Fushi International, Inc. Reports Third Quarter 2006 Results

Fushi International, Inc.
2006-11-16 14:03 979

DALIAN, China, Nov. 15 /Xinhua-PRNewswire/ -- Fushi International,

Inc., (OTC Bulletin Board: FSIN), a low-cost, emerging Chinese manufacturer of

bimetallic wire used in a variety of communication, transmission and other

electrical products, today announced financial results for the third quarter

ended September 30, 2006.

Key Financial Indicators

(All numbers in thousands, except per-share amounts in USD)

Q3 2006 Q3 2005 Percent Change

Net Sales $12,956 $8,521 52.0%

Cost of goods sold $8,956 $4,626 93.6%

Gross Profit $4,000 $3,895 2.7%

Total Operating Expenses $928 $904 2.6%

Operating Income $3,073 $2,991 2.74%

GAAP Net Income $1,435 $2,364 (39.3%)

Pro forma Net Income $2,901 $2,364 22.7%

Fully Diluted EPS $0.06 $0.15 (60.0%)

Pro forma EPS $0.13 $0.15 (13.3%)

(1) Pro forma EPS excludes a $1.5 million non-cash penalty fee associated

with a liquidated damages payable in common stock as a result of a delay in

an effective registration statement for the resale of shares sold in the

Company's December 2006 private placement.

Financial Results

For the quarter ended September 30, 2006, the Company reported revenue of

$13.0 million as compared to $8.5 million during the third quarter last year,

representing an increase of 52.0 percent. Reported revenues are net of the VAT

or (Value Added Tax) of approximately 17.0 percent. The increase in sales was

primarily attributable to increases in average selling prices and sales volume

growth, which improved 24.2 percent and 22.4 percent respectively versus the

comparable quarter last year. Additionally, end user applications have

increased significantly year-over-year from new markets such as electromagnet

wire, winding wire, shielding wire, as well as distribution and coils. Total

capacity utilization at the end of the third quarter was approximately seventy

five percent. The Company sold a total of 2,227 tons of bimetallic products

during the quarter, an increase of 22.4 percent from the third quarter of last


During the third quarter, the Company continued to diversify its revenue

stream as its top five customers accounted for 30 percent of total sales with

the largest representing approximately 7.0 percent as compared to the third

quarter of last year where five customers accounted for 55.0 percent of sales

and three accounted for more than 10.0 percent.

The following table provides a recap of key products as a percentage of

overall revenue:

Q3 '06 % Q3 '05 %

CCA Coaxial $3,498,145 27% $7,242,855 85%

CCA Regular $3,239,023 25% $ 852,101 10%

CCA-M Regular $4,664,193 36% $ 426,050 5%

CCA Thin $906,926 7% N/A N/A

CCA-M Thin $647,805 5% N/A N/A

Total $12,956,092 100% $8,521,006 100%

The following table provides a summary of key metrics for each product


ASP Average Unit Cost Gross Margin

Q3 06 Q3 05 Q3 06 Q3 05 Q3 06 Q3 05

Overall $5,817 $4,684 $4,021 $2,543 30.9% 45.7%

CCA Coaxial $5,609 $4,684 $3,943 $2,543 29.7% 45.7%

CCA Regular $5,593 $4,684 $3,740 $2,543 33.1% 45.7%

CCA-M Regular $5,817 $4,684 $3,955 $2,543 32.0% 45.7%

CCA Thin $6,787 N/A $4,106 N/A 39.5% N/A

CCA-M Thin $7,271 N/A $5,040 N/A 30.7% N/A

Cost of goods sold for the quarter ended September 30, 2006 increased by

93.6 percent to $9.0 million from $4.6 million in September 30, 2005, as a

result of an increase in the purchasing costs of raw materials, specifically

copper and aluminum, and incremental costs associated with higher production

volumes. Based on the average price of copper during the third quarter 2006

the Company experienced an $8.4 million increase in total raw material costs,

which accounted for 93.5 percent of the increase in cost of goods sold. Gross

profit for the third quarter was $4.0 million, up 2.7 percent from gross

profit of approximately $3.9 million for the third quarter of last year. Gross

margins for the third quarter of 2006 were 30.9 percent compared to 45.7

percent in the year ago period and were principally impacted by lower real

average selling prices in comparison to higher raw material costs, partially

offset by improved product mix.

