Severstal North America (SNA) is comprised of:

• Severstal Dearborn Inc. (Dearborn),
• Severstal Columbus LLC (Columbus),
• Severstal Sparrows Point LLC (Sparrows Point),
• Severstal Warren Inc. (Warren),
• Severstal Wheeling Inc. (Wheeling),
• Mountain State Carbon LLC,
• Northern Steel Group Inc. (NSG)

There are also several holding companies – Severstal US Holdings LLC, Severstal Wheeling Holding, LLC and Baracom Limited. Excluding NSG, a service centre, Severstal North America is the 3rd largest steelmaking company in the United States. SNA produces high-quality flat-rolled products.

SNA has 12.0 million tonnes of annual crude steel making capacity, 11.9 million tonnes of hot-rolled sheet, 4.9 million tonnes of cold-rolled sheet, 2.9 million tonnes of galvanized sheet and 0.7 million tonnes of tin plate capacity. Our corporate headquarters are located in Dearborn, Michigan and our manufacturing facilities are located in Dearborn, Michigan (Dearborn), Columbus, Mississippi (Columbus), Sparrows Point, Maryland (Sparrows Point) and Mingo Junction, Ohio, Martins Ferry, Ohio, Yorkville, Ohio and Beech Bottom, West Virginia.

SNA produces high-quality flat-rolled products, including hot-rolled, cold-rolled, electro-galvanized, hot-dip galvanized and tin plated steel, for customers in the automotive, converter, container, pipe and tube, building and construction, service centre and other markets. SNA also produces high-strength steel and other specialized products primarily used in the automotive industry and we concentrate on manufacturing high value-added products to maximize profitability.

In 2009, SNA produced 5.46 million tonnes of slabs, and shipped 5.32 million tonnes of steel products. Sales revenue in 2009 amounted to US$4,023 million, with EBITDA of US$(654) million.

Joint Ventures and associates

SNA holds interests in four joint ventures and one associate, established together with other US companies in order to expand our product line and provide services. The joint ventures produce metallurgical coke and galvanized steel, and provide steel processing and roll grinding services.

Double Eagle

Dearborn owns 50% of Double Eagle Steel Coating Company, a joint venture with United States Steel Corporation. Double Eagle is the world’s largest electro-galvanizing line and produces premium quality galvanized sheet steel – primarily for automotive customers. The plant, located in Dearborn, Michigan, has a production capacity of 789,000 tonnes per year, approximately one half of which is dedicated to Dearborn.

Spartan Steel

Dearborn owns 48% of Spartan Steel Coating LLC – a joint venture with Worthington Steel of Michigan. Spartan Steel produces hot dip galvanized sheet steel primarily for automotive and service centre customers. The plant is located in Monroe, Michigan and has a production capacity of 544,000 tonnes per year, about 80% of which is dedicated to Dearborn. Dearborn supplies nearly 100% of the steel sheet used as substrate for Spartan Steel.

Delaco Processing

Dearborn owns 49% of Delaco Processing LLC, located in Dearborn, Michigan. Delaco Supreme Tool and Gear Co. owns 51% of Delaco Processing LLC. Delaco Processing specializes in slitting steel strip and sheet up to 1,829 mm in width.

Bethlehem Roll Technologies

Sparrows Point owns 50% of Bethlehem Roll Technologies (BRT) LLC located in Sparrows Point, Maryland. Court Industries owns the remaining 50% of BRT. BRT provides roll grinding services to Sparrows Point.

Ohio Coatings Company

Wheeling owns a 50% voting interest and an approximately 44% equity interest in Ohio Coatings Company, which is a joint venture between Wheeling, TCC Steel and Nittetsu Shoji America, Inc. Ohio Coatings Company produces tin plate steel. The plant, located in Yorkville, Ohio, has a production capacity of 300,000 tonnes per year.

Steelmaking Facilities

Columbus

Columbus is a ‘greenfield’ steel company with next generation technology located in Columbus, Mississippi – the heart of America’s new southern industrial region. Columbus broke ground for construction of the steel plant in October 2005, which was commissioned operationally in October 2007. The facility is a unique combination of mini-mill steelmaking and integrated finishing technology. It features a scrap-based electric arc furnace, feeding a thin-slab caster coupled with a high-powered hot-strip mill. Thin-slab output is further processed in a highly sophisticated cold-rolling mill and galvanizing line.

Columbus focuses on the production of high quality flat-rolled steel with an initial annual production capacity of 1.5 million tonnes. The facility provides products for use in the automotive, building, agricultural, pipe and tube, and appliance industries. Columbus is the first EAF-based steel mill in the world positioned to produce exposed automotive steel. Severstal’s investment plans include a second phase of construction to increase capacity to 3.0 million tonnes of high quality steel.

