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China Wind Systems, Inc. Reports Second Quarter 2010 Results

2010-08-16 19:25
-- Second quarter 2010 revenues increased 39.7% to $19.0 million

-- Net income increased 69.8% to $3.0 million, or $0.12 per diluted share

    WUXI, Jiangsu, China, Aug. 16 /PRNewswire-Asia-FirstCall/ -- China Wind Systems, Inc. (Nasdaq: CWS), ("China Wind Systems" or the "Company"), a leading supplier of forged rolled rings and other forged components to the wind power and other industries and industrial equipment primarily to the textile industry in China, today announced its financial results for the second quarter and the six months ended June 30, 2010.

    Second Quarter 2010 Highlights and Recent Events 
    -- Net revenue increased 39.7% year over year to $19.0 million 
    -- Revenue from the sale of forged products to the wind power and other 
       industries increased 40.5% year over year to $13.8 million, or 72.5% of 
       net revenues 
    -- Revenue from the sale of forged products exclusively to the wind power 
       industry increased 152.1% year over year to $9.2 million, or 48.4% of 
       net revenue 
    -- Operating income increased 59.4% year over year to $4.0 million
    -- Earnings before interest, taxes, depreciation and amortization (EBITDA) 
       increased 46.4% year over year  to $4.7 million
    -- Net income increased 69.8% to $3.0 million, or $0.12 per diluted share 
    -- In July 2010, the Company delivered the first customer shipment of its 
       Electro-Slag Remelted (ESR) forged products

    "During the quarter, our forged products continued to experience strong growth, led by a significant increase in demand from our wind power customers," commented Mr. Jianhua Wu, Chairman and CEO of China Wind Systems, Inc. "In addition, we are currently in final stages of negotiations with a number of wind power component clients to supply shafts and other forged products in the second half of 2010. We believe wind power is becoming an economically viable source of clean and renewable energy, promotes energy conservation and reduces carbon emissions in China, and we believe that the Chinese government will continue to extend strong support to this sector.  We plan to leverage on what we see as our competitive edge in the industry to strengthen our market position." 

    Second Quarter 2010 Results
    Net revenue for the second quarter of 2010 increased 39.7% to $19.0 million, compared to $13.6 million in the same period of 2009. The increase was primarily due to strong sales growth of forged rolled rings and related components for the wind power industry segment, as well as strong improvement in the dyeing and finishing equipment segment, which was offset by a decline in sales of forged rolled rings and other components to other industries. Revenue from the sale of forged rolled rings to the wind power industry and other industries grew 40.5% to $13.8 million, or 72.5% of net revenue, compared to $9.8 million, or 72.0% of net revenue, in the same period last year. Revenue from the sale of forged rolled rings exclusively to the wind power industry rose 152.1% to $9.2 million, representing 48.4% of net revenue, compared to $3.6 million, or 26.8% of net revenues in the comparable period last year.  Revenue from the sale of forged rolled rings to other industries decreased by 25.6% to $4.6 million, or 24.1% of net revenue, compared with $6.1 million for the comparable period of the prior year.  Revenue from the Company's dyeing and finishing equipment segment increased 37.6% to $5.2 million, or 27.5% of net revenues, compared to $3.8 million, or 28.0% of net revenue, for the second quarter of 2009. The dyeing and finishing equipment segment improved year over year, reflecting both the effects of the Chinese government's recent support for the textile industry in China and the recovery of the Chinese economy from the global economic downturn.
    Gross profit for the second quarter of 2010 increased 60.3% to $5.0 million, compared to $3.1 million for the same period in the prior year. Gross margin increased 3.3 percentage points to 26.2%, compared to 22.9% for the same period in 2009. Gross margin for the Company's forged rolled rings and other components and dyeing and finishing equipment were 28.3% and 20.7% respectively during the second quarter of 2010 compared to 23.2% and 22.1% respectively during the same quarter last year. The increase in gross margin for forged rolled rings and other components segment was largely attributable to improved operational efficiency as the Company increased capacity utilization during the quarter compared to the same period of fiscal 2009. The 1.4 percentage points decline in gross margin for the Company's dyeing and finishing equipment segment was due to reduction of sales price due to stronger competition in the textile industry in China.
    Operating expenses increased 64.1% to $1.0 million, compared to $0.6 million in the comparable period last year, as a result of higher selling, general, and administrative expenses related increased payroll expenses, stock-based compensation, and professional fees. 
    Operating income increased 59.4% to $4.0 million, compared to $2.5 million for the same period in 2009. Operating margin increased 2.6 percentage points to 21.1%, compared to 18.5% in the second quarter last year. 
    EBITDA, a non-GAAP measurement, rose 46.4% to $4.7 million, compared to $3.2 million in the same period last year.  The reconciliation of EBITDA to net income is discussed below.
    Net income increased 69.8% to $3.0 million, compared to $1.8 million in the comparable period last year. Diluted earnings per share were $0.12, compared to $0.08 in the same period of 2009.  Diluted earnings per share were calculated using weighted average shares of 25,210,214 and 21,256,154 for the three months ended June 30, 2010 and June 30, 2009, respectively.

