in 20062. This total represented the highest level of crude steel production in history, but the growth rate slowed from 8.3% over the previous five years and from over 10% in 2006. The increase in production in 2007 was again primarily led by China, which despite slowing growth rates through the year increased production by 62.5 million tonnes, or 15%, to 487.6 million tonnes. Steel production in 2007 increased 1.7% to 210 million tonnes in the European Union, by 6.5% to 48.3 million tonnes in South America and by 3.8% to 124.4 million tonnes in the CIS. However, steel production fell in the United States by 1.3% to 97.2 million tonnes and rose by only 0.3% in North America, to 131 million tonnes.

Trade and Import Competition

Import competition continued to increase in the European Union, as the import penetration ratio (imports/market supply) reached almost 20% during 2007, from 16% in 2006, which itself showed an increase over 2005. The rapid increase in imports outstripped increases in demand, causing temporary over-supply and affecting the steel pricing environment.

Historically, imports have played a significant role in the United States. Total finished imports reached a historic record of approximately 33 million tonnes in 2006 leading to an import penetration ratio of approximately 27%. However, apparent steel demand in the United States contracted in 2007, as problems in residential construction, automotive and significant de-stocking affected steel prices. Finished steel imports of approximately 24.5 million tonnes in 2007 (import penetration ratio of approximately 23%), represented a decline of 25% over 2006.

 

 

1 GDP and Industrial production estimates sourced from Global Insight (February 14, 2008)
2 Source: International Iron and Steel Institute

 

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Consolidation in the Steel Industry

The steel industry has experienced a consolidation trend in recent years, which continued in 2007.

Apart from Mittal Steel’s acquisition of Arcelor in 2006 and their merger in 2007, the other notable merger of 2007 was that of Tata Steel and Corus (itself the result of a merger between British Steel and Hoogovens in 2002). In Eastern Europe, U.S. Steel’s acquisitions in Slovakia and Serbia continued the trend of industry consolidation. Additional merger and acquisition activity between companies of smaller size continues to take place.

Steel industry consolidation is also expected to take place in China. The government of China has publicly stated that it expects consolidation in the Chinese steel industry and that it expects the top ten Chinese steel producers eventually to account for 50% of national production. The Chinese government has also announced the rationalization of steel production using obsolete technology such as open-hearth furnaces.

Recent and expected future industry consolidation should foster the ability of steel producers, and the steel industry generally, to maintain more consistent performance through steel cycles by achieving greater efficiency and economies of scale. Moreover, steel-industry consolidation should result in fewer duplicate investments, both nationally and internationally, helping to make less likely a re-emergence of the chronic overcapacity that plagued the industry during the 1973 to 2000 period. In addition, consolidation among steel producers provides increased bargaining power with both suppliers and customers. This wave of consolidation has followed the lead of the industry’s suppliers, where, for example, there are only three primary iron-ore suppliers, and scrap suppliers are beginning to form larger and stronger groups, such as the Sims-Neu merger, in order to maintain a stronger bargaining position with steel producers. This “upstream” consolidation would continue further if iron ore producer BHP Billiton is successful in its offer for Rio Tinto, two of the largest iron ore producers in the world.

Raw Materials

ArcelorMittal consumes large amounts of raw materials. Its primary raw material inputs are iron ore, solid fuels, metallics, alloys, electricity, natural gas and base metals. The increased global demand for steel, primarily as a result of the continuous strong demand from China and developing countries has resulted in significant upward price pressure for these raw materials during the period under review. While the impact on costs is partially mitigated by its ownership of various mining assets and strategic contracts, sharp cost increases nonetheless adversely affected its results for 2007.

Iron Ore

Seaborne iron ore prices increased by 9.5% in 2007 as compared to 2006 due to moderate strength in the seaborne ore market. This increase was in addition to a 19% price increase in 2006 and a 71.5% price increase in 2005. The 2007 price settlement was reached at an early stage in December 2006, reflecting market conditions at the time. During 2007, supply continued to tighten, which was reflected in an unprecedented price escalation in the iron ore spot market in China of 240% on a year-on-year basis. Nevertheless, ArcelorMittal was able to secure its 2007 requirements from its portfolio of captive sources and long-term contracts based on benchmark prices.

Benchmark iron ore prices for 2008 have been concluded with Vale, following its iron ore fines price negotiations for 2008 with Nippon Steel and Posco, the largest Japanese and Korean steelmakers. As an outcome of these negotiations, the iron ore prices for Southern System fines (SSF), FOB Tubarão, increased by 65% relative to 2007. At the same time, prices for Carajas iron ore fines (SFCJ) were settled with a premium of $0.0619 per dmtu Fe unit over 2007 prices. Therefore, the new reference prices per dmtu Fe unit for 2008 in Europe are $1.3440 for SSF and $1.4060 for SFCJ.

 

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On March 7, 2008, the Brazilian mining company Vale, the world’s largest iron ore producer, announced that it had agreed with ArcelorMittal to price increases of 65 percent for iron ore, as well as a premium for higher-quality Carajas ore, in line with price increases agreed with other steel makers. The magnitude of the price increase for 2008 reflects the continuity of very tight conditions prevailing in the global iron ore market.

The short-term outlook for iron ore prices is for continued strong growth due, among other things, to stronger demand (including continued demand from China and sustained Japanese demand on the back of strong steel production), the improving financial health of the world’s steel industry, and possible further industry consolidation.

Coking Coal

Prices for coking coal remained stable over the past two years. In 2006, international settlement prices for premium coking coal from Australia eased slightly to $115 per tonne free on board (“FOB”) on average (compared with approximately $125 per tonne FOB on average in 2005), due to larger than anticipated growth in the supply of seaborne coal. In 2007, prices for premium grade coking coal further softened to $95 per tonne on FOB Australian port basis as a result of continued oversupply. However, a number of force majeure events at U.S. coking coal mines, safety issues in Russian coking coal mines and logistics bottlenecks in Australia occurred since July 2007 and are continuing to contribute to a tightening of global coking coal supply. As a result, spot prices for coking coal have risen to a level of $300 per tonne FOB in March 2008. Negotiations for annual contract prices for the period 2008 – 2009 are commencing during the first quarter of 2008 and global coking coal suppliers may target significant price increases in view of the recently developed supply constraint.

Chinese coke prices began 2007 at $180 per tonne FOB Chinese port for 12.5% ash coke and climbed steadily to $435 per tonne in December 2007. This increase in coke priced was mainly driven by export tax increasing from 5 to 15% , as well as by a shortage in the fourth quarter of 2007 created by the unavailability of export licenses. In 2006, Chinese coke prices for 12.5% ash were $125 per tonne FOB in January 2006 and rose to $173 per tonne FOB in December 2006.

Short-term, metallurgical coal demand is expected to remain strong, with medium term demand rising, linked to strong growth in Asia. Demand for energy coal continues to grow in absolute terms as world electricity fuel demand increases, with prices fluctuating in the short term based on supply-demand fundamentals but continuing to be consistently below oil and gas prices on an energy equivalent basis.

Scrap

Benchmark prices increased by 20% in 2007 compared to 2006. Due to exchange rate and freight dynamics related to the weakening of the U.S. dollar and increasing freight capacity shortages, substantial price differences among the various world scrap markets arose. Average European scrap prices for type E3/Heavy Metal Scrap (“HMS”) increased 11%, from €205 per tonne in 2006 to €228 per tonne in 2007, while in the United States prices for the same scrap grade increased 17%, from $222 per tonne in 2006 to $260 per tonne in 2007. In Asia, prices for HMS scrap increased 32%, from $266 per tonne in 2006 to $354 per tonne in the fourth quarter of 2007. Export market prices also rose by 24% year-on-year.

The scrap supply/demand balance proved to be very volatile in 2007, causing significant price jumps. Exports from North America rose sharply in 2007, to approximately 15 million tonnes from a previous four-year average of approximately 10 million tonnes.

Alloys

The underlying price driver for bulk alloys is manganese ore prices. Manganese ore prices rose significantly from $3/dmtu in 2006 to $12/dmtu in 2007. The consolidation in manganese ore mining was the main driver for this development. Coupled with higher energy prices, these factors have driven up bulk alloys prices.

 

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Average alloy prices1 between 2006 and 2007 increased 61% for High Carbon Ferro Manganese (HCFeMn), an increase of €310 per dmtu, 41% for Medium Carbon Ferro Manganese (MCFeMn), an increase of €410 per tonne, 58% for Silico Manganese (SiMn), an increase of €360 per tonne, and 24% for Ferro Silicon (FeSi), an increase of €175 per tonne. Manganese metal2 prices showed a marked increase of 150%, an increase of $2,000 per tonne.

