GENERAL STEEL HOLDINGS, INC. AND
SUBSIDIARIES
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying notes are an integral part of these consolidated
financial statements.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Background
General Steel Holdings, Inc. (the “Company”)
was incorporated on August 5, 2002 in the state of Nevada. The Company through its 100% owned subsidiary, General Steel Investment,
operates steel companies serving various industries in the People’s Republic of China (“PRC”). The Company’s
main operation is manufacturing and sales of steel products such as steel rebar, hot-rolled carbon and silicon sheets and spiral-weld
pipes. The Company, together with its subsidiaries, majority owned subsidiaries and variable interest entity, is referred to as
the “Group”.
On April 29, 2011, a 20-year Unified Management
Agreement (“the Agreement”) was entered into between the Company, the Company’s 60%-owned subsidiary Shaanxi
Longmen Iron and Steel Co., Ltd. (“Longmen Joint Venture”), Shaanxi Coal and Chemical Industry Group Co., Ltd. (“Shaanxi
Coal”) and Shaanxi Iron and Steel Group (“Shaanxi Steel”). Shaanxi Steel is the controlling shareholder of Shaanxi
Longmen Iron and Steel Group Co., Ltd (“Long Steel Group”) which is the non-controlling interest holder in Longmen
Joint Venture, and Shaanxi Coal, a state owned entity, is the parent company of Shaanxi Steel. Under the terms of the Agreement,
all manufacturing machinery and equipment of Longmen Joint Venture and the $587.3 million (or approximately RMB 3.7 billion) of
newly constructed iron and steel making facilities owned by Shaanxi Steel, which includes one 400m
2
sintering machine,
two 1,280m
3
blast furnaces, two 120 ton converters and some auxiliary systems, are managed collectively as a single
virtual asset pool (“Asset Pool”). Longmen Joint Venture manages the Asset Pool as the principal operating entity and
is responsible for the daily operations of the new and existing facilities.
The Agreement leverages each of the parties’
operating strengths, allowing the Longmen Joint Venture to derive the greatest benefit from the cooperation and the newly constructed
iron and steel making facilities. At the designed efficiency level, these new facilities are expected to contribute three million
tons of crude steel production capacity per year.
Longmen Joint Venture pays Shaanxi Steel
for the use of the newly constructed iron and steel making facilities an amount equaling the depreciation expense on the equipment
constructed by Shaanxi Steel as well as 40% of the pre-tax profit generated by the Asset Pool. The remaining 60% of the pre-tax
profit is allocated to Longmen Joint Venture. As a result, the Company’s economic interest in the profit generated by Longmen
Joint Venture decreased from 60% to 36%. However, the overall capacity under the management of Longmen Joint Venture has increased
by three million tons, or 75%. The Agreement is also expected to improve Longmen Joint Venture’s cost structure through sustainable
and steady sourcing of key raw materials and reduced transportation costs. The distribution of profit is subject to a prospective
adjustment after the first two years based on each entity’s actual investment of time and resources into the Asset Pool.
The parties to the Agreement have agreed
to establish the Shaanxi Longmen Iron and Steel Unified Management Supervisory Committee (“Supervisory Committee”)
to ensure that the facilities and related resources are being operated and managed according to the stipulations set forth in the
Agreement. However, the Board of Directors of Longmen Joint Venture, of which the Company holds 4 out of 7 seats, requires a simple
majority vote. Therefore, the Board of Directors of Longmen Joint Venture remains the controlling decision-making body of Longmen
Joint Venture and the Asset Pool.
The Agreement constitutes an arrangement
that involves a lease which met certain of the criteria of a capital lease and therefore, the lease is accounted for as such by
Longmen Joint Venture as a capital lease. See Notes 2 “Summary of significant accounting policies”, 15 “Capital
lease obligations” and 16 “Profit sharing liability”.
Note 2 – Summary of significant
accounting policies
The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for financial information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”).
Accordingly, they do not include all information and footnotes required by U.S. GAAP for complete financial statements. The financial
statements include the accounts of all directly, indirectly owned subsidiaries and the variable interest entity listed below. All
material intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary to give a fair statement have been included.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(a)
|
Basis of presentation
|
The consolidated financial statements of
the Company reflect the activities of the following major directly owned subsidiaries:
Subsidiary
|
|
Percentage
of Ownership
|
|
General Steel Investment Co., Ltd.
|
|
British Virgin Islands
|
|
|
100.0
|
%
|
General Steel (China) Co., Ltd. (“General Steel (China)”)
|
|
PRC
|
|
|
100.0
|
%
|
Baotou Steel – General Steel Special Steel Pipe Joint Venture Co., Ltd.
|
|
PRC
|
|
|
80.0
|
%
|
Yangpu Shengtong Investment Co., Ltd.
|
|
PRC
|
|
|
99.1
|
%
|
Tianjin Qiu Steel Investment Co., Ltd. (“Qiu Steel”)
|
|
PRC
|
|
|
98.7
|
%
|
Longmen Joint Venture
|
|
PRC
|
|
|
VIE/60.0
|
%
|
Maoming Hengda Steel Company, Ltd. (“Maoming Hengda”)
|
|
PRC
|
|
|
99.0
|
%
|
Tianwu General Steel Material Trading Co., Ltd (“Tianwu Joint Venture”)
|
|
PRC
|
|
|
60.0
|
%
|
|
(b)
|
Principles of consolidation – subsidiaries
|
The accompanying consolidated financial
statements include the financial statements of the Company, its subsidiaries, its variable interest entity (“VIE”)
for which the Company is the ultimate primary beneficiary, and the VIE’s subsidiaries.
Subsidiaries are those entities in which
the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial
and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes
at the meeting of directors.
A VIE is an entity in which the Company,
or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership
of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.
All significant inter-company transactions and balances have
been eliminated upon consolidation.
Prior to entering into the Unified
Management Agreement on April 29, 2011, Longmen Joint Venture had been consolidated as the Company’s 60% direct owned
subsidiary. Upon entering into the Unified Management Agreement on April 29, 2011, Longmen Joint Venture was re-evaluated by
the Company to determine if Longmen Joint Venture is a VIE and if the Company is the primary beneficiary.
Based on projected profits in this entity
and future operating plans, Longmen Joint Venture’s equity at risk is considered insufficient to finance its activities and
therefore Longmen Joint Venture is considered to be a VIE.
The Company would be considered the primary
beneficiary of the VIE if it has both of the following characteristics:
|
a.
|
The power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and
|
|
b.
|
The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
|
A Supervisory Committee was formed during
the negotiation of the Unified Management Agreement. Given there is both a Supervisory Committee and a Board with respect to Longmen
Joint Venture , the powers (rights and roles) of both bodies were considered to determine which party has the power to direct the
activities of Longmen Joint Venture , and by extension, whether the Company continues to have the power to direct Longmen Joint
Venture ’s activities after this Supervisory Committee was formed and the significant investment in plant and equipment by
owners of the Longmen Joint Venture partner, as discussed in Note 1- “Background”. The Supervisory Committee, which
the Company holds 2 out of 4 seats, requires a ¾ majority vote, while the Board, which the Company holds 4 out of 7 seats,
requires a simple majority vote. As the Supervisory Committee’s role is limited to supervising and monitoring management
of Longmen Joint Venture and in the event there is any disagreement between the Board and the Supervisory Committee, the Board
prevails, the Supervisory Committee is considered subordinate to the Board. Thus, the Board of Directors of Longmen Joint Venture
continues to be the controlling decision-making body with respect to Longmen Joint Venture. The Company, which controls 60% of
the voting rights of the Board of Directors, has control over the operations of Longmen Joint Venture and as such, has the power
to direct the activities of the VIE that most significantly impact Longmen Joint Venture’s economic performance.
In connection with the Unified Management
Agreement, the Company, Shaanxi Coal and Shaanxi Steel may provide such support on a discretionary basis or as needed in the future.
See Note 2 item (d) Liquidity.
As discussed in Note 1 - “Background”,
the Company has the obligation to absorb losses and the rights to receive benefits based on the profit allocation as stipulated
by the Unified Management Agreement that are significant to the VIE. As both conditions are met, the Company is the primary beneficiary
of Longmen Joint Venture and therefore, continues to consolidate Longmen Joint Venture as a VIE.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company believes that the Unified Management
Agreement between Longmen Joint Venture and Shaanxi Coal is in compliance with PRC law and is legally enforceable. The Board of
Directors of Longmen Joint Venture continues to be the controlling decision-making body with respect to Longmen Joint Venture.
The Company, which controls 60% of the voting rights of the Board of Directors, has control over the operations of Longmen Joint
Venture and as such, has the power to direct the activities of the VIE. However, PRC law and/or uncertainties in the PRC legal
system could limit the Company’s ability to enforce the Unified Management Agreement, which in turn, may lead to reconsideration
of the VIE assessment and the potential for a different conclusion. The Company makes ongoing assessment to determine whether Longmen
Joint Venture is a VIE.
The carrying amount of the VIE and its
subsidiaries’ consolidated assets and liabilities are as follows:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Current assets
|
|
$
|
1,285,967
|
|
|
$
|
1,674,171
|
|
Plant and equipment, net
|
|
|
1,154,811
|
|
|
|
1,217,264
|
|
Other noncurrent assets
|
|
|
72,428
|
|
|
|
45,836
|
|
Total assets
|
|
|
2,513,206
|
|
|
|
2,937,271
|
|
Total liabilities
|
|
|
(2,943,761
|
)
|
|
|
(3,132,766
|
)
|
Net liabilities
|
|
$
|
(430,555
|
)
|
|
$
|
(195,495
|
)
|
VIE and its subsidiaries’ liabilities
consist of the following:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short term notes payable
|
|
$
|
971,117
|
|
|
$
|
1,105,570
|
|
Accounts payable
|
|
|
324,563
|
|
|
|
401,158
|
|
Accounts payable - related parties
|
|
|
177,160
|
|
|
|
81,403
|
|
Short term loans - bank
|
|
|
114,935
|
|
|
|
209,234
|
|
Short term loans - others
|
|
|
141,290
|
|
|
|
240,684
|
|
Short term loans - related parties
|
|
|
35,839
|
|
|
|
15,710
|
|
Current maturities of long-term loans – related party
|
|
|
54,885
|
|
|
|
-
|
|
Other payables and accrued liabilities
|
|
|
29,769
|
|
|
|
31,249
|
|
Other payables - related parties
|
|
|
64,941
|
|
|
|
20,677
|
|
Customer deposits
|
|
|
109,120
|
|
|
|
84,767
|
|
Customer deposits - related parties
|
|
|
21,998
|
|
|
|
66,932
|
|
Deposit due to sales representatives
|
|
|
33,870
|
|
|
|
22,890
|
|
Deposit due to sales representatives – related parties
|
|
|
1,238
|
|
|
|
943
|
|
Taxes payable
|
|
|
15,339
|
|
|
|
5,386
|
|
Deferred lease income
|
|
|
2,120
|
|
|
|
2,099
|
|
Intercompany payable to be eliminated
|
|
|
30,476
|
|
|
|
66,021
|
|
Total current liabilities
|
|
|
2,128,660
|
|
|
|
2,354,723
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
Long term loans - related parties
|
|
|
38,088
|
|
|
|
92,035
|
|
Long-term other payable – related party
|
|
|
43,008
|
|
|
|
-
|
|
Deferred lease income - noncurrent
|
|
|
75,079
|
|
|
|
76,425
|
|
Capital lease obligations
|
|
|
330,099
|
|
|
|
306,350
|
|
Profit sharing liability
|
|
|
328,827
|
|
|
|
303,233
|
|
Total non-current liabilities
|
|
|
815,101
|
|
|
|
778,043
|
|
Total liabilities of consolidated VIE
|
|
$
|
2,943,761
|
|
|
$
|
3,132,766
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
VIE and its subsidiaries’ statements
of operations are as follows:
|
|
For the year ended
December 31, 2012
|
|
|
For the year ended
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Sales
|
|
$
|
2,837,608
|
|
|
$
|
3,496,551
|
|
Gross profit (loss)
|
|
$
|
29,512
|
|
|
$
|
(86,308
|
)
|
Loss from operations
|
|
$
|
(45,582
|
)
|
|
$
|
(161,057
|
)
|
Net loss attributable to controlling interest
|
|
$
|
(114,936
|
)
|
|
$
|
(161,897
|
)
|
Longmen Joint Venture has two 100% owned
subsidiaries, Yuxin Trading Co., Ltd. (“Yuxin”) and Yuteng Trading Co., Ltd. (“Yuteng”). Prior to March
1, 2012, Longmen Joint Venture had three consolidated subsidiaries, Hualong Fire Retardant Material Co., Ltd. (“Hualong”),
Hancheng Tongxing Metallurgy Co., Ltd. (“Tongxing”) and Beijing Huatianyulong International Steel Trading Co., Ltd.
(“Huatianyulong”), in which Longmen Joint Venture did not hold a controlling interest. On March 1, 2012, Longmen Joint
Venture sold its equity interest in Tongxing, and, as of December 31, 2012, Longmen Joint Venture has two consolidated subsidiaries,
Hualong and Huatianyulong, in which it does not hold a controlling interest. Hualong and Huatianyulong are separate legal entities
which were established in the PRC as limited liability companies and subsequently acquired by Longmen Joint Venture in June 2007
and July 2008, respectively. Prior to and subsequent to their acquisition by Longmen Joint Venture, these two entities have been
operating as self-sustaining integrated sets of activities and assets conducted and managed for the purpose of providing a return
to shareholders consisting of all the inputs, processes and outputs of a business. However, these two entities do not meet the
definition of variable interest entities. Further consideration was given to whether consolidation was appropriate under the voting
interest model, specifically where the power of control may exist with a lesser percentage of ownership (i.e. less than 50%), for
example, by contract, lease, agreement with other stockholders or by court decree.
Hualong
Longmen Joint Venture, the single largest
shareholder, holds a 36.0% equity interest in Hualong. The other two shareholders, who own 34.67% and 29.33% respectively, assigned
their voting rights to Longmen Joint Venture in writing at the time of the acquisition of Hualong. The voting rights have been
assigned through the date Hualong ceases its business operations or the other two shareholders sell their interest in Hualong.
Hualong’s main business is to supply refractory.
Tongxing
Prior to March 1, 2012, Longmen Joint Venture
held a 22.76% equity interest in Tongxing while hundreds of employees of Longmen Joint Venture owned the remaining 77.24%. Each
individual employee shareholder comprising the remaining 77.24% assigned its voting rights to Longmen Joint Venture in writing
at the time of the acquisition of Tongxing. The voting rights assigned were effective until Tongxing ceased its business operations
or Longmen Joint Venture liquidated its equity interest of Tongxing, whichever came first.
On March 1, 2012, Longmen Joint Venture
sold its 22.76% equity interest of Tongxing to two individuals, who are the representatives from Long Steel Group. As of March
1, 2012, Tongxing had a carrying value of net assets of $40.5 million which were included in the consolidated net assets of the
Company and a noncontrolling interest in Tongxing of $32.5 million. The Company retained the land use right associated with the
Tongxing property adjacent to the Longmen Joint Venture facility, which had a carrying value of $3.6 million immediately prior
to the transaction and relinquished its controlling interest in the remaining net assets (primarily operating assets). In connection
with the transaction, the Company also settled with a payable in cash of $0.3 million and transferred the dividend receivable of
$0.9 million from Tongxing to the two individuals. These arrangements meet the criteria of ASC 810-10-40-6b and 6d, deconsolidation
of a Subsidiary with multiple arrangements treated as a single transaction. As the land use rights held in Tongxing have been
included as part of the Company’s consolidated assets, this transaction was considered as a change in the Company’s
ownership interest in the land use right similar to a change in a parent company’s ownership interest in a subsidiary in
accordance with ASC 810-10-45-23 and therefore the carrying value of the land use right was not stepped up to fair value. The net
impact of these transactions resulted in a reduction of $3.1 million paid-in capital.
See Note 21 “Equity” for the
reconciliation of Tongxing’s noncontrolling interest.
Huatianyulong
Longmen Joint Venture holds a 50.0% equity
interest in Huatianyulong and the other unrelated shareholder holds the remaining 50.0%. The other shareholder assigned its voting
rights to Longmen Joint Venture in writing at the time of acquisition of Huatianyulong. The voting rights have been assigned through
the date Huatianyulong ceases its business operation or the other unrelated shareholder sells its interest in Huatianyulong. Huatianyulong
mainly sells imported iron ore.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has determined that it is appropriate
for Longmen Joint Venture to consolidate Hualong and Huatianyulong with appropriate recognition in the Company’s financial
statements of the non-controlling interests in each entity, beginning on the acquisition dates as these were also the effective
dates of the agreements with other stockholders granting a majority voting rights in each entity, and thereby, the power of control,
to Longmen Joint Venture. The Company also has determined that it is appropriate for Longmen Joint Venture to consolidate Tongxing’s
net income from the beginning of the acquisition date to March 1, 2012, the date on which Longmen Joint Venture relinquished its
equity interest and majority voting rights in Tongxing, and thereby its power of control of Tongxing.
