-- Net revenues increased 37.1% year-over-year to $16.1 million
-- Adjusted net income increased 34.3% year over year to $2.5 million, or
$0.11 per diluted share
WUXI, Jiangsu, China, Nov. 17 /PRNewswire-Asia/ -- China Wind Systems, Inc. (OTC Bulletin Board: CHWY), ("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 quarter and nine months ended September 30, 2009.
Third Quarter 2009 Highlights and Recent Events
-- Net revenues increased 37.1% year over year to $16.1 million
-- Revenue from the sale of forged products for the wind power and other
industries increased 112.0% year over year to $11.1 million, or 69.1%
of net revenues
-- Revenue from the sale of forged products exclusively to the wind power
industry increased 175.7% year over year to $6.9 million, or 42.6% of
net revenue
-- Gross profit increased 31.7% year over year to $3.9 million
-- Net income allocable to common shareholders increased 9.4% year over
year to $2.0 million, or $0.09 per fully diluted share
-- Adjusted net income was $2.5 million, or $0.11 per diluted share, up
34.3% year over year excluding $462,000 non-cash deemed preferred stock
dividend related to issuance of 1.1 million series A preferred shares
in the third quarter of 2009
-- Completed one-for-three reverse stock split effective September 23,
2009
-- Raised $3.5 million for the private sale of 3.5 million shares of
Series A preferred shares in September and October 2009 to fund payment
of electro-slag re-melted (ESR) forged products production line
"We are very encouraged to have achieved another quarter of strong earnings growth driven by rapidly expanding forged product segment for wind power and other industries," said Mr. Jianhua Wu, Chairman and CEO of China Wind Systems, Inc. "In October 2009, we commenced construction of our ESR production line which will be housed in an expanded wing of our newly built forged product facility. We anticipate completing construction by the end of the first quarter of 2010. We are confident that the addition of high precision forged products to our product portfolio will increase our competitiveness in the wind power components market."
Third Quarter 2009 Results
Net revenues for the third quarter of 2009 increased 37.1% to $16.1 million, compared to $11.8 million for the same period in 2008. The increase was primarily due to strong sales growth of forged rolled rings. Revenues from the sale of forged rolled rings for the wind power and other industries grew 112.0% to $11.1 million, or 69.1% of net revenue, for the third quarter of 2009, compared to $5.3 million, or 44.6% of net revenue, for the same period of the prior year. Revenue from the sale of forged rolled rings exclusively for the wind power industry rose 175.7% to $6.9 million, and represented 42.6% of net revenues, compared to $2.5 million, or 21.2% of net revenues in the year-ago period. Revenues from the Company's dyeing and finishing equipment segment decreased 16.4% to $5.0 million, or 30.9% of net revenues, compared to $6.0 million, or 50.6% of net revenue, for the third quarter of 2009 due to impact of the global recession on China's textile industry.
Gross profit for the third quarter of 2009 increased 31.7% to $3.9 million, from $3.0 million for the same period in the prior year. Gross margin was 24.1% compared to 25.1% for the same period in 2008. The dyeing and finishing equipment segment's gross margin was 21.7%, down from 26.3% in the comparable period in 2008, resulting from higher raw materials costs and industry pricing pressure. Gross margin for forged rolled rings and electric power equipment was 25.1%, compared with 23.8% in the same period last year. The increase was attributable to cost savings resulting from the Company's ability to manufacture machinery used by the Company to produce its forging products which the Company previously outsourced. As the Company improves its efficiency at the new facility, the Company expects the gross margins to continue to improve.
Operating expenses decreased 2.9% to $469,755, compared to $483,790 in the comparable period last year, primarily the result of lower professional fees.
Operating income increased 38.5% to $3.4 million for the third quarter of 2009, from $2.5 million for the same period in the prior year.
Net income allocable to common shareholders increased 9.4% to $2.0 million, compared to $1.9 million in the third quarter of 2008. Diluted earnings per share increased to $0.09 from $0.08 in the comparable period last year. Adjusted net income excluding $462,000 one time non-cash deemed preferred stock dividend related to issuance of 1.1 million series A preferred shares in the third quarter of 2009 was $2.5 million, up 34.3% from $1.9 million a year ago. Diluted earnings per share were calculated using weighted average shares of 23,506,936 and 22,396,370 for the three months ended September 30, 2009 and 2008, respectively. All share and per share information reflects the one-for-three reverse stock split, which became effective on September 23, 2009.
