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Mechel Reports the 9M 2014 Financial Results

Revenue amounted to $5.0 billion

Consolidated EBITDA(a)* amounted to $470 million

Net loss attributable to shareholders of Mechel OAO amounted to $1.2 billion

MOSCOW, Dec. 9, 2014 (GLOBE NEWSWIRE) -- Mechel OAO (NYSE:MTL), a leading Russian mining and steel group, announces financial results for the 9M 2014.

Mechel OAO's Chief Executive Officer Oleg Korzhov commented on the 9M 2014 results:

"This year the company operated as the situation changed dynamically both in the economy as a whole and in the markets for the products we manufacture and sell. A significant slump of coal and iron ore prices, major volatility of ruble conversion rates and other factors led to an uneven dynamics of our financial results from quarter to quarter. Our steel segment demonstrated strong results, reaching in the third quarter 2014 record EBITDA margin of 14% and increased its share in the Group's consolidated EBITDA to nearly 45% over this year's nine months.

In this accounting period, the Group was increasing its operational revenue and EBITDA each quarter, cutting its net loss by nearly half as compared to the same period last year. This proves that the company's development strategy approved by the Board of Directors in May 2012, which includes focusing on core business segments, disposal of non-core assets and increasing performance of the Group's key enterprises, was correct. The dynamics of our results reflect the efficiency of measures taken as part of that strategy's implementation."

Consolidated Results For The 9M 2014

US$ mln. 9M
2014
9M
2013
% 3Q'14 2Q'14 %
Revenue from external customers 5,032 6,718 -25% 1,588 1,744 -9%
Adjusted operating income/(loss) 124 216 -43% 107 41 161%
EBITDA (a) 470 599 -22% 219 171 28%
EBITDA (a), margin 9.3% 8.9% 13.8% 9.8%
Net loss attributable to shareholders of Mechel OAO (1,223) (2,247) -46% (575) (63) 813%
Adjusted net income (321) (329) -2% (15) (152) -90%
Net debt (excluding finance lease liabilities) 7,836 9,087 -14% 7,836 8,650 -9%
Trade working capital (120) 738 -116% (120) 40 -400%

  • The Group's gross margin went up from 36% in 2Q2014 to 38% in 3Q2014. For the nine months 2014 gross profit margin was 35%.
  • Adjusted operating income showed significant growth in the third quarter 2014, but at the same time in January-September period of 2014 was lower by 43% as compared to the same period last year.
  • EBITDA(a) in the third quarter grew by 28% compared to the second quarter. The EBITDA margin went up to nearly 14%.
  • As of September 30, 2014, our net debt, excluding financial lease obligations, was $7.84 billion. For the third quarter net debt decreased by 9% due to partial redemption of bonds and ruble depreciation.
  • In the third quarter 2014 our trade working capital went down by $160 million.

*Please find the calculation of the EBITDA(a) and other measures used here and hereafter in Attachment A

Mining Segment

Financial Results For The 9M 2014

Mechel Mining Management OOO's Chief Executive Officer Pavel Shtark noted:

"In the second half of this year, the mining segment is operating as coal prices have stopped decreasing, but remain at the weakest over the past few years. The lack of trade working capital led to a decrease in production in some of our enterprises, which in its turn led to a decrease in sales and revenue. Higher demand for coke was a positive factor. We increased production at our coke facilities and their supplies by coking coal concentrate from our mining assets. The growth of intra-group supplies, together with increased sales to Japan, partly compensated for the decrease of coal sales to China. In the third quarter, the segment demonstrated a reduction in revenue and EBITDA. Nevertheless, we turned from operational loss to income, decreased our adjusted net loss and maintained our margins at the level of the previous quarter."

US$ mln. 9M
2014
9M
2013
% 3Q'14 2Q'14 %
Revenue from external customers 1,614 2,158 -25% 492 551 -11%
Revenue intersegment 447 376 19% 144 151 -5%
EBITDA(a) 232 399 -42% 80 89 -10%
EBITDA (a), margin 11.3% 15.7% 12.5% 12.7%

  • The decrease in the costs of most of division's products in the reporting period helped to maintain the EBITDA margin stable quarter on quarter even with reduced revenue.
  • In the third quarter 2014 the export share in segment's sales slightly decreased compared to the second quarter, but it remained on annual average level of about 70%.
  • In the third quarter the segment demonstrated an operating income and significantly reduced the adjusted net loss compared to the second quarter 2014.

