Mechel Reports the First Half and Nine Months 2013 Financial Results

Mechel OAO Logo

Revenue in 9M2013 amounted to $6.7 billion
Consolidated adjusted EBITDA in 9M2013 amounted to $608 million
Net loss attributable to shareholders of Mechel OAO in 9M2013 amounted to $2.2 billion

MOSCOW, Dec. 23, 2013 (GLOBE NEWSWIRE) -- Mechel OAO (NYSE:MTL), a leading Russian mining and steel group, today announced financial results for the 1H and 9M 2013.

Evgeny Mikhel, Mechel OAO's Chief Executive Officer, commented on the company's 9M2013 financial results:

"This year, the company operated in the conditions of continuing weakness on our key markets, which to a large extent had an impact on its main financial results. Nevertheless, by strictly adhering to our planned course aimed at creating conditions for deleveraging, we managed to resolve the most critical issues. We have successfully negotiated with our creditor banks for covenant holidays until the end of 2014. The program for disposal of non-core assets has largely been implemented. As a result of this business restructuring we saw an improvement in operating cashflows. However, the other side of this process was one-off write-downs that led to a net loss of $2.2 billion for 9 months of 2013.

Production and sales volumes have been maintained at planned levels. We have also successfully ensured funding for our key strategic investment project — the Elga deposit — by obtaining Vnesheconombank's positive decision on project financing.

"Despite a fairly complicated macroeconomic situation, steel production and consumption of raw materials for steelmaking is growing in the world, and we intend to continue focusing on improving production efficiency, market diversification and expanding our client base, to increase Mechel's shareholder value."

Consolidated Results for the 1H 2013
US$ mln 1H 2013 (1) 1H 2012 (1)(4) Change
Y-on-Y
2Q'13 (1) 1Q'13(1) Change
Q-on-Q
Revenue from external customers 4,603 5,670 -19% 2,243 2,360 -5%
Intersegment sales 629 697 -10% 291 338 -14%
Operating (loss) / income (432) 94 -560% (519) 88 -690%
Operating margin -9.39% 1.66% -- -23.14% 3.73% --
Net loss attributable to shareholders of Mechel OAO (2,120) (605) 250% (1,799) (321) 460%
Adjusted net income /(loss) (1) (2) (398) 201 -- (199) (199) --
Adjusted EBITDA (1) (3) 413 949 -56% 202 211 -4%
Adjusted EBITDA, margin (1) 8.97% 16.74% -- 9.00% 8.94% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Retrospectively adjusted for the effect from discontinued operations.
Consolidated Results for the 9M 2013
US$ mln 9M 2013 (1) 9M 2012 (1)(4) Change
Y-on-Y
3Q'13 (1) 2Q'13(1) Change
Q-on-Q
Revenue from external customers 6,692 8,222 -19% 2,089 2,243 -7%
Intersegment sales 896 1,017 -12% 266 291 -8%
Operating (loss) / income (393) 258 -252% 39 (519) -108%
Operating margin -5.87% 3.14% -- 1.87% -23.14% --
Net loss attributable to shareholders of Mechel OAO (2,247) (550) 309% (127) (1,799) -93%
Adjusted net (loss)/income (1) (2) (483) 369 -- (85) (199) --
Adjusted EBITDA (1) (3) 608 1,346 -55% 196 202 -3%
Adjusted EBITDA, margin (1) 9.09% 16,37% -- 9.38% 9.01% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Retrospectively adjusted for the effect from discontinued operations.
Mining Segment Results for the 1H 2013
US$ mln 1H 2013 (1) 1H 2012 (1)(5) Change
Y-on-Y
2Q'13 (1) 1Q'13(1) Change
Q-on-Q
Revenue from external customers 1,463 1,921 -24% 693 770 -10%
Intersegment sales 266 322 -17% 130 136 -4%
Operating income 83 470 -82% 39 43 -9%
Net income/(loss) attributable to shareholders of Mechel OAO (217) 213 -202% (110) (108) 2%
Adjusted net (loss)/income (1) (2) (217) 233 -- (110) (108) --
Adjusted EBITDA(1) (3) 251 685 -63% 127 124 2%
Adjusted EBITDA, margin (4) 14.52% 30.54% -- 15.42% 13.70% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(5) Retrospectively adjusted for the effect from discontinued operations.
Mining Segment Results for the 9M 2013
US$ mln 9M 2013 (1) 9M 2012 (1)(5) Change
Y-on-Y
3Q'13 (1) 2Q'13(1) Change
Q-on-Q
Revenue from external customers 2,158 2,706 -20% 695 693 0.2%
Intersegment sales 376 486 -23% 110 130 -15%
Operating income 145 670 -78% 62 39 59%
Net (loss) / income attributable to shareholders of Mechel OAO (233) 427 -154% (15) (110) -86%
Adjusted net (loss)/income (1) (2) (233) 449 -- (15) (110) --
Adjusted EBITDA (1) (3) 399 990 -60% 148 127 17%
Adjusted EBITDA, margin (1) 15.74% 31.02% -- 18.35% 15.42% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(5) Retrospectively adjusted for the effect from discontinued operations.
Mining Segment Output and Sales for the 9M 2013
Production:
Product name 9M 2013,
thousand tonnes
9M 2012,
thousand tonnes
9M 2013 vs.
9M 2012, %
Run-of-mine coal 20,430 20,794 -1.7%
Product Sales:
Product name 9M 2013,
thousand tonnes
9M 2012,
thousand tonnes
9M 2013 vs.
9M 2012, %
Coking coal concentrate 8,349 9,029 -8%
Including coking coal concentrate supplied to Mechel enterprises 1,699 1,950 -13%
PCI 2,567 1,703 +51%
Anthracites 1,603 1,937 -17%
Including anthracites supplied to Mechel enterprises 99 246 -60%
Steam coal 4,499 4,490 0%
Including steam coal supplied to Mechel enterprises 1,318 1,120 +18%
Iron ore concentrate 3,083 3,219 -4%
Including iron ore concentrate supplied to Mechel enterprises 21 268 -92%
Coke 2,291 2,707 -15%
Including coke supplied to Mechel enterprises 1,523 1,903 -20%

Mechel Mining Management Company OOO's Chief Executive Officer Pavel Shtark commented on the mining division's results:

"During this period, the Group's mining division continued to work despite volatility on the markets of raw materials for steelmaking. Despite the change in coal prices, we managed to maintain the division's adjusted EBITDA on a fairly stable level quarter on quarter. This was due to stable volumes of mining and processing as well as the sales subsidiaries' efforts on optimizing the sales structure considering the volatile demand in the regions of our products' consumers. For example, we managed to significantly increase sales of PCI coals by boosting our cooperation with Chinese customers, as well as expanding the client base by including steelmaking facilities of Arcelor Mittal and Tata Steel in Belgium and Britain.

"The seasonal decrease in production costs also had its positive impact on the financial results of the mining division's enterprises.

