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WUXI, Jiangsu, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- China Wind
Systems, Inc. (OTC Bulletin Board: CWSI) ("China Wind Systems" or the
"Company"), which supplies forged rolled rings to the wind power and other
industries and industrial equipment to the textile and energy industries in
China, today announced its financial results for the third quarter ended
September 30, 2008.
Third Quarter 2008 Highlights and Recent Events
-- Net revenues increased 47.1% year-over-year to $11.8 million
-- Gross profit increased 24.8% year-over-year to $3.0 million
-- Net income was $1.9 million, or $0.03 per diluted share, up 35.7% year-
over-year from adjusted net income of $1.4 million, or $0.04 per
diluted share
-- Revenue from the forged rolled rings for the wind power and other
industries increased to $5.3 million, or 44.7% of net revenues
-- Revenue from the sale of forged rolled rings for use in the wind power
industry reached $2.5 million, up 47.1% from the second quarter of 2008
-- Completed installing equipment for first phase of expansion plan to
increase production of forged products used in wind-turbine components
-- Signed letter of intent to supply shafts and gear rims to Hangzhou
Advance Gearbox Group, Co. Ltd.
-- Signed preliminary agreements to supply approximately $18 million of
forged products for use in the wind power and other industries.
"We are pleased to report strong growth in the sales of our forged wind-
power products, which are becoming an increasing part of our revenue mix and
which we hope will continue to increase as we begin production at our new
facility this month," said Mr. Jianhua Wu, chairman and CEO of China Wind
Systems. "From a nominal amount a year ago, our wind power revenues of $2.5
million in the third quarter represent the fastest growing segment of our
business due to strong demand for these products," Mr. Wu continued. "During
the quarter we completed installing equipment at our new manufacturing
facility and signed preliminary agreements with four wind-power and heavy
machinery customers to supply shafts, gear rims and flanges used in wind
turbines."
Third Quarter 2008 Results
Net revenues for the third quarter of 2008 totaled $11.8 million, up 47.1%
from $8.0 million for the same period prior year. The Company's management
attributes the growth in revenues to the increase in sales of the Company's
forged rolled rings to the wind power and other industries. Revenues from the
forged rolled rings and electrical equipment segment reached $5.8 million for
the third quarter of 2008, a significant increase from $1.7 million for the
same period prior year when the Company was just entering into this business.
Revenue from the sale of forged rolled rings exclusively for the wind power
industry accounted for $2.5 million in the third quarter, a 47.1% increase
from $1.7 million last quarter. Revenues from the Company's dyeing and
finishing segment were $6.0 million, or 50.6% of net revenues, representing a
5.2% decrease from $6.3 million for the comparable period last year. Because
the recent economic slowdown has affected various countries, especially the
export sector in China, we expect to see a decreasing trend in our dyeing and
finishing equipment business as the textile industry is impacted by recessions
in other countries. Yet, we remain confident with the outlook of our forging
business for the wind power industry as the Chinese government has announced
that it is committed to supporting wind power in order to reduce the Country's
reliance on coal."
Gross profit for the third quarter was $3.0 million, a 24.8% increase from
$2.4 million for the same period prior year. Gross margin was 25.1% for the
third quarter, compared to 29.6% for the same period prior year. Gross margin
for the dyeing and finishing equipment segment was 26.3%, down from 29.7% a
year ago due to higher raw material costs for steel and other metals used to
manufacture dye machines. Gross margin from the forged rolled rings and
electrical equipment segment was 23.8%, compared to 29.1% a year ago, due to
the change in the segment's product mix as the Company ramps up its production
of forged products. Gross margin in the forged rolled rings and electrical
equipment segment improved from 23.1% in the second quarter of 2008.
Operating expenses were $0.5 million in the third quarter of 2008,
compared to $0.3 million a year ago. This was due to higher selling, general
and administrative expenses from increased professional fees associated with
being a public company, and higher payroll and related benefits.
Operating income for the third quarter of 2008 totaled $2.5 million, a
19.1% increase from $2.1 million for the same period prior year.