Steel Segment

Financial Results For The 9M 2014

Mechel Steel Management Company OOO's Chief Executive Officer Vladimir Tytsky said:

"We have optimized our production and sales structure, increased our share of high value-added products. This year we have sold over 100,000 tonnes of high-quality structural shapes, including rails, produced by Chelyabinsk Metallurgical Plant's universal rolling mill. The slump in prices for incoming commodities helped bring down production costs. In these circumstances, with favorable market conditions, the segment demonstrated a substantial improvement of financial results, especially for the third quarter. EBITDA in the third quarter 2014 went up by 79% quarter-on-quarter and EBITDA margin reached a record level of 13.9%. Also for the third quarter 2014, the segment showed $15 million in adjusted net income."

US $ mln. 9M
2014
9M
2013
% 3Q'14 2Q'14 %
Revenue from external customers 2,904 4,015 -28% 948 1,027 -8%
Revenue intersegment 173 168 3% 46 55 -16%
EBITDA(a) 212 173 23% 138 77 79%
EBITDA(a), margin 6.9% 4.1% 13.9% 7.1%

  • Gross margin went up from 20% in 2Q2014 to 25% in 3Q2014.
  • In the third quarter 2014 adjusted operating income has nearly tripled compared to the previous quarter and amounted to $102 million.

Power Segment

Financial Results For The 9M 2014

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

"Over this year's nine months, the segment yielded a fairly stable level of revenue, positive operational profit and EBITDA. We have significantly reduced our net loss. Our facilities used the low-load period to repair equipment and prepare for the fall-winter season, to ensure stable supplies of electricity and heat to our customers."

US $ mln. 9M
2014
9M
2013
% 3Q'14 2Q'14 %
Revenue from external customers 514 545 -6% 148 166 -11%
Revenue intersegment 281 321 -12% 86 90 -4%
EBITDA(a) 14 23 -39% (7) 3 -333%
EBITDA(a), margin 1.7% 2.6% -3.2% 1.2%

  • Segment's revenue demonstrated growth in rubles, but due to the change in the ruble exchange rate it showed negative dynamic in US dollars.
  • Seasonal factors and the creation of additional reserves on doubtful debt also affected segment's performance in the reporting period.

The management of Mechel will host a conference call today at 18:00 p.m. Moscow time (3:00 p.m. London time, 10 a.m. New York 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 three segments: mining, steel 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 9M 2014 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 goodwill and long-lived assets, Provision for amounts due from related parties, Result of disposed companies (incl. the result from their disposal), Amount attributable to noncontrolling interests, One-off accrual of taxes for prior periods 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 of disposed companies, Foreign exchange gain / (loss), Impairment of goodwill and long-lived assets 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.

Our calculations of Net debt, excluding finance lease liabilities, and trade working capital are presented below:

US $ mln. 30.09.2014 30.09.2013 30.09.2014 30.06.2014
Short-term borrowings and current portion of long-term debt 7,618 1,938 7,618 8,202
Long-term debt, net of current portion 241 7,194 241 459
Derivative instruments 49 59 49 58
less Cash and cash equivalents (72) (104) (72) (69)
Net debt, excluding finance lease liabilities 7,836 9,087 7,836 8,650
US $ mln. 30.09.2014 30.09.2013 30.09.2014 30.06.2014
Accounts receivable, net of allowance for doubtful accounts 473 677 473 545
Due from related parties, net of allowance 40 99 40 51
Inventories 869 1,508 869 1,043
Prepayments and other current assets 306 388 306 375
Trade current assets 1,688 2,672 1,688 2,014
Trade payable to vendors of goods and services 800 912 800 986
Advances received 109 114 109 139
Accrued expenses and other current liabilities 489 521 489 406
Taxes and social charges payable 373 260 373 409
Due to related parties 37 127 37 34
Trade current liabilities 1,808 1,934 1,808 1,974
Trade working capital (120) 738 (120) 40

