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SECURITIES AND EXCHANGE COMMISSION
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
25B, New Poly Plaza, No. 1 North Chaoyangmen Street
People’s Republic of China 100010
(Address of principal executive offices)
Title of each class | Name of each exchange on which registered | |
American Depositary Shares, each representing three ordinary | New York Stock Exchange | |
shares, par value US$0.001 per share |
None
None
Large accelerated filero | Accelerated filero | Non-accelerated filerþ |
Boardo Othero
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EX-13.2 | ||||||||
EX-15.1 |
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Binglangjiang (Predecessor) | Our Company (Successor) | ||||||||||||||||||||||||
For the | For the | ||||||||||||||||||||||||
Year | Period from | For the Period | |||||||||||||||||||||||
Ended | January 1 | from July 10 | |||||||||||||||||||||||
December | to | (inception) to | For the Year Ended | ||||||||||||||||||||||
31, | April 24, | December 31, | December 31, | ||||||||||||||||||||||
2006 | 2007 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||||
(US$ in thousands, except share and per share data) | |||||||||||||||||||||||||
Consolidated Statements of Operations Data | |||||||||||||||||||||||||
Revenue | 2,075 | 571 | — | 2,434 | 14,715 | 36,175 | |||||||||||||||||||
Cost of Revenue | (691 | ) | (219 | ) | — | (813 | ) | (6,025 | ) | (17,183 | ) | ||||||||||||||
Gross profit | 1,384 | 352 | — | 1,621 | 8,690 | 18,992 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||||
General and Administrative expenses | (13 | ) | (23 | ) | (901 | ) | (2,560 | ) | (6,761 | ) | (9,099 | ) | |||||||||||||
Operating income(loss) | 1,371 | 329 | (901 | ) | (939 | ) | 1,929 | 9,893 | |||||||||||||||||
Other income and expenses: | |||||||||||||||||||||||||
Interest income | 1 | — | 340 | 1,051 | 1,340 | 510 | |||||||||||||||||||
Interest expenses | (914 | ) | (285 | ) | (873 | ) | (3,275 | ) | (5,847 | ) | (14,228 | ) | |||||||||||||
Change in fair value of derivative financial liabilities and warrant liability | — | — | — | (266 | ) | 420 | (13,793 | ) | |||||||||||||||||
Exchange loss | — | — | — | (1,095 | ) | (1,067 | ) | (23 | ) | ||||||||||||||||
Share of losses in an equity investee | — | — | — | (27 | ) | (503 | ) | (70 | ) | ||||||||||||||||
Other income, net | — | — | — | 8 | 144 | (225 | ) | ||||||||||||||||||
Income (loss) before income tax expenses | 458 | 44 | (1,434 | ) | (4,543 | ) | (3,584 | ) | (17,936 | ) | |||||||||||||||
Income tax expenses | (19 | ) | (1 | ) | — | (17 | ) | (444 | ) | (1,492 | ) | ||||||||||||||
Consolidated net income (loss) | 439 | 43 | (1,434 | ) | (4,560 | ) | (4,028 | ) | (19,428 | ) | |||||||||||||||
Less: | |||||||||||||||||||||||||
Net loss attributable to noncontrolling interests | — | — | — | — | 41 | 32 | |||||||||||||||||||
Net income (loss) attributable to China Hydroelectric Corporation shareholders | 439 | 43 | (1,434 | ) | (4,560 | ) | (3,987 | ) | (19,396 | ) | |||||||||||||||
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Binglangjiang (Predecessor) | Our Company (Successor) | ||||||||||||||||||||||||
For the | |||||||||||||||||||||||||
For the | Period | ||||||||||||||||||||||||
Year | from | For the Period | |||||||||||||||||||||||
Ended | January 1 | from July 10 | |||||||||||||||||||||||
December | to | (inception) to | For the Year Ended | ||||||||||||||||||||||
31, | April 24, | December 31, | December 31, | ||||||||||||||||||||||
2006 | 2007 | 2006 | 2007 | 2008 | 2009 | ||||||||||||||||||||
(US$ in thousands, except share and per share data) | |||||||||||||||||||||||||
Consolidated Statements of Operations Data | |||||||||||||||||||||||||
Less: | |||||||||||||||||||||||||
Cumulative dividends on Series A convertible redeemable preferred shares | — | — | — | — | (14,680 | ) | (19,836 | ) | |||||||||||||||||
Cumulative dividends on Series B convertible redeemable preferred shares | — | — | — | — | (5,531 | ) | (14,412 | ) | |||||||||||||||||
Cumulative dividends on Series C convertible redeemable preferred shares | — | — | — | — | — | (356 | ) | ||||||||||||||||||
Changes in redemption value of Series A convertible redeemable preferred shares | — | — | — | — | (10,569 | ) | — | ||||||||||||||||||
Changes in redemption value of Series B convertible redeemable preferred shares | — | — | — | — | (4,134 | ) | — | ||||||||||||||||||
Changes in redemption value of Series C convertible redeemable preferred shares | — | — | — | — | — | (1,872 | ) | ||||||||||||||||||
Loss attributable to ordinary shareholders | — | — | (1,434 | ) | (4,560 | ) | (38,901 | ) | (55,872 | ) | |||||||||||||||
Basic and diluted net loss attributable to China Hydroelectric Corporation shareholders per share | — | — | (0.34 | ) | (0.33 | ) | (2.50 | ) | (3.59 | ) | |||||||||||||||
Weighted average ordinary shares used in basic and diluted net loss attributable to China Hydroelectric Corporation shareholders per share computation | * | * | 4,240,822 | 13,817,466 | 15,554,416 | 15,541,666 |
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Binglangjiang (Predecessor) | Our Company (Successor) | |||||||||||||||||||||||
For the | ||||||||||||||||||||||||
Period | ||||||||||||||||||||||||
from | For the Period | |||||||||||||||||||||||
For the Year | January 1 | from July 10 | ||||||||||||||||||||||
Ended | to | (inception) to | For the Year Ended | |||||||||||||||||||||
December 31, | April 24, | December 31 | December 31, | |||||||||||||||||||||
2006 | 2007 | 2006 | 2007 | 2008 | 2009 | |||||||||||||||||||
(US$ in thousands, except share and per share data) | ||||||||||||||||||||||||
Pro forma basic net (loss) income attributable to China Hydroelectric Corporation shareholders per share on an as converted basis | — | — | — | — | (0.07) | (1) | (0.16) | (1) | ||||||||||||||||
Pro forma diluted net (loss) income attributable to China Hydroelectric Corporation shareholders per share on an as converted basis | — | — | — | — | (0.07) | (1) | (0.16) | (1) | ||||||||||||||||
Shares used in pro forma basic net (loss) income attributable to China Hydroelectric Corporation shareholders per share computation | — | — | — | — | 55,415,130 | (1) | 122,427,137 | (1) | ||||||||||||||||
Shares used in pro forma diluted net (loss) income attributable to China Hydroelectric Corporation shareholders per share computation | 55,415,130 | (1) | 122,427,137 | (1) | ||||||||||||||||||||
Number of shares as adjusted to reflect changes in capital | * | * | — | — | 58,289,666 | (1) | 134,100,575 | (1) | ||||||||||||||||
Other Financial Data: | ||||||||||||||||||||||||
EBITDA, as adjusted(2) | * | * | (901 | ) | (320 | ) | 6,474 | 22,188 |
* | Not provided, as the information relates to the results of operations of Binglangjiang prior to its acquisitions by us. | |
(1) | This calculation of pro forma basic and diluted loss per share for the year ended December 31, 2008 and December 31, 2009 assumes that all Series A convertible redeemable preferred shares, Series B convertible redeemable preferred shares were converted into ordinary shares on January 1, 2008, and that all Series A convertible redeemable preferred shares, Series B convertible redeemable preferred shares and Series C convertible redeemable preferred shares were converted into ordinary shares on January 1, 2009. The number of shares as adjusted to reflect change in capital for the year ended December 31, 2008 includes the outstanding ordinary shares of 15,541,666 and the 23,529,286 and 19,218,714 ordinary shares to be issued upon conversion of the Series A convertible redeemable preferred shares and the Series B convertible redeemable preferred shares, respectively, including the conversion of dividends accrued on the Series A convertible redeemable preferred shares and Series B convertible redeemable preferred shares to be paid in kind but not yet issued as of December 31, 2008. The number of shares as adjusted to reflect changes in capital for the year ended December 31, 2009 includes the outstanding ordinary shares of 15,541,666 and the 62,345,354, 50,318,921 and 5,894,634 ordinary shares to be issued upon conversion of the Series A convertible redeemable preferred shares, the Series B convertible redeemable preferred shares, and the Series C convertible redeemable preferred shares, respectively, including the conversion of dividends accrued on the Series A convertible redeemable preferred shares, Series B convertible redeemable preferred shares and Series C convertible preferred shares to be paid in kind but not yet issued as of December 31, 2009. | |
(2) | See “Operating and Financial Review and Prospects-Results of Operations-EBITDA, as adjusted for a reconciliation of this non-GAAP number. |
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Our Company (Successor) | |||||||||||||||||||||||||
Binglangjiang | Pro forma | ||||||||||||||||||||||||
(Predecessor) | Balance Sheet | ||||||||||||||||||||||||
As of December 31, | As of December 31, | At December 31 | |||||||||||||||||||||||
2006 | 2006 | 2007 | 2008 | 2009 | 2009 | ||||||||||||||||||||
(US$ in thousands) | |||||||||||||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||||||||
Cash and cash equivalents | 142 | 628 | 15,606 | 38,693 | 31,618 | 31,618 | |||||||||||||||||||
Restricted cash | — | 50,340 | — | — | — | — | |||||||||||||||||||
Accounts receivable, net | 152 | — | 329 | 3,137 | 8,434 | 8,434 | |||||||||||||||||||
Deferred tax assets | — | — | — | 1,166 | 489 | 489 | |||||||||||||||||||
Amounts due from related parties | 64 | 33 | 25 | 13 | — | — | |||||||||||||||||||
Debt issuance costs | — | — | 47 | — | — | — | |||||||||||||||||||
Amounts due from an equity investee | — | — | 287 | 4,534 | — | — | |||||||||||||||||||
Prepayments and other current assets | 206 | — | 3,269 | 9,437 | 4,582 | 4,582 | |||||||||||||||||||
Total current assets | 564 | 51,001 | 19,563 | 56,980 | 45,123 | 45,123 | |||||||||||||||||||
Debt issuance costs | — | 975 | — | — | |||||||||||||||||||||
Investment in an equity investee | — | — | 4,721 | 4,295 | — | — | |||||||||||||||||||
Deferred IPO initial public offering costs | — | — | — | 6,032 | 12,774 | — | |||||||||||||||||||
Property, plant and equipment, net | 16,752 | — | 29,046 | 365,190 | 423,200 | 423,200 | |||||||||||||||||||
Intangible assets, net | — | — | 3,008 | 3,666 | 4,513 | 4,513 | |||||||||||||||||||
Goodwill | — | — | 2,773 | 96,533 | 107,824 | 107,824 | |||||||||||||||||||
Deferred tax assets | — | — | — | — | 1,231 | 1,231 | |||||||||||||||||||
Other non-current assets | — | — | — | 872 | 399 | 399 | |||||||||||||||||||
Total non current assets | 16,752 | 975 | 39,548 | 476,588 | 549,941 | 537,167 | |||||||||||||||||||
Total assets | 17,316 | 51,976 | 59,111 | 533,568 | 595,064 | 582,290 | |||||||||||||||||||
Total current liabilities | 2,392 | 850 | 14,436 | 77,285 | 102,492 | 102,492 | |||||||||||||||||||
Long term loan | 13,831 | — | 10,269 | 138,133 | 172,469 | 172,469 | |||||||||||||||||||
Deferred tax liabilities | — | — | — | 13,415 | 18,805 | 18,805 | |||||||||||||||||||
Other non-current liabilities | — | — | — | 568 | 104 | 104 | |||||||||||||||||||
Long-term note | — | 50,285 | — | — | — | — | |||||||||||||||||||
Convertible redeemable preferred shares | — | — | — | 299,236 | 353,840 | ||||||||||||||||||||
Total China Hydroelectric Corporation shareholders’ equity(deficit) | 1,093 | 841 | 34,406 | 4,181 | (53,435 | ) | 287,631 | ||||||||||||||||||
Noncontrolling interests | — | — | — | 750 | 789 | 789 | |||||||||||||||||||
Total liabilities and shareholders’ equity (deficit) | 17,316 | 51,976 | 59,111 | 533,568 | 595,064 | 582,290 | |||||||||||||||||||
Note: | The unaudited pro forma balance sheet as of December 31, 2009 has been prepared based on the assumed conversion of the convertible redeemable preferred shares. |
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Binglangjiang (Predecessor) | Our company (Successor) | ||||||||||||||||||||
As of and | As of and | As of and | |||||||||||||||||||
For the Year | For the Period from | For the Period Ended | |||||||||||||||||||
Ended | January 1 to | December 31, | |||||||||||||||||||
December 31, 2006 | April 24, 2007 | 2007 | 2008 | 2009 | |||||||||||||||||
Selected Operation Data(1) | |||||||||||||||||||||
Installed Capacity(MW) | 21.0 | 21.0 | 58.0 | (2) | 271.0 | (2) | 376.60 | ||||||||||||||
Electricity Sold(kWh) | 106,646,530 | 23,495,595 | 108,303,945 | (3) | 333,964,005 | (3) | 798,945,372 | ||||||||||||||
Effective tariff (RMB/kWh) | 0.164 | 0.2 | 0.18 | (4) | 0.33 | (4) | 0.34 | (4) |
(1) | For Binglangjiang, operating data given are for the periods stated. For our company, operating data given are for our period of ownership of the hydroelectric power projects during the periods indicated. | |
(2) | Our aggregate installed capacity information presented includes, as of December 31, 2007 and December 31, 2008, the installed capacity of Shapulong, as of December 31, 2008, the installed capacity of Shapulong, Banzhu, and Wangkeng, and as of December 31, 2009, the installed capacity of Wangkeng, although as of such respective date, our equity interest in Shapulong, Banzhu, and Wangkeng were 50.0%, 90.0% and 90.0% respectively. We acquired the remaining 10.0% interest in Banzhu in March 2009 and the remaining 50.0% of Shapulong in August 2009. | |
(3) | Electricity sold and effective tariff information for the year ended December 31, 2007 does not reflect electricity sold by Shapulong. Electricity sold and effective tariff information for the year ended December 31, 2008 does not reflect electricity sold by Shapulong and Yuanping. Our 50% equity interest in Shapulong accounted for using the equity method of accounting and our proportional share of Shapulong’s net loss is included as a share of losses in equity investee, in our consolidated statement of operations for the year ended December 31, 2007 and 2008. In the years ended December 31, 2007 and 2008, Shapulong sold 43,292,057kWh, 42,308,157kWh, respectively. We acquired the remaining 50.0% equity interest in Shapulong in August 2009. Although Yuanping commenced operations in March 2007, and has transmitted electricity to the power grid controlled by Fujian Ningde Electric Power Bureau, that transmission was made without a fixed or pre-determined tariff per kWh until late June 2009. Therefore, cash received in exchange for the transmission of electricity to the power grid before late June 2009 was recorded as customer deposits. Accordingly, no revenues were recorded by Yuanping in the year ended December 31, 2008. However, related cost of revenue was not deferred, and was charged to expenses as incurred. All of the customer deposits received from the date of our acquisition of Yuanping after the per kWh tariff became fixed or determinable. In August 2009, the Ningde Pricing Bureau, the regional pricing bureau in Fujian province, approved a unit price per kWh of RMB0.29, inclusive of value-added tax, or VAT, for electricity transmitted by Yuanping to the power grid controlled and owned by the provincial grid company prior to July 8, 2009. The unit price per kWh of RMB0.29 will continue to be in effect until the regional pricing bureau approves a new unit price per kWh. In the year ended December 31, 2007 and 2008, Yuanping transmitted 30,071,595kWh, 28,292,478kWh of electricity, respectively. | |
(4) | see Exhibit 15.1 to this Annual Report on Form 20-F for the details of the calculation of effective tariff. |
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• | result in our dependence upon the performance of a limited number of operating plants; | ||
• | result in our dependence upon electricity sales in limited geographical areas; | ||
• | subject us to increased risks associated with drought or other natural disasters in a particular geographical area; and | ||
• | limit our ability to grow our revenues and to obtain the benefits of scale that we anticipate. |
• | delays in obtaining various regulatory approvals, licenses or permits from different governmental authorities at different levels, including permission for the construction and operation of the hydroelectric power project itself, the environmental permits and permits to use the relevant land; | ||
• | shortages or increases in the cost of equipment, materials or labor; | ||
• | adverse weather conditions, which may delay the completion of hydroelectric power projects or substations, or natural disasters, accidents or other unforeseen events; | ||
• | unforeseen engineering, design, environmental or geological problems; | ||
• | opposition of local interests; | ||
• | strikes and labor disputes; | ||
• | inability to obtain financing on satisfactory terms; and | ||
• | adverse changes in the PRC regulatory environment. |
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• | general economic and capital market conditions; | ||
• | the availability of credit from banks or other lenders; | ||
• | investor confidence in us; and | ||
• | the continued performance of our hydroelectric power projects. |
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• | failure of power transmission systems; | ||
• | unexpected maintenance or technical problems; | ||
• | human error; | ||
• | failure of our mechanical, software or monitoring systems; and | ||
• | industrial accidents. |
• | potential construction or engineering problems which may expose us to severe economic loss or legal liabilities and require substantial expenditure from us to remediate; | ||
• | unforeseen or hidden liabilities, including exposure to legal proceedings, associated with newly acquired companies; | ||
• | failure to generate sufficient revenues to offset the costs and expenses of acquisitions; | ||
• | potential impairment losses and amortization expenses relating to goodwill and intangible assets arising from any of such acquisitions, which may materially reduce our net income or result in a net loss; and | ||
• | possible contravention of Chinese regulations applicable to such acquisitions. |
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• | expand our systems and processes effectively or efficiently or in a timely manner; | ||
• | allocate our human resources optimally or reduce headcount without experiencing community protest, strike or other social unrest; | ||
• | identify and hire qualified employees or retain valued employees; | ||
• | incorporate effectively hydroelectric power projects in various stages of development that we may acquire; | ||
• | maintain good relationship with power grids; or | ||
• | centralize and improve the efficiency of the management and operations of the hydroelectric power projects acquired. |
• | construction costs, which vary according to the installed capacity of the individual power projects; | ||
• | operating and administrative expenses; | ||
• | maintenance and repair costs of power projects; and | ||
• | interest expense on outstanding debts. |
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• | planning and construction of new power projects; | ||
• | the granting of power generation, dispatch and supply permits; | ||
• | the amount and timing of power generation; | ||
• | the setting of on-grid tariffs paid to power producers and power tariffs paid by consumers of electricity; | ||
• | power grid control and power dispatch, including the setting of preferential policies for the dispatch of renewable energy generated power; | ||
• | allocation of water resources and control of water flows; | ||
• | environmental protection and safety standards; | ||
• | acquisitions by foreign investors; and | ||
• | taxes, in particular Enterprise Income Tax and Value Added Tax. |
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• | identifying and hiring additional personnel with U.S. GAAP and SEC reporting experience; | ||
• | providing training to our finance personnel to improve their knowledge of U.S. GAAP and SEC reporting requirements; | ||
• | holding regular meetings of the audit committee and resuming regular communication between the committee and our independent registered public accounting firm; | ||
• | establishing an internal audit function; | ||
• | establishing anonymous whistleblower systems for reporting violations of our governance policies, including policies regarding internal controls; | ||
• | putting in place a centralized financial reporting software system in our headquarters, management centers and operating projects; and | ||
• | engaging external professional consultants to assess the entity level internal controls over financial reporting using the COSO internal control framework. We have also begun to formulate policies relating to internal control over financial reporting, including the preparation of a comprehensive accounting policies and procedures manual, containing, among other things, detailed, expanded closing checklists, to guide our financial personnel in addressing significant accounting issues and assist them in preparing financial statements in compliance with U.S. GAAP and SEC requirements. |
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• | the level of government involvement; | ||
• | the level of development; | ||
• | the growth rate; | ||
• | the level and control of capital investment; | ||
• | the control of foreign exchange; and | ||
• | the allocation of resources. |
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• | to recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or | ||
• | to entertain original actions brought against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. |
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• | we have failed to timely provide the depositary with our notice of meeting and related voting materials; | ||
• | we have instructed the depositary that we do not wish a discretionary proxy to be given; | ||
• | we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; | ||
• | a matter to be voted on at the meeting would have a material adverse impact on shareholders. |
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• | in November 2006, we raised $50.0 million through the sale of convertible notes in a private placement to institutional investors; | ||
• | in April 2007, we established a wholly owned subsidiary, Beijing A.B.C. Investment Consulting Co., Ltd. in Beijing, China, which provides management and other consulting services to our hydroelectric power projects in China; | ||
• | in April 2007, we acquired Yunnan Huabang Electric Power Development Co., Ltd., which owns and operates the Binglangjiang I hydroelectric power project, with an installed capacity of 21.0 MW, and which has the right to complete construction of, and operate, the Binglangjiang II hydroelectric power project, with a design capacity of 20.0 MW, both in Yingjiang County, Dehong Prefecture, Yunnan province, for a total consideration of RMB50.0 million ($6.5 million). In addition, we made a cash advance to the company of RMB125.0 million ($16.2 million) in April 2007 prior to the completion of the acquisition. Binglangjiang is considered our predecessor company for SEC reporting purposes, as we acquired substantially all of the business of Binglangjiang and our own operations prior to that acquisition were insignificant compared to the operations of Binglangjiang; | ||
• | in May 2007, we acquired, through an asset purchase, the Liyuan hydroelectric power project, a completed project with an installed capacity of 12.0 MW located in Cangxi County, Guangyuan City, Sichuan province, from Cangxi County Jianghe Hydroelectric Power Development Co., Ltd., for a purchase price of RMB77.0 million ($10.0 million) in cash. We established at that time Sichuan Huabang Hydroelectric Development Co., Ltd. to own and operate the plant; | ||
• | in December 2007, we acquired a 50.0% equity interest in Yunhe County Shapulong Hydropower Generation Co., Ltd., which owns and operates the Shapulong hydroelectric power project, with an installed capacity of 25.0 MW, located in Yunhe County, Lishui City, Zhejiang province, for a purchase price of RMB33.0 million ($4.5 million) in cash. In August 2009, we acquired a 13.0% equity interest in the company for a purchase price of RMB8.6 million ($1.3 million) and a further 37.0% equity interest in the company for a purchase price of RMB21.0 million ($3.1 million); | ||
• | in January 2008, we raised $150.0 million in a private placement of Series A convertible redeemable preferred shares to institutional investors; | ||
• | in January 2008, we acquired Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd., which owns and operates the Yingchuan hydroelectric power project, with an installed capacity of 40.0 MW, located in Jingning County, Lishui City, Zhejiang province, for a total consideration of RMB304.0 million ($42.3 million), which was comprised of a cash purchase price of RMB291.4 million ($40.6 million) and a payment of RMB12.6 million ($1.8 million) to settle all of the liabilities of the company; | ||
• | in January 2008, we acquired Qingtian Wuliting Hydroelectric Development Co., Ltd., which owns and operates the Wuliting hydroelectric power project, with an installed capacity of 42.0 MW, located in Qingtian County, Lishui City, Zhejiang province, for a purchase price of RMB342.1 million ($47.6 million), which was comprised of a cash purchase price of RMB206.9 million ($28.8 million) and a payment of RMB135.3 million ($18.8 million) to settle all of the liabilities of the company; |
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• | in January 2008, we acquired Suichang County Jiulongshan Hydroelectric Development Co., Ltd., which owns the Zhougongyuan hydroelectric power project, with a design capacity of 53.6 MW, located in Suichang County, Lishui City, Zhejiang province, for a purchase price of RMB157.3 million ($21.9 million) in cash. We were obligated to make a cash injection into the company of RMB250.0 million ($34.8 million) to complete the construction of the project under the original agreement; | ||
• | in July 2008, we raised $101.0 million in a private placement of Series B convertible redeemable preferred shares to institutional investors; | ||
• | in August 2008, we raised $28.0 million in a private placement of Series B convertible redeemable preferred shares to institutional investors; | ||
• | in October 2008, we acquired a 90.0% equity interest in Sanming Zhongyin Banzhu Hydroelectric Co., Ltd., which owns and operates the Banzhu hydroelectric power project, with an installed capacity of 45.0 MW, located in Sanming City, Fujian province, for a purchase price of RMB134.2 million ($19.6 million) in cash. We were obligated to make a capital injection of RMB104.9 million ($15.4 million) to the company to finance its future operations after the acquisition, of which RMB21.2 million ($3.1 million) was made in March 2009, and the remaining capital injection of RMB83.7 million ($12.3 million) will be made in 2010. In addition, pursuant to a supplemental agreement with the shareholders at the time, Sanming Ruifeng Hydropower Investment Co., Ltd. and Yong’an Ruifeng Hydroelectric Ltd. were entitled to receive the RMB59.2 million ($8.7 million) of current assets, including cash and cash equivalents, accounts receivable and amounts due from related parties of Banzhu as of the acquisition date. Subsequently, in January 2009, Sanming Ruifeng Hydropower Investment Co., Ltd. agreed to forego RMB7.0 million ($1.0 million) of the current assets that Sanming Ruifeng Hydropower Investment Co., Ltd. is entitled to receive. In March 2009, we acquired the remaining 10.0% equity interest in this company for a purchase price of RMB17.0 million ($2.5 million) in cash; | ||
• | in October 2008, we acquired a 90.0% equity interest in Pingnan County Wangkeng Hydroelectric Co., Ltd., which owns and operates the Wangkeng hydroelectric power project, with an installed capacity of 40.0 MW, located in Pingnan County, Ningde City, Fujian province, for a purchase price of RMB220.5 million ($32.3 million) in cash; | ||
• | in October 2008, we acquired Pingnan County Yuanping Hydroelectric Co., Ltd., which owns and operates the Yuanping hydroelectric power project, with an installed capacity of 16.0 MW, located in Pingnan County, Ningde City, Fujian province, for a purchase price of RMB58.0 million ($8.5 million) in cash; | ||
• | in October 2008, we acquired Pingnan County Yuheng Hydropower Co., Ltd., which owns and operates the Yuheng hydroelectric power project, with an installed capacity of 30.0 MW, located in Pingnan County, Ningde City, Fujian province, for a purchase price of RMB121.0 million ($17.7 million) in cash; | ||
• | in March 2009, Pingnan County Wangkeng Hydroelectric Co., Ltd, signed a RMB150.0 million ($22.0 million) loan agreement with Industrial Bank Co., Ltd., Ningde Branch to refinance the Wangkeng hydroelectric power project; | ||
• | in March 2009, Qingtian Wuliting Hydroelectric Development Co., Ltd, signed a RMB219.6 million ($32.2 million) loan agreement with Bank of China, Lishui City Dayang Sub-branch to refinance the Wuliting hydroelectric power project; | ||
• | in June 2009, Sanming Zhongyin Banzhu Hydroelectric Co., Ltd, signed a RMB294.9 million ($43.2 million) loan agreement with the Bank of China, Fujian Branch to refinance the Banzhu hydroelectric power project; | ||
• | in June 2009, Suichang County Jiulongshan Hydroelectric Development Co., Ltd. signed a RMB216.0 million ($31.6 million) loan agreement and a RMB9.0 million ($1.3 million) loan agreement with the Agricultural Bank of China, Lishui Branch to refinance the Zhougongyuan hydroelectric power project; | ||
• | in July 2009, we signed a memorandum of understandings with the Bank of China, Fujian Branch, pursuant to which the bank will provide 50.0% of financing required for the acquisition or refinancing of any hydroelectric power projects acquired by us through an Investment Holding Company to be established by us in Fujian province; | ||
• | in August 2009, we acquired Longquan Ruiyang Cascade II Hydroelectric Co., Ltd., which owns and operates the Ruiyang hydroelectric power project, with an installed capacity of 32.0 MW, located in Xiaomei Township, Longquan City, Zhejiang province, for a purchase price of RMB160.0 million ($23.4 million) in cash; | ||
• | in September 2009, we signed a non-binding framework agreement with Sichuan Huashui Power Construction Engineering Co., Ltd. to jointly develop 40 small hydroelectric power projects in Sichuan province totaling approximately 1,250.0 MW of design installed capacity, for which Sichuan Huashui Power construction Engineering Co., Ltd. has the development right. We have subsequently determined not to pursue these projects. |
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• | in October 2009, we signed a capital increase agreement with Henan Lan Tian Group Co., Ltd. to subscribe for a 79.0% equity interest in Henan Wuyue Storage Power Generation Co., Ltd., which owns the right to develop a 1,000.0 MW pumped storage project, located in Yinpeng Township, Guangshan County, Xinyang City, Henan province, for a purchase price of RMB162.5 million ($23.8 million) in cash. The completion of the capital increase transaction is pending government approval; | ||
• | in October 2009, we raised $20.0 million in a private placement of Series C convertible redeemable preferred shares to an institutional investor; | ||
• | in December 2009, we transferred one hydroelectric power project from Suichang County Jiulongshan Hydroelectric Development Co., Ltd., to the newly established Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. Both Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. are wholly owned by us; and | ||
• | in January 2010, we established a wholly owned subsidiary, Fujian Huabang Hydroelectric Investment Co., Ltd. | ||
• | in January 2010, we completed our initial public offering and received net proceeds of approximately $74.8 million, and our ADSs and warrants started trading on the NYSE under the symbols “CHC” and “CHCWS”, respectively. | ||
• | In February 2010, we received a Loan Framework Agreement from the Bank of China’s Fujian Branch pursuant to which the bank approved our wholly owned subsidiary, Fujian Huabang Hydroelectricity Investment Co., as a borrower of up to an aggregate of RMB 3 billion ( $440 million) for the acquisition of hydroelectric projects. Each acquisition loan will be subject to individual approval by the bank and to definitive documentation (which will include the term and interest rate thereof). The Loan Framework Agreement represents the bank’s form of internal commitment for the loan facility. | ||
• | In March 2010, we acquired Husahe, a 18.7 MW operating project in Yunnan province in the PRC for a purchase price of RMB106 million ($15.5 million), financed partially through cash on hand and through the assumption or refinancing of existing non-recourse debt. | ||
• | In April 2010, we signed a definitive agreement to acquire Xiaopengzu, a 44 MW operating hydroelectric project in Yunnan province in the PRC for a purchase price of RMB240.0 million ($35.1 million). | ||
• | In April 2010, we signed two definitive agreements to acquire three Minrui operating projects, totaling 55.5 MW in installed generating capacity, for a purchase price of RMB 96.3 million ($14.1 million). |
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• | completed projectsrefer to projects that are built and in operation; | ||
• | projects under constructionrefer to projects that are being built and are not yet in operation; | ||
• | approved projectsrefer to projects that have received the approvals, permits and licenses necessary for construction to commence; and | ||
• | greenfield projectsrefer to projects that lack one or more construction permits and have not begun construction. |
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Electricity Sold (kWh) | Effective Utilization Rate (%)(11) | |||||||||||||||||||||||||||||||||||||
Actual or | | | ||||||||||||||||||||||||||||||||||||
Project or | Expected | Installed | | | Design | |||||||||||||||||||||||||||||||||
Expansion and | Date in | Approved Tariff(1) | Capacity | | | Utilization | ||||||||||||||||||||||||||||||||
Location | Service | (RMB/kWh) | (MW) | 2007 | 2008 | 2009 | 2007 | 2008 | 2009 | (%) | Type | |||||||||||||||||||||||||||
Completed Projects | ||||||||||||||||||||||||||||||||||||||
Binglangjiang I, Yunnan | January 1988 | 0.22 January to May; 0.17 June to December | 21.0 | 112,041,197 | 117,278,061 | 95,514,582 | 60.9 | 63.6 | 51.9 | 60.0 | A | |||||||||||||||||||||||||||
Binglangjiang II, Yunnan | September 2009 | 0.22 January to May 0.17 June to December | 20.0 | N/A | N/A | 29,141,455 | N/A | N/A | 51.5 | 55.0 | A | |||||||||||||||||||||||||||
Liyuan(2), Sichuan | August 2006 | 0.29 | 12.0 | 19,758,343 | 25,098,176 | 23,435,555 | 18.8 | 23.8 | 22.3 | 42.0 | B | |||||||||||||||||||||||||||
Shapulong(3), Zhejiang | June 2001 | 0.535 peak hours; 0.268 off-peak | 40.0 | 43,292,057 | (7) | 42,308,157 | (7) | 40,630,896 | 20.2 | 19.3 | 18.6 | 23.0 | C | |||||||||||||||||||||||||
Yingchuan, Zhejiang | April 2002 | 0.535 peak hours; 0.268 off-peak | 25.0 | 102,700,957 | 90,768,127 | 107,225,642 | 29.3 | 25.8 | 30.6 | 28.0 | C | |||||||||||||||||||||||||||
Wuliting, Zhejiang | October 2007 | 0.535 peak hours; 0.268 off-peak | 42.0 | 65,423,294 | 70,224,000 | 92,554,400 | 17.8 | 19.0 | 25.2 | 33.0 | B | |||||||||||||||||||||||||||
Ruiyang, Zhejiang | December 2003 | 0.535 peak hours; 0.268 off-peak | 32.0 | 68,645,855 | 51,237,120 | 62,453,774 | 24.5 | 18.2 | 22.3 | 24.0 | C | |||||||||||||||||||||||||||
Jiulongshan, Zhejiang | 0.535 peak hours 0.268 off-peak | 37.6 | N/A | N/A | 73,964,924 | N/A | N/A | 20.0 | 25.0 | C/A | (10) | |||||||||||||||||||||||||||
Zhougongyuan, Zhejiang | March 2009 | 0.535 peak hours; 0.268 off-peak | 16.0 | N/A | N/A | 2,934,316 | N/A | N/A | 12.5 | 25.0 | C/A | (10) | ||||||||||||||||||||||||||
Banzhu, Fujian | November 1998 | 0.36 | 45.0 | (6) | 169,092,862 | (8) | 155,536,410 | (8) | 126,659,753 | 42.9 | 39.3 | 32.1 | 40.0 | B | ||||||||||||||||||||||||
Wangkeng(3), Fujian | July 2004 | 0.31 | 40.0 | (6) | 118,792,231 | (9) | 129,217,917 | (9) | 108,369,852 | 33.9 | 36.8 | 30.9 | 42.0 | C | ||||||||||||||||||||||||
Yuanping(4), Fujian | March 2007 | 0.29 | 16.0 | 30,071,595 | 38,393,478 | 44,316,824 | 21.5 | 27.3 | 31.6 | 39.0 | A | |||||||||||||||||||||||||||
Yuheng(5), Fujian | November 1999 | 0.29 | 30.0 | 54,955,750 | 90,983,456 | 69,284,988 | 33.5 | 34.6 | 26.4 | 42.0 | A | |||||||||||||||||||||||||||
Husahe, Yunnan | March 1995 | 0.22 January to May; 0.17 June to December | 18.7 | |||||||||||||||||||||||||||||||||||
