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Qiao Xing Universal Telephone, Inc. Releases Its Income Statement for the Three Months Ended September 30, Balance Sheet as at June 30, 2006 and Income Statement for the Six Months Ended June 30, 2006, and Provides an Update on an Acquisition



HUIZHOU, Guangdong, China, Dec. 22 /Xinhua-PRNewswire/ -- Qiao Xing

Universal Telephone, Inc. (Nasdaq: XING) releases today its Un-audited Income

Statement for the Three Months Ended September 30, Un-audited Balance Sheet as

at June 30, 2006 and Income Statement for the Six Months Ended June 30, 2006,

and provides an update on the acquisition of the remaining 20% equity in Qiao

Xing Mobile Communication Co., Ltd.

Un-audited Income Statement for the Three Months Ended September 30

For the third quarter of 2006, XING's sales revenue, income from

operations and net income all increased significantly to reach USD107.7

Million, USD21.0 Million and USD13.2 Million respectively. The significant

growth was primarily driven by the popularity of the "CECT" branded 'A1000'

and 'IP1000' Models and the increasing brand recognition and the expanding

distribution network of its 'COSUN' branded mobile phones business. The Basic

earnings per common share after extraordinary gain for the third quarter was

USD56 cents. The Un-audited Income Statement for the Three Months Ended

September 30 can be found in Appendix I below

Un-audited Balance Sheet as at June 30, 2006 and Income Statement for the

Six Months Ended June 30, 2006

For the six months ended June 30, 2006, the company recorded USD177.5

million, USD15.4million and USD12.5 million for its Net sales, Income from

operations and net income before option charge respectively.

In the first half of 2006, the Company granted to certain employees and an

external consultant stock options to purchase all the 2,000,000 shares of

common stock authorized and reserved for issuance under the Stock Compensation

Plan set up in 2005.

Mr. Wu Rui Lin, Chairman of XING, said, "The granting of stock options,

though representing an expense in the income statement and having a dilutive

effect on earnings, has the advantage of not involving any outflow of cash. In

fact, for some senior employees, the lion's share of their total remuneration

package is in stock options. The share-based compensation recorded for 2006 H1

related to the 2005 Plan, and was for services rendered over a long period of

time.

"There are many different approaches to the treatment of options. The

Black-Scholes Model has been used for the income statement for the six months

ended June 30, 2006 of XING presented in this press release. RMB 58.4 million

(USD 7.3 million) of share-based compensation expenses has been recorded as a

result.

"However, as all the options to purchase 2,000,000 shares were exercised

within a very short period of time (less than two months) of their grant, a

case can be made for using the intrinsic value method for compensation cost

measurement. Intrinsic value is the excess of the market price of the

underlying stock over the exercise price of a related stock option. "Using the

Black-Scholes Model, the net income was $5.2 million. Using the intrinsic

value approach, the net income would have been $ 12.5 million instead. No

matter which approach to use, it has no impact on the cash flow situation of

the company."

For nine months ended September 30, 2006, the company recorded net sales

of US$285.2 million and income from operation of US$36.3 million. Net income

and basic earnings per share were US$18.4 million and USD 80 cents

respectively using the Black-Scholes Model. If the intrinsic value method had

been used, they respectively would have been US$25.7 million and USD1.13

instead.

The un-audited consolidated balance sheet as at June 30, 2006 and the un-

audited consolidated income statement for the six months ended June 30, 2006

can be found in Appendix II below

Other Event

In November, the Company completed the acquisition from the minority

shareholder of the remaining 20% equity in Qiao Xing Mobile Communication Co.,

Ltd, an investment holding company that owns 93.4% of the equity interests in

the mobile phone handset maker CEC Telecom Co., Ltd. (CECT). As a result, Qiao

Xing Universal's effective shareholding in CECT has increased from 74.7% to

93.4%.

On a pro forma basis assuming that the transaction had taken place on

January 1, 2006, it would increase the net income of the company for the nine

months ended September 30, 2006 to USD 24.8 million using the Black-Scholes

Model for the measurement of stock-based compensation cost. If the intrinsic

value method had been used, it would have been USD 32.1 million instead.

Appendix I

QIAO XING UNIVERSAL TELEPHONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

AND NET INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006

2006 Q3

Rmb'000 US$'000

(Un-audited) (Un-audited)

Net sales 851,236 107,697

Cost of goods sold (659,771) (83,473)

Gross profit 191,465 24,224

Operating expenses:

Selling expenses (8,826) (1,117)

General, administrative and R&D expenses (14,465) (1,830)

Amortization of acquired intangible assets (2,405) (304)

Income from operations 165,769 20,973

Interest expense, net (12,880) (1,630)

Exchange gain, net 4,425 560

Amortization of discount on bonds (9,489) (1,201)

Other expenses, net (249) (32)

Income before income tax 147,576 18,671

Provision for income tax (23,804) (3,012)

Income before minority interests 123,771 15,659

Minority interests (34,219) (4,329)

Net income before extraordinary item 89,552 11,330

Extraordinary item - gain on acquisition

of additional equity interest in a subsidiary 14,398 1,822

Net income 103,950 13,152

Basic earnings per common share

Before extraordinary gain Rmb US$

3.74 0.48

Extraordinary gain Rmb US$

0.61 0.08

After extraordinary gain Rmb US$

4.35 0.56

Diluted earnings per common share

Before extraordinary gain Rmb US$

3.39 0.43

Extraordinary gain Rmb US$

0.48 0.06

After extraordinary gain Rmb US$

3.87 0.49

Weighted average number

of shares outstanding

- Basic 23,707,000 23,707,000

- Diluted 29,726,000 29,726,000

Appendix II

QIAO XING UNIVERSAL TELEPHONE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