The Company’s accounts have been
prepared in accordance with U.S. GAAP on a going concern basis. The going concern basis assumes that assets are realized and liabilities
are extinguished in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability
to continue as a going concern depends upon aligning its sources of funding (debt and equity) with the expenditure requirements
of the Company and repayment of the short-term debt facilities as and when they fall due.
The steel business is capital intensive
and as a normal industry practice in PRC, the Company is highly leveraged. Debt financing in the form of short term bank loans,
loans from related parties, financing sales, bank acceptance notes, and capital leases have been utilized to finance the working
capital requirements and the capital expenditures of the Company. As a result, the Company’s debt to equity ratio as of December
31, 2012 and 2011 were (7.1) and (19.8), respectively. As of December 31, 2012, the Company’s current liabilities exceed
current assets (excluding non-cash item) by $862.4 million. And as of June 30, 2013, the Company’s estimated current liabilities
may exceed current assets (excluding non-cash item) by $777.4 million.
Longmen Joint Venture, as the most important
subsidiary of the Company, accounted for majority of total sales of the Company. As such, the majority of the Company’s working
capital needs come from Longmen Joint Venture. The Company’s ability to continue as a going concern depends heavily on Longmen
Joint Venture’s operations. Longmen Joint Venture has obtained different types of financial supports, which are listed below
by category:
Line of credit
The Company received lines of credit from
seven major banks totaling $202.1 million with expiration dates ranging from April 2, 2014 to October 26, 2014.
Banks
|
|
Amount of
Line of Credit
(in millions)
|
|
|
Repayment Date
|
Bank of China
|
|
|
19.1
|
|
|
August 25, 2014 to October 26, 2014
|
China Everbright Bank
|
|
|
47.7
|
|
|
October 8, 2014
|
Bank of Ningxia
|
|
|
23.9
|
|
|
September 27, 2014
|
Ping’an Bank
|
|
|
47.8
|
|
|
April 2, 2014*
|
SPD Bank
|
|
|
15.9
|
|
|
May 15, 2014*
|
Bank of Xi’an
|
|
|
47.7
|
|
|
April 7, 2014 to October 9, 2014
|
Total
|
|
$
|
202.1
|
|
|
|
*Management expects the lines of credit will be extended after the repayment dates.
As of the date of this report, the Company
utilized $133.8 million of these lines of credit.
Vendor financing
Longmen Joint Venture signed additional
vendor financing agreements, which will provide liquidity to the Company in a total amount of $477.6 million with the following
companies:
Company
|
|
Financing period covered
|
|
Financing Amount
(in millions)
|
|
|
|
|
|
|
|
Company A – related party
|
|
January 6, 2013 – January 5, 2015
|
|
$
|
79.6
|
|
Company B – third party
|
|
January 6, 2013 – January 5, 2015
|
|
|
79.6
|
|
Company C – third party
|
|
October 1, 2013 – September 30 , 2014
|
|
|
318.4
|
|
Total
|
|
|
|
$
|
477.6
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company A, a related party company and
Company B, a third party company, are both Longmen Joint Venture’s major coke suppliers. They have been doing business with
Longmen Joint Venture for years. Each company has signed a two-year agreement with Longmen Joint Venture which was effective on
January 6, 2013 to finance Longmen Joint Venture for its coke purchase for a two-year period. According to the above signed agreement,
both Company A and B will not demand any cash payments for next two years. As of the date of this report, our payables to Company
A and Company B are approximately $61.3 million and $47.9 million, respectively.
As a critical business stakeholder to the
Company’s Tianwu Joint Venture, Company C is a Fortune 500 Company. In October 2012, Company C signed a one year agreement
with Longmen Joint Venture to finance Longmen Joint Venture’s purchase of iron ore for an amount up to $158.3 million to
commence on October 1, 2012. In June 2013, Company C signed another one year agreement with Longmen Joint Venture to finance Longmen
Joint Venture’s purchase of iron ore for an amount up to $318.4 million to commence on October 1, 2013. According to the
agreement, Company C agrees to provide an amount not less than $318.4 million in iron ore to Longmen Joint Venture. Subject to
the terms of the agreement, Longmen Joint Venture is subject to a penalty of 0.05% of the daily outstanding balance owed to Company
C in an event of late payment. The agreement also helps secure Company C’s iron ore sales to Longmen Joint Venture. As of
the date of this report, our payable to Company C is approximately $1.2 million.
Financing sales
As part of our working capital management,
Longmen Joint Venture has entered into an additional financing sales agreement with a third party company, Company D and two 100%
owned subsidiaries of Longmen Joint Venture, named Yuxin Trading Co., Ltd. (“Yuxin”) and Yuteng Trading Co., Ltd. (“Yuteng”)
(“financing sales”) to provide liquidity to the Company in the total amount of $79.6 million. See Note 9 for financing
sales details.
Based on the contract terms, from December
31, 2012 until the earlier of the expiration date of the contract or December 31, 2013, the advance payment balance from Company
D cannot be less than $79.6 million. The contract has been extended to December 31, 2014. The remaining financing sales balance
can be paid by installment based on Longmen Joint Venture’s goods delivery volume. As of the date of this report, our payable
to Company D is approximately $8.3 million.
Other financing
On January 7, 2013, Longmen Joint Venture
signed a payment extension agreement with each company listed below. In total, Longmen Joint Venture can get $43.8 million in financial
support from a two-year balancing payment extension granted by the following three companies:
Company
|
|
Financing period covered
|
|
Financing Amount
(in millions)
|
|
|
|
|
|
|
|
Company E – related party
|
|
January 7, 2013 – January 6, 2015
|
|
$
|
15.9
|
|
Company F – related party
|
|
January 7, 2013 – January 6, 2015
|
|
|
20.7
|
|
Company G – related party
|
|
January 7, 2013 – January 6, 2015
|
|
|
7.2
|
|
Total
|
|
|
|
$
|
43.8
|
|
According to the contract terms, Company
E, Company F and Company G, have agreed to grant a two year payment extension in the amounts of $15.9 million, $20.7 million and
$7.2 million respectively. As of the date of this report, our payables to Company E, Company F and Company G are approximately
$25.6 million, $15.7 million and $16.9 million, respectively.
Amount due to sales representatives
Longmen Joint Venture entered into agreements
with various entities to act as the Company’s exclusive sales agents in specified geographic areas. These exclusive
sales agents must meet certain criteria and are required to deposit a certain amount of money with the Company. In return the sales
agents receive exclusive sales rights in a specified area and discounted prices on products they order. These deposits bear no
interest and are required to be returned to the sales agent once the agreement is terminated. As of March 31, 2013, Longmen Joint
Venture has collected a total amount of $35.2 million. Historically, this amount is quite stable and we do not expect a big fluctuation
in this amount for the next twelve months from June 30, 2013 onwards.
With the financial support from the banks
and the companies above, management is of the opinion that the Company has sufficient funds to meet its future operations, working
capital requirements and debt obligations until the end of June 30, 2014. The detailed breakdown of Longmen Joint Venture’s
estimated cash flows items are listed below.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Cash inflow (outflow)
(in millions)
|
|
|
|
For the twelve months ended
June 30, 2014
|
|
Estimated current liabilities over current assets (excluding non-cash items) as of June 30, 2013 (unaudited)
|
|
$
|
(777.4)
|
|
Projected cash financing and outflows:
|
|
|
|
|
Cash provided by line of credit from banks
|
|
|
202.1
|
|
Cash provided by vendor financing
|
|
|
477.6
|
|
Cash provided by financing sales
|
|
|
79.6
|
|
Cash provided by other financing
|
|
|
43.8
|
|
Cash provided by sales representatives
|
|
|
35.2
|
|
Cash projected to be used in operations in the twelve months ended June 30, 2014
|
|
|
(27.7
|
)
|
Net projected change in cash for the twelve months ended June 30, 2014
|
|
$
|
33.2
|
|
As a result, the consolidated financial
statements for the year ended December 31, 2012 have been prepared on a going concern basis.
The preparation of financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying
consolidated financial statements and footnotes. Significant accounting estimates reflected in the Company’s consolidated
financial statements include the fair value of the profit sharing liability, the useful lives of and impairment for property, plant
and equipment, and potential losses on uncollectible receivables, the interest rate used in the financing sales, the fair value
of the assets recorded under capital lease, the present value of the net minimum lease payments of the capital lease and the fair
value of the profit share liability. Actual results could differ from these estimates.
|
(f)
|
Concentration of risks and uncertainties
|
The Company’s operations are carried
out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the
political, economic and legal environment in the PRC, and by the general state of the PRC’s economy. The Company’s
operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North
America and Western Europe. The Company’s results may be adversely affected by changes in governmental policies with respect
to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation,
among other things.
The Company has significant exposure to
the fluctuation of raw materials and energy prices as part of its normal operations. As of December 31, 2012 and 2011, the Company
does not have any open commodity contracts to mitigate such risks.
Cash includes demand deposits in accounts
maintained with banks within the PRC, Hong Kong and the United States. Total cash (including restricted cash balances) in these
banks on December 31, 2012 and 2011 amounted to $369.9 million and $518.2 million, including $2.3 million and $0 that
were deposited in Shaanxi Coal and Chemical Industry Group Financial Co., Ltd., a related party, respectively. As of December 31,
2012, $0.4 million cash in the bank was covered by insurance. The Company has not experienced any losses in other bank accounts
and believes it is not exposed to any risks on its cash in bank accounts.
The Company’s five major customers
are all distributors and collectively represented approximately 26.7% and 27.1% of the Company’s total sales for the years
ended December 31, 2012 and 2011, respectively. These five major customers accounted for 47.8% and 27.2% of total accounts receivable,
including related parties, as of December 31, 2012 and 2011, respectively. One of the five major customers accounted for more than
10% of total accounts receivable both as of December 31, 2012 and 2011.
For the years ended December 31, 2012 and
2011, the Company purchased approximately 38.9% and 48.6% of its raw materials from five major suppliers, respectively. These five
vendors accounted for 33.8% and 16.9% of total accounts payable, including related parties, as of December 31, 2012 and 2011, respectively.
One of the five major suppliers individually accounted for more than 10% of total accounts payable as of December 31, 2012. None
of the five major suppliers individually accounted for more than 10% of total accounts payable as December 31, 2011.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales revenue is recognized at the date
of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, the Company
has no other significant obligations and collectability is reasonably assured. Payments received before all of the relevant criteria
for revenue recognition are recorded as customer deposits. Sales revenue represents the invoiced value of goods, net of value-added
tax (VAT). All of the Company’s products sold in the PRC are subject to a Chinese value-added tax at a rate of 13% or 17%
of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the
cost of producing the finished product.
|
(h)
|
Foreign currency translation and other comprehensive income
|
The reporting currency of the Company is
the US dollar. The Company’s subsidiaries in China use the local currency, Renminbi (RMB), as their functional currency.
Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of
the period. The statement of operations accounts are translated at the average translation rates and the equity accounts are translated
at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income
in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated
in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated
other comprehensive income amounted to $10.2 million and $10.2 million as of December 31, 2012 and 2011, respectively. The balance
sheet amounts, with the exception of equity at December 31, 2012 and 2011 were translated at 6.30 RMB and 6.37 RMB to $1.00, respectively.
The equity accounts were stated at their historical rate. The average translation rates applied to statement of operations accounts
for the years ended December 31, 2012 and 2011 were 6.30 RMB and 6.47 RMB, respectively. Cash flows are also translated at average
translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes
in the corresponding balances on the consolidated balance sheet.
The PRC government imposes significant
exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not
had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.
|
(i)
|
Financial instruments
|
The accounting standards regarding fair
value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the
fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, short term investment,
accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the
short period of time between the origination of such instruments and their expected realization. For short term loans and notes
payable, the Company concluded the carrying values are a reasonable estimate of fair values because of the short period of time
between the origination and repayment and as their stated interest rates approximate current rates available.
The Company analyzes all financial instruments
with features of both liabilities and equity, pursuant to which the Company’s warrants were required to be recorded as a
liability at fair value and marked to market each reporting period.
The accounting standards define fair value,
establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair
value measures. The three levels are defined as follow:
|
·
|
Level 1 inputs to the valuation methodology
are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
·
|
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
|
|
·
|
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
|
On December 13, 2007, the Company entered
into a Securities Purchase Agreement (the “Agreement”) with certain institutional investors issuing $40.0 million (“Notes”)
and 1,154,958 warrants. The warrants can be exercised for common stock through May 13, 2013 at $13.51 per share, subject to customary
anti-dilution adjustments. On December 24, 2009, the holders of the existing warrants of 1,154,958 shares entered into an agreement
with the Company that reset the exercise price from $13.51 to $5 per share and increased the number of warrants from 1,154,958
to 3,900,871.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2009, the Company issued an
additional 2,777,778 warrants in connection with a registered direct offering, which expired as of June 24, 2012.
The aforementioned warrants meet the definition
of a derivative instrument in the accounting standards. Therefore these instruments are accounted for as derivative liabilities
and recorded at their fair value as of each reporting period. The change in the value of the derivative liabilities is charged
against or credited to income. The fair value was determined using the Cox Rubenstein Binomial Model, defined in the
accounting standard as Level 2 inputs, and recorded the change in earnings. See Note 12
– “
Convertible notes
and derivative liabilities” for the variables used in the Cox Rubenstein Binomial model.
The Company determined the carrying value
of the profit sharing liability using Level 3 inputs by considering the present value of Longmen Joint Venture’s projected
profits/losses with a discount rate of 7% based on the Company’s average borrowing rate. The projected profits/losses in
Longmen Joint Venture were based upon, but not limited to, the following assumptions until April 30, 2031:
|
·
|
projected selling units and growth in the steel market
|
|
·
|
projected unit selling price in the steel market
|
|
·
|
projected unit purchase cost in the coal and iron ore markets
|
|
·
|
selling and general and administrative expenses to be in line with the growth in the steel market
|
|
·
|
projected bank borrowings
|
The above assumptions were reviewed by
the Company at December 31, 2012 and no material changes from those assumptions used at December 31, 2011.
The following table sets forth by level
within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on
a recurring basis as of December 31, 2012:
(in thousands)
|
|
Carrying Value as
of December 31,
2012
|
|
|
Fair Value Measurements at December 31,
2012
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
-
|
|
Profit sharing liability
|
|
|
328,827
|
|
|
|
-
|
|
|
|
-
|
|
|
|
328,827
|
|
Total
|
|
$
|
328,828
|
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
328,827
|
|
We re-measured the fair value of the 40%
profit sharing liability as of December 31, 2012 and the difference is immaterial in comparing to the initial value.
The following table sets forth by level
within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a
recurring basis as of December 31, 2011:
(in thousands)
|
|
Carrying Value as
of December 31,
2011
|
|
|
Fair Value Measurements at December 31, 2011
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
$
|
10
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
$
|
-
|
|
Profit sharing liability
|
|
|
303,233
|
|
|
|
-
|
|
|
|
-
|
|
|
|
303,233
|
|
Total
|
|
$
|
303,243
|
|
|
$
|
-
|
|
|
$
|
10
|
|
|
$
|
303,233
|
|
The following is a reconciliation of the
beginning and ending balance of the assets and liabilities measured at fair value on a recurring basis for the years ended December
31, 2012 and 2011:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
303,243
|
|
|
$
|
5,573
|
|
Initial measurement and recognition of the 40% profit sharing liability on April 29, 2011
|
|
|
-
|
|
|
|
280,857
|
|
Current period interest expense accreted
|
|
|
22,499
|
|
|
|
14,047
|
|
Change of derivative liabilities charged to earnings
|
|
|
9
|
|
|
|
(5,563
|
)
|
Exchange rate effect
|
|
|
3,077
|
|
|
|
8,329
|
|
Ending balance
|
|
$
|
328,828
|
|
|
$
|
303,243
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Except for the derivative liabilities and
profit sharing liability, the Company did not identify any other assets or liabilities that are required to be presented on the
balance sheet at fair value in accordance with the accounting standard. The carrying value of the long term loans-related party
approximates to its fair value as of the reporting date.
Cash includes
cash on hand and demand deposits in banks with original maturities of less than three months.
The Company has notes payable outstanding
with various banks and is required to keep certain amounts on deposit that are subject to withdrawal restrictions. The notes payable
are generally short term in nature due to its maturity period of six months or less, thus restricted cash is classified as a current
asset.
|
(l)
|
Short term investment
|
Short-term investments are certificated
deposits maintained with banks within the PRC with maturity date of less than one year.
|
(m)
|
Accounts receivable and allowance for doubtful accounts
|
Accounts receivable include trade accounts
due from customers and other receivables from cash advances to employees, related parties or third parties. An allowance for doubtful
accounts is established and recorded based on managements’ assessment of potential losses based on the credit history and
relationships with the customers. Management reviews its receivable on a regular basis to determine if the bad debt allowance is
adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful
accounts after management has determined that the likelihood of collection is not probable.
Notes receivable represents trade accounts
receivable due from various customers where the customers’ banks have guaranteed the payment. The notes are non-interest
bearing and normally paid within three to six months. The Company has the ability to submit request for payment to the customer’s
bank earlier than the scheduled payment date, but will incur an interest charge and a processing fee. The Company had $145.5 million
and $92.9 million outstanding as of December 31, 2012 and 2011, respectively.
