Jinpan International Reports Second Quarter 2010 Financial Results

CARLSTADT, N.J., Aug. 6 /PRNewswire-FirstCall/ -- Jinpan International Ltd (Nasdaq: JST), a leading designer, manufacturer and distributor of cast resin transformers for high voltage distribution equipment, today announced unaudited consolidated financial results for the second quarter ended June 30, 2010.  

Net sales for the second quarter were $36.8 million, a 10.0% decrease from $40.9 million in the same period last year.  The decrease in sales was the result of lower standardized transformer sales in the Company's domestic business segment and fewer than expected shipments of transformer products in its International segment.  In the second quarter, domestic sales accounted for $30.5 million, or 83.0% of net sales, compared to $35.1 million, or 85.8% of net sales in the same period last year. Net sales outside of China increased to $6.3 million, or 17.1% of net sales, compared to $5.8 million, or 14.2% of net sales in the same period last year.

Cast resin transformers (excluding those for wind power applications), switch gears and unit substations represented $32.9 million, or 89.4% of net sales in the second quarter, while wind energy products represented $3.9 million, or 10.6% of net sales in the second quarter.

Gross profit in the second quarter decreased 15.9% year over year to $16.0 million from $19.0 million, and gross profit margin was 43.6%, compared to 46.6% in the prior year period.  Gross margin was impacted by lower sales of higher margin wind power transformer products and a lower pricing environment for standardized transformers due to lower silicon steel prices.

Selling and administrative expenses in the second quarter were $11.5 million, or 31.3% of net sales, compared to $9.0 million, or 22.1% of net sales in the same period last year.  Selling and administrative expenses increased primarily due to additional overhead costs at the Company's Shanghai facility, which was not operational in the first half of 2009 and higher sales commissions to sales agents.

Operating income decreased 55.0% to $4.5 million, or 12.2% of net sales, from $10.0 million, or 24.4% of net sales in the same period last year.

The Company incurred tax expense of $2.7 million in the 2010 second quarter compared to tax expense of $1.1 million in the 2009 second quarter.  The higher tax expense resulted from the distribution of profits by our Chinese subsidiaries to their parent company in the British Virgin Islands. Under China's tax law, profits distributed by Chinese subsidiaries to their foreign parent company are subject to a 10% distribution tax.  In the second quarter of 2010, our Chinese subsidiaries paid taxes in the amount of $2.5 million on profit distribution of $25 million.  

Net income for the second quarter decreased 76.9% to $2.0 million, or $0.12 per diluted share, from $8.7 million, or $0.54 per diluted share, in the same period last year.  Second quarter net income as a percentage of net sales was 5.5%, compared to 21.2% in the same period last year.

As of June 30, 2010, the Company had a backlog of approximately $58.5 million, approximately 15% increase from March 31, 2010.  

Mr. Zhiyuan Li, Chief Executive Officer of Jinpan, commented, "Our second quarter sales performance was primarily impacted by increased pricing pressure in our domestic business along with fewer than expected international sales orders by our major OEM customer, due to the economic slowdown in the U.S. and Europe.  We are working actively to expand our business performance in our key business segments.  Domestically, such efforts include generating increased sales of higher margin customized cast resin transformer products, expanding our high and low end product lines, improving the manufacturing efficiencies of our cast resin transformers as well as exploring domestic sales opportunities for wind power products.   In our International segment, we continue to focus on diversifying our risk by increasing our total number of OEM customers, which has increased to three from one over the past year.  We also believe we can add another major OEM customer by the first quarter 2011."

"We are making good progress positioning each segment of our business for healthy financial results in an uncertain operating environment and believe our business can only grow stronger as market conditions improve," concluded Mr. Li.

Balance Sheet

As of June 30, 2010, the Company had $17.1 million in cash and cash equivalents, compared to $25.7 million at December 31, 2009. The Company's accounts receivable on June 30, 2010 totaled $68.1 million, compared to $64.2 million at December 31, 2009. Notes payable as of June 30, 2010 was nil compared to $5.0 million on December 31, 2009.  Total bank loans outstanding at June 30, 2010 at $5.4 million as compared to $1.6 million December 31, 2009

Financial Outlook

For the full year 2010, the Company currently anticipates a net sales decrease of approximately 10%-15% from 2009 sales, gross profit to range from 37%-40% and net income decline of approximately 45%-50% from 2009 net income results.  The Company expects domestic sales volume to increase approximately 10% while average pricing in the domestic business is expected to decline approximately 20% compared to 2009.

Foreign Currency Translation

Our assets and liabilities are translated into United States dollars at the period-end exchange rate which is RMB 6.786 to 1 US dollar as of June 30, 2010. Revenues and expenses are translated into United Stated dollars at weighted average exchange rates which was RMB 6.806 to 1 US dollar for the period from January 1, 2010 to June 30, 2010. Equity transactions are translated using historical rates.  

Conference Call Information

Jinpan's management will host an earnings conference call on August 6, 2010 at 9:00 a.m. U.S. Eastern Time.  Listeners may access the call by dialing #1-719-325-2218.  A webcast will also be available via the Company's website at http://www.jstusa.net or at www.viavid.net.  A replay of the call will be available through August 20, 2010.  Listeners may access the replay by dialing #1-719-457-0820, access code: 4244674.

About Jinpan International Ltd

Jinpan International Ltd. (Nasdaq: JST) designs, manufactures and distributes cast resin transformers for voltage distribution equipment in China and other countries around the world. Jinpan's cast resin transformers allow high voltage transmissions of electricity to be distributed to various locations at lower, more usable voltage levels. The Company has obtained ISO9001 and ISO1401 certification of its cast resin transformers. Its principal executive offices are located in Hainan, China and its U.S. headquarters is based in Carlstadt, New Jersey.

Safe Harbor Provision

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations and involve known and unknown risks, and uncertainties or other factors not under the Company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, the following:

• our ability to successfully implement our business strategy;

• the impact of existing and new competitors in the markets in which we compete, including competitors that may offer less expensive products and services, more desirable or innovative products or technological substitutes, or have more extensive resources or better financing;

• the effects of rapid technological changes and vigorous competition in the markets in which we operate;

• uncertainties about the future growth in electricity consumption and infrastructure;

• development in the markets in which we operate;

• uncertainties about the degree of growth in the number of consumers in the markets in which we operate using mobile personal communications services and the growth in the population in those areas;

• other factors or trends affecting the industry generally and our financial condition in particular;

• the effects of the higher degree of regulation in the markets in which we operate;

• general economic and political conditions in the countries in which we operate or other countries which have an impact on our business activities or investments;

• the monetary and interest rate policies of the countries in which we operate;

• changes in competition and the pricing environments in the countries in which we operate;

• exchange rates; and

• other factors listed from time-to-time in our filings with the Securities and Exchange Commission, including, without limitation, our Annual Report on Form 20-F for the period ended December 31, 2009 and our subsequent reports on Form 6-K.

Except as required by law, we are not under any obligation, and expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

(Financial Statements on Following Page)

SOURCE Jinpan International Ltd.