Operating expenses were $0.9 million in the third quarter which increased

slightly from last year and as a percentage of net sales decreased to 7.2

percent as compared to 10.6 percent respectively. Operating income increased

2.7 percent to $3.1 million for the third quarter and as a result of the

aforementioned higher raw material costs operating margins decreased to 23.7

percent from 35.1 percent in the comparable quarter last year.

"While we were pleased with our year-over-year increase in revenue and a

further diversification of both our product and customer base, the third

quarter was challenging on a number of fronts," commented Mr. Chris Wang, CFO

of Fushi International. "It had become customary based on the escalating price

of copper that customers frequently prepay in order to be assured of a timely

delivery of necessary raw materials. As a result the Company locked in volume

commitments on copper at higher prices and was impacted by volatility in the

overall price of copper based products in the market during the third quarter

which had a negative impact on our gross margins. While further volatility may

occur we will look to employ several initiatives to return gross margins back

to historical levels of more than thirty six percent.

During the third quarter the Company did not incur an income tax expense

due to Fushi International becoming a wholly owned foreign enterprise and also

being recognized in the special economic region as a high tech enterprise

within China. Management expects to pay minimal income tax outside of the VAT

during the next two years. GAAP net income for the third quarter decreased

39.3 percent to $1.4 million, or $0.06 per diluted share compared to net

income of $2.4 million, or $0.15 per fully diluted share in the comparable

quarter last year. Pro forma net income which excludes $1.5 million in non-

cash penalties associated with the delayed registration of the January 2006

private placement was $2.9 million and increased 22.7 as compared to the same

period last year with respective earnings per share of $0.13 per weighted

average diluted share. The Company utilized 22.8 million weighted average

fully diluted outstanding shares as compared to 15.5 million in the same

period a year ago.

For the first nine months ending September 30, 2006 revenues increased

153.9 percent to $45.9 million, which was driven by higher selling prices,

increased sales volume due to significantly expanded manufacturing capacity

and the addition of new product offerings. Cost of goods sold increased 178.7

percent to $28.5 million primarily as a result of higher raw material prices.

Gross profit increased 121.6 percent to $17.4 million resulting in gross

margins of 37.9 percent as compared to 43.5 percent last year with the

decrease versus last year due to factors mentioned previously. Operating

expenses increased 60.1 percent to $2.7 million as expenses increased to

support higher sales volumes in addition to costs associated with being public

as compared to no such expense last year. Operating income for the period

totaled $14.7 million, or a 138.2 percent increase as compared to $6.2 million

in the comparable period last year yielding operating margins of 32.1 percent

and 34.3 percent respectively. GAAP net income increased 153.1 percent to

$12.4 million with respective weighted average fully diluted earnings per

share of $0.55 compared to $5.0 million and $0.32 in the year ago period.

Excluding the aforementioned non-cash penalty, proforma net income was $13.9

million with EPS of $0.61 per weighted average diluted share.

The Company reported a cash balance as of September 30, 2006 of $14.9

million which increased $8.7 million from December 31, 2005 driven by positive

net income and improved working capital management particularly in the third

quarter 2006. Accounts receivable were $7.7 million at the end of the third

quarter representing a 23.8 percent increase versus the end of the year 2005.

Accounts receivable did decrease 25.6 percent sequentially as the Company

improved collections. Inventory increased 27.1 percent to $9.7 million from

the end of 2005 and management believes the increase in inventory is adequate

to support anticipated revenue growth. The current ratio at the end of the

third quarter was 1.7 to 1 with the Company maintaining working capital of

$15.7 million. Cash generated from operations for the nine month period ending

September 30, 2006 was $8.4 million. Total debt at quarter end was $27.1

million which increased approximately $9.9 million from the end of 2005. Total

debt for the quarter was inclusive of a $4.5 million, interest free loan made

by Mr. Li Fu, the Chairman and largest shareholder, on September 20 to fund

working capital following a work stoppage because funds were unavailable to

buy enough copper to keep pace with rising orders.

