Fushi Copperweld Announces 2010 Fourth Quarter and Full Year Results

BEIJING, April 5, 2011 /PRNewswire-Asia-FirstCall/ -- Fushi Copperweld, Inc. (NasdaqGS: 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 final financial results for the fourth quarter and full year periods ended December 31, 2010 in line with previously announced preliminary results.

Fourth Quarter 2010 Results

Revenues for the fourth quarter of 2010 increased 35.2% to $69.9 million, up from $51.7 million in the prior year quarter. Organic growth during the fourth quarter, excluding the contributions of the acquisitions of Dalian Jinchuan, was 21.8%.

Gross profit in the fourth quarter of 2010 increased 28.8% to $22.2 million from $17.2 million a year ago.  Gross margin decreased to 31.8% from 33.4% in the year ago period, primarily because of lower gross margin of Dalian Jinchuan which was acquired in February 2010. Gross margin for the Company’s Dalian cladding facility was 38.3% compared to 38.2% in the prior year period while gross margin for the Company's Fayetteville, TN facility increased from 8.7% in the fourth quarter of 2009 to 11.5% in the fourth quarter of 2010.

Operating expenses in the fourth quarter of 2010 increased 29.9% to $6.2 million, compared to $4.8 million in the prior year's quarter.  On a percentage basis, operating expenses decreased to 8.9% of revenues from 9.3% in the fourth quarter of 2009. Operating income was $16.0 million, a 28.3% increase compared to the prior year period.

As a result of the Company’s completion of its previously announced reevaluation of the application of generally accepted accounting principles (“GAAP”) as described in more detail in the Company’s preliminary earnings release dated March 11, 2011, the Company’s results for the 2010 fourth quarter include anon-cash adjustment of $15.4 million, or $0.40 per diluted share, related to the adjustment of the beginning-of-the-period balance of a valuation allowance of U.S. Entities(Parent and Copperweld Bimetallics, LLC.).

On GAAP basis, net loss for the 2010 fourth quarter was $2.4 million, or $0.06 per diluted share. This compares with GAAP net income of $10.2 million, or $0.34 per diluted share, in the fourth quarter of 2009. GAAP results for the fourth quarter of 2010 include net interest income of $0.0 million, offset by other expenses of $0.4 million.

On non-GAAP basis, adjusted net income was $13.4 million or $0.35 per diluted share in the fourth quarter of 2010, compared to adjusted net income of $10.3 million or $0.34 per diluted share, in the prior year fourth quarter.

Fully diluted share count increased 27.1% in the fourth quarter of 2010 to 38.1 million from 30.0 million a year ago, primarily as a result of the Company’s secondary offering during the first quarter of 2010.

During the three months ended December 31, 2010, the Company generated $27.4 million net cash from operating activities, compared to $11 million in the comparable period in 2009.

Fiscal Year 2010 Results

Revenues for fiscal year 2010 increased 44.8% to $265.0 million, up from $182.9 million in the year ago period.  Metric tons shipped in fiscal year 2010 increased 2.4% to 38,607 metric tons compared to 37,718 metric tons in fiscal year 2009.

Gross profit for fiscal year 2010 increased 44.7% to $79.3 million or 30.0% of revenue from $54.8 million or 30.0% of revenue in fiscal year 2009.  

Operating expenses for fiscal year 2010 were $21.2 million, compared to $17.9 million in fiscal year 2009.  On a percentage basis, operating expenses decreased to 8.0% of revenues from 9.8% for fiscal year 2009.  Operating income increased 57.3% to $58.0 million or 21.9% of revenues compared to $36.9 million or 20.2% of revenues in fiscal year 2009.

On GAAP basis, net income for the 2010 fiscal year was $31.9 million, or $0.85 per diluted share. This compares with net income of $21.9 million, or $0.76 per diluted share, in the 2009 fiscal year.

On non-GAAP basis, adjusted net income was $48.6 million or $1.30 per diluted share in 2010 fiscal year, compared to adjusted net income of $28.9 million or $1.01 per diluted share, in the 2009 fiscal year.

As of December 31, 2010, the Company’s cash position was $123.0 million, an increase of 103.0% from $60.6 million as of December 31, 2009. Accounts receivable at December 31, 2010 were $65.8 million, compared to $67.4 million at December 31, 2009. Long-term debt totalled $5.7 million as of December 31, 2010, compared to $25 million at December 31, 2009.

Mr. Joe Longever, co-Chief Executive Officer of Fushi Copperweld, commented, “Our 2010 fourth quarter and full year results came in as expected and reflect strong performance in a shifting market driven by infrastructure spending priorities and volatile raw material pricing.  We remain focused on leveraging the global opportunity we see for our products and will continue to expand our presence in both current and new markets to grow our business.”

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

Fushi Copperweld’s net income was materially impacted by certain non-cash expenses and one-time events. To supplement the Company’s consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company uses non-GAAP net income for the impact of non-cash expense related to share-based compensation expense, unrealized loss (gain) on cross currency interest swap derivative (“SWAP”) and the change in the fair values of embedded conversion options in our Convertible Notes and warrants, gain (loss) on debt extinguishment and adjustment of the beginning-of-the-year balance of valuation allowance against deferred income tax assets. 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 in accordance with GAAP. A reconciliation of earnings per share as reported and net income (loss) as reported to non-GAAP earnings per share and non-GAAP net income as follows.