Net income for the third quarter of 2008 was $1.9 million, or $0.03 per
diluted share, compared to $8.1 million, or $0.22 per diluted share, in the
third quarter of 2007, which included a one-time tax relief in VAT and income
taxes of $6.7 million. Excluding this gain, adjusted net income for the third
quarter of 2007 was $1.4 million, or $0.04 per fully diluted share, which
translates to a 35.7% increase in net income for the third quarter 2008
compared to the same period last year. Earnings per share were calculated
using a diluted weighted share count of 67.2 million shares for the third
quarter of 2008 and 36.6 million shares for the third quarter of 2007. The
increase in weighted average shares includes the impact of the Company's
Series A convertible preferred shares and warrants.
Nine Months Results
For the first nine months of 2008, revenues increased to $31.4 million, up
89.3% from $16.6 million in the corresponding period of 2007. Gross profit
increased 65.9% to $7.9 million in the first nine months of 2008, compared to
$4.8 million for the same period last year. Gross margin was 25.1% during the
period, compared to 28.7% during the same period prior year. Operating income
rose 50.2% to $6.0 million compared to $4.0 million for the first nine months
of 2007. Net loss attributable to common shareholders was $0.9 million, or
$0.07 per fully diluted share, and included a deemed preferred stock dividend
of $2.9 million which had the effect of reducing net income available to
common stockholders. In the first nine months of 2007, net income available
to common shareholders was $9.4 million, or $0.26 per diluted share. Adjusted
net income available to common shareholders for the first nine months of 2008,
which excludes the deemed preferred dividend and non cash financing costs, was
$4.3 million, or $0.12 per fully diluted share, up 65.4% from adjusted net
income available to common shareholders of $2.6 million, or $0.09 per fully
diluted share, in the same period last year. Adjusted net income for the year
ago period excludes the previously mentioned one-time tax relief.
Financial Condition
As of September 30, 2008, the Company had cash and cash equivalents of
$0.7 million, accounts receivable of $4.0 million and working capital of $2.1
million. The Company had $1.0 million in short-term loans payable and
stockholders' equity of $29.8 million. During the first nine months of 2008,
the Company generated $5.0 million in operating activities and had capital
expenditures of $11.6 million, primarily related to its phase one expansion,
which it expects to complete in the fourth quarter of 2008.
In order to obtain funds to complete the Company's Phase I plan, in late
October and early November, China Wind Systems sold 3.4 million shares of
common stock in a private placement, for approximately $1.4 million and the
Company also borrowed $575,000 from a private investor. As part of this
transaction, the investor exercised warrants having an exercise price of
approximately $175,000 and the Company entered into a consulting agreement
with an affiliate of the investor. Total payments made by the Company as
interest on the note and as consulting fees under the agreement would total
$240,000, assuming the note is paid on the maturity date of April 20, 2009.
The Company paid this note in November 2008.
Business Outlook
Despite difficult global economic and financial conditions, the Company
remains confident with the outlook for its forging business as the Chinese
government remains committed to increasing wind capacity and reducing the
country's reliance on coal. However, the Company does anticipate a downward
trend in its dyeing and finishing equipment business as the textile industry
in China is impacted by economic conditions in other countries.
China Wind Systems has completed the installation of equipment related to
its phase one expansion, including a ring-rolling mill and a 4,500-ton press
to produce rolled rings up to 6.3 meters in diameter with cross sections
measuring up to 750mm. The Company expects to begin manufacturing forged
products such as rolled rings, flanges and gear rims used in up to five
megawatt (MW) wind turbine units, as well as shafts used in 1 MW to 3 MW wind
turbine units in November 2008. The designed annual capacity of the Company's
phase one expansion is 40,000 tons of rolled rings, flanges, shafts and gear
rims.
"The completion of equipment installation at our facility allows us to
manufacture essential wind-power components internally, including larger
forged rolled rings, gear rims, flanges and shafts," Mr. Wu said. "Already we
have secured several preliminary purchase agreements and are confident that we
will secure those orders when we deliver the product prototypes, which is
scheduled for November 2008. With the strong demand for our forged products
from the wind-power industry and our increased capacity to supply a wider
range of products, we are successfully executing our business strategy to
become a key supplier to the wind-power industry in China."
