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Washington, D.C. 20549
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
or | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008 | |
or | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
or | ||
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |
AMERICAN DEPOSITARY SHARES, EACH ADS | NEW YORK STOCK EXCHANGE | |
REPRESENTING ONE COMMON SHARE | ||
COMMON SHARES, PAR VALUE | NEW YORK STOCK EXCHANGE(1) | |
10 RUSSIAN RUBLES PER SHARE |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
þ US GAAP | o International Financial Reporting Standards as issued by the International Accounting Standards Board | o Other |
(1) | Listed, not for trading or quotation purposes, but only in connection with the registration of ADSs pursuant to the requirements of the Securities and Exchange Commission. |
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• | strategies, outlook and growth prospects; | |
• | future plans and potential for future growth; | |
• | liquidity, capital resources and capital expenditures; | |
• | growth in demand for our products; | |
• | economic outlook and industry trends; | |
• | developments in our markets; | |
• | the impact of regulatory initiatives; and | |
• | the strength of our competitors. |
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Item 1. | Identity of Directors, Senior Management and Advisers |
Item 2. | Offer Statistics and Expected Timetable |
Item 3. | Key Information |
Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(In thousands of U.S. dollars, except share and per share amounts) | ||||||||||||||||||||
Consolidated statements of income and comprehensive income data: | ||||||||||||||||||||
Revenue, net | 9,950,705 | 6,683,842 | 4,397,811 | 3,804,995 | 3,635,955 | |||||||||||||||
Cost of goods sold | (5,260,108 | ) | (4,166,864 | ) | (2,860,224 | ) | (2,469,134 | ) | (2,225,088 | ) | ||||||||||
Gross profit | 4,690,597 | 2,516,978 | 1,537,587 | 1,335,861 | 1,410,867 | |||||||||||||||
Selling, distribution and operating expenses | (2,134,328 | ) | (1,119,385 | ) | (811,889 | ) | (820,133 | ) | (660,060 | ) | ||||||||||
Operating income | 2,556,269 | 1,397,593 | 725,698 | 515,728 | 750,807 | |||||||||||||||
Other (expense) income, net | (1,208,001 | ) | (12,146 | ) | 139,135 | 10,131 | 794,288 | |||||||||||||
Income before tax, minority interest, discounted operations, extraordinary gain | 1,348,268 | 1,385,447 | 864,833 | 525,859 | 1,545,095 | |||||||||||||||
Income tax expense | (118,887 | ) | (356,320 | ) | (230,599 | ) | (136,643 | ) | (175,776 | ) | ||||||||||
Minority interest in income of subsidiaries | (88,837 | ) | (116,234 | ) | (31,528 | ) | (6,879 | ) | (11,673 | ) | ||||||||||
Income from continuing operations | 1,140,544 | 912,893 | 602,706 | 382,337 | 1,357,646 | |||||||||||||||
Income (loss) from discontinued operations, net of tax | — | 158 | 543 | (1,157 | ) | (15,211 | ) | |||||||||||||
Extraordinary gain, net of tax | — | — | — | — | 271 | |||||||||||||||
Net income | 1,140,544 | 913,051 | 603,249 | 381,180 | 1,342,706 | |||||||||||||||
Currency translation adjustment | (227,618 | ) | 136,673 | 148,920 | (53,822 | ) | 49,116 | |||||||||||||
Change in pension benefit obligation | 87,659 | (14,365 | ) | — | — | — | ||||||||||||||
Adjustment of available-for-sale securities | (6,571 | ) | (5,059 | ) | 11,203 | 2,181 | (2,350 | ) | ||||||||||||
Additional minimum pension liability | — | — | (4,669 | ) | — | — | ||||||||||||||
Comprehensive income | 994,014 | 1,030,300 | 758,703 | 329,539 | 1,389,472 | |||||||||||||||
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Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(In thousands of U.S. dollars, except share and per share amounts) | ||||||||||||||||||||
Earnings per share from continuing operations | 2.74 | 2.19 | 1.48 | 0.95 | 3.63 | |||||||||||||||
Loss per share effect of discontinued operations | 0.00 | 0.00 | 0.00 | 0.00 | (0.04 | ) | ||||||||||||||
Earnings per share effect of extraordinary gain | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |||||||||||||||
Net income per share | 2.74 | 2.19 | 1.48 | 0.95 | 3.59 | |||||||||||||||
Cash dividends per share | 1.12 | 0.76 | 0.46 | 0.48 | 0.01 | |||||||||||||||
Weighted average number shares outstanding | 416,270,745 | 416,270,745 | 408,979,356 | 403,118,680 | 373,971,312 | |||||||||||||||
Steel segment statements of income and comprehensive income data: | ||||||||||||||||||||
Revenue, net(2) | 5,773,719 | 4,414,492 | 3,083,654 | 2,767,028 | 2,832,189 | |||||||||||||||
Cost of goods sold(2) | (4,219,344 | ) | (3,374,420 | ) | (2,240,001 | ) | (2,158,499 | ) | (2,065,480 | ) | ||||||||||
Gross profit | 1,554,375 | 1,040,072 | 843,653 | 608,529 | 766,709 | |||||||||||||||
Selling, distribution and operating expenses | (783,936 | ) | (502,811 | ) | (457,100 | ) | (502,248 | ) | (399,955 | ) | ||||||||||
Operating income | 770,439 | 537,261 | 386,553 | 106,281 | 366,754 | |||||||||||||||
Mining segment statements of income and comprehensive income data: | ||||||||||||||||||||
Revenue, net(2) | 4,031,967 | 1,970,969 | 1,354,285 | 1,270,931 | 1,053,338 | |||||||||||||||
Cost of goods sold(2) | (1,229,631 | ) | (1,008,485 | ) | (830,632 | ) | (565,126 | ) | (409,385 | ) | ||||||||||
Gross profit | 2,802,336 | 962,484 | 523,653 | 705,805 | 643,953 | |||||||||||||||
Selling, distribution and operating expenses | (1,001,796 | ) | (391,015 | ) | (332,612 | ) | (295,512 | ) | (235,876 | ) | ||||||||||
Operating income | 1,800,540 | 571,469 | 191,041 | 410,293 | 408,077 | |||||||||||||||
Power segment statements of income and comprehensive income data: | ||||||||||||||||||||
Revenue, net(2) | 1,028,110 | 598,515 | 123,322 | 24,532 | 15,907 | |||||||||||||||
Cost of goods sold(2) | (714,094 | ) | (393,153 | ) | (110,273 | ) | (20,242 | ) | (13,576 | ) | ||||||||||
Gross profit | 314,016 | 205,362 | 13,049 | 4,290 | 2,331 | |||||||||||||||
Selling, distribution and operating expenses | (284,610 | ) | (192,735 | ) | (4,400 | ) | (2,172 | ) | (694 | ) | ||||||||||
Operating income | 29,406 | 12,627 | 8,649 | 2,118 | 1,637 | |||||||||||||||
Ferroalloys segment statements of income and comprehensive income data: | ||||||||||||||||||||
Revenue, net(2) | 584,631 | 636,656 | 339,748 | 156,241 | 145,367 | |||||||||||||||
Cost of goods sold(2) | (571,162 | ) | (253,725 | ) | (174,675 | ) | (150,749 | ) | (147,493 | ) | ||||||||||
Gross profit (loss) | 13,469 | 382,931 | 165,073 | 5,492 | (2,126 | ) | ||||||||||||||
Selling, distribution and operating expenses | (63,986 | ) | (32,824 | ) | (17,777 | ) | (20,201 | ) | (23,533 | ) | ||||||||||
Operating (loss) income | (50,517 | ) | 350,107 | 147,296 | (14,709 | ) | (25,659 | ) | ||||||||||||
Consolidated balance sheet data (at period end): | ||||||||||||||||||||
Total assets | 12,009,634 | 9,227,643 | 4,457,404 | 3,600,083 | 3,678,268 | |||||||||||||||
Shareholders’ equity | 4,030,812 | 3,504,933 | 2,864,963 | 2,210,474 | 2,057,629 | |||||||||||||||
Long-term debt, net of current portion | 219,816 | 2,321,922 | 322,604 | 45,615 | 216,113 |
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Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(In thousands of U.S. dollars, except share and per share amounts) | ||||||||||||||||||||
Consolidated cash flows data: | ||||||||||||||||||||
Net cash provided by operating activities | 2,229,941 | 904,969 | 554,923 | 620,875 | 296,137 | |||||||||||||||
Net cash (used in) provided by investing activities | (3,301,083 | ) | (3,410,466 | ) | (552,538 | ) | (994,707 | ) | 455,716 | |||||||||||
Net cash provided by (used in) financing activities | 1,298,969 | 2,549,881 | (162,782 | ) | (308,870 | ) | 252,269 | |||||||||||||
Non-U.S. GAAP measures(3): | ||||||||||||||||||||
Consolidated EBITDA(4) | 2,046,811 | 1,658,662 | 1,068,258 | 726,252 | 1,707,711 | |||||||||||||||
Steel segment EBITDA(4) | 629,572 | 709,462 | 643,499 | 252,364 | 1,249,643 | |||||||||||||||
Mining segment EBITDA | 1,897,012 | 713,624 | 277,647 | 455,528 | 473,042 | |||||||||||||||
Power segment EBITDA | 51,769 | 26,212 | 9,190 | 3,211 | 2,131 | |||||||||||||||
Ferroalloys segment EBITDA | (420,074 | ) | 323,760 | 146,141 | 3,637 | (17,105 | ) |
(1) | The value of property, plant and equipment pertaining to non-controlling shareholders in the accounting for minority interests resulting from acquisitions of various subsidiaries has been recorded at appraised values rather than at historical cost as required by U.S. GAAP. | |
(2) | Segment revenues and cost of goods sold include intersegment sales. | |
(3) | EBITDA represents net income before interest expense, income taxes and depreciation, depletion and amortization. We present EBITDA because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. We also present EBITDA by segment because our overall performance is best explained with reference to results of each segment. |
• | EBITDA does not reflect the impact of financing costs, which are significant and could further increase if we incur more debt, on our operating performance. | |
• | EBITDA does not reflect the impact of income taxes on our operating performance. | |
• | EBITDA does not reflect the impact of depreciation, depletion and amortization on our operating performance. The assets of our businesses which are being depreciated, depletedand/or amortized (including, for example, our mineral reserves) will have to be replaced in the future and such depreciation, depletion and amortization expense may approximate the cost to replace these assets in the future. By excluding such expense from EBITDA, EBITDA does not reflect our future cash requirements for such replacements. | |
• | Other companies in our industry may calculate EBITDA differently or may use it for different purposes than we do, limiting its usefulness as a comparative measure. |
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Year Ended December 31, | ||||||||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||||||
Consolidated EBITDA reconciliation: | ||||||||||||||||||||
Net income | 1,140,544 | 913,051 | 603,249 | 381,180 | 1,342,706 | |||||||||||||||
Add: | ||||||||||||||||||||
Depreciation, depletion and amortization | 463,297 | 290,315 | 196,227 | 167,600 | 137,820 | |||||||||||||||
Interest expense | 324,083 | 98,976 | 38,183 | 40,829 | 51,409 | |||||||||||||||
Income taxes | 118,887 | 356,320 | 230,599 | 136,643 | 175,776 | |||||||||||||||
Consolidated EBITDA | 2,046,811 | 1,658,662 | 1,068,258 | 726,252 | 1,707,711 | |||||||||||||||
Steel segment EBITDA reconciliation: | ||||||||||||||||||||
Net income | 229,522 | 375,115 | 387,763 | 59,830 | 1,014,356 | |||||||||||||||
Add: | ||||||||||||||||||||
Depreciation, depletion and amortization | 137,492 | 124,156 | 102,257 | 95,715 | 81,052 | |||||||||||||||
Interest expense | 181,536 | 77,634 | 26,471 | 35,158 | 36,058 | |||||||||||||||
Income taxes | 81,022 | 132,557 | 127,008 | 61,661 | 118,177 | |||||||||||||||
Steel segment EBITDA | 629,572 | 709,462 | 643,499 | 252,364 | 1,249,643 | |||||||||||||||
Mining segment EBITDA reconciliation: | ||||||||||||||||||||
Net income | 1,200,445 | 403,525 | 117,803 | 317,411 | 351,438 | |||||||||||||||
Add: | ||||||||||||||||||||
Depreciation, depletion and amortization | 280,276 | 136,479 | 84,167 | 58,678 | 49,159 | |||||||||||||||
Interest expense | 120,594 | 40,046 | 11,202 | 5,361 | 14,843 | |||||||||||||||
Income taxes | 295,697 | 133,574 | 64,475 | 74,078 | 57,602 | |||||||||||||||
Mining segment EBITDA | 1,897,012 | 713,624 | 277,647 | 455,528 | 473,042 | |||||||||||||||
Power segment EBITDA reconciliation: | ||||||||||||||||||||
Net income (loss) | 3,037 | (13,597 | ) | 6,066 | 1,230 | 1,139 | ||||||||||||||
Add: | ||||||||||||||||||||
Depreciation, depletion and amortization | 22,791 | 16,314 | 579 | 1,322 | 517 | |||||||||||||||
Interest expense | 31,585 | 20,332 | 448 | 286 | — | |||||||||||||||
Income taxes | (5,644 | ) | 3,163 | 2,097 | 373 | 475 | ||||||||||||||
Power segment EBITDA | 51,769 | 26,212 | 9,190 | 3,211 | 2,131 | |||||||||||||||
Ferroalloys segment EBITDA reconciliation: | ||||||||||||||||||||
Net (loss) income | (283,235 | ) | 222,024 | 99,458 | (9,034 | ) | (24,227 | ) | ||||||||||||
Add: | ||||||||||||||||||||
Depreciation, depletion and amortization | 22,738 | 13,366 | 9,224 | 11,885 | 7,092 | |||||||||||||||
Interest expense | 92,611 | 1,344 | 440 | 255 | 508 | |||||||||||||||
Income taxes | (252,188 | ) | 87,026 | 37,019 | 531 | (478 | ) | |||||||||||||
Ferroalloys segment EBITDA | (420,074 | ) | 323,760 | 146,141 | 3,637 | (17,105 | ) | |||||||||||||
(4) | The 2004 amount includes a gain of $800.0 million from the sale of our stake in Magnitogorsk Iron & Steel Works OAO (“MMK”). |
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Rubles per U.S. Dollar | ||||||||||||||||
Year Ended December 31, | High | Low | Average(1) | Period End | ||||||||||||
2008 | 29.38 | 23.13 | 24.86 | 29.38 | ||||||||||||
2007 | 26.58 | 24.26 | 25.58 | 24.55 | ||||||||||||
2006 | 28.78 | 26.18 | 27.19 | 26.33 | ||||||||||||
2005 | 29.00 | 27.46 | 28.29 | 28.78 | ||||||||||||
2004 | 29.45 | 27.75 | 28.81 | 27.75 |
(1) | The average of the exchange rates on the last business day of each full month during the relevant period. |
Rubles per U.S. Dollar | ||||||||
High | Low | |||||||
May 2009 | 32.97 | 30.98 | ||||||
April 2009 | 34.10 | 33.17 | ||||||
March 2009 | 36.23 | 33.27 | ||||||
February 2009 | 36.43 | 34.56 | ||||||
January 2009 | 35.41 | 29.39 | ||||||
December 2008 | 29.38 | 27.52 |
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• | additional demands placed on our senior management, who are also responsible for managing our existing operations; | |
• | increased overall operating complexity of our business, requiring greater personnel and other resources; and | |
• | incurrence of debt to finance acquisitions and higher debt service costs related thereto, including, if necessary, upgrade costs of such assets. |
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• | flooding of the open pit; | |
• | collapses of the open pit wall; | |
• | accidents associated with the operation of large open pit mining and rock transportation equipment; | |
• | accidents associated with the preparation and ignition of large-scale open pit blasting operations; | |
• | deterioration of production quality due to weather; and | |
• | hazards associated with the disposal of mineralized waste water, such as groundwater and waterway contamination. |
• | underground fires and explosions, including those caused by flammable gas; | |
• | cave-ins or ground falls; | |
• | discharges of gases and toxic chemicals; | |
• | flooding; | |
• | sinkhole formation and ground subsidence; and | |
• | other accidents and conditions resulting from drilling, blasting and removing and processing material from an underground mine, including due to human error. |
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• | Beloretsk Metallurgical Plant OAO — as controlling 100% of the market for local telephony services in the city of Beloretsk; | |
• | Chelyabinsk Metallurgical Plant OAO (“Chelyabinsk Metallurgical Plant”) — as controlling more than 65% of the market for forgings made of stainless steel ingots in the Russian market; | |
• | Southern Urals Nickel Plant OAO (“Southern Urals Nickel Plant”) — as controlling more than 65% of the market for nickel in sulfate and hydroxide in the Russian Federation; | |
• | Izhstal OAO (“Izhstal”) — as controlling more than 65% of the market for graded high-speed steel and its substitute and the market for small shaped graded high-speed steel in the Russian Federation; | |
• | Vyartsilya Metal Products Plant ZAO (“Vyartsilya Metal Products Plant”) — as controlling more than 65% of the market of railroad transportation of cargo for third parties and companies on the track section from Vyartsilya village to Vyartsilya station; | |
• | Kuzbass Power Sales Company OAO (“Kuzbass Power Sales Company”) — as controlling more than 50% of the electricity trading market in the Kemerovo region; | |
• | Mechel-Energo OOO (“Mechel-Energo”) — as controlling more than 50% of the market for the trading of electricity in the cities of Mezhdurechensk, Myski and Novokuznetsk; | |
• | Yakutugol OAO,including its subsidiariesDzhebariki-Khaya Mine OAOandKangalassk Open Pit Mine OAO — as controlling more than 65% of the coal market of the Sakha Republic (an administrative region of Russia in eastern Siberia, also known as Yakutia) and as holding a dominant market position as the sole |
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supplier of Far East Generating Company OAO (“Far East Generating Company”), a power plant designed to consume only the type of coal produced by Yakutugol and its subsidiaries; and |
• | Moscow Coke and Gas Plant OAO — as controlling 100% of the market for cargo transportation services on the company’s rail siding in the Lenin District of Moscow region from the Obmennaya station to the Zavodskaya station. |
• | to support certain production volumes and product lines; | |
• | to provide, to the extent possible, equal supply terms to all customers without discrimination against companies not forming part of the Mechel-Invest group of companies; | |
• | not to restrict other companies from supplying coking coal to the same geographical area of operations; and | |
• | to notify the FAS prior to any increase in domestic prices of coking coal, steam coal and coking coal concentrate, if such increase amounts to more than 10% of the relevant price used 180 days before the date such increase is planned to take place, with submission to the FAS of the financial and economic reasoning for the planned increase of prices. |
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• | fluctuations in our operating results and those of other Russian and international mining, steel, ferroalloys and power companies, for the first quarter of 2009, as was seen after reporting of our operating results; | |
• | fluctuations in national and industry growth rates; | |
• | actual or anticipated announcements of technical innovations or new products or services by us or our competitors; | |
• | changes in governmental legislation or regulation; | |
• | general economic conditions within our business sector or in Russia or other countries where we have operations; or |
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• | extreme price and volume fluctuations on the Russian or other emerging market stock exchanges and stock exchanges in developed markets. |
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• | significant declines in gross domestic product; | |
• | hyperinflation; | |
• | an unstable currency; | |
• | high government debt relative to gross domestic product; | |
• | a weak banking system providing limited liquidity to domestic enterprises; | |
• | high levels of loss-making enterprises that continued to operate due to the lack of effective bankruptcy proceedings; | |
• | significant use of barter transactions and illiquid promissory notes to settle commercial transactions; | |
• | widespread tax evasion; | |
• | growth of a black and gray market economy; | |
• | pervasive capital flight; | |
• | high levels of corruption and the penetration of organized crime into the economy; | |
• | significant increases in unemployment and underemployment; and | |
• | the impoverishment of a large portion of the population. |
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• | inconsistencies between and among the Constitution, federal law, presidential decrees and governmental, ministerial and local orders, decisions, resolutions and other acts; | |
• | conflicting local, regional and federal rules and regulations; | |
• | the lack of fully developed corporate and securities laws; | |
• | substantial gaps in the regulatory structure due to the delay or absence of implementing legislation; | |
• | the relative inexperience of judges in interpreting legislation; | |
• | the lack of full independence of the judicial system from commercial, political and nationalistic influences; | |
• | difficulty in enforcing court orders; | |
• | a high degree of discretion or arbitrariness on the part of governmental authorities; and | |
• | still-developing bankruptcy procedures that are subject to abuse. |
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• | this decision-making capability is provided for in the charter of the effective subsidiary or in a contract between the companies; and | |
• | the effective parent gives obligatory directions to the effective subsidiary based on the above-mentioned decision-making capability. |
• | decisions with respect to a reorganization; | |
• | the approval by shareholders of a “major transaction,” which, in general terms, is a transaction involving property worth more than 50% of the gross book value of our assets calculated according to Russian accounting standards, regardless of whether the transaction is actually consummated, except for transactions undertaken in the ordinary course of business; and | |
• | the amendment of our charter in a manner that limits shareholder rights. |
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• | profits tax; | |
• | value-added tax (“VAT”); | |
• | unified social tax; | |
• | mineral extraction tax; and | |
• | property and land taxes. |
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Item 4. | Information on the Company |
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• | is a logical extension of our specialty and low-carbon long product lines, representing a higher-margin, next value-added step for products that we already manufacture; | |
• | is in a market less cyclical than the upstream market, reducing our exposure to market downturns and commodity price fluctuations; and |
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• | moves us closer to our final customers, enabling us to better understand customer needs, influence buyer behavior and respond quickly to change. |
• | preserving cost advantages in our labor, raw materials and energy inputs; | |
• | achieving additional savings by fully integrating recent acquisitions into our operations; | |
• | producing higher value-added products, such as electricity and heat energy; | |
• | cultivating additional markets for steam coal; and | |
• | providing our mining and steel segments with their own energy resources. |
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• | optimizing production plans; | |
• | additional saving by increasing labor efficiency and loading mining equipment; and | |
• | retaining current advantages related to labor, raw materials and power costs. |
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Product | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||
(In thousands of tonnes(1)) | (% of total sales, including intra-group) | |||||||||||||||||||||||
Coking coal concentrate(2) | 8,360 | 6,018 | 6,603 | 77 | % | 62 | % | 73 | % | |||||||||||||||
Steam coal(2) | 8,543 | 7,230 | 6,728 | 90 | % | 96 | % | 100 | % | |||||||||||||||
Iron ore concentrate | 2,713 | 2,358 | 2,885 | 58 | % | 51 | % | 56 | % |
(1) | Includes resales of mining products purchased from third parties. | |
(2) | Includes only post-acquisition volumes of Yakutugol. |
2008 | 2007 | 2006 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Revenues | Amount | Revenues | Amount | Revenues | Amount | Revenues | ||||||||||||||||||
(In millions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Coking coal concentrate | 1,861.1 | 55.8 | % | 622.9 | 45.4 | % | 518.3 | 49.6 | % | |||||||||||||||
Domestic Sales (%) | 49.7 | % | 83.7 | % | 74.0 | % | ||||||||||||||||||
Export (%) | 50.3 | % | 16.3 | % | 26.0 | % | ||||||||||||||||||
Steam Coal | 925.0 | 27.8 | % | 436.3 | 31.8 | % | 311.1 | 29.7 | % | |||||||||||||||
Domestic Sales (%) | 11.4 | % | 12.5 | % | 21.0 | % | ||||||||||||||||||
Export (%) | 88.6 | % | 87.5 | % | 79.0 | % | ||||||||||||||||||
Iron ore concentrate | 339.4 | 10.2 | % | 213.6 | 15.6 | % | 168.2 | 16.1 | % | |||||||||||||||
Domestic Sales (%) | 23.5 | % | 67.7 | % | 98.0 | % | ||||||||||||||||||
Export (%) | 76.5 | % | 32.3 | % | 2.0 | % | ||||||||||||||||||
Other(1) | 207.9 | 6.2 | % | 99.7 | 7.2 | % | 48.1 | 4.6 | % | |||||||||||||||
Total | 3,333.4 | 100 | % | 1,372.5 | 100 | % | 1,045.7 | 100 | % | |||||||||||||||
Domestic Sales (%) | 39.4 | % | 59.8 | % | 63.1 | % | ||||||||||||||||||
Export (%) | 60.6 | % | 40.2 | % | 36.9 | % |
(1) | Includes revenues from transportation, distribution, construction and other miscellaneous services provided to local customers. |
Region(1) | 2008 | 2007 | 2006 | |||||||||
Russia | 39.5 | % | 59.5 | % | 63.1 | % | ||||||
Other CIS | 9.1 | % | 13.3 | % | 12.8 | % | ||||||
Europe | 14.2 | % | 10.8 | % | 14.0 | % | ||||||
Asia | 32.1 | % | 12.9 | % | 5.6 | % | ||||||
Middle East | 2.5 | % | 3.5 | % | 4.5 | % | ||||||
Other regions | 2.6 | % | — | — | ||||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
(1) | The regional breakdown of sales is based on the geographic location of our customers, and not on the location of the end users of our products, as our distributor customers resell and, in some cases, further export our products. |
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% of Total | ||||||||||
Mining | % of Total | |||||||||
Segment | Products | |||||||||
Customer | Sales | Product | Sales | |||||||
EvrazResurs Trading House OOO and West | Coking coal concentrate | 13.3 | % | |||||||
Siberian Metallurgical Plant OAO (“ZapSib”) | 9.7 | % | Iron ore concentrate | 22.4 | % | |||||
Magnitogorsk Metallurgical Plant OAO | 9.7 | % | Coking coal concentrate | 17.4 | % | |||||
Novolipetsk Metallurgical Plant OAO | 6.4 | % | Coking coal concentrate | 11.4 | % | |||||
Rutek Trading AG | 5.7 | % | Coking coal concentrate | 8.5 | % | |||||
Steam coal | 3.3 | % | ||||||||
Sumitomo Corporation | 4.0 | % | Coking coal concentrate | 1.0 | % | |||||
Steam coal | 12.5 | % |
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Coking | % of | |||||||||
Coal | Coking | |||||||||
Production | Coal | |||||||||
(Thousands | Production | |||||||||
Group | Company | of Tonnes) | by Volume | |||||||
Mechel OAO | Southern Kuzbass Coal Company OAO | 7,094 | 10.3 | % | ||||||
Yakutugol Holding Company OAO | 8,053 | 11.7 | % | |||||||
Mechel total | 15,147 | 22.1 | % | |||||||
Raspadskaya OAO | Raspadskaya ZAO | 9,329 | 13.6 | % | ||||||
Severstal OAO | Vorkutaugol OAO | 6,167 | 9.0 | % | ||||||
Vorgashorskaya Mine OAO | 549 | 0.8 | % | |||||||
Yunyaginskoye OOO | 203 | 0.3 | % | |||||||
Severstal total | 6,919 | 10.1 | % | |||||||
Sibuglemet Holding | Polusukhinskaya Mine OAO | 3,010 | 4.4 | % | ||||||
Mezhdurechye OAO(1) | 3,250 | 4.7 | % | |||||||
Antonovskaya Mine ZAO | 1,454 | 2.1 | % | |||||||
Bolshevik Mine OAO | 932 | 1.4 | % | |||||||
Sibuglemet total | 8,646 | 12.6 | % | |||||||
Evraz Group S.A. | Yuzhkuzbassugol Coal Company ZAO | 8,387 | 12.2 | % | ||||||
Kuzbassrazrezugol Coal Company OAO | Kuzbassrazrezugol Coal Company OAO | 4,619 | 6.7 | % | ||||||
SUEK OAO | SUEK OAO (Kemerovo region) | 2,740 | 4.0 | % | ||||||
Other | Other | 12,875 | 18.8 | % | ||||||
Total | 68,662 | 100 | % | |||||||
(1) | We own 16.1% of Mezhdurechye OAO. |
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Steam Coal | % of | |||||||||
Production | Steam Coal | |||||||||
(Thousands | Production | |||||||||
Group | Company | of Tonnes) | by Volume | |||||||
SUEK OAO | SUEK Kemerovo region | 27,552 | 10.6 | % | ||||||
SUEK Krasnoyarsk region | 36,990 | 14.2 | % | |||||||
SUEK Khakasian Republic | 8,382 | 3.2 | % | |||||||
SUEK Irkutsk region | 5,766 | 2.2 | % | |||||||
SUEK Zabaikalsky region | 4,526 | 1.7 | % | |||||||
SUEK Primorsky region | 4,457 | 1.7 | % | |||||||
Urgalugol OAO | 2,278 | 0.7 | % | |||||||
SUEK total | 87,673 | 33.7 | % | |||||||
Kuzbassrazrezugol Coal Company OAO | Kuzbassrazrezugol Coal Company OAO | 44,667 | 17.2 | % | ||||||
Mechel OAO | Southern Kuzbass Coal Company OAO | 11,403 | 4.4 | % | ||||||
Yakutugol Holding Company OAO | 3,463 | 1.3 | % | |||||||
Mechel total | 14,866 | 5.7 | % | |||||||
SDS-Ugol Holding Company OAO | Barzasskoye Partnership OOO | 159 | 0.1 | % | ||||||
Chernigovets ZAO | 4,680 | 1.8 | % | |||||||
SDS-Ugol total | 4,839 | 1.9 | % | |||||||
Evraz Group S.A. | Yuzhkuzbassugol Coal Company ZAO | 4,645 | 1.8 | % | ||||||
LUTEK OAO | LUTEK OAO | 5,322 | 2.0 | % | ||||||
Zarechnaya Mine OAO | Zarechnaya Mine OAO | 4,441 | 1.7 | % | ||||||
Priargunskoye Industrial Mining and Chemical Amalgamation OAO | Priargunskoye Industrial Mining and Chemical Amalgamation OAO | 4,011 | 1.5 | % | ||||||
Other | 89,723 | 34.5 | % | |||||||
Total | 260,186 | 100 | % | |||||||
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Iron Ore | ||||||||||
Concentrate | ||||||||||
Production | ||||||||||
(Thousands | % of Total | |||||||||
Group | Company | of Tonnes) | Production | |||||||
Metalloinvest OOO | Lebedinsky GOK | 19,732 | 21.0 | % | ||||||
Mikhailovsky GOK | 15,718 | 16.7 | % | |||||||
Metalloinvest total | 35,450 | 37.7 | % | |||||||
Evraz Group S.A. | Kachkanarsky GOK | 8,635 | 9.2 | % | ||||||
Vysokogorsky GOK | 1,663 | 1.8 | % | |||||||
EvrazRuda | 7,358 | 7.8 | % | |||||||
Evraz Group total | 17,656 | 18.8 | % | |||||||
Severstal-Resurs OAO | Kostomukshinsky GOK | 9,855 | 10.5 | % | ||||||
Olenegorsky GOK | 4,675 | 5.0 | % | |||||||
Severstal-Resurs total | 14,530 | 15.5 | % | |||||||
NLMK OAO | Stoylensky GOK | 11,484 | 12.2 | % | ||||||
Yevrokhim OAO | Kovdorsky GOK | 5,423 | 5.8 | % | ||||||
Mechel OAO | Korshunov Mining Plant | 4,700 | 5.0 | % | ||||||
Industrial Metallurgical Holding OOO | KMAruda | 2,104 | 2.2 | % | ||||||
Ural Mining-Metallurgical Company OAO | Bogoslovskoye RU | 1,058 | 1.1 | % | ||||||
Other | 1,621 | 1.7 | % | |||||||
Total | 94,026 | 100 | % | |||||||
• | in 2004 we acquired through auction a subsoil license for the Sibirginsk mine area of the Sibirginsk and Tomsk coal deposits, near our Sibirginsk Open Pit Mine; | |
• | in 2005 we acquired through auction two subsoil licenses for the Raspadsk open pit mine area of the Raspadsk coal deposit and the Berezovsk-2 area of the Berezovsk and Olzherassk coal deposits; | |
• | in 2005 we acquired through auction two subsoil licenses for the Erunakovsk-1 and Erunakovsk-3 coal mines near Kemerovo; and | |
• | in 2005 we acquired the right to explore for and develop coking coal under three subsoil licenses for the Sorokinsk, Razvedochny and Olzherassk coalfields in Kemerovo. |
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• | a fixed price of 2.5 billion rubles for research and design, technical drafting, testing, expert examination, title registration and permitting services; | |
• | a fixed price of 2.2 billion rubles for construction of a temporary access road along the planned rail branch line; | |
• | a fixed price of 1.6 billion rubles for completion of construction of the unfinished initial60-kilometer section of railway spur track; and | |
• | an estimated price of 27.1 billion rubles, subject to adjustment, for construction of the rail branch line from the 60th to 315th kilometer. |
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License | Year | |||||||||||||||
License-Holding | Expiry | Area | Production | |||||||||||||
Mine(1) | License Area | Subsidiary | Date | Status(2) | (sq. km) | Commenced | ||||||||||
Krasnogorsk Open Pit | Tomsk, Sibirginsk | Southern Kuzbass Coal | Dec 2013 | In production | 22.4 | 1954 | ||||||||||
Company OAO | ||||||||||||||||
Krasnogorsk Open Pit | Sorokinsk, Tomsk, | Southern Kuzbass Coal | Nov 2025 | In production | 2.8 | 2007 | ||||||||||
Sibirginsk | Company OAO | |||||||||||||||
Lenin Underground | Olzherassk | Southern Kuzbass Coal | Nov 2013 | In production | 10.0 | 1953 | ||||||||||
Company OAO | ||||||||||||||||
Lenin Underground (Usinsk Underground) | Olzherassk | Southern Kuzbass Coal | Dec 2014 | In development(3) | 3.6 | 1965 | ||||||||||
Company OAO | ||||||||||||||||
Olzherassk Open Pit | Raspadsk, Berezovsk, | Southern Kuzbass Coal | Jan 2014 | In production | 9.3 | 1980 | ||||||||||
Olzherassk | Company OAO | |||||||||||||||
Olzherassk Open Pit | Raspadsk | Southern Kuzbass Coal | Dec 2024 | In production | 3.5 | 2007 | ||||||||||
Company OAO | ||||||||||||||||
Olzherassk Open Pit(4) | Berezovsk-2, Berezovsk, | Southern Kuzbass Coal | Dec 2024 | In production | 4.8 | 2007 | ||||||||||
Olzherassk | Company OAO | |||||||||||||||
New-Olzherassk Underground (formerly Invest-Coal) | Raspadsk | Southern Kuzbass Coal | Dec 2021 | In production | 1.2 | 2006 | ||||||||||
Company OAO | ||||||||||||||||
New-Olzherassk Underground(4) | Razvedochny, Raspadsk | Southern Kuzbass Coal | Nov 2025 | In development | 14.6 | n/a | ||||||||||
Company OAO | ||||||||||||||||
Sibirginsk Underground | Sibirginsk, Tomsk | Southern Kuzbass Coal | Dec 2024 | In production | 5.9 | 2002 | ||||||||||
Company OAO | ||||||||||||||||
Sibirginsk Open Pit | Sibirginsk, Kureinsk, | Southern Kuzbass Coal | Jan 2014 | In production | 15.3 | 1973 | ||||||||||
Uregolsk | Company OAO | |||||||||||||||
Tomusinsk Open Pit | Tomsk | Tomusinsk Open Pit | Dec 2012 | In production | 6.7 | 1959 | ||||||||||
Mine OAO | ||||||||||||||||
Erunakovsk-1 Underground | Erunakovsk-1, | Southern Kuzbass Coal | Jun 2025 | In development(3) | 8.4 | n/a | ||||||||||
Erunakovsk | Company OAO | |||||||||||||||
Erunakovsk-3 Underground | Erunakovsk-3, | Southern Kuzbass Coal | Jun 2025 | In development(3) | 7.1 | n/a | ||||||||||
Erunakovsk | Company OAO | |||||||||||||||
Lenin Underground | Olzherassk | Southern Kuzbass Coal | Nov 2025 | In development(3) | 19.2 | n/a | ||||||||||
Company OAO | ||||||||||||||||
Nerungrinsk Open Pit | Nerungrinsk | Yakutugol OAO | Dec 2014 | In production | 15.3 | 1979 | ||||||||||
Kangalassk Open Pit | Kangalassk | Kangalassk Open Pit | Dec 2014 | In production | 7.7 | 1962 | ||||||||||
Mine OAO(5) | ||||||||||||||||
Dzhebariki-Khaya Underground | Dzhebariki-Khaya | Dzhebariki-Khaya | Dec 2013 | In production | 14.8 | 1972 | ||||||||||
Mine OAO(5) | ||||||||||||||||
Nerungrinsky Open Pit | Piatimetrovy coal-bed, | Yakutugol OAO | Dec 2025 | In development(3) | 30.0 | n/a | ||||||||||
Promezhutochny | ||||||||||||||||
Elga Open Pit | Elga | Yakutugol OAO | May 2020 | In development | 144.1 | n/a |
(1) | “Underground” denotes an underground mine; “open pit” denotes a surface mine. | |
(2) | “In production” refers to sites that are currently producing coal; “in development” refers to sites where preliminary work is being carried out in accordance with the terms of the relevant subsoil license, such as preparation and approval of the geological survey project (for the Olzherassk license area), geological surveys (for the Olzherassk, Razvedochny, Erunakovsk-3, Piatimetrovy coal seam and Promezhutochny license areas), preparation and approval of construction project documentation (for the Elga license area) and construction (for the Erunakovsk-1 and Elga license areas). | |
