EX-99 3 ex992.htm EXHIBIT 99.2 ArcelorMittal

 

 

ArcelorMittal

Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2017

F-1 

ARCELORMITTAL AND SUBSIDIARIES

Condensed consolidated statements of financial position

(in millions of U.S. dollars)

(unaudited)

 

June 30, 2017

 

December 31, 2016

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

2,048

 

2,501

Restricted cash

224

 

114

Trade accounts receivable and other (including 471 and 322 from related parties at June 30, 2017 and December 31, 2016, respectively)

4,263

 

2,974

Inventories (note 4)

17,458

 

14,734

Prepaid expenses and other current assets

2,286

 

1,665

Assets held for sale

127

 

259

Total current assets

26,406

 

22,247

 

 

 

 

Non-current assets:

 

 

 

Goodwill and intangible assets

5,769

 

5,651

Property, plant and equipment and biological assets (note 6)

35,765

 

34,831

Investments in associates and joint ventures (note 2)

4,679

 

4,297

Other investments

1,168

 

926

Deferred tax assets

6,470

 

5,837

Other assets

1,203

 

1,353

Total non-current assets

55,054

 

52,895

Total assets

81,460

 

75,142

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

Current liabilities:

 

 

 

Short-term debt and current portion of long-term debt (note 9)

3,936

 

1,885

Trade accounts payable and other (including 159 and 179 to related parties at June 30, 2017 and December 31, 2016, respectively)

12,555

 

11,633

Short-term provisions (note 11)

404

 

426

Accrued expenses and other liabilities

4,198

 

3,943

Income tax liabilities

328

 

133

Liabilities held for sale

39

 

95

Total current liabilities

21,460

 

18,115

 

 

 

 

Non-current liabilities:

 

 

 

Long-term debt, net of current portion (note 9)

10,220

 

11,789

Deferred tax liabilities

2,690

 

2,529

Deferred employee benefits

8,636

 

8,297

Long-term provisions (note 11)

1,515

 

1,521

Other long-term obligations

687

 

566

Total non-current liabilities

23,748

 

24,702

Total liabilities

45,208

 

42,817

 

 

 

 

Commitments and contingencies (note 13 and note 14)

 

 

 

 

 

 

 

Equity (note 7):

 

 

 

Equity attributable to the equity holders of the parent

34,027

 

30,135

Non-controlling interests

2,225

 

2,190

Total equity

36,252

 

32,325

Total liabilities and equity

81,460

 

75,142

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARCELORMITTAL AND SUBSIDIARIES

Condensed consolidated statements of operations

(in millions of U.S. dollars, except share and per share data)

(unaudited)

 

 

Six months ended June 30,

 

 

2017

 

2016

 

Sales (including 3,588 and 2,959 of sales to related parties for the six months ended, June 30, 2017 and June 30, 2016, respectively)

33,330

 

28,142

 

Cost of sales (including depreciation and impairment of 1,377 and 1,381 and purchases from related parties of 491 and 629 for the six months ended June 30, 2017 and June 30, 2016, respectively)

29,219

 

24,912

 

Gross margin

4,111

 

3,230

 

Selling, general and administrative expenses

1,145

 

1,083

 

Operating income

2,966

 

2,148

 

Income from investments in associates, joint ventures and other investments

206

 

492

 

Financing costs - net (note 9 and note 10)

(353)

 

(1,079)

 

Income before taxes

2,819

 

1,561

 

Income tax expense (note 8)

480

 

853

 

Net income (including non-controlling interests)

2,339

 

708

 

 

 

 

 

 

Net income attributable to:

 

 

 

 

Equity holders of the parent

2,324

 

696

 

Non-controlling interests

15

 

12

 

Net income (including non-controlling interests)

2,339

 

708

 

 

 

 

 

 

Earnings per common share (in U.S. dollars)1:

 

 

 

 

Basic

2.28

 

0.88

 

Diluted

2.27

 

0.88

 

 

 

 

 

 

Weighted average common shares outstanding (in millions):

 

 

 

 

Basic

1,020

 

792

 

Diluted

1,023

 

793

 

 

 

 

 

1

Following the completion of the Company's share consolidation of each three existing shares into one share without nominal value on May 22, 2017, the earnings per common share for prior period has been recast in accordance with IFRS. Please refer to note 7 for more information.

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARCELORMITTAL AND SUBSIDIARIES

Condensed consolidated statements of other comprehensive income

(in millions of U.S. dollars)

(unaudited)

 

 

 

Six months ended June 30,

 

 

 

2017

 

2016

 

Net income (including non-controlling interests)

 

2,339

 

 

708

 

 

 

 

 

 

 

 

Items that can be recycled to the condensed consolidated statements of operations

 

 

 

 

 

 

Available-for-sale investments:

 

 

 

 

 

 

 

Gain arising during the period

216

 

 

191

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments:

 

 

 

 

 

 

 

Loss arising during the period

(322)

 

 

(129)

 

 

 

Reclassification adjustments for gain included in the condensed consolidated statements of operations

(56)

 

 

(8)

 

 

 

 

(378)

 

 

(137)

 

 

Exchange differences arising on translation of foreign operations:

 

 

 

 

 

 

 

Gain arising during the period

1,426

 

 

749

 

 

 

Reclassification adjustments for gain included in the condensed consolidated statements of operations

(21)

 

 

-

 

 

 

 

1,405

 

 

749

 

 

 

 

 

 

 

 

 

 

Share of other comprehensive income related to associates and joint ventures:

 

 

 

 

 

 

 

Gain arising during the period

204

 

 

58

 

 

 

Reclassification adjustments for (gain) loss included in the condensed consolidated statements of operations

(23)

 

 

80

 

 

 

 

181

 

 

138

 

 

 

 

 

 

 

 

 

 

Income tax benefit (expense) related to components of other comprehensive income that can be recycled to the condensed consolidated statements of operations

162

 

 

(9)

 

 

 

 

 

 

 

 

Items that cannot be recycled to the condensed consolidated statements of operations

 

 

 

 

 

 

Employee benefits

 

 

 

 

 

 

 

Recognized actuarial losses

-

 

 

(335)

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

1,586

 

 

597

 

 

 

 

 

 

 

 

 

Total other comprehensive income attributable to:

 

 

 

 

 

 

Equity holders of the parent

1,546

 

 

553

 

 

Non-controlling interests

40

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

1,586

 

 

597

 

Total comprehensive income

 

3,925

 

 

1,305

 

Total comprehensive income attributable to:

 

 

 

 

 

 

Equity holders of the parent

 

3,870

 

 

1,249

 

Non-controlling interests

 

55

 

 

56

 

Total comprehensive income

 

3,925

 

 

1,305

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARCELORMITTAL AND SUBSIDIARIES

Condensed consolidated statements of changes in equity

(in millions of U.S. dollars, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reserves

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Items that can be recycled to the condensed consolidated statements of operations

 

Items that cannot be recycled to the condensed consolidated statements of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share capital

 

Treasury shares

 

Mandatorily convertible notes

 

Additional paid-in capital

 

Retained earnings

 

Foreign

currency

translation

adjustments

 

Unrealized gains (losses) on derivative financial instruments

 

Unrealized gains (losses) on available-for-sale securities

 

Recognized actuarial losses

 

Equity attributable to the equity holders of the parent

 

Non-controlling interests

 

Total Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares 1, 2, 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

553

 

 

10,011

 

(377)

 

1,800

 

20,294

 

13,902

 

(15,793)

 

114

 

51

 

(4,730)

 

25,272

 

2,298

 

27,570

 

Net income (including non-controlling interests)

-

 

 

 -  

 

 -  

 

 -  

 

-

 

696

 

 -  

 

 -  

 

 -  

 

-

 

696

 

12

 

708

 

Other comprehensive income (loss)

-

 

 

 -  

 

 -  

 

 -  

 

 -  

 

-

 

827

 

(135)

 

196

 

(335)

 

553

 

44

 

597

 

Total comprehensive income (loss)

-

 

 

 -  

 

 -  

 

 -  

 

 -  

 

696

 

827

 

(135)

 

196

 

(335)

 

1,249

 

56

 

1,305

 

Equity offering

421

 

 

144

 

 -  

 

 -  

 

2,971

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

3,115

 

 -  

 

3,115

 