China Wind Systems expects to achieve its $45 million in net revenue and
$7 million in net income guidance in 2008, should there be no engineering or
technical issues once its new facility goes into actual production. "We are
working diligently to fulfill our guidance and we will take all necessary
steps to ensure that our new forged rolled-ring facility runs smoothly,"
concluded Mr. Wu.
Conference Call
The Company will conduct a conference call at 9:00 a.m. Eastern Time (ET)
on Friday, November 14, 2008 to discuss its third quarter 2008 results. To
participate in the live conference call, please dial the following number five
to ten minutes prior to the scheduled conference call time: 800-688-0796, and
enter the conference passcode 202-158-47 when prompted. International callers
should dial 617-614-4070, and enter the same passcode, 202-158-47. If you are
unable to participate in the call at this time, a replay will be available for
14 days starting on November 14 at 11:00 a.m. ET. To access the replay, dial
888-286-8010 and enter the passcode, 702-62-805. International callers dial
617-801-6888, and enter the same passcode, 702-62-805.
Use of Non-GAAP Financial Measures
GAAP results for the nine months ended September 30, 2008 include one-time,
non-cash interest expenses related to the amortization of debt discount in the
amount of $2.3 million and a non-cash deemed preferred stock dividend in the
amount of $2.9 million. GAAP results for the nine months ended September 30,
2007 include a one-time tax relief in VAT and income taxes of $6.7 million.
Because these charges are non-cash, one-time charges and are not related to
the Company's operating results, the Company believes that the non-GAAP
information is useful to supplement the Company's condensed consolidated
financial statements. A reconciliation of the adjustments to GAAP results
appears in the table accompanying this press release. This additional non-
GAAP information is not meant to be considered as a substitute for GAAP
financials. The non-GAAP financial information that the Company provides also
may differ from the non-GAAP information provided by other companies.
About China Wind Systems, Inc.
China Wind Systems supplies forged rolled rings to the wind power and
other industries and industrial equipment to the textile and energy industries
in China. With its newly finished state-of-the-art production facility, the
Company is expected soon to significantly increase its shipment of high-
precision rolled rings and other essential components primarily to the wind
power and other industries. For more information on the Company, visit
http://www.chinawindsystems.com . Information on the Company's Web site or
any other Web site does not constitute a portion of this release.
Safe Harbor Statement
This release contains certain "forward-looking statements" relating to the
business of the Company and its subsidiary and affiliated companies. These
forward looking statements are often identified by the use of forward-looking
terminology such as "believes, expects" or similar expressions. Such forward
looking statements involve known and unknown risks and uncertainties that may
cause actual results to be materially different from those described herein as
anticipated, believed, estimated or expected. Investors should not place undue
reliance on these forward-looking statements, which speak only as of the date
of this press release. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of a
variety of factors, including those discussed in the Company's periodic
reports that are filed with the Securities and Exchange Commission and
available on its website ( http://www.sec.gov ). All forward-looking
statements attributable to the Company or to persons acting on its behalf are
expressly qualified in their entirety by these factors other than as required
under the securities laws. The Company does not assume a duty to update these
forward-looking statements.