    Six months Results
    For the first half of 2010, revenues increased to $35.8 million, up 67.0% from $21.4 million in the corresponding period of 2009. Gross profit increased 99.8% to $9.4 million, compared to $4.7 million in the same period one year ago.  Gross margin in the first half of 2010 was 26.2%, up 4.3 percentage points from 21.9% during the corresponding period in 2009. Operating income increased 96.5% to $6.9 million from $3.5 million. EBITDA, a non-GAAP measurement, rose 86.7% to $8.2 million, compared to $4.4 million in the same period last year. Net income was $5.0 million, or $0.20 per diluted share, 104.8% increase from $2.4 million or $0.12 per diluted share.

    Financial Condition
    As of June 30, 2010, China Wind Systems held cash and cash equivalents of $1.4 million, accounts receivable of $6.6 million, and working capital of $4.9 million. The Company had $1.0 million in short-term loans payable, no 
long-term debt and stockholders' equity stood at $52.5 million.  
    In the first half of 2010, the Company generated $6.5 million in operating cash flow and spent $8.0 million in capital expenditures, primarily for property and equipment related to the Company's ESR production line.

    Business Outlook
    In response to growing demand for the Company's forged products for the wind industry, China Wind Systems plans to add an additional small-scale production line to complement its current forging facility and support strong order flow.  The Company is in final stage of negotiations with a number of wind power component clients to supply shafts and other forged products in the second half of 2010. 
    "We have received positive feedback on our ESR and forged products and heightened interest from a number of potential wind energy clients, some of whom received trial products from us," commented Mr. Wu. "In the short term, we plan to add a new fabrication machine to meet the customization requirements by our clients. Our ESR production line has quickly ramped up to full utilization during the third quarter of 2010, and we plan on expanding ESR production as we receive orders from new customers. We anticipate significant growth in demand for our ESR products as they gain wide acceptance among wind power component manufacturers. With the Chinese government's recently announced commitment to invest RMB 5.0 trillion (or $737.5 billion) in new energy, we believe the wind energy sector in China will continue to flourish."
    The Company reaffirms its 2010 financial guidance estimating revenues to be in the range of $76.5 million to $85.0 million, EBITDA, a non-GAAP measurement, is expected to be in the range of $22.7 million to $25.2 million and net income is anticipated to be between $15.5 million and $16.3 million
    The Company anticipates stronger demand for both its traditional forged products and ESR forged products in 2010, as management expects stronger sales of precision forged products used in large wind turbines. The Company anticipates revenue contributed by its wind industry segment will increase by approximately 75% year over year to $35 million. 

    Conference Call
    China Wind Systems will conduct a conference call at 9:00 a.m. Eastern Time on Monday, August 16, 2010 to discuss results for the second quarter of fiscal 2010. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (877) 359-2891. International callers should dial (702) 224-9578. When prompted, please enter conference passcode: 935 38 714.
    If you are unable to participate in the conference call at this time, a replay will be available for 14 days starting on August 16, 2010 at 10:00 a.m. ET. To access the replay, dial (800) 642-1687. International callers dial (706) 645-9291, and enter passcode: 935 38 714.

    About China Wind Systems, Inc.
    China Wind Systems supplies precision forged components such as rolled rings, shafts and flanges to the wind power and other industries and industrial equipment primarily to the textile industry in China. With its newly finished state-of-the-art production facility, the Company has increased 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.

