-- Net revenues increased 21.5% year-over-year to $13.6 million
-- Net income increased 26.2% year over year to $1.8 million, or $0.03 per
diluted share
WUXI, Jiangsu, China, Aug. 17 /PRNewswire-Asia/ -- China Wind Systems, Inc. (OTC Bulletin Board: CWSI), ("China Wind Systems" or the "Company"), a leading supplier of forged products and industrial equipment to the wind power and other industries in China, today announced its financial results for the quarter and six months ended June 30, 2009.
Second Quarter 2009 Highlights and Recent Events
-- Net revenues increased 21.5% to $13.6 million
-- Revenue from the sale of forged products for the wind power and other
industries increased 139.8 to $9.8 million, or 72% of net revenues
-- Revenue from the sale of forged products exclusively to the wind
industry increased 118.2% to $3.6 million, or 26.8% of net revenue
-- Gross profit increased 12.3% to $3.1 million
-- Net income increased 26.2% to $1.8 million , or $0.03 per fully diluted
share
-- Awarded government grant
-- Received ISO9001 certification for forged products manufacturing
facility
-- Signed $14 million contract to supply wind tower flanges to Chengxi
Shipyard Co., Ltd ("Chengxi")
-- Approved one-for-three reverse stock split
-- Elected Megan Penick as independent director
"We are very pleased with the progress of our new forged product manufacturing facility, which began production in March 2009, as forged products generated nearly three-fourths of our total revenues in the second quarter," said Mr. Jianhua Wu, Chairman and CEO of China Wind Systems, Inc." As we achieved greater efficiency at the new facility, our gross margins for forged products increased to 23.2%. In July, we signed a $14 million contract to supply wind tower flanges to Chengxi, who sells to some of the premier wind power companies in the world. We are confident that our continuous efforts to provide superior products and quality customer service will further strengthen our reputation as a leading provider of components to the wind power industry."
Second Quarter 2009 Results
Net revenues for the second quarter of 2009 increased 21.5% to $13.6 million, compared to $11.2 million for the same period in 2008. The increase was primarily due to strong sales growth of forged rolled rings. Revenues from the sale of forged rolled rings for the wind power and other industries grew 139.8% to $9.8 million, or 72.0% of net revenue, for the second quarter of 2009, compared to $4.1 million, or 36.4% of net revenue, for the same period of the prior year. Revenue from the sale of forged rolled rings exclusively for the wind power industry rose 118.2% to $3.6 million, and represented 26.8% of net revenues, compared to $1.7 million, or 15.0% of net revenues in the year-ago period. Revenues from the Company's dyeing and finishing equipment segment decreased 41.7% to $3.8 million, or 28.0% of net revenues, compared to $6.5 million, or 58.3% of net revenue, for the second quarter of 2009 due to impact of the global recession on China's textile industry.
Gross profit for the second quarter of 2009 increased 12.3% to $3.1 million, from $2.8 million for the same period in the prior year. Gross margin was 22.9% compared to 24.7% for the same period in 2008. The dyeing and finishing equipment segment's gross margin was 22.1%, down from 25.9% in the comparable period in 2008. The decrease is attributable to an increase in the cost of raw materials, such as steel and other metals, which could not be passed on to customers during that period, as well as stronger competition which drove down prices. Gross margin for forged rolled rings and electric power equipment was 23.2%, compared with 23.1% in the same period last year. The Company believes that its gross margins will improve to the extent that it is able to utilize its factory more efficiently.
Operating expenses decreased 18.9%, to $0.6 million in the second quarter of 2009, compared with $0.7 million in the comparable period last year, primarily the result of lower professional fees and depreciation. As a percent of net revenues, operating expenses declined to 4.4%, from 6.5% in the comparable period in 2008.
Operating income increased 23.6% to $2.5 million for the second quarter of 2009, from $2.0 million for the same period in the prior year.
Net income increased 26.2% to $1.8 million, compared to $1.4 million in the second quarter of 2008. Diluted earnings per share grew to $0.03 from $0.02 in the comparable period last year.