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

Consolidated results Mining Segment ** Steel Segment** Power Segment**
US$ thousand 9m 2014 9m 2013 9m 2014 9m 2013 9m 2014 9m 2013 9m 2014 9m 2013
Net (loss) / income (1,222,609) (2,246,565) (858,850) (236,283) (360,327) (1,975,909) (15,337) (38,387)
Add:
Depreciation, depletion and amortization 326,497 385,451 210,135 255,845 109,631 122,386 6,730 7,219
Foreign exchange loss / (gain) 734,724 150,938 523,711 118,435 213,984 32,507 (2,971) (4)
Loss resulting from accretion and remeasurement of contingent liability 1,642 1,521 1,642 1,521 -- -- -- --
Interest expense 573,451 547,740 294,176 282,928 277,710 275,031 25,723 27,899
Interest income (2,717) (6,993) (16,382) (38,614) (9,285) (6,447) (1,208) (50)
Net result on the disposal of non-current assets, impairment of goodwill and long-lived assets and provision for amounts due from related parties 25,276 811,496 8,269 2,424 16,646 808,070 361 1,002
(Income) / loss from discontinued operation, net of income tax (8,005) 910,337 -- -- (9,549) 891,067 1,544 19,270
Result of disposed companies (incl. the result from their disposal) 2,386 101,363 -- -- 2,383 101,363 3 --
Net gain / (loss) attributable to noncontrolling interests 4,003 2,931 (4,677) 17,075 5,827 (15,876) 2,854 1,732
Income taxes 13,854 (59,587) 52,474 (4,590) (34,698) (58,866) (3,923) 3,869
Accrual of taxes (VAT, mineral extraction tax) for 2009-2010 21,439 -- 21,439 -- -- -- -- --
Adjusted EBITDA 469,941 598,632 231,937 398,741 212,322 173,326 13,776 22,550
Adjusted EBITDA, margin 9.3% 8.9% 11.3% 15.7% 6.9% 4.1% 1.7% 2.6%
Net (loss) / income (1,222,609) (2,246,565) (858,850) (236,283) (360,327) (1,975,909) (15,337) (38,387)
Add:
Impairment of goodwill and long-lived assets -- 177,416 -- -- -- 177,416 -- --
Provision for amounts due from related parties 15,598 629,392 418 -- 14,953 629,392 227 --
(Income) / loss from discontinued operation, net of income tax (8,005) 910,337 -- -- (9,549) 891,067 1,544 19,270
Result of disposed companies (incl. the result from their disposal) 2,386 101,363 -- -- 2,383 101,363 3 --
Effect on net income / (loss) attributable to noncontrolling interests 4,170 (12,365) -- -- 4,170 (12,365) -- --
Effect on income tax (285) (39,684) -- -- (285) (39,684) -- --
Foreign exchange loss / (gain) 734,724 150,938 523,711 118,435 213,984 32,507 (2,971) (4)
Accrual of income tax for 2009-2010 131,250 -- 131,250 -- -- -- -- --
Accrual of taxes (VAT, mineral extraction tax) for 2009-2010 21,439 -- 21,439 -- -- -- -- --
Adjusted net (loss) / income (321,332) (329,168) (182,032) (117,848) (134,671) (196,213) (16,534) (19,121)
Operating income / (loss) 79,118 (595,717) (24,320) 144,945 84,285 (762,348) 7,248 17,674
Add:
Impairment of goodwill and long-lived assets -- 177,416 -- -- -- 177,416 -- --
Provision for amounts due from related parties 15,598 629,392 418 -- 14,953 629,392 227 --
Loss on write-off of property, plant and equipment 7,713 5,270 5,995 4,163 1,719 1,107 -- --
Accrual of taxes (VAT, mineral extraction tax) for 2009-2010 21,439 -- 21,439 -- -- -- -- --
Adjusted operating income / (loss) 123,868 216,361 3,532 149,108 100,957 45,567 7,475 17,674
**including intersegment operations
Consolidated results Mining Segment ** Steel Segment** Power Segment**
US$ thousand 3Q2014 2Q2014 3Q2014 2Q2014 3Q2014 2Q2014 3Q2014 2Q2014
Net (loss) / income (574,659) (63,345) (426,577) (35,696) (144,743) (19,819) (12,454) (9,829)
Add:
Depreciation, depletion and amortization 108,350 112,919 69,800 71,901 36,371 38,779 2,179 2,239
Foreign exchange loss / (gain) 551,382 (114,630) 402,058 (84,364) 151,275 (31,285) (1,950) 1,019
Loss resulting from accretion and remeasurement of contingent liability 564 547 564 547 -- -- -- --