Restricted notes
receivable represents notes receivable pledged as collateral for short-term loans and short-term notes payable issued by banks.
As of December 31, 2012 and 2011, restricted notes receivable amounted to $357.9 million and $584.2 million, respectively.
Interest
expenses for early submission request of payment for the years ended December 31, 2012 and 2011 amounted to $90.0 million and $34.2
million, respectively.
|
(o)
|
Advances on inventory purchase
|
Advances on inventory purchases are monies
deposited or advanced to outside vendors or related parties on future inventory purchases. Due to the high shortage of steel in
China, most of the Company’s vendors require a certain amount of money to be deposited with them as a guarantee that the
Company will complete its purchases on a timely basis.
This amount is refundable and bears no
interest. The Company has legally binding contracts with its vendors, which required the deposit to be returned to the Company
when the contract ends. The inventory is normally delivered within one month after the monies have been advanced. The total outstanding
amount, including advances to related parties, was $126.1 million and $83.8 million as of December 31, 2012 and 2011, respectively.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories are comprised of raw materials,
work in progress and finished goods and are stated at the lower of cost or market using the weighted average cost method. Management
reviews inventories for obsolescence and cost in excess of net realizable value at least annually and records a reserve against
the inventory and additional cost of goods sold when the carrying value exceeds net realizable value. The Company had written-off
$9.6 million and $37.5 million inventory cost as of December 31, 2012 and 2011, respectively.
|
(q)
|
Shipping and handling
|
Shipping and handling for raw materials
purchased are included in cost of goods sold. Shipping and handling cost incurred to ship finished products to customers are included
in selling expenses. Shipping and handling expenses for finished goods for the years ended December 31, 2012 and 2011 amounted
to $23.7 million and $30.1 million, respectively.
|
(r)
|
Plant and equipment, net
|
Plant and equipment are stated at cost
less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets
with a 3%-5% residual value. The depreciation expense on assets acquired under capital leases is included with depreciation expense
on owned assets. The estimated useful lives are as follows:
Buildings and Improvements
|
|
|
10-40 Years
|
|
Machinery
|
|
|
10-30 Years
|
|
Machinery and equipment under capital lease
|
|
|
20 Years
|
|
Other equipment
|
|
|
5 Years
|
|
Transportation Equipment
|
|
|
5 Years
|
|
The Company assesses all significant leases
for purposes of classification as either operating or capital. At lease inception, if the lease meets any of the four following
criteria, the Company will classify it as a capital lease; otherwise it will be treated as an operating lease: a) transfer of ownership
to lessee at the end of the lease term, b) bargain purchase option, c) lease term is equal to 75% or more of the estimated economic
life of the leased property, d) the present value of the minimum lease payments is 90% or more of the fair value of the leased
asset.
Construction in progress represents the
costs incurred in connection with the construction of buildings or new additions to the Company’s plant facilities. No depreciation
is provided for construction in progress until such time as the assets are completed and are placed into service, maintenance,
repairs and minor renewals are charged directly to expense as incurred. Major additions and betterment to buildings and equipment
are capitalized. Interest incurred during construction is capitalized into construction in progress. All other interest is expensed
as incurred.
Long lived assets, including buildings
and improvements, equipment and intangible assets are reviewed if events and changes in circumstances indicate that its carrying
amount may not be recoverable, to determine whether their carrying value has become impaired. The Company considers assets to be
impaired if the carrying value exceeds the future projected cash flows from related operations (See Note 7). The Company also re-evaluates
the periods of depreciation and amortization to determine whether subsequent events and circumstances warrant revised estimates
of useful lives.
Finite lived intangible assets of the Company
are reviewed for impairment if events and circumstances require. The Company considers assets to be impaired if the carrying value
exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine
whether subsequent events and circumstances warrant revised estimates of useful lives. As of December 31, 2012, the
Company expects these assets to be fully recoverable.
Land use rights
All land in the PRC is owned by the government.
However, the government grants “land use rights.” General Steel (China) acquired land use rights in 2001
for a total of $3.8 million (RMB 23.7 million). These land use rights are for 50 years and expire in 2050 and 2053. The Company
amortizes the land use rights over the twenty-year business term because its business license had a twenty-year term.
Long Steel Group contributed land use rights
for a total amount of $23.6 million (RMB 148.6 million) to the Longmen Joint Venture. The contributed land use rights are for 50
years and expire in 2048 to 2052.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Maoming Hengda has land use rights amounting
to $2.6 million (RMB 16.6 million) for 50 years that expire in 2054.
Other than the land use rights that General
Steel (China) acquired in 2001, the Company amortizes the land use rights over their 50 year term.
Entity
|
|
Original Cost
|
|
|
Expires on
|
|
|
|
(in thousands)
|
|
|
|
|
General Steel (China)
|
|
$
|
3,765
|
|
|
|
2050 & 2053
|
|
Longmen Joint Venture
|
|
$
|
23,587
|
|
|
|
2048 & 2052
|
|
Maoming Hengda
|
|
$
|
2,634
|
|
|
|
2054
|
|
Mining right
Mining rights are capitalized at cost when
acquired, including amounts associated with any value beyond proven and probable reserves, and amortized to operations as depletion
expense using the units-of-production method over the estimated proven and probable recoverable tons. Longmen Joint Venture has
iron ore mining right amounting to $2.4 million (RMB 15.0 million), which is amortized over the estimated recoverable reserve of
4.2 million tons.
|
(t)
|
Long-term other receivable
|
Long-term other receivable is money advanced
to a third party that is collectable in more than one year. As of December 31, 2012 and 2011, long-term other receivable amounted
to $43.0 million and $0, respectively.
|
(u)
|
Investments in unconsolidated entities
|
Entities in which the Company has the ability
to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method. Significant
influence is generally considered to exist when the Company has an ownership interest in the voting stock between 20% and 50%,
and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements, are
considered in determining whether the equity method of accounting is appropriate. The Company accounts for investments with ownership
less than 20% using the cost method.
Longmen Joint Venture and its previously
consolidated subsidiary prior to March 1, 2012 – Tongxing invested in several companies from 2003 to 2007. Tongxing, along
with its investments in Shaanxi Daxigou Mining Co., Ltd, Huashan Metallurgical Equipment Co., Ltd, and Shaaxi Long Steel Group
Baoji Steel Rolling Co., Ltd were deconsolidated from the Company’s consolidated financial statements as of March 1, 2012.
The table below summarizes Longmen Joint Venture and Tongxing’s investment holdings as of December 31, 2012 and 2011.
Unconsolidated entities
|
|
Year
acquired
|
|
|
December 31,
2012
Net investment
(In thousands)
|
|
|
Owned
%
|
|
|
December 31,
2011
Net
investment
(In thousands)
|
|
|
Owned
%
|
|
Shaanxi Daxigou Mining Co., Ltd
|
|
|
2004
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
8,304
|
|
|
|
22.1
|
|
Huashan Metallurgical Equipment Co., Ltd.
|
|
|
2003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,067
|
|
|
|
25.0
|
|
Shaanxi Long Steel Group Baoji Steel Rolling Co., Ltd
|
|
|
2003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
428
|
|
|
|
23.8
|
|
Xian Delong Powder Engineering Materials Co., Ltd.
|
|
|
2007
|
|
|
|
1,166
|
|
|
|
24.1
|
|
|
|
1,041
|
|
|
|
24.1
|
|
Total
|
|
|
|
|
|
$
|
1,166
|
|
|
|
|
|
|
$
|
12,840
|
|
|
|
|
|
Total investment income in unconsolidated
subsidiaries amounted to $0.2 million and $3.9 million for the years ended December 31, 2012 and 2011, respectively, which was
included in “Income from equity investments” in the consolidated statements of operations and comprehensive loss.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
(v)
|
Short-term notes payable
|
Short-term notes payable are lines of credit
extended by banks. The banks in-turn issue the Company a bankers acceptance note, which can be endorsed and assigned to vendors
as payments for purchases. The notes payable are generally payable at a determinable period, generally three to six months. This
short-term notes payable bears no interest and is guaranteed by the bank for its complete face value and usually matures within
three to six-month period. The banks usually require the Company to deposit a certain amount of cash at the bank as a guarantee
deposit, which is classified on the balance sheet as restricted cash.
Customer deposits represent amounts advanced
by customers on product orders. The product normally is shipped within one month after receipt of the advance payment, and the
related sale is recognized in accordance with the Company’s revenue recognition policy.
|
(x)
|
Deferred lease income
|
To reimburse Longmen Joint Venture for
certain construction costs incurred as well as economic losses on suspended production to accommodate the construction of the new
iron and steel making facilities on behalf of Shaanxi Steel, in the fourth quarter of 2010, Shaanxi Steel reimbursed Longmen Joint
Venture for the value of assets dismantled, various site preparation costs incurred and rent under a 40-year land sub-lease that
was entered into by the parties in June 2009 (the "Longmen Sub-lease"), and for the reduced production efficiency caused
by the construction. Applying the
lease accounting guidance,
the Company has concluded that,
except for the reimbursement for site preparation costs incurred, the amount of reimbursement should be deferred and recognized
as a component of the land that was sub-leased during the construction, to be amortized to income over the remaining term of the
40-year sub-lease. Deferred lease income represents the remaining balance of compensation being deferred. See Note 14 - “Deferred
lease income”.
|
(y)
|
Non-controlling Interest
|
Non-controlling
interest mainly consists of Long Steel Group’s 40% interest in Longmen Joint Venture, Baotou Iron and Steel Group’s
20% interest in Baotou Steel Pipe Joint Venture, an individuals’ 0.9% interest in Yangpu Shengtong Investment Co., Ltd. ,
two individuals’ 1.3% interest in Qiu Steel, an individual’s 1% interest in Maoming Hengda, and TME Group’s 40%
interest in Tianwu Joint Venture
, The non-controlling interests are presented in the consolidated balance sheets, separately
from equity attributable to the shareholders of the Company. Non-controlling interests in the results of the Company are presented
on the face of the consolidated statement of operations as an allocation of the total income or loss for the year between non-controlling
interest holders and the shareholders of the Company.
The Company has adopted the accounting
principles generally accepted in the United States regarding earnings per share (“EPS”), which requires presentation
of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per
share.
Basic earnings per share are computed by
dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were
exercised and converted into common stock.
Treasury stock consists of shares repurchased
by the Company that are no longer outstanding and are held by the Company. Treasury stock is accounted for under the cost method.
As of December 31, 2012 and 2011, the Company
had repurchased 2,472,306 and 1,090,978 total shares of its common stock, respectively, under the share repurchase plan approved
by the Board of Directors in December 2010.
The Company accounts for income taxes in
accordance with the accounting principles generally accepted in the United States for income taxes. Under the asset and liability
method as required by this accounting standard, the recognition of deferred income tax liabilities and assets for the expected
future tax consequences of temporary differences between the income tax basis and financial reporting basis of assets and liabilities.
Provision for income taxes consists of taxes currently due plus deferred taxes. The accounting principles generally accepted in
the United States for accounting for uncertainty in income taxes clarify the accounting and disclosure for uncertain tax positions. A
tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained
in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit
that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not”
test, no tax benefit is recorded.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The charge for taxation is based on the
results for the year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the
balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets
and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable
tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are
recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences
can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized
or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited
or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred income taxes are recognized for
temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements, net
operating loss carry forwards and credits, by applying enacted statutory tax rates applicable to future years. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant
taxing authorities.
An uncertain tax position is recognized
as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with
a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50%
likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit
is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the
period incurred. No significant penalties or interest relating to income taxes have been incurred during the years ended December
31, 2012, and 2011. As of December 31, 2012, the Company’s income tax returns filed for December 31, 2012, 2011 and 2010
remain subject to examination by the taxing authorities.
|
(cc)
|
Share-based compensation
|
The Company accounts for equity instruments
issued in exchange for the receipt of goods or services from other than employees in accordance with the accounting standards regarding
accounting for stock-based compensation and accounting for equity instruments that are issued to other than employees for acquiring
or in conjunction with selling goods or services. Costs are measured at the estimated fair market value of the consideration received
or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments
issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of
performance by the provider of goods or services as defined by these accounting standards. In the case of equity instruments issued
to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
|
(dd)
|
Recently issued accounting pronouncements
|
In February 2013 the FASB issued an accounting
standards update ("ASU") No. 2013-02 "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income," requiring new disclosures for items reclassified out of accumulated other comprehensive
income ("AOCI"), including (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI.
The guidance does not amend any existing requirements for reporting net income or OCI in the financial statements. The standards
update was effective for reporting periods beginning after December 15, 2012, to be applied prospectively. The Company is currently
evaluating the impact of adopting this standard on its consolidated financial statements. As this guidance only requires expanded
disclosures, the adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial
statements.
In March 2013, the FASB issued an accounting
standards update (“ASU”) No. 2013-05 “Foreign Currency Matters (Topic 830): Parent’s Accounting for the
Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of
an Investment in a Foreign Entity,’ requiring the release of the cumulative translation adjustment into net income when a
parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in
a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The standards update is effective
prospectively for fiscal years and interim reporting periods within those years beginning after December 15, 2013. Early adoption
is permitted. The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated
financial statements.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain prior year amounts have been reclassified
to conform to the current year presentation. These reclassifications have no effect on the accompanying consolidated statements
of operations and cash flows.
Note 3 – Loans receivable –
related parties
Loans receivable – related parties
represents amounts the Company expects to collect from related parties upon maturity.
The Company had the following loans receivable
– related parties due within one year as of:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Loans to Long Steel Group; due on demand and non-interest bearing.
|
|
|
63,319
|
|
|
|
-
|
|
Loan to Teamlink Investment Co., Ltd; due in June 2013; interest rate was 4.75%
|
|
|
6,000
|
|
|
|
-
|
|
Total loans receivable – related parties
|
|
$
|
69,319
|
|
|
$
|
-
|
|
See Note 20
“Related party transactions and balances”
for the nature of the relationship of related parties.
Total interest income for the loans amounted
to $2.3 million for the year ended December 31, 2012.
Note 4 – Accounts receivable (including
related parties), net
Accounts receivable, including related
party receivables, net of allowance for doubtful accounts consists of the following:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Accounts receivable
|
|
$
|
8,062
|
|
|
$
|
14,624
|
|
Less: allowance for doubtful accounts
|
|
|
(1,367
|
)
|
|
|
(2,023
|
)
|
Accounts receivable – related parties
|
|
|
14,966
|
|
|
|
20,593
|
|
Net accounts receivable
|
|
$
|
21,661
|
|
|
$
|
33,194
|
|
Movement of allowance for doubtful accounts is as follows:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
2,023
|
|
|
$
|
296
|
|
Charge to expense
|
|
|
433
|
|
|
|
1,972
|
|
Less: recovery
|
|
|
(1,109
|
)
|
|
|
(284
|
)
|
Exchange rate effect
|
|
|
20
|
|
|
|
39
|
|
Ending balance
|
|
$
|
1,367
|
|
|
$
|
2,023
|
|
Note 5 – Inventories
Inventories consist of the following:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Supplies
|
|
$
|
23,123
|
|
|
$
|
20,869
|
|
Raw materials
|
|
|
141,503
|
|
|
|
279,041
|
|
Finished goods
|
|
|
57,630
|
|
|
|
35,962
|
|
Less: allowance for inventory valuation
|
|
|
(9,585
|
)
|
|
|
(38,143
|
)
|
Total inventories
|
|
$
|
212,671
|
|
|
$
|
297,729
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Raw materials consist primarily of iron
ore and coke at Longmen Joint Venture. The cost of finished goods includes direct costs of raw materials as well as direct labor
used in production. Indirect production costs at normal capacity such as utilities and indirect labor related to production such
as assembling, shipping and handling costs for purchasing are also included in the cost of inventory.
The Company values its inventory at the
lower of cost or market, determined on a weighted average method, or net realizable value. For the years ended December 31, 2012
and 2011, the Company had provided allowance for inventory valuation in the amounts of $9.6 million and $38.1 million, respectively.
Movement of allowance for inventory valuation is as follows:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
38,143
|
|
|
$
|
-
|
|
Addition
|
|
|
9,582
|
|
|
|
37,512
|
|
Less: write-off
|
|
|
(38,519
|
)
|
|
|
-
|
|
Exchange rate effect
|
|
|
379
|
|
|
|
631
|
|
Ending balance
|
|
$
|
9,585
|
|
|
$
|
38,143
|
|
Note 6 – Advances on inventory
purchases
Advances on inventory purchases are monies
deposited or advanced to outside vendors or related parties on future inventory purchases. Most of the Company’s vendors
require a certain amount of money to be deposited with them as a guarantee that the Company will complete its purchases on a timely
basis.
This amount is refundable and bears no
interest. The Company has legally binding contracts with its vendors, which require the deposit to be returned to the Company or
netted against accounts payable due to its vendors to the extent there are unpaid balances when the contract ends. The inventory
is normally delivered within one month after the monies have been advanced. The total outstanding amount, including advances to
related parties, was $126.1 million and $83.8 million as of December 31, 2012 and 2011, respectively.
