Fushi Copperweld Reports Third Quarter 2010 Financial Results

Nov 02, 2010, 07:30 ET from Fushi Copperweld, Inc.

BEIJING, Nov. 2, 2010 /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, 2010.

Third Quarter Highlights

  • Increased non-GAAP Net Income to $0.34 per diluted share, up 30.8% from $0.26 per diluted share in the third quarter of 2009;
  • Adjusted Net Income increased 72.3% to $13.0 million, from $7.6 million in the third quarter 2009;
  • Gross profit increased 29.6% to $19.7 million, or 29.6% of revenue, from $15.2 million in the third quarter 2009; and
  • Metric tons shipped at US facility increased 32.2% compared to third quarter 2009.

Revenues for the third quarter of 2010 increased 39.5% to $66.5 million, up from $47.7 million in the prior year quarter.  The $18.8 million increase in revenues reflected organic growth of 21.2% as a result of continued improvement in global demand and higher average selling prices primarily due to increases in copper prices, as well as the contributions of acquisitions completed subsequent to the third quarter of 2009.  These factors, along with a 32.2% increase in sales volumes from the Company's US facility, offset a slight decline in sales volumes within China resulting from the continued slowdown in capital spending related to China's 3G build out.

Gross profit in the 2010 third quarter increased 29.6% to $19.7 million from $15.2 million a year ago.  Consolidated gross margin as a percentage of revenues decreased to 29.6% from 31.8% in the prior year period, primarily as a result of higher copper prices and lower gross margins contributed from acquisitions completed subsequent to the third quarter of 2009. Gross margin for the Company's Dalian cladding facility increased to 36.3% from 34.5% in the prior year quarter, reflecting improvements in both product mix and pricing, while gross margin for the Company's Fayetteville, TN facility decreased to 12.5% from 20.1% in the prior year quarter, reflecting higher raw material costs that were partially offset by enhanced operational efficiencies resulting from higher sales volumes and the benefits of past cost savings initiatives.

Operating expenses in the third quarter increased to $4.7 million, compared to $4.6 million in the prior year's quarter, due to an increase in costs resulting from the Company's acquisitions.  On a percentage basis, operating expenses in the third quarter 2010 decreased to 7.1% of revenues from 9.6% in the third quarter of 2009.

On a GAAP basis, net income for the 2010 third quarter was $12.9 million, or $0.34 per diluted share. This compares with net income of $9.2 million, or $0.31 per diluted share, in the third quarter of 2009. GAAP results for the third quarter of 2010 include net interest income of $154,274, offset by other expenses of $176,000.

Excluding all non-cash gains and expenses and one-time, non-recurring losses, adjusted net income was $13.0 million or $0.34 per diluted share in the third quarter of 2010, compared to adjusted net income of $7.5 million or $0.26 per diluted share, in the prior year third quarter.

Fully diluted share count increased 30.5% in the third quarter of 2010 to 38.1 million from 29.2 million a year ago, primarily as a result of the Company's follow on offering during the first quarter of 2010, as previously announced.

During the three months ended September 30, 2010, the Company generated $20.1 million of cash flow from operations, compared to $11.1 million in the comparable period in 2009. In the nine months ended September 30, 2010, cash flow from operations was $30.1 million, compared to $15.6 million for same period in last year. Long-term debt totaled $5.9 million, compared to $32.7 million at December 31, 2009. Accounts receivable at September 30, 2010 were $64.5 million, compared to $67.3 million at December 31, 2009.

During the quarter, the Company continued its reach into southeastern China through the transfer of acquired assets following the acquisition of Shanghai Hongtai, reported in the second quarter 2010, to its new facility in Yixing, enabling expanded production capacity, ancillary drawing and finishing capabilities, and closer proximity to over 100 telecom and power wire and cable manufacturers in Eastern and Southern China.  Initial registered capital for the opening of the facility was provided by the Company to take advantage of investment incentives available to foreign invested entities offered in the region.  In order to facilitate the investment in the form of USD, the Company has received a short-term shareholder loan in the amount of $23.0 million to expedite the process. The Company's cash position at the end of the 2010 third quarter was $117.9 million, which included $15.0 million of the original loan proceeds provided prior to the close of the 2010 third quarter.  The remaining $8.0 million from the loan was received early in the 2010 fourth quarter.  The loan has already been repaid in its entirety by the Company in the form of RMB in the fourth quarter of 2010.  

