Fushi Copperweld Announces 2011 Third Quarter Results

BEIJING, Nov. 3, 2011 /PRNewswire-Asia-FirstCall/ -- Fushi Copperweld, Inc. (Nasdaq: FSIN), the leading global manufacturer and innovator of copper-clad bimetallic wire used in a variety of telecommunication, utility, transportation and other electrical applications, today announced financial results for the third quarter ended September 30, 2011.

Third Quarter Highlights

  • Net income of $8.9 million, or $0.23 per diluted share, compared to $12.9 million, or $0.34 per diluted share, in the third quarter of 2010;
  • Revenues of $74.3 million, up 11.7% from $66.5 million in the third quarter of 2010;
  • Net cash generated from operations of $19.9 million, compared to $20.1 million net cash generated from operations in the third quarter of 2010;
  • Established operational hub in continental Europe; and
  • Cash position at quarter end remains strong at $163.6 million.

Revenues for the third quarter of 2011 increased 11.7% to $74.3 million, up from $66.5 million in the prior year quarter, primarily driven by higher average selling prices.

Gross profit in the third quarter was $19.9 million compared to $19.7 million a year ago. Gross margin decreased to 26.8% from 29.6% in the prior year period. Gross margin for the Company's Dalian cladding facility was 33.5% compared to 36.1% in the prior year period, while gross margin for the Company's Fayetteville, TN facility was 6.0% in the third quarter of 2011, compared to 12.5% in the third quarter of 2010. Gross margin in the period was impacted by higher raw material prices and lower fixed price absorption as a result of a decline in sales volumes. The Company's results for the third quarter of 2011 also reflect the impact of continued supply constraints for its CCS clad lines in Dalian.

Operating expenses in the third quarter of 2011 increased to $6.2 million, compared to $4.6 million in the prior year's quarter, primarily as a result of the Company's continued investment in its international growth strategy, increased expenses including higher audit and professional service fees, and advisor fees related to the ongoing privatization proposal. On a percentage basis, operating expenses increased to 8.3% of revenues from 6.9% in the third quarter of 2010.

Other expense increased to $0.8 million during the 2011 third quarter from $0.2 million in the year ago period. The increase in other expense is primarily related to the impact of fluctuations in foreign exchange rates on the revaluation of receivables denominated in USD to RMB, which increased other expense by $0.6 million, or $0.02 per diluted share after-tax.

The Company's effective income tax rate for the third quarter of 2011 was 31.6% compared with an effective income tax rate of 13.8% in the year ago period. The higher tax rate is primarily due to the change in income tax rate from 12.5% in 2010 to 25.0% in 2011 for the Company's subsidiary, Fushi International (Dalian) Bimetallic Cable Co. Ltd., as a result of the expiration of the subsidiary's tax holiday. The Company expects its effective income tax rate for the 2011 full-year to be approximately 31.0%.

Net income for the third quarter was $8.9 million, or $0.23 per diluted share, compared to net income of $12.9 million, or $0.34 per diluted share, in the third quarter of 2010.

Fully diluted share count increased 0.8% in the third quarter of 2011 to 38.3 million from 38.0 million a year ago.

During the three months ended September 30, 2011, the Company generated net cash from operations of $19.9 million, compared $20.1 million net cash generated from operations in the comparable period in 2010. In the nine months ended September 30, 2011, net cash generated from operations was $40.7 million, compared to $23.2 million in the year ago period.

As of September 30, 2011, the Company's cash position was $163.6 million, an increase of 33.0% from $123.0 million as of December 31, 2010. Accounts receivable at September 30, 2011 were $73.9 million, compared to $65.8 million at December 31, 2010. Long-term debt was $5.2 million as of September 30, 2011, compared to $5.7 million at December 31, 2010.

As previously announced, during the quarter the Company entered an agreement with the receivers of Leaf Business Holdings Belgium regarding the lease with an option to purchase a 45,000 square-meter copper tubing manufacturing and distribution center that establishes an operational hub for Fushi Copperweld in continental Europe. The Company will begin stocking the facility with copper-clad aluminum and copper-clad steel product for sale in continental Europe in the 2011 fourth quarter, and expects initial sales to commence in the first quarter of 2012.

The Company continues to expect this transaction to be dilutive to 2011 earnings by approximately $815,000, or approximately $0.02 per share, and to become slightly accretive in 2012.  