Note 7 – Plant and equipment,
net
Plant and equipment consist of the following:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Buildings and improvements
|
|
$
|
214,661
|
|
|
$
|
181,644
|
|
Machinery
|
|
|
573,572
|
|
|
|
623,162
|
|
Machinery under capital lease
|
|
|
587,334
|
|
|
|
581,413
|
|
Transportation and other equipment
|
|
|
20,274
|
|
|
|
18,132
|
|
Construction in progress
|
|
|
4,645
|
|
|
|
8,203
|
|
Subtotal
|
|
|
1,400,486
|
|
|
|
1,412,554
|
|
Less: accumulated depreciation
|
|
|
(232,650
|
)
|
|
|
(155,318
|
)
|
Total
|
|
$
|
1,167,836
|
|
|
$
|
1,257,236
|
|
Construction in progress consisted of the
following as of December 31, 2012:
Construction in progress
|
|
Value
|
|
|
Completion
|
|
description
|
|
(In thousands)
|
|
|
date
|
|
900 thousand tons production line
|
|
$
|
2,879
|
|
|
|
August 2013
|
|
Iron making system dust removing equipment
|
|
|
84
|
|
|
|
March 2013
|
|
Drainage system
|
|
|
250
|
|
|
|
March 2013
|
|
Factory road repair
|
|
|
205
|
|
|
|
January 2013
|
|
Project materials
|
|
|
899
|
|
|
|
|
|
Others
|
|
|
328
|
|
|
|
|
|
Total
|
|
$
|
4,645
|
|
|
|
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Group is obligated under a capital
lease for new iron and steel making facilities, including one sintering machine, two converters, two blast furnaces and some auxiliary
systems that expire on April 30, 2031. The carrying value of assets acquired under the capital lease consists of the following:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Machinery
|
|
$
|
587,334
|
|
|
$
|
581,413
|
|
Less:
accumulated depreciation
|
|
|
(46,497
|
)
|
|
|
(18,411
|
)
|
Carrying value of leased assets
|
|
$
|
540,837
|
|
|
$
|
563,002
|
|
Long lived assets, including construction
in progress are reviewed if events and changes in circumstances indicate that its carrying amount may not be recoverable, to determine
whether their carrying value has become impaired. General Steel (China) leases facilities to Tianjin Daqiuzhuang Steel Plates Co.,
Ltd. (“Lessee”) including approximately 776,078 square feet of workshops, land, equipment and other facilities. The
term of the original lease is from January 1, 2010 to December 31, 2011 and the monthly base rental rate due to General Steel (China)
is approximately $0.3 million (RMB 1.7 million). On July 28, 2011, General Steel (China) signed a supplemental agreement with the
lessee to extend the lease for an additional five years to December 31, 2016. However, due to current steel market conditions,
the lessee had informed the Company that they did not plan to lease the assets after June 30, 2012 and had terminated the supplemental
agreement early. There was no penalty for early termination of the lease. General Steel (China) currently does not have plans to
lease the facility to another company and as such, a write-down in the carrying value of property, plant and equipment in relation
to this event has been assessed and an impairment amount of $5.6 million (RMB 35.1 million) was in the selling, general and administrative
expenses for the period ended June 30, 2011.
The Company assessed the recoverability
of all of its remaining long-lived assets at December 31, 2012, and the sum of the discounted future cash flows expected to result
from the long-lived assets and their disposition was less than the carrying value by $20.2 million (RMB 127.2 million), which was
impaired and included in the selling, general and administrative expenses for the year ended December 31, 2012. The discounted
cash flows were determined using certain expected changes to the current operational assumptions. If those expectations are not
met, the Company may be required to record additional impairment charges in future periods.
Depreciation expenses for the years ended
December 31, 2012 and 2011 amounted to $82.5 million and $56.4 million, respectively. These amounts include depreciation of assets
held under capital leases for the years ended December 31, 2012 and 2011, $27.9 million and $18.1 million, respectively.
Note 8 – Intangible assets, net
Intangible assets consist of the following:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Land use rights
|
|
$
|
29,986
|
|
|
$
|
29,685
|
|
Mining right
|
|
|
2,384
|
|
|
|
2,338
|
|
Software
|
|
|
692
|
|
|
|
685
|
|
Subtotal
|
|
|
33,062
|
|
|
|
32,708
|
|
Less:
|
|
|
|
|
|
|
|
|
Accumulated amortization – land use rights
|
|
|
(7,577
|
)
|
|
|
(6,442
|
)
|
Accumulated amortization – mining right
|
|
|
(993
|
)
|
|
|
(822
|
)
|
Accumulated amortization – software
|
|
|
(426
|
)
|
|
|
(301
|
)
|
Subtotal
|
|
|
(8,996
|
)
|
|
|
(7,565
|
)
|
Intangible assets, net
|
|
$
|
24,066
|
|
|
$
|
25,143
|
|
The gross amount of the intangible assets
amounted to $33.1 million and $32.7 million as of December 31, 2012 and 2011, respectively. The remaining weighted average amortization
period is 34.4 years as of December 31, 2012.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total amortization expense for the years
ended December 31, 2012 and 2011 amounted to $1.2 million and $1.1 million, respectively.
Total depletion expense for the years ended
December 31, 2012 and 2011 amounted to $0.2 million and $0.8 million, respectively.
The estimated aggregate amortization and
depletion expenses for each of the five succeeding years is as follows:
Year ending
|
|
Estimated
amortization and
depletion expenses
|
|
|
Gross carrying
amount
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
December 31, 2013
|
|
$
|
1,353
|
|
|
|
22,713
|
|
December 31, 2014
|
|
|
1,353
|
|
|
|
21,360
|
|
December 31, 2015
|
|
|
1,353
|
|
|
|
20,007
|
|
December 31, 2016
|
|
|
1,353
|
|
|
|
18,654
|
|
December 31, 2017
|
|
|
1,353
|
|
|
|
17,301
|
|
Thereafter
|
|
|
17,301
|
|
|
|
-
|
|
Total
|
|
$
|
24,066
|
|
|
|
|
|
Note 9 – Debt
Short-term notes payable
Short-term notes payable are lines of credit
extended by banks. Banks in turn issue the Company a bank acceptance note, which can be endorsed and assigned to vendors as payments
for purchases. The notes payable are generally payable within three to six months. This short-term note payable is guaranteed by
the bank for its complete face value. The banks do not charge interest on these notes, but usually charge a transaction fee of
0.05% of the notes’ value. In addition, the banks usually require the Company to deposit either a certain amount of cash
at the bank as a guarantee deposit, which is classified on the balance sheet as restricted cash, or provide notes receivable as
security, which are classified on the balance sheet as restricted notes receivable. Restricted cash as a guarantee for the notes
payable amounted to $322.7 million and $363.3 million as of December 31, 2012 and 2011, respectively. Restricted notes receivable
as a guarantee for the notes payable amounted to $345.8 million and $451.1 million as of December 31, 2012 and 2011, respectively.
The Company had the following short-term
notes payable as of:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
General Steel (China): Notes payable to China Minsheng Bank, due February 2013. Restricted cash required of $6.3 million and $7.9 million as of December 31, 2012 and 2011, respectively; guaranteed by third parties. These notes payable were either repaid or renewed subsequently on the due dates.
|
|
$
|
12,696
|
|
|
$
|
7,934
|
|
Longmen Joint Venture: Notes payable to various banks in China, due various dates from January 2013 to June 2013. $316.4 million restricted cash and $345.8 million notes receivable are secured for notes payable as of December 31, 2012, and comparatively $355.4 restricted cash and $451.1 million notes receivable secured as of December 31, 2011, respectively. These notes payable were either repaid or renewed subsequently on the due dates.
|
|
|
971,117
|
|
|
|
1,105,570
|
|
Total short-term notes payable
|
|
$
|
983,813
|
|
|
$
|
1,113,504
|
|
Short-term loans
Short-term loans represent amounts due
to various banks, other companies and individuals, including related parties, normally due within one year. The principal of the
loans are due at maturity but can be renewed at the bank’s option. Accrued interest is due either monthly or quarterly.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Short term loans due to banks, related
parties and other parties consisted of the following as of:
Due to banks
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
General Steel (China): Loans from various banks in China, due various dates from February to December 2013. Weighted average interest rate was 7.6% per annum; some are guaranteed by third parties while others are secured by equipment and inventory. These loans were either repaid or renewed subsequently on the due dates.
|
|
$
|
32,189
|
|
|
$
|
43,149
|
|
Longmen Joint Venture: Loans from various banks in China, due various dates from January 2013 to December 2013. Weighted average interest rate was 6.8% per annum; some are guaranteed by third parties, restricted cash or notes receivables while others are secured by inventory. These loans were either repaid or renewed subsequently on the due dates.
|
|
|
114,935
|
|
|
|
209,234
|
|
Tianwu: Loans from Industrial and Commercial Bank of China Limited, due date various from June to December 2012. Interest rate was 10% additional to standard bank interest rate, and secured by accounts receivables. These loans were either repaid on the due dates.
|
|
|
-
|
|
|
|
1,571
|
|
Total short-term loans - bank
|
|
$
|
147,124
|
|
|
$
|
253,954
|
|
As of December 31, 2012 and 2011, the Company
has not met its financial covenant stipulated by certain loan agreements related to the Company’s debt to asset ratio. Based
on the financial covenant, the Company should keep its debt to asset ratio below 85%, however, as of December 31, 2012 and 2011,
the Company's debt to asset ratio was 116.4% and 105.4%, respectively.
Furthermore, the Company is a party to
a loan agreement with a cross default clause whereby any breach of loan covenants will automatically result in default of the loan.
The outstanding balances of the short term loans affected by the above breach of covenant and cross default as of December 31,
2012 and 2011 were $12.7 million and $12.6 million, respectively. According to the Company’s short term loan agreements,
the banks have the rights to request for more collateral or additional guarantees if the breach of covenant is not remedied or
request early repayment of the loan if the Company does not cure such breach within a certain period of time. As of the date of
this report, the Company has not received any notice from the banks to request more collateral, additional guarantees or early
repayment of the short term loans due to the breach of covenant.
Due to unrelated parties
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Longmen Joint Venture: Loans from various unrelated companies and individuals, due various dates from March 2013 to June 2013, and weighted average interest rate was 6.0% per annum. These loans were either repaid or renewed subsequently on the due dates.
|
|
$
|
25,324
|
|
|
$
|
143,102
|
|
Longmen Joint Venture: Loans from financing sales.
|
|
|
115,966
|
|
|
|
97,583
|
|
Maoming Hengda: Loans from one unrelated parties and one related party, due on demand, non-interest bearing.
|
|
|
6,033
|
|
|
|
5,972
|
|
Total short-term loans – others
|
|
$
|
147,323
|
|
|
$
|
246,657
|
|
The Company had various loans from unrelated
companies amounting to $147.3 million and $246.7 million as of December 31, 2012 and 2011, respectively. Of the $147.3 million,
$6.0 million loans carry no interest, $116.0 million of financing sales are subject to interest rates ranging between 0.3% and
2.4%, and the remaining $25.3 million are subject to interest rates of 5.04%. All short term loans from unrelated companies are
payable on demand and unsecured.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As part of its working capital management,
Longmen Joint Venture has entered into a number of sale and purchase back contracts with third party companies and Yuxin and Yuteng.
According to these contracts, Longmen Joint Venture sells rebar to the third party companies at a certain price, and within the
same month, Yuxin and Yuteng will purchase back the rebar from the third party companies at a price of 0.3% to 2.4% higher than
the original selling price from Longmen Joint Venture. Based on the contract terms, Longmen Joint Venture is paid in advance for
the rebar sold to the third party companies and Yuxin and Yuteng are given a credit period of several months to one year from the
third party companies. There is no physical movement of the inventory during the sale and purchase back arrangement. The margin
of 0.3% to 2.4% is determined by reference to the bank loan interest rates at the time when the contracts are entered into, plus
an estimated premium based on the financing sale amount, which represents the interest charged by the third party companies for
financing Longmen Joint Venture through the above sale and purchase back arrangement. The revenue and cost of goods sold arising
from the above transactions are eliminated and the incremental amounts paid by Yuxin and Yuteng to purchase back the goods are
treated as financing costs in the consolidated financial statements.
Total financing sales for the years ended
December 31, 2012 and 2011 amounted to $1.0 billion and $1.0 billion, respectively, which are eliminated in the Company’s
consolidated financial statements. The financial cost related to financing sales for the years ended December 31, 2012 and 2011,
accounted to $9.2 million and $10.7 million, respectively.
Short term loans due to related parties
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Longmen Joint Venture: Loans from Tianjin Hengying Trading Co., Ltd, due in April 2012, and interest rate was 5.2% per annum. This loan was repaid subsequently on the due date.
|
|
$
|
-
|
|
|
$
|
15,710
|
|
Baotou Steel: Loans from Tianjin Hengying Trading Co., Ltd, due on demand, and interest rates is 10% per annum.
|
|
|
4,133
|
|
|
|
-
|
|
General Steel China:Loans from Tianjin Hengying Trading Co., Ltd., due on demand, and interest rates is 10% per annum.
|
|
|
15,416
|
|
|
|
-
|
|
General Steel China:Loans from Tianjin Dazhan Industry Co, Ltd., due on demand, and interest rates is 10% per annum.
|
|
|
21,397
|
|
|
|
-
|
|
General Steel China:Loans from Beijing Shenhua Xinyuan Metal Materials Co., Ltd., due on demand, and interest rates is 10% per annum.
|
|
|
1,359
|
|
|
|
-
|
|
General Steel China:Loans from Yangpu Capital Automobile, due on demand, and interest rates is 10% per annum.
|
|
|
1,413
|
|
|
|
-
|
|
Longmen Joint Venture: Loans from financing sales.
|
|
|
35,839
|
|
|
|
-
|
|
Total short-term loans - related parties
|
|
$
|
79,557
|
|
|
$
|
15,710
|
|
Long-term loans due to related party
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Longmen Joint Venture: Loans from Shaanxi Steel Group, due various dates from July 2013 to November 2015 and interest rates are 5.6% - 5.9% per annum
|
|
$
|
92,973
|
|
|
$
|
92,035
|
|
Current maturities of long-term loans – related party
|
|
|
54,885
|
|
|
|
-
|
|
Long-term loans - related party
|
|
$
|
38,088
|
|
|
$
|
92,035
|
|
As of December 31, 2012, the total assets
used by the Company as collateral were $60.4 million for the aforementioned debts.
Total interest expense, net of capitalized
interest, amounted to $86.2 million and $80.7 million for the years ended December 31, 2012 and 2011, respectively.
Capitalized interest amounted to $0.7 million
and $3.0 million for the years ended December 31, 2012 and 2011, respectively.
Note 10 – Customer deposits
As of December 31, 2012 and 2011, customer
deposits amounted to $147.9 million and $158.8 million, respectively, including deposits received from relate parties, which amounted
to $22.0 million and $68.3 million, respectively.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Deposits due to sales
representatives
Longmen Joint Venture entered into agreements
with various entities to act as the Company’s exclusive sales agent in a specified geographic area. These exclusive
sales agents must meet certain criteria and are required to deposit a certain amount of money with the Company. In return the sales
agents receive exclusive sales rights in a specified area and at discounted prices on products they order. These deposits bear
no interest and are required to be returned to the sales agent once the agreement is terminated. The agreement is normally entered/or
renewed on an annual basis. Termination of the agreement can be mutually agreed to by both parties at any time. The Company had
$35.1 million and $23.8 million in deposits due to sales representatives, including deposits due to related parties, as of December
31, 2012 and 2011, respectively.
Note 12 – Convertible notes and derivative liabilities
The Company has 3,900,871 warrants outstanding
in connection with the $40 million convertible notes issued in 2007, which expire on May 13, 2013 and 2,777,778 warrants outstanding
in connection with a registered direct offering in 2009, which expired on June 24, 2012. The aforementioned warrants met the definition
of a derivative instrument in the accounting standards and are recorded at their fair value on each reporting date. The change
in the value of the derivative liabilities is charged against or credited to income each period.
The fair value of the warrants as of December
31, 2012 was calculated using the Cox Rubenstein Binomial model based on the following variables:
|
|
2007 Warrants
|
|
Expected volatility
|
|
|
86
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
0.08
|
%
|
Expected lives
|
|
|
0.36 years
|
|
Market price
|
|
$
|
0.99
|
|
Strike price
|
|
$
|
5.00
|
|
The fair value of the warrants as of December
31, 2011 was calculated using the Cox Rubenstein Binomial model based on the following variables:
|
|
2007 Warrants
|
|
|
2009 Warrants
|
|
Expected volatility
|
|
|
55
|
%
|
|
|
50
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free interest rate
|
|
|
0.17
|
%
|
|
|
0.24
|
%
|
Expected lives
|
|
|
1.37 years
|
|
|
|
0.48 years
|
|
Market price
|
|
$
|
0.99
|
|
|
$
|
0.99
|
|
Strike price
|
|
$
|
5.00
|
|
|
$
|
5.00
|
|
As of December 31, 2012 and 2011, derivative liabilities, which
were included in other payables and accrued liabilities in the consolidated balance sheets, amounted to $1.0 thousand and $10.2
thousand, respectively.
