Mechel Reports the 2013 Financial Results

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Revenue amounted to $8.6 billion
Consolidated adjusted EBITDA amounted to $730 million
Net loss attributable to shareholders of Mechel OAO amounted to $2.9 billion

MOSCOW, May 15, 2014 (GLOBE NEWSWIRE) -- Mechel OAO (NYSE:MTL), a leading Russian mining and steel group, today announced financial results for the full year 2013.

Oleg Korzhov, Mechel OAO's Chief Executive Officer, commented on the 2013 results:

"In the past year, the Group's structure was subject to major transformation as part of our implementation of the revised strategy. Romanian steelmaking facilities were disposed of by the Group, chrome ore and ferrochrome producing enterprises were sold. These steps had a positive impact on the company's condition as funds were no longer funneled into financing unprofitable enterprises, cash flow was freed and the sale of chrome assets brought in significant funds. The downside of the Group's asset restructuring was in lower revenues as well as major write-offs in our accounts. We have significantly cut down our capital investment program, which was largely due to the completion of the company's key investment projects or their implementation in the framework of project financing.

"Naturally, volatility in the global markets for metallurgical resources brings certain changes to our operations, complicates the deleveraging process and limits our capital investment capacity. Nevertheless we expect that the steps we take will have tangible positive effect in the medium term."

Consolidated Results For The Full Year 2013
US$ mln FY 2013 (1) FY 2012 (1)(4) Change Y-on-Y
Revenue from external customers 8,576 10,631 -19%
Adjusted EBITDA (1) (3) 730 1,471 -50%
Adjusted EBITDA, margin (1) 8.51% 13.84% --
Operating loss (529) (423) 25%
Operating margin -6.17% -3.98% --
Net loss attributable to shareholders of Mechel OAO (2,928) (1,665) 76%
Adjusted net (loss) / income (1) (2) (734) 305 --

  • The major factor contributing to the 19-percent decrease in consolidated revenue as compared to 2012 was the 23-percent decrease in the steel segment's revenue due to the Group's disposal of unprofitable assets (Romanian facilities) and interruption of supplies from third parties due to the end of our partnership with Estar plants.
  • The decrease in the consolidated adjusted EBITDA was largely due to the decrease in prices for the mining division's key products.
  • The main reason for our net loss is in over 2 billion dollars of write-offs due to the negative results from discontinued operations, loss from disposal of non-current assets, impairment of long-term assets and goodwill, as well as provision for amounts due from related parties.
  • Capital expenditure on property, plant and equipment and acquisition of mineral licenses for the FY2013 amounted to $558.1 million, of which $336.8 million was invested in the mining segment, $211.5 million was invested in the steel segment, $4.6 million was invested in the ferroalloy segment and $5.2 million was invested in the power segment.
  • As of December 31, 2013, total debt was $9.0 billion. Cash and cash equivalents amounted to $269 million and net debt amounted to $8.7 billion (net debt is defined as total debt outstanding less cash and cash equivalents) at the end of 4Q 2013.

US$ mln 1Q 2013 2Q 2013 3Q 2013 (1)(4) 4Q 2013 (1)
Revenue from external customers 2,360 2,243 2,089 1,885
Adjusted EBITDA (1) (3) 211 202 196 122
Adjusted EBITDA, margin (1) 8.94% 9.01% 9.38% 6.47%
Operating income / (loss) 88 (519) 39 (136)
Operating margin 3.73% -23.14% 1.87% -7.21%
Net loss attributable to shareholders of Mechel OAO (321) (1,799) (127) (681)
Adjusted net loss (1) (2) (199) (199) (85) (251)
Mining Segment
Financial Results For Full Year 2013
US$ mln FY 2013 (1) FY 2012 (1)(5) Change Y-on-Y
Revenue from external customers 2,784 3,384 -18%
Adjusted EBITDA(1) (3) 482 999 -52%
Adjusted EBITDA, margin (4) 14.55% 24.91% --
US$ mln 1Q 2013 2Q 2013 3Q 2013 (1)(4) 4Q 2013 (1)
Revenue from external customers 770 693 695 626
Adjusted EBITDA (1) (3) 124 127 148 83
Adjusted EBITDA, margin (1) 13.70% 15.42% 18.35% 10.69%
Output and Sales For The Full Year 2013
Production:
Product name FY 2013,
thousand tonnes*
FY 2012,
thousand tonnes*
FY 2013 vs.
FY 2012, %
Coal (run-of-mine) 27,516 27,763 -1%
Product Sales:
Product name FY 2013,
thousand tonnes*
FY 2012,
thousand tonnes*
FY 2013 vs.
FY 2012, %
Coking coal concentrate 11,051 11,542 -4%
Including coking coal concentrate supplied to Mechel enterprises 2,338 2,590 -10%
PCI 3,308 2,428 36%
Anthracites 2,202 2,391 -8%
Including anthracites supplied to Mechel enterprises 123 271 -55%
Steam coal 5,898 5,910 0%
Including steam coal supplied to Mechel enterprises 1,733 1,540 13%
Iron ore concentrate 4,166 4,390 -5%
Including iron ore concentrate supplied to Mechel enterprises 478 280 71%
Coke 2,976 3,561 -16%
Including coke supplied to Mechel enterprises 1,960 2,448 -20%
* Adjusted to effect from discontinued operations.

