SUMMARY OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| | | | | |
| NOTE 1: ACCOUNTING PRINCIPLES |
| 1.1 | Basis of presentation |
| 1.2 | Use of judgment and estimates |
| 1.3 | Accounting standards applied |
| NOTE 2: SCOPE OF CONSOLIDATION |
| 2.1 | Basis of consolidation |
| 2.2 | Investments in subsidiaries |
| 2.3 | Divestments and assets held for sale |
| 2.4 | Investments in associates and joint arrangements |
| 2.5 | Other investments |
| 2.6 | Income (loss) from investments in associates, joint ventures and other investments |
| NOTE 3: SEGMENT REPORTING |
| 3.1 | Reportable segments |
| 3.2 | Geographical information |
| 3.3 | Sales by type of products |
| 3.4 | Disaggregated revenue |
| NOTE 4: OPERATING DATA |
| 4.1 | Revenue |
| 4.2 | Cost of sales |
| 4.3 | Trade accounts receivable and other |
| 4.4 | Inventories |
| 4.5 | Prepaid expenses and other current assets |
| 4.6 | Other assets |
| 4.7 | Trade accounts payable and other |
| 4.8 | Accrued expenses and other liabilities |
| NOTE 5: GOODWILL, INTANGIBLE AND TANGIBLE ASSETS |
| 5.1 | Goodwill and intangible assets |
| 5.2 | Property, plant and equipment and biological assets |
| 5.3 | Impairment of intangible assets, including goodwill, and tangible assets |
| NOTE 6: FINANCING AND FINANCIAL INSTRUMENTS |
| 6.1 | Financial assets and liabilities |
| 6.2 | Financing costs - net |
| 6.3 | Risk management policy |
| NOTE 7: LEASES |
| NOTE 8: PERSONNEL EXPENSES AND DEFERRED EMPLOYEE BENEFITS |
| 8.1 | Employees and key management personnel |
| 8.2 | Deferred employee benefits |
| 8.3 | Share-based payments |
| NOTE 9: PROVISIONS, CONTINGENCIES AND COMMITMENTS |
| 9.1 | Provisions |
| 9.2 | Other long-term obligations |
| 9.3 | Contingent liabilities |
| 9.4 | Commitments |
| NOTE 10: INCOME TAXES |
| 10.1 | Income tax expense (benefit) |
| 10.2 | Income tax recorded directly in equity and/or other comprehensive income |
| 10.3 | Uncertain tax positions |
| 10.4 | Deferred tax assets and liabilities |
| 10.5 | Tax losses, tax credits and other tax benefits carried forward |
| NOTE 11: EQUITY |
| 11.1 | Share details |
| 11.2 | Equity instruments and hybrid instruments |
| 11.3 | Earnings per common share |
| 11.4 | Dividends |
| 11.5 | Non-controlling interests |
| NOTE 12: RELATED PARTIES |
| 12.1 | Sales and trade receivables |
| 12.2 | Purchases and trade payables |
| 12.3 | Other transactions with related parties |
| NOTE 13: SUBSEQUENT EVENTS |
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258 Consolidated financial statements |
NOTE 1: ACCOUNTING PRINCIPLES
ArcelorMittal (“ArcelorMittal” or the “Company”), together with its subsidiaries, owns and operates steel manufacturing and mining facilities in Europe, North and South America, Asia and Africa. Collectively, these subsidiaries and facilities are referred to in the consolidated financial statements as the “operating subsidiaries”. These consolidated financial statements were authorized for issuance on March 11, 2022 by the Company’s Board of Directors.
1.1 Basis of presentation
The consolidated financial statements have been prepared on a historical cost basis, except for equity instruments and certain trade receivables at fair value through other comprehensive income ("FVOCI"), financial assets at fair value through profit or loss ("FVTPL"), derivative financial instruments, biological assets 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 tubular production facilities Industrias Unicon CA (“Unicon”) and the Company's Argentinian operation Acindar Industria Argentina de Aceros S.A. ("Acindar"), for which hyperinflationary accounting is applied (see note 2.2.2). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and are presented in U.S. dollar with all amounts rounded to the nearest million, except for share and per share data.
As from April 1, 2021, ArcelorMittal implemented changes to its organizational structure whereby primary responsibility for captive mining operations whose output is mainly consumed by their respective steel segments has been transferred to such segments. The Mining segment retains primary responsibility for the operation of the seaborne oriented operations at ArcelorMittal Mining Canada G.P. and ArcelorMittal Infrastructure Canada G.P. ("AMMC") and ArcelorMittal Liberia Limited, and continues to provide technical support to all mining operations within the Company. Accordingly, the Company modified the structure of its segment information in order to reflect changes in its approach to managing its operations and segment disclosures have been recast to reflect this new segmentation in conformity with IFRS. Only the seaborne-oriented operations of AMMC and ArcelorMittal Liberia Limited are reported within the Mining segment. The results of all other mines are henceforth accounted for within the steel segment that they primarily supply.
1.2 Use of judgment and estimates
The preparation of consolidated financial statements in conformity with IFRS recognition and measurement principles
and, in particular, making the critical accounting judgments 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.
The following summary provides further information about the Company’s critical accounting policies under which significant judgments, estimates and assumptions are made. It should be read in conjunction with the notes mentioned in the summary:
•Deferred tax assets (note 10.4): The Company assesses the recoverability of deferred tax assets based on future taxable income projections, which are inherently uncertain and may be subject to changes over time. Judgment is required to assess the impact of such changes on the measurement of these assets and the time frame for their utilization. In addition, the Company applies judgment to recognize income tax liabilities when they are probable and can be reasonably estimated depending on the interpretation, which may be uncertain, of applicable tax laws and regulations. ArcelorMittal periodically reviews its estimates to reflect changes in facts and circumstances.
•Provisions for pensions and other post-employment benefits (note 8.2): Benefit obligations and plan assets can be subject to significant volatility, in particular due to changes in market conditions and actuarial assumptions. Such assumptions differ by plan, take local conditions into account and include discount rates, expected rates of compensation increases, health care cost trend rates, mortality and retirement rates. They are determined following a formal process involving the Company's expertise and independent actuaries. Assumptions are reviewed annually and adjusted following actuarial and experience changes.
•Provisions (note 9): Provisions, which result from legal or constructive obligations arising as a result of past events, are recognized based on the Company's, and in certain instances, third-party's best estimate of costs when the obligation arises. They are reviewed periodically to take into consideration changes in laws and regulations and underlying facts and circumstances.
•Impairment of tangible and intangible assets, including goodwill (note 5.3): In the framework of the determination of the recoverable amount of assets, the estimates, judgments and assumptions applied for the value in use calculations relate primarily to growth rates, expected
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259 Consolidated financial statements |
changes to average selling prices, shipments and direct costs. Assumptions for average selling prices and shipments are based on historical experience and expectations of future changes in the market. Discount rates are reviewed annually. In the context of its announced decarbonization strategy with the aim to be carbon neutral or comply with the legal obligation of carbon neutrality in certain jurisdictions by 2050, the Company applied estimates and judgments for related capital expenditures, operating costs and carbon emission cost on the basis of historical experience and expectations of future changes.
•Business combinations (note 2.2.3): Assets acquired and liabilities assumed as part of a business combination are recorded at their acquisition-date fair values. Similarly, consideration including consideration receivable and contingent consideration is measured at fair value. Determining the fair value of identifiable assets and liabilities requires the use of valuation techniques which may include judgment and estimates and which may affect the allocation of the amount of consideration paid to the assets and liabilities acquired and goodwill or gain from a bargain purchase recorded as part of the business combination.
•Financial instruments (note 6.1.5) and financial amounts receivable (note 4.6): Certain of the Company's financial instruments are classified as Level 3 as they include unobservable inputs. In particular, the Company uses estimates to compute unobservable historical volatility based on movements of stock market prices for the fair valuation of the call option on the 1,000 mandatory convertible bonds.
•Mineral reserve and resource estimates (note 5.2): Proven iron ore and coal reserves are those quantities whose recoverability can be determined with reasonable certainty from a given date forward and under existing government regulations, economic and operating conditions; probable reserves have a lower degree of assurance but high enough to assume continuity between points of observation. Mineral resource estimates constitute the part of a mineral deposit that have the potential to be economically and legally extracted or produced at the time of the resource determination. The potential for economic viability is established through qualitative evaluation of relevant technical and economic factors likely to influence the prospect of economic extraction. A measured mineral resource is that part of a mineral resource for which quantity, grade or quality, densities, shape, and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical
and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity. An indicated mineral resource is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed. An inferred mineral resource is that part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling, and reasonably assumed but not verified geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. Estimates of mineral reserves and resources and the estimates of mine life have been prepared by ArcelorMittal experienced engineers and geologists and detailed independent verifications of the methods and procedures are conducted on a regular basis by external consultants. Reserves and resources are updated annually and calculated using a reference price duly adjusted for quality, ore content, logistics and other considerations. In order to estimate reserves and resources, estimates are required for a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. Estimating the quantity and/or grade of reserves and resources requires the size, shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples. This process may require complex and difficult geological judgments to interpret the data. Because the economic assumptions used to estimate reserves and resources change from period to period, and because additional geological data is generated during the course of operations, estimates of reserves and resources may change from period to period.
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Consolidated financial statements 260 |
| (millions of U.S. dollar, except share and per share data) |
1.3 Accounting standards applied
1.3.1 Adoption of new IFRS standards, amendments and interpretations applicable from January 1, 2021
On January 1, 2021, the Company adopted the following amendments which did not have a material impact on the consolidated financial statements of the Company:
•Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 published by the IASB on August 27, 2020 as Phase 2 of the Interest Rate Benchmark Reform. The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform.
The amendments in this final phase relate to:
◦changes to contractual cash flows—a company will not have to derecognize or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate;
◦hedge accounting—a company will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria; and
◦disclosures—a company will be required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates.
•Amendments to IFRS 4 "Insurance contracts" published by the IASB on June 25, 2020 which provide an extension of the temporary exemption from applying IFRS 9 until January 1, 2023 in order to align with the effective date of IFRS 17 "Insurance Contracts".
In addition, on April 1, 2021, the Company adopted "Covid-19-Related Rent Concessions beyond June 30, 2021 (Amendment to IFRS 16)" published by the IASB on March 31, 2021 that extends, by one year, the May 2020 amendment that provides lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. This amendment did not have a material impact on the consolidated financial statements of the Company.
1.3.2 New IFRS standards, amendments and interpretations applicable from 2022 onward
On May 18, 2017, the IASB issued IFRS 17 "Insurance Contracts", which is designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. IFRS 17 supersedes IFRS 4 "Insurance Contracts" and related interpretations. On June 25, 2020, the IASB issued amendments to IFRS 17, including a deferral of the effective date to periods beginning on or after January 1, 2023 and should be applied retrospectively unless impracticable, with earlier adoption permitted if both IFRS 15 "Revenue from Contracts with Customers" and IFRS 9 "Financial Instruments" have also been applied.
On January 23, 2020, the IASB issued narrow-scope amendments to IAS 1 to clarify how to classify debt and other liabilities as current or non-current. The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a company might settle by converting it into equity. On July 15, 2020, the IASB postponed the effective date of the amendments. The amendments are effective for annual periods beginning on or after January 1, 2023 and are to be applied retrospectively, with early adoption permitted. On February 12, 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2. The amendments are intended to help preparers in deciding which accounting policies to disclose in their financial statements and gives further clarity on the materiality assessment of accounting policies. The amendments are effective for annual periods beginning on or after January 1, 2023 and are to be applied prospectively, with early adoption permitted.
On May 14, 2020, the IASB issued the following narrow-scope amendments :
•Amendments to IFRS 3 "Business Combinations" updated the reference to the Conceptual Framework for financial reporting, without changing the accounting requirements for business combinations. The amendments are to be applied prospectively.
•Amendments to IAS 16 "Property, Plant and Equipment" prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and
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Consolidated financial statements 261 |
| (millions of U.S. dollars, except share and per share data) |
condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items and related cost in profit or loss. The amendments are to be applied retrospectively,
•Amendments to IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" clarify that the cost of fulfilling a contract comprises the costs a company includes when assessing whether a contract will be loss-making are costs that relate directly to the contract. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling the contract. The amendments are to be applied prospectively.
•Minor amendments as part of the Annual Improvements 2018-2020 to:
•IFRS 1 "First-time Adoption of International Financial Reporting Standards" related to cumulative translation differences for a subsidiary as a first time user.
•IFRS 9 "Financial Instruments" related to which fees an entity includes when it applies the ‘10 per cent’ test in assessing whether to derecognize a financial liability.
▪IFRS 16 "Leases" removing the reimbursement of leasehold improvements by the lessor from illustrative example 13 in order to resolve any potential confusion regarding the treatment of lease incentives and
▪IAS 41 "Agriculture" removing the requirement for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique to ensure consistency with the requirements in IFRS 13.
The minor amendments are to be applied prospectively, with early adoption permitted. The minor amendments and the narrow-scope amendments are effective for annual periods beginning on or after January 1, 2022.
On February 12, 2021, the IASB also issued amendments to IAS 8. The amendments clarify the distinction between a change in accounting policies and a change in accounting estimates. The amendments are effective for annual periods beginning on or after January 1, 2023 and changes in accounting policies or accounting estimates on or after the start of that period with early adoption permitted. Changes in accounting policies are to be applied retrospectively while changes in accounting estimates are to be applied prospectively.
On May 7, 2021, the IASB issued amendments to IAS 12 "Income Taxes" for deferred taxes related to assets and
liabilities arising from a single transaction. The amendments clarify how to account for deferred tax on transactions such as leases and decommissioning obligations. The amendments are effective for annual periods beginning on or after January 1, 2023 with early adoption permitted. The amendments are to be applied retrospectively.
The Company does not expect that the adoption of these amendments will have a material impact to its consolidated financial statements. The Company does not plan to early adopt the new accounting standards and amendments.
NOTE 2: SCOPE OF CONSOLIDATION
2.1 Basis of consolidation
The consolidated financial statements include the accounts of the Company, its subsidiaries and its interests in associated companies and joint arrangements. Subsidiaries are consolidated from the date the Company obtains control (ordinarily the date of acquisition) until the date control ceases. The Company controls an entity when the Company is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Associates are those companies over which the Company has the ability to exercise significant influence on the financial and operating policy decisions, which it does not control. Generally, significant influence is presumed to exist when the Company holds more than 20% of the voting rights. Joint arrangements, which include joint ventures and joint operations, are those over whose activities the Company has joint control, typically under a contractual arrangement. In joint ventures, ArcelorMittal exercises joint control and has rights to the net assets of the arrangement. The investment is accounted for under the equity method and therefore recognized at cost at the date of acquisition and subsequently adjusted for ArcelorMittal’s share in undistributed earnings or losses since acquisition, less any impairment incurred. Any excess of the cost of the acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities, and contingent liabilities of the associate or joint venture recognized at the date of acquisition is considered as goodwill. The goodwill, if any, is included in the carrying amount of the investment and is evaluated for impairment as part of the investment. The consolidated statements of operations include the Company’s share of the profit or loss of associates and joint ventures from the date that significant influence or joint control commences until the date significant influence or joint control ceases, adjusted for any impairment losses. Adjustments to the carrying amount may also be necessary for changes in the Company’s proportionate interest in the investee arising from changes in the investee’s equity that have not been recognized in the investee’s profit or loss. The
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262 Consolidated financial statements |
Company’s share of those changes is recognized directly in the relevant reserve within equity.
The Company assesses the recoverability of its investments accounted for under the equity method whenever there is an indication of impairment. In determining the value in use of its investments, the Company estimates its share in the present value of the projected future cash flows expected to be generated by operations of associates and joint ventures. The amount of any impairment is included in income (loss) from investments in associates, joint ventures and other investments in the consolidated statements of operations (see also note 2.6).
For investments in joint operations, in which ArcelorMittal exercises joint control and has rights to the assets and obligations for the liabilities relating to the arrangement, the Company recognizes its assets, liabilities and transactions, including its share of those incurred jointly.
Investments in other entities, over which the Company and/or its operating subsidiaries do not have the ability to exercise significant influence, are accounted for as investments in equity instruments at FVOCI with any resulting gain or loss, net of related tax effect, recognized in the consolidated statements of
other comprehensive income. Realized gains and losses from the sale of investments in equity instruments at FVOCI are reclassified from other comprehensive income to retained earnings within equity upon disposal.
While there are certain limitations on the Company’s operating and financial flexibility arising from the restrictive and financial covenants of the Company’s principal credit facilities described in note 6.1.2, there are no significant restrictions resulting from borrowing agreements or regulatory requirements on the ability of consolidated subsidiaries, associates and jointly controlled entities to transfer funds to the parent in the form of cash dividends to pay commitments as they come due.
Intercompany balances and transactions, including income, expenses and dividends, are eliminated in the consolidated financial statements. Gains and losses resulting from intercompany transactions are also eliminated.
Non-controlling interests represent the portion of profit or loss and net assets not held by the Company and are presented separately in the consolidated statements of operations, in the consolidated statements of other comprehensive income and within equity in the consolidated statements of financial position.
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Consolidated financial statements 263 |
| (millions of U.S. dollars, except share and per share data) |
2.2 Investments in subsidiaries
2.2.1 List of subsidiaries
The table below provides a list of the Company’s principal operating subsidiaries at December 31, 2021. Unless otherwise stated, the subsidiaries listed below have share capital consisting solely of ordinary shares or voting interests in the case of partnerships, which are held directly or indirectly by the Company and the proportion of ownership interests held equals to the voting rights held by the Company. The country of incorporation corresponds to their principal place of operations.
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| Name of Subsidiary | | Country | | % of Ownership |
| NAFTA | | | | |
| ArcelorMittal Dofasco G.P. | | Canada | | 100.00% |
| ArcelorMittal México S.A. de C.V. | | Mexico | | 100.00% |
| | | | |
| ArcelorMittal Long Products Canada G.P. | | Canada | | 100.00% |
| Brazil and neighboring countries ("Brazil") | | | | |
| ArcelorMittal Brasil S.A. | | Brazil | | 97.01% |
| Acindar Industria Argentina de Aceros S.A. ("Acindar") | | Argentina | | 100.00% |
| Europe | | | | |
| ArcelorMittal France S.A.S. | | France | | 100.00% |
| ArcelorMittal Belgium N.V. | | Belgium | | 100.00% |
| ArcelorMittal España S.A. | | Spain | | 99.85% |
| ArcelorMittal Flat Carbon Europe S.A. | | Luxembourg | | 100.00% |
| ArcelorMittal Poland S.A. | | Poland | | 100.00% |
| ArcelorMittal Eisenhüttenstadt GmbH | | Germany | | 100.00% |
| ArcelorMittal Bremen GmbH | | Germany | | 100.00% |
| ArcelorMittal Méditerranée S.A.S. | | France | | 100.00% |
| ArcelorMittal Belval & Differdange S.A. | | Luxembourg | | 100.00% |
| ArcelorMittal Hamburg GmbH | | Germany | | 100.00% |
| ArcelorMittal Duisburg GmbH | | Germany | | 100.00% |
| ArcelorMittal International Luxembourg S.A. | | Luxembourg | | 100.00% |
| | | | |
| Africa and Commonwealth of Independent States ("ACIS") | | | | |
| ArcelorMittal South Africa Ltd. ("AMSA") | | South Africa | | 69.22% |
| JSC ArcelorMittal Temirtau | | Kazakhstan | | 100.00% |
| PJSC ArcelorMittal Kryvyi Rih ("AM Kryvyi Rih") | | Ukraine | | 95.13% |
| | | | |
| | | | |
| Mining | | | | |
| ArcelorMittal Mining Canada G.P. and ArcelorMittal Infrastructure Canada G.P. (AMMC) | | Canada | | 85.00% |
| ArcelorMittal Liberia Ltd | | Liberia | | 85.00% |
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2.2.2 Translation of financial statements denominated in foreign currency
The functional currency of ArcelorMittal S.A. is the U.S. dollar. The functional currency of each of the principal operating subsidiaries is the local currency, except for ArcelorMittal México, AMMC and ArcelorMittal International Luxembourg, whose functional currency is the U.S. dollar and ArcelorMittal Poland, whose functional currency is the euro.
Transactions in currencies other than the functional currency of a subsidiary are recorded at the rates of exchange prevailing at the date of the transaction. Monetary assets and liabilities in currencies other than the functional currency are remeasured at the rates of exchange prevailing on the date of the consolidated statements of financial position and the related translation gains
and losses are reported within financing costs in the consolidated statements of operations. Non-monetary items that are carried at cost are translated using the rate of exchange prevailing at the date of the transaction. Non-monetary items that are carried at fair value are translated using the exchange rate prevailing when the fair value was determined and the related translation gains and losses are reported in the consolidated statements of comprehensive income.
Upon consolidation, the results of operations of ArcelorMittal’s subsidiaries, associates and joint arrangements whose functional currency is other than the U.S. dollar are translated into U.S. dollar at the monthly average exchange rates and assets and liabilities are translated at the year-end exchange
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264 Consolidated financial statements |
rates. Translation adjustments are recognized directly in other comprehensive income and are included in net income (including non-controlling interests) only upon sale or liquidation of the underlying foreign subsidiary, associate or joint arrangement.
Since July 1, 2018, Argentina has been considered a highly inflationary country and therefore the financial statements of the Company's long production facilities Acindar Industria Argentina de Aceros S.A. ("Acindar") in Argentina, using a historical cost approach, are adjusted prospectively to reflect the changes in the general purchasing power of the local currency before being translated into U.S. dollar at the year end exchange rate. The Company used an estimated general price index (Consumer Price Index "IPC") which changed by 50.3% and 36.1% for the year ended December 31, 2021 and 2020, respectively, for this purpose. As a result of the inflation-related adjustments on non-monetary items, a gain of 33 and 30 was recognized in net financing costs for the year ended December 31, 2021 and 2020, respectively.
Since 2010 Venezuela has been considered a hyperinflationary economy and therefore the financial statements of Unicon are adjusted to reflect the changes in the general purchasing power of the local currency before being translated into U.S. dollar. The Company used estimated general price indices which changed by 686%, 2,667% and 12,922% for the years ended December 31, 2021, 2020 and 2019, respectively, for this purpose.
2.2.3 Business combinations
Business combinations are accounted for using the acquisition method as of the acquisition date, which is the date on which control is transferred to ArcelorMittal. The Company controls an entity when it is exposed to or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
The Company measures goodwill at the acquisition date as the total of the fair value of consideration transferred, plus the proportionate amount of any non-controlling interest, plus the fair value of any previously held equity interest in the acquiree, if any, less the net recognized amount (generally at fair value) of the identifiable assets acquired and liabilities assumed.
In a business combination in which the fair value of the identifiable net assets acquired exceeds the cost of the acquired business, the Company reassesses the fair value of the assets acquired and liabilities assumed. If, after reassessment, ArcelorMittal’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess (bargain purchase) is recognized immediately as a reduction of cost of sales in the consolidated statements of operations.
Any contingent consideration payable is recognized at fair value at the acquisition date and any costs directly attributable to the business combination are expensed as incurred.
2.2.4 Acquisitions
On November 19, 2021, the Company completed the acquisition of Condesa Tubos, S.L. ("Condesa"), a joint venture in which it already held a 33% interest, through the acquisition of the remaining 67% stake from a pool of banks for total consideration of €31 million (25 net of cash acquired of 10). The acquisition of Condesa strengthened ArcelorMittal's tubular operations within the Europe segment. The Company completed its measurement of the acquisition-date fair value of the identifiable assets and liabilities of Condesa. It recognized 92, 39 and 10 of current assets, property, plant and equipment and other non-current assets, respectively, and a 24 bargain purchase gain in cost of sales as ArcelorMittal's industrial expertise was considered by the other previous shareholders. Revenue and net loss since acquisition date were 13 and 1, respectively.
Revenue and net income attributable to the equity holders of the parent of the Company, for the year ended December 31, 2021 were 76,799 and 14,981, respectively, as though the acquisition date of Condesa had been as of January 1, 2021.
On June 4, 2019, the Company completed the acquisition of Münker Metallprofile GmbH ("Münker") for total consideration of €48 million (54) of which €44 million (46 net of cash acquired of 3) was paid at closing and €4 million (5) payable contingent upon certain criteria. The acquisition of Münker will strengthen ArcelorMittal Downstream Solutions' construction business within the Europe segment. The Company completed its measurement of the acquisition-date fair value of the identifiable assets and liabilities of Münker in the second half of 2019. It recognized 6 of goodwill and 34, 11 and 22 of property, plant and equipment, intangible assets and current assets, respectively, following the final measurement. Revenue and net income from acquisition date until December 31, 2019 were 45 and 2, respectively.
Revenue and net loss attributable to the equity holders of the parent of the Company, for the year ended December 31, 2019 were 70,646 and 2,454, respectively, as though the acquisition date of Münker had been as of January 1, 2019.
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265 Consolidated financial statements |
The table below summarizes the final acquisition-date fair value of the assets acquired and liabilities assumed in respect of Condesa in 2021 and Münker in 2019:
| | | | | | | | | | | |
| | | |
| 2021 | 2019 | |
| Condesa | Münker | |
| Current assets | 92 | | 22 | | |
| Property, plant and equipment | 39 | | 34 | | |
| Intangible assets | — | | 11 | | |
| Other non-current assets | 10 | | — | | |
| Total assets | 141 | | 67 | | |
| Deferred tax liabilities | — | | (8) | | |
| Other liabilities | (84) | | (14) | | |
| Total liabilities | (84) | | (22) | | |
| Net assets acquired | 57 | | 45 | | |
| Consideration paid, net | 25 | | 46 | | |
| Consideration payable | — | | 5 | | |
| Fair value of previously held interest at acquisition date | 11 | | — | | |
| Remeasurement gain relating to the equity interest previously held | (3) | | — | | |
| Goodwill/(bargain purchase gain) | (24) | | 6 | | |
2.3 Divestments and assets held for sale
Non-current assets and disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. The non-current asset, or disposal group, is classified as held for sale only when the sale is highly probable and is available for immediate sale in its present condition and is marketed for sale at a price that is reasonable in relation to its current fair value. Assets held for sale are presented separately in the consolidated statements of financial position and are not depreciated. Gains (losses) on disposal of subsidiaries are recognized in cost of sales, whereas gains (losses) on disposal of investments accounted for under the equity method are recognized in income (loss) from investments in associates, joint ventures and other investments.
2.3.1. Divestments
Divestments in 2021
On March 4, 2020, ArcelorMittal executed an amendment (the “Amendment Agreement”) to the original lease agreement with the Ilva Commissioners with a conditional obligation to purchase the former Ilva business units ("ArcelorMittal Italia") in an extraordinary administration insolvency procedure. The Amendment Agreement outlined the terms for a significant equity investment by an Italian state-sponsored entity, thereby
forming the basis for an important new partnership between ArcelorMittal and the Italian government, with the investment agreement to be executed by November 30, 2020. The Amendment Agreement also provided for a 50% reduction in the quarterly rental payments payable by ArcelorMittal, with the balance being due upon closing of the purchase obligation. On December 10, 2020, the Company entered into an investment agreement with Invitalia - Agenzia nazionale per l'attrazione degli investimenti e lo sviluppo d'impresa S.P.A (“Invitalia”), the party designated by the Italian government to be the government-sponsored investor as contemplated in the Amendment Agreement, in order to create a partnership between Invitalia and the Company to support the completion of the purchase obligation.
On December 14, 2020, ISP exercised its put option for €111 million (135) to sell its share in ArcelorMittal Italia to the Company and the liability it had recognized upon acquisition of ArcelorMittal Italia was derecognized.
The investment agreement includes two capital increases:
•The first investment of €400 million (476) which was completed on April 14, 2021 provided Invitalia with 50% voting and governance rights and therefore joint control over AM InvestCo with a 38% shareholding;
•The second investment of up to €680 million is payable on closing of the purchase obligation, which is subject to the satisfaction of various conditions precedent by May 2022, at which point Invitalia’s shareholding in ArcelorMittal Italia is expected to reach 60%. ArcelorMittal may need to invest up to €70 million, to the extent necessary to retain a 40% shareholding and joint control over the company.
As a result of the investment agreement, the carrying amount of assets and liabilities (including a 45 allocation of Europe segment goodwill) subject to the transaction was classified as held for sale as of December 31, 2020 (see note 2.3.2).
Subsequently to April 14, 2021, Acciaierie d'Italia Holding (formerly AM InvestCo) operates independently and as such has its own funding plans. Its main operating subsidiary ArcelorMittal Italia was renamed Acciaierie d'Italia. As a result of loss of control, the Company derecognized assets (including 199 of cash pooling receivable from the Company and subsequently settled) and liabilities of 4,639 and 3,873, respectively, and accounted for its 62% interest in the joint venture under the equity method at its fair value of 1,205. The Company recognized in cost of sales a gain of 104 including the reclassification from other comprehensive income to the consolidated statements of operations of foreign exchange translation losses and other for 283. The fair value
| | |
Consolidated financial statements 266 |
| (millions of U.S. dollar, except share and per share data) |
measurement was determined using a discounted cash flow model and Level 3 unobservable inputs.
Divestment in 2020
On December 9, 2020, the Company completed the sale of 100% of the shares of ArcelorMittal USA, ArcelorMittal Princeton and ArcelorMittal Monessen, their subsidiaries and certain other subsidiaries as well as the joint operations of Hibbing Taconite Mines, Double G Coatings and I/N Tek and the joint venture I/N Kote, together the “ ArcelorMittal USA Divestment Business” to Cleveland-Cliffs Inc. (“Cleveland-Cliffs”) for a combination of cash and shares. ArcelorMittal retained certain intellectual property assets and office space.
In addition, Nippon Steel Corporation ("NSC"), the co-shareholder of I/N Tek and I/N Kote simultaneously exited from such entities, which were transferred in full to Cleveland-Cliffs.
The consideration (net of transaction fees of 21 and estimated working capital adjustment of 50) was 2,219 and included:
•Cash of 509 (497 net of 7 cash disposed of and 5 transaction fees paid);
•78,186,671 common shares of Cleveland-Cliffs with value of 1,020 and representing a 16% stake in Cleveland-Cliffs; and
•583,273 non-voting preferred shares redeemable, at Cleveland-Cliff's option, for 58,327,300 of its common shares with a value of 761 or an equivalent amount in cash.
Following the settlement of the final working capital adjustment during the second quarter of 2021, the total consideration decreased by 4 to 2,215.
In addition, Cleveland-Cliffs assumed certain liabilities of the ArcelorMittal USA Divestment Business, including pensions and other post-employment benefit liabilities net of pension fund assets with a carrying amount of 3.2 billion in ArcelorMittal's consolidated statement of financial position upon disposal. The resulting net gain on disposal was 1,460. The ArcelorMittal USA Divestment Business was part of the NAFTA reportable segment. Immediately prior to classification as held for sale as of September 30, 2020, the Company assessed whether there was an indication that the impairment loss recognized in 2019 may have decreased. The Company calculated the fair value less cost of disposal using a market approach with market multiples derived from comparable transactions, a Level 3 unobservable input. As a result, the Company reversed 660, in cost of sales, of impairment charges of property, plant and equipment previously recognized. The Company allocated 672 of the NAFTA segment goodwill to the disposal group based on
the relative values of the operations disposed of and the portion of the group of cash-generating units retained.
Divestments in 2019
ArcelorMittal Italia remedies
On May 7, 2018, the EC approved the acquisition of Ilva (renamed "ArcelorMittal Italia"). As part of the approval, ArcelorMittal agreed to divest certain of its European assets (“ArcelorMittal Italia remedies”) which were part of the Europe reportable segment. The ArcelorMittal Italia remedies included the following three divestment packages.
The Dudelange and Liège divestment package was composed of ArcelorMittal Dudelange and certain finishing facilities of ArcelorMittal Liège in Belgium including the hot dipped galvanizing lines 4 and 5 in Flémalle, hot-rolled pickling, cold rolling and tin packaging lines in Tilleur.
The Galati divestment package was mainly composed of the integrated steel making site of ArcelorMittal Galati S.A., ArcelorMittal Tubular Products Galati SRL, both in Romania, ArcelorMittal Skopje AD in North Macedonia and ArcelorMittal Piombino S.p.A. in Italy, the Company’s only galvanizing steel plant in Italy.
The Ostrava divestment package was mainly composed of the integrated steel making site of ArcelorMittal Ostrava a.s. and its subsidiary, ArcelorMittal Tubular Products Ostrava a.s.
On June 30, 2019, ArcelorMittal completed the sale of the ArcelorMittal Italia remedies to Liberty House Group ("Liberty"). The total consideration which consisted of amounts payable upon closing and deferred consideration in part contingent upon certain criteria, net of €110 million (125) deposited in escrow was €740 million (842) subject to customary closing adjustments. Of this total amount, €610 million (694) was received on June 28, 2019. The escrow which was subsequently drawn was to be used by Liberty for certain capital expenditure projects to satisfy commitments given in the EC approval process.
During 2019, prior to the completion of the disposal, the Company recorded an impairment charge in cost of sales of 497 to adjust the carrying amount of the disposal group to the sale proceeds of 692 including a cash consideration of 518 (694, net of cash disposed of 34, the escrow deposit of 125 and proceeds of 17 paid to a joint venture of the Company) and 174 of deferred consideration (of which 161 was outstanding as of December 31, 2019 following subsequent receipt of a portion of the consideration receivable) recognized at present value and fair value of contingent consideration. The Company also assigned receivables of 404 mainly comprised of cash pooling balances to Liberty. The fair value measurement of ArcelorMittal
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267 Consolidated financial statements |
Italia remedies was determined using the contract price, a Level 3 unobservable input, which was revised in the first half of 2019.
Global Chartering
On December 31, 2019, ArcelorMittal completed the sale of a 50% controlling interest in Global Chartering Ltd. ("Global Chartering") to DryLog Ltd. ("DryLog") for total deferred consideration of 6. The resulting net gain on disposal was 29 including the reclassification from other comprehensive income to the consolidated statements of operations of 33 foreign exchange translation gains. In connection with the disposal, the Company derecognized right-of-use assets and lease liabilities of 390 and 400, respectively.
Global Chartering is a Mauritius-based shipping company that handles shipping for a portion of the Company's raw materials through the chartering of vessels on a short- to long-term basis. Global Chartering's fleet includes owned and leased Capesize, Panamax and Supramax vessels on a medium- to long-term
charter. Simultaneously, ArcelorMittal entered into a joint venture agreement with DryLog to operate jointly the Global Chartering fleet and certain other vessels chartered from DryLog. Accordingly, the Company's remaining 50% interest in Global Chartering is accounted for under the equity method. The fair value measurement was determined using the selling price, a Level 3 unobservable input. At inception of the joint venture, certain of Global Chartering's lease terms were unfavorable compared to market rates and therefore the Company agreed to indemnify the joint venture for operating losses that could potentially arise within an agreed time frame if market rates do not improve and recognized accordingly in cost of sales a 126 provision (see note 9.1) representing the net present value of the maximum amount agreed.
The table below summarizes the significant divestments completed in 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| Acciaierie d'Italia | | ArcelorMittal USA Divestment Business | | Global Chartering Limited | | ArcelorMittal Italia remedies |
| Cash and cash equivalents | 4 | | | 7 | | | — | | | — | |
| Other current assets | 2,446 | | | 2,105 | | | 14 | | | 1,386 | |
| Intangible assets | 17 | | | 12 | | | — | | | — | |
| Property, plant and equipment | 1,875 | | | 3,341 | | | 517 | | | 178 | |
| Other assets | 297 | | | 166 | | | 21 | | | 11 | |
| Total assets | 4,639 | | | 5,631 | | | 552 | | | 1,575 | |
| Current liabilities | 2,204 | | | 1,604 | | | 229 | | | 1,046 | |
| Other long-term liabilities | 1,669 | | | 3,938 | | | 311 | | | 241 | |
| Total liabilities | 3,873 | | | 5,542 | | | 540 | | | 1,287 | |
| Total net assets | 766 | | | 89 | | | 12 | | | 288 | |
| Assigned receivables | — | | | — | | | — | | | 404 | |
| % of net assets sold | 100 | % | | 100 | % | | 50 | % | | 100 | % |
| Total net assets disposed of | 766 | | | 89 | | | 6 | | | 692 | |
ArcelorMittal retained interest 62% | 1,205 | | | — | | | — | | | — | |
| Goodwill allocation | (52) | | | (672) | | | — | | | — | |
| Consideration | — | | | 2,219 | | | (4) | | | 518 | |
| Consideration receivable | — | | | — | | | 6 | | | 174 | |
| Reclassification of foreign exchange and other | (283) | | | 2 | | | 33 | | | 72 | |
| Gain on disposal/derecognition | 104 | | | 1,460 | | | 29 | | | 72 | |
2.3.2 Assets held for sale
As described in note 2.3.1, the carrying amount of assets and liabilities of Acciaierie d'Italia was classified as held for sale as of December 31, 2020 and until the Company lost control on
April 14, 2021. ArcelorMittal Italia was part of the Europe reportable segment. The fair value of the assets and liabilities classified as held for sale were in line with their carrying value.
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Consolidated financial statements 268 |
| (millions of U.S. dollar, except share and per share data) |
The fair value measurement was determined using the contract price and a discounted cash flow model, both Level 3 unobservable inputs.
In addition, in the context of the Company's divestment process with respect to its plate operations in the Europe reportable segment, the carrying amount of such assets and liabilities was classified as held for sale as of December 31, 2020. The Company recorded an impairment charge in cost of sales of 331. On June 17, 2021, the Company announced the discontinuation of its divestment process with respect to its plate operations in the Europe reportable segment following final offers received and a strategic review of growth opportunities as
a producer of heavy plates with the lowest CO2 footprint in the industry and as a supplier of special plates needed for the energy transition in several of its end markets. Accordingly, the Company discontinued the classification of assets and liabilities of this business and measured the recoverable amount on the basis of a value-in-use calculation which was the lower amount when compared to the carrying amount before the classification as held for sale adjusted for any depreciation or amortization that would have been recognized. The measurement based on the recoverable amount did not result in any adjustment to assets and liabilities reclassified from held for sale.
The table below provides the details for the entities classified as held for sale at December 31, 2020. There were no assets classified as held for sale at December 31, 2021.
| | | | | | | | | | | | | | |
| | December 31, 2020 |
| | ArcelorMittal Italia and plate operations in Europe | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | 3 | | | | | |
| Trade accounts receivable, prepaid expenses and other current assets | | 635 | | | | | |
| Inventories | | 1,446 | | | | | |
| Total Current Assets | | 2,084 | | | | | |
| Non-current Assets: | | | | | | |
| Property, plant and equipment | | 1,843 | | | | | |
| Other assets | | 402 | | | | | |
| Total Non-current Assets | | 2,245 | | | | | |
| Total Assets | | 4,329 | | | | | |
| | | | | | |
| Current Liabilities: | | | | | | |
| Trade accounts payables, accrued expenses and other liabilities | | 1,236 | | | | | |
| Total Current Liabilities | | 1,236 | | | | | |
| Non-current Liabilities: | | | | | | |
| Long-term debt | | 21 | | | | | |
| Other long-term liabilities | | 1,782 | | | | | |
| Total Non-current Liabilities | | 1,803 | | | | | |
| Total Liabilities | | 3,039 | | | | | |
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269 Consolidated financial statements |
2.4 Investments in associates and joint arrangements
The carrying amounts of the Company’s investments accounted for under the equity method were as follows:
| | | | | | | | | | | |
| December 31, |
| Category | 2021 | | 2020 |
| Joint ventures | 6,087 | | | 3,006 | |
| Associates | 2,985 | | | 2,847 | |
Individually immaterial joint ventures and associates1 | 1,247 | | | 964 | |
| Total | 10,319 | | | 6,817 | |
1.Individually immaterial joint ventures and associates represent in aggregate less than 20% of the total carrying amount of investments in joint ventures and associates at December 31, 2021 and 2020, and none of them have a carrying value exceeding 150 at December 31, 2021 and 2020.
The following tables summarize the latest available financial information and reconcile it to the carrying value of each of the Company’s material joint ventures, as well as the income statement of the Company’s material joint ventures: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| Joint Ventures | | AMNS India | | Acciaierie d'Italia | | Calvert | | | | VAMA | | Tameh | | Borçelik | | Al Jubail | | Total |
| | | | | | | | | | | | | | | | | | |
Place of incorporation and operation 1 | | India | | Italy | | United States | | | | China | | Poland | | Turkey | | Saudi Arabia | | |
| Principal Activity | | Integrated flat steel producer 5,6 | | Integrated flat steel producer 7 | | Automotive steel finishing8 | | | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel 2,3,4 | | Production and sale seamless line pipes and tubes 9 | | |
| Ownership and voting rights at December 31, 2021 | | 60.00 | % | | 62.00 | % | | 50.00 | % | | | | 50.00 | % | | 50.00 | % | | 50.00 | % | | 29.23 | % | | |
| Current assets | | 5,536 | | | 3,643 | | | 2,334 | | | | | 293 | | | 356 | | | 983 | | | 573 | | | 13,718 | |
| of which cash and cash equivalents | | 1,285 | | | 92 | | | 256 | | | | | 56 | | | 62 | | | 155 | | | 88 | | | 1,994 | |
| Non-current assets | | 6,260 | | | 2,669 | | | 1,418 | | | | | 679 | | | 497 | | | 243 | | | 1,197 | | | 12,963 | |
| Current liabilities | | 764 | | | 3,313 | | | 1,162 | | | | | 466 | | | 376 | | | 723 | | | 533 | | | 7,337 | |
| of which trade and other payables and provisions | | 620 | | | 2,840 | | | 202 | | | | | 272 | | | 330 | | | 581 | | | 120 | | | 4,965 | |
| Non-current liabilities | | 5,770 | | | 1,365 | | | 790 | | | | | 8 | | | 169 | | | 56 | | | 640 | | | 8,798 | |
| of which trade and other payables and provisions | | 331 | | | 1,342 | | | — | | | | | — | | | 24 | | | 44 | | | 45 | | | 1,786 | |
| Net assets | | 5,262 | | | 1,634 | | | 1,800 | | | | | 498 | | | 308 | | | 447 | | | 597 | | | 10,546 | |
| Company's share of net assets | | 3,157 | | | 1,013 | | | 900 | | | | | 249 | | | 154 | | | 224 | | | 175 | | | 5,872 | |
| Adjustments for differences in accounting policies and other | | 148 | | | 146 | | | (34) | | | | | — | | | — | | | (29) | | | (16) | | | 215 | |
| Carrying amount in the statements of financial position | | 3,305 | | | 1,159 | | | 866 | | | | | 249 | | | 154 | | | 195 | | | 159 | | | 6,087 | |
| Revenue | | 7,226 | | | 3,291 | | | 4,808 | | | | | 1,452 | | | 721 | | | 1,791 | | | 334 | | | 19,623 | |
| Depreciation and amortization | | (378) | | | (119) | | | (65) | | | | | (34) | | | (34) | | | (24) | | | (42) | | | (696) | |
| Interest income | | 53 | | | — | | | — | | | | | 3 | | | — | | | 1 | | | — | | | 57 | |
| Interest expense | | (139) | | | (12) | | | (28) | | | | | (7) | | | (6) | | | (18) | | | (27) | | | (237) | |
| Income tax benefit (expense) | | (71) | | | 211 | | | — | | | | | (12) | | | (4) | | | (65) | | | — | | | 59 | |
| Income (loss) from continuing operations | | 1,436 | | | 393 | | | 861 | | | | | 95 | | | 18 | | | 105 | | | (85) | | | 2,823 | |
| Other comprehensive income (loss) | | 818 | | | — | | | 9 | | | | | — | | | 8 | | | 9 | | | — | | | 844 | |
| Total comprehensive income (loss) | | 2,254 | | | 393 | | | 870 | | | | | 95 | | | 26 | | | 114 | | | (85) | | | 3,667 | |
| Cash dividends received by the Company | | — | | | — | | | 50 | | | | | — | | | 10 | | | 13 | | | — | | | 73 | |
1.The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic.
2.Ownership interest in Borçelik was 45.33% and 50.00% based on issued shares and outstanding shares, respectively, at December 31, 2021; voting interest was 48.01% at December 31, 2021.
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Consolidated financial statements 270 |
| (millions of U.S. dollar, except share and per share data) |
3.The non-current liabilities include 39 deferred tax liability.
4.Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets.
5.Adjustments in AMNS India correspond primarily to transaction costs incurred to set up the joint venture and the fair value of the guarantee of the joint venture's debt (see note 9.4).
6.Includes AMNS Luxembourg, AMNS India and intermediate holding entities.
7.Includes Acciaierie d'Italia summarized statement of financial position as of December 31, 2021 adjusted for the fair value adjustments at divestment date (see note 2.3.1). The summarized statement of comprehensive income presents results of Acciaierie d'Italia for the period from April 14, 2021 to December 31, 2021.
8.Adjustments in Calvert primarily relate to differences in accounting policies regarding inventory valuation.
9.The summarized statement of comprehensive income presents results for full year 2021 including Jubail Energy Services Company ("JESCO") results after July 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| Joint Ventures | | AMNS India | | Calvert | | | | VAMA | | Tameh | | Borçelik | | Total |
Place of incorporation and operation 1 | | India | | United States | | | | China | | Poland | | Turkey | | |
| Principal Activity | | Integrated flat steel producer 5,6 | | Automotive steel finishing | | | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel 2,3,4 | | |
| Ownership and voting rights at December 31, 2020 | | 60.00 | % | | 50.00 | % | | | | 50.00 | % | | 50.00 | % | | 50.00 | % | | |
| Current assets | | 3,528 | | | 1,236 | | | | | 252 | | | 175 | | | 510 | | | 5,701 | |
| of which cash and cash equivalents | | 1,137 | | | 53 | | | | | 77 | | | 43 | | | 82 | | | 1,392 | |
| Non-current assets | | 5,745 | | | 1,261 | | | | | 669 | | | 570 | | | 257 | | | 8,502 | |
| Current liabilities | | 657 | | | 805 | | | | | 511 | | | 180 | | | 283 | | | 2,436 | |
| of which trade and other payables and provisions | | 524 | | | 138 | | | | | 232 | | | 132 | | | 271 | | | 1,297 | |
| Non-current liabilities | | 5,604 | | | 662 | | | | | 23 | | | 226 | | | 127 | | | 6,642 | |
| of which trade and other payables and provisions | | 67 | | | — | | | | | — | | | 26 | | | 47 | | | 140 | |
| Net assets | | 3,012 | | | 1,030 | | | | | 387 | | | 339 | | | 357 | | | 5,125 | |
| Company's share of net assets | | 1,807 | | | 515 | | | | | 194 | | | 170 | | | 179 | | | 2,865 | |
| Adjustments for differences in accounting policies and other | | 149 | | | 24 | | | | | — | | | — | | | (32) | | | 141 | |
| Carrying amount in the statements of financial position | | 1,956 | | | 539 | | | | | 194 | | | 170 | | | 147 | | | 3,006 | |
| Revenue | | 3,992 | | | 2,693 | | | | | 1,001 | | | 420 | | | 1,055 | | | 9,161 | |
| Depreciation and amortization | | (371) | | | (61) | | | | | (41) | | | (48) | | | (24) | | | (545) | |
| Interest income | | 43 | | | — | | | | | 1 | | | — | | | 1 | | | 45 | |
| Interest expense | | (135) | | | (33) | | | | | (16) | | | (8) | | | (12) | | | (204) | |
| Income tax benefit (expense) | | 318 | | | — | | | | | (6) | | | (2) | | | (17) | | | 293 | |
| Income / (loss) from continuing operations | | 472 | | | 9 | | | | | 47 | | | 7 | | | 29 | | | 564 | |
| | | | | | | | | | | | | | |
| Other comprehensive income (loss) | | (98) | | | — | | | | | — | | | 6 | | | (4) | | | (96) | |
| Total comprehensive income (loss) | | 374 | | | 9 | | | | | 47 | | | 13 | | | 25 | | | 468 | |
| Cash dividends received by the Company | | — | | | 58 | | | | | — | | | — | | | 9 | | | 67 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1.The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic.
2.Ownership interest in Borçelik was 45.33% and 50.00% based on issued shares and outstanding shares, respectively, at December 31, 2020; voting interest was 48.01% at December 31, 2020.
3.The non-current liabilities include 39 deferred tax liability.
4.Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets.
5.Adjustments in AMNS India correspond primarily to transaction costs incurred to set up the joint venture and the fair value of the guarantee of the joint venture's debt (see note 9.4).