The plant is located near a number of large steel customers, making the distribution channels more efficient. With its 1,400-acre site under development as an industrial park to accommodate production partners and related manufacturers onsite, Columbus complements SNA’s mid-western US business: its major market is the southeastern US, within 400 miles of the manufacturing location. Columbus’s objective is to become a leading supplier of a wide-range of high quality flat-rolled steel products, including exposed automotive applications, for southern US customers.

Dearborn

Severstal acquired Dearborn – located in Dearborn, Michigan – in January 2004. The company produces and sells flat-rolled steel products, primarily to domestic automotive manufacturers and their suppliers, and has an annual capacity of 3.3 million tonnes. In addition to its steel operations, as noted above, Dearborn owns a 50% interest in Double Eagle, a 48% interest in Spartan Steel, and a 49% interest in Delaco Processing. All these activities are based in south-eastern Michigan.

Sparrows Point

Severstal acquired Sparrows Point – located in Baltimore, Maryland – in May 2008. The company has a capacity of 3.4 million tonnes of crude steel and is the only integrated producer of flat-rolled steel on the US East Coast. It is also a major North American supplier of tin mill products.

Warren

Severstal acquired Warren – located in Warren, Ohio – in July 2008. The company produces value-added steel products, and has a total annual steelmaking capacity of 1.4 million tonnes. It focuses on highquality, custom flat-rolled steel for use in demanding applications in the automotive, appliance, furniture, construction and energy markets. In February 2009, the Company announced the temporary shut down of operations at the facility due to negative economic conditions and a lack of demand for steel. The plant restarted in April 2010.

Wheeling

Severstal acquired Wheeling in August 2008. The company is one of North America’s leading producers of flat-rolled steel, with an annual capacity of 2.5 million tonnes.

Mountain State Carbon

Dearborn and Wheeling each own 50% of Mountain State Carbon LLC, located in Follansbee, West Virginia. Mountain State Carbon is a metallurgical coke-making joint venture. Mountain State Carbon was formed to provide its owners with a reliable supply of high quality, competitively priced domestic coke. The annual production of Mountain State Carbon is 1 million tonnes. Our ownership in Mountain State Carbon provides us with a substantially lower cost source of coke.

Northern Steel Group (NSG)

Severstal acquired NSG – a service centre, closely connected with Wheeling – in August 2008. Ownership of the company enables us to expand our product offering direct customers.

Key performance indicators

	2009	2008	Change year-on-year %
Production of crude steel (thousand tonnes)	5,455	5,100	7.0
Sales of steel products (thousand tonnes)	5,315	5,184	2.5
Revenue (US$ million)	4,023	5,319	(24.3)
Gross loss (US$ million)	(674)	(522)	29.1
(Loss)/profit from operations (US$ million)	(900)	145	n/a
Operating margin (%)	(22.4)	2.7	n/a
EBITDA (US$ million)	(654)	377	n/a
EBITDA per tonne (US$/tonne)	(123)	73	n/a
EBITDA margin (%)	(16.3)	7.1	n/a
Average steel product price (US$/tonne) *	728	978	(25.6)
Hot-rolled strip and plate (US$/tonne)	558	905	(38.3)
Cold-rolled sheet (US$/tonne)	693	979	(29.2)
Galvanized and other metallic-coated sheet (US$/tonne)	893	1,040	(14.1)
Colour-coated sheet (US$/tonne)	1,167	1,706	(31.6)
Metalware products (US$/tonne)	1,496	1,829	(18.2)
Semi-finished products (US$/tonne)	447	967	(53.8)

* Steel products include semifinished, rolled and downstream products.

As part of labour cost reduction initiatives SNA decreased headcount (employees and contractors) by the end of the year 2009 to 5,827 compared to 6,453 in 2008.

Sales revenue in 2009 amounted to US$4,023 million compared to US$5,319 million in 2008, which is 24.4% lower than in 2008. EBITDA in 2009 amounted to US$(654) million compared to US$377 million in 2008.

The main factors that led to the decline in EBITDA were:

• US$ (1,234) million – deteriorating sales prices;
• US$ (423) million – effect of one-off gains, recognized in 2008 (includes buyout of a long-term electricity supply contract at Dearborn and an award from A.T. Massey Coal Co. in connection with a breach of a contract with Wheeling);
• US$ (430) million – effect of insurance proceeds recognized in 2008 (Blast furnace B eruption);
• US$ 1,068 million – effect of decrease in costs due to volume reduction and cost-cutting initiatives;
• US$ (12) million – other factors.