  • The market price year-on-year decrease — 22% for coking coal concentrate, 16% for anthracites and PCI, 7% for steam coal and 20% for coke — caused an 18-percent decrease in revenue from selling to outside customers and a 52-percent decrease in adjusted EBITDA.
  • Capital expenses in fixed assets and acquisition of subsoil licenses in 2013 amounted to 336.8 million US dollars, which is less by 45% than the previous year's figures.

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

"Despite a complicated situation in the mining industry, as a result of 2013 we maintained coal production in the Group on previous year's levels. Throughout the year, prices for anthracites and PCI, the so-called other metallurgical coals, were more stable. That enabled us to significantly increase sales in this particular segment of our coal production. We have increased sales of PCI coals by a third, and sales of other metallurgical coals went up by nearly 15%.

"As a whole, the weakness of coking coal markets continued to significantly impact the division's operations and results throughout last year. Average sales prices for coking coal concentrate on the FCA basis demonstrated a 11-percent decrease as compared to the figures at the beginning of the period. With the market situation steadily worsening since 2012, current price minimums are at their lowest over the past seven years.

"In order to maximize the division's financial results, we are constantly working on boosting production and sales efficiency and consolidation of our hold on the most promising markets. Since the beginning of this year, we have made significant progress in our cooperation with our Chinese partners by cinching new long-term contracts for more supply volumes than last year's. We have also gained access to new markets of other metallurgical coals by expanding our client base to include steelmakers in Western Europe.

"At the same time we continued implementing our key investment project — Elga Coal Complex's construction. In March, we signed agreements with Vnesheconombank for the second and third credit lines to finance the project. In April, once the winter season was over, the seasonal washing factory at Elga was re-launched, and mining resumed at the open pit. Preliminary work on construction of a permanent washing plant continues, and railway tracks from the pit to the factory are being laid. Other infrastructure facilities are being built. We expect that this year products from the Elga deposit will make their first major contribution to the division's operational results."

Steel Segment
Financial Results For The Full Year 2013
US$ mln FY 2013 (1) FY 2012 (1)(5) Change Y-on-Y
Revenue from external customers 4,956 6,422 -23%
Adjusted EBITDA (1) (3) 210 378 -44%
Adjusted EBITDA, margin (4) 4.04% 5.65% --
US$ mln 1Q 2013 2Q 2013 3Q 2013 (1)(4) 4Q 2013 (1)
Revenue from external customers 1,343 1,359 1,225 1,029
Adjusted EBITDA (1) (3) 62 64 49 35
Adjusted EBITDA, margin (1) 4.42% 4.55% 3.81% 3.19%
Output and Sales to 3rd Parties For The Full Year 2013
Production:
Product name FY 2013,
thousand tonnes
FY 2012,
thousand tonnes
FY 2013 vs.
FY 2012, %
Pig iron 3,743 4,161 -10%
Steel 4,650 6,532 -29%
Product Sales:
Product name FY 2013,
thousand tonnes
FY 2012,
thousand tonnes
FY 2013 vs.
FY 2012, %
Flat products 586 719 -19%
Including those produced by third parties 283 396 -29%
Long products 3,541 4,073 -13%
Including those produced by third parties 1,115 908 23%
Billets 690 2,602 -74%
Including those produced by third parties 270 881 -69%
Hardware 852 976 -13%
Including those produced by third parties 91 57 60%
Forgings 69 57 21%
Stampings 102 111 -8%

  • The decrease in sales of key products in 2013, largely due to the Group's disposal of unprofitable assets (Romanian facilities) and interruption of supplies from third parties due to the end of our partnership with Estar plants, led to a 23-percent decrease in revenue from sales to third parties.
  • The decrease in adjusted EBITDA is primarily due to lower sales revenue.
  • Capital expenditure into fixed assets and acquisition of subsoil licenses in 2013 amounted to 211.5 million US dollars, which is 37% less than the previous year's figures.