"We managed to make major headway in financing the Elga project. In September, Vnesheconombank's supervisory board approved financing for the development of Elga Coal Complex's first stage, and in November we drew the first funds within the framework of this financing. Vnesheconombank's participation will ensure that the project's first stage is implemented without financial pressure on the mining division, which will enable us to focus our efforts on ensuring uninterrupted and stable operations at all our enterprises, as well as the Group's deleveraging.

"We therefore enter the coming year with all issues regarding financing of our key investment project well resolved, stable operations at our enterprises and a streamlined and versatile sales system. Taking into account that prices next year should be, on average, no worse than this year, we can expect positive financial results from the division in the future as well."

Steel Segment Results for the 1H 2013
US$ mln 1H 2013 (1) 1H 2012 (1)(5) Change
Y-on-Y
2Q'13 (1) 1Q'13(1) Change
Q-on-Q
Revenue from external customers 2,702 3,323 -19 % 1,359 1,343 1%
Intersegment sales 119 143 -17% 50 70 -29%
Operating loss (544) (440) 24% (568) 24 -2,467%
Net loss attributable to shareholders of Mechel OAO (994) (658) 51% (790) (204) 287%
Adjusted net loss (1) (2) (170) (69) -- (76) (95) --
Adjusted EBITDA (1) (3) 127 193 -34% 64 62 3%
Adjusted EBITDA, margin (4) 4.48% 5.57% -- 4.55% 4.42% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(5) Retrospectively adjusted for the effect from discontinued operations.
Steel Segment Results for the 9M 2013
US$ mln 9M 2013 (1) 9M 2012 (1)(5) Change
Y-on-Y
3Q'13 (1) 2Q'13(1) Change
Q-on-Q
Revenue from external customers 3,927 4,929 -20% 1,225 1,359 -10%
Intersegment sales 170 192 -11% 50 50 0%
Operating loss (563) (475) 19% (18) (568) -97%
Net loss attributable to shareholders of Mechel OAO (1,088) (770) 41% (94) (790) -88%
Adjusted net loss (1) (2) (222) (104) -- (52) (76) --
Adjusted EBITDA (1) (3) 175 281 -38% 48 64 -25%
Adjusted EBITDA, margin (4) 4.27% 5.49% -- 3.81% 4.55% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(5) Retrospectively adjusted for the effect from discontinued operations.
Steel Segment Output and Sales for the 9M 2013
Production:
Product name 9M 2013,
thousand tonnes
9M 2012,
thousand tonnes
9M 2013 vs.
9M 2012, %
Pig iron 2,908 3,107 -6%
Steel 3,648 5,101 -28%
Product Sales:
Product name 9M 2013,
thousand tonnes
9M 2012,
thousand tonnes
9M 2013 vs.
9M 2012, %
Flat products 468 534 -12%
Including those produced by third parties 243 303 -20%
Long products 2,747 3,107 -12%
Including those produced by third parties 891 666 +34%
Billets 651 1,950 -67%
Including those produced by third parties 242 751 -68%
Hardware and welded mesh 653 737 -11%
Including those produced by third parties 68 39 +73%
Forgings 52 39 +34%
Stampings 76 83 -8%

Commenting on the steel segment's results, Mechel-Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky noted:

"This year we continued with optimization of the structure of the division's production and sales facilities. As part of the company's strategy on reforming the asset structure, we disposed of the Romanian-based enterprises. The company stopped producing and selling loss-making products, halted inefficient technological lines and equipment, shut down some of Mechel Service Global sales network's European sales facilities, and decreased or stopped supplies to loss-making partner enterprises. We are constantly working on improving production technologies to cut down on cost in raw materials and energy resources.

"The division's sales volumes and sales structure reflected those changes. Despite a relative decrease in our results as compared to the figures from the same period last year, we have seen an overall recuperation of our financial situation. The division stopped generating losses in non-core assets that were out of line with the company's strategy, and freed up the cash flow. We practically completed our investment program by launching the universal rolling mill at Chelyabinsk Metallurgical Plant. I expect that these changes will have their positive impact on our results in the future."

Ferroalloys Segment Results for the 1H 2013
US$ mln 1H 2013 (1) 1H 2012 (1)(5) Change
Y-on-Y
2Q'13 (1) 1Q'13(1) Change
Q-on-Q
Revenue from external customers 42 29 45% 22 20 10%
Intersegment sales 20 19 9% 10 11 -9%
Operating (loss)/income 1 -- -350% 3 (1) -400%
Net loss attributable to shareholders of Mechel OAO (891) (110) 710% (881) (10) 8,710%
Adjusted net loss (1) (2) (7) (11) -- (2) (5) --
Adjusted EBITDA (1) (3) 5 4 25% 5 1 733%
Adjusted EBITDA, margin (4) 8.43% 7.97% -- 14.68% 1.83% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(5) Retrospectively adjusted for the effect from discontinued operations.
Ferroalloys Segment Results for the 9M 2013
US$ mln 9M 2013 (1) 9M 2012 (1)(5) Change
Y-on-Y
3Q'13 (1) 2Q'13(1) Change
Q-on-Q
Revenue from external customers 62 49 27% 20 22 -9%
Intersegment sales 28 28 0.2% 8 10 -20%
Operating income 3 1 104% 1 3 -67%
Net (loss)/income attributable to shareholders of Mechel OAO (888) (137) 549% 3 (881) -100%
Adjusted net loss (1) (2) (10) (17) -- (3) (2) --
Adjusted EBITDA (1) (3) 8 8 1% 3 5 -40%
Adjusted EBITDA, margin (4) 8.92% 10.36% -- 10.01% 14.68% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(5) Retrospectively adjusted for the effect from discontinued operations.
Ferroalloys Segment Sales for the 9M 2013
Product Sales:
Product name
9M 2013,

thousand tonnes

9M 2012,
thousand tonnes

9M 2013 vs.
9M 2012, %
Ferrosilicon 72 57 +26%
Including ferrosilicon supplied to Mechel enterprises 25 22 11%

Mechel-Ferroalloys Management Company OOO's Chief Executive Officer Sergey Zhilyakov noted:

"The past period was defined by major changes in the division's structure. After halting Southern Urals Nickel Plant in summer we signed an agreement for the disposal of our ferrochrome assets in Russia and Kazakhstan. As such, financial results of these companies have been excluded from operating income (loss) and presented separately as "loss from discontinued operation". Looking at the results of the renewed division, we must note that the results from the second and third quarters are an improvement on the first quarter's results as well as those from the same periods last year. The division shows stable operational profit. The results' improvement is due to sales growth and our successes in bringing down production costs. Next year, Bratsk Ferroalloy Plant will fully transfer to its own raw materials mined at the Uvatsk quartzite deposit, which will also enable us to improve financial results."

