omniture

General Steel Reports Results for the First Quarter of 2009

2009-05-11 17:59 978

Company achieves first quarter net income growth of 235.2% year-over-year

BEIJING, May 11 /PRNewswire-Asia/ -- General Steel Holdings, Inc. ("General Steel" or "the Company") (NYSE: GSI), one of China's leading non-state-owned producers of steel products and aggregators of domestic steel companies, today announced its financial results for the first quarter of 2009 ended March 31, 2009.

Highlights from the First Quarter of 2009:

-- Shipment volume at Shaanxi Longmen Iron and Steel Co., Ltd. ("Longmen

Joint Venture") reached record high of 654,681 metric tons, a 39.4%

year-over-year increase

-- Total revenues increased 10.7% to $322.8 million from $291.6 million in

the first quarter of 2008

-- Gross margin was 4.0%, compared to 4.5% in the first quarter of 2008

and -8.3% in the previous quarter

-- Net income increased 235.2% to $7.3 million, or $0.20 per basic and

diluted share

-- Net income less derivative impact (non-GAAP), defined as net income

less impact of derivative gain or loss, was $3.2 million, or $0.09 per

basic and diluted share

"I'm pleased to report a return to positive gross margin and net income in the first quarter," said Mr. Henry Yu, General Steel's chairman and chief executive officer. "Our investment in two, modern blast furnaces at our Longmen Joint Venture is allowing us to meet stimulus and earthquake rebuilding-related demand in our largest addressable market of Shaanxi and Sichuan provinces while decreasing our requirements for major inputs such as energy, coke and manpower. In fact, this increased demand resulted in record production and shipment volumes for the quarter. These achievements are indicative of our ability to consolidate state-owned and private companies with outstanding potential and improve their efficiency with modern equipment and management techniques."

Mr. Yu continued, "As we look at the remainder of 2009, I'm confident that spending on earthquake rebuilding and stimulus projects will continue to drive demand for our products. While the economic slowdown has made for challenging times for many steel companies, it is also creating numerous opportunities to acquire quality assets with excellent growth potential at attractive valuations. We were founded on an M&A platform, and will continue to play a significant role in the industry's consolidation as catalysts strengthen."

Selected Financial Results for the First Quarter of 2009

Revenues

Total revenues in the first quarter of 2009 increased 10.7% to $322.8 million from $291.6 million in the first quarter of 2008.

The year-over-year increase in total revenues was due to a significant increase in shipment volumes at the Company's Longmen Joint Venture, which were partially offset by decreases at other locations, as well as the timing of the acquisition of Maoming Hengda Steel Group Limited ("Maoming"), which began contributing to the Company's consolidated financial results on June 25, 2008.

Cost of Sales

Total cost of sales for the first quarter of 2009 increased 11.2% to $309.9 million from $278.6 million in the first quarter of 2008.

Cost of sales principally consists of the cost of raw materials, labor, utilities, manufacturing costs, manufacturing-related depreciation and other fixed costs. The increase in cost of sales was mostly attributable to an increase in production volume at the Company's Longmen Joint Venture facility in response to demand created by earthquake reconstruction and stimulus measures. The timing of the Maoming acquisition also contributed to the increase.

Gross Profit and Margin

Gross profit for the first quarter of 2009 decreased 0.5% year-over-year to $12.9 million from $13.0 million in the first quarter of 2008. The year-over-year decrease in gross profit was largely due to the lower average selling price of steel products caused by the economic slowdown in China's real estate and construction markets and in the overall domestic economy.

Gross margin for the first quarter of 2009 was 4.0%, compared to 4.5% in the first quarter of 2008 and to gross margin of -8.3% in the fourth quarter of 2008. The Company noted that a strategic decision to sell-out of high-cost inventory in the fourth quarter of 2008 and an increase in aggregate demand in the Company's main markets of Shaanxi and Sichuan provinces due to stimulus and earthquake reconstruction-related spending resulted in a return to positive gross margin.