Base Metals

Key base metals used by ArcelorMittal are zinc, tin and aluminum for coating and nickel for manufacturing stainless steel. ArcelorMittal generally hedges its exposure to its base metal inputs in accordance with its risk management policies.

Zinc

After a steep price rise from $1,912 per tonne in January 2006 to a historical peak in December 2006 of $4,600 per tonne, zinc prices declined to $2,350 per tonne by the end of 2007. In mid-2007, price resistance between the $3,700 per tonne to $3,300 per tonne level made itself felt, due to inventories reaching their lowest reported level of 66,000 tonnes.

A combination of increasing concentrate supply from zinc mines, which allows metal production to return to higher levels, with the slowdown in the U.S. economy has reduced demand pressures, resulting in a slight surplus. In consequence, London Metals Exchange (“LME”) inventory levels reversed their downward trend in the second half of 2007, for an end-of-year inventory of 88,000 tonnes.

Nickel

In 2006, nickel prices rose from $13,900 per tonne in January 2006 to $33,325 per tonne at the end of 2006, due to strong demand and weak supply. This rally continued in the first half of 2007, reaching an all time high of $54,000 per tonne. At the same time, LME nickel inventories continued to fall, from 35,944 in January 2006 to 6,594 tonnes in December 2006, to 4,000 tonnes by May 2007. This price increase was also supported by growing stainless steel production in China and strong overall demand worldwide.

However, in May 2007, demand for stainless steel began to weaken, particularly in the United States and Europe, where large-scale destocking by service centers eased third-quarter demand. The ensuing reduction in stainless steel production has led to cancellations and postponements of nickel deliveries. Nickel prices fell to a low of $25,000 per tonne by mid-August 2007. Prices recovered somewhat by September, reaching $34,000 per tonne in September, and closed at $26,000 per tonne at the end of 2007. Nickel inventories recovered to a level of 48,000 tonnes by the end of December 2007.

Energy

Electricity

In most of the countries where ArcelorMittal operates, electricity prices have been affected by fuel price increases, such as for coal, uranium and natural gas. In Europe, carbon emission constraints increased the pressure on electricity prices.

Electricity prices are reinforced by the need for investment either to replace aging generation capacity or to cope with demand growth. However, new capacities with significantly higher performance mitigate these pressures.

 

 

1 Average prices based on CRU Europe Spot price index.
2 Metal Bulletin mid-average 2006 versus 2007

 

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Natural Gas

International oil and gas prices are dominated by global supply and demand conditions and are also influenced by geopolitical factors, such the ability of the Organisation of Petroleum Exporting Countries (OPEC) to limit production.

Natural gas prices remained volatile in 2007, with prices ranging from $5.43 to $7.591 per mmbtu. 2007 began with relatively low prices due to a lack of harsh winter conditions in 2006, leading to strong inventory levels. Cold weather in the second half of the first quarter of 2007 resulted in an approximate 30% increase in price which carried over well into the second quarter. An uneventful tropical weather season resulted in lower prices through the summer, with the lowest settlement price of the year recorded in September. A strong oil market as well as normal winter temperatures helped to support prices through the close of 2007.

In 2007, North American natural gas prices remained relatively stable at $6.00 to $8.50 per mmbtu, slightly lower than 2006 price levels of $6.00 to $9.00 per mmbtu, due to mild weather conditions and new production deliveries. However, oil markets experienced the biggest price hike ever in U.S. dollar terms, with prices varying between $50 per barrel to $99 per barrel. This had an upward impact on natural gas oil indices in Europe, which was partly mitigated by the increased euro-to-dollar exchange rate.

Ocean Freight

Ocean freight rates remained strong and volatile throughout 2006 and 2007. The primary reasons for this volatility or continuing strength the strong demand in China, which has emerged as the world’s largest steel producer and consequently largest importer of iron ore and recently a net importer of coal. In addition, port congestion in Australia and flooding in certain iron ore sites exacerbated the situation and increased waiting time for loading turns, leading to a shortage of ships. It is expected that freight rates will remain volatile over the next several years as, in addition to the high demand, the world fleet has a high percentage of old tonnage that is overdue for scrapping.

ArcelorMittal attempts to meet its shipping needs with long-term contracts and currently has long-term contracts for over 75% of its raw material import needs. ArcelorMittal expects to increase its own fleet (including long-term charter) of Capesize and Panamax vessels to cover its shipping needs. Capesize ships are very large bulk carriers with deadweight exceeding 100,000 tons. Such ships are unable to go through the Panama Canal and therefore have to sail via the Cape of Good Hope. Panamax ships are large ships capable of transiting the Panama Canal and have deadweight of 55,000–80,000 tons.

Steel Price Trends in 2007

On November 19, 2007, ArcelorMittal announced price increases for flat steel products in the North American and European markets as a direct consequence of raw material and energy cost increases projected for 2008.

Demand for steel products remains firm and there exists ongoing strength in the macroeconomic environment in Brazil, Russia, India and China, as well as, emerging Asian markets, the Middle East and the CIS regions. Coupled with slower but positive growth in Europe and a pick-up in apparent steel demand in North America overall global steel demand growth of around 6% is expected in 2008. The IISI (International Iron and Steel institute) has forecast that worldwide apparent steel use will rise by 6.8% in 2008 against 2007.

In the U.S. market, having previously implemented an average $20 per tonne price increase for strip mill products in the fourth quarter of 2007, ArcelorMittal announced a further increase of $40 per tonne for deliveries as of January 1, 2008. On top of rising raw material prices, current U.S. prices were below prevailing global market levels. Going forward, low inventories, falling steel imports and relatively robust demand for high-quality steels may encourage a realignment of U.S. prices with global market levels.

 

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In the EU, ArcelorMittal expects to maintain 2007 prices during the first quarter of 2008 and apply price increases from the second quarter reflecting raw material cost increases. After two years of exceptional demand, developments in the European steel market continue to be positive despite the expected slowdown in economic growth. However, ArcelorMittal recognizes that current euro/US$ exchange rates are affecting the competitiveness of our industrial customers. The current slowdown in imports will help to readjust inventories to adequate levels and create strong demand after the winter season.

On February 5, 2008, ArcelorMittal announced flat carbon steel price increases of 12-15%, setting a new base price level of €560 per tonne for hot band in Europe. For commercial grade plates a price increase of €50 per tonne will apply. With this announcement, ArcelorMittal realigned the price level of its European flat products with recent global price developments, where steel prices have increased by $100-180 per tonne in response to cost increases for raw materials, energy and logistics. Further price increase announcements were made as there was more clarity on the input cost increases.

Impact of Exchange Rate Movements

Because a substantial portion of ArcelorMittal’s assets, liabilities, sales and earnings are denominated in currencies other than the U.S. dollar (its reporting currency), ArcelorMittal has exposure to fluctuations in the values of these currencies relative to the U.S. dollar. These currency fluctuations, especially the fluctuation of the value of the U.S. dollar relative to the euro, the Canadian dollar, Brazilian real and South African rand, as well as fluctuations in the currencies of the other countries in which ArcelorMittal has significant operations and/or sales, could have a material impact on its results of operations.

As in 2006, in 2007 the U.S. dollar continued to weaken against currencies of the jurisdictions in which ArcelorMittal operates. The U.S. dollar weakened against the Central and Eastern European currencies (including Polish zloty, Czech koruna, Romanian leu, and Kazakh tenge), Canadian dollar, euro, Brazilian real, South African rand and Mexican peso. In the beginning of 2008, the U.S. dollar reached historical lows against main major currencies, in particular the euro.

ArcelorMittal manages foreign exchange risk through specific hedges to the extent management considers appropriate. Refer to “Item 11—Quantitative and Qualitative Disclosures About Market Risk” for more information on exposures and hedging.

Critical Accounting Policies and Use of Judgments and Estimates

Management’s discussion and analysis of ArcelorMittal’s operational results and financial condition is based on ArcelorMittal’s consolidated financial statements, which have been prepared in accordance with IFRS. The preparation of these financial statements requires ArcelorMittal’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the year. Management regularly evaluates these estimates, including those related to the carrying value of property, plant and equipment, valuation allowances of receivables and inventories, the realization of deferred tax assets, liabilities of deferred income taxes, potential tax deficiencies, environmental obligations, potential litigation claims and settlements, and assets and obligations related to employee benefits. These estimates and assumptions are based on historical experience, available facts and various other assumptions that are believed to be reasonable under the circumstances. Management believes that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

Purchase Accounting

Accounting for acquisitions requires ArcelorMittal to allocate the cost of the enterprise to the specific assets acquired and liabilities assumed based on their estimated fair values at the date of the acquisition. In connection

 

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with each of its acquisitions, ArcelorMittal undertakes a process to identify all assets and liabilities acquired, including acquired intangible assets. The judgments made in identifying all acquired assets, determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact results of operations. Estimated fair values are based on information available near the acquisition date and on expectations and assumptions that have been deemed reasonable by management.