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

"The 2013 final financial result was largely due to a decrease in sales of key products as compared to the previous year. The chief reason for that lies in steps taken to optimize the Group's steel asset structure by disposing of non-core enterprises that generated loss in our cash flow. Primarily the sales volumes were impacted by the Group's disposal of unprofitable Romanian facilities. At the same time, the disposal had a positive effect on the division's financial situation. The division's revenues were also significantly impacted by the end of our partnership with several third-party steelmaking plants and the end to our marketing of their products.

"A certain decrease in the last quarter's figures was due to the cutback of our steel production in the second half of 2013, linked to the planned major repairs to the blast furnace #1 and the planned reconstruction of the converter #3 at Chelyabinsk Metallurgical Plant.

"Throughout last year we have achieved notable success in several directions. In line with the Group's revised strategy, we continued to cut down on Mechel Service Global sales and service network's European segment. Some of its trade facilities that were inefficient insofar as product turnover and unprofitable operationally, were shut down, some are in the process of closing down. By the year's end, our European product stock went down by 330,000 tonnes, which freed a lot of cash flow. This process is still under way, with our stocks going down by over 40,000 tonnes since the beginning of this year.

"In July 2013, we launched the universal rolling mill at Chelyabinsk Metallurgical Plant. The mill is currently undergoing tests and mastering production. The mill has mastered production of 10 types of double-T rolls, as well as production of pit props. The mill is working on mastering rail production. We intend to shortly ship a batch of high-quality rails to Russian Railways for certification."

Ferroalloys Segment
Financial Results For The Full Year 2013
US$ mln FY 2013 (1) FY 2012 (1)(5) Change
Y-on-Y
Revenue from external customers 82 68 21%
Adjusted EBITDA (1) (3) 8 5 60%
Adjusted EBITDA, margin (4) 7.16% 4.47% --
US$ mln 1Q 2013 2Q 2013 3Q 2013 (1)(4) 4Q 2013 (1)
Revenue from external customers 20 22 21 19
Adjusted EBITDA (1) (3) 0.6 4.7 2.8 0.3
Adjusted EBITDA, margin (1) 1.83% 14.68% 10.01% 1.16%
Product Sales For The Full Year 2013
Product name FY 2013,
thousand tonnes
FY 2012,
thousand tonnes
FY 2013 vs.
FY 2012, %
Ferrosilicon 94 78 21%
Including ferrosilicon supplied to Mechel enterprises 31 30 3%

  • Revenue from sales to outside customers in 2013 went up by 19% due to a 21-percent increase in ferrosilicon sales.
  • Despite the negative impact of the price decrease, adjusted EBITDA went up by 60% due to cuts in operational and administrative costs, as well as the decrease in expenses in creating a reserve on unrecoverable debt.
  • Capital expenditure into fixed assets and acquisition of subsoil licenses in 2013 amounted to 4.6 million US dollars, which is 23% less than the previous year's figures.

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

"By 2014, the ferroalloys division underwent major changes. Apart from Southern Urals Nickel Plant which was halted in 2012, by the end of 2013 we disposed of chrome assets. Bratsk Ferroalloy Plant remains the division's key production asset.

"The revamped division demonstrated good 2013 results. An increase in production and sales volumes led to a major increase in revenue. At the same time, despite still weak prices, the division managed to almost entirely get rid of operational loss, and adjusted EBITDA topped last year's figures.

"The fourth quarter's results turned out to be somewhat weaker. That was due to increased costs as a result of a hike in electricity prices, and an increase of the share of products aimed for export sales. Nevertheless, we expect that this year our production structure revision, as well as measures on optimizing costs, will enable us to normalize operational costs and continue our trend toward improving financial results."

