WUXI, Jiangsu, China, Aug. 16 /PRNewswire-Asia-FirstCall/ -- China Wind Systems, Inc. (Nasdaq: CWS), ("China Wind Systems" or the "Company"), a leading supplier of forged rolled rings and other forged components to the wind power and other industries and industrial equipment primarily to the textile industry in China, today announced its financial results for the second quarter and the six months ended June 30, 2010.
Second Quarter 2010 Highlights and Recent Events -- Net revenue increased 39.7% year over year to $19.0 million -- Revenue from the sale of forged products to the wind power and other industries increased 40.5% year over year to $13.8 million, or 72.5% of net revenues -- Revenue from the sale of forged products exclusively to the wind power industry increased 152.1% year over year to $9.2 million, or 48.4% of net revenue -- Operating income increased 59.4% year over year to $4.0 million -- Earnings before interest, taxes, depreciation and amortization (EBITDA) increased 46.4% year over year to $4.7 million -- Net income increased 69.8% to $3.0 million, or $0.12 per diluted share -- In July 2010, the Company delivered the first customer shipment of its Electro-Slag Remelted (ESR) forged products
"During the quarter, our forged products continued to experience strong growth, led by a significant increase in demand from our wind power customers," commented Mr. Jianhua Wu, Chairman and CEO of China Wind Systems, Inc. "In addition, we are currently in final stages of negotiations with a number of wind power component clients to supply shafts and other forged products in the second half of 2010. We believe wind power is becoming an economically viable source of clean and renewable energy, promotes energy conservation and reduces carbon emissions in China, and we believe that the Chinese government will continue to extend strong support to this sector. We plan to leverage on what we see as our competitive edge in the industry to strengthen our market position."
Second Quarter 2010 Results
Net revenue for the second quarter of 2010 increased 39.7% to $19.0 million, compared to $13.6 million in the same period of 2009. The increase was primarily due to strong sales growth of forged rolled rings and related components for the wind power industry segment, as well as strong improvement in the dyeing and finishing equipment segment, which was offset by a decline in sales of forged rolled rings and other components to other industries. Revenue from the sale of forged rolled rings to the wind power industry and other industries grew 40.5% to $13.8 million, or 72.5% of net revenue, compared to $9.8 million, or 72.0% of net revenue, in the same period last year. Revenue from the sale of forged rolled rings exclusively to the wind power industry rose 152.1% to $9.2 million, representing 48.4% of net revenue, compared to $3.6 million, or 26.8% of net revenues in the comparable period last year. Revenue from the sale of forged rolled rings to other industries decreased by 25.6% to $4.6 million, or 24.1% of net revenue, compared with $6.1 million for the comparable period of the prior year. Revenue from the Company's dyeing and finishing equipment segment increased 37.6% to $5.2 million, or 27.5% of net revenues, compared to $3.8 million, or 28.0% of net revenue, for the second quarter of 2009. The dyeing and finishing equipment segment improved year over year, reflecting both the effects of the Chinese government's recent support for the textile industry in China and the recovery of the Chinese economy from the global economic downturn.
Gross profit for the second quarter of 2010 increased 60.3% to $5.0 million, compared to $3.1 million for the same period in the prior year. Gross margin increased 3.3 percentage points to 26.2%, compared to 22.9% for the same period in 2009. Gross margin for the Company's forged rolled rings and other components and dyeing and finishing equipment were 28.3% and 20.7% respectively during the second quarter of 2010 compared to 23.2% and 22.1% respectively during the same quarter last year. The increase in gross margin for forged rolled rings and other components segment was largely attributable to improved operational efficiency as the Company increased capacity utilization during the quarter compared to the same period of fiscal 2009. The 1.4 percentage points decline in gross margin for the Company's dyeing and finishing equipment segment was due to reduction of sales price due to stronger competition in the textile industry in China.
Operating expenses increased 64.1% to $1.0 million, compared to $0.6 million in the comparable period last year, as a result of higher selling, general, and administrative expenses related increased payroll expenses, stock-based compensation, and professional fees.
Operating income increased 59.4% to $4.0 million, compared to $2.5 million for the same period in 2009. Operating margin increased 2.6 percentage points to 21.1%, compared to 18.5% in the second quarter last year.
EBITDA, a non-GAAP measurement, rose 46.4% to $4.7 million, compared to $3.2 million in the same period last year. The reconciliation of EBITDA to net income is discussed below.
Net income increased 69.8% to $3.0 million, compared to $1.8 million in the comparable period last year. Diluted earnings per share were $0.12, compared to $0.08 in the same period of 2009. Diluted earnings per share were calculated using weighted average shares of 25,210,214 and 21,256,154 for the three months ended June 30, 2010 and June 30, 2009, respectively.