(3) | Not included in our mineral reserves. | |
(4) | Deposits of Olzherassk Open Pit are partially included in our reserves, as SEC standards for reserve estimates allow inclusion in reserves of only the mineral deposits that can be extracted with economic benefits during the license period. | |
(5) | In process of re-registration due to merger of the previous license holder into this company. |
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2008 | 2007 | 2006 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Tonnes | Production | Tonnes | Production | Tonnes | Production | |||||||||||||||||||
(In thousands of tonnes)(1) | ||||||||||||||||||||||||
Coking Coal | ||||||||||||||||||||||||
Sibirginsk (Open Pit and Underground)(2) | 2,522 | 16.6 | % | 2,181 | 20.9 | % | 1,759 | 18.1 | % | |||||||||||||||
Tomusinsk Open Pit | 1,952 | 12.9 | % | 2,385 | 22.9 | % | 2,477 | 25.6 | % | |||||||||||||||
Olzherassk Open Pit | 614 | 4.1 | % | 880 | 8.4 | % | 1,613 | 16.6 | % | |||||||||||||||
Lenin Underground(4) | 1,130 | 7.5 | % | 2,077 | 20.0 | % | 1,880 | 19.4 | % | |||||||||||||||
Sibirginsk Underground | 876 | 5.8 | % | 1,188 | 11.4 | % | 1,386 | 14.3 | % | |||||||||||||||
Olzherassk Underground | 582 | 6.0 | % | |||||||||||||||||||||
Yakutugol(3) | ||||||||||||||||||||||||
Nerungrinsk Open Pit | 8,053 | 53.1 | % | 1,708 | 16.4 | % | — | — | ||||||||||||||||
Total Coking Coal | 15,147 | 100 | % | 10,419 | 100 | % | 9,697 | 100 | % | |||||||||||||||
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2008 | 2007 | 2006 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Tonnes | Production | Tonnes | Production | Tonnes | Production | |||||||||||||||||||
(In thousands of tonnes)(1) | ||||||||||||||||||||||||
Steam Coal | ||||||||||||||||||||||||
Krasnogorsk Open Pit | 5,525 | 49.1 | % | 5,630 | 52.2 | % | 5,587 | 76.4 | % | |||||||||||||||
Sibirginsk (Open Pit and Underground) | 797 | 7.1 | % | 1,469 | 13.9 | % | 1,703 | 23.3 | % | |||||||||||||||
Olzherassk Open Pit | 525 | 4.7 | % | 868 | 8.1 | % | 26 | 0.3 | % | |||||||||||||||
Tomusinsk Open Pit | 99 | 0.9 | % | 36 | 0.3 | % | — | — | ||||||||||||||||
Olzherassk Underground | 836 | 7.4 | % | 1,783 | 16.5 | % | — | — | ||||||||||||||||
Yakutugol(3) | ||||||||||||||||||||||||
Nerungrinsky Open Pit | 2,874 | 25.5 | % | 827 | 7.7 | % | — | — | ||||||||||||||||
Kangalassk Open Pit | 166 | 1.5 | % | 35 | 0.3 | % | — | — | ||||||||||||||||
Dzhebariki-Khaya Underground | 423 | 3.8 | % | 127 | 1.2 | % | — | — | ||||||||||||||||
Total Steam Coal | 11,245 | 100 | % | 10,775 | 100 | % | 7,316 | 100 | % | |||||||||||||||
Total Coal | 26,392 | 21,194 | 17,013 | |||||||||||||||||||||
% Coking Coal | 57.4 | % | 49.2 | % | 57.0 | % | ||||||||||||||||||
% Steam Coal | 42.6 | % | 50.8 | % | 43.0 | % |
(1) | Volumes are reported on a wet basis. | |
(2) | “Underground” denotes an underground mine; “open pit” denotes a surface mine. | |
(3) | Includes only post-acquisition production volumes. | |
(4) | At the Lenin underground mine production was suspended because of accidents: on May 30, 2008 there was a cave-in (suspension of operations — 17 calendar days) and on July 29, 2008 there was a methane flash (suspension of operations — 67 calendar days), both with multiple casualties. |
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Year | ||||||||||||||
License | Area | Production | ||||||||||||
License Area | License Holder | Expiry Date | Status | (sq. km) | Commenced | |||||||||
Korshunovsk | Korshunov Mining Plant | June 2014 | In production | 4.3 | 1965 | |||||||||
Tatianinsk | Krasta ZAO(1) | June 2012 | In production | 1.3 | 1982 | |||||||||
Rudnogorsk | Korshunov Mining Plant | June 2014 | In production | 5.1 | 1986 | |||||||||
Krasnoyarovsk | Korshunov Mining Plant | July 2015 | Feasibility study(2) | 3.0 | n/a |
(1) | In February 2007, Korshunov Mining Plant transferred the Tatianinsk license to its wholly owned subsidiary Krasta ZAO. | |
(2) | Not included in our mineral reserves and deposits. |
2008 | 2007 | 2006 | ||||||||||||||||||||||
Grade | Grade | Grade | ||||||||||||||||||||||
Tonnes | (% Fe) | Tonnes | (% Fe) | Tonnes | (% Fe) | |||||||||||||||||||
(In thousands of tonnes)(1) | ||||||||||||||||||||||||
Korshunovsk ore production | 5,702 | 26.3 | % | 6,573 | 25.8 | % | 6,193 | 26.2 | % | |||||||||||||||
Rudnogorsk ore production | 5,911 | 34.6 | % | 5,754 | 35.6 | % | 5,224 | 37.1 | % | |||||||||||||||
Tatianinsk ore production | 110 | 29.2 | % | 468 | 29.9 | % | 222 | 32.4 | % | |||||||||||||||
Total ore production | 11,724 | 30.5 | % | 12,795 | 30.4 | % | 11,639 | 31.2 | % | |||||||||||||||
Iron ore concentrate production | 4,700 | 62.2 | % | 4,963 | 62.2 | % | 4,976 | 62.6 | % |
(1) | Volumes are reported on a wet basis. |
2008 | 2007 | 2006 | ||||||||||
(In thousands of tonnes) | ||||||||||||
Limestone production | 1,692 | 1,832 | 2,014 |
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Coal(1) | ||||||||||||||||||||||||
Summary | Coking | Steam | Iron Ore | Nickel Ore(2) | Chrome Ore(2) | Limestone | ||||||||||||||||||
(Quantities in millions of tonnes) | ||||||||||||||||||||||||
Reserves | 208.1 | 271.2 | 40.7 | 9.6 | 18.7 | 16.4 | ||||||||||||||||||
Grade (%) | 43.4 | %(3) | 56.6 | %(3) | 32.6 | % | 1.0 | % | 42.2 | % | 55.2 | % | ||||||||||||
Deposits | 290.6 | 460.0 | 109.4 | 69.7 | — | 10.1 | ||||||||||||||||||
Grade (%) | 38.7 | %(3) | 61.3 | %(3) | 30.1 | % | 0.9 | % | — | 55.2 | % |
(1) | Does not include the BCG companies’ 91.9 million tonnes of proven reserves and 74.1 million tonnes of probable reserves estimated as of October 24, 2008. | |
(2) | See “— Ferroalloys Business — Mineral reserves (ferroalloys)” for detail on the mineral reserves and deposits of our ferroalloys segment. | |
(3) | Shows percentage of the type of coal. |
Heating | ||||||||||||||||
Coal Reserves(1)(2) | Coking Coal(3) | Steam Coal(3) | Value(4)(5) | % Sulfur(5) | ||||||||||||
(Quantities in millions of tonnes)(6)(7)(8) | ||||||||||||||||
Krasnogorsk Open Pit | — | 101.7 | 5,700 | 0.40 | % | |||||||||||
Tomusinsk Open Pit | 10.3 | 1.0 | 8,350 | 0.30 | % | |||||||||||
Olzherassk Open Pit | 3.2 | 31.7 | 8,171 | 0.25 | % | |||||||||||
Olzherassk Underground | — | 16.2 | 7,900 | 0.30 | % | |||||||||||
Sibirginsk Open Pit | 17.5 | 11.3 | 8,449 | 0.30 | % | |||||||||||
Sibirginsk Underground | 41.1 | — | 8,531 | 0.25 | % | |||||||||||
Lenin Underground | 12.2 | — | 8,467 | 0.29 | % | |||||||||||
Nerungrinsk Open Pit | 62.7 | 5.6 | 7,331 | 0.30 | % | |||||||||||
Elga(9) | 61.1 | 103.7 | n/a | n/a | ||||||||||||
Total | 208.1 | 271.2 | ||||||||||||||
% of Total | 43.4 | % | 56.6 | % | ||||||||||||
(1) | Reserve estimates use the tonnages that are expected to be mined, taking into account dilution and losses. |
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(2) | Does not include the BCG companies’ 91.9 million tonnes of proven reserves and 74.1 million tonnes of probable reserves estimated as of October 24, 2008. | |
(3) | We own 93.5% of Southern Kuzbass Coal Company mines, 74.4% of Tomusinsk Open Pit Mine, 100% of Yakutugol mine and 71.2% of Elga mine. Reserves and deposits are presented for the mines on an assumed 100% ownership basis. | |
(4) | Heating values (in kcal/kg) are reported on a moisture- and ash-free basis. | |
(5) | The figures represent the average for the relevant licensed period. | |
(6) | Volumes are reported on a wet in-place basis. | |
(7) | The coal recovery factors for raw coal sent to Siberian Central Processing Plant, Kuzbass Central Processing Plant, Tomusinsk Processing Mills, Krasnogorsk Processing Plant and Nerungrinsk Processing Plant are projected to be 81.5%, 81%, 67%,60-66% and 67%, respectively. | |
(8) | In estimating our reserves we use average market or contract prices and currency conversions are carried out at average official exchange rates of the Central Bank of Russia. | |
(9) | Tonnages are for clean coal product. All other mines are reported on arun-of-mine basis. |
Heating | ||||||||||||||||
Coal Deposits | Coking Coal | Steam Coal | Value(1)(2) | % Sulfur(2) | ||||||||||||
(Quantities in millions of tonnes)(3) | ||||||||||||||||
Krasnogorsk Open Pit | — | 103.9 | 5,771 | 0.40 | % | |||||||||||
Tomusinsk Open Pit | 7.0 | 1.9 | 8,350 | 0.30 | % | |||||||||||
Olzherassk Open Pit | 9.9 | 8.7 | 8,265 | 0.25 | % | |||||||||||
Sibirginsk Open Pit | 20.4 | 18.5 | 8,466 | 0.30 | % | |||||||||||
Sibirginsk Underground | 6.0 | — | 8,531 | 0.25 | % | |||||||||||
Lenin Underground | 14.7 | — | 8,476 | 0.31 | % | |||||||||||
Nerungrinsk Open Pit | 86.3 | 5.6 | 7,670 | 0.30 | % | |||||||||||
Elga(4) | 146.3 | 282.9 | n/a | n/a | ||||||||||||
Erunakovsk | 38.5 | 8,265 | 0.25 | % | ||||||||||||
Total | 290.6 | 460.0 | ||||||||||||||
% of Total | 38.7 | % | 61.3 | % | ||||||||||||
(1) | Heating values (in kcal/kg) are reported on a moisture- and ash-free basis. | |
(2) | The figures represent the average for the relevant unlicensed period. | |
(3) | Volumes are reported on a wet in-place basis. | |
(4) | Tonnages are for clean coal product. All other mines are reported on arun-of-mine basis. |
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• | According to the terms of the subsoil license for the Elga coal deposit, we must construct a rail branch line from theBaikal-Amur Mainline to the coal deposits, approximately 315 kilometers in length, and this branch line must be operational by September 30, 2010. Previous detailed studies have estimated that it will take three to four years to construct such a branch line. The current construction schedule is very aggressive and may not be achievable. If this schedule is not met, the potential exists that our subsoil license for Elga will be suspended or terminated. Though to-date the pace of construction has mostly corresponded to the schedule agreed with the general contractor, there are no assurances that the construction schedule will be met. The deviations from schedule that have occurred to-date have been caused by the need to realize technical and engineering solutionson-site in order to achieve less expensive project completion and optimize construction costs. | |
• | The viability of the Elga project is dependent upon the construction of the rail branch line referred to above. Construction of the branch line has begun but a detailed engineering study needs to be conducted to determine construction volumes for earthworks and the total construction costs. | |
• | A detailed feasibility study was completed on the Elga project in 2005. A new engineering study needs to be completed on the project to determine project capital and operating costs due to the significant cost inflation that has occurred in the mining industry since 2005. Increases in capital and operating costs have the potential to make the Elga project uneconomical because of the project’s sensitivity to these costs. | |
• | The Elga project is very sensitive to market prices for coal because of the high initial capital costs and expected high ongoing operating costs. Coal prices will need to be near or above historically high price levels for several years in order for this project to have a positive net present value at a 12% discount rate, which was used for the reserves calculation. |
Grade | ||||||||
Iron Ore Reserves(1)(2) | Tonnes(3)(4) | (% Fe)(5) | ||||||
(In millions of tonnes) | ||||||||
Korshunovsk | 4.0 | 26.2 | % | |||||
Rudnogorsk | 33.1 | 34.2 | % | |||||
Tatianinsk | 3.6 | 25.0 | % | |||||
Total | 40.7 | 32.6 | % | |||||
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(1) | Reserve estimates use the tonnages that are expected to be mined, taking into account dilution and losses. | |
(2) | In estimating our reserves we use average market or contract prices and currency conversions are carried out at average official exchange rates of the Central Bank of Russia. | |
(3) | Volumes are reported on a wet basis. | |
(4) | We own 85.6% of Korshunov Mining Plant mines. Reserves are presented for the mines on an assumed 100% ownership basis. | |
(5) | Metallurgical recovery is projected to be 70.2%. |
Grade | ||||||||
Iron Ore Deposits(1) | Tonnes(2) | (% Fe)(3) | ||||||
(In millions of tonnes) | ||||||||
Korshunovsk | 47.4 | 26.2 | % | |||||
Rudnogorsk | 62.0 | 34.2 | % | |||||
Total | 109.4 | 30.1 | % | |||||
(1) | Includes adjustments for dilution and mine recovery, based on historical records. | |
(2) | Volumes are reported on a wet basis. | |
(3) | Metallurgical recovery is projected to be 70.2%. |
Grade | ||||||||
Limestone Reserves(1)(2) | Tonnes | (% CaO) | ||||||
(In millions of tonnes) | ||||||||
Pugachev | 16.4 | 55.2 | % |
(1) | Reserve estimates use the tonnages that are expected to be mined, taking into account dilution and losses. | |
(2) | We own 90.4% of Beloretsk Metallurgical Plant mines. Reserves are presented for the mines on an assumed 100% ownership basis. |
Grade | ||||||||
Limestone Deposits(1) | Tonnes | (% CaO) | ||||||
(In millions of tonnes) | ||||||||
Pugachev | 10.1 | 55.2 | % |
(1) | Includes adjustments for dilution and mine recovery, based on historical records. |
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2008 | 2007 | 2006 | ||||||||||
(In thousands of tonnes) | ||||||||||||
Coke | 3,326 | 3,886 | 2,570 | |||||||||
Coking Products | 129 | 129 | 49 | |||||||||
Pig Iron | 3,500 | 3,686 | 3,631 | |||||||||
Semi-Finished Steel Products, including: | 1,753 | 1,705 | 1,785 | |||||||||
Carbon and Low-Alloyed Semi-Finished Products | 1,710 | 1,647 | 1,716 | |||||||||
Long Steel Products, including: | 2,772 | 3,040 | 2,529 | |||||||||
Stainless Long Products | 15 | 17 | 15 | |||||||||
Alloyed Long Products | 36 | 82 | 79 | |||||||||
Rebar | 1,535 | 1,637 | 1,358 | |||||||||
Wire Rod | 580 | 591 | 367 | |||||||||
Low-Alloyed Engineering Steel | 606 | 711 | 712 | |||||||||
Flat Steel Products, including: | 357 | 393 | 400 | |||||||||
Stainless Flat Products | 37 | 37 | 39 | |||||||||
Carbon and Low-Alloyed Flat Products | 320 | 356 | 361 | |||||||||
Forgings, including: | 72 | 80 | 75 | |||||||||
Stainless Forgings | 1 | 2 | 3 | |||||||||
Alloyed Forgings | 29 | 51 | 24 | |||||||||
Carbon and Low-Alloyed Forgings | 41 | 26 | 48 | |||||||||
Forged Alloys | 0 | 1 | 1 | |||||||||
Stampings | 86 | 95 | 101 | |||||||||
Hardware, including: | 719 | 689 | 611 | |||||||||
Wire | 556 | 536 | 466 | |||||||||
Ropes | 52 | 57 | 55 |
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2008 | 2007 | 2006 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Revenues | Amount | Revenues | Amount | Revenues | Amount | Revenues | ||||||||||||||||||
(In millions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Coke | 377.5 | 7 | % | 248.8 | 6 | % | 38.7 | 1 | % | |||||||||||||||
Coking Products | 35.3 | 1 | % | 36.0 | 1 | % | 10.3 | 0 | % | |||||||||||||||
Pig Iron | 19.1 | 0 | % | 4.1 | 0 | % | 14.1 | 0 | % | |||||||||||||||
Semi-Finished Products, including: | 475.7 | 9 | % | 555.1 | 13 | % | 397.5 | 13 | % | |||||||||||||||
Carbon and Low-Alloyed Semi-Finished Products(1) | 425.1 | 8 | % | 446.5 | 10 | % | 299.3 | 10 | % | |||||||||||||||
Long Steel Products, including: | 2,682.4 | 49 | % | 1,830.1 | 42 | % | 1,436.3 | 47 | % | |||||||||||||||
Stainless Long Products | 53.0 | 1 | % | 44.8 | 1 | % | 35.2 | 1 | % | |||||||||||||||
Alloyed Long Products | 158.0 | 3 | % | 151.9 | 4 | % | 131.1 | 4 | % | |||||||||||||||
Rebar | 1,632.8 | 30 | % | 1,017.1 | 24 | % | 753.0 | 25 | % | |||||||||||||||
Wire Rod | 240.3 | 4 | % | 190.1 | 4 | % | 202.3 | 7 | % | |||||||||||||||
Carbon and Low-Alloyed Engineering Steel | 598.3 | 11 | % | 426.3 | 10 | % | 314.7 | 10 | % | |||||||||||||||
Flat Steel Products, including: | 475.6 | 9 | % | 421.8 | 10 | % | 304.2 | 10 | % | |||||||||||||||
Stainless Flat Products | 184.6 | 3 | % | 193.5 | 4 | % | 125.2 | 4 | % | |||||||||||||||
Carbon and Low-Alloyed Flat Products | 291.0 | 5 | % | 228.3 | 5 | % | 178.9 | 6 | % | |||||||||||||||
Forgings, including: | 180.9 | 3 | % | 164.7 | 4 | % | 81.2 | 3 | % | |||||||||||||||
Stainless Forgings | 24.5 | 0 | % | 26.5 | 1 | % | 9.8 | 0 | % | |||||||||||||||
Alloyed Forgings | 20.8 | 0 | % | 20.8 | 0 | % | 11.9 | 0 | % | |||||||||||||||
Carbon and Low-Alloyed Forgings | 107.2 | 2 | % | 86.9 | 2 | % | 49.1 | 2 | % | |||||||||||||||
Forged Alloys | 28.3 | 1 | % | 30.5 | 1 | % | 10.3 | 0 | % | |||||||||||||||
Stampings | 236.1 | 4 | % | 201.4 | 5 | % | 151.7 | 5 | % | |||||||||||||||
Hardware, including: | 891.5 | 16 | % | 603.4 | 14 | % | 458.0 | 15 | % | |||||||||||||||
Wire | 640.2 | 12 | % | 414.5 | 10 | % | 303.3 | 10 | % | |||||||||||||||
Ropes | 84.4 | 2 | % | 73.2 | 2 | % | 60.6 | 2 | % | |||||||||||||||
Other | 121.1 | 2 | % | 241.4 | 6 | % | 150.8 | 5 | % | |||||||||||||||
Total | 5,495.1 | 100 | % | 4,306.9 | 100 | % | 3,042.8 | 100 | % | |||||||||||||||
(1) | Excludes revenues from slab sales. |
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Region(1) | 2008 | 2007 | 2006 | |||||||||
Russia | 59.0 | % | 59.2 | % | 58.9 | % | ||||||
Other CIS | 5.7 | % | 5.9 | % | 5.6 | % | ||||||
Europe | 24.7 | % | 19.5 | % | 26.6 | % | ||||||
Asia | 2.2 | % | 1.0 | % | 1.3 | % | ||||||
Middle East | 5.5 | % | 13.1 | % | 5.6 | % | ||||||
United States | 0.8 | % | 0.6 | % | 1.7 | % | ||||||
Other | 2.0 | % | 0.6 | % | 0.3 | % | ||||||
Total | 100 | % | 100 | % | 100 | % | ||||||
(1) | The regional breakdown of sales is based on the geographic location of our customers, and not on the location of the end users of our products, as our customers are often distributors that resell and, in some cases, further export our products. |
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Products | 2008 | 2007 | 2006 | |||||||||
(In millions of U.S. dollars, except for percentages) | ||||||||||||
Coke | 377.5 | 248.8 | 38.7 | |||||||||
Domestic (%) | 77.6 | % | 78.0 | % | 95.0 | % | ||||||
Export (%) | 22.4 | % | 22.0 | % | 5.0 | % | ||||||
Coking Products | 35.3 | 36.0 | 10.3 | |||||||||
Domestic (%) | 52.6 | % | 64.2 | % | 99.0 | % | ||||||
Export (%) | 47.4 | % | 35.8 | % | 1.0 | % | ||||||
Pig Iron | 19.1 | 4.1 | 14.1 | |||||||||
Domestic (%) | 100.0 | % | 93.3 | % | 100.0 | % | ||||||
Export (%) | 0.0 | % | 6.7 | % | 0.0 | % | ||||||
Semi-Finished Steel Products | 477.5 | 555.1 | 397.5 | |||||||||
Domestic (%) | 18.7 | % | 12.6 | % | 11.0 | % | ||||||
Export (%) | 81.3 | % | 87.4 | % | 89.0 | % | ||||||
Long Steel Products | 2,682.4 | 1,830.1 | 1,436.3 | |||||||||
Domestic (%) | 81.8 | % | 75.4 | % | 76.0 | % | ||||||
Export (%) | 18.2 | % | 24.6 | % | 24.0 | % | ||||||
Flat Steel Products | 475.6 | 421.8 | 304.2 | |||||||||
Domestic (%) | 79.7 | % | 79.0 | % | 79.0 | % | ||||||
Export (%) | 20.3 | % | 21.0 | % | 21.0 | % | ||||||
Forgings | 180.9 | 164.7 | 81.2 | |||||||||
Domestic (%) | 53.8 | % | 61.4 | % | 48.0 | % | ||||||
Export (%) | 46.2 | % | 38.6 | % | 52.0 | % | ||||||
Stampings | 236.1 | 201.4 | 151.7 | |||||||||
Domestic (%) | 84.9 | % | 79.5 | % | 82.0 | % | ||||||
Export (%) | 15.1 | % | 20.5 | % | 18.0 | % | ||||||
Hardware | 891.5 | 603.4 | 458.0 | |||||||||
Domestic (%) | 79.4 | % | 77.9 | % | 76.0 | % | ||||||
Export (%) | 20.6 | % | 22.1 | % | 24.0 | % | ||||||
Other | 119.2 | 241.4 | 150.8 | |||||||||
Domestic (%) | 83.8 | % | 88.3 | % | 66.1 | % | ||||||
Export (%) | 16.2 | % | 11.7 | % | 33.9 | % | ||||||
Total | 5,495.1 | 4,306.9 | 3,042.8 | |||||||||
Domestic (%) | 74.6 | % | 68.5 | % | 67.5 | % | ||||||
Export (%) | 25.4 | % | 31.5 | % | 32.5 | % |
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Metal | ||||||||||||||||||||||||||||
Works, | Railway | |||||||||||||||||||||||||||
Hardware | Pipe | Construction, | Power | Other | ||||||||||||||||||||||||
Use by Industry | Plants | Factories | Construction | Engineering | Repair | Generation | Industries(1) | |||||||||||||||||||||
Semi-Finished Steel Products | 0.0 | % | 82.5 | % | 0.0 | % | 1.8 | % | 0.0 | % | 0.0 | % | 15.6 | % | ||||||||||||||
Long Steel Products | 2.5 | % | 0.5 | % | 68.1 | % | 17.7 | % | 0.0 | % | 0.3 | % | 10.9 | % | ||||||||||||||
Flat Steel Products | 0.3 | % | 11.6 | % | 11.7 | % | 17.4 | % | 0.0 | % | 0.5 | % | 58.4 | % | ||||||||||||||
Forgings | 5.7 | % | 71.2 | % | 0.0 | % | 5.4 | % | 0.8 | % | 0.5 | % | 16.3 | % | ||||||||||||||
Stampings | 3.0 | % | 0.0 | % | 0.0 | % | 85.1 | % | 0.0 | % | 5.5 | % | 6.3 | % | ||||||||||||||
Hardware | 12.0 | % | 2.1 | % | 55.4 | % | 14.3 | % | 4.4 | % | 0.3 | % | 11.6 | % |
(1) | Including the defense, aerospace, petrochemical, textile, food and consumer goods sectors. |
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• | Magnitogorsk Iron & Steel Works OAOis Russia’s largest steel manufacturer by volume, accounting for 18% of the volume of Russian rolled steel production in 2008. MMK’s product mix is comprised mostly of flat products, representing 86% of its commercial steel products output (including production of slabs) in 2008. Domestically, MMK controls a significant portion of the supplies to the oil and gas and automotive sectors. MMK exported 45% of its output in 2008. Its production facilities are located in Magnitogorsk in the southern Urals. | |
• | Evraz Group S.A., which includes the steel producers Nizhny Tagil Metallurgical Works OAO, ZapSib and Kuznetsky Metallurgical Works OAO, is the second Russia’s largest steel manufacturer by volume on a consolidated basis, accounting for 18% of Russia’s total rolled products output (including long products, flat products, semi-finished products) in 2008. Evraz Group focuses on the production of long products, including rebars, wire rods and profiled rolled products (such as rails, beams and channels). Evraz Group also controls iron ore producers Vanady Kachkanar GOK OAO and Vysokogorsky GOK OAO and coking coal producer Yuzhkuzbassugol Coal Company OAO, and has an equity investment in Raspadskaya OAO, which produces coking coal. | |
• | Severstal OAOhad a 17% share by volume of Russian rolled steel production in 2008. The company specializes in flat products which constitute a significant part of its production. Severstal is the third-leading producer of flat products and controls 26% of Russia’s total flat product production output. Domestic sales accounted for 69% of Severstal’s output in 2008, with the oil and gas industry and automotive sector as its leading customers. Severstal also controls coal producer VorkutaUgol and iron ore producers Karelsky Okatysh and Olenegorsky GOK, which satisfy a portion of Severstal’s coking coal and iron ore requirements. | |
• | Novolipetsk Metallurgical Works OAOhad a 15% share by volume of Russian rolled steel production in 2008. The company produces primarily flat products (hot-rolled and cold-rolled), including galvanized products. NLMK exported 67% of its products in 2008. Domestically, NLMK’s largest customers are in the construction and oil and gas industries, followed by companies in the automotive sector. NLMK also controls iron ore producer Stoylensky GOK. The company’s steel facilities are located in Lipetsk, to the southeast of Moscow. | |
• | Metalloinvest Management Company OOO, which consists of Oskolsky Electric Metallurgical Works OAO (“OEMK”) and Ural Steel OAO, had a 9% share of Russian rolled steel production. OEMK produces only long products, and Ural Steel produces both long and flat products. Metalloinvest exported 65% of its rolled steel production in 2008. The company’s production facilities are located in the Central and Urals federal districts of Russia. Alisher Usmanov, one of Metalloinvest’s main owners, also controls Russia’s largest iron ore and pellets production facilities — Lebedinsky GOK OAO and Mikhailovsky GOK OAO. |
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• | Reinforcement bar (“rebar”) — In rebar, we compete in the 6-40 millimeters range. In 2008, the largest domestic rebar producers were Evraz Group (28%), Mechel (22%) Nizhneserginsky MZ (19%) and Severstal (14%). At present, the Russian domestic market for rebar is protected from Ukrainian imports by an import quota. The quota has been imposed by agreement between Russia and Ukraine as the result of a review of the import tariff which was in force until July 14, 2007. | |
• | Wire rod — There were five major producers of wire rod in Russia in 2008: Mechel (33%), Evraz Group (20%), Severstal (20%), MMK (15%) and Nizhneserginsky MZ (12%). We produce some of the highest quality and widest ranges of wire rod (5-10 millimeters) among Russian producers. |
Market Share | ||||||||
by Production | ||||||||
Manufacturer | Production | Volume | ||||||
(In thousands of tonnes, except for percentages) | ||||||||
Evraz Group S.A. | 6,355 | 30.1 | % | |||||
Mechel OAO | 3,004 | 14.2 | % | |||||
Metalloinvest Management Company OOO | 2,070 | 9.8 | % | |||||
Severstal OAO | 1,804 | 8.5 | % | |||||
MMK OAO | 1,585 | 7.5 | % | |||||
Other | 6,306 | 29.9 | % | |||||
Total | 21,124 | 100 | % | |||||
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Market Share | ||||||||
by Production | ||||||||
Manufacturer | Production | Volume | ||||||
(In thousands of tonnes, except for percentages) | ||||||||
Mechel OAO | 885 | 32.5 | % | |||||
Evraz Group S.A. | 548 | 19.9 | % | |||||
Severstal OAO | 542 | 20.1 | % | |||||
MMK OAO | 407 | 14.9 | % | |||||
Nizhneserginsky Metal and Hardware Plant ZAO | 326 | 12.0 | % | |||||
Other | 13 | 0.6 | % | |||||
Total | 2,721 | 100 | % | |||||
(1) | Including wire rod further processed into wire and other products within the same holding company. |
Market Share | ||||||||
by Production | ||||||||
Manufacturer | Production | Volume | ||||||
(In thousands of tonnes, except for percentages) | ||||||||
Evraz Group S.A. | 1,619 | 27.7 | % | |||||
Mechel OAO | 1,304 | 22.3 | % | |||||
Nizhneserginsky Metal and Hardware Plant ZAO | 1,100 | 18.8 | % | |||||
Severstal OAO | 790 | 13.5 | % | |||||
MMK OAO | 462 | 7.9 | % | |||||
Other | 565 | 9.8 | % | |||||
Total | 5,840 | 100 | % | |||||
Market Share | ||||||||
by Production | ||||||||
Manufacturer | Production | Volume | ||||||
(In thousands of tonnes, except for percentages) | ||||||||
Mechel OAO | 36.8 | 67.2 | % | |||||
VMZ Red October | 8.5 | 15.6 | % | |||||
Severstal OAO | 6.7 | 12.2 | % | |||||
MMZ Hammer & Sickle | 1.5 | 2.7 | % | |||||
Other | 1.2 | 2.3 | % | |||||
Total | 54.7 | 100 | % | |||||
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Market Share | ||||||||
by Production | ||||||||
Manufacturer | Production | Volume | ||||||
(In thousands of tonnes, except for percentages) | ||||||||
Mechel OAO | 650 | 30.5 | % | |||||
Severstal-Metiz OAO | 632 | 29.6 | % | |||||
MMK-Metiz OAO | 376 | 17.7 | % | |||||
Evraz Group S.A. | 236 | 11.1 | % | |||||
Maksi-Group OAO | 143 | 6.7 | % | |||||
Other | 94 | 4.4 | % | |||||
Total | 2,131 | 100 | % | |||||
Market Share | ||||||||
by Production | ||||||||
Manufacturer | Production | Volume | ||||||
(In thousands of tonnes, except for percentages) | ||||||||
Mechel OAO | 53.4 | 64.4 | % | |||||
Severstal-Metiz OAO | 24.9 | 30.0 | % | |||||
MMK-Metiz OAO | 4.6 | 5.6 | % | |||||
Total | 82.9 | 100 | % | |||||
Market Share | ||||||||
by Production | ||||||||
Manufacturer | Production | Volume | ||||||
(In thousands of tonnes, except for percentages) | ||||||||
Mechel OAO | 62.2 | 46.8 | % | |||||
Severstal-Metiz OAO | 57.7 | 43.4 | % | |||||
MMK-Metiz OAO | 13.1 | 9.8 | % | |||||
Total | 133.0 | 100 | % | |||||
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Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Sintering | 5,800 | 81.9 | % | 700 | ||||||||
Pig Iron | 3,800 | 92.1 | % | — | ||||||||
Steel-making | 5,100 | 92.3 | % | — | ||||||||
Rolling | 4,730 | 86.8 | % | — | ||||||||
Forging and pressing | 100 | 69.0 | % | — | ||||||||
Coking | 3,100 | 71.0 | % | — |
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Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Steel-making | 700 | 73.1 | % | — | ||||||||
Rolling | 1,000 | 32.2 | % | — | ||||||||
Hardware | 98 | 38.4 | % | — | ||||||||
Forging and stamping | 60 | 28.9 | % | — |
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Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Rolling | 560 | 96.6 | % | — | ||||||||
Hardware | 417 | 97.7 | % | — |
Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Hardware | 91 | 101 | % | — |
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Capacity | Planned | |||||||||||
Utilization | Increase | |||||||||||
Production Areas | Capacity in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Stampings and forgings | 100 | 68.5 | % | — |
Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Steel-making | 550 | 86.9 | % | — | ||||||||
Forging and pressing | 37 | 7.2 | % | — | ||||||||
Rolling | 780 | 57.5 | % | — | ||||||||
Hardware | 18 | 3.6 | % | — |
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Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Rolling(1) | 300 | 79.6 | % | — | ||||||||
Hardware | 100 | 73.1 | % | — |
(1) | Includes steel rolled for further processing in the hardware manufacturing process as well as rolling of products ready for sale. |
Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Hardware | 70 | 92.5 | % | — |
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Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Steel-making | 388 | 71.8 | % | — | ||||||||
Rolling | 300 | 66.2 | % | — | ||||||||
Hardware | 105 | 74.0 | % | — |
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2008 | 2007 | 2006 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Revenues | Amount | Revenues | Amount | Revenues | Amount | Revenues | ||||||||||||||||||
(In millions of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Nickel(1) | 281.3 | 64.8 | % | 468.9 | 93.6 | % | 258.7 | 99.5 | % | |||||||||||||||
Ferrosilicon | 79.3 | 18.2 | % | 29.0 | 5.8 | % | 0.0 | 0.0 | % | |||||||||||||||
Ferrochrome | 68.2 | 15.7 | % | 0.0 | 0.0 | % | 0.0 | 0.0 | % | |||||||||||||||
Other | 5.2 | 1.3 | % | 3.2 | 0.6 | % | 1.2 | 0.5 | % | |||||||||||||||
Total | 434.0 | 100 | % | 501.1 | 100 | % | 259.9 | 100 | % | |||||||||||||||
(1) | Sales of nickel contained in ferronickel and converter matte. |
Region(1) | 2008 | 2007 | 2006 | |||||||||
Russia | 23.0 | % | 6.3 | % | 0.5 | % | ||||||
Other CIS | 0.1 | % | 0.0 | % | 0.0 | % | ||||||
Europe | 74.4 | % | 93.6 | % | 99.5 | % | ||||||
Asia | 1.4 | % | 0.1 | % | 0.0 | % | ||||||
Middle East | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
United States | 1.1 | % | 0.0 | % | 0.0 | % | ||||||
Other | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
100 | % | 100 | % | 100 | % | |||||||
(1) | The regional breakdown of sales is based on the geographic location of our customers, and not on the location of the end users of our products, as our customers are often distributors that resell and, in some cases, further export our products. |
% of Total | ||||||||||
Ferroalloys | % of Total | |||||||||
Segment | Products | |||||||||
Customer | Sales | Product | Sales | |||||||
Glencore International AG | 43.2 | % | Nickel | 50.0 | % | |||||
Chrome | 68.2 | % | ||||||||
Stratton Metals LTD | 18.8 | % | Nickel | 29.0 | % | |||||
Outokumpu Rossija Oy | 9.4 | % | Nickel | 14.4 | % | |||||
Chrome | 0.2 | % | ||||||||
Metalloinvest-steel OOO | 5.5 | % | Ferrosilicon | 30.0 | % | |||||
Kola Metals & Mining Company OAO | 4.3 | % | Nickel | 6.6 | % |
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Products | 2008 | 2007 | 2006 | |||||||||
(In millions of U.S. dollars, except for percentages) | ||||||||||||
Nickel(1) | 281.3 | 468.9 | 258.7 | |||||||||
Domestic (%) | 6.6 | % | 0.0 | % | 0.0 | % | ||||||
Export (%) | 93.4 | % | 100.0 | % | 100.0 | % | ||||||
Ferrosilicon | 79.3 | 29.0 | 0.0 | |||||||||
Domestic (%) | 92.0 | % | 97.3 | % | — | |||||||
Export (%) | 8.0 | % | 2.7 | % | — | |||||||
Ferrochrome | 68.2 | — | — | |||||||||
Domestic (%) | 6.0 | % | — | — | ||||||||
Export (%) | 94.0 | % | — | — | ||||||||
Other | 5.2 | 3.3 | 1.2 | |||||||||
Domestic (%) | 94.3 | % | 100.0 | % | 100.0 | % | ||||||
Export (%) | 5.7 | % | 0.0 | % | 0.0 | % | ||||||
Total | 434.0 | 501.1 | 259.9 | |||||||||
Domestic (%) | 23.2 | % | 6.3 | % | 0.5 | % | ||||||
Export (%) | 76.8 | % | 93.7 | % | 99.5 | % |
(1) | Sales of nickel contained in ferronickel and converter matte. |
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• | Kuznetsk Ferroalloys OAOis the largest Russian ferrosilicon producer, with a 53% market share by production volume in 2008. It controls Yurginsk Ferroalloys Plant OAO. Kuznetsk Ferroalloys produces microsilica and quartzite. It is primarilyexport-oriented, having exported 88% of its ferrosilicon production volume in 2008. | |
• | Chelyabinsk Electro-Metallurgical Plant OAO (ChEMK)is the largest Russian ferrochrome producer, with a 53% market share by production volume in 2008. It is also the second largest ferrosilicon producer with a 19% production share in 2008. It also produces silicomanganese and silicocalcium. ChEMK exports most of its production. In 2008, it exported 93% and 57% by volume of its ferrochrome and ferrosilicon production, respectively. | |
• | Serov Ferroalloys Plant OAOis the second largest Russian ferrochrome producer, with a 34% market share by production volume in 2008. It is also one of Russia’s largest ferrosilicon producers, with a 6% production share in 2008. The plant is controlled by the Kazakh industrial group ENRC, which is one of the largest chrome ore and ferrochrome producers in the world, according to CRU. Serov also produces ferrosilicochrome. Serov exported 75% of its ferrochrome production volume in 2008, and almost all of the ferrosilicon it produced in 2008 was supplied domestically. |
Market Share | ||||||||||
by Production | ||||||||||
Manufacturer | Region | Production | Volume, % | |||||||
(In thousands of tonnes, | ||||||||||
except for percentages) | ||||||||||
Kuznetsk Ferroalloys OAO | Kemerov region | 296.4 | 52.6 | % | ||||||
Chelyabinsk Electro-Metallurgical Plant OAO | Chelyabinsk | 109.4 | 19.4 | % | ||||||
Bratsk Ferroalloy Plant OAO | Irkutsk region | 84.3 | 15.0 | % | ||||||
Serov Ferroalloys Plant OAO | Sverdlovsk region | 31.5 | 5.6 | % | ||||||
Novolipetsk Metallurgical Plant OAO | Lipetsk region | 24.0 | 4.3 | % | ||||||
Yurginsk Ferroalloys Plant OAO | Kemerov region | 17.8 | 3.1 | % | ||||||
Total | 563.4 | 100 | % | |||||||
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Market Share | ||||||||||
by Production | ||||||||||
Manufacturer | Region | Production | Volume, % | |||||||
(In thousands of tonnes, | ||||||||||
except for percentages) | ||||||||||
Chelyabinsk Electro-Metallurgical Plant OAO | Chelyabinsk | 242.7 | 53.2 | % | ||||||
