China Sunergy Announces Financial Results for the Second Quarter Of 2010

NANJING, China, Aug. 6 /PRNewswire-Asia/ -- China Sunergy Co., Ltd. (Nasdaq: CSUN) ("China Sunergy" or the "Company") a specialized solar cell and module manufacturer based in Nanjing, China, announced today its financial results for the second quarter of 2010.

    Second Quarter Financial Results
    -- Revenues were US$117.6 million, representing a 67.8% and 12.8% increase
       compared to the second quarter of 2009 and the first quarter of 2010,
       respectively. Revenues generated from solar cell sales were US$113.0
       million, representing a 107.3% and 23.2% increase compared to the
       second quarter of 2009 and the first quarter of 2010, respectively.
    -- Gross profit was US$23.3 million compared to a gross profit of US$6.8
       million and US$16.9 million during the second quarter of 2009 and the
       first quarter of 2010, respectively. Gross margin was 19.8%, compared
       to 9.7% during the second quarter of 2009 and 16.2% during the first
       quarter of 2010.
    -- GAAP net income was US$13.8 million, compared to net income of US$1.5
       million and net income of US$7.1 million in the second quarter of 2009*
       and the first quarter of 2010, respectively.
    -- GAAP net income per ADS was US$0.34 on basic and US$0.33 on diluted
       basis, compared to a net income of US$0.04 and US$0.18 per ADS on both
       basic and diluted basis in the second quarter of 2009 and the first
       quarter of 2010, respectively.

Commenting on the second quarter Mr. Stephen Zhifang Cai, CEO of China Sunergy remarked:

"These results demonstrate the effectiveness of our turnaround strategy to institute greater operational efficiencies and production of more desirable solar products," said Mr. Stephen Zhifang Cai, CEO of China Sunergy. "Management's continued perseverance and strategic focus allowed China Sunergy to maintain a higher ASP in the second quarter relative to the first, while still maintaining a stable cost base, resulting in a 19.8% gross margin, beating high end gross margin guidance. We are confident these improvements will continue into the second half of 2010. Given increased industry-wide demand and higher utilization rates, we will be in an advantageous position for enhancing our bottom-line. Additionally, we anticipate ongoing expansion into the downstream market as we continue to maximize shareholder value."

    Technological and Operational Highlights
    -- Shipments of solar power products in the second quarter amounted to
       approximately 87.3 MW, representing a 110.4% increase on a year-over-
       year basis and a 16.6% increase sequentially.
    -- Second quarter production of 82.6 MW of solar cells represented a
       140.1% increase on a year-over-year basis and a 10.1% increase
       sequentially.
    -- At the end of the quarter, China Sunergy entered into a renegotiation
       with two related module manufacturers, CEEG (Shanghai) Solar Science &
       Technology Co., Ltd and CEEG (Nan Jing) New Energy Co., Ltd as concern
       over the two targeted companies' margin performance arose due to recent
       economic fluctuations. China Sunergy anticipates an agreement will be
       reached by the end of 2010.
    -- As a result of the investment made in skilled technical personnel last
       year, the Company has continued to refine its manufacturing processes
       and yield improvement. Additionally, China Sunergy has been able to
       offer a more favorable product mix since the first quarter of 2010,
       which also contributed to the gross margin improvement.


    Second Quarter 2010 Financial Review
    Revenues, Shipment and Production

During the second quarter of 2010, revenues increased 67.8% on a year-over-year basis, and 12.8% sequentially to US$117.6 million.

Sales from solar cells, modules and other sales accounted for 96.1%, 1.6% and 2.3% of total revenues, respectively. Shipments, including 1.1 MW for module sales, amounted to approximately 87.3 MW (among which 63.6% were sold to related parties), compared to 41.5 MW during the second quarter of 2009 and 74.9 MW during the first quarter of 2010.

Quarter-on-quarter sales of solar cell products increased by 107.3% compared to the second quarter of 2009.

Solar cell sales in overseas markets as a percentage of total solar cell sales was 23.4% in the second quarter of 2010 compared to 41.0% and 25.4% in the second quarter of 2009 and the first quarter of 2010, respectively.

Gross Profit/Loss, Gross Margins and Average Selling Price ("ASP")

Gross profit for the quarter was US$23.3 million, which led to a blended gross margin of 19.8%, up from 16.2% in the first quarter of 2010. The improvement in gross margin was due to higher sales prices, lower conversion cost, and reduced inventory provision, partially offset by the higher wafer prices over the second quarter.

Blended ASP during the second quarter was US$1.31 per watt, increasing from US$1.26 in the first quarter of 2010. The blended ASP for the second quarter of 2009 was US$1.44.

Wafer Costs

In the second quarter of 2010, blended wafer costs increased to US$0.83 per watt compared to US$0.78 per watt in the first quarter of 2010. Wafer costs per watt as a percentage of total production costs per watt rose from 77.7% in the first quarter of 2010 to 79.3% in the second quarter of 2010, partially due to wafer costs rising to a greater degree than total production costs during the second quarter of 2010.

