Adjusted Net Income up 242% at $20.79 Million
HARBIN, China, May 10 /PRNewswire-Asia/ -- Harbin Electric, Inc. ("Harbin Electric" or the "Company", Nasdaq: HRBN), a leading developer and manufacturer of a wide array of electric motors in the People's Republic of China, today reported its financial results for the first quarter of 2010.
Financial Highlights
-- Total revenues were $105.49 million, up 243% from $30.72 million in
1Q09
-- Operating income totaled $27.73 million, up 246% from $8.03 million in
1Q09
-- Adjusted net income attributable to controlling interest (excluding
non-cash item due to change in fair value of warrant) was $20.79
million, up 242% from $6.08 million in 1Q09
-- GAAP earnings attributable to controlling interest were $0.66 per
diluted share, compared with $0.39 in 1Q09
-- Adjusted earnings attributable to controlling interest (excluding non-
cash item due to change in fair value of warrant) were $0.66 per
diluted share, compared with $0.27 in 1Q09
Financial Summary:
YoY %
1Q10 1Q09 Change
Revenue $105,485,157 $30,724,893 243%
Gross Profit $35,742,070 $10,923,778 227%
Gross Profit Margin 33.9% 35.6%
Operating Income $27,731,117 $8,025,592 246%
Operating Margin 26.3% 26.1%
Net Income Attributable to
Controlling Interest $20,553,688 $8,654,334 137%
Adjusted Net Income Attributable to
Controlling Interest* $20,787,766 $6,080,913 242%
Adjust Net Margin* 19.7% 19.8%
Diluted EPS Attributable to
Controlling Interest $0.66 $0.39 69%
Adjusted Diluted EPS Attributable to
Controlling Interest* $0.66 $0.27 144%
* See Reconciliation of non-GAAP measure to GAAP net income. Also see
"About Non-GAAP Financial Measures" toward the end of this release
Revenues
In the first quarter of 2010, total sales more than tripled to $105.49 million compared to $30.72 million in 1Q09, which was negatively impacted by the global financial crisis. The acquisition of Xi'an Tech Full Simo Electric Motor Co. Ltd. ("Xi'an Simo") in October 2009 contributed $45.03 million. Excluding this acquisition, sales increased by 97% year over year. The higher sales were primarily driven by increased sales in all product lines resulting from strong economic recovery in China.
By product line, linear motor sales were up 60% driven by higher oil pumps sales (105 units in 1Q10 compared to 30 units in 1Q09) and sales from our linear motor propulsion systems developed for coal transportation trains ($5.5 million), which started to contribute in the fourth quarter of 2009. Sales of specialty micro motors were up 165% from 1Q09. Sales of industrial rotary motors increased from $10.8 million to $67.5 million including $45.03 million from Xi'an Simo. Sales of rotary motors at our Weihai facility more than doubled.
International sales totaled $7.06 million, up 117% compared with $3.26 million in 1Q09, when the global economic downturn hit our international business severely. The international sales growth was driven by increased sales in our specialty micro motor and rotary motor products.
The following table presents the revenue contribution by percentage for each major product line in 1Q10 in comparison with 1Q09.
Percent of Total Revenues
Product Line 1Q10 1Q09
Linear Motors and Related Systems 18.8% 40.3%
Specialty Micro-Motors 15.4% 19.9%
Rotary Motors 64.0% 35.3%
Weihai 21.3% 35.3%
Xi'an 42.7% NA
Others 1.8% 4.5%
Total 100% 100%
International Sales 6.7% 10.6%
Net Income
Net income attributable to controlling interest in the quarter totaled $20.55 million ($0.66 per diluted share), up 137% from $8.65 million ($0.39 per diluted share) in 1Q09. Excluding non-cash charges due to the change in fair value of warrants related to the debt issued in 2006, adjusted net income attributable to controlling interest in the quarter totaled $20.79 million ($0.66 per diluted share), compared with $6.08 million ($0.27 per diluted share) a year ago. The higher net income was primarily driven by higher sales across all product lines, contributions from the acquisition of Xi'an Simo, and higher other income ($1.12 million in 1Q10 versus $0.54 million in 1Q09).
The following table presents the reconciliation of non-GAAP measure to GAAP net income for the quarter versus 1Q09.