6.Includes AMNS Luxembourg, AMNS India and intermediate holding entities.
| | |
271 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2019 |
| Joint Ventures | | AMNS India | | Calvert | | | | VAMA | | Tameh | | Borçelik | | Total |
Place of incorporation and operation1 | | India | | United States | | | | China | | Poland | | Turkey | | |
| Principal Activity | | Flat carbon steel manufacture 5,6 | | Automotive steel finishing | | | | Automotive steel finishing | | Energy production and supply | | Manufacturing and sale of steel 2,3,4 | | |
| Ownership and voting rights at December 31, 2019 | | 60.00 | % | | 50.00 | % | | | | 50.00 | % | | 50.00 | % | | 50.00 | % | | |
| Current assets | | 2,318 | | | 1,604 | | | | | 313 | | | 171 | | | 508 | | | 4,914 | |
| of which cash and cash equivalents | | 444 | | | 62 | | | | | 81 | | | 75 | | | 106 | | | 768 | |
| Non-current assets | | 6,295 | | | 1,282 | | | | | 637 | | | 580 | | | 267 | | | 9,061 | |
| Current liabilities | | 5,922 | | | 984 | | | | | 485 | | | 183 | | | 378 | | | 7,952 | |
| of which trade and other payables and provisions | | 670 | | | 144 | | | | | 226 | | | 139 | | | 274 | | | 1,453 | |
| Non-current liabilities | | 189 | | | 764 | | | | | 147 | | | 244 | | | 49 | | | 1,393 | |
| of which trade and other payables and provisions | | 46 | | | — | | | | | — | | | 26 | | | 49 | | | 121 | |
| Net assets | | 2,502 | | | 1,138 | | | | | 318 | | | 324 | | | 348 | | | 4,630 | |
| Company's share of net assets | | 1,501 | | | 569 | | | | | 159 | | | 162 | | | 174 | | | 2,565 | |
| Adjustments for differences in accounting policies and other | | 48 | | | 6 | | | | | — | | | — | | | (33) | | | 21 | |
| Carrying amount in the statements of financial position | | 1,549 | | | 575 | | | | | 159 | | | 162 | | | 141 | | | 2,586 | |
| Revenue | | — | | | 3,504 | | | | | 772 | | | 499 | | | 1,141 | | | 5,916 | |
| Depreciation and amortization | | — | | | (63) | | | | | (31) | | | (37) | | | (24) | | | (155) | |
| Interest income | | 2 | | | 2 | | | | | 1 | | | — | | | 1 | | | 6 | |
| Interest expense | | (10) | | | (48) | | | | | (23) | | | (7) | | | (19) | | | (107) | |
| Income tax benefit (expense) | | (83) | | | — | | | | | (22) | | | (7) | | | (10) | | | (122) | |
| Income / (loss) from continuing operations | | (116) | | | 156 | | | | | 10 | | | 28 | | | 19 | | | 97 | |
| Total comprehensive income (loss) | | (116) | | | 156 | | | | | 10 | | | 28 | | | 19 | | | 97 | |
| Cash dividends received by the Company | | — | | | 57 | | | | | — | | | 9 | | | 12 | | | 78 | |
1.The country of incorporation corresponds to the country of operation except for Tameh whose country of operation is also the Czech Republic.
2.Ownership interest in Borçelik was 45.33% and 50.00% based on issued shares and outstanding shares, respectively, at December 31, 2019; voting interest was 48.01% at December 31, 2019.
3.The non-current liabilities include 42 deferred tax liability.
4.Adjustment in Borçelik relates primarily to differences in accounting policies regarding revaluation of fixed assets.
5.Adjustments in AMNS India correspond primarily to transaction costs incurred to set up the joint venture.
6.Includes AMNS Luxembourg, AMNS India and intermediate holding entities.
AMNS India
On December 11, 2019, following the unconditional approval received by the Indian Supreme Court of ArcelorMittal's acquisition plan ("the Resolution Plan") for Essar Steel India Limited ("ESIL"), subsequently renamed AMNS India Limited ("AMNS India"), on November 15, 2019, ArcelorMittal and Nippon Steel Corporation ("NSC"), Japan’s largest steel producer and the third largest steel producer in the world, created a joint venture to own and operate AMNS India with ArcelorMittal holding a 60% interest and NSC holding 40% in accordance with the second amended joint venture formation agreement signed as of December 8, 2019. Through the agreement, both ArcelorMittal and NSC are guaranteed equal board representation and participation in all significant financial
and operating decisions. The group has therefore determined that it does not control the entity, even though it holds 60% of the voting rights. ArcelorMittal and NSC contributed their respective initial equity funding of 1,362 and 891 into AMNS Luxembourg Holding S.A. ("AMNS Luxembourg"), the parent company of the joint venture. ArcelorMittal's 60% interest is accounted for under the equity method. ArcelorMittal also transferred 360 cash proceeds (of which 293 was recognized in 2019), including through a 193 equity contribution, into the joint venture following hedging programs entered into to hedge the volatility between the Indian Rupee and the U.S. dollar in relation to the acquisition of AMNS India. The total cash proceeds included 353 designated as cash flow hedge gains and the Company reflected in retained earnings NSC's 40%
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Consolidated financial statements 272 |
| (millions of U.S. dollar, except share and per share data) |
entitlement in the amount of 141 in accordance with the final joint venture formation agreement.
On December 16, 2019, AMNS Luxembourg completed the acquisition of AMNS India. ArcelorMittal and NSC financed the joint venture for the acquisition of AMNS India through a combination of partnership equity of 2,253 and debt of 3,679 including 2,204 drawn by the joint venture under the 7 billion term facility agreement (see note 6.1.2) and 1,475 shareholder loan from NSC. The joint venture accounted for the acquisition of AMNS India as a business combination. The joint venture completed its purchase price accounting during 2020.
AMNS India is an integrated flat steel producer, and the largest steel company in western India. AMNS India’s main steel manufacturing facility is located at Hazira, Gujarat in western India. It also has:
–two iron ore beneficiation plants close to the mines in Kirandul and Dabuna, with slurry pipelines that then transport the beneficiated iron ore slurry to the pellet plants in the Kirandul-Vizag and Dabuna-Paradeep systems;
–a downstream facility in Pune (including a pickling line, a cold rolling mill, a galvanizing mill, a color coating mill and a batch annealing plant); and
–six service centers in the industrial clusters of Hazira, Indore, Bahadurgarh, Chennai, Kolkata and Pune. It has a complete range of flat rolled steel products, including value added products, and significant iron ore pellet capacity with two main pellet plant systems in Kirandul-Vizag and Dabuna-Paradeep, which have the potential for expansion. Its facilities are located close to ports with deep draft for movement of raw materials and finished goods.
The Resolution Plan which was approved for the acquisition of AMNS India included an upfront payment of 6.0 billion towards AMNS India’s debt resolution, with a further 1.1 billion of capital injection into AMNS India to support operational improvements, increase production levels and deliver enhanced levels of profitability. The Company provided a 0.6 billion performance guarantee in connection with the execution of the Resolution Plan, which terminated on December 31, 2019. In addition, the Resolution Plan includes a capital expenditure plan of 2.6 billion to be implemented in two stages over six years.
On December 19, 2019, in the context of the creation of the AMNS India joint venture, the Company transferred to the joint venture the payments it had been required to make in 2018 and 2019 to the financial creditors of Uttam Galva Steels Ltd. in order that the Resolution Plan would be eligible for consideration by ESIL's Committee of Creditors. ArcelorMittal
and NSC financed such payments through a combination of equity contributions into the joint venture of 173 and 115, respectively, and debt of 597 including 367 drawn by the joint venture under the 7 billion term facility agreement and a 230 shareholder loan from NSC. The joint venture used such proceeds to repay the loan granted by ArcelorMittal for an amount of 680 on December 31, 2019. On June 2, 2021, Uttam Galva's Committee of Creditors approved the resolution plan submitted by AMNS India. The resolution plan has been submitted for approval to the National Company Law Tribunal ("NCLT").
On February 13, 2020 and pursuant to the follow-on funding requirement in accordance with the second amended joint venture formation agreement, AMNS Luxembourg completed an additional equity injection into AMNS India of 840 mainly through an additional 475 drawn under the 7 billion term facility agreement and a 325 shareholder loan from NSC.
On March 16, 2020, AMNS Luxembourg entered into a 5.1 billion ten-year term loan agreement with various Japanese banks which is guaranteed by ArcelorMittal and NSC in proportion to their interests in the joint venture.The proceeds of the loan were used on March 27, 2020 to refinance in full the amounts borrowed by the Company in connection with the acquisition of AMNS India, including the amounts borrowed under the 7 billion bridge term facilities agreement guaranteed by ArcelorMittal.
AMNS India also made acquisitions of certain ancillary assets. On July 23, 2020, AMNS India commenced mining operations at the Thakurani iron ore mine in Keonjhar district of Odisha following an auction process facilitated by the state government in February 2020. On July 7, 2020, AMNS India acquired Odisha Slurry Pipeline infrastructure Limited ("OSPIL") for a net consideration of 245 which secured an important infrastructure asset for raw material supply to the Paraddep pellet plant and Hazira steel plant. In January 2021, AMNS India acquired a captive power plant at Paradeep in Odisha and in September 2021, AMNS India also commenced mining operations at its Ghoraburhani-Sagasahi iron ore block in Odisha.
In September, 2021, AMNS India commissioned a 6 million tonnes per annum pellet plant at the port city of Paradeep in Odisha. The plant doubled production capacity at AMNS India’s Paradeep complex to 12 million tonnes, and AMNS India’s total pelletization capacity increased to 20 million tonnes per annum.
Acciaierie d'Italia
On April 14, 2021, pursuant to the investment agreement signed on December 10, 2020 forming a public-private partnership
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273 Consolidated financial statements |
between Invitalia and ArcelorMittal and providing Invitalia joint control rights, ArcelorMittal recorded its 62% interest at its fair value of 1,205 (see 2.3.1.) at the initial recognition of Acciaierie d'Italia as equity method investment.
Acciaierie d'Italia is the leading steel producer in Italy and produces high-quality and sustainable steel to be used in a range of vital industry sectors across the domestic steel market such as construction, energy, automotive, home appliances, packaging and transport and for international export. Acciaierie d'Italia has operations across various structurally linked operating sites including Europe’s biggest single-site integrated steel facility in Taranto and rolling mills in Genova and Novi Ligure. Genova is also an important hub in terms of intermodal logistics.
VAMA
Valin ArcelorMittal Automotive Steel (“VAMA”) is a joint venture between ArcelorMittal and Hunan Valin which produces steel for high-end applications in the automobile industry. VAMA supplies international automakers and first-tier suppliers as well as Chinese car manufacturers and their supplier networks.
Calvert
AM/NS Calvert ("Calvert"), a joint venture between the Company and NSC, is a steel processing plant in Calvert, Alabama, United States. Calvert had a 6-year agreement to purchase 2 million tonnes of slabs annually from ThyssenKrupp Steel USA ("TK CSA"), an integrated steel mill complex located in Rio de Janeiro, Brazil, using a market-based price formula. TK CSA had an option to extend the agreement for an additional 3 years on terms that are more favorable to the joint venture, as compared with the initial 6-year period. In December 2017 and in connection with the acquisition of TK CSA by Ternium S.A., the agreement was amended to (i) extend the term of the agreement to December 31, 2020, (ii) make a corresponding reduction in the annual slab purchase obligation so that the aggregate slab purchase obligation over the full term of the agreement remained the same and (iii) eliminate TK CSA’s extension option. The remaining slabs for Calvert's operations are sourced from ArcelorMittal plants in Brazil and Mexico and from Cleveland-Cliffs , which following its acquisition of ArcelorMittal USA entered on December 9, 2020 into a new five year agreement with Calvert (with an automatic three year
extension unless either party provides notice of intent to terminate) for 1.5 million tonnes annually for the initial term and 0.55 million tonnes annually under the extension and which can be reduced with a six month notice. ArcelorMittal is principally responsible for marketing the product on behalf of the joint venture. Calvert serves the automotive, construction, pipe and tube, service center and appliance/ HVAC industries.
Tameh
Tameh is a joint venture between ArcelorMittal and Tauron Group including four energy production facilities located in Poland and the Czech Republic. Tameh’s objective is to ensure energy supply to the Company’s steel plants in Poland and external customers in the Czech Republic as well as the utilization of steel plant gases for energy production processes.
Borçelik
Borçelik Çelik Sanayii Ticaret Anonim Şirketi ("Borçelik"), incorporated and located in Turkey, is a joint venture between ArcelorMittal and Borusan Holding involved in the manufacturing and sale of cold-rolled and galvanized flat steel products.
Al Jubail
ArcelorMittal Tubular Products Al Jubail ("Al Jubail") is a state of the art seamless tube mill in Saudi Arabia designed and built to serve the fast growing energy producing markets of Saudi Arabia, the Middle East, North Africa and beyond.
Al Jubail is a joint venture in which the Company owns a 29.23% interest. On July 31, 2021, Al Jubail completed the acquisition of Jubail Energy Services Company ("JESCO"), a leading producer of carbon steel seamless pipes in Saudi Arabia.
The Company had outstanding shareholder loans given to Al Jubail for 109 as of December 31, 2020 and 2019. In connection with the shareholding reorganization and completion of the acquisition of JESCO, the Company converted its remaining 109 of shareholders loans and 21 of other receivables into equity and made an additional 50 cash injection to partially finance the acquisition. Following the share conversion and capital injections by ArcelorMittal, the Company's shareholding in Al Jubail was diluted from 40.80% to 29.23%.
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Consolidated financial statements 274 |
| (millions of U.S. dollar, except share and per share data) |
2.4.2 Associates
The following table summarizes the financial information and reconciles it to the carrying amount of each of the Company’s material associates, as well as the income statement of the Company’s material associates:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | | | | | |
| Associates | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Baffinland 6 | | Total | | | | | | |
| Financial statements reporting date | | June 30, 2021 | | September 30, 2021 | | September 30, 2021 | | December 31, 2021 | | | | | | | | |
Place of incorporation and operation1 | | Bermuda | | Germany | | Spain | | Canada | | | | | | | | |
| Principal Activity | | Iron and steel manufacturing | | Steel manufacturing 3 | | Steel manufacturing 4 | | Extraction of iron ore 5 | | | | | | | | |
| Ownership and voting rights at December 31, 2021 | | 37.00 | % | | 33.43 | % | | 35.00 | % | | 25.23 | % | | | | | | | | |
| Current assets | | 4,636 | | | 1,364 | | | 2,840 | | | 479 | | | 9,319 | | | | | | | |
| Non-current assets | | 2,978 | | | 2,668 | | | 1,797 | | | 10,790 | | | 18,233 | | | | | | | |
| Current liabilities | | 3,571 | | | 472 | | | 1,568 | | | 477 | | | 6,088 | | | | | | | |
| Non-current liabilities | | 533 | | | 1,107 | | | 716 | | | 3,365 | | | 5,721 | | | | | | | |
| Non-controlling interests | | 88 | | | 103 | | | 415 | | | — | | | 606 | | | | | | | |
| Net assets attributable to equity holders of the parent | | 3,422 | | | 2,350 | | | 1,938 | | | 7,427 | | | 15,137 | | | | | | | |
| Company's share of net assets | | 1,266 | | | 786 | | | 678 | | | 1,874 | | | 4,604 | | | | | | | |
| Adjustments for differences in accounting policies and other | | — | | | 55 | | | (47) | | | (1,488) | | | (1,480) | | | | | | | |
Other adjustments2 | | 66 | | | (191) | | | (14) | | | — | | | (139) | | | | | | | |
| Carrying amount in the statements of financial position | | 1,332 | | | 650 | | | 617 | | | 386 | | | 2,985 | | | | | | | |
| Revenue | | 3,863 | | | 2,011 | | | 4,465 | | | 676 | | | 11,015 | | | | | | | |
| | | | | | | | | | | | | | | | |
| Income / (loss) from continuing operations | | 250 | | | (44) | | | 197 | | | (45) | | | 358 | | | | | | | |
| Other comprehensive income (loss) | | — | | | 7 | | | 33 | | | — | | | 40 | | | | | | | |
| Total comprehensive income (loss) | | 250 | | | (37) | | | 230 | | | (45) | | | 398 | | | | | | | |
| Cash dividends received by the Company | | 36 | | | — | | | 17 | | | — | | | 53 | | | | | | | |
1.The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China.
2.Other adjustments correspond to the difference between the carrying amount at December 31, 2021 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose translated with closing rates as of the reporting dates described in the table above. For the year ended December 31, 2020, the Company recognized a 211 impairment loss with respect to its investment in DHS.
3.The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies and is mainly linked to property, plant and equipment, inventory and pension.
4.Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets.
5.Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill. In September 2020, following a legal reorganization that was not a business combination for the Company, its share of provisional fair value remeasurement of 1.5 billion was not recognized in the carrying amount of Baffinland.
6.Following a legal reorganization in September 2020, the Company holds an indirect interest in Baffinland through Nunavut Iron Ore Inc.
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275 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| Associates | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Baffinland6 | | Total |
| Financial statements reporting date | | June 30, 2020 | | September 30, 2020 | | September 30, 2020 | | December 31, 2020 | | |
Place of incorporation and operation1 | | Bermuda | | Germany | | Spain | | Canada | | |
| Principal Activity | | Iron and steel manufacturing | | Steel manufacturing 3 | | Steel manufacturing 4 | | Extraction of iron ore 5 | | |
| Ownership and voting rights at December 31, 2020 | | 37.02 | % | | 33.43 | % | | 35.00 | % | | 25.23 | % | | |
| Current assets | | 3,611 | | | 1,330 | | | 2,233 | | | 538 | | | 7,712 | |
| Non-current assets | | 2,507 | | | 2,810 | | | 1,675 | | | 8,295 | | | 15,287 | |
| Current liabilities | | 2,780 | | | 364 | | | 1,087 | | | 479 | | | 4,710 | |
| Non-current liabilities | | 454 | | | 1,165 | | | 772 | | | 1,050 | | | 3,441 | |
| Non-controlling interests | | 46 | | | 112 | | | 288 | | | 1 | | | 447 | |
| Net assets attributable to equity holders of the parent | | 2,838 | | | 2,499 | | | 1,761 | | | 7,303 | | | 14,401 | |
| Company's share of net assets | | 1,050 | | | 835 | | | 616 | | | 1,843 | | | 4,344 | |
| Adjustments for differences in accounting policies and other | | — | | | 38 | | | (49) | | | (1,456) | | | (1,467) | |
Other adjustments2 | | 112 | | | (201) | | | 59 | | | — | | | (30) | |
| Carrying amount in the statements of financial position | | 1,162 | | | 672 | | | 626 | | | 387 | | | 2,847 | |
| Revenue | | 2,420 | | | 1,428 | | | 3,065 | | | 772 | | | 7,685 | |
| | | | | | | | | | |
| Income / (loss) from continuing operations | | 112 | | | (244) | | | 86 | | | 73 | | | 27 | |
| Other comprehensive income (loss) | | 16 | | | (5) | | | (67) | | | — | | | (56) | |
| Total comprehensive income (loss) | | 128 | | | (249) | | | 19 | | | 73 | | | (29) | |
| Cash dividends received by the Company | | 28 | | | — | | | 15 | | | — | | | 43 | |
1.The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China.
2.Other adjustments correspond to the difference between the carrying amount at December 31, 2020 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose as of the reporting dates described in the table above. For the year ended December 31, 2020, the Company recognized a 211 impairment loss with respect to its investment in DHS.
3.The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies and is mainly linked to property, plant and equipment, inventory and pension.
4.Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets.
5.Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill. In September 2020, following a legal reorganization that was not a business combination for the Company, its share of provisional fair value remeasurement of 1.5 billion was not recognized in the carrying amount of Baffinland.
6.Following a legal reorganization in September 2020, the Company holds an indirect interest in Baffinland through Nunavut Iron Ore Inc. The summarized statement of comprehensive income presents full year result for Baffinland (direct owner and operator of Mary River project).
| | |
Consolidated financial statements 276 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2019 |
| Associates | | China Oriental | | DHS Group | | Gonvarri Steel Industries | | Baffinland | | Total |
| Financial statements reporting date | | June 30, 2019 | | September 30, 2019 | | September 30, 2019 | | December 31, 2019 | | |
Place of incorporation and operation1 | | Bermuda | | Germany | | Spain | | Canada | | |
| Principal Activity | | Iron and steel manufacturing | | Steel manufacturing 3 | | Steel manufacturing 4 | | Extraction of iron ore 5 | | |
| Ownership and voting rights at December 31, 2019 | | 37.02 | % | | 33.43 | % | | 35.00 | % | | 25.70 | % | | |
| Current assets | | 2,920 | | | 1,385 | | | 2,062 | | | 479 | | | 6,846 | |
| Non-current assets | | 1,797 | | | 2,794 | | | 1,628 | | | 2,403 | | | 8,622 | |
| Current liabilities | | 1,837 | | | 402 | | | 1,038 | | | 663 | | | 3,940 | |
| Non-current liabilities | | 150 | | | 979 | | | 795 | | | 891 | | | 2,815 | |
| Non-controlling interests | | 44 | | | 122 | | | 218 | | | — | | | 384 | |
| Net assets attributable to equity holders of the parent | | 2,686 | | | 2,676 | | | 1,639 | | | 1,328 | | | 8,329 | |
| Company's share of net assets | | 994 | | | 895 | | | 574 | | | 341 | | | 2,804 | |
| Adjustments for differences in accounting policies and other | | — | | | 43 | | | (49) | | | 7 | | | 1 | |
Other adjustments2 | | 5 | | | 27 | | | 22 | | | — | | | 54 | |
| Carrying amount in the statements of financial position | | 999 | | | 965 | | | 547 | | | 348 | | | 2,859 | |
| Revenue | | 3,102 | | | 1,795 | | | 3,724 | | | 454 | | | 9,075 | |
| | | | | | | | | | |
| Income / (loss) from continuing operations | | 249 | | | (116) | | | 82 | | | (72) | | | 143 | |
| Other comprehensive income (loss) | | — | | | 8 | | | (7) | | | — | | | 1 | |
| Total comprehensive income (loss) | | 249 | | | (108) | | | 75 | | | (72) | | | 144 | |
| Cash dividends received by the Company | | 57 | | | — | | | 13 | | | — | | | 70 | |
1.The country of incorporation corresponds to the country of operation except for China Oriental whose country of operation is China.
2.Other adjustments correspond to the difference between the carrying amount at December 31, 2019 and the net assets situation corresponding to the latest financial statements ArcelorMittal is permitted to disclose as of the reporting dates described in the table above.
3.The amount for DHS Group includes an adjustment to align the German GAAP financial information with the Company’s accounting policies, and is mainly linked to property, plant and equipment, inventory and pension.
4.Adjustments in Gonvarri Steel Industries primarily relate to differences in accounting policies regarding revaluation of fixed assets.
5.Adjustments in Baffinland primarily relate to differences in accounting policies regarding revaluation of fixed assets and locally recognized goodwill.
China Oriental
China Oriental Group Company Limited (“China Oriental”) is a Chinese integrated iron and steel company listed on the Hong Kong Stock Exchange (“HKEx”).The China Oriental Group has manufacturing plants in Hebei Province and Guangdong Province of the People’s Republic of China (the “PRC”) and sells mainly to customers located in the PRC. The China Oriental Group also carries out property development business which is mainly in the PRC.
DHS Group
DHS - Dillinger Hütte Saarstahl AG (“DHS Group”), incorporated and located in Germany, is a leading producer of heavy steel plates, cast slag pots and semi-finished products, such as pressings, pressure vessel heads and shell sections in Europe. The DHS Group also includes a further rolling mill operated by Dillinger France in Dunkirk (France). As of December 31, 2020,
as a result of lower cash flow projections resulting from weaker market conditions partially linked to the COVID-19 pandemic, the Company identified an impairment trigger with respect to its investment in DHS and recognized accordingly a 211 impairment charge. The Company calculated the fair value of its investment in DHS using a discounted cash flow model (using a discount rate of 7.24%), a level 3 unobservable input.
Gonvarri Steel Industries
Holding Gonvarri SL (“Gonvarri Steel Industries”) is dedicated to the processing of steel. The entity is a European leader in steel service centers and renewable energy components, with strong presence in Europe and Latin America.
Baffinland
Baffinland Iron Mines Corporation ("Baffinland") owns the Mary River project, which has direct shipping, high grade iron ore on Baffin Island in Nunavut (Canada). During 2019 the Company's
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277 Consolidated financial statements |
shareholding in Baffinland decreased from 28.76% to 25.70%, following capital calls exclusively fulfilled by Nunavut Iron Ore Inc. ("NIO"), the initial other shareholder. The Company recognized losses in 2019 on dilution of 4 including the recycling of accumulated foreign exchange translation losses of 12 in income (loss) from investments in associates, joint ventures and other investments.
During 2020, ArcelorMittal's shareholding in Baffinland slightly decreased from 25.70% to 25.23% following capital calls exclusively fulfilled by NIO. In September 2020, the corporate structure was reorganized whereby NIO became the parent company of Baffinland, and ArcelorMittal together with The Energy and Minerals Group ("EMG") became shareholders of NIO with ArcelorMittal's share in NIO and thus Baffinland unchanged at 25.23%.
NIO accounted for the acquisition of Baffinland as a business combination and the acquisition-date fair value of assets and liabilities was provisional at December 31, 2020. This legal reorganization was not a business combination for the Company which accordingly did not recognize its share of the fair value measurement in the carrying amount of Baffinland.
2.4.3 Other associates and joint ventures that are not individually material
The Company has interests in a number of other joint ventures and associates, none of which are regarded as individually material. The following table summarizes the financial information of all individually immaterial joint ventures and associates that are accounted for using the equity method:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | Associates | | Joint Ventures | | Total | | Associates | | Joint Ventures | | Total |
| Carrying amount of interests in associates and joint ventures | | 383 | | | 864 | | | 1,247 | | | 328 | | | 636 | | | 964 | |
| Share of: | | | | | | | | | | | | |
| Income from continuing operations | | 77 | | | 386 | | | 463 | | | 15 | | | 33 | | | 48 | |
| Other comprehensive income (loss) | | (4) | | | — | | | (4) | | | (8) | | | (20) | | | (28) | |
| Total comprehensive income | | 73 | | | 386 | | | 459 | | | 7 | | | 13 | | | 20 | |
2.4.4 Impairment of associates and joint ventures
For the year ended December 31, 2020, the Company recognized a 211 impairment loss with respect to its investment in DHS. For the years ended December 31, 2020 and 2019, the Company identified an impairment indicator with respect to its investment and shareholder loans in Al Jubail. Accordingly, it performed a value in use calculation and concluded the carrying amount of the investment and shareholder loans was recoverable. For the remaining investments, the Company concluded there were no impairment triggers.
The Company is not aware of any material contingent liabilities related to associates and joint ventures for which it is severally liable for all or part of the liabilities of the associates, nor are there any contingent liabilities incurred jointly with other investors. See note 9.4 for disclosure of commitments related to associates and joint ventures.
2.4.5 Investments in joint operations
The Company had investments in the following joint operations as of December 31, 2021 and 2020:
Peña Colorada
Peña Colorada is an iron ore mine located in Mexico in which ArcelorMittal holds a 50.00% interest. Peña Colorada operates an open pit mine as well as concentrating facility and two-line pelletizing facility.
Hibbing Taconite Mines
The Hibbing Taconite Mines in which the Company held a 62.31% interest are iron ore mines located in the USA and operations consist of open pit mining, crushing, concentrating and pelletizing. The Company assumed the managing partner role of Hibbing Taconite company in August 2019 following the resignation of Cleveland-Cliffs without changes in the ownership group.
I/N Tek
I/N Tek in which the Company held a 60.00% interest operates a cold-rolling mill in the United States.
Double G Coating
ArcelorMittal held a 50.00% interest in Double G Coating, a hot dip galvanizing and Galvalume facility in the United States.
On December 9, 2020, the Company completed the sale of its interests in Hibbing Taconite Mines, I/N Tek and Double G Coating to Cleveland-Cliffs as part of the ArcelorMittal USA Divestment Business (note 2.3.1).
All joint operations were part of the NAFTA segment.
| | |
Consolidated financial statements 278 |
| (millions of U.S. dollar, except share and per share data) |
2.5 Other investments
Other investments include those investments in equity instruments for which the Company does not have significant influence. The Company irrevocably elected to present the changes in fair value of such equity instruments, which are not held for trading, in other comprehensive income, because these investments are held as long-term strategic investments that are not expected to be sold in the short to medium-term. Other investments include the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Erdemir | 885 | | | 850 | |
| ArcelorMittal XCarb | 83 | | | — | |
| Stalprodukt S.A. | 77 | | | 96 | |
| | | |
| Cleveland-Cliffs | — | | | 1,988 | |
| Others | 101 | | | 46 | |
| Investments in equity instruments at FVOCI | 1,146 | | | 2,980 | |
The Company’s significant investments in equity instruments at FVOCI at December 31, 2021 and 2020 were the following:
Ereĝli Demir ve Çelik Fabrikalari T.A.S. (“Erdemir”)
Erdemir is the leading steel producer in Turkey and produces plates, hot and cold rolled, tin chromium and zinc coated flat steel and supplies basic inputs to automotive, white goods, pipes and tubes, rolling, manufacturing, electrics-electronics, mechanical engineering, energy, heating equipment, shipbuilding, defense and packaging industries. Unrealized gains recognized in other comprehensive income were 437 and 386 for the year ended December 31, 2021 and 2020, respectively.
Cleveland-Cliffs
Cleveland-Cliffs was historically the largest and oldest independent iron ore mining company in the United States and it became the largest flat-rolled steel company and largest iron ore pellet producer in North America in 2020 after the acquisition of AK Steel and ArcelorMittal USA Divestment Business. It is vertically integrated from mining through iron making, steelmaking, rolling, finishing and downstream with hot and cold stamping of steel parts and components. As part of the consideration for the sale of ArcelorMittal USA Divestment Business to Cleveland-Cliffs as described in note 2.3.1, on December 9, 2020, ArcelorMittal received 78,186,671 common shares with a value of 1,020 and representing a 16% stake in Cleveland-Cliffs and 583,273 non-voting preferred shares with a value of 761. The non-voting preferred shares are redeemable at Cleveland-Cliff’s option for 58,327,300 of its common shares or an equivalent amount in cash. Unrealized gains recognized in other comprehensive income were 119 for the common shares and 88 preferred shares for the year ended December 31, 2020.
On February 9, 2021 and June 18, 2021, ArcelorMittal completed the sale of 40 million and 38.2 million common shares in Cleveland-Cliffs, respectively, as part of a combined primary and secondary public offering of Cleveland-Cliffs shares for total net proceeds of 1,377. The accumulated gain of 357 (267 net of tax) recognized in other comprehensive income was transferred to retained earnings. On July 28, 2021, Cleveland-Cliffs redeemed the preferred shares and following the completion of the review of the redemption notice, ArcelorMittal received 1,303. The accumulated gain of 543 (411 net of tax) recognized in other comprehensive income was transferred to retained earnings.
ArcelorMittal’s XCarb™ innovation fund
ArcelorMittal has launched an innovation fund which will invest up to 100 annually in groundbreaking companies developing pioneering or breakthrough technologies which will accelerate the steel industry's transition to carbon neutral steelmaking.
During 2021 the Company has invested 80 through its XCarb innovation fund of which 50 in equity instruments at FVOCI. Unrealized gains recognized in other comprehensive income were 33 for the year ended December 31, 2021.
Stalprodukt S.A.
Stalprodukt S.A. is a leading manufacturer and exporter of highly processed steel products based in Poland. Unrealized (losses) recognized in other comprehensive income were (12) and (1) for the year ended December 31, 2021 and 2020, respectively.
In 2019 and 2020 the Company sold in aggregate its remaining 3.4 million and 1.8 million shares, respectively, in Powercell Sweden AB, a leading developer and producer of fuel cell and fuel cell systems with high-power density for the automotive, marine and stationary segments, for total consideration of 36 and 59, respectively. The accumulated gain recognized in other comprehensive income of 19 and 28, respectively, was transferred to retained earnings.
On July 16, 2019, the Company sold its 30 million shares, representing a 2.6% stake of preferred shares in Gerdau, the largest Brazil based producer of long steel in the Americas, for 116 in line with Company's ongoing efforts to optimize and unlock value from its asset portfolio that no longer coincides with the Company's investment strategy. The accumulated gain recognized in other comprehensive income of 51 was transferred to retained earnings.
Unconsolidated structured entities
Global Chartering has lease arrangements for two vessels (Panamax Bulk Carriers) involving structured entities whose main purpose is to hold legal title of the two vessels and to lease them to Global Chartering. Such entities are wholly-owned and controlled by a financial institution and are funded through
| | |
279 Consolidated financial statements |
equity instruments by the financial institution. Lease arrangements began for one vessel in 2013 and for the second vessel in 2014. On December 31, 2019, following the sale of a 50% controlling interest in Global Chartering to DryLog (see note 2.3.1), the Company's remaining 50% interest in Global Chartering is accounted for under the equity method and therefore ArcelorMittal no longer has any involvement with the structured entities since December 31, 2019.
2.6 Income (loss) from investments in associates, joint ventures and other investments
Income (loss) from investments in associates, joint ventures and other investments consisted of the following:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Share in net earnings of equity-accounted companies | 2,091 | | | 430 | | | 252 | |
| Impairment charges | — | | | (211) | | | — | |
| Gain (loss) on disposal | 16 | | | — | | | (4) | |
| Dividend income | 97 | | | 15 | | | 99 | |
| Total | 2,204 | | | 234 | | | 347 | |
For the year ended December 31, 2021, the gain on disposal corresponded to the gain on dilution of the Company's interest in Al Jubail (see note 2.4.1).
For the year ended December 31, 2020, impairment charges of 211 related to DHS where the carrying value of the investment exceeded its fair value (see note 2.4.2).
For the year ended December 31, 2019, the loss on disposal corresponded to the loss on dilution of the Company's interest in Baffinland (see note 2.4.2).
NOTE 3: SEGMENT REPORTING
3.1 Reportable segments
As from April 1, 2021, ArcelorMittal implemented changes to its organizational structure whereby primary responsibility for captive mining operations whose output is mainly consumed by their respective steel segments has been transferred to such segments. The Mining segment retains primary responsibility for the operation of the seaborne oriented operations at AMMC and ArcelorMittal Liberia Limited, and continues to provide technical support to all mining operations within the Company. Accordingly, the Company modified the structure of its segment information in order to reflect changes in its approach to managing its operations and segment disclosures have been recast to reflect this new segmentation in conformity with IFRS. Only the seaborne-oriented operations of AMMC and ArcelorMittal Liberia Limited are reported within the Mining segment. The results of all other mines are henceforth
accounted for within the steel segment that they primarily supply.
The Company is organized in five operating and reportable segments, which are components engaged in business activities from which they earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Company), for which discrete financial information is available and whose operating results are evaluated regularly by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance. The Company's CODM as of December 31, 2021 was the Executive Office - comprising the Executive Chairman, Mr. Lakshmi N. Mittal and the CEO, Mr. Aditya Mittal.
These operating segments include the attributable goodwill, intangible assets, property, plant and equipment, and certain equity method investments. They do not include cash and short-term deposits, short-term investments, tax assets and other current financial assets. Attributable liabilities are also those resulting from the normal activities of the segment, excluding tax liabilities and indebtedness but including post retirement obligations where directly attributable to the segment. The treasury function is managed centrally for the Company and is not directly attributable to individual operating segments or geographical areas.
ArcelorMittal’s segments are structured as follows:
•NAFTA represents the flat, long and tubular facilities of the Company located in Canada, Mexico and the United States (on December 9, 2020, the Company divested ArcelorMittal USA see note 2.3.1). 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 sectors: automotive, energy, construction, packaging and appliances and via distributors or processors. NAFTA also produces long products such as wire rod, sections, rebar, billets, blooms and wire drawing, and tubular products. The raw material supply of the NAFTA operations includes sourcing from iron ore captive mines in Mexico and iron ore and coal captive mines in the United States (until disposal of ArcelorMittal USA on December 9, 2020 as mentioned above) to supply the steel facilities.
•Brazil includes the flat operations of Brazil, 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
| | |
Consolidated financial statements 280 |
| (millions of U.S. dollar, except share and per share data) |
wire drawing. The raw material supply of the Brazil operations includes sourcing from iron ore captive mines in Brazil.
•Europe is the largest flat steel producer in Europe, 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 and packaging sectors. 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.
The raw material supply of Europe operations includes sourcing from iron ore captive mines in Bosnia & Herzegovina.
•ACIS produces a combination of flat, long and tubular products. Its steel facilities are located in South Africa, Ukraine and Kazakhstan. The raw material supply of the ACIS operations includes sourcing from iron ore captive mines in Kazakhstan and Ukraine and coal captive mines in Kazakhstan.
•The Mining segment comprises the mines owned by ArcelorMittal in Canada and Liberia. It provides the Company's steel operations with high quality and low-cost iron ore reserves and also sells mineral products to third parties.
The following table summarizes certain financial data for ArcelorMittal’s operations by reportable segments.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others 1 | | Elimination | | Total |
| Year ended December 31, 2021 | | | | | | | | | | | | | | | |
| Sales to external customers | 12,492 | | | 10,830 | | | 43,200 | | | 8,392 | | | 1,640 | | | 17 | | | — | | | 76,571 | |
Intersegment sales 2 | 38 | | | 2,026 | | | 134 | | | 1,462 | | | 2,405 | | | 17 | | | (6,082) | | | — | |
| Operating income (loss) | 2,800 | | | 3,798 | | | 5,672 | | | 2,705 | | | 2,371 | | | (228) | | | (142) | | | 16,976 | |
| Depreciation and amortization | (325) | | | (228) | | | (1,252) | | | (450) | | | (228) | | | (40) | | | — | | | (2,523) | |
| Impairment reversal | — | | | — | | | 218 | | | — | | | — | | | — | | | — | | | 218 | |
| Capital expenditures | 369 | | | 412 | | | 1,282 | | | 619 | | | 302 | | | 24 | | | — | | | 3,008 | |
| Year ended December 31, 2020 | | | | | | | | | | | | | | | |
| Sales to external customers | 13,438 | | | 5,613 | | | 27,989 | | | 5,034 | | | 1,185 | | | 11 | | | — | | | 53,270 | |
Intersegment sales 2 | 230 | | | 723 | | | 82 | | | 703 | | | 1,600 | | | 13 | | | (3,351) | | | — | |
| Operating income (loss) | 1,684 | | | 777 | | | (1,439) | | | 209 | | | 1,247 | | | (268) | | | (100) | | | 2,110 | |
| Depreciation and amortization | (537) | | | (228) | | | (1,418) | | | (492) | | | (243) | | | (42) | | | — | | | (2,960) | |
| Impairment | 660 | | | — | | | (527) | | | — | | | — | | | — | | | — | | | 133 | |
| Capital expenditures | 527 | | | 217 | | | 1,040 | | | 476 | | | 140 | | | 39 | | | — | | | 2,439 | |
| Year ended December 31, 2019 | | | | | | | | | | | | | | | |
| Sales to external customers | 18,590 | | | 6,980 | | | 37,487 | | | 6,506 | | | 981 | | | 71 | | | — | | | 70,615 | |
Intersegment sales 2 | 116 | | | 1,186 | | | 234 | | | 491 | | | 1,683 | | | 353 | | | (4,063) | | | — | |
| Operating income (loss) | (1,144) | | | 853 | | | (1,101) | | | 31 | | | 1,026 | | | (285) | | | (7) | | | (627) | |
| Depreciation and amortization | (638) | | | (277) | | | (1,261) | | | (499) | | | (237) | | | (155) | | | — | | | (3,067) | |
| | | | | | | | | | | | | | | |
| Impairment | (1,300) | | | — | | | (525) | | | (102) | | | — | | | — | | | — | | | (1,927) | |
| Capital expenditures | 828 | | | 360 | | | 1,355 | | | 673 | | | 185 | | | 171 | | | — | | | 3,572 | |
1.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.
2.Transactions between segments are reported on the same basis of accounting as transactions with third parties.
| | |
281 Consolidated financial statements |
The reconciliation from operating income to net income (including non-controlling interests) is as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Operating income/(loss) | 16,976 | | | 2,110 | | | (627) | |
| Income from investments in associates and joint ventures | 2,204 | | | 234 | | | 347 | |
| Financing costs - net | (1,155) | | | (1,256) | | | (1,652) | |
| Income/(loss) before taxes | 18,025 | | | 1,088 | | | (1,932) | |
| Income tax expense | 2,460 | | | 1,666 | | | 459 | |
| Net income/(loss) (including non-controlling interests) | 15,565 | | | (578) | | | (2,391) | |
The Company does not regularly provide a measure of total assets and liabilities for each reportable segment to the CODM.
3.2 Geographical information
Geographical information, by country or region, is separately disclosed and represents ArcelorMittal’s most significant regional markets. Attributed assets are operational assets employed in each region and include items such as pension balances that are specific to a country. Unless otherwise stated in the table heading as a segment disclosure, these disclosures are specific to the country or region stated. They do not include goodwill, deferred tax assets, other investments or receivables and other non-current financial assets. Attributed liabilities are those arising within each region, excluding indebtedness.
Sales (by destination)
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Americas | | | | | |
United States 1 | 7,300 | | | 9,991 | | | 15,238 | |
| Brazil | 8,204 | | | 4,396 | | | 5,094 | |
| Canada | 4,282 | | | 2,537 | | | 3,004 | |
| Mexico | 2,356 | | | 1,707 | | | 1,941 | |
| Argentina | 1,440 | | | 679 | | | 814 | |
| | | | | |
| Others | 1,826 | | | 872 | | | 1,195 | |
| Total Americas | 25,408 | | | 20,182 | | | 27,286 | |
| | | | | |
| Europe | | | | | |
| Germany | 6,541 | | | 4,200 | | | 5,694 | |
| Poland | 5,298 | | | 3,231 | | | 3,957 | |
| France | 4,874 | | | 3,115 | | | 4,114 | |
| Spain | 4,187 | | | 2,817 | | | 3,855 | |
Italy3 | 5,426 | | | 3,195 | | | 4,317 | |
| Czech Republic | 1,362 | | | 752 | | | 1,244 | |
| Turkey | 1,508 | | | 1,075 | | | 1,499 | |
| United Kingdom | 1,519 | | | 966 | | | 1,434 | |
| Belgium | 1,847 | | | 1,274 | | | 1,617 | |
| Netherlands | 1,623 | | | 878 | | | 1,142 | |
| Russia | 1,583 | | | 804 | | | 876 | |
| Romania | 443 | | | 335 | | | 720 | |
Ukraine 2 | 948 | | | 515 | | | 540 | |
| Others | 5,025 | | | 3,148 | | | 4,359 | |
| Total Europe | 42,184 | | | 26,305 | | | 35,368 | |
| | | | | |
| Asia & Africa | | | | | |
| South Africa | 2,448 | | | 1,366 | | | 2,260 | |
| Morocco | 689 | | | 492 | | | 583 | |
| Egypt | 85 | | | 103 | | | 309 | |
| Rest of Africa | 1,068 | | | 619 | | | 1,278 | |
| China | 943 | | | 1,622 | | | 676 | |
| Kazakhstan | 747 | | | 425 | | | 470 | |
| South Korea | 608 | | | 331 | | | 380 | |
| India | 142 | | | 142 | | | 95 | |
| Rest of Asia | 2,249 | | | 1,683 | | | 1,910 | |
| Total Asia & Africa | 8,979 | | | 6,783 | | | 7,961 | |
| | | | | |
| Total | 76,571 | | | 53,270 | | | 70,615 | |
1.On December 9, 2020, the Company completed the sale of ArcelorMittal USA. Sales of divested operations were consolidated by ArcelorMittal until December 9, 2020, see note 2.3.1.
2.Ukraine is presented separately in 2021 and 2020, due to the increased contributions. In 2019 Ukraine was included in others. The comparative periods are revised to align with the current presentation.
3.Sales in Italy includes sales from Acciaerie d'Italia until April 14, 2021 (see note 2.3.1).
| | |
Consolidated financial statements 282 |
| (millions of U.S. dollar, except share and per share data) |
Revenues from external customers attributed to the country of domicile (Luxembourg) were 185, 114 and 151 for the years ended December 31, 2021, 2020 and 2019, respectively.
Non-current assets1 per significant country:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Americas | | | |
| Canada | 5,252 | | | 5,213 | |
| Brazil | 3,306 | | | 3,330 | |
United States 2 | 117 | | | 116 | |
| Mexico | 1,550 | | | 1,457 | |
| Argentina | 342 | | | 249 | |
| Venezuela | 31 | | | 17 | |
| Others | 17 | | | 18 | |
| Total Americas | 10,615 | | | 10,400 | |
| | | |
| Europe | | | |
| France | 3,754 | | | 4,207 | |
| Germany | 2,543 | | | 2,789 | |
| Belgium | 2,616 | | | 2,712 | |
| Poland | 2,312 | | | 2,546 | |
| Ukraine | 2,299 | | | 2,154 | |
| Spain | 2,153 | | | 2,058 | |
| | | |
| Luxembourg | 1,476 | | | 1,297 | |
| Bosnia and Herzegovina | 168 | | | 189 | |
| Romania | 24 | | | 56 | |
| Czech Republic | 28 | | | 28 | |
| Others | 186 | | | 206 | |
| Total Europe | 17,559 | | | 18,242 | |
| | | |
| Asia & Africa | | | |
| Kazakhstan | 1,449 | | | 1,401 | |
| South Africa | 511 | | | 528 | |
| Liberia | 160 | | | 132 | |
| Morocco | 97 | | | 102 | |
| Others | 178 | | | 137 | |
| Total Asia & Africa | 2,395 | | | 2,300 | |
| Unallocated assets | 25,004 | | | 23,137 | |
| Total | 55,573 | | | 54,079 | |
1.Non-current assets do not include goodwill, deferred tax assets, investments in associates and joint ventures, other investments and other non-current financial assets (as they are not allocated to the individual countries). Such assets are presented under the caption “Unallocated assets”.
2.On December 9, 2020, the Company completed the sale of ArcelorMittal USA (see note 2.3.1).
3.3 Sales by type of products
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. Mining products relate to the Company's own production. Others mainly include non-steel and by-products sales, manufactured and specialty steel products sales, shipping and other services.
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Flat products | 41,895 | | | 31,584 | | | 43,633 | |
| Long products | 18,118 | | | 11,117 | | | 13,706 | |
| Tubular products | 2,233 | | | 1,343 | | | 2,044 | |
| Mining products | 1,860 | | | 1,451 | | | 1,165 | |
| Others | 12,465 | | | 7,775 | | | 10,067 | |
| Total | 76,571 | | | 53,270 | | | 70,615 | |
| | |
283 Consolidated financial statements |
3.4 Disaggregated revenue
Disaggregated revenue
The tables below summarize the disaggregated revenue recognized from contracts with customers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others | | Total |
| Steel sales | 12,127 | | | 10,225 | | | 38,302 | | | 7,148 | | | — | | | — | | | 67,802 | |
Non-steel sales 1 | 1 | | | 202 | | | 2,240 | | | 769 | | | 1,607 | | | — | | | 4,819 | |
By-product sales 2 | 132 | | | 111 | | | 943 | | | 171 | | | — | | | — | | | 1,357 | |
Other sales 3 | 232 | | | 292 | | | 1,715 | | | 304 | | | 33 | | | 17 | | | 2,593 | |
| Total | 12,492 | | | 10,830 | | | 43,200 | | | 8,392 | | | 1,640 | | | 17 | | | 76,571 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2020 | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others | | Total |
| Steel sales | 12,791 | | | 5,226 | | | 25,437 | | | 4,232 | | | — | | | — | | | 47,686 | |
Non-steel sales 1 | 141 | | | 108 | | | 620 | | | 452 | | | 1,154 | | | — | | | 2,475 | |
By-product sales 2 | 83 | | | 82 | | | 553 | | | 90 | | | — | | | — | | | 808 | |
Other sales 3 | 423 | | | 197 | | | 1,379 | | | 260 | | | 31 | | | 11 | | | 2,301 | |
| Total | 13,438 | | | 5,613 | | | 27,989 | | | 5,034 | | | 1,185 | | | 11 | | | 53,270 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2019 | NAFTA | | Brazil | | Europe | | ACIS | | Mining | | Others | | Total |
| Steel sales | 17,669 | | | 6,467 | | | 33,759 | | | 5,789 | | | — | | | — | | | 63,684 | |
Non-steel sales 1 | 233 | | | 112 | | | 1,130 | | | 254 | | | 945 | | | — | | | 2,674 | |
By-product sales 2 | 114 | | | 93 | | | 816 | | | 135 | | | — | | | — | | | 1,158 | |
Other sales 3 | 574 | | | 308 | | | 1,782 | | | 328 | | | 36 | | | 71 | | | 3,099 | |
| Total | 18,590 | | | 6,980 | | | 37,487 | | | 6,506 | | | 981 | | | 71 | | | 70,615 | |
1.Non-steel sales mainly relate to iron ore, coal, scrap and electricity.
2.By-product sales mainly relate to slag, waste and coke by-products.
3.Other sales are mainly comprised of shipping and other services.
NOTE 4: OPERATING DATA
4.1 Revenue
The Company’s revenue is derived from the single performance obligation to transfer primarily steel and mining products under arrangements in which the transfer of control of the products and the fulfillment of the Company’s performance obligation occur at the same time. Revenue from the sale of goods is recognized when the Company has transferred control of the goods to the buyer and the buyer obtains the benefits from the goods, the potential cash flows and the amount of revenue (the transaction price) can be measured reliably, and it is probable that the Company will collect the consideration to which it is entitled to in exchange for the goods.
Whether the customer has obtained control over the asset depends on when the goods are made available to the carrier or the buyer takes possession of the goods, depending on the delivery terms. For the Company’s steel producing operations,
generally the criteria to recognize revenue has been met when its products are delivered to its customers or to a carrier who will transport the goods to its customers, this is the point in time when the Company has completed its performance obligations. Revenue is measured at the transaction price of the consideration received or receivable, the amount the Company expects to be entitled to.
Additionally, the Company identifies when goods have left its premises, not when the customer receives the goods. Therefore, the Company estimates, based on its historical experience, the amount of goods in-transit when the transfer of control occurs at the destination and defers the revenue recognition.
The Company’s products must meet customer specifications. A certain portion of the Company’s products are returned or have claims filed against the sale because the products contained quality defects or other problems. Claims may be either of the following:
| | |
Consolidated financial statements 284 |
| (millions of U.S. dollar, except share and per share data) |
–Product Rejection - Product shipped and billed to an end customer that did not meet previously agreed customer specifications. Claims typically result from physical defects in the goods, goods shipped to the wrong location, goods produced with incorrect specifications and goods shipped outside acceptable time parameters.
–Consequential Damages - Damages reported by the customer not directly related to the value of the rejected goods (for example: customer processing cost or mill down time, sampling, storage, sorting, administrative cost, replacement cost, etc.).
The Company estimates the variable consideration for such claims using the expected value method and reduces the amount of revenue recognized.
Warranties:
The warranties and claims arise when the product fails on the criteria mentioned above. Sales-related warranties associated with the goods cannot be purchased separately and they serve as an assurance that the products sold comply with agreed specifications. Accordingly, the Company accounts for warranties in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" (see note 9).