Reduction of the share capital accounting par value

-

 

 

(10,376)

 

 -  

 

 -  

 

10,376

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

Conversion of mandatorily convertible notes

46

 

 

622

 

 -  

 

(1,800)

 

1,178

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

Recognition of share-based payments

-

 

 

 -  

 

3

 

 -  

 

10

 

 -  

 

 -  

 

 -  

 

 -  

 

 -  

 

13

 

 -  

 

13

 

Dividend

-

 

 

 -  

 

 -  

 

 -  

 

 -  

 

-

 

 -  

 

 -  

 

 -  

 

 -  

 

-

 

(47)

 

(47)

 

Equity offering in ArcelorMittal South Africa

-

 

 

 -  

 

 -  

 

 -  

 

 -  

 

437

 

(301)

 

 -  

 

 -  

 

 -  

 

136

 

(80)

 

56

 

Other movements

-

 

 

 -  

 

 -  

 

 -  

 

 -  

 

(57)

 

 -  

 

 -  

 

 -  

 

28

 

(29)

 

22

 

(7)

 

Balance at June 30, 2016

1,020

 

 

401

 

(374)

 

 -  

 

34,829

 

14,978

 

(15,267)

 

(21)

 

247

 

(5,037)

 

29,756

 

2,249

 

32,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

1,020

  

 

401

 

(371)

 

-

 

34,826

 

16,049

 

(16,544)

 

142

 

322

 

(4,690)

 

30,135

 

2,190

 

32,325

 

Net income (including non-controlling interests)

-

  

 

-

 

-

 

-

 

-

 

2,324

 

-

 

-

 

-

 

-

 

2,324

 

15

 

2,339

 

Other comprehensive income (loss)

-

  

 

-

 

-

 

-

 

-

 

-

 

1,610

 

(283)

 

219

 

-

 

1,546

 

40

 

1,586

 

Total comprehensive income (loss)

-

  

 

-

 

-

 

-

 

-

 

2,324

 

1,610

 

(283)

 

219

 

-

 

3,870

-

55

-

3,925

 

Recognition of share-based payments

-

  

 

-

 

3

 

-

 

15

 

-

 

-

 

-

 

-

 

-

 

18

 

-

 

18

 

Dividend

-

  

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(49)

 

(49)

 

Non-controlling interests arising on acquisition of Sumaré (note 3)

-

 

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

29

 

29

 

Other movements

 

  

 

-

 

-

 

-

 

-

 

4

 

-

 

-

 

-

 

-

 

4

 

-

 

4

 

Balance at June 30, 2017

1,020

  

 

401

 

(368)

 

-

 

34,841

 

18,377

 

(14,934)

 

(141)

 

541

 

(4,690)

 

34,027

 

2,225

 

36,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Excludes treasury shares

2

In millions of shares

3

On May 22, 2017, ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result of this reverse stock split, the number of outstanding shares decreased from 3,058 to 1,020 and all prior periods have been recast in accordance with IFRS. Please refer to note 7 for further information.

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARCELORMITTAL AND SUBSIDIARIES

Condensed consolidated statements of cash flows

(in millions of U.S. dollars)

(unaudited)

 

Six months ended June 30,

 

2017

 

2016

Operating activities:

 

 

 

Net income (including non-controlling interests)

2,339

 

708

 

 

 

 

Adjustments to reconcile net income to net cash provided by operations and payments:

 

 

 

Depreciation and impairment

1,377

 

1,381

Interest expense

455

 

668

Interest income

(25)

 

(30)

Income tax expense

480

 

853

Income from associates, joint ventures and other investments

(206)

 

(492)

Provisions for labor agreements and separation plans

254

 

174

Remeasurement gain relating to US deferred employee benefits

-

 

(832)

Change in fair value adjustment on call options on Mandatory Convertible Bonds

(308)

 

(80)

Foreign exchange effects, write-downs (reversals) of inventories to net realizable value, provisions and other non-cash operating expenses (net)

135

 

(48)

 

 

 

 

   Changes in assets and liabilities that provided (required) cash:

 

 

 

Interest paid

(504)

 

(835)

Interest received

31

 

32

Cash contributions to plan assets and benefits paid for pensions and OPEB

(173)

 

(201)

VAT and other amounts from public authorities

(25)

 

160

Dividends received from associates, joint ventures and other investments

146

 

136

Taxes paid

(110)

 

(138)

Working capital, provision movements and other liabilities (note 4)

(2,951)

 

(1,277)

   Net cash provided by operating activities

915

 

179

 

 

 

 

Investing activities:

 

 

 

Purchase of property, plant and equipment and intangibles

(1,146)

 

(1,107)

Disposal (acquisition) of net assets of subsidiaries, net of cash acquired of 292 and nil for the six months ended June 30, 2017 and June 30, 2016, respectively (note 3)

(19)

 

94

Disposals of associates and joint ventures

-

 

1,017

Other investing activities (net) (note 10)

(171)

 

(38)

   Net cash used in investing activities

(1,336)

 

(34)

Financing activities:

 

 

 

Proceeds from short-term and long-term debt

1,126

 

360

Payments of short-term and long-term debt

(1,109)

 

(5,200)

Equity offering

-

 

3,115

Dividends paid

(40)

 

(47)

Other financing activities (net)

(55)

 

55

Net cash used in financing activities

(78)

 

(1,717)

 

 

 

 

   Net decrease in cash and cash equivalents

(499)

 

(1,572)

   Effect of exchange rate changes on cash

33

 

(141)

Cash and cash equivalents:

 

 

 

At the beginning of the period

2,501

 

4,002

Reclassification of the period-end cash and cash equivalents from (to) assets held for sale

13

 

-

At the end of the period

2,048

 

2,289

The accompanying notes are an integral part of these condensed consolidated financial statements.

ARCELORMITTAL AND SUBSIDIARIES

Notes to the condensed consolidated financial statements for the six months ended June 30, 2017

(in millions of U.S. dollars)

(unaudited)

 

NOTE 1 – BASIS OF PRESENTATION AND ACCOUNTING POLICIES

 

Preparation of the condensed consolidated financial statements

The condensed consolidated financial statements of ArcelorMittal and Subsidiaries (“ArcelorMittal” or the “Company”) as of June 30, 2017 and for the six months then ended (the “Interim Financial Statements”) have been prepared in accordance with International Accounting Standard (“IAS”) No. 34, “Interim Financial Reporting”. They should be read in conjunction with the annual consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 20-F for the year ended December 31, 2016, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Interim Financial Statements are unaudited and were authorized for issuance on July 31, 2017 by the Company’s Board of Directors.

Accounting policies

The Interim Financial Statements have been prepared on a historical cost basis, except for available-for-sale financial assets, derivative financial instruments and certain assets and liabilities held for sale, which are measured at fair value less cost to sell, inventories, which are measured at the lower of net realizable value or cost and the financial statements of the Company’s Venezuelan operations, for which hyperinflationary accounting is applied. Unless specifically described herein, the accounting policies used to prepare the Interim Financial Statements are the policies described in the consolidated financial statements for the year ended December 31, 2016.

Adoption of new IFRS standards and interpretations applicable from January 1, 2017

On January 1, 2017, the Company adopted the following amendments and interpretation which did not have a material impact on its consolidated financial statements:

Amendments to IAS 12 “Income Taxes” issued on January 19, 2016 which clarify how to account for deferred tax assets related to debt instruments measured at fair value and how to recognize deferred tax assets for unrealized losses.

Amendments to IAS 7 “Statement of Cash Flows” issued on January 29, 2016 which clarify that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including non-cash changes and changes arising from cash flows.

Annual Improvements 2014 – 2016 published on December 8, 2016 which amended IFRS 12 “Disclosure of Interests in Other Entities” and clarifies the scope of the standard by specifying that the disclosure requirements in the standard apply to an entity’s interests that are classified as held for sale, as held for distribution or as discontinued operations in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”.

The preparation of condensed consolidated financial statements in conformity with IFRS recognition and measurement principles requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on an ongoing basis using currently available information. Changes in facts and circumstances or obtaining new information or more experience may result in revised estimates, and actual results could differ from those estimates.