1Q10 1Q09
Net Income Attributable to Controlling
Interest $20,553,688 $8,654,334
Add back (Deduct):
Change in fair value of warrant $234,078 ($2,573,421)
Adjusted Net Income Attributable to
Controlling Interest $20,787,766 $6,080,913
Diluted EPS Attributable to Controlling
Interest $0.66 $0.39
Add back (Deduct):
Change in fair value of warrant $0.00 ($0.12)
Adjusted EPS Attributable to Controlling
Interest $0.66 $0.27
Gross Profit Margin
The following table presents the average gross profit margin by product line for 1Q10 in comparison with 1Q09.
Gross Profit Margin
Product Line 1Q10 1Q09
Linear Motors and Related Systems 59.8% 54.1%
Specialty Micro-Motors 38.2% 40.1%
Rotary Motors
Weihai 12.7% 10.1%
Xi'an 31.1% NA
Others 41.3% 49.3%
Corporate Average 33.9% 35.6%
The slight decline in overall gross margin was primarily due to a change in product mix, where the contribution of lower gross margin rotary motor business increased significantly. The percentage of total sales from the lower margin rotary motor business increased to 64% in 1Q10 from 35% in 1Q09, due to the acquisition of Xi'an Tech Full Simo. By product line, higher gross margin for linear motors is attributable to increased sales of oil pumps and sales of linear motor systems for coal transportation, which have higher gross margin relative to other types of linear motors. The gross margin for specialty micro-motors declined slightly primarily as a result of moving the production from Harbin to Shanghai, where manufacturing costs such as labor and fixed costs are relatively higher, particularly at the start-up stage. Increased sales and improved manufacturing efficiency contributed to higher gross margin at our Weihai facility.
Operating Income
Operating income totaled $27.73 million, compared with $8.03 million in 1Q09, representing a 246% year over year growth. Higher operating income was mainly due to increased sales and the acquisition of Xi'an Simo. Total operating costs including selling, general and administrative ("SG&A") expenses and research & development (R&D) expenses totaled $8.01 million, compared with $2.90 million a year ago. The higher operating costs were mainly due to the addition of Xi'an Simo, higher expenses related to higher sales such as shipping and handling costs, higher depreciation expense, and higher costs associated with the production start-up at our Shanghai facility. As a percentage of total sales, the Company's total operating costs decreased from 9.4% to 7.6%. Operating margin was relatively stable at 26.3% and 26.1% in 1Q10 and 1Q09, respectively.
"Despite a long Chinese new-year holiday, we maintained the momentum from the fourth quarter 2009 and delivered another set of strong results, thanks to the hard work of our employees even during the traditional holiday season. While we are quite pleased to see the significant impact of our recent acquisition on all our revenues and profits, we are very satisfied with the progress made across all our existing business lines and in our international sales." said Mr. Yang, Chairman and Chief Executive Officer of Harbin Electric.
Outlook
"We believe that our business diversification efforts are paying off. We exited the quarter seeing continued strength in demand, setting us up nicely for the seasonally stronger second quarter. We are also encouraged by signs of stronger global economic activity, particularly in our North American market," commented Mr. Yang.
"We understand that some of our investors are concerned that the recent Chinese government efforts to cool down the real estate market and combat inflation might impact our business negatively. However, we believe that our business is a key foundation of China's overall economic growth and supports a wide range of economic sectors from agriculture to industry and manufacturing. Thanks to our diversification strategy, we do not expect a slowdown in the real estate sector in China to negatively impact our business. We continue to be very focused on restructuring our newly acquired Xi'an Simo business and improving manufacturing efficiency in Weihai. Our first quarter results reflect some early achievements in a very short period of time. We expect to expand on these positive results in the coming quarters."
Conference Call Details
The Company will host a conference call to discuss the first quarter 2010 financial results at 8:30 a.m. EDT on Monday, May 10th, 2010. Tianfu Yang, Chairman and Chief Executive Officer, Zedong Xu, Chief Financial Officer, and Christy Shue, Executive Vice President, Finance will be on the call.
To participate in the conference call, please dial any of the following numbers:
USA: 1-800-603-1779
International: 1-706-643-7429
North China: 10-800-713-0924
South China: 10-800-130-0748
The conference ID for the call is 72826274.
A replay of the call will be available beginning at 9:30a.m. EDT on May 10th, 2010.
To access the replay, please dial any of the following numbers:
USA: 1-800-642-1687
International: 1-706-645-9291
Passcode is 72826274.
This conference call will be broadcast live over the Internet. To listen to the live webcast, please go to http://www.harbinelectric.com and click on "Harbin Electric Q1 2010 Financial Results Conference Call". The replay of the webcast will be available for 30 days and will be archived on the Investor Kits page of the website after 30 days.
About Harbin Electric, Inc.