Total: | 395.3 | |||||||||||||||||||||||||||||||||||||
Under Construction | ||||||||||||||||||||||||||||||||||||||
Wuyue, Henan | 2014-2015 | 1,000.0 | ||||||||||||||||||||||||||||||||||||
Total: | 1,395.3 | |||||||||||||||||||||||||||||||||||||
(1) | We are required to withhold VAT due on our power dispatched at a rate of 6.0% or 17.0% depending on the size and location of the plant. Approved tariffs presented above are gross of VAT. Peak hours are generally from 8 a.m. to 10 p.m. For Bingliangjiang II, the effective tariff stated was effective from January 1, 2010. In 2009, from September 4 to November 3, the effective tariff was 0.12 and from November 4 to December 31 was 0.17. | |
(2) | 2007 data for Liyuan are for the period from May 21 to December 31, 2007. | |
(3) | We acquired a 50.0% equity interest in Shapulong in December 2007. 2007 data for Shapulong are for the period from January 1, 2007 to December 24, 2007. We have owned 100.0% of the equity interest in Shapulong since August 2009. We have owned 90.0% of the equity interest in Wangkeng since October 2008. | |
(4) | In August 2009, the Ningde Pricing Bureau, the regional pricing bureau in Fujian province, approved a unit price per kWh of RMB0.29, inclusive of VAT, for electricity transmitted by Yuanping to the power grid controlled and owned by the provincial grid company prior to July 8, 2009. The unit price per kWh of RMB0.29 will continue to be in effect until the regional pricing bureau approves a new unit price per kWh. | |
(5) | Currently, Yuheng is receiving RMB0.29 per kWh for electricity supplied to Fujian Province Pingnan County Power Supply Co., Ltd., pursuant to the power purchase agreement entered into between Yuheng and Fujian Province Pingnan County Power Supply Co., Ltd. on December 28, 2008, which is valid until December 28, 2009. However, pursuant to the Interim Agreement of Conformity of Power Purchase and Supply in Rongping Supply Area entered into by Yuheng, Fujian Province Pingnan County Power Supply Co., Ltd., Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. and Pingnan County Hengli Hydroelectric Co., Ltd. on August 31, 2007, or the Interim Agreement, the tariff rate of RMB0.181 per kWh has been set for the supply of an aggregate volume of 300 million kWh of electricity by Yuheng to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. through Fujian Province Pingnan County Power Supply Co., Ltd. for a contractual term of forty-two months ending in October 2010. Therefore, for electricity supplied under the Interim Agreement to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd., Yuheng is only entitled to RMB0.181 per kWh of the RMB0.29 per kWh revenue received from Fujian Province Pingnan County Power Supply Co., Ltd. and is obligated to remit the remaining RMB0.109 per kWh, to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. until the earlier of reaching the cumulative volume of 300 million kWh or October 2010. Pursuant to the Transfer of Yuanping Hydropower Plant and Cooperation Agreement entered into between Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. and Fujian Province Anheng Assets Management Co., Ltd., Fujian Yuheng Power Group and Fujian Dachuang Hydro Power Co., Ltd, which were the founders of Pingnan County Yuheng Hydropower Co., Ltd., Yuheng provided a guarantee deposit of RMB30 million ($4.4 million) to Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. to guarantee the supply of electricity of an aggregate volume of 300 million kWh over the contractual term, and is entitled to be refunded RMB0.1 of the guarantee deposit for every kWh of electricity supplied to Rongping Chemical through the power grid up to 300 million kWh over the contractual term. 2007 data for Yuheng are for the period from May 18 to December 31, 2007. | |
(6) | Our aggregate installed capacity information presented in this annual report includes, as of December 31, 2007, the installed capacity of Shapulong, as of December 31, 2008, the installed capacities of Shapulong, Banzhu and Wangkeng, and as of December 31, 2009, the installed capacity of Wangkeng, although as of such respective dates, our equity interest in Shapulong, Banzhu and Wangkeng were 50.0%, 90.0% and 90.0%, respectively. | |
(7) | We held a 50.0% equity interest in Shapulong in 2008. On an equity interest basis, we would be entitled to 21,646,029 kWh and 21,154,079 kWh of electricity sold for 2007 and 2008, respectively, had we owned our equity interest in Shapulong for those periods. Effective utilization rates for the plant do not reflect our equity interest in the plant, but the operation of the plant as a whole. We have owned 100.0% of the equity interest in Shapulong since August 2009. | |
(8) | We have held a 100.0% equity interest in Banzhu since March 2009, but we only held a 90.0% equity interest in Banzhu as of December 31, 2008. On an equity interest basis, we would be entitled to 152,183,576 kWh and 139,982,769 kWh of electricity sold for 2007 and 2008, respectively, had we owned our 90% equity interest in Banzhu for those periods. Effective utilization rates for the plant do not reflect our equity interest in the plant, but the operation of the plant as a whole. | |
(9) | We hold a 90.0% equity interest in Wangkeng. On an equity interest basis, we would be entitled to 106,913,008 kWh, 116,296,125 kWh and 87,761,258 kWh of electricity sold for 2007, 2008 and for the nine months ended September 30, 2009, respectively, had we owned our equity interest in Wangkeng for those periods. Effective utilization rates for the plant do not reflect our equity interest in the plant, but the operation of the plant as a whole. | |
(10) | The Zhougongyuan project consists of three separate hydropower plants in series on the same river. The upstream hydropower plant is an impoundment dam reservoir hydropower plant (type C) and the other two in series downstream are run-of-the-river diversion dam hydropower plants (type A). Zhougongyuan project was split into two subsidiary projects in December 2009: Jiulongshan project and Zhougongyuan project. | |
(11) | See Exhibit 15.1 to this annual report for detailed calculations of effective utilization rates. |
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• | acquisition price, and anticipated construction cost where applicable, as compared to current and projected cash flow and the historical and projected return on investment, taking into account historical tariff levels and tariff trends; | ||
• | the acquisition cost as compared to the estimated replacement value, the appraised value and our own assessment of fair value using a number of valuation methodologies; | ||
• | the status of approvals, permits and licenses required for the construction and operation of the plant, including the legal status of the land occupied by the plant; | ||
• | the hydrological condition of the plant site; | ||
• | the ability to retain existing or obtain new local bank financing on reasonable terms; | ||
• | the operating history of the target business, including actual power production and local supply and demand; | ||
• | the installed capacity and design of the hydroelectric power project operated by the target business, including opportunities to expand or otherwise improve generation capacity taking into consideration the current installed capacity and design utilization; | ||
• | the potential to diversify the regions in which we operate or to realize operational efficiencies from clustering multiple plants on a single water way; | ||
• | the competency of existing management and operational personnel of the target project; and | ||
• | the local government for the project, the relationship with the customer grid and the local tax rates. |
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• | construction costs, which vary according to the capacities of the individual power projects; | ||
• | operating and administrative expenses, such as labor and fuel costs; | ||
• | maintenance and repair costs of power projects; and | ||
• | interest expenses on outstanding debts. |
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• | The Sino-foreign Equity Joint Venture Law (1979), as amended; | ||
• | The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended; | ||
• | The Wholly Foreign-owned Enterprise Law (1986), as amended; | ||
• | The Detailed Rules of the Wholly Foreign-owned Enterprise Law (1990), as amended; | ||
• | The Company Law of the PRC (1993), as amended; | ||
• | The Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (2009); | ||
• | The Interim Administrative Measures on Foreign Investment (2004); and | ||
• | The Circular Regarding Further Strengthening and Regulating the Administration of Foreign Invested Projects issued by the National Development and Reform Commission (2008). |
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• | Land for use by government organs and for military use; | ||
• | Land for building urban infrastructure and for public welfare undertakings; | ||
• | Land for building energy, communications and water conservancy and other infrastructure projects heavily supported by the State; and | ||
• | Other land as provided for by the law and administrative decrees. |
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• | water resources construction projects involving the social and public interests and public safety such as flood prevention, drainage, irrigation, hydraulic power generation, diversion (supply) of water, harnessing shoals, water conservation and protection of water resources; | ||
• | water resources construction projects which are, wholly or partially, invested by the State-owned funds or funded through State financing; or | ||
• | water resources construction projects using loans or aid funds from international organizations or foreign governments. |
• | the estimated price for any single construction contract exceeds RMB2,000,000; | ||
• | the estimated price for any single procurement of substantial equipments and materials exceeds RMB1,000,000; | ||
• | the estimated price for any of surveying and prospecting, design or supervision exceeds RMB500,000; or | ||
• | the estimated prices are lower than the above standards, but the total investment of the projects exceeds RMB30,000,000. |
• | entering into monopoly agreement; | ||
• | abusing the dominant market position; | ||
• | conducting concentrations (as defined under the Antimonopoly Law) without first obtaining approvals from relevant authorities; |
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• | abusing administrative power; or | ||
• | abusing intellectual property rights. |
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• | The Sino-foreign Equity Joint Venture Law (1979), as amended; | ||
• | The Regulations of Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended; | ||
• | The Wholly Foreign-owned Enterprise Law (1986), as amended; | ||
• | The Detailed Rules of the Wholly Foreign-owned Enterprise Law (1990), as amended; | ||
• | Foreign Currency Administration Rules (1996), as amended | ||
• | The Company Law of China (1993), as amended; | ||
• | The Enterprise Income Tax Law of China; and | ||
• | The Implementation Regulations of Enterprise Income Tax Law of China. |
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• | tariffs; | ||
• | hydrological conditions; | ||
• | production efficiency of our hydroelectric power projects; | ||
• | expansion through strategic acquisitions; | ||
• | availability and cost of debt financing; and | ||
• | depreciation of property, plant and equipment and amortization of intangible assets. |
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• | maintaining a good working relationship with the grid’s dispatch control team, with whom our hydroelectric power project managers communicate on a daily basis; | ||
• | providing technical cooperation and support to the local grid, by sharing hydrology and operations data; and | ||
• | conducting thorough and accurate forecasts of our hydropower generation capacity and management of water flows to supply power as and when required by the local grid. |
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• | the reported amounts of our assets and liabilities; | ||
• | the disclosure of our contingent assets and liabilities at the end of each reporting period; and | ||
• | the reported amounts of revenue and expenses during each reporting period. |
• | our selection of critical accounting policies; | ||
• | the judgment and other uncertainties affecting the application of such policies; and | ||
• | the sensitivity of reported results to changes in conditions and assumptions. |
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• | the expected future volatility of our ordinary share prices; | ||
• | the risk-free interest rate; | ||
• | the expected dividend yield; and | ||
• | the estimated fair value of our ordinary and preferred shares at the Warrant Issue Date. |
• | our financial and operating results; | ||
• | the assumptions and basis of our financial projections; | ||
• | the nature of our business since our inception; | ||
• | the stage of development of our operations; | ||
• | our business plan; | ||
• | our business risks; | ||
• | the nature and prospects of the hydroelectric power industries in China; |
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• | the global economic outlook in general and the specific economic and competitive elements affecting our business, industry and market; and | ||
• | the market-derived investment returns of entities engaged in the hydroelectric power businesses. |
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• | the expected future volatility of our ordinary share price; | ||
• | the risk-free interest rate; | ||
• | the expected dividend yield; | ||
• | the expected employee share option exercise behavior; | ||
• | the expected forfeiture rate; and | ||
• | the estimated fair value of our ordinary shares at the grant date. |
• | our financial and operating results; | ||
• | the assumptions and basis of our financial projections; | ||
• | the nature of our business since our inception; | ||
• | the stage of development of our operations; | ||
• | our business plan; | ||
• | our business risks; | ||
• | the nature and prospects of the hydroelectric power industries in China; | ||
• | the global economic outlook in general and the specific economic and competitive elements affecting our business, |
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industry and market; and | |||
• | the market-derived investment returns of entities engaged in the hydroelectric power businesses. |
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• | Our increase in earning capability through continual acquisitions. Our valuation as of March 4, 2009 included hydroelectric power projects of Binlangjiang, Liyuan, Yingchuan, Wuliting, Zhougongyuan, Shapulong, Banzhu, Yuanping, Yuheng and Wangkeng. Subsequently in August 2009, we completed the acquisition of Ruiyang. The acquisition of Ruiyang increased our valuation as of December 31, 2009. In October 2009, we entered into an agreement to subscribe for a 79% equity interest in Henan Wuyue Storage Power Generation Co., Ltd. With the proceeds from the initial public offering in 2010, we expect to continue to acquire hydroelectric operating companies and assets for the development of new hydropower projects in China and for working capital and other purposes. We expect the new projects will further strengthen our future cash flows and these cash flows have been incorporated into our estimated public offering price, while the increase is expected to be partially offset by an increase in debt financing and dilution effect of issued preferred shares on our ordinary shares; | ||
• | Overall favorable market sentiment toward China-based publicly traded shares based on NASDAQ China Index increased from 101 on March 4, 2009 to 178 on December 31, 2009 and further increased to 186 on April 20, 2010. Hang Seng China Enterprises Index increased from 6,948 on March 4, 2009 to 12,794 on December 31, 2009 and was 12,437 on April 20, 2010. Also, the Shanghai Stock Exchange Composite Index has increased from 2,198 on March 4, 2009 to 3,277 on December 31, 2009 and was 3,033 on April 21, 2010; | ||
• | In October, 2009, we raised $20.0 million in a private placement of Series C convertible redeemable preferred shares. We expect our successful listing will allow us to have easier access to the capital markets in terms of fund raising activities, including equity financing and bank borrowing with lower cost of financing, and hence, increase our enterprise value; and | ||
• | The marketability of our ordinary shares after the initial public offering will provide increased liquidity for our shares, leading to a higher equity value, which we also expect to contribute to an increase in our enterprise value. |
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• | identifying and hiring additional personnel with U.S. GAAP and SEC reporting experience; | ||
• | providing training to our finance personnel to improve their knowledge of U.S. GAAP and SEC reporting requirements; | ||
• | holding regular meetings of the audit committee and ensuring regular communication between the committee and our independent registered public accounting firm; | ||
• | establishing an internal audit function; | ||
• | establishing anonymous whistleblower systems for reporting violations of our governance policies, including policies regarding internal controls; | ||
• | putting in place a centralized financial reporting software system in our headquarters, management centers and operating plants; and | ||
• | engaging external professional consultants to assess the entity level internal controls over financial reporting using the COSO internal control framework. We have also begun to formulate policies relating to internal control over financial reporting, including the preparation of a comprehensive accounting policies and procedures manual, containing, among other things, detailed, expanded closing checklists, to guide our financial personnel in addressing significant accounting issues and assist them in preparing financial statements in compliance with U.S. GAAP and SEC requirements. |
For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Revenues | 2,434 | 14,715 | 36,175 | |||||||||
Cost of revenues | (813 | ) | (6,025 | ) | (17,183 | ) | ||||||
Gross profit | 1,621 | 8,690 | 18,992 | |||||||||
Operating expenses | ||||||||||||
General and administrative expenses | (2,560 | ) | (6,761 | ) | (9,099 | ) | ||||||
Operating (loss) income | (939 | ) | 1,929 | 9,893 | ||||||||
Interest income | 1,051 | 1,340 | 510 | |||||||||
Interest expenses | (3,275 | ) | (5,847 | ) | (14,228 | ) | ||||||
Change in fair value of derivative financial liabilities and warrant liability | (266 | ) | 420 | (13,793 | ) |
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For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Exchange loss | (1,095 | ) | (1,067 | ) | (23 | ) | ||||||
Share of losses in an equity investee | (27 | ) | (503 | ) | (70 | ) | ||||||
Other income (loss), net | 8 | 144 | (225 | ) | ||||||||
Loss before income tax expenses | (4,543 | ) | (3,584 | ) | (17,936 | ) | ||||||
Income tax expenses | (17 | ) | (444 | ) | (1,492 | ) | ||||||
Consolidated net loss | (4,560 | ) | (4,028 | ) | (19,428 | ) | ||||||
Net loss attributable to noncontrolling interest | — | 41 | 32 | |||||||||
Net (loss) income attributable to China Hydroelectric Corporation shareholders | (4,560 | ) | (3,987 | ) | (19,396 | ) | ||||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
% of Revenues | ||||||||||||
Yunnan Dehong Electric Power Co., Ltd. | 71 | 19 | 8 | |||||||||
Sichuan Cangxi Electric Power Co., Ltd. | 29 | 7 | 3 | |||||||||
Lishui Electric Power Bureau | — | 65 | 50 | |||||||||
Fujian Electric Power Co., Ltd. | — | 7 | 27 | |||||||||
Pingnan Power Supply Company | — | 2 | 12 | |||||||||
Total | 100 | 100 | 100 | |||||||||
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For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Net loss | (4,560 | ) | (3,987 | ) | (19,396 | ) | ||||||
Interest expense, net | 2,224 | 4,507 | 13,695 | |||||||||
Other non-cash charges including exchange loss and change in fair value of derivative financial liabilities and warrant liability | 1,361 | 647 | 13,816 | |||||||||
Income tax expenses | 17 | 444 | 1,492 | |||||||||
Depreciation of property, plant and equipment, net | 572 | 4,755 | 12,399 | |||||||||
Amortization of intangible assets | 66 | 108 | 182 | |||||||||
EBITDA, as adjusted | (320 | ) | 6,474 | 22,188 | ||||||||
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Yunnan | Sichuan | Zhejiang | Fujian | |||||||||||||||||||||||||
Province | Province | Province | Province | Unallocated | Eliminations | Consolidated | ||||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
Revenues | 2,966 | 939 | 18,164 | 14,106 | — | — | 36,175 | |||||||||||||||||||||
Cost of revenues | (1,193 | ) | (583 | ) | (9,774 | ) | (7,341 | ) | — | 1,708 | (17,183 | ) | ||||||||||||||||
General and administrative expenses | (330 | ) | (203 | ) | (1,178 | ) | (613 | ) | (6,775 | ) | — | (9,099 | ) | |||||||||||||||
Interest income | 115 | 38 | 57 | 18 | 319 | (37 | ) | 510 |
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Yunnan | Sichuan | Zhejiang | Fujian | |||||||||||||||||||||||||
Province | Province | Province | Province | Unallocated | Eliminations | Consolidated | ||||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
Interest expenses | (303 | ) | — | (7,020 | ) | (6,554 | ) | (388 | ) | 37 | (14,228 | ) | ||||||||||||||||
Change in fair value of derivative financial liabilities and warrant liability | — | — | — | — | (13,793 | ) | — | (13,793 | ) | |||||||||||||||||||
Exchange loss | — | (1 | ) | (5 | ) | (7 | ) | (10 | ) | — | (23 | ) | ||||||||||||||||
Share of losses in an equity investee | — | — | — | — | (70 | ) | (70 | ) | ||||||||||||||||||||
Other (loss) income, net | (2 | ) | (1 | ) | (9 | ) | (265 | ) | 1,760 | (1,708 | ) | (225 | ) | |||||||||||||||
Income tax expenses | (166 | ) | (51 | ) | (403 | ) | (739 | ) | (133 | ) | — | (1,492 | ) | |||||||||||||||
Consolidated net income (loss) | 1,087 | 138 | (168 | ) | (1,395 | ) | (19,090 | ) | — | (19,428 | ) | |||||||||||||||||
Net loss attributable to noncontrolling interests | — | — | — | 32 | — | — | 32 | |||||||||||||||||||||
Net income (loss) attributable to China Hydroelectric Corporation shareholders | 1,087 | 138 | (168 | ) | (1,363 | ) | (19,090 | ) | — | (19,396 | ) | |||||||||||||||||
Total assets | 42,770 | 14,649 | 311,779 | 205,445 | 337,511 | (317,090 | ) | 595,064 | ||||||||||||||||||||
Total liabilities | (15,494 | ) | (556 | ) | (152,991 | ) | (113,080 | ) | (34,545 | ) | 22,796 | (293,870 | ) | |||||||||||||||
Capital expenditures | 7,661 | 1,616 | 1,826 | 1,732 | 141 | — | 12,976 | |||||||||||||||||||||
Depreciation & amortization expenses | 845 | 338 | 6,887 | 4,432 | 78 | — | 12,580 |
Yunnan | Sichuan | Zhejiang | Fujian | |||||||||||||||||||||||||
Province | Province | Province | Province | Unallocated | Eliminations | Consolidated | ||||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
Revenues | 2,746 | 971 | 9,635 | 1,363 | — | — | 14,715 | |||||||||||||||||||||
Cost of revenues | (1,120 | ) | (478 | ) | (4,598 | ) | (1,025 | ) | — | 1,196 | (6,025 | ) | ||||||||||||||||
General and administrative expenses | (245 | ) | (223 | ) | (567 | ) | (210 | ) | (5,516 | ) | — | (6,761 | ) | |||||||||||||||
Interest income | 359 | 84 | 18 | 5 | 877 | (3 | ) | 1,340 | ||||||||||||||||||||
Interest expenses | (361 | ) | — | (3,519 | ) | (1,514 | ) | (456 | ) | 3 | (5,847 | ) | ||||||||||||||||
Change in fair value of derivative financial liabilities and warrant liability | — | — | — | — | 420 | — | 420 | |||||||||||||||||||||
Exchange (loss) gain | (269 | ) | 172 | (165 | ) | (2 | ) | (803 | ) | — | (1,067 | ) | ||||||||||||||||
Share of losses in an equity investee | — | — | — | — | (503 | ) | — | (503 | ) | |||||||||||||||||||
Other (loss) income, net | (3 | ) | 1 | (6 | ) | (5 | ) | 1,353 | (1,196 | ) | 144 | |||||||||||||||||
Income tax (expenses) benefits | (171 | ) | 9 | (447 | ) | 165 | — | — | (444 | ) | ||||||||||||||||||
Consolidated net income (loss) | 936 | 536 | 351 | (1,223 | ) | (4,628 | ) | — | (4,028 | ) | ||||||||||||||||||
Net loss attributable to noncontrolling interests | — | — | — | 41 | — | — | 41 | |||||||||||||||||||||
Net income (loss) attributable to China Hydroelectric Corporation shareholders | 936 | 536 | 351 | (1,182 | ) | (4,628 | ) | — | (3,987 | ) | ||||||||||||||||||
Total assets | 40,997 | 13,919 | 242,057 | 212,801 | 337,115 | (313,321 | ) | 533,568 | ||||||||||||||||||||
Total liabilities | (14,569 | ) | (32 | ) | (93,358 | ) | (119,423 | ) | (23,249 | ) | 21,230 | (229,401 | ) | |||||||||||||||
Capital expenditures | 4,589 | 21 | 33,789 | 12 | 342 | — | 38,753 | |||||||||||||||||||||
Depreciation & amortization expenses | 696 | 305 | 3,113 | 718 | 31 | — | 4,863 |
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Yunnan | Sichuan | |||||||||||||||||||
Province | Province | Unallocated | Eliminations | Consolidated | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
Revenues | 1,719 | 715 | — | — | 2,434 | |||||||||||||||
Cost of revenues | (500 | ) | (288 | ) | (25 | ) | — | (813 | ) | |||||||||||
General and administrative expenses | (159 | ) | (110 | ) | (2,291 | ) | — | (2,560 | ) | |||||||||||
Interest income | 147 | 50 | 854 | — | 1,051 | |||||||||||||||
Interest expenses | (684 | ) | — | (2,591 | ) | — | (3,275 | ) | ||||||||||||
Change in fair value of derivative financial liabilities | — | — | (266 | ) | — | (266 | ) | |||||||||||||
Exchange loss | (714 | ) | (359 | ) | (22 | ) | — | (1,095 | ) | |||||||||||
Share of losses in an equity investee | — | — | (27 | ) | — | (27 | ) | |||||||||||||
Other income | 8 | — | — | — | 8 | |||||||||||||||
Income tax expenses | — | (8 | ) | (9 | ) | — | (17 | ) | ||||||||||||
Net loss | (183 | ) | — | (4,377 | ) | — | (4,560 | ) | ||||||||||||
Total assets | 37,596 | 16,896 | 46,607 | (41,988 | ) | 59,111 | ||||||||||||||
Total liabilities | (13,773 | ) | (208 | ) | (11,646 | ) | 922 | (24,705 | ) | |||||||||||
Capital expenditures | 316 | 58 | 161 | — | 535 | |||||||||||||||
Depreciation & amortization expenses | 433 | 200 | 5 | — | 638 |
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For the Year Ended | ||||||||||||
December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Net cash (used in) provided by operating activities | (4,263 | ) | 2,370 | 1,213 | ||||||||
Net cash (used in) provided by investing activities | 26,540 | (221,408 | ) | (48,706 | ) | |||||||
Net cash (used in) provided by financing activities | (7,426 | ) | 242,341 | 40,453 | ||||||||
Effect of changes in exchange rate on cash | 127 | (216 | ) | (35 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 14,978 | 23,087 | (7,075 | ) | ||||||||
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Payment Due by Period | ||||||||||||||||||||
Within | 1-3 | 3-5 | More than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(US$ in thousands) | ||||||||||||||||||||
Short-term borrowings(1) | 8,781 | 8,781 | — | — | — | |||||||||||||||
Interest on short-term borrowings(1) | 248 | 248 | — | — | — | |||||||||||||||
Long-term borrowings (including current portion of long-term borrowings)(1) | 167,170 | 29,037 | 51,441 | 36,883 | 49,809 | |||||||||||||||
Interest on long-term borrowings (including interest on current portion of long-term borrowings)(1) | 49,398 | 12,363 | 18,467 | 11,337 | 7,231 | |||||||||||||||
Operating lease commitments | 805 | 403 | 402 | — | — | |||||||||||||||
Purchase obligations(2) | 7,899 | 7,888 | 11 | — | — | |||||||||||||||
Total | 234,301 | 58,720 | 70,321 | 48,220 | 57,040 | |||||||||||||||
(1) | See Note 13 to our audited consolidated financial statements, which are included elsewhere in this annual report for a discussion of our short-term and long-term borrowings. | |
(2) | This represents contracted but unpaid amounts for construction projects for the Binglangjiang II and the Zhougongyuan hydroelectric power projects that were currently under construction as of December 31, 2008. |
Payment Due by Period | ||||||||||||||||||||
Within | 1-3 | 3-5 | More than | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(US$ in thousands) | ||||||||||||||||||||
Short-term borrowings(1) | 7,098 | 7,098 | — | — | — | |||||||||||||||
Interest on short-term borrowings(1) | 96 | 96 | — | — | — | |||||||||||||||
Long-term borrowings (including current portion of long-term borrowings)(1) | 229,278 | 56,809 | 48,270 | 50,877 | 73,322 | |||||||||||||||
Interest on long-term borrowings (including interest on current portion of long-term borrowings)(1) | 53,076 | 13,422 | 18,503 | 12,356 | 8,795 | |||||||||||||||
Operating lease commitments | 528 | 451 | 75 | 2 | — | |||||||||||||||
Purchase obligations(2) | 157 | 157 | — | — | — | |||||||||||||||
Total | 290,233 | 78,033 | 66,848 | 63,235 | 82,117 |
(1) | See Note 13 to our audited consolidated financial statements, which are included elsewhere in this annual report, for a discussion of our short-term and long-term borrowings. | |
(2) | This represents contracted but unpaid amounts for construction projects of Binglangjiang and Liyuan that are in progress and for the purchase of property, plan and equipment of Yuheng. |
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Name | Age | Position/Title | ||||
John D. Kuhns | 59 | Chairman, Chief Executive Officer | ||||
Dr. Yong Cao | 55 | Director | ||||
Anthony H. Dixon | 48 | Director | ||||
Richard H. Hochman | 64 | Director | ||||
Dr. You-Su Lin | 56 | Director, Chairman of Beijing A.B.C. Investment | ||||
Shadron Lee Stastney | 40 | Director | ||||
Stephen Outerbridge | 59 | Director | ||||
“James” Tie Li | 41 | Chief Financial Officer and Executive Vice President | ||||
Mary E. Fellows | 47 | Executive Vice President and Corporate Secretary | ||||
Wu Gan | 53 | President and General Manager of Beijing A.B.C. Investment | ||||
Xinchun Lian | 51 | Chief Operating Officer of Beijing A.B.C. Investment | ||||
Fang Chen | 37 | Vice President and Controller of Beijing A.B.C. Investment | ||||
Gang Meng | 37 | Internal Controller of Beijing A.B.C. Investment | ||||
Shu Zhang | 34 | Finance Manager of Beijing A.B.C. Investment |
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Ordinary | Ordinary | |||||||||||||||||||||||
Shares | Shares | |||||||||||||||||||||||
Underlying | Exercise | Underlying | Exercise | |||||||||||||||||||||
Outstanding | Price | Expiration | Outstanding | Price | Expiration | |||||||||||||||||||
Name | Options | ($/Share) | Grant Date | Date | Options | ($/Share) | Grant Date | Date | ||||||||||||||||
John D. Kuhns | 1,095,000 | 7.70 | August 18, 2008 | August 18, 2013 | 2,500,000 | 4.93 | December 3, 2009 | December 3, 2014 | ||||||||||||||||
“James” Tie Li | 500,000 | 7.70 | August 18, 2008 | August 18, 2013 | 1,050,000 | 4.93 | December 3, 2009 | December 3, 2014 | ||||||||||||||||
Mary E. Fellows | 500,000 | 7.70 | August 18, 2008 | August 18, 2013 | 1,050,000 | 4.93 | December 3, 2009 | December 3, 2014 | ||||||||||||||||
Dr. You-Su Lin | 805,000 | 7.70 | August 18, 2008 | August 18, 2013 | 1,660,000 | 4.93 | December 3, 2009 | December 3, 2014 | ||||||||||||||||
Richard H. Hochman | 10,000 | 7.70 | August 18, 2008 | August 18, 2013 | — | — | — | — | ||||||||||||||||
Shadron Lee Stastney | 10,000 | 7.70 | August 18, 2008 | August 18, 2013 | — | — | — | — | ||||||||||||||||
Other former directors, employees and consultants as a group | 972,000 | 7.70 | August 18, 2008 | August 18, 2013 | — | — | — | — | ||||||||||||||||
Other employees and consultants as a group | 35,000 | 7.70 | January 20, 2009 | January 20, 2014 | 740,000 | 4.93 | December 3, 2009 | December 3, 2014 | ||||||||||||||||
Total | 3,927,000 | 7,000,000 | ||||||||||||||||||||||
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• | selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; | ||
• | reviewing with the independent auditors any audit problems or difficulties and management’s response; | ||
• | reviewing and approving all proposed related party transactions, which term refers to transactions that would be required to be disclosed pursuant to Item 7B of Form 20-F, regardless of the dollar amount involved in such transactions; | ||
• | discussing the annual audited financial statements with management and the independent auditors; | ||
• | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; | ||
• | annually reviewing and reassessing the adequacy of our audit committee charter; and | ||
• | meeting separately and periodically with management and the independent auditors. |
• | reviewing and approving the total compensation package for our three most senior executives; | ||
• | reviewing and recommending to the board of directors with respect to the compensation of our directors; and | ||
• | reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. |
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• | identifying and recommending qualified candidates as director nominees for selection of directors, nominees for election to the board of directors, or for appointment to fill any vacancy; | ||
• | reviewing annually with the board of directors the current composition of the board of directors with regards to characteristics such as independence, age, skills, experience and availability of service to us; | ||
• | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
• | convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings; | ||
• | declaring dividends and distributions; | ||
• | appointing officers and determining the term of office of officers; | ||
• | exercising the borrowing powers of our company and mortgaging the property of our company; and | ||
• | approving the transfer of shares of our company, including the registering of such shares in our share register. |
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Number of | ||||||||
Employees | (%) | |||||||
Management | 32 | 9.4 | ||||||
Finance | 29 | 8.5 | ||||||
Project Construction, Operations and Management | 233 | 68.5 | ||||||
Administrative and Human Resources | 30 | 8.9 | ||||||
Others | 16 | 4.7 | ||||||
Total: | 340 | 100.0 | ||||||
• | each of our directors and executive officers; and | ||
• | each person known to us to own beneficially more than 5% of our ordinary shares. |
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Ordinary Shares | ||||||||
Beneficially Owned | ||||||||
Name | Number | Percent | ||||||
Directors and Executive Officers | ||||||||
John D. Kuhns(1) | 9,823,333 | 6.4 | ||||||
Dr. Yong Cao | * | * | ||||||
Anthony H. Dixon | * | * | ||||||
Richard H. Hochman(1) | 9,461,666 | 6.2 | ||||||
Dr. You-Su Lin(1) | * | * | ||||||
Shadron Lee Stastney | * | * | ||||||
Stephen Outerbridge | * | * | ||||||
“James” Tie Li(1) | * | * | ||||||
Mary E. Fellows(1) | * | * | ||||||
Wu Gan | * | * | ||||||
Xinchun Lian | * | * | ||||||
Fang Chen | * | * | ||||||
Gang Meng | * | * | ||||||
Shu Zhang | * | * | ||||||
All Directors and Executive Officers as a Group(2) | 10,680,666 | 7.0 | ||||||
Principal Shareholders: | ||||||||
China Hydro, LLC(1) | 9,458,373 | 6.2 | ||||||
CPI Ballpark Investments Ltd.(3) | 30,858,964 | 20.1 | ||||||
Jennison Utility Fund(4) | 18,909,650 | 12.3 | ||||||
Vicis Capital Master Fund(5) | 48,882,716 | 31.9 | ||||||
Morgan Joseph & Co. Inc.(6) | 8,144,233 | 5.3 | ||||||
Swiss Re Financial Products Corporation(7) | 10,114,508 | 6.6 | ||||||
Blue Ridge Investments, LLC(8) | 7,885,431 | 5.1 | ||||||
China Environment Fund III, LP(9) | 7,838,595 | 5.1 | ||||||
Prudential Financial, Inc.(10) | 18,909,648 | 12.3 |
* | Upon exercise of all options and warrants exercisble within 60 days after April 30, 2010, would beneficially own less than 1.0% of our outstanding ordinary shares. | |
(1) | Pursuant to the Amended and Restated Limited Liability Company Agreement of China Hydro, LLC dated as of November 6, 2006, John D. Kuhns and Richard H. Hochman have the power to direct the voting of ordinary shares of our company held by China Hydro, LLC. All of the members, including but not limited to, John D. Kuhns, “James” Tie Li, Mary E. Fellows, Dr. You-Su Lin and Richard H. Hochman, have a right to receive certain number of our shares in proportion to their pro rata interest in China Hydro, LLC. We expect that the shares of our company held by China Hydro, LLC will be distributed to its members and then John D. Kuhns will actually receive 1,722,470 shares, Richard H. Hochman will receive 988,553 shares, “James” Tie Li will receive 532,967 shares, Mary E. Fellows will receive 416,667 shares, and You-Su Lin will receive 949,634 shares. The shares held by China Hydro, LLC consist of 8,708,333 ordinary shares and 750,000 ordinary shares issuable upon the exercise of a warrant granted to China Hydro, LLC that is exercisable within 60 days after April 30, 2010. | |