"While results are below our internal expectations we did make progress in

several of our stated initiatives which included expanding production and

sales capacity, specifically for our new fine wire offering, and strengthening

our balance sheet through improvements in working capital management. We are

now operating a total of ten fine wire production lines, which when coupled

with our 20 regular and coaxial lines, has afforded us the opportunity to

further grow and diversify our product and customer base. The Company ended

the third quarter in a significantly better financial position as evidenced by

our key balance sheet metrics. We are currently pursuing a new financing

facility which will enable the Company to further expand production

capabilities during 2007 while obtaining the necessary working capital to

optimize output and meet customer demand," stated Mr. Li Fu, the Chairman and

Chief Executive Officer of Fushi International.

About Fushi International:

Fushi International is engaged, through their indirectly wholly-owned

operating subsidiary Dalian DPI in the manufacture and sale of bimetallic

composite wire products, principally copper clad aluminum wires ("CCA") and

copper clad aluminum magnesium ("CCA-M"). CCA, which is the company's core

product, combines the conductivity and corrosion resistance of copper with the

light weight and relatively low cost of aluminum. It is a cost effective

substitute for single copper wire in a wide variety of applications such as

coaxial cable for cable television (CATV), signal transmission lines for

telecommunication networks, distribution lines for electricity, wire

components for electronic instruments and devices. For more information on

Fushi, visit their website:

Safe Harbor Statement:

This press release contains forward-looking statements concerning Fushi

International, Inc.'s business and products. The actual results may differ

materially depending on a number of risk factors including, but not limited

to, the following: general economic and business conditions, development,

shipment, market acceptance, additional competition from existing and new

competitors, changes in technology, and various other factors beyond its

control. All forward-looking statements are expressly qualified in their

entirety by this Cautionary Statement and the risks factors detailed in the

Company's reports filed with the Securities and Exchange Commission. Fushi

International, Inc. undertakes no duty to revise or update any forward-looking

statements to reflect events or circumstances after the date of this release.

GAAP note: This press release includes financial measures for net income

(loss) and diluted earnings per share calculations which excludes certain non-

cash costs not calculated in accordance with generally accepted accounting

principles (GAAP). Management believes that these non-GAAP financial measures

provide meaningful supplemental information regarding our performance that

enhances management's and investors' ability to evaluate the Company's net

income and income per share and to compare it with historical net income and

income per share.

The financial information stated above and in the tables below has been

abstracted from the Company's Form 10-Q for the quarter ended September 30,

2006, filed with the SEC on November 14, 2006, and should be read in

conjunction with the information provided therein.





September 30, December 31,


Cash $14,948,599 6,163,670

Accounts receivable, trade, net of

allowance for doubtful accounts of $0

as of September 30, 2006 7,673,974 6,198,705

Due from related companies 3,323,528

Inventories 9,696,468 7,627,866

Other receivables and prepaid expenses 1,699,122 3,759,072

Advance to suppliers 5,481,586

Total current assets 39,499,749 27,072,841

PLANT AND EQUIPMENT, net 47,584,260 38,641,783


Intangible asset, net 819,498

Land use rights, net 5,506,461 4,602,812

Total assets $92,590,470 71,136,934

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


Accounts payable, trade $1,630,590 2,744,652

Notes payable 379,800 7,496,902

Short term bank loans 12,229,560

Other payables and accrued liabilities 191,704 779,898

Value added tax and other taxes payable 3,869,814

Customer deposits 544,836

Other taxes payable 2,904,005 2,104,709

Loan from shareholder 4,451,328

Liquidated damage payable 1,466,250

Total current liabilities 23,798,073 16,995,975


Notes payable - long term 9,675,859

Long term debt 10,128,000

Total liabilities 33,926,073 26,671,834


Common stock, $0.006 par value, 100,000,000

shares authorized, 19,987,224 shares

issued and outstanding 119,923 471

Series A & B convertibles (0.001 par value,

$5M and $50M respectively) 1,001

Additional Paid in capital 29,127,134 29,307,285

Statutory reserves 2,428,310

Retained earnings 25,097,912 15,139,143

Accumulated other comprehensive income 1,891,118 17,200

Total shareholders' equity 58,664,397 44,465,100

Total liabilities and shareholders'

equity $92,590,470 71,136,934





Three months ended Nine months ended

September 30 September 30

2006 2005 2006 2005

(Restated) (Restated)