Harbin Electric, headquartered in Harbin, China, is a leading developer and manufacturer of a wide array of electric motors with a focus on innovative, customized and value-added products. Its major product lines include industrial rotary motors, linear motors, and specialty micro-motors. The Company's products are purchased by a broad range of domestic and international customers, including those involved in energy industry, factory automation, food processing, packaging, transportation, automobile, medical devices, machinery and tool manufacturing, chemical, petrochemical, as well as in the metallurgical and mining industries. With a recent acquisition of industrial rotary motor business, the Company operates four manufacturing facilities in China located in Xi'an, Weihai, Harbin and Shanghai.
Harbin Electric has built a strong research and development capability by recruiting talent worldwide and through collaborations with top scientific institutions. The Company owns numerous patents in China and has developed award-winning products for its customers. Relying on its own proprietary technology, the Company developed an energy efficient linear motor driving oil pump, the first of its kind in the world, for the largest oil filed in China. Its self-developed linear motor propulsion system is powering China's first domestically made linear motor driving metro train. As China continues to grow its industrial base, Harbin Electric aspires to be a leader in the industrialization and technology transformation of the Chinese manufacturing sector. To learn more about Harbin Electric, visit http://www.harbinelectric.com .
Safe Harbor Statement
The actual results of Harbin Electric, Inc. could differ materially from those described in this press release. Detailed information regarding factors that may cause actual results to differ materially from the results expressed or implied by statements in this press release may be found in the Company's periodic filings with the U.S. Securities and Exchange Commission, including the factors described in the section entitled "Risk Factors" in its annual report on Form 10-K for the year ended December 31, 2009. The Company does not undertake any obligation to update forward-looking statements contained in the press release. This press release contains forward-looking information about the Company that is intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, and statements about industry trends and the Company's future performance, operations and products.
For investor and media inquiries, please contact:
In China
Harbin Electric, Inc.
Tel: +86-451-8611-6757
Email: MainlandIR@Tech-full.com
In the U.S.
Christy Shue
Harbin Electric, Inc.
Executive VP, Finance & Investor Relations
Tel: +1-631-312-8612
Email: cshue@HarbinElectric.com
Kathy Li
Christensen Investor Relations
Tel: +1-212-618-1978
Email: kli@christensenir.com
HARBIN ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2010 AND DECEMBER 31, 2009
ASSETS
March 31, December 31,
2010 2009
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $77,817,097 $92,902,400
Restricted cash 3,004,892 3,522,009
Notes receivable 1,290,371 1,086,929
Accounts receivable, net 104,919,312 93,322,885
Inventories 75,590,773 74,913,877
Other receivables & prepaid
expenses 4,783,373 5,828,453
Advances on inventory purchases 11,003,248 11,718,544
Total current assets 278,409,066 283,295,097
PLANT AND EQUIPMENT, net 155,494,122 156,364,548
OTHER ASSETS:
Debt issuance costs, net 218,287 359,255
Advance on non-current assets 13,659,178 13,666,414
Goodwill 54,073,754 54,073,754
Other intangible assets, net of
accumulated amortization 21,174,757 21,472,471
Other assets 1,351,103 1,722,693
Total other assets 90,477,079 91,294,587
Total assets $524,380,267 $530,954,232
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - short term $3,499,033 $4,533,268
Accounts payable 48,963,748 47,099,135
Short term loans 45,648,772 44,439,629
Customer deposits 17,668,799 18,455,842
Accrued liabilities and other
payables 10,661,137 12,329,394
Taxes payable 9,427,232 8,233,862
Amounts due to original
shareholders 733,500 28,681,976
Current portion of notes payable,
net 4,770,745 7,660,210
Current portion of long term bank
loans 4,401,000 --
Total current liabilities 145,773,966 171,433,316
LONG TERM LIABILITIES:
Long term bank loans -- 4,401,000
Warrant liability 4,857,636 4,623,558
Total liabilities 150,631,602 180,457,874
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, $0.00001 par value,
100,000,000 shares authorized,
31,067,471 and 31,067,471 shares
issued and outstanding as of
