NEW YORK and CHANGSHA, China, May 18 /PRNewswire-Asia-FirstCall/ -- Tongxin International Ltd. ("Tongxin") ("Company") (Nasdaq: TXIC) a manufacturer of engineered commercial vehicle body structures ("EVBS" or "Cabs"), SUV passenger vehicle bodies and stamped body parts for the Chinese commercial vehicle market, today announced the Company's 2008 fiscal year audited financial results for the twelve month period ended December 31, 2008.
-- Revenues increased 9.4 % to $98.4 million from $89.9 million surpassing
guidance of $95 million
-- Adjusted net income* was $9.0 million for the year with adjusted EPS of
$0.80 per share
* Adjusted net income excludes $2.0 million in one-time costs associated
with the business combination between AAAC and TXIC in April of 2008 and
the non-cash gain from warrant derivatives of $13.5 million.
2008 Fiscal Year Financial Results
Net revenues for the year ended December 31, 2008 reached $98.4 million, an approximate $8.5 million or 9.4 % increase over the same period of the prior year. According the China Association of Automobile Manufacturers' (CAAM), a total of 9.3 million vehicles were built in China during 2008, representing a 6.8% year-over-year increase. Growth in production and sales slowed in the second and third quarters of 2008 due to the following factors:
-- The implementation of "Euro III" emission requirements for medium and
heavy duty trucks
-- The slow down and shutdown of manufacturing plants due to the Beijing
Olympics, including restrictions on coal fired power plants and steel
producers
-- The global economic crises affecting exports of commercial and
passenger automotive vehicles
The Company reported a noticeable recovery in the fourth quarter 2008 as manufacturing plants came back on-line and brisk lending by banks ahead of the $584 billion stimulus packages began to impact consumer demand for commercial vehicles and passenger cars. Tongxin's top-selling category of cabs is the over-the-engine, two-person model most widely used in 10,000 GVW medium-duty, short-haul trucks for transport and trucking between cities within provinces in the PRC.
"It has been a challenging time both for the automotive industry and capital markets," began Zhang Duanxiang, Vice Chairman of TXI and CEO of Hunan Tongxin. "A variety of extraordinary conditions including Euro III, Beijing Olympics, factory shut downs, and sharp increases in steel pricing were our topics of concern beginning in the second quarter of the year. We were pleased to see our customer base rebound accordingly and begin placing orders for quick shipment prior to year end, something we view as a very positive leading indicator of economic activity. As we capitalize on continued growth in China's commercial automotive market, we anticipate a return to
business-as-usual in 2009 and producing the caliber of revenues and earnings growth we experienced in years prior to 2008," Zhang concluded.
Cost of goods sold were $83.5 million in 2008, an increase of $13.6 million or 19.6% versus the same period in 2007. The increase in costs is directly related to cold-rolled steel pricing which rose consistently throughout the year and into the third quarter 2008. To provide some insight into this volatility, the pricing per ton on cold rolled steel had increased an average of 24.3% between January 1, 2008 and December 31, 2008 (source - Management, Engineering and Production MEPS, Consultancy UK, ltd.). As a result, gross margins decreased 720 basis points to 15.1% in 2008 from 22.3 % for the prior period ended December 31, 2007.
Total operating expenses for the 2008 year were $7.0 million versus $5.4 million for the same period in 2007. Included in the 2008 operating expenses was approximately $2.0 million in one-time costs reflecting financial, legal, and accounting expenses to consummate the business transaction between AAAC and Hunan Tongxin. As a percentage of revenues, operating expenses were 7.2% compared with 6.0% for the same period, 2007. Excluding one time costs, total operating expenses were 5.2% of revenue for 2008.
The Company is reporting an "adjusted" operating and net income as a result of the non-cash warrant gain of $13.5 million reported in its 20-F and financial tables below and one-time costs of $2.0 million for the business combination between AAAC and Hunan Tongxin in April of 2008. The non-cash gain and the $2.0 million in one-time costs are excluded from the "adjusted" numbers reported for the year. Considering the effect the warrant gain and one-time costs have on the reported GAAP financials, the management of Tongxin believes adjusted numbers provide more visibility in its operational performance.
GAAP operating income was $7.8 versus $14.6 million the period ended December 31st, 2007. GAAP net income was $20.5 and adjusted net income was $9.0 million, representing a decrease of 1% from $9.1 million reported in the same period prior year. Adjusted net profit margins were 9.1% for the year versus 10.1% reported for the same period of 2007. 2008 GAAP earnings per share were $1.81 while adjusted earnings per share were $0.80. When management provided guidance in 2008, they could not adequately anticipate the total costs and associated expenses which could not be capitalized in the merger between AAAC and Hunan Tongxin. These expenses included machinery and equipment, associated labor and finance charges, which culminated in $2.0 million of one-time merger costs.