(2) | Includes ordinary shares held by all of our directors and executive officers as a group and ordinary shares issuable upon the exercise of all of the options and warrants that are exercisable within 60 days after April 30, 2010 held by all of our directors and executive officers. | |
(3) | CPI Ballpark Investments Ltd. is a limited liability company organized under the laws of Mauritius. The mailing address of CPI Ballpark Investments Ltd. is 4th Floor, IBL House, Caudan, Port Louis, Republic of Mauritius. CPI Ballpark Investments Ltd. is wholly owned by Indopark Holdings Ltd., which is registered in the Republic of Mauritius. The mailing address of Indopark Holdings Limited is 4th Floor, IBL House, Caudan, Port Louis, Republic of Mauritius. The sole shareholder of Indopark Holdings Limited is Merrill Lynch L.P. Holdings Inc., a company incorporated in the State of Delaware, USA. Merrill Lynch L.P. Holdings |
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Inc. is wholly owned by Merrill Lynch Group, Inc., a company incorporated in the State of Delaware, USA. Merrill Lynch Group, Inc. is wholly owned by Merrill Lynch & Co., Inc., a non-bank subsidiary of Bank of America Corporation, a public company listed on the NYSE. Bank of America Corporation, through its subsidiaries, beneficially owns 25.2% of our ordinary shares. | ||
(4) | Jennison Utility Fund, a series of Jennison Sector Funds, Inc., is an affiliate of Pruco Securities, LLC, Prudential Equity Group, LLC, Prudential Investment Management Services LLC, American Skandia marketing, Incorporated, Prudential Bache Securities, LLC and Prudential Bache Commodities, LLC, each a broker-dealer registered under Section 15 of the Securities Exchange Act of 1934, as amended. Jennison Associates LLC is the sub-advisor to Jennison Utility Fund, a series of Jennison Sector Funds, Inc., an investment company registered under the Investment Company Act of 1940. Shaun Hong, a portfolio manager of Jennison Utility Fund and a Managing Director of Jennison Associates LLC has the authority to vote the shares owned by the Jennison Utility Fund. The address of Jennison Utility Funds, Inc. is c/o Jennison Associates, LLC, 466 Lexington Avenue, New York, New York 10017. | |
(5) | Includes 30,216,050 ordinary shares and 18,666,666 ordinary shares upon the exercise of a warrant granted to Vicis Capital Master Fund that is exercisable within 60 days after April 30, 2010. Vicis Capital Master Fund is a sub-trust of the Vicis Capital Master Series Trust, a unit trust organized under the laws of the Cayman Islands. The address of Vicis Capital Master Fund is Tower 56, Suit 700, 126 E. 56th Street, 7th Floor, New York, NY 10022. The address of Capital Master Series Trust is P. O. Box 1043GT, Caledonian House, First Floor, 69 Dr Roys Dr, George Town, Grand Cayman, Cayman Islands, BWI. Vicis Capital, LLC is the investment adviser to Vicis Capital Master Fund. John Succo, Shadron Lee Stastney and Sky Lucas have voting and investment control over the securities beneficially owned by Vicis Capital Master Fund and Victus Capital, LP. Shadron Lee Stastney in his capacity as the managing director of Vicis Capital Master Fund and Vicis Capital, LP has the voting and investment power over the shares listed. Victus Capital, LP is affiliated with a broker-dealer. | |
(6) | Includes 8,134,233 ordinary shares to be issued upon the exercise of warrants granted to Morgan Joseph & Co. Inc. and 10,000 ordinary shares to be issued upon the exercise of options granted to Dennis Galgano that are exercisable within 60 days after April 30, 2010. Morgan Joseph & Co. Inc. is a wholly owned subsidiary of Morgan Joseph Holdings Inc. Morgan Joseph Holdings Inc. is in turn owned by the employees, former employees and investors in Morgan Joseph Holdings Inc. The Board of Directors of Morgan Joseph Holdings Inc. has the power to direct the voting and disposition of our shares held by Morgan Joseph & Co. Inc. The board consists of Mary Lou Malanoski, John Sorte, Roger T. Briggs, John A. Morgan, Steven D. Blecher, and Edmund A. Hajim. The address of Morgan Joseph & Co. Inc. is 600 Fifth Avenue, 19th Floor, New York, New York 10020. | |
(7) | Swiss Re Financial Products Corporation is a limited liability company organized under the laws of Delaware. The mailing address of Swiss Re Financial Products Corporation is 55 East 52nd Street, New York, New York 10055. Swiss Re Financial Products Corporation is an indirect, wholly owned subsidiary of Swiss Reinsurance Company, a limited liability company organized under the laws of Switzerland. The mailing address of Swiss Reinsurance Company is Mythenquai 50/60, CH-8022, Zurich, Switzerland. Swiss Reinsurance Company is a publicly registered company that trades on the SIX Swiss Exchange. | |
(8) | Blue Ridge Investments, LLC is a limited liability company organized under the laws of Delaware. Blue Ridge Investments, LLC is wholly owned by BANA Holding Corporation, a company incorporated in the State of Delaware, USA. BANA Holding Corporation is wholly owned by BAC North America Holding Company, a company incorporated in the State of Delaware, USA. BAC North America Holding Company is wholly owned by NB Holdings Corporation, a non-bank subsidiary of Bank of America Corporation, a public company listed on the NYSE. The mailing address of Blue Ridge Investments, LLC is c/o Bank of America Securities, 1633 Broadway, 27th Floor, New York, New York 10019. Bank of America Corporation, through its subsidiaries, beneficially owns 25.2% of our ordinary shares. | |
(9) | China Environment Fund III, LP is a fund registered in the Cayman Islands. China Environment Fund III, LP was formed by Tsing Capital Co., Ltd. and Tsing Capital Co., Ltd. is the manager of the fund. Donald Ye exercises sole voting and dispositive power over the shares of our Company held by this shareholder. The mailing address of Tsing Capital Co., Ltd. is A2302, SP Tower, Tsinghua Science Park, Beijing 100084, PRC. Tsing Capital Co., Ltd. is the exclusive cleantech venture capital arm of Tsinghua Holdings. Tsinghua Holdings is wholly owned by Tsinghua University. | |
(10) | Based on Schedule 13G filed by Prudential Financial, Inc. (“Prudential”) on February 9, 2010. Prudential may be deemed the beneficial owner and may have direct or indirect voting and/or investment discretion over 6,303,216 ADSs (representing 18,909,648 ordinary shares) of the Company which are held for Prudential’s own benefit or for the benefit of its clients by its separate accounts, externally managed accounts, registered investment companies, subsidiaries and/or other affiliates. Prudential is a New Jersey Corporation having its principal business office at 751 Broad Street, Newark, New Jersey 07102-3777. |
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High | Low | |||||||
2010 | ||||||||
January | $ | 14.03 | $ | 12.28 | ||||
February | 12.66 | 8.58 | ||||||
March | 10.49 | 8.51 | ||||||
April | 9.54 | 8.26 | ||||||
May (through May 17, 2010) | 9.85 | 8.87 |
High | Low | |||||||
2010 | $ | 1.77 | $ | 1.37 | ||||
January | 1.55 | 0.95 | ||||||
February | 1.33 | 0.76 | ||||||
March | 1.10 | 0.37 | ||||||
April | 1.19 | 0.81 | ||||||
May (through May 18, 2010) |
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For the Year | ||||||||
Ended December 31, | ||||||||
2008 | 2009 | |||||||
(In US $ thousands) | ||||||||
Audit fees(1) | 2,595 | 3,153 | ||||||
Audit-related fees(2) | — | 86 | ||||||
Tax fees | — | — | ||||||
Other fees | — | — |
(1) | Audit fees consist of fees associated with the annual audit, the reviews of our interim financial statements and statutory audits, the audit and report on the financial statements of the entities acquired by the Company. They also include the audit and review of financial statements and other assurance services rendered in connection with our initial public offering on January 25, 2010. Fees billed for those services that are normally provided by the independent auditors in connection with statutory and regulatory filings are also included. | |
(2) | “Audit related fees” represents aggregate fees billed for professional services rendered by our independent auditors for the assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.” |
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1 .1 | Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
2 .1 | Form of Ordinary Share Certificate (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
2 .2 | Form of Deposit Agreement between the Registrant and the Bank of New York Mellon as depositary (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
2 .3 | Form of American depositary receipt evidencing American depositary shares (included in Exhibit 2.2) | |
2 .4 | Amended and Restated Shareholders Agreement, dated October 27, 2009, amongst the Registrant and its shareholders (incorporated by reference to Exhibit 4.4 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
2 .5 | Amended and Restated Right of First Offer and Co-Sale Agreement, dated October 27, 2009, amongst the Registrant and its shareholders (incorporated by reference to Exhibit 4.5 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
2 .6 | Form of Unit Certificate (incorporated by reference to Exhibit 4.6 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
3 .1 | Amended and Restated Limited Liability Company Agreement of China Hydro, LLC, adopted as of November 6, 2006 (incorporated by reference to Exhibit 9.1 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .1 | Warrant to Purchase Common Shares of the Registrant by China Hydro, LLC, dated November 10, 2006 (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .2 | 2008 Share Incentive Plan of the Registrant and form of Option Agreement (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .3 | Form of Indemnification Agreement between the Registrant and its directors (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .4 | Sino-Foreign Equity Joint Venture Contract entered into by the Registrant, Zhejiang Water Resources and Hydroelectric Investment Group Co., Ltd. and Zhejiang Guangning Hydroelectric Development Co., Ltd. on November 6, 2007 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .5 | Contract for Transfer of Fifty Percent of the Equity Interests of Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Yunhe County Yunhe State-Owned Assets Management Co., Ltd. and the Registrant on October 12, 2007 (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .6 | (Intentionally left blank) | |
4 .7 | Share Transfer and Capital Increase Contract entered into by the Registrant, and Ye Jian Hua, Zhou Jian Bin and Zhejiang Dahua Construction Group Co., Ltd. on March 15, 2007 (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) |
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4 .8 | Supplemental Agreement entered into by the Registrant, Ye Jian Hua, Zhou Jian Bin and Zhejiang Dahua Construction Group Co., Ltd. on March 27, 2007 (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .9 | Share Transfer Agreement for Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into by Sanming City Chenyang Hydroelectric Co., Ltd., Sanming City Fufeng Industrial Co., Ltd, Beijing Xunjing Interactive Technology Co., Ltd., Huang Shao Jian, Yu Rong Ji, Zhang Rong Bin, Sun Xiao Dong, Xie Fang Wu, Ye Chang He and the Registrant on August 9, 2008 (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .10 | Equity Joint Venture Contract for the establishment of Pingnan County Wangkeng Hydroelectric Co., Ltd. entered into by the Registrant and Sanming City Chenyang Hydroelectric Co., Ltd. on August 10, 2008 (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .11 | Equity Interest Transfer Contract entered into by Guangsha Construction Group Co., Ltd., Lu Chunliang and the Registrant regarding Qingtian Wuliting Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .12 | Equity Interest Transfer Contract entered into by Zhejiang Guangsha Stock Co., Ltd., Zhejiang Guangsha Hydropower Investment Co., Ltd. and the Registrant regarding Zhejiang Province Jingning Yingchuan Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .13 | Equity Interest Transfer Contract entered into by Guangsha Construction Group Co., Ltd., Lu Chunliang and the Registrant regarding Suichang County Jiulongshan Hydropower Development Co., Ltd. on December 13, 2007 (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .14 | Agreement relating to the Sale and Purchase of the equity of Sunpower Asia Limited entered into by the Registrant and Sanming Ruifeng Hydropower Investment Co., Ltd. on July 11, 2008 (incorporated by reference to Exhibit 10.14 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .15 | Equity Interest Transfer Contract entered into by the Registrant, Sanming Ruifeng Hydropower Investment Co., Ltd. and Yong’an Ruifeng Hydroelectric Ltd. on July 11, 2008 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .16 | Contract on Transfer of Ten Percent Equity Interests of Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by China Hydroelectric Corporation (Hong Kong) Limited and Sanming Ruifeng Economic Technological Development Ltd. on January 30, 2009 (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .17 | Supplemental Agreement of the Contract on Transfer of Ten Percent Equity Interests of Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by Sanming Ruifeng Economic Technological Development Ltd., China Hydroelectric Corporation (Hong Kong) Limited, Sanming Ruifeng Hydropower Investment Co., Ltd. and the Registrant on January 30, 2009 (incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .18 | Joint Venture Contract Among Foreign Investors for Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered into by the Registrant, China Hydroelectric Corporation (Hong Kong) Limited and Sunpower Asia Limited in February 2009 (incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .19 | Share Transfer Agreement for Pingnan County Yuheng Hydropower Co., Ltd. entered into by the Registrant and Fujian Province Anheng Assets Management Co., Ltd., Shanghai Yufeng Hotel Management Co., Ltd., Chen Can Ling, Wang Jiang, Zhang Rong Bin and Zhou Jian Biao on August 15, 2008 (incorporated by reference to Exhibit 10.19 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .20 | Share Transfer Agreement for Pingnan County Yuanping Hydroelectric Co., Ltd. entered into by the Registrant and Lin Yun, Wu Ting Li, Zhang Yao Fang and Zhou Jian on August 15, 2008 (incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .21 | Consulting Agreement with Michael H. Best entered into on August 1, 2009† (incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .22 | Power Purchase Contract entered into by Yunnan Huabang Electric Power Development Co., Ltd. and Yunnan Dehong Electric Power Co., Ltd. on June 19, 2009 (incorporated by reference to Exhibit 10.22 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) |
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4 .23 | Supplemental Agreement to Power Purchase and Sale Contract entered into by Yunnan Huabang Electric Power Development Co., Ltd. and Yunnan Dehong Electric Power Co., Ltd. on June 19, 2009 (incorporated by reference to Exhibit 10.23 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .24 | Grid Connection and Dispatching Agreement entered into by Yunnan Dehong Electric Power Co., Ltd. and Yingjiang County Huafa Electric Power Development Co., Ltd. (formerly Yunnan Huabang Electric Power Development Co., Ltd.) on January 15, 2004 (incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .25 | Grid Connection and Dispatching Agreement entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 17, 2009 (incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .26 | Power Purchase and Sale Contract entered into by Sichuan Cangxi Electric Power Co., Ltd. and Sichuan Huabang Hydroelectric Development Co., Ltd. on May 16, 2009 (incorporated by reference to Exhibit 10.26 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .27 | Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Yunhe County Shapulong Hydropower Generation Co., Ltd. in October 2008 (incorporated by reference to Exhibit 10.27 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .28 | Grid Connection and Dispatching Agreement for Wangkeng Hydropower Station entered into by Fujian Province Ningde Electric Power Industry Bureau and Pingnan County Wangkeng Hydroelectric Co., Ltd. on July 21, 2008 (incorporated by reference to Exhibit 10.28 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .29 | Power Purchase and Sales Contract for Wangkeng Hydropower Station entered into by Fujian Province Electric Power Co., Ltd. and Pingnan County Fushun Hydroelectric Co., Ltd. on October 28, 2004 (incorporated by reference to Exhibit 10.29 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .30 | Grid Connection and Dispatching Agreement for Wuliting Hydropower Station entered into by Lishui Electric Power Bureau and Qingtian Wuliting Hydroelectric Development Co., Ltd. on November 20, 2008 (incorporated by reference to Exhibit 10.30 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .31 | Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Qingtian Wuliting Hydroelectric Development Co., Ltd. in November, 2007 (incorporated by reference to Exhibit 10.31to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .32 | Grid Connection and Dispatching Agreement for Jingning Yingchuan Hydropower Station entered into by Lishui Electric Power Bureau and Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on November 20, 2008 (incorporated by reference to Exhibit 10.32to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .33 | Grid Connection Economic Agreement entered into by Lishui Electric Power Bureau and Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. in November 2007 (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .34 | Intent Agreement of Conformity of Power Purchase and Supply in Rongping Supply Area entered into by Fujian Province Pingnan County Power Supply Co., Ltd., Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd., Pingnan County Hengli Hydroelectric Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. on August 31, 2007 (incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .35 | Grid Connection and Dispatching Agreement for Pingnan Yuanping Hydropower Station of Fujian Province entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. on December 26, 2008 (incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .36 | Power Purchase and Sale Contract for old Yuanping Hydropower Station entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuheng Hydropower Co., Ltd. in December 2008 (incorporated by reference to Exhibit 10.36 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .37 | Grid Connection and Dispatching Agreement for Yuanping Technological Upgrading Hydropower Station of Fujian Province entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuanping Hydroelectric Co., Ltd. on December 26, 2008 (incorporated by reference to Exhibit 10.37 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) |
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4 .38 | Power Purchase and Sale Contract for Technological Upgrading Project of Yuanping Hydropower Station entered into by Fujian Province Pingnan County Power Supply Co., Ltd. and Pingnan County Yuanping Hydroelectric Co., Ltd. in December 2008 (incorporated by reference to Exhibit 10.38 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .39 | Grid Connection and Dispatching Agreement for Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. entered by Fujian Province Sanming Power Industry Bureau and Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. on September 22, 2006 (incorporated by reference to Exhibit 10.39 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .40 | Grid Connection and Power Purchase Agreement entered into by Fujian Province Sanming Power Industry Bureau and Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. on April 30, 1997 (incorporated by reference to Exhibit 10.40 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .41 | Share Transfer Contract for Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. entered into by Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd., Guangdong Qingneng Power Generation Group Co., Ltd. and Yao Lin Fu on August 11, 2009 (incorporated by reference to Exhibit 10.41 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .42 | Share Transfer Contract for Thirteen Percent of the Equity Interests of Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Zhejiang Province Water Resources and Hydroelectric Investment Group Co., Ltd. and the Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on June 29, 2009 (incorporated by reference to Exhibit 10.42 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .43 | Share Transfer Contract for Yunhe County Shapulong Hydropower Generation Co., Ltd. entered into by Zhejiang Guangning Hydroelectric Development Co., Ltd. and the Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. on July 22, 2009 (incorporated by reference to Exhibit 10.43 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .44 | Grid Connection Economic Agreement entered into by Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. and Lishui Power Industry Bureau in April 2007 (incorporated by reference to Exhibit 10.44 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .45 | Grid Connection and Dispatching Agreement entered into by Longquan Ruiyang Cascade II Hydroelectric Co., Ltd. and Lishui Power Industry Bureau, Dispatching and Communication Center, on October 18, 2003 (incorporated by reference to Exhibit 10.45 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .46 | Renminbi Loan Agreement (Long/Medium Term) entered into by Qingtian Wuliting Hydroelectric Development Co., Ltd. and Bank of China Limited, Lishui City Dayang Sub-branch, on March��19, 2009 (incorporated by reference to Exhibit 10.46 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .47 | Medium/Long-Term Renminbi Loan Contract entered into by Pingnan County Wangkeng Hydroelectric Co., Ltd. and Industrial Bank Co., Ltd., Ningde Branch, on March 24, 2009 (incorporated by reference to Exhibit 10.47 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .48 | Renminbi Loan Contract (Medium/Long Term) entered into by Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. and Bank of China Limited, Fujian Province Branch, on June 16, 2009 (incorporated by reference to Exhibit 10.48 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .49 | Loan Contract entered into by Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Agricultural Bank of China, Lishui City Branch, on June 19, 2009 (RMB9.0 million) (incorporated by reference to Exhibit 10.49 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .50 | Loan Contract entered into by Suichang County Jiulongshan Hydroelectric Development Co., Ltd. and Agricultural Bank of China, Lishui City Branch, on June 19, 2009 (RMB216.0 million) (incorporated by reference to Exhibit 10.50 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .51 | Memorandum of Understandings entered into by Bank of China, Fujian Branch, and China Hydroelectric Corporation in July 2009 (incorporated by reference to Exhibit 10.51 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) |
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4 .52 | Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Fang Chen on July 1, 2008 (incorporated by reference to Exhibit 10.52 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .53 | Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and You-Su Lin on July 1, 2008 (incorporated by reference to Exhibit 10.53 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .54 | Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Gan Wu on July 1, 2008 (incorporated by reference to Exhibit 10.54 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .55 | Employment Agreement entered into by China Hydroelectric Corporation and Mary E. Fellows on January 1, 2009 (incorporated by reference to Exhibit 10.55 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .56 | Employment Agreement entered into by China Hydroelectric Corporation and “James” Tie Li on January 1, 2009 (incorporated by reference to Exhibit 10.56 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .57 | Employment Agreement entered into by China Hydroelectric Corporation and John D. Kuhns on January 1, 2009 (incorporated by reference to Exhibit 10.57 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .58 | Employment Agreement entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Xinchun Lian on October 1, 2008, as amended on January 13, 2009 (incorporated by reference to Exhibit 10.58 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .59 | Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Shu Zhang on May 12, 2009 (incorporated by reference to Exhibit 10.59 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .60 | Labor Contract entered into by Beijing A.B.C. Investment Consulting Co., Ltd. and Gang Meng on April 7, 2008, as amended on November 1, 2008† (incorporated by reference to Exhibit 10.60 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .61 | Capital Increase Agreement for Henan Wuyue Storage Power Generation Co., Ltd. entered into by China Hydroelectric Corporation and Henan Lan Tian Group Co., Ltd. on October 22, 2009 (incorporated by reference to Exhibit 10.61 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .62 | Form of Warrant to Purchase Ordinary Shares of the Registrant by Broadband Capital Management LLC to be dated the closing of the initial public offering (incorporated by reference to Exhibit 10.62 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .63 | Warrant to Purchase Units Consisting of Ordinary Shares and Warrants to Purchase Ordinary Shares of the Registrant by Morgan Joseph & Co. Inc. dated November 10, 2006 (283,333 Units) (incorporated by reference to Exhibit 10.63 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .64 | Warrant to Purchase Units Consisting of Ordinary Shares and Warrants to Purchase Ordinary Shares of the Registrant by Morgan Joseph & Co. Inc. dated November 10, 2006 (550,000 Units) (incorporated by reference to Exhibit 10.64 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .65 | Warrant to Purchase Common Shares of the Registrant by JMG Capital Partners, L.P. dated September 28, 2007 (incorporated by reference to Exhibit 10.65 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .66 | Warrant to Purchase Common Shares of the Registrant by JMG Triton Offshore Fund, Ltd. dated September 28, 2007 (incorporated by reference to Exhibit 10.66 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .67 | Warrant to Purchase Preferred Shares or Ordinary Shares, as Applicable, of the Registrant by Morgan Joseph & Co. Inc. dated January 28, 2008 (incorporated by reference to Exhibit 10.67 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .68 | Letter Agreement between the Registrant and Vicis Capital Master Fund dated April 11, 2007 (incorporated by reference to Exhibit 10.68 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
4 .69 | Form of warrant agreement (incorporated by reference to Exhibit 10.69 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) |
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4 .70 | Share Transfer Contract for Yingjiang County Qingrui Husahe Power Co., Ltd. dated as of March 2, 2010 between Dehong Qinrui (Group) Power Investment and Development Co., Ltd. and Yunnan Huabang Electric Power Development Co., Ltd. | |
4 .71 | Share Transfer Contract for Fugong County Hengda Hydropower Generation Co., Ltd. (Aluhe Hydropower Station and Zilenghe Hydropower Station) dated as of April 14, 2010 between Yunnan Minfa Hydroelectric Development Group Co., Ltd., Xiamen Minrui Investment Co., Ltd. and Fujian Huabang Hydroelectric Investment Co., Ltd. | |
4 .72 | Share Transfer Contract for Fugong Xineng Power Development Co., Ltd. (Latudihe Hydropower Station) dated as of April 14, 2010 between Yunnan Minhe Hydroelectric Investment Co., Ltd. and Fujian Huabang Hydroelectric Investment Co., Ltd. | |
4 .73 | Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2010 (Contract Number: De Dian Si 2010-011) for Binglangjiang Power Station and Binglangjiang Expanded Power Station dated as of March 31, 2010 between Yunnan Huabang Electric Power Development Co., Ltd. and Dehong Power Supply Co., Ltd. | |
4 .74 | Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2010 (Contract Number: 2010-009) for Husahe Cascade III & VI Power Station and Mangxian Power Station | |
4 .75 | Power Purchase Agreement (contract Number: De Dian Si 2009-079) (Binglangjiang expanded Power Station) dated as of November 4, 2009 between Dehong Power Supply Co., Ltd. and Yunnan Huabang Electric Power development Co. | |
4 .76 | Supplemental Agreement on the Power Purchase and Sale Contract for the Year of 2009 (Contract Number: De Dian Si 2009-079) (Binglangjiang expanded Power Station) dated as of November 4, 2009 between Dehong Power Supply Co., Ltd and Yunnan Huabang Electric Power Development Co. | |
4 .77 | Grid Connection Agreement (Serial Number: De Dian Ru Wang No. 2009-003) dated as of July 16, 2009 between Yunnan Dehong Electric Power Co., Ltd. and Yunnan Huabang Electric Power Development Co., Ltd. | |
4 ..78 | Share Transfer Contract for Luquan Xiaopengzu Power Generation Co., Ltd. dated as of April 23, 2010 among Fujian Huabang Hydroelectric Investment Co., Ltd. and various individual parties thereto | |
8 .1 | Subsidiaries of the Registrant | |
11 .1 | Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to our Registration Statement on Form F-1 (file no. 333-163558), as amended, initially filed with the SEC on December 8, 2009) | |
12 .1 | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 .2 | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
13 .1 | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
13 .2 | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
15 .1 | Calculation of Effective Tariff Rate, Effective Utilization Rate and Weighted Average Effective Utilization Rate |
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CHINA HYDROELECTRIC CORPORATION | ||||
/s/ “James” Tie Li | ||||
Name: | ||||
Title: | Executive Vice President and Chief Financial Officer |
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PAGE | ||||
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F-10 |
F-1
Table of Contents
China Hydroelectric Corporation
Beijing, the People’s Republic of China
May 24, 2010
F-2
Table of Contents
Pro-Forma | ||||||||||||||||
Balance | ||||||||||||||||
Sheet at | ||||||||||||||||
December 31, | December 31, | |||||||||||||||
Notes | 2008 | 2009 | 2009 | |||||||||||||
(Unaudited) | ||||||||||||||||
Note 2(b) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | 38,693 | 31,618 | 31,618 | |||||||||||||
Accounts receivable (net of allowance for doubtful accounts of US$nil as of December 31, 2008 and 2009) | 4 | 3,137 | 8,434 | 8,434 | ||||||||||||
Deferred tax assets | 12 | 1,166 | 489 | 489 | ||||||||||||
Amounts due from related parties | 26 | 13 | — | — | ||||||||||||
Amounts due from an equity investee | 2(h) | 4,534 | — | — | ||||||||||||
Prepayments and other current assets | 5 | 9,437 | 4,582 | 4,582 | ||||||||||||
Total current assets | 56,980 | 45,123 | 45,123 | |||||||||||||
Non-current assets: | ||||||||||||||||
Investment in an equity investee | 2(h) | 4,295 | — | — | ||||||||||||
Deferred initial public offering costs | 6 | 6,032 | 12,774 | — | ||||||||||||
Property, plant and equipment, net | 7 | 365,190 | 423,200 | 423,200 | ||||||||||||
Intangible assets, net | 8 | 3,666 | 4,513 | 4,513 | ||||||||||||
Goodwill | 9 | 96,533 | 107,824 | 107,824 | ||||||||||||
Deferred tax assets | — | 1,231 | 1,231 | |||||||||||||
Other non-current assets | 872 | 399 | 399 | |||||||||||||
Total non-current assets | 476,588 | 549,941 | 537,167 | |||||||||||||
TOTAL ASSETS | 533,568 | 595,064 | 582,290 | |||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | 6,259 | 1,305 | 1,305 | |||||||||||||
Short-term loans | 13 | 8,781 | 7,098 | 7,098 | ||||||||||||
Current portion of long-term loans | 13 | 29,037 | 56,809 | 56,809 | ||||||||||||
Warrant liability | 17 | 540 | 14,333 | 14,333 | ||||||||||||
Amounts due to related parties | 26 | 242 | 242 | 242 | ||||||||||||
Amounts due to an equity investee | 2(h) | 2 | — | — | ||||||||||||
Deferred tax liabilities | — | 1 | 1 | |||||||||||||
Accrued expenses and other current liabilities | 10 | 32,424 | 22,704 | 22,704 | ||||||||||||
Total current liabilities | 77,285 | 102,492 | 102,492 | |||||||||||||
Non-current liabilities: | ||||||||||||||||
Long-term loans | 13 | 138,133 | 172,469 | 172,469 | ||||||||||||
Deferred tax liabilities | 12 | 13,415 | 18,805 | 18,805 | ||||||||||||
Other non-current liabilities | 14 | 568 | 104 | 104 | ||||||||||||
Total non-current liabilities | 152,116 | 191,378 | 191,378 | |||||||||||||
Total liabilities | 229,401 | 293,870 | 293,870 | |||||||||||||
Commitments and contingencies | 22 |
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Table of Contents
Consolidated Balance Sheets as of December 31, 2008 and 2009-(Continued)
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)
Pro-Forma | ||||||||||||||||
Balance Sheet | ||||||||||||||||
at | ||||||||||||||||
December 31, | December 31, | |||||||||||||||
Notes | 2008 | 2009 | 2009 | |||||||||||||
(Unaudited) | ||||||||||||||||
Convertible redeemable preferred shares | ||||||||||||||||
Series A (par value US$0.001 per share; 2,500,000 shares authorized; 152,193 shares issued and outstanding as of December 31, 2008 and 2009) | 16 | 164,705 | 184,541 | — | ||||||||||||
Series B (par value US$0.001 per share; 2,500,000 shares authorized; 129,000 shares issued and outstanding as of December 31, 2008 and 2009) | 16 | 134,531 | 148,943 | — | ||||||||||||
Series C (par value US$0.001 per share; 1,000,000 shares authorized; nil and 20,000 shares issued and outstanding as of December 31, 2008 and 2009) | 16 | — | 20,356 | — | ||||||||||||
Shareholders’ equity | ||||||||||||||||
China Hydroelectric Corporation shareholders’ equity (deficit): | ||||||||||||||||
Ordinary shares (par value US$0.001 per share, 130,000,000 shares authorized; 15,541,666 shares issued and outstanding as of December 31, 2008 and 2009) | 18 | 16 | 16 | 134 | ||||||||||||
Additional paid-in capital | 38,241 | 36,251 | 377,199 | |||||||||||||
Accumulated other comprehensive income | 10,819 | 11,065 | 11,065 | |||||||||||||
Accumulated deficit | (44,895 | ) | (100,767 | ) | (100,767 | ) | ||||||||||
Total China Hydroelectric Corporation shareholders’ equity (deficit) | 4,181 | (53,435 | ) | 287,631 | ||||||||||||
Noncontrolling interests | 750 | 789 | 789 | |||||||||||||
Total shareholders’ equity (deficit) | 4,931 | (52,646 | ) | 288,420 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) | 533,568 | 595,064 | 582,290 | |||||||||||||
F-4
Table of Contents
Notes | For the Years Ended December 31, | |||||||||||||||
2007 | 2008 | 2009 | ||||||||||||||
Revenues | 2,434 | 14,715 | 36,175 | |||||||||||||
Cost of revenues | (813 | ) | (6,025 | ) | (17,183 | ) | ||||||||||
Gross profit | 1,621 | 8,690 | 18,992 | |||||||||||||
Operating expenses: | ||||||||||||||||
General and administrative expenses | (2,560 | ) | (6,761 | ) | (9,099 | ) | ||||||||||
Total operating expenses | (2,560 | ) | (6,761 | ) | (9,099 | ) | ||||||||||
Operating (loss) income | (939 | ) | 1,929 | 9,893 | ||||||||||||
Interest income | 1,051 | 1,340 | 510 | |||||||||||||
Interest expenses | 21 | (3,275 | ) | (5,847 | ) | (14,228 | ) | |||||||||
Change in fair value of derivative financial liabilities and warrant liability | 15, 17 | (266 | ) | 420 | (13,793 | ) | ||||||||||
Exchange loss | (1,095 | ) | (1,067 | ) | (23 | ) | ||||||||||
Share of losses in an equity investee | (27 | ) | (503 | ) | (70 | ) | ||||||||||
Other income (loss), net | 23 | 8 | 144 | (225 | ) | |||||||||||
Loss before income tax expenses | (4,543 | ) | (3,584 | ) | (17,936 | ) | ||||||||||
Income tax expenses | 11 | (17 | ) | (444 | ) | (1,492 | ) | |||||||||