    Use of Non-GAAP Financial Information
    To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, namely earnings before interest, taxes, depreciation and amortization (EBITDA). The Company's management believes that this non-GAAP measure provides investors with an understanding of how the results relate to the Company's historical performance. The non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. A reconciliation of each non-GAAP measures appear below:



China Wind Systems, Inc. and Subsidiaries
Reconciliation of Net Income to EBITDA
(USD)

                             Three Months Ended          Six Months Ended     
                            June 30,      June 30,      June 30,    June 30,  
                              2010          2009          2010        2009 
    Net income from                                                      
     consolidated                                                         
     statement                                                           
     of income            $3,023,657    $1,780,535    $4,970,194  $2,426,593 
    Income tax                                                           
     expense               1,007,823       701,494     1,918,116   1,038,155 
    Interest                                                             
     expense(net of                                                          
     interest income)         17,016       175,960        90,691     199,401 
    Depreciation and                                                     
     amortization            637,623       543,620     1,243,887     740,318 
    EBITDA                 4,686,119     3,201,609     8,222,888   4,404,467 


    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 AND COMPREHENSIVE INCOME
        
                          For the Three Months Ended For the Six Months Ended
                                   June 30,                  June 30,
                              2010         2009         2010         2009
                           (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
    
    NET REVENUES           $18,977,274  $13,584,030  $35,817,956  $21,444,897
    
    COST OF REVENUES        14,000,017   10,479,370   26,424,004   16,743,588
    
    GROSS PROFIT             4,977,257    3,104,660    9,393,952    4,701,309
    
    OPERATING EXPENSES:
         Depreciation           78,060       83,393      161,015      160,923
         Selling, general 
          and administrative   894,805      509,408    2,296,181    1,010,356
    
            Total Operating    
             Expenses          972,865      592,801    2,457,196    1,171,279
    
    INCOME FROM OPERATIONS   4,004,392    2,511,859    6,936,756    3,530,030
    
    OTHER INCOME          
     (EXPENSE):
         Interest income         1,478           98        2,722          328
         Interest expense      (18,494)    (176,058)     (93,413)    (199,729)
         Foreign currency 
          loss                  (5,042)          --       (6,901)         (11)
         Grant income           49,146      146,130       49,146      146,130
         Debt issuance    
          costs                     --           --           --      (12,000)
    
            Total Other   
             Income       
             (Expense)          27,088      (29,830)     (48,446)     (65,282)
    
    INCOME BEFORE INCOME  
     TAXES                   4,031,480    2,482,029    6,888,310    3,464,748
    
    INCOME TAXES             1,007,823      701,494    1,918,116    1,038,155
    
    NET INCOME              $3,023,657   $1,780,535   $4,970,194   $2,426,593
    
    COMPREHENSIVE INCOME:
          NET INCOME        $3,023,657   $1,780,535   $4,970,194   $2,426,593
    
          OTHER           
           COMPREHENSIVE  
           INCOME:
               Unrealized 
                foreign   
                currency  
                translation
                gain           208,813        3,253      216,083       44,793
    
          COMPREHENSIVE   
           INCOME           $3,232,470   $1,783,788   $5,186,277   $2,471,386
    
    NET INCOME PER COMMON 
     SHARE:
        Basic                    $0.17        $0.12        $0.29        $0.16
        Diluted                  $0.12        $0.08        $0.20        $0.12
    
    WEIGHTED AVERAGE      
     COMMON SHARES        
     OUTSTANDING:
        Basic               17,574,225   15,080,436   17,414,400   15,034,768
        Diluted             25,210,213   21,256,154   25,193,516   20,207,770
    


                    CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
        
                                              June 30, 2010  December 31, 2009
                                                (Unaudited)        (Audited)
                   ASSETS
    
    CURRENT ASSETS:
        Cash and cash equivalents               $1,380,956        $2,278,638
        Notes receivable                           192,404           329,492
        Accounts receivable, net of      
         allowance for doubtful accounts         6,651,052         6,046,422
        Inventories, net of reserve for  
         obsolete inventory                      3,468,206         2,232,264
        Advances to suppliers                      378,857           450,507
        Prepaid VAT on purchases                   711,533           378,543
        Prepaid expenses and other                  66,977           213,835
    
            Total Current Assets                12,849,985        11,929,701
    
    PROPERTY AND EQUIPMENT - net                43,824,230        36,863,501
    
    OTHER ASSETS:
       Land use rights, net                      3,701,682         3,729,427
    
            Total Assets                       $60,375,897       $52,522,629
    
    LIABILITIES AND STOCKHOLDERS' EQUITY
    
    CURRENT LIABILITIES:
        Loans payable                           $1,028,112        $2,040,111
        Accounts payable                         5,071,713         3,404,521
        Accrued expenses                           353,914           556,662
        VAT and service taxes payable               81,029            25,284
        Advances from customers                    321,755           143,261
        Income taxes payable                     1,053,011         1,018,514
    
