Wuhan General Group (China), Inc. Announces Third Quarter 2010 Results

WUHAN, China, Nov. 16, 2010 /PRNewswire-Asia-FirstCall/ -- Wuhan General Group (China), Inc. (Nasdaq: WUHN) ("Wuhan General" or the "Company"), a leading manufacturer of industrial blowers and turbines in China, operating through its subsidiaries, Wuhan Blower Co., Ltd. ("Wuhan Blower"), Wuhan Generating Equipment Co., Ltd. ("Wuhan Generating") and Wuhan Sungreen Environment Protection Equipment Co., Ltd. ("Wuhan Sungreen"), today reported its financial results for the third quarter ended September 30, 2010.

Third Quarter 2010 Highlights

• Third quarter revenue was $28.8 million, an increase of 16.3% from $24.7 million for the same period in 2009
• Gross profit was $8.1 million, an increase of 17.8% from $6.9 million for the same period in 2009
• Gross profit margin was 28.1% compared with 27.8% for the same quarter last year
• Operating income was $4.1 million, a decrease of 8.6% from the corresponding quarter last year
• Net income was $1.8 million, compared with $3.0 million for the same period in 2009
• Net income available to common stockholders was $1.7 million compared with $2.8 million for the same period in 2009. Adjusting for abnormal charges, adjusted net income available to common stockholders was $3.1 million for the third quarter of 2010
• Earnings per diluted share were $0.05 compared with $0.08 for the third quarter last year. Adjusting for abnormal charges, earnings per diluted share were $0.10 for the third quarter of 2010

"For the third quarter, our blower division was the main driver of revenue growth, supported by this year's economic recovery in China that encouraged our customers in the steel industry to increase orders of capital equipment. In addition to positive sales growth, the improved gross margin in our turbine segment sequentially and year-over-year is a sign of an improved competitive position, which also showed the scale effect and quality improvement attributable to our new Wuhan Generating facility," said Mr. Ruilong Qi, the CEO of Wuhan General. "While we are pleased about our sales growth, effective collection of accounts receivable remains a challenge for our business and we carefully monitor the financial positions of our customers to avoid unnecessary delay of payments."

Third Quarter 2010 Results

For the third quarter ended September 30, 2010, total revenue was $28.8 million, up 16.3% from $24.7 million for the same period last year. Wuhan Blower generated 53.7% of total revenues, compared to 48.2% for the same period last year. Wuhan Generating contributed 45.7% of total revenues, compared to 51.4% for the same period last year. The remaining 0.6% in revenues for the third quarter of 2010 was contributed by Wuhan Sungreen, compared to 0.5% for the same period last year. Sales were adjusted for $2.4 million in inter-group sales following the consolidation of financial information. The year-over-year increase in total revenue was mainly due to a recovery in demand for blowers from steel manufacturers because of the improved economic climate, in addition to more projects won in the turbine business due to the improved manufacturing capability resulted from the ramp-up of Wuhan Generating's new facility.

Gross profit for the quarter was $8.1 million, up 17.8% from $6.9 million in the third quarter of 2009. Gross margin was 28.1%, up 0.3 percentage points from 27.8% for the same period in 2009. The increase in gross margin was mainly due to the increase in gross margin for Wuhan Generating, due to scale effects and quality improvements in connection with its new manufacturing facility, partially offset by the decrease in gross margin for Wuhan Blower.    

Selling expenses were $0.3 million, or 1.1% of the total revenue for the third quarter of 2010, compared to $0.8 million, or 3.1% of the total revenue for the same period of 2009. The decrease in selling expenses as a percentage of sales was mainly due to lower commissions paid out to sales staff as the Company began linking commissions to successful collection of accounts receivable effective at the beginning of 2010.

General and administrative expenses increased 136.5% from $1.5 million for the third quarter of 2009 to $3.5 million for the third quarter of 2010 primarily due to an increase in legal and auditor fees, a write off of bad debt allowance of $0.8 million, and a management and consultancy fee related to the loan facility with Hankou Bank Company Limited, Wuhan Branch ("Hankou Bank"). The increase was partially offset by a refund of a consulting fee in conjunction with the termination of the loan agreement with Standard Chartered Bank (China) Limited, Guangzhou Branch ("Standard Chartered Bank").

