WUXI, Jiangsu, China, March 31 /PRNewswire-Asia/ -- China Wind Systems, Inc. (OTC Bulletin Board: CWSI), ("China Wind Systems" or the "Company"), a leading supplier of forged products and industrial equipment to the wind power and other industries in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2008.
Fourth Quarter 2008 Highlights and Recent Events
-- Net revenues increased 39.0% year-over-year to $10.9 million
-- Gross profit increased 15.7% year-over-year to $2.7 million
-- Net income increased 61.6% year-over-year to $1.5 million, or $0.02
per diluted share, from net income of $0.9 million, or $0.02 per
diluted share, in 2007
-- Revenue from the sale of forged products for the wind power and other
industries was $5.0 million, or 45.5% of net revenues, of which $1.6
million, or 14.7% of net revenue, is from the wind power industry.
Full Year 2008 Highlights
-- Net revenues increased 73.2% to $42.3 million
-- Gross profit increased 49.5% to $10.5 million
-- Operating income increased 42.4% to $8.1 million
-- Adjusted non-GAAP net income was $5.8 million, or $0.09 per diluted
share, up 62.9% year-over-year and excludes the impact of a $2.9
million non-cash preferred deemed dividend from the issuance of stock
warrants upon conversion of convertible debt into series A preferred
stock and $2.3 million in amortization of debt discount and debt
issuance costs
-- Revenue from the sale of forged products for the wind power and other
industries was $17.5 million, or 41.4% of net revenue, of which $6.9
million (15.9% of net revenue) was from the wind power industry.
-- Completed installing equipment at new 40,000 ton-capacity facility in
Wuxi City and began equipment test runs
-- Signed several preliminary agreements with new and existing wind-power
and heavy machinery customers to supply forged products in 2009
-- Appointed Leo Wang as CFO
"We are pleased to report strong 2008 results where sales of wind-related products accounted for 15.9% of net revenues for the full year compared to a nominal amount in 2007, demonstrating our success in the strategy we laid out four years ago to become a leading supplier of essential wind turbine components in China," commented Mr. Jianhua Wu, chairman and CEO of China Wind Systems, Inc. "Despite the delayed start-up of our new facility, we are satisfied with the growth pace of our forged products business and anticipate continued growth in 2009 as we establish ourselves among new customers as a premier provider of high-quality forged rolled rings, shafts and flanges for use in the wind power and heavy machinery industries," Mr. Wu added.
Fourth Quarter 2008 Results
Net revenues for the fourth quarter of 2008 totaled $10.9 million, up 39.0% from $7.8 million for the same period prior year. The Company's management attributes the growth in revenues to the increase in sales of the Company's forged rolled rings to the wind power and other industries such as the railway, heavy machinery manufacturing and defense and radar industries. Revenues from the sale of forged rolled rings for the wind power and other industries were $5.0 million for the fourth quarter of 2008, compared to $1.5 million for the same period prior year when the Company was just entering into this business. Revenue from the sale of forged rolled rings exclusively for the wind power industry accounted for $1.6 million, or 14.7% of total revenue, in the fourth quarter. Revenues from the Company's dyeing and finishing segment increased 0.6% to $5.3 million, accounting for 49.0% of net revenues compared to $5.3 million, or 67.8% of net revenue, for the fourth quarter of 2007.
"While the dyeing and finishing segment generated healthy cash flow for the Company during 2008, the textile industry in China has been adversely affected by the economic downturn and consequently we have experienced a decline in this part of our business as well as a longer collection period for accounts receivables," Mr. Wu said. "We believe that the sale of forged rolled rings and other forged products should continue to drive our revenues going forward and we are hopeful that the Chinese government's support of wind power development will benefit our operations."
Gross profit for the fourth quarter was $2.7 million, a 15.7% increase from $2.3 million for the same period prior year. Gross margin was 24.4% for the fourth quarter of 2008, compared to 29.3% for the same period prior year. Gross margin for the dyeing and finishing equipment segment was 25.6%, down from 29.5% a year ago due to higher raw material costs for steel and other metals which could not be passed on to the Company's customers during that period. Gross margin for the forged rolled rings and electrical equipment segment was 23.2%, compared to 28.8% a year ago, due to the increased raw material costs for steel and other metals and a change in product mix in the segment.
Operating expenses were $0.6 million in the fourth quarter of 2008, slightly less than one year ago.
Operating income for the fourth quarter of 2008 totaled $2.1 million, a 24.0% increase from $1.7 million for the same period prior year.