Serov Ferroalloys Plant OAO | Sverdlovsk region | 155.6 | 34.1 | % | ||||||
Tikhvin Ferroalloy Plant ZAO | Leningrad region | 55.3 | 12.1 | % | ||||||
Klyuchevsk Ferroalloys Plant OAO | Sverdlovsk region | 2.2 | 0.6 | % | ||||||
Total | 455.8 | 100 | % | |||||||
Year | ||||||||||||||
License | Area | Production | ||||||||||||
License Area | License Holder | Expiry Date | Status | (sq. km) | Commenced | |||||||||
Buruktal | Southern Urals Nickel Plant | December 2012 | In production | 11.9 | 1968 | |||||||||
Sakhara | Southern Urals Nickel Plant | April 2013 | In production | 2.2 | 1994 |
2008 | 2007 | 2006 | ||||||||||||||||||||||
Grade | Grade | Grade | ||||||||||||||||||||||
Tonnes | (% Ni) | Tonnes | (% Ni) | Tonnes | (% Ni) | |||||||||||||||||||
(In thousands of tonnes)(1) | ||||||||||||||||||||||||
Sakhara ore production | 1,025.7 | 1.07 | % | 1,236.1 | 1.13 | % | 1,118.3 | 1.10 | % | |||||||||||||||
Buruktal ore production | 1,436.4 | 1.05 | % | 1,591.3 | 1.05 | % | 1,240.3 | 1.05 | % | |||||||||||||||
Total ore production | 2,462.1 | 1.06 | % | 2,827.4 | 1.09 | % | 2,358.6 | 1.07 | % | |||||||||||||||
Nickel production | 16,158.0 | 17,111.0 | 14,436.0 |
(1) | Volumes are reported on a wet basis. |
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Year | ||||||||||||||
License | Area | Production | ||||||||||||
License Area | License Holder | Expiry Date | Status | (sq. km) | Commenced | |||||||||
Voskhod | Voskhod-Oriel | October 2029 | In production | 1.54 | 2008 | |||||||||
Shevchenko | Kazakhstansky Nickel Mining Company | March 2017 | Feasibility study | 135 | n/a |
Year | ||||||||||||||
License | Area | Production | ||||||||||||
License Area | License Holder | Expiry Date | Status | (sq. km) | Commenced | |||||||||
Uvatskoye | Bratsk Ferroalloy Plant | July 2033 | Exploration | 18.21 | n/a |
Grade | ||||||||
Nickel Ore Reserves(1)(2)(3) | Tonnes(4) | (% Ni)(5) | ||||||
(In millions of tonnes) | ||||||||
Sakhara | 4.0 | 1.2 | % | |||||
Buruktal | 5.6 | 0.9 | % | |||||
Total | 9.6 | 1.0 | % | |||||
(1) | Reserve estimates use the tonnages that are expected to be mined, taking into account dilution and losses. | |
(2) | We own 79.9% of Southern Urals Nickel Plant mines. Reserves are presented for the mines on an assumed 100% ownership basis. | |
(3) | In estimating our reserves we use average market or contract prices and currency conversions are carried out at average official exchange rates of the Central Bank of Russia. | |
(4) | Volumes are reported on a dry basis. | |
(5) | Metallurgical recovery is projected to be 73.8%. |
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Grade | ||||||||
Nickel Ore Deposits(1) | Tonnes(2) | (% Ni)(3) | ||||||
(In millions of tonnes) | ||||||||
Buruktal | 69.7 | 0.9 | % |
(1) | Includes adjustments for dilution and mine recovery, based on historical records. | |
(2) | Volumes are reported on a dry basis. | |
(3) | Metallurgical recovery is projected to be 73.8%. |
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Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Low-ferrous ferronickel production | 16,158 | 92 | % | — |
Capacity | Planned | |||||||||||
Capacity | Utilization | Increase | ||||||||||
Production Areas | in 2008 | Rate in 2008 | (2009-2011) | |||||||||
(In thousands of tonnes, except for percentages) | ||||||||||||
Ferrosilicon production | 91,110 | 100 | % | 113 |
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Month and Year of | ||||||||||||||
Commissioning at | Installed | Electricity | ||||||||||||
Year of | Southern Kuzbass | Capacity | Production in | |||||||||||
Generation Unit No. | Manufacture | Power Plant | (MW) | 2008 (million kWh) | ||||||||||
VK-50-2 LMZ | 1950 | April 1951 | 53 | 193,659 | ||||||||||
VK-50-2 LMZ | 1950 | November 1951 | 53 | 224,788 | ||||||||||
VK-50-2 LMZ | 1950 | August 1952 | 53 | 294,343 | ||||||||||
VK-50-2 LMZ | 1952 | February 1953 | 53 | 143,131 | ||||||||||
T-115-8,8 LMZ | 1996 | December 2003 | 113 | 390,104 | ||||||||||
T-88/106-90 LMZ | 1953 | July 1954 | 88 | 429,963 | ||||||||||
VK-50-2 LMZ | 1954 | December 1954 | 53 | 184,749 | ||||||||||
T-88/106-90 LMZ | 1953 | September 1956 | 88 | 265,305 | ||||||||||
Total Installed Capacity | 554 | |||||||||||||
Total Electricity Production | 2,126,042 | |||||||||||||
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Approximate | Year of | Estimated | ||||||||||||
Planned Increase in Capacity | Total Planned | Project | Year of | |||||||||||
and/or Other Improvement | Expenditures(1) | Launch | Completion | |||||||||||
(In millions) | ||||||||||||||
Mining Business | ||||||||||||||
Maintenance expenditures | Maintaining current coal and iron ore mining and coal and iron ore concentrate production | $ | 293.2 | 2009 | 2012 | |||||||||
Yakutugol | ||||||||||||||
Construction of a rail branch to the Elga coal deposit and the development of the Elga coal deposit | Providing access to deposit and the development of the deposit | $ | 1,644.8 | 2008 | 2011 | |||||||||
Steel Business | ||||||||||||||
Maintenance expenditures | Maintaining current output capacity | $ | 182.5 | 2009 | 2012 | |||||||||
Chelyabinsk Metallurgical Plant | ||||||||||||||
Construction of rolling facilities in blooming building | Introducing new types of rolled products for construction industry with a design capacity of 1.1 million tonnes per annum | $ | 700.4 | 2008 | 2011 | |||||||||
Izhstal | ||||||||||||||
Modernization of arc-furnace melting facilities; renovation of arc-furnace shop No. 23 | Increase of arc-furnace steel melting capacity to 480,000 tonnes per annum and steel quality improvements; decommissioning older open-hearth furnace | $ | 125.3 | 2007 | 2009 | |||||||||
Reconstruction of mill No. 250 | Increase in capacity to 300,000 tonnes per annum and increase of quality of rolled products | $ | 62.6 | 2007 | 2009 | |||||||||
Infrastructure ofarc-furnace shop No. 23 and mill No. 250 | $ | 7.1 | 2007 | 2009 | ||||||||||
Ferroalloys business | ||||||||||||||
Maintenance expenditures | Maintaining current output capacity | $ | 59.1 | 2009 | 2012 | |||||||||
Transport division | ||||||||||||||
Maintenance expenditures | Maintaining current output capacity | $ | 7.5 | 2009 | 2012 | |||||||||
Technical modernization of Port Posiet | Increase of production capacity by 7.0 million tonnes per annum | $ | 71.3 | 2004 | 2010 | |||||||||
Power business | ||||||||||||||
Maintenance expenditures | Maintaining current output capacity | $ | 35.5 | 2009 | 2012 |
(1) | We estimate that approximately $709.0 million of the aforementioned planned expenditures for these projects have been made as of December 31, 2008. In 2008, we spent $1.2 billion in total for capital expenditures. |
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• | the use of subsoil, which is described in more detail in “— Subsoil licensing” below; | |
• | the use of water resources; | |
• | the discharge of pollutants into the environment; | |
• | the handling of hazardous waste; | |
• | storage and use of explosive, flammableand/or dangerous materials; | |
• | operation of industrial facilities featuring fire and explosion hazard (including mining and surveying activities); | |
• | construction; | |
• | fire control and security; | |
• | medical operations; and | |
• | transportation activities. |
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• | an acquisition by a person (or its group) of more than 25% of the voting shares of a joint-stock company (or one-third of the interests in a limited liability company), except upon incorporation, and the subsequent increase of these stakes to more than 50% of the total number of shares and more than 75% of the voting shares (one-half and two-thirds of the interests in a limited liability company), or acquisition by a person (or its group) of ownership or rights of use with respect to the core production assetsand/or intangible assets of an entity if the balance sheet value of such assets exceeds 20% of the total balance sheet value of the core production and intangible assets of such entity, or obtaining rights to determine the conditions of business activity of an entity or to exercise the powers of its executive body by a person (or its group), if, in any of the above cases, the aggregate asset value of an acquirer (or its group) together with a target (or its group) exceeds RUR 3 billion and at the same time the total asset value of the target (or its group) exceeds RUR 150 million, or the total annual revenues of such acquirer (or its group) and the target (or its group) for the preceding calendar year exceed RUR 6 billion and at the same time the total asset value of the target (or its group) exceeds RUR 150 million, or an acquirer,and/or a target, or any entity within the acquirer’s group or a target’s group are included in the Register of Entities Having a Market Share in Excess of 35% on a Particular Commodity Market (the “Monopoly Register”); |
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• | mergers and consolidations of entities, if their aggregate asset value (the aggregate asset value of the groups of persons to which they belong) exceeds RUR 3 billion, or total annual revenues of such entities (or groups of persons to which they belong) for the preceding calendar year exceed RUR 6 billion, or if one of these entities is included in the Monopoly Register; and | |
• | foundation of an business entity, if its charter capital is paid by the shares (or limited liability company interests)and/or the assets of another business entity and the newly founded business entity acquires rights in respect of such shares (or limited liability company interests)and/or assets as specified above, provided that the aggregate asset value of the founders (or group of persons to which they belong) and the business entities (or groups of persons to which they belong) which shares (or limited liability company interests)and/or assets are contributed to the charter capital of the newly founded business entity exceeds RUR 3 billion, or total annual revenues of the founders (or group of persons to which they belong) and the business entities (or groups of persons to which they belong) which shares (or limited liability company interests)and/or assets are contributed to the charter capital of the newly founded business entity for the preceding calendar year exceed RUR 6 billion, or if an business entity whose shares (or limited liability company interests)and/or assets are contributed to the charter capital of the newly founded business entity is included in the Monopoly Register. |
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• | liquidation of the enterprise or downsizing of staff; | |
• | failure of the employee to comply with the position’s requirements due to incompetence, as confirmed by the results of an attestation; | |
• | repeated failure of the employee to fulfill his or her work duties without valid reason, provided that the employee has been disciplined previously; | |
• | entering the workplace under the influence of alcohol, narcotics or other intoxicating substances; | |
• | a single gross breach by an employee of his or her work duties, including truancy; | |
• | disclosure of state secrets or other confidential information, which an employee has come to know during fulfillment of his professional duties; | |
• | embezzlement, willful damage or destruction of assets, and misappropriation as confirmed by a court decision or a decision by another competent government authority; | |
• | failure to comply with safety requirements in the workplace if such failure to comply caused injuries, casualties or catastrophe; |
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• | provision by the employee of false documents upon entry into the employment contract; and | |
• | in the case of a chief executive officer or his or her deputy, a single gross breach of employment duties. |
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• | negotiate collective contracts and agreements such as those between the trade unions and employers, federal, regional and local governmental authorities and other entities; | |
• | monitor compliance with labor laws, collective contracts and other agreements; | |
• | access work sites and offices, and request information relating to labor issues from the management of companies and state and municipal authorities; | |
• | represent their members and other employees in individual and collective labor disputes with management; | |
• | organize and participate in strikes; and | |
• | monitor redundancy of employees and seek action by municipal authorities to delay or suspend mass layoffs. |
• | legal restrictions as to rendering redundant employees elected or appointed to the management of trade unions; | |
• | protection from disciplinary punishment or dismissal on the initiative of the employer without prior consent of the management of the trade union and, in certain circumstances, the consent of the relevant trade union association; | |
• | retention of job positions for those employees who stop working due to their election to the management of trade unions; | |
• | protection from dismissal for employees who previously served in the management of a trade union for two years after the termination of the office term, except when a company is liquidated or the employer is otherwise entitled to dismiss the employee; and | |
• | provision of the necessary equipment, premises and vehicles by the employer for use by the trade union free of charge, if provided for by a collective bargaining contract or other agreement. |
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• | producers of electricity and capacity: generating companies (OGKs, TGKs, various other generators); | |
• | electricity supply companies (energy traders) which have purchased electricity and capacity for further resale on wholesale and retail markets; and | |
• | purchasers of electricity and capacity: major power consumers and generating companies which at certain points in time may elect to purchase electricity to fulfill their supply obligations instead of generating their own. |
• | a supplier of electricity must own facilities with a total capacity of at least 25 MW and of at least 5 MW at each group of supply spots, or have a right to sell electricity generated by such facilities; |
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• | a consumer of electricity must own power receiving facilities with a total capacity of at least 20 MVA and of at least 750 kVA at each group of supply spots; | |
• | any participant of the wholesale market must be able to collect, process and transfer to the TSA data about the electricity generated (consumed) at each supply spot, and must have entered into electricity transmission agreements and into dispatching services agreements. |
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• | Acid rain. One of the regulatory programs established under the CAA concerns the control of sulfur dioxide and nitrogen oxide (“NOx”), precursors of acid deposition. Through an emission allowance and trading program, Title IV of the CAA imposes a two-phase “cap” on total sulfur dioxide emissions from sources including electric utilities. All of the Phase I and Phase II allowances offered by the U.S. Environmental Protection Agency (the “EPA”) have been purchased each year since there is no minimum bid requirement. In general, affected power plants have also sought to comply with these requirements by switching to lower sulfur fuels, installing pollution control equipment, and reducing electricity generation levels. The program also directs the EPA to impose NOx emissions rate limits oncoal-fired electricity generating sources. At this time, we believe that these regulations have affected coal prices but we cannot predict with certainty the future effect of these CAA provisions on our business. | |
• | Emissions standards for particulate matter and ozone. A significant component of the CAA is the national ambient air quality standard (“NAAQS”) program, which addresses pervasive pollution that endangers public health and welfare. NAAQS have been established for a number of pollutants, including particulate matter and ozone. For each of these pollutants, NAAQS are set at certain levels and areas that do not meet one or more of the NAAQS are known as “nonattainment” areas and must comply with a number of special requirements. NAAQS are to be reviewed and revised as appropriate at least every five years. In recent years the EPA has made a number of decisions regarding the NAAQS program that have been the subject of controversy and litigation, and may have important implications for future regulation under the CAA. Regulation and enforcement of new standards for particulate matter and ozone will affect many power plants, especially in nonattainment areas, and significant emissions control expenditures may be required to meet these current and emerging standards. | |
• | Clean Air Interstate Rule. The Clean Air Interstate Rule (“CAIR”) is a program for approximately 28 eastern states, including West Virginia, that contribute to downwind states’ nonattainment of NAAQS. CAIR applies to sulfur dioxide and NOx. It interacts with, and in some cases supersedes, other existing programs under the CAA such as the Acid Rain program, the Regional Haze rule and the NOx SIP Call. The CAIR requires states to revise their State Implementation Plans (“SIPs”) to reduce emissions of sulfur dioxide and NOx. The CAIR has been the subject of litigation since its promulgation and it is currently unclear how the EPA will modify the CAIR in response. The existing CAIR, however, is generally expected to require many coal-fueled power plants to install additional pollution control equipment or to incur other costs, and further changes to the CAIR rules may increase these burdens. All of the foregoing could adversely affect the purchase of our coal by customers. | |
• | Clean Air Mercury Rule. In 2005, the Clean Air Mercury Rule (“CAMR”) became the first regulation to directly address mercury contamination. The rule would have applied to new and existing coal-fueled electric utility steam generating units nationwide and creates acap-and-trade system. Each affected unit would be required to have a continuous emission monitoring system or an effective long-term system that can trap an uninterrupted sample of mercury, and maintain records and report periodically to demonstrate |
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compliance with the mercury limits. The rule, however, was recently vacated during litigation, and EPA has announced plans for a new rulemaking. Separate state standards may also be passed. Regardless of whether these or other measures are implemented, rules imposing stricter limitations on mercury emissions from power plants may adversely affect the demand for coal. |
• | Regional haze. The EPA has initiated a regional haze program to address visibility issues in and around national parks and wilderness areas. Among other things, the program requires state permitting authorities to consider the effects of new major facilities on federally protected lands, and may require existing facilities to undertake additional pollution control measures. These limitations could affect the future market for coal. |
• | The NPDES system implements CWA’s prohibition on unauthorized discharges by requiring a permit for every discharge of pollutants from a point source to navigable waters of the United States. NPDES permits give the permittee the right to discharge specified pollutants from specified outfalls, usually for a period of five years. The permit normally sets numerical limits on the discharges and imposes conditions on the permittee (including filing periodic discharge and monitoring reports); discharges that require a permit include industrial process wastewater, non-contact cooling water and collected or channeled storm water runoff. The CWA also requires many facilities to develop and maintain plans for preventing and responding to spills of hazardous substances, called Spill Prevention Control and Countermeasure (“SPCC”) Plans, and certain high-volume hazardous substance handling/storage facilities are required to prepare and maintain a more extensive plan called a Facility Response Plan. |
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• | EPA has delegated NPDES permitting authority to West Virginia. West Virginia water pollution law is generally broader than its federal counterparts. For example, among other things, state law regulates discharges into all waters of the state, including groundwater, and requires permits for the construction of disposal systems. | |
• | Coal companies are required to maintain a CWA Section 404 permit from the Army Corps of Engineers generally authorizing the disposal of dredged and fill material from coal mining activities into the waters of the United States, for the purpose of creating slurry ponds, water impoundments, refuse disposal areas, valley fills and other mining activities. Permits issued under Section 404 are subject to court challenge, and in recent years both “nationwide” and “individual” permits have been litigated, including in West Virginia. | |
• | SDWA primarily targets public water systems, which generally includes any system for the provision of water to the public for human consumption through pipes or other constructed conveyances if such system has at least 15 service connections or regularly serves at least 25 individuals. This broad definition can include informal and transient water systems (e.g., businesses such as coal mining operations having their own wells or water supplies foron-site workers). West Virginia state law prohibits the installation or establishment of any system or method of drainage, water supply or sewage disposal without first obtaining a permit from the Bureau of Public Health. The Department of Health and Human Resources has promulgated rules which adopt the National Drinking Water Regulations under the SDWA. These rules, among other things, require chlorination of public water systems and set fluorination standards. |
• | CERCLA’s central provisions authorize the EPA to clean up these sites using money from the so-called “Superfund” (generated by tax revenues) and then to recover the cleanup costs from so-called “potentially responsible parties” (“PRPs”) who have contributed to the contamination. In addition, private parties may implement EPA-approved cleanups. | |
• | Under CERCLA a PRP’s liability is strict, joint, several and retroactive; in other words, liability may be imposed regardless of fault, may relate to historical activities or contamination, may require one party to bear the costs of the entire cleanup and has no requirement that the party’s activities or hazardous substances have actually caused the contamination. Categories of liable parties under CERCLA include current owners, lessees and operators, former owners, lessees and operators, waste generators or arrangers, and transporters. Accordingly, it is possible for us to become subject to investigation or cleanup obligations (or relatedthird-party claims) in connection with onsite or offsite contamination issues, including those caused by predecessors. | |
• | CERCLA contains a “cost recovery” provision generally authorizing one PRP to initiate a private claim against another PRP for cleanup liabilities. |
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Item 5. | Operating and Financial Review and Prospects |
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• | Gazprombank — $1,000.0 million U.S. dollar-denominated credit facility repayable in quarterly installments in2010-2012 for a partial repayment of its “Oriel” and “Yakutugol” credit facilities. As a security for these credit facilities the group pledged 35% of the shares in Yakutugol and Southern Kuzbass Coal Company; | |
• | VTB — 15 billion rubles ($510.1 million) credit facility expiring in November 2009 under the guarantees issued by Mechel and pledges of Southern Kuzbass Coal Company and Chelyabinsk Metallurgical Plant production assets; | |
• | Sberbank — 3.3 billion rubles ($112.3 million) credit facility due in 2010. |
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• | the mining segment, comprising the production and sale of coal (coking and steam) and iron ore, which supplies raw materials to our steel business and also sells substantial amounts of raw materials to third parties, and includes logistical assets, such as our seaports on the Black Sea and the Pacific Ocean and our railway transportation assets; | |
• | the steel segment, comprising the production and sale of semi-finished steel products, carbon and specialty long products, carbon and stainless flat products, value-added downstream metal products including hardware, forgings and stampings, as well as steel industry materials such as limestone, coke and coking products, and our river port in the Volga River watershed; | |
• | the ferroalloys segment, comprising the production and sale of nickel ore, low-ferrous ferronickel, ferrochrome and ferrosilicon, which supplies raw materials to our steel business and also sells substantial amounts of raw materials to third parties, the largest of which is Glencore International; and | |
• | the power segment, comprising power generating facilities, which supply power to our mining and steel segments and also sell a portion of the power generated to third parties, and a power distribution company. |
Voting | ||||||||||
Name | Location of Assets | Product/Business | Date Control Acquired | Interest(1)% | ||||||
Mining Segment | ||||||||||
Southern Kuzbass Coal Company(2) | Russia | Coking coal concentrate, steam coal, steam coal concentrate | January 1999 | 95.4 | % | |||||
Tomusinsk Open Pit Mine | Russia | Coking coal, steam coal | January 1999 | 74.5 | % | |||||
Korshunov Mining Plant | Russia | Iron ore concentrate | October 2003 | 85.6 | % | |||||
Port Posiet | Russia | Seaport: coal warehousing and loading | February 2004 | 97.1 | % | |||||
Transkol | Russia | Railway transportation | May 2007 | 100.0 | % | |||||
Yakutugol | Russia | Coking coal, steam coal | October 2007 | 100.0 | % | |||||
Elgaugol(3) | Russia | Coking coal, steam coal (in development) | October 2007 | 71.2 | % | |||||
Port Temryuk(4) | Russia | Seaport: coal transshipment | March 2008 | 100.0 | % | |||||
Port Vanino | Russia | Coal transshipment complex (under construction) | November 2008 | 100.0 | % | |||||
Mechel Bluestone Inc. | United States | Coking coal | May 2009 | 100.0 | % | |||||
Steel Segment | ||||||||||
Chelyabinsk Metallurgical Plant | Russia | Semi-finished steel products, carbon and specialty long and flat steel products, forgings, coke and coking products | December 2001 | 94.2 | % | |||||
Vyartsilya Metal Products Plant | Russia | Hardware | May 2002 | 93.3 | % | |||||
Beloretsk Metallurgical Plant | Russia | Long steel products, hardware, limestone(5) | June 2002 | 91.4 | % | |||||
Mechel Targoviste | Romania | Carbon and specialty long steel products, forgings, hardware | August 2002 | 86.6 | % | |||||
Urals Stampings Plant | Russia | Stampings | April 2003 | 93.8 | % | |||||
Mechel Campia Turzii | Romania | Long steel products, hardware | June 2003 | 86.6 | % |
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Voting | ||||||||||
Name | Location of Assets | Product/Business | Date Control Acquired | Interest(1)% | ||||||
Mechel Nemunas | Lithuania | Hardware | October 2003 | 100.0 | % | |||||
Izhstal | Russia | Specialty and carbon steel long products, hardware, stampings and forgings | May 2004 | 88.4 | % | |||||
Port Kambarka | Russia | River port | April 2005 | 90.4 | % | |||||
Metals Recycling | Russia | Metal scrap processing | March 2006 | 100.0 | % | |||||
Moscow Coke and Gas Plant | Russia | Coke and gas works, organic chemicals | October 2006 | 99.5 | % | |||||
Ductil Steel | Romania | Carbon steel, low-alloyed steel rolled and wire products | April 2008 | 100.0 | % | |||||
HBL Holding GmbH | Germany | Steel trading and distribution, servicing, cutting and processing steel products, warehousing system | September 2008 | 100.0 | % | |||||
Ferroalloys Segment | ||||||||||
Southern Urals Nickel Plant | Russia | Ferronickel | December 2001 | 84.1 | % | |||||
Bratsk Ferroalloy Plant | Russia | Ferrosilicon | August 2007 | 100.0 | % | |||||
Oriel Resources | Russia, Kazakhstan | Chrome and nickel mining and processing | April 2008 | 100.0 | % | |||||
Tikhvin Ferroalloy Plant | Russia | Ferrochrome | April 2008 | 100.0 | % | |||||
Power Segment | ||||||||||
Southern Kuzbass Power Plant | Russia | Electricity | April 2007 | 98.3 | % | |||||
Kuzbass Power Sales Company | Russia | Electricity distribution | June 2007 | 72.1 | % |
(1) | Except where the acquisition date occurred after December 31, 2008 (in which case the percentage is given as of the date of completion of the acquisition), the percentages provided in this table are as of December 31, 2008. Some of our Russian subsidiaries have preferred shares outstanding that have voting rights commensurate with common shares if dividends on those shares have not been paid. We have calculated voting interests by including these preferred shares for subsidiaries where dividends have not been paid. | |
(2) | In 2005, we commenced the restructuring of Southern Kuzbass Coal Company, during the course of which we merged the company with certain of its subsidiaries. As a result of the merger of these subsidiaries into Southern Kuzbass Coal Company, our current ownership stake in Southern Kuzbass Coal Company is 95.4%. | |
(3) | With effect upon the end of the first quarter of 2008, the subsoil license to the Elga coal deposit was transferred from Elgaugol to Yakutugol. | |
(4) | Port Temyruk is a seaport located at the Taman shore of the Sea of Azov, an inlet of the Black Sea, and is primarily utilized for small tonnage river-sea type vessels in southern Russia. In order to organize coal transshipment we purchased the Temryuk-Sotra, Soyuztranzit and Tekhnoprodintorg companies. The assets of the acquired companies, as well as the acquired assets of a Russian Railways transshipment complex were transferred to the balance sheet of the newly created Port Temryuk company. Temryuk-Sotra, Soyuztranzit and Tekhnoprodintorg are in the process of liquidation, which is expected to be completed by the end of 2009. We plan to use Port Temryuk mainly for transshipment. | |
(5) | Our Pugachev limestone quarry is 100% owned by Beloretsk Metallurgical Plant and is within the steel segment. |
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Year Ended December 31, | ||||||||||||||||||||||||
2008 | 2007 | 2006 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Revenues | Amount | Revenues | Amount | Revenues | Amount | Revenues | ||||||||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||||||||||
Revenue, net | 9,950,705 | 100.0 | % | 6,683,842 | 100.0 | % | 4,397,811 | 100.0 | % | |||||||||||||||
Cost of goods sold | (5,260,108 | ) | (52.9 | )% | (4,166,864 | ) | (62.3 | )% | (2,860,224 | ) | (65.0 | )% | ||||||||||||
Gross profit | 4,690,597 | 47.1 | % | 2,516,978 | 37.7 | % | 1,537,587 | 35.0 | % | |||||||||||||||
Selling, distribution and operating expenses | (2,134,328 | ) | (21.4 | )% | (1,119,385 | ) | (16.7 | )% | (811,889 | ) | (18.5 | )% | ||||||||||||
Operating income | 2,556,269 | 25.7 | % | 1,397,593 | 20.9 | % | 725,698 | 16.5 | % | |||||||||||||||
Other (expense) income, net | (1,208,001 | ) | (12.1 | )% | (12,146 | ) | (0.2 | )% | 139,135 | 3.2 | % | |||||||||||||
Income before income tax, minority interest and discontinued operations | 1,348,268 | 13.5 | % | 1,385,447 | 20.7 | % | 864,833 | 19.7 | % | |||||||||||||||
Income tax expense | (118,887 | ) | (1.2 | )% | (356,320 | ) | (5.3 | )% | (230,599 | ) | (5.2 | )% | ||||||||||||
Minority interest in income of subsidiaries | (88,837 | ) | (0.9 | )% | (116,234 | ) | (1.7 | )% | (31,528 | ) | (0.7 | )% | ||||||||||||
Income from continuing operations | 1,140,544 | 11.5 | % | 912,893 | 13.7 | % | 602,706 | 13.7 | % | |||||||||||||||
Income from discontinued operations, net of tax | — | 0.0 | % | 158 | 0.0 | % | 543 | 0.0 | % | |||||||||||||||
Net income | 1,140,544 | 11.5 | % | 913,051 | 13.7 | % | 603,249 | 13.7 | % | |||||||||||||||
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Year Ended December 31, | ||||||||
2008 | 2007 | |||||||
(In thousands of U.S. dollars, except percentages) | ||||||||
Mining segment | ||||||||
To third parties | 3,333,406 | 1,372,508 | ||||||
To ferroalloys segment | 11,271 | 12,051 | ||||||
To power segment | 27,695 | 11,272 | ||||||
To steel segment | 659,595 | 575,138 | ||||||
Total | 4,031,967 | 1,970,969 | ||||||
Steel segment | ||||||||
To third parties | 5,495,139 | 4,306,875 | ||||||
To ferroalloys segment | 96,752 | 79,135 | ||||||
To power segment | 174,814 | 22,509 | ||||||
To mining segment | 7,014 | 5,973 | ||||||
Total | 5,773,719 | 4,414,492 | ||||||
Ferroalloys segment | ||||||||
To third parties | 434,017 | 501,143 | ||||||
To steel segment | 150,614 | 135,513 | ||||||
Total | 584,631 | 636,656 | ||||||
Power segment | ||||||||
To third parties | 688,143 | 503,316 | ||||||
To steel segment | 257,368 | 38,587 | ||||||
To ferroalloys segment | 29,468 | 26,225 | ||||||
To mining segment | 53,131 | 30,387 | ||||||
Total | 1,028,110 | 598,515 | ||||||
Eliminations | 1,467,722 | 936,790 | ||||||
Consolidated revenues | 9,950,705 | 6,683,842 | ||||||
% from mining segment | 33.5 | % | 20.5 | % | ||||
% from steel segment | 55.2 | % | 64.4 | % | ||||
% from ferroalloys segment | 4.4 | % | 7.5 | % | ||||
% from power segment | 6.9 | % | 7.5 | % |
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Year Ended | Year Ended | |||||||||||||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Cost of Goods Sold and Gross Margin by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Mining segment | ||||||||||||||||
Cost of goods sold | 1,229,631 | 30.5 | % | 1,008,485 | 51.2 | % | ||||||||||
Gross margin | 2,802,336 | 69.5 | % | 962,484 | 48.8 | % | ||||||||||
Steel segment | ||||||||||||||||
Cost of goods sold | 4,219,344 | 73.1 | % | 3,374,420 | 76.4 | % | ||||||||||
Gross margin | 1,554,375 | 26.9 | % | 1,040,072 | 23.6 | % | ||||||||||
Ferroalloys segment | ||||||||||||||||
Cost of goods sold | 571,162 | 97.7 | % | 253,725 | 39.9 | % | ||||||||||
Gross margin | 13,469 | 2.3 | % | 382,931 | 60.1 | % | ||||||||||
Power segment | ||||||||||||||||
Cost of goods sold | 714,094 | 69.5 | % | 393,153 | 65.7 | % | ||||||||||
Gross margin | 314,016 | 30.5 | % | 205,362 | 34.3 | % |