Six months Results
For the first half of 2010, revenues increased to $35.8 million, up 67.0% from $21.4 million in the corresponding period of 2009. Gross profit increased 99.8% to $9.4 million, compared to $4.7 million in the same period one year ago. Gross margin in the first half of 2010 was 26.2%, up 4.3 percentage points from 21.9% during the corresponding period in 2009. Operating income increased 96.5% to $6.9 million from $3.5 million. EBITDA, a non-GAAP measurement, rose 86.7% to $8.2 million, compared to $4.4 million in the same period last year. Net income was $5.0 million, or $0.20 per diluted share, 104.8% increase from $2.4 million or $0.12 per diluted share.
As of June 30, 2010, China Wind Systems held cash and cash equivalents of $1.4 million, accounts receivable of $6.6 million, and working capital of $4.9 million. The Company had $1.0 million in short-term loans payable, no long-term debt and stockholders' equity stood at $52.5 million.
In the first half of 2010, the Company generated $6.5 million in operating cash flow and spent $8.0 million in capital expenditures, primarily for property and equipment related to the Company's ESR production line.
In response to growing demand for the Company's forged products for the wind industry, China Wind Systems plans to add an additional small-scale production line to complement its current forging facility and support strong order flow. The Company is in final stage of negotiations with a number of wind power component clients to supply shafts and other forged products in the second half of 2010.
"We have received positive feedback on our ESR and forged products and heightened interest from a number of potential wind energy clients, some of whom received trial products from us," commented Mr. Wu. "In the short term, we plan to add a new fabrication machine to meet the customization requirements by our clients. Our ESR production line has quickly ramped up to full utilization during the third quarter of 2010, and we plan on expanding ESR production as we receive orders from new customers. We anticipate significant growth in demand for our ESR products as they gain wide acceptance among wind power component manufacturers. With the Chinese government's recently announced commitment to invest RMB 5.0 trillion (or $737.5 billion) in new energy, we believe the wind energy sector in China will continue to flourish."
The Company reaffirms its 2010 financial guidance estimating revenues to be in the range of $76.5 million to $85.0 million, EBITDA, a non-GAAP measurement, is expected to be in the range of $22.7 million to $25.2 million and net income is anticipated to be between $15.5 million and $16.3 million
The Company anticipates stronger demand for both its traditional forged products and ESR forged products in 2010, as management expects stronger sales of precision forged products used in large wind turbines. The Company anticipates revenue contributed by its wind industry segment will increase by approximately 75% year over year to $35 million.
China Wind Systems will conduct a conference call at 9:00 a.m. Eastern Time on Monday, August 16, 2010 to discuss results for the second quarter of fiscal 2010. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (877) 359-2891. International callers should dial (702) 224-9578. When prompted, please enter conference passcode: 935 38 714.
If you are unable to participate in the conference call at this time, a replay will be available for 14 days starting on August 16, 2010 at 10:00 a.m. ET. To access the replay, dial (800) 642-1687. International callers dial (706) 645-9291, and enter passcode: 935 38 714.
About China Wind Systems, Inc.
China Wind Systems supplies precision forged components such as rolled rings, shafts and flanges to the wind power and other industries and industrial equipment primarily to the textile industry in China. With its newly finished state-of-the-art production facility, the Company has increased its production and 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.
Use of Non-GAAP Financial Information
To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, namely earnings before interest, taxes, depreciation and amortization (EBITDA). The Company's management believes that this non-GAAP measure provides investors with an understanding of how the results relate to the Company's historical performance. The non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. A reconciliation of each non-GAAP measures appear below:
China Wind Systems, Inc. and Subsidiaries Reconciliation of Net Income to EBITDA (USD) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2010 2009 2010 2009 Net income from consolidated statement of income $3,023,657 $1,780,535 $4,970,194 $2,426,593 Income tax expense 1,007,823 701,494 1,918,116 1,038,155 Interest expense(net of interest income) 17,016 175,960 90,691 199,401 Depreciation and amortization 637,623 543,620 1,243,887 740,318 EBITDA 4,686,119 3,201,609 8,222,888 4,404,467
