Fourth quarter net revenues reach a record $46.1 million, up 72% year-over-
year and up 38% sequentially
SHENZHEN, China, Dec. 9 /Xinhua-PRNewswire/ -- China BAK Battery, Inc.
("China BAK", or "BAK") (Nasdaq: CBAK), one of the largest lithium-ion battery
cell manufacturers in China and in the world, today announced its financial
results for the fourth quarter and fiscal year ended September 30, 2006
("FY06").
Recent Achievements and Highlights
* Reached agreements with five new OEM customers, including four new
customers for prismatic cells and one new customer for cylindrical
cells, due in large part to the higher quality and process reliability
of our new automated production lines.
* OEM manufacturing facility nearing completion, expected to be completed
in the first quarter of calendar year 2007.
* Repaid $22.5 million in bank loans and arranged for $36.7 million in new
bank loans; $92.9 million available under credit facilities at 2006
fiscal year end.
Fourth Quarter FY06 Financial Results
Revenues for the fourth quarter of FY06 were a record $46.1 million, up
72.3% from $26.8 million in the fourth quarter of fiscal year ended September
30, 2005 ("FY05"), and up 38.1% sequentially from the quarter ended June 30,
2006. Net income was $4.7 million, or $0.10 per diluted share, compared to
$4.8 million, or $0.12 per diluted share, in the fourth quarter of FY05, and
$4.7 million, or $0.09 cents per diluted share, in the third quarter of FY06.
Net income in the fourth quarter of FY06 was adversely impacted by $3.7
million ($0.08 per diluted share) of unexpected pretax non-operating and
nonrecurring items.
Nonrecurring items in the quarter include $2.2 million in stock
compensation expenses related to the company's adoption of SFAS 123 (R),
including $1.6 million related to the termination of the company's stock
option plan and grant of certain restricted shares to replace 1.4 million
shares of stock options cancelled on September 28, 2006, $1.2 million in
non-recurring expenses related to the re-audit of its financial statements for
the previous three years by its recently appointed certified independent
auditors, and $0.3 million in penalties related to the withdrawal of the
effective SB-2 registration statement in connection to its September 2005
equity offering. Based on the re-audit and subsequent restatement of its
financial results, the company was required to withdraw its effective SB-2
registration statement in connection to its September 2005 equity offering,
resulting in penalties of approximately $0.3 million.
"Operationally, the fourth quarter of FY2006 was the strongest quarter in
our history. Revenues increased 72% on a year-over-year basis, and 38% from
the prior quarter. After removing the impact of one-time items, our net income
was approximately $8.4 million, in line with our expectations," commented
Xiangqian Li, China BAK's Chief Executive Officer.
The sequential increase in revenues was largely due to greater demand from
existing customers. Sales of steel-case and aluminum-case battery cells, the
largest contributors to the company's revenues during the quarter, increased
53.0% and 52.9%, respectively, from the third quarter of FY06. Sales of
high-power lithium-phosphate cells increased 15.0% from the third quarter of
FY06, and comprised 18.6% of total revenues. Sales of China BAK's new line of
cylindrical cells generated $0.5 million in revenues during the quarter.
Gross profit for the fourth quarter of FY06 was a record $11.8 million, up
35.5% from $8.7 million in the fourth quarter of FY05, and up 39.0% from the
third quarter of FY06. Gross margin was 25.6% in the fourth quarter of FY06,
compared to 32.6% in the fourth quarter of FY2005 and 25.4% in the third
quarter of FY06. Gross margin in the fourth quarter of FY06 was adversely
impacted by additional qualification and facility certification requirements
from potential cylindrical cell customers in the wake of product safety issues
and subsequent recalls by a well-known manufacturer of laptop cells. Lower
average selling prices and minor increases in manufacturing costs also
affected margin.
