omniture

Harbin Electric Third Quarter 2007 Results Boosted By Growth in Existing and New Businesses

2007-11-15 03:03 7603

Highlights:

-- Total revenues for the quarter rose to $18.5 million from $9.8

million in the third quarter of 2006, a growth of 88% year-over-year

-- Net income grew 11% year-over-year to $4.8 million, compared to $4.3

million in the third quarter of 2006

-- Diluted earnings per share were $0.26 for the quarter, up 8% compared

to $0.24 for the same quarter of last year

HARBIN, China, Nov. 14 /Xinhua-PRNewswire-FirstCall/ -- Harbin Electric, Inc. (or "the Company", Nasdaq: HRBN), a technology-oriented market leader in product development and integrated production tailored to customer applications in linear motors, motor/controller automation systems, specialty micro-motors for automobile interior applications and other specialty micro-motors, today reported its financial results for the third quarter ended September 30, 2007.

Financial Highlights for the Third Quarter 2007

Three Months Three Months

Ended September Ended September YoY%

30, 2007 30, 2006 Change

Revenue $18,500,038 $9,817,053 88%

Gross Profit $9,061,691 $4,804,497 89%

Gross Profit Margin 49% 49%

Operating Income $7,062,313 $2,772,657 155%

Operating Margin 38% 28%

Net Income $4,764,622 $4,283,156 11%

Net Profit Margin 26% 44%

Diluted EPS $0.26 $0.24 8%

Total revenues in the third quarter of 2007 grew to $18.5 million from $9.8 million in the same quarter of 2006, representing a year-over-year growth of 88%. This significant growth was primarily driven by increased sales from new products, new customers, and the contribution from the acquisition of Harbin Taifu Auto Electric Co., Ltd., a manufacturer of specialty micro-motors for automobile interior applications that the Company acquired in July 2007. This was the first quarter reflecting the contribution from this acquisition, which contributed approximately $5.2 million to the total revenues, representing 27% of this quarter's sales.

Gross profit rose 89% year-over-year to $9.1 million compared to $4.8 million for the same period last year. The automobile interior specialty micro-motors business, which results from the integration of the Company's previous specialty auto micro-motors with Harbin Taifu Auto Electric Co., Ltd., also contributed to total gross profit in this quarter. The gross profit margin as a percentage of revenues remained stable year-over-year at 49%.

The Company generated net income of $4.8 million in the quarter, 11% higher compared to $4.3 million in the same quarter of last year with higher sales partially offset by amortization expenses of debt discount and interest expense on the $50 million notes issued in August 2006.

The Company's total operating expense as a percentage of sales declined substantially year-over-year to 10.8% for the third quarter of 2007 from 20.7% for the third quarter of 2006, reflecting the Company's cost control efforts and improved efficiency given the substantial year-over-year revenue growth.

Non-cash amortization expenses of the debt discount for the quarter were $1.13 million. There were no such expenses in the same quarter of the previous year. This non-operating charge reduced third quarter earnings by $0.06 per diluted share. This expense was due to the amortization of the debt discount for the $50 million notes issued on August 30, 2006. Excluding this non-cash item, the third quarter earnings per diluted share would have been $0.32. Interest expense reduced earnings by approximately $0.11 per diluted share.

Net earnings per diluted share rose 8% to $0.26 from $0.24 in the third quarter of 2006.

Financial Highlights for the Nine Months Ended September 30, 2007

Nine Months Nine Months

Ended September Ended September YoY%

30, 2007 30, 2006 Change

Revenue $46,115,945 $28,407,056 62%

Gross Profit $23,139,989 $13,879,024 67%

Gross Profit Margin 50% 49%

Operating Income $17,726,931 $9,589,577 85%

Operating Margin 38% 34%

Net Income $12,724,441 $11,755,399 8%

Net Profit Margin 28% 41%

Diluted EPS $0.70 $0.61 15%

For the nine months ended September 30, 2007, the Company generated total revenues of $46.1 million versus $28.4 million for the nine months ended September 30, 2006, representing a 62% year-over-year growth driven by increased sales to existing and new customers and by contribution from the acquisition of Harbin Taifu Auto Electric Co., Ltd. completed in July this year. Approximately $5.2 million was attributable to customers from the acquisition of Harbin Taifu Auto Electric Co., Ltd.