Six Months Results
For the first half of 2009, revenues increased to $21.4 million, up 9.2% from $19.6 million in the corresponding period of 2008. Gross profit decreased 4.8% to $4.7 million, as compared to $4.9 million in the same period one year ago. Gross margin was 21.9%, compared to 25.2% during the first half of 2008. Operating income was unchanged at $3.5 million. Net income attributable to common shareholders was $2.4 million, or $0.04 per diluted share, compared to net loss available to common shareholders of $2.7 million, or ($0.07) per diluted share, in the first half of 2008. For the six months ended June 30, 2008, net loss attributable to common shareholders included $2.3 million in non-cash items related to the Company's convertible debt and a deemed preferred stock dividend of $2.9 million which had the effect of reducing our net income available to common stockholders. Non-GAAP adjusted net income available to common shareholders for the first half of 2008, which excludes the non-cash items and deemed preferred dividend, was $2.4 million, or $0.06 per diluted share.
Financial Condition
As of June 30, 2009, the Company had cash and cash equivalents of $720,827, notes receivable of $401,473 and accounts receivable of $6.3 million and working capital of $4.8 million. The Company had $1.2 million in short-term loans payable, $0.8 million of long-term debt, and stockholders' equity of $36 million.
During the first six months of 2009, China Wind generated $2.0 million in operating cash flow and spent $2.8 million in capital expenditures primarily for equipment to produce larger forged rolled rings.
Recent Events
In August, the Company approved a one-for-three reverse stock split.
In August, the Company elected Megan Penick as independent director.
In July, the Company signed a $14 million contract to supply wind tower flanges to Chengxi from September 2009 to June 2010 in the amount of 800 to 1,200 tons per month. Chengxi is a supplier to some of the world's top wind turbine manufacturers.
In July, the Company received International Organization for Standardization Certification ISO9001:2009 that accredits China Wind Systems' quality management system.
Business Outlook
"We are confident in our prospects to significantly build our wind power business, as we are gaining sales momentum and building our stature as evidenced by our recent contract with Chengxi for wind tower flanges. The Chinese government recently increased its forecast of China's installed wind capacity from 30 GW to 150 GW in 2020, demonstrating the compelling long-term opportunities available to China Wind Systems," said Mr. Wu. "We continue our efforts to improve our corporate governance and hope to be able to list our shares on a major US stock market."
Use of Non-GAAP Financial Measures
China Wind Systems believes that net income adjusted for certain non-cash expenses, a non-GAAP performance measure, is a reasonable means for understanding its business in view of the significant non-cash charges which do not relate to the operation of the business. In connection with the Company's November 2007 private placement, it issued 3% convertible notes to the investors in the principal amount of the $5,525,000. Because of the favorable conversion terms, the debt was issued at a discount of $2,610,938. Upon the conversion of the debt into equity in March 2008, the unamortized debt discount of $2,263,661 was fully amortized and treated as additional interest, and the relative fair value of the warrants granted in March 2008 related to the November 2007 private placement of $2,884,062 was classified as a deemed dividend to the holders of the series A preferred stock. The amortization of the debt discount and the deemed dividend are non-cash events which do not affect the Company's operations.
Conference Call
The Company will conduct a conference call at 10:00 a.m. Eastern Time (ET) on Monday, August 17, 2009 to discuss its second quarter 2009 results. To participate in the live conference call, please dial 888-339-2688 (international callers dial 617-847-3007) approximately ten minutes prior to the start of the call and enter passcode 925 361 25. A replay will be available for 14 days starting on August 17 at 12:00 p.m. ET. To access the replay, dial (888) 286-8010 (international callers dial 617-801-6888) and enter passcode 441 449 71.
About China Wind Systems, Inc.
China Wind Systems supplies forged rolled rings to the wind power and other industries and industrial equipment to the textile and energy industries in China. With its newly finished state-of-the-art production facility, the Company plans to increase its production and shipment of high-precision rolled rings and other essential components primarily to the wind power and other industries. For more information on the Company, visit http://www.chinawindsystems.com . Information on the Company's Web site or any other Web site does not constitute a portion of this release.