The Company has the following warrants outstanding:
Outstanding as of December 31, 2011
|
|
|
6,678,649
|
|
Granted
|
|
|
-
|
|
Forfeited / expired
|
|
|
(2,777,778
|
)
|
Exercised
|
|
|
-
|
|
Outstanding as of December 31, 2012
|
|
|
3,900,871
|
|
|
|
Exercise Price
|
|
|
Quantity
|
|
|
Remaining Contractual
Life
(Years)
|
|
Outstanding and exercisable warrants issued in 2007
|
|
$
|
5.00
|
|
|
|
3,900,871
|
|
|
|
0.36
|
|
Note 13 - Supplemental disclosure of
cash flow information
Interest paid, net of capitalized, amounted
to $22.7 million and $22.5 million for the years ended December 31, 2012 and 2011, respectively.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company paid income tax amounted to $0.6 million
and $0.8 million for the years ended December 31, 2012 and 2011, respectively.
During the year ended December 31, 2012,
one of the Company’s unconsolidated entities declared dividend and the Company was entitled for the dividend amounted to
$0.1 million, which was not yet collected.
During the year ended December 31, 2012,
the Company sold its 22.76% equity interest of Tongxing at the carrying value of $8.0 million to two individuals who are representatives
from Long Steel Group, a related party. In connection with this transaction, the Company received a land use rights from Tongxing
at carrying value for $3.6 million and settled with a payable in cash of $0.3 million that the Company has not been paid. In addition,
the Company determined that dividend receivables of $0.9 million will be transferred to the two individuals and will not be collected
from Tongxing after these transactions.
During the year ended December 31, 2012,
the Company had receivables of $1.4 million as a result from the disposal of equipment that has not been collected.
During the year ended December 31, 2012,
the Company converted $0.4 million of equipment into inventory productions.
During the year ended December 31, 2012,
the Company converted $48.0 million of our accounts payable and other payables from our related parties to short term loans upon
the execution of the loan agreements.
During the year ended December 31, 2012,
the Company offset $43.6 million advance on inventory purchases to related parties as short-term loan repayments.
The Company capitalized all the fixed assets
constructed by Shaanxi Steel for a price of $587.3 million through a 20 year capital lease starting from April 29, 2011 upon the
inception of the Unified Management Agreement. See Note 15 – “ Capital lease obligations”.
During the year ended December 31, 2011,
the Company recognized $13.8 million of lease income in related to other receivables – related parties that have not been
collected.
During the year ended December 31, 2011,
the Company issued 974,571 shares of common stock for repayment of debt of $4.8 million.
On April 30, 2011, a share transfer agreement
was signed with the Labor Union Trust of Shaanxi Long Steel Group, transferring Tongxing’s 20.7% share of Shaanxi Xinglong
(“Xinglong”) Theromoelectric Co., Ltd. to the Labor Union Trust of Shaanxi Long Steel Group for $11.3 million on April
30, 2011. This transaction resulted in gain of $1.4 million, which is included in “Income from equity investments”
in the consolidated statements of operations and comprehensive loss. As of December 31, 2011, the unpaid amount of $11.4 million
was included in the other receivable – related parties.
Note 14 - Deferred lease income
To compensate the Group for costs and economic
losses incurred during construction of the new iron and steel making facilities owned by Shaanxi Steel, Shaanxi Steel reimbursed
Longmen Joint Venture $11.1 million (RMB 70.1 million) in the fourth quarter of 2010 for the value of assets dismantled and rent
under a 40-year property sub-lease that was entered into by the parties in June 2009 (the “Longmen Sub-lease”), and
$29.1 million (RMB 183.1 million) for the reduced production efficiency caused by the construction. In addition, in 2010 and 2011,
Shaanxi Steel reimbursed Longmen Joint Venture $14.2 million (RMB 89.5 million) and $14.2 million (RMB 89.3 million), respectively,
for trial production costs related to the new equipment.
During the period from June 2010 to March
2011, as construction progressed and certain of the assets came online, Longmen Joint Venture used the assets free of charge to
produce saleable units of steel products during this period. As such, the cost of using these assets and therefore the fair value
of the free rent received was imputed with reference to what the depreciation charge would have been on these assets had they been
owned or under capital lease to Longmen Joint Venture during the free use period. This cost of $7.0 million (RMB 43.9 million)
each year were deferred and will be recognized over the term of the land sub-lease similar to the other charges and credits related
to the construction of these assets.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The deferred lease income is amortized
to income over the remaining term of the 40-year land sub-lease. For the years ended December 31, 2012 and 2011, the Company recognized
$2.1 million and $2.0 million, respectively. As of December 31, 2012 and 2011, the balance of deferred lease income amounted to
$77.2 million and $78.5 million, respectively, of which $2.1 million and $2.1 million represents balance to be amortized within
one year.
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
78,524
|
|
|
$
|
57,591
|
|
Add: Reimbursement for trial production cost
|
|
|
-
|
|
|
|
14,042
|
|
Add: Deferred depreciation cost during free use period
|
|
|
-
|
|
|
|
6,904
|
|
Less: Lease income realized
|
|
|
(2,119
|
)
|
|
|
(2,008
|
)
|
Exchange rate effect
|
|
|
794
|
|
|
|
1,995
|
|
Ending balance
|
|
|
77,199
|
|
|
|
78,524
|
|
Current portion
|
|
|
(2,120
|
)
|
|
|
(2,099
|
)
|
Noncurrent portion
|
|
$
|
75,079
|
|
|
$
|
76,425
|
|
Note 15 - Capital lease obligations
On April 29, 2011, the Company’s
subsidiary, Longmen Joint Venture entered into a Unified Management Agreement with Shaanxi Steel and Shaanxi Coal under which Longmen
Joint Venture uses new iron and steel making facilities including one sintering machine, two converters, two blast furnaces and
other auxiliary systems constructed by Shaanxi Steel. As the 20-year term of the agreement exceeds 75% of the assets’ useful
lives, this arrangement is accounted for as a capital lease. The ongoing lease payments are comprised of two elements: (1) a monthly
payment based on Shaanxi Steel’s cost to construct the assets of $2.3 million (RMB14.6 million) to be paid over the term
of the Unified Management Agreement of 20 years and (2) 40% of any remaining pre-tax profits from the Asset Pool which includes
Longmen Joint Venture and the newly constructed iron and steel making facilities. In October 2012, Shaanxi Steel agreed that it
will not demand capital lease payment from Longmen Joint Venture until October 2014. The profit sharing component does not meet
the definition of contingent rent because it is based on future revenue and is therefore considered part of the financing for the
capital leased assets which is related to the Unified Management Agreement. For purposes of determining the value of the leased
asset and obligation at the inception of the lease, the lease liability is then reduced by the value of the profit sharing component,
which is recognized as a separate financial liability carried at fair value. See Note 16 – “Profit sharing liability”.
Presented below is a schedule of estimated
minimum lease payments on the capital lease obligation as well as payments for the profit sharing liability for the next five years
as of December 31, 2012:
Year ending
|
|
Capital Lease Obligation
Minimum Lease Payments
|
|
|
Capital Lease Obligation
Profit (Loss) Sharing
|
|
|
Total
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
December 31, 2013
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
December 31, 2014
|
|
|
102,294
|
|
|
|
-
|
|
|
|
102,294
|
|
December 31, 2015
|
|
|
27,898
|
|
|
|
-
|
|
|
|
27,898
|
|
December 31, 2016
|
|
|
27,898
|
|
|
|
-
|
|
|
|
27,898
|
|
December 31, 2017
|
|
|
27,898
|
|
|
|
-
|
|
|
|
27,898
|
|
Thereafter
|
|
|
371,979
|
|
|
|
862,856
|
|
|
|
1,234,835
|
|
Total minimum lease payments
|
|
|
557,967
|
|
|
|
862,856
|
|
|
|
1,420,823
|
|
Less:
amounts
representing interest
|
|
|
(227,868
|
)
|
|
|
(534,029
|
)
|
|
|
(761,897
|
)
|
Ending balance
|
|
$
|
330,099
|
|
|
$
|
328,827
|
|
|
$
|
658,926
|
|
Longmen Joint Venture does not expect to
make payments on the profit sharing payment until year 2021 when Longmen Joint Venture will start to generating accumulated profit
after recovering from the previous years’ losses.
Interest expense for the years ended December
31, 2012 and 2011 on the minimum lease payments were $20.6 million and $27.7 million, respectively.
Interest expense for the years ended December
31, 2012 and 2011 on the profit sharing liability were $22.5 million and $18.4 million, respectively.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 –
Profit sharing liability
The profit sharing liability is recognized
initially at its estimated fair value at the lease commencement date and included in the initial measurement and recognition of
the capital lease in addition to the fixed payment component of the minimum lease payments. Subsequently, this financial instrument
is accounted for separately from the lease accounting (Note 15 - “Capital lease obligations”). The initial fair value
of the expected payments under the profit sharing component of the Unified Management Agreement is amortized over the term of the
agreement using the effective interest method. The value of the profit sharing liability will be reassessed each reporting period
with any change in fair value accounted for on a prospective basis. Refer to Note 1(h) – “Financial instruments”
for details.
Based on the performance of the Asset Pool,
no profit sharing payment was made for the years ended December 31, 2012. Payments to Shaanxi Steel for the profit sharing are
made based on net cumulative profits.
Note 17 – Other income (expense)
Gain on debt settlement
On June 16, 2011, the Company and Maoming
Hengda entered into a Debt Repayment Agreement with Guangzhou Hengda Industrial Group Ltd. (“Guangzhou Hengda”), an
unrelated party, and its sole shareholder Ms Ding Yumei whereby the Company issued 974,571 shares of its common stock (the “Shares”)
to Ms Ding Yumei, the designee and sole shareholder of Guangzhou Hengda, to partially repay the outstanding balance due to Guangzhou
Hengda by $4.8 million. The Company recorded paid-in-capital based on the market price of its common stock on the date of debt
settlement at $1.48 per share, totaling $1.4 million and a gain from debt settlement totaling $3.4 million for the year ended December
31, 2011, respectively, which was the difference between the amount of debt extinguished and the fair value of the Shares issued
in the settlement.
Government grant
On June 14, 2012 and December 31, 2012,
the Company received government grants totaling $2.3 million (RMB 14.2 million) from the local government as economic development
incentive for building material manufacturers, such as steel rebar and cement.
Realized income from future contracts
In May 2011, the Company entered a forward
contract with one unrelated party to minimize the economic impact of price fluctuations of steel rebar. The contract was not material
and only represent less than 1% of the Company’s anticipated rebar sales in 2011. The Company has not designated the derivative
as a hedging instrument, and, as such, includes the realized gain or loss in other income (expense). For the year ended December
31, 2011, the Company realized $0.4 million gain on these contracts. There was no cash deposit held in the brokerage account and
no trading financial assets and no open contracts held as of December 31, 2011. There are no required minimum investment amount
and no specific contract period requirement on this future brokerage contract. The contract amount may be withdrawn at any time.
Lease income
The deferred lease income from the reimbursement
from Shaanxi Steel for the net book value of the fixed assets that were demolished and for the inefficiency costs caused by the
construction and loss incurred in the beginning stages of the system production is amortized to income over the remaining sub-lease
term. For the years ended December 31, 2012 and 2011, the Company recognized lease income of $2.1 million and $2.0 million, respectively.
Note 18 – Taxes
Income tax
Significant components of the provision
for income taxes on earnings and deferred taxes on net operating losses from operations for the years ended December 31, 2012 and
2011 are as follows:
(In thousands)
|
|
For the years ended
December 31, 2012
|
|
|
For the years ended
December 31, 2011
|
|
Current
|
|
$
|
627
|
|
|
$
|
175
|
|
Deferred
|
|
|
169
|
|
|
|
15,419
|
|
Total provision (benefit) for income taxes
|
|
$
|
796
|
|
|
$
|
15,594
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the Income Tax Laws of the PRC, General
Steel (China), Baotou Steel Pipe Joint Venture (located in Inner Mongolia province), Maoming Hengda (located in Guangdong province)
and Tianwu Joint Venture (located in Tianjin Port Free Trade Zone) are subject to income tax at a rate of 25%.
Longmen Joint Venture is located in the
Mid-West region of China and as such, qualifies for the “Go-West” tax rate of 15% promulgated by the government. In
2010, the Chinese government announced that the “Go-West” tax initiative would be extended for 10 years, and thus,
the preferential tax rate of 15% will be in effect until 2020. This special tax treatment for Longmen Joint Venture will be evaluated
on a year-to-year basis by the local tax bureau.
The following table reconciles the U.S.
statutory rates to the Company’s effective tax rate for the years ended December 31, 2012 and 2011 are as follows:
|
|
December 31,2012
|
|
|
December 31,2011
|
|
|
|
|
|
|
|
|
U.S. Statutory rates
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
Foreign income not recognized in the U.S.
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
China income
tax rate
|
|
|
25.0
|
%
|
|
|
25.0
|
%
|
Effect of tax rate differential of subsidiaries/VIE
|
|
|
(8.3
|
)%
|
|
|
(9.7
|
)%
|
Effect of change in
deferred tax assets valuation allowance
|
|
|
(10.9
|
)%
|
|
|
(17.5
|
)%
|
Effect of permanent differences
|
|
|
(6.1
|
)%
|
|
|
(3.6
|
)%
|
Total provision for income taxes**
|
|
|
(0.3
|
)%
|
|
|
(5.8
|
)%
|
**The negative effective tax rates for
the years ended December 31, 2012 and 2011
were mainly due to a consolidated loss before income tax while we provided 100%
valuation allowance for the deferred tax assets at subsidiaries with losses and incurred income tax expenses in our profitable
subsidiaries.
Deferred taxes assets – China
According to Chinese tax regulations, net
operating losses can be carried forward to offset operating income for the next five years. The Group’s losses carried forward
of $345.7 million will begin to expire in 2014. Originally, management believed the deferred tax asset is fully realizable. After
the filing of the 2010 Form 10-K/A, management reevaluated the Company’s future operating forecast based on the current steel
market condition. The Chinese government recently announced several policies to curb the real estate price increases across the
country which led to a slowdown in demand for construction steel products. Additionally due to the continued global economic slowdown
and the overcapacity issues in China’s steel market, management expected there would be a sustained increase in margin pressure
in the next five years until all the existing but outdated steel capacity across the whole industry are eliminated. Management
took into consideration this potential negative impact on average selling price and gross margin of its products, re-performed
an operating forecast for the next five years and concluded that the beginning-of-the-year balance of deferred tax assets mainly
relating to the net operating loss carry forward may not be fully realizable due to the reduction in the projection of income to
be available in the next 5 years. Management therefore decided to provide 100% valuation allowance for the deferred tax assets.
The valuation allowance as of December 31, 2012 and 2011 was $72.9 million and $47.7 million, respectively. Management will review
this valuation allowance periodically and make adjustments as warranted. Temporary differences, representing tax and book differences
in various items, such as receivable allowances, inventory allowances, impairments on fixed assets and deferred lease income, have
been reclassified from the net operating losses carried forward for the year ended December 31, 2011 to conform with the 2012 presentation.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The movement of the deferred income tax assets arising from
carried forward losses is as follows:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
167
|
(A)
|
|
$
|
15,301
|
(A)
|
(Tax assets realized) net operating losses carried forward
for subsidiaries subject to a 25% tax rate
|
|
|
2,484
|
|
|
|
912
|
|
Effective tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Addition in deferred tax asset
|
|
|
621
|
(B)
|
|
|
228
|
(B)
|
Net operating losses carried forward for Longmen Joint
Venture and subsidiaries subject to a 15% tax rate
|
|
|
95,453
|
|
|
|
143,180
|
|
Effective tax rate
|
|
|
15
|
%
|
|
|
15
|
%
|
Addition in deferred tax asset
|
|
|
14,318
|
(C)
|
|
|
21,477
|
(C)
|
Temporary difference carried forward for subsidiaries subject to a 25% tax rate
|
|
|
22,427
|
|
|
|
6,112
|
|
Effective tax rate
|
|
|
25
|
%
|
|
|
25
|
%
|
Addition (deduction) in deferred tax asset
|
|
|
5,607
|
(D)
|
|
|
1,528
|
(D)
|
Temporary difference carried forward for subsidiaries subject to a 15% tax rate
|
|
|
29,836
|
|
|
|
58,611
|
|
Effective tax rate
|
|
|
15
|
%
|
|
|
15
|
%
|
Addition (deduction) in deferred tax asset
|
|
|
4,475
|
(E)
|
|
|
8,792
|
(E)
|
(Addition) reversal in valuation allowance
|
|
|
(25,180
|
)(F)
|
|
|
(46,914
|
)(F)
|
Deconsolidation of Tongxing
|
|
|
(216
|
)(G)
|
|
|
-
|
(G)
|
Exchange difference
|
|
|
208
|
(H)
|
|
|
(245
|
)(H)
|
Total (A+B+C+D+E+F+G+H)
|
|
$
|
-
|
|
|
$
|
167
|
|
Movement of valuation allowance:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
47,703
|
|
|
$
|
-
|
|
Current period addition
|
|
|
25,180
|
|
|
|
46,914
|
|
Current period reversal
|
|
|
-
|
|
|
|
-
|
|
Deconsolidation of Tongxing
|
|
|
(216
|
)
|
|
|
-
|
|
Exchange difference
|
|
|
224
|
|
|
|
789
|
|
Ending balance
|
|
$
|
72,891
|
|
|
$
|
47,703
|
|
Deferred taxes assets – U.S.