Operating Expenses

Selling, general and administrative expenses for the first quarter of 2009 increased 40.3% to $9.2 million from $6.5 million in the first quarter of 2008. Selling, general and administrative expenses were 2.8% of total revenues in the first quarter of 2009, compared to 2.2% of total revenues in the first quarter of 2008.

A large portion of the increase in selling, general and administrative expenses for the first quarter of 2009 was attributable to increased production volume at the Company's Longmen Joint Venture and the timing of the Maoming acquisition.

Finance and interest expenses for the first quarter of 2009 decreased 50.9% to $2.9 million from $6.0 million in the first quarter of 2008. The decrease was primarily due to lower interest rates and capitalized interest expense related to the two new blast furnaces at Longmen Joint Venture.

Net Income

Net income for the first quarter of 2009 increased 235.2% to $7.3 million from $2.2 million in the first quarter of 2008. Basic and diluted earnings per share for the first quarter of 2009 were $0.20, compared to $0.06 in the first quarter of 2008.

Net income during the first quarter of 2009 was also impacted by a gain of $4.1 million from a derivative instrument; $2.9 million from debt waivers to the Maoming subsidiary, a result of negotiations with a key creditor; and a $3.5 million government grant at our Longmen Joint Venture, a benefit of the national steel industry revitalization plan.

The Company noted that it believes that net income less derivative impact (non-GAAP), which is calculated as GAAP net earnings before the impact of a derivative gain or loss is a better measurement of its performance. Net income less derivative impact (non-GAAP) for the first quarter of 2009 was $3.2 million, or $0.09 per basic and diluted share, based on 36.3 million basic and diluted shares.

The derivative instrument gain is a non-operating, non-cash gain related to the convertible bond and related warrants issued in December 2007. According to accounting rules, the derivative instrument value and associated gain or loss is linked to the Company's stock price. The gain or loss of this instrument has no impact on cash (i.e. no cash was paid out or received).

Balance Sheet

As of March 31, 2009 General Steel had cash and restricted cash of $213.4 million, compared to $145.6 million as of December 31, 2008. Accounts receivable was $20.1 million as of March 31, 2009, compared to $8.3 million as of December 31, 2008.

Explanation of Non-Cash Derivative Expenses

Pursuant to SFAS 133 and EITF 00-19, the Company determined that both the warrants and the conversion option embedded in the Notes issued on December 13, 2007 met the definition of a derivative instrument and must be carried as a liability and marked to market each reporting period. As such, depending upon the price of the Company's common stock at the end of the quarter or year there could be an associated gain or loss, which is non-cash in nature but will be recurring until such time as the Notes are either redeemed or converted and the warrants are exercised.

As of March 31, 2009, the balance of derivative liabilities was $5.8 million, which consisted of $1.8 million for the warrants and $4.0 million for the carrying value of the Convertible Notes.

Conference Call

General Steel management will hold an earnings conference call at 8:00 a.m. U.S. Eastern Time on May 11, 2009. Management will discuss results and highlights from the quarter and answer questions. The dial-in number and passcode for the conference call are as follows:

U.S. Toll Free: +1-800-860-2442

Passcode: General Steel Holdings

The conference call will be broadcast live over the Internet and can be accessed by clicking the following link: http://www.visualwebcaster.com/event.asp?id=58517

Additionally, an archived Web cast of this call will be available on General Steel's website at http://www.gshi-steel.com .

About General Steel Holdings, Inc.

General Steel Holdings, Inc., (NYSE: GSI), headquartered in Beijing, China, operates a diverse portfolio of Chinese steel companies. With 6.3 million metric tons aggregate production capacity, its companies serve various industries and produce a variety of steel products including rebar, hot-rolled carbon and silicon sheet, high-speed wire and spiral-weld pipe. General Steel Holdings, Inc. has steel operations in Shaanxi and Guangdong provinces, Inner Mongolia Autonomous Region and Tianjin municipality. For more information, please visit http://www.gshi-steel.com .