In accordance with Internal Revenue Code Section 956, the loan shall be treated as a "deemed dividend" (Subpart F income) to Company for tax purposes, and will result in a one-time, non-cash tax expense of approximately $1.3 million or $0.03 per diluted share in the fourth quarter of 2010 which will be applied against the Company's deferred tax assets.

Joe Longever, co-Chief Executive Officer of Fushi Copperweld, commented, "Our performance in the third quarter reflects the global nature of our business, the breadth and flexibility of our product offering and the developing demand for our products worldwide.  While we experienced some slowdown within certain sectors in China, the subsequent volume declines were mostly offset by growth from our U.S. facility, which supplies product to a variety of markets including Europe, South America and the Middle East.  Additionally, although we saw a decrease in demand from telecom customers related to the 3G build out in China, there was a concurrent pick-up in sales in the utility market.  We also continued to make solid progress in introducing our products into new end markets, such as transportation and CATV in China, as well as new geographies worldwide."

Mr. Longever concluded, "Fushi Copperweld remains in an excellent position to capitalize on the many opportunities we see worldwide to expand our business and our position as the leading supplier of copper-clad bimetallic wire.  In China, the integration of our recent acquisitions and the roll out of our CCS product are both proceeding in line with our expectations, and we continue to increase our global presence to leverage the opportunities we see in emerging markets as countries continue to invest in critical infrastructure build outs.  With a liquid balance sheet and strong cash flows, we also have the financial flexibility to continue investing in our future growth.  Overall, Fushi Copperweld is well poised to address the large global market opportunity we see before us."

Outlook

Based on current business trends, the Company expects adjusted fully diluted earnings per share to be between $ 0.29 and $ 0.31 for the fourth quarter and to be between $ 1.25 and $ 1.29 for the 2010 full-year period, based on an estimated weighted average diluted share count of 38.3 million shares for the fourth quarter of 2010 and 37.4 million for full-year periods. This expectation is based on the assumption that the effective tax rate at the consolidated level will be 23.0% and 12.8% % for the fourth quarter and 2010 full-year period, respectively, and includes the one-time increase in tax expense of $0.03 per diluted share related to the Company's Yixing facility investment, as described above.

Conference Call

The Company will conduct a conference call to discuss the third quarter 2010 results today, Tuesday, November 2, 2010, at 8:30 am ET. To participate, the conference call may be directly accessed from the U.S. and Canada at 1-866-223-7781 and accessed internationally at 1- 416-340-8018.  A live webcast of the conference call will also be available at http://bit.ly/FSINevents on the Investor Relations section. A replay of the call will be available at http://bit.ly/FSINevents.

Reconciliation of Non-GAAP Financial Measures

Our net income was materially impacted by certain non-cash expenses and one-time events. To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use EPS as adjusted for the impact of non-cash expense related to stock-based compensation and the change in the fair value of derivative liabilities related to the conversion option in Convertible Bonds and certain warrants. These Company-defined adjusted measures are being provided because management believes they are useful in analyzing the underlying operating performance of the business. These measures may be inconsistent with similar measures presented by other companies and should only be used in conjunction with our results reported according to accounting principles generally accepted in the United States. A reconciliation of earnings per share as reported and operating income as reported to adjusted non-GAAP earnings per share and adjusted non-GAAP operating income follows.

Q3 2010

Q3 2009

GAAP Net Income

12,870,762

9,194,933

Non-cash expense:

Loss (gain) on debt extinguishment

(3,842,935)

Gain on CB extinguishment

2,058,352

Stock-based compensation

154,558

179,527

Total non-cash expense

154,558

(1,605,056)

Provision for income tax

(52,550)

(61,039)

Adjusted to Non-GAAP Net income

12,972,770

7,528,838

GAAP Earnings per share:

 Basic

0.34

0.33

 Diluted

0.34

0.31

Non-GAAP Earnings per share:

 Basic

0.34

0.27

 Diluted

0.34

0.26

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

Nathan J. Anderson, VP/Corporate Development

Fushi Copperweld, Inc.