Periodically, the Company enters into volume or other rebate programs where once a certain volume or other conditions are met, it refunds the customer some portion of the amounts previously billed or paid. For such arrangements, the Company only recognizes revenue for the amounts it ultimately expects to realize from the customer. The Company estimates the variable consideration for these programs using the most likely amount method or the expected value method, whichever approach best predicts the amount of the consideration based on the terms of the contract and available information and updates its estimates each reporting period.
The Company’s payment terms range from 30 to 90 days from date of delivery, depending on the market and product sold. The Company received 404 as advances from its customers which are classified as unsatisfied performance obligations and recognized as liabilities in line with IFRS 15. The Company expects 100% of these unsatisfied performance obligations as of December 31, 2021 to be recognized as revenue during 2022 as the Company’s contracts have an original expected duration of one year or less.
The tables below summarize the movements relating to the Company's trade receivable and other for the years ended December 31, 2021, 2020 and 2019
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Trade accounts receivable and other - opening balance | 3,072 | | | 3,569 | | | 4,432 | |
| Performance obligations satisfied | 76,571 | | | 53,270 | | | 70,615 | |
| Payments received | (74,036) | | | (53,194) | | | (71,559) | |
| Impairment of receivables (net of write backs and utilization) | (69) | | | (16) | | | 9 | |
Reclassification of the period-end receivables from /(to) held for sale and recognition (derecognition) of receivables related to business combination and divestments 2 | 182 | | | (724) | | | — | |
| Acquisitions through business combination | — | | | — | | | 4 | |
TSR receivables retained in ArcelorMittal USA divestment 1 | (260) | | | 260 | | | — | |
| Foreign exchange and others | (317) | | | (93) | | | 68 | |
| | | | | |
| Trade accounts receivable and other - closing balance | 5,143 | | | 3,072 | | | 3,569 | |
1.See note 6.1.3
2.Includes mainly receivables from the joint venture Acciaierie d'Italia. See note 2.3.1.
4.2 Cost of sales
Cost of sales includes the following components:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Materials | 42,737 | | | 34,599 | | | 47,809 | |
| Labor costs | 6,886 | | | 7,690 | | | 9,094 | |
| Logistic expenses | 3,931 | | | 3,474 | | | 4,951 | |
| Depreciation and amortization | 2,523 | | | 2,960 | | | 3,067 | |
| | | | | |
| Net impairment (reversal)/charges (see note 5.3) | (218) | | | (133) | | | 1,927 | |
Gain on AM USA disposal 1 | — | | | (1,460) | | | — | |
| Other | 1,478 | | | 2,008 | | | 2,039 | |
| Total | 57,337 | | | 49,138 | | | 68,887 | |
1. See note 2.3.1 for details
| | |
285 Consolidated financial statements |
4.3 Trade accounts receivable and other
Trade accounts receivable are initially recorded at their transaction price and do not carry any interest. ArcelorMittal maintains an allowance for lifetime expected credit loss at an amount that it considers to be a reliable estimate of expected credit losses resulting from the inability of its customers to make required payments. In judging the adequacy of the allowance for expected credit losses, ArcelorMittal considers multiple factors including historical bad debt experience, the current and forward looking economic environment and the aging of the receivables. Recoveries of trade receivables previously reserved in the allowance for expected credit losses are recognized as gains in selling, general and administrative expenses.
ArcelorMittal’s policy is to record an allowance for expected lifetime credit losses and a charge in selling, general and administrative expense when a specific account is deemed uncollectible. The Company concluded that a trade receivable is in default when it is overdue by more than 180 days. Based on historical experience and analysis, the Company concluded that there is a risk of default as such receivables are generally not recoverable and therefore provided for, unless the collectibility can be clearly demonstrated. Uninsured trade receivables and the associated allowance are written off when ArcelorMittal has exhausted its recovery efforts and enforcement options. ArcelorMittal considered the continued impact of the COVID-19 pandemic on the economic environment in its risk of default assessment for receivables outstanding less than 180 days. Receivables aged 31 days or older and uninsured trade receivables remain consistent with historical levels and the Company did not identify any expected increased risk of default.
Trade accounts receivable and allowance for lifetime expected credit losses
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Gross amount | 5,349 | | | 3,208 | |
| Allowance for lifetime expected credit losses | (206) | | | (136) | |
| Total | 5,143 | | | 3,072 | |
The carrying amount of the trade accounts receivable and other approximates their fair value. Before granting credit to any new customer, ArcelorMittal uses an internally developed credit scoring system to assess the potential customer’s credit quality and to define credit limits by customer. For all significant customers, the credit terms must be approved by the credit committees of each reportable segment. Limits and scoring attributed to customers are reviewed periodically. There are no customers who represent more than 5% of the total balance of trade accounts receivable.
Exposure to credit risk by reportable segment
The maximum exposure to credit risk for trade accounts receivable by reportable segment is as follows:
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| NAFTA | 330 | | | 455 | |
| Brazil | 1,308 | | | 809 | |
| Europe | 2,959 | | | 1,396 | |
| ACIS | 444 | | | 190 | |
| Mining | 102 | | | 222 | |
| Total | 5,143 | | | 3,072 | |
Aging of trade accounts receivable
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | December 31, |
| | 2021 | | 2020 |
| | Gross | | Allowance | | Total | | Gross | | Allowance | | Total |
| Not past due | 4,280 | | | (30) | | | 4,250 | | | 2,699 | | | (13) | | | 2,686 | |
| Overdue 1-30 days | 322 | | | (1) | | | 321 | | | 215 | | | (1) | | | 214 | |
| Overdue 31-60 days | 80 | | | — | | | 80 | | | 49 | | | (1) | | | 48 | |
| Overdue 61-90 days | 121 | | | — | | | 121 | | | 26 | | | — | | | 26 | |
| Overdue 91-180 days | 210 | | | (2) | | | 208 | | | 42 | | | (3) | | | 39 | |
| More than 180 days | 336 | | | (173) | | | 163 | | | 177 | | | (118) | | | 59 | |
| Total | 5,349 | | | (206) | | | 5,143 | | | 3,208 | | | (136) | | | 3,072 | |
| | |
Consolidated financial statements 286 |
| (millions of U.S. dollar, except share and per share data) |
The movements in the allowance are calculated based on lifetime expected credit loss model for 2021, 2020 and 2019. The allowances in respect of trade accounts receivable during the periods presented are as follows: | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Allowance - opening balance | 136 | | | 129 | | | 173 | |
| Additions | 87 | | | 27 | | | 18 | |
| Write backs / utilization | (18) | | | (11) | | | (27) | |
| Foreign exchange and others | 1 | | | (9) | | | (35) | |
| Allowance - closing balance | 206 | | | 136 | | | 129 | |
The Company has established a number of programs for sales without recourse of trade accounts receivable to various financial institutions (referred to as true sale of receivables (“TSR”)). Through the TSR programs, certain operating subsidiaries of ArcelorMittal surrender the control, risks and benefits associated with the accounts receivable sold; therefore, the amount of receivables sold is recorded as a sale of financial assets and the balances are derecognized from the consolidated statements of financial position at the moment of sale. The Company classifies trade receivables subject to TSR programs as financial assets that are held to collect or to sell and recognizes them at FVOCI (see note 6). The fair value measurement is determined based on the invoice amount net of TSR expense payable, a Level 3 unobservable input. The TSR expense is insignificant due to the rate applicable and the short timeframe between the time of sale and the invoice due date. Any loss allowance for these trade receivables is recognized in OCI.
4.4 Inventories
Inventories are carried at the lower of cost or net realizable value. Cost is determined using the average cost method. Costs of production in process and finished goods include the purchase costs of raw materials and conversion costs such as direct labor and an allocation of fixed and variable production overheads. Raw materials and spare parts are valued at cost, inclusive of freight, shipping, handling as well as any other costs incurred in bringing the inventories to their present location and condition. Interest charges, if any, on purchases have been recorded as financing costs. Costs incurred when production levels are abnormally low are capitalized as inventories based on normal capacity with the remaining costs incurred recorded as a component of cost of sales in the consolidated statements of operations.
Net realizable value represents the estimated selling price at which the inventories can be realized in the normal course of business after allowing for the cost of conversion from their
existing state to a finished condition and for the cost of marketing, selling, and distribution. Net realizable value is estimated based on the most reliable evidence available at the time the estimates were made of being the amount that the inventory is expected to realize, taking into account the purpose for which the inventory is held.
Previous write-downs are reversed in case the circumstances that previously caused inventories to be written down below cost no longer exist.
Inventories, net of allowance for slow-moving inventory, excess of cost over net realizable value and obsolescence of 1,023 and 1,079 as of December 31, 2021 and 2020, respectively, are comprised of the following:
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Finished products | 5,743 | | | 3,403 | |
| Production in process | 5,101 | | | 3,305 | |
| Raw materials | 7,137 | | | 3,839 | |
Manufacturing supplies, spare parts and other 1 | 1,877 | | | 1,781 | |
| Total | 19,858 | | | 12,328 | |
1.Including spare parts of 1.4 billion and 1.4 billion, and manufacturing and other supplies of 0.5 billion and 0.4 billion as of December 31, 2021 and 2020, respectively.
Movements in the inventory write-downs are as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Inventory write-downs - opening balance | 1,079 | | | 1,760 | | | 1,168 | |
Additions 1 | 178 | | | 294 | | | 726 | |
Deductions / Releases 2 | (236) | | | (878) | | | (212) | |
Foreign exchange and others3 | 2 | | | (97) | | | 78 | |
| Inventory write-downs - closing balance | 1,023 | | | 1,079 | | | 1,760 | |
1.Additions refer to write-downs of inventories excluding those utilized or written back during the same financial year.
2.Deductions/releases correspond to write-backs and utilizations related to the prior periods.
3.In 2021, others include inventory write-downs relating to the plate operations in Europe following discontinuation of held for sale classification (see note 2.3.2).
| | |
287 Consolidated financial statements |
4.5 Prepaid expenses and other current assets
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| VAT receivables | 986 | | | 752 | |
| Prepaid expenses and non-trade receivables | 566 | | | 486 | |
| Financial amounts receivable | 108 | | | 94 | |
| Income tax receivable | 106 | | | 51 | |
| Receivables from public authorities | 127 | | | 143 | |
| Receivables from sale of financial and intangible assets | 48 | | | 78 | |
| Derivative financial instruments (notes 6.1 and 6.3) | 2,985 | | | 353 | |
CO2 emission rights | 458 | | | 219 | |
Other 1 | 183 | | | 105 | |
| Total | 5,567 | | | 2,281 | |
1.Other includes mainly advances to employees, accrued interest and other miscellaneous receivables.
4.6 Other assets
Other assets consisted of the following:
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Derivative financial instruments (notes 6.1 and 6.3) | 318 | | | 324 | |
| Financial amounts receivable | 411 | | | 503 | |
| Long-term VAT receivables | 179 | | | 156 | |
| Cash guarantees and deposits | 94 | | | 86 | |
| Receivables from public authorities | 60 | | | 41 | |
| Accrued interest | 29 | | | 30 | |
| Receivables from sale of financial and intangible assets | 150 | | | 172 | |
| Income tax receivable | 61 | | | 18 | |
Other 1 | 159 | | | 152 | |
| Total | 1,461 | | | 1,482 | |
1.Other mainly includes assets in pension funds and other amounts receivable.
4.7 Trade accounts payable and other
Trade accounts payable are obligations to pay for goods that have been acquired in the ordinary course of business from suppliers. Trade accounts payable have maturities from 15 to 180 days depending on the type of material, the geographic area in which the purchase transaction occurs and the various contractual agreements. The carrying value of trade accounts payable approximates fair value. The Company’s average outstanding number of trade payable days amounted to 83 over the last 5 years. The ability of suppliers to provide payment terms may be dependent on their ability to obtain funding for their own working capital needs and or their ability to early discount their receivables at their own discretion (the Company
estimates that about 2.7 billion of trade payables were subject to early discount by its suppliers in 2021 as compared to 2.0 billion in 2020).
4.8 Accrued expenses and other liabilities
Accrued expenses and other liabilities were comprised of the following: | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Accrued payroll and employee related expenses | 1,545 | | | 1,238 | |
| Accrued interest and other payables | 1,207 | | | 1,151 | |
Payable from acquisition of intangible, tangible & financial assets1 | 867 | | | 847 | |
| Other amounts due to public authorities | 833 | | | 680 | |
| Derivative financial instruments (notes 6.1 and 6.3) | 316 | | | 208 | |
| Unearned revenue and accrued payables | 63 | | | 73 | |
| Total | 4,831 | | | 4,197 | |
1.At December 31, 2021, payable from acquisition of intangible, tangible & financial assets included 252 relating to the ArcelorMittal Sul Fluminense ("AMSF") put option liability (see notes 9.2 and 11.5.2).
NOTE 5: GOODWILL, INTANGIBLE AND TANGIBLE ASSETS
5.1 Goodwill and intangible assets
The carrying amounts of goodwill and intangible assets are summarized as follows:
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Goodwill on acquisitions | 3,931 | | | 3,992 | |
| Concessions, patents and licenses | 195 | | | 190 | |
| Customer relationships and trade marks | 80 | | | 90 | |
Other1 | 219 | | | 40 | |
| Total | 4,425 | | | 4,312 | |
1.Includes 167 relating to emission rights in 2021.
Goodwill
Goodwill arising on an acquisition is recognized as previously described within the business combinations section in note 2.2.3. Goodwill is allocated to those groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose and in all cases is at the operating segment level, which represents the lowest level at which goodwill is monitored for internal management purposes.
| | |
Consolidated financial statements 288 |
| (millions of U.S. dollar, except share and per share data) |
Goodwill acquired in business combinations for each of the Company’s operating segments is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | Divestments and assets held for sale | | Foreign exchange differences and other movements | | | | December 31, 2021 |
| NAFTA | 1,566 | | | — | | | 10 | | | | | 1,576 | |
| Brazil | 1,069 | | | — | | | (59) | | | | | 1,010 | |
| Europe | 540 | | | — | | | (41) | | | | | 499 | |
| ACIS | 817 | | | — | | | 29 | | | | | 846 | |
| Total | 3,992 | | | — | | | (61) | | | | | 3,931 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | Divestments and assets held for sale1 | | Foreign exchange differences and other movements | | | | December 31, 2020 |
| NAFTA | 2,233 | | | (672) | | | 5 | | | | | 1,566 | |
| Brazil | 1,353 | | | — | | | (284) | | | | | 1,069 | |
| Europe | 545 | | | (45) | | | 40 | | | | | 540 | |
| ACIS | 973 | | | — | | | (156) | | | | | 817 | |
| Total | 5,104 | | | (717) | | | (395) | | | | | 3,992 | |
1. See notes 2.3.1 and 2.3.2
Intangible assets are recognized only when it is probable that the expected future economic benefits attributable to the assets
will accrue to the Company and the cost can be reliably measured. Intangible assets acquired separately by ArcelorMittal are initially recorded at cost and those acquired in a business combination are initially recorded at fair value at the date of the business combination. These primarily include the cost of technology and licenses purchased from third parties and operating authorizations granted by governments or other public bodies (concessions). Intangible assets are amortized on a straight-line basis over their estimated economic useful lives, which typically do not exceed five years. Amortization is included in the consolidated statements of operations as part of cost of sales.
ArcelorMittal’s industrial sites which are regulated by the European Directive 2003/87/EC of October 13, 2003 on carbon dioxide (“CO2”) emission rights, effective as of January 1, 2005, are located primarily in Belgium, France, Germany, Luxembourg, Poland, Spain and Italy. In Ontario, Canada, ArcelorMittal's operations have been subject to output based pricing system regulations since January 1, 2019 but starting January 1, 2022, they will be regulated on carbon pricing under the Ontario Emissions Performance System (“OEPS”). In South Africa, a CO2 tax system was introduced in 2019. The emission rights allocated to the Company on a no-charge basis pursuant to the annual national allocation plan are recorded at nil value and purchased emission rights are recorded at cost.
| | |
289 Consolidated financial statements |
Other intangible assets are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Concessions, patents and licenses | | Customer relationships and trade marks | | Other | | Total |
| Cost | | | | | | | |
| At December 31, 2019 | 630 | | | 1,133 | | | 147 | | | 1,910 | |
| Acquisitions | 17 | | | — | | | 35 | | | 52 | |
| | | | | | | |
| Disposals | (8) | | | — | | | (2) | | | (10) | |
| Divestment (note 2.3.1) | (251) | | | (9) | | | — | | | (260) | |
| Foreign exchange differences | 16 | | | 24 | | | 11 | | | 51 | |
| Transfers to assets held for sale (note 2.3.2) | (12) | | | — | | | (11) | | | (23) | |
| Transfers and other movements | 37 | | | — | | | — | | | 37 | |
Fully amortized intangible assets 1 | (29) | | | — | | | — | | | (29) | |
| At December 31, 2020 | 400 | | | 1,148 | | | 180 | | | 1,728 | |
Acquisitions2 | 35 | | | — | | | 210 | | | 245 | |
| | | | | | | |
| Disposal | (6) | | | — | | | — | | | (6) | |
| | | | | | | |
| Foreign exchange differences | (54) | | | (69) | | | (21) | | | (144) | |
| Transfers from assets held for sale (note 2.3.2) | 12 | | | — | | | 11 | | | 23 | |
| Transfers and other movements | 30 | | | 2 | | | 10 | | | 42 | |
| | | | | | | |
| At December 31, 2021 | 417 | | | 1,081 | | | 390 | | | 1,888 | |
| | | | | | | |
| Accumulated amortization and impairment losses | | | | | | | |
| At December 31, 2019 | 433 | | | 1,038 | | | 111 | | | 1,582 | |
| Disposal | (7) | | | — | | | — | | | (7) | |
| Divestment (note 2.3.1) | (239) | | | (9) | | | — | | | (248) | |
| Amortization charge | 47 | | | 10 | | | 30 | | | 87 | |
| Impairment charge (note 5.3) | 4 | | | — | | | — | | | 4 | |
| Foreign exchange differences | 17 | | | 19 | | | 8 | | | 44 | |
| Transfers to assets held for sale (note 2.3.2) | (12) | | | — | | | (9) | | | (21) | |
| Transfers and other movements | (4) | | | — | | | — | | | (4) | |
Fully amortized intangible assets 1 | (29) | | | — | | | — | | | (29) | |
| At December 31, 2020 | 210 | | | 1,058 | | | 140 | | | 1,408 | |
| Disposals | (5) | | | — | | | — | | | (5) | |
| | | | | | | |
| Amortization charge | 50 | | | 7 | | | 33 | | | 90 | |
| | | | | | | |
| Foreign exchange differences | (44) | | | (64) | | | (13) | | | (121) | |
| Transfers from assets held for sale (note 2.3.2) | 9 | | | — | | | 9 | | | 18 | |
| Transfers and other movements | 2 | | | — | | | 2 | | | 4 | |
| | | | | | | |
| At December 31, 2021 | 222 | | | 1,001 | | | 171 | | | 1,394 | |
| | | | | | | |
| Carrying amount | | | | | | | |
| At December 31, 2020 | 190 | | | 90 | | | 40 | | | 320 | |
| At December 31, 2021 | 195 | | | 80 | | | 219 | | | 494 | |
1.Fully amortized intangible assets correspond mainly to licenses in 2020.
2.Acquisitions in 'other' mainly relate to CO2 emission rights in 2021.
Research and development costs not meeting the criteria for capitalization are expensed as incurred. These costs amounted to 270, 245 and 301 for the years ended December 31, 2021, 2020 and 2019, respectively and were recognized in selling, general and administrative expenses.
5.2 Property, plant and equipment and biological assets
Property, plant and equipment is recorded at cost less accumulated depreciation and impairment. Cost includes all related costs directly attributable to the acquisition or construction of the asset. Except for land and assets used in mining activities, property, plant and equipment is depreciated using the straight-line method over the useful lives of the related assets as presented in the table below.
| | |
Consolidated financial statements 290 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | |
| Asset Category | | Useful Life Range |
| Land | | Not depreciated |
| Buildings | | 10 to 50 years |
| Property plant & equipment | | 15 to 64 years |
| Auxiliary facilities | | 15 to 60 years |
| Other facilities | | 5 to 20 years |
The Company’s annual review of useful lives leverages on the experience gained from an in-depth review performed every five years, any significant change in the expected pattern of consumption embodied in the asset, and the specialized knowledge of ArcelorMittal’s network of chief technical officers. The chief technical officer network includes engineers with facility-specific expertise related to plant and equipment used in the principal production units of the Company’s operations. The most recent in-depth review took place in 2019, during which the Company performed a review of the useful lives of its fixed assets and determined there were no material changes to the useful lives of property, plant and equipment. In performing this review, the Company gathered and evaluated data, including commissioning dates, designed capacities, maintenance records and programs, and asset performance history, among other attributes. In accordance with IAS 16, Property, Plant and Equipment, the Company considered this information at the level of components significant in relation to the total cost of the item of plant and equipment. Other factors the Company considered in its determination of useful lives included the expected use of the assets, technical or commercial obsolescence, and operational factors. In addition, the Company considered the accumulated technical experience and knowledge sharing programs that allowed for the exchange of best practices within the chief technical officer network and the deployment of these practices across the Company’s principal production units.
Major improvements, which add to productive capacity or extend the life of an asset, are capitalized, while repairs and maintenance are expensed as incurred. Where a tangible fixed asset comprises major components having different useful lives, these components are accounted for as separate items.
Property, plant and equipment under construction is recorded as construction in progress until it is ready for its intended use; thereafter it is transferred to the related class of property, plant and equipment and depreciated over its estimated useful life. Interest incurred during construction is capitalized if the borrowing cost is directly attributable to the construction. Gains and losses on retirement or disposal of assets are recognized in cost of sales.
The residual values and useful lives of property, plant and equipment are reviewed at each reporting date and adjusted if
expectations differ from previous estimates. Depreciation methods applied to property, plant and equipment are reviewed at each reporting date and changed if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset. In the context of the 2021 annual review of useful lives and considering the expected date of retirement of certain assets in particular blast furnaces, basic oxygen furnaces, sinter plants and coke plants following the implementation of the Company's decarbonization strategy involving the construction of DRI - EAF facilities, the Company decreased estimates of residual useful lives of such items of property, plant and equipment for its flat carbon operations in the EU and in Canada. Accordingly, depreciation charge increased by 76 in the fourth quarter of 2021 and is expected to increase by 277, 168, 168, 142, 124, 28 and 26 for the years ended December 31, 2022, 2023, 2024, 2025, 2026, 2027 and 2028, respectively.
Mining assets comprise:
•Mineral rights acquired;
•Capitalized developmental stripping (as described below in “—Stripping and overburden removal costs”).
Property, plant and equipment used in mining activities is depreciated over its useful life or over the remaining life of the mine, if shorter, and if there is no alternative use. For the majority of assets used in mining activities, the economic benefits from the asset are consumed in a pattern which is linked to the production level and accordingly, assets used in mining activities are primarily depreciated on a units-of-production basis. A unit-of-production is based on the available estimate of proven and probable reserves.
Capitalization of pre-production expenditures ceases when the mining property is capable of commercial production as it is intended by management. General administration costs that are not directly attributable to a specific exploration area are charged to the consolidated statements of operations.
Mineral Reserves and resources
Mineral Reserves are estimates of the amount of product that can be economically and legally extracted from the Company’s properties. Furthermore, mineral resource estimates constitute the part of a mineral deposit that have the potential to be economically and legally extracted or produced at the time of the resource determination. In order to estimate mineral reserves, estimates are required for a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices and exchange rates. The potential for economic viability and
| | |
291 Consolidated financial statements |
estimate of mineral resources is established through high level and conceptual engineering studies.
Estimating the quantity and/or grade of mineral reserves requires the size, shape and depth of ore bodies to be determined by analyzing geological data such as drilling samples. This process may require complex and difficult geological judgments to interpret the data. The estimation of mineral resource is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
Because the economic assumptions used to estimate mineral reserves and mineral resources change from period to period, and because additional geological data is generated during the course of operations, estimates of mineral reserves and mineral resources may change from period to period. Changes in reported mineral reserves and mineral resources may affect the Company’s financial results and financial position in a number of ways, including the following:
•Asset carrying amounts may be affected due to changes in estimated future cash flows.
•Depreciation, depletion and amortization charged in the consolidated statements of operations may change where such charges are determined by the units of production basis, or where the useful economic lives of assets change.
•Overburden removal costs recognized in the consolidated statements of financial position or charged to the consolidated statements of operations may change due to changes in stripping ratios or the units of production basis of depreciation.
•Decommissioning, site restoration and environmental provisions may change where changes in estimated reserves affect expectations about the timing or cost of these activities.
Stripping and overburden removal costs
In open pit and underground mining operations, it is often necessary to remove overburden and other waste materials to access the deposit from which minerals can be extracted. This process is referred to as stripping. Stripping costs can be incurred before the mining production commences (“developmental stripping”) or during the production stage (“production stripping”).
A mine can operate several open pits that are regarded as separate operations for the purpose of mine planning and production. In this case, stripping costs are accounted for
separately, by reference to the ore extracted from each separate pit. If, however, the pits are highly integrated for the purpose of mine planning and production, stripping costs are aggregated.
The determination of whether multiple pit mines are considered separate or integrated operations depends on each mine’s specific circumstances. The following factors would point towards the stripping costs for the individual pits being accounted for separately:
•If mining of the second and subsequent pits is conducted consecutively with that of the first pit, rather than concurrently.
•If separate investment decisions are made to develop each pit, rather than a single investment decision being made at the outset.
•If the pits are operated as separate units in terms of mine planning and the sequencing of overburden and ore mining, rather than as an integrated unit.
•If expenditures for additional infrastructure to support the second and subsequent pits are relatively large.
•If the pits extract ore from separate and distinct ore bodies, rather than from a single ore body.
The relative importance of each factor is considered by local management to determine whether the stripping costs should be attributed to the individual pit or to the combined output from several pits.
Developmental stripping costs contribute to the future economic benefits of mining operations when the production begins and so are capitalized as tangible assets (construction in progress), whereas production stripping is a part of on-going activities and commences when the production stage of mining operations begins and continues throughout the life of a mine.
Capitalization of developmental stripping costs ends when the commercial production of the minerals commences.
Production stripping costs are incurred to extract the ore in the form of inventories and/or to improve access to an additional component of an ore body or deeper levels of material. Production stripping costs are accounted for as inventories to the extent the benefit from production stripping activity is realized in the form of inventories. Production stripping costs are recognized as a non-current asset (“stripping activity assets”) to the extent it is probable that future economic benefit in terms of improved access to ore will flow to the Company, the components of the ore body for which access has been improved can be identified and the costs relating to the stripping
| | |
Consolidated financial statements 292 |
| (millions of U.S. dollar, except share and per share data) |
activity associated with that component can be measured reliably.
All stripping costs assets (either stripping activity assets or capitalized developmental stripping costs) are presented within a specific “mining assets” class of property, plant and equipment and then depreciated on a units-of-production basis.
Exploration and evaluation expenditure
Exploration and evaluation activities involve the search for iron ore and coal resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource. Exploration and evaluation activities include:
•researching and analyzing historical exploration data;
•conducting topographical, geological, geochemical and geophysical studies;
•carrying out exploratory drilling, trenching and sampling activities;
•drilling, trenching and sampling activities to determine the quantity and grade of the deposit;
•examining and testing extraction methods and metallurgical or treatment processes; and
•detailed economic feasibility evaluations to determine whether development of the reserves is commercially justified and to plan methods for mine development.
Exploration and evaluation expenditure is charged to the consolidated statements of operations as incurred except in the following circumstances, in which case the expenditure is capitalized: (i) the exploration and evaluation activity is within an area of interest which was previously acquired in a business combination and measured at fair value on acquisition; or (ii) when management has a high degree of confidence in the project’s economic viability and it is probable that future economic benefits will flow to the Company.
Capitalized exploration and evaluation expenditures are generally recorded as a component of property, plant and equipment at cost less impairment charges, unless their nature requires them to be recorded as an intangible asset. As the asset is not available for use, it is not depreciated and all capitalized exploration and evaluation expenditure is monitored for indications of impairment. To the extent that capitalized expenditure is not expected to be recovered, it is recognized as an expense in the consolidated statements of operations.
Cash flows associated with exploration and evaluation expenditure are classified as operating activities when they are
related to expenses or as an investing activity when they are related to a capitalized asset in the consolidated statements of cash flows.
Development expenditure
Development is the establishment of access to the mineral reserve and other preparations for commercial production. Development activities often continue during production and include:
•sinking shafts and underground drifts (often called mine development);
•making permanent excavations;
•developing passageways and rooms or galleries;
•building roads and tunnels; and
•advance removal of overburden and waste rock.
Development (or construction) also includes the installation of infrastructure (e.g., roads, utilities and housing), machinery, equipment and facilities.
When reserves are determined and development is approved, expenditures capitalized as exploration and evaluation are reclassified as construction in progress and are reported as a component of property, plant and equipment. All subsequent development expenditures are capitalized and classified as construction in progress. On completion of development, all assets included in construction in progress are individually reclassified to the appropriate category of property, plant and equipment and depreciated accordingly.
Biological assets
Biological assets are part of the Brazil operating segment and consist of eucalyptus forests located in the Brazilian state of Minas Gerais exclusively from renewable plantations and intended for the production of charcoal to be utilized as fuel and a source of carbon in the direct reduction process of pig iron production in some of the Company’s blast furnaces in Brazil.
Biological assets are measured at their fair value, net of estimated costs to sell at the time of harvest. The fair value (Level 3 in the fair value hierarchy) is determined based on the discounted cash flow method, taking into consideration the cubic volume of wood, segregated by plantation year, and the equivalent sales value of standing trees. The average sales price was estimated based on domestic market prices. In determining the fair value of biological assets, a discounted cash flow model was used, with a harvest cycle of 6 to 7 years.
| | |
293 Consolidated financial statements |
Property, plant and equipment and biological assets are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Land, buildings and
Improvements | | Machinery, equipment and other2 | | Construction in progress | | Right-of-use assets | | Mining
Assets | | Total |
| Cost | | | | | | | | | | | |
| At December 31, 2019 | 10,897 | | | 44,628 | | | 5,490 | | | 2,092 | | | 4,113 | | | 67,220 | |
| Additions | 27 | | | 172 | | | 1,857 | | | 233 | | | 23 | | | 2,312 | |
| | | | | | | | | | | |
| Foreign exchange differences | 621 | | | 1,121 | | | (129) | | | 36 | | | (130) | | | 1,519 | |
| Disposals | (62) | | | (630) | | | (19) | | | — | | | (4) | | | (715) | |
| Divestments (note 2.3.1) | (858) | | | (8,559) | | | (261) | | | (449) | | | (766) | | | (10,893) | |
| Transfers to assets held for sale (note 2.3.2) | (461) | | | (1,911) | | | (612) | | | (89) | | | — | | | (3,073) | |
Other movements 1 | 574 | | | 1,778 | | | (2,363) | | | (225) | | | 48 | | | (188) | |
| At December 31, 2020 | 10,738 | | | 36,599 | | | 3,963 | | | 1,598 | | | 3,284 | | | 56,182 | |
| Additions | 16 | | | 239 | | | 2,416 | | | 313 | | | 11 | | | 2,995 | |
| Acquisitions through business combinations (note 2.2.4) | 34 | | | 5 | | | — | | | — | | | — | | | 39 | |
| Foreign exchange differences | (910) | | | (3,311) | | | (97) | | | (104) | | | (14) | | | (4,436) | |
| Disposals | (66) | | | (553) | | | (2) | | | — | | | (5) | | | (626) | |
| | | | | | | | | | | |
| Transfers from assets held for sale (note 2.3.2) | 156 | | | 827 | | | 14 | | | 2 | | | — | | | 999 | |
Other movements 1 | 153 | | | 1,542 | | | (1,761) | | | (59) | | | 131 | | | 6 | |
| At December 31, 2021 | 10,121 | | | 35,348 | | | 4,533 | | | 1,750 | | | 3,407 | | | 55,159 | |
| | | | | | | | | | | |
| Accumulated depreciation and impairment | | | | | | | | | | |
| At December 31, 2019 | 3,488 | | | 22,889 | | | 991 | | | 857 | | | 2,764 | | | 30,989 | |
| Depreciation charge for the year | 338 | | | 2,188 | | | — | | | 212 | | | 135 | | | 2,873 | |
| Impairment (note 5.3) | 111 | | | (280) | | | 29 | | | 3 | | | — | | | (137) | |
| Disposals | (40) | | | (591) | | | (7) | | | — | | | (3) | | | (641) | |
| Foreign exchange differences | 424 | | | 1,189 | | | 8 | | | 8 | | | (102) | | | 1,527 | |
| Divestments (note 2.3.1) | (527) | | | (6,002) | | | (5) | | | (300) | | | (718) | | | (7,552) | |
| Transfers to assets held for sale (note 2.3.2) | (163) | | | (1,045) | | | (13) | | | (9) | | | — | | | (1,230) | |
Other movements 1 | 177 | | | (212) | | | (9) | | | (212) | | | (13) | | | (269) | |
| At December 31, 2020 | 3,808 | | | 18,136 | | | 994 | | | 559 | | | 2,063 | | | 25,560 | |
| Depreciation charge for the year | 320 | | | 1,801 | | | — | | | 190 | | | 122 | | | 2,433 | |
| Impairment reversal (note 5.3) | (37) | | | (181) | | | — | | | — | | | — | | | (218) | |
| Disposals | (49) | | | (517) | | | — | | | — | | | (5) | | | (571) | |
| Foreign exchange differences | (546) | | | (2,459) | | | (10) | | | (37) | | | (13) | | | (3,065) | |
| | | | | | | | | | | |
| Transfers from assets held for sale (note 2.3.2) | 154 | | | 804 | | | 7 | | | — | | | — | | | 965 | |
Other movements 1 | (7) | | | 12 | | | 8 | | | (34) | | | 1 | | | (20) | |
| At December 31, 2021 | 3,643 | | | 17,596 | | | 999 | | | 678 | | | 2,168 | | | 25,084 | |
| | | | | | | | | | | |
| Carrying amount | | | | | | | | | | | |
| At December 31, 2020 | 6,930 | | | 18,463 | | | 2,969 | | | 1,039 | | | 1,221 | | | 30,622 | |
| At December 31, 2021 | 6,478 | | | 17,752 | | | 3,534 | | | 1,072 | | | 1,239 | | | 30,075 | |
1.Other movements predominantly represent transfers from construction in progress to other categories and retirement of fully depreciated assets.
2.Machinery, equipment and other includes biological assets of 38 and 45 as of December 31, 2021 and 2020, respectively, and bearer plants of 29 and 29 as of December 31, 2021 and 2020, respectively.
The carrying amount of temporarily idle property, plant and equipment at December 31, 2021 and 2020 was 8 and 246 including nil and 170 in Brazil, 4 and 31 in NAFTA, 4 and 37 in the Europe segment and nil and 9 in the ACIS segment, respectively.
The carrying amount of property, plant and equipment retired from active use and not classified as held for sale was 11 and
12 at December 31, 2021 and 2020, respectively. Such assets are carried at their recoverable amount.
Assets pledged as security
See note 9.4 for information about assets pledged as security by the Company.
| | |
Consolidated financial statements 294 |
| (millions of U.S. dollar, except share and per share data) |
Capital commitments
See note 9.4 for information about contractual commitments for acquisition of property, plant and equipment by the Company.
5.3 Impairment of intangible assets, including goodwill, and tangible assets
Net impairment (reversals)/charges recognized were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| Type of asset | | 2021 | | 2020 | | 2019 |
| | | | | | |
| | | | | | |
| Tangible assets | | (218) | | | (133) | | | 1,927 | |
| Total | | (218) | | | (133) | | | 1,927 | |
Impairment test of goodwill
Goodwill is tested for impairment annually, as of October 1 or whenever changes in circumstances indicate that the carrying amount may not be recoverable, at the level of the groups of cash-generating units (“GCGU”) which correspond to the operating segments representing the lowest level at which goodwill is monitored for internal management purposes. Whenever the cash-generating units comprising the operating segments are tested for impairment at the same time as goodwill, the cash-generating units are tested first and any impairment of the assets is recorded prior to the testing of goodwill.
The recoverable amounts of the GCGUs are mainly determined based on their value in use. The value in use of each GCGU is determined by estimating future cash flows. The 2021 impairment test of goodwill did not include the GCGU corresponding to the Mining segment (as from April 1, 2021, ArcelorMittal implemented changes to its organizational structure (see note 1.1) as goodwill allocated to this GCGU was fully impaired in 2015. The key assumptions for the value in use calculations are primarily the discount rates, growth rates, expected changes to average selling prices, shipments and direct costs during the period. Assumptions for average selling prices and shipments are based on historical experience and expectations of future changes in the market. In addition, with respect to raw material price assumptions, the Company applied a range of $71 per tonne to $112 per tonne for iron ore and $144 per tonne to $240 per tonne for coking coal. Cash flow forecasts adjusted for the risks specific to the tested assets are derived from the most recent financial plans 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 of 2%. This rate does not exceed the average long-term growth rate for the relevant markets.
The Company considered its exposure to certain climate-related risks which could affect its estimates of future cash flow projections applied for the determination of the recoverable
amount of its GCGUs and CGUs. With the switch to electric vehicles and the move to wind and solar power generation, the Company sees additional opportunities as customers deepen their understanding of embedded and lifecycle emissions of the materials where steel compares favorably. ArcelorMittal's most substantial climate-related policy risk is the EU Emissions Trading scheme ("'ETS"), which applies to all its European plants. The risk concerns the Company's primary steelmaking plants which are exposed to this regulation and yet unprotected against competition from imported steel. The Company is committed to the objectives of the Paris agreement and announced its ambition to reduce carbon emissions by 35% in Europe and 25% group-wide by 2030 and achieve group-wide carbon neutrality by 2050. These announced goals will require significant long-term investments which require global level playing field, access to abundant and affordable clean energy, facilitating necessary energy infrastructure, access to sustainable finance for low-emissions steelmaking and accelerated transition to a circular economy. In addition, the Company considered the legal obligation of carbon neutrality by 2050 effective within the EU and in Canada following adoption of the Climate Law and the Net Zero Emission Accountability Act, respectively. Accordingly, with respect to its flat steel operations in the EU and in Canada, ArcelorMittal concluded that future decarbonization capital expenditures, which correspond essentially to the construction of DRI-EAF facilities, are necessary to maintain the level of economic benefits expected to arise from the assets in their current condition and should therefore be included in the Company’s assumptions for future cash flows of the recoverable amount of the respective GCGUs and CGUs. At the same time, the Company is engaged in developing in the near to medium term a range of innovative low-emission technologies for the transition to decarbonized steel including the Smart Carbon route and the Hydrogen-DRI route and required investments are considered either in the Company's future cash flow projections or in the context of joint ventures, as an element of the Company's best estimate of capital expenditures which are committed and / or being implemented. The Company acknowledged that GCGUs and CGUs applying the blast furnace basic oxygen furnace "BF-BOF" route in other jurisdictions than the EU and Canada will apply decarbonization at a different pace. They may also not yet be subject to a legal obligation of carbon neutrality, which would not allow to include future decarbonization capital expenditures in their value in use calculations. Accordingly, the Company increased risk premiums included in their discount rates until they are able to accelerate their decarbonization strategy to meet the 2050 carbon neutrality objective and a legal obligation arises in the relevant jurisdiction. Additionally, the Company’s assumptions for future cash flows include an estimate for costs that the Company expects to incur to acquire emission allowances, which primarily impacts the flat steel operations in the EU and in Canada. The assumption for carbon emission
| | |
295 Consolidated financial statements |
cost is based on historical experience, implementation of decarbonization strategies to mitigate or otherwise offset such future costs and information available of future changes. Due to economic developments, uncertainties over the pace of transition to low-emission technologies, political and environmental actions that will be taken to meet the carbon reduction goals, regulatory changes and emissions activity arising from climate-related matters, the Company’s assumptions used in the recoverable amount calculations, such as capital expenditure, carbon emission costs and other assumptions are inherently uncertain and may ultimately differ from actual amounts.
The assumptions used in the value in use calculations are inherently uncertain in the context of the ongoing presence and repercussions of the COVID-19 pandemic and require management judgment. The Company's process includes specific consideration given to the most recent short, medium and long-term price forecasts and discount rates consistent with
external information, expected production and shipment volumes and updated development plans, operating costs and capital expenditure plans. Operating margins benefited in 2021 from a continuing strong price environment, favorable supply demand balance following a prolonged period of destocking and structural cost improvements sustained from the Company's response to the COVID-19 crisis. While the restocking effect has run its course with inventories returning to normal levels, the Company expects real demand recovery to continue in 2022.
Management estimates discount rates using pre-tax rates that reflect current market rates for investments of similar risk. The rate for each CGU, including beta, cost of debt and capital structure was estimated from the weighted average cost of capital of producers, which operate a portfolio of assets similar to those of the Company’s assets and CGU specific country risk premiums were applied. GCGU weighted average pre-tax discount rates were as follows in 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | NAFTA | | Brazil | | Europe | | ACIS | | |
| GCGU weighted average pre-tax discount rate used in 2021 (in %) | 11.3 | | 15.6 | | 8.6 | | 14.7 | | |
| GCGU weighted average pre-tax discount rate used in 2020 (in %) | 10.5 | | 15.9 | | 8.5 | | 14.6 | | |
Once recognized, impairment losses for goodwill are not reversed.
There were no impairment charges recognized with respect to goodwill following the Company’s impairment tests as of October 1, 2021 and October 1, 2020. The total value in use calculated for all GCGUs overall increased in 2021 as compared to 2020.
The Company did not identify any reasonably possible change in key assumptions which could cause an impairment loss to be recognized for any of its GCGUs.
Impairment test of property, plant and equipment
At each reporting date, ArcelorMittal reviews the carrying amounts of its intangible assets (excluding goodwill) and tangible assets 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 (or cash generating unit) is reviewed in order to determine the amount of the impairment, if any. The recoverable amount is the higher of its fair value less cost of disposal and its value in use.
In estimating 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 (or cash-generating unit). 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 consolidated statements of operations.
In the case of permanently idled assets, the impairment is measured at the individual asset level. Otherwise, the Company’s assets are measured for impairment at the cash-generating unit level. In certain instances, the cash-generating unit is an integrated manufacturing facility which may also be an operating subsidiary. Further, a manufacturing facility may be operated in concert with another facility with neither facility generating cash inflows that are largely independent from the cash inflows of the other. In this instance, the two facilities are combined for purposes of testing for impairment. As of December 31, 2021, the Company determined it has 58 cash-generating units.
An impairment loss, related to intangible assets other than goodwill and tangible assets 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
| | |
Consolidated financial statements 296 |
| (millions of U.S. dollar, except share and per share data) |
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 consolidated statements of operations.
Impairment charges and reversals relating to property, plant and equipment were as follows for the years ended December 31, 2021, 2020 and 2019:
2021
In the second half of 2021, in connection with the Company’s annual test for impairment of goodwill, property, plant and
equipment was also tested for impairment at that date. The Company reversed 218 of impairment charges which had been recognized in 2015 for the Sestao facility in Spain following idling for an indefinite timing. The impairment reversal results from improved future cash flow projections following restart of operations and the Company's decarbonization strategy in Spain.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash-Generating Unit | | Region | | Operating Segment | | Impairment Reversed | | 2021 Pre-Tax Discount Rate | | 2020 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of December 31, 2021 |
| Europe flat products | | Europe | | Europe | | 218 | | | 8.53 | % | | 8.47 | % | | 11,005 | |
2020
In 2020, the Company recognized a 133 net reversal of impairment including impairment charges of 92 and 104 related to the permanent closure of the coke plant in Florange (France) and the permanent closure of part of a blast furnace and steel plant in Krakow (Poland), respectively. In addition, the Company recognized an impairment loss of 331 relating to its plate business in the Europe segment classified as held for sale at December 31, 2020 (see note 2.3.2).
In the third quarter of 2020, the Company reversed 660 of impairment charges of property, plant and equipment previously recognized for ArcelorMittal USA as a result of the increase in the recoverable amount. The Company calculated the fair value less cost of disposal using a market approach with market multiples derived from comparable transactions, a Level 3
unobservable input. ArcelorMittal USA was sold to Cleveland-Cliffs as described in note 2.3.1.
2019
In 2019, the Company recognized a total impairment charge related to property, plant and equipment amounting to 1,927, of which 1,300 relating to ArcelorMittal USA (NAFTA), 102 to ArcelorMittal South Africa (ACIS), and 525 in Europe, including 497 related to ArcelorMittal Italia remedies (see note 2.3.1).
During the six months ended June 30, 2019, the Company recognized an impairment charge for property, plant and equipment amounting to 600 relating to ArcelorMittal USA as a result of a downward revision of cash flow projections in particular with respect to near-term steel selling prices as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2019 Pre-Tax Discount Rate | | 2018 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of June 30, 2019 |
| ArcelorMittal USA | | USA | | NAFTA | | 600 | | | 13.98 | % | | 16.91 | % | | 3,213 | |
In the second half of 2019, in connection with management’s annual test for impairment of goodwill, property, plant and equipment was also tested for impairment at that date. The Company recognized an impairment charge for property, plant
and equipment amounting to 700 relating to ArcelorMittal USA in the NAFTA operating segment as a result of a downward revision of cash flow projections in particular with respect to near-term steel selling prices consisting of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2019 Pre-Tax Discount Rate | | 2018 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of December 31, 2019 |
| ArcelorMittal USA | | USA | | NAFTA | | 700 | | | 10.17 | % | | 16.91 | % | | 2,568 | |
In the same context, the Company recognized a impairment charge for property, plant and equipment of 75 relating to the
Long Steel Products facility of Newcastle in ArcelorMittal South Africa as a result of a lower domestic volumes as follows:
| | |
297 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash-Generating Unit | | Country | | Operating Segment | | Impairment Recorded | | 2019 Pre-Tax Discount Rate | | 2018 Pre-Tax Discount Rate | | Carrying amount of property, plant and equipment as of December 31, 2019 |
| Long Steel Products | | South Africa | | ACIS | | 75 | | | 13.87 | % | | 15.13 | % | | 163 | |
In addition, the Company recorded impairment charges for property, plant and equipment of ArcelorMittal South Africa of 27 including 20 with respect to the closure of the Saldanha facility.