Warranty expense was $231,843 for the quarter compared to $178,610 for the same period in 2009. As a percentage of sales, warranty expense was 0.81% for the three months ended September 30, 2010 compared to 0.72% for the same period in 2009.

The Company had other net expenses of $1.7 million for the third quarter of 2010, up 96.1% from $0.9 million for the third quarter of 2009, mainly due to interest expenses of $1.8 million for the third quarter of 2010. The increase in interest expenses was mainly due to interest payments to Standard Chartered Bank in conjunction with the termination of the loan facility agreement and an increase in debt from the Company's loan facility agreement with Hankou Bank.

Income taxes were $0.5 million for the third quarter of 2010, at level with $0.6 million for the same period of 2009.

Net income for the third quarter of 2010 was $1.8 million, compared with $3.0 million for the same period last year. Excluding the abnormal one-time financing fees of $1.4 million in the third quarter of 2010, adjusted net income was $3.0 million for the third quarter of 2010.

Net of preferred dividends declared, net income available to common stockholders was $1.7 million for the three months ended September 30, 2010, compared with $2.8 million for the same period last year. Excluding the aforementioned abnormal charges, adjusted net income available to common stockholders was $3.1 million for the third quarter of 2010.

Earnings per diluted share were $0.05 for the three months ended September 30, 2010 compared with $0.08 per diluted share for the same period of 2009. Adjusted for the aforementioned abnormal charges, earnings per diluted share were $0.10 for the third quarter of 2010. For a complete reconciliation of adjusted financial information to GAAP financial information, please see the reconciliation table below.

Nine Months 2010 Results

For the nine months ended September 30, 2010, total revenue was $69.4 million, up 15.8% from $59.9 million in the same period of 2009. Wuhan Blower generated 57.9% of total revenues, compared to 53.8% for the same period last year. Wuhan Generating contributed 41.2% of total revenues, compared to 45.7% for the same period last year. The remaining 0.9% was contributed by Wuhan Sungreen. Sales were adjusted for $2.8 million in inter-group sales following the consolidation of financial information. Gross profit was $17.9 million for the nine months ended September 30, 2010, up 21.2% from $14.7 million in the same period of 2009. Overall gross margin was 25.7% compared with 24.6% for the nine months of 2009. Income from operations was $11.1 million for the first nine months of 2010, up 32.6% from $8.4 million for the same period in 2009. Net income was $4.4 million, up 7.0% compared with $4.1 million in the first nine months of 2009. Net income available to common stockholders was $3.9 million in the first nine months of 2010, up 8.4% from $3.6 million for the same period in 2009. Adjusting for abnormal one-time financing fees of $3.3 million in the first nine months of 2010 and a non-cash penalty charge of $1.2 million in the first nine months of 2009, adjusted net income available to common stockholders was $7.2 million for the first nine months of 2010 and $4.8 million for the same period of 2009.

Earnings per diluted share were $0.12 for the nine months ended September 30, 2010 compared with $0.09 per diluted share for the corresponding period in 2009. After adjusting for the aforementioned abnormal charges, earnings per diluted share were $0.23 for the first nine months of 2010 and $0.12 for the same period of 2009. For a complete reconciliation of adjusted financial information to GAAP financial information, please see the table below.

Financial Condition

As of September 30, 2010, Wuhan General had cash and cash equivalents of $39.8 million, including restricted cash of $9.4 million. The Company had $50.3 million in accounts receivable compared to $54.0 million respectively as of December 31, 2009. The Company had $57.6 million in working capital with a current ratio of 1.6:1 and stockholders' equity of $109.9 million as of September 30, 2010. Wuhan General's short term bank loans and notes were $61.0 million as of September 30, 2010.