Power Segment
Financial Results for The Full Year 2013
US$ mln FY 2013 (1) FY 2012 (1)(5) Change
Y-on-Y
Revenue from external customers 755 757 -0.26%
Adjusted EBITDA (1) (3) 33 41 -20%
Adjusted EBITDA, margin(4) 2.78% 3.47% --
US$ mln 1Q 2013 2Q 2013 3Q 2013 (1)(4) 4Q 2013 (1)
Revenue from external customers 227 169 149 209
Adjusted EBITDA (1) (3) 23 3 (4) 11
Adjusted EBITDA, margin (1) 6.64% 1.14% -1.52% 3.25%
Output and Sales For The Full Year 2013
Product name FY 2013 FY 2012 FY 2013 vs. FY
2012, %
Electric power generation (ths. kWh) 3,972,285 4,272,610 -7%
Heat power generation (Gcal) 6,694,467 7,945,674 -16%

  • Revenue from sales to outside customers year-on-year remained practically the same.
  • Adjusted EBITDA went down by 20% largely due to bad debt provision's growth by 9.1 million US dollars.
  • The main reason for a decrease of net loss is the decrease of loss from discontinued operations at Toplofikatsia Rousse.
  • Capital expenditure into fixed assets and acquisition of subsoil licenses in 2013 amounted to 5.2 million US dollars, which is 47% less than the previous year's figures.

Mechel-Energo OOO's Chief Executive Officer Pyotr Pashnin noted:

"As a result of 2013, the Group's power division's revenue remained at the previous year's levels, with adjusted EBITDA going down by 19.7% due to increased costs of unrecoverable debt provision as payment history of our end customers worsened. Despite a complicated situation, our enterprises ensured reliable and uninterrupted work of our production facilities and supply of our customers with electricity and heat in high winter season. Each of the division's enterprises is implementing a program for improving energy efficiency and cutting reference fuel consumption in 2013-2017."

The management of Mechel will host a conference call today at 10:00 a.m. New York time (3:00 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.

(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.

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 FY 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, 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, 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 FY 2013 FY 2012
Net loss (2,928,014) (1,664,568)
Add:
Depreciation, depletion and amortization 476,960 475,465
Forex loss / (gain) 164,691 (108,830)
Loss from remeasurement of contingent liabilities at fair value 2,053 1,906
Interest expense 742,042 652,665
Interest income (7,339) (70,456)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 774,224 1,305,092
Loss from discontinued operation, net of income tax 1,358,571 605,839
Result of disposed companies (incl. the result from their disposal) 88,445 81,085
Amount attributable to non-controlling interests 5,047 (317)
Income taxes 53,642 192,845
Adjusted EBITDA 730,323 1,470,725
US$ thousand 4Q 2013 3Q 2013
Net loss (681,450) (126,685)
Add:
Depreciation, depletion and amortization 106,543 123,935
Forex loss / (gain) 13,810 (53,914)
Loss from remeasurement of contingent liabilities at fair value 533 522
Interest expense 195,590 211,898
Interest income (390) (857)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 140,123 36,538
Loss from discontinued operation, net of income tax 273,640 3,706
Result of disposed companies (incl. the result from their disposal) (12,919) 2,023
Amount attributable to noncontrolling interests 2,117 6,839
Income taxes / (benefits) 84,286 (8,422)
Adjusted EBITDA 121,883 195,583

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

US$ thousand FY 2013 FY 2012
Net loss (2,928,014) (1,664,568)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 752,492 1,321,468
Loss from discontinued operation 1,604,203 605,839
Loss from disposal of subsidiaries 88,445 81,085
Effect on non-controlling interests (496) (23,828)
Effect on income tax (250,969) (15,492)
Adjusted net (loss) / income (734,339) 304,504
US$ thousand 4Q 2013 3Q 2013
Net loss (681,450) (126,685)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 123,100 35,280
Loss from discontinued operation 273,853 2,651
Result from companies' disposal (12,919) 2,023
Effect on non-controlling interests 11,869 122
Effect on income tax 34,133 1,500
Adjusted net loss (251,414) (85,110)