 

NOTE 2 – INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

On January 27, 2017, China Oriental Group Company Limited (“China Oriental”), a Chinese integrated iron and steel producer listed on the Hong Kong Stock Exchange (“HKEx”) in which ArcelorMittal held a 47% interest, announced the completion of a share placement in order to restore the minimum 25% free float HKEx listing requirement. The trading of China Oriental’s shares, which had been suspended since April 29, 2014, resumed on February 1, 2017. Following the share placement, ArcelorMittal’s interest in China Oriental decreased to 39%. As a result, ArcelorMittal recorded a loss of 67 upon dilution offset by a gain of 23 following the recycling of accumulated foreign exchange translation gains in income from investments in associates, joint ventures and other investments.

 

NOTE 3 – ACQUISITIONS

On June 28, 2017, AM Investco Italy S.r.l., a consortium formed by ArcelorMittal and Marcegaglia with respective interests of 85% and 15%, signed a lease agreement with the Italian Government with an obligation to purchase Ilva S.p.A. and certain of its subsidiaries (“Ilva”). Intesa Sanpaolo will formally join the consortium before the transaction closing. Ilva is Europe’s largest single steel site and only integrated steelmaker in Italy with its main production facility based in Taranto. Ilva also has significant steel finishing capacity in Taranto, Novi Ligure and Genova. The purchase price amounts to €1.8 billion subject to certain adjustments, with annual leasing costs of €180 million to be paid in quarterly installments. Ilva’s business units will be initially leased with rental payments qualifying as down payments against the purchase price and will be part of the Europe segment. The lease period is for a minimum of two years. The closing of the transaction is subject to certain conditions precedent, including receipt of anti-trust approvals. The agreement includes industrial capital expenditure commitments of approximately €1.3 billion over a seven-year period focused on blast furnaces, steel shops and finishing lines, environmental capital expenditure commitments of approximately €0.8 billion and environmental remediation commitments of approximately €0.3 billion, the latter of which will be funded with funds seized by the Italian Government from the former shareholder.

On June 21, 2017, as a result of the extension of the partnership between ArcelorMittal and Bekaert Group (“Bekaert”) in the steel cord business in Brazil, the Company completed the acquisition from Bekaert of a 55.5% controlling interest in Bekaert Sumaré Ltda. subsequently renamed ArcelorMittal Bekaert Sumaré Ltda. (“Sumaré”), a manufacturer of metal ropes for automotive tires located in the municipality of Sumaré/SP, Brazil. The Company agreed to pay a total cash consideration of €56 million (49 net of cash acquired of 14) of which €52 million (58) settled on closing date and €4 million (5) to be paid subsequently upon conclusion of certain business restructuring measures by Bekaert. Sumaré is part of the Brazil reportable segment. The Company will complete the recognition and measurement of the acquired identifiable assets and liabilities during the second half of 2017.

On February 23, 2017, ArcelorMittal and Votorantim S.A. announced the signing of an agreement, pursuant to which Votorantim’s long steel businesses in Brazil, Votorantim Siderurgia, will become a subsidiary of ArcelorMittal Brasil and Votorantim will hold a non-controlling interest in ArcelorMittal Brasil. The combined operations include ArcelorMittal Brasil’s production sites at Monlevade, Cariacica, Juiz de Fora, Piracicaba and Itaúna, and Votorantim Siderurgia’s production sites at Barra Mansa, Resende and its participation in Sitrel, in Três Lagoas. The transaction is subject to regulatory approvals in Brazil, including the approval of the Brazilian anti-trust authority CADE. Until closing, ArcelorMittal Brasil and Votorantim Siderurgia will remain fully separate and independent companies.

On January 18, 2017 and May 18, 2017, the Company acquired from Parfinada B.V. and from Crédit Agricole Assurances the reinsurance companies Artzare S.A. and Crédit Agricole Reinsurance S.A. for consideration of €43 million (45; cash inflow was 5, net of cash acquired of 50) and €186 million (208; cash inflow was 20, net of cash acquired of 228), respectively. Both reinsurance companies are incorporated in Luxembourg and will operate through a series of reinsurance agreements with the Company’s subsidiaries. The Company concluded that both acquisitions were not business combinations as the transactions did not include the acquisition of any strategic management processes, operational and resource management processes.

NOTE 4 – INVENTORIES

 

Inventory, net of the allowance for slow-moving inventory, excess of cost over net realizable value and obsolescence as of June 30, 2017 and December 31, 2016, is comprised of the following:

 

 

June 30, 2017

 

December 31, 2016

Finished products

6,059

 

4,861

Production in process

4,028

 

3,264

Raw materials

5,749

 

5,141

Manufacturing supplies, spare parts and other

1,622

 

1,468

Total

17,458

 

14,734

 

The amount of write-downs of inventories to net realizable value and slow moving items recognized as an expense was 196 both during the six months ended June 30, 2017 and 2016.

 

During 2016, the Company modified the consolidated statements of cash flows to present the change in inventories at their net realizable value within “working capital, provision movements and other liabilities”. Accordingly, amounts for the six months ended June 30, 2016 were reclassified for (686) from “Foreign exchange effects, write-downs (reversals) of inventories to net realizable value, provisions and other non-cash operating expenses (net)” to “working capital, provision movements and other liabilities”.

 

 

NOTE 5 – DIVESTMENTS

On February 10, 2017, ArcelorMittal completed the sale of certain ArcelorMittal Downstream Solutions entities in the Europe segment.

On March 13, 2017, ArcelorMittal and the management of ArcelorMittal Tailored Blanks Americas (“AMTBA”), comprising the Company’s tailored blanks operations in Canada, Mexico and the United States, entered into a joint venture agreement following which the Company recognized an investment of 65 in AMTBA accounted for under the equity method. AMTBA was part of the NAFTA reportable segment and was classified as held for sale at December 31, 2016.

The table below summarizes the significant divestments made in 2017:

 

 

AMTBA

 

Downstream Solutions Europe

 

Cash and cash equivalents

13

 

-

 

Other current assets

46

 

38

 

Property, plant and equipment

55

 

2

 

Other assets

10

 

17

 

Total assets

124

 

57

 

Current liabilities

52

 

18

 

Other long-term liabilities

7

 

12

 

Total liabilities

59

 

30

 

Total net assets disposed of

65

 

27

 

Consideration

65

 

6

 

Reclassification of foreign exchange differences

-

 

21

 

Gain (loss) on disposal

-

 

-

1

  

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT

During the six months ended June 30, 2017, the Company recognized an impairment charge for property, plant and equipment amounting to 46 relating to the Long Carbon cash-generating unit of ArcelorMittal South Africa in the ACIS reportable segment as a result of a downward revision of cash flow projections. The pre-tax discount rate was 17.12% (2016 pre-tax discount rate was 16.63%) and the remaining carrying value of property, plant and equipment was 325 as of June 30, 2017.

 

NOTE 7 – EQUITY AND NON-CONTROLLING INTERESTS

 

Authorized shares

 

At the extraordinary general meeting held on May 10, 2017, the shareholders approved a reverse stock split and an increase of the authorized share capital to €345 million. Following this approval, on May 22, 2017 ArcelorMittal completed the consolidation of each three existing shares in ArcelorMittal without nominal value into one share without nominal value. As a result, the authorized share capital increased with a decrease in representative shares from €337 million represented by 3,372,281,956 ordinary shares without nominal value as of December 31, 2016 to €345 million represented by 1,151,576,921 ordinary shares without nominal value.

 

Share capital

 

As a result of the above mentioned reverse stock split, on May 22, 2017, the aggregate number of shares issued and fully paid up decreased from 3,065,710,869 to 1,021,903,623. There was no change in the share capital of ArcelorMittal which continues to amount to €306 million (401).

 

 

Treasury shares

 

ArcelorMittal held, indirectly and directly, 2.3 million and 2.4 million treasury shares (corresponding to 7.2 million shares prior to the reverse stock split) as of June 30, 2017 and December 31, 2016, respectively.

  

 

NOTE 8 – INCOME TAX

 

The tax expense for the period is based on an estimated annual effective rate, which requires management to make its best estimate of annual pre-tax income for the year. During the year, management regularly updates its estimates based on changes in various factors such as geographical mix of operating profit, prices, shipments, product mix, plant operating performance and cost estimates, including labor, raw materials, energy and pension and other postretirement benefits.

