DALIAN, China, Nov. 15 /Xinhua-PRNewswire/ -- Fushi International,
Inc., (OTC Bulletin Board: FSIN), a low-cost, emerging Chinese manufacturer of
bimetallic wire used in a variety of communication, transmission and other
electrical products, today announced financial results for the third quarter
ended September 30, 2006.
Key Financial Indicators
(All numbers in thousands, except per-share amounts in USD)
Q3 2006 Q3 2005 Percent Change
Net Sales $12,956 $8,521 52.0%
Cost of goods sold $8,956 $4,626 93.6%
Gross Profit $4,000 $3,895 2.7%
Total Operating Expenses $928 $904 2.6%
Operating Income $3,073 $2,991 2.74%
GAAP Net Income $1,435 $2,364 (39.3%)
Pro forma Net Income $2,901 $2,364 22.7%
Fully Diluted EPS $0.06 $0.15 (60.0%)
Pro forma EPS $0.13 $0.15 (13.3%)
(1) Pro forma EPS excludes a $1.5 million non-cash penalty fee associated
with a liquidated damages payable in common stock as a result of a delay in
an effective registration statement for the resale of shares sold in the
Company's December 2006 private placement.
Financial Results
For the quarter ended September 30, 2006, the Company reported revenue of
$13.0 million as compared to $8.5 million during the third quarter last year,
representing an increase of 52.0 percent. Reported revenues are net of the VAT
or (Value Added Tax) of approximately 17.0 percent. The increase in sales was
primarily attributable to increases in average selling prices and sales volume
growth, which improved 24.2 percent and 22.4 percent respectively versus the
comparable quarter last year. Additionally, end user applications have
increased significantly year-over-year from new markets such as electromagnet
wire, winding wire, shielding wire, as well as distribution and coils. Total
capacity utilization at the end of the third quarter was approximately seventy
five percent. The Company sold a total of 2,227 tons of bimetallic products
during the quarter, an increase of 22.4 percent from the third quarter of last
year.
During the third quarter, the Company continued to diversify its revenue
stream as its top five customers accounted for 30 percent of total sales with
the largest representing approximately 7.0 percent as compared to the third
quarter of last year where five customers accounted for 55.0 percent of sales
and three accounted for more than 10.0 percent.
The following table provides a recap of key products as a percentage of
overall revenue:
Q3 '06 % Q3 '05 %
CCA Coaxial $3,498,145 27% $7,242,855 85%
CCA Regular $3,239,023 25% $ 852,101 10%
CCA-M Regular $4,664,193 36% $ 426,050 5%
CCA Thin $906,926 7% N/A N/A
CCA-M Thin $647,805 5% N/A N/A
Total $12,956,092 100% $8,521,006 100%
The following table provides a summary of key metrics for each product
line:
ASP Average Unit Cost Gross Margin
Q3 06 Q3 05 Q3 06 Q3 05 Q3 06 Q3 05
Overall $5,817 $4,684 $4,021 $2,543 30.9% 45.7%
CCA Coaxial $5,609 $4,684 $3,943 $2,543 29.7% 45.7%
CCA Regular $5,593 $4,684 $3,740 $2,543 33.1% 45.7%
CCA-M Regular $5,817 $4,684 $3,955 $2,543 32.0% 45.7%
CCA Thin $6,787 N/A $4,106 N/A 39.5% N/A
CCA-M Thin $7,271 N/A $5,040 N/A 30.7% N/A
Cost of goods sold for the quarter ended September 30, 2006 increased by
93.6 percent to $9.0 million from $4.6 million in September 30, 2005, as a
result of an increase in the purchasing costs of raw materials, specifically
copper and aluminum, and incremental costs associated with higher production
volumes. Based on the average price of copper during the third quarter 2006
the Company experienced an $8.4 million increase in total raw material costs,
which accounted for 93.5 percent of the increase in cost of goods sold. Gross
profit for the third quarter was $4.0 million, up 2.7 percent from gross
profit of approximately $3.9 million for the third quarter of last year. Gross
margins for the third quarter of 2006 were 30.9 percent compared to 45.7
percent in the year ago period and were principally impacted by lower real
average selling prices in comparison to higher raw material costs, partially
offset by improved product mix.