Phone: +1.931.433.0482

Email: IR@fushicopperweld.com

Web:  www.fushicopperweld.com

FUSHI COPPERWELD, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2010 AND DECEMBER 31, 2009

September 30,

December 31,

2010

2009

Unaudited

ASSETS

CURRENT ASSETS:

Cash

$

117,866,998

$

60,597,849

Accounts receivable, trade, net of allowance of bad debt of $522,729 and $1,024,684 as of September 30, 2010 and December 31, 2009, respectively

64,520,827

67,284,600

Inventories

22,702,154

10,875,782

Notes receivables

257,883

122,972

Other receivables and prepaid expenses

505,709

1,137,566

Advances to suppliers

21,228,320

8,582,346

Deposit in derivative hedge

-

1,000,000

Total current assets

227,081,891

149,601,115

PLANT AND EQUIPMENT, net

129,748,890

117,385,566

OTHER ASSETS:

Advances to suppliers, non-current

540,482

1,356,404

Notes receivables, non-current

179,106

699,106

Intangible assets, net of accumulated amortization

14,277,324

11,924,056

Deferred loan expense, net

181,514

2,045,349

Deferred tax assets

15,407,083

11,722,469

Total other assets

30,585,509

27,747,384

Total assets

$

387,416,290

$

294,734,065

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Revolver line of credit

$

-

$

4,033,783

Accounts payable, trade

6,202,910

4,002,773

Current portion of long-term debts

650,000

10,000,000

Other payables and accrued liabilities

5,009,902

3,928,374

Taxes payable

4,267,648

2,599,055

Cross currency hedge payable

-

436,702

Obligation under capital lease, current

79,084

71,503

Loan payable to shareholder

15,000,000

-

Total current liabilities

31,209,544

25,072,190

LONG-TERM LIABILITIES:

Long-term debts

5,850,000

25,000,000

Obligation under capital lease, non-current

88,232

153,626

Fair value of derivative instrument

-

7,532,527

Total long-term liabilities

5,938,232

32,686,153

Total liabilities

37,147,776

57,758,343

COMMITMENTS AND CONTINGENCIES

5,075,000

-

SHAREHOLDERS' EQUITY:

Preferred stock, $0.001 par value, 5,000,000 shares authorized, none  issued or outstanding as of September 30, 2010 and December 31, 2009

-

-

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

September 30, 2010: 37,779,839 shares issued and outstanding

-

-

December 31, 2009: 29,772,780 shares issued and outstanding

226,680

178,638

Additional paid in capital

166,297,828

105,540,676

Statutory reserves

20,793,298

16,282,793

Retained earnings

126,454,574

97,283,748

Accumulated other comprehensive income

31,421,134

17,689,867

Total shareholders' equity

345,193,514

236,975,722

Total liabilities and shareholders' equity

$

387,416,290

$

294,734,065

FUSHI COPPERWELD, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (LOSS)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)

Three months ended September 30,

Nine months ended September 30,

2010

2009

2010

2009

REVENUES

$

66,507,433

$

47,676,346

$

195,062,641

$

131,234,427

COST OF GOODS SOLD

46,842,955

32,506,879

137,986,750

93,672,906

GROSS PROFIT    

19,664,478

15,169,467

57,075,891

37,561,521

OPERATING EXPENSES:

Selling expenses

1,457,154

1,078,158

4,074,280

3,366,719

General and administrative expenses

3,242,826

3,510,034

11,161,896

9,747,637

 Total operating expenses

4,699,980

4,588,192

15,236,176

13,114,356

INCOME FROM OPERATIONS

14,964,498

10,581,275

41,839,715

24,447,165

OTHER INCOME (EXPENSE):

Interest income

200,295

76,094

590,236

242,717

Interest expense

(46,021)

(1,201,014)

(560,476)

(4,150,086)

Bargain purchase gain

-

-

5,070,389

-

Loss on cross currency hedge

-

(1,199,438)

(753,666)

(1,581,812)

Loss on derivative instrument settlement

-

-

(6,650,000)

-

Gain (Loss) on debt extinguishment

-

3,842,935

(2,395,778)

3,842,935

Change in fair value of derivative liability - warrants

-

-

-

(752,114)

Change in fair value of derivative liability - conversion option

-

(2,058,352)

-

(7,181,198)

Other (expense) income, net

(176,001)

53,421

(194,445)

(193,061)

 Total other income (expense), net

(21,727)

(486,354)

(4,893,740)

(9,772,619)

INCOME BEFORE INCOME TAXES

14,942,771

10,094,921

36,945,975

14,674,546

(PROVISION) BENEFIT FOR INCOME TAXES:

Deferred income tax benefit

158,599

888,378

3,684,614

3,253,085

Current income tax expense

(2,230,608)

(1,788,366)

(6,949,258)