NOTE 6: FINANCING AND FINANCIAL INSTRUMENTS
6.1 Financial assets and liabilities
Financial assets and liabilities mainly comprise:
•fair values versus carrying amounts (see note 6.1.1)
•gross debt (see note 6.1.2)
•cash and cash equivalents, restricted cash, other restricted funds and reconciliations of cash flows (see note 6.1.3)
•net debt (see note 6.1.4)
•derivative financial instruments (see note 6.1.5)
•other non-derivative financial assets and liabilities (see note 6.1.6)
6.1.1 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 table summarizes assets and liabilities based on their categories at December 31, 2021:
| | |
Consolidated financial statements 298 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Carrying amount in the consolidated statements of financial position | | Non-financial assets and liabilities | | Assets/Liabilities at amortized cost | | Fair value recognized in profit or loss | | Fair value recognized in OCI | | Derivatives |
| ASSETS | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | |
| Cash and cash equivalents | 4,215 | | | — | | | 4,215 | | | — | | | — | | | — | |
| Restricted cash and other restricted funds | 156 | | | — | | | 156 | | | — | | | — | | | — | |
| Trade accounts receivable and other | 5,143 | | | — | | | 4,521 | | | — | | | 622 | | | — | |
| Inventories | 19,858 | | | 19,858 | | | — | | | — | | | — | | | — | |
| Prepaid expenses and other current assets | 5,567 | | | 1,128 | | | 1,454 | | | — | | | — | | | 2,985 | |
| | | | | | | | | | | |
| Total current assets | 34,939 | | | 20,986 | | | 10,346 | | | — | | | 622 | | | 2,985 | |
| | | | | | | | | | | |
| Non-current assets: | | | | | | | | | | | |
| Goodwill and intangible assets | 4,425 | | | 4,425 | | | — | | | — | | | — | | | — | |
| Property, plant and equipment and biological assets | 30,075 | | | 30,037 | | | — | | | 38 | | | — | | | — | |
| Investments in associates and joint ventures | 10,319 | | | 10,319 | | | — | | | — | | | — | | | — | |
| Other investments | 1,146 | | | — | | | — | | | — | | | 1,146 | | | — | |
| Deferred tax assets | 8,147 | | | 8,147 | | | — | | | — | | | — | | | — | |
| Other assets | 1,461 | | | 359 | | | 648 | | | 136 | | | — | | | 318 | |
| Total non-current assets | 55,573 | | | 53,287 | | | 648 | | | 174 | | | 1,146 | | | 318 | |
| Total assets | 90,512 | | | 74,273 | | | 10,994 | | | 174 | | | 1,768 | | | 3,303 | |
| | | | | | | | | | | |
| LIABILITIES AND EQUITY | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | |
| Short-term debt and current portion of long-term debt | 1,913 | | | — | | | 1,913 | | | — | | | — | | | — | |
| Trade accounts payable and other | 15,093 | | | — | | | 15,093 | | | — | | | — | | | — | |
| Short-term provisions | 1,064 | | | 1,048 | | | 16 | | | — | | | — | | | — | |
| Accrued expenses and other liabilities | 4,831 | | | 1,420 | | | 3,095 | | | — | | | — | | | 316 | |
| Income tax liabilities | 1,266 | | | 1,266 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Total current liabilities | 24,167 | | | 3,734 | | | 20,117 | | | — | | | — | | | 316 | |
| | | | | | | | | | | |
| Non-current liabilities: | | | | | | | | | | | |
| Long-term debt, net of current portion | 6,488 | | | — | | | 6,488 | | | — | | | — | | | — | |
| Deferred tax liabilities | 2,369 | | | 2,369 | | | — | | | — | | | — | | | — | |
| Deferred employee benefits | 3,772 | | | 3,772 | | | — | | | — | | | — | | | — | |
| Long-term provisions | 1,498 | | | 1,495 | | | 3 | | | — | | | — | | | — | |
| Other long-term obligations | 874 | | | 343 | | | 473 | | | — | | | — | | | 58 | |
| Total non-current liabilities | 15,001 | | | 7,979 | | | 6,964 | | | — | | | — | | | 58 | |
| | | | | | | | | | | |
| Equity: | | | | | | | | | | | |
| Equity attributable to the equity holders of the parent | 49,106 | | | 49,106 | | | — | | | — | | | — | | | — | |
| Non-controlling interests | 2,238 | | | 2,238 | | | — | | | — | | | — | | | — | |
| Total equity | 51,344 | | | 51,344 | | | — | | | — | | | — | | | — | |
| Total liabilities and equity | 90,512 | | | 63,057 | | | 27,081 | | | — | | | — | | | 374 | |
| | |
299 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Carrying amount in the consolidated statements of financial position | | Non-financial assets and liabilities | | Assets/Liabilities at amortized cost | | Fair value recognized in profit or loss | | Fair value recognized in OCI | | Derivatives |
| ASSETS | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | |
| Cash and cash equivalents | 5,600 | | | — | | | 5,600 | | | — | | | — | | | — | |
| Restricted cash and other restricted funds | 363 | | | — | | | 363 | | | — | | | — | | | — | |
| Trade accounts receivable and other | 3,072 | | | — | | | 2,699 | | | — | | | 373 | | | — | |
| Inventories | 12,328 | | | 12,328 | | | — | | | — | | | — | | | — | |
| Prepaid expenses and other current assets | 2,281 | | | 910 | | | 1,018 | | | — | | | — | | | 353 | |
| Assets held for sale | 4,329 | | | 3,384 | | | 945 | | | — | | | — | | | — | |
| Total current assets | 27,973 | | | 16,622 | | | 10,625 | | | — | | | 373 | | | 353 | |
| | | | | | | | | | | |
| Non-current assets: | | | | | | | | | | | |
| Goodwill and intangible assets | 4,312 | | | 4,312 | | | — | | | — | | | — | | | — | |
| Property, plant and equipment and biological assets | 30,622 | | | 30,577 | | | — | | | 45 | | | — | | | — | |
| Investments in associates and joint ventures | 6,817 | | | 6,817 | | | — | | | — | | | — | | | — | |
| Other investments | 2,980 | | | — | | | — | | | — | | | 2,980 | | | — | |
| Deferred tax assets | 7,866 | | | 7,866 | | | — | | | — | | | — | | | — | |
| Other assets | 1,482 | | | 237 | | | 785 | | | 136 | | | — | | | 324 | |
| Total non-current assets | 54,079 | | | 49,809 | | | 785 | | | 181 | | | 2,980 | | | 324 | |
| Total assets | 82,052 | | | 66,431 | | | 11,410 | | | 181 | | | 3,353 | | | 677 | |
| | | | | | | | | | | |
| LIABILITIES AND EQUITY | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | |
| Short-term debt and current portion of long-term debt | 2,507 | | | — | | | 2,507 | | | — | | | — | | | — | |
| Trade accounts payable and other | 11,525 | | | — | | | 11,525 | | | — | | | — | | | — | |
| Short-term provisions | 935 | | | 919 | | | 16 | | | — | | | — | | | — | |
| Accrued expenses and other liabilities | 4,197 | | | 1,160 | | | 2,829 | | | — | | | — | | | 208 | |
| Income tax liabilities | 464 | | | 464 | | | — | | | — | | | — | | | — | |
| Liabilities held for sale | 3,039 | | | 709 | | | 2,330 | | | — | | | — | | | — | |
| Total current liabilities | 22,667 | | | 3,252 | | | 19,207 | | | — | | | — | | | 208 | |
| | | | | | | | | | | |
| Non-current liabilities: | | | | | | | | | | | |
| Long-term debt, net of current portion | 9,815 | | | — | | | 9,815 | | | — | | | — | | | — | |
| Deferred tax liabilities | 1,832 | | | 1,832 | | | — | | | — | | | — | | | — | |
| Deferred employee benefits | 4,656 | | | 4,656 | | | — | | | — | | | — | | | — | |
| Long-term provisions | 1,697 | | | 1,691 | | | 6 | | | — | | | — | | | — | |
| Other long-term obligations | 1,148 | | | 354 | | | 698 | | | — | | | — | | | 96 | |
| Total non-current liabilities | 19,148 | | | 8,533 | | | 10,519 | | | — | | | — | | | 96 | |
| | | | | | | | | | | |
| Equity: | | | | | | | | | | | |
| Equity attributable to the equity holders of the parent | 38,280 | | | 38,280 | | | — | | | — | | | — | | | — | |
| Non-controlling interests | 1,957 | | | 1,957 | | | — | | | — | | | — | | | — | |
| Total equity | 40,237 | | | 40,237 | | | — | | | — | | | — | | | — | |
| Total liabilities and equity | 82,052 | | | 52,022 | | | 29,726 | | | — | | | — | | | 304 | |
| | |
Consolidated financial statements 300 |
| (millions of U.S. dollar, except share and per share data) |
The Company classifies the bases used to measure certain assets and liabilities at their fair value. Assets and liabilities carried or measured at fair value have been classified into three levels based upon a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
The levels are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2: Significant inputs other than within Level 1 that are observable for the asset or liability, either directly (i.e.: as prices) or indirectly (i.e.: derived from prices);
Level 3: Inputs for the assets or liabilities that are not based on observable market data and require management assumptions or inputs from unobservable markets.
The following tables summarize the bases used to measure certain financial assets and financial liabilities at their fair value on recurring basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets at fair value: | | | | | | | | |
| Investments in equity instruments at FVOCI | | 1,069 | | | — | | | 77 | | | 1,146 | |
| Trade accounts receivable and other subject to TSR programs* | | — | | | — | | | 622 | | | 622 | |
| Derivative financial current assets | | — | | | 2,985 | | | — | | | 2,985 | |
| Derivative financial non-current assets | | — | | | 303 | | | 15 | | | 318 | |
| Total assets at fair value | | 1,069 | | | 3,288 | | | 714 | | | 5,071 | |
| Liabilities at fair value: | | | | | | | | |
| Derivative financial current liabilities | | — | | | 316 | | | — | | | 316 | |
| Derivative financial non-current liabilities | | — | | | 58 | | | — | | | 58 | |
| Total liabilities at fair value | | — | | | 374 | | | — | | | 374 | |
*The fair value of TSR program receivables equals carrying amount due to the short time frame between the initial recognition and time of sale.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 | | | | | | | | |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets at fair value: | | | | | | | | |
| Investments in equity instruments at FVOCI | | 2,934 | | | — | | | 46 | | | 2,980 | |
| Trade accounts receivable and other subject to TSR programs* | | — | | | — | | | 373 | | | 373 | |
| Derivative financial current assets | | — | | | 353 | | | — | | | 353 | |
| Derivative financial non-current assets | | — | | | 265 | | | 59 | | | 324 | |
| Total assets at fair value | | 2,934 | | | 618 | | | 478 | | | 4,030 | |
| Liabilities at fair value: | | | | | | | | |
| Derivative financial current liabilities | | — | | | 208 | | | — | | | 208 | |
| Derivative financial non-current liabilities | | — | | | 96 | | | — | | | 96 | |
| Total liabilities at fair value | | — | | | 304 | | | — | | | 304 | |
*The fair value of TSR program receivables equals carrying amount due to the short time frame between the initial recognition and time of sale.
Investments in equity instruments at FVOCI 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 decrease in investments in equity instruments at FVOCI in 2021 was mainly related to the divestment of the Company's interest in Cleveland-Cliffs (see note 2.5).
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301 Consolidated financial statements |
Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreign exchange rates, raw materials (base metals), freight, energy and emission rights, see note 6.1.5 for further information.
Derivative financial assets and liabilities classified as Level 3 are described in note 6.1.5.
6.1.2 Gross debt
Gross debt includes bank debt, debenture loans and lease obligations and is stated at amortized cost. However, loans that are hedged under a fair value hedge are remeasured for the changes in the fair value that are attributable to the risk that is being hedged.
6.1.2.1 Short-term debt
Short-term debt, including the current portion of long-term debt, consisted of the following: | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
Short-term bank loans and other credit facilities including commercial paper 1 | 888 | | | 1,647 | |
| Current portion of long-term debt | 836 | | | 677 | |
Lease obligations2 | 189 | | | 183 | |
| Total | 1,913 | | | 2,507 | |
1.The weighted average interest rate on short-term borrowings outstanding was 0.9% and 1.3% as of December 31, 2021 and 2020, respectively.
2.See note 7.
On April 8, 2020, ArcelorMittal amended a €300 million (341) term loan with a financial institution to extend the maturity to April 8, 2021, on which date the term loan was fully repaid.
In 2014, ArcelorMittal entered into certain short-term committed bilateral credit facilities. The facilities were subsequently extended annually. During 2021 some facilities were not extended. As of December 31, 2021, facilities totaling approximately 0.3 billion, remain fully available.
Commercial paper
The Company has a commercial paper program enabling borrowings of up to €1.5 billion. As of December 31, 2021 and 2020, the outstanding amount was 541 and 1,044, respectively.
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Consolidated financial statements 302 |
| (millions of U.S. dollar, except share and per share data) |
6.1.2.2 Long-term debt
Long-term debt is comprised of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | December 31, |
| Year of maturity | | Type of Interest | | Interest rate1 | | 2021 | | 2020 |
| Corporate | | | | | | | | | |
5.5 billion Revolving Credit Facility3 | 2023 - 2025 | | Floating | | | | — | | | — | |
| | | | | | | | | |
| | | | | | | | | |
€500 million Unsecured Notes | 2021 | | Fixed | | 3.00 | % | | — | | | 350 | |
€750 million Unsecured Notes | 2022 | | Fixed | | 3.13 | % | | 551 | | | 596 | |
| | | | | | | | | |
€500 million Unsecured Notes | 2023 | | Fixed | | 0.95 | % | | 415 | | | 448 | |
€750 million Unsecured Notes | 2023 | | Fixed | | 1.00 | % | | 848 | | | 917 | |
€1.0 billion Unsecured Notes | 2024 | | Fixed | | 2.25 | % | | 604 | | | 1,234 | |
750 Unsecured Notes | 2024 | | Fixed | | 3.60 | % | | 289 | | | 747 | |
500 Unsecured Notes | 2025 | | Fixed | | 6.13 | % | | 183 | | | 256 | |
€750 million Unsecured Notes | 2025 | | Fixed | | 1.75 | % | | 844 | | | 913 | |
750 Unsecured Notes | 2026 | | Fixed | | 4.55 | % | | 399 | | | 745 | |
500 Unsecured Notes | 2029 | | Fixed | | 4.25 | % | | 494 | | | 494 | |
1.5 billion Unsecured Bonds | 2039 | | Fixed | | 7.00 | % | | 671 | | | 671 | |
1.0 billion Unsecured Notes | 2041 | | Fixed | | 6.75 | % | | 428 | | | 428 | |
| Other loans | 2022 - 2023 | | Fixed | | 1.8% - 2.4% | | 142 | | | 218 | |
| EIB loan | 2025 | | Fixed | | 1.16 | % | | 215 | | | 304 | |
| Other loans | 2029 - 2035 | | Floating | | 0.4% - 2.3% | | 273 | | | 1,204 | |
| Total Corporate | | | | | | | 6,356 | | | 9,525 | |
| Americas | | | | | | | | | |
| Other loans | 2020 - 2030 | | Fixed/Floating | | 0.0% - 9.5% | | 72 | | | 83 | |
| Total Americas | | | | | | | 72 | | | 83 | |
| Europe, Asia & Africa | | | | | | | | | |
| EBRD Facility | 2024 | | Floating | | 2.2% - 2.5% | | 82 | | | 129 | |
| Other loans | 2021 - 2030 | | Fixed/Floating | | 0.0% - 4.7% | | 123 | | | 123 | |
| Total Europe, Asia & Africa | | | | | | | 205 | | | 252 | |
| Total | | | | | | | 6,633 | | | 9,860 | |
| Less current portion of long-term debt | | | | | | | (836) | | | (677) | |
| Total long-term debt (excluding lease obligations) | | | | | | | 5,797 | | | 9,183 | |
Long-term lease obligations2 | | | | | | | 691 | | | 632 | |
| Total long-term debt, net of current portion | | | | | | | 6,488 | | | 9,815 | |
1.Rates applicable to balances outstanding at December 31, 2021. For debt that has been redeemed in its entirety during 2021, the interest rates refer to the rates at repayment date.
2.Net of current portion of 189 and 183 as of December 31, 2021 and 2020, respectively. Further information regarding leases is provided in note 7.
3. On November 26, 2020, the commitments were extended by one year to December 19, 2025. The commitments are 5.5 billion until December 19, 2023 and 5.4 billion until December 19, 2025.
Corporate
5.5 billion Revolving Credit Facility
On December 19, 2018, ArcelorMittal signed an agreement for a 5.5 billion revolving credit facility (the "Facility"). This Facility replaced the 5.5 billion revolving credit facility dated April 30, 2015, which was amended and extended on December 21, 2016. The agreement incorporated a single tranche of 5.5 billion maturing on December 19, 2023, with two one-year extension options. On November 27, 2019 and on November 26, 2020,
ArcelorMittal exercised the option to extend the facility's maturity by one year to December 19, 2024 and to December 19, 2025, respectively. The extension was completed for 5.4 billion of the available amount, with the 0.1 billion remaining with a maturity of December 19, 2023. On April 27, 2021, the Facility was amended so that the margin payable will be increased or decreased depending on the Company’s performance against two metrics measured annually against pre-defined targets with respect to its environmental and sustainability performance (CO2 intensity of the Company’s European operations and the
| | |
303 Consolidated financial statements |
number of facilities which have been certified by ResponsibleSteel™). The Facility may be used for general corporate purposes. As of December 31, 2021, the 5.5 billion revolving credit facility was fully available. The Company makes drawdowns from and repayments on this Facility in the framework of its cash management.
On September 30, 2010, ArcelorMittal entered into 500 revolving multi-currency letter of credit facility (the "Letter of Credit Facility"). The Letter of Credit Facility is used by the Company and its subsidiaries for the issuance of letters of credit and other instruments. The terms of the letters of credit and other instruments contain certain restrictions as to duration. The Letter of Credit Facility was amended on October 26, 2012 and September 30, 2014 to reduce its amount to 450 and to 350, respectively. On July 31, 2019, the Company refinanced its Letter of Credit Facility by entering into a 350 revolving multi-currency letter of credit facility, which matures on July 31, 2022. On August 5, 2020, the Letter of Credit Facility maturity was extended to July 31, 2023. On November 25, 2020, the Letter or Credit Facility increased its amount to 395. On June 25, 2021, the maturity of the Letter of Credit Facility was extended to July 31, 2024.
Bonds
On April 9, 2021, at maturity, ArcelorMittal repaid all of the outstanding €285 million (342) of its €500 million Fixed Rate Notes due 2021.
On June 29, 2021, pursuant to a cash tender offer, ArcelorMittal repurchased €471 million (562) of its EUR denominated 2.25%
Notes due 2024 for a total aggregate purchase price including accrued interest of €501 million (595). Following this purchase, €529 million (625) principal amount remained outstanding.
On June 29, 2021, pursuant to a cash tender offer, ArcelorMittal repurchased 460 of its U.S. dollar denominated 3.60% Notes due 2024 for a total aggregate purchase price including accrued interest of 503. Following this purchase, 290 principal amount remained outstanding.
On June 29, 2021, pursuant to a cash tender offer, ArcelorMittal repurchased 73 of its U.S. dollar denominated 6.125% notes due 2025 for a total aggregate purchase price including accrued interest of 86. Following this purchase, 183 principal amount remained outstanding.
On June 29, 2021, pursuant to a cash tender offer, ArcelorMittal repurchased 349 of its U.S. dollar denominated 4.55% notes due 2026 for a total aggregate purchase price including accrued interest of 399. Following this purchase, 401 principal amount remained outstanding.
The margin applicable to ArcelorMittal’s principal credit facilities (5.5 billion revolving credit facility and certain other credit facilities) and the coupons on certain of its outstanding bonds are subject to adjustment in the event of a change in its long-term credit ratings. The following table provides details of the outstanding bonds on maturity, the original coupons and the current interest rates for the bonds impacted by changes in the long-term credit rating:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nominal value | | Date of issuance | | Repayment date | | Interest rate1 | | Issued at |
| | | | | | | | |
€750 million Unsecured Notes | | Jan 14, 2015 | | Jan 14, 2022 | | 3.13 | % | | 99.73 | % |
€500 million Unsecured Notes | | Dec 4, 2017 | | Jan 17, 2023 | | 0.95 | % | | 99.38 | % |
€750 million Unsecured Notes | | Nov 19, 2019 | | May 19, 2023 | | 1.00 | % | | 99.89 | % |
€250 million Unsecured Notes | | Jul 4, 2019 | | Jan 17, 2024 | | 2.25 | % | | 105.59 | % |
€750 million Unsecured Notes | | Jan 17, 2019 | | Jan 17, 2024 | | 2.25 | % | | 99.72 | % |
750 Unsecured Notes | | Jul 16, 2019 | | Jul 16, 2024 | | 3.60 | % | | 99.86 | % |
500 Unsecured Notes | | Jun 1, 2015 | | Jun 1, 2025 | | 6.13 | % | | 100.00 | % |
€750 million Unsecured Notes | | Nov 19, 2019 | | Nov 19, 2025 | | 1.75 | % | | 99.41 | % |
750 Unsecured Notes | | Mar 11, 2019 | | Mar 11, 2026 | | 4.55 | % | | 99.72 | % |
500 Unsecured Notes | | Jul 16, 2019 | | Jul 16, 2029 | | 4.25 | % | | 99.00 | % |
1.0 billion Unsecured Bonds | | Oct 8, 2009 | | Oct 15, 2039 | | 7.00 | % | | 95.20 | % |
500 Unsecured Bonds | | Aug 5, 2010 | | Oct 15, 2039 | | 7.00 | % | | 104.84 | % |
1.0 billion Unsecured Notes | | Mar 7, 2011 | | Mar 1, 2041 | | 6.75 | % | | 99.18 | % |
1.Rates applicable at December 31, 2021.
European Investment Bank (“EIB”) Loan
On June 2, 2021, ArcelorMittal signed a €280 million loan agreement with the European Investment Bank ("EIB") for
funding of research, development and innovation projects in Europe over the period of 2021-2023. This operation benefits from a guarantee from the European Union under the European
| | |
Consolidated financial statements 304 |
| (millions of U.S. dollar, except share and per share data) |
Fund for Strategic Investments. As of December 31, 2021 the facility remained fully available. On March 1, 2022 ArcelorMittal sent disbursement request to the EIB for the full amount of €280 million (335).
On December 16, 2016, ArcelorMittal signed a €350 million finance contract with the EIB in order to finance European research, development and innovation projects over the period 2017-2020 within the European Union, predominantly in France, Belgium and Spain, but also in Poland and Luxembourg. This operation benefits from a guarantee from the European Union under the European Fund for Strategic Investments. As of December 31, 2021, €190 million (215) was outstanding.
Other loans
On July 7, 2021, the Company fully prepaid Schuldschein borrowings for a total of €450 million (532), of which €405 million (479) maturing originally on July 5, 2023 and €45 million (53) maturing originally on July 7, 2025.
On December 21, 2018, the Company entered into a facility agreement with a group of lenders for €235 million to finance the construction of a new hot strip mill in Mexico. This facility became effective upon issuance of a guarantee by the Oesterreichische Kontrollbank AG in March 2019. The last installment under this agreement is due 8.5 years after the starting date of the credit facility (which means the earlier of (a) the date of issue of the provisional acceptance certificate for the hot strip mill and (b) June 30, 2021). The outstanding amount in total as of December 31, 2021 was €162 million (184).
On May 21, 2019, ArcelorMittal entered into a bilateral term loan due May 20, 2022. On July 31, 2020, the bilateral term loan was extended for one year to May 19, 2023. The bilateral term loan was fully drawn on June 3, 2019 for an amount of €125 million (142). On March 4, 2021, the Company early repaid the bilateral term loan.
On December 20, 2019, the Company entered into a bilateral loan due June 20, 2023. The bilateral term loan was fully drawn on January 30, 2020, for an amount of €100 million (110). This term loan could have been extended twice, each time for one additional year. On March 8, 2021, the Company early repaid the bilateral term loan.
On July 2, 2020, ArcelorMittal entered into an agreement for financing with a financial institution for net proceeds of CAD174 million (128) with repayment over several dates in 2021 and 2022.
On November 29, 2021, ArcelorMittal entered into an agreement for financing with a financial institution for net proceeds of CAD130 million (105) with repayment over several dates in 2021, 2022 and 2023.
Other loans relate to various debt with banks and public institutions.
Americas
Other loans
Other loans relate mainly to loans contracted by ArcelorMittal subsidiaries in Mexico with different counterparties.
Europe, Asia and Africa
On December 21, 2017, ArcelorMittal Kryvyi Rih entered into a 175 loan agreement with the European Bank for Reconstruction and Development ("EBRD") in order to support the upgrade of its production facilities, energy efficiency improvement and environmental impact reduction. The loan agreement also provides for an additional 175 in loan facilities which are currently uncommitted. As of December 31, 2021, 175 was drawn under the agreement.
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. The facility was amended and extended on July 26, 2019 with a maturity of on July 26, 2022. On August 23, 2021, the facility was further amended and restated for an amount of 3.5 billion South African rand and with a maturity of September 3, 2024. Any borrowings under the facility are secured by certain eligible inventory and receivables, as well as certain other working capital and related assets of ArcelorMittal South Africa. The facility is used for general corporate purposes. The facility is not guaranteed by ArcelorMittal. As of December 31, 2021, 1.8 billion South African rand (113) was drawn.
Other loans
Other loans mainly relate to loans contracted by ArcelorMittal subsidiaries in Spain with different counterparties.
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. On April 13, 2021, ArcelorMittal's Facility was amended so that the Leverage ratio financial covenant would permanently cease to apply in the event that the Company obtained an investment grade long-term credit rating (with stable outlook) from two rating agencies (which occurred in 2021, as described in "Operating and financial review — Liquidity and Capital Resources" – section).
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305 Consolidated financial statements |
Hedge of net investments
As of April 1, 2018, the Company designated a portfolio of euro denominated debt (€3,709 million as of December 31, 2021) as a hedge of certain euro denominated investments (€8,261 million as of December 31, 2021) in order to mitigate the foreign currency risk arising from certain euro denominated subsidiaries' net assets. The risk arises from the fluctuation in spot exchange rates between the U.S. dollar and euro, which causes the amount of the net investments to vary. The hedged risk in the hedge of net investments is a risk of a weakening euro against the U.S. dollar that will result in a reduction in the carrying amount of the Company's net investments in the subsidiaries subject to the hedge. The euro denominated debt is designated as a hedging instrument for the change in the value of the net investments that is attributable to changes in the euro/U.S. dollar spot rate.
To assess the hedge effectiveness, the Company determines the economic relationship between the hedging instrument and the hedged item by comparing changes in the carrying amount of the debt portfolio that are attributable to a change in the spot rate with changes in the net investments in the foreign operations due to movements in the spot rate.
As of December 31, 2021, the Company recognized 423 foreign exchange gain arising on the translation of the euro denominated debt designated as a hedge of the euro
denominated net investments in foreign operations in other comprehensive income within the foreign exchange translation reserve.
Maturity profile
As of December 31, 2021 the scheduled maturities of short-term debt, long-term debt and long-term lease obligations, including their current portion are as follows:
| | | | | | | | |
| Year of maturity | | Amount |
| 2022 | | 1,913 | |
| 2023 | | 1,545 | |
| 2024 | | 1,124 | |
| 2025 | | 1,163 | |
| 2026 | | 542 | |
| Subsequent years | | 2,114 | |
| Total | | 8,401 | |
Fair value
The following tables summarize the Company’s bases used to estimate its debt at fair value. Fair value measurement has been classified into three levels based upon a fair value hierarchy that reflects the significance of the inputs used in making the measurements.
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| As of December 31, 2021 | Carrying amount | | Fair Value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Instruments payable bearing interest at fixed rates | 7,011 | | | 6,380 | | | 1,261 | | | — | | | 7,641 | |
| Instruments payable bearing interest at variable rates | 502 | | | — | | | 480 | | | — | | | 480 | |
| Total long-term debt, including current portion | 7,513 | | | 6,380 | | | 1,741 | | | — | | | 8,121 | |
| Short term bank loans and other credit facilities including commercial paper | 888 | | | — | | | 888 | | | — | | | 888 | |
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| As of December 31, 2020 | Carrying amount | | Fair Value |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| Instruments payable bearing interest at fixed rates | 9,195 | | | 8,698 | | | 1,431 | | | — | | | 10,129 | |
| Instruments payable bearing interest at variable rates | 1,480 | | | | | 1,488 | | | — | | | 1,488 | |
| Total long-term debt, including current portion | 10,675 | | | 8,698 | | | 2,919 | | | — | | | 11,617 | |
| Short term bank loans and other credit facilities including commercial paper | 1,647 | | | | | 1,649 | | | — | | | 1,649 | |
Instruments payable classified as Level 1 refer to the Company’s listed bonds quoted in active markets. The total fair value is the official closing price as defined by the exchange on which the instrument is most actively traded on the last trading day of the period, multiplied by the number of units held without consideration of transaction costs.
Instruments payable classified as Level 2 refer to all debt instruments not classified as Level 1. The fair value of the debt is based on estimated future cash flows converted into U.S. dollar at the forward rate and discounted using current U.S. dollar zero coupon rates and ArcelorMittal’s credit spread quotations for the relevant maturities.
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Consolidated financial statements 306 |
| (millions of U.S. dollar, except share and per share data) |
There were no instruments payable classified as Level 3.
6.1.3 Cash and cash equivalents, restricted cash and other restricted funds and reconciliations of cash flows
Cash and cash equivalents consist of cash and short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less at the time of purchase and are carried at cost plus accrued interest, which approximates fair value.
Cash and cash equivalents are primarily centralized at the parent level and are managed by ArcelorMittal Treasury SNC, although from time to time cash or cash equivalent balances may be held at the Company’s international subsidiaries or its holding companies. Some of these operating subsidiaries have debt outstanding or are subject to acquisition agreements that impose restrictions on such operating subsidiaries’ ability to pay dividends, but such restrictions are not significant in the context of ArcelorMittal’s overall liquidity. Repatriation of funds from operating subsidiaries may also be affected by tax and foreign exchange policies in place from time to time in the various countries where the Company operates, though none of these policies are currently significant in the context of ArcelorMittal’s overall liquidity.
Cash and cash equivalents consisted of the following:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Cash at bank | 2,674 | | | 3,487 | |
| Term deposits | 607 | | | 393 | |
Money market funds1 | 934 | | | 1,720 | |
| Total | 4,215 | | | 5,600 | |
1Money market funds are highly liquid investments with a maturity of 3 months or less from the date of acquisition.
Restricted cash represents cash and cash equivalents not readily available to the Company, mainly related to insurance deposits, cash accounts in connection with environmental obligations and true sale of receivables programs, as well as various other deposits or required balance obligations related to letters of credit and credit arrangements.
Restricted cash and other restricted funds of 156 as of December 31, 2021 included 89 relating to various environmental obligations, true sales of receivables programs and letter of credits issued in ArcelorMittal South Africa. Restricted cash of 363 as of December 31, 2020 included 56 relating to various environmental obligations and true sales of receivables programs in ArcelorMittal South Africa and 260 with respect to a cash collateral provided by the Company until collection of the TSR receivables retained in ArcelorMittal USA after disposal (see note 4.1). It also included 20 and 20 in connection with the mandatory convertible bonds as of December 31, 2021 and December 31, 2020, respectively (see note 11.2).
Changes in restricted cash are included within investing activities in the consolidated statements of cash flows.
Reconciliation of liabilities arising from financing activities
The table below details changes in the Company's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be classified in the Company's consolidated statements of cash flows from financing activities.
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307 Consolidated financial statements |
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| Long-term debt, net of current portion | | Short-term debt and current portion of long term debt |
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| Balance as of December 31, 2019 (note 6.1.2) | 11,471 | | | 2,869 | |
| Proceeds from long-term debt | 323 | | | — | |
| Payments of long-term debt | (1,645) | | | — | |
| Amortized cost | 8 | | | 7 | |
| | | |
| Proceeds from short-term debt | — | | | 430 | |
| Payments of short-term debt | — | | | (1,503) | |
| Current portion of long-term debt | (860) | | | 860 | |
Payments of principal portion of lease liabilities (note 7) 1 | (7) | | | (235) | |
| Additions to lease liabilities (notes 5.2 and 7) | 195 | | | 38 | |
| Derecognition of lease liabilities following the divestment of ArcelorMittal USA (note 2.3.1) | (208) | | | (70) | |
| Debt classified as held for sale (note 2.3.2) | (21) | | | (3) | |
| Unrealized foreign exchange effects and other movements | 559 | | | 114 | |
| Balance as of December 31, 2020 (note 6.1.2) | 9,815 | | | 2,507 | |
| Proceeds from long-term debt | 147 | | | — | |
| Payments of long-term debt | (2,332) | | | — | |
| Amortized cost | 4 | | | 10 | |
| | | |
| Proceeds from short-term debt | — | | | 287 | |
| Payments of short-term debt | — | | | (1,664) | |
| Current portion of long-term debt | (1,025) | | | 1,025 | |
Payments of principal portion of lease liabilities (note 7) 1 | (8) | | | (191) | |
| Additions to lease liabilities (notes 5.2 and 7) | 289 | | | 24 | |
| Unrealized foreign exchange effects and other movements | (402) | | | (85) | |
| Balance as of December 31, 2021 (note 6.1.2) | 6,488 | | | 1,913 | |
1.Cash payments decreasing the outstanding liability relating to leases are classified under payments of principal portion of lease liabilities and other financing activities in the Company's consolidated statements of cash flows.
| | |
Consolidated financial statements 308 |
| (millions of U.S. dollar, except share and per share data) |
6.1.4 Net debt
The Company monitors its net debt in order to manage its capital. The following tables present the structure of the Company’s net debt by original currency at December 31, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | Total USD | | EUR | | USD | | PLN | | CAD | | ZAR | | Other
(USD) |
| Short-term debt and current portion of long-term debt | 1,913 | | | 1,456 | | | 97 | | | 14 | | | 132 | | | 115 | | | 99 | |
| Long-term debt, net of current portion | 6,488 | | | 3,443 | | | 2,637 | | | 215 | | | 55 | | | 5 | | | 133 | |
| Cash and cash equivalents and restricted cash | (4,371) | | | (1,646) | | | (1,531) | | | (97) | | | (56) | | | (268) | | | (773) | |
| Net debt | 4,030 | | | 3,253 | | | 1,203 | | | 132 | | | 131 | | | (148) | | | (541) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2020 | Total USD | | EUR | | USD | | CAD | | PLN | | UAH | | Other
(USD) |
| Short-term debt and current portion of long-term debt | 2,507 | | | 1,283 | | | 765 | | | 172 | | | 19 | | | 46 | | | 222 | |
| Long-term debt, net of current portion | 9,815 | | | 5,775 | | | 3,567 | | | 91 | | | 239 | | | 17 | | | 126 | |
| Cash and cash equivalents, restricted cash and other restricted funds | (5,963) | | | (2,637) | | | (2,236) | | | (35) | | | (152) | | | (19) | | | (884) | |
| Net debt | 6,359 | | | 4,421 | | | 2,096 | | | 228 | | | 106 | | | 44 | | | (536) | |
6.1.5 Derivative financial instruments
The Company uses derivative financial instruments principally to manage its exposure to fluctuations in interest rates, exchange rates, prices of raw materials, energy and emission rights allowances arising from operating, financing and investing activities. Derivative financial instruments are classified as current or non-current assets or liabilities based on their maturity dates and are accounted for at the trade date. Embedded derivatives are separated from the host contract and accounted for separately if they are not closely related to the host contract. The Company measures all derivative financial instruments based on fair values derived from market prices of the instruments or from option pricing models, as appropriate. Gains or losses arising from changes in fair value of derivatives are recognized in the consolidated statements of operations, except for derivatives that are designated and qualify for cash flow or net investment hedge accounting.
Changes in the fair value of a derivative that is designated and qualifies as a cash flow hedge are recorded in other comprehensive income. Amounts deferred in equity are recorded in the consolidated statements of operations in the periods when the hedged item is recognized in the consolidated statements of operations and within the same line item (see note 6.3 Cash flow hedges).
The Company formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are effective in offsetting changes in fair values or cash flows of hedged items. When a hedging
instrument is sold, terminated, expired or exercised, the accumulated unrealized gain or loss on the hedging instrument is maintained in equity until the forecasted transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealized gain or loss, which had been recognized in equity, is reported immediately in the consolidated statements of operations.
Foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognized directly as a separate component of equity, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognized in the consolidated statements of operations (see note 6.3 Net investment hedge).
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 position, risk limits and/or the characteristics of the counter-party. The Company does not generally grant to or require guarantees from its counterparties for 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 International Swaps and Derivatives Association agreements which allow netting only in case of counterparty default). Accordingly, derivative assets and derivative liabilities are not offset.
| | |
309 Consolidated financial statements |
Derivative financial instruments classified as Level 2:
The following tables summarize this portfolio:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Assets | | Liabilities |
| Notional Amount | | Fair Value | | Notional Amount | | Fair Value |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Foreign exchange rate instruments | | | | | | | |
| Forward purchase contracts | 3,845 | | | 133 | | | 1,023 | | | (43) | |
| Forward sale contracts | 2,685 | | | 16 | | | 1,431 | | | (15) | |
| | | | | | | |
| Exchange option purchases | 712 | | | 2 | | | 254 | | | (7) | |
| Exchange options sales | 338 | | | 5 | | | 707 | | | (2) | |
| Total foreign exchange rate instruments | | | 156 | | | | | (67) | |
| | | | | | | |
| Raw materials (base metals), freight, energy, emission rights | | | | | | | |
| Term contracts sales | 121 | | | 1 | | | 644 | | | (259) | |
| Term contracts purchases | 3,461 | | | 3,131 | | | 497 | | | (48) | |
| | | | | | | |
| Total raw materials (base metals), freight, energy, emission rights | | | 3,132 | | | | | (307) | |
| Total | | | 3,288 | | | | | (374) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Assets | | | Liabilities |
| Notional Amount | | Fair Value | | | | | Notional Amount | | Fair Value | | | |
| Interest rate instruments | | | | | | | | | | | | | |
Other interest rate instruments | 22 | | | — | | | | | | 10 | | | — | | | | |
Total interest rate instruments | | | — | | | | | | | | — | | | | |
| | | | | | | | | | | | | |
| Foreign exchange rate instruments | | | | | | | | | | | | | |
| Forward purchase contracts | 356 | | | 2 | | | | | | 2,199 | | | (113) | | | | |
| Forward sale contracts | 847 | | | 24 | | | | | | 371 | | | (19) | | | | |
| Currency swaps sales | 260 | | | 36 | | | | | | — | | | — | | | | |
| Exchange option purchases | 2,938 | | | 18 | | | | | | 1,176 | | | (15) | | | | |
| Exchange options sales | 2,960 | | | 26 | | | | | | 1,208 | | | (23) | | | | |
| Total foreign exchange rate instruments | | | 106 | | | | | | | | (170) | | | | |
| | | | | | | | | | | | | |
| Raw materials (base metals), freight, energy, emission rights | | | | | | | | | | | | | |
| Term contracts sales | 567 | | | 38 | | | | | | 370 | | | (46) | | | | |
| Term contracts purchases | 1,673 | | | 473 | | | | | | 854 | | | (87) | | | | |
| Option sales/purchases | 47 | | | 1 | | | | | | 48 | | | (1) | | | | |
| Total raw materials (base metals), freight, energy, emission rights | | | 512 | | | | | | | | (134) | | | | |
| Total | | | 618 | | | | | | | | (304) | | | | |
| | |
Consolidated financial statements 310 |
| (millions of U.S. dollar, except share and per share data) |
Derivative financial assets and liabilities classified as Level 2 refer to instruments to hedge fluctuations in interest rates, foreign exchange rates, raw materials (base metals), 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 instruments classified as Level 3:
Derivative financial non-current assets classified as Level 3 refer to the call option on the 1,000 mandatory convertible bonds (see note 11.2). The fair valuation of Level 3 derivative instruments is established at each reporting date and compared to the prior 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 establishes the fair valuation of the call option on the 1,000 mandatory convertible bonds through the use of binomial valuation models based on the estimated values of the underlying equity spot price of $137 and volatility of 18%. 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 price, European Central Bank foreign exchange fixing 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 computed unobservable volatility data during 2021 based mainly on the movement of China Oriental stock market prices observable in the active market over 90 working days, which is particularly sensitive for the valuation resulting from the model. Following the repayment of notes issued by subsidiaries to the Company which were linked to the value of Erdemir shares in 2019 as described in note 11.2, the unobservable volatility data from the movement of Erdemir shares does no longer impact the valuation. A 10% increase or decrease in Hera Ermac share prices would result in a 465% and 95% increase and decrease of the fair value of the call option at December 31, 2021, respectively.
As of December 31, 2019, derivative financial liabilities classified as Level 3 also included a pellet purchase agreement containing a special payment that varied according to the price of steel in the United States domestic market (“domestic steel price”). The instrument was derecognized on December 9, 2020 following the sale of ArcelorMittal USA (note 2.3.1). Until the divestment date the fair valuation of the special payment had been established by comparing the current forecasted domestic steel price to the projected domestic steel price at the inception of the contract. Observable input data included third-party forecasted domestic steel prices. Unobservable inputs were used to measure fair value to the extent that relevant observable inputs were not available or not consistent with the Company's views on future prices and referred specifically to domestic steel prices beyond the timeframe of available third-party forecasts. As of the date of sale the fair value of the pellet purchase was based on the future average US domestic steel price of $554 per tone.
The following table summarizes the reconciliation of the fair value of the financial instruments classified as Level 3:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Put option with ISP | | Call option on 1,000 mandatory convertible bonds | | Special payment in pellet purchase agreement | | Total |
| Balance as of December 31, 2019 | (125) | | | 127 | | | (176) | | | (174) | |
| Change in fair value/foreign exchange differences | (10) | | | (68) | | | 6 | | | (72) | |
| Value of option at exercise date/divested balance | 135 | | | — | | | 170 | | | 305 | |
| Balance as of December 31, 2020 | — | | | 59 | | | — | | | 59 | |
| Change in fair value/foreign exchange differences | — | | | (44) | | | — | | | (44) | |
| | | | | | | |
| Balance as of December 31, 2021 | — | | | 15 | | | — | | | 15 | |
The fair value movement on Level 3 derivative instruments is recorded in the consolidated statements of operations and other comprehensive income. The decrease in fair value of the call
option on 1,000 mandatory convertible bonds is due to a decrease in the share price of China Oriental, which impacts the
| | |
311 Consolidated financial statements |
value of the notes in which Hera Ermac, a wholly-owned subsidiary, invested the bonds proceeds (see note 11.2).
6.1.6 Other non-derivative financial assets and liabilities
Other non-derivative financial assets and liabilities include cash and cash equivalents, restricted cash and other restricted funds (see note 6.1.3), certain trade and certain other receivables (see note 4.3, 4.5 and 4.6), investments in equity instruments at FVOCI (see note 2.5), trade payables and certain other liabilities (see notes 4.7 and 4.8). These instruments are recognized initially at fair value when the Company becomes a party to the contractual provisions of the instrument. Non-derivative financial assets are derecognized if the Company’s contractual rights to the cash flows from the financial instruments expire or if the Company transfers the financial instruments to another party without retaining control of substantially all risks and rewards of the instruments. Non-derivative financial liabilities are derecognized when they are extinguished (i.e. when the obligation specified in the contract is discharged, canceled or expired).
Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss ("ECL") model. The ECL model requires the Group to account for expected credit losses and changes in those ECL at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In particular, IFRS 9 requires the Company to measure the loss allowance for a financial instrument at an amount equal to the lifetime ECL if the credit risk on that financial instrument has increased significantly since initial recognition. ArcelorMittal considered the continued impact of the COVID-19 pandemic on the economic environment in its risk of default assessment for receivables outstanding less than 180 days. Receivables aged 31 days or older and uninsured trade receivables remain consistent with historical levels and the Company did not identify any expected increased risk of default (note 4.3).
All fair value movements for investments in equity instruments at FVOCI, including the difference between the acquisition cost and the current fair value, are recorded in OCI and are not reclassified to the consolidated statements of operations. Investments in equity instruments at FVOCI are exempt from the impairment test under IFRS 9 because the fair value of the investment is recorded in OCI and not recycled to profit and loss.
Financial assets are tested for ECLs annually or whenever changes in circumstances indicate that there is a change in credit risk. Any ECL is recognized in the consolidated statements of operations. An ECL related to financial assets is reversed if and to the extent there has been a change in the factors used to determine the recoverable amount. The loss is reversed only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been determined if no ECL had been recognized. Reversals of ECLs are recognized in net income, except for investments in equity instruments at FVOCI, in which all fair value movements are recognized in OCI.
6.2 Financing costs - net
Financing costs - net recognized in the years ended December 31, 2021, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| Interest expense | (357) | | | (477) | | | (695) | |
| Interest income | 79 | | | 56 | | | 88 | |
Change in fair value adjustment on call option on mandatory convertible bonds and pellet purchase agreement (note 6.1.5)2 | (44) | | | (143) | | | (320) | |
| Accretion of defined benefit obligations and other long term liabilities | (164) | | | (325) | | | (405) | |
| Net foreign exchange result | (155) | | | 107 | | | 4 | |
Other1 | (514) | | | (474) | | | (324) | |
| Total | (1,155) | | | (1,256) | | | (1,652) | |
1.Other mainly includes expenses related to true sale of receivables (“TSR”) programs and bank fees. In 2021, other also include 163 charges relating to an unfavorable court decision in an arbitration case against Sitrel (see note 9.3), 130 premiums and fees relating to the bonds early redeemed in 2021 (as compared to 120 and 71 in 2020 and 2019, respectively) and 61 charges relating to the early redemption of MCNs (see note 11.2). In 2020, other also includes 178 relating to renewal of mandatorily convertible bonds (see note 11.2).
2. The instrument related to the pellet purchase agreement was derecognized on December 9, 2020 see note 6.1.5.
6.3 Risk management policy
The Company's operations expose it to a variety of financial risks: interest rate risk, foreign exchange risk, liquidity risk and risks in fluctuations in prices of raw materials, freight, energy and CO2 emissions. The Company actively monitors and seeks to reduce volatility of these exposures through a diversity of financial instruments, where considered appropriate. The Company has formalized how it manages these risks within the Treasury and Financial Risk Management Policy, which has been approved by Management.
Capital management
The Company's objective when managing capital is to safeguard continuity, maintain a strong credit rating and healthy capital ratios to support its business and provide adequate return to shareholders through continuing growth.
The Company sets the amount of capital required on the basis of annual business and long-term operating plans which include capital and other strategic investments. The funding requirement
| | |
Consolidated financial statements 312 |
| (millions of U.S. dollar, except share and per share data) |
is met through a combination of equity, bonds and other long-term and short-term borrowings.
The Company monitors capital using a gearing ratio, being the ratio of net debt as a percentage of total equity.
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Total equity | 51,344 | | 40,237 |
Net debt (including nil and 21 cash and debt classified as held for sale as of December 31, 2021 and 2020 respectively) | 4,030 | | 6,380 |
| Gearing | 7.8 | % | | 15.9 | % |
Interest rate risk
The Company is exposed to interest rate risk on short-term and long-term floating rate instruments and on refinancing of fixed rate debt. The Company's policy is to maintain a balance of fixed and floating interest rate borrowings, which is adjusted depending on the prevailing market interest rates and outlook. As at December 31, 2021, the long-term debt was comprised of 93% fixed rate debt and 7% variable rate debt (note 6.1.2). The Company utilizes certain instruments to manage interest rate risks. Interest rate instruments allow the Company to borrow long-term at fixed or variable rates, and to swap the rate of this debt either at inception or during the lifetime of the borrowing. The Company and its counterparties exchange, at predefined intervals, the difference between the agreed fixed rate and the variable rate, calculated on the basis of the notional amount of the swap. Similarly, swaps may be used for the exchange of variable rates against other variable rates.
Foreign exchange rate risk
The Company is exposed to changes in values arising from foreign exchange rate fluctuations generated by its operating activities. 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 an exposure to fluctuations and depreciation 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, Polish Zloty, Kazakhstani tenge, South African rand, Mexican peso and Ukrainian hryvnia, as well as fluctuations in the other countries’ currencies in which ArcelorMittal has significant operations and/or sales, could have a material impact on its financial position, cash flows and results of operations.
ArcelorMittal faces transaction risk, where its businesses generate sales in one currency but incur costs relating to that revenue in a different currency. For example, ArcelorMittal’s subsidiaries may purchase raw materials, including iron ore and coking coal, in U.S. dollar, but may sell finished steel products in other currencies. Consequently, an appreciation of the U.S.
dollar will increase the cost of raw materials; thereby having a negative impact on the Company’s operating margins, unless the Company is able to pass along the higher cost in the form of higher selling prices.
Following its Treasury and Financial Risk Management Policy, the Company hedges a portion of its net exposure to foreign exchange rates through forwards, options and swaps.
ArcelorMittal also faces foreign currency translation risk, which arises when ArcelorMittal translates the statements of operations of its subsidiaries, its corporate net debt (note 6.1.4) and other items denominated in currencies other than the U.S. dollar, for inclusion in the consolidated financial statements. The Company manages translation risk arising from its investments in subsidiaries by monitoring the currency mix of the consolidated statements of financial position. The Company may enter into derivative transactions to hedge the residual exposure (see “Net investment hedge”).
The Company also uses derivative instruments at the corporate level to hedge debt recorded in foreign currency other than the functional currency or the balance sheet risk associated with certain monetary assets denominated in a foreign currency other than the functional currency.
Foreign currency sensitivity analysis
As of December 31, 2021, the Company is mainly subject to foreign exchange exposure relating to the euro, Brazilian real, Canadian dollar, Kazakhstani tenge, South African rand, Mexican peso, Polish zloty, Argentine peso and Ukranian hryvnia against the U.S. dollar resulting from its trade payables and receivables.
| | | | | | | | | | | |
| December 31, 2021 |
| Trade receivables | | Trade payables |
| USD | 1,386 | | | 5,579 | |
| EUR | 1,822 | | | 6,219 | |
| BRL | 778 | | | 633 | |
| CAD | 132 | | | 464 | |
| KZT | 83 | | | 52 | |
| ZAR | 137 | | | 356 | |
| MXN | 9 | | | 46 | |
| UAH | 88 | | | 302 | |
| PLN | 305 | | | 955 | |
| ARS | 75 | | | 78 | |
| Other | 328 | | | 409 | |
| Total | 5,143 | | | 15,093 | |
The sensitivity analysis carried out by the Company considers the effects on its trade receivables and trade payables of a 10%
| | |
313 Consolidated financial statements |
increase or decrease between the relevant foreign currencies and the U.S. dollar.
| | | | | | | | | | | | | | | | | | | | | | | |
| 10% increase | | 10% decrease |
| Trade receivables | | Trade payables | | Trade receivables | | Trade payables |
| EUR | 182 | | | 622 | | | (182) | | | (622) | |
| BRL | 78 | | | 63 | | | (78) | | | (63) | |
| CAD | 13 | | | 46 | | | (13) | | | (46) | |
| KZT | 8 | | | 5 | | | (8) | | | (5) | |
| ZAR | 14 | | | 36 | | | (14) | | | (36) | |
| MXN | 1 | | | 5 | | | (1) | | | (5) | |
| UAH | 9 | | | 30 | | | (9) | | | (30) | |
| PLN | 31 | | | 96 | | | (31) | | | (96) | |
| ARS | 8 | | | 8 | | | (8) | | | (8) | |
The use of a 10% sensitivity rate is used when reporting foreign currency exposure internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes trade receivables and trade payables denominated in a currency other than the U.S. dollar and adjusts their translation at the period end for a 10% change in foreign currency rates. For trade receivables, a positive number indicates an income and a negative number an expense. For trade payables, a positive number indicates an expense and a negative number an income.
Hedge accounting policy
The Company determines the economic relationship between the hedged item and the hedging instrument by analyzing the critical terms of the hedge relationship. In case critical terms do not match and fair value changes in the hedging instrument cannot be expected to perfectly offset changes in the fair value of the hedged item, further qualitative analysis may be performed. Such analysis serves to establish whether the economic relationship is sufficiently strong to comply with the Company’s risk management policies.
The hedge ratio is set out in the Company's risk management strategy and may be individually tailored for each hedging program in the risk management objective. Hedge ratios below 100% would usually be applied on hedging of forecast exposures with the hedge ratio typically reducing where there is uncertainty due to long hedging tenors or volatility in the underlying exposure.
The most frequent sources of hedge ineffectiveness relate to changes in the hedged item (such as maturity, volume and pricing indices), basis spread and significant changes in the credit risk. Such sources are analyzed at hedge initiation and monitored throughout the life of a hedge.
Liquidity Risk
Liquidity risk is the risk that the Company may encounter difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash. ArcelorMittal Treasury is responsible for the Company's funding and liquidity management. ArcelorMittal’s principal sources of liquidity are cash generated from its operations, its credit lines at the corporate level and various working capital credit lines at the level of its operating subsidiaries. The Company actively manages its liquidity. Following the Company's Treasury and Financial Risk Management Policy, the levels of cash, credit lines and debt are closely monitored and appropriate actions are taken in order to comply with the covenant ratios, leverage, fixed/floating ratios, maturity profile and currency mix.