General Steel Holdings, Inc. was incorporated
in the United States and has incurred net operating losses for income tax purposes for the year ended December 31, 2012. The net
operating loss carry forwards for United States income taxes amounted to $1.4 million, which may be available to reduce future
years’ taxable income. These carry forwards will expire, if not utilized, through 2031. Management believes that the realization
of the benefits from these losses appears uncertain due to the Company’s limited operating history and continuing losses
for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset
benefit to reduce the asset to zero. The valuation allowances as of December 31, 2012 and 2011were $0.5 million and $0.6 million,
respectively. The net change in the valuation allowance for the years ended December 31, 2012 and 2011 was $0.1 million and $0.2
million. Management will review this valuation allowance periodically and make adjustments as warranted.
The Company has cumulative proportionate
retained earnings from profitable subsidiaries of approximately $83.5 thousand and $0.7 million as of December 31, 2012 and 2011,
respectively. Accordingly, no provision has been made for U.S. deferred taxes related to future repatriation of these earnings,
nor is it practicable to estimate the amount of income taxes that would have to be provided if we concluded that such earnings
will be remitted in the future.
Value added tax
Enterprises or individuals who sell commodities,
engage in repair and maintenance or import and export goods in the PRC are subject to a value added tax in accordance with PRC
laws. The value added tax (“VAT”) standard rates are 13% to 17% of the gross sales price. A credit is available whereby
VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products
can be used to offset the VAT due on sales of the finished product. As of December 31, 2012 and 2011, the Company had $4.2 million
and $5.8 million, respectively, in value added tax credit which are available to offset future VAT payables.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Sales and purchases are recorded net of
VAT collected and paid as the Company acts as an agent for the government for VAT collection. VAT on sales and VAT on purchases
amounted to $812.4 million and $985.9 million, respectively, for the year ended December 31, 2012, $771.4 million and $519.0 million,
respectively, for the year ended December 31, 2011.
Taxes payable consisted of the following:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
VAT taxes payable
|
|
$
|
13,579
|
|
|
$
|
4,856
|
|
Income taxes payable
|
|
|
68
|
|
|
|
96
|
|
Misc. taxes
|
|
|
3,027
|
|
|
|
6,422
|
|
Totals
|
|
$
|
16,674
|
|
|
$
|
11,374
|
|
Note 19 – Loss per share
The computation of loss per share is as
follows:
(in thousands,
except per share data)
|
|
For the year ended
December 31, 2012
|
|
|
For the year ended
December 31, 2011
|
|
Loss attributable to holders of common stock
|
|
$
|
(152,697
|
)
|
|
$
|
(177,187
|
)
|
Basic and diluted weighted average number of common shares outstanding
|
|
|
54,867
|
|
|
|
54,750
|
|
Loss per share
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(2.78
|
)
|
|
$
|
(3.24
|
)
|
The Company had warrants exercisable for
3,900,871 and 6,678,649 shares of the Company’s common stock at December 31, 2012 and 2011, respectively. For the years ended
December 31, 2012 and 2011, all outstanding warrants were excluded from the diluted earnings per share calculation since they are
anti-dilutive.
Other than the aforementioned potentially
dilutive securities, there were no other potentially dilutive securities outstanding for the years ended December 31, 2012 and
2011.
Note 20 – Related party transactions and balances
Related party transactions
As disclosed in Notes 15 – “Capital
lease obligations”, Longmen Joint Venture entered into a capital lease arrangement on April 29, 2011, with Shaanxi Coal and
Shaanxi Steel, which are related parties of the Group. The following is an analysis of the leased assets under the capital lease:
|
|
Balance at December 31,
2012
|
|
|
|
(in thousands)
|
|
Machinery
|
|
$
|
587,334
|
|
Less: accumulated depreciation
|
|
|
(46,497
|
)
|
Carrying value of leased assets
|
|
$
|
540,837
|
|
b. On January 1, 2010, General Steel (China),
entered into a lease agreement with Tianjin Daqiuzhuang Steel Plates Co., Ltd. (the “Lessee”), whereby General Steel
(China) leases its facility located at No. 1, Tonga Street, Daqiuzhuang Town, Jinghai County, Tianjin City to the Lessee (the “Lease
Agreement”). The Lease Agreement provides approximately 776,078 square feet of workshops, land, equipment and other facilities
amounting to $34.2 million (RMB 215.8 million) to the Lessee and allows the Company to reduce overhead costs while providing a
recurring monthly income stream resulting from payments due under the lease. The term of the Lease Agreement was from January 1,
2010 to December 31, 2011 and the monthly base rental rate due to General Steel (China) was approximately $0.2 million (RMB 1.7
million). On July 28, 2011, General Steel (China) (lessor) signed a supplemental agreement with the lessee to extend the lease
for an additional five years to December 31, 2016. However, due to current steel market conditions, the lessee informed the Company
that they did not intend to extend the lease at June 30, 2012 and had terminated the supplemental agreement early. There is no
penalty for early termination.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2012 and
2011, General Steel (China) realized rental income $1.6 million and $3.1 million, respectively, which has been included in “other
non-operating income (expense), net” in the consolidated statements of operations and comprehensive loss.
c. The following chart summarized sales to related parties for
the years ended December 31, 2012 and 2011.
Name of related parties
|
|
Relationship
|
|
For the year ended
December 31, 2012
|
|
|
For the year ended
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
$
|
438,951
|
|
|
$
|
337,359
|
|
Tianjin Hengying Trading Co., Ltd
|
|
Partially owned by CEO* through indirect shareholding
|
|
|
5,953
|
|
|
|
94,984
|
|
Tianjin Dazhan Industry Co, Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
-
|
|
|
|
76,130
|
|
Sichuan Yutai Trading Co., Ltd
|
|
Significant influence by Long Steel Group**
|
|
|
147,968
|
|
|
|
187,689
|
|
Shaanxi Yuchang Trading Co., Ltd
|
|
Significant influence by Long Steel Group
|
|
|
92,724
|
|
|
|
160,422
|
|
Shaanxi Haiyan Trade Co.,Ltd
|
|
Significant influence by Long Steel Group
|
|
|
46,998
|
|
|
|
58,299
|
|
Shaanxi Shenganda Trading Co., Ltd
|
|
Significant influence by Long Steel Group
|
|
|
53,866
|
|
|
|
37,432
|
|
Tianjin General Qiugang Pipe Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
-
|
|
|
|
20,014
|
|
Shaanxi Steel
|
|
Majority shareholder of Long Steel Group
|
|
|
3,332
|
|
|
|
19,735
|
|
Shaanxi Coal and Chemical Industry Group Co., Ltd.
|
|
Shareholder of Shaanxi Steel
|
|
|
24,515
|
|
|
|
-
|
|
Shaanxi Long Steel Group Baoji Steel Rolling Co., Ltd
|
|
Subsidiary of Long Steel Group
|
|
|
35,542
|
|
|
|
69,872
|
|
Shaanxi Junlong Rolling Co., Ltd
|
|
Investee of Long Steel Group
|
|
|
47,110
|
|
|
|
48,991
|
|
Others
|
|
Entities either owned or have significant influence by our affiliates or management
|
|
|
243
|
|
|
|
842
|
|
Total
|
|
|
|
$
|
897,202
|
|
|
$
|
1,111,769
|
|
*The CEO is referred to herein
as the chief executive officer of General Steel Holdings, Inc.
**Long Steel Group has the ability
to significantly influence the operating and financial decisions of the entity through equity ownership either directly or through
key employees, commercial contractual terms, or the ability to assign management personnel.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
d. The following charts summarize purchases from related
parties for the years ended December 31, 2012 and 2011.
Name of related parties
|
|
Relationship
|
|
For the year ended
December 31, 2012
|
|
|
For the year ended
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
$
|
483,058
|
|
|
$
|
913,850
|
|
Tianjin Hengying Trading Co., Ltd.
|
|
Partially owned by CEO through indirect
shareholding
|
|
|
43,160
|
|
|
|
-
|
|
Tianjin General Qiugang Pipe Co., Ltd.
|
|
Partially owned by CEO through indirect shareholding
|
|
|
6,933
|
|
|
|
-
|
|
Hancheng Jinma Coking Co., Ltd
|
|
Investee of Longmen Joint Venture’s subsidiary (unconsolidated)
|
|
|
-
|
|
|
|
4,772
|
|
Hancheng Haiyan Coking Co., Ltd
|
|
Noncontrolling shareholder of Long Steel Group
|
|
|
255,800
|
|
|
|
391,065
|
|
Xi’an Pinghe Metallurgical Raw
|
|
|
|
|
|
|
|
|
|
|
Material Co., Ltd
|
|
Noncontrolling shareholder of Long Steel Group
|
|
|
88,094
|
|
|
|
37,890
|
|
Shaanxi Long Steel Group Baoji
|
|
|
|
|
|
|
|
|
|
|
Steel Rolling Co., Ltd
|
|
Subsidiary of Long Steel Group
|
|
|
6,379
|
|
|
|
19,076
|
|
Shaanxi Junlong Rolling Co., Ltd
|
|
Investee of Long Steel Group
|
|
|
7,334
|
|
|
|
19,110
|
|
Shaanxi Huafu New Energy Co., Ltd
|
|
Significant influence by the Long Steel Group
|
|
|
32,693
|
|
|
|
34,810
|
|
Beijing Daishang Trading Co., Ltd.
|
|
Noncontrolling shareholder of Longmen Joint Venture’s subsidiary
|
|
|
5,400
|
|
|
|
6,509
|
|
Others
|
|
Entities either owned or have significant influence by our affiliates or management
|
|
|
154
|
|
|
|
1,471
|
|
Total
|
|
|
|
$
|
929,005
|
|
|
$
|
1,428,553
|
|
Related party balances
|
a.
|
Loans receivable – related parties:
|
Name of related parties
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
$
|
63,319
|
|
|
$
|
-
|
|
Teamlink Investment Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
6,000
|
|
|
|
-
|
|
Total
|
|
|
|
$
|
69,319
|
|
|
$
|
-
|
|
See Note 3 – loans receivable –
related parties for loan details.
b.
|
Accounts receivables – related parties:
|
Name of related parties
|
|
Relationship
|
|
December 31,
2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
$
|
10,409
|
|
|
$
|
9,187
|
|
Shaanxi Long Steel Group Baoji Steel Rolling Co., Ltd
|
|
Subsidiary of Long Steel Group
|
|
|
2,017
|
|
|
|
3,141
|
|
Hancheng Haiyan Coking Co., Ltd
|
|
Noncontrolling shareholder of Long Steel Group
|
|
|
-
|
|
|
|
303
|
|
Tianjin Daqiuzhuang Steel Plates
|
|
Partially owned by CEO through indirect shareholding
|
|
|
18
|
|
|
|
755
|
|
Shaanxi Steel
|
|
Majority shareholder of Long Steel Group
|
|
|
2,435
|
|
|
|
7,207
|
|
Others
|
|
|
|
|
87
|
|
|
|
-
|
|
Total
|
|
|
|
$
|
14,966
|
|
|
$
|
20,593
|
|
c.
|
Other receivables – related parties:
|
Other receivables - related parties are
those nontrade receivables arising from transactions between the Company and its related parties, such as advances or payments
on behalf of these related parties.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Name of related parties
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
$
|
301
|
|
|
$
|
15,244
|
|
Shaanxi Steel
|
|
Majority shareholder of Long Steel Group
|
|
|
65,981
|
|
|
|
66,869
|
|
Maoming Shengze Trading Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
-
|
|
|
|
937
|
|
Shaanxi Huafu New Energy Co., Ltd
|
|
Significant influence by Long Steel Group
|
|
|
-
|
|
|
|
2,441
|
|
Tianjin General Quigang Pipe Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
1,195
|
|
|
|
-
|
|
Tianjin Dazhan Industry Co, Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
476
|
|
|
|
-
|
|
Teamlink Investment Co., Ltd.
|
|
Owned by CEO through indirect
shareholding
|
|
|
-
|
|
|
|
2,000
|
|
Others
|
|
Entities either owned or have significant influence by our affiliates or management
|
|
|
429
|
|
|
|
188
|
|
Total
|
|
|
|
$
|
68,382
|
|
|
$
|
87,679
|
|
d.
|
Advances on inventory purchase – related parties:
|
Name of related parties
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
$
|
1,367
|
|
|
$
|
1,028
|
|
Tianjin General Qiugang Pipe Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
41,316
|
|
|
|
15,678
|
|
Maoming Shengze Trading Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
3,733
|
|
|
|
3,538
|
|
Total
|
|
|
|
$
|
46,416
|
|
|
$
|
20,244
|
|
e.
|
Accounts payable - related parties:
|
Name of related parties
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Hancheng Haiyan Coking Co., Ltd
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
$
|
58,661
|
|
|
$
|
46,487
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
|
91,511
|
|
|
|
11,231
|
|
Shaanxi Coal and Chemical Industry Group Co., Ltd
|
|
Shareholder of Shaanxi Steel
|
|
|
5,652
|
|
|
|
-
|
|
Tianjin Dazhan Industry Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
3
|
|
|
|
25,511
|
|
Xi’an Pinghe Metallurgical Raw Material Co., Ltd
|
|
Noncontrolling shareholder of Long Steel Group
|
|
|
5,278
|
|
|
|
12,800
|
|
Tianjin Hengying Trading Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
13,919
|
|
|
|
14,856
|
|
Henan Xinmi Kanghua Fire Refractory Co., Ltd
|
|
Noncontrolling shareholder of Longmen Joint Venture’s subsidiary
|
|
|
1,146
|
|
|
|
1,185
|
|
Beijing Daishang Trading Co., Ltd
|
|
Noncontrolling shareholder of Longmen Joint Venture’s subsidiary
|
|
|
875
|
|
|
|
1,600
|
|
Tianjin General Qiugang Pipe Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
52
|
|
|
|
8,034
|
|
Others
|
|
Entities either owned or have significant influence by our affiliates or management
|
|
|
335
|
|
|
|
124
|
|
Total
|
|
|
|
$
|
177,432
|
|
|
$
|
121,828
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
f.
|
Short-term loans - related parties:
|
Name of related parties
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Shaanxi Steel
|
|
Majority shareholder of Long Steel Group
|
|
$
|
35,839
|
|
|
$
|
-
|
|
Tianjin Hengying Trading Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
19,549
|
|
|
|
15,710
|
|
Tianjin Dazhan Industry Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
21,397
|
|
|
|
-
|
|
Beijing Shenhua Xinyuan Metal Materials Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
1,359
|
|
|
|
-
|
|
Yangpu Capital Automobile
|
|
artially owned by CEO through indirect shareholding
|
|
|
1,413
|
|
|
|
-
|
|
Total
|
|
|
|
$
|
79,557
|
|
|
$
|
15,710
|
|
See Note 9 – Debt for the loan details.
|
g.
|
Current maturities of long-term loans – related
party
|
Name of related party
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Shaanxi Steel
|
|
Majority shareholder of Long Steel Group
|
|
$
|
54,885
|
|
|
$
|
-
|
|
Total
|
|
|
|
$
|
54,885
|
|
|
$
|
-
|
|
h.
|
Other payables – related parties:
|
Other payables – related parties
are those nontrade payables arising from transactions between the Company and its related parties, such as advances or payments
from these related parties on behalf of the Group.