The income tax expense was 480 and 853 for the six months ended June 30, 2017 and 2016, respectively. The tax expense of 480 million for the six months ended June 30, 2017 was driven by the improved results worldwide. The tax expense for the six months ended June 30, 2016 included a de-recognition charge of 712 relating to previously recognized deferred tax assets with respect to the Luxembourg tax integration as the revised taxable income projections no longer included the effect of the anticipated elimination of the USD exposure of such euro denominated deferred tax assets.  

  

NOTE 9 – SHORT-TERM AND LONG-TERM DEBT

 

Short-term debt, including the current portion of long-term debt, consisted of the following:

 

 

 

June 30, 2017

 

December 31, 2016

 

Short-term bank loans and other credit facilities including commercial paper*

1,644

 

1,123

 

Current portion of long-term debt

2,224

 

697

 

Lease obligations

68

 

65

 

Total

3,936

 

1,885

 

 

 

 

 

*

The weighted average interest rate on short-term borrowings outstanding was 3.9% and 2.7% as of June 30, 2017 and December 31, 2016 respectively.

 

Short-term bank loans and other credit facilities include short-term loans, overdrafts and commercial paper.

 

During the six months ended June 30, 2014, ArcelorMittal entered into certain short-term committed bilateral credit facilities. The facilities were extended in 2015, 2016 and 2017. As of June 30, 2017, the facilities totaling approximately 0.7 billion remain fully available.

 

The Company has a commercial paper program enabling borrowings of up to €1 billion. As of June 30, 2017, the outstanding amount was 682.

 

The Company’s long-term debt consisted of the following:

 

 

Year of maturity

 

Type of interest

 

Interest rate1

June 30,

2017

 

December 31,

 2016 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

5.5 billion Revolving Credit Facility - 2.3 billion tranche

2019

 

Floating

 

 

-

 

-

 

 

5.5 billion Revolving Credit Facility - 3.2 billion tranche

2021

 

Floating

 

 

-

 

-

 

 

€1.0 billion Unsecured Bonds2

2017

 

Fixed

 

5.88%

616

 

568

 

 

€500 million Unsecured Notes2

2018

 

Fixed

 

5.75%

380

 

351

 

 

€400 million Unsecured Notes

2018

 

Floating

 

1.70%

456

 

421

 

 

1.5 billion Unsecured Notes2, 5

2018

 

Fixed

 

6.13%

646

 

648

 

 

€750 million Unsecured Notes

2019

 

Fixed

 

3.00%

853

 

788

 

 

1.5 billion Unsecured Notes3, 5, 7

2019

 

Fixed

 

10.60%

 -  

 

842

 

 

500 Unsecured Notes4, 5

2020

 

Fixed

 

5.13%

323

 

323

 

 

CHF 225 million Unsecured Notes

2020

 

Fixed

 

2.50%

234

 

220

 

 

€600 million Unsecured Notes

2020

 

Fixed

 

2.88%

680

 

627

 

 

1.0 billion Unsecured Bonds4, 5

2020

 

Fixed

 

5.75%

621

 

620

 

 

1.5 billion Unsecured Notes4, 5

2021

 

Fixed

 

6.00%

752

 

752

 

 

€500 million Unsecured Notes

2021

 

Fixed

 

3.00%

567

 

523

 

 

€750 million Unsecured Notes

2022

 

Fixed

 

3.13%

852

 

786

 

 

1.1 billion Unsecured Notes

2022

 

Fixed

 

6.75%

1,093

 

1,092

 

 

500 Unsecured Notes

2025

 

Fixed

 

6.13%

497

 

497

 

 

1.5 billion Unsecured Bonds

2039

 

Fixed

 

7.50%

1,466

 

1,466

 

 

1.0 billion Unsecured Notes

2041

 

Fixed

 

7.25%

984

 

984

 

 

Other loans

2020 - 2021

 

Fixed

 

1.25% - 3.46%

55

 

29

 

 

EIB loan

2025

 

Fixed

 

1.46%

399

 

-

 

 

ICO loan

2017

 

Floating

 

2.18%

 

 

7

 

 

Other loans

2017 - 2035

 

Floating

 

0.01% - 3.60%

309

 

250

 

 

Total Corporate

 

 

 

 

 

11,783

 

11,794

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

 

 

 

 

 

 

 

 

 

Other loans

2017 - 2025

 

Fixed/Floating

 

1.72% - 11.15%

142

 

198

 

 

Total Americas

 

 

 

 

 

142

 

198

 

 

 

 

 

 

 

 

 

 

  

 

 

Europe, Asia & Africa

 

 

 

 

 

 

 

  

 

 

Other loans

2018 - 2027

 

Fixed/Floating

 

0.00% - 4.82%

81

 

30

 

 

Total Europe, Asia & Africa

 

 

 

 

 

81

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

12,006

 

12,022

 

 

Less current portion of long-term debt

 

 

 

 

 

(2,224)

 

(697)

 

 

 

 

 

 

 

 

 

 

  

 

 

Total long-term debt (excluding lease obligations)

 

 

 

 

 

9,782

 

11,325

 

 

Lease obligations 6

 

 

 

 

 

438

 

464

 

 

Total long-term debt, net of current portion

 

 

 

 

 

10,220

 

11,789

 

 

 

 

 

 

 

 

 

 

 

 

1

Rates applicable to balances outstanding at June 30, 2017, including the effect of step-ups following downgrades/upgrades. For debt that has been redeemed in its entirety during 2017, the interest rate refers to the rates at the repayment date. On February 24, 2017, Moody’s upgraded ArcelorMittal’s credit rating and placed ArcelorMittal on stable outlook. On April 13, 2017, Fitch affirmed its credit rating of ArcelorMittal, and upgraded its outlook to stable. On May 24, 2017, Standard & Poor’s upgraded ArcelorMittal’s credit rating and placed it on stable outlook. On July 28, 2017, Fitch upgraded its outlook from stable to positive.

 

2

Bonds or Notes partially repurchased on April 19, 2016, pursuant to cash tender offers.

 

3

Notes partially repurchased in May 2016, pursuant to cash tender offer.

 

4

Bonds or Notes partially repurchased on June 29, 2016, pursuant to cash tender offers.

 

5

Bonds or Notes partially repurchased on September 23, 2016, pursuant to cash tender offers.

 

6

Net of current portion of 68 and 65 as of June 30, 2017 and December 31, 2016, respectively.

 

7

Early redeemed on April 3, 2017.

 

 

 

 

 

Corporate

5.5 billion revolving credit facility

 

On December 21, 2016, ArcelorMittal signed an agreement for a 5.5 billion revolving facility (“The Facility”). This Facility amends and restates the 6 billion revolving facility dated April 30, 2015. The amended agreement incorporates a first tranche of 2.3 billion maturing on December 21, 2019, and a second tranche of 3.2 billion maturing on December 21, 2021, restoring the Facility to the original tenors of 3 years and 5 years. The Facility may be used for general corporate purposes. As of June 30, 2017, the 5.5 billion revolving credit facility remains fully available.

Notes

On April 3, 2017, ArcelorMittal redeemed all of its outstanding 1.5 billion 9.85% Notes due June 1, 2019 for a total aggregate purchase price of 1,040, including accrued interest and premiums on early repayment, which was financed with existing cash and liquidity. As a result of the redemptions mentioned above, net financing costs for the six months ended June 30, 2017, included 159 of premiums and other fees.

European Investment Bank (“EIB”) loan

 

On December 16, 2016, ArcelorMittal signed a €350 million finance contract with the European Investment Bank in order to finance European research, development and innovation projects over the period 2017-2020 within the European Union, predominantly France, Belgium and Spain, but also in Czech Republic, Poland, Luxembourg and Romania. This operation benefits from a guarantee from the European Union under the European Fund for Strategic Investments. As of June 30, 2017, €350 million (399) was fully drawn down.

Americas

1 billion senior secured asset-based revolving credit facility

 

On May 23, 2016, ArcelorMittal USA LLC signed a 1 billion senior secured asset-based revolving credit facility maturing on May 23, 2021. Any borrowing under the facility is secured by inventory and certain other working capital and related assets of ArcelorMittal USA and certain of its subsidiaries in the United States. The facility will be used for general corporate purposes. The facility is not guaranteed by the ArcelorMittal parent company. As of June 30, 2017, 500 was drawn down.