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Year Ended | Year Ended | |||||||||||||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Selling, Distribution and Operating Expenses by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Mining segment | ||||||||||||||||
Selling and distribution expenses | 678,070 | 16.8 | % | 241,090 | 12.2 | % | ||||||||||
Taxes other than income tax | 60,450 | 1.5 | % | 3,815 | 0.2 | % | ||||||||||
Allowance for doubtful accounts | 13,564 | 0.3 | % | (1,441 | ) | (0.1 | )% | |||||||||
Accretion expense | 2,530 | 0.1 | % | 1,071 | 0.1 | % | ||||||||||
Loss on write-off property, plant and equipment | 796 | 0.0 | % | — | — | |||||||||||
General, administrative and other operating expenses | 246,386 | 6.1 | % | 146,480 | 7.4 | % | ||||||||||
Total | 1,001,796 | 24.8 | % | 391,015 | 19.8 | % | ||||||||||
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Year Ended | Year Ended | |||||||||||||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Selling, Distribution and Operating Expenses by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Steel segment | ||||||||||||||||
Selling and distribution expenses | 406,687 | 7.0 | % | 194,855 | 4.4 | % | ||||||||||
Taxes other than income tax | 49,421 | 0.9 | % | 71,243 | 1.6 | % | ||||||||||
Loss on write off of property, plant and equipment | 3,527 | 0.0 | % | — | 0.0 | % | ||||||||||
Accretion expense | 2,792 | 0.0 | % | 1,708 | 0.0 | % | ||||||||||
Allowance for doubtful accounts | 78,031 | 1.4 | % | 3,602 | 0.1 | % | ||||||||||
General, administrative and other operating expenses | 243,478 | 4.2 | % | 231,403 | 5.2 | % | ||||||||||
Total | 783,936 | 13.6 | % | 502,811 | 11.4 | % | ||||||||||
Ferroalloys segment | ||||||||||||||||
Selling and distribution expenses | 10,185 | 1.7 | % | 3,400 | 0.5 | % | ||||||||||
Taxes other than income tax | 3,437 | 0.6 | % | 7,528 | 1.2 | % | ||||||||||
Allowance for doubtful accounts | 2,232 | 0.4 | % | 2 | 0.0 | % | ||||||||||
Accretion expense | 591 | 0.1 | % | 322 | 0.1 | % | ||||||||||
General, administrative and other operating expenses | 47,541 | 8.1 | % | 21,572 | 3.4 | % | ||||||||||
Total | 63,986 | 10.9 | % | 32,824 | 5.2 | % | ||||||||||
Power segment | ||||||||||||||||
Selling and distribution expenses | 254,047 | 24.7 | % | 182,466 | 30.5 | % | ||||||||||
Taxes other than income tax | 3,282 | 0.3 | % | 1,408 | 0.2 | % | ||||||||||
Allowance for doubtful accounts | 9,805 | 1.0 | % | (752 | ) | (0.1 | )% | |||||||||
Accretion expense | 165 | 0.0 | % | — | 0.0 | % | ||||||||||
General, administrative and other operating expenses | 17,311 | 1.7 | % | 9,613 | 1.6 | % | ||||||||||
Total | 284,610 | 27.7 | % | 192,735 | 32.2 | % | ||||||||||
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Year Ended | Year Ended | |||||||||||||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Operating Income by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Mining segment | 1,800,540 | 44.7 | % | 571,469 | 29.0 | % | ||||||||||
Steel segment | 770,439 | 13.3 | % | 537,261 | 12.2 | % | ||||||||||
Ferroalloys segment | (50,517 | ) | (0.9 | )% | 350,107 | 55.0 | % | |||||||||
Power segment | 29,406 | 2.9 | % | 12,627 | 2.1 | % | ||||||||||
Elimination of intersegment unrealized profit | 6,401 | (73,871 | ) | |||||||||||||
Consolidated operating income | 2,556,269 | 1,397,593 | ||||||||||||||
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Year Ended | Year Ended | |||||||||||||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
% of | % of | |||||||||||||||
Other Income and Expense, Net | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Income (loss) from equity investees | 717 | 0.0 | % | 8 | 0.0 | % | ||||||||||
Interest income | 11,614 | 0.1 | % | 12,278 | 0.2 | % | ||||||||||
Interest expense | (324,083 | ) | (3.3 | )% | (98,976 | ) | (1.5 | )% | ||||||||
Other income, net | (18,821 | ) | (0.2 | )% | 19,844 | 0.3 | % | |||||||||
Foreign exchange gain (loss) | (877,428 | ) | (8.8 | )% | 54,700 | 0.8 | % | |||||||||
Total | (1,208,001 | ) | (12.1 | )% | (12,146 | ) | (0.2 | )% | ||||||||
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Year Ended December 31, | ||||||||
2007 | 2006 | |||||||
(In thousands of U.S. dollars, | ||||||||
except percentages) | ||||||||
Mining segment | ||||||||
To third parties | 1,372,508 | 1,045,696 | ||||||
To power segment | 11,272 | 399 | ||||||
To ferroalloys segment | 12,051 | 11,512 | ||||||
To steel segment | 575,138 | 296,678 | ||||||
Total | 1,970,969 | 1,354,285 | ||||||
Steel segment | ||||||||
To third parties | 4,306,875 | 3,042,795 | ||||||
To power segment | 22,509 | 17,195 | ||||||
To ferroalloys segment | 79,135 | 20,358 | ||||||
To mining segment | 5,973 | 3,306 | ||||||
Total | 4,414,492 | 3,083,654 | ||||||
Ferroalloys segment | ||||||||
To third parties | 501,143 | 259,857 | ||||||
To steel segment | 135,513 | 79,891 | ||||||
Total | 636,656 | 339,748 | ||||||
Power segment | ||||||||
To third parties | 503,316 | 49,463 | ||||||
To steel segment | 38,587 | 41,087 | ||||||
To ferroalloys segment | 26,225 | 8,487 | ||||||
To mining segment | 30,387 | 24,285 | ||||||
Total | 598,515 | 123,322 | ||||||
Eliminations | 936,790 | 503,198 | ||||||
Consolidated revenues | 6,683,842 | 4,397,811 | ||||||
% from mining segment | 20.5 | % | 23.8 | % | ||||
% from steel segment | 64.4 | % | 69.2 | % | ||||
% from ferroalloys segment | 7.5 | % | 5.9 | % | ||||
% from power segment | 7.5 | % | 1.1 | % |
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• | Coke and coking products sales increased by $235.8 million, or 542.8%, to $284.8 million in the year ended December 31, 2007 from $49.0 million in the year ended December 31, 2006, where $61.2 million of the increase was due to an increase in sales prices and $174.6 million of the increase was due to an increase in sales volumes. The sales volume increase was a result of consolidating Moscow Coke and Gas Plant results for the full year 2007; in 2006, the results for the plant were consolidated for the fourth quarter only. The sales price increase was due to strong market demand for coke and coking products. | |
• | Semi-finished steel products sales increased by $157.6 million, or 39.6%, to $555.1 million in the year ended December 31, 2007 from $397.5 million in the year ended December 31, 2006, where $115.0 million of the increase was due to an increase in sales prices and $42.6 million of the increase was due to an increase in sales volumes. Increases in both sales prices and sales volumes were primarily driven by increased demand and a shortage of supply from China. | |
• | Alloyed long products sales increased by $20.8 million, or 15.8%, to $151.9 million in the year ended December 31, 2007 from $131.1 million in the year ended December 31, 2006, where a decrease in sales volumes of $20.1 million offset a $40.9 million sales price increase. The sales price increase was primarily driven by a significant increase in the price of alloy materials used in production. The sales volume decrease was caused by a decrease in market demand for alloyed long products following an increase in market prices for such products. | |
• | Rebar sales increased by $264.1 million, or 35.1%, to $1,017.1 million in the year ended December 31, 2007 from $753.0 in the year ended December 31, 2006, where $228.4 million of the increase was due to an increase in sales prices and $35.7 million of the increase was due to an increase in sales volumes. The increases in both sales prices and sales volumes are attributable to the high level of activity in the construction industry in Russia. | |
• | Low alloyed engineering steel sales increased by $111.6 million, or 35.5%, to $426.3 million in the year ended December 31, 2007 from $314.7 million in the year ended December 31, 2006, where $97.8 million of the increase was due to an increase in sales prices and $13.8 million of the increase was due to an increase in sales volumes. The increases in both sales prices and sales volumes were driven by strong demand on both export and domestic markets. | |
• | Flat steel products sales increased by $117.7 million, or 38.7%, to $421.8 million in the year ended December 31, 2007 from $304.2 million in the year ended December 31, 2006, where $112.8 million of the increase was due to an increase in sales prices and $4.8 million of the increase was due to an increase in sales volumes. The increase in sales prices was in both domestic and export markets, and was mainly due to a stainless flat steel price increase driven by an increase in nickel prices in 2007. The other reasons were a general increase in production costs and strong domestic demand. | |
• | Forgings and stampings sales increased by $133.1 million, or 57.2%, to $366.1 million in the year ended December 31, 2007 from $232.9 million in the year ended December 31, 2006, mainly due to a $126.1 million sales price increase. The increase in the sales price was primarily due to rapid increases in the market prices for nickel and other alloy materials and a shift in product mix to more value-added items. | |
• | Hardware sales increased by $145.4 million, or 31.7%, to $603.4 million in the year ended December 31, 2007 from $458.0 million in the year ended December 31, 2006, where $78.6 million of the increase was due to an increase in sales prices and $66.8 million of the increase was due to an increase in sales volumes. The volume increase was due to the installation of several new production lines at the Beloretsk Metallurgical Plant, including two spring wire drawing mills and a stabilized high-tensile wire production complex. The price increase was due to an increase in demand on the Russian domestic market and in the CIS from the construction industry, machine-building and other industries. |
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Year Ended | Year Ended | |||||||||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Cost of Goods Sold and Gross Margin by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Mining segment | ||||||||||||||||
Cost of goods sold | 1,008,485 | 51.2 | % | 830,632 | 61.3 | % | ||||||||||
Gross margin | 962,484 | 48.8 | % | 523,653 | 38.7 | % | ||||||||||
Steel segment | ||||||||||||||||
Cost of goods sold | 3,374,420 | 76.4 | % | 2,240,001 | 72.6 | % | ||||||||||
Gross margin | 1,040,072 | 23.6 | % | 843,653 | 27.4 | % | ||||||||||
Ferroalloys segment | ||||||||||||||||
Cost of goods sold | 253,725 | 39.9 | % | 174,675 | 51.4 | % | ||||||||||
Gross margin | 382,931 | 60.1 | % | 165,073 | 48.6 | % | ||||||||||
Power segment | ||||||||||||||||
Cost of goods sold | 393,153 | 65.7 | % | 110,273 | 89.4 | % | ||||||||||
Gross margin | 205,362 | 34.3 | % | 13,049 | 10.6 | % |
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Year Ended | Year Ended | |||||||||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Selling, Distribution and Operating Expenses by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Mining segment | ||||||||||||||||
Selling and distribution expenses | 241,090 | 12.2 | % | 213,511 | 15.8 | % | ||||||||||
Taxes other than income tax | 3,815 | 0.2 | % | 32,913 | 2.4 | % | ||||||||||
Accretion expense | 1,071 | 0.1 | % | 2,144 | 0.2 | % | ||||||||||
Allowance for doubtful accounts | (1,441 | ) | (0.1 | )% | (43 | ) | (0.0 | )% | ||||||||
General, administrative and other operating expenses | 146,480 | 7.4 | % | 84,087 | 6.2 | % | ||||||||||
Total | 391,015 | 19.8 | % | 332,612 | 24.6 | % | ||||||||||
Steel segment | ||||||||||||||||
Selling and distribution expenses | 194,855 | 4.4 | % | 202,391 | 6.6 | % | ||||||||||
Taxes other than income tax | 71,243 | 1.6 | % | 44,515 | 1.4 | % | ||||||||||
Loss on write-off of property, plant and equipment | — | — | 2,418 | 0.1 | % | |||||||||||
Accretion expense | 1,708 | 0.0 | % | 5,089 | 0.2 | % | ||||||||||
Allowance for doubtful accounts | 3,602 | 0.1 | % | 2,853 | 0.1 | % | ||||||||||
General, administrative and other operating expenses | 231,403 | 5.2 | % | 199,834 | 6.5 | % | ||||||||||
Total | 502,811 | 11.4 | % | 457,100 | 14.8 | % | ||||||||||
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Year Ended | Year Ended | |||||||||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Selling, Distribution and Operating Expenses by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Ferroalloys segment | ||||||||||||||||
Selling and distribution expenses | 3,400 | 0.5 | % | 729 | 0.2 | % | ||||||||||
Taxes other than income tax | 7,528 | 1.2 | % | 4,419 | 1.3 | % | ||||||||||
Accretion expense | 322 | 0.1 | % | 200 | 0.1 | % | ||||||||||
Allowance for doubtful accounts | 2 | 0.0 | % | (72 | ) | (0.0 | )% | |||||||||
General, administrative and other operating expenses | 21,572 | 3.4 | % | 12,501 | 3.7 | % | ||||||||||
Total | 32,824 | 5.2 | % | 17,777 | 5.2 | % | ||||||||||
Power segment | ||||||||||||||||
Selling and distribution expenses | 182,466 | 30.5 | % | 2,270 | 1.8 | % | ||||||||||
Taxes other than income tax | 1,408 | 0.2 | % | 293 | 0.2 | % | ||||||||||
Allowance for doubtful accounts | (752 | ) | (0.1 | )% | (16 | ) | (0.0 | )% | ||||||||
General, administrative and other operating expenses | 9,613 | 1.6 | % | 1,853 | 1.5 | % | ||||||||||
Total | 192,735 | 32.2 | % | 4,400 | 3.6 | % | ||||||||||
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Year Ended | Year Ended | |||||||||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Operating Income by Segment | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Mining segment | 571,469 | 29.0 | % | 191,041 | 14.1 | % | ||||||||||
Steel segment | 537,261 | 12.2 | % | 386,553 | 12.5 | % | ||||||||||
Ferroalloys segment | 350,107 | 55.0 | % | 147,296 | 43.4 | % | ||||||||||
Power segment | 12,627 | 2.1 | % | 8,649 | 7.0 | % | ||||||||||
Elimination of intersegment unrealized profit | (73,871 | ) | (7,841 | ) | ||||||||||||
Consolidated operating income | 1,397,593 | 725,698 | ||||||||||||||
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Year Ended | Year Ended | |||||||||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
% of Segment | % of Segment | |||||||||||||||
Other Income and Expense, Net | Amount | Revenues | Amount | Revenues | ||||||||||||
(In thousands of U.S. dollars, except for percentages) | ||||||||||||||||
Income (loss) from equity investments | 8 | 0.0 | % | (9,858 | ) | (0.2 | )% | |||||||||
Interest income | 12,278 | 0.2 | % | 8,314 | 0.2 | % | ||||||||||
Interest expense | (98,976 | ) | (1.5 | )% | (38,183 | ) | (0.9 | )% | ||||||||
Gain on revaluation of trading securities | — | — | 50,688 | 1.2 | % | |||||||||||
Other income, net | 19,844 | 0.3 | % | 69,401 | 1.6 | % | ||||||||||
Foreign exchange gain | 54,700 | 0.8 | % | 58,773 | 1.3 | % | ||||||||||
Total | (12,146 | ) | (0.2 | )% | 139,135 | 3.2 | % | |||||||||
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• | future growth through acquisitions; | |
• | capital expenditures, including the purchase of equipment and the modernization of our facilities; and | |
• | retirement of our short-term and current portions of our long-term debt. |
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• | an increase in accounts receivable of $140.5 million primarily due to an overall increase in sales revenues in 2008 and the expansion of our business across our segments. At the same time, a significant increase in allowance for doubtful accounts in 2008 is due to our increased exposure to losses on our accounts receivable because of the global financial crisis. A substantial portion of such increase is related to the fourth quarter and attributable to several customers experiencing liquidity problems. A significant decrease in coking coal sales prices led to a corresponding decrease in accounts receivable of our major subsidiaries in the mining segment; | |
• | an increase in inventories of $658.9 million due to a significant increase in stock of finished goods held at Mechel-Service, Mechel Carbon and Mechel Trading AG warehouses as of December 31, 2008. The main reasons for the change in the stock level are a decrease in customer demand and management’s decision to reduce sales volumes due to low prices; | |
• | a decrease in advances received of $6.2 million due to the overall decrease in sales through our domestic subsidiaries engaged in trading, which was partly offset by the increase in advances received of our export traders pursuant to our policy of promoting sales on a prepayment basis; | |
• | an increase in accounts payable of $594.6 million was due to our attempt to manage working capital requirements by offsetting increased accounts receivable balances from customers. Following this policy we extended our payment period in contracts with suppliers of goods and services; | |
• | a decrease in accrued taxes and other liabilities of $8.4 million due to a reduction in taxes payable to budget and non-budget funds. Cost of goods sold increased across all segments in the year ended December 31, 2008, resulting in a decrease in the income tax base; |
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• | an increase in other current assets of $79.2 million due to the increase in tax prepayments, primarily related to corporate income tax in Chelyabinsk Metallurgical Plant, Southern Kuzbass Coal Company, Mechel Trading House, Mechel-Service and Yakutugol, which was partly offset by a decrease in Southern Urals Nickel Plant’s bank deposits held as of December 31, 2007; and | |
• | an increase in settlements with related parties of $9.3 million due to an increase in trading activity with Toplofikatsia Rousse, which consumes steam coal from Southern Kuzbass Coal Company. |
• | an increase in accounts receivable of $118.1 million due to an overall increase in sales revenues and expansion of our business across our segments; | |
• | an increase in inventories of $254.3 million due to growth in planned production and increasing prices of metals, coal and nickel, which constitute finished goods and are reported in part as inventory; | |
• | a decrease in trade payables of $19.9 million due to steps taken by management to improve cost efficiency, in particular an increase in intersegment sales volumes aimed at making fuller use of vertical integration; | |
• | a decrease in advances received of $56.7 million due to the increase of share of sales on credit terms basis in accordance with our strategy to sell directly to customers, avoiding traders and various intermediaries; | |
• | a decrease in accrued taxes and other liabilities of $67.2 million due to positive changes in tax liabilities, primarily resulting from a release of tax liability related to the reporting period ended December 31, 2004, in Mechel International Holdings AG, a refund of mineral extraction taxes overpaid by Korshunov Mining Plant for the years from 2003 to 2007 and payments of corporate income tax by our companies, primarily Chelyabinsk Metallurgical Plant, Southern Urals Nickel Plant and Moscow Coke and Gas Plant; and | |
• | a decrease in trading securities of $257.2 million following a sale of investments in leading Russian banks and gas and oil companies carried out by Moscow Coke and Gas Plant in accordance with our plans to divest non-core activities. |
• | an increase in inventories of $159.1 million due to an increase in raw materials balances in our steel segment companies due to an increase in production volumes and an increase in construction materials balances at Southern Kuzbass Coal Company related to the beginning of construction works at the New-Olzherassk mine; | |
• | a decrease in trade payables of $47.9 million due to steps taken by management to improve cost efficiency, in particular an increase in intersegment sales volumes aimed at making fuller use of vertical integration; and | |
• | an increase of advances received by $43.5 million due to an increase in the value of sales contracts entered into on a prepayment basis. |
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December 31, | December 31, | December 31, | ||||||||||
Estimated Liquidity | 2008 | 2007 | 2006 | |||||||||
(In millions of U.S. dollars) | ||||||||||||
Cash and cash equivalents | 254.8 | 236.8 | 172.6 | |||||||||
Amounts available under credit facilities | 684.9 | 211.4 | 198.4 | |||||||||
Total estimated liquidity | 939.7 | 448.2 | 371.0 |
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• | we are not in compliance with certain financial ratios (specifically, “Shareholder’s Equity to Net Borrowings” ratio set at a level of 1.0:1.15 while our actual ratio as of December 31, 2008 was 1:1.29) and other operational covenants defined in the “Yakutugol” syndicated loan agreement and “Oriel” credit facility agreement. To-date no acceleration notice has been received from the lenders in respect of amounts outstanding; | |
• | Southern Kuzbass Coal Company failed to meet the limit of $15.0 million on overdue payables to third parties under the long-term credit lines agreements signed with Raiffeisenbank. The outstanding amount of such debt as of December 31, 2008 is $31.5 million. Southern Kuzbass Coal Company also breached a covenant relating to the level of guarantor’s equity requirements for the long-term U.S. dollar-denominated loan provided by Unicreditbank. The outstanding amount of such debt as of December 31, 2008 was $40.0 million. To-date no acceleration notice has been received from the lenders in respect of amounts outstanding; | |
• | Izhstal was not in compliance with the financial ratios under the long-term loan agreements signed with Fortis bank andABN-AMRO Bank, which had outstanding balances of $21.2 million and $9.1 million, respectively. The “Shareholder’s Equity to Net Borrowings” ratio was set at a level of 1.0:1.10, while our actual ratio as of December 31, 2008 was 1.0:1.29. To-date no acceleration notice has been received from the lenders in respect of amounts outstanding; | |
• | We and our subsidiary Oriel received a request from the lenders under the long-term U.S. dollar-denominated facility agreement with WestLB AG regarding early repayment of the outstanding amount of $84.8 million due to the breach of certain financial and other covenants. We have agreed with WestLB to repay the full amount outstanding on June 30, 2009, which we intend to do on that date. The amount of debt with loan covenant violations includes a current portion of $11.3 million and $73.5 million reclassified from a long-term portion due to such covenant violations; |
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• | Chelyabinsk Metallurgical Plant breached a number of financial covenants under the loans provided by Fortis,ABN-AMRO and ING Bank in the total amount of $10.7 million as of December 31, 2008. Fortis and ING banks set a “Shareholder’s Equity to Net Borrowings” ratio at a level of 1.0:1.0. Our ratio as of December 31, 2008 amounted to 1.0:1.29 and was not in compliance with the agreement terms. Chelyabinsk Metallurgical Plant failed to meet the limit of $10.0 million on overdue payables to the third parties and maintain agreed pledge level of $100.0 million under the long-term credit agreement signed withABN-AMRO. To-date no acceleration notice has been received from the lenders in respect of amounts outstanding; | |
• | Chelyabinsk Metallurgical Plant breached a cash turnover covenant for short-term loans signed with Sberbank and Gazprombank. The outstanding balances under the mentioned agreements as of December 31, 2008 were $112.3 million and $75.3 million, respectively. The covenants under the short-term loan agreement with Alfa-bank were breached due to violation of limits for the pledges and tax claims. The corresponding amount of the balance as of December 31, 2008 amounted to $149.3 million. The loans with Alfa-bank were subsequently fully repaid in March 2009. To-date no acceleration notice has been received from the lenders in respect of amounts outstanding; and | |
• | Mechel Trading House and Mechel Service breached cash turnover covenants related to short-term loans provided by Gazprombank. The outstanding amounts of the loans as of December 31, 2008 were is $134.7 million and $102.1 million, respectively. To-date no acceleration notice has been received from the lenders in respect of amounts outstanding. |
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Payments due by Period | ||||||||||||||||||||
Contractual Obligations and | Less Than | More Than | ||||||||||||||||||
Commercial Commitments | Total | 1 Year | 2-3 Years | 4-5 Years | 5 Years | |||||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||||||
Short-Term Borrowings and Current Portion of Long-Term Debt(1) | 5,149,415 | 5,149,415 | — | — | — | |||||||||||||||
Long-Term Debt Obligations, Net of Current Portion(1) | 219,816 | — | 183,783 | 12,361 | 23,672 | |||||||||||||||
Operating Lease Obligations | 292,219 | 9,547 | 18,993 | 21,979 | 241,700 | |||||||||||||||
Purchase Obligations(2) | — | — | — | — | — | |||||||||||||||
Restructured Taxes Payable | — | — | — | — | — | |||||||||||||||
Asset Retirement Obligations(3) | 71,604 | 6,387 | 11,127 | 9,655 | 44,435 | |||||||||||||||
Pension and Post Retirement Benefits(4) | 187,030 | (5) | 28,960 | — | — | 158,070 | ||||||||||||||
Short-term Finance Lease Obligations | 14,891 | 14,891 | — | — | — | |||||||||||||||
Long-term Finance Lease Obligations | 54,161 | — | 30,119 | 22,100 | 1,942 | |||||||||||||||
Contractual commitments to acquire plant, property and equipment, raw materials and for delivery of goods and services(6) | 3,782,088 | 1,807,802 | 1,595,248 | 379,038 | — | |||||||||||||||
Estimated interest expense(7) | 1,799,582 | 463,197 | 939,097 | 397,288 | — | |||||||||||||||
Estimated average interest rate(7) | — | 8.7 | % | 9.4%-10.3 | % | 10.3%-10.4 | % | — | ||||||||||||
Total Contractual Obligations and Commercial Commitments | 11,570,806 | 7,480,199 | 2,778,367 | 842,421 | 469,819 |
(1) | Does not include interest. Interest payable as of December 31, 2008 amounted to $15.0 million and $0.8 million for Short-Term Borrowings and Current Portion of Long-Term Debt and Long-Term Debt Obligations, Net of Current Portion respectively. Interest payable amounts are included in full in current period figures. In the year ended December 31, 2008, our interest expense was $324.1 million and we paid out $266.0 million for interest, net of amounts capitalized. | |
(2) | Accounts payable for capital expenditures. | |
(3) | See note 17 to our consolidated financial statements in “Item 18. Financial Statements.” | |
(4) | See note 18 to our consolidated financial statements in “Item 18. Financial Statements.” | |
(5) | Includes $158.1 million pension and post-retirement benefits due in more than one year. |
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(6) | See note 26 to our consolidated financial statements in “Item 18. Financial Statements.” | |
(7) | Interest expense is estimated for a five-year period based on (1) estimated cashflows and change of the debt level, (2) forecasted LIBOR rate where applicable, (3) actual long-term contract interest rates and fixed rates, forecasted with reasonable assurance on the basis of historic relations with major banking institutions. |
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Useful Economic | ||||
Lives Estimates, | ||||
Category of Asset | Years | |||
Buildings | 20-45 | |||
Land improvements | 20-50 | |||
Operating machinery and equipment | 7-30 | |||
Transportation equipment and vehicles | 4-15 | |||
Tools, furniture, fixtures and other | 4-8 |
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Region | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||
Russia | 13 | % | 8 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | ||||||||||||||||||
USA | 3 | % | 2 | % | 3 | % | 3 | % | 3 | % | 2 | % | 2 | % | 2 | % | 2 | % | ||||||||||||||||||
Europe | 2 | % | 3 | % | 2 | % | 2 | % | 2 | % | 2 | % | 2 | % | 2 | % | 2 | % | ||||||||||||||||||
Romania | 5 | % | 5 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | ||||||||||||||||||
Bulgaria | 5 | % | 5 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | ||||||||||||||||||
Kazakhstan | 13 | % | 8 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % |
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||||||||||
Discount rate | 16.1 | % | 16.1 | % | 15.0 | % | 13.9 | % | 13.0 | % | 12.1 | % | 11.4 | % | 10.7 | % | 10.1 | % |
• | a 10% decrease in future planned revenues results in a total impairment loss of $150,224; | |
• | a 2% increase in discount rates for each year of the forecasted period results in a total impairment loss of $9,308; | |
• | a 3% increase in discount rates for each year of the forecasted period results in a total impairment loss of $32,750; | |
• | a 3% decrease in cash flows growth rate after the forecasted period does not result in impairment loss. |
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Year Ended | ||||
December 31, | ||||
Asset Retirement Obligation | 2008 | |||
(In thousands of | ||||
U.S. dollars) | ||||
Balance at beginning of year | 71,294 | |||
Liabilities incurred in the current period | 6,066 | |||
Liabilities settled in the current period | (5,300 | ) | ||
Liabilities disposed of in the current period | — | |||
Accretion expense | 6,078 | |||
Revision in estimated cash flow | 7,155 | |||
Translation and other | (13,689 | ) | ||
Balance at end of year | 71,604 | |||
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• | may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; | |
• | is irrevocable (unless a new election date occurs); and | |
• | is applied only to entire instruments and not to portions of instruments. |
• | A noncontrolling interest in a consolidated subsidiary should be displayed in the consolidated statement of financial position as a separate component of equity; | |
• | Earnings and losses attributable to noncontrolling interests are no longer reported as part of consolidated earnings. Rather, they are disclosed on the face of the consolidated statement of income and comprehensive income; | |
• | After control is obtained, a change in ownership interests that does not result in a loss of control should be accounted for as an equity transaction; | |
• | A change in ownership of a consolidated subsidiary that results in a loss of control and deconsolidation is a significant event that triggers gain or loss recognition, with the establishment of a new fair value basis in any remaining ownership interests. | |
• | SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. Adoption is prospective and early adoption is not permitted. We are currently evaluating the impact of this new standard on the accounting for our future acquisitions. |
• | Recognize, with certain exceptions, 100% of the fair values of assets acquired, liabilities assumed and non-controlling interests in acquisitions of less than 100% controlling interest when the acquisition constitutes a change in control of the acquired entity; | |
• | Measure acquirer shares issued in consideration for a business combination at fair value on the acquisition date; | |
• | Recognize contingent consideration arrangements at fair value at their acquisition-date fair values, with subsequent changes in fair value generally reflected in earnings; |
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• | With certain exceptions, recognize preacquisition loss and gain contingencies at their acquisition-date fair values; | |
• | Capitalize in-process research and development assets acquired; | |
• | Expense, as incurred, acquisition-related transaction costs; | |
• | Capitalize acquisition-related restructuring costs only if the criteria in SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” are met as of the acquisition date; | |
• | Recognize changes in income tax valuation allowances and tax uncertainty accruals established in purchase accounting as adjustments to income tax expense (including those related to acquisitions before the adoption of SFAS No. 141(R)); | |
• | Push back any adjustments made to the preliminary purchase price allocation during the measurement period to the date of the acquisition; | |
• | Determine what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. |
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Item 6. | Directors, Senior Management and Employees |
Name | Year of Birth | Position | ||||
Valentin V. Proskurnya(1)(2)(3) | 1945 | Chairman and Director | ||||
Igor V. Zyuzin(3)(5) | 1960 | Director and Chief Executive Officer, Chairman of Management Board | ||||
Alexey G. Ivanushkin(4) | 1962 | Director, Chief Executive Officer of Oriel Resources Ltd., Director of Oriel Resources Ltd., Director of Oriel Resources Ltd. Moscow Representative Office | ||||
Vladimir A. Polin(4) | 1962 | Director and Senior Vice President. First Deputy of the Chairman of Management Board | ||||
Roger I. Gale(1)(2)(3) | 1952 | Director | ||||
A. David Johnson(1)(2)(4) | 1937 | Director | ||||
Serafim V. Kolpakov(1)(3)(4) | 1933 | Director | ||||
Alexander E. Yevtushenko(1)(4) | 1947 | Director | ||||
Igor S. Kozhukhovsky(1)(2)(4) | 1956 | Director |
(1) | Independent Director under applicable New York Stock Exchange regulations and Russian regulations. | |
(2) | Member of the Audit Committee of the Board of Directors. | |
(3) | Member of the Committee on Appointments and Remuneration. | |
(4) | Member of the Committee on Investments and Strategic Planning. | |
(5) | Withdrew from the Committee on Appointments and Remuneration on February 4, 2009. |
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Name | Year of Birth | Position | ||||
Igor V. Zyuzin | 1960 | Chief Executive Officer, Chairman of Management Board | ||||
Alexey G. Ivanushkin | 1962 | Chief Executive Officer of Oriel Resources Ltd., Director of Oriel Resources Ltd., Director of Oriel Resources Ltd. Moscow Representative Office | ||||
Vladimir A. Polin | 1962 | Senior Vice President, First Deputy Chairman of Management Board | ||||
Victor A. Trigubko | 1956 | Senior Vice President — Government Relations | ||||
Mukhamed M. Tsikanov | 1955 | Senior Vice President — Economics and Management, Member of Management Board | ||||
Yevgeny V. Mikhel | 1974 | First Deputy Chief Executive Officer, Deputy Chairman of Management Board | ||||
Stanislav A. Ploschenko | 1976 | Senior Vice President — Finance, Member of Management Board | ||||
Petr S. Syrkin | 1943 | Vice President for Capital Construction | ||||
Andrey D. Deineko | 1953 | Chief Executive Officer of Mechel Management, Member of Management Board | ||||
Boris G. Nikishichev | 1946 | Chief Executive Officer of Mechel Engineering OOO | ||||
Irina N. Ipeyeva | 1963 | Director of Legal Department, Member of Management Board | ||||
Oleg I. Rozenberg | 1960 | Sales Director of Mechel Trading | ||||
Elena V. Selivanova | 1962 | Vice President for Human Resources and Social Policy, Member of Management Board | ||||
Viktor S. Gvozdev | 1963 | Chief Executive Officer of Mechel-Energo, Member of Management Board | ||||