Power Segment Results for the 1H 2013
US$ mln 1H 2013 (1) 1H 2012 (1)(5) Change
Y-on-Y
2Q'13 (1) 1Q'13(1) Change
Q-on-Q
Revenue from external customers 396 398 -1% 169 227 -26%
Intersegment sales 223 212 5% 101 123 -18%
Operating income 24 28 -14% 4 21 -81%
Net (loss) attributable to shareholders of Mechel OAO (21) (86) -76% (21) -- 10,400%
Adjusted net income/(loss) (1) (2) (7) 12 -- (14) 7 --
Adjusted EBITDA (1) (3) 26 32 -19% 3 23 -87%
Adjusted EBITDA, margin(4) 4.25% 5.26% -- 1.14% 6.64% --
See Attachment A.
(1) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(2) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(3) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(4) Retrospectively adjusted for the effect from discontinued operations.
Power Segment Results for the 9M 2013
US$ mln 9M 2013 (1) 9M 2012 (1)(5) Change
Y-on-Y
3Q'13 (1) 2Q'13(1) Change
Q-on-Q
Revenue from external customers 545 537 1% 149 169 -12%
Intersegment sales 321 310 4% 98 101 -3%
Operating income/(loss) 18 20 -10% (7) 4 -275%
Net loss attributable to shareholders of Mechel OAO (42) (111) -62% (20) (21) -5%
Adjusted net loss (1) (2) (23) -- -- (15) (14) --
Adjusted EBITDA (1) (3) 23 26 -12% (4) 3 -233%
Adjusted EBITDA, margin(4) 2.60% 3.13% -- -1.52% 1.14% --
(1) See Attachment A.
(2) Adjusted net income is net income adjusted for effects of impairment of long-lived assets and goodwill, loss from discontinued operations, result from companies' disposal and provision for amounts due from related parties (including income tax and amounts attributable to noncontrolling interests effects).
(3) Adjusted EBITDA is EBITDA adjusted for effects of remeasurement of contingent liabilities at fair value, loss from discontinued operations, forex gain/(loss), net result on the disposal of non-current assets, impairment of long-lived assets and goodwill, provision for amounts due from related parties, amounts attributable to noncontrolling interests, result of disposed companies (incl the result from their disposal) and interest income.
(4) Adjusted EBITDA margin is calculated as a percentage of consolidated revenues of the segment, including intersegment sales.
(5) Retrospectively adjusted for the effect from discontinued operations.
Power Segment Output and Sales for the 9M 2013
Product name 9M 2013 9M 2012 9M 2013 vs.
9M 2012, %
Electric power generation (ths. kWh) 2,890,768 3,097,211 -7%
Heat power generation (Gcal) 4,728,075 5,409,167 -13%

Mechel-Energo OOO's Chief Executive Officer Pyotr Pashnin noted: "Over the past two quarters, the division operated with the cut in production volumes, due to seasonal low demand. We used lower workloads on our equipment to make necessary repairs and maintenance before the season of high electricity and heat consumption. On the whole, the division's profit and operational revenue remained at the same level as last year. The decrease in electricity and heat generation compared to last year's figures was due to two facilities — Toplofikatsia Rousse and Nytva-Energo OOO — leaving the power division."

Recent Highlights

  • In June, Mechel announced the decision of the company's Board of Directors to authorize the buyback of up to $100 million of ADRs representing Mechel OAO's common shares.
  • In June, the Federal Subsoil Resources Management Agency approved the revised schedule for the works under the subsoil license agreement for development of the Elga coal deposit.
  • In June, Mechel announced results of its annual general shareholders' meeting, approving the payment of dividends based upon the results of the 2012 fiscal year and other questions of the agenda.
  • In July, Mechel reported that Chelyabinsk Metallurgical Plant fulfilled the order for a new class of steel for helicopter-making for the Russian Helicopters holding.
  • In July, Mechel announced the appointment of Pavel Shtark as the new Chief Executive Officer of Mechel Mining Management Company OOO, who replaced Boris Nikishichev, who left the company due to retirement.
  • In July, Mechel announced the launch of the universal rolling mill at Chelyabinsk Metallurgical Plant. The universal rolling mill is Russia's first complex universal producer of high-quality structural shapes and rails 12.5 to 100 meters long. The mill's complex includes all necessary technological equipment and uses state-of-the-art rolling, correction, processing and quality control technologies. The mill's capacity is up to 1.1 million tonnes of finished product a year. Investment in the project totaled some 715 million US dollars.
  • In July, within the strategy of divesting assets that are not part of the Group's priority development areas, Mechel reported selling 100% of the shares of Toplofikatsia Rousse EAD (TPP Rousse, Bulgaria), 100% of shares of British-based steel plant Invicta Merchant Bar.
  • In August Mechel announced signing an agreement for disposal of several ferroalloys assets to Turkey's Yildirim Groupan namely Voskhod Mining Plant (Khromtau, Kazakhstan) and Tikhvin Ferroalloy Plant (Tikhvin, Leningrad Region, Russia).In August, Mechel announced that it has started supplying coal concentrate to the People's Republic of China by rail through new border checkpoint Makhalino — Hunсhun.
  • In September, Vnesheconombank Supervisory Board approved financing the development of Elga Coal Complex for a total amount of 2,5 billion US dollars. The funds are to be used to complete the first phase of the Elga deposit's development project, which includes construction of a railroad and a mining and washing complex with an annual capacity of 11.7 million tonnes of run-of-mine coal by 2017. The project's implementation will create over 5,000 new jobs.
  • In September, Mechel announced the completion of the construction project for a grinding-mixing complex to produce cement in Chelyabinsk Metallurgical Plant's industrial zone. Its annual capacity is 1.6 million tonnes. Investment in the project totaled 174.4 million US dollars.
  • In October, in the presence of the Russian Federation's Prime Minister Dmitry Medvedev, Mechel signs an agreement with Vnesheconombank for allocating the first tranche of financing for Elga Coal Complex amounting to 150 million US dollars within the project financing for Elga Coal Complex's first stage totaling 2.5 billion US dollars.
  • In October, Mechel Group, represented by Mecheltrans OOO, sold some 28% of port Vanino's equity capital to an outside investor, retaining a minor share package for itself. The transaction amounted to 5.04 billion rubles. As the consortium of investors is not interested in transshipping their products through Port Vanino, Mechel is able to use the port's entire capacity in the company's interests.
  • In December, Mechel announced reaching agreement to extend the grace period and maturity of its USD 1 billion syndicated facility. The agreement was signed on behalf of a syndicate of leading international banks, including ABN Amro, BNP Paribas, Caterpillar Financial Services Corporation, Commerzbank Aktiengesellschaft, ICBC (London) plc., ING Bank N.V., Natixis, Raiffeissen Bank International AG, Societe Generale, UniCredit, VTB.
  • In December, Mechel announced reaching agreement on covenant holidays until the end of 2014 on bilateral credit lines from VTB Bank amounting to USD 1.8 billion and on bilateral credit lines from Sberbank of Russia amounting to 44.9 billion rubles (approximately 1.36 billion US dollars).
  • In December, Mechel announced signing agreements with Sberbank of Russia on restructuring of part Mechel OAO's debt to the bank (25.5 billion rubles, approximately 773 million US dollars). The Group's obligations to the bank are extended by 5 years, with a grace period until the first quarter of 2015.

Financial Position

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 2Q 2013 amounted to $188.8 million, of which $109.3 million was invested in the mining segment, $76.6 million was invested in the steel segment, $2.8 million was invested in the ferroalloy segment and $0 million was invested in the power segment.