South Africa

South African rand revolving borrowing base finance facility

On May 25, 2017, ArcelorMittal South Africa signed a 4.5 billion South African rand revolving borrowing base finance facility maturing on May 25, 2020. Any borrowings under the facility is secured by certain eligible inventory and receivables, as well as certain other working capital and related assets of ArcelorMittal South Africa. The facility will be used for general corporate purposes. The facility is not guaranteed by the ArcelorMittal parent company. As of June 30, 2017, 3.4 billion South African rand (258) was drawn down.

Other

Certain debt agreements of the Company or its subsidiaries contain certain restrictive covenants. Among other things, these covenants limit encumbrances on the assets of ArcelorMittal and its subsidiaries, the ability of ArcelorMittal’s subsidiaries to incur debt and the ability of ArcelorMittal and its subsidiaries to dispose of assets in certain circumstances. Certain of these agreements also require compliance with a financial covenant.

The other loans relate to various debt with banks and public institutions.

 

NOTE 10 – FINANCIAL INSTRUMENTS

The Company enters into derivative financial instruments to manage its exposure to fluctuations in interest rates, exchange rates and the price of raw materials, energy and emission rights allowances arising from operating, financing and investing activities.

Fair values versus carrying amounts

The estimated fair values of certain financial instruments have been determined using available market information or other valuation methodologies that require judgment in interpreting market data and developing estimates. The following tables summarize assets and liabilities based on their categories at June 30, 2017.

 

 

Carrying amount in statements of financial position

 

Non-financial assets and liabilities

 

Loan and receivables

 

Liabilities at amortized cost

 

Fair value recognized in profit or loss

 

Available-for-sale assets

 

Derivatives

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

2,048

 

-

 

2,048

 

-

 

-

 

-

 

-

Restricted cash *

224

 

-

 

224

 

-

 

-

 

-

 

-

Trade accounts receivable and other

4,263

 

-

 

4,263

 

-

 

-

 

-

 

-

Inventories

17,458

 

17,458

 

-

 

-

 

-

 

-

 

-

Prepaid expenses and other current assets

2,286

 

1,290

 

444

 

-

 

-

 

-

 

552

Assets held for sale

127

 

127

 

-

 

-

 

-

 

-

 

-

Total current assets

26,406

 

18,875

 

6,979

 

-

 

-

 

-

 

552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill and intangible assets

5,769

 

5,769

 

-

 

-

 

-

 

-

 

-

Property, plant and equipment and biological assets

35,765

 

35,721

 

-

 

-

 

44

 

-

 

-

Investments in associates and joint ventures

4,679

 

4,679

 

-

 

-

 

-

 

-

 

-

Other investments

1,168

 

-

 

-

 

-

 

-

 

1,168

 

-

Deferred tax assets

6,470

 

6,470

 

-

 

-

 

-

 

-

 

-

Other assets

1,203

 

371

 

828

 

-

 

-

 

-

 

4

Total non-current assets

55,054

 

53,010

 

828

 

-

 

44

 

1,168

 

4

Total assets

81,460

 

71,885

 

7,807

 

-

 

44

 

1,168

 

556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

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

3,936

 

-

 

-

 

3,936

 

-

 

-

 

-

Trade accounts payable and other

12,555

 

-

 

-

 

12,555

 

-

 

-

 

-

Short-term provisions

404

 

394

 

-

 

10

 

-

 

-

 

-

Accrued expenses and other liabilities

4,198

 

1,074

 

-

 

2,650

 

-

 

-

 

474

Income tax liabilities

328

 

328

 

-

 

-

 

-

 

-

 

-

Liabilities held for sale

39

 

39

 

-

 

-

 

-

 

-

 

-

Total current liabilities

21,460

 

1,835

 

-

 

19,151

 

-

 

-

 

474

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion 

10,220

 

-

 

-

 

10,220

 

-

 

-

 

-

Deferred tax liabilities

2,690

 

2,690

 

-

 

-

 

-

 

-

 

-

Deferred employee benefits

8,636

 

8,636

 

-

 

-

 

-

 

-

 

-

Long-term provisions

1,515

 

1,514

 

-

 

1

 

-

 

-

 

-

Other long-term obligations

687

 

214

 

-

 

329

 

-

 

-

 

144

Total non-current liabilities

23,748

 

13,054

 

-

 

10,550

 

-

 

-

 

144

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity attributable to the equity holders of the parent

34,027

 

34,027

 

-

 

-

 

-

 

-

 

-

Non-controlling interests

2,225

 

2,225

 

-

 

-

 

-

 

-

 

-

Total equity

36,252

 

36,252

 

-

 

-

 

-

 

-

 

-

Total liabilities and equity

81,460

 

51,141

 

-

 

29,701

 

-

 

-

 

618

* Restricted cash of 224 and 114 includes a cash deposit of 110 and nil in connection with various environmental obligations and true sales of receivables programs in ArcelorMittal South Africa and 75 and 75 in connection with the mandatory convertible bonds as of June 30, 2017 and December 31, 2016, respectively. The increase during the six months ended June 30, 2017 was recognized in “Other investing activities (net)” in the condensed consolidated statements of cash flows.

 

The following tables summarize the bases used to measure certain assets and liabilities at their fair value.

 

 

As of June 30, 2017

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets at fair value:

 

 

 

 

 

 

 

 

Available-for-sale financial assets

1,142

 

-

 

-

 

 1,142 *

 

Derivative financial current assets

-

 

69

 

483

 

552

 

Derivative financial non-current assets

-

 

4

 

-

 

4

 

Total assets at fair value

1,142

 

73

 

483

 

1,698

 

Liabilities at fair value:

 

 

 

 

 

 

 

 

Derivative financial current liabilities

-

 

474

 

-

 

474

 

Derivative financial non-current liabilities

-

 

100

 

44

 

144

 

Total liabilities at fair value

-

 

574

 

44

 

618

*

The balance does not include equity investments of 26 carried at cost.

 

 

 

 

 

 

 

 

 

 

As of December 31, 2016

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets at fair value:

 

 

 

 

 

 

 

 

Available-for-sale financial assets

894

 

-

 

-

 

 894 *

 

Derivative financial current assets

-

 

243

 

-

 

243

 

Derivative financial non-current assets

-

 

14

 

175

 

189

 

Total assets at fair value

894

 

257

 

175

 

1,326

 

Liabilities at fair value:

 

 

 

 

 

 

 

 

Derivative financial current liabilities

-

 

226

 

-

 

226

 

Derivative financial non-current liabilities

-

 

37

 

33

 

70

 

Total liabilities at fair value

-

 

263

 

33

 

296

*

The balance does not include equity investments of 32 carried at cost.

 

Available-for-sale financial assets classified as Level 1 refer to listed securities quoted in active markets. A quoted market price in an active market provides the most reliable evidence of fair value and is used without adjustment to measure fair value whenever available, with limited exceptions. The total fair value is either the price of the most recent trade at the time of the market close or the official close price as defined by the exchange on which the asset is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs. The increase in the available-for-sale financial assets is primarily related to the share price evolution of Ereĝli Demir ve Çelik Fabrikalari T.A.S. (“Erdemir”).

Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreign exchange rates, raw materials (base metal), freight, energy, and emission rights. The total fair value is based on the price a dealer would pay or receive for the security or similar securities, adjusted for any terms specific to that asset or liability. Market inputs are obtained from well-established and recognized vendors of market data and the fair value is calculated using standard industry models based on significant observable market inputs such as foreign exchange rates, commodity prices, swap rates and interest rates.

Derivative financial assets classified as Level 3 refer to the call option on the 1,000 mandatory convertible bonds. As at June 30, 2016, the Hunan Valin securities were classified as Level 3 derivative financial assets, which were subsequently disposed. The fair valuation of Level 3 derivative instruments is established at each reporting date including an analysis of changes in the fair value measurement since the last period. ArcelorMittal’s valuation policies for Level 3 derivatives are an integral part of its internal control procedures and have been reviewed and approved according to the Company’s principles for establishing such procedures. In particular, such procedures address the accuracy and reliability of input data, the accuracy of the valuation model and the knowledge of the staff performing the valuations.

ArcelorMittal estimates the fair value of the call option on the 1,000 mandatory convertible bonds through the use of binomial valuation models. Binomial valuation models use an iterative procedure to price options, allowing for the specification of nodes, or points in time, during the time span between the valuation date and the option’s expiration date. In contrast to the Black-Scholes model, which provides a numerical result based on inputs, the binomial model allows for the calculation of the asset and the option for multiple periods along with the range of possible results for each period.