The Company's net income was $12.7 million for the nine month period ended September 30, 2007, an 8% increase compared to $11.8 million for the same period of the prior year, primarily due to higher sales which were partially offset by higher SG&A expenses, amortization expenses of debt discount and interest expenses.

Net earnings per diluted share were $0.70 for the nine month period ended September 30, 2007, a 15% increase compared to $0.61 for the same period of last year. Non-cash amortization expenses of the debt discount for the nine month period ended September 30, 2007 totaled $3.4 million and reduced earnings for the period by $0.19 per diluted share, while there were no such amortization expenses in the corresponding period of last year. Interest expense on the debt reduced earnings by $0.22 per diluted share year-to-date while there was no interest expense for the same period last year.

"We continued to deliver strong growth in revenues and earnings during the quarter, demonstrating once again the Company's effectiveness in executing our growth strategies," said Harbin Electric Chairman and Chief Executive Officer Tianfu Yang. "Particularly worth noting is that the Company's operating income reached $7.1 million, more than doubled compared to $2.8 million for the same quarter of 2006, reflecting the operational excellence we have achieved year-over-year."

"During the quarter, we have announced the appointment of Mr. Kanenori Okawa, an expert in electric motor technology and manufacturing processes and former Chief Technology Advisor of Nittoku Engineering Co., Ltd., Japan, as the Company's Chief Technology Officer. Ms. Lanxiang Gao, an expert in the research and development of specialty micro-motors, also joined the management team as Chief Operating Officer of our wholly-owned subsidiary – Shanghai Tech Full Electric Co., Ltd. We also welcomed Mr. Toshikatsu Asai, an expert in manufacturing processes and technologies of electric motors, to be primarily in charge of the manufacturing processes of the Company's automobile interior specialty micro-motors product line," Mr. Yang added. "With these new appointments, we have further diversified the skills and increased the global expertise of our management team. We are confident that we have built a strong management team that can lead the Company's business into a bright future. I believe that our strong third quarter is a reflection of the combined efforts and leadership of our management team."

Mr. Yang continued, "I am also very satisfied with the integration of Harbin Taifu Auto Electric Co., Ltd. We completed this acquisition in July 2007 and our automobile specialty micro-motors business started immediately to significantly contribute to our total revenues and earnings in this quarter. Given what I have just said that we have built a management team with strong and diverse technical and management skills, we are confident that we are well on our way to reach the growth target we set for the business – delivering $200 million in total sales in automobile interior specialty micro-motors business by the year 2010."

About Harbin Electric, Inc.:

Harbin Electric, headquartered in Harbin, China, is the market leader in linear motors, motor/controller automation systems, specialty micro-motors for automobile interior applications, and other specialty micro-motors and is the first and currently, to our knowledge, the only Chinese company to provide product development and integrated production tailored to customer applications. The Company is highly technology-oriented with a focus on innovation, creativity, and value-added products and is environmentally conscious and socially responsible. It provides its customers with energy efficient products and its employees with friendly working and living conditions, competitive compensation, and reasonable work schedules. One of the Company's greatest assets is its strong R&D capability achieved by recruiting talent worldwide and through collaboration with top scientific institutions. Its ISO certified manufacturing facility is equipped with state-of-the-art production lines and quality control systems to ensure product quality. Driven by advantages in closer customer relationships, better understanding of local markets and customer needs, and lower production cost, the Company is able to outperform its competition, which is mainly foreign, and has steadily improved its competitive position in the domestic linear motor market. With fast economic growth in China and favorable government policies, Harbin Electric has formulated and is in execution of a multi-faceted growth strategy to expand the business into the linear motor systems for urban mass transportation and rotary motors with a clear focus on providing high-end, energy efficient products. To learn more about Harbin Electric, visit http://www.harbinelectric.com.

