Mechel Reports The 9M 2012 Financial Results

BY GlobeNewswire | 12/12/12 - 02:00 AM EST

Stock quotes in this article: MTL

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Adjusted net income / (loss) represents net income / (loss) before 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	9M 2012	9M 2011
Net (loss) / income	(550,094)	526,730
Add:
Depreciation, depletion and amortization	453,819	421,578
Forex loss / (gain)	(5,828)	131,518
Loss from remeasurement of contingent liabilities at fair value	1,413	1,303
Interest expense	484,717	448,127
Interest income	(52,453)	(10,097)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties	748,568	(6,175)
Amount attributable to noncontrolling interests	7,059	53,046
Income taxes	136,496	290,733
Adjusted EBITDA	1,223,696	1,856,763


US$ thousand	3Q 2012	2Q 2012
Net (loss) / income	54,910	(823,023)
Add:
Depreciation, depletion and amortization	140,756	157,205
Forex loss / (gain)	(126,629)	291,716
Loss from remeasurement of contingent liabilities at fair value	484	469
Interest expense	159,595	164,060
Interest income	(15,883)	(17,798)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties	74,520	674,567
Amount attributable to noncontrolling interests	17,730	(25,688)
Income taxes	69,363	(36,059)
Adjusted EBITDA	374,848	385,446

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

US$ thousand	9M 2012	9M 2011
Net (loss) / income	(550,094)	526,730
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties	771,028	--
Amount attributable to noncontrolling interests	(27,778)	--
Income taxes	(20,043)	--
Adjusted net income	173,113	526,730


US$ thousand	3Q 2012	2Q 2012
Net income / (loss)	54,908	(823,023)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for amounts due from related parties	77,222	693,806
Amount attributable to noncontrolling interests	--	(27,778)
Income taxes	--	(20,042)
Adjusted net (loss) / income	132,130	(177,037)

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

US$ thousand	9M 2012	9M 2011
Revenue, net	8,750,831	9,617,126
Adjusted EBITDA	1,223,696	1,856,763
Adjusted EBITDA, margin	13.98%	19.31%


US$ thousand	3Q 2012	2Q 2012
Revenue, net	2,714,876	3,085,908
Adjusted EBITDA	374,848	385,446
Adjusted EBITDA, margin	13.81%	12.49%

Mining Segment

US$ thousand	9M 2012	9M 2011
Net income	428,245	630,826
Add:
Depreciation, depletion and amortization	243,010	244,444
Forex loss / (gain)	1,840	99,315
Loss from remeasurement of contingent liabilities at fair value	1,413	1,303
Interest expense	205,429	259,151
Interest income	(84,016)	(117,972)
Net result on the disposal of non-current assets	(805)	(282)
Amount attributable to noncontrolling interests	38,574	57,067
Income taxes	131,488	257,151
Adjusted EBITDA	965,178	1,431,003


US$ thousand	3Q 2012	2Q 2012
Net income	216,765	(30,024)
Add:
Depreciation, depletion and amortization	76,515	84,875
Forex loss / (gain)	(93,695)	197,945
Loss from remeasurement of contingent liabilities at fair value	484	469
Interest expense	64,605	72,291
Interest income	(29,389)	(31,053)
Net result on the disposal of non-current assets	(2,388)	1,166
Amount attributable to noncontrolling interests	10,394	10,264
Income taxes	61,866	(4,026)
Adjusted EBITDA	305,157	301,906

Adjusted Net income/loss can be reconciled as follows:

US$ thousand	9M 2012	9M 2011
Net income	428,245	630,826
Provision for amounts due from related parties	22,680	--
Adjusted net income	450,925	630,826


US$ thousand	3Q 2012	2Q 2012
Net (loss) / income	216,765	(30,024)
Provision for amounts due from related parties	1,974	20,706
Adjusted net (loss) / income	218,739	(9,318)

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

US$ thousand	9M 2012	9M 2011
Revenue (including intersegment sales)	3,195,773	3,866,849
Adjusted EBITDA	965,178	1,431,003
Adjusted EBITDA, margin	30.20%	37.01%


US$ thousand	3Q 2012	2Q 2012
Revenue (including intersegment sales)	949,168	1,088,265
Adjusted EBITDA	305,157	301,906
Adjusted EBITDA, margin	32.15%	27.74%

Steel Segment

US$ thousand	9M 2012	9M 2011
Net loss	(751,830)	(38,217)
Add:
Depreciation, depletion and amortization	124,657	94,839
Forex loss	(23,098)	59,148
Interest expense	278,155	245,545
Interest income	(5,730)	(10,808)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties	595,705	(1,192)
Amount attributable to noncontrolling interests	(14,222)	(9,148)
Income taxes	10,950	28,514
Adjusted EBITDA	214,587	368,681