"Increasing our presence in the OEM market is one of our major
initiatives, and we are pleased with the number of high profile customers we
have won over the last three months," Mr. Li continued. "We experienced a slow
down in the ramp up of our higher-margin production lines given the recent
product safety issues and product recalls by a competing manufacturer of
laptop cells. However, we believe BAK's automated cylindrical cell production
line mitigates some of these safety concerns, which could potentially result
in a large number of new customers as manufacturers transition to alternate
suppliers."
Operating expenses totaled $5.9 million during the fourth quarter of FY06,
up 83.2% from $3.2 million in the fourth quarter of FY05. Operating expenses
in the fourth quarter of FY06 include $2.2 million in non-cash, stock
compensation expenses related to the adoption of SFAS 123(R), including $1.6
million related to certain restricted shares granted to replace 1.4 million
shares of stock options cancelled on September 28, 2006. Operating expenses in
the fourth quarter of FY06 also include $1.2 million in non-recurring expenses
related the re-audit of the company's financial statements for the previous
three years by its recently appointed certified independent auditors, and $0.3
million in penalties related to the withdrawal of the effective SB-2
registration statement in connection to its September 2005 equity offering.
Excluding the non-recurring items, operating expenses totaled $2.2 million,
down 31.1% from the fourth quarter of FY05.
Research and development and sales and marketing expenses also increased,
reflecting additional staff as well as higher depreciation expenses as the
company purchased more equipment utilized in the R&D efforts.
Operating income for the fourth quarter of FY06 was $5.9 million, an
increase of 7.3% over operating income of $5.5 million reported a year ago.
Operating margin for the fourth quarter of FY06 was 12.8%, as compared to
20.5% in the fourth quarter of FY05. Excluding the non-recurring items,
operating income and margin were $9.6 million and 20.8%, respectively, in the
fourth quarter of FY06.
Net income was $4.7 million in the fourth quarter of FY06, compared to
$4.8 million in the fourth quarter of FY05. Diluted earnings per share was
$0.10 for the fourth quarter of FY06, compared to $0.12 for the fourth quarter
of FY05.
FY06 Financial Results
For the fiscal year ended September 30, 2006, revenues increased 41.1% to
$143.8 million, compared to $101.9 million in FY05. Gross profit was $39.6
million, or 27.6% of revenues, compared to $25.9 million, or 25.4% of
revenues, in FY05. Operating income was $22.6 million, up 45.8% over operating
income of $15.5 million reported in FY05. Operating income for FY06 includes
the previously mentioned $3.7 million ($0.08 per diluted share) of pretax
non-operating and nonrecurring items. Operating margin was 15.7%, as compared
to 15.2% in FY05. Excluding the nonrecurring items, operating income and
margin were $26.3 million and 18.3%, respectively, in FY06. Net income was
$20.2 million, an increase of 49.4% over $13.5 million in FY05. Diluted
earnings per share was $0.41, compared to $0.35 in FY05.
Financial Condition
At September 30, 2006, China BAK had $21.1 million in cash, and working
capital of $1.2 million, reflecting a current ratio of 1.01:1. Days sales
outstanding (DSO) were 127 for the fourth quarter of FY06, down from 150 days
in the fourth quarter of FY05, and down from 156 days in the third quarter of
FY06. Total debt, including short-term bank loans and bills payable, stood at
$97.1 million. During the fourth quarter, the company repaid $22.5 million in
bank loans and arranged for $36.7 million in new bank loans at fixed interest
rates. As of September 30, 2006, the company had approximately $92.9 million
available under its credit facilities. Stockholders' equity totaled
$113.6 million.
Business Outlook
Given the scope and magnitude of a number of pending new business
opportunities, the company does not believe it is prudent to give guidance for
fiscal 2007 at this time.
"Our outlook for fiscal 2007 is optimistic. Our reputation for high
quality and product safety is proving to be a competitive advantage, as more
and more OEMs are factoring safety into their qualification requirements. We
expect demand for our prismatic cells will continue to experience strong
growth. We also anticipate strong demand for our new line of cylindrical
cells and we are currently in serious discussions with a number of top tier
OEMs. As sales of our newer, more innovative products contribute a larger
portion of our product mix, our margins should expand. We believe we are
poised to take advantage of the many growth opportunities in our marketplace."