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

US$ thousand FY 2013 FY 2012
Revenue, net 8,576,431 10,630,932
Adjusted EBITDA 730,322 1,470,726
Adjusted EBITDA, margin 8.52% 13.83%
US$ thousand 4Q 2013 3Q 2013
Revenue, net 1,884,506 2,088,966
Adjusted EBITDA 121,883 195,583
Adjusted EBITDA, margin 6.47% 9.36%
Mining Segment
US$ thousand FY 2013 FY 2012
Net (loss) / income (364,238) 356,575
Add:
Depreciation, depletion and amortization 326,192 317,615
Forex loss / (gain) 109,269 (65,868)
Loss from remeasurement of contingent liabilities at fair value 2,053 1,906
Interest expense 384,069 282,177
Interest income (52,109) (98,474)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 26,434 5,637
Amount attributable to non-controlling interests 19,142 45,976
Income taxes 30,814 153,926
Adjusted EBITDA 481,627 999,470
US$ thousand 4Q 2013 3Q 2013
Net loss (131,343) (15,406)
Add:
Depreciation, depletion and amortization 70,346 86,650
Forex gain (9,166) (45,197)
Loss from remeasurement of contingent liabilities at fair value 533 522
Interest expense 101,141 130,303
Interest income (10,107) (10,221)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 24,010 (349)
Amount attributable to non-controlling interests 2,067 7,767
Income taxes / (benefits) 35,405 (6,319)
Adjusted EBITDA 82,886 147,750

Adjusted Net income/loss can be reconciled as follows:

US$ thousand FY 2013 FY 2012
Net (loss) / income (364,238) 356,575
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 7,224 22,669
Adjusted net (loss) / income (357,014) 379,244
US$ thousand 4Q 2013 3Q 2013
Net loss (131,343) (15,406)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 7,224 --
Adjusted net loss (124,119) (15,406)

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

US$ thousand FY 2013 FY 2012
Revenue (including intersegment sales) 3,309,300 4,011,622
Adjusted EBITDA 481,627 999,470
Adjusted EBITDA, margin 14.55% 24.91%
US$ thousand 4Q 2013 3Q 2013
Revenue (including intersegment sales) 775,261 805,034
Adjusted EBITDA 82,886 147,750
Adjusted EBITDA, margin 10.69% 18.35%
Steel Segment
US$ thousand FY 2013 FY 2012
Net loss (1,294,151) (1,697,333)
Add:
Depreciation, depletion and amortization 135,226 140,973
Forex loss / (gain) 49,472 (46,362)
Interest expense 358,634 380,737
Interest income (13,121) (21,889)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 705,558 1,276,285
Result of disposed companies (incl. the result from their disposal) 91,166 81,085
Loss from discontinued operations, net of income tax 185,286 258,740
Amount attributable to non-controlling interests (17,006) (25,350)
Income taxes 9,103 30,827
Adjusted EBITDA 210,167 377,713
US$ thousand 4Q 2013 3Q 2013
Net loss (206,239) (94,114)
Add:
Depreciation, depletion and amortization 33,277 33,326
Forex loss / (gain) 17,234 (9,672)
Interest expense 92,648 81,021
Interest income (5,142) (2,879)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 74,883 36,242
Result of disposed companies (incl. the result from their disposal) (10,185) 2,023
Result from discontinued operations, net of income tax (477) 4,610
Amount attributable to non-controlling interests (2,567) (1,229)
Income taxes / (benefits) 41,696 (806)
Adjusted EBITDA 35,128 48,522

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

US$ thousand FY 2013 FY 2012
Net loss (1,294,151) (1,697,333)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 703,483 1,274,904
Loss from discontinued operation 215,815 258,739
Result from disposal of subsidiaries 88,445 81,085
Effect on non-controlling interests -- --
Effect on income tax (35,866) (6,159)
Adjusted net loss (322,273) (88,764)
US$ thousand 4Q 2013 3Q 2013
Net loss (206,239) (94,114)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 74,091 35,280
Loss from discontinued operation 286 4,625
Result from companies' disposal (12,918) 2,036
Effect on non-controlling interests 10,929 206
Effect on income tax 33,583 430
Adjusted net loss (100,268) (51,537)

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

US$ thousand FY 2013 FY 2012
Revenue (including intersegment sales) 5,198,881 6,685,279
Adjusted EBITDA 210,167 377,713
Adjusted EBITDA, margin 4.04% 5.65%
US$ thousand 4Q 2013 3Q 2013
Revenue (including intersegment sales) 1,102,265 1,275,148
Adjusted EBITDA 35,128 48,522
Adjusted EBITDA, margin 3.19% 3.81%
Ferroalloys Segment
US$ thousand FY 2013 FY 2012
Net loss (1,170,883) (212,531)
Add:
Depreciation, depletion and amortization 6,032 6,214
Forex loss 6,041 3,398
Interest expense 15,286 15,366
Interest income (504) (44)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 908 24,623
Result of disposed companies (incl. the result from their disposal) 13 --
Loss from discontinued operations, net of income tax 1,149,193 186,061
Amount attributable to noncontrolling interests (496) (23,828)
Income taxes 2,818 5,517
Adjusted EBITDA 8,408 4,777
US$ thousand 4Q 2013 3Q 2013
Net (loss) / income (282,887) 3,086
Add:
Depreciation, depletion and amortization 628 1,767
Forex loss 5,829 609
Interest expense 5,575 3,057
Interest income (126) (125)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 908 (3)
Loss from discontinued operations, net of income tax 269,295 (5,891)
Amount attributable to noncontrolling interests 940 (84)
Income taxes 147 423
Adjusted EBITDA 309 2,840