March 31, 2010 and December 31,
2009, respectively 310 310
Paid-in-capital 218,349,044 218,094,374
Retained earnings 87,844,800 69,594,111
Statutory reserves 25,172,422 22,869,423
Accumulated other comprehensive
income 18,729,093 18,638,299
Total shareholders' equity 350,095,669 329,196,517
NONCONTROLLING INTERESTS 23,652,996 21,299,841
Total liabilities and
shareholders' equity $524,380,267 $530,954,232
HARBIN ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Unaudited)
2010 2009
REVENUES $105,485,157 $30,724,893
COST OF SALES 69,743,087 19,801,115
GROSS PROFIT 35,742,070 10,923,778
RESEARCH AND DEVELOPMENT EXPENSE 594,195 393,282
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 7,416,758 2,504,904
INCOME FROM OPERATIONS 27,731,117 8,025,592
OTHER EXPENSE (INCOME), NET
Other income, net (1,119,286) (539,379)
Interest expense, net 1,646,923 1,441,384
Change in fair value of warrants 234,078 (2,573,421)
Total other expense (income),
net 761,715 (1,671,416)
INCOME BEFORE PROVISION FOR INCOME
TAXES 26,969,402 9,697,008
PROVISION FOR INCOME TAXES 4,063,361 1,042,674
NET INCOME BEFORE NONCONTROLLING
INTEREST 22,906,041 8,654,334
LESS: NET INCOME ATTRIBUTABLE TO
NONCONTROLLING INTEREST 2,352,353 --
NET INCOME ATTRIBUTABLE TO
CONTROLLING INTEREST 20,553,688 8,654,334
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation
adjustment 91,596 (285,368)
Foreign currency translation
adjustment attributable to
noncontrolling interest (802) --
Change in fair value of derivative
instrument -- (2,529,076)
COMPREHENSIVE INCOME $20,644,482 $5,839,890
EARNINGS PER SHARE
Basic
Weighted average number of
shares 31,067,471 22,102,078
Earnings per share before
noncontrolling interest $0.74 $0.39
Earnings per share attributable
to controlling interest $0.66 $0.39
Earnings per share attributable
to noncontrolling interest $0.08 $--
Diluted
Weighted average number of
shares 31,353,863 22,158,573
Earnings per share before
noncontrolling interest $0.73 $0.39
Earnings per share attributable
to controlling interest $0.66 $0.39
Earnings per share attributable
to noncontrolling interest $0.07 $--
HARBIN ELECTRIC, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009
(Unaudited)
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to
noncontrolling interest $2,352,353 $--
Net income attributable to
controlling interest 20,553,688 8,654,334
Consolidated net income 22,906,041 8,654,334
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation 1,888,108 667,780
Amortization of intangible
assets 365,848 292,927
Amortization of debt issuance
costs 140,968 135,610
Amortization of debt discount 910,535 1,122,614
Provision for bad debt expense 45,384 --
Share-based compensation 254,669 341,362
Loss on derivative instrument -- 219,188
Loss on disposal of equipment 45,880 --
Change in fair value of warrants 234,078 (2,573,421)
Change in operating assets and
liabilities
Notes receivable (104,501) 1,354,449
Accounts receivable (11,637,766) 10,111,075
Inventories (665,548) 3,250,970
Other receivables & prepaid
expenses 1,044,592 (1,379,675)
Advances on inventory purchases 699,662 98,070
Other assets 371,477 (37,918)
Accounts payable 2,039,115 (298,129)
Accrued liabilities and other
payables (1,599,798) (1,613,002)
Customer deposits (786,773) 1,865,532
Taxes payable 1,192,964 670,942
Net cash provided by
operating activities 17,344,935 22,882,708
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for advances on intangible
assets -- (1,233,614)
Payment for advances on equipment
purchases 22,623 --
Purchase of intangible assets (68,236) (30,555)
Purchase of plant and equipment (1,466,942) (175,791)
Additions to construction-in-
progress 121,648 (3,360,011)
Proceeds from disposal of equipments 10,467 --
Payment to original shareholders for
acquisition (27,938,951) --
Net cash used in investing
activities (29,319,391) (4,799,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in restricted cash 516,941 512,785
Payment on cross currency hedge -- (332,027)
Payment on notes payable (3,800,000) (2,000,000)
Increase of notes payable-short term 1,019,218 --
Payment on notes payable-short term (2,053,100) (1,025,570)
Proceeds from short term loan-bank 3,372,950 --
Repayment of short term loan-bank (2,199,750) --
Proceeds from short term loan-other 35,531 --
Net cash used in financing
activities (3,108,210) (2,844,812)
EFFECTS OF EXCHANGE RATE CHANGE ON
CASH (2,637) (79,407)
(DECREASE) INCREASE IN CASH (15,085,303) 15,158,518
Cash and cash equivalents, beginning
of period 92,902,400 48,412,263
Cash and cash equivalents, end of
period $77,817,097 $63,570,781