Net income for the fourth quarter of 2008 was $1.5 million, or $0.02 per diluted share, compared to $0.9 million, or $0.02 per diluted share, in the fourth quarter of 2007. Earnings per share were calculated using a diluted weighted share count of 62,585,767 shares for the fourth quarter of 2008, as compared with 59,896,403 shares for the fourth quarter of 2007.
Full Year 2008 Results
For the full year 2008, revenues increased to $42.3 million, up 73.2% from $24.4 million in 2007. The dyeing and finishing equipment business contributed $22.5 million, or 53.1%, of net revenue in 2008, compared to $19.8 million, or 81.1%, of net revenue, in 2007. The forged rolled rings and electrical power equipment segment contributed $19.8 million, or 46.9% of net revenues, in 2008, compared to $4.6 million, or 18.9% of net revenue, in 2007.
Gross profit increased 49.5% to $10.5 million in 2008, compared to $7.1 million in 2007. Gross margin was 24.9% in 2008, compared to 28.9% in 2007, with gross margin in the dyeing and finishing equipment segment of 26.0% in 2008 compared to 29.3% in 2007 and gross margin of 23.7% in the forged rolled rings and electric power segment compared to 27.2% in 2007. Operating income rose 42.4% to $8.1 million in 2008 compared to $5.7 million in 2007. Income before income taxes, which was $5.7 million for 2008, reflected the impact of $2.3 million in one-time amortization of debt discount and $21,427 debt issuance costs related to the Company's November 2007 private placement. Income before income taxes of $12.0 million for 2007 reflected the impact of a one-time forgiveness of income and VAT taxes of $6.7 million.
Net income available to common shareholders of $0.6 million for 2008, or $0.01 per basic and diluted share, reflects a $2.9 million non-cash preferred deemed dividend from the issuance of stock warrants upon conversion of convertible debt into series A preferred stock and warrants. In 2007, net income available to common shareholders, which included the impact of a
one-time tax relief of $6.7 million, was $10.3 million, or $0.28 per basic share and $0.26 per diluted share.
Excluding the aforementioned preferred stock deemed dividend and amortization of debt discount and issuance costs, adjusted net income for 2008 was $5.8 million, or $0.09 per fully diluted share, up 62.9% from adjusted net income available to common shareholders of $3.6 million, or $0.09 per fully diluted share, in 2007. Adjusted net income for 2007 excludes a one-time tax relief of $6.7 million. The computation of adjusted net income is set forth below.
Financial Condition
As of December 31, 2008, the Company had cash and cash equivalents of $0.3 million, accounts receivable of $4.5 million and working capital of $3.2 million. The Company had $1.0 million in short-term loans payable and stockholders' equity of $32.9 million. During 2008, the Company generated $5.2 million from operating activities and had net capital expenditures of $13.7 million, primarily related to acquiring and equipping facilities for the larger size forged rolled rings.
Business Outlook
China Wind Systems began producing forged products at its new facility in February 2009 after successfully completing equipment test runs. The Company's sample products were approved and inspected by prospective customers and preliminary agreements with several additional customers were signed in March 2009, including Dong Fang Electric, Co., Ltd., Zhejiang Yunda Co., Ltd., Shanghai Electric Co., Ltd. and Mingyang Wind Power Technology Co., Ltd.
While the Company did experience some delay in the automation process at its new facility, production is underway and management expects to ramp up capacity to meet existing orders in the second and third quarters of 2009.
"Apart from manufacturing first-class forged products, we are also dedicated to providing superior after-sales service in order to establish ourselves as the preferred manufacturer of forged products," Mr. Wu said. "We are encouraged by the Chinese government's strong support of China's wind industry, which analysts predict will reach 50-60 GW of installed wind capacity by 2015, and are confident that we have found our niche in the supplying this industry while we continue to generate revenue from our other segments. However," Mr Wu continued, "the worldwide economic downturn has hit the Chinese textile manufacturing segment hard, and we anticipate that sales from our dyeing and finishing segment may decline significantly."
Conference Call
The Company will conduct a conference call at 8:00 a.m. Eastern Daylight Time (EDT) on Wednesday, April 1, 2009 to discuss its fourth quarter and full year 2008 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 800-688-0796, and enter the conference passcode 660-967-97 when prompted. International callers should dial 617-614-4070, and enter the same passcode, 660-967-97. If you are unable to participate in the call at this time, a replay will be available for 14 days starting on April 1 at 10:00 a.m. EDT. To access the replay, dial 888-286-8010 and enter the passcode, 503-31-533. International callers dial 617-801-6888, and enter the same passcode,
501-31-533.
