WUXI, Jiangsu, China, Nov. 17 /PRNewswire-Asia-FirstCall/ -- China Wind Systems, Inc. (OTC Bulletin Board: CHWY - News), ("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 nine months ended September 30, 2009.
Third Quarter 2009 Highlights and Recent Events -- Net revenues increased 37.1% year over year to $16.1 million -- Revenue from the sale of forged products for the wind power and other industries increased 112.0% year over year to $11.1 million, or 69.1% of net revenues -- Revenue from the sale of forged products exclusively to the wind power industry increased 175.7% year over year to $6.9 million, or 42.6% of net revenue -- Gross profit increased 31.7% year over year to $3.9 million -- Net income allocable to common shareholders increased 9.4% year over year to $2.0 million, or $0.09 per fully diluted share -- Adjusted net income was $2.5 million, or $0.11 per diluted share, up 34.3% year over year excluding $462,000 non-cash deemed preferred stock dividend related to issuance of 1.1 million series A preferred shares in the third quarter of 2009 -- Completed one-for-three reverse stock split effective September 23, 2009 -- Raised $3.5 million for the private sale of 3.5 million shares of Series A preferred shares in September and October 2009 to fund payment of electro-slag re-melted (ESR) forged products production line
"We are very encouraged to have achieved another quarter of strong earnings growth driven by rapidly expanding forged product segment for wind power and other industries," said Mr. Jianhua Wu, Chairman and CEO of China Wind Systems, Inc. "In October 2009, we commenced construction of our ESR production line which will be housed in an expanded wing of our newly built forged product facility. We anticipate completing construction by the end of the first quarter of 2010. We are confident that the addition of high precision forged products to our product portfolio will increase our competitiveness in the wind power components market."
Third Quarter 2009 Results
Net revenues for the third quarter of 2009 increased 37.1% to $16.1 million, compared to $11.8 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 112.0% to $11.1 million, or 69.1% of net revenue, for the third quarter of 2009, compared to $5.3 million, or 44.6% 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 175.7% to $6.9 million, and represented 42.6% of net revenues, compared to $2.5 million, or 21.2% of net revenues in the year-ago period. Revenues from the Company's dyeing and finishing equipment segment decreased 16.4% to $5.0 million, or 30.9% of net revenues, compared to $6.0 million, or 50.6% of net revenue, for the third quarter of 2009 due to impact of the global recession on China's textile industry.
Gross profit for the third quarter of 2009 increased 31.7% to $3.9 million, from $3.0 million for the same period in the prior year. Gross margin was 24.1% compared to 25.1% for the same period in 2008. The dyeing and finishing equipment segment's gross margin was 21.7%, down from 26.3% in the comparable period in 2008, resulting from higher raw materials costs and industry pricing pressure. Gross margin for forged rolled rings and electric power equipment was 25.1%, compared with 23.8% in the same period last year. The increase was attributable to cost savings resulting from the Company's ability to manufacture machinery used by the Company to produce its forging products which the Company previously outsourced. As the Company improves its efficiency at the new facility, the Company expects the gross margins to continue to improve.
Operating expenses decreased 2.9% to $469,755, compared to $483,790 in the comparable period last year, primarily the result of lower professional fees.
Operating income increased 38.5% to $3.4 million for the third quarter of 2009, from $2.5 million for the same period in the prior year.
Net income allocable to common shareholders increased 9.4% to $2.0 million, compared to $1.9 million in the third quarter of 2008. Diluted earnings per share increased to $0.09 from $0.08 in the comparable period last year. Adjusted net income excluding $462,000 one time non-cash deemed preferred stock dividend related to issuance of 1.1 million series A preferred shares in the third quarter of 2009 was $2.5 million, up 34.3% from $1.9 million a year ago. Diluted earnings per share were calculated using weighted average shares of 23,506,936 and 22,396,370 for the three months ended September 30, 2009 and 2008, respectively. All share and per share information reflects the one-for-three reverse stock split, which became effective on September 23, 2009.
Nine Month Results
For the first nine months of 2009, revenues increased to $37.6 million, up 19.7% from $31.4 million in the corresponding period of 2008. Gross profit increased 8.9% to $8.6 million, as compared to $7.9 million in the comparable period last year. Gross margin was 22.8%, as compared to 25.1% during the first nine months of 2008. Operating income increased 16.2% to $7.0 million, from $6.0 million during the first nine months of 2009. Net income attributable to common shareholders was $4.5 million, or $0.20 per diluted share, compared to net loss available to common shareholders of $0.9 million, or net loss of $0.07 per diluted share, in the first nine months of 2008. Diluted earnings per share were calculated using weighted average shares of 21,969,692 and 12,878,103 for the three months ended September 30, 2009 and 2008, respectively, as adjusted for a 3-to-1 reverse stock split, effective on September 23, 2009. Adjusted net income allocable to common shareholders was $5.1 million, or $0.23 per diluted share, as compared to $4.3 million, or $0.33 per diluted share.
Financial Condition
As of September 30, 2009, the Company had cash and cash equivalents of $1.2 million, accounts receivable of $6.0 million and working capital of $5.4 million. The Company had $1.4 million in short-term loans payable, $0.7 million in long-term debt, and stockholders' equity of $39.7 million.
During the first nine months of 2009, the Company generated $4.9 million in operating cash flow and spent $6.5 million in capital expenditures, primarily for property and equipment related to the new forged products facility and ESR production line.
Recent Developments
In September and October 2009, the Company received gross proceeds of $3,500,000 from the sale of 3,500,000 shares of series A preferred stock to pay down payment for its ESR project.
On October 13 2009, the Company completed a one-for-three reverse stock split, an important step for the Company to meet the minimum share price requirements for listing on a senior stock exchange in the United States.
Business Outlook
"As we continue to increase the utilization rate at our forging facility, we anticipate gaining momentum for our sales activity," commented Mr. Wu. "Upon completion of our ESR production line, we expect to be in a stronger position to apply for the highly valued international certifications that we believe are necessary for us to win larger contracts to supply wind energy components to major industry players. In addition, we expect to achieve higher gross margins in our ESR forged product line, which is anticipated at approximately 35%-40%. Given anticipated consolidation in the wind energy components industry, we are focused on improving the quality of our products to further distinguish the Company."
Conference Call
The Company will conduct a conference call at 10:00 a.m. Eastern Standard Time (EST) on Tuesday, November 17, 2009 to discuss its third quarter 2009 results. To participate in the live conference call, please dial 888-419-5570 (international callers dial 617-896-9871) approximately ten minutes prior to the start of the call and when prompted enter passcode 794 278 01. A replay will be available for 14 days starting November 17 at 12:00 a.m. EST. To access the replay, dial (888) 286-8010 (international callers dial 617-801-6888) and enter passcode 486 940 06.
Use of Adjusted 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. Additionally, in September 2009, we sold 1,100,000 shares of series A preferred shares and recorded a beneficial dividend of $462,000. The amortization of the debt discount and the deemed dividend are non-cash events which do not affect the Company's operations.
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.
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