DALIAN, China, May 11 /PRNewswire-Asia/ -- Fushi Copperweld, Inc. (Nasdaq: FSIN), the leading global manufacturer and innovator of copper-clad bimetallic wire used in a variety of telecommunication, utility, transportation and other electrical applications, today announced financial results for the first quarter ended March 31, 2009.
First Quarter Highlights
-- GAAP EPS of $0.11
-- Adjusted Non-GAAP EPS of $0.14
-- CCA volume shipped from Dalian increased 1% compared to first quarter
2008 despite global economic slowdown
-- Dalian operated at only 67% capacity in 1Q09; well positioned to
capitalize on expected near term growth
-- Implemented further cost reductions at Fayetteville
-- Improved cash flows from operating activities by $15.6 million compared
to first quarter 2008
-- Adjusted Non-GAAP EPS for 2Q 2009 projected to be $0.21 - $0.25
Revenues for the first quarter of 2009 decreased 34.6% to $35.3 million, down from $54.0 million in the prior year's quarter. The decrease was driven primarily by a decrease in average selling price (22.0%) as a result of lower copper prices and to a lesser extent a decrease in sales tons sold (13.8%). Revenue from our Dalian, China facility was $26.4 million and $8.9 million at our Fayetteville, TN and Telford, U.K. facilities. Volume at the Company's Dalian facility grew slightly due to increased 3G related demand and continued expansion into the utility market. The Company believes that volume benefited slightly from the Chinese government's $585 billion stimulus package, which is expected to generate meaningful demand for the Company's products in the future. The Company's Fayetteville facility experienced a 37% decrease in volume as a result of the global economic downturn.
Gross profit in the first quarter decreased 39.5% year over year to $8.9 million from $14.7 million. Gross margin decreased to 25.4% from 27.3% in the prior year period. Gross margin at the Company's Dalian, China facility decreased slightly from approximately 33.8% to 32.8%. This slight decrease resulted from pricing pressure from smaller, poorly capitalized competitors, many of whom were forced to liquidate inventory in order to meet financial obligations. The gross margin at the Fayetteville and Telford facilities declined from approximately 13.4% to 3.1% mostly as a result of lower capacity utilization and deterioration in product mix.
Mr. Chris Wang, President and CFO, commented, "In the first quarter, lower copper prices resulted in lower average selling prices for our product, which negatively impacted our revenue. The benefit is that our working capital requirements are reduced, which allows us to sustain a strong balance sheet through the slowdown. Still, when we combine the lower copper prices with the general economic slowdown, we have seen a lot of our competitors feeling pressure to lower prices below levels at which we're willing to sell in order to liquidate their inventory. In the short term this can negatively impact our revenue growth and margins. But in the long run we believe under-capitalized competitors will have a difficult time staying in business and we would expect the industry to consolidate to a smaller number of healthier competitors. Considering our strong balance sheet and healthy cash balance, we expect to be one of the beneficiaries as we manage our capital carefully during this time."
Operating expenses in the first quarter decreased 17.7% to $4.3 million, compared with $5.2 million in the prior year's quarter. This decrease was principally a result of lower sales volumes, lower capacity utilization and an increase in cost saving initiatives. On a percentage basis, operating expenses increased 250 basis points to 12.1% from 9.6% in the first quarter 2008. Operating income decreased 51.1% to $4.7 million, or 13.2% of revenue, compared to $9.5 million, or 17.7% of revenue in the prior year first quarter period.
Profit before tax for Dalian was $6.9 million in the first quarter 2009 and the loss for Fayetteville and Telford before tax was $1.4 million. Loss at the Fushi Copperweld parent company level was $3.2 million primarily due to interest expenses on the High Yield notes, stock-based compensation, changes in fair value of derivative liabilities related to Convertible Notes conversion options, hedge and warrants, as well as professional fees and outside service expenses. On a consolidated basis, profit before tax was $2.4 million and we recognized a net tax benefit of $0.7 million.
Dalian Fayetteville Parent Consolidated
& Company
Telford
Profit (Loss) before
income tax 6,927,028 (1,367,276) (3,155,051) 2,404,701
Income tax expense
(credit) 930,311 (491,763) (1,134,765) (696,216)
Profit after income tax 3,100,917
GAAP net income for the 2009 first quarter was $3.1 million, or $0.11 per diluted share, compared with $7.6 million, or $0.26 per diluted share, in the first quarter of 2008. Excluding the non-cash expenses related to changes in fair value of derivative liability and share-based compensation, adjusted non-GAAP net income was $3.9 million, or $0.14 per diluted share in the first quarter of 2009, compared to $7.8 million, or $0.26 per diluted share in the in the first quarter of 2008. Reconciliations of non-GAAP measures to GAAP net income and EPS are included at the end of this release.