Use of Non-GAAP Financial Measures
GAAP results for fiscal year 2008 include $2.3 million in one-time amortization of debt discount and debt issuance costs related to the Company's November 2007 private placement and a $2.9 million non-cash preferred deemed dividend from the issuance of stock warrants upon conversion of convertible debt into series A preferred stock. GAAP results for the fiscal year 2007 include a one-time tax relief in VAT and income taxes of $6.7 million. Because these charges are non-cash, one-time charges and are not related to the Company's operating results, the Company believes that the non-GAAP information is useful to supplement the Company's condensed consolidated financial statements. A reconciliation of the adjustments to GAAP results appears in the table accompanying this press release. This additional non-GAAP information is not meant to be considered as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from the non-GAAP information provided by other companies.
About China Wind Systems, Inc.
China Wind Systems supplies forged rolled rings to the wind power and other industries and industrial equipment to the textile and energy industries in China. With its newly finished state-of-the-art production facility, the Company plans to increase its production and shipment of high-precision rolled rings and other essential components primarily to the wind power and other industries. For more information on the Company, visit http://www.chinawindsystems.com. Information on the Company's Web site or any other Web site does not constitute a portion of this release.
Safe Harbor Statement
This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes, expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (www.sec.gov). All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.
-Financial Tables Follow-
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended For the Years Ended
December 31, December 31,
2008 2007 2008 2007
NET REVENUES $10,885,299 $7,828,910 $42,285,485 $24,418,385
COST OF SALES 8,231,321 5,534,454 31,740,041 17,366,000
GROSS PROFIT 2,653,978 2,294,456 10,545,444 7,052,385
OPERATING EXPENSES:
Depreciation 77,643 74,922 305,832 282,797
Selling, general
and administrative 495,105 541,187 2,176,282 1,107,293
Total Operating
Expenses 572,748 616,109 2,482,114 1,390,090
INCOME FROM OPERATIONS 2,081,230 1,678,347 8,063,330 5,662,295
OTHER INCOME (EXPENSE):
Interest income 1,850 2,570 13,569 2,942
Interest expense (25,985) (435,344) (2,324,859) (466,704)
Foreign currency
loss (13,400) -- (13,400) --
Other income from
foregiveness of
income and VAT
taxes -- (61,431) -- 6,710,011
Debt issuance
costs -- (3,571) (21,429) (3,571)
Other income -- 57,198 -- 57,198
Total Other
Income (Expense) (37,535) (440,578) (2,346,119) 6,299,876
INCOME BEFORE INCOME
TAXES 2,043,695 1,237,769 5,717,211 11,962,171
INCOME TAXES 583,617 334,336 2,234,948 1,649,430
NET INCOME 1,460,078 903,433 3,482,263 10,312,741
DEEMED PREFERRED STOCK
DIVIDEND -- -- (2,884,062) --
NET INCOME AVAILABLE TO
COMMON SHAREHOLDERS 1,460,078 903,433 $598,201 $10,312,741
COMPREHENSIVE INCOME:
NET INCOME 1,460,078 903,433 $3,482,263 $10,312,741
OTHER
COMPREHENSIVE
INCOME:
Unrealized
foreign
currency
translation
gain 9,391 489,749 1,688,944 1,013,735
COMPREHENSIVE
INCOME 1,469,469 1,393,182 $5,171,207 $11,326,476
NET INCOME PER COMMON
SHARE:
Basic $0.03 $0.02 $0.01 $0.28
Diluted $0.02 $0.02 $0.01 $0.26
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 44,069,316 36,998,534 40,000,487 36,683,776
Diluted 62,585,767 59,869,403 63,621,211 40,168,234
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2008 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $328,614 $5,025,434
Notes receivable 269,549 --
Accounts receivable, net of
allowance for doubtful accounts 4,518,259 2,158,412
Inventories, net of reserve for
obsolete inventory 1,892,090 1,929,796
Advances to suppliers 117,795 938,331
Due from related party 437,688 --
Prepaid expenses and other 21,744 378,429
Total Current Assets 7,585,739 10,430,402
PROPERTY AND EQUIPMENT - net 25,939,596 6,525,986
OTHER ASSETS:
Deposit on long-term assets -
related party -- 10,863,706
Land use rights, net 3,806,422 502,634
Investment in cost method investee -- 34,181
Due from related party -- 139,524
Total Assets $37,331,757 $28,496,433
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $1,021,272 $820,333
Convertible debt, net of discount
on debt -- 3,261,339
Accounts payable 2,485,137 1,845,769