In addition, the Company announced that it has completed the restatement of its consolidated financial statements for the years ended December 31, 2007, 2008 and 2009, as well as its previously filed interim financial statements for the first three quarters of 2010 and subsequently filed all amendments with the Securities and Exchange Commission.  

As previously announced on March 24, 2011, the Audit Committee of the Board of Directors of the Company concluded that the Company's previously issued financial statements for the years ended December 31, 2007, 2008 and 2009, and its unaudited interim financial statements for the quarters ended March 31, 2010, June 30, 2010 and September 30, 2010 should no longer be relied upon and should be restated, due to two errors in the application of GAAP regarding (1) the accounting for the SWAP and (2) the acquisitions of Dalian Jinchuan Electric Cable Co., Ltd. (“Jinchuan”) and Shanghai Hongtai Industrial Co., Ltd. (“Hongtai”).A detailed explanation, as well as the impact, of these items on prior periods is as follows:

Cross-currency interest swap derivative

In April 2007, the Company entered into a SWAP to hedge both variable interest risk of its $40 million high yield notes and foreign currency risk of its operating subsidiaries in the People’s Republic of China.  The Company applied hedge accounting to the SWAP.  However, because the Company was not exposed to foreign currency risk on the high yield notes, the SWAP did not qualify for hedge accounting.  All changes in fair value of the SWAP therefore should have been recognized in earnings.

The effects of correcting this error, after income taxes are a decrease in net income of $2.1 million, or $0.07 per diluted share, an increase in net income of $2.7 million, or $0.10 per diluted share, a decrease in net income of $5.6 million, or $0.22 per diluted share, and a decrease in net income of $5.0 million, or $0.13 per diluted share, for the years ended December 31, 2009, 2008, and 2007, and for the quarter ended March 31, 2010, respectively.

Acquisitions of Jinchuan and Hongtai

In February and May 2010, Fushi Copperweld acquired 100% equity interests in Jinchuan and Hongtai, respectively. Based on the original valuation results and purchase price allocations, the Company had recorded $3.3 million and $1.8 million of gain on bargain purchases resulting from the acquisitions of Jinchuan and Hongtai, respectively.  During the year-end closing process, however, management of the Company identified certain errors in the original purchase price allocations with respect to the fair value of certain property, plant and equipment the Company acquired in the two acquisitions. As a result, the Company engaged another independent valuation firm to help determine the fair values of property, plant and equipment, intangible assets and land use rights acquired. Pursuant to the final valuation results, goodwill of approximately $0.6 million and $1.1 million were recognized relating to the Jinchuan and Hongtai acquisitions, respectively.  

The effects of correcting this error, after income taxes are a decrease of net income of $3.3 million, or $0.09 per diluted share, and a decrease of $1.1 million, or $0.03 per diluted share, for the quarters ended March 31, 2010 and June 30, 2010, respectively.

Previously Announced Deferred Income Tax Assets

As previously announced, in addition to the two items described above, the Company was reevaluating the application of GAAP in determining the realizability of deferred income tax assets. The Company has concluded that no errors were made related to deferred income tax assets in previous periods.  Furthermore, the Company has determined that a valuation allowance of $14.3 million against the beginning-of-the-year balance of the deferred income tax assets will be provided as of December 31, 2010 because of a substantial change in the Company’s global business strategy during 2010 which creates uncertainty on the future profitability of the U.S. Entities. Specifically, the Company approved a global expansion plan and a global marketing strategy during 2010. In order to expand its global market share, the Company will recruit senior marketing and business strategy executives to formulate strategic and action plans to push forward such initiative. Additional executive and marketing costs at the Company level are expected to be incurred in the near term. These changes in circumstances have resulted in the change in judgment about the future realizability of the U.S. Entities’ deferred income tax assets.

For further information regarding these restatements, please refer to the Company’s amended Form 10-K for the year ended December 31, 2009, which also incorporates the Company’s financial results for the years ended December 31, 2007 and 2008, as well as its amended Form 10-Q’s for the first three quarters of 2010, which have been filed with the Securities and Exchange Commission.

Mr. Longever concluded, “We are pleased to have reached a resolution on these issues and look forward to devoting all our energy and resources to the effective execution of our global expansion plan and business development strategy.”  

About Fushi Copperweld

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-clad bimetallic engineered conductor products for electrical, telecommunications, transportation, utilities and industrial applications.  With extensive design and production capabilities, and a long-standing dedication to customer service, Fushi Copperweld is the preferred choice for bimetallic products worldwide.

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 www.sec.gov.

For more information, please contact:

Investors

Nathan J. Anderson, VP/Corporate Development — Fushi Copperweld Inc.
Phone +1.931.433.0482 — E-mail: IR@fushicopperweld.com
Web:  www.fushicopperweld.com