US$ thousand	3Q 2012	2Q 2012
Net loss	(110,989)	(625,277)
Add:
Depreciation, depletion and amortization	39,762	41,244
Forex loss / (gain)	(48,171)	116,228
Interest expense	96,128	95,163
Interest income	155	(2,861)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill and provision for the loan given to related parties	76,725	518,523
Amount attributable to noncontrolling interests	8,470	(19,295)
Income taxes	12,666	(32,474)
Adjusted EBITDA	74,746	91,251

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

US$ thousand	9M 2012	9M 2011
Net loss	(751,830)	(38,217)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties	593,755	--
Amount attributable to noncontrolling interests	(15,320)	--
Income taxes	(14,797)	--
Adjusted net loss	(188,192)	(38,217)


US$ thousand	3Q 2012	2Q 2012
Net loss	(110,989)	(625,277)
Impairment of long-lived assets and goodwill and provision for amounts due from related parties	75,249	518,506
Amount attributable to noncontrolling interests	--	(15,320)
Income taxes	--	(14,797)
Adjusted net loss	(35,740)	(136,888)

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

US$ thousand	9M 2012	9M 2011
Revenue (including intersegment sales)	5,441,514	5,847,457
Adjusted EBITDA	214,587	368,681
Adjusted EBITDA, margin	3.94%	6.30%


US$ thousand	3Q 2012	2Q 2012
Revenue (including intersegment sales)	1,749,193	1,964,199
Adjusted EBITDA	74,746	91,251
Adjusted EBITDA, margin	4.27%	4.65%

Ferroalloys Segment

US$ thousand	9M 2012	9M 2011
Net loss	(204,782)	(32,437)
Add:
Depreciation, depletion and amortization	74,775	66,489
Forex loss / (gain)	15,442	(26,796)
Interest expense	22,182	49,700
Interest income	(56)	(1,742)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill	101,192	210
Amount attributable to noncontrolling interests	(19,159)	1,294
Income taxes	(7,614)	384
Adjusted EBITDA	(18,022)	57,102


US$ thousand	3Q 2012	2Q 2012
Net loss	(41,688)	(107,055)
Add:
Depreciation, depletion and amortization	20,856	27,439
Forex (gain) / loss	15,236	(22,457)
Interest expense	6,729	7,360
Interest income	253	(97)
Net result on the disposal of non-current assets, impairment of long-lived assets and goodwill	142	100,947
Amount attributable to noncontrolling interests	(1,032)	(16,698)
Income taxes	(3,640)	3,180
Adjusted EBITDA	(3,144)	(7,381)

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

US$ thousand	9M 2012	9M 2011
Net loss	(204,782)	(32,437)
Impairment of long-lived assets and goodwill	100,702	--
Amount attributable to noncontrolling interests	(12,458)	--
Income taxes	(5,246)	--
Adjusted net loss	(121,784)	(32,437)


US$ thousand	3Q 2012	2Q 2012
Net loss	(41,688)	(107,055)
Impairment of long-lived assets and goodwill	--	100,702
Amount attributable to noncontrolling interests	--	(12,458)
Income taxes	--	(5,246)
Adjusted net loss	(41,688)	(24,057)

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

US$ thousand	9M 2012	9M 2011
Revenue (including intersegment sales)	421,094	542,560
Adjusted EBITDA	(18,022)	57,102
Adjusted EBITDA, margin	-4.28%	10.52%


US$ thousand	3Q 2012	2Q 2012
Revenue (including intersegment sales)	114,032	154,517
Adjusted EBITDA	(3,144)	(7,381)
Adjusted EBITDA, margin	-2.76%	-4.78%

Power Segment

US$ thousand	9M 2012	9M 2011
Net (loss) / income	(62,496)	99
Add:
Depreciation, depletion and amortization	11,377	15,805
Forex (gain) / loss	(12)	(149)
Interest expense	16,316	14,365
Interest income	(15)	(209)
Net result on the disposal of non-current assets, impairment of goodwill	52,476	(4,910)
Amount attributable to noncontrolling interests	1,866	3,834
Income taxes	1,672	4,685
Adjusted EBITDA	21,184	33,520


US$ thousand	3Q 2012	2Q 2012
Net (loss) / income	(13,877)	(60,053)
Add:
Depreciation, depletion and amortization	3,623	3,646
Forex loss / (gain)	1	1
Interest expense	5,232	5,460
Interest income	--	--
Net result on the disposal of non-current assets, impairment of goodwill	39	53,932
Amount attributable to noncontrolling interests	(102)	40
Income taxes	(1,528)	(2,739)
Adjusted EBITDA	(6,610)	287