Accrued expenses 187,605 198,542
VAT and service taxes payable 97,341 434,839
Advances from customers 45,748 77,357
Due to related party -- 98,541
Income taxes payable 569,371 508,407
Total Current Liabilities 4,406,474 7,245,127
RELATED PARY TRANSACTIONS
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock $0.001 par value;
(December 31, 2008 -
60,000,000 shares authorized,
all of which were designated
as series A convertible
preferred, 14,028,189 shares
issued and outstanding;
December 31, 2007 - no shares
authorized, issued or
outstanding) 14,028 --
Common stock ($0.001 par value;
150,000,000 shares authorized;
44,895,546 and 37,384,295
shares issued and outstanding
at December 31, 2008 and 2007,
respectively) 44,896 37,385
Additional paid-in capital 15,571,288 3,488,896
Retained earnings 13,639,641 16,074,270
Statutory reserve 621,203 305,472
Other comprehensive gain -
cumulative foreign currency
translation adjustment 3,034,227 1,345,283
Total Stockholders' Equity 32,925,283 21,251,306
Total Liabilities and
Stockholders' Equity $37,331,757 $28,496,433
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
December 31,
2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,482,263 $10,312,741
Adjustments to reconcile net income
from operations to net cash
provided by operating activities:
Depreciation 648,952 598,507
Amortization of debt discount to
interest expense 2,263,661 377,277
Amortization of debt offering costs 21,429 3,571
Amortization of land use rights 84,906 10,492
Increase in allowance for doubtful
accounts 203,414 377,608
Increase in reserve for inventory
obsolescence -- (244,981)
Stock based compensation expense 113,420 139,373
Other income from forgiveness of
income and VAT taxes -- (6,710,011)
Changes in assets and liabilities:
Notes receivable (265,366) --
Accounts receivable (2,384,061) (44,492)
Inventories 164,596 (38,432)
Prepaid and other current assets 338,063 (273,312)
Advances to suppliers 869,784 696,492
Due from related party (430,894) --
Accounts payable 490,230 1,160,691
Accrued expenses (894) 23,103
VAT and service taxes payable (360,984) 1,472,360
Income taxes payable 26,434 1,267,374
Advances from customers (36,229) (110,144)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 5,228,724 9,018,217
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from due from related
parties 145,534 948,722
Proceeds from sale of cost-method
investee 35,908 --
Deposit on long-term assets -
related party (89,721) (10,339,525)
Purchase of property and equipment (13,813,297) (10,566)
NET CASH USED IN INVESTING ACTIVITIES (13,721,576) (9,401,369)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 143,632 393,846
Proceeds from convertible debt -- 5,525,000
Payment of placement fees -- (30,000)
Payments in connection with
recapitalization -- (1,040,000)
Proceeds from exercise of warrants 2,187,566 --
Proceeds from sale of common stock 1,393,883 --
Payments on related party advances (102,979) 94,620
NET CASH PROVIDED BY FINANCING
ACTIVITIES 3,622,102 4,943,466
EFFECT OF EXCHANGE RATE ON CASH 173,930 43,730
NET (DECREASE) INCREASE IN CASH (4,696,820) 4,604,044
CASH - beginning of year 5,025,434 421,390
CASH - end of year $328,614 $5,025,434
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $75,159 $68,708
Income taxes $2,208,514 $85,120
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
AND DILUTED EPS
For the Twelve Months ended December 31,
2008 2007
Diluted Diluted
Net Income EPS Net Income EPS
Adjusted Amount of Net Income
available to Common Shareholders $5,828,551 $0.09 $3,602,730 $0.09
Adjustment
Interest expenses related to
amortization of conversion of
convertible debt to common
stock (1) 2,324,859 0.04 -- --
Amortization of debt issuance
costs (2) 21,429 0.00 -- --
Deemed preferred dividend (3) 2,884,062 0.05 -- --
Other income from forgiveness
of VAT and income taxes (4) -- -- (6,710,011) (0.17)
Amount per consolidated statement
of operations $598,201 $0.01 $10,312,741 $0.27
(1) One-time, non-cash interest expenses related to amortization of
debt discount to interest expense, Q1 2008
(2) Amortization related to debt issuance
(3) One-time non-cash deemed preferred dividend related to issuance of
stock warrants upon conversion of convertible debt to series A
preferred stock
(4) One-time tax relief in VAT and income taxes in the third quarter of
2007
Weighted average diluted shares, 63,621,211 for twelve months ended
December 31,2008 and 40,168,234 for twelve months ended December
31, 2007