As of June 30, 2013, total debt was $9.1 billion. Cash and cash equivalents amounted to $97.1 million and net debt amounted to $9.0 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 2Q 2013.

Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the 3Q 2013 amounted to $91.6 million, of which $37.4 million was invested in the mining segment, $49.7 million was invested in the steel segment, $0.6 million was invested in the ferroalloy segment and $3.9 million was invested in the power segment.

As of September 30, 2013, total debt was $9.1 billion. Cash and cash equivalents amounted to $ 104.3 million and net debt amounted to $9.0 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at end of 3Q 2013.

The management of Mechel will host a conference call today at 9:00 a.m. New York time (2:00 p.m. London time, 6:00 p.m. Moscow time) to review Mechel's financial results and comment on current operations. The call may be accessed via the Internet at http://www.mechel.com, under the Investor Relations section.

Mechel is one of the leading Russian companies. Its business includes four segments: mining, steel, ferroalloy and power. Mechel unites producers of coal, iron ore concentrate, steel, rolled products, ferroalloys, hardware, heat and electric power. Mechel products are marketed domestically and internationally.

Some of the information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of Mechel, as defined in the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. We wish to caution you that these statements are only predictions and that actual events or results may differ materially. We do not intend to update these statements. We refer you to the documents Mechel files from time to time with the U.S. Securities and Exchange Commission, including our Form 20-F. These documents contain and identify important factors, including those contained in the section captioned "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" in our Form 20-F, that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, the achievement of anticipated levels of profitability, growth, cost and synergy of our recent acquisitions, the impact of competitive pricing, the ability to obtain necessary regulatory approvals and licenses, the impact of developments in the Russian economic, political and legal environment, volatility in stock markets or in the price of our shares or ADRs, financial risk management and the impact of general business and global economic conditions.

Attachments to the 1H 2013 and 9M 2013 Earnings Press Release

Attachment A

Non-GAAP financial measures. This press release includes financial information prepared in accordance with accounting principles generally accepted in the United States of America, or US GAAP, as well as other financial measures referred to as non-GAAP. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information prepared in accordance with US GAAP.

Adjusted EBITDA represents earnings before Depreciation, depletion and amortization, Foreign exchange gain/(loss), Loss from discontinued operations, Gain/(loss) from remeasurement of contingent liabilities at fair value, Interest expense, Interest income, Net result on the disposal of non-current assets, Impairment of long-lived assets and goodwill, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests and Income taxes. Adjusted EBITDA margin is defined as adjusted EBITDA as a percentage of our net revenues. Our adjusted EBITDA may not be similar to EBITDA measures of other companies. Adjusted EBITDA is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that our adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions and other investments and our ability to incur and service debt. While interest, depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. Our adjusted EBITDA calculation is commonly used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry.

Adjusted net income / (loss) represents net income / (loss) before Loss from discontinued operations, Result from companies' disposal, Impairment of long-lived assets and goodwill and Provision for the amounts due from related parties, including the effect on income tax and amounts attributable to noncontrolling interests. Our adjusted net income / (loss) may not be similar to adjusted net income / (loss) measures of other companies. Adjusted net income / (loss) is not a measurement under accounting principles generally accepted in the United States and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of operations. We believe that our adjusted net income / (loss) provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations. While impairment of long-lived assets and goodwill and provision for the amounts due from related parties are considered operating costs under generally accepted accounting principles, these expenses represent the non-cash current period allocation of costs associated with assets acquired or constructed in prior periods. Our adjusted net income / (loss) calculation is used as one of the bases for investors, analysts and credit rating agencies to evaluate and compare the periodic and future operating performance and value of companies within the metals and mining industry.

Adjusted EBITDA can be reconciled to our consolidated statements of operations as follows:

Consolidated results
US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net loss (2,119,880) (605,004) (1,799,235) (320,645)
Add:
Depreciation, depletion and amortization 246,483 248,019 122,058 124,425
Forex loss gain 204,795 118,702 125,137 79,659
Loss from remeasurement of contingent liabilities at fair value 998 929 507 492
Interest expense 334,555 316,739 163,218 171,337
Interest income (6,092) (36,538) (1,398) (4,694)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 597,564 539,212 603,362 (5,798)
Loss from discontinued operation, net of income tax 1,081,224 254,143 1,055,516 25,708
Result of disposed companies (incl. the result from their disposal) 99,342 45,920 (922) 100,262
Amount attributable to non-controlling interests (3,908) (10,672) 4,210 (8,118)
Income taxes (22,221) 77,336 (70,682) 48,460
Adjusted EBITDA 412,859 948,786 201,770 211,088
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net loss (2,246,566) (550,094) (126,685) (1,799,235)
Add:
Depreciation, depletion and amortization 370,418 361,007 123,935 122,058
Forex loss / (gain) 150,881 (19,310) (53,914) 125,137
Loss from remeasurement of contingent liabilities at fair value 1,521 1,413 522 507
Interest expense 546,452 472,502 211,898 163,218
Interest income (6,950) (52,407) (857) (1,398)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 634,102 617,783 36,539 603,363
Loss from discontinued operation, net of income tax 1,084,931 296,700 3,706 1,055,516
Result of disposed companies (incl. the result from their disposal) 101,364 58,695 2,022 (922)
Amount attributable to noncontrolling interests 2,931 7,059 6,839 4,210
Income taxes (30,643) 153,239 (8,422) (70,681)
Adjusted EBITDA 608,441 1,346,587 195,582 201,770

Adjusted Net income / (loss) can be reconciled as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net loss (2,119,880) (605,004) (1,799,235) (320,645)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 594,112 539,212 598,510 (4,397)
Loss from discontinued operation 1,327,698 264,346 1,301,834 25,864
Result from companies'disposal 99,342 45,920 (921) 100,262
Effect on noncontrolling interests (12,487) (32,852) (12,487) --
Effect on income tax (286,603) (10,203) (286,447) (156)
Adjusted net (loss) / income (397,817) 201,418 (198,745) (199,072)
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net loss (2,246,566) (550,094) (126,685) (1,799,235)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 629,392 617,661 35,280 598,510
Loss from discontinued operation 1,330,350 311,244 2,651 1,301,834
Result from companies'disposal 101,363 58,695 2,022 (921)
Effect on noncontrolling interests (12,365) (34,480) 122 (12,487)
Effect on income tax (285,102) (34,323) 1,500 (286,447)
Adjusted net (loss) / income (482,927) 368,703 (85,110) (198,745)