Adjusted Net income/loss can be reconciled as follows:

US$ thousand	9M 2012	9M 2011
Net (loss) / income	(62,496)	99
Impairment of goodwill	53,893	--
Income taxes	--	--
Adjusted net income	(8,603)	99


US$ thousand	3Q 2012	2Q 2012
Net (loss) / income	(13,877)	(60,054)
Impairment of goodwill	--	53,893
Income taxes	--	--
Adjusted net (loss) / income	(13,877)	(6,160)

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

US$ thousand	9M 2012	9M 2011
Revenue (including intersegment sales)	923,554	946,589
Adjusted EBITDA	21,184	33,520
Adjusted EBITDA, margin	2.29%	3.54%


US$ thousand	3Q 2012	2Q 2012
Revenue (including intersegment sales)	256,160	287,790
Adjusted EBITDA	(6,610)	287
Adjusted EBITDA, margin	-2.58%	0.10%


Consolidated Balance Sheets
(in thousands of U.S. dollars)
	September 30, 2012	December 31, 2011
	(unaudited)
ASSETS
Cash and cash equivalents	$ 582,198	643,379
Accounts receivable, net of allowance for doubtful accounts of $66,254 as of September 30, 2012 and $50,966 as of December 31, 2011	758,831	824,560
Due from related parties	1,160,409	1,315,288
Inventories	2,214,113	2,599,097
Deferred income taxes	48,164	36,056
Prepayments and other current assets	537,933	654,285
Total current assets	5,301,648	6,072,665

Long-term investments in related parties	8,693	8,150
Other long-term investments	15,036	13,997
Property, plant and equipment, net	7,551,030	7,076,303
Mineral licenses, net	4,663,565	4,733,676
Other non-current assets	190,841	222,442
Deferred income taxes	50,702	27,817
Goodwill	1,094,252	1,151,187
Total assets	$ 18,875,768	$ 19,306,237

LIABILITIES AND EQUITY
Short-term borrowings and current portion of long-term debt	$ 2,404,279	2,651,357
Accounts payable and accrued expenses:
Trade payable to vendors of goods and services	945,600	976,187
Advances received	180,106	206,156
Accrued expenses and other current liabilities	316,487	281,762
Taxes and social charges payable	274,377	277,284
Unrecognized income tax benefits	2,305	2,190
Due to related parties	159,105	179,672
Asset retirement obligation, current portion	6,160	3,703
Deferred income taxes	41,517	41,822
Pension obligations, current portion	23,140	22,172
Dividends payable	112	4
Finance lease liabilities, current portion	118,424	96,907
Total current liabilities	4,471,612	$ 4,739,216

Long-term debt, net of current portion	7,283,159	6,745,524
Asset retirement obligations, net of current portion	40,098	40,214
Pension obligations, net of current portion	159,323	144,182
Deferred income taxes	1,483,886	1,514,014
Finance lease liabilities, net of current portion	349,713	375,249
Other long-term liabilities	370,945	382,512

EQUITY
Common shares (10 Russian rubles par value; 497,969,086 shares authorized, 416,270,745 shares issued and outstanding as of September 30, 2012 and December 31, 2011)	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, 2012 and December 31, 2011)	25,314	25,314
Additional paid-in capital	846,191	845,994
Accumulated other comprehensive loss	(283,098)	(356,580)
Retained earnings	3,614,751	4,345,754
Equity attributable to shareholders of Mechel OAO	4,336,665	4,993,989
Noncontrolling interests	380,368	371,337
Total equity	4,717,033	5,365,326
Total liabilities and equity	$ 18,875,768	$ 19,306,237


Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands of U.S. dollars)	Nine months ended September 30,
	2012	2011
	(unaudited)	(unaudited)
Revenue, net (including related party amounts of $558,812 and $789,199 during nine months 2012 and 2011, respectively)	$ 8,750,831	$ 9,617,126
Cost of goods sold (including related party amounts of $696,781 and $1,422,929 during nine months 2012 and 2011, respectively)	(6,156,816)	(6,255,629)
Gross profit	2,594,015	3,361,497

Selling, distribution and operating expenses:
Selling and distribution expenses	(1,320,845)	(1,339,263)
Taxes other than income tax	(78,062)	(94,687)
Accretion expense	(3,816)	(5,054)
Loss on write-off of property, plant and equipment	(3,846)	(2,425)
Impairment of goodwill and long-lived assets	(470,967)	--
Provision for amounts due from related parties	(300,062)	--
Provision for doubtful accounts	(10,876)	(8,367)
General, administrative and other operating expenses, net	(435,409)	(457,532)
Total selling, distribution and operating expenses	(2,623,883)	(1,907,328)
Operating (loss) income	(29,868)	1,454,169