Other production costs for the quarter were 3% lower than the previous quarter.

SG&A, Operating Profit/Loss and Net Income/Loss

SG&A expenses in the second quarter of 2010 were US$4.8 million, compared to US$5.8 million in the first quarter of 2010, and US$3.6 million in the second quarter of 2009, respectively.

Interest expense for the second quarter of 2010 was US$2.1 million, compared to US$2.2 million for the first quarter of 2010, and US$2.1 million for the second quarter of 2009*, respectively.

In the second quarter of 2010, the Company reported a net income of US$13.8 million, compared to a net income of US$7.1 million in the previous quarter and US$1.5 million in the second quarter of 2009*.

Balance Sheet and Cash Flow

As of June 30, 2010, the Company had cash and cash equivalents of US$127.2 million. Net operating cash outflow for the second quarter was US$17.2 million. The main driver of the operating cash outflow was the increase of accounts receivable in connection with sales. Depreciation and amortization was US$3.0 million and capital expenditures were US$0.9 million.

Third Quarter Outlook

During the third quarter of 2010, China Sunergy anticipates that solar product shipments will be between 85 MW to 90 MW, with a gross margin ranging 16 - 19%. For the full year of 2010, the Company now expects to ship 320 MW to 350 MW of solar products.

Additional Company Updates

Regarding the ongoing dispute with REC Wafer Norway AS ("REC WAFER"), Norwegian District Court ruled on July 5th, 2010 in favor of REC Wafer, and China Sunergy is preparing an appeal against the ruling, to be filed in August 2010.

In parallel to the main dispute, the Supreme Court of Norway ruled in July 15, 2010 and overturned the Court of Appeal's order which denied China Sunergy's injunction petition with regard to a $50 million bank guarantee. The injunction petition has now been sent back to the Court of Appeal for a new ruling which is expected to become available at the end of August 2010. Until further court ruling, the injunction is still in force.

We have separately filed a lawsuit against REC Wafer Norway AS with the People's High Court of Jiangsu Province, China. The court in China has issued an injunction to the related banks to forbid these banks from making payments related to the bank guarantee. In April 2010, the People's High Court of Jiangsu Province rejected REC Wafer Norway AS's objection to jurisdiction after an oral hearing.

Quarterly Earnings Conference Call Details

China Sunergy will host a conference call at 8:00 a.m. Eastern Time or 5:00 a.m. Pacific Time (Beijing / Hong Kong Time: August 5, 2010 at 8:00 p.m.).

    The dial-in details for the live conference call are as follows:

    US Toll Free Dial In:   +1-866-730-5769
    International Dial In:  +1-857-350-1593
    Participant Passcode:   13684885

The call will also be available online at http://www.chinasunergy.com .

For those who cannot access the live broadcast, a replay will be available from two hours after the end of the call until August 13, 2010. The replay is available online or using the numbers below:

    US toll free number:   +1-888-286-8010
    International:         +1-617-801-6888
    Passcode:              21233691

About China Sunergy Co., Ltd.:

China Sunergy Co., Ltd. (Nasdaq: CSUN) ("China Sunergy") is a specialized manufacturer of solar cell and module products in China. China Sunergy manufactures solar cells from silicon wafers, which utilize crystalline silicon solar cell technology to convert sunlight directly into electricity through a process known as the photovoltaic effect, and assembles solar cells into solar modules. China Sunergy sells these solar products to Chinese and overseas module manufacturers, system integrators, and solar power systems for use in various markets.

    For more information please visit http://www.chinasunergy.com .

    For further information contact:

     Financial Dynamics
     Helen Jing Zhu
     Email: [email protected]
     Phone: +86-10-8591-1958

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts in this announcement are forward-looking statements. These forward-looking statements are based on current expectations, assumptions, estimates and projections about the Company and the industry, and involve known and unknown risks and uncertainties, including but not limited to, the Company's ability to raise additional capital to finance the Company's activities; the effectiveness, profitability, and the marketability of its products; litigations and other legal proceedings; the economic slowdown in China and elsewhere and its impact on the Company's operations; demand for and selling prices of the Company's products, the future trading of the common stock of the Company; the ability of the Company to operate as a public Company; the period of time for which its current liquidity will enable the Company to fund its operations; the Company's ability to protect its proprietary information; general economic and business conditions; the volatility of the Company's operating results and financial condition; the Company's ability to attract or retain qualified senior management personnel and research and development staff; future shortage or availability of the supply of raw materials; impact on cost-competitiveness as a result of entering into long-term arrangements with raw material suppliers and other risks detailed in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, they cannot assure you that their expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. The following financial information is extracted from the Company's condensed consolidated financial statements for the respective periods.