The Company's cash position at the end of the first quarter was $42.7 million. The Company decreased its debt position by $17 million to $45.5 million at the end of the 2009 first quarter. The company also increased its inventory from $7 million to $19.5 million from December 31, 2008 to prepare for anticipated increased demand for its products. The company also continued to expand its China operations and spent $5.5 million in property and equipment purchases and advances. As of March 31, 2009, we had $26.3 million in available borrowing capacity under our Dalian credit facility.
Mr. Li Fu, Chairman and Chief Executive Officer of Fushi Copperweld, commented, "The first quarter, which is our seasonally slowest quarter, was a challenging one for Fushi Copperweld. Seasonality, combined with a global economic malaise and dramatic declines in copper prices all factored into our first quarter results. Still, we have remained focused on preparing ourselves for the pending increase in demand in China, while at the same time prudently managing our balance sheet and reducing our expenses where appropriate. While not reflected in our Q1 results, our Chinese operation is already beginning to see some movement in the economy, and some positive effect of the government's stimulus package. We are very enthusiastic about our prospects and believe we are well-positioned to capitalize on the eventual rebound of the world economy."
"We are especially encouraged by the demand for our 3-G telecom business in China, which we believe will be a significant contributor to our top line over the next two years as China Mobile, China Telecom and China Unicom continue with their estimated $58 million build out of the 3-G networks. We continue to look for additional opportunities for growth, and believe the utility market in China is ripe for growth as well. Our non-China markets are still facing some challenging economic times, and we will remain steadfast in our commitment to be ready with the best possible products when demand returns."
Mr. Li Fu continued, "We have significantly cut costs in Fayetteville in an effort to return the facility to profitability. The impact of these cost savings will benefit our operating expenses in Q2 and to a much greater extent in Q3. While this facility is currently losing money, we expect it will break even or perhaps be profitable by 2010, depending on the timing of the rebound in the North American and European markets. Some of the specific steps we have taken to enhance Fayetteville's profitability include reducing our workforce, which should result in annual cost savings of $1.2 million and lowering our breakeven level by approximately 450 metric tons/month. In addition, we are in the final stages of testing a new manufacturing process which, if successful, could further improve our profitability, even without an increase in demand at Fayetteville."
Mr. Fu continued, "We believe we have put in place the right business plan in the right market segments in order to best capitalize on buildouts in China and around the world. We remain optimistic about the long term health of our industry, and more specifically about the long term sustainability of our company. We will continue to conservatively manage our balance sheet in the best interests of our shareholders, so that we are well-positioned for growth in the respective markets in which we operate."
Financial Expectations
In the 2009 second quarter, the Company expects adjusted fully diluted earnings per share before the impact of non-cash expense related to stock-based compensation and change in fair value of derivative liability related to conversion option and warrants between $0.21 and $0.25 based on an estimated weighted average diluted share count of approximately 29.2 million shares. This expectation is based on the assumption that we will continue to benefit from tax credit carry-forwards and the effective tax rate at the consolidated level will be zero. The Company expects profitability to improve sequentially throughout 2009 due to continued growth in demand for CCA-based telecom products, utility applications, increased profitability at the Fayetteville facility as a result of cost saving initiatives, and increased revenue from China's 3G infrastructure investments and the $585 billion stimulus package. In preparation for expected future demand, the Company successfully completed the installation of an additional 6,000 metric tons of CCA at its Dalian facility in April.
Accounting for derivative liability - conversion option and warrants
Effective January 1, 2009, the Company adopted the provisions of EITF Issue 07-5 "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock", which is effective for financial statements for fiscal years beginning after December 15, 2008 and which replaced the previous guidance on this topic in EITF Issue 01-6. As a result, from January 1, 2009, the Company is required to separately account for the conversion option embedded in the Company's $5,000,000 Convertible Bonds as a derivative instrument liability, carried at fair value and marked-to-market each period, with changes in the fair value each period charged or credited to income. In addition, during the first quarter of 2009, the Company completed a private placement of its common stock and warrants. The warrants are also recorded as a derivative instrument liability, carried at fair value. In the first quarter of 2009, the Company recorded non-cash charges to income for changes in the fair value of these derivative liabilities of $0.6 million, or $0.02 per diluted share. There is no impact on periodic cash flows.