Information Regarding Forward-Looking Statements

This press release may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs about future events and financial, political and social trends and assumptions it has made based on information currently available to it. The Company cannot assure that any expectations, forecasts or assumptions made by management in preparing these forward-looking statements will prove accurate, or that any projections will be realized. Such forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks or uncertainties. Actual results may vary materially from those expressed or implied by the statements herein. For factors that could cause actual results to vary, perhaps materially, from these forward-looking statements, please refer to the Company's Form 10-K, filed with the Securities and Exchange Commission, and other subsequent filings. Forward-looking statements contained herein speak only as of the date of this release. The Company does not undertake any obligation to update or revise publicly any forward-looking statements, whether to reflect new information, future events or otherwise.

GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2009 AND DECEMBER 31, 2008

ASSETS

March 31, December 31,

2009 2008

Unaudited

CURRENT ASSETS:

Cash $39,128,494 $14,895,442

Restricted cash 174,321,481 130,700,335

Notes receivable 17,318,812 38,207,312

Accounts receivable, net of

allowance for doubtful accounts

of $400,571 and $401,109 as of

March 31, 2009 and December 31,

2008, respectively 20,082,659 8,329,040

Other receivables, net of

allowance for doubtful accounts

of $683,826 and $684,767 as of

March 31, 2009 and December 31,

2008, respectively 2,479,717 5,099,469

Other receivables - related

parties 1,395,616 523,024

Dividend receivable 629,621 630,481

Inventories 107,858,572 59,548,915

Advances on inventory purchases 36,840,793 47,153,869

Advances on inventory purchases -

related parties 13,863,922 2,374,637

Prepaid expenses - current 704,162 494,370

Deferred tax assets 6,488,093 7,487,380

421,111,942 315,444,274

PLANT AND EQUIPMENT, net 527,298,591 491,705,028

OTHER ASSETS:

Advances on equipment purchases 7,755,163 8,965,382

Investment in unconsolidated

subsidiaries 20,476,409 13,959,432

Prepaid expenses - non current 1,153,027 1,195,073

Prepaid expenses related party -

non current 197,775 211,248

Long term other receivable 4,563,423 4,872,584

Intangible assets, net of

accumulated amortization 24,461,096 24,555,655

Note issuance cost 4,197,058 4,217,974

Plant and equipment to be

disposed -- 586,508

Total other assets 62,803,951 58,563,856

Total assets $1,011,214,484 $865,713,158

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Short term notes payable $244,428,086 $206,040,150

Accounts payable 150,364,523 149,239,317

Accounts payable - related

parties 32,026,694 15,326,524

Short term loans - bank 85,931,040 67,840,256

Short term loans - others 90,928,371 87,833,706

Short term loans - related

parties 7,339,650 7,349,670

Other payables 10,407,709 3,182,661

Other payable - related parties 8,191,474 677,013

Accrued liabilities 11,652,374 7,779,488

Customer deposits 147,012,299 141,101,584

Customer deposits - related

parties 6,690,802 7,216,319

Deposits due to sales

representatives 43,858,305 8,149,279

Taxes payable 14,087,859 13,916,636

Distribution payable to former

shareholders 18,739,625 18,765,209

Total current liabilities 871,658,811 734,417,812

CONVERTIBLE NOTES PAYABLE, net of

debt discount of $25,625,326 and

$26,094,942 as of March 31, 2009

and December 31, 2008, respectively 7,624,674 7,155,058

DERIVATIVE LIABILITIES 5,788,442 9,903,010

COMMITMENT AND CONTINGENCIES

Total liabilities 885,071,927 751,475,880

SHAREHOLDERS' EQUITY:

Preferred stock, $0.001 par

value, 50,000,000 shares

authorized, 3,092,899 shares

issued and outstanding 3,093 3,093

Common Stock, $0.001 par value,

200,000,000 shares authorized,

36,390,323 and 36,128,833 shares

issued and outstanding as of

March 31, 2009 and December 31,

2008, respectively 36,390 36,129

Paid-in-capital 37,957,453 37,128,641

Retained earnings 17,166,701 10,091,829

Statutory reserves 5,162,401 4,902,641

Contribution receivable (959,700) (959,700)

