Lihua International Reports Fourth Quarter and Full-Year 2010 Financial Results

Industry Leading Copper Manufacturer Achieves Record Results: Full-Year Gross Profit Increases 71%, EBITDA Increases 72%, Non-GAAP Net Income Increases 57% on 129% Revenue Increase

Full-Year 2011 Gross Profit and Non-GAAP Net Income Expected to Exceed 2010 by Up To 32% and 35%, Respectively

Mar 09, 2011, 08:53 ET from Lihua International, Inc.

DANYANG, China, March 9, 2011 /PRNewswire-Asia/ -- Lihua International, Inc. (Nasdaq: LIWA) ("Lihua" or the "Company"), a leading Chinese developer, designer and manufacturer of low cost, high quality alternatives to pure copper products, including refined copper products and superfine and magnet wire, today announced financial results for the fourth quarter and 12 months ended December 31, 2010.

Fourth Quarter 2010 Financial Highlights

  • Sales increased 164% year-over-year to $135.5 million.
  • Gross profit increased 90% year-over-year to $20.7 million.
  • Net income increased to $9.9 million, or $0.33 per diluted share, compared with $4.2 million, or $0.18 per diluted share in the fourth quarter of 2009.
  • Non-GAAP net income(1) was $13.4 million, a 73% increase over $7.7 million in the fourth quarter of 2009.(2)
  • EBITDA increased 88% year-over-year to $18.8 million.(3)
  • Strong balance sheet, with $90.6 million in cash and cash equivalents, or $3.02 per diluted share, as of December 31, 2010, compared with $34.6 million as of December 31, 2009.
  • Cash flow from operations of $2.4 million, compared with cash used in operations of $627,000 in the fourth quarter of 2009.

Full-Year 2010 Financial Highlights

  • Sales increased 129% to $370.5 million.
  • Gross profit increased 71%, to $62.1 million, or 16.8% of sales, compared with $36.2 million, or 22.4% of sales in 2009.
  • Net income improved 181% to $38.5 million, or $1.34 per diluted share, compared with net income of $13.7 million, or $0.72 per diluted share in 2009.
  • Non-GAAP net income, increased 57%, to $40.1 million, compared with $25.6 million in 2009.(4)
  • EBITDA increased 72% to $56.7 million, compared with $33.0 million in 2009.

2010 and Recent Business Highlights

  • In January 2011 Lihua approved a $15 million share repurchase program.
  • Secured copper anode supply contracts and received volume demand indications totaling 134,000 tons for 2011.
  • In November 2010, began construction of second smelting facility, which will increase annual refined copper production to 100,000 tons.
  • In July 2010, introduced a second copper smelter to double annual refined copper capacity to 50,000 tons.
  • Expanded refined copper product portfolio with the addition of copper anode.
  • In July 2010, Appointed Crowe Horwath (HK) CPA Limited, a top-10 public accounting and consulting firm as the Company's independent auditor.

"2010 was a record year for Lihua, which concluded with our first ever quarter of over $100 million in revenue. Our growth came from a number of factors, including strong demand in our end markets, our third quarter capacity expansion and the introduction of copper anode, which significantly broadened the addressable market for our products," said Jianhua Zhu, Chairman and Chief Executive Officer of Lihua. "Our recent initiatives have both propelled our financial gains and helped secure our growth over the longer term.  Copper anode has already become an important component of our business and will be integral to our ongoing maturation. While copper anode carries lower margins than our wire products, we have gained sizeable new customers with higher volume, longer-term contracts that carry significantly reduced production cycles, increasing our cash conversion timeline and maximizing our bottom line. This model gives us increased visibility, and as we ramp production capacity, will allow us to better allocate internal resources to ensure that we are most effectively meeting the needs of our growing customer base."

Fourth Quarter 2010 Financial Results

Sales for the fourth quarter of 2010 increased 164% to $135.5 million, compared with sales of $51.3 million in the fourth quarter of 2009. The increase in sales was primarily attributable to the continued sales growth in wire products as well as the revenue contribution from our new product, copper anode.

Gross profit for the fourth quarter of 2010 was $20.7 million, an increase of 90% from gross profit of $10.9 million for the fourth quarter of 2009. As a percentage of total sales, gross margin decreased to 15.2% in the fourth quarter of 2010, from 21.2% for the same period last year, primarily due to continued sales growth of refined copper products, which carry lower gross profit margins than Lihua's wire products, but have a much higher return on invested capital due to a significantly reduced production cycle. This allows for a higher rate of cash conversion and greater volume production compared with wire products, maximizing the total gross profit and net income generated in a given period.

