XML 97 R14.htm IDEA: XBRL DOCUMENT v2.4.0.8
Property, Plant and Equipment
 12 Months Ended
Dec. 31, 2013
Property, Plant and Equipment [Abstract]  
Property, plant and equipment
(8) Property, plant and equipment
 
As of December 31, 2013 and 2012, property, plant and equipment consisted of the following:
 
 
 
December 31,
 
 
December 31,
 
 
 
2013
 
 
2012
 
Property, Plant, and Equipment:
 
 
 
 
 
 
Land use rights
 
$
7,761,511
 
 
$
9,895,081
 
Building and improvements
 
 
22,406,836
 
 
 
31,625,816
 
Machinery and equipment
 
 
121,088,942
 
 
 
111,857,002
 
Vehicles
 
 
683,051
 
 
 
439,007
 
Construction in progress
 
 
65,160,213
 
 
 
1,315,664
 
 
 
 
217,100,553
 
 
 
155,132,570
 
Less: accumulated depreciation and amortization
 
 
(38,565,294
)
 
 
(32,741,114
)
Property, Plant and Equipment, net
 
$
178,535,259
 
 
$
122,391,456
 
 
As of December 31, 2012, land use rights represented two parcels of state-owned land located in Xushui County of Hebei Province in China, with lease terms of 50 years expiring in 2053 and 2061, respectively. On August 9, 2013, one of these land use rights was sold to a related party company controlled by our Chairman and CEO Mr. Zhenyong Liu. See Note (11) for the details of the related party transaction. The remaining land use right as of December 31, 2013 will expire in year 2061.
 
The Company entered into a sale-leaseback arrangement with a leasing company in China on June 16, 2013 for a total financing proceeds in the amount of RMB150 million (approximately US$24 million). Under the sale-leaseback arrangement, Orient Paper HB sold certain of its paper manufacturing equipment to the leasing company for an amount of RMB 150 million (approximately US$24 million). Concurrent with the sale of equipment, Orient Paper HB leases back all of the equipment (“Leased Equipment”) sold to the leasing company for a lease term of three years. At the end of the lease term, Orient Paper HB may pay a nominal purchase price of RMB 15,000 (approximately $2,400) to the leasing company and buy back all of the Leased Equipment. The sale-leaseback is treated by the Company as a mere financing and capital lease transaction, rather than a sale of assets (under which gain or loss is immediately recognized) under ASC 840-40-25-4. All of the Leased Equipment are included as part of the property, plant and equipment of the Company as of December 31, 2013. As a result of the sale, a deferred gain on sale of Leased Equipment in the amount of $1,379,282 was created at the closing of the transaction and presented as a non-current liability. The deferred gain would be amortized by the Company during the lease term and would be used to offset the depreciation of the Leased Equipment, which are recorded at the new cost of $25,993,677 as of December 31, 2013. See “Financing with Sale-Leaseback” under Note (10), Loans Payable, for details of the transaction and asset collaterals. The depreciation of Leased Equipment has started in July 2013 and was included with the depreciation expense of the Company’s own assets in the consolidated statement of income. During the year ended December 31, 2013, depreciation of Leased Equipment was $818,796. The accumulated depreciation of the leased asset was $829,794 as of December 31, 2013. During the year ended December 31, 2013, the gain realized on sale-leaseback transaction was $228,979. The gain realized was recorded in cost of sales as a reduction of depreciation expenses. The unamortized deferred gain on sale-lease back was $1,160,271 as of December 31, 2013.
 
Construction in progress mainly represents payments for the new 15,000 tonnes per year tissue paper manufacturing equipment PM8, the tissue paper workshops, four warehouses, office buildings and the new staff dormitory in the Wei County industrial park, as well as the equipment for the renovation of PM1. Tissue paper manufacturing equipment PM8 and ancillary facilities were expected to start installation in the first quarter of year 2014; while the renovation of PM1 is expected to be completed by the third quarter of year 2014. Upon completion, it will bring about an addition of $116,067,537 to the Company’s machinery and equipment. For the years ended December 31, 2013, 2012 and 2011, the amount of interest capitalized is $448,950, $nil and $nil, respectively.
 
As of December 31, 2013, the three employee dormitory buildings in the amount of $4,130,590, which will be sold to a related party company controlled by our Chairman and CEO Mr. Zhenyong Liu by the second half of year 2014, were reclassified as assets held for sale. Please refer to Note (7) for details.
 
 
 
As of December 31, 2013 and December 31, 2012, certain property, plant and equipment of Orient Paper HB with net values of $21,901,456 and $9,316,645 have been pledged for the long-term loan from credit union of Orient Paper HB, respectively. As of December 31, 2013, certain of the Company’s property, plant and equipment in the amount of $34,177 have been pledged for the facility obtained from Bank of Hebei. See “Notes Payable” under Note (12) for details. In addition, land use right with net values of $7,502,794 as of December 31, 2013 was pledged for the sale-leaseback financing. See “Financing with Sale-Leaseback” under Note (10), Loans Payable, for details of the transaction and asset collaterals.
 
As of December 31, 2013, essentially all production equipment of Orient Paper Shengde with net value of $36,134,038 has been pledged for the guarantee of Orient Paper HB’s performance under the capital lease.
 
In addition, as of December 31, 2012, land use right of $7,419,614 was pledged for a bank loan of an independent third party which cross-guarantees the Company’s credit facility from the Bank of Hebei. The amount of that long-term loan of the third party was $1,505,881 as of December 31, 2012 and has been paid off on June 3, 2013. The credit facility guaranteed by the independent third party was expired on September 19, 2013.
 
Depreciation and amortization of property, plant and equipment was $7,794,743, $8,382,859 and $4,424,531 for the years ended December 31, 2013, 2012 and 2011, respectively.