Operating expenses were $0.9 million in the third quarter which increased
slightly from last year and as a percentage of net sales decreased to 7.2
percent as compared to 10.6 percent respectively. Operating income increased
2.7 percent to $3.1 million for the third quarter and as a result of the
aforementioned higher raw material costs operating margins decreased to 23.7
percent from 35.1 percent in the comparable quarter last year.
"While we were pleased with our year-over-year increase in revenue and a
further diversification of both our product and customer base, the third
quarter was challenging on a number of fronts," commented Mr. Chris Wang, CFO
of Fushi International. "It had become customary based on the escalating price
of copper that customers frequently prepay in order to be assured of a timely
delivery of necessary raw materials. As a result the Company locked in volume
commitments on copper at higher prices and was impacted by volatility in the
overall price of copper based products in the market during the third quarter
which had a negative impact on our gross margins. While further volatility may
occur we will look to employ several initiatives to return gross margins back
to historical levels of more than thirty six percent.
During the third quarter the Company did not incur an income tax expense
due to Fushi International becoming a wholly owned foreign enterprise and also
being recognized in the special economic region as a high tech enterprise
within China. Management expects to pay minimal income tax outside of the VAT
during the next two years. GAAP net income for the third quarter decreased
39.3 percent to $1.4 million, or $0.06 per diluted share compared to net
income of $2.4 million, or $0.15 per fully diluted share in the comparable
quarter last year. Pro forma net income which excludes $1.5 million in non-
cash penalties associated with the delayed registration of the January 2006
private placement was $2.9 million and increased 22.7 as compared to the same
period last year with respective earnings per share of $0.13 per weighted
average diluted share. The Company utilized 22.8 million weighted average
fully diluted outstanding shares as compared to 15.5 million in the same
period a year ago.
For the first nine months ending September 30, 2006 revenues increased
153.9 percent to $45.9 million, which was driven by higher selling prices,
increased sales volume due to significantly expanded manufacturing capacity
and the addition of new product offerings. Cost of goods sold increased 178.7
percent to $28.5 million primarily as a result of higher raw material prices.
Gross profit increased 121.6 percent to $17.4 million resulting in gross
margins of 37.9 percent as compared to 43.5 percent last year with the
decrease versus last year due to factors mentioned previously. Operating
expenses increased 60.1 percent to $2.7 million as expenses increased to
support higher sales volumes in addition to costs associated with being public
as compared to no such expense last year. Operating income for the period
totaled $14.7 million, or a 138.2 percent increase as compared to $6.2 million
in the comparable period last year yielding operating margins of 32.1 percent
and 34.3 percent respectively. GAAP net income increased 153.1 percent to
$12.4 million with respective weighted average fully diluted earnings per
share of $0.55 compared to $5.0 million and $0.32 in the year ago period.
Excluding the aforementioned non-cash penalty, proforma net income was $13.9
million with EPS of $0.61 per weighted average diluted share.
The Company reported a cash balance as of September 30, 2006 of $14.9
million which increased $8.7 million from December 31, 2005 driven by positive
net income and improved working capital management particularly in the third
quarter 2006. Accounts receivable were $7.7 million at the end of the third
quarter representing a 23.8 percent increase versus the end of the year 2005.
Accounts receivable did decrease 25.6 percent sequentially as the Company
improved collections. Inventory increased 27.1 percent to $9.7 million from
the end of 2005 and management believes the increase in inventory is adequate
to support anticipated revenue growth. The current ratio at the end of the
third quarter was 1.7 to 1 with the Company maintaining working capital of
$15.7 million. Cash generated from operations for the nine month period ending
September 30, 2006 was $8.4 million. Total debt at quarter end was $27.1
million which increased approximately $9.9 million from the end of 2005. Total
debt for the quarter was inclusive of a $4.5 million, interest free loan made
by Mr. Li Fu, the Chairman and largest shareholder, on September 20 to fund
working capital following a work stoppage because funds were unavailable to
buy enough copper to keep pace with rising orders.