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Revenue, net 4,602,958 5,669,813 2,242,835 2,360,124
Adjusted EBITDA 412,859 948,786 201,770 211,088
Adjusted EBITDA, margin 8.97% 16.75% 9.00% 8.94%
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Revenue, net 6,691,925 8,222,021 2,088,966 2,242,835
Adjusted EBITDA 608,440 1,346,587 195,582 201,770
Adjusted EBITDA, margin 9.09% 16.38% 9.36% 9.00%
Mining Segment
US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net (loss) / income (217,489) 212,564 (109,951) (107,538)
Add:
Depreciation, depletion and amortization 169,195 166,941 83,543 85,652
Forex loss 163,632 95,540 94,169 69,463
Loss from remeasurement of contingent liabilities at fair value 998 929 507 492
Interest expense 152,625 141,889 75,518 77,107
Interest income (31,780) (53,575) (14,975) (16,805)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 2,773 22,288 3,391 (618)
Amount attributable to non-controlling interests 9,308 28,180 15,570 (6,263)
Income taxes 1,729 69,959 (20,,822) 22,551
Adjusted EBITDA 250,991 684,717 126,950 124,042
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net (loss) / income (232,895) 426,602 (15,406) (109,951)
Add:
Depreciation, depletion and amortization 255,845 243,580 86,650 83,543
Forex loss / (gain) 118,435 1,755 (45,197) 94,169
Loss from remeasurement of contingent liabilities at fair value 1,521 1,413 522 507
Interest expense 282,928 206,731 130,303 75,518
Interest income (42,002) (82,467) (10,222) (14,975)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 2,424 21,875 (350) 3,391
Amount attributable to non-controlling interests 17,075 38,574 7,767 15,570
Income taxes (4,590) 131,910 (6,319) (20,822)
Adjusted EBITDA 398,741 989,973 147,750 126,950

Adjusted Net income/loss can be reconciled as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net (loss) / income (217,489) 212,564 (109,951) (107,538)
Provision for amounts due from related parties -- 20,706 -- --
Adjusted net income /(loss) (217,489) 233,270 (109,951) (107,538)
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net (loss) / income (232,895) 426,602 (15,406) (109,951)
Provision for amounts due from related parties -- 22,680 -- --
Adjusted net income / (loss) (232,895) 449,281 (15,406) (109,951),

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Revenue (including intersegment sales) 1,729,005 2,242,884 823,310 905,695
Adjusted EBITDA 250,991 684,717 126,950 124,042
Adjusted EBITDA, margin 14.52% 30.53% 15.42% 13.70%
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Revenue (including intersegment sales) 2,534,039 3,192,344 805,034 823,310
Adjusted EBITDA 398,741 989,973 147,750 126,950
Adjusted EBITDA, margin 15.74% 31.01% 18.35% 15.42%
Steel Segment
US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net loss (993,798) (657,734) (789,644) (204,153)
Add:
Depreciation, depletion and amortization 68,624 72,369 34,339 34,285
Forex loss 41,910 23,609 31,387 10,523
Interest expense 184,965 180,720 88,316 96,649
Interest income (5,102) (5,894) (1,462) (3,640)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 594,433 518,719 599,540 (5,107)
Result of disposed companies (incl. the result from their disposal) 99,328 45,920 (920) 100,248
Loss from discontinued operations, net of income tax 181,153 36,620 167,418 13,734
Amount attributable to non-controlling interests (13,211) (22,692) (11,433) (1,778)
Income taxes (31,786) 1,392 (53,486) 21,700
Adjusted EBITDA 126,516 193,029 64,055 62,461
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net loss (1,087,912) (769,756) (94,114) (789,644)
Add:
Depreciation, depletion and amortization 101,949 105,409 33,326 34,339
Forex loss / (gain) 32,238 (23,462) (9,672) 31,387
Interest expense 265,986 276,249 81,021 88,316
Interest income (7,980) (5,697) (2,878) (1,462)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 630,676 595,432 36,242 599,540
Result of disposed companies (incl. the result from their disposal) 101,351 58,695 2,023 (920)
Loss from discontinued operations, net of income tax 185,763 43,602 4,610 167,418
Amount attributable to non-controlling interests (14,440) (14,222) (1,229) (11,433)
Income taxes (32,593) 15,067 (806) (53,486)
Adjusted EBITDA 175,038 281,317 48,522 64,055

Adjusted Net income / (loss) can be reconciled as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net loss (993,798) (657,734) (789,644) (204,153)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 594,112 518,506 598,510 (4,397)
Loss from discontinued operation 210,904 39,436 195,876 15,028
Result from companies' disposal 99,328 45,920 (920) 100,248
Effect on noncontrolling interests (11,135) (11,910) (11,135) --
Effect on income tax (69,880) (2,818) (68,586) (1,293)
Adjusted net income (170,469) (68,599) (75,901) (94,568)
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net loss (1,087,912) (769,756) (94,114) (789,644)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 629,392 593,755 35,280 598,510
Loss from discontinued operation 215,529 47,342 4,626 195,876
Result from companies' disposal 101,364 58,695 2,036 (920)
Effect on noncontrolling interests (10,929) (15,320) 206 (11,135)
Effect on income tax (69,450) (18,734) 430 (68,586)
Adjusted net loss (222,006) (104,019) (51,537) (75,901)

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Revenue (including intersegment sales) 2,821,468 3,466,287 1,408,827 1,412,641
Adjusted EBITDA 126,516 193,029 64,055 62,461
Adjusted EBITDA, margin 4.48% 5.57% 4.55% 4.42%
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Revenue (including intersegment sales) 4,096,616 5,121,159 1,275,148 1,408,827
Adjusted EBITDA 175,038 281,317 48,522 64,055
Adjusted EBITDA, margin 4.27% 5.49% 3.81% 4.55%
Ferroalloys Segment
US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net (loss) / income (891,083) (110,308) (881,481) (9,602)
Add:
Depreciation, depletion and amortization 3,636 3,208 1,787 1,849
Forex loss / (gain) (396) (434) (210) (186)
Interest expense 6,655 6,434 3,450 3,205
Interest income (254) (267) (249) (5)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 4 561 4 --
Result of disposed companies (incl. the result from their disposal) 13 -- -- 14
Loss from discontinued operations, net of income tax 885,790 120,201 881,037 4,751
Amount attributable to non-controlling interests (1,352) (18,128) (523) (828)
Income taxes 2,247 2,527 891 1,356
Adjusted EBITDA 5,260 3,794 4,706 554
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net (loss) / income (887,996) (136,912) 3,086 (881,481)
Add:
Depreciation, depletion and amortization 5,403 4,045 1,767 1,787
Forex loss / (gain) 213 2,410 609 (210)
Interest expense 9,711 9,263 3,057 3,450
Interest income (379) (42) (125) (249)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 1 1,931 (3) 4
Result of disposed companies (incl. the result from their disposal) 13 -- -- --
Loss from discontinued operations, net of income tax 879,898 142,248 (5,891) 881,037
Amount attributable to non-controlling interests (1,436) (19,159) (84) (523)
Income taxes 2,671 4,256 423 891
Adjusted EBITDA 8,099 8,040 2,839 4,706

Adjusted Net income / (loss) can be reconciled as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net loss (891,083) (110,308) (881,481) (9,602)
Loss from discontinued operation 1,102,303 126,742 1,098,790 3,513
Result from companies'disposal 13 -- -- 14
Effect on noncontrolling interests (1,352) (20,942) (1,352) --
Effect on income tax (216,514) (6,543) (217,753) 1,239
Adjusted net loss (6,632) (11,050) (1,796) (4,837)
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net loss (887,996) (136,912) 3,086 (881,481)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties -- 1,227 -- --
Loss from discontinued operation 1,095,342 152,186 (6,961) 1,098,790
Result from companies'disposal 13 -- -- --
Effect on noncontrolling interests (1,436) (19,159) (84) (1,352)
Effect on income tax (215,444) (14,721) 1,070 (217,723)
Adjusted net loss (9,521) (17,380) ,(2,889) (1,796)