The contractual maturities of the below financial liabilities include estimated loan repayments, interest payments and settlement of derivatives, excluding any impact of netting agreements. The cash flows are calculated based on market data as of December 31, 2021, and as such are sensitive to movements in mainly foreign exchange rates and interest rates. The cash flows are non-discounted, except for derivative financial liabilities where the cash flows equal their fair values.
| | |
Consolidated financial statements 314 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Carrying amount | | Contractual Cash Flow | | 2022 | | 2023 | | from 2024 to 2026 | | After 2026 |
| Non-derivative financial liabilities | | | | | | | | | | | |
| Bonds | (5,816) | | | (7,722) | | | (748) | | | (1,442) | | | (2,733) | | | (2,799) | |
| Loans over 100 | (735) | | | (1,030) | | | (373) | | | (88) | | | (196) | | | (373) | |
| Trade and other payables | (15,093) | | | (15,098) | | | (15,098) | | | — | | | — | | | — | |
| Other loans and leases | (1,850) | | | (2,104) | | | (1,027) | | | (225) | | | (375) | | | (477) | |
| Total | (23,494) | | | (25,954) | | | (17,246) | | | (1,755) | | | (3,304) | | | (3,649) | |
| Derivative financial liabilities | | | | | | | | | | | |
| Foreign exchange contracts | (67) | | | (67) | | | (44) | | | (18) | | | (5) | | | |
Commodity contracts1 | (307) | | | (307) | | | (270) | | | (18) | | | (13) | | | (6) | |
| Total | (374) | | | (374) | | | (314) | | | (36) | | | (18) | | | (6) | |
1.Commodity contracts include base metals, freight, energy and emission rights.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Carrying amount | | Contractual Cash Flow | | 2021 | | 2022 | | from 2023 to 2025 | | After 2025 |
| Non-derivative financial liabilities | | | | | | | | | | | |
| Bonds | (7,888) | | | (10,307) | | | (616) | | | (851) | | | (5,135) | | | (3,705) | |
| Loans over 100 | (1,998) | | | (2,345) | | | (769) | | | (190) | | | (998) | | | (388) | |
| Trade and other payables | (11,525) | | | (11,530) | | | (11,530) | | | — | | | — | | | — | |
| Other loans and leases | (2,436) | | | (2,692) | | | (1,448) | | | (211) | | | (546) | | | (487) | |
| Total | (23,847) | | | (26,874) | | | (14,363) | | | (1,252) | | | (6,679) | | | (4,580) | |
| Derivative financial liabilities | | | | | | | | | | | |
| | | | | | | | | | | |
| Foreign exchange contracts | (170) | | | (170) | | | (149) | | | (13) | | | (8) | | | — | |
Commodity contracts1 | (134) | | | (134) | | | (59) | | | (28) | | | (47) | | | — | |
| Total | (304) | | | (304) | | | (208) | | | (41) | | | (55) | | | — | |
1.Commodity contracts include base metals, freight, energy and emission rights.
Cash flow hedges
The following tables present the periods in which the derivatives designated as cash flows hedges are expected to mature:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Assets/ (liabilities) | | (Outflows)/inflows |
| Fair value | | 3 months and less | | 3-6 months | | 6-12 months | | 2023 | | After 2023 |
| Foreign exchange contracts | 4 | | | 2 | | | 2 | | | 3 | | | (1) | | | (2) | |
| Commodities | 378 | | | 33 | | | 24 | | | 56 | | | 132 | | | 133 | |
| Emission rights | 2,447 | | | — | | | — | | | 2,447 | | | — | | | — | |
| Total | 2,829 | | | 35 | | | 26 | | | 2,506 | | | 131 | | | 131 | |
| | |
315 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Assets/ (liabilities) | | (Outflows)/inflows |
| Fair value | | 3 months and less | | 3-6 months | | 6-12 months | | 2022 | | After 2022 |
| Foreign exchange contracts | (37) | | | (29) | | | (31) | | | (21) | | | 2 | | | 42 | |
| Commodities | (35) | | | — | | | 1 | | | 6 | | | (9) | | | (33) | |
| Emission rights | 405 | | | 89 | | | — | | | 129 | | | 187 | | | — | |
| Total | 333 | | | 60 | | | (30) | | | 114 | | | 180 | | | 9 | |
Associated gains or losses that were recognized in other comprehensive income are reclassified to the consolidated statements of operations in the same period during which the hedged forecasted cash flow affects the consolidated statements of operations. The following table presents the periods in which the realized and unrealized gains or losses on derivatives designated as cash flows hedges recognized in other comprehensive income, net of tax, are expected to impact the consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Cash flow hedge reserve1 | | (Expense)/income |
| Carrying amount | | 3 months and less | | 3-6 months | | 6-12 months | | 2023 | | After 2023 |
| Foreign exchange contracts | (1) | | | (4) | | | 2 | | | 3 | | | (1) | | | (1) | |
| Commodity contracts | 302 | | | 22 | | | 29 | | | 40 | | | 110 | | | 101 | |
| Emission rights | 1,786 | | | 13 | | | 13 | | | 44 | | | 56 | | | 1,660 | |
| Total | 2,087 | | | 31 | | | 44 | | | 87 | | | 165 | | | 1,760 | |
1.The cash flow hedge reserve balance as of December 31, 2021 includes 603 deferred gains for the Company's share of such reserves at its equity method investments, which are not included in the table above (30 as of December 31, 2020).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Cash flow hedge reserve1 | | (Expense)/income |
| Carrying amount | | 3 months and less | | 3-6 months | | 6-12 months | | 2022 | | After 2022 |
| Foreign exchange contracts | (13) | | | 3 | | | 1 | | | (23) | | | 2 | | | 4 | |
| Commodity contracts | (2) | | | 2 | | | 2 | | | 8 | | | 4 | | | (18) | |
| Emission rights | 214 | | | 15 | | | 15 | | | 33 | | | 81 | | | 70 | |
| Total | 199 | | | 20 | | | 18 | | | 18 | | | 87 | | | 56 | |
1.The cash flow hedge reserve balance as of December 31, 2020 also includes 30 deferred gains for the Company's share of such reserves at its equity method investments, which are not included in the table above (nil as of December 31, 2019).
| | |
Consolidated financial statements 316 |
| (millions of U.S. dollar, except share and per share data) |
The following tables summarize the effect of hedge accounting on ArcelorMittal’s consolidated statement of financial position, statement of comprehensive income and statement of changes in equity.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Hedging Instruments | Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount | | Line item in the statement of financial position where the hedging instrument is located |
| Cash flow hedges | | | | | | | |
| Foreign exchange risk - Option/forward/swap contracts | 185 | | | 9 | | | (2) | | | Prepaid expenses and other current assets/Accrued expenses and other liabilities |
| Foreign exchange risk - Option/forward/swap contracts | 120 | | | 2 | | | (5) | | | Other assets/Other long-term obligations |
| Price risk - Commodities forwards | 872 | | | 325 | | | (212) | | | Prepaid expenses and other current assets/Accrued expenses and other liabilities |
| Price risk - Commodities forwards | 1,321 | | | 299 | | | (34) | | | Other assets/Other long-term obligations |
| Price risk - Emission rights forwards | 1,555 | | | 2,447 | | | — | | | Prepaid expenses and other current assets/Accrued expenses and other liabilities |
| | | | | | | |
| Total | | | 3,082 | | | (253) | | | |
| Current derivative assets classified as cash flow hedge | | | 2,781 | | | | | |
| Other current derivative assets | | | 204 | | | | |
| Total current derivative assets (note 4.5) | | | 2,985 | | | | | |
| Non-current derivative assets classified as cash flow hedge | | | 301 | | | | |
| Other non-current derivative assets | | | 17 | | | | |
| Total non-current derivative assets (note 4.6) | | | 318 | | | | |
| Current derivative liabilities classified as cash flow hedge | | | | | (214) | | | |
| Other current derivative liabilities | | | | | (102) | | | |
| Total current derivative liabilities (note 4.8) | | | | | (316) | | | |
| Non-current derivative liabilities classified as cash flow hedge | | | | | (39) | | | |
| Other non-current derivative liabilities | | | | | (19) | | | |
| Total non-current derivative liabilities (note 9.2) | | | | | (58) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Hedging Instruments | Cash flow hedge reserve at December 31, 2020 | | Hedging gains or losses of the reporting period that were recognized in OCI | Gains or losses reclassification adjustment and hedge ineffectiveness | | Basis adjustment | | Line item in the statement of comprehensive income that includes the reclassification adjustment and hedge ineffectiveness | Cash flow hedge reserve1 at December 31, 2021 |
| Cash flow hedges | | | | | | | | | |
| Foreign exchange risk - Option/Forward contracts | (13) | | | 81 | | 8 | | | (77) | | | Sales | (1) | |
| Price risk - Commodities Option/Forward contracts | (2) | | | 398 | | (55) | | | (39) | | | Sales, Cost of sales | 302 | |
| Price risk - Emission rights forwards | 214 | | | 1,700 | | (128) | | | — | | | Cost of sales | 1,786 | |
| Total | 199 | | | 2,179 | | (175) | | | (116) | | | | 2,087 | |
1.The cash flow hedge reserve balance as of December 31, 2021 also includes 603 deferred gains for the Company's share of such reserves at its equity method investments, which are not disclosed above.
| | |
317 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Hedging Instruments | Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount | | Line item in the statement of financial position where the hedging instrument is located |
| Cash flow hedges | | | | | | | |
| Foreign exchange risk - Option/Forward contracts | 2,379 | | | 3 | | | (84) | | | Prepaid expenses and other current assets/Accrued expenses and other liabilities |
| Foreign exchange risk - Option/Forward/Swap contracts | 440 | | | 44 | | — | | | Other assets/Other long-term obligations |
| Price risk - Commodities forwards | 459 | | | 22 | | | (14) | | | Prepaid expenses and other current assets/Accrued expenses and other liabilities |
| Price risk - Commodities forwards | 971 | | | 32 | | | (75) | | | Other assets/Other long-term obligations |
| Price risk - Emission rights forwards | 686 | | | 218 | | | — | | | Prepaid expenses and other current assets/Accrued expenses and other liabilities |
| Price risk - Emission rights forwards | 348 | | | 187 | | — | | | Other assets/Other long-term obligations |
| Total | | | 506 | | | (173) | | | |
| Current derivative assets classified as cash flow hedge | | | 243 | | | | | |
| Other current derivative assets | | | 110 | | | | | |
| Total current derivative assets (note 4.5) | | | 353 | | | | | |
| Non-current derivative assets classified as cash flow hedge | | | 263 | | | | | |
| Other non-current derivative assets | | | 61 | | | | | |
| Total non-current derivative assets (note 4.6) | | | 324 | | | | | |
| Current derivative liabilities classified as cash flow hedge | | | | | (98) | | | |
| Other current derivative liabilities | | | | | (110) | | | |
| Total current derivative liabilities (note 4.8) | | | | | (208) | | | |
| Non-current derivative liabilities classified as cash flow hedge | | | | | (75) | | | |
| Other non-current derivative liabilities | | | | | (21) | | | |
| Total non-current derivative liabilities (note 9.2) | | | | | (96) | | | |
. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Hedging Instruments | Cash flow hedge reserve at December 31, 2019 | | Hedging gains or losses of the reporting period that were recognized in OCI | | Gains or losses reclassification adjustment and hedge ineffectiveness | | Basis adjustment | | Line item in the statement of comprehensive income that includes the reclassification adjustment and hedge ineffectiveness | | Cash flow hedge reserve1 at December 31, 2020 |
| Cash flow hedges | | | | | | | | | | | |
| Foreign exchange risk - Option/Forward contracts | 31 | | | (96) | | | 35 | | | 17 | | | Sales | | (13) | |
Price risk - Commodities forwards1 | (106) | | | (140) | | | 241 | | | 3 | | | Sales, Cost of sales | | (2) | |
| Price risk - Emission rights forwards | 310 | | | 271 | | | (367) | | | — | | | Cost of sales | | 214 | |
| Total | 235 | | | 35 | | | (91) | | | 20 | | | | | 199 | |
1.The cash flow hedge reserve balance as of December 31, 2020 also includes 30 deferred gains for the Company's share of such reserves at its equity method investments, which are not disclosed above
| | |
Consolidated financial statements 318 |
| (millions of U.S. dollar, except share and per share data) |
Net investment hedge
As of April 1, 2018, the Company designated a portfolio of euro denominated debt (€3,709 million as of December 31, 2021) as a hedge of certain euro denominated investments (€8,261 million as of December 31, 2021) in order to mitigate the foreign currency risk arising from certain euro denominated subsidiaries net assets. The risk arises from the fluctuation of the euro/U.S dollar spot rate, which causes the amount of the net investments to vary. The euro denominated debt is designated as a hedging instrument for the change in the value of the net investments that is attributable to changes in the euro/U.S. dollar spot rate. As of December 31, 2021, the Company recognized 423 foreign exchange gain (597 foreign exchange loss as of December 31, 2020) arising on the translation of the euro denominated debt
designated as a hedge of the euro denominated net investments in foreign operations in other comprehensive income within the foreign exchange translation reserve. The hedging instrument is categorized as Level 2.
Since 2014, the Company has periodically hedged a part of its euro denominated net investments via euro/U.S. dollar cross currency swaps ("CCS"). These CCS, all of which have been unwound, were designated as net investment hedges.
The following tables summarizes the historical gain/loss that will be recycled to the consolidation statements of operations when the hedged assets are disposed of.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | 1 |
| Date traded | Date maturity /unwound | | Notional | OCI gross | Deferred tax | OCI net of deferred tax | |
| December, 2014 | January, 2016 | | 375 | 83 | | (24) | | 59 | | |
| May, 2015 | March, 2020 | '2 | 500 | 11 | | (3) | | 8 | | |
| May, 2015 | July, 2019 | | 500 | (16) | | 5 | | (11) | | |
| March, 2018 | June, 2018 | | 100 | 8 | | (2) | | 6 | | |
| April, 2019 | November, 2019 | | 200 | 11 | | (3) | | 8 | |
| Total | | | | 97 | | (27) | | 70 | | |
1.In 2021, the Company did not designate any new CCS as net investment hedge.
2. On March 25, 2020 and March 26, 2020, the Company unwound euro/U.S. dollar CCS with a notional of 300 and 200, respectively, which were entered into on May 27, 2015 and designated as a net investment hedge of a euro denominated net investment in foreign operations amounting to €459. A deferred gain of 8, net of tax, was recorded in other comprehensive income and it will be recycled to the consolidation statements of operations when the hedged assets are disposed of.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Hedging Instruments | Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount | | Line item in the statement of financial position where the hedging instrument is located | | Change in value used for calculating hedge ineffectiveness for 2021 | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness | | Foreign currency translation reserve |
| Net investment hedges | | | | | | | | | | |
| Foreign exchange risk - Cross Currency Swap | — | | | — | | | — | | | N/a | | — | | | N/a | | 70 | |
| Foreign exchange risk - EUR debt | 4,204 | | | — | | | (4,201) | | | Short-term debt and current portion of long-term debt; long-term debt, net of current portion | | — | | | N/a | | 308 | |
| Total | 4,204 | | | — | | | (4,201) | | | | | — | | | | | 378 | |
| | |
319 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Hedging Instruments | Nominal amount of the hedging instrument | | Assets carrying amount | | Liabilities carrying amount | | Line item in the statement of financial position where the hedging instrument is located | | Change in value used for calculating hedge ineffectiveness for 2020 | | Line item in the statement of comprehensive income that includes the recognized hedge ineffectiveness | | Foreign currency translation reserve |
| Net investment hedges | | | | | | | | | | | | | |
| Foreign exchange risk - Cross Currency Swap | — | | | — | | | — | | | N/a | | — | | | N/a | | 70 | |
| Foreign exchange risk - EUR debt | 6,335 | | | — | | | (6,327) | | | Short-term debt and current portion of long-term debt; long-term debt, net of current portion | | — | | | N/a | | (10) | |
| Total | 6,335 | | | — | | | (6,327) | | | | | — | | | | | 60 | |
Raw materials, freight, energy risks and emission rights
The Company is exposed to risks in fluctuations in prices of raw materials (including base metals such as zinc, nickel, aluminum, tin, copper and iron ore), freight and energy, both through the purchase of raw materials and through sales contracts. The Company uses financial instruments such as forward purchases or sales, options and swaps in order to manage the volatility of prices of certain raw materials, freight and energy.
Fair values of raw material, freight, energy and emission rights instruments categorized as Level 2 are as follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Base metals | 27 | | | 7 | |
| Freight | 5 | | | — | |
| Energy (oil, gas, electricity) | 350 | | | (36) | |
| Emission rights | 2,443 | | | 407 | |
| Total | 2,825 | | | 378 | |
| | | |
| Derivative assets associated with raw materials, energy, freight and emission rights | 3,132 | | | 512 | |
| Derivative liabilities associated with raw materials, energy, freight and emission rights | (307) | | | (134) | |
| Total | 2,825 | | | 378 | |
ArcelorMittal consumes large amounts of raw materials (the prices of which are related to the London Metals Exchange price index, the Steel Index and Platts Index), ocean freight (the price of which is related to a Baltic Exchange Index), and energy (the prices of which are mainly related to the New York Mercantile Exchange energy index (NYMEX) and the European Energy Exchange (EEX) power indexes). As a general matter, ArcelorMittal is exposed to price volatility with respect to its purchases in the spot market and under its long-term supply contracts. In accordance with its risk management policy, ArcelorMittal hedges a part of its exposure related to raw materials procurements.
Emission rights
Pursuant to the application of the European Directive 2003/87/EC of October 13, 2003, as amended by the European Directive 2009/29/EC of April 23, 2009, establishing a scheme for
emission allowance trading, the Company enters into certain types of derivatives (mainly forward transactions and options) in order to implement its management policy for associated risks. As of December 31, 2021 and 2020, the Company had a net notional position of 1,555 with a net positive fair value of 2,443 and a net notional position of 1,035 with a net positive fair value of 407, respectively.
Credit risk
The Company’s treasury department monitors various market data regarding the credit standings and overall reliability of the financial institutions for all countries where the Company’s subsidiaries operate. The choice of the financial institution for the financial transactions must be approved by the treasury department. Credit risk related to customers, customer credit terms and receivables are discussed in note 4.3.
| | |
Consolidated financial statements 320 |
| (millions of U.S. dollar, except share and per share data) |
Sensitivity analysis
Foreign currency sensitivity
The following tables detail the Company’s derivative financial instruments' sensitivity to a 10% strengthening and a 10% weakening in the U.S. dollar against the euro. A positive number indicates an increase in profit or loss and other equity, where a negative number indicates a decrease in profit or loss and other equity.
The sensitivity analysis includes the Company’s complete portfolio of foreign currency derivatives outstanding. The impact on the non euro derivatives reflects the estimated move of such currency pairs, when the U.S. dollar appreciates or depreciates 10% against the euro, based on computations of correlations in the foreign exchange markets in 2021 and 2020.
| | | | | | | | | | | |
| December 31, 2021 |
| Income (loss) | | Other Equity |
10% strengthening in U.S. dollar | 18 | | | (10) | |
10% weakening in U.S. dollar | (30) | | | 11 | |
| | | | | | | | | | | |
| December 31, 2020 |
| (loss) Income | | Other Equity |
10% strengthening in U.S. dollar | (60) | | | 196 | |
10% weakening in U.S. dollar | 64 | | | (202) | |
Cash flow sensitivity analysis for variable rate instruments
The following tables detail the Company’s variable interest rate instruments’ sensitivity. A change of 100 basis points (“bp”) in interest rates during the period would have increased (decreased) profit or loss by the amounts presented below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
| | | | | | | | | | | |
| December 31, 2021 |
| Floating porting of net debt1 | | Interest Rate Swaps/Forward Rate Agreements |
100 bp increase | 36 | | | — | |
100 bp decrease | (36) | | | — | |
| | | | | | | | | | | |
| December 31, 2020 |
| Floating porting of net debt1 | | Interest Rate Swaps/Forward Rate Agreements |
100 bp increase | 40 | | | — | |
100 bp decrease | (40) | | | — | |
1.See note 6.1.4 for a description of net debt (including fixed and floating portion).
Base metals, energy, freight, emissions rights
The following tables detail the Company’s sensitivity to a 10% increase and decrease in the price of the relevant base metals, energy, freight and emissions rights. The sensitivity analysis includes only outstanding, un-matured derivative instruments either held for trading at fair value through the consolidated statements of operations or designated in hedge accounting relationships.
| | | | | | | | | | | |
| December 31, 2021 |
| Income (loss) | | Other Equity Cash Flow Hedging Reserves |
'+10% in prices | | | |
| Base Metals | 2 | | | 33 | |
| Iron Ore | — | | | 1 | |
| Freight | — | | | — | |
| Emission rights | — | | | 401 | |
| Energy | 1 | | | 165 | |
'-10% in prices | | | |
| Base Metals | (2) | | | (33) | |
| Iron Ore | — | | | (1) | |
| Freight | — | | | — | |
| Emission rights | — | | | (401) | |
| Energy | (1) | | | (165) | |
| | | | | | | | | | | |
| December 31, 2020 |
| Income (loss) | | Other Equity Cash Flow Hedging Reserves |
'+10% in prices | | | |
| Base Metals | 2 | | | 10 | |
| Iron Ore | — | | | (1) | |
| Freight | — | | | 3 | |
| Emission rights | — | | | 145 | |
| Energy | — | | | 82 | |
'-10% in prices | | | |
| Base Metals | (2) | | | (10) | |
| Iron Ore | — | | | 1 | |
| Freight | — | | | (3) | |
| Emission rights | — | | | (145) | |
| Energy | — | | | (82) | |
NOTE 7: LEASES
As a lessee, the Company assesses if a contract is or contains a lease at inception of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the commencement date, except for short-term leases
| | |
321 Consolidated financial statements |
of twelve months or less and leases for which the underlying asset is of low value, which are expensed in the consolidated statement of operations on a straight-line basis over the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or, if not readily determinable, the incremental borrowing rate specific to the country, term and currency of the contract. Lease payments can include fixed payments, variable payments that depend on an index or rate known at the commencement date, as well as any extension or purchase options, if the Company is reasonably certain to exercise these options. The lease liability is subsequently measured at amortized cost using the effective interest method and remeasured with a corresponding adjustment to the related right-of-use asset when there is a change in future lease payments in case of renegotiation, changes of an index or rate or in case of reassessments of options.
The right-of-use asset comprises, at inception, the initial lease liability, any initial direct costs and, when applicable, the
obligations to refurbish the asset, less any incentives granted by the lessors. The right-of-use asset is subsequently depreciated, on a straight-line basis, over the lease term or, if the lease transfers the ownership of the underlying asset to the Company at the end of the lease term or, if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, over the estimated useful life of the underlying asset. Right-of-use assets are also subject to testing for impairment if there is an indicator that they may be impaired.
Variable lease payments not included in the measurement of the lease liabilities are expensed to the consolidated statement of operations in the period in which the events or conditions which trigger those payments occur.
In the statement of financial position, right-of-use assets and lease liabilities are classified, respectively, as part of property, plant and equipment and short-term/long-term debt.
Balances for the Company’s lease activities are summarized as follows:
| | | | | | | | | | | | | | |
| As at December 31, 2021 | | As at December 31, 2020 | |
| Lease liabilities | 880 | | | 815 | | |
| Right of-use assets: | | | | |
| Land, buildings and improvements | 729 | | | 761 | | |
| Machinery, equipment and others | 343 | | | 278 | | |
| Total right-of-use assets | 1,072 | | | 1,039 | | |
| | | | |
| Year ended December 31, 2021 | | Year ended December 31, 2020 | |
| Depreciation and impairment charges: | | | | |
| Land, buildings and improvements | 120 | | | 114 | |
| Machinery, equipment and others | 70 | | | 101 | |
| Total depreciation and impairment charges | 190 | | | 215 | | |
| | | | |
| Other lease related expenses: | | | | |
| Interest expense on lease liabilities | 33 | | | 66 | | |
| Expenses of short-term leases | 79 | | | 134 | | |
| Expenses of leases of low-value assets | 65 | | | 61 | | |
| Expenses related to variable lease payments not included in the measurement of lease liabilities | 86 | | | 73 | | |
| | | | |
| Additions to right-of-use assets | 313 | | | 233 | | |
| Lease payments recorded as reduction of lease liabilities and cash outflow from financing activities | 199 | | | 242 | | |
The Company's lease contracts relate to a variety of assets used in its operational and administrative activities through several units, such as land, buildings, vehicles, industrial machinery, logistic and commercial facilities and power generation facilities. There are no sale and lease back transactions and no restrictions or covenants are imposed by the Company's current effective lease contracts.
| | |
Consolidated financial statements 322 |
| (millions of U.S. dollar, except share and per share data) |
The maturity analysis of the lease liabilities as of December 31, 2021 and December 31, 2020, is as follows:
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2021 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Lease liabilities (undiscounted) | 222 | | 254 | | 152 | | 836 | | 1,464 | |
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Lease liabilities (undiscounted) | 217 | 265 | 156 | 778 | 1,416 | |
Expenses for variable lease payments relate to rental fees that vary based on the actual level of activities or performance of the underlying leased assets such as a percentage of sales of the Company's goods through certain leased commercial warehouses and fixed rental fees per actual unit of output produced or transported by the leased assets.
An estimation of the future cash outflows to which the Company is potentially exposed in relation to those contracts involving variable lease payments, which are not reflected in the measurement of lease liabilities as of December 31, 2021 and December 31, 2020, is as follows:
| | | | | | | | | | | | | | | | | |
| | | | | December 31, 2021 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Potential variable lease payments | 79 | | 140 | | 84 | | 119 | | 422 | |
| | | | | | | | | | | | | | | | | |
| | | | | December 31, 2020 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Potential variable lease payments | 58 | | 99 | | 68 | | 123 | | 348 | |
Also, some of the Company's lease contracts have extension and/or termination options as well as residual value guarantees whose amounts are not reflected in the measurement of the lease liabilities as of December 31, 2021 and December 31, 2020. The potential addition/(reduction) in future cash outflows to which the Company is exposed in case such options are exercised or the guarantees required are as shown in the table below:
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2021 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Potential extension options | 1 | | 2 | | — | | 1 | | 4 | |
| Potential termination options | — | | (1) | | — | | — | | (1) | |
| Potential residual value guarantees | — | | 1 | | 2 | | 4 | | 7 | |
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Potential extension options | 1 | | 1 | | — | | 1 | | 3 | |
| Potential termination options | (1) | | — | | — | | — | | (1) | |
| Potential residual value guarantees | 1 | | 1 | | 2 | | 3 | | 7 | |
Undiscounted amounts related to lease contracts not yet commenced and therefore not included in the recognized lease liabilities as of December 31, 2021 and December 31, 2020, to which the Company is committed are described below:
| | |
323 Consolidated financial statements |
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2021 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Leases not yet commenced | 2 | | 7 | | 8 | | 55 | | 72 | |
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
| 1 year or less | 2-3 years | 4-5 years | Greater than 5 years | TOTAL |
| Leases not yet commenced | 2 | | 6 | | 9 | | 51 | | 68 | |
There were neither income from subleasing right-of-use assets nor gains or losses from sales and leaseback for the years ended December 31, 2021 and December 31, 2020.
NOTE 8: PERSONNEL EXPENSES AND DEFERRED EMPLOYEE BENEFITS
8.1 Employees and key management personnel
As of December 31, 2021, 2020 and 2019, ArcelorMittal had approximately 158,000, 168,000 and 191,000 employees, respectively, and the total annual compensation of ArcelorMittal’s employees in 2021, 2020 and 2019 was as follows:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| Employee Information | 2021 | | 2020 | | 2019 |
| Wages and salaries | 6,707 | | | 7,681 | | | 8,380 | |
| Defined benefits cost (see note 8.2) | 117 | | | 260 | | | 201 | |
| | | | | |
| Other staff expenses | 1,166 | | | 1,405 | | | 1,668 | |
| Total | 7,990 | | | 9,346 | | | 10,249 | |
The total annual compensation of ArcelorMittal’s key management personnel, including its Board of Directors, expensed in 2021, 2020 and 2019 was as follows:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Base salary and directors fees | 10 | | | 7 | | | 8 | |
| Short-term performance-related bonus | 12 | | | 3 | | | 9 | |
| Post-employment benefits | 2 | | | 1 | | | 1 | |
| Share-based payments | 7 | | | 4 | | | — | |
The fair value of the shares allocated based on Restricted Share Unit (“RSU”) and Preference Share Unit (“PSU”) plans to ArcelorMittal’s key management personnel was recorded as an expense in the consolidated statements of operations over the relevant vesting periods.
As of December 31, 2021, 2020 and 2019, ArcelorMittal did not have any outstanding loans or advances to members of its Board of Directors or key management personnel, and, as of December 31, 2021, 2020 and 2019, ArcelorMittal had not given
any guarantees for the benefit of any member of its Board of Directors or key management personnel.
8.2 Deferred employee benefits
ArcelorMittal’s operating subsidiaries sponsor different types of pension plans for their employees. Also, some of the operating subsidiaries offer other post-employment benefits, that are principally post-retirement healthcare plans. These benefits are broken down into defined contribution plans and defined benefit plans.
Defined contribution plans are those plans where ArcelorMittal pays fixed or determinable contributions to external life insurance or other funds for certain categories of employees. Contributions are paid in return for services rendered by the employees during the period. Contributions are expensed as incurred consistent with the recognition of wages and salaries.
Defined benefit plans are those plans that provide guaranteed benefits to certain categories of employees, either by way of contractual obligations or through a collective agreement. For defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out each fiscal year.
The retirement benefit obligation recognized in the consolidated statements of financial position represents the present value of the defined benefit obligation less the fair value of plan assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension obligation. Remeasurement arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income in the period in which they arise. Any asset resulting from this calculation is limited to the present value of available refunds and reductions in future contributions to the plan.
Current service cost, which is the increase of the present value of the defined benefit obligation resulting from the employee service in the current period, is recorded as an expense as part of cost of sales and selling, general and administrative
| | |
Consolidated financial statements 324 |
| (millions of U.S. dollar, except share and per share data) |
expenses in the consolidated statements of operations. The net interest cost, which is the change during the period in the net defined benefit liability or asset that arises from the passage of time, is recognized as part of financing costs net in the consolidated statements of operations.
The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. The gain or loss on settlement comprises any resulting change in the fair value of plan assets and any change in the present value of the defined benefit obligation. Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or a curtailment. Past service cost is recognized immediately in the consolidated statements of operations in the period in which it arises.
Termination plans are those plans that primarily correspond to terminating an employee’s contract usually following the decision of the employee before the normal retirement date. Liabilities for termination plans are recognized when the affected employees have formally been informed and when amounts owed have been determined using an appropriate actuarial calculation. Liabilities relating to long-term termination plans (like early retirement plans) are calculated annually on the basis of the number of employees that have taken or contractually agreed to take early retirement and are discounted using an interest rate that corresponds to that of high quality bonds that have maturity dates similar to the terms of the Company’s early retirement obligations. Provisions for social plans are recorded in connection with voluntary separation plans. Voluntary retirement plans primarily correspond to the practical implementation of social plans or are linked to collective agreements signed with certain categories of employees. The Company recognizes a liability and expense when it can no longer withdraw the offer or, if earlier, when it has a detailed formal plan which has been communicated to employees or their representatives.
Other long-term employee benefits include various plans that depend on the length of service, such as long service and sabbatical awards, disability benefits and long-term compensated absences such as sick leave. The amount recognized as a liability is the present value of benefit obligations at the consolidated statements of financial position date, and all changes in the provision (including actuarial gains and losses or past service costs) are recognized in the consolidated statements of operations in the period in which they arise.
The expense associated with the above pension plans and post-employment benefits, as well as the carrying amount of the related liability/asset on the consolidated statements of financial position are based on a number of assumptions and factors
such as discount rates, expected rate of compensation increase, healthcare cost trend rates, mortality rates and retirement rates.
•Discount rates – The discount rate is based on several high quality corporate bond indexes and yield curves in the appropriate jurisdictions. In countries where there is no deep market in such bonds, the market rates on government bonds are used. Nominal interest rates vary worldwide due to exchange rates and local inflation rates.
•Rate of compensation increase – The rate of compensation increase reflects actual experience and the Company’s long-term outlook, including contractually agreed wage rate increases for represented hourly employees.
•Healthcare cost trend rate – The healthcare cost trend rate is based on historical retiree cost data, near-term healthcare outlook, including appropriate cost control measures implemented by the Company, and industry benchmarks and surveys.
•Mortality and retirement rates – Mortality and retirement rates are based on actual and projected plan experience.
Statements of Financial Position
Total deferred employee benefits including pension or other post-employment benefits, are as follows:
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Pension plan benefits | 2,334 | | | 3,000 | |
| Other post-employment benefits and other long-term employee benefits ("OPEB") | 1,184 | | | 1,432 | |
| Termination benefits | 191 | | | 173 | |
| Defined benefit liabilities | 3,709 | | | 4,605 | |
| Provisions for social plans (non-current) | 63 | | | 51 | |
| Total | 3,772 | | | 4,656 | |
This note, including the table above, discloses the following benefit categories:
•pension plan benefits are pension plans and lump sum benefits that are classified under post employment benefits as required by IAS 19 which are not mandatory by law;
•other post employment and other long-term employee benefits, also referred to as, OPEB which includes all other post employment benefits as defined in IAS 19 (e.g. lump sum benefits which are mandatory by law, medical insurance and life insurance) together with all
| | |
325 Consolidated financial statements |
other long-term employee benefits as defined in IAS 19;
•termination benefits, which relate to provisions for long term termination benefits as defined in IAS 19 (e.g. early retirement benefits); and
•provisions for social plans (non-current) which relate to provisions for social plans in restructuring provisions as required by IAS 37, including a provision of 55 related to early retirement scheme in Spain recognized in cost of sales.
The provisions for termination benefits relate to European countries (Belgium, Spain, Germany and Luxembourg).
On December 9, 2020, following the sale of ArcelorMittal USA (see note 2.3.1), the Company derecognized all of ArcelorMittal's USA pension and OPEB liabilities net of plan assets in the amount of 3,243. The Company continues to present below the corresponding changes in pension and OPEB defined benefit obligation, plan assets and the components of net periodic pension and OPEB cost in 2020 for the United States.
Pension plans
This section includes post employment benefits that are pension plan and lump sum benefits which are not mandatory by law. A summary of the significant defined benefit pension plans is as follows:
Canada
The primary pension plans are those of ArcelorMittal Dofasco, AMMC and ArcelorMittal Long Products Canada.
The ArcelorMittal Dofasco pension plan is a hybrid plan providing the benefits of both a defined benefit and defined contribution pension plan. The defined contribution component is financed by both employer and employee contributions. The employer’s defined contribution is based on a percentage of company profits. The defined benefit pension plan was closed for new hires on December 31, 2010 and replaced by a new defined contribution pension plan with contributions related to age, service and earnings.
At the end of 2012, ArcelorMittal Dofasco froze and capped benefits for the majority of its hourly and salaried employees who were still accruing service under the defined benefit plan and began transitioning these employees to the new defined contribution pension plan for future pension benefits.
The AMMC defined benefit plan provides salary related benefit for non-union employees and a flat dollar pension depending on an employee’s length of service for union employees. This plan was closed for new non-union hires on December 31, 2009 and
replaced by a defined contribution pension plan with contributions related to age and service. Effective January 1, 2015, AMMC implemented a plan to transition its non-union employees who were still benefiting under the defined benefit plan to a defined contribution pension plan. Transition dates can extend up to January 1, 2025 depending on the age and service of each member.
ArcelorMittal Long Products Canada sponsors several defined benefit and defined contribution pension plans for its various groups of employees, with most defined benefit plans closed to new entrants several years ago. The primary defined benefit pension plan sponsored by ArcelorMittal Long Products Canada provides certain unionized employees with a flat dollar pension depending on an employee’s length of service.
ArcelorMittal Long Products Canada entered into a six-year collective labor agreement ("CLA") during the third quarter of 2014 with its Contrecoeur-West union group. The defined benefit plan was closed to new hires. A new defined contribution type arrangement was established for new hires. This collective labor agreement was renewed during the third quarter of 2020 for six years under similar conditions. The six-year labor agreement ratified in February 2016, covering Contrecoeur East and Longueuil facilities remains valid until January 31, 2022. The positive vote of the workers assembly on February 27, 2022 concluded the CLA negotiations for a new six-year CLA ending the labor dispute which began on February 2, 2022. It ensured a return to normal operations at the Contrecoeur East and Longueuil facilities on February 28, 2022.
In 2020, ArcelorMittal Long Products Canada entered into a buy-in transaction for some of its fully funded pension plans representing 112 in liabilities.
Brazil
The primary defined benefit plans, financed through trust funds, have been closed to new entrants. Brazilian entities have all established defined contribution plans that are financed by employer and employee contributions. On December 28, 2018, the Brazilian Autarchy that oversees pension funds called PREVIC (Complementary Pension National Superintendence) approved a planned settlement of the major defined benefit plans. The transaction was completed in 2019 and reduced the defined benefit obligation by 169 and the fair value of the plan asset by 143. The settlement gain of 26 was recognized in cost of sales and selling, general and administrative expenses.
Europe
Certain European operating subsidiaries maintain primarily unfunded defined benefit pension plans for a certain number of employees. Benefits are based on such employees’ length of service and applicable pension table under the terms of individual agreements. Some of these unfunded plans have
| | |
Consolidated financial statements 326 |
| (millions of U.S. dollar, except share and per share data) |
been closed to new entrants and replaced by defined contribution pension plans for active members financed by employer and employee contributions.
As from December 2015 new Belgian legislation modifies the minimum guaranteed rates of return applicable to Belgian defined contribution plans. For insured plans, the rates of 3.25% on employer contributions and 3.75% on employee contributions will continue to apply to the accumulated pre-2016 contributions. For contributions paid as from January 1, 2016, a new variable minimum guaranteed rate of return applies. From 2016 through 2021, the minimum guaranteed rate of return was 1.75% and this is also the best estimate for 2022. Due to the statutory minimum guaranteed return, Belgian defined contribution plans do not meet the definition of defined contribution plans under IFRS. Therefore, the Belgian defined contribution plans are classified as defined benefit plans.
Others
A very limited number of defined benefit plans are in place in other countries (such as Mexico, Kazakhstan, Ukraine and Morocco).
The majority of the funded defined benefit pension plans described earlier provide benefit payments from trustee-administered funds. ArcelorMittal also sponsors a number of unfunded plans where the Company meets the benefit payment obligation as it falls due. Plan assets held in trusts are legally separated from the Company and are governed by local regulations and practice in each country, as is the nature of the relationship between the Company and the governing bodies and their composition. In general terms, governing bodies are required by law to act in the best interest of the plan members and are responsible for certain tasks related to the plan (e.g. setting the plan's investment policy).
In case of the funded pension plans, the investment positions are generally managed within an asset-liability matching ("ALM") framework that has been developed to achieve long-term investments that are in line with the obligations of the pension plans.
A long-term investment strategy has been set for ArcelorMittal’s major funded pension plans, with its asset allocation comprising of a mixture of equity securities, fixed income securities, real estate and other appropriate assets. This recognizes that different asset classes are likely to produce different long-term returns and some asset classes may be more volatile than others. The long-term investment strategy ensures, in particular, that investments are adequately diversified.
| | |
327 Consolidated financial statements |
The following tables detail the reconciliation of defined benefit obligation (“DBO”), plan assets, irrecoverable surplus and statements of financial position.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
| Total | | United States | | Canada | | Brazil | | Europe | | Other |
| Change in benefit obligation | | | | | | | | | | | |
| Benefit obligation at beginning of the period | 7,604 | | | 39 | | | 3,590 | | | 517 | | | 3,173 | | | 285 | |
| Current service cost | 105 | | | 1 | | | 29 | | | — | | | 69 | | | 6 | |
| Interest cost on DBO | 162 | | | 1 | | | 89 | | | 33 | | | 17 | | | 22 | |
| Past service cost - Plan amendments | 31 | | | — | | | 28 | | | — | | | 3 | | | — | |
| | | | | | | | | | | |
| Plan participants’ contribution | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| Settlements | (5) | | | — | | | (4) | | | (1) | | | — | | | — | |
| Actuarial (gain) loss | (509) | | | (4) | | | (216) | | | (83) | | | (173) | | | (33) | |
| Demographic assumptions | 9 | | | — | | | — | | | 10 | | | (1) | | | — | |
| Financial assumptions | (364) | | | (3) | | | (207) | | | (103) | | | (13) | | | (38) | |
| Experience adjustment | (154) | | | (1) | | | (9) | | | 10 | | | (159) | | | 5 | |
| Benefits paid | (428) | | | (3) | | | (219) | | | (31) | | | (148) | | | (27) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Foreign currency exchange rate differences and other movements | (222) | | | — | | | 9 | | | (37) | | | (191) | | | (3) | |
| Benefit obligation at end of the period | 6,739 | | | 34 | | | 3,306 | | | 398 | | | 2,751 | | | 250 | |
| | | | | | | | | | | |
| Change in plan assets | | | | | | | | | | | |
| Fair value of plan assets at beginning of the period | 4,654 | | | 45 | | | 3,167 | | | 435 | | | 1,007 | | | — | |
| Interest income on plan assets | 108 | | | 1 | | | 76 | | | 26 | | | 5 | | | — | |
| Return on plan assets greater (less) than discount rate | 41 | | | (4) | | | 103 | | | (25) | | | (33) | | | — | |
| Employer contribution | 72 | | | — | | | 29 | | | — | | | 43 | | | — | |
| Plan participants’ contribution | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| Settlements | (5) | | | — | | | (4) | | | (1) | | | — | | | — | |
| | | | | | | | | | | |
| Benefits paid | (313) | | | (3) | | | (218) | | | (31) | | | (61) | | | — | |
| | | | | | | | | | | |
| Foreign currency exchange rate differences and other movements | (62) | | | — | | | 10 | | | (28) | | | (44) | | | — | |
| Fair value of plan assets at end of the period | 4,496 | | | 39 | | | 3,163 | | | 376 | | | 918 | | | — | |
| | | | | | | | | | | |
| Present value of the wholly or partly funded obligation | (5,222) | | | (32) | | | (3,291) | | | (398) | | | (1,501) | | | — | |
| Fair value of plan assets | 4,496 | | | 39 | | | 3,163 | | | 376 | | | 918 | | | — | |
| Net present value of the wholly or partly funded obligation | (726) | | | 7 | | | (128) | | | (22) | | | (583) | | | — | |
| Present value of the unfunded obligation | (1,517) | | | (2) | | | (15) | | | — | | | (1,250) | | | (250) | |
| Prepaid due to unrecoverable surpluses | (33) | | | — | | | (28) | | | (2) | | | (3) | | | — | |
| Net amount recognized | (2,276) | | | 5 | | | (171) | | | (24) | | | (1,836) | | | (250) | |
| | | | | | | | | | | |
| Net assets related to funded obligations | 58 | | | 7 | | | 47 | | | — | | | 4 | | | — | |
| Recognized liabilities | (2,334) | | | (2) | | | (218) | | | (24) | | | (1,840) | | | (250) | |
| | | | | | | | | | | |
| Change in unrecoverable surplus | | | | | | | | | | | |
| Unrecoverable surplus at beginning of the period | (27) | | | — | | | (23) | | | (1) | | | (3) | | | — | |
| Interest cost on unrecoverable surplus | (1) | | | — | | | (1) | | | — | | | — | | | — | |
| Change in unrecoverable surplus in excess of interest | (5) | | | — | | | (4) | | | (1) | | | — | | | — | |
| | | | | | | | | | | |
| Unrecoverable surplus at end of the period | (33) | | | — | | | (28) | | | (2) | | | (3) | | | — | |
| | |
Consolidated financial statements 328 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2020 |
| Total | | United States | | Canada | | Brazil | | Europe | | Other |
| Change in benefit obligation | | | | | | | | | | | |
| Benefit obligation at beginning of the period | 10,629 | | | 3,505 | | | 3,360 | | | 664 | | | 2,830 | | | 270 | |
| Current service cost | 129 | | | 28 | | | 25 | | | — | | | 64 | | | 12 | |
| Interest cost on DBO | 279 | | | 95 | | | 96 | | | 36 | | | 29 | | | 23 | |
| Past service cost - Plan amendments | 8 | | | 1 | | | 3 | | | — | | | 4 | | | — | |
| Past service cost - Curtailments | 2 | | | 2 | | | — | | | — | | | — | | | — | |
| Plan participants’ contribution | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| | | | | | | | | | | |
| Actuarial (gain) loss | 705 | | | 237 | | | 250 | | | (3) | | | 185 | | | 36 | |
| Demographic assumptions | (32) | | | (32) | | | — | | | — | | | — | | | — | |
| Financial assumptions | 795 | | | 286 | | | 276 | | | 5 | | | 214 | | | 14 | |
| Experience adjustment | (58) | | | (17) | | | (26) | | | (8) | | | (29) | | | 22 | |
| Benefits paid | (693) | | | (279) | | | (206) | | | (32) | | | (149) | | | (27) | |
| Divestments (note 2.3.1) | (3,550) | | | (3,550) | | | — | | | — | | | — | | | — | |
| Foreign currency exchange rate differences and other movements | 94 | | | — | | | 62 | | | (148) | | | 209 | | | (29) | |
| Benefit obligation at end of the period | 7,604 | | | 39 | | | 3,590 | | | 517 | | | 3,173 | | | 285 | |
| | | | | | | | | | | |
| Change in plan assets | | | | | | | | | | | |
| Fair value of plan assets at beginning of the period | 7,395 | | | 2,881 | | | 3,021 | | | 576 | | | 917 | | | — | |
| Interest income on plan assets | 192 | | | 69 | | | 84 | | | 31 | | | 8 | | | — | |
| Return on plan assets greater (less) than discount rate | 444 | | | 209 | | | 188 | | | (12) | | | 59 | | | — | |
| Employer contribution | 64 | | | 2 | | | 21 | | | 1 | | | 40 | | | — | |
| Plan participants’ contribution | 1 | | | — | | | — | | | — | | | 1 | | | — | |
| Plan amendments | 2 | | | 2 | | | — | | | — | | | — | | | — | |
| Benefits paid | (579) | | | (276) | | | (205) | | | (32) | | | (66) | | | — | |
| Divestments (note 2.3.1) | (2,842) | | | (2,842) | | | — | | | — | | | — | | | — | |
| Foreign currency exchange rate differences and other movements | (23) | | | — | | | 58 | | | (129) | | | 48 | | | — | |
| Fair value of plan assets at end of the period | 4,654 | | | 45 | | | 3,167 | | | 435 | | | 1,007 | | | — | |
| | | | | | | | | | | |
| Present value of the wholly or partly funded obligation | (5,831) | | | (37) | | | (3,575) | | | (517) | | | (1,702) | | | — | |
| Fair value of plan assets | 4,654 | | | 45 | | | 3,167 | | | 435 | | | 1,007 | | | — | |
| Net present value of the wholly or partly funded obligation | (1,177) | | | 8 | | | (408) | | | (82) | | | (695) | | | — | |
| Present value of the unfunded obligation | (1,773) | | | (2) | | | (15) | | | — | | | (1,471) | | | (285) | |
| Prepaid due to unrecoverable surpluses | (27) | | | — | | | (23) | | | (1) | | | (3) | | | — | |
| Net amount recognized | (2,977) | | | 6 | | | (446) | | | (83) | | | (2,169) | | | (285) | |
| | | | | | | | | | | |
| Net assets related to funded obligations | 23 | | | 8 | | | 11 | | | — | | | 4 | | | — | |
| Recognized liabilities | (3,000) | | | (2) | | | (457) | | | (83) | | | (2,173) | | | (285) | |
| | | | | | | | | | | |
| Change in unrecoverable surplus | | | | | | | | | | | |
| Unrecoverable surplus at beginning of the period | (30) | | | — | | | (25) | | | (2) | | | (3) | | | — | |
| Interest cost on unrecoverable surplus | (1) | | | — | | | (1) | | | — | | | — | | | — | |
| Change in unrecoverable surplus in excess of interest | 4 | | | — | | | 3 | | | 1 | | | — | | | — | |
| | | | | | | | | | | |
| Unrecoverable surplus at end of the period | (27) | | | — | | | (23) | | | (1) | | | (3) | | | — | |
| | |
329 Consolidated financial statements |
The following tables detail the components of net periodic pension cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2021 |
| Net periodic pension cost (income) | Total | | United States | | Canada | | Brazil | | Europe | | Others |
| Current service cost | 105 | | | 1 | | | 29 | | | — | | | 69 | | | 6 | |
| Past service cost - Plan amendments | 31 | | | — | | | 28 | | | — | | | 3 | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net interest cost (income) on net DB liability (asset) | 55 | | | — | | | 14 | | | 7 | | | 12 | | | 22 | |
| Total | 191 | | | 1 | | | 71 | | | 7 | | | 84 | | | 28 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2020 |
| Net periodic pension cost (income) | Total | | United States | | Canada | | Brazil | | Europe | | Others |
| Current service cost | 129 | | | 28 | | | 25 | | | — | | | 64 | | | 12 | |
| Past service cost - Plan amendments | 6 | | | (1) | | | 3 | | | — | | | 4 | | | — | |
| Past service cost - Curtailments | 2 | | | 2 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Net interest cost/(income) on net DB liability (asset) | 88 | | | 26 | | | 13 | | | 5 | | | 21 | | | 23 | |
| Total | 225 | | | 55 | | | 41 | | | 5 | | | 89 | | | 35 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2019 |
| Net periodic pension cost (income) | Total | | United States | | Canada | | Brazil | | Europe | | Others |
| Current service cost | 114 | | | 26 | | | 21 | | | — | | | 58 | | | 9 | |
| Past service cost - Plan amendments | 4 | | | — | | | — | | | 2 | | | 2 | | | — | |
| Past service cost - Settlements | (26) | | | — | | | — | | | (26) | | | — | | | — | |
| | | | | | | | | | | |
| Net interest cost (income) on net DB liability (asset) | 112 | | | 35 | | | 19 | | | 4 | | | 32 | | | 22 | |
| Total | 204 | | | 61 | | | 40 | | | (20) | | | 92 | | | 31 | |
Other post-employment benefits and other long-term employee benefits ("OPEB")
This section includes post employment employees benefits that are not disclosed above (i.e. includes lump sum benefits which are mandatory by law, medical insurance and life insurance). In addition, this section includes all other long-term employee benefits.