Nine Month Results
For the first nine months of 2009, revenues increased to $37.6 million, up 19.7% from $31.4 million in the corresponding period of 2008. Gross profit increased 8.9% to $8.6 million, as compared to $7.9 million in the comparable period last year. Gross margin was 22.8%, as compared to 25.1% during the first nine months of 2008. Operating income increased 16.2% to $7.0 million, from $6.0 million during the first nine months of 2009. Net income attributable to common shareholders was $4.5 million, or $0.20 per diluted share, compared to net loss available to common shareholders of $0.9 million, or net loss of $0.07 per diluted share, in the first nine months of 2008. Diluted earnings per share were calculated using weighted average shares of 21,969,692 and 12,878,103 for the three months ended September 30, 2009 and 2008, respectively, as adjusted for a 3-to-1 reverse stock split, effective on September 23, 2009. Adjusted net income allocable to common shareholders was $5.1 million, or $0.23 per diluted share, as compared to $4.3 million, or $0.33 per diluted share.
Financial Condition
As of September 30, 2009, the Company had cash and cash equivalents of $1.2 million, accounts receivable of $6.0 million and working capital of $5.4 million. The Company had $1.4 million in short-term loans payable, $0.7 million in long-term debt, and stockholders' equity of $39.7 million.
During the first nine months of 2009, the Company generated $4.9 million in operating cash flow and spent $6.5 million in capital expenditures, primarily for property and equipment related to the new forged products facility and ESR production line.
Recent Developments
In September and October 2009, the Company received gross proceeds of $3,500,000 from the sale of 3,500,000 shares of series A preferred stock to pay down payment for its ESR project.
On October 13 2009, the Company completed a one-for-three reverse stock split, an important step for the Company to meet the minimum share price requirements for listing on a senior stock exchange in the United States.
Business Outlook
"As we continue to increase the utilization rate at our forging facility, we anticipate gaining momentum for our sales activity," commented Mr. Wu. "Upon completion of our ESR production line, we expect to be in a stronger position to apply for the highly valued international certifications that we believe are necessary for us to win larger contracts to supply wind energy components to major industry players. In addition, we expect to achieve higher gross margins in our ESR forged product line, which is anticipated at approximately 35%-40%. Given anticipated consolidation in the wind energy components industry, we are focused on improving the quality of our products to further distinguish the Company."
Conference Call
The Company will conduct a conference call at 10:00 a.m. Eastern Standard Time (EST) on Tuesday, November 17, 2009 to discuss its third quarter 2009 results. To participate in the live conference call, please dial 888-419-5570 (international callers dial 617-896-9871) approximately ten minutes prior to the start of the call and when prompted enter passcode 794 278 01. A replay will be available for 14 days starting November 17 at 12:00 a.m. EST. To access the replay, dial (888) 286-8010 (international callers dial 617-801-6888) and enter passcode 486 940 06.
Use of Adjusted Financial Measures
China Wind Systems believes that net income adjusted for certain non-cash expenses, a non-GAAP performance measure, is a reasonable means for understanding its business in view of the significant non-cash charges which do not relate to the operation of the business. In connection with the Company's November 2007 private placement, it issued 3% convertible notes to the investors in the principal amount of the $5,525,000. Because of the favorable conversion terms, the debt was issued at a discount of $2,610,938. Upon the conversion of the debt into equity in March 2008, the unamortized debt discount of $2,263,661 was fully amortized and treated as additional interest, and the relative fair value of the warrants granted in March 2008 related to the November 2007 private placement of $2,884,062 was classified as a deemed dividend to the holders of the series A preferred stock. Additionally, in September 2009, we sold 1,100,000 shares of series A preferred shares and recorded a beneficial dividend of $462,000. The amortization of the debt discount and the deemed dividend are non-cash events which do not affect the Company's operations.