Oleg V. Korzhov | 1970 | Vice President for Business Planning and Analysis, Member of Management Board | ||||
Gennady A. Ovchinnikov | 1951 | Chief Executive Officer of Mechel Ferroalloys Management, Member of Management Board | ||||
Aleksandr S. Starodubov | 1946 | Managing Director of Mecheltrans, Member of Management Board | ||||
Igor V. Khafizov | 1967 | Chief Executive Officer of Mechel Mining Management, Member of Management Board |
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• | the quality and integrity of our financial statements; | |
• | our compliance with legal and regulatory requirements; | |
• | the independent auditor’s qualifications and independence; and | |
• | the performance of our internal audit function and independent auditor. |
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• | the Charter; | |
• | the Bylaw on the Board of Directors; |
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• | the Bylaw on the General Meeting of Shareholders; | |
• | the Bylaw on the General Director; | |
• | the Bylaw on the Collegial Executive Body (Management Board); | |
• | the Bylaw on the Review Commission; | |
• | the Bylaw on the Internal Audit Function; | |
• | the Code of Business Conduct and Ethics; | |
• | the Bylaw on the Prohibition and Prevention of Insider Trading; | |
• | the Bylaw on the Disclosure of Information That May Significantly Impact the Market Value of our Shares; | |
• | the Bylaw on Information Policy; | |
• | the Bylaw on the Appointment and Compensation Committee of the Board of Directors; | |
• | the Bylaw on the Audit Committee of the Board of Directors; and | |
• | the Code of Corporate Governance. |
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Total | ||||||||||||
Company | Primary Location | Primary Function | Employees | % Unionized | ||||||||
Chelyabinsk Metallurgical Plant | Russia | Steel | 17,004 | 76.3 | % | |||||||
Southern Kuzbass Coal Company and subsidiaries (Tomusinsk Open Pit Mine, Tomusinsk Energo Management, Vzryvprom) | Russia | Coal | 11,812 | 80.0 | % | |||||||
Izhstal | Russia | Steel | 8,106 | 96.5 | % | |||||||
Beloretsk Metallurgical Plant | Russia | Steel | 6,882 | 96.3 | % | |||||||
Yakutugol, Dzhebariki-Khaya Mine, Kangalassk Open Pit Mine | Russia | Coal | 6,516 | 98.0 | % | |||||||
Southern Urals Nickel Plant | Russia | Nickel | 4,195 | 42.7 | % | |||||||
Korshunov Mining Plant | Russia | Iron Ore | 4,064 | 88.5 | % | |||||||
Urals Stampings Plant | Russia | Steel | 3,783 | 73.2 | % | |||||||
Mechel Targoviste | Romania | Steel | 3,151 | 83.3 | % | |||||||
Mechel Campia Turzii | Romania | Steel | 2,597 | 87.3 | % | |||||||
Mechel-Coke | Russia | Coke | 1,650 | 66.5 | % | |||||||
Mechel-Energo | Russia | Power | 1,490 | 28.2 | % | |||||||
Moscow Coke and Gas Plant | Russia | Coke | 1,313 | 72.4 | % | |||||||
Ductil Steel | Romania | Steel | 1,186 | 82.9 | % | |||||||
Spetsremzavod | Russia | Melting facility repair | 1,011 | 0 | % | |||||||
Mechel-Service | Russia | Sales and Distribution | 802 | 0 | % | |||||||
Southern Kuzbass Power Plant | Russia | Power | 706 | 62.0 | % | |||||||
Tikhvin Ferroalloy Plant | Russia | Ferroalloys | 694 | 32.4 | % | |||||||
Kuzbass Power Sales Company | Russia | Power | 659 | 75.9 | % | |||||||
Toplofikatsia Rousse | Bulgaria | Power | 649 | 66.6 | % | |||||||
Bratsk Ferroalloy Plant | Russia | Ferroalloys | 555 | 50.5 | % | |||||||
Zavod Ogneuporov | Russia | Refractory products | 538 | 0 | % | |||||||
Port Posiet | Russia | Shipping | 379 | 11.9 | % | |||||||
Vyartsilya Metal Products Plant | Russia | Steel | 370 | 0 | % | |||||||
SC Mechel Reparatii Targoviste SRL | Romania | Steel | 362 | 58.0 | % | |||||||
Metallurgshakhtspetsstroy | Russia | Capital construction | 304 | 0 | % | |||||||
Mechel-Materials | Russia | Processing | 301 | 0 | % | |||||||
Mechel Nemunas | Lithuania | Steel | 299 | 43.5 | % | |||||||
Port Temryuk | Russia | Shipping | 251 | 0 | % | |||||||
Mechel Management | Russia | Corporate | 238 | 0 | % | |||||||
Mecheltrans | Russia | Railway transportation | 195 | 0 | % | |||||||
Port Kambarka | Russia | Shipping | 189 | 29.6 | % | |||||||
Metals Recycling | Russia | Scrap metal | 186 | 0 | % | |||||||
Kaslinsky Architectural Art Casting Plant | Russia | Steel | 178 | 0 | % | |||||||
Mechel | Russia | Corporate | 134 | 0 | % | |||||||
Mechel Trading House | Russia | Sales and Distribution | 102 | 0 | % | |||||||
Other | Russia, CIS, Switzerland and Liechtenstein | Coal, Steel, Sales and Distribution | 219 | 0 | % | |||||||
Total | 83,070 | 74.7 | % | |||||||||
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Total | ||||||||||||
Company | Primary Location | Primary Function | Employees | % Unionized | ||||||||
Chelyabinsk Metallurgical Plant | Russia | Steel | 20,252 | 65.0 | % | |||||||
Southern Kuzbass Coal Company | Russia | Coal | 12,157 | 78.0 | % | |||||||
Izhstal | Russia | Steel | 8,596 | 92.0 | % | |||||||
Yakutugol | Russia | Coal | 8,532 | 99.0 | % | |||||||
Beloretsk Metallurgical Plant | Russia | Steel | 7,529 | 91.0 | % | |||||||
Mechel Targoviste | Romania | Steel | 4,036 | 88.0 | % | |||||||
Southern Urals Nickel Plant | Russia | Nickel | 4,538 | 39.0 | % | |||||||
Korshunov Mining Plant | Russia | Iron Ore | 4,180 | 90.0 | % | |||||||
Urals Stampings Plant | Russia | Steel | 3,982 | 73.0 | % | |||||||
Mechel Campia Turzii | Romania | Steel | 2,917 | 85.0 | % | |||||||
Mechel-Coke | Russia | Coke | 1,721 | 64.0 | % | |||||||
Moscow Coke and Gas Plant | Russia | Coke | 1,507 | 63.0 | % | |||||||
Kuzbass Power Sales Company | Russia | Power | 555 | 90.0 | % | |||||||
Bratsk Ferroalloy Plant | Russia | Ferrosilicon | 548 | 51.0 | % | |||||||
Southern Kuzbass Power Plant | Russia | Power | 548 | 80.0 | % | |||||||
Mechel-Service | Russia | Sales and Distribution | 501 | 0 | % | |||||||
Vyartsilya Metal Products Plant | Russia | Steel | 394 | 0 | % | |||||||
Mechel Nemunas | Lithuania | Steel | 330 | 39.0 | % | |||||||
Port Posiet | Russia | Shipping | 321 | 14.0 | % | |||||||
Mechel Trading House | Russia | Sales and Distribution | 219 | 0 | % | |||||||
Mechel Management | Russia | Corporate | 217 | 0 | % | |||||||
Port Kambarka | Russia | Shipping | 202 | 28.0 | % | |||||||
Kaslinsky Architectural Art Casting Plant | Russia | Steel | 200 | 0 | % | |||||||
Metals Recycling | Russia | Scrap metal | 189 | 0 | % | |||||||
Port Temryuk | Russia | Shipping | 167 | 0 | % | |||||||
Mecheltrans | Russia | Railway transportation | 157 | 0 | % | |||||||
Mechel-Energo | Russia | Power | 147 | 0 | % | |||||||
Mechel | Russia | Corporate | 113 | 0 | % | |||||||
Mechel Hardware | Russia | Sales and Distribution | 48 | 0 | % | |||||||
Other | Russia, CIS, Switzerland and Liechtenstein | Coal, Steel, Sales and Distribution | 229 | 0 | % | |||||||
Total | 85,032 | 75.0 | % | |||||||||
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Total | ||||||||||||
Company | Primary Location | Primary Function | Employees | % Unionized | ||||||||
Chelyabinsk Metallurgical Plant | Russia | Steel | 20,528 | 68.0 | % | |||||||
Southern Kuzbass Coal Company | Russia | Coal | 12,018 | 83.0 | % | |||||||
Izhstal | Russia | Steel | 9,242 | 89.0 | % | |||||||
Beloretsk Metallurgical Plant | Russia | Steel | 7,678 | 90.0 | % | |||||||
Mechel Campia Turzii | Romania | Steel | 3,817 | 87.0 | % | |||||||
Mechel Targoviste | Romania | Steel | 4,253 | 90.0 | % | |||||||
Southern Urals Nickel Plant | Russia | Nickel | 4,293 | 40.0 | % | |||||||
Korshunov Mining Plant | Russia | Iron Ore | 4,217 | 97.0 | % | |||||||
Urals Stampings Plant | Russia | Steel | 2,905 | 81.0 | % | |||||||
Mechel-Coke | Russia | Coke | 1,703 | 67.0 | % | |||||||
Moscow Coke and Gas Plant | Russia | Coke | 1,542 | 81.0 | % | |||||||
Specialty Steel | Russia | Steel | 1,313 | 91.0 | % | |||||||
Vyartsilya Metal Products Plant | Russia | Steel | 400 | 0 | % | |||||||
Mechel Nemunas | Lithuania | Steel | 354 | 0 | % | |||||||
Port Posiet | Russia | Shipping | 331 | 15.0 | % | |||||||
Mechel Trading House | Russia | Sales and Distribution | 283 | 0 | % | |||||||
Mechel-Service | Russia | Sales and Distribution | 274 | 0 | % | |||||||
Port Kambarka | Russia | Shipping | 218 | 0 | % | |||||||
Mecheltrans | Russia | Railway transportation | 193 | 0 | % | |||||||
Metals Recycling | Russia | Scrap metal | 155 | 0 | % | |||||||
Kaslinsky Architectural Art Casting Plant | Russia | Steel | 139 | 0 | % | |||||||
Mechel | Russia | Corporate | 115 | 0 | % | |||||||
Other | Russia, CIS, Switzerland and Liechtenstein | Coal, Steel, Sales and Distribution | 595 | 0 | % | |||||||
Total | 76,566 | 69.0 | % | |||||||||
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Item 7. | Major Shareholders and Related Party Transactions |
% of | ||||||||
Number of | Common | |||||||
Name of Beneficial Owner | Common Shares | Shares | ||||||
Igor V. Zyuzin(1) | 277,903,025 | 66.76 | % | |||||
Other(2)(3)(4) | 138,367,720 | 33.24 | % | |||||
Total | 416,270,745 | 100 | % | |||||
(1) | Mr. Zyuzin is our Chief Executive Officer and a member of our Board of Directors. See “Item 6. Directors, Senior Management and Employees — Directors and Executive Officers.” His business address is Krasnoarmeyskaya Street 1, Moscow 125993, Russian Federation. Further information regarding Mr. Zyuzin’s shareholdings is available in the Schedule 13D filed by Mr. Zyuzin with the SEC. | |
(2) | JPMorgan Chase & Co. reported on Schedule 13G that it owns 23,588,347 common shares in the form of ADSs, representing 5.7% of our total issued common shares. | |
(3) | According to Deutsche Bank Trust Company Americas, as of May 31, 2009, 115,567,933 ADSs and 30,118,305 GDSs were outstanding, representing 35.0% of our total issued common shares. | |
(4) | We believe our directors and executive officers as a group, other than Mr. Zyuzin, own less than 1% of our shares. |
Item 8. | Financial Information |
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• | our charter capital has been paid in full; |
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• | the value of our net assets, calculated under Russian accounting standards, is not less (and would not become less as a result of the proposed dividend payment) than the sum of our charter capital, our reserve fund and the difference between the liquidation value and the par value of our issued and outstanding preferred shares; | |
• | we have repurchased all shares from shareholders having the right to demand repurchase; and | |
• | we are not, and would not become as the result of the proposed dividend payment, insolvent. |
Item 9. | The Offer and Listing |
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ADSs | Common Shares | |||||||||||||||
High | Low | High | Low | |||||||||||||
May 2009 | $ | 11.01 | $ | 6.21 | $ | 9.03 | $ | 6.25 | ||||||||
April 2009 | $ | 6.68 | $ | 4.50 | $ | 6.52 | $ | 4.30 | ||||||||
March 2009 | $ | 4.99 | $ | 3.21 | $ | 4.80 | $ | 3.45 | ||||||||
February 2009 | $ | 5.73 | $ | 3.24 | $ | 5.23 | $ | 2.88 | ||||||||
January 2009 | $ | 4.67 | $ | 2.57 | $ | 4.35 | $ | 2.29 | ||||||||
December 2008 | $ | 5.80 | $ | 3.73 | $ | 4.90 | $ | 4.10 | ||||||||
First Quarter 2009 | $ | 5.73 | $ | 2.57 | $ | 5.23 | $ | 2.29 | ||||||||
Fourth Quarter 2008 | $ | 17.19 | $ | 3.66 | $ | 17.75 | $ | 4.10 | ||||||||
Third Quarter 2008 | $ | 48.72 | $ | 16.92 | $ | 39.00 | $ | 15.75 | ||||||||
Second Quarter 2008 | $ | 57.62 | $ | 40.34 | $ | 45.50 | $ | 33.00 | ||||||||
First Quarter 2008 | $ | 46.82 | $ | 27.62 | $ | 43.00 | $ | 20.00 | ||||||||
Fourth Quarter 2007 | $ | 34.63 | $ | 17.73 | $ | 25.71 | $ | 17.97 | ||||||||
Third Quarter 2007 | $ | 17.31 | $ | 12.08 | $ | 17.59 | $ | 12.06 | ||||||||
Second Quarter 2007 | $ | 12.99 | $ | 10.66 | $ | 12.98 | $ | 10.88 | ||||||||
First Quarter 2007 | $ | 11.27 | $ | 7.91 | $ | 11.30 | $ | 8.30 | ||||||||
2008 | $ | 57.62 | $ | 3.66 | $ | 45.00 | $ | 4.10 | ||||||||
2007 | $ | 34.63 | $ | 7.91 | $ | 25.71 | $ | 8.30 | ||||||||
2006 | $ | 10.32 | $ | 6.34 | $ | 10.20 | $ | 6.25 | ||||||||
2005 | $ | 12.17 | $ | 7.02 | $ | 11.20 | $ | 7.75 | ||||||||
2004 | $ | 7.48 | $ | 5.26 | $ | 17.00 | $ | 0.36 |
Item 10. | Additional Information |
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• | freely transfer the shares without the consent of other shareholders; | |
• | receive dividends in accordance with our charter and current legislation; | |
• | participate in shareholders’ meetings and vote on all matters of shareholders’ competence; | |
• | transfer voting rights to its representative on the basis of a power of attorney; | |
• | elect and be elected to the governing and controlling bodies of the company; | |
• | if holding, alone or with other holders, 2% or more of the voting stock, within 30 days after the end of our fiscal year, make proposals to the agenda of the annual shareholders’ meeting and nominate candidates to our board of directors, review commission and counting commission; | |
• | if holding, alone or with other holders, 10% or more of the voting stock, demand that the board of directors call an extraordinary shareholders’ meeting or an unscheduled audit by our review commission or an independent auditor; | |
• | demand, under the following circumstances, the repurchase by us of all or some of the shares owned by it, as long as such holder voted against or did not participate in the voting on the decision approving the following: |
• | our reorganization; |
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• | conclusion of a major transaction, as defined under Russian law; and | |
• | amendment of our charter or approval of a new version of our charter that restricts the holder’s rights; |
• | upon liquidation, receive a proportionate amount of our property after our obligations to our creditors are fulfilled; | |
• | have access to certain company documents, receive copies for a reasonable fee and, if holding alone or with other holders, 25% or more of the voting stock, have free access to accounting documents; and | |
• | exercise other rights of a shareholder provided by our charter, Russian legislation and decisions of shareholders’ meetings approved in accordance with its competence. |
• | freely transfer preferred shares without the consent of other shareholders; | |
• | receive dividends in accordance with our charter and current legislation; | |
• | upon liquidation, receive a portion of our liquidation value, which is equal to a portion of our assets calculated pro rata to the portion represented by one preferred share in our charter capital; | |
• | have access to certain company documents and receive copies for a reasonable fee; | |
• | transfer all or part of the rights attached to the preferred shares to its representative on the basis of a power of attorney; and | |
• | participate in shareholders’ meetings and vote on the following matters: |
• | our reorganization and liquidation; | |
• | any amendment of our charter or approval of a new version of our charter that restricts the preferred shareholders’ rights, including amendments to the formula for calculation of dividendsand/or the amount of the liquidation value attached to the shares; and | |
• | participate in shareholders’ meetings and vote on all matters on which common shareholders are entitled to vote if for any reason the annual shareholders’ meeting did not adopt a resolution to pay the full amount of dividends to which preferred shareholders are entitled under our charter. The holders of preferred shares enjoy this right effective from the first shareholders’ meeting to be held after the relevant annual shareholders’ meeting and until the date when dividends on preferred shares are paid in full. |
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• | the charter capital of the company has been paid in full; | |
• | the value of the company’s net assets is not less (and would not become less as a result of the proposed dividend payment) than the sum of the company’s charter capital, the company’s reserve fund and the difference between the liquidation value and the par value of the issued and outstanding preferred shares of the company; | |
• | the company has repurchased all shares from shareholders having the right to demand repurchase; and | |
• | the company is not, and would not become, insolvent as the result of the proposed dividend payment. |
• | by a three-quarters majority vote of a shareholders’ meeting; or | |
• | by a court order. |
• | individuals owed compensation for injuries or deaths; |
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• | payments related to disbursement of accrued vacation pay and wages of persons currently or formerly employed under an employment agreement and remuneration to owners of intellectual property rights; | |
• | federal and local governmental entities claiming taxes and similar payments to the budgets andnon-budgetary funds; and | |
• | other creditors in accordance with Russian legislation. |
• | payments to repurchase shares from shareholders having the right to demand repurchase; | |
• | payments of declared but unpaid dividends on preferred shares and the liquidation value of the preferred shares determined by the company’s charter, as amended; and | |
• | payments to holders of common and preferred shares with account of the previously paid liquidation value of the preferred shares. |
• | this decision-making capability is provided for in the charter of the effective subsidiary or in a contract between such persons; and | |
• | the effective parent gives binding instructions to the effective subsidiary based on the above-mentioned decision-making capability. |
• | issuing additional shares, or | |
• | increasing the nominal value of already issued shares. |
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• | taking a decision on share placement and approving the resolution on share issuance; | |
• | prior registration of a share issuance with the FFMS; | |
• | following the placement of the shares, registration and public disclosure of the results of the placement of shares; and | |
• | public disclosure of information relating to the share issuance. |
• | our charter capital is paid in full; | |
• | we are not and would not become, insolvent as a result of the repurchase; | |
• | the value of our net assets is not less (and would not become less, as a result of the proposed repurchase) than the sum of our charter capital, the reserve fund and the difference between the liquidation value and par value of our issued and outstanding preferred shares; | |
• | we have repurchased all shares from shareholders having the right to demand repurchase of their shares in accordance with Russian law, as described immediately below; and | |
• | the charter capital has been decreased by acquiring a part of the shares with the view to reduce their total number, provided that following such decrease the charter capital has not become lower than the minimum amount of the charter capital set forth by the Joint-Stock Companies Law (which is equal to RUR 100,000). |
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• | reorganization; | |
• | conclusion of a major transaction, as defined under Russian law; or | |
• | amendment of our charter or approval of a restated version of our charter in a manner which restricts shareholders’ rights. |
• | filing quarterly reports with the FFMS, MICEX and RTS containing information about us, our shareholders, registrar and depositary, the structure of our management bodies, the members of the Board of Directors, management board and review commission, our branches and representative offices, our subsidiaries and affiliates, our shares, bank accounts and auditors, important developments during the reporting quarter, quarterly accounting reports prepared in accordance with Russian accounting standards, and other information about our financial and business activity; | |
• | disclosure of the aforementioned quarterly reports on our website atwww.mechel.ru; | |
• | filing with the FFMS, MICEX and RTS and publishing any information concerning material facts and changes in our financial and business activity, including our reorganization, certain changes in the amount of our assets, decisions on share issuances, certain changes in ownership and shareholding as well as shareholder and management bodies resolutions; | |
• | disclosure of the aforementioned information concerning material facts in the newswire of authorized information agencies and on our website atwww.mechel.ru; |
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• | disclosing information on various stages of securities placement, issuance and registration through publication of certain data as required by the securities regulations by means of publishing it in the newswire of authorized information agencies and on our website atwww.mechel.ru, as well as by filing it with RTS and MICEX; | |
• | disclosing our charter and internal corporate governance documents on our website and filing them with MICEX and RTS; | |
• | disclosing our annual report and annual financial statements prepared in accordance with Russian accounting standards on our website and filing them with MICEX and RTS; | |
• | filing with the FFMS, MICEX and RTS on a quarterly basis a list of our affiliated companies and individuals and disclosing such list and its amendments on our website atwww.mechel.ru; and | |
• | other information as required by applicable Russian securities legislation and the rules of MICEX and RTS. |
• | charter amendments; | |
• | reorganization or liquidation; | |
• | election and early removal of the members of the board of directors; | |
• | determination of the number, nominal value and type of authorized shares and rights granted by such shares; | |
• | changes in the company’s charter capital; | |
• | appointment and early removal of the members of our review commission and counting commission; | |
• | approval of our external auditor; | |
• | approval of certain interested party transactions (the value of which is 2% or more of the balance sheet value of the company’s assets) and major transactions (the value of which is more than 50% of the balance sheet value of the company’s assets); | |
• | distribution of profits and losses, including approval of dividends; | |
• | decision on our participation in commercial or industrial groups or other associations of commercial entities; | |
• | redemption by the company of issued shares in cases provided for by the Joint-Stock Companies Law; | |
• | approval of certain internal documents regulating the activity of our governing bodies; and | |
• | other issues, as provided by the Joint-Stock Companies Law and our charter. |
• | charter amendments; | |
• | reorganization or liquidation; | |
• | major transactions involving assets in excess of 50% of the balance sheet value of the company’s assets; | |
• | determination of the number, nominal value and category (type) of authorized shares and the rights granted by such shares; |
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• | repurchase by the company of its issued shares; | |
• | any issuance of shares or securities convertible into common shares by closed subscription; | |
• | issuance by open subscription of common shares or securities convertible into common shares, in each case, constituting 25% or more of the number of issued and outstanding common shares; and | |
• | a decrease of charter capital by means of a change in the nominal value of shares. |
• | election of the members of the board of directors and review commission; | |
• | approval of the annual report and annual financial statements, including the balance sheet and profit and loss statement; | |
• | approval of distribution of profits, including approval of annual dividends and losses, if any; and | |
• | appointment of an independent auditor. |
• | election of directors; | |
• | election of the review commission; | |
• | approval of a company’s independent auditor for statutory accounts; and | |
• | approval of the annual report and annual financial statements, including balance sheet, profit and loss statement and any distribution of profits and losses, including approval of annual dividends, if any. |
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• | by personally participating in the discussion of agenda items and voting thereon; | |
• | by sending an authorized representative to participate in the discussion of agenda items and to vote thereon; | |
• | by absentee ballot; or | |
• | by delegating the right to fill out the absentee ballot to an authorized representative. |
• | determination of our business priorities; | |
• | convening annual and extraordinary shareholders’ meetings, except in certain circumstances specified in the Joint-Stock Companies Law; | |
• | approval of the agenda of the shareholders’ meeting and determination of the record date for shareholders entitled to participate in a shareholders’ meeting; | |
• | placement of our bonds and other securities, except in certain circumstances specified in the Joint-Stock Companies Law and our charter; | |
• | determination of the price of our property and of our securities to be placed or repurchased, as provided for by the Joint-Stock Companies Law; | |
• | repurchase of our shares, bonds and other securities in certain cases provided for by the Joint-Stock Companies Law; |
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• | appointment of the general director and members of the management board, and early termination of their powers and the establishment of their compensation; | |
• | recommendation on the amount of a dividend and the payment procedure thereof; | |
• | recommendation on the amount of remuneration and compensation to be paid to the members of our review commission and on the fees payable for the services of an independent auditor; | |
• | the use of our reserve fund and other funds; | |
• | the creation and liquidation of branches and representative offices; | |
• | approval of internal documents, except for those documents whose approval falls within the competence of the company’s shareholders or general director or the management board; | |
• | approval of major and interested party transactions in the cases provided for by the Joint-Stock Companies Law; | |
• | increasing our charter capital by issuing additional shares within the limits of the authorized charter capital, except in certain circumstance specified in our charter; | |
• | approval of decisions on share issuances and of the prospectus relating to such share issuances, as well as of reports on the results of such share issuances; | |
• | approval of our share registrar; and | |
• | other issues, as provided for by the Joint-Stock Companies Law and our charter. |
• | developing and submitting to the board of directors plans and drafts regarding the development strategy of our businesses; | |
• | reporting to the board of directors on realization of investment projects in the amount of more than $30 million; | |
• | developing and introducing to the board of directors investment projects in the amount of more than $50 million; | |
• | submitting to the board of directors offers on shares placement and acquisitions; | |
• | approving annual investment programs; |
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• | approving transactions related to capital assets in the amount from 10% to 25% of the balance sheet assets of the company; | |
• | making decisions regarding the exercise of our rights as shareholder of other entities; | |
• | developing and establishing methods of compensation and monetary motivation for our employees; and | |
• | other issues related to ourday-to-day business referred to the management board by its chairman, the board of directors or by a shareholder holding not less than 20% of our voting shares. |
• | performing the routine management of our operations; | |
• | exercising the right of first signature on financial documents; | |
• | managing our property to provide for our current operations within the limits established by our charter and prevailing Russian legislation; | |
• | representing our interests both in Russia and abroad; | |
• | approving staff, executing labor contracts with our employees and rewarding and disciplining employees; | |
• | entering into transactions on our behalf; | |
• | issuing powers of attorney on our behalf; | |
• | opening and closing our bank accounts; | |
• | organizing our accounting and reporting process; | |
• | issuing orders and instructions binding on all our employees; | |
• | organizing the implementation of resolutions of our shareholders’ meeting and our board of directors; and | |
• | performing other functions necessary to achieve our aims and to provide for our normal operations, in compliance with prevailing legislation and our charter, except for the functions laid upon our other management bodies by the Joint-Stock Companies Law and our charter. |
• | failure to comply with the requirements of our charter, resolutions of the shareholders’ meeting or the board of directors or our internal documents; | |
• | in the cases stipulated by the employment agreement with the general director; and | |
• | in other events provided by current legislation. |
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• | confirmation of the reliability of the data contained in our reports and other financial documents; and | |
• | information on any identified cases of violations of accounting and reporting procedures stipulated by Russian legislation and violations of Russian legislation identified in financial and business operations. |
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• | a party to, or beneficiary of, a transaction with the company, whether directly or as a representative or intermediary; | |
• | the owner (the various or in the aggregate) of at least 20% of the issued voting shares of a legal entity that is a party to, or beneficiary of, a transaction with the company, whether directly or as a representative or intermediary; or | |
• | a member of the board of directors or a member of any management body of a company that is a party to,or beneficiary of, a transaction with the company, whether directly or as a representative or intermediary, or a member of any management body of a management organization of such a company. |
• | the value of such transaction or a number of interrelated transactions is 2% or more of the balance sheet value of the company’s assets determined under Russian accounting standards; | |
• | the transaction or a number of interrelated transactions involves the issuance, by subscription, of common shares or securities convertible into common shares, or secondary market sale of such securities, in an amount exceeding 2% of the company’s issued common shares and common shares into which issued convertible securities may be converted; | |
• | the number of directors who are not interested in the transaction is not sufficient to constitute a quorum; or | |
• | all the members of the board of directors of the company are interested parties, or none of them is an independent director. |
• | the company has only one shareholder that simultaneously performs the functions of the executive body of the company; | |
• | all shareholders of the company are deemed interested in such transactions; | |
• | the transactions arise from the shareholders executing their preemptive rights to purchase newly issued shares of the company; | |
• | the transactions arise from the repurchase, whether mandatory or not, by the company of the issued shares; or | |
• | the company is merging with or into another company, when the latter owns more than three-fourths of the voting capital stock of the company; and | |
• | the company is required by federal legislation to enter into the transaction, and settlements under such transaction are made pursuant to fixed rate schedules and prices established by appropriate state authorities. |
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• | A person intending to acquire more than 30% of an open joint-stock company’s common shares and voting preferred shares (including, for such purposes, shares already owned by such person and its affiliates), will be entitled to make a public tender offer to other holders of shares of the same class. | |
• | A person that has acquired more than 30% of an open joint-stock company’s common shares and voting preferred shares (including, for such purposes, shares already owned by such person and its affiliates, but excluding shares that were acquired pursuant to previous voluntary or mandatory offers, provided, however, that such previous voluntary offer was made in compliance with certain requirements of the Joint-Stock Companies Law applicable to mandatory offers) will generally be required to make, within 35 days of acquiring such shares, a public tender offer for other shares of the same class and for securities convertible into such shares, at a price which is not less than the price determined based on a weighted market price of the shares for the previous six months, or at a price not less than the market price, which must be determined by an independent appraiser if the shares have an insufficient or nonexistent trading history. From the moment of acquisition of more than 30% of the shares until the moment of sending of an offer to the company, the person making the offer and its affiliates will be able to vote only 30% of the shares of the company (regardless of the size of their actual holdings). These rules are also applied (or reapplied) to acquisitions resulting in a person or a group of persons owning more than 50% and 75% of a company’s outstanding common shares and voting preferred shares. | |
• | A person that as a result of such a voluntary or mandatory offer becomes (individually or with its affiliates) the owner of more than 95% of the company’s common shares and voting preferred shares, must buy out the remaining shares of the company as well as other securities convertible into such shares upon request of the holders of such shares or other securities, and may require such holders to sell such shares and other securities, at a price based on the prices of the preceding acquisition by the offeror. The offeror is entitled to require the holders of the remaining shares of the company, as well as other securities convertible into such shares, to sell such shares and other securities, provided that the offeror acquired not less than 10% of the |
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total number of shares of the company as a result of acceptance by other shareholders of the voluntary or mandatory tender offer as described above. |