Reconciliation of Non-GAAP Financial Measures
To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use EPS as adjusted for the impact of non-cash expenses related to stock-based compensation and the change in the fair value of derivative liabilities related to the conversion option in our outstanding Convertible Bonds and certain warrants. These Company-defined adjusted measures are being provided because management believes they are useful in analyzing the underlying operating performance of the business. These measures may be inconsistent with similar measures presented by other companies and should only be used in conjunction with our results reported according to accounting principles generally accepted in the United States. A reconciliation of earnings per share as reported and operating income as reported to adjusted non-GAAP earnings per share and adjusted non-GAAP operating income follows:
2009 Q1 2008 Q1
GAAP Net Income 3,100,917 7,570,496
Non-cash expense:
Change in fair value of derivative
liability - conversion option 539,037 --
Change in fair value of derivative
liability - warrants 63,238 --
Stock-based compensation 590,868 413,095
Total non-cash expense 1,193,143 413,095
Provision for income tax 405,669 140,452
Adjusted to Non-GAAP Net income 3,888,391 7,843,139
GAAP Earnings per share:
Basic 0.11 0.28
Diluted 0.11 0.26
Non-GAAP Earnings per share:
Basic 0.14 0.29
Diluted 0.14 0.26
Conference Call
The Company will conduct a conference call to discuss the first quarter 2009 results today, Monday, May 11, 2009, at 8:30 am ET. Listeners may access the call by dialing 1-913-312-1394. Listeners may access the call by dialing +1-913-312-1394. To listen to the live webcast of the event, please go to http://www.fushicopperweld.com and click on the Events and Presentations link located in the Investor Relations section of our website. Please go to the website 15 minutes early to download and install any necessary audio software.
A replay of the call will be available from May 11, 2009 to June 11, 2009. Listeners may access the replay by dialing +1-719-457-0820; password: 4444298.
About Fushi Copperweld, Inc.
Fushi Copperweld, Inc. through its wholly owned subsidiaries, Fushi International (Dalian) Bimetallic Cable Co,, Ltd., and Copperweld Bimetallics, LLC, is the leading manufacturer and innovator of copper cladded bi-metallic engineered conductor products used in the electrical, telecommunications, transportation, utilities and industrial industries. With extensive design and production capabilities and a long-standing dedication to customer service, Fushi-Copperweld, Inc. is the preferred choice of bi-metallic products world-wide. For more information, visit: http://www.fushicopperweld.com .
Safe Harbor Statement
This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "will" "believes", "expects" or similar expressions. These forward-looking statements may also include statements about our proposed discussions related to our business or growth strategy, which is subject to change. Such information is based upon expectations of our management that were reasonable when made but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. We do not undertake to update the forward-looking statements contained in this press release. For a description of the risks and uncertainties that may cause actual results to differ from the forward-looking statements contained in this press release, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov .
For more information, please contact:
Nathan J. Anderson
Vice President of Investor Relations
Fushi Copperweld, Inc.
Email: ir@fushicopperweld.com
Tel: +1-931-433-0482
Bill Zima
ICR, Inc.
Tel: +1-203-682-8200
(Financial Tables on Following Page)
FUSHI COPPERWELD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
2009 2008
REVENUES $ 35,256,536 $ 54,009,027
COST OF GOODS SOLD 26,317,161 39,275,340
GROSS PROFIT 8,939,375 14,733,687
OPERATING EXPENSES
Selling expenses 1,202,147 792,911
General and administrative expenses 3,070,242 4,395,779
Total operating expenses 4,272,389 5,188,690
INCOME FROM OPERATIONS 4,666,986 9,544,997
OTHER INCOME (EXPENSE)
Interest income 83,617 160,363
Interest expense (1,470,868) (1,780,469)
Change in fair value of derivative
liability - hedge (166,410) 189,954
Change in fair value of derivative
liability - warrants (63,238) --
Change in fair value of derivative
liability - conversion option (539,037) --
Other expense (106,349) (75,914)
Total other expense, net (2,262,285) (1,506,066)
INCOME BEFORE INCOME TAXES 2,404,701 8,038,931
(BENEFIT) PROVISION FOR INCOME TAXES (696,216) 468,435
NET INCOME 3,100,917 7,570,496
OTHER COMPREHENSIVE INCOME
Unrealized gain on marketable securities -- 22,301
Foreign currency translation adjustment (393,908) 7,855,000
Change in fair value of derivative
instrument (2,762,129) (5,109,480)