Consolidated net loss | (4,560 | ) | (4,028 | ) | (19,428 | ) | ||||||||||
Less: | ||||||||||||||||
Net loss attributable to noncontrolling interests | — | 41 | 32 | |||||||||||||
Net loss attributable to China Hydroelectric Corporation shareholders | (4,560 | ) | (3,987 | ) | (19,396 | ) | ||||||||||
Less: | ||||||||||||||||
Cumulative dividends on Series A convertible redeemable preferred shares | — | (14,680 | ) | (19,836 | ) | |||||||||||
Cumulative dividends on Series B convertible redeemable preferred shares | — | (5,531 | ) | (14,412 | ) | |||||||||||
Cumulative dividends on Series C convertible redeemable preferred shares | — | — | (356 | ) | ||||||||||||
Changes in redemption value of Series A convertible redeemable preferred shares | — | (10,569 | ) | — | ||||||||||||
Changes in redemption value of Series B convertible redeemable preferred shares | — | (4,134 | ) | — | ||||||||||||
Changes in redemption value of Series C convertible redeemable preferred shares | — | — | (1,872 | ) | ||||||||||||
Loss attributable to ordinary shareholders | (4,560 | ) | (38,901 | ) | (55,872 | ) | ||||||||||
Basic and diluted net loss attributable to ordinary shareholders per share | 19 | (0.33 | ) | (2.50 | ) | (3.59 | ) | |||||||||
Weighted average ordinary shares used in basic and diluted net loss attributable to ordinary shareholders per share computation | 19 | 13,817,466 | 15,554,416 | 15,541,666 | ||||||||||||
Pro forma basic and diluted net loss attributable to ordinary shareholders per share on an as converted basis | 31 | (0.16 | ) | |||||||||||||
Shares used in pro forma basic and diluted net loss attributable to ordinary shareholders per share computation | 31 | 122,427,137 |
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For the Years Ended December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Consolidated net loss | (4,560 | ) | (4,028 | ) | (19,428 | ) | ||||||
Adjustments to reconcile consolidated net loss to net cash (used in) provided by operating activities: | ||||||||||||
Depreciation of property, plant and equipment | 572 | 4,755 | 12,399 | |||||||||
Amortization of intangible assets | 66 | 108 | 182 | |||||||||
Deferred income taxes | — | 46 | 795 | |||||||||
Share of losses in an equity investee | 27 | 503 | 70 | |||||||||
Amortization of long-term notes discounts | 833 | 139 | — | |||||||||
Change in fair value of derivative financial liabilities and warrant liability | 266 | (420 | ) | 13,793 | ||||||||
Amortization of debt issuance costs | 293 | 47 | 23 | |||||||||
Accretion of guarantee fee payable | — | 105 | 10 | |||||||||
Accretion of guarantee deposit | — | — | 45 | |||||||||
Amortization of unfavorable contract obligations | — | (3 | ) | (660 | ) | |||||||
Amortization of government grant | — | (11 | ) | — | ||||||||
Share-based compensation expenses | — | — | 571 | |||||||||
Loss from disposal of property, plant and equipment | — | — | 276 | |||||||||
Remeasurement gain on pre-existing interest in an equity investee at acquisition-date fair value (Note 3) | — | — | (105 | ) | ||||||||
Exchange loss | 1,095 | 1,067 | 23 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (172 | ) | (8 | ) | (3,674 | ) | ||||||
Amounts due from an equity investee | — | (1,560 | ) | (125 | ) | |||||||
Amounts due from related parties | — | 28 | 13 | |||||||||
Prepayments and other current assets | (1,537 | ) | 2,166 | 304 | ||||||||
Other non-current assets | — | 42 | 969 | |||||||||
Accounts payable | (552 | ) | (2,068 | ) | (1 | ) | ||||||
Amounts due to related parties | — | 88 | (2 | ) | ||||||||
Accrued expenses and other current liabilities | (594 | ) | 1,374 | (4,265 | ) | |||||||
Net cash (used in) provided by operating activities | (4,263 | ) | 2,370 | 1,213 | ||||||||
Cash flows from investing activities: | ||||||||||||
Acquisition of subsidiaries, net of cash acquired | (466 | ) | (183,268 | ) | (32,283 | ) | ||||||
Acquisition of an equity investee | (4,612 | ) | — | — | ||||||||
Acquisition of an intangible asset | — | — | (1,025 | ) | ||||||||
Cash advancement to an acquired business prior to the acquisition date | (16,182 | ) | — | — | ||||||||
Acquisition of property, plant and equipment | (535 | ) | (32,944 | ) | (1,757 | ) | ||||||
Proceeds from disposal of property, plant and equipment | — | — | 190 | |||||||||
Payment to contractors for construction projects | (2,005 | ) | (2,394 | ) | (13,380 | ) | ||||||
Loans to an equity investee | — | (2,802 | ) | (3,937 | ) | |||||||
Repayment of loans by an equity investee | — | — | 3,486 | |||||||||
Restricted cash | 50,340 | — | — | |||||||||
Net cash provided by (used in) investing activities | 26,540 | (221,408 | ) | (48,706 | ) | |||||||
F-6
Table of Contents
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2008 and 2009
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)
For the Years Ended December 31, | ||||||||||||
2007 | 2008 | 2009 | ||||||||||
Cash flows from financing activities: | ||||||||||||
Purchase of subsidiary shares from noncontrolling interests | — | — | (2,490 | ) | ||||||||
Proceeds from issuance of convertible redeemable preferred shares | — | 279,025 | 20,000 | |||||||||
Proceeds from short-term loans | — | — | 4,391 | |||||||||
Proceeds from long-term loans | — | 4,280 | 129,234 | |||||||||
Proceeds from government grant | — | 115 | — | |||||||||
Payment of deferred initial public offering costs | — | (4,224 | ) | (7,142 | ) | |||||||
Payment of convertible redeemable preferred shares issuance costs | — | (13,804 | ) | (1,872 | ) | |||||||
Payment of debt issuance costs | (2,460 | ) | (307 | ) | (299 | ) | ||||||
Payment of equity issuance costs | — | (46 | ) | — | ||||||||
Payment of Business Combination Payment (Note 15) | (2,500 | ) | — | — | ||||||||
Repayment of short-term loans | — | (606 | ) | (6,082 | ) | |||||||
Repayment of long-term loans | (2,466 | ) | (12,185 | ) | (95,287 | ) | ||||||
Repayment of long-term notes | — | (9,907 | ) | — | ||||||||
Net cash (used in) provided by financing activities | (7,426 | ) | 242,341 | 40,453 | ||||||||
Net increase (decrease) in cash and cash equivalents | 14,851 | 23,303 | (7,040 | ) | ||||||||
Effect of changes in exchange rate on cash and cash equivalents | 127 | (216 | ) | (35 | ) | |||||||
Cash and cash equivalents at the beginning of the period | 628 | 15,606 | 38,693 | |||||||||
Cash and cash equivalents at the end of the period | 15,606 | 38,693 | 31,618 | |||||||||
Supplementary disclosure of cash flow information | ||||||||||||
Interest paid | 2,552 | 9,134 | 14,051 | |||||||||
Income taxes paid | — | 171 | 1,015 | |||||||||
Non-cash activities: | ||||||||||||
Conversion of long-term notes into ordinary shares | 39,124 | — | — | |||||||||
Transfer of unamortized debt issuance costs to equity upon conversion of long-term notes into ordinary shares | 3,096 | — | — | |||||||||
Non-cash portion of equity issuance costs incurred from conversion of long-term notes into ordinary shares | 46 | — | — | |||||||||
Non-cash portion of deferred initial public offering costs | — | 1,808 | 1,640 | |||||||||
Convertible redeemable preferred shares issued as dividends | — | 20,211 | 34,604 | |||||||||
Non-cash portion of acquisition of subsidiaries | — | 4,143 | 720 | |||||||||
Non-cash portion of acquisition of property, plant and equipment | — | 5,809 | 1,072 | |||||||||
Warrants issued in exchange for advisory services | — | 899 | — |
F-7
Table of Contents
China Hydroelectric Corporation shareholders | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Number of | Additional | other | Total | |||||||||||||||||||||||||||||
ordinary | Ordinary | paid-in | comprehensive | Accumulated | Noncontrolling | shareholders’ | Comprehensive | |||||||||||||||||||||||||
shares | shares | capital | income | deficit | interests | equity (deficit) | income (loss) | |||||||||||||||||||||||||
Balance at December 31, 2006 | 8,875,000 | 9 | 2,266 | — | (1,434 | ) | — | 841 | — | |||||||||||||||||||||||
Issuance of ordinary shares upon conversion of long-term convertible notes | 6,833,333 | 7 | 35,975 | — | — | — | 35,982 | — | ||||||||||||||||||||||||
Issuance of warrants (Note 17) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 2,143 | — | — | 2,143 | 2,143 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (4,560 | ) | — | (4,560 | ) | (4,560 | ) | |||||||||||||||||||||
Balance at December 31, 2007 | 15,708,333 | 16 | 38,241 | 2,143 | (5,994 | ) | — | 34,406 | (2,417 | ) | ||||||||||||||||||||||
Repurchase of ordinary shares | (166,667 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
Cumulative dividends on Series A convertible redeemable preferred shares | — | — | — | — | (14,680 | ) | — | (14,680 | ) | — | ||||||||||||||||||||||
Cumulative dividends on Series B convertible redeemable preferred shares | — | — | — | — | (5,531 | ) | — | (5,531 | ) | — | ||||||||||||||||||||||
Changes in redemption value of Series A convertible redeemable preferred shares | — | — | — | — | (10,569 | ) | — | (10,569 | ) | — | ||||||||||||||||||||||
Changes in redemption value of Series B convertible redeemable preferred shares | — | — | — | — | (4,134 | ) | — | (4,134 | ) | — | ||||||||||||||||||||||
Noncontrolling interest in an acquired subsidiary | — | — | — | — | — | 791 | 791 | — | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 8,676 | — | — | 8,676 | 8,676 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (3,987 | ) | (41 | ) | (4,028 | ) | (4,028 | ) | ||||||||||||||||||||
Balance at December 31, 2008 | 15,541,666 | 16 | 38,241 | 10,819 | (44,895 | ) | 750 | 4,931 | 4,648 | |||||||||||||||||||||||
F-8
Table of Contents
Consolidated Statements of Changes in Shareholders’ Equity
for the Years Ended December 31, 2007, 2008 and 2009 (Continued)
(Amounts in thousands of U.S. dollars (“US$”), except for number of shares and per share data)
China Hydroelectric Corporation shareholders | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Number of | Additional | other | Total | |||||||||||||||||||||||||||||
ordinary | Ordinary | paid-in | comprehensive | Accumulated | Noncontrolling | shareholders’ | Comprehensive | |||||||||||||||||||||||||
shares | shares | capital | income | deficit | interests | equity (deficit) | income (loss) | |||||||||||||||||||||||||
Cumulative dividends on Series A convertible redeemable preferred shares | — | — | — | — | (19,836 | ) | — | (19,836 | ) | — | ||||||||||||||||||||||
Cumulative dividends on Series B convertible redeemable preferred shares | — | — | — | — | (14,412 | ) | — | (14,412 | ) | — | ||||||||||||||||||||||
Cumulative dividends on Series C convertible redeemable preferred shares | — | — | — | — | (356 | ) | — | (356 | ) | — | ||||||||||||||||||||||
Changes in redemption value of Series C convertible redeemable preferred shares | — | — | — | — | (1,872 | ) | — | (1,872 | ) | — | ||||||||||||||||||||||
Purchase of subsidiary shares from noncontrolling interests | — | — | (2,561 | ) | — | — | 71 | (2,490 | ) | — | ||||||||||||||||||||||
Share-based compensation expenses | — | — | 571 | — | — | — | 571 | — | ||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | 246 | — | — | 246 | 246 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (19,396 | ) | (32 | ) | (19,428 | ) | (19,428 | ) | ||||||||||||||||||||
Balance at December 31, 2009 | 15,541,666 | 16 | 36,251 | 11,065 | (100,767 | ) | 789 | (52,646 | ) | (19,182 | ) | |||||||||||||||||||||
F-9
Table of Contents
1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
China Hydroelectric Corporation (the “Company”) was incorporated on July 10, 2006 under the laws of the Cayman Islands to serve as a vehicle for the acquisition of equity interest in companies with hydroelectric assets in the People’s Republic of China (the “PRC” or “China”). The Company and its subsidiaries (the “Group”) are principally engaged in the operation and development of hydroelectric assets and the generation of hydroelectric power in the PRC. |
The Company does not conduct any substantive operation of its own and conducts its primary business operations through its subsidiaries. During the years ended December 31, 2007, 2008 and 2009, the Company made three, seven and three acquisitions of hydroelectric entities, respectively. Details of each acquisition are disclosed in Note 3. |
In December 2009, the Company transferred one hydroelectric power project from Suichang County Jiulongshan Hydroelectric Development Co., Ltd. to the newly established Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. Both entities are wholly owned by the Company. |
As of December 31, 2009, the Company’s subsidiaries included the following entities: |
Place of | Date of Establishment/ | Percentage of | Principal | |||||||
Incorporation | Acquisition | Ownership | Activities | |||||||
Subsidiaries | ||||||||||
Beijing A.B.C. Investment Consulting Co., Ltd. (“ABC”) | PRC | April 19, 2007 | 100 | % | Provision of general and administrative services to group companies | |||||
Yunnan Huabang Electric Power Development Co., Ltd. (“Binglangjiang”) | PRC | April 25, 2007 | 100 | % | Operation and development of hydroelectric assets | |||||
Sichuan Huabang Hydroelectric Development Co., Ltd. (“Liyuan”) | PRC | May 21, 2007 | 100 | % | Operation and development of hydroelectric assets | |||||
Zhejiang Province Jingning Yingchuan Hydroelectric Development Co., Ltd. (“Yingchuan”) | PRC | January 31, 2008 | 100 | % | Operation and development of hydroelectric assets | |||||
Qingtian Wuliting Hydroelectric Development Co., Ltd. (“Wuliting”) | PRC | January 31, 2008 | 100 | % | Operation and development of hydroelectric assets |
F-10
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
1. | ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED) |
Place of | Date of Establishment/ | Percentage of | Principal | |||||||
Incorporation | Acquisition | Ownership | Activities | |||||||
Subsidiaries | ||||||||||
Suichang County Jiulongshan Hydroelectric Development Co., Ltd. (“Jiulongshan”) | PRC | January 31, 2008 | 100 | % | Operation and development of hydroelectric assets | |||||
China Hydroelectric Corporation (Hong Kong) Limited (“CHC HK”) | HK | June 25,2008 | 100 | % | Investment holding company | |||||
Pingnan County Yuheng Hydropower Co., Ltd. (“Yuheng”) | PRC | October 21, 2008 | 100 | % | Operation and development of hydroelectric assets | |||||
Pingnan County Wangkeng Hydroelectric Co., Ltd. (“Wangkeng”) | PRC | October 21, 2008 | 90 | % | Operation and development of hydroelectric assets | |||||
Pingnan County Yuanping Hydroelectric Co., Ltd. (“Yuanping”) | PRC | October 22, 2008 | 100 | % | Operation and development of hydroelectric assets | |||||
Sanming Zhongyin Banzhu Hydroelectric Co., Ltd. (“Banzhu”) | PRC | October 22, 2008 | 100 | % | Operation and development of hydroelectric assets | |||||
Sun Power Asia Limited (“Sunpower”) | HK | November 14,2008 | 100 | % | Investment holding company | |||||
Yunhe County Shapulong Hydropower Generation Co., Ltd. (“Shapulong”) | PRC | August 3, 2009 | 100 | % | Operation and development of hydroelectric assets | |||||
Zhejiang Longquan Ruiyang Cascaded II Hydropower Plant Co., Ltd. (“Ruiyang”) | PRC | August 20, 2009 | 100 | % | Operation and development of hydroelectric assets | |||||
Suichang County Zhougongyuan Hydroelectric Development Co., Ltd. (“Zhougongyuan”) | PRC | December 3, 2009 | 100 | % | Operation and development of hydroelectric assets |
F-11
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
(a) | Basis of presentation |
The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). Minority interests have been re-captioned to non-controlling interests and have been presented in accordance with Accounting Standards Codification (“ASC”) sub-topic 810-10 (“ASC 810-10”),Consolidation: Overall. |
(b) | Principles of consolidation |
The consolidated financial statements include the financial statements of the Company and its subsidiaries. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control and continued to be consolidated until the date that such control ceases. |
Investments in entities that the Company does not control, but has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Investments in entities in which the Company does not have the ability to exercise significant influence are accounted for under the cost method. All significant intercompany transactions and balances have been eliminated upon consolidation. |
The Group accounted for business combinations prior to January 1, 2009 using the acquisition method of accounting. For business combinations with the acquisition date on or after January 1, 2009, the Group accounted for the transactions in accordance with ASC sub-topic 805-10 (“ASC 805-10”),Business Combinations: Overall. ASC 805-10 requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. |
If a qualified public offering as defined in the preferred shares agreements is completed, all of the convertible redeemable preferred shares (Note 16) outstanding will automatically convert into 118,558,909 ordinary shares, based on the shares of convertible redeemable preferred shares outstanding at December 31, 2009. Unaudited pro forma shareholders’ equity as of December 31, 2009, as adjusted for the assumed conversion of the convertible redeemable preferred shares, is set forth in the consolidated balance sheet. Unaudited pro forma net loss attributable to shareholders of the Company per share for the year ended December 31, 2009, as adjusted for the assumed conversion of the convertible redeemable preferred shares as of January 1, 2009, is set forth in the consolidated statements of operations and Note 31. |
F-12
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(c) | Use of estimates |
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. |
(d) | Fair value of financial instruments |
Financial instruments include cash and cash equivalents, accounts receivable, certain other current assets, accounts payable, certain other liabilities, short-term loans, long-term loans, convertible redeemable preferred shares, derivative financial liabilities, and warrants. The carrying values of these financial instruments, other than long-term loans, convertible redeemable preferred shares, and warrants approximate their fair values due to their short-term maturities. The warrants issued in connection with the long-term notes were recorded in equity at the fair value as determined on the day of issuance (Note 17). The convertible redeemable preferred shares were initially recorded at issue price net of issuance costs. The Company recognizes changes in the redemption value immediately as they occur and adjusts the carrying value of the convertible redeemable preferred shares to equal the redemption value at the end of each reporting period (Note 16). The warrants issued in connection with the convertible redeemable preferred shares were recorded as a liability at fair value as determined on the day of issuance and subsequently adjusted to the fair value at each reporting date (Note 17). The Group, with the assistance of American Appraisal China Limited (“AA”), an independent third party valuation firm, determined the fair values of the long-term notes and related derivative financial liability, convertible redeemable preferred shares and warrants. |
The carrying values of long-term loans approximate their fair values due to the fact that the interest rates on these loans are reset each year based on prevailing market interest rates. |
The Group adopted the provisions of ASC sub-topic 820-10 (“ASC 820-10”),Fair Value Measurements and Disclosures: Overall, on January 1, 2008. ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The adoption of ASC 820-10 did not impact the Group’s financial condition, results of operations, or cash flow. |
ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value: |
F-13
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
(d) | Fair value of financial instruments (continued) | |
Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | ||
Level 2—Include other inputs that are directly or indirectly observable in the marketplace. | ||
Level 3—Unobservable inputs which are supported by little or no market activity. | ||
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. | ||
ASC 820-10 describes three main approaches to measure the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset. | ||
In accordance with ASC 820-10, the Group measures the fair value of money market funds included in cash equivalents using the market approach based on quoted market prices. The preferred shares warrants are valued using the income approach based on inputs that are unobservable in the market. | ||
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2009 are summarized below: |
Quoted price in | Significant | |||||||||||
active market for | other | Significant | ||||||||||
identical assets | observable | unobservable | ||||||||||
(Level 1) | inputs (Level 2) | inputs(Level 3) | ||||||||||
US$ | US$ | US$ | ||||||||||
Money market funds in cash equivalent | 17,136 | — | — | |||||||||
Morgan Joseph Preferred Shares Warrant (Note 17) | — | — | 14,333 | |||||||||
Total | 17,136 | — | 14,333 | |||||||||
F-14
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
(d) | Fair value of financial instruments (continued) | |
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2009: |
Preferred Shares | ||||||||
Warrants (Note 17) | Total | |||||||
US$ | US$ | |||||||
Balance as of December 31, 2008 | 540 | 540 | ||||||
Realized or unrealized loss | 13,793 | 13,793 | ||||||
Balance as of December 31, 2009 | 14,333 | 14,333 | ||||||
Realized and unrealized loss of US$13,793 for the year ended December 31, 2009 was recorded in “Changes in fair value of derivative financial liabilities and warrant liability” in the consolidated statements of operations. | ||
ASC sub-topic 825-10 (“ASC 825-10”),Financial Instruments: Overall, became effective for the Group at the beginning of 2008. ASC 825-10 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Group did not elect to utilize voluntary fair value measurements as permitted by ASC 825-10. | ||
(e) | Foreign currency | |
The Company determined its functional currency to be the US$ while its subsidiaries determine their functional currency to be their respective local currency based on the criteria of ASC sub-topic 830-10 (“ASC 830-10”),Foreign Currency Matters: Overall. All of the Company’s subsidiaries are located in the PRC and determined their functional currency to be the RMB. The Company uses the US$ as its reporting currency. | ||
Each entity in the Group maintains its financial records in its own functional currency. Transactions denominated in foreign currencies are measured at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are remeasured at the exchange rates prevailing at the balance sheet date. Exchange gains and losses are included in the consolidated statements of operations. Non-monetary items that are measured in terms of historical cost in a foreign currency are remeasured using the exchange rates at the dates of the initial transactions. | ||
The assets and liabilities of the Company’s subsidiaries are translated into the reporting currency of the Company at the exchange rates prevailing at the balance sheet date. The statements of operations of the Company’s subsidiaries are translated into the reporting currency of the Company at the weighted average exchange rates for the year. The resulting translation gains (losses) are recorded in accumulated other comprehensive income as a component of shareholders’ equity. |
F-15
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(e) | Foreign currency (continued) |
For the purpose of the consolidated statements of cash flows, cash flows of the PRC subsidiaries are translated into US$ at the exchange rates prevailing on the dates of the cash flows. Frequently recurring cash flows of the PRC subsidiaries which arise throughout the year are translated into US$ at the weighted average exchange rates for the year. |
(f) | Cash and cash equivalents |
Cash and cash equivalents include cash on hand and short-term deposits with original maturity of three months or less at the date of purchase. None of the Group’s cash and cash equivalents is restricted as to withdrawal and use. |
(g) | Accounts receivable |
Accounts receivables are carried at net realizable value. In evaluating the collectability of receivable balances, the Group considers many factors, including the aging of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. Accounts receivable are written off after all collective efforts have ceased. |
(h) | Investment in equity investee |
Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting under ASC sub-topic 323-10, (“ASC 323-10”),Investments—Equity Method and Joint Ventures: Overall, and included as investment in equity investees in the balance sheets. Under the equity method, the Company’s proportionate share of each equity investee’s net income or loss is included as share of income (losses) in equity investees in the statements of operations. |
The difference between the cost of the equity investee and the amount of the underlying equity in the net assets of the equity investee is recognized as equity method goodwill and included as part of the Company’s investment in equity investees in the balance sheets. The Company evaluated the investment in equity investee for impairment under ASC 323-10. An impairment loss on the investment in equity investee is recognized in the statements of operations when the decline in value is determined to be other-than-temporary. |
F-16
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
(h) | Investment in equity investee (continued) | |
Shapulong became a wholly-owned subsidiary of the Company on August 3, 2009 (Note 3). Prior to August 3, 2009, the Company accounted for Shapulong using the equity method of accounting. The following table presents summarized financial information in conformity with U.S. GAAP for Shapulong as of December 31, 2008, and for the period from December 25, 2007 (date of acquisition) to December 31, 2007, for the year ended December 31, 2008 and for the period from January 1, 2009 to August 2, 2009. |
December 31, 2008 | ||||
US$ | ||||
Current assets | 447 | |||
Non-current assets | 20,004 | |||
Current liabilities | 7,265 | |||
Non-current liabilities | 11,280 |
For the Period from | For the Period from | |||||||||||
December 25, 2007 to | For the Year ended | January 1, 2009 to | ||||||||||
December 31, 2007 | December 31, 2008 | August 2, 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Revenues | 3 | 2,507 | 1,420 | |||||||||
Gross profit | (24 | ) | 756 | 703 | ||||||||
Net loss | (54 | ) | (1,006 | ) | (140 | ) |
The Company had the following transactions with its equity investee, Shapulong, for the period from December 25, 2007 to December 31, 2007, for the year ended December 31, 2008 and for the period from January 1, 2009 to August 2, 2009: |
For the Period from | ||||||||||||
December 25, 2007 | For the Year | For the Period from | ||||||||||
to December 31, | Ended December 31, | January 1, 2009 to August 2, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Fees for supporting services provided to Shapulong | — | 229 | 32 | |||||||||
Short-term loans provided to Shapulong | 287 | 4,251 | 3,937 |
In 2007, Liyuan provided a loan of RMB2,100 (US$287) to Shapulong with an annual interest rate of 9.072%. The loan was unsecured and repayable on demand. As of August 2, 2009, RMB1,700 (US$249) was outstanding. |
F-17
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
(h) | Investment in equity investee (continued) |
As of December 31, 2008 there were two entrusted loans from Binglangjiang to Shapulong amounted to RMB20,000 (US$2,926). The entrusted loans are financing arrangements to provide Shapulong with working capital. In an entrusted loan arrangement, the lender makes deposits into a trust account of a bank and authorizes the bank to release the funds to the borrower. The bank collects interest and principal payments from the borrower and remits to the lender as they become due. On January 22, 2008, Binglangjiang provided an entrusted loan of RMB12,500 (US$1,829) to Shapulong through China Construction Bank. The loan has an interest rate of 15% per annum and is due on January 21, 2009. On June 23, 2008, Binglangjiang provided another entrusted loan of RMB7,500 (US$1,097) to Shapulong through Agricultural Bank of China. The loan has an interest rate of 9.711% per annum and was due on June 22, 2009. The banks charge an annual management fee ranging from 0.24% to 0.3% of the loan principal amount. Both amounts were repaid in full by Shapulong as of August 2, 2009. |
In November and December of 2008, Yingchuan and Wuliting provided short-term loans of US$1,134 and US$57, respectively, to Shapulong. During the period from January 1, 2009 to August 2, 2009, Wuliting and Yingchuan provided short-term loans of RMB26,899 (US$3,937) to Shapulong. The loans were unsecured, interest-free and repayable on demand. As of August 2, 2009, Shapulong has repaid US$990 to Yingchuan. |
The Company had the following balances with Shapulong as of December 31, 2007, 2008 and August 2, 2009: |
December 31, | December 31, | August 2, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Amounts due from Shapulong | 287 | 4,534 | 5,115 | |||||||||
Amounts due to Shapulong | — | 2 | 2 |
The balance due to Shapulong is unsecured, interest-free and repayable on demand. |
F-18
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(i) | Debt issuance costs |
Debt issuance costs represent the issuance costs of the convertible notes, which are stated at cost less accumulated amortization, and is classified as a non-current asset on the balance sheets. These costs were deferred and amortized rateably using the effective interest method from the debt issuance date to the debt maturity date. If the long-term convertible notes are converted prior to the debt maturity date, the unamortized debt issuance costs will be transferred to equity immediately upon occurrence of such events. |
The Company incurred US$3,534 in total debt issuance costs which were deferred and amortized over the life of the convertible notes using the effective interest method. Upon conversion of a portion of the convertible notes in April 2007, unamortized debt issuance cost of US$3,096 was reversed through a debit to additional paid-in capital. Upon settlement of the remaining portion of the convertible notes in February 2008, unamortized debt insurance cost of US$33 was reversed through a debit to interest expense. |
(j) | Property, plant and equipment |
Property, plant and equipment are recorded at cost less accumulated depreciation. |
Depreciation is recorded on a straight-line basis over the following estimated useful lives: |
Dams and reservoirs | 30-49 years | |||
Buildings | 8-50 years | |||
Machinery | 1-30 years | |||
Transportation equipment | 1-11 years | |||
Electronic equipment and others | 1-15 years | |||
Land use right | 44-50 years |
For property, plant and equipment acquired through a business combination, depreciation is recorded on a straight-line basis over their respective remaining estimated useful lives. All direct and indirect costs that are related to the construction of property, plant and equipment and incurred before the assets are ready for their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property, plant and equipment accounts and commences depreciation when these assets are ready for their intended use. |
Interest costs are capitalized if they are incurred during the acquisition, construction or production of a qualifying asset and such costs could have been avoided if expenditures for the assets have not been made. Capitalization of interest costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Interest costs are capitalized until the assets are ready for their intended use. Interest costs of US$3,467 and US$1,426 were capitalized for the years ended December 31, 2008 and 2009, respectively. |
F-19
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) | |
(j) | Property, plant and equipment (continued) |
Repair and maintenance costs are charged to expense when incurred, whereas the cost of renewals and betterment that extend the useful life of fixed assets are capitalized as additions to the related assets. Retirement, sale and disposals of assets are recorded by removing the cost and accumulated depreciation, with any resulting gain or loss reflected in the consolidated statements of operations. |
(k) | Goodwill and intangible assets |
Goodwill represents the excess of the purchase price over the amounts assigned to the fair value of the assets acquired and the liabilities assumed of acquired businesses. ASC sub-topic 350-10 (“ASC 350-10”),Intangibles-Goodwill and Other: Overall, requires that goodwill be tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. The Group assigns and assesses goodwill for impairment at the reporting unit level. The Group determines that each reporting unit is identified at the component level, which is one level below the operating segment. |
The performance of the impairment test involves a two-step process. The first step of the impairment test involves comparing the fair value of the reporting unit with its carrying amount, including goodwill. Fair value is primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit. If the carrying value exceeds the fair value, goodwill may be impaired. If this occurs, the Group performs the second step of the goodwill impairment test to determine the amount of impairment loss. The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. This implied fair value is then compared with the carrying amount of the reporting unit goodwill, and if it is less, the Group would then recognize an impairment loss. |
Intangible assets are carried at cost less accumulated amortization. Intangible assets acquired in a business combination are recognized initially at fair value at the date of acquisition. Intangible assets with a finite useful life are amortized using the straight-line method over the estimated economic life of the intangible assets. The estimated useful life for the intangible assets as of December 31, 2009 is as follows: |
Development right of Binglangjiang Phase II | 30 years | |||
Dam water use right of Yuanping | 40 years | |||
Dam water use right of Yuheng | 30 years |
The Group reviews and adjusts the carrying value of the intangible assets if the facts and circumstances suggest the intangible assets may be impaired (Note 2(m)). The Group assessed and concluded that there was no impairment for goodwill and intangible asset in any of the years presented. |
F-20
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(l) | Asset retirement obligations |
ASC sub-topic 410-20 (“ASC 410-20”),Asset Retirement Obligations, requires companies to record the present value of obligations associated with the retirement of tangible long-lived assets in the period in which it is incurred. The value of the liability is capitalized as part of the carrying amount of the related long-lived asset. Over time, accretion of the liability is recognized as an operating expense and the capitalized cost is depreciated over the expected useful life of the related asset. The Group’s asset retirement obligations relate primarily to the restoration of leased lands under land use rights granted by the local government to their original condition. Asset retirement obligations as of December 31, 2008 and 2009 were insignificant. |
(m) | Impairment of long-lived assets |
The Group evaluates its long-lived assets, including property, plant and equipment and intangible assets with finite lives, for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset may not be recoverable in accordance with ASC sub-topic 360-10 (“ASC 360-10”),Property, Plant, and Equipment: Overall. When these events occur, the Group assesses the recoverability of long-lived assets by comparing the carrying amount of the assets to the expected future undiscounted cash flows resulting from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group recognizes an impairment loss based on the excess of the carrying amount of the assets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the assets, when the market prices are not readily available. No impairment of long-lived assets was recognized for any of the years presented. |
(n) | Derivative instruments |