Selling, general and administrative ("SG&A") expenses for the fourth quarter of 2010 were $2.4 million, compared with $1.7 million in the same period in 2009. The increase in SG&A was primarily due to higher administrative and professional fees associated with Lihua being a public reporting company and its expanded scale of operations.

Interest income for the fourth quarter of 2010 was $79,000, compared with $36,000 for the fourth quarter of 2009. Interest expense for the fourth quarter of 2010 was $32,000, compared with $54,000 for the same period in the prior year. The decrease in interest expense was mainly due to the repayment of short-term bank loans, which were used for working capital purposes.

For the three months ended December 31, 2010, the provision for income tax expense was $4.8 million, compared with $1.5 million for the three months ended December 31, 2009. The effective tax rate for the fourth quarter of 2010 was 32.9%, compared to 26.0% for the fourth quarter of 2009. The increase in effective tax rate was the result of an increase in the enterprise income tax rate for the Company's Lihua Electron subsidiary.

Net income for the fourth quarter of 2010 was $9.9 million, or $0.33 per share based on 30.0 million weighted average diluted shares outstanding. This compares with net income of $4.2 million, or $0.18 per share based on 24.1 million weighted average diluted shares outstanding during the same period in 2009.

Non-GAAP net income for the fourth quarter of 2010 was $13.4 million. Non-GAAP net income for the fourth quarter excludes a net non-cash charge of $3.5 million related to charges for the change in fair value of warrants and gain on extinguishment of warrant liabilities. This compares with non-GAAP net income of $7.7 million for the fourth quarter of 2009, which excludes non-cash charges totaling approximately $11.9 million related to the change in fair value of warrants and loss on extinguishment of warrant liabilities.

EBITDA for the three months ended December 31, 2010 increased by 88% to $18.8 million, compared with $10.0 million for the same period in the prior year.

Balance Sheet

As of December 31, 2010, Lihua had $90.6 million in cash and cash equivalents, compared with $93.0 million as of September 30, 2010 and $34.6 million as of December 31, 2009. The decrease in cash balance is primarily due to capex spending on the Company's new refined copper production facility, which is scheduled to be completed in second half of 2011. Cash flow from operations for the fourth quarter totaled $2.4 million.

As of December 31, 2010, Lihua had total debt of $2.3 million, which relates to short-term bank loans used for working capital purposes.

Outlook

Lihua is targeting 2011 gross profit of $80.0 million to $82.0 million and non-GAAP net income of $52.0 million to $54.0 million, representing year-over-year growth of 29-32% and 30-35%, respectively. The Company expects that 2011 growth will be largely the result of continued strong demand in China for recycled copper and copper alternatives in the household appliance, consumer white goods and infrastructure markets.

The Company noted that its current 2011 projections assume one quarter of production and sales contribution from its new copper recycling facility, which is currently under construction and due to be completed and commence production by the fourth quarter of 2011, and no favorable impact on cost of goods sold from the importers' license for which the Company has applied. Launching production at its new facility in the timeframe currently anticipated, or receipt of its importers' license from the Chinese government is expected to provide upside to the Company's current gross profit and non-GAAP net income expectations.

Mr. Zhu added, "We expect that our 2011 performance will build upon the solid foundation that we established during 2010. Construction activity at our new copper recycling facility is proceeding according to schedule, and we remain on track to commence operations at the beginning of the fourth quarter. Despite the tremendous demand from our end markets, we are carefully managing our expansion in an effort to best position Lihua to reach the next level of sustainable, long-term growth. We are excited about what the future holds for Lihua as we move closer to bringing our new capacity on line and make progress toward securing our importers' license, which will allow us to more efficiently source scrap copper from international suppliers. We believe that the copper market, both in China and throughout the world, is conducive to our continued growth and are confident that Lihua is poised to capture the sizeable opportunity before us.

"Demand for copper remains high across all industry segments, and we believe the underlying catalysts are in place to support continued industry-wide growth for the foreseeable future. These growth drivers are coming from both the private sector and government initiatives including China's 12th Five Year Plan, where guidelines for the metals industry are expected to have a significant influence on copper production going forward. Specifically, the government is imposing new regulations aimed at modernizing production processes and controlling inefficient capacity expansion, with a goal of significantly reducing China's carbon emissions. Our manufacturing facilities and production processes adhere to the strictest industry and environmental standards, while our recycling technology enables the manufacturing of products that are more cost effective and have a sharply reduced environmental footprint than comparable products sourced from newly mined copper. We are confident that we can leverage these advantages to gain market share as we ramp capacity and these government policies are implemented," Mr. Zhu concluded.