Name of related parties
|
|
Relationship
|
|
December 31,
2012
|
|
|
December 31,
2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Tianjin Hengying Trading Co, Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
$
|
2,770
|
|
|
$
|
1,040
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
|
60,180
|
|
|
|
20,001
|
|
Wendlar Investment & Management Group Co., Ltd
|
|
Common control under CEO
|
|
|
836
|
|
|
|
241
|
|
Yangpu Capital Automobile
|
|
Partially owned by CEO through indirect shareholding
|
|
|
141
|
|
|
|
1,398
|
|
Tianjin Daqiuzhuang Steel Plates Co., Ltd.
|
|
Partially owned by CEO through indirect shareholding
|
|
|
-
|
|
|
|
5,771
|
|
Xi’an Pinghe Metallurgical Raw Material Co., Ltd
|
|
Noncontrolling shareholder of Long Steel Group
|
|
|
4,761
|
|
|
|
-
|
|
Tianjin Dazhan Industry Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
3,695
|
|
|
|
-
|
|
Others
|
|
Entities either owned or have significant influence by our affiliates or management
|
|
|
642
|
|
|
|
422
|
|
Total
|
|
|
|
$
|
73,025
|
|
|
$
|
28,873
|
|
i.
|
Customer deposits – related parties:
|
Name of related parties
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Shaanxi Yuchang Trading Co., Ltd
|
|
Significant influence by Long Steel Group
|
|
$
|
4,869
|
|
|
$
|
24,256
|
|
Sichuan Yutai Trading Co., Ltd
|
|
Significant influence by Long Steel Group
|
|
|
2,163
|
|
|
|
5,972
|
|
Tianjin Hengying Trading Co, Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
90
|
|
|
|
1,506
|
|
Tianjin General Qiugang Pipe Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
-
|
|
|
|
9,102
|
|
Long Steel Group
|
|
Noncontrolling shareholder of Longmen Joint Venture
|
|
|
8,864
|
|
|
|
4,755
|
|
Beijing Shenhua Xinyuan Metal
Materials Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
-
|
|
|
|
1,345
|
|
Shaanxi Haiyan Trade Co.,Ltd
|
|
Significant influence by Long Steel Group
|
|
|
-
|
|
|
|
6,822
|
|
Shaanxi Junlong Rolling Co., Ltd
|
|
Investee of Long Steel Group
|
|
|
5,615
|
|
|
|
1,540
|
|
Tianjin Dazhan Industry Co., Ltd
|
|
Partially owned by CEO through indirect shareholding
|
|
|
-
|
|
|
|
11,178
|
|
Shaanxi Shenganda Trading Co., Ltd
|
|
Significant influence by Long Steel Group
|
|
|
353
|
|
|
|
1,750
|
|
Others
|
|
Entities either owned or have significant influence by our affiliates or management
|
|
|
44
|
|
|
|
51
|
|
Total
|
|
|
|
$
|
21,998
|
|
|
$
|
68,277
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
j.
|
Deposits due to sales representatives – related parties
|
Name of related parties
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Hancheng Haiyan Coking Co., Ltd
|
|
Noncontrolling shareholder of Long Steel Group
|
|
$
|
619
|
|
|
$
|
471
|
|
Shaanxi Junlong Rolling Co., Ltd
|
|
Investee of Long Steel Group
|
|
|
619
|
|
|
|
472
|
|
Total
|
|
|
|
$
|
1,238
|
|
|
$
|
943
|
|
|
k.
|
Long-term loans – related party:
|
Name of related party
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Shaanxi Steel
|
|
Majority shareholder of Long Steel Group
|
|
$
|
38,088
|
|
|
$
|
92,035
|
|
Total
|
|
|
|
$
|
38,088
|
|
|
$
|
92,035
|
|
The Company also provided guarantee on
related parties’ bank loans amounting to $118.0 million and $56.6 million as of December 31, 2012 and 2011, respectively.
l. Long-term other payable –
related party:
Long-term other payable – related
party is a nontrade payable arising from a transaction between the Company and its related party, Shaanxi Steel, in which the Company
received an advance from Shaanxi Steel to make payment to a third party for a construction project.
Name of related party
|
|
Relationship
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Shaanxi Steel
|
|
Majority shareholder of Long Steel Group
|
|
$
|
43,008
|
|
|
$
|
-
|
|
Total
|
|
|
|
$
|
43,008
|
|
|
$
|
-
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
78,524
|
|
|
$
|
57,591
|
|
Add: Reimbursement for trial production costs
|
|
|
-
|
|
|
|
14,042
|
|
Add: Deferred depreciation cost during free use period
|
|
|
-
|
|
|
|
6,904
|
|
Less: Lease income realized
|
|
|
(2,119
|
)
|
|
|
(2,008
|
)
|
Exchange rate effect
|
|
|
794
|
|
|
|
1,995
|
|
Ending balance
|
|
|
77,199
|
|
|
|
78,524
|
|
Current portion
|
|
|
(2,120
|
)
|
|
|
(2,099
|
)
|
Noncurrent portion
|
|
$
|
75,079
|
|
|
$
|
76,425
|
|
For the years ended December 31, 2012
and 2011, the Company realized lease income from Shaanxi Steel, a related party amounted $2.1 million and $2.0 million, respectively.
Note 21 - Equity
Preferred Stock
On May 18, 2007, the Company entered into
a Purchase Agreement with Victory New Holdings Limited (“Victory New”), a British Virgin Islands registered company
under the control of the Company’s Chairman, CEO and majority shareholder, Zuosheng Yu (aka Henry Yu), to acquire Victory
New’s 30% interest in General Steel (China). The Company agreed to issue to Victory New an aggregate of 3,092,899 shares
of its Series A Preferred Stock with a fair value of $8,374,000, and these shares of Series A Preferred Stock carry a voting power
of 30% of the combined voting power of the Company’s common and preferred stock while outstanding. The holders of preferred
stock are entitled to receive noncumulative dividends, when and if declared by the board of directors. Dividends are not
mandatory and shall not accrue. Preferred shares are non-redeemable.
2011 Equity Transactions
On March 31, 2011, the Company granted
senior management and directors 240,734 shares of common stock at $2.40 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.6 million.
On June 1, 2011, the Company announced
an increase of additional 1,000,000 shares of common stock may be purchased under the Share Repurchase Program launched in December
2010, bringing the total authorized shares of its common stock available for purchase to 2,000,000. During the year ended December
31, 2011, the Company has repurchased 774,218 shares with $1.9 million pursuant to the Share Repurchase Program. The Company had
a total of 1,090,978 shares of treasury stock as of December 31, 2011.
On June 16, 2011, the Company and Maoming
Hengda entered into a Debt Repayment Agreement with Guangzhou Hengda and its sole shareholder Ms Ding Yumei whereby the Company
issued 974,571 shares of its common stock to Ms Ding Yumei, the designee and sole shareholder of Guangzhou Hengda, to repay loan
balance of $4.8 million due to Guangzhou Hengda.
On June 28, 2011, the Company granted senior
management and directors 191,150 shares of common stock at $1.44 per share, as compensation under the Company’s 2008 Equity
Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.3 million.
On September 26, 2011, the Company granted
senior management and directors 189,650 shares of common stock at $1.18 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
On December 28, 2011, the Company granted
senior management and directors 166,150 shares of common stock at $1.04 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2012 Equity Transactions
On March 1, 2012, Longmen Joint Venture
sold its 22.76% equity interest of Tongxing to two individuals, who are the representatives from Long Steel Group. As of March
1, 2012, Tongxing had a carrying value of net assets of $40.5 million which were included in the consolidated net assets of the
Company and a noncontrolling interest in Tongxing of $32.5 million. The Company retained the land use right associated with the
Tongxing property adjacent to the Longmen Joint Venture facility, which had a carrying value of $3.6 million immediately prior
to the transaction and relinquished its controlling interest in the remaining net assets (primarily operating assets). In connection
with the transaction, the Company also settled with a payable in cash of $0.3 million and transferred the dividend receivable of
$0.9 million from Tongxing to the two individuals. These arrangements meet the criteria of ASC 810-10-40-6b and 6d, deconsolidation
of a Subsidiary with multiple arrangements treated as a single transaction. As the land use rights held in Tongxing have been
included as part of the Company’s consolidated assets, this transaction was considered as a change in the Company’s
ownership interest in the land use right similar to a change in a parent company’s ownership interest in a subsidiary in
accordance with ASC 810-10-45-23 and therefore the carrying value of the land use right was not stepped up to fair value. The net
impact of these transactions resulted in a reduction of $3.1 million paid-in capital.
The following is a reconciliation of the
Company’s noncontrolling interest for the year ended December 31, 2012:
(in thousands)
|
|
Noncontrolling interest
|
|
|
|
Total
|
|
|
Tongxing
|
|
|
Others
|
|
Balance at December 31, 2011
|
|
$
|
(56,189
|
)
|
|
$
|
32,934
|
|
|
$
|
(89,123
|
)
|
Net income (loss) attributable to noncontrolling interest
|
|
|
(79,241
|
)
|
|
|
341
|
|
|
|
(79,582
|
)
|
Addition to special reserve
|
|
|
605
|
|
|
|
-
|
|
|
|
605
|
|
Usage of special reserve
|
|
|
(566
|
)
|
|
|
-
|
|
|
|
(566
|
)
|
Deconsolidation of Tongxing
|
|
|
(35,943
|
)
|
|
|
(33,654
|
)
|
|
|
(2,289
|
)
|
Foreign currency translation adjustments
|
|
|
(729
|
)
|
|
|
379
|
|
|
|
(1,108
|
)
|
Balance at December 31, 2012
|
|
$
|
(172,063
|
)
|
|
$
|
-
|
|
|
$
|
(172,063
|
)
|
On March 26, 2012, the Company granted
senior management and directors 165,400 shares of common stock at $0.75 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.1 million.
On March 27, 2012, we launched another
share repurchase program to repurchase up to an aggregate of 2,000,000
shares of our common stock.
Together with the previous share repurchase program launched in December 2010 and this newly announced Share Repurchase Program,
it brought the total authorized shares of our common stock available for purchase to 4,000,000. During the year ended December 31,
2012, the Company has repurchased 1,381,328 shares with $1.4 million pursuant to the Share Repurchase Program. The Company had
a total of 2,472,306 shares of treasury stock as of December 31, 2012.
On June 28, 2012, the Company granted senior
management and directors 165,400 shares of common stock at $0.80 per share, as compensation under the Company’s 2008 Equity
Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.1 million.
On September 27, 2012, the Company granted
senior management and directors 167,900 shares of common stock at $1.29 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
On December 28, 2012, the Company granted
senior management and directors 169,150 shares of common stock at $1.00 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
Note 22 – Retirement plan
Regulations in the PRC require the Company
to contribute to a defined contribution retirement plan for all employees. All the employees of the Company’s entities in
China are entitled to a retirement pension amount calculated based upon their salary at their date of retirement and their length
of service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to
the retired staff. The Company’s entities in China are required to contribute based on the higher of 20% of the employees’
monthly base salary or 12% of the minimum social average salary of the city where the facilities are located. Employees are required
to contribute 8% of their base salary to the plan. The minimum social average salary is announced by the local Social Security
bureau and updated annually. Total pension expense incurred by the Company was $7.4 million and $7.0 million for the years ended
December 31, 2012 and 2011, respectively.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 23 – Statutory reserves
The laws and regulations of the People’s
Republic of China require that before a foreign -invested enterprise distributes profits to its shareholders, it must first satisfy
all tax liabilities, provision for losses in previous years, and make allocations, in proportions determined at the discretion
of the board of directors, to the statutory reserves. The statutory reserves include the surplus reserve funds and the enterprise
fund and these statutory reserves represent restricted retained earnings.
Surplus reserve fund
The Company is required to transfer 10%
of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund
until such reserve balance reaches 50% of the Company’s registered capital.
The transfer to this reserve must be made
before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation
and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share
capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the
shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered
capital. For the years ended December 31, 2012 and 2011, the Company contributed contributions of $0 and $0.1 million to these
reserves, respectively.
Special reserve
The Company is required by the PRC government
to reserve safety and maintenance expense to the cost of production based on the actual quantity of mineral exploited. The
amount of reserves is determined within the unit price range provided by Ministry of Finance of PRC. For the years ended December 31,
2012 and 2011, the Company made contributions of $1.3 million and $0.1 million to these reserves, respectively and used $1.3 million
and $nil of safety and maintenance expense, respectively.
Note 24 – Commitment and contingencies
Operating Lease Commitments
Total operating lease commitments for rental
of offices, buildings, equipment and land use rights of the Company’s PRC subsidiaries as of December 31, 2012 is as follows:
Year ending December 31,
|
|
Minimum lease payment
|
|
|
|
(in thousands)
|
|
|
|
(Unaudited)
|
|
2013
|
|
$
|
2,938
|
|
2014
|
|
|
1,265
|
|
2015
|
|
|
670
|
|
2016
|
|
|
551
|
|
2017
|
|
|
551
|
|
Years after
|
|
|
19,639
|
|
Total minimum payments required
|
|
$
|
25,614
|
|
Total rental expense amounted to $3.3 million
and $1.1 million for the year ended December 31, 2012 and 2011, respectively.
Contractual Commitments
Longmen Joint Venture has $47.2 million
contractual obligations related to construction projects as of December 31, 2012 to be payable by year ending December 31,
2013.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Purchase Commitments
Longmen Joint Venture has signed an annual
purchase agreement with a vendor to supply iron ore to be delivered based on the production demand. From December 2012 to December
2013, the minimum purchase commitment is 3 million tons at market price.
Contingencies
As of December 31, 2012, Longmen Joint
Venture provided guarantees to related parties’ and third parties’ bank loans, including lines of credit and others,
amounting to $259.0 million.
Nature of guarantee
|
|
Guarantee
amount
|
|
|
Guaranty Due Date
|
|
|
(In thousands)
|
|
|
|
Line of credit
|
|
$
|
113,680
|
|
|
Various from January 2013 to March 2015
|
Bank loans
|
|
|
36,118
|
|
|
Various from April 2013 to August 2013
|
Confirming storage
|
|
|
37,545
|
|
|
Various from January 2013 to September 2013
|
Financing by the rights of goods delivery in future
|
|
|
50,666
|
|
|
Various from February 2013 to April 2013
|
Others
|
|
|
20,989
|
|
|
|
Total
|
|
$
|
258,998
|
|
|
|
Name of parties being guaranteed
|
|
Guarantee
amount
|
|
|
Guaranty Due Date
|
|
|
(In thousands)
|
|
|
|
Long Steel Group
|
|
$
|
51,865
|
|
|
Various from January 2013 to August 2015
|
Long Steel Group Fuping Rolling Steel Co., Ltd
|
|
|
6,599
|
|
|
Various from January to April 2013
|
Yichang Zhongyi Industrial Co., Ltd
|
|
|
30,576
|
|
|
Various from April to May 2013
|
Jingmen Desheng Metal Co., Ltd
|
|
|
31,578
|
|
|
August 2013
|
Xi'an Laisheng Material Co., Ltd.
|
|
|
10,490
|
|
|
Various from February to May 2013
|
Xi’an Kaiyuan Steel Co., Ltd
|
|
|
4,540
|
|
|
April 2013
|
Shaanxi Tianyi Metal Materials Co., Ltd
|
|
|
10,404
|
|
|
April 2013
|
Shaanxi Hongan Material Co., Ltd.
|
|
|
8,903
|
|
|
Various from October to December 2013
|
Shaanxi Anlin Material Co., Ltd.
|
|
|
10,499
|
|
|
April 2013
|
Shaanxi Baolong Industry Co., Ltd.
|
|
|
1,966
|
|
|
November 2013
|
Chengdu Zhongyi Steel Co., Ltd.
|
|
|
7,688
|
|
|
December 2013
|
Hancheng Sanli Furnace Burden Co., Ltd.
|
|
|
15,235
|
|
|
March 2015
|
Tianjin Dazhan Industry Co., Ltd
|
|
|
25,883
|
|
|
Various from January to February 2013
|
Tianjin Hengying Trading Co., Ltd
|
|
|
13,210
|
|
|
Various from January 2013 to April 2014
|
Tianjin Qiu Steel Pipe Industry Co., Ltd
|
|
|
27,052
|
|
|
February 2013
|
X'an Longmen Trading Co., Ltd
|
|
|
948
|
|
|
September 2013
|
Xi'an Delong Logistics Co., Ltd.
|
|
|
1,562
|
|
|
August 2013
|
Total
|
|
$
|
258,998
|
|
|
|
As of December 31, 2012, the Company
did not accrue any liability for the amounts the Group has guaranteed for third and related parties because those parties are current
in their payment obligations and the Company has not experienced any losses from providing guarantees. The Company has evaluated
the debt guarantees and concluded that the likelihood of having to make payments under the guarantees is remote and that the fair
value of the stand-ready obligation under these commitments is not material.
Note 25 – Segments
The Company’s chief operating decision
maker evaluates performance and determines resource allocations based on a number of factors, the primary measure being income
from operations of the Group’s four regional divisions in the PRC: Longmen Joint Venture in Shaanxi province, Maoming Hengda
in Guangdong province, Baotou Steel Pipe Joint Venture in Inner Mongolia province and General Steel (China) & Tianwu Joint
Venture in Tianjin City.
The Group operates in one business segment
that includes four different divisions. These reportable divisions are consistent with the way the company manages its business,
each division operates under separate management groups and produces discrete financial information. The accounting principles
applied at the operating division level in determining income from operations is generally the same as those applied at the consolidated
financial statement level.