The Company's cash at September 30, 2010 included $36.2 million which it received from the new loan facility from Hankou Bank. To date, the Company has used proceeds from the Hankou Bank loan facility to repay all amounts owed under its loan facility with Standard Chartered Bank and fund its ongoing construction projects.  Following this repayment, the Company's loan facility with Standard Chartered Bank was terminated.

Net cash provided by operating activities for the nine months ended September 30, 2010 was approximately $5.4 million, as compared to an approximately $3.8 million shortfall for the same period in 2009. This change was primarily due to a net increase in the collection of accounts receivable.

The Company used $11.8 million in cash flow from investing activities, as compared to approximately $4.4 million generated in the same period in 2009. This change was mainly a result of an increase in restricted cash and an increase in the amount we invested in our construction projects in plant and equipment.

The Company sourced $33.4 million from financing activities, as compared to approximately $2.7 million used in the same period in 2009. This change was primarily due to an increase in proceeds from bank loans, partially offset by the repayment of debt.

Business Outlook

For the remainder of the year, the Company expects demand for both blowers and turbines to remain solid as supported by the replacement cycle of the steel industry and new development within the hydropower industry. Based on the management's observation for the current competitive market and smaller revenue contribution of Wuhan Sungreen, the Company expects to achieve approximately 15% revenue growth for the year 2010.  

"We are satisfied with the current outlook for our business as demonstrated by our backlog of RMB 212 million (approximately $32 million) for Wuhan Blower and RMB 150 million (approximately $22 million) for Wuhan Generating of which we expect to realize approximately $36 million in revenue for 2010. In light of the growing backlog and our firm, albeit slow, progress in collection of accounts receivable, we are optimistic about our performance as we move to the next year," said Mr. Qi, "While we recognize that challenges remain for our business to resume its former performance, we remain optimistic about our future prospects. We believe that our dedication to service and ability to deliver customized solutions will help us win a wider range of projects and obtain a broader customer base."

Use of Adjusted Financial Measures

To supplement the Company's condensed consolidated financial statements for the three and nine months ended September 30, 2010 and 2009 presented on a GAAP basis, the Company provided adjusted financial information in this release that exclude the impact of one-time financing fees in the current year and a stock penalty for late listing on NASDAQ in the prior year. The Company's management believes that these adjusted measures, adjusted net income and adjusted diluted earnings per share, provide investors with a better understanding of how the results relate to the Company's current and historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude abnormal expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. In addition, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measure to the nearest GAAP measure appears in the table below.

About Wuhan General Group (China), Inc.

Through its subsidiaries, Wuhan Blower, Wuhan Generating and Wuhan Sungreen, Wuhan General is a leading manufacturer of industrial blowers and turbines in China and the Company is based in Wuhan, Hubei Province, China. Wuhan Blower is a China-based manufacturer of industrial blowers that are principal components of steam-driven electrical power generation plants. Wuhan Generating is a China-based manufacturer of industrial steam and water turbines used for electricity generation in coal, oil, nuclear and hydroelectric power plants. Wuhan Sungreen manufactures silencers, connectors and other general parts for industrial blowers and electrical equipment and produces general machinery equipment. The Company's primary customers are from the iron and steel, power generation, petrochemical and other industries. Led by a strong management team, Wuhan General is well recognized for its technological sophistication and quality construction of blowers and turbines. For more information, please visit http://www.wuhangeneral.com .

Safe Harbor Statement

Certain statements in this press release, including statements regarding our future prospects, future revenue, collection of accounts receivable future demand for our products, the fulfillment of our backlog orders, and the diversity of our future projects and customer base may be forward-looking in nature or "forward-looking statements," as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties, including all business uncertainties relating to vulnerability of our business to general economic downturn, operating in the People's Republic of China (PRC) generally and the potential for changes in the laws of the PRC that affect our operations, our failure to meet or timely meet contractual performance standards and schedules, and other factors that may cause actual results to be materially different from those described in such forward-looking statements. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. These forward-looking statements are based on Wuhan General's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting Wuhan General will be those anticipated by the Company. Wuhan General undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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