There are several methods that can be used to determine the fair value of assets acquired and liabilities assumed. For intangible assets, we typically use the “income method”. This method starts with a forecast of all of the expected future net cash flows. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include: the amount and timing of projected future cash flows; the discount rate selected to measure the risks inherent in the future cash flows (weighted average cost of capital); the assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of any technical, legal, regulatory, or economic barriers to entry.

The most common purchase accounting adjustments relate to the following assets and liabilities, whose fair value is estimated as indicated:

 

   

The fair value of identifiable intangible assets (generally, patents, customer relationships and favorable and unfavorable contracts) is estimated as described above.

 

   

Property, plant and equipment is recorded at replacement cost.

 

   

The fair value of pension and other post-employment benefits is determined separately for each plan using actuarial assumptions valid as of the acquisition date regarding the population of employees involved and fair value of plan assets.

 

   

The fair value of inventories is estimated based on expected selling prices at the date of acquisition reduced by an estimate of selling expenses and a normal profit margin.

 

   

Adjustments are recorded to deferred tax assets and liabilities of the acquiree to reflect purchase price adjustments, other than goodwill.

Determining the estimated useful lives of tangible and intangible assets acquired, requires judgment, as different types of assets will have different useful lives and certain intangible assets may be considered to have indefinite useful lives. For example, the useful life of an intangible asset recognized associated with a favorable contract will be finite and will result in amortization expense being recorded in the results of operations over a determinable period.

If the fair value of the net assets acquired exceeds their acquisition cost, the excess is recognized immediately as a gain in the statement of income.

Deferred Tax Assets

ArcelorMittal records deferred tax assets and liabilities based on the differences between the financial statement and the tax base amounts of assets and liabilities. Deferred tax assets are also recognized for the estimated future effects of tax losses carried forward. ArcelorMittal reviews the deferred tax assets in the different jurisdictions in which it operates periodically to assess the possibility of realizing such assets based on projected earnings, the expected timing of the reversals of existing temporary differences, the carry forward period of temporary differences and tax losses carried forward and the implementation of tax-planning strategies. Based on the aforementioned factors, management deems it probable that the total deferred tax assets of $1,629 million recognized as of December 31, 2007 will be fully utilized. The amount of future taxable income required to be generated by ArcelorMittal’s operating subsidiaries to utilize the total deferred tax assets is approximately $5,072 million.

 

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For each of the years ended December 31, 2006 and 2007, these operating subsidiaries generated approximately 43% and 29%, respectively, of ArcelorMittal’s income before tax of $7,228 million and $14,888 million, respectively. Historically, ArcelorMittal has been able to generate taxable income in sufficient amounts to permit it to utilize tax benefits associated with net operating loss carry forwards and other deferred tax assets that have been recognized in its consolidated financial statements.

At December 31, 2007, ArcelorMittal had total estimated net tax loss carry forwards of $7,179 million. This amount includes net operating losses of $2,478 million primarily related to ArcelorMittal’s operating subsidiaries in Canada, Mexico, Romania, Spain and the United States which expire as follows:

 

Year Expiring

   Amount

2008

   65

2009

   40

2010

   97

2011

   40

2012

   63

Thereafter

   2,173

The remaining tax loss carry forwards of $4,701 million are indefinite and primarily attributable to ArcelorMittal’s operations in Belgium, Brazil, France, Germany, Luxembourg and Trinidad and Tobago.

ArcelorMittal had unrecognized deferred tax assets relating to tax loss carry forwards and other temporary differences, amounting to $1,116 million as of December 31, 2007 ($1,211 million as of December 31, 2006). As per December 31, 2007, most of these temporary differences relate to tax loss carry forwards attributable to operating subsidiaries in Belgium, Brazil, Luxembourg, Mexico and the United States. The utilization of tax loss carry forwards is, however, restricted to the taxable income of the subsidiary or the tax consolidation it belongs.

Provisions for Pensions and Other Post Employment Benefits

ArcelorMittal’s operating subsidiaries have employee benefits such as pension plans and post-employment benefit plans, primarily post-employment health care. The expense associated with these pension plans and post-employment benefits, as well as the carrying amount of the related liability/asset on the balance sheet, is based on a number of assumptions and factors such as discount rates, expected rate of compensation increase, expected return on plan assets, health care cost trend rates, mortality rates, and retirement rates.

 

   

Discount rates. The discount rate is based on several high quality corporate bond indexes in the appropriate jurisdictions (rated AA or higher by a recognized rating agency). Nominal interest rates vary worldwide due to exchange rates and local inflation rates. The weighted average assumed discount rate for ArcelorMittal’s worldwide defined benefit plans and other post employment benefit plans was 5.17%-10.77% and 2.94%-10.77%, respectively, at December 31, 2007.

 

   

Rate of compensation increase. Our rate of compensation increase reflects actual experience and our long-term outlook, including contractually agreed upon wage rate increases, for represented hourly employees.

 

   

Expected return on plan assets. Our expected return on plan assets is derived from detailed periodic studies, which include a review of asset allocation strategies, anticipated long-term performance of individual asset classes, risks (standard deviations), and correlations of returns among the asset classes that comprise the plans’ asset mix. While the studies give appropriate consideration to recent plan performance and historic returns, the assumptions are primarily long-term prospective rates of return.

 

   

Health care cost trend rate. Our healthcare cost trend rate is based on historical retiree cost data, near-term health care outlook, including appropriate cost control measures implemented by us, and industry benchmarks and surveys.

 

   

Mortality and retirement rates. Mortality and retirement rates are based on actual and projected plan experience.

 

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In accordance with IFRS, actuarial gains or losses resulting from experiences and changes in assumptions are recognized in ArcelorMittal’s income statement only if the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of 10% of the present value of the defined benefit obligation at that date and 10% of the fair value of any plan asset at that date. The fraction exceeding 10% is then recognized over the expected average remaining working lives of the employees participating in the plans. Such accumulated unrecognized losses amounted to $597 million for pensions and $165 million for other post-employment benefits as of December 31, 2007. While management believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect ArcelorMittal’s pension and other postretirement obligations and future expense.

The following information illustrates the sensitivity to a change in certain assumptions for pension plans. As of December 31, 2007 the defined benefit obligation (“DBO”) for pension plans was $9.4 billion:

 

(in millions of U.S dollars)

Change in assumption

   Effect on 2008 Pre-Tax
Pension Expense
(sum of service cost
and interest cost)
    Effect on
December 31, 2007
DBO
 

100 basis point decrease in discount rate

   (22 )   1,058  

100 basis point increase in discount rate

   11     (945 )

100 basis point decrease in rate of compensation

   (39 )   (368 )

100 basis point increase in rate of compensation

   38     334  

100 basis point decrease in expected return on plan assets

   65     —    

100 basis point increase in expected return on plan assets

   (65 )   —    

The following table illustrates the sensitivity to a change in the discount rate assumption related to ArcelorMittal’s Other Post Employment Benefits plans (“OPEB”). As of December 31, 2007 the DBO for OPEB was $2.8 billion:

 

(in millions of U.S. dollars)

Change in assumption

   Effect on 2008 Pre-Tax
OPEB Expense
(sum of service cost
and interest cost
    Effect on
December 31, 2007
DBO
 

100 basis point decrease in discount rate

   (11 )   341  

100 basis point increase in discount rate

   8     (303 )

100 basis point decrease in healthcare cost trend

   (11 )   (145 )

100 basis point increase in healthcare cost trend

   13     171  

The above sensitivities reflect the effect of changing one assumption at a time. Actual economic factors and conditions often affect multiple assumptions simultaneously, and the effects of changes in key assumptions are not necessarily linear.