ASC sub-topic 815-10 (“ASC 815-10”),Derivatives and Hedging: Overall, requires all contracts which meet the definition of a derivative to be recognized in the consolidated financial statements as either assets or liabilities and recorded at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income/loss or in shareholders’ equity as a component of other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. Changes in fair values of derivatives not qualified as hedges are reported in the consolidated statements of operations. The estimated fair values of derivative instruments are determined at discrete points in time based on the relevant market information. These estimates are calculated with reference to the market rates using industry standard valuation techniques. |
(o) | Comprehensive income (loss) |
Comprehensive income is defined as the change in shareholders’ equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Comprehensive income (loss) is reported in the consolidated statements of changes in shareholders’ equity. Accumulated other comprehensive income (loss) of the Group includes the cumulative foreign currency translation adjustments. |
F-21
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(p) | Revenue recognition |
The Group’s revenue is derived from the sale of electricity. Revenues are recognized when the following four criteria are met as prescribed by ASC Sub-topic 605-10 (“ASC 605-10”),Revenue Recognition: Overall: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The Group considers the terms of each arrangement to determine the appropriate accounting treatment. Revenue is generally earned and recognized upon transmission of electricity to the power grid controlled and owned by the respective regional or provincial grid companies. For transactions in which electricity has been transmitted to the power grid without a fixed or determinable unit price per kWh while the tariff is pending approval of the regional or provincial pricing bureau, cash received in exchange for the transmission of electricity to the power grid controlled by the respective regional or provincial grid companies has been recorded as customer deposits until such time the price becomes fixed and determinable. When the price becomes fixed and determinable, all or a portion of the customer deposits will be recognized as revenue. The Group does not defer the related cost of revenues, which is charged to expense as incurred. Customer deposits of US$56 included in “Accrued expenses and other current liabilities” as of December 31, 2008 were recognized as revenues in the year ended December 31, 2009 as the unit price per kWh became fixed or determinable based on an approved tariff obtained from the regional pricing bureau on August 17, 2009. No customer deposits were recognized as of December 31, 2009. The Group has not offered any discounts or rebates to its customers nor does it provide for refunds in its sales contracts with customers except for Yuheng (Note14). |
The Company’s subsidiaries are subject to withholding value-added tax (“VAT”) on the revenues earned in the PRC. The applicable rate of VAT is 6% for small hydroelectric power projects with a total installed capacity of 50 megawatts or less and 17% for large hydroelectric power projects with a total installed capacity of over 50 megawatts. For the year ended December 31, 2007, the lower VAT rate of 6% was applied to the hydroelectric power projects of Binglangjiang and Liyuan. For the year ended December 31, 2008, the lower VAT rate of 6% was applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting, Jiulongshan, Yuheng and Yuanping and the VAT rate of 17% was applied to the hydroelectric power projects of Banzhu and Wangkeng. For the year ended December 31, 2009, the lower VAT rate of 6% was applied to the hydroelectric power projects of Binglangjiang, Liyuan, Yingchuan, Wuliting, Yuheng and Yuanping and the VAT rate of 17% was applied to the hydroelectric power projects of Banzhu, Wangkeng, Jiulongshan and Zhougongyuan. VAT on revenues earned from the sale of electricity by the Group to its customers for the years ended December 31, 2007, 2008 and 2009 were US$146, US$1,001 and US$3,742, respectively. The Group has recognized revenues net of VAT in the consolidated statements of operations. |
(q) | Cost of revenues |
Cost of revenues consists primarily of depreciation expense of hydroelectric power projects and related operating costs and overhead expenses directly attributable to the production of electricity. |
F-22
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(r) | Leases |
In accordance with ASC sub-topic 840-10 (“ASC 840-10”),Lease: Overall, leases are classified at the inception date as either a capital lease or an operating lease. For the lessee, a lease is a capital lease if any of the following conditions exist: (i) ownership is transferred to the lessee by the end of the lease term , (ii) there is a bargain purchase option, (iii) the lease term is at least 75% of the property’s estimated remaining economic life or (iv) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are expensed on a straight-line basis over the lease periods. |
The Group has no capital leases for any of the years presented. |
(s) | Income taxes |
The Group follows the liability method of accounting for income taxes in accordance with ASC sub-topic 740-10 (“ASC 740-10”),Income Taxes: Overall. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities, net operating loss carry forwards and credits, using enacted tax rates that will be in effect for the period in which the differences are expected to reverse. The Group records a valuation allowance against the amount of deferred tax assets if based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in the consolidated statements of operations in the period that includes the enactment date. |
On January 1, 2007, the Company adopted the accounting for uncertainty in income taxes in ASC 740-10. There was no cumulative effect of the adoption of the accounting for uncertainty in income taxes in ASC 740-10 to beginning retained earnings. Interests and penalties arising from underpayment of income taxes are computed in accordance with the related PRC tax law. The amount of interest expenses is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interest recognized from the accounting for uncertainty in income taxes is classified in the financial statements as interest expenses, while penalties recognized from the accounting for uncertainty in income taxes are classified in the financial statements as other expenses. During the years ended December 31, 2007, 2008 and 2009, the Group recognized US$nil, US$99 and US$183 interest or penalties, respectively. The Group paid no interest or penalties relating to uncertain tax positions for the years ended December 31, 2007, 2008 and 2009. |
F-23
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(s) | Income taxes (continued) |
The Group recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail, which is defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position. Tax positions that meet the “more likely than not” threshold are measured, using a probability weighted approach, at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. |
The Group’s estimated liability for unrecognized tax benefits is periodically assessed for adequacy and may be affected by changing interpretation of laws, rulings by tax authorities, certain changes and/or developments with respect to audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Group’s estimates. As each audit is concluded, adjustments, if any, are appropriately recorded in the Group’s financial statements. Additionally, in future periods, change in facts, circumstances, and new information may require the Group to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the change occurs. |
Prior to the adoption of the accounting for uncertainty in income taxes in ASC 740-10, the Group applied ASC sub-topic 450-10 (“ASC 450-10”),Contingencies: Overall, to assess and provide for potential income tax exposures. In accordance with ASC 450-10, the Company maintained reserves for tax contingencies based on reasonable estimates of the tax liability, interest and penalties that may result from such audits. |
(t) | Net (loss) income per share |
In accordance with ASC sub-topic 260-10 (“ASC 260-10”),Earnings Per Share: Overall, basic (loss) income per share is computed by dividing net (loss) income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. Diluted (loss) income per share is calculated by dividing net (loss) income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary share equivalents outstanding during the period. Ordinary share equivalents consist of the ordinary shares issuable upon the Group’s convertible redeemable preferred shares (Note 16), using the if-converted method, and ordinary shares issuable upon the conversion of the warrants (Note 17) and share options (Note 25), using the treasury stock method. |
F-24
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(u) | Segment reporting |
The Group follows ASC sub-topic 280-10 (“ASC 280-10”),Segment Reporting: Overall. The Group’s chief operating decision maker, who has been identified as the chief executive officer (“CEO”), relies upon financial information by provinces in the PRC when making decisions about allocating resources and assessing the performance of the Group. As a result, the Group operates and manages its business as four operating and reportable segments, namely the Yunnan Province segment, the Sichuan Province segment, the Zhejiang Province segment and the Fujian Province segment. As the Group’s long-term assets are substantially all located in and derived from the PRC, no geographical segments are presented. |
(v) | Government grant |
Government grants are recognized where there is reasonable assurance that the attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the related costs. Where the grant relates to an asset acquisition, it is recognized as deferred government grant and recognized as income in proportion to depreciation of the related assets. Grant income is recognized on a net basis as a reduction to cost of revenues in the accompanying consolidated statements of operations. |
(w) | Share-based payment |
The Company accounts for share awards issued to employees in accordance with ASC sub-topic 718-10 (“ASC 718-10”),Compensation-Stock Compensation: Overall. In accordance with the fair value recognition provision of ASC 718-10, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. The Company has elected to recognize share-based compensation expense for share awards granted to employees using the straight-line method. The Company uses a binomial option pricing valuations model in determining the fair value of the options granted. |
The Company accounts for share awards issued to non-employees in accordance with the provisions of ASC 718-10 and ASC sub-topic 505-50 (“ASC 505-50”),Equity: Equity-Based Payment to Non-employees. The Company’s share awards issued to non-employees are subject to graded vesting provisions. The Group recognizes share-based compensation expense for share awards granted to non-employees using the accelerated recognition method over the requisite service period of the award. In accordance with ASC 718-10 and ASC 505-50, the Company uses the binomial option pricing valuations model to measure the value of options granted to non-employees at each vesting date to determine the appropriate charge to share-based compensation. |
ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in the subsequent period if actual forfeitures differ from initial estimates. Share-based compensation expense was recorded net of estimated forfeitures such that expense was recorded only for those share-based awards that are expected to vest. Forfeiture rate is estimated based on historical and future expectation of employee turnover rate and are adjusted to reflect future change in circumstances and facts, if any. |
F-25
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
(x) | Recently issued accounting standards |
In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 167 (“SFAS 167”), (subsequently codified by Accounting Standards Update (“ASU”) No. 2009-17 (“ASU 2009-17”) in December 2009),Amendments to FASB Interpretation No. 46(R), which amends guidance regarding consolidation of variable interest entities to address the elimination of the concept of a qualifying special purpose entity. SFAS 167 also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for interim and annual reporting periods beginning after November 30, 2009. The Company does not expect the adoption of SFAS 167 will have a material impact on its consolidated financial statements. | ||
In October 2009, the FASB issued ASU No. 2009-15 (“ASU 2009-15”),Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. ASU 2009-15 amends ASC sub-topic 470-20, Debt: Debt with Conversion and Other Options, to include the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and shall be applied retrospectively for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009 and for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. The Company does not expect the adoption of ASU 2009-15 will have a material impact on its consolidated financial statements. |
In January 2010, the FASB issued ASU No. 2010-06 (“ASU 2010-06”),Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The Company does not expect that the adoption of ASU 2010-06 will have a material impact on its consolidated financial statements. |
F-26
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS |
During the year ended December 31, 2007, the Company completed the acquisitions of 100% ownership interest of (i) Binglangjiang located in the Yunnan Province of the PRC and (ii) the Liyuan hydroelectric power project (“Liyuan”) located in the Sichuan Province of the PRC. In addition, the Company completed the acquisition of 50% equity interest in Shapulong. During the year ended December 31, 2008, the Company completed the acquisitions of 100% ownership interest of (i) Yingchuan, (ii) Wuliting, (iii) Jiulongshan, (iv) Yuheng and (v) Yuanping, as well as 90% ownership interest of (vi) Wangkeng and (vii) Banzhu. Yingchuan, Wuliting and Jiulongshan are located in the Zhejiang Province of the PRC while Yuheng, Yuanping, Wangkeng and Banzhu are located in the Fujian Province of the PRC. During the year ended December 31, 2009, the Company completed the acquisitions of (i) the 10% noncontrolling interest of Banzhu, (ii) the remaining 50% equity interest of Shapulong and (iii) the 100% ownership interest of Ruiyang. Ruiyang is located in the Zhejiang Province of the PRC. As a result of these acquisitions, the Company is expected to further expand its hydroelectric power generation capacity in the PRC. |
(a) | Binglangjiang |
On March 15, 2007, the Company signed an agreement to acquire 100% equity interest in Binglangjiang for an aggregate purchase price of RMB50,000 (US$6,473) cash on the date of acquisition. The transaction was completed on April 25, 2007. Prior to the acquisition completion date, the Company advanced RMB125,000 (US$16,182) cash as a capital injection to Binglangjiang on April 17, 2007. The capital injection is to fund the future operations of Binglangjiang. The Company concluded that the capital injection transferred to Binglangjiang represents an advance to a subsidiary prior to the consummation of its acquisition rather than a cost directly related to its acquisition. Since the capital injection is not a liability incurred by the Company to former owners of Binglangjiang, the payment does not form part of the total purchase consideration. Total investment in the subsidiary by the Company on a non-consolidated basis was RMB175,000 (US$22,656) at the acquisition date. The acquisition of Binglangjiang meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since April 25, 2007. |
F-27
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) | |
(a) | Binglangjiang (continued) |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on April 25, 2007. |
US$ | ||||
Purchase price | 6,473 | |||
Direct acquisition costs | 50 | |||
Total purchase consideration | 6,523 | |||
Cash | 16,182 | |||
Property, plant and equipment, net | 17,215 | |||
Intangible asset | 2,909 | |||
Goodwill | 2,623 | |||
Other non-current assets | 162 | |||
Total assets acquired | 39,091 | |||
Short-term loans | (803 | ) | ||
Current portion of long-term loan | (4,272 | ) | ||
Long-term loan | (9,710 | ) | ||
Other current liabilities | (17,783 | ) | ||
Total liabilities assumed | (32,568 | ) | ||
Net assets acquired | 6,523 | |||
The US$2,623 goodwill from the acquisition of Binglangjiang was assigned to the Yunnan Province segment. |
(b) | Liyuan |
On March 17, 2007, the Company signed an agreement to acquire Liyuan for an aggregate purchase price of RMB77,000 (US$10,028) cash. The transaction was completed on May 21, 2007. The acquisition of Liyuan meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since May 21, 2007. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on May 21, 2007. |
US$ | ||||
Cash consideration | 10,028 | |||
Direct acquisition costs | 341 | |||
Total purchase consideration | 10,369 | |||
Property, plant and equipment, net | 10,369 | |||
Net assets acquired | 10,369 | |||
Negative goodwill of US$826 resulted from the acquisition was allocated to reduce the amount of property, plant and equipment. |
Liyuan Hydroelectric power project is currently operated by Liyuan, a wholly owned subsidiary of the Company established on April 19, 2007. |
F-28
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(c) | Shapulong |
On October 12, 2007, the Company signed an agreement to acquire 50% equity interest in Shapulong for an aggregate purchase price of RMB33,000 (US$4,545) cash. The Company incurred direct acquisition costs of US$203. The transaction was completed on December 25, 2007. As the Company has significant influence over Shapulong, Shapulong has been accounted for as an equity method investment from December 25, 2007 to the date Shapulong became a wholly-owned subsidiary on August 3, 2009. |
The following table summarizes the cost of the investment in Shapulong and the amount of the underlying equity in the net assets of Shapulong at the date of acquisition on December 25, 2007. |
US$ | ||||
Cash consideration | 4,545 | |||
Direct acquisition costs | 203 | |||
Total purchase consideration | 4,748 | |||
Equity in net assets | 2,846 | |||
Equity method goodwill | 1,902 | |||
Cost of investment | 4,748 | |||
On June 29, 2009, Yingchuan, a wholly-owned subsidiary of the Company, entered into an agreement with Zhejiang Water Conservancy & Hydropower Investment Corporation Group to acquire the 13% state-owned equity interest of Shapulong for an aggregate purchase price of RMB8,580 (US$1,256) cash. On July 22, 2009, Yingchuan entered into an agreement with Guangning Hydropower Development Co., Ltd. (“Guangning”) to purchase the remaining 37% equity interest of Shapulong for an aggregate purchase price of RMB21,000 (US$3,074) cash. Both acquisitions were completed and the Company took effective control of Shapulong on August 3, 2009. The results of operations of Shapulong have been included in the Company’s consolidated financial statements since August 3, 2009. |
Upon obtaining control in Shapulong on August 3, 2009, the Company remeasured the pre-existing 50% equity interest at fair value of RMB29,580 (US$4,331) and recognized a gain of US$105 from the remeasurement in “Other income, net” in the consolidated statements of operations. The acquisition-date fair value of the pre-existing 50% equity interest in Shapulong is included in the measurement of the consideration transferred. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on August 3, 2009. |
F-29
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(c) | Shapulong (continued) |
US$ | ||||||||
Previously held 50% equity interest remeasured at acquisition-date fair value | 4,331 | |||||||
Cash purchase price (13% equity interest) | 1,256 | |||||||
Cash purchase price (37% equity interest) | 3,074 | |||||||
Total purchase consideration | 8,661 | |||||||
Cash | 14 | |||||||
Property, plant and equipment, net | 27,431 | |||||||
Other assets | 751 | |||||||
Goodwill | 1,053 | |||||||
Total assets acquired | 29,249 | |||||||
Current portion of long-term loans | (1,625 | ) | ||||||
Other liabilities | (6,481 | ) | ||||||
Long-term loans | (10,540 | ) | ||||||
Deferred tax liabilities — non-current | (1,942 | ) | ||||||
Total liabilities assumed | (20,588 | ) | ||||||
Net assets acquired | 8,661 | |||||||
The US$1,053 goodwill from the acquisition of Shapulong was assigned to the Zhejiang Province segment. The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Shapulong. None of the goodwill is expected to be deductible for tax purposes. As of December 31, 2009, there were no changes in the recognized amounts of goodwill resulting from the acquisition of Shapulong. |
The Company recognized US$13 of acquisition-related costs that were expensed in the year ended December 31, 2009. These costs are included in “General and administrative expenses” in the consolidated statements of operations. |
The amounts of revenue and earnings of Shapulong included in the Company’s consolidated statement of operations from August 3, 2009, the acquisition date, to December 31, 2009 are as follows: |
US$ | ||||
Revenue | 1,110 | |||
Net profit | 170 |
F-30
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(d) | Yingchuan |
On December 13, 2007, the Company entered into an equity transfer purchase agreement with Zhejiang Guangsha Stock Co., Ltd. and Zhejiang Guangsha Hydropower Investment Co., Ltd. to acquire 100% of the equity interest of Yingchuan. The total purchase price for the acquisition is RMB304,030 (US$42,313), which comprises a cash purchase price of RMB291,437 (US$40,560) and a payment of RMB12,593 (US$1,753) to the seller for assuming all of the liabilities of Yingchuan upon consummation of the acquisition. The hydroelectric station is located in Jingning County, Zhejiang Province, and has been in operation since 2002. The acquisition was completed and the Company took effective control of Yingchuan on January 31, 2008. The acquisition of Yingchuan meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since January 31, 2008. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on January 31, 2008. |
US$ | ||||
Purchase price | 42,313 | |||
Guarantee fee relating to the acquisition (Note 22(d)) | 124 | |||
Direct acquisition costs | 142 | |||
Total purchase consideration | 42,579 | |||
Property, plant and equipment, net | 44,681 | |||
Goodwill | 10,592 | |||
Total assets acquired | 55,273 | |||
Current portion of long-term loans | (4,175 | ) | ||
Other current liabilities | (326 | ) | ||
Long-term loans | (6,263 | ) | ||
Deferred tax liabilities | (1,930 | ) | ||
Total liabilities assumed | (12,694 | ) | ||
Net assets acquired | 42,579 | |||
The US$10,592 goodwill from the acquisition of Yingchuan was assigned to the Zhejiang Province segment. |
F-31
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(e) | Wuliting |
On December 13, 2007, the Company entered into an equity transfer purchase agreement with Guangsha Construction Group Co., Ltd. and Mr. Lu Chunliang to acquire 100% of the equity interest of Wuliting. The total purchase price for the acquisition is RMB342,140 (US$47,617), which comprises a cash purchase price of RMB206,880 (US$28,792) and a payment of RMB135,260 (US$18,825) to the seller for assuming all of the liabilities of Wuliting upon consummation of the acquisition. The hydroelectric station is located in Qingtian County, Zhejiang Province, and has been in operation since 2007. The acquisition was completed and the Company took effective control of Wuliting on January 31, 2008. The acquisition of Wuliting meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since January 31, 2008. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on January 31, 2008. |
US$ | ||||
Purchase price | 47,617 | |||
Guarantee fee relating to the acquisition (Note 22(d)) | 620 | |||
Direct acquisition costs | 150 | |||
Total purchase consideration | 48,387 | |||
Guarantee asset (Note 22(d)) | 221 | |||
Property, plant and equipment, net | 65,689 | |||
Goodwill | 16,686 | |||
Total assets acquired | 82,596 | |||
Current portion of long-term loans | (3,062 | ) | ||
Guarantee liability (Note 22(d)) | (221 | ) | ||
Other current liabilities | (2,017 | ) | ||
Long-term loans | (27,695 | ) | ||
Deferred tax liabilities | (1,214 | ) | ||
Total liabilities assumed | (34,209 | ) | ||
Net assets acquired | 48,387 | |||
The US$16,686 goodwill from the acquisition of Wuliting was assigned to the Zhejiang Province segment. |
F-32
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(f) | Jiulongshan |
The acquisition of Jiulongshan does not meet the definition of a business acquisition and is accounted for as an asset acquisition. |
On December 13, 2007, the Company entered into an equity transfer purchase agreement with Guangsha Construction Group Co., Ltd. and Lu Chunliang to acquire 100% of the equity interest of Jiulongshan for an aggregate purchase price of RMB157,330 (US$21,896) cash. Pursuant to the equity transfer purchase agreement, the Company is obligated to transfer RMB250,000 (US$34,793) cash into Jiulongshan as a capital injection to fund the construction of the hydroelectric power project. The capital injection is not subject to any repayment terms and the Company has control over the injected fund subsequent to the consummation of the acquisition as the sole shareholder of Jiulongshan. The Company concluded that the capital injection to Jiulongshan represents an advance to a subsidiary subsequent to the consummation of its acquisition rather than a cost directly related to its acquisition. Since the capital injection is not a liability incurred by the Company to former owners of Jiulongshan, the payment does not form part of the total purchase consideration. The hydroelectric station is located in Suichang County, Zhejiang Province, and is under development. The acquisition was completed and the Company took effective control of Jiulongshan on January 31, 2008. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed. In accordance with ASC 350-10, acquisitions of asset groups that individually or collectively do not meet the definition of a business are accounted for by allocating the cost of the acquisition to individual assets and assumed liabilities comprising the net asset group based on their relative fair values, excluding financial assets, assets to be disposed of by sale, deferred tax assets, prepaid assets related to pension or other postretirement benefit plans, and other current assets. The only qualifying asset for the relative fair value allocation in the Jiulongshan acquisition was construction in progress. Therefore, total consideration in excess of fair value of net assets acquired amounted to RMB92,093 (US$12,817) was allocated to construction in progress. |
US$ | ||||
Purchase price | 21,896 | |||
Guarantee fee relating to the acquisition (Note 22(d)) | 641 | |||
Direct acquisition costs | 146 | |||
Total purchase consideration | 22,683 | |||
Guarantee asset (Note 22(d)) | 257 | |||
Current assets | 92 | |||
Construction in progress | 56,509 | |||
Total assets acquired | 56,858 | |||
Current portion of long-term loans | (418 | ) | ||
Guarantee liability (Note 22(d)) | (257 | ) | ||
Other current liabilities | (961 | ) | ||
Long-term loans | (29,505 | ) | ||
Deferred tax liabilities | (3,034 | ) | ||
Total liabilities assumed | (34,175 | ) | ||
Net assets acquired | 22,683 | |||
F-33
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(g) | Yuheng |
On August 15, 2008, the Company entered into an equity transfer purchase agreement with Fujian Province Anheng Asset Management Co., Ltd., Shanghai Yufeng Hotel Management Co., Ltd., and several individuals to acquire 100% of the equity interest of Yuheng. The total purchase price for the acquisition is RMB121,000 (US$17,721). The hydroelectric station is located in Pingnan County, Fujian Province and has been in operation since 1999. The acquisition was completed and the Company took effective control of Yuheng on October 21, 2008. The acquisition of Yuheng meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since October 21, 2008. |
Pursuant to the equity transfer purchase agreement, the original shareholders of Yuheng continue to provide guarantee on the bank loans of Yuheng subsequent to the acquisition by the Company. In addition, pursuant to a supplemental agreement, the original shareholders are entitled to the working capital of RMB892 (US$131) as of the acquisition date. Prior to the acquisition by the Company, Yuanping and Yuheng entered into an arrangement in which Yuanping was granted a right to use water from the dam and reservoir of Yuheng free of charge. An unfavorable contract obligation for the water use right was recorded as a liability assumed in the purchase price allocation of Yuheng. The balance has been eliminated at the consolidation level. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on October 21, 2008. |
US$ | ||||
Purchase price | 17,721 | |||
Direct acquisition costs | 92 | |||
Total purchase consideration | 17,813 | |||
Cash | 205 | |||
Property, plant and equipment, net | 20,374 | |||
Other assets | 4,767 | |||
Goodwill | 21,630 | |||
Total assets acquired | 46,976 | |||
Short-term loan | (2,928 | ) | ||
Current portion of long-term loans | (586 | ) | ||
Deferred tax liabilities — current | (11 | ) | ||
Other liabilities | (2,281 | ) | ||
Long-term loans | (22,402 | ) | ||
Deferred tax liabilities — non-current | (955 | ) | ||
Total liabilities assumed | (29,163 | ) | ||
Net assets acquired | 17,813 | |||
The US$21,630 goodwill from the acquisition of Yuheng was assigned to the Fujian Province segment. The Company finalized the purchase price allocation of this acquisition in 2009 and did not recognize any adjustment to goodwill. |
F-34
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(h) | Wangkeng |
On August 9, 2008, the Company entered into an equity transfer purchase agreement with Sanming City Chenyang Hydropower Co., Ltd., Sanming City Fufeng Industrial Co., Ltd., Beijing Xunjing Interactive Technology Co., Ltd. and other minority shareholders to acquire 90% of the equity interest of Wangkeng. The total purchase price for the acquisition is RMB220,500 (US$32,294). The hydroelectric station is located in Pingnan County, Fujian Province, and has been in operation since 2004. The acquisition was completed and the Company took effective control of Wangkeng on October 21, 2008. The acquisition of Wangkeng meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since October 21, 2008. |
Pursuant to the equity transfer purchase agreement, the original shareholders of Wangkeng continue to provide guarantee on the bank loans of Wangkeng subsequent to the acquisition by the Company. In addition, pursuant to a supplemental agreement, the original shareholders are entitled to the working capital of RMB223 (US$33) as of the acquisition date. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on October 21, 2008. |
US$ | ||||
Purchase price | 32,294 | |||
Direct acquisition costs | 100 | |||
Total purchase consideration | 32,394 | |||
Cash | 15 | |||
Other assets | 1,596 | |||
Deferred tax assets — current | 12 | |||
Property, plant and equipment, net | 36,396 | |||
Goodwill | 20,261 | |||
Total assets acquired | 58,280 | |||
Short-term loan | (2,635 | ) | ||
Current portion of long-term loans | (2,928 | ) | ||
Other liabilities | (2,298 | ) | ||
Long-term loans | (15,079 | ) | ||
Deferred tax liabilities — non-current | (2,155 | ) | ||
Total liabilities assumed | (25,095 | ) | ||
Noncontrolling interest | (791 | ) | ||
Net assets acquired | 32,394 | |||
The US$20,261 goodwill from the acquisition of Wangkeng was assigned to the Fujian Province segment. The Company finalized the purchase price allocation of this acquisition in 2009 and recognized an adjustment to goodwill of US$118 (Note 9). |
F-35
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(i) | Yuanping |
On August 15, 2008, the Company entered into an equity transfer purchase agreement with several individuals to acquire 100% of the equity interest of Yuanping. The total purchase price for the acquisition is RMB58,000 (US$8,490). The hydroelectric station is located at Pingnan County, Fujian Province and has been in operation since 2007. The acquisition was completed and the Company took effective control of Yuanping on October 22, 2008. The acquisition of Yuanping meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since October 22, 2008. |
Pursuant to the equity transfer purchase agreement, the original shareholders of Yuanping continue to provide guarantee on the bank loans of Yuanping subsequent to the acquisition by the Company. In addition, pursuant to a supplemental agreement, the original shareholders assume the negative working capital of RMB3,288 (US$481) as of October 17, 2008. Prior to the acquisition by the Company, Yuanping and Yuheng entered into an arrangement in which Yuanping was granted a right to use water from the dam and reservoir of Yuheng free of charge. An intangible asset for the water use right was recorded as an asset acquired in the purchase price allocation of Yuanping. The balance has been eliminated at the consolidation level. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on October 22, 2008. |
US$ | ||||
Purchase price | 8,490 | |||
Direct acquisition costs | 88 | |||
Total purchase consideration | 8,578 | |||
Cash | 115 | |||
Other assets | 1,586 | |||
Property, plant and equipment, net | 17,687 | |||
Intangible asset (Note 8) | 597 | |||
Goodwill | 2,529 | |||
Total assets acquired | 22,514 | |||
Short-term loan | (901 | ) | ||
Current portion of long-term loans | (439 | ) | ||
Other liabilities | (476 | ) | ||
Long-term loans | (11,560 | ) | ||
Deferred tax liabilities — non-current | (560 | ) | ||
Total liabilities assumed | (13,936 | ) | ||
Net assets acquired | 8,578 | |||
The US$2,529 goodwill from the acquisition of Yuanping was assigned to the Fujian Province segment. The Company finalized the purchase price allocation of this acquisition in 2009 and recognized an adjustment to goodwill of US$214 (Note 9). |
F-36
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(j) | Banzhu |
On July 11, 2008, the Company entered into an equity transfer purchase agreement with Sanming Ruifeng Hydropower Investment Co., Ltd. (“Sanming Ruifeng”) and Yong’an Ruifeng Hydroelectric Ltd. (“Yong’an Ruifeng”) to acquire 65% of the equity interest of Banzhu. On the same day, the Company entered into a separate equity transfer purchase agreement with Sanming Ruifeng to acquire 25% of the equity interest of Banzhu through the acquisition of 100% of the equity interest of Sunpower Asia Limited, a wholly-owned subsidiary of Sanming Ruifeng. The total purchase price for the acquisition is RMB134,203 (US$19,638). Pursuant to the equity transfer purchase agreement, the Company transferred RMB21,193 (US$3,100) cash into Banzhu as a capital injection on March 5, 2009, and will transfer an additional RMB83,724 (US$12,300) cash into Banzhu as a capital injection in 2010 to finance its future operations after the acquisition by the Company. The capital injection is not subject to any repayment terms and the Company has control over the injected fund subsequent to the consummation of the acquisition as the majority shareholder of Banzhu. The Company concluded that the capital injection to Banzhu represents an advance to a subsidiary subsequent to the consummation of its acquisition rather than a cost directly related to its acquisition. Since the capital injection is not a liability incurred by the Company to former owners of Banzhu, the payment does not form part of the total purchase consideration. Pursuant to a supplemental agreement, Sanming Ruifeng and Yong’an Ruifeng are entitled to receive the RMB59,158 (US$8,656) current assets, including cash and cash equivalent, accounts receivable and amounts due from related parties, of Banzhu as of the acquisition date from the Company. The acquisition was completed and the Company took effective control of Banzhu on October 22, 2008. On January 30, 2009, Sanming Ruifeng agreed to forego RMB7,000 (US$1,024) of the current assets that Sanming Ruifeng is entitled to receive from the Company. |
Pursuant to the equity transfer purchase agreement, the original shareholders of Banzhu continue to provide guarantee on the bank loans of Banzhu subsequent to the acquisition by the Company. |
F-37