COMPREHENSIVE (LOSS) INCOME $ (55,120)$ 10,338,317
EARNINGS PER SHARE:
Basic $ 0.11 $ 0.28
Diluted $ 0.11 $ 0.26
WEIGHTED AVERAGE SHARES:
Basic 27,563,478 27,048,039
Diluted 27,695,464 28,228,604
FUSHI COPPERWELD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2009 AND DECEMBER 31, 2008
A S S E T S
March 31, December 31,
2009 2008
Unaudited
CURRENT ASSETS:
Cash $ 42,716,858 $ 65,611,770
Restricted cash 1,000,000 1,000,000
Accounts receivable, trade, net of
allowance of bad debt of $290,338
and $318,529 as of March 31, 2009 and
December 31,2008, respectively 44,327,752 49,782,548
Inventories 19,542,327 6,977,852
Notes receivables 127,318 171,300
Other receivables and prepaid expenses 1,074,603 869,973
Advances to suppliers 14,347,996 20,261,585
Deposit in derivative hedge 1,000,000 1,000,000
Prepaid taxes 1,645,241 670,805
Total current assets 125,782,095 146,345,833
PLANT AND EQUIPMENT, net 118,212,704 119,761,027
OTHER ASSETS:
Advances to suppliers, noncurrent 8,734,390 4,022,879
Notes receivables, noncurrent 769,106 799,106
Intangible assets, net of accumulated
amortization 12,269,426 12,406,920
Deferred loan expense, net 3,045,275 3,317,725
Deferred tax assets 9,430,554 7,804,027
Total other assets 34,248,751 28,350,657
Total assets $ 278,243,550 $ 294,457,517
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:
Revolver line of credit $ 4,125,266 $ 4,712,075
Accounts payable, trade 5,384,595 7,204,156
Notes payable, current 10,000,000 5,000,000
Short-term bank loans -- 17,588,400
Other payables and accrued liabilities 2,349,467 4,751,460
Customer deposits 534,845 542,540
Cross currency hedge payable 156,154 104,324
Total current liabilities 22,550,327 39,902,955
LONG TERM LIABILITIES:
Derivative liability - conversion option 1,767,604 --
Derivative liability - warrants 274,681 --
Notes payable, noncurrent 35,447,092 40,000,000
Fair value of derivative instrument 7,139,205 4,377,076
Total long term liabilities 44,628,582 44,377,076
Total liabilities 67,178,909 84,280,031
COMMITMENTS AND CONTINGENCIES 7,197,794 7,197,794
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value,
5,000,000 shares authorized,
none issued or outstanding -- --
Common stock, $0.006 par value,
100,000,000 shares authorized,
March 31, 2009: 27,899,034 shares
issued and 27,799,034 outstanding
December 31, 2008: 27,499,034 shares
issued and 27,399,034 outstanding 166,795 164,395
Restricted common stock in escrow 600 600
Additional paid in capital 93,469,915 91,172,890
Statutory reserves 12,998,375 12,316,147
Retained earnings 79,674,697 78,613,158
Accumulated other comprehensive income 17,556,465 20,712,502
Total shareholders' equity 203,866,847 202,979,692
Total liabilities and shareholders'
equity $ 278,243,550 $ 294,457,517
FUSHI COPPERWELD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,100,917 $ 7,570,496
Adjustments to reconcile net income
used in operating activities:
Depreciation 2,097,208 1,404,042
Deferred taxes (1,626,528) (799,003)
Bad debt expense -- 72,469
Recovery of bad debt (33,391) --
Amortization of intangible assets 119,076 62,277
Amortization of loan commission 272,450 668,356
Amortization of stock compensation
expense 590,868 413,095
Change in fair value of derivative
liability - hedge 166,410 (169,167)
Change in fair value of derivative
liability - conversion option 539,037 --
Change in fair value of derivative
liability - warrants 63,238 --
Investment loss on marketable
securities -- 16,158
Change in operating assets and
liabilities:
Accounts receivable 5,377,902 (9,990,035)
Inventories (12,585,925) (13,669,483)
Other receivables and prepayments (168,913) (908,504)
Advances to suppliers - current 5,880,363 (7,031,475)
Accounts payable (1,814,721) 6,602,565
Other payables and accrued
liabilities (2,081,625) (1,364,005)
Customer deposits (13,232) 178,572
Taxes payable (975,566) 285,445
Net cash used in operating
activities (1,092,432) (16,658,197)
CASH FLOWS FROM INVESTING ACTIVITIES:
Marketable securities -- 2,983,842
Notes receivables 73,884 357,309
Payments for derivative instrument (114,580) --
Proceeds from derivative instrument -- 738,376
Purchases of property and equipment (715,104) (3,253,101)
Purchases on advances for purchase
of equipment (4,715,293) --
Net cash (used in) provided by in
investing activities (5,471,093) 826,426
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in restricted cash -- (2,795,400)
Net (payments) borrowings on
revolver line of credit (586,809) 2,749,402
Proceeds from bank loans -- 16,908,000
Payments on bank loans (17,553,600) (5,814,432)
Proceeds on issuance of common stock
and warrants 1,920,000 --
Net cash (used in) provided by
financing activities (16,220,409) 11,047,570
EFFECT OF EXCHANGE RATE ON CASH (110,978) 3,450,059
DECREASE IN CASH (22,894,912) (1,334,142)
CASH, beginning of period 65,611,770 79,914,758
CASH, end of period $ 42,716,858 $ 78,580,616