Safe Harbor Statement

The actual results of Harbin Electric, Inc. could differ materially from those described in this press release. Detailed information regarding factors that may cause actual results to differ materially from the results expressed or implied by statements in this press release may be found in the Company's periodic filings with the U.S. Securities and Exchange Commission, including the factors described in the section entitled "Risk Factors" in its quarterly report on Form 10-QSB for the quarter ended June 30, 2007. The Company does not undertake any obligation to update forward-looking statements contained in the press release. This press release contains forward-looking information about the Company that is intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, and statements about industry trends and the Company's future performance, operations and products.

-- TABLES FOLLOW --

HARBIN ELECTRIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

A S S E T S

SEPTEMBER 30, DECEMBER 31,

2007 2006

UNAUDITED

CURRENT ASSETS:

Cash $61,060,638 $67,313,919

Accounts receivable, net of

allowance for doubtful accounts of

$46,359

and $44,552 as of September 30,

2007 and December 31, 2006,

respectively 12,521,547 8,827,799

Inventories 1,876,962 583,287

Other receivables 452,897 148,243

Other receivables - related parties 5,069 44,998

Advances on inventory purchases 1,781,398 834,590

Total current assets 77,698,511 77,752,836

PLANT AND EQUIPMENT, net 18,499,903 9,219,534

OTHER ASSETS:

Debt issue costs, net of

amortization 2,183,661 2,757,155

Advances on equipment purchases 12,922,994 --

Advances on intangible assets 1,347,340 1,487,120

Intangible assets, net of

accumulated amortization 6,117,619 640,337

Other assets 508,008 1,101,839

Deposit in derivative hedge 1,017,524 --

Total other assets 24,097,146 5,986,451

Total assets $120,295,560 $92,958,821

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 $520,461 $258,911

Other payables 379,936 406,520

Other payables - related party 33,641 --

Accrued liabilities 165,168 107,263

Customer deposits 724,395 319,261

Taxes payable 779,987 556,943

Interest payable -- 1,122,000

Total current liabilities 2,603,588 2,770,898

NOTES PAYABLE, net of debt discount

$18,011,302 and $21,410,401 as of

September 30, 2007 and December 31,

2006, respectively 31,988,698 28,589,599

FAIR VALUE OF DERIVATIVE INSTRUMENT 7,047,406 --

WARRANT LIABILITIES -- 16,568,080

Total liabilities 41,639,692 47,928,577

COMMITMENTS AND CONTINGENCIES -- --

SHAREHOLDERS' EQUITY:

Common Stock, $0.00001 par value,

100,000,000 shares authorized,

17,667,995 and 16,600,451 shares

issued and outstanding 177 166

Paid-in-capital 42,597,639 12,252,064

Retained earnings 32,593,816 26,222,408

Statutory reserves 4,523,715 4,523,715

Accumulated other comprehensive

income (1,059,479) 2,031,891

Total shareholders' equity 78,655,868 45,030,244

Total liabilities and

shareholders' equity $120,295,560 $92,958,821

HARBIN ELECTRIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

(UNAUDITED)

FOR THE THREE MONTHS FOR THE NINE MONTHS

ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,

2007 2006 2007 2006

REVENUES $18,500,038 $9,817,053 $46,115,945 $28,407,056

COST OF SALES 9,438,347 5,012,556 22,975,956 14,528,032

GROSS PROFIT 9,061,691 4,804,497 23,139,989 13,879,024

RESEARCH AND

DEVELOPMENT

EXPENSE 298,524 397,074 751,883 1,223,828

SELLING, GENERAL

AND

ADMINISTRATIVE

EXPENSES 1,700,854 1,634,766 4,661,175 3,065,619

INCOME FROM

OPERATIONS 7,062,313 2,772,657 17,726,931 9,589,577

Other (income)

expense, net (2,388) 697,040 (11,698) 643,893

Non-operating

(income), net (11,074) -- (774,482) --

Realized (gain)

on sale of

marketable

securities -- -- -- (571,143)