Environmental and Other Contingencies

ArcelorMittal is currently engaged in the investigation and remediation of environmental contamination at a number of its facilities. All of these are legacy obligations arising from acquisitions. ArcelorMittal is subject to changing and increasingly stringent environmental laws and regulations concerning air emissions, water discharges and waste disposal, as well as certain remediation activities that involve the clean-up of soil and groundwater. ArcelorMittal recognizes a liability for environmental remediation when it is more likely than not that such remediation will be required and the amount can be estimated. Environmental liabilities assumed in connection with the acquisition of steel facilities and other assets are recorded at the present value of the estimated future payments. There are numerous uncertainties over both the timing and the ultimate costs that ArcelorMittal expects to incur with respect to this work. Significant judgment is required in making these estimates and it is reasonable that others may come to different conclusions. If, in the future, ArcelorMittal is required to investigate and remediate any currently unknown contamination and waste on properties that it owns, ArcelorMittal may record significant additional liabilities. As estimated costs to remediate change, we will

 

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reduce or increase the recorded liabilities through credits or charges in the income statement. ArcelorMittal does not expect these environmental issues to affect the utilization of its plants, now or in the future.

The estimates of loss contingencies for environmental matters are based on various judgments and assumptions. These estimates typically reflect judgments and assumptions relating to the likelihood, nature, magnitude and timing of assessment, remediation and/or monitoring activities and the probable cost of these activities. In some cases, judgments and assumptions are made relating to the obligation or willingness and ability of third parties to bear a proportionate or allocated share of cost of these activities, including third parties who sold assets to ArcelorMittal or purchased assets from it subject to environmental liabilities. ArcelorMittal also considers, among other things, the activity to date at particular sites, information obtained through consultation with applicable regulatory authorities and third-party consultants and contractors and its historical experience with other circumstances judged to be comparable. Due to the numerous variables associated with these judgments and assumptions, and the effects of changes in governmental regulation and environmental technologies, both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial uncertainties. ArcelorMittal regularly monitors environmental matters and estimated exposure to loss contingencies, reporting changes to the appropriate individuals and agencies, and modifying any disclosure of such matters and contingencies.

Valuation and impairment of non current assets

At each reporting date, ArcelorMittal reviews the carrying amounts of its non-current assets (excluding goodwill) to determine whether there is any indication that the carrying amount of those assets may not be recoverable through continuing use. If any such indication exists, the recoverable amount of the asset is reviewed in order to determine the amount of the impairment, if any. The recoverable amount is the higher of its net selling price (fair value reduced by selling costs) and its value in use.

In assessing its value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. The cash-generating unit is the smallest identifiable group of assets corresponding to operating units that generate cash inflows. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, an impairment loss is recognized. An impairment loss is recognized as an expense immediately as part of operating income in the statements of income.

An impairment loss recognized in prior years is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. However, the increased carrying amount of an asset due to a reversal of an impairment loss will not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized immediately as part of operating income in the statements of income.

Goodwill is reviewed for impairment annually at the cash generating unit level 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 value in use calculations, as described above. 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 industry growth forecasts. 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 budgets approved by management 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.

 

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Based on our impairment review during 2007, we recorded $193 million and $43 million of impairment losses for long-lived assets and goodwill respectively. At December 31, 2007, we had $15,031 million of intangible assets, of which $12,663 million represented goodwill. An impairment to intangible assets could result in a material, non-cash expense in the consolidated statement of income.

A. Operating Results

The following discussion and analysis should be read in conjunction with the ArcelorMittal Consolidated Financial Statements included in this annual report.

Prior to its acquisition of Arcelor in August 2006, ArcelorMittal reported the results of its operations based on their geographic location (Americas, Europe and Asia/Africa). Following the acquisition, ArcelorMittal restructured its operations to generally align them with the structure in place at Arcelor and the combined group’s new management structure. ArcelorMittal now reports its operations in six operating segments: Flat Carbon Americas, Flat Carbon Europe, Long Carbon Americas and Europe, Asia, Africa and CIS (“AACIS”), Stainless Steel and AM3S (trading and distribution).

Key Indicators

The key performance indicators that ArcelorMittal’s management uses to analyze operations are sales revenue, average steel selling prices, steel shipments and operating income. Management’s analysis of liquidity and capital resources is driven by operating cash flows.

Impact of Arcelor Acquisition

Our results of operations and financial condition for the year ended December 31, 2007 and for the year ended December 31, 2006 have been significantly affected by our August 2006 acquisition of Arcelor. The following discussion and analysis is in two parts: first, comparing 2007 results with actual, reported 2006 results and, second, comparing 2007 results with pro forma 2006 results giving effect to the acquisition of Arcelor as if it had occurred on January 1, 2006. The first comparison below is not representative of actual operating performance trends in the Company’s businesses since Arcelor is consolidated in the ArcelorMittal 2006 financial statements only as of August 1, 2006. The second discussion and analysis using unaudited pro forma 2006 results as the basis of comparison is more detailed as it is on a comparable basis.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Sales, Steel Shipments and Average Steel Selling Prices

The following table provides a summary of sales at ArcelorMittal by operating segment for the year ended December 31, 2007 as compared to the year ended December 31, 2006:

 

Segment(2)

   Sales for the
Year ended December 31(1)
   Changes in
   2006    2007    Sales    Steel
Shipments
   Average Steel
Selling Price
     (in $ millions)    (in $ millions)    (%)    (%)    (%)

Flat Carbon Americas

   17,585    22,895    30.2    16.3    3.5

Flat Carbon Europe

   14,366    34,562    140.6    97.8    17.7

Long Carbon Americas and Europe

   13,120    23,830    81.6    44.8    18.4

AACIS

   14,388    18,229    26.7    5.9    17.8

Stainless Steel(3)

   3,261    9,349    186.7    127.4    19.1

AM3S(3)

   5,221    16,241    211.1    178.1    13.0

 

(1) Amounts are prior to inter-company eliminations and include non-steel sales.
(2) Includes results of operations of Arcelor from August 1, 2006.
(3) The results of the Stainless Steel and AM3S segments correspond solely to the operations of Arcelor, whose results are included from August 1, 2006.

 

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ArcelorMittal had sales of $105.2 billion for the year ended December 31, 2007, representing an increase of 78.7% over sales of $58.9 billion for the year ended December 31, 2006. The increase is due to the acquisition of Arcelor.

ArcelorMittal had steel shipments of 109.7 million tonnes for the year ended December 31, 2007, representing a 39.0% increase over steel shipments of 78.9 million tonnes for the year ended December 31, 2006. The increase is primarily due to the acquisition of Arcelor.

Average steel selling price increased 20.2% for the year ended December 31, 2007 as compared to the year ended December 31, 2006. This increase was due in part to increases in input costs and a strong demand for our products as well as the product mix effect of Arcelor acquisition.

Flat Carbon Americas

Sales in the Flat Carbon Americas segment reached $22.9 billion for the year ended December 31, 2007, representing 21.8% of total consolidated sales in 2007, as compared to $17.6 billion, or 29.9% of total consolidated sales, for the year ended December 31, 2006.

Total steel shipments reached 27.9 million tonnes for the year ended December 31, 2007, representing 25.5% of total consolidated steel shipments in 2007, as compared to 24.0 million tonnes, or 30.4% of total consolidated steel shipments, for the year ended December 31, 2006.

Average steel selling price increased 3.5% for the year ended December 31, 2007, as compared with the year ended December 31, 2006, primarily due to our ability to pass on increased input costs to our customers. The steel environment in the United States and Canada remained challenging due to the slowdown in their economies and reduction in steel demand. However, the business environment in Mexico and South America remained strong.

Flat Carbon Europe

Sales in the Flat Carbon Europe segment reached $34.6 billion for the year ended December 31, 2007, representing 32.8% of total consolidated sales in 2007, as compared to $14.4 billion, or 24.4% of total consolidated sales, for the year ended December 31, 2006.

Total steel shipments reached 34.4 million tonnes for the year ended December 31, 2007, representing 31.3% of total consolidated steel shipments in 2007, as compared to 17.4 million tonnes , or 22.0% of total consolidated steel shipments, for the year ended December 31, 2006.

Average steel selling price increased 17.7% for the year ended December 31, 2007, as compared with the year ended December 31, 2006, primarily due to our ability to pass on increased input costs to our customers, exchange rate impact and strong demand for our products.

Long Carbon Americas and Europe

Sales in the Long Carbon Americas and Europe segment reached $23.8 billion for the year ended December 31, 2007, representing 22.6% of total consolidated sales, as compared to $13.1 billion, or 22.3% of total consolidated sales, for the year ended December 31, 2006.

Total steel shipments reached 24.6 million tonnes for the year ended December 31, 2007, representing 22.4% of total consolidated steel shipments, as compared to 17.0 million tonnes, or 21.5% of total consolidated steel shipments, for the year ended December 31, 2006.

Average steel selling price increased 18.4% for the year ended December 31, 2007, as compared with the year ended December 31, 2006, primarily due to our ability to pass on increased input costs to our customers, strong demand for our products, particularly in Europe and South America and exchange rate effect.