Conference Call and Webcast

Management of Lihua International will host a conference call today, Wednesday, March 9, 2011 at 8:00 a.m. Eastern time to discuss the fourth quarter and full year 2010 financial results.

Individuals interested in participating in the conference may do so by dialing 1-877-941-2321 toll free in the U.S. and Canada, or 1-480-629-9714 from outside the U.S.

Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's Web site at: http://www.lihuaintl.com/Investor_Relations/Events_Presentations.html.

For those unable to participate, an audio replay of the call will be available beginning approximately one hour after the conclusion of the live call through March 16, 2011. The audio replay can be accessed by dialing 1-800-406-7325 from the U.S or Canada, or 1-303-590-3030 internationally, and entering access ID No. 4415357. Following the live webcast, an online archive will be available for 90 days.

About Non-GAAP Financial Measures

The Company uses non-GAAP net income and other non-GAAP metrics such as EBITDA to provide information about its operating trends.  Investors are cautioned that non-GAAP net income and EBITDA are not measures of liquidity or of financial performance under Generally Accepted Accounting Principles ("GAAP").

The Company defines non-GAAP net income as net income excluding the change in fair value of warrants and other one-time or non-recurring items that are evaluated on an individual basis. The Company defines EBITDA as net income before depreciation and amortization, interest income/expense, income taxes, change in fair value of warrants and non-cash share-based compensation expenses. The non-GAAP net income and EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. Non-GAAP net income and EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with Regulation G under the U.S. federal securities laws, the non-GAAP measures in this press release have been reconciled to the nearest GAAP measure, and this reconciliation is located under the headings "Non-GAAP Net Income Calculation" and "EBITDA Calculation" below.

Non-GAAP Net Income Calculation

For Three Months Ended December 31,

For Full Year Ended December 31,

2010

2009

2010

2009

Net income

$

9,855,420

$

4,223,271

$

38,465,975

$

13,732,698

 (Gain)/loss on extinguishment of warrant liabilities

-51,528

398

-186,897

398

 Change in fair value of warrants

3,554,654

3,501,524

1,448,819

11,877,341

 One time offering expense

-

-

341,878

Non-GAAP Net Income

 $

13,358,546

7,725,193

$

40,069,775

25,610,437

EBITDA Calculation

For Three Months Ended December 31,

For Full Year Ended December 31,

2010

2009

2010

2009

Net income

$

9,855,420

$

4,223,271

$

38,465,975

$

13,732,698

 Depreciation and amortization

572,790

680,493

2,171,961

1,652,863

 Share-based compensation expense

87,442

79,537

408,772

331,440

 (Gain)/loss on extinguishment of warrant liabilities

-51,528

398

-186,897

398

 Change in fair value of warrants

3,554,654

3,501,524

1,448,819

11,877,341

 Interest income

-79,259

-35,998

-253,964

-173,807

 Interest expenses

31,558

53,730

131,106

335,335

 Provision for income tax

4,842,485

1,486,220

14,499,576

5,247,647

EBITDA

$

18,813,562

9,989,175

$

56,685,348

33,003,915

About Lihua International, Inc.

Lihua, through its two wholly-owned subsidiaries, Lihua Electron and Lihua Copper, is a leading value-added manufacturer of copper replacement products for China's rapidly growing copper wire and copper replacement product market. Lihua is one of the first vertically integrated companies in China to develop, design and manufacture lower cost, high quality alternatives to pure copper magnet wire and pure copper alternative products. Lihua's products include refined copper products and superfine wires. Current product offerings include copper anode and copper rod, CCA and copper wire. Except for CCA wire, all other products are produced from recycled scrap copper. Lihua's products are sold in China either directly to manufacturers or through distributors in the wire and cable industries and manufacturers in a wide variety of industries including the consumer electronics, white goods, automotive, utility, telecommunications and specialty cable industries. Lihua's corporate and manufacturing headquarters are located in the heart of China's copper industry in Danyang, Jiangsu Province.

For more information, visit: http://www.lihuaintl.com.

To be added to the Company's email distribution for future news releases, please send your request to lihua@tpg-ir.com.

Safe Harbor Statement

This press release contains certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including, without limitation, statements about its business or growth strategy, general industry conditions including availability of copper or recycled scrap copper, future operating results of the Company, capital expenditures, expansion and growth opportunities, bank borrowings, financing activities and other such matters, are forward-looking statements. Although the Company believes that its expectations stated in this press release are based on reasonable assumptions, actual results may differ from those projected in the forward-looking statements.