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 ( http://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 Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET REVENUES $16,132,270 $11,770,162 $37,577,167 $31,400,186
COST OF SALES 12,242,778 8,816,389 28,986,366 23,508,720
GROSS PROFIT 3,889,492 2,953,773 8,590,801 7,891,466
OPERATING EXPENSES:
Depreciation 83,053 69,712 243,976 228,189
Selling, general
and administrative 386,702 414,078 1,397,058 1,681,177
Total Operating
Expenses 469,755 483,790 1,641,034 1,909,366
INCOME FROM OPERATIONS 3,419,737 2,469,983 6,949,767 5,982,100
OTHER INCOME
(EXPENSE):
Interest income 530 2,075 858 11,719
Interest expense (54,251) (20,427) (253,980) (2,298,874)
Foreign currency
loss (3,395) -- (3,406) --
Grant income 15 -- 146,145 --
Debt issuance costs (2,000) -- (14,000) (21,429)
Total Other
Income (Expense) (59,101) (18,352) (124,383) (2,308,584)
INCOME BEFORE INCOME
TAXES 3,360,636 2,451,631 6,825,384 3,673,516
INCOME TAXES 862,199 590,769 1,900,354 1,651,331
NET INCOME 2,498,437 1,860,862 4,925,030 2,022,185
DEEMED PREFERRED STOCK
DIVIDEND (462,000) -- (462,000) (2,884,062)
NET INCOME (LOSS)
ALLOCABLE TO COMMON
SHAREHOLDERS $2,036,437 $1,860,862 $4,463,030 $(861,877)
NET INCOME $2,498,437 $1,860,862 $4,925,030 $2,022,185
OTHER
COMPREHENSIVE
INCOME:
Unrealized
foreign
currency
translation
gain 39,536 67,269 84,329 1,679,553
COMPREHENSIVE
INCOME $2,537,973 $1,928,131 $5,009,359 $3,701,738
NET INCOME (LOSS) PER
COMMON SHARE:
Basic $0.13 $0.14 $0.29 $(0.07)
Diluted $0.09 $0.08 $0.20 $(0.07)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
Basic 15,406,841 13,454,407 15,141,927 12,878,103
Diluted 23,506,936 22,396,370 21,969,692 12,878,103
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2009 2008
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,158,988 $328,614
Notes receivable 87,750 269,549
Accounts receivable, net of
allowance for doubtful accounts 6,004,737 4,518,259
Inventories, net of reserve for
obsolete inventory 3,011,994 1,892,090
Advances to suppliers 270,329 117,795
Due from related party -- 437,688
Prepaid value-added taxes on
purchases 312,314 --
Prepaid expenses and other 120,517 21,744
Total Current Assets 10,966,629 7,585,739
PROPERTY AND EQUIPMENT - net 31,254,373 25,939,596
OTHER ASSETS:
Land use rights, net 3,750,822 3,806,422
Total Assets $45,971,824 $37,331,757
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $1,359,511 $1,021,272
Accounts payable 2,653,637 2,485,137
Accrued expenses 454,435 187,605
VAT and service taxes payable 216,272 97,341
Advances from customers 65,623 45,748
Income taxes payable 862,709 569,371
Total Current Liabilities 5,612,187 4,406,474
LONG-TERM LIABILITIES:
Loan payable - net of current
portion and debt discount 665,001 --
Total Liabilities 6,277,188 4,406,474
RELATED PARTY TRANSACTIONS
Commitments -- --
STOCKHOLDERS' EQUITY:
Preferred stock $0.001 par value;
(September 30, 2009 and
December 31, 2008 - 60,000,000
shares authorized, all of which
were designated as series A
convertible preferred, 14,459,088
and 14,028,189 shares issued and
outstanding; at September 30,
2009 and December 31, 2008,
respectively) 14,459 14,028
Common stock ($0.001 par value;
150,000,000 shares authorized;
15,463,090 and 14,965,182 shares
issued and outstanding at
September 30, 2009 and December
31, 2008, respectively) 15,463 14,965
Additional paid-in capital 17,822,284 15,601,219
Retained earnings 17,692,703 13,639,641
Statutory reserve 1,031,171 621,203
Other comprehensive gain -
cumulative foreign currency
translation adjustment 3,118,556 3,034,227
Total Stockholders' Equity 39,694,636 32,925,283
Total Liabilities and
Stockholders' Equity $45,971,824 $37,331,757
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
2009 2008
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $4,925,030 $2,022,185
Adjustments to reconcile net income
from operations to net cash provided
by operating activities:
Depreciation 1,237,922 482,376
Amortization of debt discount to
interest expense 32,495 2,263,661
Amortization of debt offering
costs -- 21,429
Rent expense associated with
prepaid land use rights -- 63,346
Amortization of land use rights 64,794 --
Increase in allowance for doubtful
accounts 132,073 171,816
Interest expense related to debt
conversion 128,489 --
Stock-based compensation expense 157,778 75,000
Changes in assets and liabilities:
Notes receivable 182,322 --
Accounts receivable (1,606,523) (1,777,797)
Inventories (1,114,510) (124,107)
Prepaid value-added taxes on
purchases (312,090) --
Prepaid and other current assets (52,097) 280,762
Advances to suppliers (152,139) 726,728
Due from related party 438,436 --
Accounts payable 162,519 1,189,915
Accrued expenses 266,205 2,343
VAT and service taxes payable 118,609 (389,946)
Income taxes payable 291,746 48,284
Advances from customers 19,750 (16,345)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 4,920,809 5,039,650
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in due from related
parties -- 145,808
Proceeds from sale of cost-method
investee -- 35,720
Deposit on long-term assets -
related party -- (89,721)
Purchase of property and equipment (6,485,956) (11,629,385)
NET CASH USED IN INVESTING ACTIVITIES (6,485,956) (11,537,578)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 1,213,689 142,880
Proceeds from exercise of warrants 83,112 2,011,575
Proceeds from sale of preferred
stock, net 1,098,000 --
Payments on related party advances -- (102,979)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,394,801 2,051,476
EFFECT OF EXCHANGE RATE ON CASH AND
CASH EQUIVALENTS 720 165,903
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 830,374 (4,280,549)
CASH AND CASH EQUILAVENTS - beginning
of year 328,614 5,025,434
CASH AND CASH EQUIVALENTS - end of
period $1,158,988 $744,885
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $83,782 $55,932
Income taxes $1,623,260 $1,603,047
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Debt discount for grant of warrants $92,985 $--
Deemed preferred stock dividend
reflected in paid-in capital $462,000 $2,884,062
Reclassification of long-term deposit-
related party to distribution $-- $2,717,099
Common stock issued for future service $46,667 $--
Convertible debt converted to series
A preferred stock $-- $5,525,000
Deposit on long-term assets-related
party reclassified to intangible assets $-- $3,286,935
Series A preferred converted to
common shares $669 $759
Reclassification of common stock to
paid-in capital due to reverse split $30,926 $--
Common stock issued for debt $152,963 $--
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF ADJUSTED NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
AND DILUTED EPS
` For the Three Months ended September 30,
2009 2008
Net Income Diluted EPS Net Income Diluted EPS
Amount per consolidated
statement of operations $2,036,437 $0.09 $1,860,862 $0.08
Adjustment
Deemed dividend to
preferred stockholders 462,000 0.02 -- --
Adjusted Amount of Net
Income available to
Common Shareholders $2,498,437 $0.11 $1,860,862 $0.08
Weighted average
diluted shares,
23,506,936 for
three months ended
September 30, 2009
and 22,396,370 for
three months ended
September 30, 2008
For the Nine Months ended September 30,
2009 2008
Net Income Diluted EPS Net Income Diluted EPS
Amount per consolidated
statement of operations $4,463,030 $0.20 $(861,877) $(0.07)
Adjustment
Deemed dividend to
Preferred stockholders 462,000 0.02 2,884,062 0.22
Non-cash interest from
amortization of debt
discount 32,000 -- 2,264,000 0.18
Amortization of
debt issuance costs -- -- 21,429 --
Non-cash interest from
debt conversion 128,000 0.01 -- --
Adjusted Amount of Net
Income available to
Common Shareholders $5,085,030 $0.23 $4,307,614 $0.33
Weighted average
diluted shares,
21,969,692 for
nine months ended
September 30, 2009
and 12,878,103 for
three months ended
June 30, 2008