Observable input data used in the valuations include zero coupon yield curves, stock market prices, European Central Bank foreign exchange fixing rates and Libor interest rates. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available. Specifically, the Company computes unobservable volatility data based mainly on the movement of stock market prices observable in the active market over 90 working days.

Derivative financial non-current liabilities classified as Level 3 relate to an iron ore supply agreement that contains a special payment that varies according to the price of steel in the United States domestic market (“domestic steel price”). The Company concluded that this payment feature was an embedded derivative not closely related to the host contract. ArcelorMittal establishes the fair valuation of the special payment by comparing the current forecasted domestic steel price to the projected domestic steel price at the inception of the contract. Observable input data includes third-party forecasted domestic steel prices. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available or not consistent with the Company’s views on future prices and refer specifically to domestic steel prices beyond the timeframe of available third-party forecasts.

The following table summarizes the reconciliation of the fair value of the call option on the 1,000 mandatory convertible bonds as of June 30, 2017 and June 30, 2016 and the fair value of the special payment as of June 30, 2017:

 

 

 

Call option on 1,000 mandatory convertible bonds

Special payment in an iron ore supply agreement

Hunan Valin

 

Balance as of December 31, 2015

 4  

 -  

 -  

 

Reclassification from Level 1

 -  

 -  

 181  

 

Change in fair value

 80  

 -  

 (21) 

 

Balance as of June 30, 2016

 84  

 -  

 160  

 

Disposal

 -  

 -  

 (160) 

 

Change in fair value

 91  

 (33) 

 -  

 

Balance as of December 31, 2016

 175  

 (33) 

 -  

 

Change in fair value 1

 308  

 (11) 

 -  

 

Balance as of June 30, 2017

 483  

 (44) 

 -  

1

The mark-to-market is recorded in "Financing costs - net".

 

Portfolio of derivatives

The Company manages the counter-party risk associated with its instruments by centralizing its commitments and by applying procedures which specify, for each type of transaction and underlying, risk limits and/or the characteristics of the counter-party. The Company does not generally grant to or require from its counter-parties guarantees of the risks incurred. Allowing for exceptions, the Company’s counterparties are part of its financial partners and the related market transactions are governed by framework agreements (mainly the International Swaps and Derivatives Association agreements which allow netting only in case of counterparty default). Accordingly, derivative assets and derivative liabilities are not offset.

The portfolio associated with derivative financial instruments classified as Level 2 as of June 30, 2017 is as follows:

 

 

 

Assets

 

Liabilities

 

 

Notional Amount

 

Fair Value

 

Notional Amount

 

Fair Value

 

Foreign exchange rate instruments

 

 

 

 

 

 

 

 

Forward purchase of contracts

534

 

9

 

3,846

 

(226)

 

Forward sale of contracts

583

 

11

 

376

 

(6)

 

Currency swaps purchases

103

 

1

 

127

 

(20)

 

Currency swaps sales

-

 

-

 

1,000

 

(94)

 

Exchange option purchases

149

 

1

 

785

 

(4)

 

Exchange options sales

285

 

3

 

560

 

(4)

 

Total foreign exchange rate instruments

 

 

25

 

 

 

(354)

 

 

 

 

 

 

 

 

 

 

Raw materials (base metal), freight, energy, emission rights

 

 

 

 

 

 

 

 

Term contracts sales

178

 

10

 

250

 

(19)

 

Term contracts purchases

398

 

37

 

881

 

(200)

 

Options sales/purchases

-

 

1

 

50

 

(1)

 

Total raw materials (base metal), freight, energy, emission rights

 

 

48

 

 

 

(220)

 

Total

 

 

73

 

 

 

(574)

 

The portfolio associated with derivative financial instruments classified as Level 2 as of December 31, 2016 is as follows:

 

 

 

Assets

Liabilities

 

 

Notional Amount

 

Fair Value

 

Notional Amount

 

Fair Value

 

Foreign exchange rate instruments

 

 

 

 

 

 

 

 

Forward purchase of contracts

3,784

 

153

 

658

 

(21)

 

Forward sale of contracts

685

 

10

 

657

 

(26)

 

Currency swaps purchases

138

 

6

 

44

 

(33)

 

Currency swaps sales

500

 

4

 

500

 

(24)

 

Exchange option purchases

169

 

1

 

37

 

-

 

Exchange options sales

109

 

1

 

-

 

-

 

Total foreign exchange rate instruments

 

 

175

 

 

 

(104)

 

 

 

 

 

 

 

 

 

 

Raw materials (base metal), freight, energy, emission rights

 

 

 

 

 

 

 

 

Term contracts sales

329

 

18

 

312

 

(36)

 

Term contracts purchases

416

 

64

 

841

 

(123)

 

Option sales/purchases

6

 

-

 

6

 

-

 

Total raw materials (base metal), freight, energy, emission rights

 

 

82

 

 

 

(159)

 

Total

 

 

257

 

 

 

(263)

 

NOTE 11 – PROVISIONS

 

Provisions as of June 30, 2017 and December 31, 2016 are comprised of the following:

 

 

June 30, 2017

 

December 31, 2016

 

Environmental

775

 

745

 

Asset retirement obligations

380

 

358

 

Site restoration

44

 

43

 

Staff related obligations

171

 

168

 

Voluntary separation plans

55

 

79

 

Litigation and other (see note 14)

344

 

413

 

     Tax claims

164

 

211

 

     Other legal claims

180

 

202

 

Commercial agreements and onerous contracts

17

 

26

 

Other

133

 

115

 

Total

1,919

 

1,947

 

Short-term provisions

404

 

426

 

Long-term provisions

1,515

 

1,521

 

Total

1,919

 

1,947

 

 

  

NOTE 12 – SEGMENT AND GEOGRAPHIC INFORMATION

Reportable segments

ArcelorMittal reports its operations in five segments: NAFTA, Brazil, Europe, ACIS and Mining.

·         NAFTA represents the flat, long and tubular facilities of the Company located in North America (Canada, United States and Mexico). NAFTA produces flat products such as slabs, hot-rolled coil, cold-rolled coil, coated steel and plate. These products are sold primarily to customers in the following industries: distribution and processing, automotive, pipes and tubes, construction, packaging and appliances. NAFTA also produces long products such as wire rod, sections, rebar, billets, blooms and wire drawing, and tubular products;

·         Brazil includes the flat operations of Brazil and the long and tubular operations of Brazil and neighboring countries including Argentina, Costa Rica and Venezuela. Flat products include slabs, hot-rolled coil, cold-rolled coil and coated steel. Long products consist of wire rod, sections, bar and rebar, billets, blooms and wire drawing;

·         Europe is the largest flat steel producer in the European region, with operations that range from Spain in the west to Romania in the east, and covering the flat carbon steel product portfolio in all major countries and markets. 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. Europe also produces long products consisting of sections, wire rod, rebar, billets, blooms and wire drawing, and tubular products. In addition, it includes Downstream Solutions, primarily an in-house trading and distribution arm of ArcelorMittal. Downstream Solutions also provides value-added and customized steel solutions through further steel processing to meet specific customer requirements;

·         ACIS produces a combination of flat, long and tubular products. Its facilities are located in Africa and the Commonwealth of Independent States; and

·         Mining comprises all mines owned by ArcelorMittal in the Americas (Canada, USA, Mexico and Brazil), Asia (Kazakhstan), Europe (Ukraine and Bosnia & Herzegovina) and Africa (Liberia). It supplies the Company and third party customers with iron ore and coal.