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following represents results of division
operations for three months ended December 31, 2012 and 2011:
(In thousands)
|
|
|
|
Sales:
|
|
2012
|
|
|
2011
|
|
Longmen Joint Venture
|
|
$
|
2,837,608
|
|
|
$
|
3,496,551
|
|
Maoming Hengda
|
|
|
6,502
|
|
|
|
9,946
|
|
Baotou Steel Pipe Joint Venture
|
|
|
6,760
|
|
|
|
8,036
|
|
General Steel (China) & Tianwu Joint Venture
|
|
|
161,613
|
|
|
|
267,543
|
|
Total sales
|
|
|
3,012,483
|
|
|
|
3,782,076
|
|
Interdivision sales
|
|
|
(148,890
|
)
|
|
|
(218,180
|
)
|
Consolidated sales
|
|
$
|
2,863,593
|
|
|
$
|
3,563,896
|
|
Gross profit:
|
|
2012
|
|
|
2011
|
|
Longmen Joint Venture
|
|
$
|
29,512
|
|
|
$
|
(86,308
|
)
|
Maoming Hengda
|
|
|
(1,350
|
)
|
|
|
(392
|
)
|
Baotou Steel
|
|
|
69
|
|
|
|
491
|
|
General Steel (China) & Tianwu Joint Venture
|
|
|
3,888
|
|
|
|
(3,845
|
)
|
Total gross profit
|
|
|
32,119
|
|
|
|
(90,054
|
)
|
Interdivision gross profit
|
|
|
-
|
|
|
|
1,840
|
|
Consolidated gross profit
|
|
$
|
32,119
|
|
|
$
|
(88,214
|
)
|
Income (loss) from operations:
|
|
2012
|
|
|
2011
|
|
Longmen Joint Venture
|
|
$
|
(45,582
|
)
|
|
$
|
(161,057
|
)
|
Maoming Hengda
|
|
|
(19,789
|
)
|
|
|
(2,568
|
)
|
Baotou Steel
|
|
|
(7
|
)
|
|
|
(2,516
|
)
|
General Steel (China) & Tianwu Joint Venture
|
|
|
(2,539
|
)
|
|
|
(10,902
|
)
|
Total loss from operations
|
|
|
(67,917
|
)
|
|
|
(177,043
|
)
|
Interdivision income (loss) from operations
|
|
|
-
|
|
|
|
1,840
|
|
Reconciling item (1)
|
|
|
(5,041
|
)
|
|
|
(4,838
|
)
|
Consolidated loss from operations
|
|
$
|
(72,958
|
)
|
|
$
|
(180,041
|
)
|
Net income (loss) attributable to General Steel Holdings, Inc.:
|
|
2012
|
|
|
2011
|
|
Longmen Joint Venture
|
|
$
|
(114,936
|
)
|
|
$
|
(161,897
|
)
|
Maoming Hengda
|
|
|
(18,968
|
)
|
|
|
3,763
|
|
Baotou Steel
|
|
|
(531
|
)
|
|
|
(1,861
|
)
|
General Steel (China) & Tianwu Joint Venture
|
|
|
(13,128
|
)
|
|
|
(17,120
|
)
|
Total net loss attributable to General Steel Holdings, Inc.
|
|
|
(147,563
|
)
|
|
|
(177,115
|
)
|
Interdivision net loss
|
|
|
-
|
|
|
|
(1,501
|
)
|
Reconciling item (1)
|
|
|
(5,134
|
)
|
|
|
1,429
|
|
Consolidated net loss attributable to General Steel Holdings, Inc.
|
|
$
|
(152,697
|
)
|
|
$
|
(177,187
|
)
|
Depreciation, amortization and depletion:
|
|
2012
|
|
|
2011
|
|
Longmen Joint Venture
|
|
$
|
79,048
|
|
|
$
|
54,755
|
|
Maoming Hengda
|
|
|
1,984
|
|
|
|
205
|
|
Baotou Steel
|
|
|
185
|
|
|
|
246
|
|
General Steel (China) & Tianwu Joint Venture
|
|
|
2,714
|
|
|
|
3,125
|
|
Consolidated depreciation, amortization and depletion
|
|
$
|
83,931
|
|
|
$
|
58,331
|
|
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Finance/interest expenses:
|
|
2012
|
|
|
2011
|
|
Longmen Joint Venture
|
|
$
|
164,586
|
|
|
$
|
104,372
|
|
Maoming Hengda
|
|
|
13
|
|
|
|
262
|
|
Baotou Steel
|
|
|
485
|
|
|
|
(10
|
)
|
General Steel (China) & Tianwu Joint Venture
|
|
|
10,861
|
|
|
|
6,655
|
|
Interdivision interest expenses
|
|
|
-
|
|
|
|
(709
|
)
|
Reconciling item (1)
|
|
|
297
|
|
|
|
4,379
|
|
Consolidated interest expenses
|
|
$
|
176,242
|
|
|
$
|
114,949
|
|
Capital expenditures:
|
|
2012
|
|
|
2011
|
|
Longmen Joint Venture
|
|
$
|
31,863
|
|
|
$
|
108,885
|
|
Maoming Hengda
|
|
|
73
|
|
|
|
1,978
|
|
Baotou Steel
|
|
|
11
|
|
|
|
32
|
|
General Steel (China) & Tianwu Joint Venture
|
|
|
55
|
|
|
|
44
|
|
Reconciling item (1)
|
|
|
-
|
|
|
|
-
|
|
Consolidated capital expenditures
|
|
$
|
32,002
|
|
|
$
|
110,939
|
|
Total Assets as of:
|
|
December 31, 2012
|
|
|
December 31, 2011
|
|
Longmen Joint Venture
|
|
$
|
2,513,206
|
|
|
|
$ 2, 937,271
|
|
Maoming Hengda
|
|
|
29,687
|
|
|
|
48,350
|
|
Baotou Steel Pipe Joint Venture
|
|
|
5,186
|
|
|
|
8,093
|
|
General Steel (China) & Tianwu Joint Venture
|
|
|
152,965
|
|
|
|
146,150
|
|
Interdivision assets
|
|
|
(57,436
|
)
|
|
|
(88,326
|
)
|
Reconciling item (2)
|
|
|
7,074
|
|
|
|
2,583
|
|
Total Assets
|
|
$
|
2,650,682
|
|
|
$
|
3,054,121
|
|
|
(1)
|
Reconciling item represents the unallocated income or expenses of the Company, arising from General Steel Investment Co., Ltd, Yangpu Shengtong Investment Co., Ltd and Qiu Steel for both three and nine months ended December 31, 2012 and 2011.
|
|
(2)
|
Reconciling item represents assets held at General Steel Holdings, Inc., General Steel Investment Co., Ltd, Yangpu Shengtong Investment Co., Ltd and Qiu Steel as of December 31, 2012 and December 31, 2011.
|
Note 26 – Subsequent events
In March 2013, Shaanxi Coal has agreed
to provide bank loan guarantees to Longmen Joint Venture for amount of RMB 2.0 billion ($311.1 million).
On March 28, 2013, the Company granted
senior management and directors 174,900 shares of common stock at $1.01 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date.
GENERAL STEEL HOLDINGS, INC.
SCHEDULE 1 - CONDENSED PARENT
COMPANY BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND 2011
(In thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
88
|
|
|
$
|
48
|
|
Restricted cash
|
|
|
-
|
|
|
|
4
|
|
Other receivables
|
|
|
19
|
|
|
|
1
|
|
Prepaid expense
|
|
|
45
|
|
|
|
60
|
|
TOTAL CURRENT ASSETS
|
|
|
152
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
|
83,320
|
|
|
|
85,106
|
|
TOTAL OTHER ASSETS
|
|
|
83,320
|
|
|
|
85,106
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
83,472
|
|
|
$
|
85,219
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Other payables and accrued liabilities
|
|
$
|
7
|
|
|
$
|
17
|
|
TOTAL CURRENT LIABILITIES
|
|
|
7
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
OTHER LIABILITIES:
|
|
|
|
|
|
|
|
|
Loss in excess of investment in subsidiaries
|
|
|
347,411
|
|
|
|
192,493
|
|
TOTAL OTHER LIABILITIES
|
|
|
347,411
|
|
|
|
192,493
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
347,418
|
|
|
|
192,510
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIENCY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares issued and outstanding as of December 31, 2012 and 2011
|
|
|
3
|
|
|
|
3
|
|
Common stock, $0.001 par value, 200,000,000 shares authorized, 57,269,838 and 56,601,988 shares issued, 54,797,532 and 55,511,010 shares outstanding as of December 31, 2012 and 2011, respectively
|
|
|
57
|
|
|
|
56
|
|
Treasury stock, at cost, 2,472,306 and 1,090,978
shares as of December 31, 2012 and 2011, respectively
|
|
|
(4,199
|
)
|
|
|
(2,795
|
)
|
Paid-in-capital
|
|
|
105,714
|
|
|
|
107,940
|
|
Statutory reserves
|
|
|
6,076
|
|
|
|
6,388
|
|
Accumulated deficits
|
|
|
(381,782
|
)
|
|
|
(229,083
|
)
|
Accumulated other comprehensive income
|
|
|
10,185
|
|
|
|
10,200
|
|
TOTAL SHAREHOLDER'S DEFICIENCY
|
|
|
(263,946
|
)
|
|
|
(107,291
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND DEFICIENCY
|
|
$
|
83,472
|
|
|
$
|
85,219
|
|
The accompanying notes are an integral part of these condensed
financial statements.
GENERAL STEEL HOLDINGS, INC.
SCHEDULE 1 - CONDENSED PARENT COMPANY STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND
2011
(In thousands)
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
$
|
(1,260
|
)
|
|
$
|
(2,149
|
)
|
Total operating expenses
|
|
|
(1,260
|
)
|
|
|
(2,149
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Finance/interest (expense) income
|
|
|
-
|
|
|
|
(1.00
|
)
|
Change in fair value of derivative liabilities
|
|
|
9
|
|
|
|
5,563
|
|
Total other income, net
|
|
|
9
|
|
|
|
5,562
|
|
|
|
|
|
|
|
|
|
|
EQUITY LOSS OF SUBSIDIARIES
|
|
|
(151,446
|
)
|
|
|
(180,600
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(152,697
|
)
|
|
|
(177,187
|
)
|
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
|
|
|
(802
|
)
|
|
|
(787
|
)
|
COMPREHENSIVE LOSS
|
|
$
|
(153,499
|
)
|
|
$
|
(177,974
|
)
|
The accompanying notes are an integral part of these condensed
financial statements.
GENERAL STEEL HOLDINGS, INC.
SCHEDULE 1 - CONDENSED PARENT COMPANY STATEMENTS
OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND
2011
(In thousands)
|
|
2012
|
|
|
2011
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(152,697
|
)
|
|
$
|
(177,187
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to cash provided (used in) by operating activities:
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instrument
|
|
|
(9
|
)
|
|
|
(5,563
|
)
|
Stock issued for services and compensation
|
|
|
918
|
|
|
|
1,530
|
|
Loss from subsidiaries
|
|
|
151,446
|
|
|
|
180,600
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Other receivables
|
|
|
(18
|
)
|
|
|
1
|
|
Prepaid expense
|
|
|
15
|
|
|
|
141
|
|
Intercompany receivable
|
|
|
1,786
|
|
|
|
1,277
|
|
Other payables and accrued liabilities
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Net cash provided by operating activities
|
|
|
1,440
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
4
|
|
|
|
1,126
|
|
Net cash provided by (used in) investing activities
|
|
|
4
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments made for treasury stock acquired
|
|
|
(1,404
|
)
|
|
|
(1,923
|
)
|
Net cash used in financing activities
|
|
|
(1,404
|
)
|
|
|
(1,923
|
)
|
|
|
|
|
|
|
|
|
|
INCREASE IN CASH
|
|
|
40
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
CASH, beginning of year
|
|
|
48
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
CASH, end of year
|
|
$
|
88
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions of investing and financing activities:
|
|
|
|
|
|
|
|
|
Deconsolidation of a subsidiary as a reduction to paid-in-capital
|
|
$
|
3,143
|
|
|
$
|
-
|
|
Share issuance for intercompany's debt settlement
|
|
$
|
-
|
|
|
$
|
1,442
|
|
The accompanying notes are an integral part of these condensed
financial statements.
GENERAL STEEL HOLDINGS, INC.
CONDENSED NOTES TO SCHEDULE 1
Certain information and footnote disclosures
normally included in financial statements prepared in conformity with generally accepted accounting principles have been condensed
or omitted. The Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries.
Schedule I of Article 5-04 of Regulation
S-X requires the condensed financial information of registrant shall be filed when the restricted net assets of consolidated subsidiaries
exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. For purposes of the above
test, restricted net assets of consolidated subsidiaries shall mean that amount of the registrant’s proportionate share of
net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may
not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of
a third party (i.e., lender, regulatory agency, foreign government, etc.).
The condensed parent company financial
statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the subsidiaries
of General Steel Holdings, Inc. exceed 25% of the consolidated net assets of General Steel Holdings, Inc. The ability of our Chinese
operating affiliates to pay dividends may be restricted due to the foreign exchange control policies and availability of cash balances
of the Chinese operating subsidiaries. Because a significant portion of our operations and revenues are conducted and generated
in China, a significant portion of our revenues being earned and currency received are denominated in Renminbi (RMB). RMB is subject
to the exchange control regulation in China, and, as a result, we may be unable to distribute any dividends outside of China due
to PRC exchange control regulations that restrict our ability to convert RMB into US Dollars.
The Company has 3,900,871 warrants outstanding
in connection with the $40 million convertible notes issued in 2007, which expire on May 13, 2013 and 2,777,778 warrants outstanding
in connection with a registered direct offering in 2009, which expired on June 24, 2012. The aforementioned warrants met the definition
of a derivative instrument in the accounting standards and are recorded at their fair value on each reporting date. The change
in the value of the derivative liabilities is charged against or credited to income each period
.
Refer to Note 12 of the Notes to the Consolidated
Financial Statements for the convertible notes and derivative liabilities.
Preferred Stock
On May 18, 2007, the Company entered into
a Purchase Agreement with Victory New Holdings Limited (“Victory New”), a British Virgin Islands registered company
under the control of the Company’s Chairman, CEO and majority shareholder, Zuosheng Yu (aka Henry Yu), to acquire Victory
New’s 30% interest in General Steel (China ). The Company agreed to issue to Victory New an aggregate of 3,092,899 shares
of its Series A Preferred Stock with a fair value of $8,374,000, and these shares of Series A Preferred Stock carry a voting power
of 30% of the combined voting power of the Company’s common and preferred stock while outstanding. The holders of preferred
stock are entitled to receive noncumulative dividends, when and if declared by the board of directors. Dividends are not
mandatory and shall not accrue. Preferred shares are non-redeemable
.
2011 Equity Transactions
On March 31, 2011, the Company granted
senior management and directors 240,734 shares of common stock at $2.40 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.6 million.
On June 1, 2011, the Company announced
an increase of additional 1,000,000 shares of common stock may be purchased under the Share Repurchase Program launched in December
2010, bringing the total authorized shares of its common stock available for purchase to 2,000,000. During the year ended December
31, 2011, the Company has repurchased 774,218 shares with $1.9 million pursuant to the Share Repurchase Program. The Company had
a total of 1,090,978 shares of treasury stock as of December 31, 2011.
On June 16, 2011, the Company and Maoming
Hengda entered into a Debt Repayment Agreement with Guangzhou Hengda and its sole shareholder Ms Ding Yumei whereby the Company
issued 974,571 shares of its common stock to Ms Ding Yumei, the designee and sole shareholder of Guangzhou Hengda, to repay loan
balance of $4.8 million due to Guangzhou Hengda.
GENERAL STEEL HOLDINGS, INC.
CONDENSED NOTES TO SCHEDULE 1
On June 28, 2011, the Company granted senior
management and directors 191,150 shares of common stock at $1.44 per share, as compensation under the Company’s 2008 Equity
Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.3 million.
On September 26, 2011, the Company granted
senior management and directors 189,650 shares of common stock at $1.18 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
On December 28, 2011, the Company granted
senior management and directors 166,150 shares of common stock at $1.04 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
2012 Equity Transactions
On March 1, 2012, Longmen Joint Venture,
the Company’s variable interest entity, sold its 22.76% equity interest of Tongxing to two individuals, who are the representatives
from Long Steel Group. The Company recorded the deconsolidation of subsidiary transaction as a reduction of $3.1 million paid-in
capital.
Refer to Note 21 of the Notes to the Consolidated Financial Statements for the details of this
transaction.
On March 26, 2012, the Company granted
senior management and directors 165,400 shares of common stock at $0.75 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.1 million.
On March 27, 2012, we launched another
share repurchase program to repurchase up to an aggregate of 2,000,000
shares of our common stock. Together with the previous share repurchase program launched in December 2010 and this newly
announced Share Repurchase Program, it brought the total authorized shares of our common stock available for purchase to 4,000,000.
During the year ended December 31, 2012, the Company has repurchased 1,381,328 shares with $1.4 million pursuant to the Share
Repurchase Program. The Company had a total of 2,472,306 shares of treasury stock as of December 31, 2012.
On June 28, 2012, the Company granted senior
management and directors 165,400 shares of common stock at $0.80 per share, as compensation under the Company’s 2008 Equity
Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.1 million.
On September 27, 2012, the Company granted
senior management and directors 167,900 shares of common stock at $1.29 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
On December 28, 2012, the Company granted
senior management and directors 169,150 shares of common stock at $1.00 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date. The Company recorded compensation expense
of $0.2 million.
On March 28, 2013, the Company granted
senior management and directors 174,900 shares of common stock at $1.01 per share, as compensation under the Company’s 2008
Equity Incentive Plan. The shares were valued at the quoted market price on the grant date
.