--Financial Tables Follow--
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
NET REVENUES $11,770,162 $8,000,293 $31,400,186 $16,589,475
COST OF SALES 8,816,389 5,633,977 23,508,720 11,831,546
GROSS PROFIT 2,953,773 2,366,316 7,891,466 4,757,929
OPERATING EXPENSES:
Depreciation and
amortization 69,712 68,607 228,189 207,875
Selling, general
and administrative 414,078 223,164 1,681,177 566,106
Total Operating
Expenses 483,790 291,771 1,909,366 773,981
INCOME FROM OPERATIONS 2,469,983 2,074,545 5,982,100 3,983,948
OTHER INCOME (EXPENSE):
Interest income 2,075 91 11,719 372
Interest expense (20,427) (9,946) (2,298,874) (31,360)
Other income from
forgiveness of
income and VAT
taxes -- 6,771,442 -- 6,771,442
Debt issuance
costs -- -- (21,429) --
Total Other
Income (Expense) (18,352) 6,761,587 (2,308,584) 6,740,454
INCOME BEFORE INCOME
TAXES 2,451,631 8,836,132 3,673,516 10,724,402
INCOME TAXES 590,769 714,840 1,651,331 1,315,094
NET INCOME 1,860,862 8,121,292 2,022,185 9,409,308
DEEMED PREFERRED
DIVIDEND -- -- (2,884,062) --
NET INCOME (LOSS)
AVAILABLE TO COMMON
SHAREHOLDERS $1,860,862 $8,121,292 $(861,877) $9,409,308
COMPREHENSIVE INCOME:
NET INCOME $1,860,862 $8,121,292 $2,022,185 $9,409,308
OTHER
COMPREHENSIVE
INCOME:
Unrealized
foreign
currency
translation
gain 67,269 299,690 1,679,553 523,986
COMPREHENSIVE
INCOME $1,928,131 $8,420,982 $3,701,738 $9,933,294
NET INCOME (LOSS) PER
COMMON SHARE:
Basic $0.05 $0.22 $(0.02) $0.26
Diluted $0.03 $0.22 $(0.02) $0.26
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 40,363,220 36,577,704 38,634,312 36,577,704
Diluted 67,189,108 36,577,704 38,634,312 36,577,704
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2008 2007
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $744,885 $5,025,434
Accounts receivable, net of
allowance for doubtful accounts 3,942,594 2,158,412
Inventories, net of reserve for
obsolete inventory 2,185,721 1,929,796
Advances to suppliers 259,190 938,331
Prepaid expenses and other 78,847 378,429
Total Current Assets 7,211,237 10,430,402
PROPERTY AND EQUIPMENT - Net 18,343,726 6,525,986
OTHER ASSETS:
Deposit on long-term assets -
related party 5,603,128 10,863,706
Prepaid land use rights, net 3,827,481 502,634
Investment in cost method investee -- 34,181
Due from related parties -- 139,524
Total Assets $34,985,572 $28,496,433
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $1,021,138 $820,333
Convertible debt, net of discount
on debt -- 3,261,339
Accounts payable 3,202,606 1,845,769
Accrued expenses 190,882 198,542
VAT and service taxes payable 65,831 434,839
Advances from customers 65,850 77,357
Due to related party -- 98,541
Income taxes payable 591,745 508,407
Total Current Liabilities 5,138,052 7,245,127
STOCKHOLDERS' EQUITY:
Series A convertible preferred
($0.001 par value; 60,000,000
shares authorized; 14,028,189
and 0 shares issued and
outstanding at September 30,
2008 and December 31, 2007,
respectively) 14,028 --
Common stock ($0.001 par value;
150,000,000 shares authorized;
40,976,062 and 37,384,295
shares issued and outstanding
at September 30, 2008 and
December 31, 2007, respectively) 40,976 37,385
Additional paid-in capital 13,966,914 3,488,896
Retained earnings 12,379,406 16,074,270
Statutory reserve 421,360 305,472
Other comprehensive gain -
cumulative foreign currency
translation adjustment 3,024,836 1,345,283
Total Stockholders' Equity 29,847,520 21,251,306
Total Liabilities and
Stockholders' Equity $34,985,571 $28,496,433
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,022,185 $9,409,308
Adjustments to reconcile net income
from operations to net cash
provided by operating activities:
Depreciation 482,376 450,881
Amortization of debt discount to
interest expense 2,263,661 --
Amortization of debt offering costs 21,429 --
Rent expense associated with
prepaid land use rights 63,346 7,805
Increase in allowance for doubtful
accounts 171,816 182,882
Increase in reserve for inventory
obsolescence -- 106,942
Stock based compensation expense 75,000 --
Other income from forgiveness of