Interest expense

(income), net 2,236,255 (26,569) 5,713,372 (57,602)

Change in fair

value of

warrant -- (2,180,970) -- (2,180,970)

OTHER EXPENSE

(INCOME), NET 2,222,793 (1,510,499) 4,927,192 (2,165,822)

INCOME BEFORE

PROVISION FOR

INCOME TAXES 4,839,520 4,283,156 12,799,739 11,755,399

PROVISION FOR

INCOME TAXES 75,298 -- 75,298 --

NET INCOME 4,764,222 4,283,156 12,724,441 11,755,399

OTHER

COMPREHENSIVE

LOSS

Foreign currency

translation

adjustment 1,638,750 407,742 3,956,036 730,097

Change in fair

value of

derivative

instrument (3,945,951) -- (7,047,406) --

Adjustment for

gain on sales

of marketable

securities -- -- -- (587,171)

COMPREHENSIVE

INCOME $2,457,021 $4,690,898 $9,633,071 $11,898,325

BASIC

Weighted average

number of

shares 17,226,880 16,600,451 16,810,065 16,600,451

Earning per

share $0.28 $0.26 $0.76 $0.71

DILUTED

Weighted average

number of

shares 18,632,246 17,495,254 18,215,411 19,235,134

Earning per

share $0.26 $0.24 $0.70 $0.61

HARBIN ELECTRIC, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(UNAUDITED)

2007 2006

CASH FLOWS FROM OPERATING

ACTIVITIES:

Net income $12,724,441 $11,755,399

Adjustments to reconcile net income

to cash

provided by (used in) operating

activities:

Depreciation 505,270 180,438

Amortization of intangible assets 241,351 34,402

Amortization of debt issuance

costs 573,494 --

Amortization of debt discount 3,399,099 --

Gain on derivative instrument (554,602) --

Realized gain on sale of

marketable securities -- (571,143)

Change in fair value of warrants -- (2,180,970)

Stock based compensation 705,722 701,918

Change in assets and liabilities

Accounts receivable (1,880,732) (3,540,547)

Inventories (988,989) 894,533

Other receivables (245,486) --

Other receivables - related

parties 40,889 --

Advances on inventory purchases (894,067) 769,575

Other assets 782,288 (3,134,032)

Accounts payable 311,989 773,880

Other payables (43,442) --

Other payables - Related Party 24,589 --

Accrued liabilities 52,785 --

Customer deposits 98,927 429,661

Taxes payable 196,511 --

Net cash provided by operating

activities 15,050,037 6,113,114

CASH FLOWS FROM INVESTING

ACTIVITIES:

Advances on equipment purchases (12,536,210) --

Additions to intangible assets (2,282,885) --

Additions to plant and equipment (7,384,918) (534,113)

Proceed from cross currency hedge 554,602 --

Proceeds from sale of marketable

securities -- 1,093,165

Net cash (used in) provided by

investing activities (21,649,411) 559,052

CASH FLOWS FINANCING ACTIVITIES:

Proceeds received from conversion

of warrants 218,750 --

Deposit to secure derivative

instrument (1,000,000) --

Capital contribution -- 39,081

Net proceeds from debt issued -- 47,462,700

Interest payable (1,122,000) 277,778

Net cash (used in) provided by

financing activities (1,903,250) 47,779,559

EFFECTS OF EXCHANGE RATE CHANGE IN

CASH 2,249,343 403,025

(DECREASE) INCREASE IN CASH (6,253,281) 54,854,750

CASH, beginning of period 67,313,919 5,739,019

CASH, end of period $61,060,638 $60,593,769

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

INFORMATION:

Cash paid for interest expense $4,578,780 $--

Cash paid for income taxes $14,009 $--

Source: Source Harbin Electric Inc.
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