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(j) | Banzhu (continued) |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on October 22, 2008. As the losses applicable to the noncontrolling interest in Banzhu exceeded the noncontrolling interest in the equity capital of Banzhu, the amount of noncontrolling interest has been reduced to zero as of the date of acquisition. |
US$ | ||||
Purchase price | 19,638 | |||
Direct acquisition costs | 91 | |||
Total purchase consideration | 19,729 | |||
Cash | 499 | |||
Other assets | 799 | |||
Property, plant and equipment, net | 49,370 | |||
Deferred tax assets — current | 1,114 | |||
Goodwill | 20,587 | |||
Total assets acquired | 72,369 | |||
Short-term loans | (2,927 | ) | ||
Guarantee liability (Note 22(d)) | — | |||
Current portion of long-term loans | (7,076 | ) | ||
Long-term loans | (27,266 | ) | ||
Deferred tax liabilities | (3,239 | ) | ||
Other liabilities | (12,132 | ) | ||
Total liabilities assumed | (52,640 | ) | ||
Net assets acquired | 19,729 | |||
The US$20,587 goodwill from the acquisition of Banzhu was assigned to the Fujian Province segment. The Company finalized the purchase price allocation of this acquisition in 2009. |
On January 30, 2009, CHC HK, a wholly-owned subsidiary of the Company located in Hong Kong, entered into an equity transfer purchase agreement with Sanming Ruifeng Economic Technological Development Ltd., the noncontrolling interest holder, to acquire the remaining 10% equity interest of Banzhu. The purchase price for the acquisition is RMB17,000 (US$2,490). CHC HK completed the acquisition on March 17, 2009. The Company accounted for the purchase of subsidiary shares from the noncontrolling interest as an equity transaction in accordance with ASC 810-10. The debit balance of the noncontrolling interest of US$71 was adjusted to zero to reflect the noncontrolling interest holder’s reduced ownership interest in Banzhu’s net assets. The difference between the consideration paid by the Company to the noncontrolling interest holder and the adjustment to the carrying amount of the noncontrolling interest in Banzhu was recognized in additional paid-in capital. |
F-38
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(j) | Banzhu (continued) |
The following table shows the effects of changes in the Company’s ownership interest in Banzhu on the equity attributable to the Company: |
For the years Ended | ||||||||
December 31, | ||||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Net loss attributable to the Company | (3,987 | ) | (19,396 | ) | ||||
Decrease in the Company’s paid-in capital for purchase of 10% of equity interest in Banzhu | — | (2,561 | ) | |||||
Net transfers to noncontrolling interest | — | (2,561 | ) | |||||
Change from net loss attributable to the Company and transfers to noncontrolling interest | (3,987 | ) | (21,957 | ) | ||||
(k) | Ruiyang |
On August 11, 2009, Yingchuan entered into an agreement with Guangdong Qing Neng Power Generation Group Co., Ltd. and Mr. Yao Linfu, to acquire the 100% equity interest of Ruiyang for an aggregate purchase price of RMB160,000 (US$23,420) cash. The acquisition was completed and the Company took effective control of Ruiyang on August 20, 2009. The acquisition of Ruiyang meets the definition of a business acquisition and the results of operations of the acquired business have been included in the Company’s consolidated financial statements since August 20, 2009. |
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on August 20, 2009. |
US$ | ||||
Purchase price | 23,420 | |||
Total purchase consideration | 23,420 | |||
Cash | 1,094 | |||
Property, plant and equipment, net | 32,503 | |||
Other assets | 1,196 | |||
Goodwill | 10,178 | |||
Total assets acquired | 44,971 | |||
Current portion of long-term loan | (1,756 | ) | ||
Other liabilities | (2,631 | ) | ||
Long-term loan | (14,052 | ) | ||
Deferred tax liabilities — non-current | (3,112 | ) | ||
Total liabilities assumed | (21,551 | ) | ||
Net assets acquired | 23,420 | |||
F-39
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) |
(k) | Ruiyang (continued) |
The US$10,178 goodwill from the acquisition of Ruiyang was assigned to the Zhejiang Province segment. The goodwill recognized is primarily attributable to expected synergies and the assembled workforce of Ruiyang. None of the goodwill is expected to be deductible for tax purposes. |
The Company recognized US$59 of acquisition-related costs that were expensed in the year ended December 31, 2009. These costs are included in “General and administrative expenses” in the consolidated statements of operations. |
The amounts of revenue and earnings of Ruiyang included in the Company’s consolidated income statement from August 11, 2009, the acquisition date, to December 31, 2009 are as follows: |
US$ | ||||
Revenue | 455 | |||
Net loss | (329 | ) |
(l) | Unaudited pro forma consolidated financial information |
The following unaudited pro forma consolidated financial information reflects the results of the operations of the Group for the years ended December 31, 2007 and 2008, as if the acquisitions in 2007 and 2008 described above had been completed at the beginning of the years presented. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place on the dates indicated and may not be indicative of future operating results. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. |
For the Years Ended December 31, | ||||||||
2007 | 2008 | |||||||
US$ | US$ | |||||||
Revenues | 25,123 | 28,218 | ||||||
Loss before income taxes | (6,065 | ) | (7,555 | ) | ||||
Net loss attributable to ordinary shareholders | (6,142 | ) | (42,643 | ) | ||||
Basic and diluted loss per share | (0.44 | ) | (2.74 | ) |
The following unaudited pro forma consolidated financial information reflects the results of the operations of the Group for the years ended December 31, 2008 and 2009, as if the acquisitions in 2008 and 2009 described above had been completed at the beginning of the years presented. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place on the dates indicated and may not be indicative of future operating results. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable. |
F-40
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
3. | ACQUISITIONS (CONTINUED) | |
(l) | Unaudited pro forma consolidated financial information (Continued) |
For the Years Ended December 31, | ||||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Revenues | 33,959 | 40,855 | ||||||
Loss before income taxes | (9,913 | ) | (17,226 | ) | ||||
Net loss attributable to ordinary shareholders | (44,920 | ) | (55,249 | ) | ||||
Basic and diluted loss per share | (2.89 | ) | (3.55 | ) |
4. | ACCOUNTS RECEIVABLE |
The Group’s trading terms with its customers are mainly on credit. The credit terms are generally within 30 days after the delivery of electricity. The Group does not offer extended payment terms and all accounts receivable balances are non-interest-bearing. |
As of December 31, 2009, substantially all of the accounts receivable balances were within credit terms except for a receivable of US$570 from Fujian Province (Pingnan) Rongping Chemical Industry Co., Ltd. (“Rongping Chemical”) which the Company acquired as part of the purchase business combination of Yuheng in October 2008, a receivable of US$4,853 from Lishui Electric Bureau, the local power grid for Jiulongshan electricity sales and a receivable of US$220 from Guangyuan Electric Bureau, the local power grid for Liyuan electricity sales. |
The US$570 receivable balance from Rongping Chemical is aged over two years but its collectability is guaranteed by the original shareholders of Yuheng in accordance with a debt settlement agreement signed in October 2008. The US$4,853 receivable balance from Lishui Electric Bureau and the US$220 receivable balance from Guangyuan Electric Bureau, which are less than one year overdue, are collectible as the electricity bureaus are PRC state-owned enterprises. As a result, an allowance for doubtful accounts was not provided on the receivable balances from Rongping Chemical, Lishui Electric Bureau and Guangyuan Electric Bureau as of December 31, 2009. |
5. | PREPAYMENTS AND OTHER CURRENT ASSETS |
Prepayments and other current assets consist of the following: |
December 31, 2008 | December 31, 2009 | |||||||
US$ | US$ | |||||||
Prepayments | 4,665 | 135 | ||||||
Guarantee deposit-current portion | 2,560 | 2,297 | ||||||
Amounts due from original shareholders of acquired subsidiaries | 481 | 273 | ||||||
Guarantee assets | 42 | — | ||||||
Others | 1,689 | 1,877 | ||||||
Total | 9,437 | 4,582 | ||||||
F-41
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share
data)
5. | PREPAYMENTS AND OTHER CURRENT ASSETS (CONTINUED) |
Prepayments as of December 31, 2008 and 2009 mainly represent advances to contractors for construction projects. |
Guarantee deposit as of December 31, 2008 and 2009 represents an interest free amount paid by Yuheng to Rongping Chemical as part of an electricity supply arrangement amongst Yuheng, Rongping Chemical and the power grid from 2007 (Note 10), which the Company assumed as part of the Yuheng acquisition. Pursuant to the electricity supply agreement, Yuheng is obligated to supply an agreed volume of 300 million kilowatt hour (“kWh”) of electricity to the power grid which in turn transmits such electricity to Rongping Chemical for a contractual term of 3.5 years. Yuheng provided a guarantee deposit of RMB30,000 (US$4,389) to Rongping Chemical to guarantee the supply of electricity over the contractual term. Rongping Chemical is required to refund the guarantee deposit to Yuheng for every kWh of electricity supplied to Rongping Chemical through the power grid up to 300 million kWh over 3.5 years. The guarantee deposit is recognized at its fair value on the date of acquisition of Yuheng and accreted to its face value of RMB30,000 (US$4,389) over the remainder of the contractual term of 3.5 years based on the volume of electricity supplied. The Company did not recognize any interest income from accretion of the guarantee deposit in the statement of operations from the date of acquisition of Yuheng to December 31, 2008 as the power grid did not transmit any electricity to Rongping Chemical during that period. The Company recognized an interest income of US$45 for the year ended December 31, 2009. Rongping Chemical refunded RMB7,705 (US$1,128) guarantee deposit to Yuheng for 77,054,538 kWh of electricity transmitted during the year ended December 31, 2009. |
Amounts due from original shareholders of acquired subsidiaries as of December 31, 2008 represent an amount receivable from the original shareholders of Yuanping for assuming the net working capital deficit of Yuanping immediately prior to the consummation of the acquisition on October 22, 2008 in accordance with the supplemental agreement. Amounts due from original shareholders of acquired subsidiaries as of December 31, 2009 represent the remaining balance of US$60 receivable from the original shareholders of Yuanping and US$213 receivable from the original shareholders of Banzhu for arable land occupation tax and social insurance which should be borne by the original shareholders in accordance with the equity purchase agreement. |
Guarantee assets as of December 31, 2008 represent the unamortized amount of the guarantee provided by the original shareholders of Wuliting and Jiulongshan on the bank loans of these subsidiaries subsequent to the acquisition by the Company in January 2008. The amount was fully amortized in the year ended December 31, 2009. |
6. | DEFERRED INITIAL PUBLIC OFFERING COSTS |
Direct costs incurred by the Company attributable to a proposed initial public offering of the Company’s ordinary shares in the United States have been deferred and will be charged against the gross proceeds from such offering. |
F-42
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
7. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment and its related accumulated depreciation as of December 31, 2008 and 2009 are as follows: |
December 31, 2008 | December 31, 2009 | |||||||
US$ | US$ | |||||||
Dams and reservoirs | 114,084 | 207,176 | ||||||
Buildings | 60,180 | 81,713 | ||||||
Machinery | 66,184 | 109,001 | ||||||
Transportation equipment | 563 | 951 | ||||||
Electronic equipment and others | 370 | 477 | ||||||
Land use right | 31,372 | 40,147 | ||||||
Less: Accumulated depreciation | (5,482 | ) | (17,881 | ) | ||||
267,271 | 421,584 | |||||||
Construction in progress | 97,919 | 1,616 | ||||||
Total | 365,190 | 423,200 | ||||||
Construction in progress as of December 31, 2008 and 2009 is as follows: |
Jiulongshan | Liyuan | Wuliting | Binglangjiang | Total | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
Balance as of December 31, 2007 | — | — | — | 222 | 222 | |||||||||||||||
Acquisition during the year | 56,509 | — | 3,831 | — | 60,340 | |||||||||||||||
Addition to construction in progress | 32,751 | — | 818 | 4,496 | 38,065 | |||||||||||||||
Transfer to property, plant and equipment | — | — | (4,714 | ) | — | (4,714 | ) | |||||||||||||
Foreign currency translation adjustment | 3,740 | — | 96 | 170 | 4,006 | |||||||||||||||
Balance as of December 31, 2008 | 93,000 | — | 31 | 4,888 | 97,919 | |||||||||||||||
Acquisition during the year | — | — | — | — | — | |||||||||||||||
Addition to construction in progress | 930 | 1,615 | 36 | 7,632 | 10,213 | |||||||||||||||
Transfer to property, plant and equipment | (93,974 | ) | — | (67 | ) | (12,522 | ) | (106,563 | ) | |||||||||||
Foreign currency translation adjustment | 44 | 1 | — | 2 | 47 | |||||||||||||||
Balance as of December 31, 2009 | — | 1,616 | — | — | 1,616 | |||||||||||||||
Interest costs qualifying for capitalization in the years ended December 31, 2007, 2008 and 2009 were US$nil, US$3,467 and US$1,426, respectively. |
F-43
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
7. | PROPERTY, PLANT AND EQUIPMENT (CONTINUED) |
Depreciation expenses for the years ended December 31, 2007, 2008 and 2009 were US$572, US$4,755 and US$12,399, respectively. Accumulated depreciation as of December 31, 2008 and 2009 included foreign currency translation adjustment of US$155 and US$166, respectively. Depreciation expenses have been reported in the following accounts: |
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Cost of revenues | (561 | ) | (4,709 | ) | (12,261 | ) | ||||||
General and administrative expenses | (11 | ) | (46 | ) | (138 | ) | ||||||
Total | (572 | ) | (4,755 | ) | (12,399 | ) | ||||||
8. | INTANGIBLE ASSETS |
In connection with the acquisition of Binglangjiang in 2007, the Company acquired a legal right to develop and operate Phase II of Binglangjiang’s hydroelectric power project. The development right allows the Company to expand the power generation capacity of Binglangjiang by utilizing the existing water dam of Binglangjiang, which has a useful life of 30 years. The Company recognized the fair value of US$2,909 of the development right as a separate intangible asset apart from goodwill in accordance with ASC 805-10. The estimated useful life of the development right is 30 years. |
In connection with the acquisition of Yuanping in 2008, the Company acquired a contractual right to use water from the dam and reservoir of the Jinzaoqiao station, which has a useful life of 40 years. The Company recognized the fair value of US$563 of the water use right as a separate intangible asset apart from goodwill in accordance with ASC 805-10. The estimated useful life of the water use right is 40 years. |
On August 12, 2009, Yuheng acquired a contractual right to use water from the dam and reservoir of Wanquan Power Generation Co., Ltd. for a purchase price of US$1,025 (RMB7,000). The term of the water use right is 30 years. |
F-44
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
8. | INTANGIBLE ASSETS (CONTINUED) |
Intangible assets and their related accumulated amortization as of December 31, 2008 and 2009 are as follows: |
December 31, 2008 | ||||||||||||||||
Foreign | ||||||||||||||||
Gross | Currency | Net | ||||||||||||||
Carrying | Accumulated | Translation | Carrying | |||||||||||||
Value | Amortization | Adjustment | Value | |||||||||||||
Development right of Binglangjiang Phase II | 2,909 | (172 | ) | 368 | 3,105 | |||||||||||
Water use right of Jinzaoqiao station | 563 | (2 | ) | — | 561 | |||||||||||
Total | 3,472 | (174 | ) | 368 | 3,666 | |||||||||||
December 31, 2009 | ||||||||||||||||
Foreign | ||||||||||||||||
Gross | Currency | Net | ||||||||||||||
Carrying | Accumulated | Translation | Carrying | |||||||||||||
Value | Amortization | Adjustment | Value | |||||||||||||
Development right of Binglangjiang Phase II | 2,909 | (282 | ) | 372 | 2,999 | |||||||||||
Water use right of Wanquan Power Generation Co., Ltd. | 1,025 | (58 | ) | — | 967 | |||||||||||
Water use right of Jinzaoqiao station | 563 | (16 | ) | — | 547 | |||||||||||
Total | 4,497 | (356 | ) | 372 | 4,513 | |||||||||||
Amortization expenses for the years ended December 31, 2007, 2008 and 2009 were US$66, US$108 and US$182, respectively. Amortization expenses have been reported in the following accounts: |
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Cost of revenues | (— | ) | (2 | ) | (72 | ) | ||||||
General and administrative expenses | (66 | ) | (106 | ) | (110 | ) | ||||||
Total | (66 | ) | (108 | ) | (182 | ) | ||||||
The estimated annual amortization expenses for each of the five succeeding fiscal years are as follows: |
US$ | ||||
2010 | 160 | |||
2011 | 160 | |||
2012 | 160 | |||
2013 | 160 | |||
2014 | 160 |
F-45
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
9. | GOODWILL |
Goodwill of US$107,824 as of December 31, 2009 represents the excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired relating to the acquisition of Binglangjiang during 2007, the acquisitions of Yingchuan, Wuliting, Yuheng, Wangkeng, Yuanping and Banzhu during 2008 and the acquisition of Shapulong and Ruiyang during 2009 (Note 3), net of foreign currency translation adjustment. Goodwill is not deductible for tax purposes. In accordance with ASC 350-10, goodwill is not amortized but is tested for impairment at least annually. |
The changes in the carrying amount of goodwill for the years ended December 31, 2008 and 2009 are as follows: |
Yunnan | Sichuan | Fujian | Zhejiang | |||||||||||||||||
Province | Province | Province | Province | Total | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
Balance as of December 31, 2007 | 2,773 | — | — | — | 2,773 | |||||||||||||||
Goodwill acquired during the year | — | — | 65,007 | 27,278 | 92,285 | |||||||||||||||
Subsequent realization of tax benefit from acquired subsidiaries | (86 | ) | — | — | — | (86 | ) | |||||||||||||
Foreign currency translation adjustment | 191 | — | (30 | ) | 1,400 | 1,561 | ||||||||||||||
Balance as of December 31, 2008 | 2,878 | — | 64,977 | 28,678 | 96,533 | |||||||||||||||
Goodwill acquired during the year | — | — | — | 11,232 | 11,232 | |||||||||||||||
Adjustments during allocation period | — | — | (36 | ) | — | (36 | ) | |||||||||||||
Foreign currency translation adjustment | 3 | — | 60 | 32 | 95 | |||||||||||||||
Balance as of December 31, 2009 | 2,881 | — | 65,001 | 39,942 | 107,824 | |||||||||||||||
F-46
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
9. | GOODWILL (CONTINUED) |
On January 30, 2009, Sanming Ruifeng, one of the original shareholders of Banzhu, agreed to forego RMB7,000 (US$1,024) of the current assets that Sanming Ruifeng is entitled to receive from the Company as part of the acquisition of 90% equity interest in Banzhu in October 2008. On June 18, 2009, the Company settled all outstanding balances associated with the acquisition of Banzhu and incurred additional restructuring costs related to involuntary employee termination and other liabilities of US$295 and US$141, respectively. On August 17, 2009, upon obtaining the approved unit price of RMB0.29 per kWh (inclusive of VAT) from the regional pricing bureau in the Fujian Province for electricity transmitted by Yuanping to the provincial power grid prior to July 8, 2009, the Company determined that US$648 is payable to the original shareholders of Yuanping for electricity sold by Yuanping prior to its acquisition by the Company in October 2008 pursuant to an agreement entered into between the Company and the original shareholders. In October, 2009, the Company settled all outstanding balances associated with the acquisition of Yuanping and Wangkeng with their original shareholders in accordance with the equity transfer purchase agreement and determined that an additional US$214 is receivable from and an additional US$118 is payable to the original shareholders of Yuanping and Wangkeng, respectively. As a result, the Company recorded a net decrease in goodwill of US$36 during the year ended December 31, 2009. |
F-47
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
10. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consist of the following: |
December | December | |||||||
31, 2008 | 31, 2009 | |||||||
US$ | US$ | |||||||
Accrued payroll expenses | 1,784 | 2,297 | ||||||
Retainage due to contractors | 4,371 | 2,408 | ||||||
Purchase consideration payable | 4,143 | 2,701 | ||||||
Employee termination costs | 4,387 | — | ||||||
Guarantee deposits from original shareholders of acquired subsidiaries | 4,806 | 4,316 | ||||||
Taxes payable | 1,092 | 1,844 | ||||||
Guarantee liabilities | 42 | — | ||||||
Amounts due to original shareholders of acquired subsidiaries | 5,622 | 881 | ||||||
Customer deposits | 56 | — | ||||||
Unrecognized tax benefits (Note 11) | 1,362 | 2,329 | ||||||
Accrued water resource fee | 323 | 823 | ||||||
Current portion of unfavorable contract obligation (Note 14) | 846 | 579 | ||||||
Other liabilities | 3,590 | 4,526 | ||||||
Total | 32,424 | 22,704 | ||||||
Retainage due to contractors represents the portion of the payment due to contractors that is withheld until final inspection and acceptance of the construction projects. |
Purchase consideration payable as of December 31, 2009 represents the US$2,684 and US$17 outstanding unpaid portion of the purchase consideration for the acquisitions of Wuliting and Ruiyang, respectively. |
Guarantee deposits from original shareholders of acquired subsidiaries as of December 31, 2009 represent security deposits received by the Company from original shareholders of Wuliting, Yingchuan and Wangkeng which will be returned by the Company within ten days when the original shareholders of the acquired subsidiaries furnish the Company with final documentation relating to the acquired hydroelectric power projects and dams and reservoirs. Pursuant to the equity transfer purchase agreements of Wuliting, Yingchuan and Wangkeng, the original shareholders are required to provide such documentation within one year from the respective date of acquisition. The final documentation has not been provided as of December 31, 2009 and the Company will retain the guarantee deposit until receipt of such documentation. |
Employee termination costs as of December 31, 2008 represent involuntary employee termination benefits assumed by the Company as part of the Banzhu acquisition. The liability was included in the allocation of the acquisition cost of Banzhu. The liability was settled in full during the year ended December 31, 2009. |
F-48
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
10. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES (CONTINUED) |
Amounts due to original shareholders of acquired subsidiaries as of December 31, 2009 represent amounts payable to the original shareholders of Wangkeng and Banzhu for their entitlement to the net working capital surplus of Wangkeng and to the current assets of Banzhu immediately prior to the consummation of the acquisitions in accordance with the supplemental equity transfer purchase agreements. The Company paid US$4,726 to the original shareholders of Banzhu during the year ended December 31, 2009. |
11. | INCOME TAX EXPENSE |
Cayman Islands |
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. In addition, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed. | ||
PRC |
Pursuant to the PRC Enterprise Income Tax Laws and relevant regulations that were applicable before January 1, 2008, the Company’s subsidiaries are generally subject to enterprise income taxes (“EIT”) at a statutory rate of 33%, which comprises 30% national income tax and 3% local income tax with the exception of two of the Company’s subsidiaries, namely Binglangjiang and Liyuan. Binglangjiang and Liyuan are wholly-owned foreign enterprises (“WOFEs”) located in the Western Development area and are subject to a preferential tax rate. Binglangjiang is entitled to a lower tax rate of 15% as its corporate income tax rate from 2007 to 2010 while Liyuan is entitled to tax exemption in years 2007 and 2008 and a tax rate of 7.5% from 2009 to 2010. |
F-49
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
11. | INCOME TAX EXPENSE (CONTINUED) |
During the 5th section of the 10th National People’s Congress, which was conducted on March 16, 2007, the PRC Corporate Income Tax Law (the “New CIT Law”) was approved and has become effective on January 1, 2008. On November 28, 2007, the regulation on the implementation of the New CIT Law was approved at the 197th Executive Meeting of the States Council. The New CIT Law and the Implementation regulation introduce a wide range of changes which include, but are not limited to the unification of the income tax law for domestic-invested and foreign invested enterprise at 25%. The New CIT Law provided a transition period for enterprises, whether foreign-invested or domestic, that received certain preferential tax treatments granted by relevant tax authorities. Under the transition rule, an enterprise subject to an enterprise income tax rate lower than 25% prior to January 1, 2008 is eligible to continue enjoying the lower rate and gradually transition to 25% within five years after the effective date of the New CIT Law. Accordingly, Binglangjiang and Liyuan will continue to be subject to a lower tax rate until 2010 as grandfathered by the New CIT law. All of the Company’s remaining subsidiaries located in the PRC are subject to the statutory tax rate of 25% beginning in 2008. Banzhu is entitled to tax exemption in 2008 and 2009 and a tax rate of 12.5% from 2010 to 2012 based on the tax preferential treatment granted by the PRC government on May 15, 2009. |
Moreover, the New EIT Law treats enterprises established outside of China with “effective management and control” located in China as PRC resident enterprises for tax purposes. The term “effective management and control” is generally defined as exercising overall management and control over the business, personnel, accounting, properties, etc. of and enterprise. The Company, if considered a PRC resident enterprise for tax purposes, would be subject to the PRC Enterprise Income at the rate of 25% on its worldwide income for the period after January 1, 2008. As of December 31, 2009, the Company has not accrued for PRC tax on such basis. The Company will continue to monitor its tax status. |
The Group had minimal operations in jurisdictions other than the PRC. |
F-50
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
11. | INCOME TAX EXPENSE (CONTINUED) |
(Loss) income before income taxes consists of: |
For the Year | For the Year | For the Year | ||||||||||
Ended December 31, | Ended December 31, | Ended December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Cayman Islands | (3,873 | ) | (4,353 | ) | (18,648 | ) | ||||||
PRC | (670 | ) | 769 | 712 | ||||||||
(4,543 | ) | (3,584 | ) | (17,936 | ) | |||||||
Income tax expenses consist of: |
For the Year | For the Year | For the Year | ||||||||||
Ended December 31, | Ended December 31, | Ended December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Current income tax expenses | 17 | 398 | 697 | |||||||||
Deferred income tax expenses | — | 46 | 795 | |||||||||
Income tax expenses | 17 | 444 | 1,492 | |||||||||
A reconciliation of the effective income tax provisions to the amount computed by applying the statutory tax rate to (loss) income before income taxes in the consolidated statements of operations is as follows: |
For the Year | For the Year | For the Year | ||||||||||
Ended December 31, | Ended December 31, | Ended December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Taxation at PRC EIT statutory rate (33% for the year ended December 31, 2007 and 25% for the years ended December 31, 2008 and 2009) | (1,499 | ) | (896 | ) | (4,483 | ) | ||||||
Impact of tax rate differences | 1,278 | 1,089 | 4,663 | |||||||||
Impact from statutory tax rate change | 184 | — | — | |||||||||
Effect of tax holidays in the PRC | 21 | (286 | ) | 336 | ||||||||
Deemed interest income | 103 | 510 | ||||||||||
Non-deductible expenses | 10 | 95 | 211 | |||||||||
Change in valuation allowance | 23 | 339 | 255 | |||||||||
Income tax provision | 17 | 444 | 1,492 | |||||||||
Effective Tax Rate (%) | (0.4% | ) | (12.4% | ) | (8.3% | ) |
F-51
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
11. | INCOME TAX EXPENSE (CONTINUED) |
In accordance with the provision of ASC 740-10, the Group recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail, which is defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position. Tax positions that meet the “more likely than not” threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement using a probability weighted approach. The Group has adopted an income tax return preparation method principally based on tax invoices issued and received. In accordance with current PRC income tax laws and regulations, an income tax return should be prepared based on accounting income after adjusting for certain tax adjustments. As of December 31, 2009, in accordance with ASC 740-10, the Group has recognized additional income tax provisions of US$1,430 for unrecognized tax benefits which represent the estimated income tax expense the Group would pay for the year ended December 31, 2009. The Group also recognized a decrease of unrecognized tax benefits of US$246 related primarily to the reversal of income tax expense of Banzhu due to a preferential tax rate granted in 2009, with retroactive effect to 2008 and US$220 related to the settlement with the tax authority of Yinchuan, Ruiyang, and Wangkeng in 2009. The Company has US$1,362 cumulative unrecognized tax benefits as of January 1, 2009. |
A reconciliation of accrued unrecognized tax benefits is as follows: |
US$ | ||||
Balance as of January 1, 2009 | 1,362 | |||
Increase for tax position taken in the current year | 95 | |||
Increase for tax positions of prior years | 1,335 | |||
Decrease for tax positions of prior years | (466 | ) | ||
Foreign currency translation | 3 | |||
Balance as of December 31, 2009 | 2,329 | |||
As of December 31, 2009, the Group has recognized a provision of US$2,329 of unrecognized tax benefits that, if recognized, would impact the effective tax rate. However, based on the Group’s current valuation allowance position, US$1,175 of the unrecognized tax benefit, if recognized, would not impact the effective tax rate. |
It is possible that the amount of unrecognized tax benefits will change in the next 12 months, pending factors such as changes in PRC tax law or administrative practices and precedents, or tax authority inquiries. An estimate of the change cannot be made at this time. |
The Group recognizes interest accrued related to unrecognized tax benefits in interest expenses. During the year ended December 31, 2009, the Group recognized US$183 in interest expense. |
F-52
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
12. | DEFERRED TAX ASSETS / DEFERRED TAX LIABILITIES | |
Deferred tax assets and deferred tax liabilities reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and deferred tax liabilities are as follows: |
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Deferred tax assets – current | ||||||||
Allowance for uncollectible other receivables | 7 | 7 | ||||||
Accrued water resource fee | 131 | 254 | ||||||
Guarantee deposit | 51 | 96 | ||||||
Accrued maintenance fund | — | 19 | ||||||
Disposal of fixed assets | — | 10 | ||||||
Other payable | 1,097 | 377 | ||||||
Total deferred tax assets – current | 1,286 | 763 | ||||||
Deferred tax liabilities – current | ||||||||
Unfavorable contract obligation – electricity supply contract | (95 | ) | (132 | ) | ||||
Total deferred tax liabilities – current | (95 | ) | (132 | ) | ||||
Valuation allowance | (25 | ) | (142 | ) | ||||
Net deferred tax assets – current | 1,166 | 489 | ||||||
Deferred tax assets – non-current | ||||||||
Net operating loss carry-forwards | 670 | 1,154 | ||||||
Investment tax credit carry-forwards | 470 | 470 | ||||||
Depreciation of property, plant and equipment | 1,339 | 1,280 | ||||||
Pre-operation expenses | 49 | 26 | ||||||
Guarantee deposit | 34 | — | ||||||
Unfavorable contract obligation – water use right | 9 | 426 | ||||||
Government grant | 26 | 26 | ||||||
Other | 16 | 1 | ||||||
Total deferred tax assets – non-current | 2,613 | 3,383 | ||||||
Deferred tax liabilities – non-current | ||||||||
Fair value step-up of property, plant and equipment | (13,359 | ) | (18,836 | ) | ||||
Unfavorable contract obligation – electricity supply contract | (136 | ) | 8 | |||||
Amortization of acquired intangible assets | (755 | ) | (737 | ) | ||||
Total deferred tax liabilities – non-current | (14,250 | ) | (19,565 | ) | ||||
Valuation allowance | (1,778 | ) | (2,623 | ) | ||||
Net deferred tax liabilities – non-current | (13,415 | ) | (18,805 | ) | ||||
F-53
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
12. | DEFERRED TAX ASSETS / DEFERRED TAX LIABILITIES (CONTINUED) |
Deferred tax assets of US$1,126 and deferred tax liabilities of US$12,253, were recognized as a result of the acquisition of Yingchuan, Wuliting, Jiulongshan, Banzhu, Wangkeng, Yuheng and Yuanping during the year ended December 31, 2008. The Group recognized a full valuation allowance of US$420 and US$425 on the deferred tax asset of Wuliting and Yuanping at the acquisition date as it is more likely than not that the benefit in future earnings will not be realized. Deferred tax assets of US$847 and deferred tax liabilities of US$5,053 were recognized as a result of the acquisition of Shapulong, Yuanping, and Ruiyang during the year ended December 31, 2009. The group recognized a full valuation allowance of US$187, US$83,and US$434 on the deferred tax asset of Shapulong, Ruiyang and Yuanping at the acquisition date as it is more likely than not that the benefit in the future earning will not be realized. The Group records a valuation allowance on its deferred tax assets that is sufficient to reduce the deferred tax assets to an amount that is more likely than not to be realized. Future reversal of the valuation allowance will be recognized either when the benefit is realized or when it has been determined that it is more likely than not that the benefit in future earnings will be realized. The Group recognized a change in valuation allowance of US$23, US$339 and US$255 during the years ended December 31, 2007, 2008 and 2009, respectively. A foreign currency translation adjustment of US$52 and US$3 on deferred tax asset and the related valuation allowance was recognized in accumulated other comprehensive income as of December 31, 2008 and 2009, respectively. |
Net operating loss carry-forwards of US$2,873 as of December 31, 2009 will expire in years 2012 to 2014. Investment tax credit carry-forwards of US$470 as of December 31, 2009 will expire in year 2011. |
Deferred tax liabilities have not been provided on undistributed earnings of the Company’s foreign subsidiaries during 2009, as the Company intends to indefinitely reinvest such earnings into its foreign subsidiaries. The parent company currently has no need to use the cash. |
The benefit of tax holiday on basic and diluted loss per share is as follows: |
For the Year Ended | For the Year Ended | |||||||
December 31, 2008 | December 31, 2009 | |||||||
US$ | US$ | |||||||
Basic and diluted | 0.02 | 0.02 | ||||||
F-54
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
13. | BORROWINGS |
Total borrowings as of December 31, 2008 and 2009 consist of: |
December 31, 2008 | December 31, 2009 | |||||||
US$ | US$ | |||||||
Short-term: | ||||||||
Secured | 5,560 | 4,394 | ||||||
Unsecured | 3,221 | 2,704 | ||||||
Long-term: | ||||||||
Current portion, secured | 29,037 | 56,809 | ||||||
Non-current, secured | 138,133 | 172,469 | ||||||
Total borrowings | 175,951 | 236,376 | ||||||