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Revenue (including intersegment sales) 62,391 47,575 32,067 30,325
Adjusted EBITDA 5,260 3,794 4,706 554
Adjusted EBITDA, margin 8.43% 7.97% 14.84% 1.83%
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Revenue (including intersegment sales) 90,760 77,594 28,369 32,067
Adjusted EBITDA 8,099 8,040 2,839 4,706
Adjusted EBITDA, margin 8.92% 10.36% 10.01% 14.68%
Power Segment
US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net loss (21,295) (85,597) (21,133) (163)
Add:
Depreciation, depletion and amortization 5,028 5,501 2,388 2,640
Forex gain (351) (13) (209) (142)
Interest expense 21,390 10,908 11,236 10,154
Interest income (35) (15) (14) (22)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 354 (1,474) 426 (73)
Loss from discontinued operation, net of income tax 14,283 97,324 7,061 7,222
Amount attributable to non-controlling interests 1,347 1,968 596 751
Income taxes 5,589 3,457 2,735 2,853
Adjusted EBITDA 26,309 32,059 3,087 23,222
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net loss (41,776) (110,796) (20,480) (21,133)
Add:
Depreciation, depletion and amortization 7,219 7,971 2,191 2,388
Forex (gain) / loss (4) (12) 347 (209)
Interest expense 31,288 16,074 9,898 11,236
Interest income (50) (15) (15) (14)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 1,002 (1,455) 649 426
Loss from discontinued operation, net of income tax 19,270 110,848 4,987 7,061
Amount attributable to non-controlling interests 1,732 1,866 384 596
Income taxes 3,869 2,006 (1,720) 2,735
Adjusted EBITDA 22,950 26,486 (3,759) 3,087

Adjusted Net income/(loss) can be reconciled as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Net loss (21,295) (85,597) (21,133) (163)
Loss from discontinued operation 14,492 98,167 7,168 7,324
Effect on income tax (209) (843) (107) (101)
Adjusted net (loss) / income (7,012) 11,727 (14,072) 7,060
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Net loss (41,776) (110,796) (20,480) (21,133)
Loss from discontinued operation 19,479 111,716 4,987 7,168
Effect on income tax (209) (868) -- (107)
Adjusted net (loss) / income (22,506) 52 (15,494) (14,072)

Adjusted EBITDA margin can be reconciled as a percentage to our Revenues as follows:

US$ thousand 1H 2013 1H 2012 2Q'13 1Q'13
Revenue (including intersegment sales) 619,293 609,790 269,665 349,629
Adjusted EBITDA 26,309 32,059 3,087 23,222
Adjusted EBITDA, margin 4.25% 5.26% 1.14% 6.64%
US$ thousand 9M 2013 9M 2012 3Q'13 2Q'13
Revenue (including intersegment sales) 866,163 847,512 246,870 269,665
Adjusted EBITDA 22,550 26,486 (3,759) 3,087
Adjusted EBITDA, margin 2.60% 3.13% -1.52% 1.14%
Consolidated Balance Sheets
(in thousands of U.S. dollars, except share amounts)
June 30,
2013
December 31,
2012
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $97,110 $293,569
Accounts receivable, net of allowance for doubtful accounts of $81,699 as of June 30, 2013 and $72,614 as of December 31, 2012 744,727 700,525
Due from related parties, net of allowance of $1,505,250 as of June 30, 2013 and $919,113 as of December 31, 2012 86,729 420,462
Inventories 1,627,315 1,999,936
Deferred income taxes 39,416 28,253
Current assets of discontinued operations 747,320 2,110,897
Prepayments and other current assets 348,583 482,107
Total current assets 3,691,200 6,035,749
Long-term investments in related parties 166,965 7,853
Other long-term investments 12,320 14,484
Property, plant and equipment, net 6,816,161 7,178,366
Mineral licenses, net 3,312,295 3,455,120
Other non-current assets 154,083 165,836
Deferred income taxes 47,271 55,080
Goodwill 726,264 782,815
Total assets $14,926,559 $17,695,303
LIABILITIES AND EQUITY
Short-term borrowings and current portion of long-term debt $1,767,086 $1,436,232
Accounts payable and accrued expenses:
Trade payable to vendors of goods and services 951,668 1,005,532
Advances received 97,678 122,824
Accrued expenses and other current liabilities 453,452 331,281
Taxes and social charges payable 254,133 305,912
Unrecognized income tax benefits 47,266 20,202
Due to related parties 157,593 191,505
Asset retirement obligation, current portion 4,805 4,928
Deferred income taxes 7,966 38,485
Current liabilities of discontinued operations 214,940 476,536
Pension obligations, current portion 17,175 19,155
Dividends payable 11,159 3,086
Finance lease liabilities, current portion 129,299 132,071
Total current liabilities 4,114,220 $4,087,749
Long-term debt, net of current portion 7,376,204 7,921,655
Asset retirement obligations, net of current portion 41,376 43,792
Pension obligations, net of current portion 156,517 166,831
Deferred income taxes 1,130,835 1,218,945
Finance lease liabilities, net of current portion 291,669 347,700
Other long-term liabilities 390,581 368,974
EQUITY
Common shares (10 Russian rubles par value; 497,969,086 shares authorized, 416,270,745 shares issued and outstanding
as of June 30, 2013 and December 31, 2012)
133,507 133,507
Preferred shares (10 Russian rubles par value; 138,756,915 shares authorized, 83,254,149 shares issued and outstanding as of June 30, 2013 and December 31, 2012) 25,314 25,314
Additional paid-in capital 845,834 845,215
Accumulated other comprehensive loss (315,527) (326,933)
Retained earnings 380,273 2,500,278
Equity attributable to shareholders of Mechel OAO 1,069,401 3,177,381
Noncontrolling interests 355,756 362,276
Total equity 1,425,157 3,539,657
Total liabilities and equity $14,926,559 $17,695,303
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands of U.S. dollars) 6 months ended June 30,
2013 2012
(unaudited) (unaudited)
Revenue, net (including related party amounts of $158,012 and $327,130 during 6 months 2013 and 2012, respectively) $4,602,958 $5,669,813
Cost of goods sold (including related party amounts of $354,763 and $475,111 during 6 months 2013 and 2012, respectively) (3,202,516) (3,764,595)
Gross profit 1,400,442 1,905,218
Selling, distribution and operating expenses:
Selling and distribution expenses (900,581) (913,192)
Taxes other than income tax (56,716) (52,194)
Accretion expense (2,553) (2,215)
Loss on write-off of property, plant and equipment (2,722) (1,540)
Impairment of goodwill and long-lived assets (0) (316,372)
Provision for amounts due from related parties (594,112) (222,839)
Provision for doubtful accounts (8,700) (15,983)
General, administrative and other operating expenses, net (266,923) (287,107)
Total selling, distribution and operating expenses, net (1,832,307) (1,811,442)
Operating (loss) income (431,865) 93,776
Other income and (expense):
Income from equity investments 2,459 467
Interest income 6,092 36,537
Interest expense (334,555) (316,739)
Foreign exchange loss (204,794) (118,702)
Other (expenses) income, net (102,121) 20,464
Total other expense and income, net (632,919) (377,973)
Loss from continuing operations, before income tax and discontinued operations (1,064,784) (284,197)
Income tax benefit (expense) 22,222 (77,336)
Loss from continuing operations (1,042,562) (361,533)
Net loss from discontinued operations, net of income tax (1,081,224) (254,143)
Net loss (2,123,786) (615,676)
Less: Net loss attributable to noncontrolling interests 3,908 10,672
Net loss attributable to shareholders of Mechel OAO $(2,119,878) $(605,004)
Less: Dividends on preferred shares (127) (79,056)
Net loss attributable to common shareholders of Mechel OAO (2,120,005) (684,060)
Net loss (2,123,786) (615,676)
Currency translation adjustment (84,252) (23,668)
Change of currency translation adjustment due to disposal of subsidiaries 68,952 --
Change in pension benefit obligation (3,374) (1,775)
Adjustment of available-for-sale securities (732) (132)
Comprehensive loss $(2,143,192) $(641,251)
Comprehensive loss income attributable to noncontrolling interests 34,720 16,980
Comprehensive loss attributable to shareholders of Mechel OAO (2,108,472) (624,271)
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars) 6months ended June 30,
2013 2012
(unaudited) (unaudited)
Cash Flows from Operating Activities
Net loss from continuing operations attributable to shareholders of Mechel OAO (1,038,654) (350,861)
Net loss from continuing operations attributable to noncontrolling interests (3,908) (10,672)
Net loss from continuing operations $(1,042,562) $(361,533)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation 202,538 196,731
Depletion and amortization 43,945 51,288
Foreign exchange loss 204,794 118,702
Deferred income taxes (87,743) (67,114)
Provision for doubtful accounts 8,700 15,983
Change in inventory reserves 15,777 10,341
Accretion expense 2,553 2,215
Change in asset retirement obligations -- (1,669)
Loss on write-off of property, plant and equipment 2,722 1,540
Impairment of goodwill and long-lived assets -- 316,372
Рrovision for amounts due from related parties 594,112 222,839
Income from equity investments (2,459) (467)
Non-cash interest on pension liabilities 4,985 5,060
Loss (Gain) on sale of property, plant and equipment 1,128 (609)
Gain on accounts payable with expired legal term (251) (584)
Loss on disposal of subsidiaries 90,312 --
Amortization of loan origination fee 28,677 21,208
Loss resulting from accretion and remeasurement of contingent obligation 998 929
Pension service cost, amortization of prior service cost and actuarial (gain) loss, other expenses 2,718 1,513
Changes in working capital items, net of effects from acquisition of new subsidiaries:
Accounts receivable (108,493) (36,575)
Inventories 213,433 422,706
Trade payable to vendors of goods and services 90,719 (15,083)
Advances received (19,466) (39,548)
Accrued taxes and other liabilities 48,313 48,211
Settlements with related parties (302,871) (287,969)
Other current assets 32,191 21,228
Net operating cash flows of discontinued operations 38,587 3,440
Unrecognized income tax benefits 27,620 75
Net cash provided by operating activities 90,977 649,230
Cash Flows from Investing Activities
Acquisition of DEMP, less cash acquired (21,199) (16,405)
Acquisition of Port Vanino (518,823) --
Disposal of Port Vanino 500,058 --
Short-term loans issued and other investments (1,102) (1,032)
Proceeds from short-term loans issued 6,202 1,572
Proceeds from disposals of property, plant and equipment 4,332 9,887
Purchases of mineral licenses (903) (1,061)
Net investing cash flows of discontinued operations (6,992) (12,210)
Purchases of property, plant and equipment (352,641) (559,721)
Net cash used in investing activities (391,068) (578,970)
Cash Flows from Financing Activities
Proceeds from borrowings 2,035,532 2,104,131
Repayment of borrowings (1,841,885) (2,567,203)
Dividends paid (110) --
Dividends paid to noncontrolling interest (422) --
Acquisition of noncontrolling interest in subsidiaries (33) (33)
Repayment of obligations under finance lease (71,564) (59,682)
Sale leaseback proceeds 35,890 --
Net investing cash flows of discontinued operations (16,356) (18,745)
Net cash provided by (used in) financing activities 141,052 (541,532)
Effect of exchange rate changes on cash and cash equivalents (21,663) (21,348)
Net decrease in cash and cash equivalents (180,702) (492,620)
Cash and cash equivalents at beginning of period 297,993 643,379
Cash and cash equivalents at end of period $117,291 $150,759
Consolidated Balance Sheets
(in thousands of U.S. dollars, except share amounts)
September 30,
2013
December 31,
2012
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $104,297 $293,569
Accounts receivable, net of allowance for doubtful accounts of $82,002 as of September 30, 2013 and $72,614 as of December 31, 2012 676,852 700,525
Due from related parties, net of allowance of $651,948 as of September 30, 2013 and $919,113 as of December 31, 2012 98,565 420,462
Inventories 1,481,292 1,999,936
Deferred income taxes 33,989 28,253
Current assets of discontinued operations 606,708 2,110,897
Prepayments and other current assets 327,146 482,107
Total current assets 3,328,849 6,035,749
Long-term investments in related parties 169,740 7,853
Other long-term investments 12,503 14,484
Property, plant and equipment, net 6,873,809 7,178,366
Mineral licenses, net 3,306,474 3,455,120
Other non-current assets 140,908 165,836
Deferred income taxes 51,817 55,080
Goodwill 734,474 782,815
Total assets $14,618,574 $17,695,303
LIABILITIES AND EQUITY
Short-term borrowings and current portion of long-term debt $1,938,075 $1,436,232
Accounts payable and accrued expenses:
Trade payable to vendors of goods and services 906,557 1,005,532
Advances received 80,093 122,824
Accrued expenses and other current liabilities 518,789 331,281
Taxes and social charges payable 259,118 305,912
Unrecognized income tax benefits 51,136 20,202
Due to related parties 126,602 191,505
Asset retirement obligation, current portion 4,713 4,928
Deferred income taxes 28,630 38,485
Current liabilities of discontinued operations 137,790 476,536
Pension obligations, current portion 17,348 19,155
Dividends payable 9,850 3,086
Finance lease liabilities, current portion 130,988 132,071
Total current liabilities 4,209,689 $4,087,749
Long-term debt, net of current portion 7,194,319 7,921,655
Asset retirement obligations, net of current portion 41,907 43,792
Pension obligations, net of current portion 158,055 166,831
Deferred income taxes 1,096,150 1,218,945
Finance lease liabilities, net of current portion 277,837 347,700
Other long-term liabilities 347,080 368,974
Due to related parties 21 --
EQUITY
Common shares (10 Russian rubles par value; 497,969,086 shares authorized, 416,270,745 shares issued and outstanding
as of September 30, 2013 and December 31, 2012)
133,507 133,507
Preferred shares (10 Russian rubles par value; 138,756,915 shares authorized, 83,254,149 shares issued and outstanding as of September 30, 2013 and December 31, 2012) 25,314 25,314
Additional paid-in capital 845,988 845,215
-- --
Accumulated other comprehensive loss 330,708 326,933
Retained earnings 253,586 2,500,278
Equity attributable to shareholders of Mechel OAO 927,687 3,177,381
Noncontrolling interests 365,829 362,276
Total equity 1,293,516 3,539,657
Total liabilities and equity $14,618,574 $17,695,303
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands of U.S. dollars) 9 months ended September 30,
2013 2012
(unaudited) (unaudited)
Revenue, net (including related party amounts of $126,031 and $546,096 during 9 months 2013 and 2012, respectively) $6,691,925 $8,222,021
Cost of goods sold (including related party amounts of $509,377 and $696,781 during 9 months 2013 and 2012, respectively) (4,647,629) (5,574,178)
Gross profit 2,044,296 2,647,843
Selling, distribution and operating expenses:
Selling and distribution expenses (1,309,254) (1,278,177)
Taxes other than income tax (89,430) (71,652)
Accretion expense (3,764) (3,277)
Loss on write-off of property, plant and equipment (5,270) (3,846)
Impairment of goodwill and long-lived assets 0 (317,599)
Provision for amounts due from related parties (629,392) (300,062)
Provision for doubtful accounts (15,737) (9,846)
General, administrative and other operating expenses, net (384,660) (405,526)
Total selling, distribution and operating expenses, net (2,437,507) (2,389,985)
Operating (loss) income (393,211) 257,858
Other income and (expense):
Income from equity investments 3,683 405
Interest income 6,950 52,407
Interest expense (546,452) (472,501)
Foreign exchange (loss) gain (150,881) 19,309
Other (expenses) income, net (109,436) 49,425
Total other income and expense, net (796,136) (350,955)
Loss from continuing operations, before income tax and discontinued operations (1,189,347) (93,097)
Income tax benefit (expense) 30,643 (153,239)
Loss from continuing operations (1,158,704) (246,336)
Net loss from discontinued operations, net of income tax (1,084,931) (296,700)
Net loss (2,243,635) (543,036)
Less: Net loss attributable to noncontrolling interests (2,931) (7,058)
Net loss attributable to shareholders of Mechel OAO $(2,246,566) $(550,094)
Less: Dividends on preferred shares (126) (79,056)
Net loss attributable to common shareholders of Mechel OAO (2,246,692) (629,150)
Net loss (2,243,635) (543,036)
Currency translation adjustment (95,790) 84,565
Change of currency translation adjustment due to disposal of subsidiaries 68,951 --
Change in pension benefit obligation (2,659) (775)
Adjustment of available-for-sale securities (836) (75)
Comprehensive loss $(2,273,969) $(459,321)
Comprehensive loss attributable to noncontrolling interests 23,628 (17,292)
Comprehensive loss attributable to shareholders of Mechel OAO (2,250,341) (476,613)