Sales by product

	2009		2008		Change year-on-year %
	Thousand tones	US$ million	Thousand tonnes	US$ million	Thousand tonnes	US$ million
Hot-rolled strip and plate	2,029	1,132	2,215	2,004	(8.4)	(43.5)
Cold-rolled sheet	1,334	925	1,088	1,065	22.6	(13.1)
Galvanized and other metallic coated sheet	1,720	1,536	1,490	1,549	15.4	(0.8)
Color coated sheet	60	70	17	29	252.9	141.4
Total rolled products	5,143	3,663	4,810	4,647	6.9	(21.2)
Metalware products	125	187	70	128	78.6	46.1
Slabs	47	21	294	294	(84.0)	(92.8)
Pig iron	–	–	10	2	n/a	n/a
Total semi-finished products	47	21	304	294	(84.5)	(92.9)
Total steel products	5,315	3,871	5,184	5,069	2.5	(23.6)
Other and shipping	–	152	–	250	–	(39.2)
Total	5,315	4,023	5,184	5,319	2.5	(24.4)
US sales
Hot-rolled strip and plate	1,949	1,082	1,913	1,729	1.9	(37.4)
Cold-rolled sheet	1,309	905	1,040	1,021	25.9	(11.4)
Galvanized and other metallic coated sheet	1,658	1,483	1,450	1,511	14.3	(1.9)
Color coated sheet	60	70	17	29	252.9	141.4
Total rolled products	4,976	3,540	4,420	4,290	12.6	(17.5)
Metalware products	125	187	70	128	78.6	46.1
Slabs	47	21	290	290	(83.8)	(92.8)
Pig iron	–	–	10	2	n/a	n/a
Total semi-finished products	47	21	300	292	(84.3)	(92.8)
Total steel products	5,148	3,748	4,790	4,710	7.5	(20.4)
Other and shipping	–	149	–	250	–	(40.4)
Total US sales	5,148	3,897	4,790	4,960	7.5	(21.4)
Export sales
Hot-rolled strip and plate	80	50	302	275	(73.5)	(81.8)
Cold-rolled sheet	25	20	48	44	(47.9)	(54.5)
Galvanized and other metallic coated sheet	62	53	40	38	55.0	39.5
Color coated sheet	–	–	–	–	n/a	n/a
Total rolled products	167	123	390	357	(57.2)	(65.5)
Metalware products	–	–	–	–	n/a	n/a
Slabs	–	–	4	2	n/a	n/a
Pig iron	–	–	–	–	n/a	n/a
Total semi-finished products	–	–	4	2	n/a	n/a
Total steel products	167	123	394	359	(57.6)	(65.7)
Other and shipping	–	3	–	–	n/a	n/a
Total export sales	167	126	394	359	(57.6)	(64.9)

Production results

	2009	2008	Change year-on-year %
Production volumes (thousand tonnes)
Total output
Hot metal	3,456	3,201	8.0
Crude steel	5,455	5,100	7.0
Hot-rolled strip and plate	5,236	4,772	9.7
Cold-rolled sheet	2,937	2,387	23.0
Galvanized and other metallic coated sheet	1,600	1,400	14.3
Metalware products	156	92	69.6

Sales and marketing

From 2008 to 2009, total sales volume increased by 2.5%. Direct sales to automotive manufacturers in 2009 accounted for 22.1% of total revenue, slightly lower than in 2008 (24.2%). The decrease in the automotive industry's share of total sales relates to the fact that US automakers were significantly impacted by negative economic conditions in North America.

Capital expenditure

Total capital expenditure in 2009 was US$238 million, which is 34.4% of total expenditure in 2008. This is due to the postponement of major investment projects at Dearborn and Columbus as a result of the economic crisis in 2009.

SNA revenues by industries

Costs

Total cost of sales in 2009 was US$4,697 million, which is 19.6% less than in 2008. The decrease is a result of reduced volumes and cost cutting initiatives.

Decisive management action

In 2009, SNA undertook initiatives to mitigate the effect of deteriorating general economic conditions in North America. These include the selective reduction of melt and finishing operations, optimisation of production schedules across North American facilities, efforts to align SNA’s supply base more consistently with downscaled production requirements, and labour and overhead cost reductions. We have also taken steps to improve liquidity – including the curtailment of all discretionary capital expenditure, and other measures to promote greater working capital efficiency, such as trade credit extension and inventory optimisation.

2009 achievements in this context include:

• An increase in blast furnace productivity (Dearborn and Sparrows Point).
• A shift from sinter to iron ore pellet consumption in blast furnaces at Sparrows Point.
• Optimisation of the basic oxygen furnace charge (by varying hot metal and scrap consumption, and using low-price scrap).
• Optimisation of ferroalloy consumption and a decrease in repair expenses.
• A decrease in idle time across our operating mills.

We have also used Total Operating Performance (TOP) and Total Cost of Ownership (TCO) systems, to help eliminate waste and inefficiencies in sales, purchasing, production, and staff departments. We expect these to continue to have a beneficial effect on costs.