The short-term loans outstanding as of December 31, 2009 related to RMB denominated loans of US$2,116, US$588, and US$4,394 of Yuheng, Yuanping and Jiulongshan, respectively. The short-term loan of Yuheng was obtained from the original shareholders and is unsecured, interest-free and has no fixed term of repayment. The short-term loan of Yuanping was obtained from Fujian Dachuang Hydroelectric Group, Ltd. (“Dachuang Group”), the original entrusted management of Yuanping, and is unsecured, interest-free and has no fixed term of repayment. The short-term loan of Jiulongshan was obtained from Agricultural Bank of China with an annual interest of 5.84% and is due in June 2010. The short-term loan is secured by the pledge of future electricity sales of Jiulongshan and the pledge of property, plant and equipment of Jiulongshan and Zhougongyuan of US$92,520. |
The long-term loans outstanding as of December 31, 2009 of US$229,278 related to RMB denominated bank loans obtained by Binglangjiang, Yingchuan, Wuliting, Jiulongshan, Yuheng, Wangkeng, Yuanping , Banzhu and Ruiyang from financial institutions. As of December 31, 2009, Wuliting and Yingchuan were in violation of certain debt covenant provisions relating to the use of funds. As a result, the banks have the right to call the entire outstanding loan balances at any time. Accordingly, the Company recorded loan balances of Wuliting and Yingchuan in the amount of US$29,671 and US$2,929, respectively, as current portion of long-term loans in the consolidated balance sheets as of December 31, 2009. |
F-55
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
13. | BORROWINGS (CONTINUED) |
The interest rates on these long-term loans are variable based on the market rate published by the People’s Bank of China each year. The interest rates on these long-term loans are variable based on the market rate published by the People’s Bank of China each year. The average interest rate on the long-term loans for the year ended December 31, 2009 was 6.16%. The long-term loans are due from 2010 to 2020 and are secured by the following: |
(a) | Corporate guarantee by third parties |
Long-term loans amounted to US$24,750 as of December 31, 2009 were guaranteed by the following third parties: |
December 31, 2009 | ||||
US$ | ||||
Guaranteed by | ||||
Guangsha Construction Group Co., Ltd. | 13,181 | |||
Sanming Ruifeng Hydropower Investment Co., Ltd. | — | |||
Fujian Province Anheng Assets Management Co., Ltd. and Fujian Yuneng Power Group Ltd. | 8,494 | |||
Dachuang Group and original shareholders of Yuanping | 1,757 | |||
Huang Shaojian (original shareholder of Wangkeng) | — | |||
Pingnan County Minfeng Electric Power Co., Ltd. | 1,318 | |||
24,750 | ||||
(b) | Pledge of property, plant and equipment |
As of December 31, 2009, certain long-term loans were secured by the pledge of property, plant and equipment of US$385,665 of Binglangjiang, Yingchuan, Wuliting, Yuheng, Wangkeng, Yuanping, Banzhu, Ruiyang, Jiulongshan and Zhougongyuan. | ||
(c) | Pledge of proceeds from future electricity sales | |
Long-term loans amounted to US$76,008 as of December 31, 2009 were secured by the proceeds from future electricity sales of Yuanping, Wangkeng and Banzhu. | ||
Maturities of long-term loans for the five years succeeding December 31, 2009 are as follows: |
US$ | ||||
2010 | 56,809 | |||
2011 | 24,662 | |||
2012 | 23,608 | |||
2013 | 24,955 | |||
2014 | 25,922 | |||
Thereafter | 73,322 | |||
229,278 | ||||
F-56
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
14. | OTHER NON-CURRENT LIABILITIES |
Other non-current liabilities as of December 31, 2009 represent deferred government grant of US$104 relating to Banzhu. |
The government grant is recognized as income over the periods necessary to match it on a systematic basis with the related costs which it is intended to compensate. From the acquisition date to December 31, 2008, US$11 has been recognized as a reduction to cost of revenues. During the year ended December 31, 2009, US$nil has been recognized. |
An unfavorable contract obligation was assumed by the Company as part of the Yuheng acquisition on October 22, 2008. The unfavorable contract obligation arose from an electricity supply contract amongst Yuheng, Rongping Chemical and the power grid from 2007 in which the contractual rate at which Yuheng would sell its electricity output is not at market. Pursuant to the electricity supply agreement, a price of RMB0.181 per kWh (inclusive of VAT), which was not an approved price then, has been set for the supply of an agreed volume of 300 million kWh of electricity from Yuheng to the power grid which in turn transmits such electricity to Rongping Chemical for a contractual term of 3.5 years. An approved price of RMB0.29 per kWh (inclusive of VAT) has been subsequently approved by the provincial pricing bureau for Yuheng’s electricity supply starting from October 28, 2008. Pursuant to the electricity supply agreement, Yuheng is only entitled to RMB0.181 per kWh (inclusive of VAT) of the RMB0.29 per kWh revenue received from the power grid and is obligated to remit the portion of revenue above RMB0.181 per kWh, or RMB0.109 per kWh, to Rongping Chemical for electricity volume transmitted under the supply agreement. The unfavorable contract obligation is amortized and recognized as revenue over the remaining contractual period based on the actual supply volume. For electricity transmitted from Yuheng to Rongping Chemical through the power grid, the Company recognized revenue based on the contractual price of RMB0.181 per kWh, net of VAT, and a deemed revenue of RMB0.065 per kWh from the amortization of the unfavorable contract obligation until the earlier of reaching the cumulative volume of 300 million kWh or October 2010. The Company recognized revenue based on the approved price of RMB0.29 per kWh, net of VAT, and did not recognize any deemed revenue from the amortization of the unfavorable contract obligation from the acquisition date to December 31, 2008 as the power grid did not transmit any electricity to Rongping Chemical during that period. During the year ended December 31, 2009, US$734 has been recognized as deemed revenue. As of December 31, 2009, the remaining unfavorable contract obligations balance is included in “Accrued expenses and other current liabilities” in the consolidated balance sheets as the arrangement will expire in October 2010. |
F-57
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
15. | LONG-TERM NOTES |
On November 10, 2006, the Company issued secured convertible notes (the “Notes”) to Vicis Capital Master Fund (“Vicis”), JMG Capital Partners, L.P. and JMG Triton Offshore Fund, Limited (“JMG”), (collectively, the “Holders”), for an aggregate principal amount of US$50,000. The Notes had a maturity date of May 10, 2008. On April 11, 2007, all of the Holders approved the consummation of a business combination by the Company. Vicis elected to convert its US$41,000 Notes and received 6,833,333 ordinary shares and 18,666,666 warrants each to purchase one ordinary share at US$5.00 per share (Note 17). JMG elected not to convert its US$9,000 Notes and received 666,666 warrants each to purchase one ordinary share at US$5.00 per share (Note 17). The Company classified the remaining US$9,000 Notes as long-term notes in the balance sheet. |
On February 8, 2008, the Company paid JMG US$10,012 cash to fully redeem the principal amount of the US$9,000 Notes and to settle accrued and unpaid interest of US$174 and a contingent payment of US$838. The unamortized debt issuance costs of US$33 and unamortized discount of US$98 were immediately recognized as interest expense in the consolidated statements of operations upon redemption of the US$9,000 Notes. The changes in fair value of the bifurcated embedded derivative liability relating to the US$9,000 Notes were recognized in the consolidated statements of operations until the US$9,000 Notes were redeemed by the Company. A gain of US$61 resulted from the change in fair value of the derivative liabilities was recognized in the statements of operations for the year ended December 31, 2008. |
16. | CONVERTIBLE REDEEMABLE PREFERRED SHARES |
On January 23, 2008, the Company issued 150,025 Series A convertible redeemable preferred shares (“Series A Preferred Shares”) for an aggregate purchase price of US$150,025 or US$1,000 per share. |
On July 24, 2008, the Company issued the first batch of 101,000 Series B convertible redeemable preferred shares (“Series B Preferred Shares”) for an aggregate purchase price of US$101,000 or US$1,000 per share. On August 15, 2008, the Company issued the second batch of 28,000 Series B Preferred Shares for an aggregate purchase price of US$28,000, or US$1,000 per share. |
On October 27, 2009, the Company issued 20,000 Series C convertible redeemable preferred shares (“Series C Preferred Shares”) for an aggregate purchase price of US$20,000 or US$1,000 per share. |
The Company intends to use the proceeds of the Series A, Series B and Series C Preferred Shares to fund the Company’s future acquisition of hydroelectric power generating assets and expansion of the Company’s existing hydroelectric power projects in the PRC, to repay all the amounts due and for the Company’s working capital purposes. The significant terms of the Series A, Series B and Series C Preferred Shares are summarized below. |
F-58
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
16. | CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED) |
Dividends |
Pursuant to the Series A, Series B and Series C Preferred Shares agreements, the holders of the Series A, Series B and Series C Preferred Shares are entitled to receive cash dividends on each share at the rate of 10% per annum of the issuance price when and if declared by the board of directors of the Company. To the extent dividends are not paid in cash, dividends shall be paid in kind by the Company by issuing to each holder additional Series A, Series B and Series C Preferred Shares. Dividends shall accrue at 10% per annum and accumulate quarterly on the fifteenth of March, June, September and December. |
If a qualified public offering, as defined in the Series A, Series B and Series C Preferred Shares agreements, has not occurred on or before April 28, 2009, September 30, 2009 and December 31, 2010, respectively, the dividend rate shall increase by 1% per annum and shall further increase by 1% per annum as of each subsequent dividend accrual date, provided that under no circumstances the dividend rate exceeds 15% per annum. |
Ranking |
Pursuant to the Series A Preferred Shares agreement, the Series A Preferred Shares rank, as to dividends and upon liquidation, senior and prior to the ordinary shares and to all other classes or series of shares issued by the Company. |
Upon issuance of the first batch of the Series B Preferred Shares in July 2008, pursuant to the Series B Preferred Shares agreement, the ranking of Series A Preferred Shares to dividends and upon liquidation was modified such that Series A Preferred Shares rank senior and prior to the ordinary shares and to all other classes or series of shares issued by the Company but shall rank the same as Series B Preferred Shares. |
Upon issuance of the Series C Preferred Shares in October 2009, the ranking of Series A and Series B Preferred Shares to dividends and upon liquidation was modified such that the Series A and Series B Preferred Shares shall rank senior and prior to the ordinary shares and to all other classes or series of shares issued by the Company but shall rank the same as Series C preferred Shares. |
Voting Rights |
Each holder of the Series A, Series B and Series C Preferred Shares is entitled to the number of votes equal to the number of shares of ordinary shares into which such holder’s Series A, Series B and Series C Preferred Shares could be converted and having voting rights and powers equal to the voting rights and powers of the ordinary shares. |
F-59
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
16. | CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED) |
Liquidation preference |
In the event of any liquidation, dissolution or winding up of the Company or any deemed liquidation event as defined in the Series A, Series B and Series C Preferred Shares agreements, each holder of Series A, Series B and Series C Shares is entitled to receive, prior to and in preference to holders of ordinary shares, an amount equal to the original issuance price plus any declared and unpaid dividends. If at the time of any liquidation event, the liquidation proceeds are greater than the entire assets and funds of the Company legally available for distribution amongst the holders of Series A and Series B Preferred Shares and holders of ordinary shares, the assets and funds of the Company shall be distributed ratably amongst the holders of Series A, Series B and Series C Preferred Shares first. After distribution in full to the holders of Series A, Series B and Series C Preferred Shares, the remaining assets and funds of the Company available for distribution shall be distributed ratably amongst the holders of ordinary shares. |
Conversion rights |
The holders of the Series A, Series B and Series C Preferred Shares shall have conversion rights as follows: |
Each Series A, Series B and Series C Preferred Share plus any declared but unpaid dividends shall be convertible at the option of the holder, at any time after the date of issuance of such share, into ordinary shares as determined by dividing the par value plus any accrued dividends by the lesser of (i) the applicable conversion price and (ii) in the event of a qualified public offering, the issue price per ordinary share multiplied by an applicable percentage. For Series A Preferred Shares, the applicable percentage is 70% if the qualified public offering is consummated before April 28, 2009, 60% if the qualified public offering is consummated after April 28, 2009 and before January 28, 2010, and 50% if the qualified public offering is consummated after January 28, 2010. For Series B Preferred Shares, the applicable percentage is 70% if the qualified public offering is consummated before December 31, 2009, 60% if the qualified public offering is consummated after December 31, 2009 and before June 30, 2010, and 50% if the qualified public offering is consummated after June 30, 2010. For Series C Preferred Shares, the applicable percentage is 70% if the qualified public offering is consummated on or before December 31, 2010, 60% if the qualified public offering is consummated after December 31, 2010 and on or before September 30, 2011, and 50% if the qualified public offering is consummated after September 30, 2011. The initial conversion price of the Series A and Series B Preferred Shares is US$7.00 and the initial conversion price of the Series C Preferred Shares is US$8.00. | |||
All of the Series A, Series B and Series C Preferred Shares shall automatically be converted into ordinary shares at the then-effective conversion price upon the closing of a qualified public offering, as defined in the Series A, Series B and Series C Preferred Shares agreements. |
F-60
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
16. | CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED) | |
Redemption | ||
Pursuant to the Series A, Series B and Series C Preferred Shares agreements, Series A, Series B and Series C Preferred Shares are subject to redemption as follows: |
If the Company fails to consummate certain specified acquisitions of hydroelectric assets in the Zhejiang Province in order for the proceeds of the Series A Preferred Shares to be released from an escrow account to the Company by March 30, 2008, the Company is obligated to redeem all of the Series A Preferred Shares at a redemption price equal to the Series A Preferred Shares issue price plus any interest earned in the escrow account. | |||
If a qualified public offering has not occurred prior to January 28, 2011, upon written election by the holders of the Series A, Series B and Series C Preferred Shares, the Company is obligated to redeem such holders’ Series A and Series B Preferred Shares by paying a redemption price equal to the Series A and Series B Preferred Shares issue price plus any accrued but unpaid dividends. | |||
If a qualified public offering has not occurred prior to January 28, 2013, the Company may elect to redeem all of the Series A, Series B and Series C Preferred Shares at a redemption price equal to the Series A, Series B and Series C Preferred Shares issue price plus any accrued but unpaid dividends. | |||
Prior to the consummation of a change in control event, if requested by holders of a majority of the Series A, Series B and Series C Preferred Shares and the Company has sufficient legally available funds or assets to redeem in full all of the Series A, Series B and Series C Preferred Shares, the Company is obligated to redeem all of the Series A, Series B and Series C Preferred Shares at a redemption price equal to the Series A, Series B and Series C Preferred Shares issue price plus any accrued but unpaid dividends. |
Accounting for Series A, Series B and Series C Preferred Shares | ||
The Series A, Series B and Series C Preferred Shares have been classified as mezzanine equity as these preferred shares can be redeemed at the option of the holders on or after an agreed upon date. | ||
The initial carrying amount of the Series A Preferred Shares is the issue price at the date of issuance of US$150,025 net of issuance costs (including the Morgan Joseph Preferred Shares Warrant (Note 17)) of US$10,569. The initial carrying amount of the Series B Preferred Shares is the issue price at the date of issuance of US$129,000 net of issuance costs of US$4,134. The initial carrying amount of the Series C Preferred Shares is the issue price at the date of issuance of US$20,000 net of issuance costs of US$1,872. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
16. | CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED) |
Accounting for Series A, Series B and Series C Preferred Shares (Continued) |
The holders of Series A, Series B and Series C Preferred Shares have the ability to convert the instrument into the Company’s ordinary shares. The Company evaluated the embedded conversion option in the Series A, Series B and Series C Preferred Shares to determine if there were any embedded derivatives requiring bifurcation and to determine if there were any beneficial conversion features. The conversion option of the preferred shares does not qualify for bifurcation accounting because the conversion option is clearly and closely related to the host instrument and the underlying ordinary shares are not publicly traded nor readily convertible into cash. |
Beneficial conversion features exist when the conversion price of the convertible redeemable preferred shares is lower than the fair value of the ordinary shares at the commitment date. When a beneficial conversion feature exists as of the commitment date, its intrinsic value is bifurcated from the carrying value of the preferred shares as a contribution to additional paid-in capital. The resulting discount to the convertible redeemable preferred shares is then amortized as a deemed dividend through retained earnings from the date of issuance to the earliest conversion date in the absence of a stated redemption date. The Company determined the fair value of ordinary shares with the assistance of AA. |
On January 23, 2008, the most favorable conversion price used to measure the beneficial conversion feature of the Series A Preferred Shares was US$7.00. No beneficial conversion feature was recognized for the Series A Preferred Shares as the fair value per ordinary share at the commitment date was US$2.56, which was less than the most favorable conversion price. |
On July 24 and August 15, 2008, the most favorable conversion price used to measure the beneficial conversion feature of the Series B Preferred Shares was US$7.00 and no beneficial conversion feature was recognized for the Series B Preferred Shares as the fair value per ordinary share at both commitment dates was US$2.97, which was less than the most favorable conversion price. |
On October 27, 2009, the most favorable conversion price used to measure the beneficial conversion feature of the Series C Preferred Shares was US$8.00 and no beneficial conversion feature was recognized for the Series C Preferred Shares as the fair value per ordinary share at the commitment date was US$2.95, which was less than the most favorable conversion price. |
The Company concluded that the Series A, Series B and Series C Preferred Shares are not redeemable currently, but it is probable that the Series A, Series B and Series C Preferred Shares will become redeemable. The Company chose to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the Series A, Series B and Series C Preferred Shares to equal the redemption value at the end of each reporting period. An accretion charge of US$10,569 and US$4,134 related to Series A and Series B Preferred Shares, respectively, was recorded as a reduction of income available to ordinary shareholders for the year ended December 31, 2008. An accretion charge of US$1,872 related to Series C Preferred Shares was recorded as a reduction of income available to ordinary shareholders for the years ended December 31, 2009. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
16. | CONVERTIBLE REDEEMABLE PREFERRED SHARES (CONTINUED) |
As of December 31, 2008 and 2009, no cash dividends were declared by the Company on the Series A, Series B and Series C Preferred Shares. A cumulative dividend of US$14,680 and US$5,531 for Series A and Series B Preferred Shares, respectively, was accrued and recorded as a reduction of income available to ordinary shareholders for the year ended December 31, 2008. A cumulative dividend of US$19,836, US$14,412 and US$356 for Series A, Series B and Series C Preferred Shares, respectively, was accrued and recorded as a reduction of income available to ordinary shareholders for the year ended December 31, 2009. |
The carrying value of the Series A, Series B and Series C Preferred Shares as of December 31, 2008 and 2009 is as follows: |
Series A | Series B | Series C | Total | |||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||
Balance as of December 31, 2007 | — | — | — | — | ||||||||||||
Issuance of preferred shares | 150,025 | 129,000 | — | 279,025 | ||||||||||||
Issuance costs (including Morgan Joseph Preferred Shares Warrant (Note 17) for Series A Preferred Shares) | (10,569 | ) | (4,134 | ) | — | (14,703 | ) | |||||||||
Changes in redemption value | 10,569 | 4,134 | — | 14,703 | ||||||||||||
Cumulative dividends | 14,680 | 5,531 | — | 20,211 | ||||||||||||
Balance as of December 31, 2008 | 164,705 | 134,531 | — | 299,236 | ||||||||||||
Issuance of preferred shares | — | — | 20,000 | 20,000 | ||||||||||||
Issuance costs | — | — | (1,872 | ) | (1,872 | ) | ||||||||||
Changes in redemption value | — | — | 1,872 | 1,872 | ||||||||||||
Cumulative dividends | 19,836 | 14,412 | 356 | 34,604 | ||||||||||||
Balance as of December 31, 2009 | 184,541 | 148,943 | 20,356 | 353,840 | ||||||||||||
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
17. | WARRANTS |
On November 10, 2006, the Founding Shareholders of the Company purchased 375,000 units of securities issued by the Company through China Hydro LLC, a limited liability company formed under the laws of the State of Delaware which holds the equity interest in the Company for the founding shareholders. Each unit consists of one ordinary share and two warrants each to purchase one ordinary share of the Company at US$5.00 per share (“Founders’ Warrants”). The exercise period of the Founders’ Warrants commences on the date of issuance and expires on the earlier of November 10, 2011 or the redemption of the warrants by the Company. The Founders’ Warrants can be redeemed at the option of the Company at any time during the exercise period at US$0.001 per warrant, provided that the last independent bid price of the ordinary share exceeds US$8.50 per share. |
On November 10, 2006, the Company also issued two warrants to Morgan Joseph, as part of the payment for services rendered by Morgan Joseph on the issuance of the Notes (Note 15). One warrant allows Morgan Joseph to purchase 550,000 units of securities (each unit consists of one ordinary share and two warrants each to purchase one ordinary share of the Company at US$5.00 per share) and the other warrant allows Morgan Joseph to purchase 283,333 units of securities (each unit consists of one ordinary share and four warrants each to purchase one ordinary share of the Company at US$5.00 per share) issued by the Company at US$6.60 per unit (“Morgan Joseph Warrants”). The exercise period of the Morgan Joseph Warrants commences on the date of issuance and expires on November 10, 2011. The Morgan Joseph Warrants provide for a cashless exercise option. |
On April 11, 2007, all of the Holders of the Notes approved the consummation of a business combination by the Company (Note 15). Vicis converted its US$41,000 Notes into 6,833,333 ordinary shares and 18,666,666 warrants each to purchase one ordinary share at US$5.00 per share while JMG elected not to convert its US$9,000 Notes and received 666,666 warrants each to purchase one ordinary share at US$5.00 per share. The warrants issued to Vicis and JMG (collectively, the “Holders’ Warrants”) have terms identical to the Founders’ Warrants in that the Company has an option to redeem at any time at US$0.001 per warrant, provided that the last independent bid price of the ordinary share exceeds US$8.50 per share, and that the exercise period commences on the date of issuance and expires on the earlier of November 10, 2011 or the redemption of the warrants by the Company. |
Under ASC sub-topic 815-40 (“ASC 815-40”),Derivatives and Hedging: Contracts in Entity’s Own Equity,if a contract could potentially be cash settled, and such settlement is not within the control of the issuer, the derivative is accounted for as an asset or liability, and changes in fair value are recognized in the consolidated statements of operations. |
Upon issuance of the Founders’ Warrants, Morgan Joseph Warrants and Holders’ Warrants and as of December 31, 2008 and 2009, the Company evaluated ASC 815-40-25-7 to ASC 815-40-25-35 and concluded that the warrants could only be physical settled or net-share settled but not net-cash settled. Therefore, the Founders’ Warrants, Morgan Joseph Warrants and Holders’ Warrants have been classified as equity since their respective issuance date. Fair value of the Founders’ Warrants, Morgan Joseph Warrants and Holders’ Warrants at their respective commitment date was determined to be minimal by management with the assistance of AA. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
17. | WARRANTS (CONTINUED) |
The Founders’ Warrants, Morgan Joseph Warrants and Holders’ Warrants will continue to be reported as equity until such time as the warrants are exercised, expire, or become cash-settleable. In the event of a reclassification from equity to liability, the warrants will be measured at a new fair value as of the reclassification date with the change from the existing carrying value to the new fair value as an adjustment to shareholders’ equity. |
On January 28, 2008, the Company issued another warrant to Morgan Joseph, as part of the payment for services rendered by Morgan Joseph on the issuance of the Series A Preferred Shares (Note 16). The warrant allows Morgan Joseph to purchase (i) up to 15,000 Series A Preferred Shares at US$1,100 per share prior to the closing of a qualified public offering or (ii) up to such number of ordinary shares automatically converted into from 15,000 Series A Preferred Shares upon the closing of a qualified public offering at 110% of the then-effective conversion price per Series A Preferred Share (“Morgan Joseph Preferred Shares Warrant”). The exercise period of the Morgan Joseph Preferred Shares Warrant commences on the date of issuance and expires on January 28, 2013. The Morgan Joseph Preferred Shares Warrant provides for a cashless exercise option. |
The Morgan Joseph Preferred Shares Warrant has been classified as a liability since the issuance date under ASC sub-topic 480-10 (“ASC 480-10”),Distinguishing Liabilities from Equity: Overall, as Morgan Joseph is entitled to a cashless exercise into Series A Preferred Shares, which are contingently redeemable for cash. The fair value of the Morgan Joseph Preferred Shares Warrant was US$899, US$540 and US$14,333 at the time of issuance and as of December 31, 2008 and 2009, respectively. An income of US$359 and a loss of US$13,793 from the change in fair market value of the Morgan Joseph Preferred Shares Warrant was recognized in the statements of operations during the years ended December 31, 2008 and 2009 respectively. The fair value of the Morgan Joseph Preferred Shares Warrant was determined with the assistance of AA. |
The fair values of the Founders’ Warrants, Morgan Joseph Warrants and Holders’ Warrants, which are classified as equity, and the fair value of Morgan Joseph |
Preferred Shares Warrant, which is classified as a liability, were estimated at their commitment date or December 31, 2009 using the following assumptions: |
Morgan | Morgan Joseph | |||||||||||||||
Founders’ | Joseph | Holders’ | Preferred Shares | |||||||||||||
Warrants | Warrants | Warrants | Warrant | |||||||||||||
November | November | November | December | |||||||||||||
Commitment date/year-end date | 10, 2006 | 10, 2006 | 10, 2006 | 31, 2009 | ||||||||||||
Average risk-free rate of return | 5.11 | % | 5.11 | % | 5.11 | % | 2.39 | % | ||||||||
Expected term/life | 5 years | 5 years | 5 years | 3.08 year | ||||||||||||
Volatility rate | 33.70 | % | 33.70 | % | 33.70 | % | 66.00 | % | ||||||||
Expected dividend yield | — | — | — | — | ||||||||||||
Fair value of ordinary share | 0.11 | 0.11 | 0.11 | 4.93 | ||||||||||||
Estimated forfeiture rate | 0 | % | 0 | % | 0 | % | 0 | % |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
17. | WARRANTS (CONTINUED) |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying warrants and the fair value of the Company’s ordinary or preferred shares as of December 31, 2009, for those warrants that have an exercise price currently below the fair value of the Company’s ordinary or preferred shares. As of December 31, 2009, the Company has warrants outstanding to purchase an aggregate of 23,149,997 ordinary shares and 15,000 Series A Preferred Shares. None of these warrants has an exercise price below the fair value of the Company’s ordinary shares and Series A Preferred Shares, resulting in an aggregate intrinsic value of US$nil. |
All warrants were vested as of the date they were issued. No warrants were forfeited, cancelled or exercised for the years ended December 31, 2008 and 2009. |
18. | SHARE CAPITAL |
The Company’s authorized ordinary share capital was 130,000,000 shares at par value of US$0.001 per share as of December 31, 2008 and 2009. On January 28, 2008, 166,667 ordinary shares of the Company issued at US$0.001 per share to China Hydro LLC were repurchased for a total consideration of US$1.00. The repurchased shares were considered cancelled under Cayman Islands law and the difference between the original issuance price and the repurchase price was charged to accumulated deficit. There were 15,541,666 ordinary shares issued and outstanding as of December 31, 2008 and 2009. |
The Company’s authorized preferred shares capital was 5,000,000 and 6,000,000 shares at par value of US$0.001 per share as of December 31, 2008 and 2009, respectively. There were 281,193 and 301,193 preferred shares issued and outstanding as of December 31, 2008 and 2009, respectively. |
The Group has not paid or declared any dividends on ordinary shares to date. The payment of dividends in the future will be contingent upon the Group’s revenues and earnings, if any, capital requirements and general financial condition subsequent to the completion of a business combination. The payment of dividends will be subject to the discretion of the Group’s board of directors and subject to the requirements of Cayman Islands’ laws. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
19. | BASIC AND DILUTED LOSS PER SHARE |
Basic and diluted loss per share for the years ended December 31, 2007, 2008 and 2009 are calculated as follows: |
For the year | For the year | For the year | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Numerator for basic loss per share: | ||||||||||||
Loss attributable to ordinary shareholders | (4,560 | ) | (38,901 | ) | (55,872 | ) | ||||||
Cumulative dividends on Series A convertible redeemable preferred shares | — | — | — | |||||||||
Cumulative dividends on Series B convertible redeemable preferred shares | — | — | — | |||||||||
Cumulative dividends on Series C convertible redeemable preferred shares | — | — | — | |||||||||
Changes in redemption value of Series A convertible redeemable preferred shares | — | — | ||||||||||
Changes in redemption value of Series B convertible redeemable preferred shares | — | — | ||||||||||
Changes in redemption value of Series C convertible redeemable preferred shares | — | — | — | |||||||||
Numerator for diluted loss per share | (4,560 | ) | (38,901 | ) | (55,872 | ) | ||||||
Denominator: | ||||||||||||
Weighted average number of ordinary shares outstanding — basic | 13,817,466 | 15,554,416 | 15,541,666 | |||||||||
Dilutive effect of convertible securities: | ||||||||||||
Warrants | — | — | — | |||||||||
Convertible redeemable preferred shares | — | — | — | |||||||||
Convertible notes | — | — | — | |||||||||
Share options | — | — | — | |||||||||
Weighted average number of ordinary shares outstanding — diluted | 13,817,466 | 15,554,416 | 15,541,666 | |||||||||
Loss per share — basic and diluted | (0.33 | ) | (2.50 | ) | (3.59 | ) | ||||||
The Group had securities outstanding which could potentially dilute basic loss per share in the future, but these securities were excluded from the computation of diluted loss per share in the years ended December 31, 2007, 2008 and 2009, as their effects would have been anti-dilutive. Such outstanding securities consist of convertible notes in 2007, warrants in 2007, 2008 and 2009, convertible redeemable preferred shares in 2008 and 2009 and share options in 2009. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
20. | EMPLOYEE DEFINED CONTRIBUTION PLAN |
The Group’s full time employees in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain medical care unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labour regulations require the Group to accrue for these benefits based on 35.0% to 44.1% of the employees’ salaries, subject to a certain cap limit, depending on the location of employment. The total contribution for such employee benefits, which was expensed as incurred, was US$22, US$392 and US$605 for the years ended December 31, 2007, 2008 and 2009, respectively. The Group has no additional legal obligation or liabilities for the benefits beyond the paid and accrued amounts. |
21. | INTEREST EXPENSES |
Interest expenses for the years ended December 31, 2007, 2008 and 2009 consist of: |
For the year | For the year | For the year | ||||||||||
Ended | Ended | ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Accrued interest on long-term bank loans | 693 | 5,293 | 13,013 | |||||||||
Accrued or paid interest on convertible notes | 1,456 | 164 | — | |||||||||
Accrued interest on unrecognized tax benefits (Note 11) | — | 99 | 183 | |||||||||
Amortization of debt issuance costs | 293 | 47 | 23 | |||||||||
Accretion of guarantee fee payable | — | 105 | 10 | |||||||||
Interest penalty to original shareholders of an acquired subsidiary | — | — | 401 | |||||||||
Accrued interest on loans from unrelated parties | — | — | 133 | |||||||||
Other charges from bank | 409 | |||||||||||
Others | — | — | 56 | |||||||||
Amortization of discount on convertible notes | 833 | 139 | — | |||||||||
3,275 | 5,847 | 14,228 | ||||||||||
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
22. | COMMITMENTS AND CONTINGENCIES |
(a) | Operating lease commitments |
The Group has entered into certain operating leasing arrangements relating to the lease of the Group’s office premises. Payments made under operating leases are expensed on a straight-line basis over the term of the lease. Rental expenses under operating leases for the years ended December 31, 2007, 2008 and 2009 were US$180, US$574 and US$691, respectively. |
Future minimum lease payments for non-cancellable operating leases as of December 31, 2009 are as follows: |
US$ | ||||
2010 | 451 | |||
2011 | 61 | |||
2012 | 14 | |||
2013 and thereafter | 2 | |||
Total | 528 | |||
(b) | Capital commitments |