ArcelorMittal’s principal operating subsidiaries in Canada, Europe and certain other countries, provide other post employment benefits and other long-term employee benefits, including medical benefits and life insurance benefits, work
medals and retirement indemnity plans, to employees and retirees.
In April 2021, ArcelorMittal Poland and trade unions reached an agreement on the new CLA. The parties agreed a ten-year transition period for retirement benefits and jubilee awards. At the end of the transition period, in 2031, ArcelorMittal Poland will pay the retirement benefits based on the labor code. In June 2021, the CLA was registered by the National Labor Inspectorate in Poland and accordingly ArcelorMittal Poland recognized total plan amendment and curtailment gain of 51 in cost of sales.
| | |
Consolidated financial statements 330 |
| (millions of U.S. dollar, except share and per share data) |
Summary of changes in the other post-employment benefit obligation and changes in plan assets are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
| Total | | United States | | Canada | | Europe | | Others |
| Change in benefit obligation | | | | | | | | | |
| Benefit obligation at beginning of the period | 1,438 | | | 28 | | | 742 | | | 590 | | | 78 | |
| Current service cost | 9 | | | — | | | (1) | | | 7 | | | 3 | |
| Interest cost on DBO | 25 | | | 1 | | | 18 | | | 2 | | | 4 | |
| Past service cost - Plan amendments | (57) | | | — | | | 1 | | | (58) | | | — | |
| Past service cost - Curtailments | (7) | | | — | | | — | | | (7) | | | — | |
| | | | | | | | | |
| Actuarial (gain) loss | (111) | | | (1) | | | (66) | | | (43) | | | (1) | |
| Demographic assumptions | (1) | | | — | | | (2) | | | 1 | | | — | |
| Financial assumptions | (66) | | | — | | | (55) | | | (5) | | | (6) | |
| Experience adjustment | (44) | | | (1) | | | (9) | | | (39) | | | 5 | |
| Benefits paid | (82) | | | (1) | | | (34) | | | (44) | | | (3) | |
| | | | | | | | | |
| Foreign currency exchange rate differences and other movements | (25) | | | — | |
| 1 | | | (24) | | | (2) | |
| Benefit obligation at end of the period | 1,190 | | | 27 | | | 661 | | | 423 | | | 79 | |
| | | | | | | | | |
| Change in plan assets | | | | | | | | | |
| Fair value of plan assets at beginning of the period | 6 | | | — | | | — | | | 6 | | | — | |
| | | | | | | | | |
| Return on plan assets greater than discount rate | 1 | | | — | | | — | | | 1 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Benefits paid | (1) | | | — | | | — | | | (1) | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Fair value of plan assets at end of the period | 6 | | | — | | | — | | | 6 | | | — | |
| | | | | | | | | |
| Present value of the wholly or partly funded obligation | (29) | | | — | | | — | | | (29) | | | — | |
| Fair value of plan assets | 6 | | | — | | | — | | | 6 | | | — | |
| Net present value of the wholly or partly funded obligation | (23) | | | — | | | — | | | (23) | | | — | |
| Present value of the unfunded obligation | (1,161) | | | (27) | | | (661) | | | (394) | | | (79) | |
| Net amount recognized | (1,184) | | | (27) | | | (661) | | | (417) | | | (79) | |
| | |
331 Consolidated financial statements |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2020 |
| Total | | United States | | Canada | | Europe | | Others |
| Change in benefit obligation | | | | | | | | | |
| Benefit obligation at beginning of the period | 4,294 | | | 2,976 | | | 688 | | | 546 | | | 84 | |
| Current service cost | 85 | | | 44 | | | 10 | | | 27 | | | 4 | |
| Interest cost on DBO | 122 | | | 91 | | | 19 | | | 7 | | | 5 | |
| Past service cost - Plan amendments | (1) | | | — | | | (1) | | | — | | | — | |
| Past service cost - Curtailments | 3 | | | 3 | | | — | | | — | | | — | |
| Plan participants’ contribution | 23 | | | 23 | | | — | | | — | | | — | |
| Actuarial (gain) loss | 113 | | | 46 | | | 41 | | | 26 | | | — | |
| Demographic assumptions | (39) | | | (39) | | | — | | | — | | | — | |
| Financial assumptions | 266 | | | 170 | | | 54 | | | 37 | | | 5 | |
| Experience adjustment | (114) | | | (85) | | | (13) | | | (11) | | | (5) | |
| Benefits paid | (208) | | | (131) | | | (30) | | | (37) | | | (10) | |
| Divestments (note 2.3.1) | (3,024) | | | (3,024) | | | — | | | — | | | — | |
| Foreign currency exchange rate differences and other movements | 31 | | | — | |
| 15 | | | 21 | | | (5) | |
| Benefit obligation at end of the period | 1,438 | | | 28 | | | 742 | | | 590 | | | 78 | |
| | | | | | | | | |
| Change in plan assets | | | | | | | | | |
| Fair value of plan assets at beginning of the period | 502 | | | 496 | | | — | | | 6 | | | — | |
| Interest income on plan assets | 12 | | | 12 | | | — | | | — | | | — | |
| Return on plan assets greater/(less) than discount rate | 11 | | | 11 | | | — | | | — | | | — | |
| Employer contribution | (32) | | | (32) | | | — | | | — | | | — | |
| Plan participants’ contribution | 23 | | | 23 | | | — | | | — | | | — | |
| Benefits paid | (22) | | | (21) | | | — | | | (1) | | | — | |
| Divestments (note 2.3.1) | (489) | | | (489) | | | — | | | — | | | — | |
| Foreign currency exchange rate differences and other movements | 1 | | | — | | | — | | | 1 | | | — | |
| Fair value of plan assets at end of the period | 6 | | | — | | | — | | | 6 | | | — | |
| | | | | | | | | |
| Present value of the wholly or partly funded obligation | (34) | | | — | | | — | | | (34) | | | — | |
| Fair value of plan assets | 6 | | | — | | | — | | | 6 | | | — | |
| Net present value of the wholly or partly funded obligation | (28) | | | — | | | — | | | (28) | | | — | |
| Present value of the unfunded obligation | (1,404) | | | (28) | | | (742) | | | (556) | | | (78) | |
| Net amount recognized | (1,432) | | | (28) | | | (742) | | | (584) | | | (78) | |
| | |
Consolidated financial statements 332 |
| (millions of U.S. dollar, except share and per share data) |
The following tables detail the components of net periodic other post-employment cost:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2021 |
| Components of net periodic OPEB cost (income) | Total | | United States | | Canada | | Europe | | Others |
| Current service cost | 9 | | | — | | | (1) | | | 7 | | | 3 | |
| Past service cost - Plan amendments | (57) | | | — | | | 1 | | | (58) | | | — | |
| Past service cost - Curtailments | (7) | | | — | | | — | | | (7) | | | — | |
| Net interest cost (income) on net DB liability (asset) | 25 | | | 1 | | | 18 | | | 2 | | | 4 | |
| Actuarial gain recognized during the year | (14) | | | — | | | (1) | | | (13) | | | — | |
| Total | (44) | | | 1 | | | 17 | | | (69) | | | 7 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2020 |
| Components of net periodic OPEB cost (income) | Total | | United States | | Canada | | Europe | | Others |
| Current service cost | 85 | | | 44 | | | 10 | | | 27 | | | 4 | |
| Past service cost - Plan amendments | (1) | | | — | | | (1) | | | — | | | — | |
| Past service cost - Curtailments | 3 | | | 3 | | | — | | | — | | | — | |
| Net interest cost (income) on net DB liability (asset) | 110 | | | 79 | | | 19 | | | 7 | | | 5 | |
| Actuarial losses recognized during the year | 8 | | | — | | | — | | | 8 | | | — | |
| Total | 205 | | | 126 | | | 28 | | | 42 | | | 9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2019 |
| Components of net periodic OPEB cost (income) | Total | | United States | | Canada | | Europe | | Others |
| Current service cost | 80 | | | 40 | | | 9 | | | 28 | | | 3 | |
| | | | | | | | | |
| | | | | | | | | |
| Net interest cost (income) on net DB liability (asset) | 143 | | | 104 | | | 22 | | | 11 | | | 6 | |
| Actuarial losses recognized during the year | 8 | | | — | | | — | | | 8 | | | — | |
| Total | 231 | | | 144 | | | 31 | | | 47 | | | 9 | |
The following tables detail where the expense is recognized in the consolidated statements of operations:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Net periodic pension cost | 191 | | | 225 | | | 204 | |
| Net periodic OPEB cost | (44) | | | 205 | | | 231 | |
| Total | 147 | | | 430 | | | 435 | |
| | | | | |
| Cost of sales | 72 | | | 189 | | | 142 | |
| Selling, general and administrative expenses | 9 | | | 34 | | | 30 | |
| Financing costs - net | 66 | | | 207 | | | 263 | |
| Total | 147 | | | 430 | | | 435 | |
| | |
333 Consolidated financial statements |
The weighted-average asset allocations for the funded defined benefit plans by asset category were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Canada | | Brazil | | Europe | |
| Equity Securities | | 35 | % | | 6 | % | | 1 | % | |
| - Asset classes that have a quoted market price in an active market | | 27 | % | | 3 | % | | 1 | % | |
| - Asset classes that do not have a quoted market price in an active market | | 8 | % | | 3 | % | | — | | |
| Fixed Income Securities (including cash) | | 53 | % | | 87 | % | | 69 | % | |
| - Asset classes that have a quoted market price in an active market | | 49 | % | | 87 | % | | 69 | % | |
| - Asset classes that do not have a quoted market price in an active market | | 4 | % | | — | | | — | | |
| Real Estate | | 7 | % | | 1 | % | | — | | |
| - Asset classes that have a quoted market price in an active market | | — | | | — | | | — | | |
| - Asset classes that do not have a quoted market price in an active market | | 7 | % | | 1 | % | | — | | |
| Other | | 5 | % | | 6 | % | | 30 | % | |
| - Asset classes that have a quoted market price in an active market | | — | | | 6 | % | | 8 | % | |
| - Asset classes that do not have a quoted market price in an active market | | 5 | % | | — | | | 22 | % | '1 |
| Total | | 100 | % | | 100 | % | | 100 | % | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Canada | | Brazil | | Europe | |
| Equity Securities | | 47 | % | | 6 | % | | 1 | % | |
| - Asset classes that have a quoted market price in an active market | | 39 | % | | 3 | % | | 1 | % | |
| - Asset classes that do not have a quoted market price in an active market | | 8 | % | | 3 | % | | — | | |
| Fixed Income Securities (including cash) | | 46 | % | | 77 | % | | 72 | % | |
| - Asset classes that have a quoted market price in an active market | | 42 | % | | 77 | % | | 72 | % | |
| - Asset classes that do not have a quoted market price in an active market | | 4 | % | | — | | | — | | |
| Real Estate | | 6 | % | | 1 | % | | — | | |
| - Asset classes that have a quoted market price in an active market | | — | | | 1 | % | | — | | |
| - Asset classes that do not have a quoted market price in an active market | | 6 | % | | — | | | — | | |
| Other | | 1 | % | | 16 | % | | 27 | % | |
| - Asset classes that have a quoted market price in an active market | | — | | | 16 | % | | 5 | % | |
| - Asset classes that do not have a quoted market price in an active market | | 1 | % | | — | | | 22 | % | '1 |
| Total | | 100 | % | | 100 | % | | 100 | % | |
1.The percentage consists primarily of assets from insurance contracts in Belgium.
These assets do not include direct investments in ArcelorMittal stock or ArcelorMittal bonds. They may include ArcelorMittal shares or bonds held by mutual fund investments. The invested assets produced an actual return of 150 and 659 in 2021 and 2020, respectively.
The Finance and Retirement Committees of the Boards of Directors for the respective operating subsidiaries have general supervisory authority over the respective trust funds. These committees usually establish, monitor and review asset allocation targets for the respective funds. Asset managers are permitted some flexibility to vary the asset allocation from the long-term investment strategy within agreed upon control ranges. The established targets observed as of December 31, 2021 are as described below:
| | |
Consolidated financial statements 334 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| | | Canada | | Brazil | | Europe | |
| Equity Securities | | 35 | % | | 6 | % | | 2 | % | |
| Fixed Income Securities (including cash) | | 55 | % | | 87 | % | | 68 | % | |
| Real Estate | | 5 | % | | 1 | % | | — | | |
| Other | | 5 | % | | 6 | % | | 30 | % | '1 |
| Total | | 100 | % | | 100 | % | | 100 | % | |
1.The percentage consists primarily of assets from insurance contracts in Belgium.
Assumptions used to determine benefit obligations at December 31,
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Plans | | Other Post-employment Benefits |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Discount rate | | | | | | | | | | | |
| Range | 1.00% - 11.00% | | 0.50% - 10.00% | | 1.00% - 10.50% | | 1.00% - 7.95% | | 0.50% - 6.20% | | 1.00% - 7.25% |
| Weighted average | 2.75% | | 2.13% | | 2.90% | | 2.65% | | 1.84% | | 3.06% |
| Rate of compensation increase | | | | | | | | | | | |
| Range | 2.00% - 10.00% | | 1.72% - 10.00% | | 1.90% - 10.00% | | 2.00% - 4.80% | | 1.30% - 4.80% | | 1.60% - 4.80% |
| Weighted average | 2.87% | | 2.71% | | 2.80% | | 3.14% | | 2.85% | | 2.95% |
| | | | | | | | | | | | | | | | | |
| | Other Post-employment Benefits |
| | 2021 | | 2020 | | 2019 |
| Healthcare cost trend rate assumed | | | | | |
| Range | 1.30% - 4.50% | | 1.40% - 4.50% | | 1.80% - 5.00% |
| Weighted average | 3.95% | | 3.94% | | 4.42% |
Cash contributions and maturity profile of the plans
In 2022, the Company expects its cash contributions to amount to 157 for pension plans, 65 for other post-employment benefits plans and 148 for defined contribution plans. In 2021 and 2020, cash contributions to defined contributions plans were 78 and 88, respectively.
In 2020, cash contributions to United States multi-employer plans sponsored by the Company were 65, until December 9, 2020, date of sale of ArcelorMittal USA (see note 2.3.1).
At December 31, 2021 and December 31, 2020, the weighted average duration of liabilities related to pension and other post-employment benefits plans were 13 years and 13 years and 14 years and 13 years, respectively.
Risks associated with defined benefit plans
Through its defined benefit pension plans and OPEB plans, ArcelorMittal is exposed to a number of risks, the most significant of which are detailed below:
Changes in bond yields
An increase in corporate bond yields will decrease plan liabilities, however it will decrease simultaneously the value of the plans’ bond holdings.
Asset volatility
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit. In most countries with funded plans, plan assets hold a significant portion of equities, which are expected to outperform corporate bonds in the long-term but contribute to volatility and risk in the short-term. As the plans mature, ArcelorMittal intends to reduce the level of investment risk by investing more in assets that better match the liabilities. However, ArcelorMittal believes that due to the long-term nature of the plan liabilities, a level of continuing equity investment is an appropriate element of a long-term strategy to manage the plans efficiently.
| | |
335 Consolidated financial statements |
Life expectancy
Most plans provide benefits for the life of the covered members, so increases in life expectancy will result in an increase in the plans’ benefit obligations.
Assumptions regarding future mortality rates have been set considering published statistics and, where possible, ArcelorMittal’s own experience.
The current longevity at retirement underlying the values of the defined benefit obligation was approximately 23 years.
Healthcare cost trend rate
The majority of the OPEB plans’ benefit obligations are linked to the change in the cost of various health care components. Future healthcare cost will vary based on several factors including price inflation, utilization rate, technology advances, cost shifting and cost containing mechanisms. A higher healthcare cost trend would lead to higher OPEB plan benefit obligations.
Sensitivity analysis
The following information illustrates the sensitivity to a change of the significant actuarial assumptions related to ArcelorMittal’s pension plans (as of December 31, 2021, the defined benefit obligation for pension plans was 6,739):
| | | | | | | | | | | |
| Effect on 2022 Pre-Tax Pension Expense (sum of service cost and interest cost) | | Effect on December 31, 2021 DBO |
| Change in assumption | | | |
100 basis points decrease in discount rate | (27) | | | 955 | |
100 basis points increase in discount rate | 21 | | | (764) | |
100 basis points decrease in rate of compensation | (14) | | | (182) | |
100 basis points increase in rate of compensation | 15 | | | 182 | |
1 year increase of the expected life of the beneficiaries | 6 | | | 192 | |
The following table illustrates the sensitivity to a change of the significant actuarial assumptions related to ArcelorMittal’s OPEB plans (as of December 31, 2021 the defined benefit obligation for post-employment benefit plans was 1,190):
| | | | | | | | | | | |
| Effect on 2022 Pre-Tax OPEB Expense (sum of service cost and interest cost) | | Effect on December 31, 2021 DBO |
| Change in assumption | | | |
100 basis points decrease in discount rate | (1) | | | 179 | |
100 basis points increase in discount rate | 1 | | | (142) | |
100 basis points decrease in healthcare cost trend rate | (5) | | | (83) | |
100 basis points increase in healthcare cost trend rate | 6 | | | 104 | |
1 year increase of the expected life of the beneficiaries | 1 | | | 28 | |
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.
8.3 Share-based payments
ArcelorMittal issues equity-settled share-based payments to certain employees, including stock options, RSUs and PSUs. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the grant date. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a graded vesting basis over the vesting period, based on the Company’s estimate of the shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. Where the fair value calculation requires modeling of the Company’s
performance against other market index, fair value is measured using the Monte Carlo pricing model to estimate the forecasted target performance goal for the company and its peer companies. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations. In addition, the expected annualized volatility has been set by reference to the implied volatility of options available on ArcelorMittal shares in the open market, as well as, historical patterns of volatility. For the RSUs and PSUs, the fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight line method over the vesting period and adjusted for the effect of non market-based vesting conditions.
| | |
Consolidated financial statements 336 |
| (millions of U.S. dollar, except share and per share data) |
Stock Option Plans
Prior to the May 2011 annual general meeting of shareholders ("AGM") adoption of the ArcelorMittal Equity Incentive Plan described below, ArcelorMittal’s equity-based incentive plan took the form of a stock option plan known as the Global Stock Option Plan.
Under the terms of the ArcelorMittal Global Stock Option Plan 2009-2018 (which replaced the ArcelorMittal Shares plan that expired in 2009), ArcelorMittal may grant options to purchase common shares to senior management of ArcelorMittal and its associates for up to 33,333,333 common shares. The exercise price of each option equals not less than the fair market value of ArcelorMittal shares on the grant date, with a maximum term of ten years. Options are granted at the discretion of ArcelorMittal’s Appointments, Remuneration and Corporate Governance ("ARCG") Committee (formerly ARCGS Committee), or its delegate. The options vest either ratably upon each of the first three anniversaries of the grant date, or, in total, upon the death, disability or retirement of the participant.
| | | | | |
| Grant date | Exercise prices (per option) |
| August 2010 | $91.98 | |
No options were granted during the years ended December 31, 2021, 2020, and 2019. The compensation expense recognized for stock option plans was nil for each of the years ended December 31, 2021, 2020 and 2019.
Option activity with respect to ArcelorMittal Shares and ArcelorMittal Global Stock Option Plan 2009-2018 is summarized below as of and for each of the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | |
| Number of Options | | Range of Exercise Prices
(per option) | | Weighted Average Exercise Price
(per option) |
| | | | | |
| | | | | |
| Outstanding, December 31, 2018 | 1,989,375 | | | 91.98 – 109.14 | | 100.33 | |
| Expired | (1,084,985) | | | 91.98 – 109.14 | | 107.29 | |
| Outstanding, December 31, 2019 | 904,390 | | | 91.98 | | 91.98 | |
| Expired | (904,390) | | | 91.98 | | 91.98 | |
| Outstanding, December 31, 2020 | — | | | — | | | — | |
| | | | | |
| | | | | |
| Exercisable, December 31, 2019 | 904,390 | | | 91.98 | | 91.98 | |
| Exercisable, December 31, 2020 | — | | | — | | | — | |
| Exercisable, December 31, 2021 | — | | | — | | | — | |
There were no stock options of the Company outstanding as of December 31, 2021.
ArcelorMittal Equity Incentive Plan
On May 10, 2011, the AGM approved the ArcelorMittal Equity Incentive Plan, a new equity-based incentive plan that replaced the Global Stock Option Plan. The ArcelorMittal Equity Incentive Plan is intended to align the interests of the Company’s shareholders and eligible employees by allowing them to participate in the success of the Company. The ArcelorMittal Equity Incentive Plan provides for the grant of RSUs and PSUs to eligible Company employees (including Executive Officers) and is designed to incentivize employees, improve the Company’s long-term performance and retain key employees.
The grant of PSUs under the ArcelorMittal Equity Incentive Plan aims to serve as an effective performance-enhancing scheme based on the employee’s contribution to the eligible achievement of the Company’s strategy. Awards in connection with PSUs are subject to the fulfillment of cumulative performance criteria (such as return on capital employed ("ROCE"), total shareholders return ("TSR"), earnings per share ("EPS"), environmental, social and governance ("ESG") and gap to competition) over a three-year period from the date of the PSU grant. The employees eligible to receive PSUs are a sub-set of the group of employees eligible to receive RSUs.
RSUs granted under the ArcelorMittal Equity Incentive Plan are designed to provide a retention incentive to eligible employees. RSUs are subject to “cliff vesting” after three years, with 100% of the grant vesting on the third anniversary of the grant contingent upon the continued active employment of the eligible employee within the Company.
The maximum number of PSUs (and RSUs) available for grant during any given year is subject to the prior approval of the Company’s shareholders at the AGM. The 2019, 2020 and 2021 Caps for the number of PSUs/RSUs that may be allocated to the Executive Office and other retention and performance based grants below the Executive Office level, were approved at the AGMs on May 7, 2019, June 13, 2020 and June 8, 2021, respectively, at a maximum of 2,500,000 shares, 4,250,000 shares and 3,500,000 shares, respectively.
In 2020, 316,684 RSUs were granted as a special grant with a one year vesting period to compensate salary reduction in 2020 contingent upon the continued active employment of the eligible employee within the Company until the vesting date i.e. December 14, 2021.
| | |
337 Consolidated financial statements |
Conditions of the 2021 grant were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Executive office | | Executive Officers |
| 2021 Grant | l | PSUs with a three year performance period | l | PSUs with a three year performance period |
| l | Value at grant 100% of base salary for the Executive Chairman and the CEO | | |
| l | Vesting conditions: | l | Vesting conditions |
| | Threshold | Target | | | Target | Stretch |
| TSR vs. peer group (50%) / EPS vs. peer group (20%)
| 100% median | ≥120% median | | TSR vs. peer group (40%) | 100% weighted average | ≥120% weighted average |
| Vesting percentage | 50% | 100% | | Vesting percentage | 100% | 150% |
| | | | | | Gap to competition (40%) | 100% of target | 120% of target |
| ESG (30%) | | 100% of target | | Vesting percentage | 100% | 150% |
| | | | | | ESG | (20%) | 100% of target | 120% of target |
| Vesting percentage | | 100% | | | | 100% | 150% |
| | | | | l | RSUs with a three year vesting period |
| l | RSUs with a two year vesting period |
Awards made in previous financial years which have not yet reached the end of the vesting period
ArcelorMittal's Equity Incentive Plan for senior management including Executive Officers follows the Company's strategy.
In 2016, in order to ensure achievement of the Action 2020 plan, ArcelorMittal made a special grant (“Special Grant”) to qualifying employees (including Executive Officers), instead of the standard grant. The value of the Special Grant at grant date is
based generally on a specified percentage of the base salary depending on the position of the employee at grant date. The vesting is subject to continued active employment within the ArcelorMittal group and to yearly performance of ROCE targets and other strategic objectives within the business units.
In addition to the 2021 grant, the summary of outstanding plans as of December 31, 2021 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Executive office | | |
| 2016 Special Grant | l | PSUs with a five year performance period, 50% vesting after three year performance period and 50% after additional two year performance period | | |
| l | Performance criteria: 50% TSR (½ vs. S&P 500 and ½ vs. peer group) and 50% EPS vs. peer group | | |
| l | Value at grant: 150% of base salary for the Executive Chairman and the CEO | | |
| l | Vesting conditions: | | | |
| Threshold | Target | | | | | |
| TSR/EPS vs. peer group | 100% median | ≥120% median | | | | |
| TSR vs. S&P 500 | Performance equal to Index | ≥Performance equal to Index + 2% p.a. outperformance | | | | |
| Vesting percentage | 50% | 100% | | | |
| | |
Consolidated financial statements 338 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Executive office | Executive officers |
| 2018 Grant | l | PSUs with a three year performance period | l | PSUs with a three year performance period | |
| l | Value at grant 100% of base salary for the Executive Chairman and the CEO | | | |
| l | Vesting conditions: | l | Vesting conditions | |
| | Threshold | Target | | | |
| TSR/EPS vs. peer group
| 100% median | ≥120% median | | ROCE | 100% target 100% vesting |
| TSR vs. S&P 500
| Performance equal to Index
| ≥Performance equal to Index + 2% p.a. outperformance | | Gap to competition (where applicable) | 100% target 100% vesting |
| Vesting percentage | 50% | 100% | | | |
| | | | | | | | | | |
| Executive office | Executive officers |
| 2019 Grant | l | PSUs with a three year performance period | l | PSUs with a three year performance period |
| l | Value at grant 100% of base salary for the Executive Chairman and the CEO | |
| l | Vesting conditions: | l | Vesting conditions: | |
| | Threshold | Target | | |
| TSR/EPS vs. peer group | 100% median | ≥120% median | | ROCE | 100% target 100% vesting |
| TSR vs. S&P 500 | Performance equal to Index | ≥Performance equal to Index + 2% p.a. outperformance | | Gap to competition (where applicable) | 100% target 100% vesting |
| Vesting percentage | 50% | 100% | |
| | | | | | | | | | |
| Executive office | Executive officers |
| 2020 Grant | l | PSUs with a three year performance period | l | PSUs with a three year performance period |
| l | Value at grant 100% of base salary for the Executive Chairman and the CEO | | |
| l | Vesting conditions: | l | Vesting conditions: |
| Threshold | Target | | | Threshold | Target |
| TSR/EPS vs. peer group | 100% median | ≥120% median | | TSR/EPS vs. peer group | 100% median | ≥120% median |
| | | | | Vesting percentage | 50% | 100% |
| TSR vs. S&P 500 | Performance equal to Index | ≥Performance equal to Index + 2% p.a. outperformance | | Gap to competition (where applicable) | | 100% target 100% vesting |
| Vesting percentage | 50% | 100% | | Vesting percentage | 0% | 100% |
| | | | | | | | | |
| | | | l | RSUs with a three year vesting period |
| | | | | | | | | |
| | | | | l | RSUs with a one year vesting period |
| | |
339 Consolidated financial statements |
The following table summarizes the Company’s share unit plans outstanding as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At Grant date | | Number of shares issued as of December 31, 2021 |
| Grant date | | Type of plan | | Number of shares | | Number of beneficiaries | | Maturity | | Fair value
per share | | Shares outstanding | | | | Shares forfeited | | Shares exited |
| December 16, 2021 | | RSU | | 729,250 | | | 658 | | | December 16, 2024 | | 32.66 | | | 729,250 | | | | | — | | | — | |
| December 16, 2021 | | PSU | | 575,400 | | | 244 | | | January 1, 2025 | | 28.29 | | | 575,400 | | | | | — | | | — | |
| December 16, 2021 | | Executive Office | | 109,143 | | | 2 | | | January 1, 2025 | | 27.20 | | | 109,143 | | | | | — | | | — | |
| May 7, 2021 | | RSU | | 350,000 | | | 189 | | | May 7, 2023 | | 32.55 | | | 336,500 | | | | | 12,194 | | | 1,306 | |
| December 14, 2020 | | RSU | | 1,074,600 | | | 656 | | | December 14, 2023 | | 21.15 | | | 1,029,200 | | | | | 41,628 | | | 3,772 | |
| | | | | | | | | | | | | | | | | | |
| December 14, 2020 | | PSU | | 714,250 | | | 235 | | | January 1, 2024 | | 19.74 | | | 687,250 | | | | | 27,000 | | | — | |
| December 14, 2020 | | Executive Office | | 148,422 | | | 2 | | | January 1, 2024 | | 18.19 | | | 148,422 | | | | | — | | | — | |
| December 16, 2019 | | PSU | | 1,760,350 | | | 517 | | | January 1, 2023 | | 18.57 | | | 1,381,750 | | | | | 202,850 | | | 175,750 | |
| December 16, 2019 | | Executive Office | | 172,517 | | | 2 | | | January 1, 2023 | | 14.89 | | | 172,517 | | | | | — | | | — | |
| December 20, 2018 | | PSU | | 1,358,750 | | | 524 | | | January 1, 2022 | | 21.31 | | | 943,200 | | | | | 293,300 | | | 122,250 | |
| December 20, 2018 | | Executive Office | | 134,861 | | | 2 | | | January 1, 2022 | | 16.58 | | | 134,861 | | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | Executive Office | | 153,268 | | | 2 | | | January 1, 2022 | | 16.62 | | | 153,268 | | | | | — | | | — | |
| | | | | | | | | | | | | | | | | | |
| Total | | | | 7,280,811 | | | | | | | $14.89 – $32.66 | | 6,400,761 | | | | | 576,972 | | | 303,078 | |
The compensation expense recognized for PSUs was 35, 30 and nil for the years ended December 31, 2021, 2020 and 2019.
Share unit plan activity is summarized below as of and for each year ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| RSUs | | PSUs |
| Number of shares | | Fair value per share | | Number of shares | | Fair value per share |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Outstanding, December 31, 2018 | — | | | — | | | 9,370,460 | | | 15.34 | |
Granted 1 | — | | | — | | | 2,018,176 | | | 17.96 | |
| Exited | — | | | — | | | (2,677,011) | | | 13.49 | |
| Forfeited | — | | | — | | | (1,239,569) | | | 14.25 | |
| Outstanding, December 31, 2019 | — | | | — | | | 7,472,056 | | | 16.76 | |
| Granted | 1,391,284 | | | 21.15 | | | 862,672 | | | 19.47 | |
| Exited | — | | | — | | | (658,141) | | | 16.86 | |
| Forfeited | — | | | — | | | (526,420) | | | 15.48 | |
| Outstanding, December 31, 2020 | 1,391,284 | | | 21.15 | | | 7,150,167 | | | 17.18 | |
| Granted | 1,079,250 | | | 32.62 | | | 684,543 | | | 28.12 | |
| Exited | (315,699) | | | 21.20 | | | (613,385) | | | 14.04 | |
| Forfeited | (59,885) | | | 23.47 | | | (2,915,514) | | | 15.37 | |
| Outstanding, December 31, 2021 | 2,094,950 | | | 26.99 | | | 4,305,811 | | | 20.58 | |
1.Including 85,309 over-performance shares granted for the targets achievement of the PSU grant December 18, 2015.
NOTE 9: PROVISIONS, CONTINGENCIES AND COMMITMENTS
ArcelorMittal recognizes provisions for liabilities and probable losses that have been incurred when it has a present legal or constructive obligation as a result of past events, it is probable that the Company will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a financing cost. Future operating expenses or losses are excluded from recognition as provisions as they do not meet the definition of a liability. Contingent assets and contingent liabilities are excluded from recognition in the consolidated statements of financial position.
Provisions for onerous contracts are recorded in the consolidated statements of operations when it becomes known that the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received. Assets dedicated to the onerous contracts are tested for impairment before recognizing a separate provision for the onerous contract.
Provisions for restructuring are recognized when and only when a detailed formal plan exists and a valid expectation in those affected by the restructuring has been raised, by starting to implement the plan or announcing its main features.
| | |
Consolidated financial statements 340 |
| (millions of U.S. dollar, except share and per share data) |
ArcelorMittal records asset retirement obligations (“ARO”) initially at the fair value of the legal or constructive obligation in the period in which it is incurred and capitalizes the ARO by increasing the carrying amount of the related non-current asset. The fair value of the obligation is determined as the discounted value of the expected future cash flows. The liability is accreted to its present value through net financing cost and the capitalized cost is depreciated in accordance with the Company’s depreciation policies for property, plant and equipment. Subsequently, when reliably measurable, ARO is recorded on the consolidated statements of financial position increasing the cost of the asset and the fair value of the related obligation. Foreign exchange gains or losses on AROs denominated in foreign currencies are recorded in the consolidated statements of operations.
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 is currently engaged in the investigation and remediation of environmental contamination at a number of its facilities. Most of these are legacy obligations arising from acquisitions.
Environmental costs that relate to current operations or to an existing condition caused by past operations, and which do not contribute to future revenue generation or cost reduction, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and the cost can be reliably estimated based on ongoing engineering studies, discussions with the environmental authorities and other assumptions relevant to the nature and extent of the remediation that may be required. The ultimate cost to ArcelorMittal is dependent upon factors beyond its control such as the scope and methodology of the remedial action requirements to be established by environmental and public health authorities, new laws or government regulations, rapidly changing technology and the outcome of any potential related litigation. Environmental liabilities are discounted if the aggregate amount of the obligation and the amount and timing of the cash payments are fixed or reliably determinable.
The estimates of loss contingencies for environmental matters and other contingencies are based on various judgments and assumptions including 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. As estimated costs to remediate change, the Company will reduce or increase the recorded liabilities through write backs or additional provisions in the consolidated statements of operations. ArcelorMittal does not expect these environmental issues to affect the utilization of its plants, now or in the future.
ArcelorMittal is currently and may in the future be involved in litigation, arbitration or other legal proceedings. Provisions related to legal and arbitration proceedings are recorded in accordance with the principles described above.
Most of these claims involve highly complex issues. Often these issues are subject to substantial uncertainties and, therefore, the probability of loss and an estimation of damages are difficult to ascertain. Consequently, ArcelorMittal may be unable to make a reliable estimate of the expected financial effect that will result from ultimate resolution of the proceeding. In those cases, ArcelorMittal has disclosed information with respect to the nature of the contingency. ArcelorMittal has not accrued a provision for the potential outcome of these cases.
For cases in which the Company was able to make a reliable estimate of the expected loss or range of probable loss and has accrued a provision for such loss, it believes 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 its estimate of the range of potential loss.
In the cases in which quantifiable fines and penalties have been assessed, the Company has indicated the amount of such fine or penalty or the amount of provision accrued that is the estimate of the probable loss.
These assessments can involve a series of complex judgments about future events and can rely heavily on estimates and assumptions. The assessments are based on estimates and assumptions that have been deemed reasonable 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
| | |
341 Consolidated financial statements |
judgments that have a material adverse 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.
9.1 Provisions
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2020 | | Additions1 | | Deductions/
Payments | | Effects of foreign exchange and other movements | | | | Balance at December 31, 2021 |
| Environmental | 661 | | | 47 | | | (65) | | | (48) | | | | | 595 | |
| Emission obligations | 571 | | | 606 | | | (565) | | | (120) | | | | | 492 | |
| Asset retirement obligations | 397 | | | 20 | | | (5) | | | (15) | | | | | 397 | |
| Site restoration | 309 | | | 25 | | | (93) | | | (21) | | | | | 220 | |
| Staff related obligations | 127 | | | 40 | | | (31) | | | (16) | | | | | 120 | |
| Voluntary separation plans | 55 | | | 13 | | | (27) | | | (10) | | | | | 31 | |
| Litigation and other (see note 9.3) | 269 | | | 143 | | | (70) | | | (19) | | | | | 323 | |
| Tax claims | 62 | | | 32 | | | (10) | | | (5) | | | | | 79 | |
| Other legal claims | 207 | | | 111 | | | (60) | | | (14) | | | | | 244 | |
| Commercial agreements and onerous contracts | 25 | | | 4 | | | (5) | | | (1) | | | | | 23 | |
| Other | 218 | | | 278 | | | (112) | | | (23) | | | | | 361 | |
| 2,632 | | | 1,176 | | | (973) | | | (273) | | | | | 2,562 | |
| Short-term provisions | 935 | | | | | | | | | | | 1,064 | |
| Long-term provisions | 1,697 | | | | | | | | | | | 1,498 | |
| 2,632 | | | | | | | | | | | 2,562 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2019 | | Additions1 | | Deductions/ Payments | | Effects of foreign exchange and other movements | | Divestments and reclassification to held for sale 2, 3 | | Balance at December 31, 2020 |
| Environmental | 1,074 | | | 137 | | | (88) | | | 57 | | | (519) | | | 661 | |
| Emission obligations | 484 | | | 373 | | | (92) | | | (40) | | | (154) | | | 571 | |
| Asset retirement obligations | 478 | | | 21 | | | (10) | | | 41 | | | (133) | | | 397 | |
| Site restoration | 136 | | | 167 | | | (12) | | | 18 | | | — | | | 309 | |
| Staff related obligations | 185 | | | 88 | | | (41) | | | (14) | | | (91) | | | 127 | |
| Voluntary separation plans | 47 | | | 30 | | | (38) | | | 20 | | | (4) | | | 55 | |
| Litigation and other (see note 9.3) | 312 | | | 40 | | | (36) | | | (39) | | | (8) | | | 269 | |
| Tax claims | 81 | | | 5 | | | (6) | | | (18) | | | — | | | 62 | |
| Other legal claims | 231 | | | 35 | | | (30) | | | (21) | | | (8) | | | 207 | |
| Commercial agreements and onerous contracts | 46 | | | 68 | | | (31) | | | (4) | | | (54) | | | 25 | |
| Other | 229 | | | 29 | | | (44) | | | 16 | | | (12) | | | 218 | |
| 2,991 | | | 953 | | | (392) | | | 55 | | | (975) | | | 2,632 | |
| Short-term provisions | 516 | | | | | | | | | | | 935 | |
| Long-term provisions | 2,475 | | | | | | | | | | | 1,697 | |
| 2,991 | | | | | | | | | | | 2,632 | |
1.Additions exclude provisions reversed or utilized during the same year.
2.On December 9, 2020, the Company completed the sale of ArcelorMittal USA and certain other US operations (see note 2.3.1).
3.On December 10, 2020, the Company signed a binding agreement with Invitalia, an Italian state-owned company, to form a public-private partnership between the parties. As a result, the carrying amounts of the assets and liabilities of ArcelorMittal Italia were classified as held for sale as of December 31, 2020 (see note 2.3.2).
| | |
Consolidated financial statements 342 |
| (millions of U.S. dollar, except share and per share data) |
The Company uses derivative financial instruments and spot purchases to manage its exposure to fluctuations in prices of emission rights allowances. See note 6.3 for the details of the cash flow hedging in place for emission rights, note 4.5 for CO2 emission rights held as current assets and note 5.1 for CO2 emission rights held as Intangible non-current assets. The Company also receives indirect compensation through rebates on its energy tariffs.
There are uncertainties regarding the timing and amount of the provisions above. Changes in underlying facts and circumstances for each provision could result in differences in the amounts provided for and the actual outflows. In general, provisions are presented on a non-discounted basis due to the uncertainties regarding the timing or the short period of their expected consumption.
Environmental provisions have been estimated based on internal and third-party estimates of contaminations, available remediation technology, and environmental regulations. Estimates are subject to revision as further information develops or circumstances change.
Provisions for site restoration are related to costs in connection with the dismantling of site facilities, mainly in France and Poland. In the fourth quarter of 2018, the agreement between ArcelorMittal and the French government regarding a six-year idling period of the Florange liquid phase expired. The Company has started the process of definitive closure of the facility at the end of 2018. The provision included in site restoration at December 31, 2021 and 2020, related to dismantling of this facility amount to 98 and 120, respectively.
Provisions for staff related obligations primarily concern Brazil and are related to various employees’ compensation.
Provisions for voluntary separation plans primarily concern plans in Spain, Belgium, Germany, France and Brazil which are expected to be settled within one year.
Provisions for litigation include losses relating to present legal obligations that are considered to be probable. Further detail regarding legal matters is provided in note 9.3.
In 2021 and 2020 provisions for commercial agreements and onerous contracts concern primarily onerous contracts recognized in Poland and Brazil.
In 2021, other provisions decreased by 98 with respect to the indemnification arrangement between the Company and Global Chartering (see note 2.3.1) following a revision of the shipping market rate outlook for certain of Global Chartering's fleet lease terms. Other provisions increased by 240 as a result of the Complementary Agreement Term signed on June 7, 2021 between ArcelorMittal Brasil, the Federal and State Prosecutor
Offices and the Commission representing affected people with respect to the precautionary evacuation of the communities close to the Serra Azul dam as well as the commitment to implement action plans in order to ensure the stability, security and decommissioning of the tailing dam. As of December 31, 2021 such provisions amounted to 217. Other provisions comprise as well technical warranties and guarantees.
Environmental Liabilities
ArcelorMittal’s operations are subject to a broad range of laws and regulations relating to the protection of human health and the environment at its multiple locations and operating subsidiaries. As of December 31, 2021, excluding asset retirement obligations, ArcelorMittal had established provisions of 595 for environmental remedial activities and liabilities. The provisions for all operations by geographic area were 445 in Europe, 120 in South Africa and 30 in Canada. In addition, ArcelorMittal and the previous owners of its facilities have expended substantial amounts to achieve or maintain ongoing compliance with applicable environmental laws and regulations. ArcelorMittal expects to continue to expend resources in this respect in the future.
Europe
Environmental provisions for ArcelorMittal’s operations in Europe total 445 and are mainly related to the investigation and remediation of environmental contamination at current and former operating sites in Belgium (224), France (68), Poland (62), Luxembourg (52), Germany (31) and Spain (8). This investigation and remediation work relates to various matters such as decontamination of water discharges, waste disposal, cleaning water ponds and remediation activities that involve the clean-up of soil and groundwater. These provisions also relate to human health protection measures such as fire prevention and additional contamination prevention measures to comply with local health and safety regulations.
Belgium
In Belgium, environmental provisions amount to 224, of which the most significant elements are legal site remediation obligations linked to the closure of the primary installations at ArcelorMittal Belgium (Liège). The provisions also concern the external recovery and disposal of waste, residues or by-products that cannot be recovered internally at the ArcelorMittal Ghent and Liège sites and the removal and disposal of material containing asbestos.
France
In France, environmental provisions of 68 principally relate to the remediation of former sites, including several coke plants, and the capping and monitoring of landfills or basins previously used for residues and secondary material.
| | |
343 Consolidated financial statements |
The remediation of the coke plants concerns mainly the Thionville, Moyeuvre-Grande, Homecourt, Hagondange and Micheville sites, and is related to treatment of soil and groundwater. At the Thionville coke plant, soil remediation will be completed by the end of 2022, while additional investigations are ongoing for groundwater. At Moyeuvre-Petite, the covering of sludge basins is completed.
ArcelorMittal is responsible for closure and final rehabilitation of the rest of the site corresponding to the former Conroy and Pérotin slag-heaps, from which the administrative procedure for cessation of activity is underway but due to the COVID-19 pandemic the project slowed down but it is expected that the remediation will start in 2022. In other sites, ArcelorMittal France is responsible for monitoring the concentration of organic compound and heavy metals in soil and groundwater on all former sites closed and/or already remediated. The Florange coke plant shut down in 2020 and is now under investigation for its demolition and remediation.
ArcelorMittal France has an environmental provision that principally relates to the remediation and improvement of storage of secondary materials, the disposal of waste at different ponds and landfills and an action plan for removing asbestos from the installations and mandatory financial guarantees to cover risks of major accident hazard or for gasholders and waste storage. Most of the provision relates to the stocking areas at the Dunkirk site that will need to be restored to comply with local law and to the mothballing of the liquid phase in Florange, including study and surveillance of soil and water to prevent environmental damage, treatment and elimination of waste and financial guarantees demanded by Public Authorities. Environmental provisions also include treatment of slag dumps at the Florange and Dunkirk sites as well as removal and disposal of material containing asbestos at the Dunkirk and Mardyck sites.
ArcelorMittal France also has an environmental provision that principally relates to the remediation and improvement of storage of secondary materials, the disposal of waste at different ponds and landfills as the stocking areas at the Dunkirk site need to be restored to comply with local law.
Poland
ArcelorMittal Poland’s environmental provision of 62 includes 37 for cleaning and remediation costs recognized in 2020 following the closure of primary facilities in Kraków; the remaining 25 relates to the obligation to reclaim a landfill in Lipówka to dispose of the residues which cannot be internally recycled or externally recovered in Dabrowa Gornicza, the storage and disposal of iron-bearing sludge which cannot be reused in the manufacturing process under the environmental law (i.e., waste storage time cannot exceed three years) and also land
remediation in post-industrial areas in Ruszcza (district of Kraków).
Luxembourg
In Luxembourg, environmental provisions of 52 relate to the post-closure monitoring and remediation of former production sites, waste disposal areas, slag deposits and mining sites.
In 2007, ArcelorMittal Luxembourg sold the former Ehlerange slag deposit (93 hectares) to the State of Luxembourg. ArcelorMittal Luxembourg is contractually liable to clean the site and move approximately 400,000 cubic meters of material to other sites. ArcelorMittal Luxembourg also has an environmental provision to secure, stabilize and conduct waterproofing treatment on mining galleries and entrances and various dumping areas in Mondercange, Differdange and Dommeldange. In addition, ArcelorMittal Luxembourg has secured the disposal of ladle slag, sludge and certain other residues coming from different sites at the Differdange dump for a total volume of 1,400,000 cubic meters until the end of 2021. In 2022 the covering process of this dump will be started. A provision of 42 covers these obligations.
ArcelorMittal Belval and Differdange has an environmental provision of 10 to clean historical landfills in order to meet the requirements of the Luxembourg Environment Administration and to cover dismantling and soil cleaning costs of the former PRIMOREC installation.
Germany
In Germany, the environmental provision of 31 essentially relates to ArcelorMittal Bremen’s post-closure obligations mainly established for soil remediation, groundwater treatment and monitoring at the Prosper coke plant in Bottrop.
Spain
In Spain, ArcelorMittal España has environmental provisions of 8 due to obligations of sealing landfills basically located in the Asturias site and post-closure obligations in accordance with national legislation. These obligations include the collection and treatment of leachates that can be generated during the operational phase and a period of 30 years after the closure.
South Africa
AMSA has environmental provisions of 120 to be used over 15 years, mainly relating to environmental remediation obligations attributable to historical or legacy settling/evaporation dams and waste disposal activities. An important determinant in the final timing of the remediation work relates to obtaining the necessary environmental authorizations.
A provision of 39 relates to the decommissioned Pretoria Works site. This site is in a state of partial decommissioning and rehabilitation with one coke battery and a small-sections rolling facility still in operation. AMSA transformed this old plant into an
| | |
Consolidated financial statements 344 |
| (millions of U.S. dollar, except share and per share data) |
industrial hub for light industry since the late 1990s. Particular effort is directed to landfill sites, with sales of slag from legacy disposal sites to vendors in the construction industry continuing unabated, but other remediation works continued at a slow pace as remediation actions for these sites are long-term in nature in terms of a remediation order received during October 2021.
The Vanderbijlpark Works site, the main flat carbon steel operation of AMSA, contains a number of legacy facilities and areas requiring remediation. The remediation entails the implementation of rehabilitation and decontamination measures of waste disposal sites, waste water dams, ground water and historically contaminated open areas. Provisions relating to this site amount to 19.
The Newcastle Works site is the main long carbon steel operation of AMSA. A provision of 25 relates to this site. As with all operating sites of AMSA, the above retirement and remediation actions dovetail with numerous large capital expenditure projects dedicated to environmental management. In the case of the Newcastle site, the major current environmental capital project is for air quality improvements and storm water management.
A provision of 33 relates to the environmental rehabilitation of the Thabazimbi mine. AMSA holds an environmental trust which holds investments for a value of 26 that will be used for rehabilitation purposes.
The remainder of the obligation of 4 relates to Vereeniging site for the historical pollution that needs to be remediated at waste disposal sites, waste water dams and groundwater aquifers.
Canada
In Canada, ArcelorMittal Dofasco has an environmental provision of 30 for the expected cost of remediating toxic sediment located in the Company’s East Boatslip site, of which 1 is expected to be spent in 2022.
Asset Retirement Obligations (“AROs”)
AROs arise from legal requirements and represent management’s best estimate of the present value of the costs that will be required to retire plant and equipment or to restore a site at the end of its useful life. As of December 31, 2021, ArcelorMittal had established provisions for asset retirement obligations of 397, including 154 for Canada, 63 for Mexico, 46 for Ukraine, 42 for Germany, 23 for Liberia, 19 for South Africa, 12 for Belgium, 13 for Kazakhstan, 21 for Brazil, 2 for Bosnia and Herzegovina and others.
AROs in Canada are legal obligations for site restoration and dismantling of the facilities near the mining sites in Mont-Wright and Fire Lake, and the accumulation area of mineral substances at the facility of Port-Cartier in Quebec, upon closure of the mines pursuant to the restoring plan of the mines. In addition,
Dofasco has legal obligations for the former Sherman Mine site near Temagami, Ontario.
AROs in Mexico relate to the restoration costs following the closure of the Las Truchas, El Volcan and the joint operation of Peña Colorada iron ore mines.
AROs in Ukraine are legal obligations for site rehabilitation at the iron ore mining site in Kryvyi Rih, upon closure of the mine pursuant to its restoration plan.
In Germany, AROs principally relate to the Hamburg site, which operates on leased land with the contractual obligation to remove all buildings and other facilities upon the termination of the lease, and to the Prosper coke plant in Bottrop for filling the basin, restoring the layer and stabilizing the shoreline at the harbor.
In Liberia, AROs relate to iron ore mine and associated infrastructure and mine related environmental damage and compensation. They cover the closure and rehabilitation plan under both the current operating phase and the not yet completed Phase 2 expansion project.
AROs in South Africa are for the Pretoria, Vanderbijlpark, Saldanha, Newcastle as well as the Coke and Chemical sites, and relate to the closure and clean-up of the plant associated with decommissioned tank farms, tar plants, chemical stores, railway lines, pipelines and defunct infrastructure.