income and VAT taxes -- (6,771,442)
Changes in assets and liabilities:
Accounts receivable (1,777,797) (2,538,272)
Inventories (124,107) 426,386
Prepaid and other current assets 280,762 46,630
Advances to suppliers 726,728 (127,886)
Accounts payable 1,189,915 1,153,705
Accrued expenses 2,343 22,058
VAT and service taxes payable (389,946) 1,011,064
Income taxes payable 48,284 957,899
Advances from customers (16,345) 1,830,260
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,039,650 6,168,220
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds (payments) for due from
related parties 145,808 (486,032)
Proceeds from sale of cost-method
investee 35,720 26,056
Deposit on long-term assets -
related party (89,721) (5,792,030)
Purchase of property and equipment (11,629,385) (17,581)
NET CASH USED IN INVESTING ACTIVITIES (11,537,578) (6,269,587)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 142,880 260,561
Proceeds from exercise of warrants 2,011,575 --
Payments on related party advances (102,979) --
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,051,476 260,561
EFFECT OF EXCHANGE RATE ON CASH 165,903 20,161
NET (DECREASE) INCREASE IN CASH (4,280,549) 179,355
CASH - beginning of year 5,025,434 421,390
CASH - end of period $744,885 $600,745
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $55,932 $31,360
Income taxes $1,169,603 $--
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Deemed preferred dividend reflected
in paid-in capital $2,884,062 $--
Reclassification of long-term deposit
- related party to distribution $--
Convertible debt converted to series
A preferred stock $5,525,000 $--
Deposit on long-term assets -related
party reclassified to prepaid land
use rights $5,500,030 $--
Series A preferred converted to
common shares $759 $--
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
AND DILUTED EPS
For the Three Months ended September 30,
2008 2007
Net Income Diluted EPS Net Income Diluted EPS
Adjusted Amount of Net
Income available to
Common Shareholders $1,860,862 $0.03 $1,349,850 $0.04
Adjustment
Other income from
forgiveness of VAT
and income taxes (1) (6,771,442) ($0.19)
Amount per consolidated
statement of operations $1,860,862 $0.03 $8,121,292 $0.22
(1) One-time tax relief in VAT and income taxes in the third quarter of
2007
Weighted average diluted shares, 67,189,108 for the three months
ended September 30, 2008 and 36,577,704 for the three months ended
September 30, 2007
For the Nine Months ended September 30,
2008 2007
Net Income Diluted EPS Net Income Diluted EPS
Adjusted Amount of Net
Income available to
Common Shareholders $4,307,275 $0.11 $2,637,866 $0.09
Adjustments
Interest expenses related
to amortization of
conversion of convertible
debt to common stock (1) 2,263,661 0.06 -- --
Amortization of debt
issuance costs (2) 21,429 0.00 -- --
Deemed preferred
dividend (3) 2,884,062 0.08 -- --
Other income from
forgiveness of VAT and
income taxes (4) (6,771,442) (0.17)
Amount per consolidated
statement of operations $(861,877) $(0.02) $9,409,308 $0.26
(1) One-time, non-cash interest expenses related to amortization of
debt discount to interest expense, Q1 2008
(2) Amortization related to debt issuance
(3) One-time non-cash deemed preferred dividend related to issuance of
stock warrants upon conversion of convertible debt to series A
preferred stock
(4) One-time tax relief in VAT and income taxes in the third quarter of
2007
Weighted average diluted shares, 38,634,312 for the nine months
ended September 30,2008 and 36,577,704 for the nine months ended
September 30, 2007
For more information, please contact:
Company Contact:
Mr. Leo Wang
Senior Vice President, Finance
China Wind Systems, Inc.
Tel: +1-917-455-7735
Email: leo.wang@chinawindsystems.com
Web: http://www.chinawindsystems.com
Investor Relations Contact:
Mr. Crocker Coulson
President
CCG Investor Relations
Tel: +1-646-213-1915 (NY Office)
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com
SOURCE China Wind Systems, Inc.
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