Interest expense 194,870 193,801 99,182 92,491 95,751 98,642 7,343 9,480
Interest income (1,476) (354) (6,450) (5,512) (1,832) (1,294) (600) (359)
Net result on the disposal of non-current assets, impairment of goodwill and long-lived assets and provision for amounts due from related parties 14,474 2,208 8,235 613 5,934 1,568 305 27
Loss from discontinued operation, net of income tax 279 2,918 -- -- 159 1,770 120 1,148
Result of disposed companies (incl. the result from their disposal) (1) (63) -- -- (1) (66) -- 3
Net gain / (loss) attributable to noncontrolling interests 2,116 6,724 (2,811) 418 4,009 5,406 918 899
Income taxes (76,439) 30,587 (64,473) 48,634 (8,665) (16,428) (3,301) (1,618)
Adjusted EBITDA 219,460 171,312 79,528 89,032 138,258 77,273 (7,440) 3,009
Adjusted EBITDA, margin 13.8% 9.8% 12.5% 12.7% 13.9% 7.1% -3.2% 1.2%
Net (loss) / income (574,659) (63,345) (426,577) (35,696) (144,743) (19,819) (12,454) (9,829)
Add:
Provision for amounts due from related parties 6,948 2,149 (206) 623 6,974 1,478 179 48
Loss from discontinued operation, net of income tax 279 2,918 -- -- 159 1,770 120 1,148
Result of disposed companies (incl. the result from their disposal) (1) (63) -- -- (1) (66) -- 3
Effect on net income / (loss) attributable to noncontrolling interests 1,241 236 -- -- 1,241 236 -- --
Effect on income tax -- 467 -- -- -- 467 -- --
Foreign exchange loss / (gain) 551,382 (114,630) 402,058 (84,364) 151,275 (31,285) (1,950) 1,019
Accrual of income tax for 2009-2010 -- 20,654 -- 20,654 -- -- -- --
Adjusted net (loss) / income (14,810) (151,614) (24,725) (98,783) 14,905 (47,219) (14,105) (7,611)
Operating income / (loss) 94,805 37,369 1,257 (1,958) 94,725 36,044 (10,291) 1,285
Add:
Provision for amounts due from related parties 6,948 2,149 (206) 623 6,974 1,478 179 48
Loss on write-off of property, plant and equipment 5,600 1,912 5,244 637 357 1,275 -- --
Adjusted operating income / (loss) 107,353 41,430 6,295 (698) 102,056 38,797 (10,112) 1,333
**including intersegment operations
Consolidated Balance Sheets
(in thousands of U.S. dollars, except share amounts)
September 30, 2014 December 31, 2013*
(unaudited) (unaudited)
ASSETS
Cash and cash equivalents $ 72,062 $ 274,539
Accounts receivable, net of allowance for doubtful accounts of $70,030 as of September 30, 2014 and $81,845 as of December 31, 2013 473,469 593,285
Due from related parties, net of allowance of $1,578,375 as of September 30, 2014 and $1,623,661 as of December 31, 2013 39,949 56,792
Inventories 868,617 1,413,284
Deferred income taxes 29,094 34,972
Prepayments and other current assets 306,132 442,597
Total current assets 1,789,323 2,815,469
Long-term investments in related parties 7,368 7,604
Other long-term investments 6,517 14,788
Property, plant and equipment, net 5,810,294 6,871,908
Mineral licenses, net 3,017,775 3,271,018
Due from related parties, net of allowance of $nil as of September 30, 2014 and $nil as of December 31,2013 7,300 --
Other non-current assets 154,518 160,894
Deferred income taxes 17,684 5,066
Goodwill 572,761 687,763
Total assets 11,383,540 13,834,510
LIABILITIES AND EQUITY
Short-term borrowings and current portion of long-term debt 7,618,320 1,484,912
Accounts payable and accrued expenses:
Trade payable to vendors of goods and services 799,925 945,629
Advances received 109,146 140,919
Accrued expenses and other current liabilities 489,468 362,919
Taxes and social charges payable 373,047 278,294
Unrecognized income tax benefits 40,531 78,333
Due to related parties 36,764 106,943
Asset retirement obligations, current portion 10,097 2,001
Deferred income taxes 30,302 37,775
Pension obligations, current portion 16,088 20,391