Accumulated other comprehensive

income 8,230,428 8,407,359

Total shareholders' equity 67,596,766 59,609,992

NONCONTROLLING INTERESTS 58,545,791 54,627,286

Total equity 126,142,557 114,237,278

Total liabilities and

shareholders' equity $1,011,214,484 $865,713,158

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31

(UNAUDITED)

2009 2008

REVENUES $262,414,416 $178,492,167

REVENUES - RELATED PARTIES 60,379,480 113,073,832

TOTAL REVENUES 322,793,896 291,565,999

COST OF SALES 252,002,104 166,714,663

COST OF SALES - RELATED PARTIES 57,869,673 111,869,221

TOTAL COST OF SALES 309,871,777 278,583,884

GROSS PROFIT 12,922,119 12,982,115

SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES 9,168,261 6,532,821

INCOME FROM OPERATIONS 3,753,858 6,449,294

OTHER INCOME (EXPENSE), NET

Interest income 878,633 580,318

Finance/interest (expense) (2,938,778) (5,986,507)

Change in fair value of

derivative liabilities 4,114,568 2,670,764

Gain from debt extinguishment 2,930,200 --

Government grant 3,519,890 --

Income from equity investments (54,632) --

Other non-operating income

(expense), net 510,216 369,270

Total other income

(expense), net 8,960,097 (2,366,155)

INCOME BEFORE PROVISION FOR INCOME

TAXES

AND NONCONTROLLING INTEREST 12,713,955 4,083,139

PROVISION FOR INCOME TAXES

Current 164,221 666,356

Deferred 1,221,850 (216,533)

Total provision for income

taxes 1,386,071 449,823

NET INCOME BEFORE NONCONTROLLING

INTEREST 11,327,884 3,633,316

Less: Net income attributable to

noncontrolling interest 3,993,252 1,444,856

NET INCOME ATTRIBUTABLE TO

CONTROLLING INTEREST 7,334,632 2,188,460

OTHER COMPREHENSIVE (LOSS) INCOME:

Foreign currency translation

adjustments (176,931) 1,615,950

Comprehensive (loss)income

attributable to noncontrolling

interest (74,746) 2,706,989

COMPREHENSIVE INCOME $7,082,955 $6,511,399

WEIGHTED AVERAGE NUMBER OF SHARES

Basic 36,285,312 34,836,394

Diluted 36,285,312 34,923,614

EARNING PER SHARE

Basic $0.20 $0.06

Diluted $0.20 $0.06

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31

(UNAUDITED)

2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income attributable to

controlling interest $7,334,632 $2,188,460

Net income attributable to

noncontrolling interest 3,993,252 1,444,856

Consolidated net income 11,327,884 3,633,316

Adjustments to reconcile net income

to cash provided by (used in) operating

activities:

Depreciation 6,024,757 4,499,873

Amortization 224,416 205,146

Debt waiver (2,930,200) --

(Gain)Loss on disposal of

equipment (3,517,774) 9,492

Stock issued for services and

compensation 271,212 548,456

Amortization of deferred note

issuance cost 20,917 8,894

Amortization of discount on

convertible notes -- 697,628

Change in fair value of derivative

instrument (4,114,568) (2,670,763)

Deferred tax assets 989,146 (216,533)

Changes in operating assets and

liabilities

Accounts receivable (11,764,035) (1,459,682)

Accounts receivable - related

parties -- 7,631,355

Notes receivable 20,837,833 (13,832,292)

Notes receivable - restricted -- 8,491,027

Other receivables 2,915,525 1,533,823

Other receivables - related

parties (1,736,108) (148,056)

Inventories (48,394,144) (17,647,149)

Advances on inventory purchases 10,249,490 6,516,616

Advances on inventory purchases -

related parties (7,552,281) (26,563,452)

Prepaid expense - current (156,475) (220,516)

Accounts payable 1,285,289 11,144,259

Accounts payable - related parties 21,860,581 (6,951,111)

Other payables 7,229,879 (2,579,136)

Other payable - related parties 8,179,890 (2,118,101)

Accrued liabilities 3,882,827 522,377

Customer deposits 6,103,498 20,885,570

Customer deposits - related

parties (5,120,847) (9,391,133)