• | An offer of the kind described in either of the preceding three paragraphs must be accompanied by a bank guarantee of payment. If securities are listed on a stock exchange, prior notice of the offer must be filed with the FFMS; otherwise, notice must be filed with the FFMS no later than the date of the offer. The FFMS may order amendments to the terms of the offer (including price) in order to bring them into compliance with the rules. | |
• | Once such an offer has been made, competing offers for the same securities can be made by third parties and, in certain circumstances, acceptance of the initial offer may be withdrawn by the security holders who choose to accept such competing offer. From the making of such an offer until 20 days after its expiry (which period may in certain cases exceed 100 days) the company’s shareholders’ meeting will have the sole power to make decisions on charter capital increase, issuance of securities convertible into shares, including options of an open joint-stock company, approval of certain transactions or a number of related transactions, involving the acquisition or disposal, or a possibility of disposal (whether directly or indirectly), of property having a value of 10% or more of the balance sheet value of the assets of a company as determined under Russian accounting standards as of the latest reporting date preceding the transaction, with the exception of transactions completed in the ordinary course of business, and on certain other significant matters. |
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• | Russian legislation; and | |
• | the United States-Russia income tax treaty (and judicial and administrative interpretations thereof); |
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• | liable, under the laws of the United States, for U.S. federal income tax (other than taxes in respect only of income from sources in the United States or capital situated therein) by reason of the holder’s domicile, residence, citizenship, place of incorporation, or any other similar criterion (and, for income derived by a partnership, trust or estate, residence is determined in accordance with the residence of the person liable to tax with respect to such income); and | |
• | not also a resident of the Russian Federation for purposes of the United States-Russia income tax treaty. |
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• | insurance companies; | |
• | tax-exempt organizations; | |
• | financial institutions; | |
• | retirement plans; | |
• | persons subject to the alternative minimum tax; | |
• | persons who are broker-dealers in securities; | |
• | S corporations; | |
• | expatriates subject to Section 877 or Section 877A of the U.S. Internal Revenue Code of 1986 (the “Code”); | |
• | owners of, directly, indirectly or by attribution, 10% or more of our outstanding common shares; or | |
• | owners holding ADSs or common shares as part of a hedge, straddle, synthetic security or conversion transaction. |
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Item 11. | Quantitative and Qualitative Disclosures About Market Risk |
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Balance as of December 31, 2008 | U.S. Dollar | Ruble | Euro | Lei | Other | Total | ||||||||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||||||||||
Current Assets: | ||||||||||||||||||||||||
Cash and cash equivalents | 71,581 | 127,055 | 47,776 | 6,005 | 2,422 | 254,839 | ||||||||||||||||||
Trade receivables, net | 109,900 | 200,489 | 64,762 | 27,110 | 4,488 | 406,749 | ||||||||||||||||||
Due from related parties | 22,025 | 146 | — | — | — | 22,171 | ||||||||||||||||||
Deferred income taxes | 18 | 18,710 | 186 | 280 | 2,853 | 22,047 | ||||||||||||||||||
Prepayments and other current assets | 11,659 | 601,645 | 18,027 | 11,241 | 31,689 | 674,261 | ||||||||||||||||||
Total current assets(1) | 215,183 | 948,045 | 130,751 | 44,636 | 41,452 | 1,380,067 | ||||||||||||||||||
Current Liabilities: | ||||||||||||||||||||||||
Short-term borrowings and current portion of long-term debt | (3,800,222 | ) | (1,117,213 | ) | (218,364 | ) | (13,616 | ) | — | (5,149,415 | ) | |||||||||||||
Accounts payable and accrued expenses: | ||||||||||||||||||||||||
Advances received | (73,767 | ) | (47,881 | ) | (51 | ) | (526 | ) | (2,817 | ) | (125,042 | ) | ||||||||||||
Accrued expenses and other current liabilities | (5,329 | ) | (128,391 | ) | (4,563 | ) | (3,211 | ) | (2,093 | ) | (143,587 | ) | ||||||||||||
Pension obligations, current portion | — | (25,372 | ) | (885 | ) | (2,596 | ) | (107 | ) | (28,960 | ) | |||||||||||||
Taxes and social charges payable and unrecognized tax benefit | (2,238 | ) | (134,943 | ) | (3,249 | ) | (5,915 | ) | (12,072 | ) | (158,417 | |||||||||||||
Trade payables to vendors of goods and services | (22,288 | ) | (525,009 | ) | (86,663 | ) | (31,104 | ) | (23,638 | ) | (688,702 | ) | ||||||||||||
Due to related parties | — | (1,588 | ) | — | — | — | (1,588 | ) | ||||||||||||||||
Asset retirement obligation | — | (6,387 | ) | — | — | — | (6,387 | ) | ||||||||||||||||
Deferred income taxes | — | (17,785 | ) | — | — | — | (17,785 | ) | ||||||||||||||||
Finance lease liabilities | — | (11,650 | ) | (756 | ) | (2,112 | ) | (373 | ) | (14,891 | ) | |||||||||||||
Deferred revenue | (85 | ) | (1,691 | ) | — | — | — | (1,776 | ) | |||||||||||||||
Dividends payable | (4,919 | ) | (4,919 | ) | ||||||||||||||||||||
Total current liabilities | (3,903,929 | ) | (2,022,829 | ) | (314,531 | ) | (59,080 | ) | (41,100 | ) | (6,341,469 | ) | ||||||||||||
Long-term Liabilities: | ||||||||||||||||||||||||
Long-term debt, net of current portion | (3 | ) | (172,709 | ) | (47,104 | ) | — | — | (219,816 | ) | ||||||||||||||
Pension obligations, net of current portion | — | (151, 334 | ) | (4,790 | ) | (1,946 | ) | — | (158,070 | ) | ||||||||||||||
Asset retirement obligation, net of current portion | — | (58,349 | ) | — | (4,814 | ) | (2,054 | ) | (65,217 | ) | ||||||||||||||
Deferred income tax | (13,824 | ) | (533,882 | ) | (4,396 | ) | (17,252 | ) | (271,860 | ) | (841,214 | ) | ||||||||||||
Finance lease liabilities | — | (50,000 | ) | (1,162 | ) | (2,270 | ) | (729 | ) | (54,161 | ) | |||||||||||||
Other long-term liabilities | — | (1,484 | ) | — | (113 | ) | (6,429 | ) | (8,026 | ) | ||||||||||||||
Total long-term liabilities | (13,827 | ) | (967,758 | ) | (57,452 | ) | (26,395 | ) | (281,072 | ) | (1,346,504 | ) | ||||||||||||
Minority interest | — | (265,025 | ) | — | (25,824 | ) | — | (290,849 | ) | |||||||||||||||
Net monetary assets (liabilities) | (3,702,573 | ) | (2,307,567 | ) | (241,232 | ) | (66,663 | ) | (280,720 | ) | (6,598,755 | ) | ||||||||||||
(1) | Does not include inventories and deferred costs of inventory in transit. |
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U.S. | ||||||||||||||||||||
Dollar | Ruble | Euro | Ron | Total | ||||||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||||||
Total debt including | 3,800,220 | 1,289,964 | 265,431 | 13,616 | 5,369,231 | |||||||||||||||
Fixed-rate debt | 99,046 | 1,065,667 | 34,331 | — | 1,199,044 | |||||||||||||||
Variable-rate debt | 3,701,174 | 224,297 | 231,100 | 13,616 | 4,170,187 |
Annual | ||||||||||||||||||||||||||||||||
Interest Rate | ||||||||||||||||||||||||||||||||
(Actual at | ||||||||||||||||||||||||||||||||
Contractual Maturity Date as of December 31, | December 31, | |||||||||||||||||||||||||||||||
Currency | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | 2008) | |||||||||||||||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||||||||||||||||||
Fixed-rate U.S. dollar debt: | ||||||||||||||||||||||||||||||||
Gazprombank | U.S. dollar | 19,500 | — | — | — | — | 19,500 | 12.5 | % | |||||||||||||||||||||||
HVB Luxembourg | U.S. dollar | 24,846 | — | — | — | — | 24,846 | 6.5 | % | |||||||||||||||||||||||
Anime Global limited | U.S. dollar | 15,000 | — | — | — | — | 15,000 | 5.0 | % | |||||||||||||||||||||||
Uralsib bank | U.S. dollar | 25,000 | — | — | — | — | 25,000 | 17.5 | % | |||||||||||||||||||||||
Royal Bank of Scotland | U.S. dollar | 14,700 | — | — | — | — | 14,700 | 5.2 | % | |||||||||||||||||||||||
Total | 99,046 | — | — | — | — | 99,046 | ||||||||||||||||||||||||||
Fixed-rate euro debt: | ||||||||||||||||||||||||||||||||
Gazprombank | Euro | 31,247 | — | — | — | — | 31,247 | 6.5 | % | |||||||||||||||||||||||
Bayerische Hypo-und-Vereinsbank | — | — | — | — | 3,084 | — | 5.1 | % | ||||||||||||||||||||||||
Total | 31,247 | — | — | — | 3,084 | 34,331 | — | |||||||||||||||||||||||||
Fixed-rate ruble debt: | ||||||||||||||||||||||||||||||||
Gazprombank | Ruble | 234,317 | — | 169,511 | — | — | 403,828 | 8.0-10.0 | % | |||||||||||||||||||||||
Vneshtorgbank | Ruble | 462,894 | — | — | — | — | 462,894 | 12.0 | % | |||||||||||||||||||||||
Sberbank | Ruble | 112,320 | — | — | — | — | 112,320 | |||||||||||||||||||||||||
Uralsib bank | Ruble | 72,157 | — | — | — | — | 72,157 | 20.0 | % | |||||||||||||||||||||||
Other | Ruble | 14,293 | — | — | — | 175 | 14,468 | 0-12.0 | % | |||||||||||||||||||||||
Total | 895,981 | 169,511 | 175 | 1,065,667 | ||||||||||||||||||||||||||||
Total debt: | 1,026,274 | — | 169,511 | — | 3,259 | 1,199,044 | ||||||||||||||||||||||||||
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Average | ||||||||||||||||||||||||||||||||
Annual Interest | ||||||||||||||||||||||||||||||||
Rate (Actual at | ||||||||||||||||||||||||||||||||
Contractual Maturity Date as of December 31, | December 31, | |||||||||||||||||||||||||||||||
Currency | 2009 | 2010 | 2011 | 2012 | Thereafter | Total | 2008) | |||||||||||||||||||||||||
(In thousands of U.S. dollars) | ||||||||||||||||||||||||||||||||
Variable-rate U.S. dollar debt: | ||||||||||||||||||||||||||||||||
Gazprombank | U.S. dollar | 38,300 | — | — | — | — | 38,300 | 12.5 | % | |||||||||||||||||||||||
Raiffeisenbank | U.S. dollar | 12,000 | — | — | — | — | 12,000 | 6.4 | % | |||||||||||||||||||||||
BNP Paribas | U.S. dollar | 44,378 | — | — | — | — | 44,378 | 0-5.4 | % | |||||||||||||||||||||||
Bridge Loan | U.S. dollar | 1,500,000 | — | — | — | — | 1,500,000 | 5.2 | % | |||||||||||||||||||||||
Syndicated Loan | U.S. dollar | 1,915,750 | — | — | — | — | 1,915,750 | 5.1-7.3 | % | |||||||||||||||||||||||
HypoVereinsbank | U.S. dollar | 23 | — | — | — | — | 23 | 5.4 | % | |||||||||||||||||||||||
Fortis Bank | U.S. dollar | 2,087 | — | — | — | — | 2,087 | 3.8 | % | |||||||||||||||||||||||
Commerzbank | U.S. dollar | 4,939 | — | — | — | — | 4,939 | 5.0 | % | |||||||||||||||||||||||
ING Bank | U.S. dollar | 7,281 | — | — | — | — | 7,281 | 2.1-2.4 | % | |||||||||||||||||||||||
BCV | U.S. dollar | 6,656 | — | — | — | — | 6,656 | 1.8 | % | |||||||||||||||||||||||
EDB | U.S. dollar | 55,990 | — | — | — | — | 55,990 | 6.1-9.1 | % | |||||||||||||||||||||||
HVB | U.S. dollar | 13,877 | — | — | — | — | 13,877 | 7.1 | % | |||||||||||||||||||||||
West LB | U.S. dollar | 14,883 | — | — | — | — | 14,883 | 7.1 | % | |||||||||||||||||||||||
UniCredit | U.S. dollar | 40,000 | — | — | — | — | 40,000 | 6.6 | % | |||||||||||||||||||||||
Alfa bank | U.S. dollar | 45,000 | — | — | — | — | 45,000 | 15.0 | % | |||||||||||||||||||||||
Other | U.S. dollar | 10 | — | — | — | — | 10 | 2.0 | % | |||||||||||||||||||||||
Total | 3,701,174 | — | — | — | — | 3,701,174 | ||||||||||||||||||||||||||
Variable-rate euro debt: | ||||||||||||||||||||||||||||||||
Gazprombank | Euro | 3,273 | — | — | — | — | 3,273 | 6.5 | % | |||||||||||||||||||||||
Commerzbank | Euro | 35,263 | — | — | — | — | 35,263 | 6.1 | % | |||||||||||||||||||||||
Raiffeisenbank | Euro | 941 | 941 | 941 | 940 | — | 3,763 | 4.1 | % | |||||||||||||||||||||||
HypoVereinsbank | Euro | 11,447 | — | — | — | — | 11,447 | 5.3-5.5 | % | |||||||||||||||||||||||
Fortis Bank | Euro | 29,469 | — | — | — | 5,878 | 35,347 | 5.3-5.8 | % | |||||||||||||||||||||||
BCV | Euro | 2,327 | — | — | — | — | 2,327 | 4.1 | % | |||||||||||||||||||||||
BNP Paribas | Euro | 39,834 | — | — | — | — | 39,834 | 5.0 | % | |||||||||||||||||||||||
ING Bank | Euro | 7,067 | — | — | — | 11,354 | 18,421 | 3.5-6.3 | % | |||||||||||||||||||||||
Bayerische Hypo-Und Vereinsbank | Euro | 4,163 | 2,321 | 2,321 | 2,320 | 12,282 | 23,407 | 4.3-5.5 | % | |||||||||||||||||||||||
Banca Comerciala Romania | Euro | 19,388 | — | — | — | — | 19,388 | 6.9-14.3 | % | |||||||||||||||||||||||
WGZ-Bank | Euro | 18,777 | — | — | — | — | 18,777 | 6.8 | % | |||||||||||||||||||||||
Other | Euro | 15,169 | 4,684 | — | — | — | 19,853 | 5.2-7.2 | % | |||||||||||||||||||||||
Total | 187,118 | 7,946 | 3,262 | 3,260 | 29,514 | 231,100 | ||||||||||||||||||||||||||
Variable-rate ruble debt: | ||||||||||||||||||||||||||||||||
Commerzbank | Ruble | 5,637 | — | — | — | — | 5,637 | 10.4 | % | |||||||||||||||||||||||
Gazprombank | Ruble | 37,021 | — | — | — | — | 37,021 | 12.5-16.0 | % | |||||||||||||||||||||||
Alfa bank | Ruble | 104,321 | — | — | — | — | 104,321 | 20.2 | % | |||||||||||||||||||||||
UniCredit | Ruble | 7,066 | 3,064 | — | — | — | 10,130 | 9.8 | % | |||||||||||||||||||||||
Raiffeisenbank | Ruble | 19,537 | — | — | — | — | 19,537 | 10.4 | % | |||||||||||||||||||||||
VTB | Ruble | 47,651 | — | — | — | — | 47,651 | 12.0 | % | |||||||||||||||||||||||
Total | 221,233 | 3,064 | — | — | — | 224,297 | ||||||||||||||||||||||||||
Variable-rate LEI debt: | ||||||||||||||||||||||||||||||||
Raiffeisenbank | Lei | 13,616 | — | — | — | — | 13,616 | 16.9 | % | |||||||||||||||||||||||
Total | 13,616 | — | — | — | — | 13,616 | ||||||||||||||||||||||||||
Total debt: | 4,123,141 | 11,010 | 3,262 | 3,260 | 29,514 | 4,170,187 | ||||||||||||||||||||||||||
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Item 12. | Description of Securities Other than Equity Securities |
Item 13. | Defaults, Dividend Arrearages and Delinquencies |
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Item 15. | Controls and Procedures |
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• | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and members of our Board of Directors; and | |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. |
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• | We do not have sufficient resources in our Moscow-based International Reporting Department (IRD), to properly address relatively complex transactionsand/or accounting and financial reporting issues that arise from time to time in the course of our operations. The high volume of work required on routine tasks also results in untimely identification of accounting issues; | |
• | We did not have an adequate system of internal controls over period end financial reporting to ensure that the reporting packages received by the subsidiaries are properly reviewed at the subsidiary and group level, and that the U.S. GAAP transformation schedules and relatively complex and non-routine transactions are properly completed and reviewed; | |
• | We did not design and operate effective controls over accounting for the business acquisition process; | |
• | We did not design and operate effective controls related to the completeness of our recorded and disclosed commitments and contingencies. We did not establish effective controls over the completeness of the contracts management reviewed and used to prepare our commitments and contingencies disclosure; | |
• | We did not design and operate effective controls over the calculation of the “lower of cost or market” valuation adjustment for inventories; | |
• | We did not design and operate effective controls over the classification and timely accounting for transportation costs incurred by our subsidiaries. |
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Item 16A. | Audit Committee Financial Expert |
Item 16B. | Code of Ethics |
Item 16C. | Principal Accountant Fees and Services |
Year Ended December 31, | ||||||||
2008 | 2007 | |||||||
(In thousands of U.S. dollars, net of VAT) | ||||||||
Audit Fees | 12,915.0 | 7,977.0 | ||||||
Audit-related fees | 75.0 | — | ||||||
Tax Fees | — | — | ||||||
All Other Fees | 3.0 | 219.0 | ||||||
Total | 12,993.0 | 8,196.0 | ||||||
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Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
Item 16F. | Change in Registrant’s Certifying Accountant |
Item 16G. | Corporate Governance |
NYSE Corporate Governance Rules for U.S. Companies | Our Corporate Governance Practices | |
A majority of directors must be independent, as determined by the board. (Section 303A.01 and 02). | We comply with this requirement. | |
Non-management directors must meet at regularly scheduled executive sessions without management. (Section 303A.03). | We comply with this requirement. | |
Listed companies must have a nominating/corporate governance and a compensation committee, each composed entirely of independent directors and having a written charter specifying the committee’s purpose and responsibilities, as well as annual performance evaluation of the committee. (Section 303A.04 and 05). | Currently, these matters are being considered by our entire board of directors. We expect to have these committees in the future. | |
Listed companies must have an audit committee that satisfies the requirements ofRule 10A-3 under the Exchange Act. (Section 303A.06). | We comply with this requirement. | |
Audit committee must have a minimum of three members and have a written charter specifying the committee’s purpose, an annual performance evaluation and its duties and responsibilities. (Section 303A.07(a) and(c)). | We comply with this requirement. |
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NYSE Corporate Governance Rules for U.S. Companies | Our Corporate Governance Practices | |
Listed companies must have an internal audit function. (Section 303A.07(d)). | We comply with this requirement. | |
Shareholders must be given the opportunity to vote on all equity compensation plans and material revisions, (Section 303A.08). | Our charter requires the shareholders meeting to approve annual remuneration of board members. | |
Listed companies must adopt and disclose corporate governance guidelines. (Section 303A.09). | We comply with this requirement. | |
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. (Section 303A.10). | We comply with this requirement. | |
The CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards, qualifying the certification to the extent necessary. The CEO must promptly notify the NYSE in writing after any executive officer of the listed company becomes aware of any material non-compliance with any applicable provisions of the NYSE Listing Standards. Listed companies must submit an executed Written Affirmation annually to the NYSE. In addition, listed companies must submit an interim Written Affirmation each time a change occurs to the board or any of the committees subject to the NYSE Listing Standards. The annual and interim Written Affirmations must be in the form specified by the NYSE. (Section 303A.12). | We comply with this requirement. | |
Listed companies must have and maintain a publicly accessible website. (Section 303A.14). | We comply with this requirement. |
Item 17. | Financial Statements |
Item 18. | Financial Statements |
Index to Consolidated Financial Statements | F-1 | |||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
F-8 |
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Item 19. | Exhibits |
Exhibit No. | Description | |||
1 | .1 | Charter of Mechel OAO registered on February 20, 2007 | ||
1 | .2 | Amendment to Charter of Mechel OAO registered on August 27, 2007 | ||
1 | .3 | Amendment to Charter of Mechel OAO registered on May 7, 2008 | ||
1 | .4 | Amendment to Charter of Mechel OAO registered on May 29, 2008 | ||
1 | .5 | Amendment to Charter of Mechel OAO registered on May 7, 2009 | ||
8 | .1 | Subsidiaries of Mechel | ||
12 | .1 | Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
12 | .2 | Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
13 | .1 | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
13 | .2 | Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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By: | /s/ Igor V. Zyuzin |
Title: | Chief Executive Officer |
234
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
F-8 |
F-1
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F-2
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December 31, | December 31, | |||||||||
Notes | 2008 | 2007 | ||||||||
(In thousands of U.S. dollars, | ||||||||||
except share amounts) | ||||||||||
ASSETS | ||||||||||
Cash and cash equivalents | 5 | $ | 254,839 | $ | 236,779 | |||||
Accounts receivable, net of allowance for doubtful accounts of $110,613 in 2008 and $26,781 in 2007 | 6 | 406,749 | 341,756 | |||||||
Due from related parties | 10 | 22,171 | 4,988 | |||||||
Inventories | 7 | 1,365,109 | 1,006,858 | |||||||
Deferred income taxes | 21 | 22,047 | 12,331 | |||||||
Prepayments and other current assets | 8 | 674,261 | 633,993 | |||||||
Total current assets | 2,745,176 | 2,236,705 | ||||||||
Long-term investments in related parties | 9 | 80,408 | 92,571 | |||||||
Other long-term investments | 9 | 472,772 | 58,595 | |||||||
Intangible assets, net | 11 | 6,956 | 7,408 | |||||||
Property, plant and equipment, net | 12 | 4,277,841 | 3,701,762 | |||||||
Mineral licenses, net | 13 | 3,430,642 | 2,131,483 | |||||||
Other non-current assets | 14 | 57,844 | 67,918 | |||||||
Deferred income taxes | 21 | 27,551 | 16,755 | |||||||
Goodwill | 4(o) | 910,444 | 914,446 | |||||||
Total assets | $ | 12,009,634 | $ | 9,227,643 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Short-term borrowings and current portion of long-term debt (including debt of $4,233,751 with loan covenant violations in 2008) | 15 | $ | 5,149,415 | $ | 1,135,104 | |||||
Accounts payable and accrued expenses: | ||||||||||
Trade payable to vendors of goods and services | 688,702 | 222,753 | ||||||||
Advances received | 125,042 | 147,739 | ||||||||
Accrued expenses and other current liabilities | 143,587 | 144,083 | ||||||||
Taxes and social charges payable | 131,241 | 123,794 | ||||||||
Unrecognized income tax benefits | 21 | 27,176 | 79,211 | |||||||
Due to related parties | 10 | 1,588 | 3,596 | |||||||
Asset retirement obligation, current portion | 17 | 6,387 | 5,366 | |||||||
Deferred income taxes | 21 | 17,785 | 33,056 | |||||||
Deferred revenue | 1,776 | 20,949 | ||||||||
Pension obligations, current portion | 18 | 28,960 | 63,706 | |||||||
Dividends payable | 4,919 | — | ||||||||
Finance lease liabilities, current portion | 19 | 14,891 | 11,708 | |||||||
Total current liabilities | 6,341,469 | 1,991,065 | ||||||||
Long-term debt, net of current portion | 15 | 219,816 | 2,321,922 | |||||||
Asset retirement obligations, net of current portion | 17 | 65,217 | 65,928 | |||||||
Pension obligations, net of current portion | 18 | 158,070 | 266,660 | |||||||
Deferred income taxes | 21 | 841,214 | 701,318 | |||||||
Finance lease liabilities, net of current portion | 19 | 54,161 | 73,377 | |||||||
Commitments and contingencies | 26 | |||||||||
Other long-term liabilities | 8,026 | 1,917 | ||||||||
Minority interests | 4(p) | 290,849 | 300,523 | |||||||
Shareholders’ Equity | ||||||||||
Common shares (10 Russian rubles par value; 497,969,086 shares authorized,416,270,745 shares issued and outstanding as of December 31, 2008 and 2007) | 20 | 133,507 | 133,507 | |||||||
Additional paid-in capital | 415,070 | 415,070 | ||||||||
Accumulated other comprehensive income | 158,937 | 305,467 | ||||||||
Retained earnings | 3,323,298 | 2,650,889 | ||||||||
Total shareholders’ equity | 4,030,812 | 3,504,933 | ||||||||
Total liabilities and shareholders’ equity | $ | 12,009,634 | $ | 9,227,643 | ||||||
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Table of Contents
Year Ended December 31, | ||||||||||||||
Notes | 2008 | 2007 | 2006 | |||||||||||
(In thousands of U.S. dollars, | ||||||||||||||
except share and per share amounts) | ||||||||||||||
Revenue, net (including related party amounts of $68,328, $110,056 and $66,998 during 2008, 2007 and 2006, respectively) | $ | 9,950,705 | $ | 6,683,842 | $ | 4,397,811 | ||||||||
Cost of goods sold (including related party amounts of $12,213, $157,427 and $142,959 during 2008, 2007 and 2006, respectively) | (5,260,108 | ) | (4,166,864 | ) | (2,860,224 | ) | ||||||||
Gross profit | 4,690,597 | 2,516,978 | 1,537,587 | |||||||||||
Selling, distribution and operating expenses: | ||||||||||||||
Selling and distribution expenses | (1,348,989 | ) | (621,811 | ) | (418,901 | ) | ||||||||
Taxes other than income tax | 22 | (116,590 | ) | (83,994 | ) | (82,140 | ) | |||||||
Accretion expense | 17 | (6,078 | ) | (3,101 | ) | (7,433 | ) | |||||||
Loss on write-off of property, plant and equipment | (4,323 | ) | — | (2,418 | ) | |||||||||
Allowance for doubtful accounts | 6 | (103,632 | ) | (1,411 | ) | (2,722 | ) | |||||||
General, administrative and other operating expenses | 23 | (554,716 | ) | (409,068 | ) | (298,275 | ) | |||||||
Total selling, distribution and operating expenses | (2,134,328 | ) | (1,119,385 | ) | (811,889 | ) | ||||||||
Operating income | 2,556,269 | 1,397,593 | 725,698 | |||||||||||
Other income and (expense): | ||||||||||||||
Income (loss) from equity investments | 9 | 717 | 8 | (9,858 | ) | |||||||||
Interest income | 11,614 | 12,278 | 8,314 | |||||||||||
Interest expense | (324,083 | ) | (98,976 | ) | (38,183 | ) | ||||||||
Gain on revaluation of trading securities | — | — | 50,688 | |||||||||||
Other (expenses) income, net | 24 | (18,821 | ) | 19,844 | 69,401 | |||||||||
Foreign exchange (loss) gain | (877,428 | ) | 54,700 | 58,773 | ||||||||||
Total other income and (expense), net | (1,208,001 | ) | (12,146 | ) | 139,135 | |||||||||
Income before income tax, minority interest, discontinued operations and extraordinary gain | 21 | 1,348,268 | 1,385,447 | 864,833 | ||||||||||
Income tax expense | 21 | (118,887 | ) | (356,320 | ) | (230,599 | ) | |||||||
Minority interest in income of subsidiaries | 4(p) | (88,837 | ) | (116,234 | ) | (31,528 | ) | |||||||
Income from continuing operations | 1,140,544 | 912,893 | 602,706 | |||||||||||
Income from discontinued operations, net of tax | — | 158 | 543 | |||||||||||
Net income | $ | 1,140,544 | $ | 913,051 | $ | 603,249 | ||||||||
Currency translation adjustment | (227,618 | ) | 136,673 | 148,920 | ||||||||||
Change in pension benefit obligation | 87,659 | (14,365 | ) | — | ||||||||||
Adjustment of available-for-sale securities | (6,571 | ) | (5,059 | ) | 11,203 | |||||||||
Additional minimum pension liability | 18 | — | — | (4,669 | ) | |||||||||
Comprehensive income | $ | 994,014 | $ | 1,030,300 | $ | 758,703 | ||||||||
Basic and diluted earnings per share: | 20 | |||||||||||||
Earnings per share from continuing operations | $ | 2.74 | $ | 2.19 | $ | 1.48 | ||||||||
Income per share effect of discontinued operations | 0.00 | 0.00 | 0.00 | |||||||||||
Net income per share | $ | 2.74 | $ | 2.19 | $ | 1.48 | ||||||||
Weighted average number of shares outstanding | 416,270,745 | 416,270,745 | 408,979,356 | |||||||||||
F-4
Table of Contents
Year Ended December 31, | ||||||||||||||
Notes | 2008 | 2007 | 2006 | |||||||||||
(In thousands of U.S. dollars) | ||||||||||||||
Cash Flows from Operating Activities | ||||||||||||||
Net income | $ | 1,140,544 | $ | 913,051 | $ | 603,249 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation | 360,587 | 250,333 | 177,303 | |||||||||||
Depletion and amortization | 102,710 | 39,982 | 18,924 | |||||||||||
Foreign exchange loss (gain) | 877,428 | (54,700 | ) | (58,773 | ) | |||||||||
Deferred income taxes | 21 | (403,816 | ) | (18,320 | ) | 22,299 | ||||||||
Allowance for doubtful accounts | 6 | 103,632 | 1,411 | 2,722 | ||||||||||
Inventory write-down | 7 | 278,176 | 1,227 | 525 | ||||||||||
Accretion expense | 17 | 6,078 | 3,101 | 7,433 | ||||||||||
Loss on write-off of property, plant and equipment | 4,323 | — | 2,418 | |||||||||||
Minority interest | 4(p) | 88,837 | 116,234 | 31,528 | ||||||||||
Gain on revaluation of trading securities | — | — | (50,688 | ) | ||||||||||
Change in undistributed earnings of equity investments | 9 | (717 | ) | (8 | ) | 17,426 | ||||||||
Non-cash interest on long-term tax and pension liabilities | 18,426 | 6,942 | 6,173 | |||||||||||
Loss on sale of property, plant and equipment | 15,641 | 10,581 | 1,320 | |||||||||||
(Gain) loss on sale of investments | 24 | (4,568 | ) | 13,426 | 5,047 | |||||||||
Gain on discharged asset retirement obligations | — | (14,430 | ) | (2,112 | ) | |||||||||
Income from discontinued operations | — | (158 | ) | (543 | ) | |||||||||
Gain on accounts payable with expired legal term | 24 | (2,370 | ) | (12,158 | ) | (843 | ) | |||||||
Gain on forgiveness of fines and penalties | 24 | — | (8,311 | ) | (69,767 | ) | ||||||||
Stock-based compensation expense | — | — | 260 | |||||||||||
Amortization of loan origination fee and costs on bonds issue | 28,102 | — | 673 | |||||||||||
Pension service cost and amortization of prior year service cost | 9,745 | 2,681 | 3,510 | |||||||||||
Pension benefit plan curtailment gain | 18 | (23,421 | ) | — | — | |||||||||
Provision for short-term investment | — | 4,124 | — | |||||||||||
Net change before changes in working capital | 2,599,337 | 1,255,008 | 718,084 | |||||||||||
Changes in working capital items, net of effects from acquisition of new subsidiaries: | ||||||||||||||
Trading securities | — | 257,185 | — | |||||||||||
Accounts receivable | (140,545 | ) | (118,101 | ) | (9,004 | ) | ||||||||
Inventories | (658,930 | ) | (254,342 | ) | (159,103 | ) | ||||||||
Trade payable to vendors of goods and services | 594,639 | (19,909 | ) | (47,940 | ) | |||||||||
Advances received | (6,230 | ) | (56,697 | ) | 43,474 | |||||||||
Accrued taxes and other liabilities | (8,353 | ) | (67,155 | ) | 24,715 | |||||||||
Settlements with related parties | (9,308 | ) | (3,237 | ) | 3,430 | |||||||||
Current assets and liabilities of discontinued operations | — | (234 | ) | (187 | ) | |||||||||
Deferred revenue and cost of inventory in transit, net | (16,591 | ) | 14,700 | (12,316 | ) | |||||||||
Other current assets | (79,196 | ) | (49,686 | ) | (6,230 | ) | ||||||||
Prepayments to non-state pension funds | 4,254 | (38,981 | ) | — | ||||||||||
Unrecognized income tax benefits | (49,136 | ) | (13,582 | ) | — | |||||||||
Net cash provided by operating activities | 2,229,941 | 904,969 | 554,923 | |||||||||||
Cash Flows from Investing Activities | ||||||||||||||
Acquisition of Oriel, less cash acquired | 4(b) | (1,439,600 | ) | — | — | |||||||||
Acquisition of Ductil Steel S.A., less cash acquired | 4(a) | (197,621 | ) | — | — | |||||||||
Advances paid for BCG Companies | 9 | (438,623 | ) | — | — | |||||||||
Acquisition of HBL, less cash acquired | 4(c) | (14,593 | ) | — | — |
F-5
Table of Contents
Year Ended December 31, | ||||||||||||||
Notes | 2008 | 2007 | 2006 | |||||||||||
(In thousands of U.S. dollars) | ||||||||||||||
Acquisition of Moskoks, less cash acquired | 4(h) | — | — | (156,474 | ) | |||||||||
Acquisition of in Yakutugol, less cash acquired | 4(e) | — | (1,580,004 | ) | — | |||||||||
Acquisition of Elgaugol, less cash acquired | 4(e) | — | (345,861 | ) | — | |||||||||
Acquisition of SKPP, less cash acquired | 4(i) | — | (280,853 | ) | — | |||||||||
Acquisition of BFP, less cash acquired | 4(k) | — | (186,665 | ) | — | |||||||||
Acquisition of KPSC, less cash acquired | 4(j) | — | (78,304 | ) | — | |||||||||
Acquisition of other subsidiaries, less cash acquired | — | (17,454 | ) | (2,153 | ) | |||||||||
Acquisition of minority interest in subsidiaries | 4(p) | (51,346 | ) | (2,378 | ) | (4,016 | ) | |||||||
Investment in TPP Rousse | 4(n) | — | (73,539 | ) | — | |||||||||
Investments in other marketable securities | — | (3,289 | ) | (2,016 | ) | |||||||||
Proceeds from disposal of non-marketable equity securities | 7,457 | — | 6,507 | |||||||||||
Other long-term investments | — | (27,743 | ) | — | ||||||||||
Repayments of short-term loans issued | 930 | 18,709 | — | |||||||||||
Proceeds from disposals of property, plant and equipment | 3,644 | 456 | 3,456 | |||||||||||
Purchases of mineral licenses | (4,344 | ) | (3,517 | ) | (6,382 | ) | ||||||||
Purchases of property, plant and equipment | (1,166,987 | ) | (830,024 | ) | (391,460 | ) | ||||||||
Net cash used in investing activities | (3,301,083 | ) | (3,410,466 | ) | (552,538 | ) | ||||||||
Cash Flows from Financing Activities | ||||||||||||||
Proceeds from short-term borrowings | 5,593,547 | 4,047,426 | 883,307 | |||||||||||
Repayment of short-term borrowings | (3,856,110 | ) | (3,156,412 | ) | (1,116,762 | ) | ||||||||
Dividends paid | 20 | (467,916 | ) | (317,893 | ) | (189,583 | ) | |||||||
Purchase of treasury stock | — | — | (36,449 | ) | ||||||||||
Proceeds from disposal of treasury stock | — | — | 1,248 | |||||||||||
Proceeds from long-term debt | 99,377 | 2,004,780 | 415,345 | |||||||||||
Repayment of long-term debt | (21,388 | ) | (6,586 | ) | (110,840 | ) | ||||||||
Repayment of obligations under finance lease | (48,541 | ) | (21,434 | ) | (9,048 | ) | ||||||||
Net cash provided by (used in) financing activities | 1,298,969 | 2,549,881 | (162,782 | ) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | (209,767 | ) | 19,781 | 21,236 | ||||||||||
Net increase (decrease) in cash and cash equivalents | 18,060 | 64,165 | (139,161 | ) | ||||||||||
Cash and cash equivalents at beginning of year | 5 | 236,779 | 172,614 | 311,775 | ||||||||||
Cash and cash equivalents at end of year | 5 | $ | 254,839 | $ | 236,779 | $ | 172,614 | |||||||
Supplementary cash flow information | ||||||||||||||
Interest paid, net of amount capitalized | $ | (266,010 | ) | $ | (85,819 | ) | $ | (38,882 | ) | |||||
Income taxes paid | $ | (750,863 | ) | $ | (471,004 | ) | $ | (196,913 | ) | |||||
Non-cash Activities | ||||||||||||||
Net assets of subsidiaries contributed by minority shareholders in exchange for shares issued by subsidiaries | 20 | $ | — | $ | 2,743 | $ | 9,641 | |||||||
Acquisition of equipment under finance lease | 19 | $ | 10,637 | $ | 33,228 | $ | 46,855 | |||||||
Increase in goodwill as a result of derecognition of deferred tax assets related to acquisitions | 21 | $ | 44,568 | — | — | |||||||||
Conversion of debt into shares of subsidiaries | $ | — | $ | — | $ | 20,482 | ||||||||
Treasury shares issued to acquire subsidiary | 20 | $ | — | $ | — | $ | 119,950 |
F-6
Table of Contents
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Common Shares | Treasury Shares | Paid-in- | Comprehensive | Retained | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income | Earnings | Total | |||||||||||||||||||||||||
(In thousands of U.S. dollars, except share amounts) | ||||||||||||||||||||||||||||||||
Balances as of December 31, 2005 | 416,270,745 | $ | 133,507 | (13,152,065 | ) | $ | (4,187 | ) | $ | 321,864 | $ | 42,046 | $ | 1,717,244 | $ | 2,210,474 | ||||||||||||||||