Consolidated Statements of Cash Flows
(in thousands of U.S. dollars) 9 months ended September 30,
2013 2012
(unaudited) (unaudited)
Cash Flows from Operating Activities
Net loss from continuing operations attributable to shareholders of Mechel OAO (1,161,635) (253,395)
Net income from continuing operations attributable to noncontrolling interests 2,931 7,059
Net loss from continuing operations $(1,158,704) $(246,336)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation 305,418 288,816
Depletion and amortization 64,999 72,190
Foreign exchange loss (gain) 150,881 (19,309)
Deferred income taxes (115,836) (56,522)
Provision for doubtful accounts 15,735 9,846
Change in inventory reserves (6,483) 18,330
Accretion expense 3,764 3,277
Loss on write-off of property, plant and equipment 5,270 3,271
Impairment of goodwill and long-lived assets -- 317,599
Рrovision for amounts due from related parties 629,392 300,062
Income from equity investments (3,683) (405)
Non-cash interest on pension liabilities 7,366 7,505
(Gain) loss on sale of property, plant and equipment (243) 1,420
Gain on accounts payable with expired legal term (724) (19,677)
Loss on disposal of subsidiaries 92,335 --
Gain on disposal of discontinued operations -- --
Amortization of loan origination fee 42,328 34,159
Loss resulting from accretion and remeasurement of contingent obligation 1,521 1,413
Pension service cost, amortization of prior service cost and actuarial (gain) loss, other expenses 3,696 2,285
Changes in working capital items, net of effects from acquisition of new subsidiaries:
Accounts receivable (23,378) 8,256
Inventories 407,237 438,334
Trade payable to vendors of goods and services 40,719 (16,380)
Advances received (37,663) (29,604)
Accrued taxes and other liabilities 115,742 46,606
Settlements with related parties (376,784) (145,320)
Other current assets 62,488 103,112
Net operation cash flows of discontinued operations 55,763 (55,856)
Unrecognized income tax benefits 32,787 115
Net cash provided by operating activities 313,943 1,067,187
Cash Flows from Investing Activities
Acquisition of DEMP, less cash acquired (43,548) (24,652)
Acquisition of Cognor, less cash acquired -- (24,172)
Acquisition of Port Vanino (518,823) --
Disposal of Port Vanino 500,058 --
Short-term loans issued and other investments (1,087) (826)
Proceeds from disposal of TPP Rousse 26,684 --
Proceeds from disposal of Lomprom Rostov 522 --
Proceeds from disposal of Invicta 714 --
Proceeds from short-term loans issued 6,465 71,284
Proceeds from disposals of property, plant and equipment 4,685 18,666
Purchases of mineral licenses (886) (1,320)
Purchases of property, plant and equipment (444,279) (815,500)
Net investing cash flows ofdiscontinued operations (16,296) (25,900)
Net cash used in investing activities (485,791) (802,420)
Cash Flows from Financing Activities
Proceeds from borrowings 2,555,319 3,267,217
Repayment of borrowings (2,464,851) (3,226,969)
Dividends paid (320) (186,443)
Dividends paid to noncontrolling interest (1,569) (8,475)
Acquisition of noncontrolling interest in subsidiaries (33) (32)
Repayment of obligations under finance lease (109,026) (92,722)
Sale leaseback proceeds 40,023 --
Net investing cash flows of discontinued operations (19,530) (42,403)
Net cash provided by (used in) financing activities 13 (289,827)
Effect of exchange rate changes on cash and cash equivalents (18,156) (33,598)
Net (decrease) increase in cash and cash equivalents (189,991) (58,658)
Cash and cash equivalents at beginning of period 297,994 643,379
Cash and cash equivalents at end of period $108,003 $584,721

CONTACT: Mechel OAO Vladislav Zlenko Director of Investor Relations Phone: 7-495-221-88-88 Fax: 7-495-221-88-00 vladislav.zlenko@mechel.com

Source:Mechel OAO