            Total Current Liabilities            7,909,534         7,188,353
    
    STOCKHOLDERS' EQUITY:
        Preferred stock $0.001 par value 
         (60,000,000 shares authorized,  
         all of which  were designated as
         as series A convertible preferred,        
         14,934,264 and 15,419,088 shares 
         issued and outstanding; at June 30,
         2010 and December 31, 2009,  
         respectively)                              14,934            15,419
        Common stock ($0.001 par value;  
         150,000,000 shares authorized;
           17,639,787 and 16,402,204     
           shares issued and outstanding
           at June 30, 2010 and December 
           31, 2009, respectively)                  17,640            16,402
        Additional paid-in capital              24,277,813        22,332,756
        Retained earnings                       23,565,231        18,595,037
        Statutory reserve                        1,252,980         1,252,980
        Accumulated other comprehensive  
         gain - foreign currency         
         translation adjustment                  3,337,765         3,121,682
    
            Total Stockholders' Equity          52,466,363        45,334,276
    
            Total Liabilities and        
             Stockholders' Equity              $60,375,897       $52,522,629



                    CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
    
                                                  For the Six Months Ended
                                                          June 30,
                                                    2010              2009
                                                (Unaudited)       (Unaudited)
    CASH FLOWS FROM OPERATING ACTIVITIES:
      Net income                                 $4,970,194        $2,426,593
      Adjustments to reconcile net income 
       from operations to net cash
       provided by operating activities:
        Depreciation                              1,200,642           697,127
        Amortization of debt discount to  
         interest expense                            44,993            16,997
        Amortization of land use rights              43,245            43,191
        Increase in allowance for doubtful
         accounts                                   223,333           143,620
        Interest expense related to debt  
         conversion                                      --           128,489
        Stock-based compensation expense            345,386           119,612
      Changes in assets and liabilities:
        Notes receivable                            137,942          (131,584)
        Accounts receivable                        (800,348)       (1,891,180)
        Inventories                              (1,221,872)         (621,840)
        Prepaid value-added taxes on      
         purchases                                 (330,132)         (234,142)
        Prepaid and other current assets            147,299           (50,602)
        Advances to suppliers                        73,262            (5,964)
        Due from related party                           --           438,389
        Accounts payable                          1,646,567           403,527
        Accrued expenses                           (203,916)           82,146
        VAT and service taxes payable                55,425           (97,497)
        Income taxes payable                         30,102           131,045
        Advances from customers                     177,212           426,134
    
    NET CASH PROVIDED BY OPERATING        
     ACTIVITIES                                   6,539,334         2,024,061
    
    CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchase of property and equipment       (7,980,484)       (2,849,156)
    
    NET CASH USED IN INVESTING ACTIVITIES        (7,980,484)       (2,849,156)
    
    CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from loans payable                      --         1,133,612
        Repayment of loans payable               (1,061,556)               --
        Proceeds from exercise of warrants        1,600,000            83,111
    
    NET CASH PROVIDED BY FINANCING        
     ACTIVITIES                                     538,444         1,216,723
    
    EFFECT OF EXCHANGE RATE ON CASH AND   
     CASH EQUIVALENTS                                 5,024               585
    
    NET (DECREASE) INCREASE IN CASH AND   
     CASH EQUIVALENTS                              (897,682)          392,213
    
    CASH AND CASH EQUILAVENTS - beginning 
     of year                                      2,278,638           328,614
    
    CASH AND CASH EQUIVALENTS - end of    
     period                                      $1,380,956          $720,827
    
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW  
     INFORMATION:
      Cash paid for:
          Interest                                  $50,563           $46,443
          Income taxes                           $1,888,014          $921,760
 

    For more information, please contact:

    Company Contact:		     
     Ms. Teresa Zhang		 
     Chief Financial Officer		 
     China Wind Systems, Inc.		
     Tel:   +1-877-224-6696 x705		
     Email: teresa.zhang@chinawindsystems.com          
     Web:   http://www.chinawindsystems.com			
			
    Investor Relations Contact:              
     Mr. Athan Dounis
     Account Manager
     CCG Investor Relations
     Tel:   +1-646-213-1916 (NY Office)
     Email: athan.dounis@ccgir.com

Source: China Wind Systems, Inc.

Related stocks: NASDAQ:CWS

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