Net income | — | — | — | — | — | — | 603,249 | 603,249 | ||||||||||||||||||||||||
Dividends | — | — | — | — | — | — | (189,582 | ) | (189,582 | ) | ||||||||||||||||||||||
Cumulative translation adjustment for 2006 | — | — | — | — | — | 148,920 | — | 148,920 | ||||||||||||||||||||||||
Additional minimum pension liability (Note 18) | (4,669 | ) | (4,669 | ) | ||||||||||||||||||||||||||||
Adjustment of available-for-sale securities | — | — | — | — | — | 11,203 | — | 11,203 | ||||||||||||||||||||||||
Effect of SFAS No. 158 adoption (Note 18) | — | — | — | — | — | (9,282 | ) | — | (9,282 | ) | ||||||||||||||||||||||
Purchase of treasury stock from a related party (Note 20) | — | — | (5,648,850 | ) | (36,449 | ) | — | — | — | (36,449 | ) | |||||||||||||||||||||
Stock-based compensation (Note 20) | — | — | 155,857 | 51 | 1,457 | — | — | 1,508 | ||||||||||||||||||||||||
Treasury shares used for acquisition of subsidiaries (Note 20) | — | — | 18,645,058 | 40,585 | 79,365 | — | — | 119,950 | ||||||||||||||||||||||||
Additional capital arising on acquisition of minority interest (Note 20) | — | — | — | — | 9,641 | — | — | 9,641 | ||||||||||||||||||||||||
Balances as of December 31, 2006 | 416,270,745 | $ | 133,507 | — | $ | — | $ | 412,327 | $ | 188,218 | $ | 2,130,911 | $ | 2,864,963 | ||||||||||||||||||
Net income | — | — | — | — | — | — | 913,051 | 913,051 | ||||||||||||||||||||||||
Dividends (Note 20) | — | — | — | — | — | — | (317,893 | ) | (317,893 | ) | ||||||||||||||||||||||
Adjustment of available-for-sale securities | — | — | — | — | — | (5,059 | ) | — | (5,059 | ) | ||||||||||||||||||||||
Change in pension benefit obligation (Note 18) | — | — | — | — | — | (14,365 | ) | — | (14,365 | ) | ||||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | — | 136,673 | — | 136,673 | ||||||||||||||||||||||||
Additional capital arising on acquisition of minority interest (Note 20) | — | — | — | — | 2,743 | — | — | 2,743 | ||||||||||||||||||||||||
Effect of FIN No. 48 adoption (Note 21) | — | — | — | — | — | — | (75,180 | ) | (75,180 | ) | ||||||||||||||||||||||
Balances as of December 31, 2007 | 416,270,745 | $ | 133,507 | — | $ | — | $ | 415,070 | $ | 305,467 | $ | 2,650,889 | $ | 3,504,933 | ||||||||||||||||||
Net income | — | — | — | — | — | — | 1,140,544 | 1,140,544 | ||||||||||||||||||||||||
Dividends (Note 20) | — | — | — | — | — | — | (468,135 | ) | (468,135 | ) | ||||||||||||||||||||||
Adjustment of available-for-sale securities | — | — | — | — | — | (6,571 | ) | — | (6,571 | ) | ||||||||||||||||||||||
Change in pension benefit obligation (Note 18) | — | — | — | — | — | 87,659 | — | 87,659 | ||||||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | — | (227,618 | ) | — | (227,618 | ) | ||||||||||||||||||||||
Balances as of December 31, 2008 | 416,270,745 | $ | 133,507 | — | $ | — | $ | 415,070 | $ | 158,937 | $ | 3,323,298 | $ | 4,030,812 | ||||||||||||||||||
F-7
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2008 and 2007, and for each of the three years in the period ended
December 31, 2008
(All amounts are in thousands of U.S. dollars, unless stated otherwise)
1. | GENERAL |
(a) | Formation |
Date Control | Interest in Voting Stock Held by | |||||||||||||||||
Acquired/Date of | the Group at December 31, | |||||||||||||||||
Name of Subsidiary | Registered in | Core Business | Incorporation(*) | 2008 | 2007 | 2006 | ||||||||||||
Mechel International Holdings AG (MIH)(1) | Switzerland | Holding and trading | July 1, 1995 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Mechel Metal Supply AG (MMS) | Liechtenstein | Trading | Oct 30, 2000 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Mechel Trading House (MTH) | Russia | Trading | June 23, 1997 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Southern Kuzbass Coal Company (SKCC), including its most significant subsidiaries: | Russia | Coal mining | Jan 21, 1999 | 95.4 | % | 93.5 | % | 93.5 | % | |||||||||
Tomusinsk Open Pit Mine (TOPM) | Russia | Coal mining | Jan 21, 1999 | 74.5 | % | 74.4 | % | 74.4 | % | |||||||||
Olzherassk Open Pit Mine (OOPM)** | Russia | Coal mining | Dec 28, 1999 | — | — | 82.9 | % | |||||||||||
Chelyabinsk Metallurgical Plant (CMP) | Russia | Steel products | Dec 27, 2001 | 94.2 | % | 93.8 | % | 93.7 | % | |||||||||
Southern Urals Nickel Plant (SUNP) | Russia | Nickel | Dec 27, 2001 | 84.1 | % | 79.9 | % | 79.9 | % | |||||||||
Vyartsilya Metal Products Plant (VMPP) | Russia | Steel products | May 24, 2002 | 93.3 | % | 93.3 | % | 93.3 | % | |||||||||
Beloretsk Metallurgical Plant (BMP) | Russia | Steel products | June 14, 2002 | 91.4 | % | 90.4 | % | 90.4 | % | |||||||||
Mechel Targoviste S.A. | Romania | Steel products | Aug 28, 2002 | 86.6 | % | 86.6 | % | 86.6 | % | |||||||||
Mechel Zeljezara (MZ) | Croatia | Steel products | March 17, 2003 | — | 100.0 | % | 100.0 | % | ||||||||||
Ural Stampings Plant (USP) | Russia | Steel products | April 24, 2003 | 93.8 | % | 93.8 | % | 93.8 | % | |||||||||
Korshunov Mining Plant (KMP) | Russia | Iron ore mining | Oct 16, 2003 | 85.6 | % | 85.6 | % | 85.6 | % | |||||||||
Mechel Campia Turzii S.A. | Romania | Steel products | June 20, 2003 | 86.6 | % | 86.6 | % | 86.6 | % | |||||||||
Mechel Nemunas (MN) | Lithuania | Steel products | Oct 15, 2003 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Mechel Energo | Russia | Power trading | Feb 3, 2004 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Port Posiet | Russia | Transportation | Feb 11, 2004 | 97.1 | % | 97.1 | % | 96.9 | % | |||||||||
Izhstal | Russia | Steel products | May 14, 2004 | 88.4 | % | 88.2 | % | 87.9 | % | |||||||||
Port Kambarka | Russia | Transportation | April 27, 2005 | 90.4 | % | 90.4 | % | 90.4 | % | |||||||||
Kaslinsky Architectural Art Casting Plant | Russia | Steel products | April 14, 2004 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Mechel Service | Russia | Trading | May 5, 2005 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Mechel Trading Ltd. | Switzerland | Trading | Dec 20, 2005 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Metals Recycling | Russia | Scrap collecting | March 14, 2006 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Mechel Hardware*** | Russia | Trading | March 21, 2006 | — | 100.0 | % | 100.0 | % | ||||||||||
Moscow Coke and Gas Plant (Moskoks) | Russia | Coke production | Oct 4, 2006 | 99.5 | % | 97.1 | % | 98.9 | % | |||||||||
Southern Kuzbass Power Plant (SKPP) | Russia | Power generation | April 19, 2007 | 98.3 | % | 98.0 | % | — | ||||||||||
Mechel Finance | Russia | Corporate finance | June 6, 2007 | 100.0 | % | 100.0 | % | — | ||||||||||
Kuzbass Power Sales Company (KPSC) | Russia | Power sales | June 30, 2007 | 72.1 | % | 72.0 | % | — | ||||||||||
Bratsk Ferroalloy Plant (BFP) | Russia | Ferroalloy production | Aug 6, 2007 | 100.0 | % | 100.0 | % | — | ||||||||||
Yakutugol | Russia | Coal mining | Oct 19, 2007 | 100.0 | % | 100.0 | % | — | ||||||||||
Ductil Steel S.A. | Romania | Steel products | April 8, 2008 | 100.0 | % | — | — |
F-8
Table of Contents
Date Control | Interest in Voting Stock Held by | |||||||||||||||||
Acquired/Date of | the Group at December 31, | |||||||||||||||||
Name of Subsidiary | Registered in | Core Business | Incorporation(*) | 2008 | 2007 | 2006 | ||||||||||||
Oriel Resources Plc. (Oriel) | Great Britain | Chrome and nickel | Apr 17, 2008 | 100.0 | % | — | — | |||||||||||
HBL Holding GmbH (HBL) | Germany | Trading | Sept 26, 2008 | 100.0 | % | — | — |
* | Date when a control interest was acquired or a new company established by either the Group or Controlling Shareholders. | |
** | Merged with SKCC in February 2007. | |
*** | Merged with MTH in July 2008. | |
(1) | Formerly — Mechel Trading AG (MT). Renamed on December 20, 2005. |
(b) | Controlling Shareholders and reorganization |
(c) | Basis of presentation |
(d) | Business |
F-9
Table of Contents
2. | GOING CONCERN |
(a) | Russian business environment |
(b) | Going concern |
F-10
Table of Contents
• | Gazprombank — $1,000,000 U.S. dollar-denominated credit facility repayable in quarterly installments in2010-2012 for a partial repayment of its “Oriel” and “Yakutugol” credit facilities. As a security for these credit facilities the Group pledged 35% of the shares in Yakutugol and SKCC; | |
• | VTB — 15 billion rubles ($510,500) credit facility expiring in November 2009 under the guarantees issued by Mechel OAO and pledges of SKCC and CMP production assets; | |
• | Sberbank — 3.3 billion rubles ($112,300) credit facility due in 2010. |
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of accounting |
F-11
Table of Contents
(b) | Basis of consolidation |
(c) | Business combinations |
(d) | Goodwill and negative goodwill |
(e) | Minority interest |
(f) | Reporting and functional currencies |
F-12
Table of Contents
(g) | Management estimates |
(h) | Property, plant and equipment |
(i) | Mining assets and processing plant and equipment |
F-13
Table of Contents
(j) | Other property, plant and equipment |
Useful Economic Lives | ||||
Category of Asset | Estimates, Years | |||
Buildings | 20-45 | |||
Land improvements | 20-50 | |||
Operating machinery and equipment, including transfer devices | 7-30 | |||
Transportation equipment and vehicles | 4-15 | |||
Tools, furniture, fixtures and other | 4-8 | |||
(k) | Mineral licenses |
F-14
Table of Contents
(l) | Intangible assets |
(m) | Asset retirement obligations |
(n) | Long-lived assets impairment, including definite-lived intangibles and goodwill |
F-15
Table of Contents
F-16
Table of Contents
Region | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||
Russia | 13 | % | 8 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | ||||||||||||||||||
USA | 3 | % | 2 | % | 3 | % | 3 | % | 3 | % | 2 | % | 2 | % | 2 | % | 2 | % | ||||||||||||||||||
Europe | 2 | % | 3 | % | 2 | % | 2 | % | 2 | % | 2 | % | 2 | % | 2 | % | 2 | % | ||||||||||||||||||
Romania | 5 | % | 5 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | ||||||||||||||||||
Bulgaria | 5 | % | 5 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | 4 | % | ||||||||||||||||||
Kazakhstan | 13 | % | 8 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % | 6 | % |
2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||||||||||
Discount rate | 16.1 | % | 16.1 | % | 15.0 | % | 13.9 | % | 13.0 | % | 12.1 | % | 11.4 | % | 10.7 | % | 10.1 | % |
• | a 10% decrease in future planned revenues results in a total impairment loss of $150,224; | |
• | a 2% increase in discount rates for each year of the forecasted period results in a total impairment loss of $9,308; | |
• | a 3% increase in discount rates for each year of the forecasted period results in a total impairment loss of $32,750; | |
• | a 3% decrease in cash flows growth rate after the forecasted period does not result in impairment loss. |
(o) | Finance lease |
(p) | Inventories |
F-17
Table of Contents
(q) | Accounts receivable |
(r) | Cash and cash equivalents |
(s) | Retirement benefit obligations |
F-18
Table of Contents
(t) | Revenue recognition |
(u) | Advertising costs |
(v) | Shipping and handling costs |
(w) | Income taxes |
F-19
Table of Contents
(x) | Comprehensive income |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Cumulative translation adjustment | 100,190 | 327,808 | ||||||
Unrealized (losses) gains on available-for-sale securities | (596 | ) | 5,975 | |||||
Pension adjustments (Note 18) | 59,343 | (28,316 | ) | |||||
Total accumulated other comprehensive income | 158,937 | 305,467 | ||||||
(y) | Stock-based compensation |
F-20
Table of Contents
(z) | Segment reporting |
• | Steel segment, comprising production and sales of semi-finished steel products, carbon and specialty long products, carbon and stainless flat products, value-added downstream metal products, including forgings, stampings, hardware and coke products; | |
• | Mining segment, comprising production and sales of coal (coking and steam) and iron ore, which supplies raw materials to the Steel, Ferroalloy and Power segments and also sells substantial amounts of raw materials to third parties; | |
• | Power segment, comprising generation and sales of electricity and heat power, which supplies electricity, gas and heat power to the Steel, Ferroalloy and Mining segments; | |
• | Ferroalloy segment, comprising production and sales of nickel, chrome and ferrosilicon, which supplies raw materials to the Steel segment and also sells substantial amounts of raw materials to third parties. |
(aa) | Financial instruments |
(bb) | Guarantees |
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(cc) | Accounting for contingencies |
(dd) | Derivative instruments and hedging activities |
(ee) | Investments |
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(ff) | Concentration of credit and other risks |
Year End Rates* | Average Exchange Rates* for the | |||||||||||||||||||||||||||
At June 1, | at December 31, | Years Ended December 31, | ||||||||||||||||||||||||||
Currency | 2009 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||||||||||||||||||||
Russian ruble | 30.98 | 29.38 | 24.55 | 26.33 | 24.86 | 25.58 | 27.19 | |||||||||||||||||||||
Swiss franc | 1.07 | 1.06 | 1.12 | 1.22 | 1.08 | 1.20 | 1.25 | |||||||||||||||||||||
Euro | 0.71 | 0.71 | 0.68 | 0.76 | 0.68 | 0.73 | 0.80 | |||||||||||||||||||||
Romanian lei | 2.97 | 2.83 | 2.46 | 2.57 | 2.52 | 2.44 | 2.81 | |||||||||||||||||||||
Croatian kuna | 5.20 | 5.16 | 4.99 | 5.58 | 4.93 | 5.37 | 5.58 | |||||||||||||||||||||
Lithuania lit | 2.47 | 2.45 | 2.36 | 2.63 | 2.36 | 2.52 | 2.75 | |||||||||||||||||||||
Kazakh tenge | 150.44 | 120.77 | 120.3 | 127.00 | 120.33 | 122.55 | 126.09 |
(*) | Exchange rates shown in local currency units for one U.S. dollar |
(gg) | Reclassifications |
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(hh) | Recently issued accounting pronouncements |
• | may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; | |
• | is irrevocable (unless a new election date occurs); and | |
• | is applied only to entire instruments and not to portions of instruments. |
• | A noncontrolling interest in a consolidated subsidiary should be displayed in the consolidated statement of financial position as a separate component of equity; | |
• | Earnings and losses attributable to noncontrolling interests are no longer reported as part of consolidated earnings. Rather, they are disclosed on the face of the consolidated income statement; | |
• | After control is obtained, a change in ownership interests that does not result in a loss of control should be accounted for as an equity transaction; | |
• | A change in ownership of a consolidated subsidiary that results in a loss of control and deconsolidation is a significant event that triggers gain or loss recognition, with the establishment of a new fair value basis in any remaining ownership interests. |
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• | Recognize, with certain exceptions, 100% of the fair values of assets acquired, liabilities assumed and non-controlling interests in acquisitions of less than 100% controlling interest when the acquisition constitutes a change in control of the acquired entity; | |
• | Measure acquirer shares issued in consideration for a business combination at fair value on the acquisition date; | |
• | Recognize contingent consideration arrangements at fair value at their acquisition-date fair values, with subsequent changes in fair value generally reflected in earnings; | |
• | With certain exceptions, recognize preacquisition loss and gain contingencies at their acquisition-date fair values; | |
• | Capitalize in-process research and development assets acquired; | |
• | Expense, as incurred, acquisition-related transaction costs; | |
• | Capitalize acquisition-related restructuring costs only if the criteria in SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, are met as of the acquisition date; | |
• | Recognize changes in income tax valuation allowances and tax uncertainty accruals established in purchase accounting as adjustments to income tax expense (including those related to acquisitions before the adoption of SFAS No. 141(R)); | |
• | Push back any adjustments made to the preliminary purchase price allocation during the measurement period to the date of the acquisition; | |
• | Determine what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. |
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4. | ACQUISITIONS, INVESTMENTS AND DISPOSALS |
(a) | Ductil Steel S.A. |
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April 8, | ||||
2008 | ||||
Cash and cash equivalents | 2,790 | |||
Other current assets | 86,396 | |||
Property, plant and equipment | 113,491 | |||
Other non-current assets | 5 | |||
Current liabilities | (92,615 | ) | ||
Long-term liabilities | (8,093 | ) | ||
Deferred income taxes | (10,661 | ) | ||
Fair value of net assets acquired | 91,313 | |||
Goodwill | 132,690 | |||
Total investment | 224,003 | |||
(b) | Oriel Resources Plc. |
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April 17, | ||||
2008 | ||||
Cash and cash equivalents | 27,914 | |||
Other current assets | 139,664 | |||
Property, plant and equipment | 359,769 | |||
Mineral licenses | 1,724,730 | |||
Other non-current assets | 2,378 | |||
Current liabilities | (158,057 | ) | ||
Long-term liabilities | (113,136 | ) | ||
Deferred income taxes | (521,083 | ) | ||
Fair value of net assets acquired | 1,462,179 | |||
Minority’s share in net assets | (463 | ) | ||
Total investment | 1,461,716 | |||
(c) | HBL Holding GmbH |
September 26, | ||||
2008 | ||||
Cash and cash equivalents | 32,875 | |||
Other current assets | 37,739 | |||
Property, plant and equipment | 35,438 | |||
Other non-current assets | 45 | |||
Current liabilities | (40,746 | ) | ||
Long-term liabilities | (7,384 | ) | ||
Deferred income taxes | (2,112 | ) | ||
Fair value of net assets acquired | 55,855 | |||
Total investment | 55,855 | |||
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(d) | Exchange of shares |
(e) | Yakutugol and Elgaugol |
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October 19, | ||||
2007 | ||||
Cash and cash equivalents | 20,275 | |||
Other current assets | 174,967 | |||
Property, plant and equipment | 704,838 | |||
Mineral licenses | 1,348,861 | |||
Other non-current assets | 25,007 | |||
Current liabilities | (140,287 | ) | ||
Long-term liabilities | (198,701 | ) | ||
Deferred income taxes | (388,032 | ) | ||
Fair value of net assets of Yakutugol | 1,546,928 | |||
Share in net assets acquired | 1,160,196 | |||
Goodwill | 440,083 | |||
Total investment | 1,600,279 | |||
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October 24, | ||||
2007 | ||||
Cash and cash equivalents | 640 | |||
Other assets | 420 | |||
Mineral licenses | 474,620 | |||
Current liabilities | (5,974 | ) | ||
Non-current liabilities | (1,334 | ) | ||
Deferred income taxes | (112,964 | ) | ||
Total costs allocated | 355,408 | |||
Total investment | 355,408 | |||
(f) | Chelyabenergo |
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(g) | Metals Recycling |
March 14, | ||||
2006 | ||||
Cash and cash equivalents | 618 | |||
Other current assets | 1,690 | |||
Property, plant and equipment | 3,443 | |||
Current liabilities | (3,533 | ) | ||
Deferred income taxes | (568 | ) | ||
Fair value of net assets acquired | 1,650 | |||
Goodwill | 3,174 | |||
Total investment | 4,824 | |||
(h) | Moscow Coke and Gas Plant |
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September 25, | ||||
2006 | ||||
Cash and cash equivalents | 22,484 | |||
Non current assets | 69,247 | |||
Marketable securities | 216,097 | |||
Other current assets | 42,191 | |||
Current liabilities | (15,289 | ) | ||
Non current liabilities | (2,788 | ) | ||
Deferred income taxes | (29,705 | ) | ||
Fair value of net assets acquired | 302,237 | |||
Minority’s share in net assets | (3,329 | ) | ||
Total investment | 298,908 | |||
(i) | Southern Kuzbass Power Plant |
April 19, | ||||
2007 | ||||
Cash and cash equivalents | 791 | |||
Other current assets | 10,008 | |||
Other non-current assets | 325 | |||
Property, plant and equipment | 160,833 | |||
Current liabilities | (4,106 | ) | ||
Non-current liabilities | (7,290 | ) | ||
Deferred income taxes | (24,744 | ) | ||
Fair value of net assets acquired | 135,817 | |||
Minority’s share in net assets | (7,704 | ) | ||
Goodwill | 142,696 | |||
Total investment | 270,809 | |||
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August 16, | ||||
2007 | ||||
Fair value of net assets acquired | 4,884 | |||
Goodwill | 5,951 | |||
Total investment | 10,835 | |||
(j) | Kuzbass Power Sales Company |
June 30, | ||||
2007 | ||||
Cash and cash equivalents | 8,988 | |||
Other current assets | 12,714 | |||
Other non-current assets | 230 | |||
Property, plant and equipment | 25,631 | |||
Current liabilities | (28,470 | ) | ||
Non-current liabilities | (2,706 | ) | ||
Deferred income taxes | (2,955 | ) | ||
Fair value of net assets acquired | 13,432 | |||
Minority’s share in net assets | (6,682 | ) | ||
Goodwill | 39,651 | |||
Total investment | 46,401 | |||
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October 26, | ||||
2007 | ||||
Fair value of net assets acquired | 3,725 | |||
Goodwill | 37,166 | |||
Total investment | 40,891 | |||
(k) | Bratsk Ferroalloy Plant |
August 6, | ||||
2007 | ||||
Cash and cash equivalents | 197 | |||
Other current assets | 20,747 | |||
Property, plant and equipment | 75,395 | |||
Current liabilities | (1,611 | ) | ||
Non-current liabilities | (9,102 | ) | ||
Deferred income taxes | (13,415 | ) | ||
Fair value of net assets acquired | 72,211 | |||
Goodwill | 114,651 | |||
Total investment | 186,862 | |||
(l) | Transkol |
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May 29, | ||||
2007 | ||||
Cash and cash equivalents | 8 | |||
Other current assets | 277 | |||
Property, plant and equipment | 1,711 | |||
Current liabilities | (217 | ) | ||
Deferred income taxes | (119 | ) | ||
Fair value of net assets acquired | 1,660 | |||
Goodwill | 5,513 | |||
Total investment | 7,173 | |||
(m) | Temryuk-Sotra |
July 2, | ||||
2007 | ||||
Cash and cash equivalents | 147 | |||
Other current assets | 1,651 | |||
Property, plant and equipment | 9,167 | |||
Current liabilities | (5,127 | ) | ||
Non-current liabilities | (916 | ) | ||
Deferred income taxes | (1,379 | ) | ||
Fair value of net assets acquired | 3,543 | |||
Goodwill | 2,711 | |||
Total investment | 6,254 | |||
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(n) | Toplofikatsia Rousse |
December 17, | ||||
2007 | ||||
Cash and cash equivalents | 1,924 | |||
Other current assets | 9,161 | |||
Non-current assets | 277 | |||
Property, plant and equipment | 73,056 | |||
Current liabilities | (31,908 | ) | ||
Non-current liabilities | (8,871 | ) | ||
Deferred income taxes | (2,561 | ) | ||
Fair value of net assets acquired | 41,078 | |||
Share of controlling shareholders in net assets of TPP Rousse | (20,950 | ) | ||
Excess of investment over fair value of net assets acquired | 53,411 | |||
Total investment | 73,539 | |||
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(o) | Goodwill |
Balance at December 31, 2005 | 39,580 | |||
Acquisition of Metals Recycling (Note 4(g)), Steel segment | 3,174 | |||
Translation difference | 3,160 | |||
Balance at December 31, 2006 | 45,914 | |||
Acquisition of Yakutugol (Note 4(e)), Mining segment | 494,053 | |||
Acquisition of Southern Kuzbass Power Plant (Note 4(i)), Power segment | 148,647 | |||
Acquisition of Bratsk Ferroalloy Plant (Note 4(k)), Steel segment | 114,651 | |||
Acquisition of Kuzbass Power Sales Company (Note 4(j)), Power segment | 76,817 | |||
Acquisition of Transkol (Note 4(l)), Mining segment | 5,513 | |||
Acquisition of Temruk-Sotra (Note 4(m)), Mining segment | 2,711 | |||
Acquisition of Prommet, Steel segment | 1,857 | |||
Translation difference | 24,283 | |||
Balance at December 31, 2007 | 914,446 | |||
Acquisition of Ductil Steel (Note 4(a)), Steel segment | 132,690 | |||
Acquisition of minority interest in SUNP (Note 4(p)), Ferroalloy segment | 4,532 | |||
Increase in goodwill as a result of derecognition of deferred tax assets related to acquisitions (Note 21) | 44,568 | |||
Translation difference | (185,792 | ) | ||
Balance at December 31, 2008 | 910,444 | |||
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(p) | Minority interest |
Balance at December 31, 2005 | 127,834 | |||
New acquisitions | 3,329 | |||
Purchase of the minority interest in existing subsidiaries by the Group | (6,186 | ) | ||
Minority’s share in subsidiaries’ income from continuing operations | 31,528 | |||
Translation adjustment | 6,531 | |||
Balance at December 31, 2006 | 163,036 | |||
New acquisitions | 5,777 | |||
Purchase of the minority interest in existing subsidiaries by the Group | (5,139 | ) | ||
Minority’s share in subsidiaries’ income from continuing operations | 116,234 | |||
Translation adjustment | 20,615 | |||
Balance at December 31, 2007 | 300,523 | |||
Purchase of the minority interest in existing subsidiaries by the Group | (36,496 | ) | ||
Minority’s share in subsidiaries’ income from continuing operations | 88,837 | |||
Translation adjustment | (62,015 | ) | ||
Balance at December 31, 2008 | 290,849 | |||
Minority Interest | ||||||||||||||
Acquired | ||||||||||||||
Year Ended December 31, 2006: | Date of Acquisition | % | Amount | Cash Paid | ||||||||||
Southern Kuzbass Coal Company (SKCC) | March-December | 0.07 | % | 1,788 | 2,364 | |||||||||
Mechel Targoviste SA | September | 2.94 | % | 1,523 | — | |||||||||
Port Posiet | February-November | 16.90 | % | 1,295 | 1,302 | |||||||||
Mechel Campia Turzii SA | August-November | 1.63 | % | 927 | — | |||||||||
Krasnogorsk Open Pit Mine (KOPM) | Different dates throughout the year | 0.77 | % | 338 | — | |||||||||
Izhstal | August-December | 0.23 | % | 272 | 216 | |||||||||
Korshunov Mining Plant (KMP) | Different dates throughout the year | 0.10 | % | 22 | 119 | |||||||||
Tomusinsk Auto Warehouse (TAW) | October | 0.05 | % | 8 | — | |||||||||
Chelyabinsk Metallurgical Plant (CMP) | March-July | 0.00 | % | 6 | 7 | |||||||||
Beloretsk Metallurgical Plant (BMP) | March-July | 0.02 | % | 7 | 8 | |||||||||
6,186 | 4,016 | |||||||||||||
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Minority Interest | ||||||||||||||
Acquired | ||||||||||||||
Year Ended December 31, 2007: | Date of Acquisition | % | Amount | Cash Paid | ||||||||||
Southern Kuzbass Coal Company (SKCC) | January-September | 0.05 | % | 147 | 1,269 | |||||||||
Chelyabinsk Metallurgical Plant (CMP) | February-April | 0.09 | % | 629 | 635 | |||||||||
Izhstal | January-June | 0.27 | % | 350 | 328 | |||||||||
Tomusinsk Energo Management (TEM) | March-May | 2.08 | % | 327 | 107 | |||||||||
Korshunov Mining Plant (KMP) | January-October | 0.02 | % | 11 | 32 | |||||||||
Port Posiet | February-July | 0.16 | % | 20 | 7 | |||||||||
1,484 | 2,378 | |||||||||||||
Minority Interest | ||||||||||||||
Acquired | ||||||||||||||
Year Ended December 31, 2008: | Date of Acquisition | % | Amount | Cash Paid | ||||||||||
Southern Urals Nickel Plant (SUNP) | May-July | 4.15 | % | 18,936 | 31,780 | |||||||||
Southern Kuzbass Coal Company (SKCC) | March-October | 1.96 | % | 11,230 | 13,646 | |||||||||
Chelyabinsk Metallurgical Plant (CMP) | April-August | 0.39 | % | 4,211 | 4,661 | |||||||||
Beloretsk Metallurgical Plant (BMP) | January-April | 0.01 | % | 871 | 6 | |||||||||
Tomusinsk Energo Management (TEM) | May | 2.80 | % | 527 | 400 | |||||||||
Izhstal | May | 0.20 | % | 355 | 194 | |||||||||
Southern Kuzbass Power Plant (SKPP) | January-March | 0.22 | % | 297 | 658 | |||||||||
Tomusinsk Open Pit Mine (TOPM) | March-April | 0.06 | % | 45 | 1 | |||||||||
Kuzbass Power Sales Company (KPSC) | January | 0.11 | % | 24 | — | |||||||||
36,496 | 51,346 | |||||||||||||
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(q) | Pro forma condensed consolidated income statement data (unaudited) |
Year Ended December 31, | ||||||||
2008 | 2007 | |||||||
Revenue, net | 10,237,572 | 7,977,688 | ||||||
Net income | 1,175,444 | 851,553 | ||||||
Net income per share | 2.82 | 2.05 |
Year Ended December 31, | ||||||||
2007 | 2006 | |||||||
Revenue, net | 7,449,979 | 5,231,540 | ||||||
Net income | 949,337 | 710,330 | ||||||
Net income per share | 2.28 | 1.74 |
5. | CASH AND CASH EQUIVALENTS |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Russian ruble bank accounts | 72,648 | 170,355 | ||||||
USD bank accounts | 71,581 | 44,751 | ||||||
Euro bank accounts | 47,776 | 15,857 | ||||||
Bank accounts in other currencies | 5,066 | 3,631 | ||||||
Other | 57,768 | 2,185 | ||||||
Total cash and cash equivalents | 254,839 | 236,779 | ||||||
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6. | ACCOUNTS RECEIVABLE, NET |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Domestic customers | 334,377 | 210,191 | ||||||
Foreign customers | 182,985 | 158,346 | ||||||
Total accounts receivable | 517,362 | 368,537 | ||||||
Less allowance for doubtful accounts | (110,613 | ) | (26,781 | ) | ||||
Total accounts receivable, net | 406,749 | 341,756 | ||||||
2008 | 2007 | 2006 | ||||||||||
Balance at beginning of year | (26,781 | ) | (19,592 | ) | (17,509 | ) | ||||||
Allowance for doubtful accounts | (103,632 | ) | (1,411 | ) | (2,722 | ) | ||||||
Accounts receivable written off, net | 385 | (1,180 | ) | (173 | ) | |||||||
Allowance for doubtful accounts of acquired entities | (1,470 | ) | (9,325 | ) | (30 | ) | ||||||
Translation difference | 20,885 | 4,727 | 842 | |||||||||
Balance at end of year | (110,613 | ) | (26,781 | ) | (19,592 | ) | ||||||
7. | INVENTORIES |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Finished goods | 778,219 | 396,467 | ||||||
Raw materials and purchased parts | 411,865 | 472,040 | ||||||
Work-in-process | 175,025 | 138,351 | ||||||
Total inventories | 1,365,109 | 1,006,858 | ||||||
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8. | PREPAYMENTS AND OTHER CURRENT ASSETS |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
VAT and other taxes recoverable | 483,872 | 264,970 | ||||||
Prepayments and advances for materials | 48,253 | 111,403 | ||||||
Bank deposits with original maturities over 90 days | 13,727 | 204,214 | ||||||
Other receivables | 28,796 | 23,050 | ||||||
Short-term loans issued | 53,349 | 404 | ||||||
Promissory notes received | 2,520 | 550 | ||||||
Other current assets | 43,744 | 29,402 | ||||||
Total prepayments and other current assets | 674,261 | 633,993 | ||||||
9. | LONG-TERM INVESTMENTS |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Equity method investments | 79,387 | 91,348 | ||||||
Other related parties | 1,021 | 1,223 | ||||||
Total investments in related parties | 80,408 | 92,571 | ||||||
Available-for-sale securities | 15,938 | 20,330 | ||||||
Cost method investments | 10,174 | 10,347 | ||||||
Prepayment for BCG companies | 438,623 | — | ||||||
Other | 8,037 | 27,918 | ||||||
Total other long-term investments | 472,772 | 58,595 | ||||||
Total long-term investments | 553,180 | 151,166 | ||||||
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(a) | Equity method investments |
Percent Voting Shares | Investment Carrying | |||||||||||||||
Held at December 31, | Value at December 31, | |||||||||||||||
Investee | 2008 | 2007 | 2008 | 2007 | ||||||||||||
TPP Rousse (Power segment) | 49 | % | 49 | % | 68,869 | 73,348 | ||||||||||
Mechel Energy AG (Conares Eagle) (Mining segment) | 50 | % | 50 | % | 14 | 6,489 | ||||||||||
TPTU (Mining segment) | 40 | % | 40 | % | 4,274 | 5,051 | ||||||||||
TRMZ (Mining segment) | 25 | % | 25 | % | 1,855 | 2,066 | ||||||||||
RIKT (Mining segment) | 36 | % | 36 | % | 2,055 | 2,145 | ||||||||||
Other (Mining segment) | 20-39 | % | 20-36 | % | 2,320 | 2,249 | ||||||||||
Total equity method investments | 79,387 | 91,348 | ||||||||||||||
Income Data | 2008 | 2007 | ||||||
(Unaudited) | (Unaudited) | |||||||
Revenues and other income | 135,807 | 748,386 | ||||||
Operating income | 6,967 | 2,802 | ||||||
Net income (loss) | 3,793 | (13,118 | ) |
At December 31, | At December 31, | |||||||
Balance Sheet Data | 2008 | 2007 | ||||||
(Unaudited) | (Unaudited) | |||||||
Current assets | 72,986 | 57,375 | ||||||
Non-current assets | 84,969 | 89,240 | ||||||
Current liabilities | 79,542 | 52,871 | ||||||
Non-current liabilities | 12,134 | 25,424 |
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Share in Net | ||||||||||||
Capital | Income/(Loss) Since | |||||||||||
Investment | Acquisition | Total | ||||||||||
December 31, 2005 | 389,947 | 18,430 | 408,377 | |||||||||
Effect of adoption of SFAS No. 158 by Yakutugol | (2,627 | ) | — | (2,627 | ) | |||||||
Translation difference | 37,053 | — | 37,053 | |||||||||
Dividends | (4,100 | ) | — | (4,100 | ) | |||||||
Share in net loss | — | (9,858 | ) | (9,858 | ) | |||||||
December 31, 2006 | 420,273 | 8,572 | 428,845 | |||||||||
Effect of full consolidation of Yakutugol | (428,835 | ) | — | (428,835 | ) | |||||||
Investment in TPP Rousse | 73,539 | — | 73,539 | |||||||||
Other investments | 2,161 | — | 2,161 | |||||||||
Translation difference | 20,248 | — | 20,248 | |||||||||
Dividends | (4,618 | ) | — | (4,618 | ) | |||||||
Share in net income | — | 8 | 8 | |||||||||
December 31, 2007 | 82,768 | 8,580 | 91,348 | |||||||||
Investments | 207 | — | 207 | |||||||||
Translation difference | (6,316 | ) | — | (6,316 | ) | |||||||
Dividends | (6,569 | ) | — | (6,569 | ) | |||||||
Share in net income | — | 717 | 717 | |||||||||
December 31, 2008 | 70,090 | 9,297 | 79,387 | |||||||||
(b) | Cost method investments |
(c) | Available-for-sale securities |
Unrealized | Unrealized | |||||||||||||||
Cost | Fair Value | Gains | Losses | |||||||||||||
Equity securities | 16,534 | 15,938 | 2,560 | (3,156 | ) | |||||||||||
Total available-for-sale securities | 16,534 | 15,938 | 2,560 | (3,156 | ) | |||||||||||
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Unrealized | Unrealized | |||||||||||||||
Cost | Fair Value | Gains | Losses | |||||||||||||
Equity securities | 15,271 | 20,330 | 5,059 | — | ||||||||||||
Total available-for-sale securities | 15,271 | 20,330 | 5,059 | — | ||||||||||||
(d) | Prepayment for BCG Companies |
10. | RELATED PARTIES |
2008 | Balances at December 31, 2008 | |||||||||||||||||||||||
Financing | Total | |||||||||||||||||||||||
Provided | Receivable | Payable | Outstanding, | |||||||||||||||||||||
Purchases | Sales | (Received), Net | from | to | Net | |||||||||||||||||||
Mechel Energy AG | — | 2,988 | — | — | — | — | ||||||||||||||||||
GPU | 8,342 | 2,925 | — | — | — | — | ||||||||||||||||||
RIKT | 246 | — | — | — | (14 | ) | (14 | ) | ||||||||||||||||
TPTU | 4,346 | 18 | — | 18 | (210 | ) | (192 | ) | ||||||||||||||||
TRMZ | 8,490 | 852 | — | 16 | (1,364 | ) | (1,348 | ) | ||||||||||||||||
TPP Rousse | — | 64,783 | — | 19,755 | — | 19,755 | ||||||||||||||||||