 

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AACIS

Sales in the AACIS segment reached $18.2 billion for the year ended December 31, 2007, representing 17.3% of total consolidated sales, as compared to $14.4 billion, or 24.4% of total consolidated sales, for the year ended December 31, 2006.

Total steel shipments reached 20.9 million tonnes for the year ended December 31, 2007, representing 19.0% of total consolidated steel shipments, as compared to 19.7 million tonnes, or 25.0% of total consolidated steel shipments, for the year ended December 31, 2006.

Average steel selling price increased 17.8% for the year ended December 31, 2007, as compared with the year ended December 31, 2006, primarily due to our ability to pass on increased input costs to our customers and strong demand for our products.

Stainless Steel

The results of the stainless steel segment correspond solely to the operations of Arcelor, whose results are included from August 1, 2006.

Sales in the Stainless Steel segment reached $9.3 billion for the year ended December 31, 2007, representing 8.9% of total consolidated sales, as compared to $3.3 billion, or 5.5% of total consolidated sales for the year ended December 31, 2006.

Total steel shipments reached 1.9 million tonnes for the year ended December 31, 2007, representing 1.8% of total consolidated steel shipments, as compared to 0.9 million tonnes, or 1.1% of total consolidated steel shipments, for the year ended December 31, 2006.

Average steel selling price increased 19.1% for the year ended December 31, 2007, as compared with the year ended December 31, 2006, primarily due to higher nickel prices, particularly in the first half of 2007.

AM3S

The results of the AM3S segment correspond solely to the operations of Arcelor, whose results are included from August 1, 2006.

Sales in the AM3S segment reached $16.2 billion for the year ended December 31, 2007, as compared to $5.2 billion, for the year ended December 31, 2006.

Total steel shipments reached 15.9 million tonnes for the year ended December 31, 2007, as compared to 5.7 million tonnes for the year ended December 31, 2006.

Average steel selling price increased 13.0% for the year ended December 31, 2007, as compared with the year ended December 31, 2006, primarily due to increases in price of steel generally and an exchange rate impact.

 

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Operating Income

The following table provides a summary of the operating income and operating margin of ArcelorMittal for the year ended December 31, 2007, as compared with the year ended December 31, 2006:

 

     Operating Income
Year ended December 31,
   Operating Margin

Segments(2)

   2006(1)    2007    2006(1)    2007
     (in $ millions)    (in $ millions)    (%)    (%)

Flat Carbon Americas

   1,912    2,987    10.9    13.0

Flat Carbon Europe

   1,005    4,149    7.0    12.0

Long Carbon Americas and Europe

   1,797    3,896    13.7    16.3

AACIS

   2,584    3,184    18.0    17.5

Stainless Steel(3)

   353    876    10.8    9.4

AM3S(3)

   171    579    3.3    3.6

 

(1) As required by IFRS, the 2006 information has been adjusted retrospectively for the finalization of the allocation of purchase price of Arcelor (see Note 3 to the ArcelorMittal Consolidated Financial Statements).
(2) Includes results of operations of Arcelor from August 1, 2006.
(3) The results of the Stainless Steel and AM3S segments correspond solely to the operations of Arcelor, whose results are included from August 1, 2006.

As a result of the various factors described above, in particular the inclusion of Arcelor from August 1, 2006, our operating income amounted to $14.8 billion for the year ended December 31, 2007, representing an increase of 97% over operating income of $7.5 billion for the year ended December 31, 2006.

Flat Carbon Americas

In the Flat Carbon Americas segment, operating income reached $3.0 billion for the year ended December 31, 2007, representing 20.1% of total consolidated operating income, compared to $1.9 billion, or 25.4% for the year ended December 31, 2006.

Flat Carbon Europe

In the Flat Carbon Europe segment, operating income reached $4.1 billion for the year ended December 31, 2007, representing 28.0% of total consolidated operating income, compared to $1.0 billion, or 13.3% for the year ended December 31, 2006.

Long Carbon Americas and Europe

In the Long Carbon Americas and Europe segment, operating income reached $3.9 billion for the year ended December 31, 2007, representing 26.3% of total consolidated operating income, compared to $1.8 billion, or 23.9% for the year ended December 31, 2006.

AACIS

In the AACIS segment, operating income reached $3.2 billion for the year ended December 31, 2007, representing 21.5% of total consolidated operating income, compared to $2.6 billion, or 34.3% for the year ended December 31, 2006.

Stainless Steel

The results of the Stainless Steel segment correspond solely to the operations of Arcelor, whose results are included from August 1, 2006.

 

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In the Stainless Steel segment, operating income was $876 million for the year ended December 31, 2007, representing 5.9% of total consolidated operating income, compared to $353 million, or 4.7% for the year ended December 31, 2006.

AM3S

The results of the AM3S segment correspond solely to the operations of Arcelor, whose results are included from August 1, 2006.

In the AM3S segment, operating income was $579 million for the year ended December 31, 2007, representing 3.9% of total consolidated operating income, compared to $171 million, or 2.3% for the year ended December 31, 2006.

Financing Costs

Net financing costs were 41.7% higher for the year ended December 31, 2007 at $927 million, as compared with net financing costs for the year ended December 31, 2006 of $654 million. Net financing costs consist of, among others, interest, foreign exchange and derivative transactions. Net interest expense amounted to $1,262 million in 2007 as compared to $873 million in 2006. Net interest expense was higher primarily due to the fact that Arcelor’s net interest expense was included in the consolidated financial statements for 2006 only as from August 1. In addition, net financing costs were affected by increases in euro interest rates. Other financing charges, including derivative transactions, for the year ended December 31, 2007 were lower, primarily due to increases in mark-to-market gains on financial instruments.

Income Tax

ArcelorMittal recorded a consolidated tax expense of $3,038 million for the year ended December 31, 2007, as compared to $1,122 million for the year ended December 31, 2006. The effective tax rate increased to 20.4% for the year ended December 31, 2007, as compared to 15.5% for the year ended December 31, 2006, on income before taxes of $14,888 million and $7,228 million, respectively. For additional information on our income taxes in 2007, see Note 19 to the ArcelorMittal Consolidated Financial Statements.

Minority Interest

Minority interest in income of subsidiaries was $1,482 million for the year ended December 31, 2007, as compared with $859 million for the year ended December 31, 2006.

Net Income attributable to equity holders of the parent

ArcelorMittal’s net income attributable to equity holders of the parent for the year ended December 31, 2007 increased to $10,368 million from $5,247 million for the year ended December 31, 2006, for the reasons discussed above.

 

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Year Ended December 31, 2007 Compared to Year Ended December 31, 2006 on a Pro Forma basis (unaudited)

The following unaudited pro forma financial information of ArcelorMittal gives effect to the following transactions as if they occurred on January 1, 2006:

 

   

the acquisition by Mittal Steel of 94.2% of the share capital (on a diluted basis) of Arcelor and all of the outstanding OCEANEs (convertible bonds) of Arcelor.

 

   

the acquisition by Arcelor of Dofasco and Sonasid.

 

     2006
ArcelorMittal
Historical(1)
    Arcelor Historical
(January 1 to
July, 31 2006)(2)
    Pro Forma
Adjustments
    2006
Pro Forma
Combined
ArcelorMittal
 

Sales

   $ 58,870     $ 28,659     $ 1,047 (3)   $ 88,576  

Operating income

     7,532       3,018       1,307 (4)     11,857  

Financing costs—net

     (654 )     (451 )     (223 )(5)     (1,328 )

Income tax expense

     (1,122 )     34       (579 )(6)     (1,667 )

Minority interest

     859       426       202 (7)     1,487  

Net income attributable to equity holders of the parent

     5,247       2,103       644 (8)     7,994  

 

Notes to the unaudited pro forma financial information are as follows:

 

1. Represents the historical condensed consolidated income statement of Mittal Steel for the year ended December 31, 2006, as adjusted retrospectively for the finalization of the allocation of purchase price of Arcelor as required by IFRS3.
2. Represents the historical condensed consolidated statement of income of Arcelor for the period from January 1, 2006 through July 31, 2006 translated from euros into US dollars using an average exchange rate of 1 to $1.2343.
3. Represents the historical sales of Dofasco for the period from January 1, 2006 to March 1, 2006 and Sonasid for the period from January 1, 2006 to June 1, 2006.
4. Represents the sum of the incremental amortization of favorable and unfavorable contracts recognized with the acquisition of Arcelor for the seven months ended July 31, 2006 ($56 million), the elimination of the fair value of the inventory acquired in the acquisition of Arcelor and recognized as expense in the ArcelorMittal historical statement of income for the year ended December 31, 2006 in an amount of $1.1 billion and the historical operating income of Dofasco for the period from January 1, 2006 to March 1, 2006 and Sonasid for the period from January 1, 2006 to June 1, 2006, the respective dates of their acquisition, in a total amount of $151 million.
5. Represents the incremental interest expense related to the borrowings for the acquisition of Arcelor.
6. Represents the tax impact of the above adjustments assuming a 25% blended statutory rate.
7. Represents the reallocation of the net income attributable to minority interests to net income attributable to equity holders of the parent for the minority interest in Arcelor and Sonasid.
8. Represents the sum of the adjustments above and elimination of the costs incurred by Arcelor relating to the acquisition that were expensed during the seven months ending July 31, 2006 ($341 million).