(4,069,081)

 (Provision) benefit for income taxes, net

(2,072,009)

(899,988)

(3,264,644)

(815,996)

NET INCOME

12,870,762

9,194,933

33,681,331

13,858,550

OTHER COMPREHENSIVE INCOME (LOSS):

Foreign currency translation adjustment

4,433,165

72,136

6,198,740

112,093

Change in fair value of derivative instrument

-

237,768

882,527

(3,275,588)

Reclassification of change in cash flow hedge to earnings

-

-

6,650,000

-

COMPREHENSIVE INCOME

$

17,303,927

$

9,504,837

$

47,412,598

$

10,695,055

EARNINGS PER SHARE:

Basic

$

0.34

$

0.33

$

0.92

$

0.50

Diluted

$

0.34

$

0.31

$

0.91

$

0.48

WEIGHTED AVERAGE SHARES:

Basic

37,694,626

28,084,416

36,553,784

27,827,152

Diluted

38,077,845

29,206,508

37,030,499

28,676,832

FUSHI COPPERWELD, INC.  AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

(UNAUDITED)

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$

33,681,331

$

13,858,550

Adjustments to reconcile net income

provided by operating activities:

Allowance for doubtful accounts adjustment

(513,846)

Bad debt expense

862,302

Write-off of non-current advances to suppliers

527,095

-

Write-off of patent

131,250

-

Reserve for inventories

255,027

62,914

Write-off of inventories

-

119,133

Depreciation

8,997,857

7,191,842

Loss on sale of property and equipment

-

117,430

Deferred taxes

(3,684,614)

(3,253,085)

Reserve for notes receivables

500,000

-

Amortization of intangible assets

401,539

357,449

Amortization of loan commission

251,097

817,349

Amortization of stock compensation expense

528,207

1,108,254

Loss on cross currency hedge

753,666

1,581,812

Loss on derivative instrument settlement

6,650,000

Loss (gain) on debt extinguishment

2,395,778

(3,842,935)

Bargain purchase gain

(5,070,389)

-

Change in fair value of derivative liability - conversion option

-

7,181,198

Change in fair value of derivative liability - warrants

-

752,114

Change in operating assets and liabilities:

Accounts receivable

7,379,296

(20,177,587)

Inventories

(10,326,609)

(3,756,514)

Notes receivables

(112,473)

100,700

Other receivables and prepayments

574,714

401,070

Advances to suppliers - current

(11,648,978)

15,073,210

Accounts payable

(862,992)

(3,839,555)

Other payables and accrued liabilities

(1,926,906)

(3,113,988)

Taxes payable

1,233,444

3,984,006

Net cash provided by operating activities

30,113,494

15,585,669

CASH FLOWS FROM INVESTING ACTIVITIES:

Payment for purchase of subsidiaries

(6,375,000)

-

Cash acquired from acquisition of subsidiaries

901,463

-

Payments on cross currency hedge payable

(1,190,368)

(614,580)

Payment for unwind of cross currency hedge

(5,650,000)

-

Proceeds from sale of property and equipment

-

424,444

Purchases of property and equipment

(1,926,580)

(3,292,007)

Net of payments on prepayment of equipment

-

(1,877,177)

Net of claimed VAT on purchases of property and equipment

57,551

-

Net cash used in investing activities

(14,182,934)

(5,359,320)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from shareholder loan

15,000,000

4,552,000

Net payments on revolver line of credit

(4,033,783)

(723,566)

Payments on short-term bank loans

-

(17,553,600)

Proceeds from term loans

6,500,000

Release of restricted cash

-

1,000,000

Payment on capital lease obligation

(57,814)

(23,575)

Payment on high yield notes payable

(35,600,000)

(5,000,000)

Proceeds on issuance of common stock

56,361,500

1,920,000

Proceeds from exercise of warrants

1,180,599

-

Proceeds from exercise of stock options

27,225

-

Net cash provided by (used in) financing activities

39,377,727

(15,828,741)

EFFECT OF EXCHANGE RATE ON CASH

1,960,862

230

CHANGE IN CASH

57,269,149

(5,602,162)

CASH, beginning of period

60,597,849

65,611,770

CASH, end of period

$

117,866,998

$

60,009,608

Supplemental cash flow disclosures:

Interest paid

$

1,425,833

$

3,650,785

Income tax paid

$

6,161,271

$

3,609,505

SOURCE Fushi Copperweld, Inc.



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