Safe Harbor Statement
This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website ( http://www.sec.gov ). All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.
-Financial Tables Follow-
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended
June 30, June 30,
2009 2008 2009 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET REVENUES $13,584,030 $11,182,950 $21,444,897 $19,630,024
COST OF SALES 10,479,370 8,419,505 16,743,588 14,692,331
GROSS PROFIT 3,104,660 2,763,445 4,701,309 4,937,693
OPERATING EXPENSES:
Depreciation 83,393 141,568 160,923 219,588
Selling, general
and administrative 509,408 589,420 1,010,356 1,205,988
Total Operating
Expenses 592,801 730,988 1,171,279 1,425,576
INCOME FROM OPERATIONS 2,511,859 2,032,457 3,530,030 3,512,117
OTHER INCOME EXPENSE):
Interest income 98 4,011 328 9,644
Interest expense (176,058) (18,753) (199,729) (2,278,447)
Foreign currency
loss -- -- (11) --
Grant income 146,130 -- 146,130 --
Debt issuance
costs -- -- (12,000) (21,429)
Total Other
Income (Expense) (29,830) (14,742) (65,282) (2,290,232)
INCOME BEFORE INCOME
TAXES 2,482,029 2,017,715 3,464,748 1,221,885
INCOME TAXES 701,494 606,531 1,038,155 1,060,562
NET INCOME 1,780,535 1,411,184 2,426,593 161,323
DEEMED PREFERRED STOCK
DIVIDEND -- -- -- (2,884,062)
NET INCOME (LOSS)
ALLOCABLE TO COMMON
SHAREHOLDERS $1,780,535 $1,411,184 $2,426,593 $(2,722,739)
COMPREHENSIVE INCOME:
NET INCOME $1,780,535 $1,411,184 $2,426,593 $161,323
OTHER
COMPREHENSIVE
INCOME:
Unrealized
foreign
currency
translation
gain 3,253 605,039 44,793 1,612,284
COMPREHENSIVE
INCOME $1,783,788 $2,016,223 $2,471,386 $1,773,607
NET INCOME (LOSS) PER
COMMON SHARE:
Basic $0.04 $0.04 $0.05 $(0.07)
Diluted $0.03 $0.02 $0.04 $(0.07)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING:
Basic 45,241,307 38,036,208 45,104,302 37,760,355
Diluted 63,768,461 65,712,820 60,623,310 37,760,355
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2009 2008
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $720,827 $328,614
Notes receivable 401,473 269,549
Accounts receivable, net of
allowance for doubtful accounts 6,271,623 4,518,259
Inventories, net of reserve for
obsolete inventory 2,516,385 1,892,090
Advances to suppliers 123,919 117,795
Due from related party -- 437,688
Prepaid value-added taxes on
purchases 234,089 --
Prepaid expenses and other 72,344 21,744
Total Current Assets 10,340,660 7,585,739
PROPERTY AND EQUIPMENT - net 28,126,754 25,939,596
OTHER ASSETS:
Land use rights, net 3,768,468 3,806,422
Total Assets $42,235,882 $37,331,757
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable $1,168,770 $1,021,272
Accounts payable 2,891,880 2,485,137
Accrued expenses 269,991 187,605
VAT and service taxes payable -- 97,341
Advances from customers 471,847 45,748
Income taxes payable 701,168 569,371
Total Current Liabilities 5,503,656 4,406,474
LONG-TERM LIABILITIES:
Loan payable - net of current
portion and debt discount 758,397 --
Total Liabilities 6,262,053 4,406,474
RELATED PARTY TRANSACTIONS
STOCKHOLDERS' EQUITY:
Preferred stock $0.001 par value;
(June 30, 2009 and December
31, 2008 - 60,000,000 shares
authorized, all of which
were designated as series A
convertible preferred,
13,626,728 and 14,028,189
shares issued and outstanding;
at June 30, 2009 and December
31, 2008, respectively) 13,627 14,028
Common stock ($0.001 par value;
150,000,000 shares authorized;
46,039,342 and 44,895,546
shares issued and outstanding
at June 30, 2009 and December
31, 2008, respectively) 46,038 44,896
Additional paid-in capital 16,147,706 15,571,288
Retained earnings 15,858,198 13,639,641
Statutory reserve 829,239 621,203
Commitments -- --
Other comprehensive gain -
cumulative foreign currency
translation adjustment 3,079,020 3,034,227
Total Stockholders' Equity 35,973,828 32,925,283