Mr. Li concluded.
Conference Call
China BAK Battery Inc. will host a conference call at 8:00 am ET on
Monday, December 11, 2006, to discuss results for the fourth quarter and
fiscal year ended September 30, 2006. Joining Xiangqian Li, China BAK's
President and Chief Executive Officer, on the call will be Yongbin Han, China
BAK's Chief Financial Officer, and Dr. Huanyu Mao, China BAK's Chief Operating
Officer and Chief Technology Officer. Also participating on the call will be
Jim Groh, the company's U.S. based representative. To participate in the
conference call, please dial the following number five to ten minutes prior to
the scheduled conference call time: (866) 800-8648. International callers
should dial (617) 614-2702. The pass code for the call is 23943966. If you
are unable to participate in the call at this time, a replay will be available
on Monday, December 11 at 10:00 a.m. ET, through Monday, December 18, at 10:00
a.m. ET. To access the replay dial (888) 286-8010 and enter the conference ID
number 23943966. This conference call will be broadcast live over the Internet
and can be accessed by all interested parties on the CBAK website at
http://www.bak.com.cn/. To listen to the live webcast, please go to the CBAK
website at least fifteen minutes prior to the start of the call to register,
download, and install any necessary audio software. For those unable to
participate during the live broadcast, a replay will be available shortly
after the call on CBAK's website for 90 days.
About China BAK Battery Inc.
China BAK Battery, Inc. is one of the largest manufacturers of
lithium-based battery cells in China and in the world. It produces battery
cells that are the principal component of rechargeable batteries commonly used
in cellular phones, notebook computers, cordless power tools and portable
consumer electronics, such as digital media devices, portable media players,
portable audio players, portable gaming devices and PDAs. China BAK Battery,
Inc.'s 1.9 million square feet facilities are located in Shenzhen, PRC, and
have been recently expanded to produce new products. China BAK Battery, Inc.
is the largest manufacturer of lithium-ion battery cells for China's cellular
phone replacement battery market.
Safe Harbor Statement
This press release contains forward-looking statements, which are subject
to change. The forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. All
"forward-looking statements" relating to the business of China BAK Battery,
Inc. and its subsidiary companies, which can be identified by the use of
forward-looking terminology such as "believes," "expects" or similar
expressions, involve known and unknown risks and uncertainties which could
cause actual results to differ. These risks and uncertainties include but are
not limited to: risks related to our business, risks related to operating in
China, risks related to our common stock, and other risks disclosed in the
company's filings with the U.S. Securities and Exchange Commission, including
its annual report on Form 10-K and other filings. Given these risks and
uncertainties, you are cautioned not to place undue reliance on forward-
looking statements. The Company's actual results could differ materially from
those contained in the forward-looking statements. All information provided in
this press release and in the attachments is as of the date of this press
release, and the company does not undertake any obligation to update any
forward-looking statement, except as required under applicable law.
China BAK Battery Inc.
Consolidated Statements of Operations and Comprehensive Income
For the Three Months and Fiscal Years Ended September 30, 2006 and 2005
(Amounts in thousands, except per share data)
Three Months Ended Years Ended
September 30, September 30,
2006 2005 2006 2005
(unaudited) (unaudited)
Revenues $46,108 $26,763 $143,829 $101,922
Cost of revenues (34,292) (18,043) (104,196) (76,047)
Gross profit 11,816 8,720 39,633 25,875
Operating expenses:
Research and
development costs (1,499) (227) (2,935) (542)
Sales and marketing
expenses (1,512) (1,082) (5,055) (3,855)
General and
administrative
expenses (2,921) (1,929) (9,071) (5,994)
Total operating
expenses (5,932) (3,238) (17,061) (10,391)
Operating income 5,884 5,482 22,572 15,484
Finance costs, net (895) (323) (1,888) (845)
Gain on trading
securities - - 279 -
Other expenses (income) (166) (436) (205) (490)
Income before income
taxes 4,823 4,723 20,758 14,149
Income taxes (81) 93 (593) (652)
Net income $4,742 $4,816 $20,165 $13,497
Other comprehensive
income (loss)
- Foreign currency
translation adjustment 1,193 1,004 2,443 1,005
Comprehensive income $5,935 $5,820 $22,608 $14,502
Net income per share:
Basic $0.10 $0.12 $0.41 $0.35
Diluted $0.10 $0.12 $0.41 $0.35
Weighted average shares
outstanding:
Basic 48,879 40,979 48,880 38,289
Diluted 49,076 41,028 48,913 38,409
China BAK Battery Inc.