Dividends payable 2,633 3,293
Finance lease liabilities, current portion 169,762 122,815
Total current liabilities 9,696,083 3,584,224
Long-term debt, net of current portion 240,871 7,520,217
Asset retirement obligations, net of current portion 44,579 57,135
Pension obligations, net of current portion 142,685 151,945
Deferred income taxes 897,015 1,082,819
Finance lease liabilities, net of current portion 207,934 296,885
Due to related parties 5 21
Other long-term liabilities 375,741 329,444
EQUITY
Common shares (10 Russian rubles par value; 497,969,086 shares authorized, 416,270,745 shares issued and outstanding
as of September 30, 2014 and December 31, 2013)
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, 2014 and December 31, 2013)
25,314 25,314
Additional paid-in capital 834,136 834,118
Accumulated other comprehensive income (loss) 187,231 (47,601)
(Accumulated deficit) retained earnings (1,650,596) (427,863)
Equity attributable to shareholders of Mechel OAO (470,408) 517,475
Noncontrolling interests 249,035 294,345
Total equity (221,373) 811,820
Total liabilities and equity 11,383,540 13,834,510
*there were certain reclassifications to conform with the current period presentation
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands of U.S. dollars) 9 months ended September 30,
2014 2013*
(unaudited) (unaudited)
Revenue, net (including related party amounts of $87,270 and $126,031 during 9 months 2014 and 2013, respectively) $ 5,032,121 $ 6,718,108
Cost of goods sold (including related party amounts of $91,026 and $509,377 during 9 months 2014 and 2013, respectively) (3,272,309) (4,669,898)
Gross profit 1,759,812 2,048,210
Selling, distribution and operating expenses:
Selling and distribution expenses (1,136,949) (1,312,079)
Taxes other than income tax (138,248) (90,386)
Accretion expense (4,336) (3,764)
Loss on write-off of property, plant and equipment (7,713) (5,270)
Impairment of goodwill and long-lived assets -- (177,416)
Provision for amounts due from related parties (15,598) (629,392)
Provision for doubtful accounts (28,756) (16,855)
General, administrative and other operating expenses, net (349,094) (408,765)
Total selling, distribution and operating expenses, net (1,680,694) (2,643,927)
Operating income (loss) 79,118 (595,717)
Other income and (expense):
Income from equity investments 67 3,683
Interest income 2,717 6,993
Interest expense (573,451) (547,740)
Foreign exchange loss (734,724) (150,938)
Other income (expense), net 13,517 (109,166)
Total other income and (expense), net (1,291,874) (797,168)
Loss from continuing operations, before income tax (1,212,756) (1,392,885)
Income tax (expense) benefit (13,854) 59,587
Net loss from continuing operations (1,226,610) (1,333,298)
Income (loss) from discontinued operations, net of income tax 8,005 (910,337)
Net loss (1,218,605) (2,243,635)
Less: Net (income) loss attributable to noncontrolling interests (4,003) (2,930)
Net loss attributable to shareholders of Mechel OAO (1,222,608) (2,246,565)
Less: Dividends on preferred shares (124) (127)
Net loss attributable to common shareholders of Mechel OAO (1,222,732) (2,246,692)
Net loss (1,218,605) (2,243,635)
Currency translation adjustment 191,524 (95,790)
Transfer of currency translation adjustment due to disposal of subsidiaries -- 68,951
Change in pension benefit obligation (6,328) (2,659)
Adjustment of available-for-sale securities 307 (836)
Comprehensive loss (1,033,102) (2,273,969)
Comprehensive loss attributable to noncontrolling interests 45,325 23,628
Comprehensive loss attributable to shareholders of Mechel OAO (987,777) (2,250,341)
*there were certain reclassifications to conform with the current period presentation