The following table summarizes certain financial data relating to ArcelorMittal’s operations in its different reportable segments:

 

 

 

NAFTA

 

Brazil

 

Europe

 

ACIS

 

Mining

 

Others*

 

Elimination

 

Total

 

Six months ended June 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales to external customers

9,040

 

3,045

 

17,192

 

3,472

 

548

 

33

 

 -  

 

33,330

 

Intersegment sales**

25

 

399

 

210

 

169

 

1,497

 

173

 

(2,473)

 

 -  

 

Operating income (loss)

774

 

303

 

1,288

 

167

 

594

 

(134)

 

(26)

 

2,966

 

Depreciation and amortization

256

 

144

 

563

 

152

 

205

 

11

 

 -  

 

1,331

 

Impairment

 -  

 

 -  

 

 -  

 

46

 

 -  

 

 -  

 

 -  

 

46

 

Capital expenditures

187

 

112

 

500

 

148

 

184

 

17

 

(2)

 

1,146

 

Six months ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales to external customers

7,740

 

2,564

 

14,837

 

2,653

 

326

 

22

 

 -  

 

28,142

 

Intersegment sales**

2

 

179

 

124

 

120

 

1,083

 

114

 

(1,622)

 

 -  

 

Operating income (loss)

1,414

 

238

 

469

 

147

 

60

 

(155)

 

(25)

 

2,148

 

Depreciation and amortization

270

 

120

 

570

 

156

 

201

 

15

 

 -  

 

1,332

 

Impairment

 -  

 

 -  

 

49

 

 -  

 

 -  

 

 -  

 

 -  

 

49

 

Capital expenditures

209

 

112

 

467

 

164

 

142

 

13

 

 -  

 

1,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Others include all other operational and non-operational items which are not segmented, such as corporate and shared services, financial activities, and shipping and logistics.

**

Transactions between segments are reported on the same basis of accounting as transactions with third parties except for certain mining products shipped internally and reported on a cost plus basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The reconciliation from operating income to net income is as follows:

 

 

Six months ended June 30,

 

2017

 

2016

Operating income

2,966

 

2,148

Income from investments in associates, joint ventures and other investments

206

 

492

Financing costs - net

(353)

 

(1,079)

Income before taxes

2,819

 

1,561

Income tax expense

(480)

 

(853)

Net income (including non-controlling interests)

2,339

 

708

 

Geographical segmentation

Sales (by destination)

 

 

2017

 

2016

Americas

 

 

 

United States

7,277

 

6,039

Brazil

1,889

 

1,599

Canada

1,520

 

1,421

Mexico

1,089

 

862

Argentina

559

 

420

Others

465

 

412

Total Americas

12,799

 

10,753

 

 

 

 

Europe

 

 

 

Germany

2,828

 

2,447

France

2,076

 

1,961

Spain

1,798

 

1,580

Poland

1,758

 

1,572

Italy

1,371

 

1,019

Turkey

825

 

896

Czech Republic

720

 

526

United Kingdom

670

 

594

Russia

637

 

278

Netherlands

569

 

505

Belgium

521

 

456

Romania

300

 

279

Others

2,353

 

1,968

Total Europe

16,426

 

14,081

 

 

 

 

Asia & Africa

 

 

 

South Africa

1,256

 

988

Morocco

278

 

261

Egypt

85

 

245

Rest of Africa

493

 

303

China

329

 

263

Kazakhstan

182

 

177

South Korea

157

 

99

India

95

 

40

Rest of Asia

1,230

 

932

Total Asia & Africa

4,105

 

3,308

 

 

 

 

Total

33,330

 

28,142

The table below presents sales to external customers by product type. In addition to steel produced by the Company, amounts include material purchased for additional transformation and sold through distribution services. Others include mainly non-steel sales and services.

 

Product segmentation

 

Sales (by products)

 

 

Six months ended June 30,

 

2017

 

2016

Flat products

21,360

 

16,744

Long products

6,274

 

6,120

Tubular products

873

 

742

Mining products

548

 

326

Others

4,275

 

4,210

Total

33,330

 

28,142

 

NOTE 13 – COMMITMENTS

 

The Company’s commitments consist of the following:

 

 

 

June 30, 2017

 

 

December 31, 2016

Purchase commitments

24,121

 

 

24,432

Guarantees, pledges and other collateral

5,201

 

 

4,424

Non-cancellable operating leases

1,296

 

 

1,312

Capital expenditure commitments

413

 

 

466

Other commitments

1,184

 

 

1,432

Total

32,215

 

 

32,066

 

 

Purchase commitments

Purchase commitments consist primarily of major agreements for procuring iron ore, coking coal, coke and hot metal. The Company also has a number of agreements for electricity, industrial and natural gas, scrap and freight. In addition to those purchase commitments disclosed above, the Company enters into purchasing contracts as part of its normal operations which have minimum volume requirements but for which there are no take-or-pay or penalty clauses included in the contract. The Company does not believe these contracts have an adverse effect on its liquidity position.

Purchase commitments include commitments given to associates for 507 and 480 as of June 30, 2017 and December 31, 2016, respectively. Purchase commitments include commitments given to joint ventures for 1,505 and 1,386 as of June 30, 2017 and December 31, 2016, respectively. Commitments given to joint ventures include 1,430 and 1,314 related to purchase of the output from Tameh as of June 30, 2017 and December 31, 2016, respectively. Additionally, the Company has committed to purchase 50% of the output from its joint venture Kalagadi once production commences; however, the Company’s investment in Kalagadi is classified as held for sale pending completion of the closing conditions.

Guarantees, pledges and other collateral

Guarantees related to financial debt and credit lines given on behalf of third parties were 159 and 131 as of June 30, 2017 and December 31, 2016, respectively. Additionally, 10 and 11 were related to guarantees given on behalf of associates and guarantees of 1,022 and 1,028 were given on behalf of joint ventures as of June 30, 2017 and December 31, 2016, respectively. Guarantees given on behalf of joint ventures include 435 and 463 for the guarantee issued on behalf of Calvert and 402 and 403 for the guarantees issued on behalf of Al Jubail as of June 30, 2017 and December 31, 2016, respectively.

Pledges and other collateral mainly relate inventories pledged to secure an asset-based revolving credit facility for the amount drawn of 500, inventories and receivables pledged to secure the South African rand revolving borrowing base finance facility for the amount drawn of 258, ceded bank accounts to secure environmental obligations, true sale of receivables programs and the revolving borrowing base finance facility in South Africa of 200 and mortgages entered into by the Company’s operating subsidiaries. Other sureties, first demand guarantees, letters of credit, pledges and other collateral included nil commitments given on behalf of associates as of June 30, 2017 and December 31, 2016 and 134 and 114 commitments given on behalf of joint ventures as of June 30, 2017 and December 31, 2016, respectively.

Non-cancellable operating leases

Non-cancellable operating leases mainly relate to commitments for the long-term use of various facilities, land and equipment belonging to third parties.

Capital expenditure commitments

Capital expenditure commitments mainly relate to commitments associated with investments in expansion and improvement projects by various subsidiaries.

 

Other commitments

 

Other commitments given comprise mainly commitments incurred for gas supply to electricity suppliers.

Commitments to sell

 

In addition to the commitments presented above, the Company has firm commitments to sell natural gas and electricity for 279 and 366 as of June 30, 2017 and December 31, 2016, respectively.

NOTE 14 – CONTINGENCIES

 

ArcelorMittal may be involved in litigation, arbitration or other legal proceedings. Provisions related to legal and arbitral proceedings are recorded in accordance with the principles described in note 8.2 to the consolidated financial statements for the year ended December 31, 2016.

 

Most of these claims involve highly complex issues. Often these issues are subject to substantial uncertainties and, therefore, the probabilities of loss and an estimate of damages are difficult to ascertain. Consequently, for a large number of these claims, the Company is unable to make a reliable estimate of the expected financial effect that will result from ultimate resolution of the proceeding. In those cases, the Company has disclosed information with respect to the nature of the contingency. The Company has not accrued a provision for the potential outcome of these cases.

 

In cases in which quantifiable fines and penalties have been assessed or the Company has otherwise been able to reliably estimate the amount of probable loss, the Company has indicated the amount of such fine or penalty or the amount of provision accrued.

 

In a limited number of ongoing cases, the Company is able to make a reliable estimate of the expected loss or range of possible loss and has accrued a provision for such loss, but believe that publication of this information on a case-by-case basis would seriously prejudice the Company’s position in the ongoing legal proceedings or in any related settlement discussions. Accordingly, in these cases, the Company has disclosed information with respect to the nature of the contingency, but has not disclosed the estimate of the range of potential loss nor the amount recorded as a loss.

 

These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. These assessments are based on estimates and assumptions that have been deemed reliable by management. The Company believes that the aggregate provisions recorded for the above matters are adequate based upon currently available information. However, given the inherent uncertainties related to these cases and in estimating contingent liabilities, the Company could, in the future, incur judgments that could have a material effect on its results of operations in any particular period. The Company considers it highly unlikely, however, that any such judgments could have a material adverse effect on its liquidity or financial condition.