The unaudited 2006 pro forma financial data are presented for illustrative purposes only and are not necessarily indicative of the operating results or financial condition of the combined entities that would have been achieved had the transactions been consummated on the dates used as the basis for the preparation of the pro forma financial data. They are not necessarily indicative of the future results or financial condition of the Company. Nonetheless, because the unaudited 2006 pro forma financial information provides information that we believe is useful in analyzing trends in our business, we have used it as the basis for the comparison of the 2006 and 2007 results of operations below.

 

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Sales, Steel Shipments and Average Steel Selling Prices

The following table provides a summary of sales at ArcelorMittal by operating segment for the year ended December 31, 2007 as compared to the year ended December 31, 2006 (the latter on a pro forma basis):

 

     Sales for the
Year ended December 31(1)
   Changes in

Segment

   2006
(pro forma)
   2007    Sales    Steel
Shipments
    Average Steel
Selling Price
     (in $ millions)    (in $ millions)    (%)    (%)     (%)

Flat Carbon Americas

   21,878    22,895    4.6    (6.8 )   4.7

Flat Carbon Europe

   27,567    34,562    25.4    3.8     19.2

Long Carbon Americas and Europe

   18,544    23,830    28.5    (1.2 )   20.1

AACIS

   14,745    18,229    23.6    2.8     17.2

Stainless Steel

   7,251    9,349    28.9    (13.1 )   40.9

AM3S

   11,882    16,241    36.7    11.4     17.2

 

(1) Amounts are prior to inter-company eliminations and include non-steel sales.

ArcelorMittal had sales of $105.2 billion for the year ended December 31, 2007, representing an increase of 18.8% over pro forma sales of $88.6 billion for the year ended December 31, 2006. Sales were higher due to higher selling prices and stronger demand for our products.

ArcelorMittal had steel shipments of 109.7 million tonnes for the year ended December 31, 2007, representing a 0.7% decrease over pro forma steel shipments of 110.5 million tonnes for the year ended December 31, 2006, primarily due to reduction in production and shipments during the year in line with a reduction in market demand, particularly in North America. Stainless Steel production and shipments were also reduced in line with market demand.

Average steel selling price increased 16.1% for the year ended December 31, 2007 as compared to pro forma average steel selling prices for the year ended December 31, 2006, due to a healthy market environment and steel demand.

Flat Carbon Americas

In the Flat Carbon Americas segment, sales were $22.9 billion for the year ended December 31, 2007, a rise of 4.6% over pro forma sales for the year ended December 31, 2006. Sales were higher mainly due to higher prices due to our ability to pass on higher input costs.

Total steel shipments were 27.9 million tonnes for the year ended December 31, 2007, a decrease of 6.8% over pro forma shipments for the year ended December 31, 2006. This decrease results primarily from a change in scope of consolidation; a U.S. subsidiary of Dofasco was proportionally consolidated until August 1, 2006 and accounted for under the equity method thereafter. In addition, shipments were lower in the U.S. operations of ArcelorMittal due to weak market demand, partially offset by higher shipments at CST following its capacity expansion project.

Average steel selling price increased 4.7% for the year ended December 31, 2007, as compared with pro forma average steel selling prices for the year ended December 31, 2006, primarily due to the improved market for our products, particularly in South America, as well as our ability to pass on increased input costs to our customers, and favorable exchange rate, in South America.

Flat Carbon Europe

Sales in the Flat Carbon Europe segment were $34.6 billion for the year ended December 31, 2007, an increase of 25.4% over pro forma sales for the year ended December 31, 2006, mainly due to higher selling prices, higher shipments and exchange rate effect, offset by an increase in input prices.

 

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Total steel shipments reached 34.4 million tonnes for the year ended December 31, 2007, a rise of 3.8% over pro forma steel shipments for the year ended December 31, 2006, mainly due to favorable demand.

Average steel selling price increased 19.2% for the year ended December 31, 2007, as compared with pro forma average steel selling prices for the year ended December 31, 2006. Average selling prices increased due to favorable demand as well as our ability to pass on increased input costs to our customers and exchange rate impact.

Long Carbon Americas and Europe

In the Long Carbon Americas and Europe segment, sales reached $23.8 billion for the year ended December 31, 2007, an increase of 28.5% over pro forma sales for the year ended December 31, 2006. Sales were higher mainly due to increased average selling prices in Europe and South America.

Total steel shipments were 24.6 million tonnes for the year ended December 31, 2007, a decrease of 1.2% over pro forma steel shipments for the year ended December 31, 2006, mainly due to lower demand in Europe offset by higher shipments in South America.

Average steel selling price increased 20.1% for the year ended December 31, 2007, as compared with pro forma average steel selling prices for the year ended December 31, 2006, driven by price increases due to improved market conditions for our products, along with a favorable exchange rate impact in Europe and South America and increased domestic sales in Brazil and Argentina.

AACIS

In the AACIS segment, sales reached $18.2 billion in 2007, an increase of 23.6% over pro forma sales for the year ended December 31, 2006. The main reason for the sales increase was an increase in average selling prices particularly in operations in Ukraine, Kazakhstan and South African operations.

Total steel shipments reached 20.9 million tonnes for the year ended December 31, 2007, an increase of 2.8% over pro forma steel shipments for the year ended December 31, 2006. This increase resulted primarily from improved volumes at our Ukrainian and Kazakhstan operations, particularly in the second and third quarters of 2007, offset by production issues at our South African operations due to the relining of a blast furnace.

Average steel selling price increased 17.2% for the year ended December 31, 2007, as compared with pro forma average steel selling prices for the year ended December 31, 2006, driven by high demand for our products and domestic price increases in South Africa.

Stainless Steel

Sales in the Stainless Steel segment reached $9.3 billion for the year ended December 31, 2007, an increase of 28.9% over pro forma sales for the year ended December 31, 2006. This increase is mainly due to higher selling prices induced by high but unstable nickel prices, that we passed on to customers.

Total steel shipments were 1.9 million tonnes for the year ended December 31, 2007, a decrease of 13.1% from pro forma steel shipments for the year ended December 31, 2006. This fall is mainly due to low demand in the third quarter of 2007, as customers delayed purchases in anticipation of price decreases of stainless steel resulting from the falling nickel price.

Average steel selling price increased 40.9% for the year ended December 31, 2007, as compared with pro forma average steel selling prices for the year ended December 31, 2006, mainly due to higher nickel prices in the first half of 2007, which fall in the second half of 2007.

 

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AM3S

In the AM3S segment, sales reached $16.2 billion for the year ended December 31, 2007, an increase of 36.7% over pro forma sales for the year ended December 31, 2006, driven by higher selling prices and increased shipments, offset by higher input costs.

Total steel shipments were 15.9 million tonnes for the year ended December 31, 2007, an increase of 11.4% over pro forma steel shipments for the year ended December 31, 2006 due to favorable demand, as well as the inclusion of the trading and international sales activity of ArcelorMittal International.

Average steel selling price increased 17.2% for the year ended December 31, 2007, as compared with pro forma average steel selling prices for the year ended December 31, 2006, driven by favorable market demand for our products and increase in the purchase price of steel and the favorable exchange rate impact.

Operating Income

The following table provides a summary of the operating income and operating margin of ArcelorMittal for the year ended December 31, 2007, as compared with the pro forma operating income and operating margin for the year ended December 31, 2006 (the latter on a pro forma basis):

 

     Operating Income
Year ended December 31,
   Operating Margin

Segments(1)

   2006
(pro forma)
   2007    2006    2007
     (in $ millions)    (in $ millions)    (%)    (%)

Flat Carbon Americas

   2,610    2,987    11.9    13.0

Flat Carbon Europe

   2,817    4,149    10.2    12.0

Long Carbon Americas and Europe

   2,988    3,896    16.1    16.3

AACIS

   2,640    3,184    17.9    17.5

Stainless Steel(2)

   731    876    10.1    9.4

AM3S(2)

   466    579    3.9    3.6

 

(1) Amounts are prior to inter-company eliminations and include non-steel sales.
(2) Includes results of operations of Arcelor from August 1, 2006.