Taxes payable 190,208 (9,585,924)

Net cash provided by (used in)

operating activities 16,306,920 (27,056,016)

CASH FLOWS FROM INVESTING ACTIVITIES:

Acquired long term investment (6,592,950) --

Cash acquired from subsidiary -- 702,237

Deposits due to sales

representatives 35,722,574 (451,457)

Advance on equipment purchases 1,198,078 416,045

Cash proceeds from sale of equipment 440 --

Equipment purchases (41,415,299) (28,097,609)

Intangible assets purchases (163,329) 143,465

Net cash used in investing

activities (11,250,486) (27,287,319)

CASH FLOWS FINANCING ACTIVITIES:

Restricted cash (43,802,323) (33,726,504)

Borrowings on short term loans -

bank 51,732,681 24,893,037

Payments on short term loans - bank (33,548,167) (28,568,988)

Borrowings on short term loans -

related parties -- 6,168,050

Payments on short term loans -

related parties -- (5,153,320)

Borrowings on short term loan -

others 13,295,533 23,147,344

Payments on short term loans -

others (7,150,703) (16,733,731)

Borrowings on short term notes

payable 158,809,676 62,896,500

Payments on short term notes payable (120,138,200) (11,614,887)

Borrowings on employee loans -- 2,306,205

Payment to noncontrolling

shareholders -- (594,336)

Net cash provided by financing

activities 19,198,497 23,019,370

EFFECTS OF EXCHANGE RATE CHANGE IN

CASH (21,879) 857,715

INCREASE (DECREASE) IN CASH 24,233,052 (30,466,250)

CASH, beginning of period 14,895,442 43,713,346

CASH, end of period $39,128,494 $13,247,096

GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Preferred stock Common stock

Shares Par value Shares Par value

BALANCE, January 1, 2008 3,092,899 $3,093 34,634,765 $34,635

Net income

Acquired noncontrolling

interest

Adjustment to statutory

reserve

Preferred stock issued

for acquisition of

minority interest,

net of dividend

distribution to

Victory New

Conversion of redeemable

stock, $1.95

Common stock issued for

service, $1.32

Common stock issued by

$2.50

Common stock issued for

compensation, $8.16 76,600 77

Common stock issued for

compensation, $10.43 150,000 150

Foreign currency

translation adjustments

BALANCE, March 31, 2008,

unaudited 3,092,899 $3,093 34,861,365 $34,862

Net loss

Acquired noncontrolling

interest

Adjustment to statutory

reserve

Common stock issued for

compensation, $6.66 87,400 87

Common stock issued for

compensation, $10.29 90,254 90

Common stock issued for

consulting fee, $3.6 100,000 100

Common stock issued for

public relations, $3.6 25,000 25

Common stock issued for

compensation, $3.5 87,550 88

Common stock transferred

by CEO for compensation,

$6.91

Common stock issued at

$5/share 140,000 140

Notes converted to common

stock 541,299 541

Make whole shares issued

on notes conversion 195,965 196

Foreign currency

translation adjustments

BALANCE, December 31, 2008 3,092,899 $3,093 36,128,833 $36,129

Net income

Adjustment to statutory

reserve

Common stock issued for

compensation, $1.85 109,250 109

Common stock issued for

interest payment, $3.66 152,240 152

Common stock transferred

by CEO for compensation,

$6.91

Foreign currency

translation adjustments

BALANCE, March 31, 2009,

unaudited 3,092,899 $3,093 36,390,323 $36,390

Retained earnings

Paid-in Statutory Subscriptions

capital reserves Unrestricted receivable

BALANCE, January 1, 2008 $23,429,153 $3,632,325 $22,686,590 $(959,700)

Net income 2,188,460

Acquired noncontrolling

interest

Adjustment to statutory

reserve 347,747 (347,747)