 

Tax claims

 

Brazil

In 2011, SOL Coqueria Tubarão S.A. received 21 tax assessments from the Revenue Service of the State of Espirito Santo for ICMS (a value-added tax) in the total amount of 35 relating to a tax incentive (INVEST) used by the Company. The dispute concerns the definition of fixed assets. In August 2015, the administrative tribunal of first instance upheld 21 of the tax assessments, while also issuing decisions partially favorable to the Company in two of the cases. In September 2015, ArcelorMittal Tubarão filed appeals with respect to each of the administrative tribunal’s decisions. As of May 2017, there have been final unfavorable decisions at the administrative tribunal level in 15 of the 21 cases, each of which ArcelorMittal Tubarão is appealing to the judicial instance. The other six cases are pending decision from the third administrative tribunal.

 

For over 18 years, ArcelorMittal Brasil has been challenging the basis of calculation of the Brazilian Cofins and Pis social security taxes (specifically, whether Brazilian VAT may be deducted from the base amount on which the Cofins and Pis taxes are calculated). ArcelorMittal Brasil subsequently deposited the disputed amount in judicial escrow. The principal amount of the deposit bears interest at a rate applicable to judicial escrow deposits and was 54 as of June 30, 2017. In March 2017, the Supreme Court decided a separate case, not involving ArcelorMittal Brasil, on the same subject in favor of the relevant taxpayers. Such separate Supreme Court decision, which is of binding precedential value with respect to all similar cases, including those of ArcelorMittal Brasil, is subject to appeal by the Federal Revenue Service.

 

In May 2014, ArcelorMittal Comercializadora de Energia received a tax assessment from the state of Minas Gerais alleging that the Company did not correctly calculate tax credits on interstate sales of electricity from February 2012 to December 2013. The amount claimed totals 55. ArcelorMittal Comercializadora de Energia filed its defense in June 2014. Following an unfavorable administrative decision in November 2014, ArcelorMittal filed an appeal in December 2014. In March 2015, there was a further unfavorable decision at the second administrative level. Following the conclusion of this proceeding at the administrative level, the Company received the tax enforcement notice in December 2015 and filed its defense in February 2016. In April 2016, ArcelorMittal Comercializadora de Energia received an additional tax assessment in the amount of 79, regarding the same matter, for infractions which allegedly occurred during the 2014 to 2015 period, and filed its defense in May 2016. In May 2017, there was a further unfavorable decision at the second administrative level in respect of the tax assessment received in April 2016. In June 2017, ArcelorMittal Comercializadora de Energia filed an appeal to the second administrative instance.

 

On April 25, 2016, ArcelorMittal Brasil received a tax assessment in relation to (i) the amortization of goodwill resulting from Mittal Steel’s mandatory tender offer to the minority shareholders of Arcelor Brasil following Mittal Steel’s merger with Arcelor in 2007 and (ii) the amortization of goodwill resulting from ArcelorMittal Brasil’s acquisition of CST in 2008. While the assessment, if upheld, would not result in a cash payment as ArcelorMittal Brasil did not have any tax liability for the fiscal years in question (2011 and 2012), it would result in the write-off of 292 worth of ArcelorMittal Brasil’s net operating loss carryforwards and as a result could have an effect on net income over time. In May 2016, ArcelorMittal Brasil filed its defense which was not accepted at the first administrative instance. On March 10, 2017, ArcelorMittal Brasil filed an appeal to the second administrative instance.

 

Competition/Antitrust claims

 

Romania

In 2010 and 2011, ArcelorMittal Galati entered into high volume electricity purchasing contracts with Hidroelectrica, a partially state-owned electricity producer. Following allegations by Hidroelectrica’s minority shareholders that ArcelorMittal Galati (and other industrial electricity consumers) benefitted from artificially low tariffs, the European Commission opened a formal investigation into alleged state aid in April 2012. The European Commission announced on June 12, 2015 that electricity supply contracts signed by Hidroelectrica with certain electricity traders and industrial customers (including the one entered by ArcelorMittal Galati) did not involve state aid within the meaning of the EU rules. In March 2017, the European Commission’s decision was officially published. As no challenge was filed within two months of publication, the decision has become definitive.

 

Germany

In the first half of 2016, the German Federal Cartel Office carried out unannounced investigations of ArcelorMittal Ruhrort GmbH and ArcelorMittal Commercial Long Deutschland GmbH following alleged breaches of antitrust rules concerning (i) collusion regarding scrap and alloy surcharges from the 1990s through November 2015 and (ii) impermissible exchanges of sensitive information between competitors since early 2003. ArcelorMittal Ruhrort GmbH and ArcelorMittal Commercial Long Deutschland GmbH are cooperating with the German Federal Cartel Office. ArcelorMittal is unable to assess the outcome of these proceedings or the amount of its potential liability, if any. In March 2017, the Federal Cartel Office formally notified ArcelorMittal SA, ArcelorMittal Commercial Sections SA and certain other parties that they are also being included in the investigation.

 

Other legal claims

 

Minority shareholder claims regarding the exchange ratio in the second-step merger of ArcelorMittal into Arcelor

 

ArcelorMittal is the company that results from the acquisition of Arcelor by Mittal Steel N.V. in 2006 and a subsequent two-step merger between Mittal Steel and ArcelorMittal and then ArcelorMittal and Arcelor. Following completion of this merger process, several former minority shareholders of Arcelor or their representatives brought legal proceedings regarding the exchange ratio applied in the second-step merger between ArcelorMittal and Arcelor and the merger process as a whole.

 

ArcelorMittal believes that the allegations made and claims brought by such minority shareholders are without merit and that the exchange ratio and merger process complied with the requirements of applicable law, were consistent with previous guidance on the principles that would be used to determine the exchange ratio in the second-step merger and that the merger exchange ratio was relevant and reasonable to shareholders of both merged entities.

 

Set out below is a summary of ongoing matters in this regard. Several other claims brought before other courts and regulators were dismissed and are definitively closed.

 

On January 8, 2008, ArcelorMittal received a writ of summons on behalf of four hedge fund shareholders of Arcelor to appear before the civil court of Luxembourg. The summons was also served on all natural persons sitting on the Board of Directors of ArcelorMittal at the time of the merger and on the Significant Shareholder. The plaintiffs alleged in particular that, based on Mittal Steel’s and Arcelor’s disclosure and public statements, investors had a legitimate expectation that the exchange ratio in the second-step merger would be the same as that of the secondary exchange offer component of Mittal Steel’s June 2006 tender offer for Arcelor (i.e., 11 Mittal Steel shares for 7 Arcelor shares), and that the second-step merger did not comply with certain provisions of Luxembourg company law. They claimed, inter alia, the cancellation of certain resolutions (of the Board of Directors and of the Shareholders meeting) in connection with the merger, the grant of additional shares, or damages in an amount of approximately 192. By judgment dated November 30, 2011, the Luxembourg civil court declared all of the plaintiffs’ claims inadmissible and dismissed them. The judgment was appealed in May 2012. By judgment dated February 15, 2017, the Luxembourg Court of Appeal declared all but one of the plaintiffs’ claims inadmissible, remanded the proceedings on the merits to the lower court with respect to the admissible claimant and dismissed all other claims. In June 2017, the plaintiffs filed an appeal of this decision to the Court of Cassation.

 

 

 

 

 

On May 15, 2012, ArcelorMittal received a writ of summons on behalf of Association des Actionnaires d'Arcelor (“AAA”), a French association of former minority shareholders of Arcelor, to appear before the civil court of Paris. In such writ of summons, AAA claimed (on grounds similar to those in the Luxembourg proceedings summarized above) inter alia damages in a nominal amount and reserved the right to seek additional remedies including the cancellation of the merger. The proceedings before the civil court of Paris have been stayed, pursuant to a ruling of such court on July 4, 2013, pending a preparatory investigation (instruction préparatoire) by a criminal judge magistrate (juge d’instruction) triggered by the complaints (plainte avec constitution de partie civile) of AAA and several hedge funds (who quantified their total alleged damages at approximately 262), including those who filed the claims before the Luxembourg courts described (and quantified) above.