Other income and (expense):
Income from equity investments	405	351
Interest income	52,453	10,097
Interest expense	(484,717)	(448,127)
Other income (expenses), net	49,359	(14,463)
Foreign exchange gain (loss)	5,828	(131,518)
Total other income and (expense), net	(376,672)	(583,660)
(Loss) income before income tax	(406,540)	870,509

Income tax expense	(136,496)	(290,733)
Net (loss) income	(543,036)	579,776
Less: Net income attributable to noncontrolling interests	(7,059)	(53,046)
Net (loss) income attributable to shareholders of Mechel OAO	$ (550,095)	$ 526,730
Less: Dividends on preferred shares	(79,056)	(78,281)
Net (loss) income attributable to common shareholders of Mechel OAO	(629,151)	448,449

Net (loss) income	(543,036)	579,776
Currency translation adjustment	84,565	(182,982)
Change in pension benefit obligation	(776)	(1,199)
Adjustment of available-for-sale securities	(75)	(1,327)
Comprehensive (loss) income	$ (459,322)	$ 394,268
Comprehensive income attributable to noncontrolling interests	(17,291)	(33,029)
Comprehensive (loss) income attributable to shareholders of Mechel OAO	(476,613)	361,239


Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)	Nine months ended September 30,
	2012	2011
	(unaudited)	(unaudited)
Cash Flows from Operating Activities
Net (loss) income attributable to shareholders of Mechel OAO	(550,094)	526,730
Net income attributable to noncontrolling interests	7,059	53,046
Net (loss) income	$ (543,035)	$ 579,776
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation	333,023	285,714
Depletion and amortization	120,795	135,864
Foreign exchange (gain) loss	(5,828)	131,518
Deferred income taxes	(77,336)	23,147
Provision for doubtful accounts	10,876	8,367
Change in inventory reserves	23,937	504
Accretion expense	3,816	5,054
Revision in asset retirement obligations	(2,867)	(5,076)
Loss on write-off of property, plant and equipment	3,846	2,425
Impairment of goodwill and long-lived assets	470,967	--
Provision for amounts due from related parties	300,062	--
Income from equity investments	(405)	(351)
Non-cash interest on pension liabilities	9,002	10,264
Loss (gain) on sale of property, plant and equipment	4,091	(2,439)
Gain on accounts payable with expired legal term	(2,445)	(3,665)
Gain on forgiveness of accounts payable	(17,401)	--
Amortization of loan origination fee	36,002	45,330
Loss resulting from accretion and remeasurement of contingent liability	1,413	1,303
Pension service cost, amortisation of prior service cost and actuarial (gain) loss, other expenses	3,010	6,033
Changes in working capital items, net of effects from acquisition of new subsidiaries:
Accounts receivable	30,941	(206,152)
Inventories	485,060	(608,748)
Trade payable to vendors of goods and services	(18,331)	43,592
Advances received	(29,543)	(74,255)
Accrued taxes and other liabilities	61,793	(290)
Settlements with related parties	(230,267)	(288,552)
Other current assets	135,732	(135,410)
Unrecognized income tax loss (benefits)	115	(2,378)
Net cash provided by (used in) operating activities	1,107,023	(48,425)

Cash Flows from Investing Activities
Acquisition of DEMP, less cash acquired	(24,652)	--
Acquisition of Cognor, less cash acquired	(24,172)	--
Short-term loans issued and other investments	(1,485)	(386,328)
Proceeds from short-term loans issued	71,766	345,979
Proceeds from disposals of property, plant and equipment	23,461	13,364
Purchases of mineral licenses	(1,320)	(23,266)
Purchases of property, plant and equipment	(846,018)	(1,370,073)
Net cash used in investing activities	(802,420)	(1,420,324)

Cash Flows from Financing Activities
Proceeds from borrowings	3,482,050	4,711,690
Repayment of borrowings	(3,296,138)	(2,735,546)
Dividends paid	(186,443)	(209,696)
Dividends paid to noncontrolling interest	(8,475)	--
Acquisition of noncontrolling interest in subsidiaries	(32)	(188)
Repayment of obligations under finance lease	(92,937)	(76,066)
Sale leaseback proceeds	--	25,473
Net cash (used in) provided by financing activities	(101,975)	1,715,667

Effect of exchange rate changes on cash and cash equivalents	(263,809)	(69,596)

Net (decrease) increase in cash and cash equivalents	(61,181)	177,322

Cash and cash equivalents at beginning of period	643,379	340,800
Cash and cash equivalents at end of period	$ 582,198	$ 518,122

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

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