Calridge | 1,508 | — | (114,236 | ) | 2,382 | — | 2,382 | |||||||||||||||||
Other | 10 | 125 | — | — | — | — | ||||||||||||||||||
Total | 22,942 | 71,691 | (114,236 | ) | 22,171 | (1,588 | ) | 20,583 | ||||||||||||||||
2007 | Balances at December 31, 2007 | |||||||||||||||||||||||
Financing | Total | |||||||||||||||||||||||
Provided | Receivable | Payable | Outstanding, | |||||||||||||||||||||
Purchases | Sales | (Received), Net | from | to | Net | |||||||||||||||||||
Mechel Energy AG | 301 | 102,619 | — | 2,881 | — | 2,881 | ||||||||||||||||||
GPU | 4,752 | 3,206 | — | 601 | (1,757 | ) | (1,156 | ) | ||||||||||||||||
RIKT | 214 | 4 | — | 10 | (30 | ) | (20 | ) | ||||||||||||||||
TPTU | 4,570 | 169 | — | 21 | (483 | ) | (462 | ) | ||||||||||||||||
TRMZ | 6,072 | 917 | — | 172 | (1,189 | ) | (1,017 | ) | ||||||||||||||||
Yakutugol | 141,319 | 1,859 | — | — | — | — | ||||||||||||||||||
TPP Rousse | — | 1,276 | — | 1,303 | — | 1,303 | ||||||||||||||||||
Other | — | 6 | — | — | (137 | ) | (137 | ) | ||||||||||||||||
Total | 157,228 | 110,056 | — | 4,988 | (3,596 | ) | 1,392 | |||||||||||||||||
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2006 | Balances at December 31, 2006 | |||||||||||||||||||||||
Financing | Total | |||||||||||||||||||||||
Provided | Receivable | Payable | Outstanding, | |||||||||||||||||||||
Purchases | Sales | (Received), Net | from | to | Net | |||||||||||||||||||
Mechel Energy AG | — | 53,765 | — | — | (461 | ) | (461 | ) | ||||||||||||||||
TPTU | 2,247 | 98 | — | 25 | (177 | ) | (152 | ) | ||||||||||||||||
TRMZ | 10,074 | 4,555 | — | 59 | (753 | ) | (694 | ) | ||||||||||||||||
Yakutugol | 129,968 | 8,042 | — | 309 | (928 | ) | (619 | ) | ||||||||||||||||
Calridge | 36,449 | 10 | — | 11 | — | 11 | ||||||||||||||||||
Other | 670 | 528 | — | 141 | (34 | ) | 107 | |||||||||||||||||
Total | 179,408 | 66,998 | — | 545 | (2,353 | ) | (1,808 | ) | ||||||||||||||||
(a) | Mechel Energy AG |
(b) | Tomusinskiy Transportation Management Center (TPTU) |
(c) | Tomusinskiy Auto Repair Shop (TRMZ) |
(d) | Yakutugol |
(e) | Calridge Ltd. |
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(f) | Toplofikatsia Rousse |
(g) | Mining and Engineering Management Company |
(h) | Penfosib |
(i) | Transactions with the Controlling Shareholder |
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11. | INTANGIBLE ASSETS, NET |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Intangible assets with determinable lives: | ||||||||
Energy license | 1,894 | 1,684 | ||||||
Software | 3,868 | 4,437 | ||||||
Other | 1,194 | 1,287 | ||||||
Total intangible assets | 6,956 | 7,408 | ||||||
12. | PROPERTY, PLANT AND EQUIPMENT, NET |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Land improvements | 105,658 | 30,635 | ||||||
Buildings | 1,152,271 | 1,033,550 | ||||||
Transfer devices | 106,154 | 106,842 | ||||||
Operating machinery and equipment | 1,894,359 | 1,874,677 | ||||||
Transportation equipment and vehicles | 329,933 | 322,433 | ||||||
Tools, furniture, fixtures and other | 152,926 | 149,124 | ||||||
3,741,301 | 3,517,261 | |||||||
Less accumulated depreciation | (1,025,325 | ) | (884,003 | ) | ||||
Operating property, plant and equipment, net | 2,715,976 | 2,633,258 | ||||||
Mining plant and equipment | 385,799 | 305,653 | ||||||
Less accumulated depletion | (48,443 | ) | (38,409 | ) | ||||
Mining plant and equipment, net | 337,356 | 267,244 | ||||||
Construction-in-progress | 1,224,509 | 801,260 | ||||||
Property, plant and equipment, net | 4,277,841 | 3,701,762 | ||||||
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13. | MINERAL LICENSES, NET |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Coal deposits | 1,786,675 | 2,128,782 | ||||||
Chrome deposits | 1,717,991 | — | ||||||
Iron ore deposits | 75,311 | 90,206 | ||||||
Nickel deposits | 39,390 | 34,678 | ||||||
Limestone deposits | 2,947 | 3,527 | ||||||
Quartzite deposits | 1,007 | — | ||||||
Mineral licenses before depletion | 3,623,321 | 2,257,193 | ||||||
Accumulated depletion | (192,679 | ) | (125,710 | ) | ||||
Mineral licenses, net | 3,430,642 | 2,131,483 | ||||||
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14. | OTHER NON-CURRENT ASSETS |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Advanced payments to non-state pension funds | 28,313 | 38,983 | ||||||
Capitalized loan origination fees | 23,273 | 28,935 | ||||||
Other | 6,258 | — | ||||||
Total other non-current assets | 57,844 | 67,918 | ||||||
15. | DEBT |
Short-Term Borrowings and Current Portion of Long-Term Debt | December 31, 2008 | December 31, 2007 | ||||||||||||||
Including Debt with Loan Covenant Violations: | Amount | Rate p.a.,% | Amount | Rate p.a.,% | ||||||||||||
Russian ruble-denominated: | ||||||||||||||||
Banks and financial institutions including debt of $471,438 with loan covenant violations in 2008 | 1,071,269 | 8.0-20.2 | 327,609 | 6.7-10.8 | ||||||||||||
Bonds issue | 4,016 | 5.5 | — | — | ||||||||||||
Corporate lenders | 9,689 | 0-12.0 | 6,507 | 0-8.0 | ||||||||||||
Total | 1,084,974 | 334,116 | ||||||||||||||
U.S. dollar-denominated: | ||||||||||||||||
Banks and financial institutions including debt of $1,602,800 with loan covenant violations in 2008 | 1,742,783 | 1.8-17.5 | 607,446 | 5.5-8.3 | ||||||||||||
Total | 1,742,783 | 607,446 | ||||||||||||||
Euro-denominated: | ||||||||||||||||
Banks and financial institutions including debt of $622 with loan covenant violations in 2008 | 99,895 | 3.5-14.3 | 95,262 | 5.2-7.8 | ||||||||||||
Total | 99,895 | 95,262 | ||||||||||||||
Romanian lei-denominated: | ||||||||||||||||
Banks and financial institutions | 13,616 | 16.9 | 717 | 10.8 | ||||||||||||
Total | 13,616 | 717 | ||||||||||||||
Total short-term borrowings | 2,941,268 | 1,037,541 | ||||||||||||||
Current portion of long-term debt including debt of $2,158,891 with loan covenant violations in 2008 | 2,208,147 | 97,563 | ||||||||||||||
Total short-term borrowings and current portion of long-term debt including debt with loan covenant violations | 5,149,415 | 1,135,104 | ||||||||||||||
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December 31, 2008 | December 31, 2007 | |||||||||||||||
Long-Term Debt, Net of Current Portion: | Amount | Rate p.a.,% | Amount | Rate p.a.,% | ||||||||||||
Russian ruble-denominated: | ||||||||||||||||
Banks and financial institutions | 35,304 | 9.8-10.4 | 39,934 | 7.4-8.6 | ||||||||||||
Bonds issue | 169,512 | 8.4 | 207,865 | 5.5-8.4 | ||||||||||||
Corporate lenders | 132 | 5.6 | 231 | 7.8 | ||||||||||||
Total | 204,948 | 248,030 | ||||||||||||||
U.S. dollar-denominated: | ||||||||||||||||
Syndicated loan | 1,915,750 | 5.1-7.3 | 2,000,000 | 6.2-6.9 | ||||||||||||
Banks and financial institutions | 141,689 | 5.0-9.1 | 32,822 | 7.5-8.9 | ||||||||||||
Corporate lenders | 3 | 12.0 | 64 | 12.0 | ||||||||||||
Total | 2,057,442 | 2,032,886 | ||||||||||||||
Euro-denominated: | ||||||||||||||||
Banks and financial institutions | 165,573 | 3.5-7.2 | 138,569 | 4.5-6.5 | ||||||||||||
Total | 165,573 | 138,569 | ||||||||||||||
Total long-term obligations | 2,427,963 | 2,419,485 | ||||||||||||||
Less: current portion including reclassification of $2,158,891 with loan covenant violations in 2008 | (2,208,147 | ) | (97,563 | ) | ||||||||||||
Total long-term debt, net of current portion | 219,816 | 2,321,922 | ||||||||||||||
Payable in: | ||||
2009 (current portion) | 5,149,415 | |||
2010 | 11,010 | |||
2011 | 172,773 | |||
2012 | 3,260 | |||
2013 | 9,101 | |||
Thereafter | 23,672 | |||
Total | 5,369,231 | |||
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• | Facility A of $1,700,000 bearing interest at LIBOR plus 1.5% p.a.; | |
• | Facility B of $300,000 bearing interest at LIBOR plus 2.25% p.a. |
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December 31, | December 31, | |||||||
Short-Term and Long-Term Debt Including Debt | 2008 | 2007 | ||||||
with Loan Covenant Violations: | Amount | Amount | ||||||
Russian ruble-denominated: | ||||||||
VTB | 510,544 | — | ||||||
Gazprombank | 441,519 | 482,418 | ||||||
Sberbank | 112,320 | — | ||||||
Alfa-bank | 104,321 | 48,887 | ||||||
Uralsib | 72,157 | — | ||||||
Raiffeisenbank | 19,537 | 21,062 | ||||||
Other | 29,524 | 29,779 | ||||||
Total | 1,289,922 | 582,146 | ||||||
U.S. dollar-denominated: | ||||||||
“Yakutugol” credit facility | 1,915,750 | 2,000,000 | ||||||
“Oriel” credit facility | 1,500,000 | — | ||||||
EDB, HBV, WestLB AG | 84,750 | — | ||||||
Gazprombank | 57,800 | — | ||||||
Alfa-bank | 45,000 | — | ||||||
BNP Paribas | 44,351 | 433,315 | ||||||
Uralsib | 25,000 | — | ||||||
Other | 127,574 | 207,017 | ||||||
Total | 3,800,225 | 2,640,332 | ||||||
Euro-denominated: | ||||||||
BNP Paribas | 39,834 | 79,047 | ||||||
Gazprombank | 34,520 | 71,316 | ||||||
Other | 191,114 | 83,468 | ||||||
Total | 265,468 | 233,831 | ||||||
Romanian LEI-denominated: | ||||||||
Other | 13,616 | 717 | ||||||
Total short-term and long-term debt including debt with loan covenant violations | 5,369,231 | 3,457,026 | ||||||
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• | The Group is not in compliance with certain financial ratios (specifically, “Shareholder’s Equity to Net Borrowings” ratio set at a level of 1.0:1.15 while the actual Group’s ratio as of December 31, 2008 was 1:1.29) and other operational covenants defined in the “Yakutugol” syndicated loan agreement with BNP Paribas, ABN AMRO, Calyon, Natixis, Sumitomo Mitsui Banking Corporation Europe Limited, Société Générale Corporate & Investment Banking and Commerzbank AG and “Oriel” credit facility agreement with the Royal Bank of Scotland; | |
• | SKCC failed to meet the limit of $15,000 on overdue payables to third parties under the long-term credit lines agreements signed with Raiffeisenbank. The outstanding amount of such debt as of December 31, 2008 is $31,537. SKCC also breached a covenant relating to the level of guarantor’s equity requirements for the long-term U.S. dollar-denominated loan provided by Unicreditbank. The outstanding amount of such debt as of December 31, 2008 was $40,000; | |
• | Izhstal was not in compliance with the financial ratios under the long-term loan agreements signed with Fortis bank andABN-AMRO Bank, that had outstanding balances of $21,210 and $9,088, respectively. The |
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“Shareholder’s Equity to Net Borrowings” ratio was set at a level of 1.0:1.10, while the actual Group’s ratio as of December 31, 2008 was 1.0:1.29; |
• | The Group and its subsidiary Oriel received a request from the lenders under the long-term U.S. dollar-denominated facility agreement with WestLB AG regarding the immediate repayment of the outstanding amount of $84,750 due to the breach of certain financial covenants. The amount of debt with loan covenant violations includes a current portion of $11,250 and $73,500 reclassified from a long-term portion due to such covenant violations; | |
• | CMP breached a number of financial covenants under the loans provided by Fortis,ABN-AMRO and ING Bank in the total amount of $10,715 as of December 31, 2008. Fortis and ING banks set a “Shareholder’s Equity to Net Borrowings” ratio at a level of 1.0:1.0. The Group’s ratio as of December 31, 2008 amounted to 1.0:1.29 and was not in compliance with the agreement terms. CMP failed to meet the limit of $10,000 on overdue payables to the third parties and maintain agreed pledge level of $100,000 under the long-term credit agreement signed withABN-AMRO; | |
• | CMP breached a cash turnover covenant for short-term loans signed with Sberbank and Gazprombank. The outstanding balances under the mentioned agreements as of December 31, 2008 were $112,320 and $75,321, respectively. The covenants under the short-term loan agreement with Alfa-bank were breached due to violation of limits for the pledges and tax claims. The corresponding amount of the balance as of December 31, 2008 amounted to $149,321. The loans with Alfa-bank were subsequently fully repaid in March 2009; | |
• | MTH and Mechel Service breached cash turnover covenants related to short-term loans provided by Gazprombank. The outstanding amounts of the loans as of December 31, 2008 were is $134,690 and $102,109, respectively. |
• | Gazprombank— $1,000,000 U.S. dollar-denominated credit facility repayable in quarterly installments in2010-2012 for a partial repayment of its “Oriel” and “Yakutugol” credit facilities. As a security for these credit facilities the Group pledged 35% of the shares in Yakutugol and SKCC; | |
• | VTB— 15 billion rubles ($510,500) ruble-denominated credit facility expiring in November 2009 under the guarantees issued by Mechel OAO and pledges of SKCC and CMP production assets; | |
• | Sberbank— 3.3 billion rubles ($112,300) credit facility due in 2010. |
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16. | FAIR VALUE MEASUREMENTS |
• | Level 1— Quoted prices in active markets for identical assets or liabilities. | |
• | Level 2— Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. | |
• | Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
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Fair Value | ||||||||||||||||
Description | Level 1 | Level 2 | Level 3 | Measurements | ||||||||||||
Assets: | ||||||||||||||||
Available for sale securities | 15,938 | — | — | 15,938 | ||||||||||||
Total assets | 15,938 | — | — | 15,938 | ||||||||||||
17. | ASSET RETIREMENT OBLIGATIONS |
Asset Retirement Obligation | 2008 | 2007 | 2006 | |||||||||
Balance at beginning of year | 71,294 | 92,358 | 59,052 | |||||||||
Liabilities incurred in the current period | 6,066 | 10,908 | 2,160 | |||||||||
Liabilities settled in the current period | (5,300 | ) | (521 | ) | (510 | ) | ||||||
Accretion expense | 6,078 | 3,101 | 7,433 | |||||||||
Revision in estimated cash flow | 7,155 | (40,078 | ) | 17,876 | ||||||||
Translation difference and other | (13,689 | ) | 5,526 | 6,347 | ||||||||
Balance at end of year | 71,604 | 71,294 | 92,358 | |||||||||
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18. | PENSION AND POSTRETIREMENT BENEFITS |
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2008 | 2007 | 2006 | ||||||||||
Benefit obligation at beginning of year | 330,366 | 70,214 | 51,699 | |||||||||
Service cost | 9,245 | 4,523 | 3,223 | |||||||||
Amortization of prior year service cost | 500 | 479 | 498 | |||||||||
Interest cost | 18,426 | 7,000 | 5,835 | |||||||||
Obligations arising from the acquisition of Yakutugol | — | 216,154 | — | |||||||||
Obligation incurred — other acquisitions | 6,901 | 4,062 | 1,409 | |||||||||
Settlement of obligation | (20,265 | ) | (4,808 | ) | (4,361 | ) | ||||||
Actuarial losses | (89 | ) | 584 | 490 | ||||||||
Curtailment (gain) loss | (23,421 | ) | 5,368 | (597 | ) | |||||||
Changes in pension benefit obligations | (81,616 | ) | 11,884 | 6,993 | ||||||||
Translation difference and other | (53,017 | ) | 14,906 | 5,025 | ||||||||
Benefit obligation at end of year | 187,030 | 330,366 | 70,214 | |||||||||
• | Revisions in the resettlement program due to changes in assumptions and significant reduction in number of employees at Yakutugol resulted in the decrease in PBO by $8,248; | |
• | Change in assumptions, significant reduction in number of employees, settlement of obligations towards withdrawn deferred pensioners, and changes in benefit formula resulted in the overall decrease in PBO by $37,215; | |
• | Actuarial gain of $39,923 related to changes in discount rates, staff turnover, retirement age and other assumptions. |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Pension obligation, current portion | 28,960 | 63,706 | ||||||
Pension obligation, net of current portion | 158,070 | 266,660 | ||||||
Total pension obligation | 187,030 | 330,366 | ||||||
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2008 | 2007 | 2006 | ||||||||||
Service cost | 9,245 | 4,535 | 3,321 | |||||||||
Interest cost | 18,426 | 6,998 | 5,962 | |||||||||
Amortization of prior service cost | 500 | 469 | 528 | |||||||||
Recognised actuarial loss | (89 | ) | 586 | 491 | ||||||||
Curtailment | (23,421 | ) | (352 | ) | (604 | ) | ||||||
Termination benefits | 4,524 | 78 | — | |||||||||
Net periodic benefit cost | 9,185 | 12,314 | 9,698 | |||||||||
2008 | 2007 | |||||||
Discount rate | ||||||||
Russian entities | 9.00 | % | 6.50 | % | ||||
Romanian entities | 13.00 | % | 5.50 | % | ||||
German entities | 6.00 | % | N/A | |||||
Expected return on plan assets | N/A | N/A | ||||||
Rate of compensation increase | ||||||||
Russian entities | 8.61 | % | 8.12 | % | ||||
Romanian entities | 6.10 | % | 6.10 | % | ||||
Rate of pension entitlement increase (before benefit commencement) | 8.61 | % | 7.10 | % | ||||
Rate of monthly financial support increase | 7.00 | % | 5.00 | % | ||||
Rate used for calculation of purchased annuity value* | 5.00 | % | below 5.00 | % |
* | Regular retirement pensions in payment are insured by Penfosib. |
Change in PBO | ||||
as of December 31, 2008 | ||||
% from the “Base Case” PBO | ||||
Discount rate of 1% p.a. lower than “base case” | 11 | % | ||
Salary growth of 1% p.a. higher than “base case” | 2 | % | ||
Staff turnover rate increased by 5% p.a. for all ages | (7 | )% |
2009 | 2010 | 2011 | 2012 | 2013 | 2014-2018 | Total | ||||||||||||||||||||||
Pensions (including monthly financial support) | 17,406 | 7,503 | 7,764 | 8,498 | 8,631 | 45,186 | 94,988 | |||||||||||||||||||||
Other benefits | 11,554 | 11,651 | 7,863 | 8,331 | 8,535 | 51,200 | 99,134 | |||||||||||||||||||||
Total expected benefits to be paid | 28,960 | 19,154 | 15,627 | 16,829 | 17,166 | 96,386 | 194,122 | |||||||||||||||||||||
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19. | FINANCE LEASE |
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Transport equipment and vehicles | 85,985 | 96,210 | ||||||
Machinery and equipment | 6,820 | 2,140 | ||||||
Less: accumulated depreciation | (10,340 | ) | (6,758 | ) | ||||
Net book value of property, plant and equipment, obtained under capital lease agreements | 82,465 | 91,592 | ||||||
Total Payable | Interest | Net Payable | ||||||||||
Payable in 2009 | 24,986 | (10,095 | ) | 14,891 | ||||||||
Payable in 2010 | 22,447 | (7,811 | ) | 14,636 | ||||||||
Payable in 2011 | 20,875 | (5,392 | ) | 15,483 | ||||||||
Payable in 2012 | 17,388 | (2,408 | ) | 14,980 | ||||||||
Payable in 2013 | 7,891 | (771 | ) | 7,120 | ||||||||
Payable thereafter | 2,028 | (86 | ) | 1,942 | ||||||||
Total capital lease liabilities | 95,615 | (26,563 | ) | 69,052 | ||||||||
20. | SHAREHOLDERS’ EQUITY |
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2008 | 2007 | 2006 | ||||||||||
Net income available to shareholders | 1,140,544 | 913,051 | 603,249 | |||||||||
Total weighted average number of shares outstanding during the period | 416,270,745 | 416,270,745 | 408,979,356 | |||||||||
Earnings per common share | 2.74 | 2.19 | 1.48 | |||||||||
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Fraction of | Weighted-Average | |||||||||||
Dates Outstanding | Shares Outstanding | Period (Days) | Number of Shares | |||||||||
2006: | ||||||||||||
Common shares: January1-December 31 | 416,270,745 | 365 | 416,270,745 | |||||||||
Treasury shares : January 1-March 6 | (13,152,065 | ) | 65 | (2,342,149 | ) | |||||||
Treasury shares sold on March 6 | 155,857 | — | ||||||||||
Treasury shares : March 7-July 23 | (12,996,208 | ) | 139 | (4,949,240 | ) | |||||||
Treasury shares sold on July 23 | 12,996,208 | — | ||||||||||
Treasury shares: July24-December 31 | — | 161 | — | |||||||||
Total weighted average shares outstanding during the period | 416,270,745 | 408,979,356 | ||||||||||
2007: | ||||||||||||
Common shares: January1-December 31 | 416,270,745 | 365 | 416,270,745 | |||||||||
Total weighted average shares outstanding during the period 2008: | 416,270,745 | 416,270,745 | ||||||||||
Common shares: January1-December 31 | 416,270,745 | 366 | 416,270,745 | |||||||||
Total weighted average shares outstanding during the period | 416,270,745 | 416,270,745 | ||||||||||
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21. | INCOME TAXES |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Russia | 1,291,336 | 1,242,197 | 591,006 | |||||||||
Switzerland | (4,988 | ) | 72,987 | 163,971 | ||||||||
British Virgin Islands | (22,402 | ) | 76,920 | 74,322 | ||||||||
Romania | 70,122 | (6,499 | ) | 35,217 | ||||||||
Lithuania | (645 | ) | (208 | ) | 287 | |||||||
Kazakhstan | 15,437 | — | — | |||||||||
Other | (592 | ) | 50 | 30 | ||||||||
Total | 1,348,268 | 1,385,447 | 864,833 | |||||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Current income tax expense | ||||||||||||
Russia | 513,632 | 371,522 | 196,659 | |||||||||
Switzerland | 2,843 | 3,022 | 11,630 | |||||||||
Romania | 6,002 | — | — | |||||||||
Lithuania | 72 | 83 | — | |||||||||
Other | 154 | 13 | 11 | |||||||||
522,703 | 374,640 | 208,300 | ||||||||||
Deferred income tax expense (benefit) | ||||||||||||
Russia | (138,442 | ) | (14,837 | ) | 24,776 | |||||||
Switzerland | (3,409 | ) | (2,553 | ) | (1,476 | ) | ||||||
Romania | (1,039 | ) | (900 | ) | (1,003 | ) | ||||||
Lithuania | (126 | ) | (30 | ) | 2 | |||||||
Kazakhstan | (260,838 | ) | — | — | ||||||||
Other | 38 | — | — | |||||||||
(403,816 | ) | (18,320 | ) | 22,299 | ||||||||
Total income tax expense | 118,887 | 356,320 | 230,599 | |||||||||
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Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Theoretical income tax expense computed on income before taxes at Russian statutory rate (24%) | 323,584 | 332,507 | 207,560 | |||||||||
Effects of other jurisdictions and permanent differences: | ||||||||||||
Non-deductible expenses and non-taxable income, net | 35,427 | 48,859 | 47,546 | |||||||||
Social expenditures | 2,164 | 12,274 | 9,605 | |||||||||
Change in valuation allowance | 136,443 | 29,648 | 2,953 | |||||||||
Change in unrecognized tax benefits under FIN No. 48 | (35,376 | ) | (13,582 | ) | — | |||||||
Other permanent differences | (14,428 | ) | (2,128 | ) | 3,543 | |||||||
Different tax rates in foreign jurisdictions | 8,803 | (39,056 | ) | (37,985 | ) | |||||||
Fines and penalties related to taxes | 3,326 | (5,202 | ) | (2,563 | ) | |||||||
Change in tax rate and tax legislation | (341,056 | ) | (7,000 | ) | (60 | ) | ||||||
Income tax expense, as reported | 118,887 | 356,320 | 230,599 | |||||||||
December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Deferred tax assets, current: | ||||||||
Inventory and product related reserves | 21,059 | 4,641 | ||||||
Bad debt allowance | 13,647 | 5,053 | ||||||
Timing difference in cost recognition | 880 | — | ||||||
Accrued liabilities | 3,995 | 4,068 | ||||||
Vacation provision | 10,422 | 13,006 | ||||||
Other | 8,030 | 5,037 | ||||||
Total deferred tax asset, current | 58,033 | 31,805 | ||||||
Deferred tax assets, non-current: | ||||||||
Net operating loss carry-forward | 150,735 | 55,540 | ||||||
Asset retirement obligation | 6,821 | 9,973 | ||||||
Property, plant and equipment | 9,555 | 37,758 | ||||||
Pension obligations | 499 | 65,760 | ||||||
Other | 158 | — | ||||||
Total deferred tax assets, non-current | 167,768 | 169,031 | ||||||
Valuation allowance for deferred tax assets | (155,457 | ) | (58,628 | ) | ||||
Total deferred tax asset, net | 70,344 | 142,208 | ||||||
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December 31, | December 31, | |||||||
2008 | 2007 | |||||||
Deferred tax liabilities, current: | ||||||||
Timing difference in revenue recognition | 11,280 | 16,355 | ||||||
Timing difference in cost recognition | 6,270 | 6,389 | ||||||
Inventories | 8,171 | 25,172 | ||||||
Bad debt provision | 5,966 | 931 | ||||||
Other | 3,082 | 2,891 | ||||||
Total deferred tax liabilities, current | 34,769 | 51,738 | ||||||
Deferred tax liabilities, non-current: | ||||||||
Property, plant and equipment | 315,333 | 285,826 | ||||||
Mineral licenses | 507,826 | 484,633 | ||||||
Investments | 3,437 | 17,336 | ||||||
Timing difference in cost recognition | 773 | 864 | ||||||
Other | 17,607 | 7,099 | ||||||
Total deferred tax liabilities, non-current | 844,976 | 795,758 | ||||||
Total deferred tax liability | 879,745 | 847,496 | ||||||
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2008 | 2007 | |||||||
Unrecognized income tax benefits at the beginning of year | 50,300 | 55,927 | ||||||
Increases as a result of tax positions taken during a prior period (including additions related to the acquisition of Oriel of $1,398 in 2008 and the acquisition of Yakutugol of $7,240 in 2007) | 1,398 | 14,500 | ||||||
Decreases as a result of tax positions taken during a prior period | (18,349 | ) | (1,195 | ) | ||||
Increases as a result of tax positions taken during the current period (including additions related to the acquisition of Yakutugol of $3,976 in 2007) | 5,870 | 9,407 | ||||||
Decreases relating to settlements with tax authorities | — | (9,216 | ) | |||||
Reductions as a result of a lapse of the applicable statute of limitations | (16,388 | ) | (22,355 | ) | ||||
Translation difference | (4,320 | ) | 3,232 | |||||
Unrecognized income tax benefits at the end of year | 18,511 | 50,300 | ||||||
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22. | TAXES OTHER THAN INCOME TAX |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Property and land tax | 85,415 | 73,849 | 56,463 | |||||||||
VAT | 1,618 | 9,964 | 2,885 | |||||||||
Fines and penalties related to taxes | 35,280 | 12,575 | (2,895 | ) | ||||||||
Other taxes and penalties | (5,723 | ) | (12,394 | ) | 25,687 | |||||||
Total taxes other than income tax | 116,590 | 83,994 | 82,140 | |||||||||
Operating | ||||
Year of Payment | Lease Payments | |||
2009 | 9,547 | |||
2010 | 9,135 | |||
2011 | 9,858 | |||
2012 | 10,749 | |||
2013 | 11,230 | |||
Thereafter | 241,700 | |||
Total land operating lease payments | 292,219 | |||
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23. | GENERAL, ADMINISTRATIVE AND OTHER OPERATING EXPENSES |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Personnel and social contributions | 263,446 | 201,919 | 134,840 | |||||||||
Social expenses | 56,303 | 53,636 | 33,156 | |||||||||
Office expenses | 48,143 | 32,924 | 20,996 | |||||||||
Audit and consulting services | 31,262 | 25,030 | 20,426 | |||||||||
Consumables | 23,903 | 11,923 | 3,691 | |||||||||
Depreciation | 23,314 | 14,307 | 12,856 | |||||||||
Disposals of property, plant and equipment | 11,318 | 10,581 | 9,660 | |||||||||
Banking charges and services | 11,314 | 10,703 | 6,468 | |||||||||
Business trips | 11,094 | 7,417 | 4,358 | |||||||||
Rent | 6,681 | 5,535 | 4,238 | |||||||||
Other | 67,938 | 35,093 | 47,586 | |||||||||
Total general, administrative and other operating expenses | 554,716 | 409,068 | 298,275 | |||||||||
24. | OTHER INCOME (EXPENSES), NET |
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Contributions to Penfosib | (17,501 | ) | — | — | ||||||||
Gain (loss) on sale of investments | 4,568 | (13,426 | ) | (5,047 | ) | |||||||
Gain on forgiveness of fines and penalties | — | 8,311 | 69,767 | |||||||||
Gain on accounts payable with expired legal term | 2,370 | 12,158 | 843 | |||||||||
Gain on raw materials sales | 8,475 | 10,729 | 3,409 | |||||||||
Loss on currency operations | (4,464 | ) | (319 | ) | (1,296 | ) | ||||||
Other taxes | (811 | ) | 4,345 | — | ||||||||
Other income (expenses) | (11,458 | ) | (1,954 | ) | 1,725 | |||||||
Total other income (expenses), net | (18,821 | ) | 19,844 | 69,401 | ||||||||
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25. | SEGMENTAL INFORMATION |
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2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mining | Steel | Ferroalloy | Power | Eliminations** | Total | Mining | Steel | Ferroalloy | Power | Eliminations** | Total | Mining | Steel | Ferroalloy | Power | Eliminations** | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues from external customers | 3,333,406 | 5,495,139 | 434,017 | 688,143 | 9,950,705 | 1,372,508 | 4,306,875 | 501,143 | 503,316 | 6,683,842 | 1,045,696 | 3,042,795 | 259,857 | 49,463 | 4,397,811 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intersegment revenues | 698,561 | 278,580 | 150,614 | 339,967 | 1,467,722 | 598,461 | 107,617 | 135,513 | 95,199 | 936,790 | 308,589 | 40,859 | 79,891 | 73,859 | 503,198 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross margin | 2,802,336 | 1,554,375 | 13,469 | 314,016 | 6,401 | 4,690,597 | 962,484 | 1,040,072 | 382,931 | 205,362 | (73,871 | ) | 2,516,978 | 523,653 | 843,653 | 165,073 | 13,049 | (7,841 | ) | 1,537,587 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Gross margin*, % | 69.5 | % | 26.9 | % | 2.3 | % | 30.5 | % | 47.1 | % | 48.8 | % | 23.6 | % | 60.1 | % | 34.3 | % | 37.7 | % | 38.7 | % | 27.4 | % | 48.6 | % | 10.6 | % | 35.0 | % | ||||||||||||||||||||||||||||||||||||||||||
Depreciation, depletion and amortization | 280,276 | 137,492 | 22,738 | 22,791 | 463,297 | 136,479 | 124,156 | 13,366 | 16,314 | 290,315 | 84,167 | 102,257 | 9,224 | 579 | 196,227 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on write-off of property, plant and equipment | 796 | 3,527 | — | — | 4,323 | — | — | — | — | — | — | 2,418 | — | — | 2,418 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | 1,800,540 | 770,439 | (50,517 | ) | 29,406 | 6,401 | 2,556,269 | 571,469 | 537,261 | 350,107 | 12,627 | (73,871 | ) | 1,397,593 | 191,041 | 386,553 | 147,296 | 8,649 | (7,841 | ) | 725,698 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Income / (Loss) from equity investees | 572 | — | — | 145 | 717 | 152 | — | — | — | (144 | ) | 8 | (9,858 | ) | — | — | — | (9,858 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | 2,512 | 4,892 | 4,210 | — | 11,614 | 1,692 | 4,745 | 5,685 | 156 | 12,278 | 2,491 | 5,822 | 1 | — | 8,314 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intersegment interest income | 16,707 | 75,342 | 10,194 | — | 102,243 | 6,264 | 29,953 | 4,163 | — | 40,380 | 378 | — | — | — | 378 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense**** | 70,439 | 163,853 | 89,466 | 325 | 324,083 | 26,658 | 70,742 | 1,344 | 232 | 98,976 | 11,202 | 26,471 | 440 | 70 | 38,183 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intersegment interest expense | 50,155 | 17,683 | 3,145 | 31,260 | 102,243 | 13,388 | 6,892 | — | 20,100 | 40,380 | — | — | — | 378 | 378 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment assets***** | 5,245,933 | 3,599,847 | 2,652,177 | 511,677 | 12,009,634 | 4,743,361 | 3,285,658 | 702,860 | 495,762 | 9,227,641 | 1,601,007 | 2,645,736 | 172,236 | 38,425 | 4,457,404 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Invesments in equity investees*** | 10,518 | — | — | 68,869 | 79,387 | 18,001 | — | — | 73,347 | 91,348 | 428,845 | — | — | — | 428,845 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capital expenditures | 712,400 | 336,520 | 101,287 | 21,124 | 1,171,331 | 542,695 | 261,349 | 22,882 | 6,615 | 833,541 | 227,309 | 164,585 | 5,924 | 24 | 397,842 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax (expense)/benefit | (295,697 | ) | (81,022 | ) | 252,188 | 5,644 | (118,887 | ) | (133,574 | ) | (132,557 | ) | (87,026 | ) | (3,163 | ) | (356,320 | ) | (64,475 | ) | (127,008 | ) | (37,019 | ) | (2,097 | ) | (230,599 | ) |
* | Gross margin percentage is calculated as a function of total revenues for the segment, including both from external customers and intersegment. | |
** | Eliminations represent adjustments for the elimination of intersegment unrealized profit. | |
*** | Included in total segment assets. | |
**** | Interest expense incurred by the production subsidiaries is included in the corresponding segment. Directly attributed interest expense incurred by the servicing subsidiaries (trading houses and corporate) is included in the appropriate segment based on the nature and purpose of the debt, while the interest expense related to general financing of the Group is allocated to segments proportionate to respective segment revenues. | |
***** | Segment assets of the servicing subsidiaries (trading houses and corporate) except for inventories, deferred cost of inventory in transit and investments are allocated to segments proportionate to respective segment revenues. Inventories, deferred cost of inventory in transit and investments are included in the appropriate segment based on their nature. |
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2008 | 2007 | 2006 | ||||||||||
Domestic: | ||||||||||||
Russia | 5,337,695 | 3,873,044 | 2,422,621 | |||||||||
Other | 863,008 | 430,041 | 335,759 | |||||||||
Total | 6,200,703 | 4,303,085 | 2,758,380 | |||||||||
Export | 3,750,002 | 2,380,757 | 1,639,431 | |||||||||
Total revenue, net | 9,950,705 | 6,683,842 | 4,397,811 | |||||||||
2008 | 2007 | 2006 | ||||||||||
Russia | 5,341,256 | 3,892,579 | 2,285,702 | |||||||||
Europe | 2,157,868 | 1,466,078 | 1,220,867 | |||||||||
Asia | 1,195,508 | 219,380 | 198,226 | |||||||||
CIS | 620,278 | 439,134 | 305,170 | |||||||||
Middle East | 391,377 | 609,592 | 116,877 | |||||||||
USA | 53,231 | 27,024 | 242,936 | |||||||||
Other regions | 191,187 | 30,055 | 28,033 | |||||||||
Total | 9,950,705 | 6,683,842 | 4,397,811 | |||||||||
2008 | 2007 | |||||||
Switzerland/Liechtenstein | 868 | 584 | ||||||
Lithuania | 10,795 | 7,293 | ||||||
Romania | 215,778 | 125,700 | ||||||
Germany | 33,844 | — | ||||||
CIS | 1,985,194 | — |
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26. | COMMITMENTS AND CONTINGENCIES |
(a) | Guarantees |
• | the $2,000,000 “Yakutugol” syndicated loan (refer to Note 15), that is jointly guaranteed by Mechel-Finance, Mechel OAO, Yakutugol, MTH and Mechel Trading AG for a total of $1,915,750; | |
• | the “Oriel” credit facility agreement, that is issued by Yakutugol, MTH, Mechel Finance and Mechel Trading AG for a total of $1,500,000 (refer to Note 15); | |
• | the guarantee issued by CMP and MTH in the amount of $31,247 under the Gazprombank loan to SKCC; |
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• | the guarantees issued by MTH in the amount of $125,386 under the Gazprombank loan to CMP, $170,730 under the National Deposit Center loan to Mechel OAO; and $40,133 under the Unikreditbank loan to SKCC; | |
• | the guarantees issued by Mechel OAO under the Gazprombank and VTB credit facilities amounted to $102,109 and $511,921, respectively; | |
• | the remaining guarantees were issued by other Group’s subsidiaries under various loan agreements described in Note 15. |
(b) | Pending acquisition |
(c) | Environmental |
(d) | EU ascension commitments |
(e) | Taxation |
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(f) | Litigation, claims and assessments |
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(g) | Government accusations and Federal Antimonopoly Service audits |
27. | SUBSEQUENT EVENT |
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