As a result of the various factors described above, our operating income amounted to $14.9 billion for the year ended December 31, 2007, representing an increase of 25.1% over pro forma operating income of $11.9 billion for the year ended December 31, 2006.

Flat Carbon Americas

In the Flat Carbon Americas segment, operating income reached $3.0 billion for the year ended December 31, 2007, an increase of 14.4% over pro forma operating income for the year ended December 31, 2006 due to the reasons described above. Operating income was affected by impairment expenses of $82 million recorded in relation to a restructuring of our operations in Contrecoeur, Canada.

Flat Carbon Europe

In the Flat Carbon Europe segment, operating income reached $4.1 billion for the year ended December 31, 2007, an increase of 47.3% over pro forma operating income for the year ended December 31, 2006, driven by positive price effects, and a positive exchange rate impact.

Long Carbon Americas and Europe

In the Long Carbon Americas and Europe segment, operating income reached $3.9 billion for the year ended December 31, 2007, a rise of 30.4% as compared with pro forma operating income for the year ended

 

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December 31, 2006, due to the factors explained above. During the fourth quarter, operating income was affected by impairment expenses of $50 million recorded in relation to a restructuring of our operations at ArcelorMittal Gandrange. In addition, impairment expenses of $43 million were recorded at our Canadian wire-drawing operations

AACIS

In the AACIS segment, operating income reached $3.2 billion for the year ended December 31, 2007, an increase of 20.6% over pro forma operating income for the year ended December 31, 2006 due to the reasons explained above. Operating income in 2007 includes $97 million in voluntary retirement plan costs at our Ukrainian and Algerian operations.

Stainless Steel

In the Stainless Steel segment, operating income was $876 million for the year ended December 31, 2007, an increase of 19.8% over pro forma operating income for the year ended December 31, 2006 for the reasons explained above.

AM3S

In the AM3S segment, operating income reached $579 million for the year ended December 31, 2007, an increase of 24.2% over pro forma operating income for the year ended December 31, 2006 for the reasons explained above.

Financing Costs

Net financing costs were 30.2% lower for the year ended December 31, 2007 at $927 million, as compared with pro forma net financing costs for the year ended December 31, 2006 of $1.3 billion. Net financing costs consist of, among others, interest, foreign exchange and derivative transactions. Net interest expense was essentially flat at $1,262 million in 2007 as compared to pro forma net interest expense of $1,254 million in 2006. Interest charges were higher in 2007 due to higher base euro interest rates. In 2006, the Company took a one-time charge in connection with the reimbursement of the Arcelor Convertible bonds (OCEANEs). Other financing charges, including derivative transactions, for the year ended December 31, 2007 were lower, primarily due to increases in mark-to-market gains on financial instruments.

Income Tax

ArcelorMittal recorded a consolidated tax expense of $3,038 million for the year ended December 31, 2007 as compared to pro forma income tax expense of $1,667 million for the year ended December 31, 2006. The effective tax rate increased to 20.4% for the year ended December 31, 2007, as compared to pro forma effective tax rate of 15.0% for the year ended December 31, 2006, on income before taxes and pro forma income before taxes of $14,888 million and $11,148 million, respectively. The increase in effective tax rate is mainly due to higher income in higher-tax jurisdictions in 2007. The increase also reflects 2006 base effect the 2006 effective tax rate was decreased due to the approval of the Mexican federal court of a petition to utilize a $668 million loss against operating income at ArcelorMittal Lázaro Cárdenas. Since the loss was incurred in 2004 and was denominated in Mexican Pesos, fluctuations in currency exchange rates along with annual inflationary adjustments resulted in an increase in the U.S. dollar equivalent value of the loss from $668 million to $729 million. Accordingly, a deferred tax asset of $211 million was recognized in 2006. In 2007, there was no such item.

For additional information related to ArcelorMittal’s income taxes, see Note 19 to the ArcelorMittal Consolidated Financial Statements.

 

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Minority Interest

Minority interest in income of subsidiaries was $1,482 million for the year ended December 31, 2007, as compared with pro forma minority interest of $1,487 million for the year ended December 31, 2006. This was the result of offsetting factors. First, minority interests were reduced by the buyout of the minority shareholders in ArcelorMittal Brasil (minority interest in ArcelorMittal Brasil amounted to $246 million for the five month-period ended May 31, 2007), and the merger of ArcelorMittal and Arcelor in which Arcelor minority shareholders received ArcelorMittal shares (minority interest in Arcelor amounted $308 million for the ten month-period ended October 31, 2007). These reductions were nearly offset by increased income in various subsidiaries with minority shareholders, principally ArcelorMittal South Africa, ArcelorMittal Ostrava, ArcelorMittal Kryviy Rih, ArcelorMittal Annaba, ArcelorMittal Poland, ArcelorMittal Inox Brasil and Acindar,as well as Arcelor prior to completion of the merger.

Net Income attributable to equity holders of the parent

ArcelorMittal’s net income attributable to equity holders of the parent for the year ended December 31, 2007 increased to $10,368 million from $7,994 million for pro forma net income attributable to equity holders of the parent for the year ended December 31, 2006, for the reasons discussed above.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

The following discussion and analysis relates to the results of operations of Mittal Steel, a predecessor company of ArcelorMittal, which consolidated the results of Arcelor as from August 1, 2006.

Acquisitions and Divestments

The following acquisitions had a significant effect on results of operations during the period:

 

   

the acquisition of Arcelor, whose results of operations were included in the consolidated results of operations from August 1, 2006;

 

   

the acquisition of ArcelorMittal Kryviy Rih, whose results of operations were included in the consolidated results of operations from November 26, 2005; and

 

   

the acquisition of Mittal Steel USA ISG Inc., a predecessor of ArcelorMittal USA whose results of operations were included in the consolidated results of operations from April 15, 2005.

The following discussion and analysis distinguishes between ArcelorMittal’s consolidated results of operations including and excluding the effect of these significant acquisitions.

The results of operations of the former subsidiaries of Stelco acquired by Mittal Canada are included in ArcelorMittal’s consolidated results of operations from February 1, 2006.

 

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Sales, Steel Shipments and Average Steel Selling Prices

The following table provides a summary of sales at ArcelorMittal by operating segment for the year ended December 31, 2006 as compared to the year ended December 31, 2005:

 

     Sales for the
Year ended December 31(1)
   Changes in  

Segment(2)

   2005    2006(4)    Sales    Steel
Shipments
   Average Steel
Selling Price
 
     (in $ millions)    (in $ millions)    (%)    (%)    (%)  

Flat Carbon Americas

   11,241    17,585    56    49    7  

Flat Carbon Europe

   3,676    14,366    291    175    26  

Long Carbon Americas and Europe

   7,676    13,120    71    73    13  

AACIS

   9,909    14,388    45    60    (6 )

Stainless Steel(3)

   —      3,261    —      —      —    

AM3S(3)

   —      5,221    —      —      —    

 

(1) Amounts are prior to inter-company eliminations and include non-steel sales.
(2) Includes results of operations of Mittal Steel USA ISG Inc. from April 15, 2005, ArcelorMittal Kryviy Rih from November 26, 2005 and Arcelor from August 1, 2006.
(3) The results of the Stainless Steel and AM3S segments correspond solely to the operations of Arcelor, whose results are included from August 1, 2006. Consequently, there are no comparable business operations for the Stainless Steel and AM3S segments for 2005.
(4) As required by IFRS, the 2006 information has been adjusted retrospectively for the finalization of the allocation of purchase price of Arcelor (see Note 3 to the ArcelorMittal Consolidated Financial Statements).

The following table provides a summary of sales at ArcelorMittal by operating segment for the year ended December 31, 2006 as compared to the year ended December 31, 2005, excluding the results of operations of Arcelor, Mittal Steel USA ISG Inc. and ArcelorMittal Kryviy Rih:

 

     Sales for the
Year ended December 31(1)
   Changes in

Segments

   2005    2006    Sales     Steel
Shipments
    Average Steel
Selling Price
     (in $ millions)    (in $ millions)    (%)     (%)     (%)

Flat Carbon Americas

   5,340    5,005    (6 )   (1 )   0

Flat Carbon Europe

   3,676    4,198    14     3     6

Long Carbon Americas and Europe

   7,076    8,174    16     14     7

AACIS

   9,743    11,614    19     10     5

Stainless Steel(2)

   —      —      —       —       —  

AM3S(2)

   —      —      —       —       —  

 

(1) Amounts are prior to inter-company eliminations and include non-steel sales.
(2) The results of the Stainless Steel and AM3S segments correspond solely to the operations of Arcelor, whose results are included from August 1, 2006. Consequently, there are no comparable business operations for the Stainless Steel and AM3S segments for 2005.