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

US$ thousand FY 2013 FY 2012
Net loss (1,170,883) (212,531)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 854 23,893
Result from disposal of subsidiaries 13 --
Loss from discontinued operation 1,364,088 186,061
Effect on non-controlling interests (496) (23,828)
Effect on income tax (214,894) (8,490)
Adjusted net loss (21,318) (34,895)
US$ thousand 4Q 2013 3Q 2013
Net (loss) / income (282,887) 3,086
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 854 --
Result from disposal of subsidiaries -- --
Loss from discontinued operations 268,746 (6,961)
Effect on non-controlling interests 940 (84)
Effect on income tax 550 1,070
Adjusted net loss (11,797) (2,889)

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

US$ thousand FY 2013 FY 2012
Revenue (including intersegment sales) 117,455 106,825
Adjusted EBITDA 8,408 4,777
Adjusted EBITDA, margin 7.16% 4.47%
US$ thousand 4Q 2013 3Q 2013
Revenue (including intersegment sales) 26,695 28,369
Adjusted EBITDA 309 2,840
Adjusted EBITDA, margin 1.16% 10.01%
Power Segment
US$ thousand FY 2013 FY 2012
Net loss (95,795) (158,856)
Add:
Depreciation, depletion and amortization 9,510 10,663
Forex (gain) / loss (91) 1
Interest expense 42,511 24,372
Interest income (64) (36)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 41,324 (1,452)
Result of disposed companies (incl. the result from their disposal) (2,732) --
Loss from discontinued operation, net of income tax 24,092 161,038
Amount attributable to non-controlling interests 3,407 2,885
Income taxes 10,907 2,575
Adjusted EBITDA 33,070 41,189
US$ thousand 4Q 2013 3Q 2013
Net loss (54,019) (20,480)
Add:
Depreciation, depletion and amortization 2,291 2,191
Forex (gain) / loss (87) 347
Interest expense 11,224 9,898
Interest income (14) (15)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties 40,322 649
Result of disposed companies (incl. the result from their disposal) (2,732) --
Loss from discontinued operation, net of income tax 4,822 4,987
Amount attributable to non-controlling interests 1,676 384
Income taxes / (benefits) 7,039 (1,720)
Adjusted EBITDA 10,520 (3,759)

Adjusted Net income/loss can be reconciled as follows:

US$ thousand FY 2013 FY 2012
Net loss (95,795) (158,856)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 40,930 --
Loss from discontinued operation 24,300 161,038
Effect on income tax (209) (843)
Adjusted net (loss) / income (30,774) 1,339
US$ thousand 4Q 2013 3Q 2013
Net loss (54,019) (20,480)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties 40,930 --
Loss from discontinued operation 4,821 4,986
Effect on income taxes -- --
Adjusted net loss (8,268) (15,494)