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars) 9 months ended September 30,
2014 2013*
(unaudited) (unaudited)
Cash Flows from Operating Activities
Net loss $ (1,218,605) $ (2,243,635)
Plus: (Income) loss from discontinued operations, net of income tax (8,005) 910,337
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation 287,216 320,452
Depletion and amortization 39,281 64,999
Foreign exchange loss 734,724 150,938
Deferred income taxes (117,367) (144,780)
Provision for doubtful accounts 28,756 16,853
Change in inventory reserves 88 (4,971)
Accretion expense 4,336 3,764
Loss on write-off of property, plant and equipment 7,713 5,270
Impairment of goodwill and long-lived assets -- 177,416
Income from equity investments (67) (3,683)
Provision for amounts due from related parties 15,598 629,392
Non-cash interest on pension liabilities 7,174 8,148
Loss (gain) on sale of property, plant and equipment 2,254 (243)
Gain on sale of investments (14,811) --
Gain on accounts payable with expired legal term (616) (749)
Loss on disposal of subsidiaries -- 92,335
Amortization of loan origination fee 43,712 42,328
Loss resulting from accretion and remeasurement of contingent liability 1,642 1,521
Pension service cost, amortization of prior service cost and actuarial (gain) loss, other expenses 4,239 4,796
Changes in working capital items, net of effects from acquisition of new subsidiaries:
Accounts receivable 22,718 (22,397)
Inventories 367,017 412,421
Trade payable to vendors of goods and services 57,881 38,787
Advances received (264) (35,797)
Accrued taxes and other liabilities 458,204 116,769
Settlements with related parties (41,647) (373,543)
Other current assets 38,565 62,400
Unrecognized income tax benefits (28,387) 32,787
Net operating cash flows of discontinued operations 7,897 50,624
Net cash provided by operating activities 699,246 312,539
Cash Flows from Investing Activities
Acquisition of DEMP, less cash acquired (64,476) (43,548)
Acquisition of Port Vanino -- (518,823)
Disposal of Port Vanino -- 500,058
Proceeds from disposal of securities 15,599 --
Short-term loans issued and other investments (2) (1,087)
Proceeds from disposal of TPP Rousse, less cash disposed of 1,454 26,684
Proceed from disposal of other subsidiaries disposed of, less cash disposed of 690 1,236
Proceeds from short-term loans issued 1,334 6,465
Proceeds from disposals of property, plant and equipment 28,010 4,685
Purchases of mineral licenses and other related payments -- (886)
Purchases of property, plant and equipment (421,232) (444,275)
Net investing cash flows of discontinued operations 2,304 (16,296)
Net cash used in investing activities (436,319) (485,787)
Cash Flows from Financing Activities
Proceeds from borrowings 2,061,294 2,555,319
Repayment of borrowings (2,420,314) (2,464,851)
Dividends paid (122) (320)
Dividends paid to noncontrolling interest (147) (1,569)
Acquisition of noncontrolling interest in subsidiaries (40,043) (33)
Repayment of obligations under finance lease (33,047) (109,026)
Sale leaseback proceeds 15,273 40,023
Net financing cash flows of discontinued operations -- (18,533)
Net cash (used in) provided by financing activities (417,106) 1,010
Effect of exchange rate changes on cash and cash equivalents (48,299) (17,751)
Net decrease in cash and cash equivalents (202,478) (189,989)
Cash and cash equivalents at beginning of period 274,539 297,993
Cash and cash equivalents at end of period 72,062 108,004
*there were certain reclassifications to conform with the current period presentation

CONTACT: Alexey Lukashov Deputy Director of Investor Relations Mechel OAO Phone: 7-495-221-88-88 Fax: 7-495-221-88-00 alexey.lukashov@mechel.com

Source:Mechel OAO