ArcelorMittal’s sales more than doubled to $58.9 billion for the year ended December 31, 2006 from $28.1 billion for the year ended December 31, 2005, primarily due to the inclusion of Arcelor, Mittal Steel USA ISG Inc. and ArcelorMittal Kryviy Rih. Excluding the effects of these acquisitions, ArcelorMittal’s sales increased 14% to $24.5 billion for the year ended December 31, 2006 from $21.5 billion for the year ended December 31, 2005. This increase was a result of increases in both shipments and average steel selling prices.

ArcelorMittal’s steel shipments nearly doubled to 78.9 million tonnes for the year ended December 31, 2006 from 44.6 million tonnes for the year ended December 31, 2005, primarily due to the inclusion of Arcelor, Mittal Steel USA ISG Inc. and ArcelorMittal Kryviy Rih. Excluding the effects of these acquisitions, steel shipments

 

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increased 7% to 38.0 million tonnes for the year ended December 31, 2006 from 35.3 million tonnes for the year ended December 31, 2005. Market demand for our products remained strong in the Long Carbon Americas and Europe and AACIS segments, stable in Flat Carbon Europe and weak in Flat Carbon Americas where shipments decreased by 1% due to the weak market environment in North America.

Average steel selling price increased 14% for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Excluding the effects of the acquisitions of Arcelor, Mittal Steel USA ISG Inc. and ArcelorMittal Kryviy Rih, average steel selling price increased 5% for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Average steel selling prices were higher in all segments except Flat Carbon Americas where average steel selling prices declined marginally.

Flat Carbon Americas

Sales in the Flat Carbon Americas segment increased 56% to $17.6 billion for the year ended December 31, 2006 from $11.2 billion for the year ended December 31, 2005, primarily due to the inclusion of Arcelor and Mittal Steel USA ISG Inc. Excluding the effects of these acquisitions, sales decreased 6% to $5.0 billion for the year ended December 31, 2006 from $5.3 billion for the year ended December 31, 2005. The decrease was primarily due to the marginal reduction of average steel selling prices, lower steel shipment and lower non-steel revenues.

Total steel shipments in the Flat Carbon Americas segment increased 49% to 24.0 million tonnes for the year ended December 31, 2006 from 16.2 million tonnes for the year ended December 31, 2005, primarily due to the acquisitions of Arcelor and Mittal Steel USA ISG Inc. Excluding the effects of these acquisitions, steel shipments decreased by 1% to 7.8 million tonnes for the year ended December 31, 2006 as compared to 7.9 million tonnes for the year ended December 31, 2005. This decrease was primarily due to the weak market environment for our products, in particular in the United States.

Average steel selling price in the Flat Carbon Americas segment increased 7% for the year ended December 31, 2006, as compared with the year ended December 31, 2005, primarily due to the acquisitions of Arcelor and ArcelorMittal USA ISG Inc with higher average steel selling prices. Excluding the effects of these acquisitions, average steel selling price for the year ended December 31, 2006 were marginally lower as compared with the year ended December 31, 2005.

Flat Carbon Europe

Sales in the Flat Carbon Europe segment nearly quadrupled to $14.4 billion for the year ended December 31, 2006 from $3.7 billion for the year ended December 31, 2005, primarily due to the inclusion of Arcelor. Excluding the effects of this acquisition, sales increased 14% to $4.2 billion for the year ended December 31, 2006 from $3.7 billion for the year ended December 31, 2005. This increase was primarily due to a 6% increase in average steel selling price and 3% increase in total steel shipments as the demand for our products was strong in central and Eastern Europe.

Total steel shipments in the Flat Carbon Europe segment increased 175% to 17.4 million tonnes for the year ended December 31, 2006 from 6.3 million tonnes for the year ended December 31, 2005, primarily due to the inclusion of Arcelor. Excluding the effects of this acquisition, steel shipments increased 3% to 6.5 million tonnes for the year ended December 31, 2006 from 6.3 million tonnes for the year ended December 31, 2005. This increase was a result of generally stronger demand for our products in central and Eastern Europe.

Average steel selling prices in the Flat Carbon Europe segment increased 26% for the year ended December 31, 2006, as compared with the year ended December 31, 2005, primarily due to the inclusion of Arcelor. Excluding the effects of this acquisition, average selling price increased 6% from 2005 to 2006. This increase was primarily due to the ability to pass along to customers certain increases in the input costs and improved market environment for our products.

 

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Long Carbon Americas and Europe

Sales in the Long Carbon Americas and Europe segment nearly doubled to $13.1 billion for the year ended December 31, 2006 from $7.7 billion for the year ended December 31, 2005, primarily due to the acquisitions of Arcelor and Mittal Steel USA ISG Inc. Excluding the effects of these acquisitions, sales increased 16% to $8.2 billion for the year ended December 31, 2006, from $7.1 billion for the year ended December 31, 2005. This increase was primarily due to a 14% increase in shipments and a 7% increase in average steel selling prices.

Total steel shipments in the Long Carbon Americas and Europe segment increased 73% to 17.0 million tonnes for the year ended December 31, 2006 from 9.8 million tonnes for the year ended December 31, 2005, primarily due to the acquisitions of Arcelor and Mittal Steel USA ISG Inc. Excluding the effects of these acquisitions, shipments increased 14% to 10.5 million tonnes for the year ended December 31, 2006 from 9.2 million tonnes for the year ended December 31, 2005. This increase was primarily due to an improved market demand for our products, particularly wire rod and bars.

Average steel selling price in the Long Carbon Americas and Europe segment increased 13% for the year ended December 31, 2006 as compared to the year ended December 31, 2005, primarily due to the acquisitions of Arcelor and Mittal Steel USA ISG Inc. Excluding the effects of these acquisitions, average steel selling price increased 7% from 2005 to 2006. This increase was primarily due to a strong demand, especially from the construction industry, and the ability to pass along increased scrap prices to customers.

AACIS

Sales in the AACIS segment increased 45% to $14.4 billion for the year ended December 31, 2006 from $9.9 billion for the year ended December 31, 2005, primarily as a result of the inclusion of Arcelor and ArcelorMittal Kryviy Rih. Excluding the effects of these acquisitions, sales increased 19% to $11.6 million for the year ended December 31, 2006 as compared with $9.7 billion for the year ended December 31, 2005. This increase was primarily due to a 10% increase in shipments and a 5% increase in average steel selling price.

Total steel shipments in the AACIS segment increased 60% to 19.7 million tonnes for the year ended December 31, 2006 from 12.3 million tonnes for the year ended December 31, 2005, primarily due to the inclusion of Arcelor and ArcelorMittal Kryviy Rih. Excluding the effects of these acquisitions, steel shipments increased 10% to 13.1 million tonnes for the year ended December 31, 2006 from 11.9 million tonnes for the year ended December 31, 2005. This increase was primarily the result of strong demand for our products, particularly in the long products division of the CIS, Middle East and African countries.

Average steel selling price in the AACIS segment decreased 6% for the year ended December 31, 2006 as compared to the year ended December 31, 2005, primarily due to the inclusion of Arcelor and ArcelorMittal Kryviy Rih, the latter of which had lower average selling prices, being primarily an exports-based business. Excluding the effects of these acquisitions, average steel selling price increased 5% for the year ended December 31, 2006 as compared to the year ended December 31, 2005. This increase was primarily due to a strong market environment for our products in the CIS, Middle East and African countries, itself reflecting increased activity in the construction and infrastructure sectors, which was offset in part by a price decrease for flat products as a result of Chinese steel producers satisfying their local demand and consequently turning China into a net steel exporter in 2006.

Stainless Steel

The results of the Stainless Steel segment correspond solely to the operations of Arcelor, whose results are included from August 1, 2006. In the Stainless Steel segment, sales were $3.3 billion and shipments were 0.9 million tonnes for the year ended December 31, 2006.

 

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AM3S

The results of the AM3S segment correspond solely to the operations of Arcelor, whose results are included from August 1, 2006. Sales in the AM3S segment were $5.2 billion for the year ended December 31, 2006.

Operating Income

The following table provides a summary of the operating income and operating margin of ArcelorMittal for the year ended December 31, 2006, as compared with the year ended December 31, 2005:

 

     Operating Income
Year ended December 31,