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

US$ thousand FY 2013 FY 2012
Revenue (including intersegment sales) 1,190,207 1,185,777
Adjusted EBITDA 33,070 41,189
Adjusted EBITDA, margin 2.78% 3.47%
US$ thousand 4Q 2013 3Q 2013
Revenue (including intersegment sales) 324,042 246,870
Adjusted EBITDA 10,520 (3,759)
Adjusted EBITDA, margin 3.25% -1.52%
Consolidated Balance Sheets
(in thousands of U.S. dollars)
December 31 2013 December 31 2012
ASSETS
Cash and cash equivalents $ 268,525 $ 293,569
Accounts receivable, net of allowance for doubtful accounts of $81,233 in 2013 and $72,614 in 2012 590,454 700,525
Due from related parties, net of allowance of $1,623,661 in 2013 and $919,113 in 2012 56,792 420,462
Inventories 1,376,995 1,999,936
Deferred income taxes 34,972 28,253
Current assets of discontinued operations 147,521 1,883,191
Prepayments and other current assets 377,379 482,107
Total current assets 2,852,638 5,808,043
Long-term investments in related parties 7,604 7,853
Other long-term investments 14,787 14,484
Property, plant and equipment, net 6,836,246 7,178,366
Mineral licenses, net 3,271,018 3,455,120
Other non-current assets 159,388 165,836
Deferred income taxes 5,066 55,080
Goodwill 687,763 782,815
Non-current assets of discontinued operations 227,706
Total assets $ 13,834,510 $ 17,695,303
LIABILITIES AND EQUITY
Short-term borrowings and current portion of long-term debt $ 1,484,912 $ 1,436,232
Accounts payable and accrued expenses:
Trade payable to vendors of goods and services 922,057 1,005,532
Advances received 91,654 122,824
Accrued expenses and other current liabilities 359,791 331,281
Taxes and social charges payable 277,921 305,912
Unrecognized income tax benefits 78,332 20,202
Due to related parties 106,943 191,505
Asset retirement obligation, current portion 2,001 4,928
Deferred income taxes 37,775 38,485
Current liabilities of discontinued operations 86,563 429,049
Pension obligations, current portion 19,421 19,155
Dividends payable 3,293 3,086
Finance lease liabilities, current portion 122,815 132,071
Total current liabilities $ 3,593,478 $ 4,040,262
Long-term debt, net of current portion 7,520,217 7,921,655
Asset retirement obligations, net of current portion 57,135 43,792
Pension obligations, net of current portion 142,691 166,831
Deferred income taxes 1,082,819 1,218,945
Finance lease liabilities, net of current portion 296,885 347,700
Due to related parties 21
Long-term liabilities of discontinued operations 47,487
Commitments and contingencies
Other long-term liabilities 329,444 368,974
EQUITY
Common shares (10 Russian rubles par value; 497,969,086 shares authorized, 416,270,745 shares issued and outstanding as of December 31, 2013 and 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 December 31, 2012 and 2011) 25,314 25,314
Additional paid-in capital 834,118 845,215
Accumulated other comprehensive loss (47,601) (326,933)
(Accumulated deficit) retained earnings (427,863) 2,500,278
Equity attributable to shareholders of Mechel OAO 517,475 3,177,381
Noncontrolling interests 294,345 362,276
Total equity 811,820 3,539,657
Total liabilities and equity $ 13,834,510 $ 17,695,303
Consolidated Statements of Income and Comprehensive Income (Loss)
(in thousands of U.S. dollars)
Year ended December 31,
2013 2012
Revenue, net (including related party amounts of $237,071 and $738,317 during 2013 and 2012, respectively) $ 8,576,431 $ 10,630,932
Cost of goods sold (including related party amounts of $594,421 and $844,214 during 2013 and 2012, respectively) (5,962,744) (7,323,467)
Gross profit 2,613,687 3,307,465
Selling, distribution and operating expenses:
Selling and distribution expenses (1,725,305) (1,714,027)
Taxes other than income tax (128,659) (118,673)
Accretion expense (5,014) (4,369)
Loss on write-off of property, plant and equipment (17,829) (10,048)
Impairment of goodwill and long-lived assets (38,310) (402,355)
Provision for amounts due from related parties (714,181) (919,113)
Provision for doubtful accounts (9,655) (26,846)
General, administrative and other operating expenses, net (503,835) (534,763)
Total selling, distribution and operating expenses (3,142,788) (3,730,194)
Operating loss (529,101) (422,729)
Other income and (expense):
Income from equity investments 3,589 475
Interest income 7,339 70,456
Interest expense (742,042) (652,665)
Foreign exchange (loss) gain (164,691) 108,830
Other (expenses) income, net (85,848) 29,432
Total other income and (expense), net (981,653) (443,472)
Loss from continuing operations, before income tax (1,510,754) (866,201)
Income tax expense (53,642) (192,845)
Net loss from continuing operations (1,564,396) (1,059,046)
Net loss from discontinued operations, net of income tax (1,358,571) (605,839)
Net loss (2,922,967) (1,664,885)
Less: Net (income) loss attributable to noncontrolling interests (5,047) 317
Net loss attributable to shareholders of Mechel OAO $ (2,928,014) $ (1,664,568)
Less: Dividends on preferred shares (127) (79,056)
Net loss attributable to common shareholders of Mechel OAO
(2,928,141)