"While results are below our internal expectations we did make progress in
several of our stated initiatives which included expanding production and
sales capacity, specifically for our new fine wire offering, and strengthening
our balance sheet through improvements in working capital management. We are
now operating a total of ten fine wire production lines, which when coupled
with our 20 regular and coaxial lines, has afforded us the opportunity to
further grow and diversify our product and customer base. The Company ended
the third quarter in a significantly better financial position as evidenced by
our key balance sheet metrics. We are currently pursuing a new financing
facility which will enable the Company to further expand production
capabilities during 2007 while obtaining the necessary working capital to
optimize output and meet customer demand," stated Mr. Li Fu, the Chairman and
Chief Executive Officer of Fushi International.
About Fushi International:
Fushi International is engaged, through their indirectly wholly-owned
operating subsidiary Dalian DPI in the manufacture and sale of bimetallic
composite wire products, principally copper clad aluminum wires ("CCA") and
copper clad aluminum magnesium ("CCA-M"). CCA, which is the company's core
product, combines the conductivity and corrosion resistance of copper with the
light weight and relatively low cost of aluminum. It is a cost effective
substitute for single copper wire in a wide variety of applications such as
coaxial cable for cable television (CATV), signal transmission lines for
telecommunication networks, distribution lines for electricity, wire
components for electronic instruments and devices. For more information on
Fushi, visit their website: http://www.fushiinternational.com/
Safe Harbor Statement:
This press release contains forward-looking statements concerning Fushi
International, Inc.'s business and products. The actual results may differ
materially depending on a number of risk factors including, but not limited
to, the following: general economic and business conditions, development,
shipment, market acceptance, additional competition from existing and new
competitors, changes in technology, and various other factors beyond its
control. All forward-looking statements are expressly qualified in their
entirety by this Cautionary Statement and the risks factors detailed in the
Company's reports filed with the Securities and Exchange Commission. Fushi
International, Inc. undertakes no duty to revise or update any forward-looking
statements to reflect events or circumstances after the date of this release.
GAAP note: This press release includes financial measures for net income
(loss) and diluted earnings per share calculations which excludes certain non-
cash costs not calculated in accordance with generally accepted accounting
principles (GAAP). Management believes that these non-GAAP financial measures
provide meaningful supplemental information regarding our performance that
enhances management's and investors' ability to evaluate the Company's net
income and income per share and to compare it with historical net income and
income per share.
The financial information stated above and in the tables below has been
abstracted from the Company's Form 10-Q for the quarter ended September 30,
2006, filed with the SEC on November 14, 2006, and should be read in
conjunction with the information provided therein.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2006
(Unaudited)
A S S E T S
September 30, December 31,
CURRENT ASSETS: 2006 2005
Cash $14,948,599 6,163,670
Accounts receivable, trade, net of
allowance for doubtful accounts of $0
as of September 30, 2006 7,673,974 6,198,705
Due from related companies 3,323,528
Inventories 9,696,468 7,627,866
Other receivables and prepaid expenses 1,699,122 3,759,072
Advance to suppliers 5,481,586
Total current assets 39,499,749 27,072,841
PLANT AND EQUIPMENT, net 47,584,260 38,641,783
OTHER ASSETS:
Intangible asset, net 819,498
Land use rights, net 5,506,461 4,602,812
Total assets $92,590,470 71,136,934
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Accounts payable, trade $1,630,590 2,744,652
Notes payable 379,800 7,496,902
Short term bank loans 12,229,560
Other payables and accrued liabilities 191,704 779,898