Capital commitments as of December 31, 2009 were approximately US$157 (RMB1,072), representing contracted but unpaid amounts for construction projects of Binglangjiang and Liyuan that are in progress and for the purchase of property, plant and equipment of Yuheng. |
(c) | Other commitments |
The Company committed to provide continuous financial support to its subsidiaries to ensure that these entities will continue as a going concern. |
On October 22, 2009, the Group signed a capital increase agreement with Henan Lan Tian Group Co., Ltd. to subscribe for 79% of the equity interest of Henan Wuyue Storage Power Generation Co., Ltd. (“Wuyue”), which owns the right to develop a pumped storage hydroelectric power project in the Henan Province, for RMB162,500 (US$23,798). The Group paid RMB32,250 (US$4,771) subsequent to the year ended December 31, 2009. |
There were no significant contingencies as of December 31, 2008 and 2009. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
22. | COMMITMENTS AND CONTINGENCIES (CONTINUED) |
(d) | Loan guarantee commitments |
Pursuant to the equity transfer purchase agreements of Yingchuan, Wuliting and Jiulongshan (collectively the “Zhejiang Entities”), Guangsha Construction Group Co., Ltd. (“Guangsha”), the original shareholder of these acquired subsidiaries, continues to provide guarantee on the bank loans of the Zhejiang Entities subsequent to the acquisition by the Company. The outstanding loan balances guaranteed by Guangsha were RMB50,000, RMB224,000 and RMB215,000 for Yingchuan, Wuliting and Jiulongshan, respectively. In connection with the loan guarantees provided by Guangsha, the Company signed an agreement with Guangsha to provide a counter guarantee on Guangsha’s guarantee obligations. Pursuant to the counter guarantee agreement, the Company is obligated to reimburse Guangsha for all bank loans, interests, penalties and all other related costs Guangsha guaranteed in the event that the Zhejiang Entities are not able to fulfill their loan payments when become due. The Company recognized a guarantee asset with a corresponding guarantee liability amounted to US$221 and US$257 in the purchase price allocation of Wuliting and Jiulongshan, respectively (Note 3). The guarantee asset and the corresponding guarantee liability for Yingchuan was insignificant. The changes in value of the guarantee assets and guarantee liabilities are recognized through the statements of operations. A gain and a corresponding loss of US$449 resulted from the changes in value of the guarantee liabilities and guarantee assets, respectively, were recognized for the year ended December 31, 2008. A gain and a corresponding loss of US$42 resulted from the changes in value of the guarantee liabilities and guarantee assets, respectively, were recognized for the year ended December 31, 2009. Such gain and loss are included in “Other income, net” in the statements of operations. |
In addition, pursuant to the counter guarantee agreement, the Company should pay Guangsha an annual guarantee fee based on the prevailing market interest rate of the outstanding loan balances of the Zhejiang Entities at their respective acquisition dates. Since a counter guarantee was given by the Company to Guangsha in return for the guarantee of Guangsha to the Zhejiang Entities, the guarantee fee did not form part of the guarantee liability in the purchase price allocation of the Zhejiang Entities. Accordingly, the present value of the guarantee fee of US$124, US$620 and US$641 was treated as part of the purchase consideration of Yingchuan, Wuliting andJiulongshan, respectively (Note 3). |
Pursuant to the equity transfer purchase agreement, Banzhu continues to guarantee a RMB4,500 loan arrangement of Sanming Ruifeng Economic Technological Development Ltd., a related party of Sanming Ruifeng, and RMB6,800 credit facility arrangements of Yong’an Ruifeng subsequent to the acquisition by the Company. The guarantee obligations expired upon maturity of the loan and credit facility arrangements in January and March 2009. The fair value of the guarantee obligations as of the date of acquisition of Banzhu was insignificant. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
23. | OTHER INCOME (LOSS), NET |
Other income (loss), net for the years ended December 31, 2007, 2008 and 2009 consists of: |
For the year | For the year | For the year | ||||||||||
ended | ended | ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Change in value of guarantee assets | — | (449 | ) | (42 | ) | |||||||
Change in value of guarantee liabilities | — | 449 | 42 | |||||||||
Fees for supporting service provided to an equity investee | — | 229 | 32 | |||||||||
Remeasurement gain on pre-existing interest in an equity investee at acquisition date fair value (Note 3) | — | — | 105 | |||||||||
Loss on disposal of property, plant and equipment | — | — | (276 | ) | ||||||||
Others | 8 | (85 | ) | (86 | ) | |||||||
Other income (loss), net | 8 | 144 | (225 | ) | ||||||||
24. | SEGMENT AND GEOGRAPHIC INFORMATION |
The Group follows ASC 280-10 for disclosure of segment information. The Group’s chief operating decision maker, who has been identified as the CEO, relies upon financial information by provinces in the PRC when making decisions about allocating resources and assessing the performance of the Group. For the year ended December 31, 2007, the Group operated and managed its business as two operating and reportable segments, namely the Yunnan Province segment and the Sichuan Province segment. For the years ended December 31, 2008 and December 31, 2009, the Group operated and managed its business as four operating and reportable segments, namely the Yunnan Province segment, the Sichuan Province segment, the Zhejiang Province segment and the Fujian Province segment. As the Group’s long-lived assets and revenues are substantially all located in and derived from the PRC, no geographical segments are presented. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
24. | SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) |
The Group’s segment information as of and for the year ended December 31, 2007 is as follows: |
Yunnan | Sichuan | |||||||||||||||||||
Province | Province | Unallocated | Eliminations | Consolidated | ||||||||||||||||
US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
Revenues | 1,719 | 715 | — | — | 2,434 | |||||||||||||||
Cost of revenues | (500 | ) | (288 | ) | (25 | ) | — | (813 | ) | |||||||||||
General and administrative expenses | (159 | ) | (110 | ) | (2,291 | ) | — | (2,560 | ) | |||||||||||
Interest income | 147 | 50 | 854 | — | 1,051 | |||||||||||||||
Interest expenses | (684 | ) | — | (2,591 | ) | — | (3,275 | ) | ||||||||||||
Change in fair value of derivative financial liabilities | — | — | (266 | ) | — | (266 | ) | |||||||||||||
Exchange loss | (714 | ) | (359 | ) | (22 | ) | — | (1,095 | ) | |||||||||||
Share of losses in an equity investee | — | — | (27 | ) | — | (27 | ) | |||||||||||||
Other income | 8 | — | — | — | 8 | |||||||||||||||
Income tax expenses | — | (8 | ) | (9 | ) | — | (17 | ) | ||||||||||||
Net loss | (183 | ) | — | (4,377 | ) | — | (4,560 | ) | ||||||||||||
Total assets | 37,596 | 16,896 | 46,607 | (41,988 | ) | 59,111 | ||||||||||||||
Total liabilities | (13,773 | ) | (208 | ) | (11,646 | ) | 922 | (24,705 | ) | |||||||||||
Capital expenditures | 316 | 58 | 161 | — | 535 | |||||||||||||||
Depreciation & amortization expenses | 433 | 200 | 5 | — | 638 |
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Table of Contents
Notes to the Consolidated Financial Statements
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
24. | SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) |
The Group’s segment information as of and for the year ended December 31, 2008 is as follows: |
Yunnan | Sichuan | Zhejiang | Fujian | |||||||||||||||||||||||||
Province | Province | Province | Province | Unallocated | Eliminations | Consolidated | ||||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
Revenues | 2,746 | 971 | 9,635 | 1,363 | — | — | 14,715 | |||||||||||||||||||||
Cost of revenues | (1,120 | ) | (478 | ) | (4,598 | ) | (1,025 | ) | — | 1,196 | (6,025 | ) | ||||||||||||||||
General and administrative expenses | (245 | ) | (223 | ) | (567 | ) | (210 | ) | (5,516 | ) | — | (6,761 | ) | |||||||||||||||
Interest income | 359 | 84 | 18 | 5 | 877 | (3 | ) | 1,340 | ||||||||||||||||||||
Interest expenses | (361 | ) | — | (3,519 | ) | (1,514 | ) | (456 | ) | 3 | (5,847 | ) | ||||||||||||||||
Change in fair value of derivative financial liabilities and warrant liability | — | — | — | — | 420 | — | 420 | |||||||||||||||||||||
Exchange (loss) gain | (269 | ) | 172 | (165 | ) | (2 | ) | (803 | ) | — | (1,067 | ) | ||||||||||||||||
Share of losses in an equity investee | — | — | — | — | (503 | ) | — | (503 | ) | |||||||||||||||||||
Other (loss) income, net | (3 | ) | 1 | (6 | ) | (5 | ) | 1,353 | (1,196 | ) | 144 | |||||||||||||||||
Income tax (expenses) benefits | (171 | ) | 9 | (447 | ) | 165 | — | — | (444 | ) | ||||||||||||||||||
Consolidated net income (loss) | 936 | 536 | 351 | (1,223 | ) | (4,628 | ) | — | (4,028 | ) | ||||||||||||||||||
Net loss attributable to noncontrolling interests | — | — | — | 41 | — | — | 41 | |||||||||||||||||||||
Net income (loss) attributable to China Hydroelectric Corporation shareholders | 936 | 536 | 351 | (1,182 | ) | (4,628 | ) | — | (3,987 | ) | ||||||||||||||||||
Total assets | 40,997 | 13,919 | 242,057 | 212,801 | 337,115 | (313,321 | ) | 533,568 | ||||||||||||||||||||
Total liabilities | (14,569 | ) | (32 | ) | (93,358 | ) | (119,423 | ) | (23,249 | ) | 21,230 | (229,401 | ) | |||||||||||||||
Capital expenditures | 4,589 | 21 | 33,789 | 12 | 342 | — | 38,753 | |||||||||||||||||||||
Depreciation & amortization expenses | 696 | 305 | 3,113 | 718 | 31 | — | 4,863 |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
24. | SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED) |
The Group’s segment information as of and for the year ended December 31, 2009 is as follows: |
Yunnan | Sichuan | Zhejiang | Fujian | |||||||||||||||||||||||||
Province | Province | Province | Province | Unallocated | Eliminations | Consolidated | ||||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | US$ | US$ | ||||||||||||||||||||||
Revenues | 2,966 | 939 | 18,164 | 14,106 | — | — | 36,175 | |||||||||||||||||||||
Cost of revenues | (1,193 | ) | (583 | ) | (9,774 | ) | (7,341 | ) | — | 1,708 | (17,183 | ) | ||||||||||||||||
General and administrative expenses | (330 | ) | (203 | ) | (1,178 | ) | (613 | ) | (6,775 | ) | — | (9,099 | ) | |||||||||||||||
Interest income | 115 | 38 | 57 | 18 | 319 | (37 | ) | 510 | ||||||||||||||||||||
Interest expenses | (303 | ) | — | (7,020 | ) | (6,554 | ) | (388 | ) | 37 | (14,228 | ) | ||||||||||||||||
Change in fair value of derivative financial liabilities and warrant liability | — | — | — | — | (13,793 | ) | — | (13,793 | ) | |||||||||||||||||||
Exchange loss | — | (1 | ) | (5 | ) | (7 | ) | (10 | ) | — | (23 | ) | ||||||||||||||||
Share of losses in an equity investee | — | — | — | — | (70 | ) | (70 | ) | ||||||||||||||||||||
Other (loss) income, net | (2 | ) | (1 | ) | (9 | ) | (265 | ) | 1,760 | (1,708 | ) | (225 | ) | |||||||||||||||
Income tax expenses | (166 | ) | (51 | ) | (403 | ) | (739 | ) | (133 | ) | — | (1,492 | ) | |||||||||||||||
Consolidated net income (loss) | 1,087 | 138 | (168 | ) | (1,395 | ) | (19,090 | ) | — | (19,428 | ) | |||||||||||||||||
Net loss attributable to noncontrolling interests | — | — | — | 32 | — | — | 32 | |||||||||||||||||||||
Net income (loss) attributable to China Hydroelectric Corporation shareholders | 1,087 | 138 | (168 | ) | (1,363 | ) | (19,090 | ) | — | (19,396 | ) | |||||||||||||||||
Total assets | 42,770 | 14,649 | 311,779 | 205,445 | 337,511 | (317,090 | ) | 595,064 | ||||||||||||||||||||
Total liabilities | (15,494 | ) | (556 | ) | (152,991 | ) | (113,080 | ) | (34,545 | ) | 22,796 | (293,870 | ) | |||||||||||||||
Capital expenditures | 7,661 | 1,616 | 1,826 | 1,732 | 141 | — | 12,976 | |||||||||||||||||||||
Depreciation & amortization expenses | 845 | 338 | 6,887 | 4,432 | 78 | — | 12,580 |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
25. | SHARE-BASED PAYMENT |
On August 18, 2008, the board of directors (the “Board”) of the Company adopted the China Hydroelectric Corporation 2008 Share Incentive Plan (the “2008 Plan”) that provides for the issuance of share-based awards to purchase up to 12,000,000 ordinary shares. The effectiveness of the 2008 Plan is subject to the approval of the Company’s shareholders within twelve months from the date on which the 2008 Plan is adopted by the Board. Under the 2008 Plan, the Company may grant share options including incentive stock options and non-qualified stock options, equity appreciation rights, restricted ordinary shares, restricted ordinary share units, performance-based grants of ordinary shares, performance units and other equity-based or cash-based awards to employees of the Group, consultants and other individuals who provide services to the Group, including the Company’s directors. The administrator, which may be the Board or its authorized designee, has full power and authority to administer, construe and interpret the 2008 Plan. Under the terms of the 2008 Plan, options intended to qualify as incentive shares options must have an exercise price at least equal to the fair market value as of the date of grant, but all other share options can be granted with an exercise price less than the fair market value. |
On August 18, 2008, the Board approved the grant of 40,000 options, 260,000 options and 3,597,000 non-qualified stock options to certain directors, consultants and employees of the Group, respectively. Options granted to employees and consultants have a contractual life of five years, an exercise price of $7.70 and a vesting period of three years. Options granted to directors have a contractual life of five years, an exercise price of $7.70 and a vesting period of one year. The vesting of the unvested options granted to a director will be accelerated upon the director’s resignation from the Board. On January 20, 2009, the Board approved another grant of 35,000 non-qualified stock options to certain employees of the Group. These options have a contractual life of five years, an exercise price of $7.70 and a vesting period of three years. The exercise prices of options granted to employees, directors and consultants are denominated in US$7.70. On March 4, 2009, the Board passed a resolution to modify the 2008 Plan for it to be effective without approval by the shareholders of the Company. In accordance with ASC 718-10, the grant date for the share-based awards issued on August 18, 2008 and January 20, 2009 was March 4, 2009. |
On December 3, 2009, the Board of Directors approved the grant of 7,000,000 share options to the directors, officer, employees and a consultant of the Group at an exercise price equal to the price at which the ordinary shares underlying the American Depositary Shares are sold in the initial public offering of the Company; provided that the options shall expire in the event that the Company does not consummate its initial public offering within six months of the approval date. Since the exercise price was not known until the initial public offering was successfully completed on January 25 2010, the accounting grant date for the share-based awards issued on December 3, 2009 was not established as of December 31, 2009. Accordingly, no compensation expense related to the December 3, 2009 grant was recognized for the year ended December 31, 2009. |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
25. | SHARE-BASED PAYMENT (CONTINUED) |
The fair value of the options granted was estimated using a binomial option pricing model. The binomial model requires the input of highly subjective assumptions, including the expected stock price volatility, the expected price multiple at which the holder is likely to exercise stock options and the expected employee forfeiture rate. The Company uses historical data and future expectations to estimate forfeiture rate. For expected volatility, the Company has made reference to historical volatilities of several comparable companies. The risk-free rate for periods within the contractual life of the option is based on U.S. Treasury zero-coupon yield in effect at the grant date. The dividend yield is based on the expected pay-out ratio. The Company determined the fair value of the ordinary shares at the measurement date with the assistance of AA using a generally accepted valuation methodology, which incorporates certain assumptions including the financial results and growth trends of the Group, to derive the total equity value of the Group. The valuation model allocated the equity value between the ordinary shares and the preferred shares and determined the fair value of ordinary shares based on the following assumptions: (i) preferred shares were treated as if they had converted into ordinary shares where conversion into ordinary shares would result in a higher economic value and (ii) preferred shares that have a value higher than their conversion price were assigned a value that took into consideration their liquidation value. The expected share option life was estimated based on the resulting output of the binomial option pricing model. The option awards are not transferable and the grantees have a limited amount of time subsequent to their termination of employment or service to exercise the options. These post-vesting restrictions are considered in the binomial option pricing model as a suboptimal exercise factor. |
Options granted to directors |
The following table summarizes the share options granted to directors as of and for year ended December 31, 2009: |
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted- | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Number of | Exercise | Life | Intrinsic | |||||||||||||
Options | Price (US$) | (Years) | Value (US$) | |||||||||||||
Outstanding at January 1, 2009 | — | — | — | — | ||||||||||||
Granted | 40,000 | 7.70 | 3.63 | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited or cancelled | — | — | — | — | ||||||||||||
Outstanding at December 31, 2009 | 40,000 | 7.70 | 3.63 | — | ||||||||||||
Vested and expected to vest at December 31, 2009 | 40,000 | 7.70 | 3.63 | — | ||||||||||||
Exercisable at December 31, 2009 | 40,000 | 7.70 | 3.63 | — | ||||||||||||
The explicit service condition of the options granted to directors is considered nonsubstantive since the vesting of share-based payments accelerates in full upon a director’s resignation from the Board. As a result, share-based compensation cost of US$12 for the 40,000 options granted to directors was immediately recognized on the grant date of March 4, 2009. |
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
25. | SHARE-BASED PAYMENT (CONTINUED) |
Options granted to directors (continued) |
Two of the directors resigned from the Board and their 20,000 share options became exercisable immediately upon their resignation. |
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the fair value of the Company’s shares as of December 31, 2009, for those awards that have an exercise price currently below the fair value of the Company’s shares. As of December 31, 2009, all of the options granted to directors have an exercise price above the fair value of the Company’s shares, resulting in an aggregate intrinsic value of US$nil. |
The weighted-average grant-date fair value of options granted to directors of the Group during the year ended December 31, 2009 was US$0.30. |
The grant-date fair value of the options granted to directors during the year ended December 31, 2009 was estimated using the following assumptions: |
Suboptimal exercise factor | 1.5 | |||
Risk-free interest rate | 3.67% | |||
Expected volatility rate | 59% | |||
Expected dividend yield | 0% | |||
Expected share option life | 4.46 years | |||
Estimated forfeiture rate | 0% | |||
Fair value of ordinary share | US$2.08 |
Options granted to consultants |
The following table summarizes the share options granted to consultants as of and for the year ended December 31, 2009: |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Options | price (US$) | Life(Years) | Value (US$) | |||||||||||||
Outstanding at January 1, 2009 | — | — | — | — | ||||||||||||
Granted | 260,000 | 7.7 | 3.63 | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited or cancelled | 5,000 | — | — | — | ||||||||||||
Outstanding at December 31, 2009 | 255,000 | 7.7 | 3.63 | — | ||||||||||||
Vested and expected to vest at December 31, 2009 | 255,000 | 7.7 | 3.63 | — | ||||||||||||
Exercisable at December 31, 2009 | 85,000 | 7.7 | 3.63 | — | ||||||||||||
As of December 31, 2009, all of the options granted to consultants have an exercise price above the fair value of the Company’s shares, resulting in an aggregate intrinsic value of US$nil. |
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
25. | SHARE-BASED PAYMENT (CONTINUED) |
Options granted to consultants (continued) |
The weighted-average fair value of options granted to consultants of the Group during the year ended December 31, 2009 was US$0.31 and US$1.23 at March 4, 2009 and December 31, 2009, respectively. During the year ended December 31, 2009, the total fair value of options vested based on the year-end fair value was US$105. |
One of the consultants terminated his contractual relationship with the Company and his 5,000 share options were forfeited immediately upon termination. |
As of December 31, 2009, there was US$123 of unrecognized share-based compensation cost related to options granted to consultants, which will be recognized over a weighted-average vesting period of 1.63 years. To the extent the actual forfeiture rate is different from the original estimate or the assumptions used in estimating the fair value of options are changed, actual share-based compensation related to these awards granted to consultants may be different from the expectation. |
The fair value of the options granted to consultants during the year ended December 31, 2009 was estimated using the following average assumptions: |
Suboptimal exercise factor | 1.5 | |||
Risk-free interest rate | 2.68% | |||
Expected volatility rate | 64% | |||
Expected dividend yield | 0% | |||
Expected share option life | 3.63 years | |||
Estimated forfeiture rate | 0% | |||
Fair value of ordinary share | US$4.93 |
Options granted to employees |
The following table summarizes the share options granted to employees as of and for the year ended December 31, 2009: |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Options | Price (US$) | Life(Years) | Value (US$) | |||||||||||||
Outstanding at January 1, 2009 | — | — | — | — | ||||||||||||
Granted | 3,627,000 | 7.70 | 3.63 | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited or cancelled | — | — | — | — | ||||||||||||
Outstanding at December 31, 2009 | 3,627,000 | 7.70 | 3.63 | — | ||||||||||||
Vested and expected to vest at December 31, 2009 | 3,619,925 | 7.70 | 3.63 | — | ||||||||||||
Exercisable at December 31, 2009 | 1,209,000 | 7.70 | 3.63 | — | ||||||||||||
As of December 31, 2009, all of the options granted to employees have an exercise price above the fair value of the Company’s shares, resulting in an aggregate intrinsic value of US$nil. |
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
25. | SHARE-BASED PAYMENT (CONTINUED) |
Options granted to employees (continued) |
The weighted-average grant-date fair value of options granted to employees of the Group during the year ended December 31, 2009 was US$0.30. During the year ended December 31, 2009, the total fair value of options vested based on the grant date fair value was US$363. |
As of December 31, 2009, there was US$720 of unrecognized share-based compensation cost related to options granted to employees which will be recognized over a weighted-average vesting period of 1.63 years. To the extent the actual forfeiture rate is different from the original estimate, actual share-based compensation related to these awards may be different from the expectation. |
The grant-date fair value of the options granted to employees during the year ended December 31, 2009 was estimated using the following assumptions: |
Suboptimal exercise factor | 1.5 | |||
Risk-free interest rate | 3.67%-3.8% | |||
Expected volatility rate | 57%-59% | |||
Expected dividend yield | 0% | |||
Expected share option life | 4.46-4.88 years | |||
Estimated forfeiture rate | ||||
Founders | 0% | |||
Senior management | 0.8% | |||
Employees | 2.4% | |||
Fair value of ordinary shares | US $2.08 |
Total compensation cost recognized for share options granted to directors, consultants and employees for the year ended December 31, 2009: |
US$ | ||||
Cost of revenues | — | |||
General and administrative expenses | 571 | |||
571 | ||||
26. | RELATED PARTY TRANSACTIONS |
The principal related parties with which the Group had transactions during the years presented are as follows: |
Name of related parties | Relationship with the Group | |
China Hydro LLC | A shareholder of the Company | |
Kuhns Brothers, Inc. | A company owned by the CEO | |
China Carbon Investment Consulting, Ltd. | A company controlled by the CEO | |
China Silicon Zhuo-Xin Investment Consulting, Ltd. | A company controlled by the CEO | |
Sanming City Chenyang Hydropower Co., Ltd. | Noncontrolling interest in Wangkeng |
F-79
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
26. | RELATED PARTY TRANSACTIONS (CONTINUED) |
(a) | The Company had the following related party transactions during the years presented: |
For the Year | For the Year | For the Year | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Expenses paid on behalf by related parties: | ||||||||||||
Kuhns Brothers, Inc. | 247 | — | — | |||||||||
247 | — | — | ||||||||||
Expense paid on behalf of related parties: | ||||||||||||
China Carbon Investment Consulting, Ltd. | — | 81 | — | |||||||||
China Silicon Zhuo-Xin Investment Consulting, Ltd. | — | 32 | — | |||||||||
— | 113 | — | ||||||||||
During the year ended December 31, 2007, Kuhns Brothers, Inc. paid for certain office administrative services on a reimbursement basis for the Group. The related general and administrative expenses for the year ended December 31, 2007 were US$247. These amounts were settled in full by the Company as of December 31, 2007. |
During the year ended December 31, 2008, the Company paid US$81 and US$32 of miscellaneous expenses on behalf of China Carbon Investment Consulting Ltd. and China Silicon Zhuo-Xin Investment Consulting Ltd., respectively. The amounts were fully repaid to the Company as of December 31, 2009. |
For the Year | For the Year | For the Year | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Rental for office space provided by: | ||||||||||||
Kuhns Brothers, Inc. | 154 | 257 | 288 | |||||||||
154 | 257 | 288 | ||||||||||
Fees for financial advisory services provided by: | ||||||||||||
Kuhns Brothers, Inc. | — | — | 200 | |||||||||
— | — | 200 | ||||||||||
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
26. | RELATED PARTY TRANSACTIONS (CONTINUED) |
During the years ended December 31, 2007, 2008 and 2009, the Company rented office space from the Kuhns Brothers, Inc. and incurred rental expenses of US$154, US$257 and US$288, respectively. |
During the year ended December 31, 2009, the Company paid US$200 to Kuhns Brothers, Inc. as consideration for its financial advisory services in connection with Series C convertible redeemable preferred shares offering. |
For the Year | For the Year | For the Year | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Short-term loans from related parties: | ||||||||||||
China Hydro LLC | 23 | — | — | |||||||||
Kuhns Brothers, Inc. | 60 | — | — | |||||||||
83 | — | — | ||||||||||
The short-term loan from China Hydro LLC was unsecured, interest-free and had a term of repayment of three months. The loan was fully repaid on February 4, 2008. The short-term loan from Kuhns Brothers, Inc. was unsecured at an interest rate of 8% and had a term of repayment of one month. The loan was fully settled on December 13, 2007. |
For the Year | For the Year | For the Year | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Guarantee deposits received from related parties: | ||||||||||||
Sanming City Chenyang Hydropower Co., Ltd. | — | 241 | — | |||||||||
— | 241 | — | ||||||||||
Deposit of US$241 as of December 31, 2008 represents guarantee received by the Company from Sanming City Chenyang Hydropower Co., Ltd., which will be returned by the Company within ten days when the original shareholders of Wangkeng furnish the Company with final documentation relating to the acquired hydroelectric power project and dams and reservoir. |
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
26. | RELATED PARTY TRANSACTIONS (CONTINUED) |
(b) | The Company had the following related party balances as of December 31, 2008 and 2009: |
December 31, 2008 | December 31, 2009 | |||||||
US$ | US$ | |||||||
Amounts due from related parties: | ||||||||
China Hydro LLC | — | — | ||||||
China Silicon Zhuo-Xin Investment Consulting, Ltd. | 13 | — | ||||||
13 | — | |||||||
Amounts due to related parties: | ||||||||
China Hydro LLC | — | — | ||||||
China Carbon Investment Consulting Ltd. | 1 | 1 | ||||||
Sanming City Chenyang Hydropower Co., Ltd. | 241 | 241 | ||||||
242 | 242 | |||||||
All balances with related parties are unsecured, interest-free and repayable on demand, except for the US$241 amount due to Sanming City Chenyang Hydropower Co., Ltd., which will be returned by the Company within ten days when the original shareholders of Wangkeng furnish the Company with final documentation relating to the acquired hydroelectric power project and dam and reservoir. Pursuant to the equity transfer purchase agreements of Wangkeng, the original shareholder is required to provide such documentation within one year from the date of acquisition. The US$241 balance remained unsettled as of December 31, 2009. |
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
27. | STATUTORY RESERVES |
F-83
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
28. | CONCENTRATION OF RISKS |
December 31, | December 31, | December 31, | ||||||||||||
Segment | 2007 | 2008 | 2009 | |||||||||||
Yunnan Dehong Electric Power Co., Ltd. | Yunnan Province | 71 | % | 19 | % | 8 | % | |||||||
Sichuan Cangxi Electric Power Co., Ltd. | Sichuan Province | 29 | % | 7 | % | 3 | % | |||||||
Lishui Electric Power Bureau | Zhejiang Province | — | 65 | % | 50 | % | ||||||||
Fujian Electric Power Co., Ltd. | Fujian Province | — | 7 | % | 27 | % | ||||||||
Pingnan Power Supply Company | Fujian Province | — | 2 | % | 12 | % | ||||||||
100 | % | 100 | % | 100 | % | |||||||||
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
28. | CONCENTRATION OF RISKS (CONTINUED) |
29. | SUBSEQUENT EVENTS |
F-85
Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
29. | SUBSEQUENT EVENTS (CONTINUED) |
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Table of Contents
Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
30. | CONDENSED FINANCIAL INFORMATION OF THE COMPANY |
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash and cash equivalents | 32,473 | 18,328 | ||||||
Prepayments and other current assets | 8 | 127 | ||||||
Total current assets | 32,481 | 18,455 | ||||||
Non-current assets | ||||||||
Deferred initial public offering costs | 6,032 | 12,774 | ||||||
Property, plant and equipment, net | 14 | 14 | ||||||
Investment in subsidiaries | 282,940 | 305,609 | ||||||
Investment in an equity investee | 4,295 | — | ||||||
Other non-current assets | 230 | 177 | ||||||
Total non-current assets | 293,511 | 318,574 | ||||||
TOTAL ASSETS | 325,992 | 337,029 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Amounts due to an equity investee | 2 | — | ||||||
Amounts due to subsidiaries | 17,349 | 16,710 | ||||||
Accrued expense and other current liabilities | 4,684 | 3,020 | ||||||
Warrant liability | 540 | 14,333 | ||||||
Total current liabilities | 22,575 | 34,063 | ||||||
Total liabilities | 22,575 | 34,063 | ||||||
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
30. | CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED) |
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Convertible redeemable preferred shares | ||||||||
Series A (par value US$0.001 per share; 2,500,000 shares authorized; 152,193 shares issued and outstanding as of December 31, 2008 and 2009) | 164,705 | 184,541 | ||||||
Series B (par value US$0.001 per share; 2,500,000 shares authorized; 129,000 shares issued and outstanding as of December 31, 2008 and 2009) | 134,531 | 148,943 | ||||||
Series C (par value US$0.001 per share; 1,000,000 shares authorized; nil and 20,000 shares issued and outstanding as of December 31, 2008 and 2009) | — | 20,356 | ||||||
Shareholders’ equity | ||||||||
Ordinary shares (par value US$0.001 per share, 130,000,000 shares authorized; 15,541,666 shares issued and outstanding as of December 31, 2008 and 2009) | 16 | 16 | ||||||
Additional paid-in capital | 38,241 | 38,812 | ||||||
Accumulated other comprehensive income | 10,819 | 11,065 | ||||||
Accumulated deficit | (44,895 | ) | (100,767 | ) | ||||
Total shareholders’ equity | 4,181 | (50,874 | ) | |||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 325,992 | 337,029 | ||||||
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
30. | CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED) |
For the Year | For the Year | For the Year | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Revenues | — | — | — | |||||||||
Cost of revenues | — | — | — | |||||||||
Gross profit | — | — | — | |||||||||
Operating expenses: | ||||||||||||
General and administrative expenses | (1,839 | ) | (3,890 | ) | (4,785 | ) | ||||||
Total operating expenses | (1,839 | ) | (3,890 | ) | (4,785 | ) | ||||||
Operating loss | (1,839 | ) | (3,890 | ) | (4,785 | ) | ||||||
Equity in (losses) profits of subsidiaries | (687 | ) | 366 | (747 | ) | |||||||
Share of losses in an equity investee | (27 | ) | (503 | ) | (70 | ) | ||||||
Interest income | 850 | 873 | 319 | |||||||||
Interest expenses | (2,591 | ) | (455 | ) | (419 | ) | ||||||
Change in fair value of derivatives and warrant liability | (266 | ) | 420 | (13,793 | ) | |||||||
Exchange loss | — | (798 | ) | (6 | ) | |||||||
Other income, net | — | — | 105 | |||||||||
Loss before income tax expenses | (4,560 | ) | (3,987 | ) | (19,396 | ) | ||||||
Income tax expenses | — | — | — | |||||||||
Net loss | (4,560 | ) | (3,987 | ) | (19,396 | ) | ||||||
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
30. | CONDENSED FINANCIAL INFORMATION OF THE COMPANY (CONTINUED) |
For the Year | For the Year | For the Year | ||||||||||
Ended | Ended | Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2008 | 2009 | ||||||||||
US$ | US$ | US$ | ||||||||||
Cash flows used in operating activities | (2,277 | ) | (2,055 | ) | (3,289 | ) | ||||||
Cash flows used in investing activities | 6,667 | (216,265 | ) | (21,643 | ) | |||||||
Cash flows provided by financing activities | (4,960 | ) | 250,735 | 10,787 | ||||||||
Net increase (decrease) in cash and cash equivalents | (570 | ) | 32,415 | (14,145 | ) | |||||||
Cash and cash equivalents at the beginning of the year | 628 | 58 | 32,473 | |||||||||
Cash and cash equivalents at the end of the year | 58 | 32,473 | 18,328 | |||||||||
(a) | Basis of presentation |
(b) | Commitments |
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Notes to the Consolidated Financial Statements (Continued)
(Amounts in thousands of U.S. dollars (“US$”) or RMB (“RMB”), except for number of shares and per share data)
31. | PRO FORMA LOSS PER SHARE (UNAUDITED) |
For the year ended | ||||
December 31, 2009 | ||||
US$ | ||||
Numerator: | ||||
Loss attributable to ordinary shareholders | (55,872 | ) | ||
Cumulative dividends on Series A convertible redeemable preferred shares | 19,836 | |||
Cumulative dividends on Series B convertible redeemable preferred shares | 14,412 | |||
Cumulative dividends on Series C convertible redeemable preferred shares | 356 | |||
Changes in redemption value of Series C convertible redeemable preferred shares | 1,872 | |||
Numerator for pro forma basic and diluted loss per share | (19,396 | ) | ||
Denominator: | ||||
Number of shares outstanding, opening | 15,541,666 | |||
Conversion of convertible redeemable preferred shares to ordinary shares | 106,885,471 | |||
Denominator for pro forma basic and diluted loss per share | 122,427,137 | |||
Pro forma basic and diluted loss per share | (0.16 | ) | ||
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