Joe Longever, co-Chief Executive Officer of Fushi Copperweld, commented, "While we began the quarter with strong sales momentum across most of the markets we serve, the volatility in commodity prices in the latter part of the quarter and the uncertain economic environment reduced order rates, particularly in the U.S. market. In addition, the planned ramp-up of production on our CCS line at Dalian continues to be delayed by supply constraints, and we remain focused on finding a solution to this issue. Despite these challenges, CCA volumes in China were in line with our expectations and we continued to generate strong cash flows and make strategic investments that will benefit Fushi Copperweld over the long-term. A primary example is our recent expansion into Belgium, which enhances our access to the European market."

Mr. Longever continued, "As we enter the fourth quarter, market conditions remain challenging and current economic trends are difficult to predict. Global economic uncertainty continues to affect our customers' purchasing decisions, with many deciding to either postpone their purchases or purchase in smaller allotments, and progress in addressing our CCS production issue remains slower than anticipated. Despite these factors, we continue to see opportunities for our copper-clad products in the marketplace and remain committed to investing in our global sales, marketing, and new business initiatives to ensure we are well positioned to leverage a recovery of demand."

Outlook

Based on third quarter performance, current business trends and the expected dilution related to the Company's new facility in Belgium as described above, Fushi Copperweld has revised its annual guidance for fully diluted earnings per share to a range of $0.88 to $0.98. This guidance is based on an estimated weighted average diluted share count of 38.4 million shares, and an effective income tax rate of 31.0%.

Conference Call

The Company will conduct a conference call to discuss the third quarter 2011 results today, Thursday, November 3, 2011, at 8:30 am ET. To participate, the conference call may be directly accessed from the U.S. and Canada at 1-866-225-2055 and accessed internationally at 1-416-340-8410. A live webcast of the conference call will also be available at www.fushicopperweld.com on the Investor Relations section. A replay of the call will be available at www.fushicopperweld.com.

About Fushi Copperweld

Fushi Copperweld Inc., through its wholly owned subsidiaries, Fushi International (Dalian) Bimetallic Cable Co. Ltd., and Copperweld Bimetallics LLC, is the leading manufacturer and innovator of copper-clad bimetallic engineered conductor products for electrical, telecommunications, transportation, utilities and industrial applications. With extensive design and production capabilities, and a long-standing dedication to customer service, Fushi Copperweld is the preferred choice for bimetallic products worldwide.

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "will" "believes", "expects" or similar expressions. These forward-looking statements may also include statements about our proposed discussions related to our business or growth strategy, which is subject to change. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this press release. For a description of the risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at www.sec.gov.

For more information, please contact:


Investors

Jolin Qiao/Investor Relations Officer - Fushi Copperweld Inc.

Phone +1.931.433.0482 - E-mail: IR@fushicopperweld.com  

Web: www.fushicopperweld.com  



FUSHI COPPERWELD, INC. AND SUBSIDIARIES







CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2011 AND DECEMBER 31, 2010







September 30,


December 31,






2011


2010






Unaudited


Audited

ASSETS

CURRENT ASSETS:






Cash

$

163,624,276

$

123,000,338


Accounts receivable, net of allowance
for doubtful accounts

73,913,870


65,765,722


Inventories


18,899,317


16,143,922


Advances to suppliers


8,586,217


15,022,976


Prepaid expenses and other current assets


1,042,982


743,206



Total current assets


266,066,662


220,676,164









PLANT AND EQUIPMENT, net


119,064,234


124,177,512









OTHER ASSETS:






Intangible assets


468,518


577,587


Land use rights


13,246,167


13,089,733


Deposits for land use rights


9,957,883


9,623,181


Goodwill


1,788,231


1,669,789


Other non-current assets


518,477


443,397



Total other assets


25,979,276


25,403,687












Total assets

$

411,110,172

$

370,257,363









LIABILITIES AND SHAREHOLDERS' EQUITY









CURRENT LIABILITIES:






Current portion of long-term bank loan

$

650,000


650,000


Accounts payable


5,361,105


3,241,428


Accrued expenses and other current liabilities


14,128,367


15,542,111



Total current liabilities


20,139,472


19,433,539









LONG-TERM LIABILITIES:






Long-term bank loan


5,200,000


5,687,500


Deferred income tax liabilities


673,470


669,540


Other non-current liabilities


-


65,057



Total long-term liabilities


5,873,470


6,422,097












Total liabilities


26,012,942


25,855,636









SHAREHOLDERS' EQUITY:






Common stock, $0.006  par value, 100,000,000 shares authorized,







38,203,638 and 38,099,138
shares issued and outstanding
as of June 30, 2011



and December 31, 2010, respectively


229,226


228,596


Additional paid-in capital


169,028,404


167,596,792


Retained earnings


166,871,835


140,462,840


Accumulated other comprehensive income


48,967,765


36,113,499



Total shareholders' equity


385,097,230


344,401,727












Total liabilities and shareholders' equity

$

411,110,172

$

370,257,363











FUSHI COPPERWELD, INC.  AND SUBSIDIARIES











CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)














Three months ended September 30,


Nine months ended September 30,




2011


2010


2011


2010











REVENUES

$

74,279,340

$

66,507,433

$

219,158,766

$

195,062,641











COST OF GOODS SOLD


54,353,890


46,842,955


161,047,950


137,986,750











GROSS PROFIT    


19,925,450


19,664,478


58,110,816


57,075,891











OPERATING EXPENSES:










Selling expenses


1,127,259


1,457,154


3,519,065


4,074,280


General and administrative expenses


5,061,337


3,117,062


15,035,656


10,923,878


 Total operating expenses


6,188,596


4,574,216


18,554,721


14,998,158











INCOME FROM OPERATIONS


13,736,854


15,090,262


39,556,095


42,077,733











OTHER INCOME (EXPENSE):










Interest income


222,852


200,295


663,776


590,236


Interest expense


(116,378)


(120,176)


(340,282)


(697,367)


Gain on cross-currency interest swap derivative


-


-


-


(753,666)


Loss on extinguishment of HY notes


-


-


-


(2,395,778)


Change in derivative liability - conversion option


-


-


-


882,527


Other income (expense), net


(757,407)


(176,001)


(1,677,122)


(194,445)


 Total other income (expense), net


(650,933)


(95,882)


(1,353,628)


(2,568,493)











INCOME BEFORE INCOME TAXES


13,085,921


14,994,380


38,202,467


39,509,240












Current income tax expense


4,137,255


2,072,009


11,793,472


5,197,187











NET INCOME


8,948,666


12,922,371


26,408,995


34,312,053











OTHER COMPREHENSIVE INCOME (LOSS):










Foreign currency translation adjustment, net of nil income taxes


5,322,885


4,433,165


12,854,266


6,198,740











COMPREHENSIVE INCOME

$

14,271,551

$

17,355,536

$

39,263,261

$

40,510,793











EARNINGS PER SHARE:










Basic

$

0.23

$

0.34

$

0.69

$

0.94


Diluted

$

0.23

$

0.34

$

0.69

$

0.94











WEIGHTED AVERAGE SHARES:










Basic


38,204,078


37,694,626


38,186,708


36,553,784


Diluted


38,254,748


37,988,151


38,265,121


36,934,170























FUSHI COPPERWELD, INC.  AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED September 30, 2011 AND 2010

(UNAUDITED)


Nine-Month Period Ended September 30,


2011

2010


USD

USD

Cash flows from operating activities:



Net cash provided by operating activities

40,676,212

23,215,333




Cash flows from investing activities:



Payment for acquisitions of Jinchuan and Hongtai

-

(6,375,000)

Cash acquired from acquisitions of Jinchuan and Hongtai

-

901,442

Purchases of property and equipment

(1,160,718)

(1,869,029)

Net cash used in investing activities

(1,160,718)

(7,342,587)




Cash flows from financing activities:



Proceeds from interest-free loans provided by Mr. Li Fu

-

15,000,000

Payment for acquisition of Jinchuan

(4,819,107)

-

Repayment of revolving line of credit

-

(4,033,783)

Proceeds from long-term bank loans

-

6,500,000

Repayment of long-term bank loans

(487,500)

-

Repayment of notes payable

-

(35,600,000)

Proceeds from issuance of common stock

-

59,800,050

Proceeds from exercise of warrants and stock options

628,495

1,207,824

Transaction costs paid in connection with issuance of common stock

-

(3,438,550)

Net cash (used in) provided by financing activities

(4,678,112)

39,435,541




Effect of foreign currency exchange rate changes on cash

5,786,556

1,960,862

Net increase in cash

40,623,938

57,269,149




Cash at beginning of period

123,000,338

60,597,849

Cash at end of period

163,624,276

117,866,998




Supplemental disclosure of cash flow information:



Interest paid

340,282

1,425,833

Income taxes paid

7,665,233

6,161,271

Non-cash investing and financing activities



Accrual for the acquisition of Jinchuan

-

4,819,107

Issuance of common stock in connection with the acquisition of Hongtai

-

2,600,000

Payable for purchase of property and equipment

554,538

314,294







SOURCE Fushi Copperweld, Inc.



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