In Belgium, AROs are to cover the demolition costs for the primary facilities at the Liège site.
In Kazakhstan, AROs relate to the restoration obligations of the iron ore and coal mines.
In Brazil, AROs relate to legal obligations to clean and restore the mining areas of Serra Azul and Andrade, both located in the State of Minas Gerais. The related provisions are expected to be fully settled up to 2072 and 2078, respectively.
In Bosnia and Herzegovina, ARO relates to re-cultivation of dump yard of old iron ore pit Jezero and closing dam Medjedja.
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345 Consolidated financial statements |
9.2 Other long-term obligations
| | | | | | | | | | | |
| | Balance at December 31, |
| | 2021 | | 2020 |
| Derivative financial instruments (notes 6.1 and 6.3) | 58 | | | 96 | |
| Payable from acquisition of financial assets | 115 | | | 359 | |
| Unfavorable contracts | 105 | | | 132 | |
| Income tax payable | 219 | | | 214 |
| Other | 377 | | | 347 | |
| Total | 874 | | | 1,148 | |
As of December 31, 2021 and 2020, payable from acquisition of financial assets included 80 and 95 respectively relating to AMNS India's debt guarantee. At December 31, 2020 payable from acquisition of financial assets included also 235 relating to the financial liability with respect to the acquisition of AMSF (see note 11.5.2). In 2021, the liability was reclassified as accrued expenses and other liabilities (see note 4.8).
Unfavorable contracts of 105 and 132 as of December 31, 2021 and 2020, respectively, mainly related to AMSF (see note 2.2.4).
As of December 31, 2021, the income tax payable mainly related to income tax contingencies (in majority unasserted claims) and withholding tax.
9.3 Contingent liabilities
Tax Claims
ArcelorMittal is a party to various tax claims. As of December 31, 2021, ArcelorMittal had recorded short-term and long-term liabilities related to income and non-income tax contingencies of 131 and provisions for non-income tax claims in the aggregate of 79 for which it considers the risk of loss to be probable. Set out below is a summary description of the tax claims (i) for which ArcelorMittal had recorded a provision as of December 31, 2021, (ii) that constitute a contingent liability, (iii) that were resolved in 2021 or (iv) that were resolved and had a financial impact in 2020 or 2019 in each case involving amounts deemed material by ArcelorMittal. The Company is vigorously defending against the pending claims discussed below.
Brazil
In 2011, ArcelorMittal Brasil (at the time SOL Coqueria Tubarão S.A.) received 21 separate tax assessments from the Revenue Service of the State of Espirito Santo for ICMS (a value-added tax) in an amount which totaled 23 relating to a tax incentive (INVEST) it used. The dispute concerns the definition of fixed assets. In August 2015, the administrative tribunal of the first instance upheld the 21 separate tax assessments. In September 2015, ArcelorMittal Brasil filed appeals with respect to each of the administrative tribunal’s decisions. As of December 31,
2018, there were final unfavorable decisions at the administrative tribunal level in 15 of the 21 cases, each of which ArcelorMittal Brasil appealed to the judicial instance. In March 2018, the administrative tribunal of the third instance found in favor of ArcelorMittal Brasil sending the six other cases back to the administrative tribunal of the second instance. After the administrative tribunal of the second instance issued a partially favorable ruling on these six cases in December 2019, related only to the recognition of the limitation period of May 2005, a further appeal to the administrative tribunal of the third instance was filed. In July 2021, the third administrative instance denied ArcelorMittal Brasil's appeal and upheld the tax assessments. Following the conclusion of this proceeding at the administrative level, in September 2021, ArcelorMittal Brasil appealed to the judicial instance where all of the 21 cases now await a first instance decision.
In 2011, ArcelorMittal Brasil received a tax assessment for corporate income tax (known as IRPJ) and social contributions on net profits (known as CSL) in relation to (i) the amortization of goodwill on the acquisition of Mendes Júnior Siderurgia (for the 2006 and 2007 fiscal years), (ii) the amortization of goodwill arising from the mandatory tender offer ("MTO") made by ArcelorMittal (ex-Mittal Steel N.V.) to minority shareholders of Arcelor Brasil in connection with the two-step merger of Arcelor and Mittal Steel N.V. (for the 2007 tax year), (iii) expenses related to pre-export financing used to finance the MTO, which were deemed by the tax authorities to be unnecessary for ArcelorMittal Brasil since the expenses were incurred to buy shares of its own company and (iv) CSL over profits of controlled companies in Argentina and Costa Rica. The amount claimed totals 387. On January 31, 2014, the administrative tribunal of the first instance found in partial favor of ArcelorMittal Brasil, reducing the penalty component of the assessment from, according to ArcelorMittal Brasil’s calculations, 120 to 63 (as calculated at the time of the assessment), while upholding the remainder of the assessment. The Federal Revenue Service appealed the administrative tribunal’s decision to reduce the amount of the original penalty. ArcelorMittal Brasil also appealed the administrative tribunal’s decision to uphold the tax authority’s assessment (including the revised penalty component). In September 2017, the administrative tribunal of the second instance found largely in favor of the Federal Revenue Service. In January 2018, ArcelorMittal Brasil filed a motion for clarification of this decision. In February 2018, the motion for clarification was rejected and, in March 2018, an appeal was filed to the administrative tribunal of the third instance.
In 2013, ArcelorMittal Brasil received a tax assessment in relation to the 2008-2010 tax years for IRPJ and CSL in relation to (i) the amortization of goodwill on the acquisition of Mendes Júnior Siderurgia, Dedini Siderurgia and CST, (ii) the
| | |
Consolidated financial statements 346 |
| (millions of U.S. dollar, except share and per share data) |
amortization of goodwill arising from the MTO made by ArcelorMittal (ex-Mittal Steel N.V.) to minority shareholders of Arcelor Brasil in connection with the two-step merger of Arcelor and Mittal Steel N.V. and (iii) CSL and IRPJ over profits of controlled companies in Argentina, Costa Rica, Venezuela and the Netherlands. The amount claimed totals 342. In October 2014, the administrative tribunal of the first instance found in favor of the Federal Revenue Service and ArcelorMittal Brasil filed its appeal in November 2014. In September 2017, the administrative tribunal of the second instance found in favor of the Federal Revenue Service. ArcelorMittal Brasil filed a motion for clarification with respect to this decision, which was denied, and thereafter filed an appeal to the administrative tribunal of the third instance.
In April 2016, ArcelorMittal Brasil received a tax assessment in relation to (i) the amortization of goodwill resulting from the MTO made by ArcelorMittal (ex-Mittal Steel N.V.) to the minority shareholders of Arcelor Brasil in connection with the two-step merger of Arcelor and Mittal Steel N.V. 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 a 59 financial impact arising from a write off of net operating loss carry forwards with respect to the 2011-2012 tax year. 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, which was rejected in May 2019, filed a motion for clarification which was denied in November 2019 and thereafter filed an appeal to the administrative tribunal of the third instance.
In December 2018, ArcelorMittal Brasil received a tax assessment of 94, which could have an additional 20 financial impact arising from a write off of net operating loss carry forward with respect to the 2013-2014 tax years, principally in relation to the amortization of goodwill resulting from the MTO made by ArcelorMittal (ex-Mittal Steel N.V.) to the minority shareholders of Arcelor Brasil in connection with the two-step merger of Arcelor and Mittal Steel N.V. in 2007. In January 2019, ArcelorMittal Brasil filed a defense in the first administrative instance, which issued an unfavorable decision in June 2019. An appeal to the second administrative instance was filed in July 2019.
In December 2020, ArcelorMittal Brasil received a tax assessment of 32, which could have an additional 43 financial impact arising from a write off of net operating loss carry forwards, with respect to the 2015-2016 tax years, related to the amortization of goodwill resulting from the MTO made by ArcelorMittal (ex-Mittal Steel N.V.) to the minority shareholders of Arcelor Brasil in connection with the two-step merger of
Arcelor and Mittal Steel N.V. in 2007. ArcelorMittal Brasil filed its defense in the first administrative instance in January 2021 which issued an unfavorable decision in August, 2021. An appeal to the second administrative instance was filed in September 2021.
In 2013, ArcelorMittal Brasil filed a lawsuit against the Federal Revenue Service disputing the basis of calculation of a tax called additional freight for the renewal of the Brazilian Merchant Navy ("AFRMM"), amounting to 55. The dispute is related to the inclusion of the unloading and land transport costs of the imported goods after landing to calculate AFRMM. In June 2013, ArcelorMittal Brasil obtained a preliminary decision allowing the Company not to pay such amount until a final decision was rendered. In February 2017, ArcelorMittal Brasil obtained a favorable decision at the judicial first instance which was upheld by the Federal Court of Appeals in February 2019. In July 2019, the Federal Revenue Service filed appeals with the Superior Court of Justice and the Supreme Court. In February 2020, the appeal to the Supreme Court of Justice was dismissed and, in July 2020, the Appeal to the Supreme Court was dismissed. This decision is final and unappealable. In November 2018, a related tax assessment was received from the Federal Revenue Service claiming 18 as a penalty for alleged failure to comply with formal requirements in the import declarations delivered by the Company in the years 2013-2018, which were the subject matter of the preliminary decision of June 2013. In December 2018, ArcelorMittal Brasil presented its defense in the first administrative instance, which in June 2019 decided in ArcelorMittal Brasil’s favor. This decision is subject to appeal. A further related tax assessment was received in September 2018 from the Federal Revenue Service claiming 0.2 as a penalty for alleged failure to comply with formal requirements in the import declarations delivered by the Company in the period between September and November 2013. In October 2018 ArcelorMittal Brasil presented its defense in the first administrative instance, and a decision is pending.
In the period from 2014 to 2018, ArcelorMittal Brasil received six tax assessments from the Federal Revenue Service in the amount of 34 disputing its use of credits for PIS and COFINS social security taxes in 2010, 2011 and 2013. The dispute relates to the concept of production inputs in the context of these taxes. In the first case, the administrative tribunal of the first instance found partially in favor of ArcelorMittal Brasil. The decision was upheld in the administrative tribunal of the second instance and ArcelorMittal Brasil filed an appeal to the administrative tribunal of the third instance which ruled partially in favor of ArcelorMittal Brasil in May 2019. In January 2020, the case was sent back to the Federal Revenue which is verifying the extent of the administrative tribunal of the third instance’s decision in order to proceed with the write-off of amounts due. In August 2020, the tax assessment was reduced by 4, reflecting
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347 Consolidated financial statements |
the partially favorable decision. The remaining amount of 12 will be discussed at the judicial level. In the second case, the administrative tribunal of the first instance found partially in favor of ArcelorMittal Brasil and an appeal has been filed to the administrative tribunal of the second instance. In the third case, the administrative tribunal of the first instance upheld the tax assessment, and ArcelorMittal Brasil appealed to the administrative tribunal of the second instance. In the fourth and fifth cases, ArcelorMittal Brasil has filed its defenses to the administrative tribunal of the first instance. In November 2020, a partially favorable decision was issued in the fifth case and an appeal was presented. In the fourth case, in March 2021, a partially favorable decision was issued and an appeal has been filed to the second administrative instance. In the sixth case, the administrative tribunal of the first instance upheld the tax assessment, and ArcelorMittal Brasil appealed to the administrative tribunal of the second instance. In March 2018, the Superior Court decided a leading case, not involving ArcelorMittal Brasil, that established that the restrictive concept of inputs adopted by the tax authorities is illegal and that credits over inputs must be accepted on the basis of the criteria of essentiality or relevance towards the production process of each taxpayer. In September 2018, the Federal Union published an internal orientation for its attorneys, expressing a restrictive view of the Superior Court's decision and determining that each individual case would be analyzed in order to decide whether the items are essential or not. However, this federal orientation has not been followed in unrelated cases, and therefore ArcelorMittal Brasil's cases may be submitted for review by the Federal Union Attorney's office before further decisions are taken or may be taken to trial without such review.
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 31. 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 44, after taking account of a reduction of fines mentioned below 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. This appeal was rejected in August 2017. In October and November 2017, the Company appealed in relation to both tax assessments to the judicial instance. In November 2017, the Company received a notice from the tax authority informing it of the reduction of the fines element by 12, due to the retroactive application of a new law. In February 2019, due to the retrospective application of a new law, a reduction of the fine element of 7 was finalized in the first case.
In the period from May to July 2015, ArcelorMittal Brasil received nine tax assessments from the state of Rio Grande do Sul alleging that the Company, through its branches in that state, had not made advance payments of ICMS on sales in that state covering the period from May 2010 to April 2015. The amount claimed totals 67. The administrative tribunal of the first instance upheld the tax assessments in each of the nine cases, and ArcelorMittal Brasil appealed each of the administrative tribunal’s decisions. Each case was decided unfavorably to ArcelorMittal Brasil at the administrative tribunal of the second instance, and ArcelorMittal Brasil appealed the cases to the judicial instance.
On May 17, 2016, ArcelorMittal Brasil received a tax assessment from the state of Santa Catarina in the amount of 96 alleging that it had used improper methods to calculate the amount of its ICMS credits. ArcelorMittal Brasil filed its defense in July 2016. In December 2016, ArcelorMittal Brasil received an unfavorable decision at the first administrative level, in respect of which it filed an appeal. In March 2018, the administrative tribunal of the second instance found against ArcelorMittal Brasil and, in April 2018, ArcelorMittal Brasil filed an appeal to the administrative tribunal of the third instance. In December 2019, the tax assessment was upheld by the administrative tribunal of the third instance. In January 2020, ArcelorMittal Brasil filed a motion for clarification which was rejected in August 2020. ArcelorMittal Brasil appealed to the judicial instance in November 2020.
Mexico
In 2015, the Mexican Tax Administration Service issued a tax assessment to ArcelorMittal Mexico, alleging that ArcelorMittal Mexico owes 184 with respect to 2008, principally due to improper interest deductions relating to certain loans, and unpaid corporate income tax for interest payments that the tax authority has categorized as dividends. In November 2015, ArcelorMittal Mexico filed an administrative appeal in respect of this assessment, which was dismissed by the tax authority. In November 2017, ArcelorMittal Mexico filed an annulment complaint before a Federal Administrative and Tax Justice Court, which has not been determined.
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Consolidated financial statements 348 |
| (millions of U.S. dollar, except share and per share data) |
With respect to 2007 and 2009, the Mexican Tax Administration Service also challenged the interest deduction related to the aforementioned loans and issued tax assessments to ArcelorMittal Mexico for 23 and 28, respectively. In November 2018, a Federal Administrative and Tax Justice Court ruled against the annulment complaint filed by ArcelorMittal Mexico in relation to the 2007 tax assessment and in December 2018, ArcelorMittal Mexico filed a constitutional claim before the Collegiate Tribunal For Administrative Matters, which was rejected in June 2019. A review appeal was filed in July 2019 and rejected in August 2019. An extraordinary appeal of constitutional review was filed against this decision in September 2019 before the Supreme Court of Justice. In November 2019, the Court dismissed the extraordinary appeal of constitutional review confirming the earlier decision in favor of the tax authorities. No further appeal is possible. With respect to the 2009 tax assessment, in November 2016 ArcelorMittal Mexico filed an administrative appeal before the Administrative Authority on Federal Tax Matters, which was rejected in June 2020. In September 2020, an annulment complaint was filed before the Federal Administrative and Tax Justice Court. In December 2021, a reduction of the penalty component of the tax assessment was requested, an amount of 20 was paid and the Court issued a dismissal ruling in respect of this case, thereby closing the proceedings.
In 2013, the Mexican Tax Administration Service issued a tax assessment to ArcelorMittal Las Truchas, alleging that ArcelorMittal Las Truchas owes 89 in respect of (i) non-payment of withholding tax on capitalized interest, (ii) non-deduction of accrued interest regarding certain loans, and (iii) reduction of the taxable basis of assets in 2007. In 2015, ArcelorMittal Las Truchas filed an administrative appeal in respect of the aforementioned assessment, which the tax authority dismissed. In October 2015, ArcelorMittal Las Truchas filed an annulment complaint before the Federal Administrative and Tax Justice Court, which ruled partially in favor of ArcelorMittal Las Truchas in October 2018 by declaring the illegality of item (i). The tax authority filed an application for judicial review in January 2019 and in March 2020, the Court upheld the ruling in favor of ArcelorMittal Las Truchas regarding item (i) which decision is definitive. ArcelorMittal Las Truchas also filed a nullity lawsuit to challenge the ruling in respect of items (ii) and (iii), and, in June 2020, the Court upheld the rulings of the Tax Court. ArcelorMittal Las Truchas promptly thereafter submitted an extraordinary appeal for constitutional review before the Supreme Court of Justice regarding items (ii) and (iii).
In October 2018, the Mexican Tax Administration Service issued a tax assessment to ArcelorMittal Las Truchas, alleging that ArcelorMittal Las Truchas owes 93 with respect to 2013 due to: (i) improper interest deductions relating to certain loans and (ii) non-deduction of advanced rent payments. In November 2018,
ArcelorMittal Las Truchas filed an administrative appeal before the Administrative Authority on Federal Tax Matters, which was partially rejected in June 2019 and is being appealed.
Ukraine
In October 2019, ArcelorMittal Kryvyi Rih received tax orders from Ukrainian tax authorities covering the findings of a tax audit for the period from 2015 through the first quarter of 2019 which claimed the company owes additional taxes of 278 for that period. ArcelorMittal Kryvyi Rih appealed these orders to the tax authorities resulting in a significant reduction of the amounts claimed. In January 2020, ArcelorMittal Kryvyi Rih filed three legal actions with the Kyiv District Administrative Court seeking to cancel the remaining additional charges amounting to 128. The three cases were later merged into one case and moved to the Dnipro District Administrative Court. In October 2020, ArcelorMittal Kryvyi Rih commenced a separate lawsuit seeking cancellation of additional tax charges (excise duty, VAT, CIT, fines) of 89 based on the results of a full-scope tax audit covering 2015 through the first quarter of 2019. This separate lawsuit was closed in May 2021 at ArcelorMittal Kryvyi Rih’s request.
In August 2021, ArcelorMittal Kryvyi Rih commenced court proceedings to dispute the assessment by Ukrainian tax authorities of a subsoil usage rent/tax (in the amount of approximately 104) on production activities by ArcelorMittal Kryvyi Rih for the period from January 2015 to March 2019. In November 2021, the court found that the tax notice decision was illegal and cancelled it. The Ukrainian tax authorities and the Prosecutor’s office appealed this decision. Subsequently, (a) on November 17, 2021, the Prosecutor General’s office and the Security Service of Ukraine notified the Chief Financial Officer of ArcelorMittal Kryvyi Rih that he had been placed under an investigation on suspicion of alleged tax evasion and official forgery, and (b) on January 4, 2022 the Prosecutor General’s office, acting pursuant to a ruling of the Shevchenkivsky District Court of Kyiv dated November 30, 2021 blocked the accounts of ArcelorMittal Kryvyi Rih with three banks in Ukraine. ArcelorMittal Kryvyi Rih appealed the blocking of these accounts; as of the date of these financial statements, by court order the restrictions on two of the three accounts have been partially lifted to allow the payment of wages, taxes and other mandatory payments.
Kazakhstan
In November 2020, ArcelorMittal Temirtau filed a lawsuit in the Astana investment court against the State revenue committee. The dispute is related to a tax claim by the said committee resulting from an audit for the years 2013-2017. The court hearings started in February 2021 and resulted in a June 2021 judgment against ArcelorMittal Temirtau for 45 for tax and late payment interest as estimated by the authorities in their notification of September 28, 2020. ArcelorMittal Temirtau
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349 Consolidated financial statements |
appealed this decision with the Court of second instance, which confirmed the judgment in September 2021. The judgment came into force and was satisfied. In November 2021, ArcelorMittal filed an appeal with the Court of Cassation which in January 2022, the Court declined to hear bringing the case to an end.
In January 2022, ArcelorMittal Temirtau filed a lawsuit in the Nur-Sultan (Astana) administrative court against the State revenue committee.The dispute is related to a tax claim by the said committee in the amount of 63 resulting from an audit for the years 2018-2019. In January 2022, ArcelorMittal Temirtau withdrew the lawsuit and is paying the tax due with interest and the applicable administrative penalty.
Competition/Antitrust Claims
ArcelorMittal is a party to various competition/antitrust claims. As of December 31, 2021, ArcelorMittal had recorded a non-material amount provision in respect of such claims. Set out below is a summary description of competition/antitrust claims (i) that constitute a contingent liability, (ii) that were resolved in 2021 or (iii) that were resolved and had a financial impact in 2020 or 2019, in each case involving amounts deemed material by ArcelorMittal. The Company is vigorously defending against each of the pending claims discussed below.
Brazil
In September 2000, two construction trade organizations filed a complaint with Brazil’s Administrative Council for Economic Defense (“CADE”) against three long steel producers, including ArcelorMittal Brasil. The complaint alleged that these producers colluded to raise prices in the Brazilian rebar market, thereby violating applicable antitrust laws. In September 2005, CADE issued its final decision against ArcelorMittal Brasil, imposing a fine of 51. ArcelorMittal Brasil appealed the decision to the Brazilian Federal Court. In September 2006, ArcelorMittal Brasil offered a guarantee letter and obtained an injunction to suspend enforcement of this decision pending the court’s judgment. In September 2017, the Court found against ArcelorMittal Brasil. In October 2017, ArcelorMittal Brasil filed a motion for clarification of this decision, which was dismissed. In December 2017, ArcelorMittal Brasil filed an appeal to the second judicial instance.
There is also a related class action commenced by the Federal Public Prosecutor of the state of Minas Gerais against ArcelorMittal Brasil for damages in an amount of 59 based on the alleged violations investigated by CADE.
A further related lawsuit was commenced in February 2011 by four units of Sinduscons, a civil construction trade organization, in federal court in Brasilia against, inter alia, ArcelorMittal Brasil claiming damages based on an alleged cartel in the rebar market as investigated by CADE and as noted above.
Spain
In November 2018, the Comision Nacional de los Mercados y la Competencia (“CNMC”), the Spanish competition authority, carried out a dawn raid at the offices of ArcelorMittal in Villaverde (Madrid) in relation to a preliminary investigation concerning alleged coordination between competitors to fix the purchase price of scrap. In March 2020, further dawn raids were carried out extending the investigation to the sale of long products. In July 2020, CNMC announced that they were commencing a formal sanctioning procedure against ArcelorMittal Spain Holding ("AMSH") and its subsidiaries ArcelorMittal Madrid, ArcelorMittal Comercial Perfiles España, ArcelorMittal Aceralia Basque Holding (“AMABH”), and Arcelor Mittal España (and other companies not part of ArcelorMittal group) in respect of purchases of scrap and sale of finished steel products, especially long products. In August 2021, the CNMC issued a statement of objections to AMSH and AMABH, among other parties. The CNMC stated that it had found evidence of a purported cartel in terms of the purchase of scrap, while noting that it had not found evidence of infringement with regard to the sales of long products. The infringement with respect to the scrap was alleged to have taken place from 2009 to 2020 and is attributed to AMSH and AMABH. In September 2021, AMSH and AMABH responded to the allegations and objected to the claims of infringement. In November 2021, the CNMC notified AMABH and AMSH of its resolution proposal to be submitted to the Council proposing a sanction for AMABH, with joint and several liability for AMSH, of 3 (€2.7 million which is 6.5% of a turnover figure of €42.3 million) and notified AMSH and AMABH that it had restricted the alleged infringement due to certain contacts held from January to August 2018. On December 16, 2021, AMABH filed its challenge to the resolution proposal, together with an economic report as proof of market structure. In March 2022, the CNMC decided on a sanction for AMABH of 14 (€12.1 million based on a turnover which CNMC determined as €226.6 million). AMABH has 2 months from the date of this decision to appeal to the Spanish Court.
Other Legal Claims
ArcelorMittal is a party to various other legal claims. As of December 31, 2021, ArcelorMittal had recorded provisions of 244 for other legal claims in respect of which it considers the risk of loss to be probable. Set out below is a summary description of the other legal claims (i) in respect of which ArcelorMittal had recorded a provision as of December 31, 2021, (ii) that constitute a contingent liability, (iii) that were resolved in 2021, or (iv) that were resolved and had a financial impact in 2020 or 2019, in each case involving amounts deemed material by ArcelorMittal. The Company is vigorously defending against each of the claims discussed below that remain pending.
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Consolidated financial statements 350 |
| (millions of U.S. dollar, except share and per share data) |
Argentina
Over the course of 2007 to 2021, the Argentinian Customs Office Authority (“Aduana”) notified Acindar, of certain inquiries that it was conducting with respect to prices declared by Acindar related to iron ore imports. The Customs Office Authority was seeking to determine whether Acindar incorrectly declared prices for iron ore imports from several different Brazilian and Bolivian suppliers and from ArcelorMittal Sourcing originally on 39 different claims concerning several shipments made between 2002 and 2014. The investigations are subject to the administrative procedures of the Customs Office Authority and are at different procedural stages depending on the filing date of the investigation. In March 2018, the Customs Office Authority issued a general instruction that ordered customs to withdraw current claims related to the difference between import prices in Argentina and export prices of iron ore when exiting Brazil, which has led to a reduction in the number of claims and amounts claimed against Acindar. As of December 2021, the aggregate amount claimed by the Customs Office Authority in respect of all iron ore shipments is 119 in 22 different cases. Of these 22 cases, 7 are still in the administrative branch of the Customs Office Authority and the other 15 cases, in which the administrative branch of the Customs Office Authority ruled against Acindar, have been appealed to the Argentinian National Fiscal Court.
Brazil
In 2015, the SINDIMETAL (employees’ union) filed a lawsuit against ArcelorMittal Brasil to annul all the collective labor agreements related to 12-hour work shifts. In 2018, at the Labor Court of Vitória/ES, the case was dismissed. SINDIMETAL subsequently appealed to the Regional Labor Court of Appeals, which in 2019 reversed the ruling of the first judicial instance and ordered the payment of overtime wages, based on the argument that the 12-hour working day was unconstitutional. In September 2019, ArcelorMittal Brasil filed an appeal with the Superior Labor Court on the grounds of (i) the constitutionality of collective labor agreements; (ii) ArcelorMittal Brasil was obliged to maintain the 12-hour work shift in the period between November 2011 and November 2012 by another judicial decision; and (iii) the Supreme Court has ordered the suspension of legal proceedings in which there is a discussion about the validity of collective labor agreements due to a pending decision in a case not involving ArcelorMittal Brasil with binding precedential value on similar cases. This decision impacts a group of approximately 2,500 employees.
In April 2017, a shareholder in Siderúrgica Três Lagoas (“SITREL”) (of which ArcelorMittal Brasil is the other shareholder), commenced an arbitration against Votorantim Siderurgia S.A. (which subsequently merged into ArcelorMittal Brasil) and SITREL with the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada (CAM-CCBC). The
dispute concerns a provision in SITREL’s joint venture agreement relating to the formula used to determine the selling price for steel billets supplied by ArcelorMittal Brasil to SITREL from January 2013 onwards. The shareholder has alleged that the steel billets were overpriced and is seeking compensation for overpaid amounts on both a retrospective and prospective basis, with the initial amount claimed totaling 33. In October 2021, the CAM-CCBC decided against ArcelorMittal Brasil and awarded damages that are likely to exceed 50. In November 2021, ArcelorMittal Brasil filed a motion for clarification and disqualification request to the CAM-CCBC in relation to a conflict of interest concerning the other party's appointed arbitrator. The CAM-CBCC issued a stay on the clarification request, pending resolution on the disqualification challenge. In December 2021, an Independent Arbitrators Committee was formed to decide on the disqualification claim.
Canada
In April 2011, a proceeding was commenced before the Ontario (Canada) Superior Court of Justice under the Ontario Class Proceedings Act, 1992, against ArcelorMittal, Baffinland, and certain other parties relating to the January 2011 take-over of Baffinland by ArcelorMittal, Nunavut Iron Ore Holdings and 1843208 Ontario Inc. The action alleges that the tender offer document contained certain misrepresentations and seeks damages in an aggregate amount of 764 (CAD 1 billion) or rescission of the transfer of the Baffinland securities by members of a class comprised of all Baffinland securities holders who tendered their Baffinland securities, and whose securities were taken up, in connection with the take-over between September 22, 2010 and February 17, 2011, or otherwise disposed of their Baffinland securities on or after January 14, 2011. The class certification hearings were held in January 2018, and the court certified the class in a decision dated May 18, 2018. The court also certified the statutory circular misrepresentation, insider trading, unjust enrichment and oppression claims. The court included in the class persons who tendered their Baffinland securities to the take-over bid and, for purposes of the oppression claims only, persons who sold their Baffinland securities in the secondary market after January 13, 2011. The court excluded from the class those persons who disposed of their Baffinland securities pursuant to a court ordered plan of arrangement. In June 2019, the parties entered into a settlement agreement in which the defendants agreed to pay 5 (CAD 6.5 million) to the class subject to the approval of the court. The settlement contained a threshold for opt outs which, if exceeded, gave any of the defendants the right to terminate the settlement. The settlement was approved by the Ontario Court in September 2019 and, following the expiry of the period for any appeal, is now final.
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351 Consolidated financial statements |
Italy
In January 2010, ArcelorMittal received notice of a claim filed by Finmasi S.p.A. relating to a memorandum of agreement (“MoA”) entered into between ArcelorMittal Distribution Services France (“AMDSF”) and Finmasi in 2008. The MoA provided that AMDSF would acquire certain of Finmasi’s businesses for an amount not to exceed 114, subject to the satisfaction of certain conditions precedent, which, in AMDSF’s view, were not fulfilled. Finmasi sued for (i) enforcement of the MoA, (ii) damages of 17 to 29 or (iii) recovery costs plus quantum damages for Finmasi’s alleged lost opportunity to sell to another buyer. In September 2011, the court rejected Finmasi’s claims other than its second claim. The court appointed an expert to determine the quantum of damages. In May 2013, the expert’s report was issued and valued the quantum of damages in the range of 46 to 73. ArcelorMittal appealed the decision on the merits. In May 2014, the Court of Appeal issued a decision rejecting ArcelorMittal’s appeal. On June 20, 2014, ArcelorMittal filed an appeal of the Court of Appeal’s judgment with the Italian Court of Cassation. On April 11, 2018, the Court of Cassation rejected the appeal on the merits and upheld the Court of Appeal’s decision. On December 18, 2014, the Court of Milan issued a decision on the quantum of the damages and valued the quantum of damages in the sum of 29 plus interest. In June 2015, both parties served appeals of the decision on the quantum, with ArcelorMittal also seeking the suspension of the enforceability of the decision. On July 1, 2015, Finmasi formally notified AMDSF the declaration of enforcement of the decision of December 18, 2014. On July 28, 2015, AMDSF filed an appeal against such declaration with the Court of Appeal of Reims in France. At a hearing on December 1, 2015, the Italian Court of Appeal accepted the suspension of the enforcement of the decision of December 18, 2014, following the agreement of AMDSF to provide a guarantee for its value. In March 2016, on the joint application of the parties, the Court of Appeal of Reims ordered the suspension of the proceedings. On July 19, 2018, the Court of Appeal upheld the Court of Milan’s decision on quantum dated December 18, 2014. In September 2018, ArcelorMittal filed an appeal to the Court of Cassation. In January 2019, Finmasi called on the AMDSF guarantee issued in the context of the enforcement proceedings that were suspended in 2015. In August 2020, the Court of Cassation quashed the Court of Appeal decision on quantum and referred the case back to the Court of Appeal for further review of the quantum in respect of which Finmasi formally served their writ of summons in October 2020 asking the Court of Appel to confirm the first instance judgment on quantum. Following the decision of the Court of Cassation, Finmasi has repaid half of the amount of the guarantee that was called and has agreed to provide a bank guarantee for the remainder.
On November 4, 2019, ArcelorMittal sent to the Commissioners governing the Ilva insolvency procedure (the “Commissioners”)
a notice to withdraw from or terminate the lease agreement with a conditional obligation to purchase the business of Ilva and certain of its subsidiaries. This notice was based, among other things, on provisions of the agreement that allow withdrawal in the event that a new law affects it’s environmental plan for the Taranto plant in such a way that materially impairs the ability of ArcelorMittal Italia to operate the plant or implement its industrial plan; these provisions were triggered following the Italian Parliament’s removal, on November 3, 2019, of the legal protection necessary for ArcelorMittal Italia to implement its environmental plan without risk of criminal liability. In response, the Commissioners filed suit in Milan seeking an injunction to prevent ArcelorMittal's withdrawal and termination of the agreement. Following negotiation between the parties, on March 4, 2020, ArcelorMittal and the Commissioners entered into a settlement agreement whereby ArcelorMittal agreed to revoke its notice to withdraw from the original Ilva lease agreement and the Ilva Commissioners agreed to withdraw their request for an injunction.
In addition, following a complaint filed by the Commissioners, in mid-November 2019, prosecutors in Milan and Taranto opened investigations into potential violations of numerous criminal laws. Following the (i) search decrees issued by the Milan and Taranto Prosecution Offices and ensuing seizures of documents in November 2019, and (ii) restitution decree issued by the Milan Prosecution Office in September 2020. The Milan Public Prosecutors closed one of the investigations which began in November 2019 concluding that there was no evidence to support allegations of violations of numerous criminal laws relating principally to ArcelorMittal's withdrawal from the lease agreement for the Ilva plants and asked the judge for preliminary investigations to close the case. ArcelorMittal Italia (renamed Acciaierie d’Italia in April 2021 after the formation of a partnership with Invitalia see note 2.3.1) has not been notified of further developments in the other pending criminal cases. It is not possible to predict the timing or outcome and is not possible to foresee any charges for Acciaierie d'Italia.
In February 2020, the Mayor of Taranto issued an order to ArcelorMittal Italia related to certain emissions events that appear to have occurred in August 2019 and on February 22 and 23, 2020 and that allegedly concern the Taranto plant. The order required ArcelorMittal Italia to identify the responsible installations in 30 days and eliminate any anomalies within the subsequent 30 days or, if necessary, shut down certain installations relating to such emissions events (provided that, if no such identification was completed, the shut down would extend to substantially the entire "hot area" of the plant). The Mayor of Taranto further alleged that adequate responses concerning such emissions were not received from the Ministry of the Environment. In response to this order, ArcelorMittal Italia filed an appeal on the merits and an application for interim
| | |
Consolidated financial statements 352 |
| (millions of U.S. dollar, except share and per share data) |
measures to stay the order with the Regional Administrative Court in Lecce. In April 2020, the court upheld ArcelorMittal Italia’s application for interim measures and suspended the Mayor of Taranto’s order until a further hearing in October 2020. The interim order further required the Ministry of the Environment to file reports concerning the emissions events which served as the basis for the Mayor of Taranto’s order. After the Ministry provided such reports, the October 2020 hearing was postponed until December 15, 2020, at which hearing the Court confirmed the suspension of the order and scheduled the hearing for the discussion of the merits for January 27, 2021. On February 13, 2021, the Court rejected ArcelorMittal Italia’s appeal. On February 18, 2021, ArcelorMittal Italia filed an appeal with the State Council (the highest appellate body in this case) on the merits and also requested an ex parte order to suspend the judgment pending a ruling on the merits. On February 19, 2021, the State Council (i) found that the 30-day period during which ArcelorMittal Italia would have to shut down installations has not yet started and would commence only on March 16, 2021, i.e., after the hearing to discuss the request for interim measures (which it set for March 11, 2021) and therefore found a lack at the time of demonstrable “extreme gravity and urgency” necessary for interim measures, and (ii) set a hearing date of May 13, 2021 in respect of the merits. On June 23, 2021, the judgment of the Council of State was published, upholding Acciaierie d'Italia’s appeal, setting aside the Mayor of Taranto’s order as unlawful on various grounds, and thereby enabling Acciaierie d'Italia to continue operating the Taranto plant.
Luxembourg
In June 2012, the Company received writs of summons in respect of claims made by 59 former employees of ArcelorMittal Luxembourg. The claimants allege that they are owed compensation based on the complementary pension scheme that went into effect in Luxembourg in January 2000. The aggregate amount claimed by such former employees (bearing in mind that other former employees may bring similar claims) is 67. Given the similarities in the claims, the parties agreed to limit the pending proceedings to four test claims. In April 2013, the Esch-sur-Alzette labor court rejected two of these test claims. The relevant plaintiffs are appealing these decisions. In November 2013, the Luxembourg city labor court rejected the two other test claims, which were appealed but were terminated by the court in November 2021.
France
Certain subsidiaries of the ArcelorMittal group were parties to proceedings, dating from 2010, against Engie and Engie Thermique France which claimed damages in the amount of 187 for an alleged wrongful termination of a contract for the transformation of steel production gas into electricity. The ArcelorMittal subsidiaries had filed a counterclaim in the amount
of 232. The contract had been entered into in 2006 for a term of 20 years. ArcelorMittal Méditerranée terminated it in July 2010 on the basis that Engie was solely responsible for the delay in the commissioning of the power plant (which suffered from significant malfunctions) constructed for the transformation of steel production gas into electricity. Engie claimed that ArcelorMittal was in breach of the contract at the time of the termination due to certain alleged issues with the furnishing and quality of its steel production gas, and therefore unable to terminate the contract based on the sole breaches of Engie. The case was heard before the Commercial Court of Nanterre. In November 2019, the Appeals Court of Versailles determined (having been asked to decide whether a decision by the Commercial Court of Nanterre was in fact an official, formal judgment) that the earlier decision of the Commercial Court of Nanterre was the official first instance decision of the court. As a result, ArcelorMittal was ordered to pay damages of 3 plus interest. In February 2020, Engie filed an appeal. A settlement agreement was signed in July 2021, bringing the litigation to an end.
Retired and current employees of certain French subsidiaries of the former Arcelor have initiated lawsuits to obtain compensation for asbestos exposure in excess of the amounts paid by French social security (“Social Security”). Asbestos claims in France initially are made by way of a declaration of a work-related illness by the claimant to the Social Security authorities resulting in an investigation and a level of compensation paid by Social Security. Once the Social Security authorities recognize the work-related illness, the claimant, depending on the circumstances, can also file an action for inexcusable negligence (faute inexcusable) to obtain additional compensation from the company before a special tribunal. Where procedural errors are made by Social Security, it is required to assume full payment of damages awarded to the claimants. Due to fewer procedural errors made by Social Security, changes in the regulations and, consequently, fewer rejected cases, ArcelorMittal has been required to pay some amounts in damages since 2011.
The number of claims outstanding for asbestos exposure at December 31, 2021 was 300 as compared to 324 at December 31, 2020. The range of amounts claimed for the year ended December 31, 2021 was $22,000 to $680,000. The aggregate costs and settlements for the year ended December 31, 2021 were 5.48, of which 0.22 represented legal fees and 5.26 represented damages paid to the claimant. The aggregate costs and settlements for the year ended December 31, 2020 were 4.79, of which 0.2 represented legal fees and 4.59 represented damages paid to the claimant.
| | |
353 Consolidated financial statements |
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 221. 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. The Court of Cassation confirmed the Court of Appeal’s judgment on May 18, 2018. The admissible claimant finally withdrew its claims before the lower court and by judgment dated January 5, 2022, the civil court of Luxembourg acknowledged the withdrawal of the claims without prejudice and ended the procedure.
On May 15, 2012, ArcelorMittal received a writ of summons on behalf of Association 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 were 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 282), including those who filed the claims before the Luxembourg courts described (and quantified) above. The dismissal of charges (non-lieu) ending the preparatory investigation became final in March 2018. On March 6, 2020 AAA revived its claim before the civil court of Paris on grounds similar to those of the Luxembourg civil claims summarized above, on its behalf and on behalf of the hedge funds who had also filed a criminal complaint, as well as two new plaintiffs. The complaint filed by AAA quantifies the total damages claimed at 442 (€390 million) (including the claims before the Luxembourg courts described above).
9.4 Commitments
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Purchase commitments | 13,509 | | | 13,047 | |
| Guarantees, pledges and other collateral | 8,003 | | | 8,632 | |
| | | |
| Capital expenditure commitments | 330 | | | 354 | |
| Other commitments | 1,576 | | | 3,143 | |
| Total | 23,418 | | | 25,176 | |
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 included commitments given to associates for 1,562 and 1,276 as of December 31, 2021 and 2020, respectively. Purchase commitments given to associates included 819 and 561 as of December 31, 2021 and 2020, respectively, related to the gas supply agreement with Kryvyi
| | |
Consolidated financial statements 354 |
| (millions of U.S. dollar, except share and per share data) |
Rih Industrial Gas. Purchase commitments included commitments given to joint ventures for 1,140 and 1,570 as of December 31, 2021 and 2020, respectively. Purchase commitments given to joint ventures included 611 and 737 related to Tameh and 515 and 604 related to Enerfos as of December 31, 2021 and 2020, respectively.
Guarantees, pledges and other collateral
Guarantees related to financial debt and credit lines given on behalf of third parties were 146 and 150 as of December 31, 2021 and 2020, respectively. Additionally, guarantees of 12 and nil were given on behalf of associates and guarantees of 4,295 and 4,477 were given on behalf of joint ventures as of December 31, 2021 and 2020, respectively.
Guarantees given on behalf of joint ventures included 279 and 226 on behalf of Calvert, 175 and 347 on behalf of Al Jubail and 323 and 242 in relation to outstanding lease liabilities for vessels operated by Global Chartering as of December 31, 2021 and 2020, respectively. Guarantees given on behalf of joint ventures also included 3,088 as of December 31, 2021 and 2020 corresponding to ArcelorMittal's 60% guarantee of the 5,146 ten-year term loan agreement entered into by the AMNS India joint venture with various Japanese banks on March 16, 2020.
As of December 31, 2021, pledges and other collateral mainly related to (i) mortgages entered into by the Company’s operating subsidiaries and (ii) inventories and receivables pledged to secure the South African Rand revolving borrowing base finance facility for the amount drawn of 113 and ceded bank accounts to secure environmental obligations, true sale of receivables programs and the revolving borrowing base finance facility in South Africa of 89. Pledges of property, plant and equipment were 111 and 136 as of December 31, 2021 and 2020, respectively. Other sureties, first demand guarantees, letters of credit, pledges and other collateral included 406 and 407 of commitments given on behalf of associates as of December 31, 2021 and 2020, respectively, and 452 and 173 of commitments given on behalf of joint ventures as of December 31, 2021 and 2020, respectively. The increase in commitments given on behalf of joint ventures is mainly due to guarantees of 241 given on behalf of Acciaierie d'Italia, which is accounted for as a joint venture since April 14, 2021 (see note 2.4.1).
As of December 31, 2020, other sureties, first demand guarantees, letters of credit, pledges and other collateral included 260 with respect to a pledged cash collateral provided by the Company until collection of the TSR receivables retained in ArcelorMittal USA after disposal. As of December 31, 2021, the cash collateral was released.
Capital expenditure commitments
Capital expenditure commitments mainly relate to commitments associated with investments in expansion and improvement projects by various subsidiaries.
In 2016, AMSA committed to an investment program in connection with the competition commission settlement. The remaining capital expenditure commitment was 100 and 126 as of December 31, 2021 and 2020, respectively.
Capital expenditure commitments also included 158 and 196 as of December 31, 2021 and 2020, respectively, for the 1 billion investment program at the Company's Mexican operations, which is focused on building ArcelorMittal Mexico’s downstream capabilities. The main investment is related to the new hot strip mill with capacity of approximately 2.5 million tonnes.
Other commitments
Other commitments given comprise mainly commitments incurred for gas supply to electricity suppliers.
As of September 21, 2018 an Environmental Commitment Agreement ("ECA") has been executed between ArcelorMittal Brasil, local government and the Brazilian environmental authorities. ArcelorMittal Brasil committed to carry out, over the next 5 years, a series of environmental operational and capital investments with the aim to reduce atmospheric emissions from the Company's Tubarão site. To comply with the ECA requirements, ArcelorMittal Brasil may need to acquire new equipment and change some of its current operating methods and processes. As of December 31, 2021, ArcelorMittal Brasil estimated the underlying costs to implement those investments at 87. The non-compliance with ECA would lead to fines amounting to a maximum of 18 and 19 as of December 31, 2021 and 2020, respectively. On November 19, 2021, following a protocol of intent agreed between the Minas Gerais State Government, ArcelorMittal Brasil and BMB Belgo Mineira Bekaert Artefatos De Arame Ltd ("BMB"), other commitments increased by 442 as a result of ArcelorMittal Brasil's commitment to carry out capital expenditures at the Monlevade industrial plant to complete the expansion project by the second half of 2024.
Other commitments decreased by 1,940 in 2021 following the derecognition of 1,357 capital expenditure commitments relating to blast furnaces, steel shops and finishing lines and 583 environmental capital expenditure commitments as of December 31, 2020 with respect to Acciaierie d'Italia.
Commitments to sell
In addition to the commitments presented above, the Company has firm commitments to sell for which it also has firm commitments to purchase included in purchase commitments
| | |
355 Consolidated financial statements |
for 292 and 211 as of December 31, 2021 and 2020, respectively, and mainly related to natural gas and electricity.
NOTE 10: INCOME TAXES
The current tax payable (recoverable) is based on taxable profit (loss) for the year. Taxable profit differs from profit as reported in the consolidated statements of operations because it excludes items of income or expense that are taxable or deductible in other years or are never taxable or deductible. The Company’s current income tax expense (benefit) is calculated using tax rates that have been enacted or substantively enacted as of the date of the consolidated statements of financial position.
Tax is charged or credited to the consolidated statements of operations, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the tax is recognized in other comprehensive income or in equity.
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities, in the consolidated financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the statements of financial position liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences, and deferred tax assets are generally recognized for all deductible temporary differences and net operating loss carry forwards to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the taxable temporary difference arises from the initial recognition of non-deductible goodwill or if the differences arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the profit reported in the consolidated statements of operations.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except if the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments are only recognized to the extent that it is probable that there will be sufficient taxable profits against which the benefits of the temporary differences can be utilized and are expected to reverse in the foreseeable future.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted at the consolidated statements of financial position date. The
measurement of deferred tax assets and liabilities reflects the tax consequences that would result from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
The carrying amount of deferred tax assets is reviewed at each consolidated statements of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to enable all or part of the asset to be recovered. The Company reviews the deferred tax assets in the different jurisdictions in which it operates to assess the possibility of realizing such assets based on projected taxable profit, 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 planning strategies. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the deferred tax assets are subject to substantial uncertainties. In case a history of recent losses is present, the Company considers whether convincing other evidence exists, such as the character of (historical) losses and planning opportunities, to support the deferred tax assets recognition.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority and when the Company intends to settle its current tax assets and liabilities on a net basis.
Uncertain (income) tax positions are periodically assessed by the Company based on management’s best judgment given any changes in the facts, circumstances and information available and applicable tax laws. When it is probable that the tax authorities will not accept the position taken, the Group establishes provisions based on the most likely amount of the liability (recovery) or weighted average of various possible outcomes to reflect the effect of the uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates, to the extent that a reliable estimate can be made.
10.1 Income tax expense (benefit)
The components of income tax expense (benefit) are summarized as follows:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | |
| | | | | |
| | | | | |
| Total current tax expense | 2,953 | | | 839 | | | 786 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Total deferred tax expense (benefit) | (493) | | | 827 | | | (327) | |
| Total income tax expense (benefit) | 2,460 | | | 1,666 | | | 459 | |
| | |
Consolidated financial statements 356 |
| (millions of U.S. dollar, except share and per share data) |
The following table reconciles the expected tax expense (benefit) at the statutory rates applicable in the countries where the Company operates to the total income tax expense (benefit) as calculated:
| | | | | | | | | | | | | | | | | |
| | Year ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Net income (loss) (including non-controlling interests) | 15,565 | | | (578) | | | (2,391) | |
| Income tax expense | 2,460 | | | 1,666 | | | 459 | |
| Income (loss) before tax | 18,025 | | | 1,088 | | | (1,932) | |
Tax expense (benefit) at the statutory rates applicable to income (losses) in the countries1 | 4,146 | | | 136 | | | (468) | |
| Permanent items | 500 | | | 714 | | | (993) | |
| Rate changes | 12 | | | — | | | 340 | |
| Net change in measurement of deferred tax assets | (2,956) | | | 454 | | | 1,201 | |
| Tax effects of foreign currency translation | — | | | 41 | | | 14 | |
| Tax credits | (24) | | | (13) | | | (9) | |
| Other taxes | 688 | | | 267 | | | 160 | |
| Others | 94 | | | 67 | | | 214 | |
| Income tax expense | 2,460 | | | 1,666 | | | 459 | |
1.Tax expense (benefit) at the statutory rates is based on income (loss) before tax excluding income (loss) from investments in associates and joint ventures.
ArcelorMittal’s consolidated income tax expense (benefit) is affected by the income tax laws and regulations in effect in the various countries in which it operates and the pre-tax results of its subsidiaries in each of these countries, which can change from year to year. ArcelorMittal operates in jurisdictions, mainly in Eastern Europe and Asia, which have a structurally lower corporate income tax rate than the statutory tax rate as enacted in Luxembourg (24.94%), as well as in jurisdictions, mainly in Brazil and Mexico, which have a structurally higher corporate income tax rate.
| | | | | | | | | | | | | | | | | |
| Permanent items | Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Taxable reversals of (tax deductible) write-downs on shares and receivables | 735 | | | 630 | | | (922) | |
| Juros sobre o Capital Próprio | (323) | | | (37) | | | (32) | |
| | | | | |
| | | | | |
| Other permanent items | 88 | | | 121 | | | (39) | |
| Total permanent items | 500 | | | 714 | | | (993) | |
Taxable reversals of (tax deductible) write-downs on shares and receivables: in connection with the Company's impairment test for goodwill and property, plant and equipment, the recoverability of the carrying amounts of investments in shares and intragroup receivables is also reviewed annually, resulting in
tax deductible write-downs, or taxable reversals of previously recorded write-downs, of the values of loans and shares of consolidated subsidiaries in Luxembourg.