Value added tax and other taxes payable 3,869,814
Customer deposits 544,836
Other taxes payable 2,904,005 2,104,709
Loan from shareholder 4,451,328
Liquidated damage payable 1,466,250
Total current liabilities 23,798,073 16,995,975
LONG TERM LIABILITIES:
Notes payable - long term 9,675,859
Long term debt 10,128,000
Total liabilities 33,926,073 26,671,834
SHAREHOLDERS' EQUITY:
Common stock, $0.006 par value, 100,000,000
shares authorized, 19,987,224 shares
issued and outstanding 119,923 471
Series A & B convertibles (0.001 par value,
$5M and $50M respectively) 1,001
Additional Paid in capital 29,127,134 29,307,285
Statutory reserves 2,428,310
Retained earnings 25,097,912 15,139,143
Accumulated other comprehensive income 1,891,118 17,200
Total shareholders' equity 58,664,397 44,465,100
Total liabilities and shareholders'
equity $92,590,470 71,136,934
CONSOLIDATED STATEMENTS OF INCOME AND
OTHER COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
(Restated) (Restated)
REVENUES $ 12,956,092 $8,521,006 $45,881,256 $18,072,468
COST OF GOODS SOLD 8,955,882 4,626,276 28,477,095 10,219,442
GROSS PROFIT 4,000,210 3,894,730 17,404,161 7,853,026
OPERATING EXPENSE
Selling expenses 152,045 77,112 401,294 168,910
General and
administrative
expenses 532,516 456,245 1,573,232 815,133
Depreciation
expense 187,273 316,695 521,866 518,095
Amortization
expense 55,670 53,890 167,062 161,672
Total operating
expense 927,504 903,942 2,663,454 1,663,810
INCOME FROM
OPERATIONS 3,072,706 2,990,788 14,740,707 6,189,216
OTHER INCOME (EXPENSE)
Provision for
doubtful debts on
other receivables (70,000) (70,000)
Interest income 30,344 44,509 42,775 58,044
Interest expense (318,608) (191,436) (832,172) (425,752)
Other income 236,002 89 556,724 89
Other expense (119,302) (4,105) (258,152) (4,105)
Registration rights
penalty (1,466,250) (1,466,250)
Total other
income
(expense) (1,637,814) (220,943) (1,957,075) (441,724)
INCOME BEFORE
INCOME TAXES 1,434,892 2,769,845 12,783,632 5,747,492
PROVISION FOR INCOME
TAXES 406,256 396,553 852,904
NET INCOME $1,434,892 $2,363,589 $12,387,079 $4,894,588
OTHER COMPREHENSIVE
INCOME (LOSS):
Foreign currency
translation
adjustment 629,327 575,885 1,107,923 575,885
COMPREHENSIVE INCOME 2,064,219 2,939,474 13,495,002 5,470,473
Net income per
share-basic $0.07 $0.15 $0.62 $0.32
Weighted average
number of shares
outstanding
during the
period - basic 19,932,129 15,475,595 19,907,105 15,475,595
Net income per
share-diluted $0.06 $0.15 $0.55 $0.32
Weighted average
number of shares
outstanding
during the
period -diluted 22,761,228 15,475,595 22,612,369 15,475,595
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
(Unaudited)
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,387,079 $4,894,588
Adjustments to reconciled net income
to cash provided by (used in) operating
activities:
Depreciation-cost of sales 1,023,654 372,970
Depreciation-operating expense 521,866 518,095
Amortization of land use right 75,099 88,997
Amortization of intangible asset 91,963 72,676
Provision for doubtful debts on other
receivables 70,000
Change in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (1,323,834) (3,572,132)
Inventories (1,879,011) (252,154)
Other receivables 426,237
Other current assets (3,726,900) (1,820,879)
Due from related parties 3,352,072 (2,256,060)
Increase (decrease) in liabilities:
Accounts payable (783,559) (249,066)
Other payables and accrued liabilities (481,156) 57,726
Customer deposits 423,141
Taxes payable (3,158,993) 106,697
Due to related parties 175,092
Liquidated damage payable 1,466,250
Net cash provided by (used in)
operating activities 8,413,908 (1,793,450)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (9,286,833) (3,029,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from shareholder 4,450,000
Exercise of stock warrants 15,800
Proceeds from bank loans 18,259,578 21,281,795
Payments on bank loans (13,747,800) (16,086,115)
Net cash provided by financing
activities 8,977,578 5,195,680
EFFECT OF EXCHANGE RATE ON CASH 680,277 (139,727)
INCREASE IN CASH 8,784,929 232,622
CASH, beginning of period 6,163,670 2,612,282
CASH, end of period $ 14,948,599 $2,844,904
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest expense $1,049,037 $ 848,536
Cash paid for income taxes $4,044,883 $