Balance Sheet and Cash Flow Discussion
As of December 31, 2008, Tongxin International had approximately $11.3 million in cash and cash equivalents compared to $1.7 million on December 31st, 2007. The company maintained a current ratio of 1.05 and $13.2 million in accounts receivable on December 31, 2008. Corresponding days sales outstanding were 49 days. Stockholders' equity was $79.8 million on December 31, 2008 versus $14.9 million reported December 31st, 2007. The increase is a result of the merger between TXIC and Hunan Tongxin in 2008, completed at a total purchase price of $65.4 million.
Tongxin further recognizes it has yet to resolve the reported $17.4 million of income tax payable reported on its balance sheet. It has petitioned the local tax authorities to remove this line item from Tongxin International's liabilities since the taxes in question preceded its merger with Hunan Tongxin.
The Company has approximately five million warrants outstanding with strike price of $5.00 and callable at $10.00. At the Company's option, and in the event the selling price of the Company's common shares trades at an average price of $10.00 for twenty days out of a thirty day selling period, it may redeem the warrants on an all on none basis. If the warrants are redeemed the Company would recognize gross proceeds of approximately $25 million.
For more information, please contact:
For the Company
Ms. Jackie Chang, CFO and CAO
Tongxin International, Ltd.
199 Pierce St., Suite 202
Birmingham, MI 48009
Phone: +1-626-660-7117
Fax: +1-562-945-0099
Email: jackie@txicint.com
Investor Relations Contact
John Mattio
HC International, Inc.
Tel: +1-914-669-5340 (U.S.)
Email: john.mattio@hcinternational.net
Web: http://www.hcinternational.net
TONGXIN INTERNATIONAL, LTD.
CONSOLIDATED BALANCE SHEETS
(US$ amounts expressed in thousands, except for share data and earnings
per share)
Successor Predecessor
Company Company
ASSETS December 31 December 31
Current
Assets: 2008 2007
Cash and cash equivalents $11,313 $1,662
Restricted Cash - Security deposit 5,836 --
Accounts receivable-Trade, net of
allowance for doubtful accounts of
$3,856 and $4,538, respectively 13,153 23,662
Other Receivable, net of allowance
of doubtful accounts of $407 and
$382, respectively 1,600 1,602
Due from Related party 17,313 15,590
Inventories 19,096 13,751
Investment in marketable securities 146 68
Prepaid expenses 4,197 2,922
Deferred tax assets 2,067 1,572
Total current assets $74,721 $60,829
Investments in non-consolidated subsidiaries and
affiliates 208 852
Property, plant and equipment, net of
accumulated depreciation of 1,927 and
$11,009, respectively 36,918 25,950
Land occupancy rights 9,633 1,944
Goodwill 36,696 --
Total assets $158,176 $89,575
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $21,037 $13,787
Accrued expenses and other liabilities 7,393 9,712
Provision for product warranty -- 43
Income taxes payable 17,418 15,300
Short-term loans 16,669 20,514
Short-term loans from shareholders 8,591 2,313
Derivative liability 452 --
Total current liabilities $71,560 $61,669
Long-term liabilities:
Long-term loans 4,523 2,549
Long-term loans from shareholders -- 10,476
Deferred tax liability 2,243 --
Other 25 21
Total liabilities $78,351 $74,715
Shareholders' equity:
Successor Preferred Stock, $0.001 par
value, authorized 1,000,000 shares;
none issued
Common stock - Successor, $0.001 par
value, authorized 39,000,000 shares;
issued and outstanding 11,300,336
shares 13
Common stock - Predecessor, $0.12 par
value, authorized 72,521,705 shares;
issued and outstanding 72,521,705
shares 8,762
Additional Paid In Capital 77,081
Successor Treasury Stock, 1,589,422
shares outstanding (7,682)
Accumulated other comprehensive income 426 1,813
Retained earnings 9,987 4,285
Total shareholders' equity 79,825 14,860
Total liabilities and shareholders' equity 158,176 89,575
TONGXIN INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(US$ amounts expressed in thousands, except for share data and earnings
per share)
Consolidated Successor
Proforma Company Predecessor Company
For the For the For the
12-month 8-month 4-month