Preferred stock issued

for acquisition of

minority interest,

net of dividend

distribution to

Victory New

Conversion of

redeemable stock,

$1.95

Common stock issued for

service, $1.32

Common stock issued by

$2.50

Common stock issued for

compensation, $8.16 548,379

Common stock issued for

compensation, $10.43 1,564,350

Foreign currency

translation

adjustments

BALANCE, March 31, 2008,

unaudited $25,541,882 $3,980,072 $24,527,303 $(959,700)

Net loss (13,512,905)

Acquired noncontrolling

interest

Adjustment to statutory

reserve 922,569 (922,569)

Common stock issued for

compensation, $6.66 581,997

Common stock issued for

compensation, $10.29 928,582

Common stock issued for

consulting fee, $3.6 359,900

Common stock issued for

public relations, $3.6 89,975

Common stock issued for

compensation, $3.5 306,337

Common stock

transferred by CEO for

compensation, $6.91 207,300

Common stock issued at

$5/share 699,860

Notes converted to

common stock 6,102,691

Make whole shares

issued on notes

conversion 2,310,117

Foreign currency

translation

adjustments

BALANCE, December 31, 2008 $37,128,641 $4,902,641 $10,091,829 $(959,700)

Net income 7,334,632

Adjustment to statutory

reserve 259,760 (259,760)

Common stock issued for

compensation, $1.85 202,003

Common stock issued for

interest payment,

$3.66 557,709

Common stock

transferred by CEO for

compensation, $6.91 69,100

Foreign currency

translation

adjustments

BALANCE, March 31, 2009,

unaudited $37,957,453 $5,162,401 $17,166,701 $(959,700)

Accumulated

other

comprehensive Noncontrolling

income interest Totals

BALANCE, January 1, 2008 $3,285,278 $43,322,066 $95,433,440

Net income 1,444,856 3,633,316

Acquired noncontrolling

interest 14,973,544 14,973,544

Adjustment to statutory

reserve --

Preferred stock issued for

acquisition of minority

interest, net of dividend

distribution to Victory

New --

Conversion of redeemable

stock, $1.95 --

Common stock issued for

service, $1.32 --

Common stock issued by $2.50 --

Common stock issued for

compensation, $8.16 548,456

Common stock issued for

compensation, $10.43 1,564,500

Foreign currency translation

adjustments 1,615,950 2,706,989 4,322,939

BALANCE, March 31, 2008,

unaudited $4,901,228 $62,447,455 $120,476,195

Net loss (9,986,693) (23,499,598)

Acquired noncontrolling

interest 921,942 921,942

Adjustment to statutory

reserve --

Common stock issued for

compensation, $6.66 582,084

Common stock issued for

compensation, $10.29 928,672

Common stock issued for

consulting fee, $3.6 360,000

Common stock issued for

public relations, $3.6 90,000

Common stock issued for

compensation, $3.5 306,425

Common stock transferred by

CEO for compensation, $6.91 207,300

Common stock issued at

$5/share 700,000

Notes converted to common

stock 6,103,232

Make whole shares issued on

notes conversion 2,310,313

Foreign currency translation

adjustments 3,506,131 1,244,582 4,750,713

BALANCE, December 31, 2008 $8,407,359 $54,627,286 $114,237,278

Net income 3,993,251 11,327,883

Adjustment to statutory

reserve --

Common stock issued for

compensation, $1.85 202,112

Common stock issued for

interest payment, $3.66 557,861

Common stock transferred by

CEO for compensation, $6.91 69,100

Foreign currency translation

adjustments (176,931) (74,746) (251,677)

BALANCE, March 31, 2009,

unaudited $8,230,428 $58,545,791 $126,142,557

For investor and media inquiries please contact:

In China:

Ms. Jing Ou-Yang

General Steel Holdings, Inc.

Tel: +86-10-5879-7346

Email: jing.ouyang@gshi-steel.com

Mr. Justin Knapp

Ogilvy Financial, Beijing

Tel: +86-10-8520-6556

Email: justin.knapp@ogilvy.com

In the United States:

Ms. Jessica Barist Cohen

Ogilvy Financial, New York

Tel: +1-646-460-9989

Email: jessica.cohen@ogilvypr.com

Source: General Steel Holdings, Inc.
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