AS OF JUNE 30, 2006

June 30, 2006

Rmb'000 US$'000

(Un-audited) (Un-audited)

ASSETS

Current assets:

Cash and cash equivalents 579,528 72,493

Restricted cash 195,109 24,406

Accounts and bills receivable 891,381 111,503

Inventories 211,037 26,398

Prepayments and other current assets 641,449 80,238

Total current assets 2,518,504 315,038

Property, plant and equipment 292,372 36,573

Prepayment for purchase of

property, plant and equipment 358,742 44,875

Other non-current assets 9,046 1,132

Investments at cost 7,634 955

Goodwill 72,088 9,017

Other acquired intangible assets, net 43,418 5,431

Discount on bonds 57,139 7,147

Total assets 3,358,943 420,168

LIABILITIES, MINORITY INTERESTS AND

SHAREHOLDERS' EQUITY

Current liabilities:

Short-term borrowings 920,880 115,192

Accounts payable 212,100 26,531

Accrued liabilities 79,637 9,962

Deposits received, deferred revenues

and other current liabilities 114,216 14,287

Total current liabilities 1,326,833 165,972

Shareholders' loans 7,885 986

Bonds 319,772 40,000

Total liabilities 1,654,490 206,958

Minority interests 270,001 33,774

Shareholders' equity:

Common stock, par value Rmb0.008

(equivalent of US$0.001); authorized

50,000,000 shares; outstanding

and fully paid - 23,651,692

as of June 30, 2006 195 24

Additional paid-in capital 907,768 113,552

Retained earnings 525,267 65,705

Cumulative translation adjustments 1,224 153

Total shareholders' equity 1,434,454 179,434

Total liabilities, minority

interests and shareholders' equity 3,358,945 420,166

QIAO XING UNIVERSAL TELEPHONE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

AND NET INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2006

2006 First half

Rmb'000 US$'000

(Un-audited) (Un-audited)

Net sales 1,419,316 177,541

Cost of goods sold (1,165,215) (145,756)

Gross profit 254,101 31,785

Operating expenses:

Selling expenses (22,438) (2,807)

General and administrative expenses

including stock-based compensation (91,241) (11,413)

Research and development (12,754) (1,595)

Amortization of acquired intangible assets (4,809) (602)

Income from operations 122,859 15,368

Interest income 3,412 427

Exchange gain, net 473 59

Interest expense (23,890) (2,988)

Amortization of discount on bonds (1,736) (217)

Other income, net 2,865 358

Income before income tax 103,983 13,007

Provision for income tax (23,329) (2,918)

Income before minority interests 80,654 10,089

Minority interests (38,800) (4,853)

Net income 41,854 5,236

Earnings per common share

- Basic Rmb US$

1.89 0.24

- Diluted Rmb US$

1.83 0.23

Weighted average number of shares outstanding

- Basic 22,175,000 22,175,000

- Diluted 22,834,000 22,834,000

Forward-looking statements

This press release contains forward-looking statements as defined by the

Private Securities Litigation Reform Act of 1995. These statements present

management's expectations, beliefs, plans and objectives regarding future

financial performance and are subject to change. Any discussions contained in

this press release, except to the extent that they contain historical facts,

are forward-looking and accordingly involve estimates, assumptions, judgments

and uncertainties. There are a number of factors that could cause actual

results or outcomes to differ materially from those addressed in the forward-

looking statements. Such factors are detailed in the Company's Annual Report

on Form 20-F for the fiscal year ended December 31, 2005 and subsequent

reports filed with the Securities and Exchange Commission.

About Qiao Xing Universal Telephone, Inc.

Qiao Xing Universal Telephone, Inc. is one of China's largest

manufacturers and distributors of telecommunications products. The Company

conducts is operations primarily through two subsidiaries: CEC Telecom Co.,

Ltd. ("CECT"), its primary subsidiary, and Huizhou Qiao Xing Communication

Industry, Limited ("HZQXCI"). CECT sells "CECT" branded cell phones and

HZQXCI sell indoor phones and "Cosun" branded mobile phones. The Company's

product portfolio includes telecommunications terminals and related products,

including fixed wireless phones, VoIP telephones, advanced mobile phones, PDAs

and consumer electronic products. This includes a model of PDA phone that

combined ultra-small design and handwriting function, the 'T868', and a model

of multi-media PDA phone that enjoys 1000 hours stand by time, the 'A1000'.

The Company has established relationships with leading telecom and software

companies for their China strategy, including Microsoft and Palm, aiding

success for its 'High End Mobile Phone Strategy'. XING has launched more than

120 models of mobile phones and has established more than 250 wholesales

outlets and more than 350 after sales service centres in 31 provinces and

municipalities. In indoor business area, XING currently distributes over 300

models of corded and cordless telephones and is one of China's largest

distributors of indoor phones. For its indoor phone segment, the Company has

built a strong distribution network comprised of more than 5,000 retail stores

throughout China and has established partnerships with major retailers in

Europe, North America and Latin America, including Bellsouth and Wal-mart.

For more details, please visit http://www.cosun-xing.com .

For more information, please contact:

Rick Xiao

Qiao Xing Universal Telephone, Inc.

Tel: +86-752-282-0268

Email: rick@qiaoxing.com

Source: Qiao Xing Universal Telephone, Inc.
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