Please note that information in this press release reflects management views as of the date of issuance.

(1) Lihua defines non-GAAP net income as net income excluding the change in fair value of warrants and other one-time or non-recurring items that are evaluated on an individual basis. Lihua uses non-GAAP net income and other non-GAAP metrics to provide information about its operating trends.

(2) Non-GAAP net income for the three months ended December 31, 2010 and 2009 excludes net charges related to the change in fair value of warrants and gain on extinguishment of warrant liabilities of $3.5 million.

(3) EBITDA is a non-GAAP measurement. Lihua defines EBITDA as net income before depreciation and amortization, interest income/expense, income taxes, change in fair value of warrants and non-cash share-based compensation expenses.

(4) Non-GAAP net income for 2010 excludes net charges related to the change in fair value of warrants and gain on extinguishment of warrant liabilities of $1.2 million, as well as $0.3 million one-time issuing expenses related to Lihua's follow-on offering in April 2010. Non-GAAP net income for 2009 excludes non-cash charges totaling approximately $11.9 million related to changes in the fair value of warrants and loss on extinguishment of warrant liabilities.

Contact

Lihua International, Inc.

Daphne Huang

EVP of Corporate Finance and Director of Investor Relations

(516) 717-9939

Daphne_huang@lihuaintl.com

The Piacente Group, Inc.

Investor Relations

Brandi Floberg or Lee Roth

(212) 481-2050

lihua@tpg-ir.com

LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(AMOUNTS EXPRESSED IN US DOLLARS)

As of December 31,

2010

2009

ASSETS

(As restated)

CURRENT ASSETS

Cash and cash equivalents

$

90,609,340

$

34,614,838

Restricted cash

-

575,000

Bills receivable, net

528,576

-

Accounts receivable, net

32,973,704

10,996,430

Other receivables and current assets

21,967

493,006

Prepaid land use right – current portion

211,499

172,515

Deferred income tax assets

127,317

98,068

Inventories

16,155,862

17,534,254

Total current assets

140,628,265

64,484,111

OTHER ASSETS

Property, plant and equipment, net

18,189,255

18,424,080

Construction in progress

916,782

59,558

Deposits for plant and equipment

-

28,163

Prepaid land use right – long-term portion

18,546,744

8,168,039

Intangible assets

3,547

2,812

Total non-current assets

37,656,328

26,682,652

Total assets

$

178,284,593

$

91,166,763

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Short term bank loans

$

2,264,937

$

2,196,772

Accounts payable

6,012,035

4,923,360

Other payables and accruals

3,186,174

681,097

Income taxes payable

4,981,383

1,584,292

Warrant liabilities

8,682,441

14,275,483

Total current liabilities

25,126,970

23,661,004

Total liabilities

25,126,970

23,661,004

SHAREHOLDERS' EQUITY

Preferred stock: $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding

-

-

Common stock, $0.0001 par value: 75,000,000 shares authorized,

29,385,326 and 24,154,083 shares issued and outstanding

2,938

2,416

Additional paid-in capital

71,251,843

28,692,812

Statutory reserves

7,556,187

5,400,994

Retained earnings

67,091,089

30,780,307

Accumulated other comprehensive income

7,255,566

2,629,230

Total shareholders' equity

153,157,623

67,505,759

Total liabilities and shareholders' equity

$

178,284,593

$

91,166,763

LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(AMOUNTS EXPRESSED IN US DOLLARS)

Three Months Ended December 31,

Year Ended December 31,

(Unaudited)

(Audited)

2010

2009

2010

2009

(As restated)

(As restated)

NET REVENUE

$

135,471,182

$

51,263,898

 

$

370,531,685

 

 

$

161,543,434

 

 

 

 

 

 

Cost of sales

(114,812,441)

(40,383,813)

 

 

(308,429,530)

 

 

 

(125,310,613)

 

 

 

 

 

 

 

GROSS PROFIT

20,658,741

10,880,085

 

 

62,102,155

 

 

 

36,232,821

 

 

 

 

 

 

 

Selling expenses

(614,817)

(480,100)

 

 

(2,058,323)

 

 

 

(1,722,242)

General and administrative expenses

(1,776,457)

(1,171,466)

 

 

(5,747,178)

 

 

 

(3,991,801)

 

 

 

 

 

 

 

Income from operations

18,267,467

9,228,519

 

 