                           China Sunergy Co., Ltd.
        Unaudited Condensed Consolidated Income Statement Information
                (In US$ '000, except share and per share data)

                                                 For the 3 months ended
                                             Jun 30,     Mar 31,     Jun 30,
                                              2010        2010        2009*

    Sales to third parties                   42,060      64,282      55,524
    Sales to related parties                 75,553      40,005      14,616
    Total sales                             117,613     104,287      70,140
    Cost of goods sold                      (94,282)    (87,410)    (63,315)
    Gross profit                             23,331      16,877       6,825
    Operating expenses:
    Selling expenses                         (1,069)       (590)       (630)
    General and administrative expenses      (3,722)     (5,253)     (2,949)
    Research and development expenses          (731)       (724)     (1,509)
    Total operating expenses                 (5,522)     (6,567)     (5,088)
    Income from operations                   17,809      10,310       1,737
      Interest expense                       (2,142)     (2,161)     (2,060)
      Interest income                           339         195         594
      Other expenses                         (1,619)     (1,426)      3,015
      Changes in fair value of derivatives      867       1,442         470
    Income before income tax                 15,254       8,360       3,756
    Income tax expense                       (1,426)     (1,254)     (2,210)

    Net income                               13,828       7,106       1,546
    Net income attributable to company
     ordinary shareholders                   13,828       7,106       1,546

    Net income per ADS
    Basic                                     $0.34       $0.18       $0.04
    Diluted                                   $0.33       $0.18       $0.04

    Weighted average ADS outstanding
    Basic                                40,116,876  40,011,809  39,823,915
    Diluted                              43,694,111  43,589,044  39,823,915



                           China Sunergy Co., Ltd.
          Unaudited Condensed Consolidated Balance Sheet Information
                (In US$ '000, except share and per share data)

                                                Jun 30, 2010     Dec 31, 2009*
    Assets
    Current Assets
    Cash and cash equivalents                      127,218           123,855
    Restricted cash                                 53,724            55,678
    Accounts receivable, net                         7,763            15,292
    Other receivable, net                            2,334             3,838
    Inventories, net                                26,094            22,645
      Advance to suppliers, net                      1,719               184
      Amount due from related parties               60,558            22,102
      Current deferred tax assets                    1,110             2,839
      Other current assets                              --               251
    Total current assets                           280,520           246,684
    Property, plant and equipment, net              90,620            93,790
    Prepaid land use rights                          6,352             6,427
    Deferred tax assets                              1,568             1,568
    Restricted cash- Collateral account             15,863            20,471
    Prepayment to related party in
     connection with acquisition                     7,068                --
    Other long-term assets                           4,286             4,849
    Total assets                                   406,277           373,789

    Liabilities and equity
    Current liabilities
      Short-term bank borrowings                   106,024           102,516
      Accounts payable                              34,639            28,705
      Accrued expenses and other current
       liabilities                                  11,325             5,474
      Amount due to related parties                    223             2,369
      Income tax payable                               954                --
    Total current liabilities                      153,165           139,064
    Collateral account payable                      15,863            20,471
    Other liabilities                                2,468             2,535
    Convertible bond payable                        44,000            44,000
    Total liabilities                              215,496           206,070

    Equity:
    Ordinary shares: US$0.0001 par value;
     267,287,253 and 267,287,253 shares
     issued outstanding as of June 30,
     2010 and December 31, 2009, respectively           27                27
    Additional paid-in capital                     185,970           185,337
    Subscription receivable                             --              (405)
    Accumulated deficit                            (17,514)          (38,448)
    Accumulated other comprehensive
     income                                         22,298            21,208
    Total equity                                   190,781           167,719
    Total liabilities and equity                   406,277           373,789

* On January 1, 2010, The Company adopted ASC 470-20 (former EITF 09-1), "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing". Accordingly, the share lending arrangement has been measured at fair value and recognized as an issuance cost associated with the convertible debt offering. As a result, additional debt issuance costs of $1.9 million were retrospectively recorded on the issuance date with a corresponding increase to additional paid-in capital. The debt issuance costs have also been retrospectively amortized over the life of the convertible notes. The cumulative effect of the adoption resulted in a decrease of $386,372 and $809,349 in the beginning balance of retained earnings on January 1, 2009 and 2010 respectively, and the adoption of ASC 470-20 resulted in additional interest expenses in the second quarter of 2009 of $195,880. The total interest expense recognized from amortization of convertible debt issuance costs, including the effect of adoption of ASC 470-20, was $2.1 million for the second quarter 2010. The diluted shares before included the dilute impact of share lending shares for convertible bonds. Shares underlying the share-lending arrangement should not be included in basic or diluted EPS calculation under ASC 470-20. Therefore upon the adoption of the new guidance, the outstanding diluted weighted average ADS was changed to 39,823,915 in the second quarter of 2009.

SOURCE China Sunergy Co., Ltd.