REVENUES $ 12,956,092 $8,521,006 $45,881,256 $18,072,468

COST OF GOODS SOLD 8,955,882 4,626,276 28,477,095 10,219,442

GROSS PROFIT 4,000,210 3,894,730 17,404,161 7,853,026


Selling expenses 152,045 77,112 401,294 168,910

General and


expenses 532,516 456,245 1,573,232 815,133


expense 187,273 316,695 521,866 518,095


expense 55,670 53,890 167,062 161,672

Total operating

expense 927,504 903,942 2,663,454 1,663,810


OPERATIONS 3,072,706 2,990,788 14,740,707 6,189,216


Provision for

doubtful debts on

other receivables (70,000) (70,000)

Interest income 30,344 44,509 42,775 58,044

Interest expense (318,608) (191,436) (832,172) (425,752)

Other income 236,002 89 556,724 89

Other expense (119,302) (4,105) (258,152) (4,105)

Registration rights

penalty (1,466,250) (1,466,250)

Total other


(expense) (1,637,814) (220,943) (1,957,075) (441,724)


INCOME TAXES 1,434,892 2,769,845 12,783,632 5,747,492


TAXES 406,256 396,553 852,904

NET INCOME $1,434,892 $2,363,589 $12,387,079 $4,894,588



Foreign currency


adjustment 629,327 575,885 1,107,923 575,885

COMPREHENSIVE INCOME 2,064,219 2,939,474 13,495,002 5,470,473

Net income per

share-basic $0.07 $0.15 $0.62 $0.32

Weighted average

number of shares


during the

period - basic 19,932,129 15,475,595 19,907,105 15,475,595

Net income per

share-diluted $0.06 $0.15 $0.55 $0.32

Weighted average

number of shares


during the

period -diluted 22,761,228 15,475,595 22,612,369 15,475,595




2006 2005


Net income $ 12,387,079 $4,894,588

Adjustments to reconciled net income

to cash provided by (used in) operating


Depreciation-cost of sales 1,023,654 372,970

Depreciation-operating expense 521,866 518,095

Amortization of land use right 75,099 88,997

Amortization of intangible asset 91,963 72,676

Provision for doubtful debts on other

receivables 70,000

Change in operating assets and liabilities:

(Increase) decrease in assets:

Accounts receivable (1,323,834) (3,572,132)

Inventories (1,879,011) (252,154)

Other receivables 426,237

Other current assets (3,726,900) (1,820,879)

Due from related parties 3,352,072 (2,256,060)

Increase (decrease) in liabilities:

Accounts payable (783,559) (249,066)

Other payables and accrued liabilities (481,156) 57,726

Customer deposits 423,141

Taxes payable (3,158,993) 106,697

Due to related parties 175,092

Liquidated damage payable 1,466,250

Net cash provided by (used in)

operating activities 8,413,908 (1,793,450)


Purchase of fixed assets (9,286,833) (3,029,881)


Loan from shareholder 4,450,000

Exercise of stock warrants 15,800

Proceeds from bank loans 18,259,578 21,281,795

Payments on bank loans (13,747,800) (16,086,115)

Net cash provided by financing

activities 8,977,578 5,195,680


INCREASE IN CASH 8,784,929 232,622

CASH, beginning of period 6,163,670 2,612,282

CASH, end of period $ 14,948,599 $2,844,904


Cash paid for interest expense $1,049,037 $ 848,536

Cash paid for income taxes $4,044,883 $

Source: Fushi International, Inc.
Keywords: Machinery