Consolidated Balance Sheets
(Amounts in thousands)
As of September 30
2006 2005
Assets
Current assets
Cash and cash equivalents $21,100 $33,056
Pledged deposits 12,972 19,392
Trade accounts receivable, net 64,332 43,864
Inventories 47,389 21,696
Prepayments and other receivables 1,134 2,156
Total current assets 146,927 120,164
Property, plant and equipment, net 109,406 65,751
Lease prepayments, net 3,161 3,155
Intangible assets, net 75 53
Amounts due from related parties - 272
Deferred tax assets 86 91
Total assets $259,655 $189,486
Liabilities
Current liabilities
Short-term bank loans $67,900 $39,545
Accounts and bills payable 48,316 45,119
Accrued expenses and other payables 25,881 14,280
Share-based payment liabilities 3,625 -
Total current liabilities 145,722 98,944
Deferred tax liabilities 305 233
Total liabilities 146,027 99,177
Shareholders' equity:
Ordinary shares US$ 0.001 par value; 100,000,000
authorized; 48,878,396 issued and outstanding
as of June 30, 2006 and September 30, 2005 49 49
Additional paid-in-capital 68,127 67,416
Statutory reserves 5,792 3,034
Retained earnings 36,212 18,805
Accumulated other comprehensive income 3,448 1,005
Total shareholders' equity 113,628 90,309
Commitments and contingencies
Total liabilities and shareholders' equity $259,655 $189,486
China BAK Battery Inc.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 2006 and 2005
(Amounts in thousands, except per share data)
Years Ended September 30,
2006 2005
Cash flow from operating activities $20,165 $13,497
Net income
Adjustments to reconcile net income to net
cash provided by/(used in) operating activities:
Depreciation and amortization 5,816 3,581
Bad debt expense (556) 770
Share-based compensation 4,336 -
Deferred income tax 73 98
Changes in operating assets and liabilities:
Trade accounts receivable (19,938) (23,675)
Inventories (25,693) 7,840
Prepayments and other receivables 456 (573)
Accounts and bills payable 4,274 5,005
Accrued expenses and other payables 5,382 1,472
Net cash provided by/(used in) operating
activities $(5,685) $8,014
Cash flow from investing activities
Purchases property, plant and equipment (41,382) (30,594)
Purchases of intangible assets (34) (2)
Net cash used in investing activities $(41,416) $(30,596)
Cash flow from financing activities
Proceeds from borrowings 99,036 63,012
Repayment of borrowings (70,681) (52,583)
Increase in pledged deposits 6,420 (12,272)
Amounts received from related parties 272 639
Repayments to Changzhou Lihai Investment
Consulting Co., Ltd. - (1,812)
Proceeds from issuance of capital stock, net - 55,379
Contribution from shareholders acquiring
shares of BAK International Limited - 11,500
Distribution to shareholders in connection
with acquisition of shares of
China BAK Battery, Inc. - (11,500)
Net cash provided by financing activities $35,047 $52,363
Effect of exchange rate changes on cash 98 62
Net decrease in cash and equivalents (11,956) 29,844
Cash and cash equivalents at the beginning of
period 33,056 3,212
Cash and cash equivalents at the end of period 21,100 33,056