Total Liabilities and
Stockholders' Equity $42,235,881 $37,331,757
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended
June 30,
2009 2008
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,426,593 $161,323
Adjustments to reconcile net
income from operations to net cash
provided by operating activities:
Depreciation 697,127 322,923
Amortization of debt discount to
interest expense 16,997 2,263,661
Amortization of debt offering costs -- 21,429
Amortization of land use rights 43,191 66,761
Increase in allowance for doubtful
accounts 143,620 170,024
Interest expense related to debt
conversion 128,489 --
Stock-based compensation expense 119,612 75,000
Notes receivable (131,584) --
Accounts receivable (1,891,180) (1,860,346)
Inventories (621,840) (911,684)
Prepaid value-added taxes on purchases (234,142) --
Prepaid and other current assets (50,602) 235,398
Advances to suppliers (5,964) 647,106
Due from related party 438,389 --
Accounts payable 403,527 (137,507)
Accrued expenses 82,146 3,085
VAT and service taxes payable (97,497) (230,670)
Income taxes payable 131,045 74,150
Advances from customers 426,134 864
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,024,061 901,517
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in due from related parties -- 98,058
Proceeds from sale of cost-method
investee -- 35,348
Deposit on long-term assets - related
party -- (88,783)
Deposit on long-term assets -- (2,648,096)
Purchase of property and equipment (2,849,156) (2,126,847)
NET CASH USED IN INVESTING ACTIVITIES (2,849,156) (4,730,320)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable 1,133,612 141,390
Proceeds from exercise of warrants 83,111 854,340
Payments on related party advances -- (101,905)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,216,723 893,825
EFFECT OF EXCHANGE RATE ON CASH 585 184,068
NET INCREASE (DECREASE) IN CASH 392,213 (2,750,910)
CASH - beginning of year 328,614 5,025,434
CASH - end of period $720,827 $2,274,524
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $46,443 $35,505
Income taxes $921,760 $1,169,603
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Debt discount for grant of warrants $92,985 $--
Deemed preferred stock dividend
reflected in paid-in capital $-- $2,884,062
Convertible debt converted to
series A preferred stock $-- $5,525,000
Deposit on long-term assets-related
party reclassified to intangible assets $-- $5,500,030
Series A preferred converted
to common shares $401 $759
Common stock issued for debt $152,963 $--
CHINA WIND SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP NET INCOME (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS AND DILUTED EPS
For the Six Months ended June 30,
2009 2008
Diluted Diluted
Net Income EPS Net Income EPS
Adjusted Amount of Net
Income available to
Common Shareholders $2,426,593 $0.04 $2,424,984 $0.06
Adjustment
Interest expenses
related to
amortization of
conversion of
convertible debt
to common stock (1) -- -- 2,263,661 0.06
Deemed preferred
stock dividend (2) -- -- 2,884,062 0.08
Amount per
consolidated
statement of
operations $2,426,593 $0.04 $(2,722,739) $(0.07)
(1) One-time, non-cash interest expenses related to amortization of
debt discount to interest expense, Q1 2008 and Q1 2009
(2) Deemed preferred stock dividend related to Weighted average diluted
shares, 60,623,311 for six months ended June 30,2009 and 37,760,355
for six months ended June 30, 2008
For more information, please contact:
Company Contact:
Mr. Leo Wang
Chief Financial Officer
China Wind Systems, Inc.
Tel: +1-877-224-6696 x705
Email: leo.wang@chinawindsystems.com
Web: http://www.chinawindsystems.com
Investor Relations Contact:
Mr. Crocker Coulson
President
CCG Investor Relations
Tel: +1-646-213-1915 (NY Office)
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com