Juros sobre o Capital Próprio: Corporate taxpayers in Brazil, which distribute a dividend can benefit from a tax deduction corresponding to an amount of interest calculated as a yield on capital. The deduction is determined as the lower of the interest as calculated by application of the Brazilian long term interest rate on the opening balance of capital and reserves, and 50% of the income for the year or accumulated profits from the previous year. For accounting purposes, this distribution of interest on capital is regarded as a dividend distribution, while for Brazilian tax purposes it is regarded as tax deductible interest.
Rate changes
The 2019 tax expense from rate changes of 340 is mainly due to the impact of the decrease in the future income tax rate on deferred tax assets in Luxembourg.
Net change in measurement of deferred tax assets
The 2021 net change in measurement of deferred tax assets of (2,956) mainly consists of recognition of deferred tax assets in Luxembourg of (1,166) following higher profitability of the current year and increase of the available deferred tax liabilities, recognition of deferred tax assets on current year taxable reversal of write-downs of the value of shares and receivables of consolidated subsidiaries in Luxembourg (735), and (1,055) net recognition and utilization of deferred tax assets on losses and temporary differences in USA and other tax jurisdictions, following significant profits generated during the year.
The 2020 net change in measurement of deferred tax assets of 454 mainly consists of derecognition and utilization of deferred tax assets in Luxembourg of 709 following lower income expectation mainly as a result of the disposal of ArcelorMittal USA, recognition of deferred tax assets on current year taxable reversal of write-downs of the value of shares and receivables of consolidated subsidiaries in Luxembourg (630), and 375 net non-recognition and derecognition of deferred tax assets on losses and temporary differences in other tax jurisdictions.
The 2019 net change in measurement of deferred tax assets of 1,201 mainly consists of non-recognition of deferred tax assets on write-downs of the value of shares of consolidated subsidiaries in Luxembourg and other non-recognition and derecognition of deferred tax assets in certain tax jurisdictions, partially offset by an additional recognition of deferred tax assets of previous years of 0.6 billion due to increase in projections of future taxable income in Luxembourg driven primarily by the lower external borrowing costs.
| | |
357 Consolidated financial statements |
Tax effects of foreign currency translation
The tax effects of foreign currency translation of nil, 41 and 14 at December 31, 2021, 2020 and 2019 , respectively, refer mainly to deferred tax assets and liabilities of certain entities with a different functional currency than the currency applied for tax filing purposes.
Tax credits
The tax credits are mainly attributable to the Company’s operating subsidiaries in Brazil. They relate to credits claimed on foreign investments, credits for research and development and other credits.
Other taxes
Other taxes mainly include withholding taxes on dividends, services, royalties and interests as well as mining duties in Canada and Mexico, state tax and Base Erosion and Anti-Abuse Tax ("BEAT") in the United States, and Cotisation sur la Valeur Ajoutée des Entreprises ("CVAE'') in France. Other taxes increased in 2021 mainly as a result of higher mining taxes in Canada.
| | | | | | | | | | | | | | | | | |
| Others | Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Tax contingencies/settlements | 137 | | | 87 | | | 225 | |
| Prior period taxes | (31) | | | (15) | | | (20) | |
| Others | (12) | | | (5) | | | 9 | |
| Total | 94 | | | 67 | | | 214 | |
Tax contingencies/settlements of 137, 87, and 225 at December 31, 2021, 2020 and 2019, respectively, consist of uncertain tax positions (see note 10.3) mainly related to North America and ACIS.
10.2 Income tax recorded directly in equity and/or other comprehensive income
| | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2021 | | 2020 | | 2019 |
| Recognized in other comprehensive income on: | | | | | | |
| Deferred tax expense (benefit) | | | | | | |
| Unrealized gain on investments in equity instruments at FVOCI | | 167 | | | 56 | | | — | |
| Gain (loss) on derivative financial instruments | | 648 | | | (28) | | | (244) | |
| Recognized actuarial gain (loss) | | 144 | | | (69) | | | 32 | |
| Foreign currency translation adjustments | | 59 | | | (335) | | | (35) | |
| | 1,018 | | | (376) | | | (247) | |
| Recognized directly in equity on: | | | | | | |
| Current tax expense (benefit) | | | | | | |
| Realized gain on investments in equity instruments at FVOCI | | — | | | 4 | | | — | |
| Deferred tax expense (benefit) | | | | | | |
| Loss related to repurchase of MCNs | | (185) | | | — | | | — | |
| Realized gain on investments in equity instruments at FVOCI | | — | | | 9 | | | — | |
| | (185) | | | 13 | | | — | |
| | | | | | | |
| Total | | 833 | | | (363) | | | (247) | |
10.3 Uncertain tax positions
The Company operates in multiple jurisdictions with complex legal and tax regulatory environments. In certain of these jurisdictions, ArcelorMittal has taken income tax positions that management believes are supportable and are intended to withstand challenge by tax authorities. Some of these positions are inherently uncertain and include those relating to transfer pricing matters and the interpretation of income tax laws applied in complex transactions. The Company periodically reassesses its tax positions. Changes to the financial statement recognition, measurement and disclosure of tax positions are based on management’s best judgment given any changes in the facts, circumstances, information available and applicable tax laws. Considering all available information and the history of resolving income tax uncertainties, the Company believes that the ultimate resolution of such matters will not have a material effect on the Company’s financial position, statements of operations or cash flows (see note 9.3).
| | |
Consolidated financial statements 358 |
| (millions of U.S. dollar, except share and per share data) |
10.4 Deferred tax assets and liabilities
The origin of the deferred tax assets and liabilities is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets | | Liabilities | | Net |
| 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 |
| Intangible assets | 15 | | | 15 | | | (487) | | | (538) | | | (472) | | | (523) | |
| Property, plant and equipment | 150 | | | 73 | | | (4,076) | | | (4,064) | | | (3,926) | | | (3,991) | |
| Inventories | 273 | | | 277 | | | (40) | | | (77) | | | 233 | | | 200 | |
| Financial instruments | 82 | | | 13 | | | (799) | | | (124) | | | (717) | | | (111) | |
| Other assets | 152 | | | 162 | | | (486) | | | (306) | | | (334) | | | (144) | |
| Provisions | 1,083 | | | 1,240 | | | (253) | | | (276) | | | 830 | | | 964 | |
| Other liabilities | 531 | | | 458 | | | (31) | | | (120) | | | 500 | | | 338 | |
| Tax losses and other tax benefits carried forward | 9,530 | | | 9,168 | | | — | | | — | | | 9,530 | | | 9,168 | |
| Tax credits carried forward | 134 | | | 133 | | | — | | | — | | | 134 | | | 133 | |
| Untaxed reserves | — | | | — | | | — | | | — | | | — | | | — | |
| Deferred tax assets (liabilities) | 11,950 | | | 11,539 | | | (6,172) | | | (5,505) | | | 5,778 | | | 6,034 | |
| Deferred tax assets | | | | | | | | | 8,147 | | | 7,866 | |
| Deferred tax liabilities | | | | | | | | | (2,369) | | | (1,832) | |
Deferred tax assets recognized by the Company as of December 31, 2021 included the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross amount | | Total deferred tax assets | | Recognized deferred tax assets | | Unrecognized deferred tax assets |
| Tax losses and other tax benefits carried forward | 133,107 | | | 33,236 | | | 9,530 | | | 23,706 | |
| Tax credits carried forward | 671 | | | 671 | | | 134 | | | 537 | |
| Other temporary differences | 11,695 | | | 3,033 | | | 2,286 | | | 747 | |
| Total | | | 36,940 | | | 11,950 | | | 24,990 | |
Deferred tax assets recognized by the Company as of December 31, 2020 included the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross amount | | Total deferred tax assets | | Recognized deferred tax assets | | Unrecognized deferred tax assets |
| Tax losses and other tax benefits carried forward | 114,266 | | | 28,554 | | | 9,168 | | | 19,386 | |
| Tax credits carried forward | 745 | | | 745 | | | 133 | | | 612 | |
| Other temporary differences | 12,029 | | | 3,072 | | | 2,238 | | | 834 | |
| Total | | | 32,371 | | | 11,539 | | | 20,832 | |
As of December 31, 2021, the majority of unrecognized deferred tax assets relates to tax losses carried forward attributable to various subsidiaries located in different jurisdictions (primarily Germany, Luxembourg, Spain, South Africa and USA) with different statutory tax rates. At each reporting date, ArcelorMittal considers existing evidence, both positive and negative, including the earnings history and results of recent operations, reversals of deferred tax liabilities, projected future taxable
income, and planning strategies, that could impact the view with regard to future realization of these deferred tax assets.
The amount of the total deferred tax assets is the aggregate amount of the various recognized and unrecognized deferred tax assets at the various subsidiaries and not the result of a computation with a given blended rate. The utilization of tax losses carried forward is restricted to the taxable income of the subsidiary or tax consolidation group to which it belongs. The
| | |
359 Consolidated financial statements |
utilization of tax losses carried forward may also be restricted by the character of the income, expiration dates and limitations on the yearly use of tax losses against taxable income.
At December 31, 2021, the total amount of accumulated tax losses in Luxembourg with respect to the ArcelorMittal S.A. tax integration amounted to approximately 115.6 billion, of which 34.1 billion is considered realizable, resulting in the recognition of 8.5 billion of deferred tax assets at the applicable income tax rate in Luxembourg. At December 31, 2020, the total amount of accumulated tax losses in Luxembourg with respect to the main tax consolidation amounted to approximately 91.3 billion, of which 31.5 billion was considered realizable, resulting in the recognition of 7.9 billion of deferred tax assets at the applicable income tax rate in Luxembourg. Under the Luxembourg tax legislation, tax losses generated before 2017 can be carried forward indefinitely and are not subject to any specific yearly loss utilization limitations. The tax losses carried forward relate primarily to tax deductible write-down charges taken on investments in shares of consolidated subsidiaries recorded by certain of ArcelorMittal’s holding companies in Luxembourg. Of the total tax losses carried forward, 54.3 billion may be subject to recapture in the future if the write-downs that caused them are reversed creating taxable income unless the Company crystallizes them through sales or other organizational restructuring activities.
The Company believes that it is probable that sufficient future taxable profits will be generated to support the recognized deferred tax asset for tax losses carried forward in Luxembourg. As part of its recoverability assessment the Company has taken into account (i) its most recent forecast approved by management and the Board of Directors, (ii) the likelihood that the factors that have contributed to past losses in Luxembourg will not recur, (iii) the fact that ArcelorMittal in Luxembourg is the main provider of funding to the Company’s consolidated subsidiaries, leading to significant amounts of taxable interest income on outstanding and future loans as updated based on most recent funding strategy, (iv) the expected level of interest expenses in Luxembourg driven by the Group net debt level, (v) the industrial franchise agreement whereby ArcelorMittal S.A. licenses its business model for manufacturing, processing and distributing steel to group subsidiaries, and (vi) other significant and reliable sources of operational income earned from ArcelorMittal’s European and worldwide operating subsidiaries for centralized distribution and procurement activities performed in Luxembourg. The Company has also considered the implications of the net-zero path and its carbon emissions intensity reduction targets on its future taxable profits expectations in relation to the existing business models and the potential future financing of such projects, resulting in no major impact on the estimated level of future taxable profit. In performing the assessment, the Company estimates at which
point in time its earnings projections are no longer reliable, and thus taxable profits are no longer probable. Accordingly, the Company has established consistent forecast periods for its different income streams for estimating probable future taxable profits, against which the unused tax losses can be utilized in Luxembourg.
At December 31, 2021, based upon the level of historical taxable income and projections for future taxable income over the periods in which the deductible temporary differences are anticipated to reverse, management believes it is probable that ArcelorMittal will realize the benefits of the recognized deferred tax assets of 8.1 billion. The amount of future taxable income required to be generated by ArcelorMittal’s subsidiaries to utilize the deferred tax assets of 8.1 billion is at least 32.9 billion. Historically, the Company has been able to generate sufficient taxable income and believes that it will generate sufficient levels of taxable income in the coming years to allow the Company to utilize tax benefits associated with tax losses carried forward and other deferred tax assets that have been recognized in its consolidated financial statements. Where the Company has had a history of recent losses, it relied on convincing other evidence such as the character of (historical) losses and planning opportunities to support the deferred tax assets recognized.
For the period ended December 31, 2021, ArcelorMittal recorded 225 of deferred income tax liabilities in respect of deferred taxation that would arise if temporary differences on investments in subsidiaries, associates and interests in joint ventures were to be realized in the foreseeable future as compared to 90 as of December 31, 2020. No deferred tax liability has been recognized in respect of other temporary differences on investments in subsidiaries, associates and interests in joint ventures because the Company is able to control the timing of the reversal of the temporary difference and it is probable that such differences will not reverse in the foreseeable future. The amount of these unrecognized deferred tax liabilities is 796.
10.5 Tax losses, tax credits and other tax benefits carried forward
At December 31, 2021, the Company had total estimated tax losses carried forward and other tax benefits of 133.1 billion.
This includes net operating losses and other tax benefits of 5.8 billion primarily related to subsidiaries in the Basque Country in Spain, Luxembourg and the United States, which expire as follows:
| | |
Consolidated financial statements 360 |
| (millions of U.S. dollar, except share and per share data) |
| | | | | | | | | | | | | | | | | | | | |
| Year expiring | | Recognized | | Unrecognized | | Total |
| 2022 | | 9 | | | 3 | | | 12 | |
| 2023 | | 59 | | | 3 | | | 62 | |
| 2024 | | 253 | | | 35 | | | 288 | |
| 2025 | | 35 | | | 44 | | | 79 | |
| 2026 | | — | | | 6 | | | 6 | |
| 2027 - 2039 | | 711 | | | 4,627 | | | 5,338 | |
| Total | | 1,067 | | | 4,718 | | | 5,785 | |
The remaining tax losses carried forward and other tax benefits for an amount of 127.3 billion (of which 37.1 billion are recognized and 90.2 billion are unrecognized) are carried forward for unlimited period of time and primarily relate to the Company’s operations in France, Germany, Luxembourg, Spain and in the US.
At December 31, 2021, the Company also had total estimated tax credits carried forward of 671.
Such amount includes tax credits of 565 (of which 69 recognized and 496 unrecognized) and primarily attributable to subsidiaries in the Basque country in Spain which expire as follows:
| | | | | | | | | | | | | | | | | | | | |
| Year expiring | | Recognized | | Unrecognized | | Total |
| 2022 | | — | | | 2 | | | 2 | |
| 2023 | | — | | | 2 | | | 2 | |
| 2024 | | — | | | 1 | | | 1 | |
| 2025 | | — | | | 1 | | | 1 | |
| 2026 | | — | | | 2 | | | 2 | |
| 2027 - 2039 | | 69 | | | 488 | | | 557 | |
| Total | | 69 | | | 496 | | | 565 | |
The remaining tax credits for an amount of 106 (of which 66 are recognized and 40 are unrecognized) are indefinite and primarily attributable to the Company’s operations in Spain and the US.
Tax losses, tax credits and other tax benefits carried forward are denominated in the currency of the countries in which the respective subsidiaries are located and operate, except for Luxembourg where the tax losses are mainly denominated in U.S. dollar. Fluctuations in currency exchange rates could
impact the U.S. dollar equivalent value of these tax losses carried forward in future years.
NOTE 11: EQUITY
11.1 Share details
On May 14, 2020, the Company completed an offering of common shares, without nominal value for 750 at a price of $9.27 per share. The Significant Shareholder participated in the offerings by contributing an amount of 100 for the shares.
Following the offering of common shares described above with net proceeds of 740 (net of transaction costs of 10), on May 14, 2020, the Company issued 80,906,149 fully paid up shares. The Company allocated 29 to share capital, which increased from 364 at December 31, 2019 to 393 at December 31, 2020 and the remainder of 711 to additional paid-in-capital.
Under the terms of the offerings, there is a 180-day lock-up period for the Company on issuances or sales of shares and securities exchangeable for or convertible into shares, subject to customary exceptions.
Following the approval by the extraordinary general meeting of shareholders on June 8, 2021 to cancel all the shares repurchased by the Company under its share buyback programs up to a maximum of 165 million shares, the Company decreased issued share capital on August 4, 2021 and September 22, 2021 through the cancellation of 70 million and 50 million treasury shares, respectively. Accordingly, the aggregate number of shares issued and fully paid up decreased from 1,102,809,772 to 982,809,772 and share capital decreased by 43 from 393 at December 31, 2020 to 350 at December 31, 2021.
On January 14, 2022, ArcelorMittal cancelled 45 million treasury shares to keep the number of treasury shares within appropriate levels. This cancellation took into account the shares already purchased under the 1,000 share buyback program announced on November 17, 2021 which was completed on December 28, 2021. Following these cancellations, the aggregate number of shares issued and fully paid up decreased from 982,809,772 to 937,809,772 and share capital decreased from 350 at December 31, 2021 to 334.
The Company’s shares consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | Movement in year | | December 31, 2020 | | Movement in year | | December 31, 2021 |
| Issued shares | 1,021,903,623 | | | 80,906,149 | | | 1,102,809,772 | | | (120,000,000) | | | 982,809,772 | |
| Treasury shares | (9,824,202) | | | (12,251,157) | | | (22,075,359) | | | (49,841,211) | | | (71,916,570) | |
| Total outstanding shares | 1,012,079,421 | | | 68,654,992 | | | 1,080,734,413 | | | (169,841,211) | | | 910,893,202 | |
| | |
361 Consolidated financial statements |
The number of issued shares was 1,021,903,623 at December 31, 2019, 1,102,809,772 at December 31, 2020 and 982,809,772 at December 31, 2021.
Authorized shares
On June 13, 2020, at the extraordinary general meeting of shareholders, the shareholders approved an increase of the authorized share capital by 74. As a result, the authorized share capital increased from 411 represented by 1,151,576,921 ordinary shares without nominal value as of December 31, 2019 to 485 represented by 1,361,418,599 ordinary shares without nominal value as of December 31, 2020.
On August 4, 2021, following the cancellation of 70 million treasury shares, the authorized share capital decreased from 485 represented by 1,361,418,599 ordinary shares without nominal value to 460 represented by 1,291,418,599 ordinary shares without nominal value. On September 22, 2021, following the cancellation of 50 million treasury shares, the authorized share capital decreased further to 442 represented by 1,241,418,599 ordinary shares without nominal value.
On January 14, 2022, following the cancellation of 45 million treasury shares, the authorized share capital decreased to 426 represented by 1,196,418,599 ordinary shares without nominal value.
Share buyback
On February 15, 2019, ArcelorMittal completed a share buyback program and repurchased 4 million shares for a total value of €80 million (90) at an average price per share of €19.89 ($22.42).
On October 30, 2020, the Company completed a share buyback program in connection with the announced sale of 100% of the shares of ArcelorMittal USA. ArcelorMittal repurchased 35,636,253 shares at an average price per share of €11.92 ($14.03) for a total value of €425 million (500).
The shares acquired through the buyback program were recognized as treasury shares. On December 15, 2020, ArcelorMittal signed separate, privately negotiated exchange agreements with a limited number of holders of the MCNs for which it delivered 22,653,933 shares out of treasury shares (see note 11.2).
On March 3, 2021, ArcelorMittal completed its first share buyback program in 2021 and repurchased 27.1 million shares for a total amount of €537 million (650) at an average price per share of €19.79 ($23.97).
On June 17, 2021, ArcelorMittal completed a second share buyback program and repurchased 17.8 million shares for a total amount of €469 million (570) at an average price per share of €26.27 ($31.94).
On July 5, 2021, ArcelorMittal completed a third share buyback program and repurchased 24.5 million shares for a total amount of €630 million (750) at an average price per share of €25.77 ($30.66).
On November 16, 2021, ArcelorMittal completed a fourth share buyback program and repurchased 67.4 million shares for a total value of €1,881 million (2,200) at an average price per share of €27.91 ($32.64).
On December 28, 2021, completed a fifth share buyback program and repurchased 34.1 million shares for a total value of €886 million (1,000) at an average price per share of €25.99 ($29.34).
During 2021, the Company repurchased 62.2 million shares from the Significant Shareholder under its five share buy back programs to maintain Significant Shareholder's current level of voting rights (pursuant to the Share Repurchase Agreement signed on February 12, 2021) for €1,600 million (1,878).
On February 11, 2022, ArcelorMittal announced a new share buyback program in the amount of 1,000 under the authorization given by the annual general meeting of shareholders of June 8, 2021. The program is expected to be completed during the first half of 2022, subject to market conditions. The shares acquired under the program are intended to meet ArcelorMittal’s obligations under debt obligations exchangeable into equity securities, reduce ArcelorMittal’s share capital, and/or meet ArcelorMittal’s obligations arising from employee share programs. As of March 10, 2022, ArcelorMittal had repurchased 7.1 million shares for a total value of €193 million (214) at an average price per share of €27.14 ($30.08).
Treasury shares
ArcelorMittal held, indirectly and directly, 71.9 million and 22.1 million treasury shares as of December 31, 2021 and December 31, 2020, respectively.
11.2 Equity instruments and hybrid instruments
Mandatory convertible bonds
On December 28, 2009, the Company issued through Hera Ermac, a wholly-owned subsidiary, 750 unsecured and unsubordinated bonds mandatorily convertible into preferred shares of such subsidiary. The bonds were placed privately with a Luxembourg affiliate of Crédit Agricole (formerly Calyon) and are not listed. The Company has the option to call the mandatory convertible bonds until 10 business days before the maturity date. Hera Ermac invested the proceeds of the bonds issuance and an equity contribution by the Company in notes issued by subsidiaries of the Company linked to the values of shares of Erdemir and China Oriental. On April 20, 2011, the Company signed an agreement for an extension of the conversion date of the mandatory convertible bonds to January
| | |
Consolidated financial statements 362 |
| (millions of U.S. dollar, except share and per share data) |
31, 2013. On September 27, 2011, the Company increased the mandatory convertible bonds from 750 to 1,000. The Company has extended the conversion date for the mandatory convertible bonds from time to time with the latest extension on December 22, 2020 (resulting in the extinguishment and recognition of a new compound instrument) to January 31, 2024.
On March 29, 2019 and December 18, 2019, the Company repaid notes issued by subsidiaries which were linked to the value of the shares of Erdemir. As of December 31, 2020, the remaining notes were linked to the value of the shares of China Oriental (see note 6.1.5).
On December 22, 2020, as described above the maturity of the mandatory convertible bonds was extended from January 29, 2021 to January 31, 2024. The other main features of the mandatory convertible bonds remained unchanged. The Company determined that this transaction led to the extinguishment of the existing compound instrument and the recognition of a new compound instrument including non-controlling interests for 869 (net of cumulative tax and fees) and other liabilities for 131. The derecognition of the previous instrument and the recognition at fair value of the new instrument resulted in a 178 expense included in financing costs-net in the consolidated statement of operations and a 53 increase in non-controlling interests.
Mandatorily convertible subordinated notes
On May 18, 2020, following the offering of common shares described in note 11.1, the Company completed an offering of mandatorily convertible subordinated notes (“MCNs”) for 1,250. The MCNs have a three year maturity, were issued at 100% of the principal amount and will be mandatorily converted into common shares of the Company upon maturity unless converted earlier at the option of the holders or ArcelorMittal during the conversion period or upon occurrence of certain defined events.
In all cases, ArcelorMittal may exercise its right to convert early, taking precedent over the other options. In case of an early conversion, ArcelorMittal must deliver shares at the “Maximum Conversion Ratio.” The mandatorily convertible notes pay a coupon of 5.50% per annum, payable quarterly in arrears. The minimum conversion price of the mandatorily convertible notes is equal to $9.18, corresponding to the offering price of the shares as described above, and the maximum conversion price is 117.5% of the minimum conversion price or $10.79, subject to certain adjustments. ArcelorMittal intends to use the net proceeds from the offerings for general corporate purposes, to deleverage and to enhance liquidity, thereby building additional resilience going forward in what remains an uncertain environment.
The Significant Shareholder participated in the offerings by contributing an amount of 100 for the MCNs.
The Company determined that the MCNs are a hybrid instrument including an equity component and a debt component. The Company assessed whether there is actual economic or other business reasons that it would exercise its option to convert prior to maturity, whether the MCNs would have been priced differently if the early settlement option had not been included in the contractual terms and other factors such as the term of the instrument, the width of the range between the cap and the floor, ArcelorMittal’s share price and the volatility of the share price as important criterion in this conclusion. The early conversion right has economic substance with respect to maintaining the current credit rating if early conversion can help in preventing a rating downgrade. In this event, future savings of credit interest is expected to be more than the cost of early conversion. The debt component of 190 (net of transaction costs of 2) at issuance corresponded to the net present value of the future interest payments and is included in accrued expenses and other liabilities and other long-term obligations. The remaining amount of 1,047 (net of transaction costs of 11) was the equity instrument.
On December 15, 2020, ArcelorMittal signed separate, privately negotiated exchange agreements with a limited number of holders of MCNs exchanging 247 in aggregate principal amount of MCNs for an aggregate of 22,653,933 treasury shares at the minimum conversion ratio plus 25 paid in cash (including accrued interest on the exchanged MCNs up to, but excluding, the settlement date). The Company allocated the share consideration to the debt (30) and equity (207) components consistent with the original allocation using net present value of the future interest payments at the date of exchange. As of December 31, 2020 and following the exchange, the debt and equity components were 123 and 840 (presented separately in the statements of changes in equity), net of transaction fees respectively.
On December 23, 2021, ArcelorMittal completed separate, privately negotiated agreements with a limited number of holders of MCNs to repurchase 395 in aggregate principal amount of MCNs at the minimum conversion ratio for an aggregate cash consideration of 1,196. The Company allocated the cash consideration to the debt (30) and equity (331) components of the instrument and recognized in financing costs - net a 61 loss relating to the liability component and a 774 (589 net of tax) decrease in retained earnings relating to the equity component consistent with the original allocation using net present value of the future interest payments at the date of exchange. As of December 31, 2021 and following the early redemption, the debt and equity components were 44 and 509
| | |
363 Consolidated financial statements |
(presented separately in the statements of changes in equity), net of transaction fees, respectively.
11.3 Earnings per common share
Basic earnings per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted earnings per share
is computed by dividing income (loss) available to equity holders by the weighted average number of common shares plus potential common shares from share unit plans and outstanding stock options whenever the conversion results in a dilutive effect.
The following table provides the numerators and a reconciliation of the denominators used in calculating basic and diluted earnings per common share for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net income (loss) attributable to equity holders of the parent | 14,956 | | | (733) | | | (2,454) | |
| Weighted average common shares outstanding (in millions) for the purposes of basic earnings per share | 1,105 | | | 1,140 | | | 1,013 | |
| Incremental shares from assumed conversion of restricted share units and performance share units (in millions) | 3 | | | — | | | — | |
| Weighted average common shares outstanding (in millions) for the purposes of diluted earnings per share | 1,108 | | | 1,140 | | | 1,013 | |
For the purpose of calculating earnings per common share, diluted weighted average common shares outstanding excludes nil, 9 million and 7 million potential common shares from share unit plans for the year ended December 31, 2021, 2020 and 2019, respectively; and 1 million potential common shares from stock options outstanding for the year ended December 31, 2019, because such share unit plans and stock options are anti-dilutive.
11.4 Dividends
Calculations to determine the amounts available for dividends are based on ArcelorMittal’s financial statements (“ArcelorMittal
S.A.”) which are prepared in accordance with IFRS, as endorsed by the European Union. ArcelorMittal S.A. has no significant manufacturing operations of its own and generates its profit mostly from financing activities and the management fees/industrial franchise agreements with Group companies. Accordingly, it can only pay dividends or distributions to the extent it is entitled to receive cash dividend distributions from its subsidiaries’ recognized gains, profit generated by its own activities, from the sale of its assets or share premiums from the issuance of common shares. Dividends are declared in U.S. dollar and are payable in either U.S. dollar or in euros.
| | | | | | | | | | | | | | | | | | | | | | | |
| Description | Approved by | | Dividend per
share (in $) | | Payout date | | Total (in
millions of $) |
| Dividend for financial year 2018 | Annual general shareholders’ meeting on May 7, 2019 | | 0.20 | | | June 13, 2019 | | 203 | |
| Dividend for financial year 2019 | Annual general shareholders’ meeting on June 13, 2020 | | — | | | — | | | — | |
| Dividend for financial year 2020 | Annual general shareholders’ meeting on June 8, 2021 | | 0.30 | | | June 15, 2021 | | 312 | |
On June 8, 2021 at the annual general meeting of shareholders, the shareholders approved the Company’s dividend of $0.30 per share. The dividend amounted to 325 (312 net of dividends paid to subsidiaries holding treasury shares), and was paid on June 15, 2021.
In February 2022, the Board of Directors recommended an increase of the base annual dividend to $0.38 per share, from
$0.30 per share, to be paid in June 2022, subject to the approval of shareholders at the annual general meeting of shareholders in May 2022.
| | |
Consolidated financial statements 364 |
| (millions of U.S. dollar, except share and per share data) |
11.5 Non-controlling interests
11.5.1 Non-wholly owned subsidiaries that have material non-controlling interests
The tables below provide a list of the subsidiaries which include significant non-controlling interests at December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of Subsidiary | | Country of incorporation and operation | | % of non-controlling interests and non- controlling voting rights at December 31, 2021 | | % of non-controlling interests and non- controlling voting rights at December 31, 2020 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2021 | | Non-controlling interests at December 31, 2021 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2020 | | Non-controlling interests at December 31, 2020 | | Net income (loss) attributable to non- controlling interests for the year ended December 31, 2019 |
| AMSA | | South Africa | | 30.78 | % | | 30.78 | % | | 151 | | | 160 | | | (34) | | | 24 | | | (98) | |
Société Nationale de Sidérurgie S.A. ("Sonasid")1 | | Morocco | | 67.57 | % | | 67.57 | % | | 9 | | | 118 | | | — | | | 114 | | | — | |
| ArcelorMittal Kryvyi Rih | | Ukraine | | 4.87 | % | | 4.87 | % | | 45 | | | 187 | | | (1) | | | 151 | | | (5) | |
| Belgo Bekaert Arames ("BBA") | | Brazil | | 45.00 | % | | 45.00 | % | | 127 | | | 187 | | | 33 | | | 116 | | | 28 | |
Hera Ermac2 | | Luxembourg | | — | | | — | | | — | | | 855 | | | — | | | 855 | | | — | |
| AMMC | | Canada | | 15.00 | % | | 15.00 | % | | 257 | | | 527 | | | 127 | | | 466 | | | 114 | |
| Arceo | | Belgium | | 62.86 | % | | 62.86 | % | | 2 | | | 153 | | | 2 | | | 167 | | | 3 | |
| ArcelorMittal Liberia Ltd | | Liberia | | 15.00 | % | | 15.00 | % | | 4 | | | (218) | | | 28 | | | (222) | | | 18 | |
| Other | | | | | | | | 14 | | | 269 | | | — | | | 286 | | | 3 | |
| Total | | | | | | | | 609 | | | 2,238 | | | 155 | | | 1,957 | | | 63 | |
1.Sonasid - ArcelorMittal holds a controlling stake of 50% in Nouvelles Sidérurgies Industrielles ("NSI"). ArcelorMittal controls NSI on the basis of a shareholders’ agreement which includes deadlock arrangements in favor of the Company. NSI holds a 64.86% stake in Sonasid. The total non-controlling interests in Sonasid of 67.57% are the result of ArcelorMittal’s indirect ownership percentage in Sonasid of 32.43% through its controlling stake in NSI.
2.Hera Ermac - The non-controlling interests correspond to the equity component net of transaction fees of the mandatory convertible bonds maturing on January 31, 2024 (see note 11.2).
The tables below provide summarized statements of financial position for the above-mentioned subsidiaries as of December 31, 2021 and 2020 and summarized statements of operations and summarized statements of cash flows for the years ended December 31, 2021, 2020 and 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Summarized statements of financial position | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| Current assets | 1,229 | | | 232 | | | 1,657 | | | 392 | | | 685 | | | 2,058 | | | 196 | | | 176 | |
| Non-current assets | 554 | | | 107 | | | 3,043 | | | 124 | | | 976 | | | 3,038 | | | 53 | | | 158 | |
| Total assets | 1,783 | | | 339 | | | 4,700 | | | 516 | | | 1,661 | | | 5,096 | | | 249 | | | 334 | |
| Current liabilities | 901 | | | 124 | | | 787 | | | 149 | | | 55 | | | 640 | | | — | | | 1,559 | |
| Non-current liabilities | 362 | | | 43 | | | 284 | | | 23 | | | 54 | | | 623 | | | — | | | 46 | |
| Net assets | 520 | | | 172 | | | 3,629 | | | 344 | | | 1,552 | | | 3,833 | | | 249 | | | (1,271) | |
| | |
365 Consolidated financial statements |
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| December 31, 2021 |
| Summarized statements of operations | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| Revenue | 2,695 | | | 480 | | | 4,015 | | | 1,021 | | | — | | | 3,997 | | | — | | | 372 | |
| Net income (loss) | 489 | | | 15 | | | 920 | | | 272 | | | (4) | | | 1,713 | | | 3 | | | 63 | |
| Total comprehensive income (loss) | 491 | | | 17 | | | 918 | | | 273 | | | (4) | | | 1,796 | | | 3 | | | 63 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| Summarized statements of cash flows | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| | | | | | | | | | | | | | | |
| Net cash provided by / (used in) operating activities | 180 | | | 23 | | | 778 | | | 90 | | | 5 | | | 2,310 | | | 8 | | | 214 | |
| Net cash provided by / (used in) investing activities | (85) | | | (6) | | | (313) | | | (5) | | | 8 | | | (844) | | | 19 | | | (78) | |
| Net cash provided by / (used in) financing activities | (49) | | | (4) | | | (449) | | | (72) | | | (13) | | | (1,375) | | | (5) | | | (135) | |
| Impact of currency movements on cash | (16) | | | (6) | | | 1 | | | (2) | | | — | | | — | | | (6) | | | — | |
| Cash and cash equivalents: | | | | | | | | | | | | | | | |
| At the beginning of the year | 173 | | | 92 | | | 31 | | | 20 | | | — | | | 125 | | | 73 | | | 1 | |
| At the end of the year | 203 | | | 99 | | | 48 | | | 31 | | | — | | | 216 | | | 89 | | | 2 | |
| Dividend to non-controlling interests | | | (2) | | | (17) | | | (22) | | | | | (202) | | | (3) | | | |
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| | December 31, 2020 |
| Summarized statements of financial position | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| | | | | | | | | | | | | | | |
| Current assets | 853 | | | 214 | | | 1,050 | | | 200 | | | 694 | | | 1,566 | | | 182 | | | 153 | |
| Non-current assets | 572 | | | 114 | | | 2,871 | | | 112 | | | 1,044 | | | 2,987 | | | 89 | | | 150 | |
| Total assets | 1,425 | | | 328 | | | 3,921 | | | 312 | | | 1,738 | | | 4,553 | | | 271 | | | 303 | |
| Current liabilities | 875 | | | 115 | | | 619 | | | 93 | | | 54 | | | 515 | | | — | | | 1,583 | |
| Non-current liabilities | 471 | | | 48 | | | 354 | | | 9 | | | 113 | | | 633 | | | — | | | 55 | |
| Net assets | 79 | | | 165 | | | 2,948 | | | 210 | | | 1,571 | | | 3,405 | | | 271 | | | (1,335) | |
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| | December 31, 2020 |
| Summarized statements of operations | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| | | | | | | | | | | | | | | | |
| Revenue | 1,526 | | | 324 | | | 2,348 | | | 650 | | | — | | | 2,746 | | | — | | | 361 | |
| Net income (loss) | (110) | | | (1) | | | 17 | | | 75 | | | (208) | | | 849 | | | 4 | | | 192 | |
| Total comprehensive income (loss) | (138) | | | 3 | | | 14 | | | 79 | | | (208) | | | 747 | | | 4 | | | 192 | |
| | |
Consolidated financial statements 366 |
| (millions of U.S. dollar, except share and per share data) |
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| | December 31, 2020 |
| Summarized statements of cash flows | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| | | | | | | | | | | | | | | |
| Net cash provided by / (used in) operating activities | 30 | | | 39 | | | 697 | | | 86 | | | (209) | | | 922 | | | 8 | | | 223 | |
| Net cash provided by / (used in) investing activities | (13) | | | (5) | | | (212) | | | (12) | | | 208 | | | (137) | | | 20 | | | (19) | |
| Net cash provided by / (used in) financing activities | 77 | | | (1) | | | (485) | | | (65) | | | 1 | | | (870) | | | (6) | | | (204) | |
| Impact of currency movements on cash | 19 | | | 6 | | | (11) | | | (2) | | | — | | | — | | | 5 | | | — | |
| Cash and cash equivalents: | | | | | | | | | | | | | | | |
| At the beginning of the year | 60 | | | 53 | | | 42 | | | 13 | | | — | | | 210 | | | 46 | | | 1 | |
| At the end of the year | 173 | | | 92 | | | 31 | | | 20 | | | — | | | 125 | | | 73 | | | 1 | |
| Dividend to non-controlling interests | | | | | | | (27) | | | | | (126) | | | (3) | | | |
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| | December 31, 2019 |
| Summarized statements of operations | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| | | | | | | | | | | | | | | |
| Revenue | 2,864 | | | 366 | | | 2,420 | | | 761 | | | — | | | 2,655 | | | — | | | 257 | |
| Net income (loss) | (319) | | | (1) | | | (100) | | | 63 | | | 144 | | | 766 | | | 5 | | | 115 | |
| Total comprehensive income (loss) | (312) | | | — | | | (141) | | | 64 | | | 144 | | | 761 | | | 5 | | | 115 | |
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| | December 31, 2019 |
| Summarized statements of cash flows | AMSA | | Sonasid | | AM Kryvyi Rih | | BBA | | Hera Ermac | | AMMC | | Arceo | | AM Liberia |
| Net cash provided by / (used in) operating activities | (35) | | | 9 | | | 163 | | | 76 | | | 857 | | | 1,045 | | | 9 | | | 84 | |
| Net cash provided by / (used in) investing activities | (79) | | | (5) | | | (270) | | | (12) | | | (114) | | | (332) | | | 17 | | | (18) | |
| Net cash provided by / (used in) financing activities | 97 | | | (6) | | | 68 | | | (62) | | | (743) | | | (683) | | | (7) | | | (65) | |
| Impact of currency movements on cash | 5 | | | — | | | 8 | | | — | | | — | | | — | | | — | | | — | |
| Cash and cash equivalents: | | | | | | | | | | | | | | | |
| At the beginning of the year | 72 | | | 55 | | | 73 | | | 11 | | | — | | | 180 | | | 27 | | | — | |
| At the end of the year | 60 | | | 53 | | | 42 | | | 13 | | | — | | | 210 | | | 46 | | | 1 | |
| Dividend to non-controlling interests | — | | | (4) | | | — | | | (18) | | | — | | | (102) | | | (5) | | | — | |
11.5.2 Transactions with non-controlling interests
Acquisitions of non-controlling interests, which do not result in a change of control, are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a result of such transactions. In such circumstances, the carrying amounts of the controlling and non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the parent.
Transactions with non-controlling interests also include the mandatory convertible bonds (see note 11.2).
Put option liabilities
On April 1, 2018, ArcelorMittal completed the acquisition of Votorantim Siderurgia (subsequently renamed ArcelorMittal Sul Fluminense "AMSF"), Votorantim S.A.'s long steel business in Brazil pursuant to which Votorantim Siderurgia became a wholly-owned subsidiary of ArcelorMittal Brasil. The acquisition was completed through the issuance of preferred shares to Votorantim S.A. representing a 2.99% interest in ArcelorMittal Brasil. Pursuant to the shareholders' agreement, such preferred shares are subject to put and call option arrangements exercisable by Votorantim S.A. and ArcelorMittal Brasil between July 1, 2019 and December 31, 2022 and between January 1,
| | |
367 Consolidated financial statements |
2023 and December 31, 2024, respectively. The Company determined that it has a present ownership interest in the preferred shares subject to the put option. Accordingly, it recognized at acquisition date a 328 financial liability at amortized cost and measured at the present value of the redemption amount based on past and future EBITDA projections adjusted by certain terms of the contract. At December 31, 2021 and December 31, 2020, the liability amounted to 252 (see note 4.8) and 235 (see note 9.2), respectively.
On June 3, 2021, following an amendment to the shareholders' agreement signed between the Company and non-controlling interests in NSI, an entity in which ArcelorMittal holds a 50% controlling stake and which holds a 64.86% interest in Sonasid in Morocco, the Company granted to such non-controlling interests a put option to buy the totality of their shares in NSI exercisable by its holders during three periods between December 5, 2022 to December 4, 2024 (or from March 5, 2023 to March 4, 2025), December 5, 2027 to December 4, 2029 and December 5, 2032 to December 4, 2034. The Company recognized a financial liability at amortized cost against equity of
119 and measured at the present value of the redemption amount.
NOTE 12: RELATED PARTIES
The related parties of the Group are predominately subsidiaries, joint operations, joint ventures, associates and key management personnel (see note 8.1) of the Group. Transactions between the parent company, its subsidiaries and joint operations are eliminated on consolidation and are not disclosed in this note. Related parties include the Significant Shareholder, which is a trust of which Mr. Lakshmi N. Mittal, Mrs. Usha Mittal and their children are the beneficiaries and which owns, together with shares owned directly by Mr. and Mrs. Mittal, 33.67% of ArcelorMittal’s issued ordinary shares.
Transactions with related parties of the Company mainly relate to sales and purchases of raw materials and steel products and were as follows:
12.1 Sales and trade receivables
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | | December 31, |
| | | Sales | | Trade receivables |
| Related parties and their subsidiaries where applicable | Category | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
| Calvert | Joint Venture | | 3,549 | | | 1,488 | | | 2,518 | | | 48 | | | 18 | |
Gonvarri Steel Industries 1 | Associate | | 2,234 | | | 1,395 | | | 1,728 | | | 72 | | | 67 | |
Acciaierie d'Italia 2 | Joint Venture | | 1,193 | | | — | | | — | | | 363 | | | — | |
| ArcelorMittal CLN Distribuzione Italia | Joint Venture | | 499 | | | 304 | | | 483 | | | 35 | | | 6 | |
| Borçelik | Joint Venture | | 484 | | | 312 | | | 474 | | | 105 | | | 15 | |
| Aperam | Other | | 478 | | | 155 | | | 172 | | | 67 | | | 19 | |
| Bamesa | Associate | | 370 | | | 226 | | | 365 | | | 53 | | | 27 | |
| Tuper | Joint Venture | | 326 | | | 128 | | | 147 | | | 60 | | | 36 | |
WDI 3 | Associate | | 195 | | | 106 | | | 105 | | | 2 | | | 1 | |
| ArcelorMittal RZK Çelik Servis Merkezi | Joint Venture | | 154 | | | 167 | | | 225 | | | 67 | | | 14 | |
| Coils Lamiere Nastri (C.L.N.) | Associate | | 150 | | | 146 | | | 247 | | | 8 | | | 7 | |
| Tameh | Joint Venture | | 107 | | | 64 | | | 109 | | | 19 | | | 6 | |
Condesa 4 | Joint Venture | | 106 | | | 46 | | | 69 | | | — | | | 11 | |
| ArcelorMittal BE Group | Joint Venture | | 81 | | | 37 | | | 56 | | | 7 | | | — | |
| SSC Tanger | Associate | | 78 | | | 49 | | | 55 | | | 1 | | | 1 | |
| Stalprofil | Associate | | 64 | | | 47 | | | 58 | | | 12 | | | 2 | |
| Alkat | Associate | | 56 | | | 32 | | | 27 | | | 14 | | | 6 | |
I/N Kote 5 | Other | | — | | | 226 | | | 321 | | | — | | | — | |
| Other | | | 395 | | | 214 | | | 283 | | | 151 | | | 33 | |
| Total | | | 10,519 | | | 5,142 | | | 7,442 | | | 1,084 | | | 269 | |
1.Gonvarri Steel Industries include mainly the joint ventures ArcelorMittal Gonvarri Brasil Productos Siderúrgicos and ArcelorMittal Gonvarri SSC Slovakia.
| | |
Consolidated financial statements 368 |
| (millions of U.S. dollar, except share and per share data) |
2.On April 14, 2021, ArcelorMittal completed an investment agreement with Invitalia, an Italian state-owned company, forming the joint venture Acciaierie d’Italia (see note 2.3.1). On September 30, 2021, the raw material supply agreement between Acciaierie d’Italia and the Company expired without renewal.
3.WDI includes Westfälische Drahtindustrie Verwaltungsgesellschaft mbH & Co. KG and Westfälische Drahtindustrie GmbH.
4.On November 19, 2021, the Company completed the acquisition of Condesa, a joint venture in which it already held a 33% interest, through the acquisition of the remaining 67% shares (see note 2.2.4).
5.I/N Kote was divested on December 9, 2020 upon completion of ArcelorMittal USA sale (see note 2.3.1).
12.2 Purchases and trade payables
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, | | December 31, |
| | | Purchases | | Trade payables |
| Related parties and their subsidiaries where applicable | Category | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
| Tameh | Joint Venture | | 404 | | | 171 | | | 273 | | | 178 | | | 37 | |
| Global Chartering | Joint Venture | | 286 | | | 138 | | | — | | | 20 | | | 8 | |
| Integrated Metal Recycling | Joint Venture | | 167 | | | — | | | — | | | — | | | — | |
| AMNS India | Joint Venture | | 166 | | | 18 | | | — | | | 1 | | | — | |
| Sitrel | Joint Venture | | 88 | | | 29 | | | 49 | | | 2 | | | — | |
| Aperam | Other | | 86 | | | 56 | | | 47 | | | 15 | | | 8 | |
| CFL Cargo | Associate | | 71 | | | 54 | | | 63 | | | 26 | | | 16 | |
| Exeltium | Associate | | 71 | | | 50 | | | 52 | | | 12 | | | 12 | |
| Alkat | Associate | | 68 | | | 53 | | | 36 | | | 10 | | | 8 | |
| Calvert | Joint Venture | | 63 | | | 124 | | | 127 | | | 6 | | | 9 | |
| Baycoat | Joint Venture | | 53 | | | 46 | | | 47 | | | 6 | | | 7 | |
Gonvarri Steel Industries 1 | Associate | | 45 | | | 19 | | | 22 | | | 19 | | | 17 | |
| Al Jubail | Joint Venture | | 21 | | | 16 | | | 53 | | | 7 | | | 7 | |
| Other | | | 284 | | | 377 | | | 323 | | | 129 | | | 143 | |
| Total | | | 1,873 | | | 1,151 | | | 1,092 | | | 431 | | | 272 | |
1.Gonvarri Steel Industries include mainly the joint ventures ArcelorMittal Gonvarri Brasil Productos Siderúrgicos and ArcelorMittal Gonvarri SSC Slovakia.
12.3 Other transactions with related parties
At December 31, 2019, subsequent to the ArcelorMittal's sale of a 50% controlling interest in Global Chartering to DryLog (see note 2.3.1), the Company signed a 10 year freight contract with Global Chartering, whereby ArcelorMittal agreed to provide cargo up to 16.8 million tonnes annually for shipping, representing 80% of the capacity of Global Chartering at that time. As of December 31, 2019, the Company also had an outstanding short-term loan of 127 granted to Global Chartering, which was repaid in 2020 following the sale-and-lease back of three vessels owned by Global Chartering.
At December 31, 2020, the shareholder loans granted by the Company to Al Jubail, with various maturity dates, had a carrying value of 109. They were fully converted into equity in 2021 (see note 2.4.1).
As of December 3, 2014, ArcelorMittal Calvert LLC signed a member capital expenditure loan agreement with the joint venture Calvert and as of December 31, 2021, the loans amounted to 195 including accrued interest. The loans bear
interest from 2.28% to 4.77% and have various maturity dates ranging from less than 1 to 25 years.
On November 8, 2019, Baffinland entered into an agreement with a bank to finance up to 6 million tonnes at 78% of the value of the iron ore produced and hauled to the port of Milne Inlet by Baffinland up to a limit of 450. This arrangement was renewed on December 1, 2020. On December 7, 2021, Baffinland signed a new agreement with a bank to finance up to 6 million tonnes at 82% of the value of the iron ore produced and hauled to the port of Milne Inlet by Baffinland up to a limit of 600.
ArcelorMittal's shared operator rights terminated on June 30, 2018 and the Company retained marketing rights until December 31, 2019. For the duration of 2020, ArcelorMittal provided transitional marketing services to Baffinland.
Following the Indian Supreme Court ruling dated October 4, 2018, ArcelorMittal completed a series of payments to the financial creditors of KSS Petron to clear overdue debts (see note 4.6). AMNS India has the right to enforce the KSS Petron
| | |
369 Consolidated financial statements |
debt on behalf of the Company for an outstanding amount of 136 as of December 31, 2021.
NOTE 13: SUBSEQUENT EVENTS
On March 3, 2022, ArcelorMittal announced its decision to idle its steelmaking operations in Kryvyi Rih, Ukraine in order to ensure the safety and security of its employees and assets. The Company has been evaluating the situation on a daily basis and production had previously been reduced with the plant operating at a technical minimum (approximately one-third of its normal production levels). The process to idle all blast furnaces commenced on the same day.
The Company's operations in Ukraine consist of a steel plant, which produced 4.9 million tonnes of steel in 2021, and (captive) mines that produced 11.7 million tonnes of iron ore in 2021; the related property, plant and equipment had a carrying value of 2.3 billion on the Company’s statement of financial position at December 31, 2021. In 2021, the Company’s Ukrainian operations (and in particular its Kryvyi Rih steel plant) recorded 4.6 million of steel shipments, generating 4.1 billion of sales including 0.9 billion of sales to customers located in Ukraine.
The Company cannot predict duration of the idling as it will depend on the remaining course of the conflict and the establishment of safe and stable operating and logistical conditions thereafter, as well as potential repairs of any damages sustained. More generally the conflict between Russia and Ukraine could have a material adverse effect on the overall macroeconomic environment, potentially affecting steel and iron ore demand and prices as well as increasing energy costs.