54,296,654

 

 

 

30,518,778

 

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

 

 

 

Interest income

79,259

35,998

 

 

253,964

 

 

 

173,807

Interest expenses

(31,558)

(53,730)

 

 

(131,106)

 

 

 

(335,335)

Foreign exchange differences

(80,663)

545

 

 

(112,443)

 

 

 

-

Gain/(loss) on extinguishment of warrant liabilities

51,528

(398)

 

 

186,897

 

 

 

(398)

Change in fair value of warrants

(3,554,654)

(3,501,524)

 

 

(1,448,819)

 

 

 

(11,877,341)

Other (expenses) income

(33,504)

81

 

 

(79,596)

 

 

 

500,834

Total other income (expenses)

(3,569,562)

(3,519,028)

 

 

(1,331,103)

 

 

 

(11,538,433)

Income before income taxes

14,697,905

5,709,491

 

 

52,965,551

 

 

 

18,980,345

Provision for income taxes

(4,842,485)

(1,486,220)

 

(14,499,576)

 

(5,247,647)

NET INCOME

9,855,420

4,223,271

 

 

38,465,975

 

 

 

13,732,698

OTHER COMPREHENSIVE INCOME:

 

 

 

 

 

 

 

Foreign currency translation adjustments

1,951,635

20,636

 

4,626,336

 

57,753

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

$

11,807,055

$

4,243,907

$

43,092,311

$

13,790,451

 

Net income per share

Basic

$

0.34

$

0.18

$

1.38

$

0.77

Diluted

$

0.33

$

0.18

$

1.34

$

0.72

Weighted average number of shares outstanding

Basic

29,238,533

24,122,085

27,956,451

17,822,890

Diluted

30,041,669

24,122,085

28,671,363

19,128,231

LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS EXPRESSED IN US DOLLARS)

Year Ended December 31,

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES

(As restated)

Net income

$

38,465,975

$

13,732,698

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization

2,171,961

1,652,863

Merger expenses

-

-

Loss on disposal of fixed assets

124,196

-

Share-based compensation

408,772

331,440

Warrants issued for services

-

-

(Gain) loss on extinguishment of warrant liabilities

(186,897)

398

Change in fair value of warrants

1,448,819

11,877,341

Deferred income tax benefits

(25,638)

(74,621)

(Increase) decrease in assets:

Accounts receivable

(21,166,870)

(5,946,526)

Bills receivable

(517,114)

322,061

Other receivables and current assets

475,790

(492,804)

Inventories

1,880,784

(16,939,820)

Increase (decrease) in liabilities:

Accounts payable

915,611

2,932,371

Other payables and accruals

2,433,980

(150,322)

Income taxes payable

3,275,329

1,181,995

Net cash provided by operating activities

29,704,698

8,427,074

CASH FLOWS FROM INVESTING ACTIVITIES

Payment of merger expenses for reverse acquisition

-

-

Repayment from a related party

-

-

Purchase of property, plant and equipment and construction in progress

(2,258,580)

(5,094,444)

Proceeds from disposal of fixed assets

153,095

-

Payment for land use right

(9,938,585)

-

Net cash used in investing activities

(12,044,070)

(5,094,444)

CASH FLOWS FROM FINANCING ACTIVITIES

New short-term bank loans

-

2,196,772

Repayments of short-term bank loans

-

(6,150,962)

Repayment to related parties

-

-

Release of restricted cash related to Private Placement

575,000

1,175,000

Proceeds from exercise of warrants

3,226,300

125,650

Proceeds from Private Placement, net of restricted cash held in escrow

-

-

Proceeds from public offering of common stock, net of expenses

32,069,517

7,864,000

Net cash provided by financing activities

35,870,817

5,210,460

Foreign currency translation adjustment

2,463,057

29,898

INCREASE IN CASH AND CASH EQUIVALENTS

55,994,502

8,572,989

CASH AND CASH EQUIVALENTS, at the beginning of the year

34,614,838

26,041,849

CASH AND CASH EQUIVALENTS, at the end of the year

$

90,609,340

$

34,614,838

MAJOR NON-CASH TRANSACTION:

Share-based compensation to employees and directors

$

408,772

$

331,440

Warrants issued for services

-

-

Issuance of common stock to settle warrant liabilities

6,854,964

200,322

SUPPLEMENTAL DISCLOSURE INFORMATION

Cash paid for interest

$

131,106

$

335,335

Cash paid for income taxes

$

11,198,079

$

4,140,273

SOURCE Lihua International, Inc.



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