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 (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 INCOME AND COMPREHENSIVE INCOME For the Three Months Ended For the Six Months Ended June 30, June 30, 2010 2009 2010 2009 (Unaudited) (Unaudited) (Unaudited) (Unaudited) NET REVENUES $18,977,274 $13,584,030 $35,817,956 $21,444,897 COST OF REVENUES 14,000,017 10,479,370 26,424,004 16,743,588 GROSS PROFIT 4,977,257 3,104,660 9,393,952 4,701,309 OPERATING EXPENSES: Depreciation 78,060 83,393 161,015 160,923 Selling, general and administrative 894,805 509,408 2,296,181 1,010,356 Total Operating Expenses 972,865 592,801 2,457,196 1,171,279 INCOME FROM OPERATIONS 4,004,392 2,511,859 6,936,756 3,530,030 OTHER INCOME (EXPENSE): Interest income 1,478 98 2,722 328 Interest expense (18,494) (176,058) (93,413) (199,729) Foreign currency loss (5,042) -- (6,901) (11) Grant income 49,146 146,130 49,146 146,130 Debt issuance costs -- -- -- (12,000) Total Other Income (Expense) 27,088 (29,830) (48,446) (65,282) INCOME BEFORE INCOME TAXES 4,031,480 2,482,029 6,888,310 3,464,748 INCOME TAXES 1,007,823 701,494 1,918,116 1,038,155 NET INCOME $3,023,657 $1,780,535 $4,970,194 $2,426,593 COMPREHENSIVE INCOME: NET INCOME $3,023,657 $1,780,535 $4,970,194 $2,426,593 OTHER COMPREHENSIVE INCOME: Unrealized foreign currency translation gain 208,813 3,253 216,083 44,793 COMPREHENSIVE INCOME $3,232,470 $1,783,788 $5,186,277 $2,471,386 NET INCOME PER COMMON SHARE: Basic $0.17 $0.12 $0.29 $0.16 Diluted $0.12 $0.08 $0.20 $0.12 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic 17,574,225 15,080,436 17,414,400 15,034,768 Diluted 25,210,213 21,256,154 25,193,516 20,207,770 CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 30, 2010 December 31, 2009 (Unaudited) (Audited) ASSETS CURRENT ASSETS: Cash and cash equivalents $1,380,956 $2,278,638 Notes receivable 192,404 329,492 Accounts receivable, net of allowance for doubtful accounts 6,651,052 6,046,422 Inventories, net of reserve for obsolete inventory 3,468,206 2,232,264 Advances to suppliers 378,857 450,507 Prepaid VAT on purchases 711,533 378,543 Prepaid expenses and other 66,977 213,835 Total Current Assets 12,849,985 11,929,701 PROPERTY AND EQUIPMENT - net 43,824,230 36,863,501 OTHER ASSETS: Land use rights, net 3,701,682 3,729,427 Total Assets $60,375,897 $52,522,629 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Loans payable $1,028,112 $2,040,111 Accounts payable 5,071,713 3,404,521 Accrued expenses 353,914 556,662 VAT and service taxes payable 81,029 25,284 Advances from customers 321,755 143,261 Income taxes payable 1,053,011 1,018,514 Total Current Liabilities 7,909,534 7,188,353 STOCKHOLDERS' EQUITY: Preferred stock $0.001 par value (60,000,000 shares authorized, all of which were designated as as series A convertible preferred, 14,934,264 and 15,419,088 shares issued and outstanding; at June 30, 2010 and December 31, 2009, respectively) 14,934 15,419 Common stock ($0.001 par value; 150,000,000 shares authorized; 17,639,787 and 16,402,204 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively) 17,640 16,402 Additional paid-in capital 24,277,813 22,332,756 Retained earnings 23,565,231 18,595,037 Statutory reserve 1,252,980 1,252,980 Accumulated other comprehensive gain - foreign currency translation adjustment 3,337,765 3,121,682 Total Stockholders' Equity 52,466,363 45,334,276 Total Liabilities and Stockholders' Equity $60,375,897 $52,522,629 CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2010 2009 (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $4,970,194 $2,426,593 Adjustments to reconcile net income from operations to net cash provided by operating activities: Depreciation 1,200,642 697,127 Amortization of debt discount to interest expense 44,993 16,997 Amortization of land use rights 43,245 43,191 Increase in allowance for doubtful accounts 223,333 143,620 Interest expense related to debt conversion -- 128,489 Stock-based compensation expense 345,386 119,612 Changes in assets and liabilities: Notes receivable 137,942 (131,584) Accounts receivable (800,348) (1,891,180) Inventories (1,221,872) (621,840) Prepaid value-added taxes on purchases (330,132) (234,142) Prepaid and other current assets 147,299 (50,602) Advances to suppliers 73,262 (5,964) Due from related party -- 438,389 Accounts payable 1,646,567 403,527 Accrued expenses (203,916) 82,146 VAT and service taxes payable 55,425 (97,497) Income taxes payable 30,102 131,045 Advances from customers 177,212 426,134 NET CASH PROVIDED BY OPERATING ACTIVITIES 6,539,334 2,024,061 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (7,980,484) (2,849,156) NET CASH USED IN INVESTING ACTIVITIES (7,980,484) (2,849,156) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans payable -- 1,133,612 Repayment of loans payable (1,061,556) -- Proceeds from exercise of warrants 1,600,000 83,111 NET CASH PROVIDED BY FINANCING ACTIVITIES 538,444 1,216,723 EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS 5,024 585 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (897,682) 392,213 CASH AND CASH EQUILAVENTS - beginning of year 2,278,638 328,614 CASH AND CASH EQUIVALENTS - end of period $1,380,956 $720,827 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for: Interest $50,563 $46,443 Income taxes $1,888,014 $921,760 For more information, please contact: Company Contact: Ms. Teresa Zhang Chief Financial Officer China Wind Systems, Inc. Tel: +1-877-224-6696 x705 Email: [email protected] Web: http://www.chinawindsystems.com Investor Relations Contact: Mr. Athan Dounis Account Manager CCG Investor Relations Tel: +1-646-213-1916 (NY Office) Email: [email protected]
SOURCE China Wind Systems, Inc.