Period From Period From Period From Year
Jan 1, 2008 May 1, 2008 Jan 1, 2008 ended
to to to December 31,
Dec 31, 2008 Dec 31, 2008 Apr 30, 2008 2007
Revenues $78,366 $42,970 $35,396 $80,006
Sales of goods to
related party 19,992 12,800 7,192 9,867
Total revenues 98,358 55,770 42,588 89,873
Cost of goods sold 66,979 35,516 31,463 60,543
Purchases of goods
from related party 16,538 11,691 4,847 9,322
Total cost of goods
sold 83,517 47,207 36,310 69,865
Gross Profits 14,841 8,563 6,278 20,008
Operating expenses:
Selling, general
and administrative 7,041 5,248 1,793 5,372
Operating income 7,800 3,315 4,485 14,636
Other Income
Nonoperating income 4,189 78 4,111
Subsidy income 681 469 212
Unrealized gain on
warrant 13,535 13,535
Investment income 15 15
Equity earnings
from equity
investee 19
Total Other Income 18,420 14,097 4,323 19
Other Expenses
Nonoperating
expenses 189 183 6
Interest expense 2,702 1,095 1,607 1,723
Total Other
Expenses 2,891 1,278 1,613 1,723
Income before income
taxes 23,329 16,134 7,195 12,932
Income tax expense 2,843 627 2,216 3,853
Net income $20,486 $15,507 $4,979 $9,079
Other income -
Foreign Adjustment 1,147 426 721 940
Comprehensive income $21,633 $15,933 $5,700 $10,019
Net income per common
share-Basic $1.81 $1.37 $0.07 0.13
Net income per common
share-diluted $1.81 $1.37 $0.07 0.13
Weighted shares
outstanding - Basic 11,294,633 11,294,633 72,521,705 72,521,705
Weighted average
outstanding -
diluted 11,294,633 11,294,633 72,521,705 72,521,705
TONGXIN INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US$ amounts expressed in thousands)
Successor
Consolidated Company Predecessor Company
For the For the For the
Twelve Month Eight Month Four Month
Period From Period From Period From Year
Jan 1, 2008 May 1, 2008 Jan 1, 2008 ended
to to to Dec 31,
Dec 31, 2008 Dec 31, 2008 April 30, 2008 2007
Cash flows from operating
activities:
Net income $20,486 $15,507 $4,979 $9,079
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Reversal of bad debt
allowance (944) (944) -- (409)
Depreciation expense 2,828 1,927 901 2,080
Amortization expense 54 39 15 42
Unrealized gain on
warrant (13,535) (13,535)
Changes in operating
assets and liabilities:
(Increase)/decrease in
inventories (5,112) (3,291) (1,821) (4,980)
(Increase)/decrease in
trade accounts
receivable 11,453 6,835 4,618 (14,684)
(Increase)/decrease in
due from related party (1,724) 7,751 (9,475) --
(Increase)/decrease of
prepaid expenses and
other current assets (1,275) (1,335) 60 (324)
(Increase)/decrease in
deferred tax assets 192 (105) 297 --
(Increase)/decrease in
other Receivable 2 463 (461) --
Increase /(decrease) in
accounts payable 967 (1,610) 2,577 15,976
Increase/(decrease) of
accrued expenses (943) (2,937) 1,994 321
Net cash provided by)
operating activities 12,449 8,765 3,684 7,101
Cash flows from
investing activities:
Acquisition of Hunan
Tongxin Enterprise Co.
Ltd., net of cash
acquired of $5,319 (7,700) (7,700)
Cash paid for purchase
of fixed assets and
intangible assets (9,493) (8,359) (1,134) (6,322)
Cash paid for
investment (75) (75) -- (68)
Net cash used in
investing activities (17,268) (16,134) (1,134) (6,390)
Cash flows from
financing activities:
Proceeds from loans 23,649 16,559 7,090 17,437
Proceeds from
loans-related parties 9,894 4,638 5,256 --
Dividends paid -- -- -- (1,054)
Debt repayments (23,444) (18,252) (5,192) (20,343)
Debt repayments-related
parties (16,425) (9,343) (7,082) --
Net cash provided by
(used in) financing
activities (6,326) (6,398) 72 (3,960)
Effect of foreign
exchange rate changes 199 (837) 1,036 1,329
Net increase (decrease)
in cash and cash
equivalents 9,651 (14,604) 3,658 (1,920)
Cash and cash
equivalents at
beginning of year 1,662 25,917 1,662 3,582
Cash and cash
equivalents at end of
year 11,313 11,313 5,320 1,662
Supplemental information:
Income taxes paid 812 439 373 936
Interest paid 2,909 1,451 1,458 2,424
Shares issued for acquisition
of Hunan Tongxin Enterprise
Co. Ltd. 51,546
Capitalized Interest 2,222
Non-cash investing and
financing activities:
Long-term loans from
shareholders -- -- 10,476
Dividends to
shareholders -- -- (10,476)