(1,743,624)
Net loss (2,922,967) (1,664,885)
Currency translation adjustment (96,848) 70,893
Transfer of currency translation adjustment due to disposal of companies 340,014
Change in pension benefit obligation 8,244 (17,778)
Adjustment of available-for-sale securities 2,171 (300)
Comprehensive loss $ (2,669,386) $ (1,612,070)
Comprehensive loss (income) attributable to noncontrolling interests 20,704 (22,851)
Comprehensive loss attributable to shareholders of Mechel OAO (2,648,682) (1,634,921)
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
Year ended December 31,
2013 2012
Cash Flows from Operating Activities
Net loss from continuing operations $ (1,564,396) $ (1,059,046)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation 393,693 382,698
Depletion and amortization 83,267 92,767
Foreign exchange loss (gain) 164,691 (108,830)
Deferred income taxes (55,236) (47,719)
Provision for doubtful accounts 9,655 26,846
Change in inventory reserves (3,368) 31,865
Accretion expense 5,014 4,369
Loss on write-off of property, plant and equipment 17,829 10,048
Income from equity investments (3,589) (475)
Impairment of goodwill and long-lived assets 38,310 402,355
Provision for amounts due from related parties 714,181 919,113
Non-cash interest on pension liabilities 10,552 10,598
Loss (gain) on sale of property, plant and equipment 2,245 (6,569)
Change in asset retirement obligations (7,123) (4,439)
Gain on accounts payable with expired legal term (1,737) (3,158)
Loss on disposal of subsidiaries 76,814
Gain on forgiveness of fines and penalties (2,550) (2,777)
Amortization of loan origination fee 51,017 50,211
Loss resulting from accretion and remeasurement of contingent obligation 2,053 1,906
Pension benefit plan curtailment gain (1,560) (1,360)
Pension service cost, amortization of prior service cost and actuarial (gain) loss, other expenses 4,257 4,010
Changes in working capital items, net of effects from acquisition of new subsidiaries:
Accounts receivable 59,690 46,879
Inventories 507,083 577,120
Trade payable to vendors of goods and services 92,285 71,507
Advances received (27,371) (56,538)
Accrued taxes and other liabilities 90,768 20,281
Settlements with related parties (484,359) (179,298)
Other current assets 29,649 57,980
Dividends received 25,956
Unrecognized income tax benefits 61,230 17,598
Net operating cash flows of discontinued operations 60,538 29,733
Net cash provided by operating activities 323,532 1,313,631
Cash Flows from Investing Activities
Acquisition of DEMP, less cash acquired (66,049) (32,810)
Acquisition of Cognor, less cash acquired (24,172)
Acquisition of Lomprom Rostov, less cash acquired (24)
Acquisition of Port Vanino (662,911)
Disposal of Port Vanino 664,006
Advance payment received in association with sale of TPP Rousse shares -- 2,640
Acquisition of other subsidiaries, less cash acquired 894
Capital contribution in affiliates
Proceeds from disposal of investments in affiliates 2,998
Proceeds from disposal of securities 1,111
Short-term loans issued and other investments (1,524) (4,447)
Proceeds from disposal of TPP Rousse, less cash disposed of 27,506
Proceeds from disposal of Oriel, less cash disposed of 414,197
Cash of other subsidiaries disposed of, less proceeds from disposal (731)
Proceeds from short-term loans issued 7,328 217,786
Proceeds from disposals of property, plant and equipment 15,366 22,602
Prepayment for the participation in auction
Purchases of mineral licenses and other related payments (2,238) (6,079)
Purchases of property, plant and equipment (555,864) (956,263)
Net investing cash flows of discontinued operations (20,680) (61,368)
Net cash used in investing activities (179,589) (839,137)
Cash Flows from Financing Activities
Proceeds from borrowings 2,962,143 3,951,043
Repayment of borrowings (2,945,494) (4,199,765)
Dividends paid (222) (186,443)
Dividends paid to noncontrolling interest (7,496) (29,054)
Acquisition of noncontrolling interest in subsidiaries (45,536) (632)
Repayment of obligations under finance lease (140,821) (149,237)
Sale leaseback proceeds 74,340 3,143
Net financing cash flows of discontinued operations (58,985) (181,061)
Net cash used in financing activities (162,071) (792,006)
Effect of exchange rate changes on cash and cash equivalents (5,328) (27,874)
Net decrease in cash and cash equivalents (23,456) (345,386)
Cash and cash equivalents at beginning of period 297,993 643,379
Cash and cash equivalents at end of period $ 274,537 $ 297,993

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

Source:Mechel OAO