HARBIN, China, Aug. 11 /PRNewswire-Asia-FirstCall/ --    Second Quarter 2009 Financial Highlights   -- Total revenues were $38.36 million, up 60% from 2Q08 and 25% from 1Q09   -- Adjusted net income was $7.42 million, up 19% and 22% compared with      $6.23 million and $6.08 million in 2Q08 and in 1Q09, respectively   -- Operating profits were $8.82 million compared with $8.22 million in      2Q08 and $8.03 million in 1Q09   -- Adjusted earnings per diluted share were $0.33 compared with $0.31 in      2Q08 and $0.27 in 1Q09   

Harbin Electric, Inc. ("Harbin Electric" or the "Company", Nasdaq: HRBN), a leading Chinese developer and manufacturer of a wide array of electric motors in the People's Republic of China, today announced its second quarter 2009 financial results. The Company filed its quarterly report on Form 10-Q on Monday, August 10, 2009.

   Quarterly Key Financial Figures                                 2Q09                2Q08             1Q09   Revenue                  $38,363,484         $23,959,073      30,724,893   Gross Profit             $12,863,276         $11,456,134      10,923,778   Gross Profit Margin            33.5%               47.8%           35.6%   Operating Income          $8,815,820          $8,224,637      $8,025,592   Operating Margin               23.0%               34.3%           26.1%   Net Income               ($5,419,364)         $6,230,943      $8,654,334   Adjusted Net Income*      $7,422,866          $6,230,943      $6,080,913   Diluted EPS                   ($0.24)              $0.31           $0.39   Adjusted Diluted EPS*          $0.33               $0.31           $0.27    *See Reconciliation of the non-GAAP measure to the GAAP net income. Also    see "About Non-GAAP Financial Measures" toward the end of this release      Reconciliation of the non-GAAP measure to the GAAP net income                                                Three Months Ended                                           June 30                March 31                                      2009         2008             2009   Net Income (Loss)              ($5,419,364)  $6,230,943       $8,654,334     Deduct:       Other Income -        Government Grant          ($1,172,560)          $0               $0     Add back (Deduct):       Change in fair value        of warrant                $14,014,790           $0      ($2,573,421)   Adjusted Net Income             $7,422,866   $6,230,943       $6,080,913    Diluted EPS                         ($0.24)       $0.31            $0.39     Deduct:       Other Income -        Government Grant               ($0.05)       $0.00            $0.00     Add back (Deduct):       Change in fair value        of warrant                      $0.62        $0.00           ($0.12)   Adjusted EPS                         $0.33        $0.31            $0.27    

"We are pleased with another quarter of strong financial results including higher sales, improved operating results, and strong cash flow. Once again we believe that we have demonstrated our ability to execute well," said Tianfu Yang, Chairman and Chief Executive Officer of Harbin Electric. "Although we have not seen strong signs of sustainable recovery in North America, we clearly enjoyed a robust economic environment at home on the back of the Chinese government's stimulus programs and the country's on-going industrialization, which fueled strong sales of industrial rotary motors. We recently received a $1.17 million (RMB 8 million) grant from the Chinese government to support our linear motor driven subway train project due to the project's contribution to China's advanced industrialization. We believe that this grant is indicative of the support that we receive from the Chinese government."

"We expect sales momentum to continue for the remainder of this year as economic conditions continue to improve in China and our major new projects are on-track," Mr. Yang continued. "Globally, it appears that the worst is behinds us. We are optimistic that the world economies, particularly North America where we have the majority of our international business, will continue to improve."

"We just completed a sale of 6.25 million shares of our common stock in an underwritten public offering at $16.00 per share, generating net proceeds of approximately $93.4 million. We expect this capital infusion to play a critical role in the company's future growth. These funds not only allow us to repurchase most of our outstanding debt and invest in improving existing businesses, but also enable us to confidently look at acquisition opportunities. The current economic environment in China presents some promising opportunities. With our strong financial and cash position, we believe we are well-positioned to pursue these opportunities successfully," concluded Mr. Yang.

Revenues

Total revenues of $38.36 million were up 60% from $23.96 million in the second quarter of 2008 ("2Q08") and up 25% from $30.72 million in the first quarter of 2009 ("1Q09"). International sales totaled $3.58 million, or 9.3% of total sales, for the quarter, an increase of 16% and 10% compared with $3.09 million in 2Q08 and $3.26 million in 1Q09, respectively.

Compared with 2Q08, higher revenues in this quarter benefited from the acquisition of the industrial rotary motor business, which contributed $17.00 million, or 44% of total revenues. Excluding the acquisition, organic revenues for the quarter were $21.36 million, down 11%, reflecting lower sales in other product lines partially offset by higher sales in oil pumps (delivered 105 units in 2Q09 compared to 80 units in 2Q08 and 60 units in 1Q09).

Compared with 1Q09, the sales growth reflected a robust demand growth in the industrial rotary motor business, which benefited from the Chinese government's stimulus program. Revenues from the industrial rotary motor business were up a significant 57% to $17.0 million from $10.8 million in 1Q09.

The following table presents the revenue contribution by percentage by each major product line for 2Q09 in comparison with 2Q08 and 1Q09.

         Product Line                Percent of Total Revenues (%)                                        2Q09          2Q08           1Q09   Linear Motors and Related Systems   30.1%         51.3%          40.3%   Specialty Micro-Motors              22.3%         37.7%          19.9%   Rotary Motors                       44.1%            NA          35.3%   Others                               3.5%         11.0%           4.5%   Total                                100%          100%           100%    International Sales                  9.3%         12.9%          10.6%     Net Income  

The Company recorded a net loss of $5.42 million, or a loss of $0.24 per diluted share, in this quarter, as it booked a non-cash charge of $14.01 million due to change in fair value of the warrants issued with its 2010 Notes and 2012 Notes. This compared with net income of $6.23 million, or $0.31 per diluted share, in 2Q08 and a net income of $8.65 million, or $0.39 per diluted share, in 1Q09, which included a non-cash gain of $2.57 million due to change in fair value of warrants.

The adjusted net income of $7.42 million, or the adjusted EPS of $0.33 per diluted share, for 2Q09 excludes the $14.01 million non-cash charge due to change in the fair value of warrants and a $1.17 million (RMB 8 million) government grant, from the Harbin municipal government to support the Company's subway train project that qualifies as engaging in China's advanced industrialization. This adjusted net income compares, on the same basis, with net income of $6.23 million, or $0.31 per diluted share, in 2Q08, and adjusted net income of $6.08 million, or $0.27 per diluted share, in 1Q09. The higher adjusted net income for the current quarter was primarily driven by contributions from the industrial rotary motor business and lower interest expense.

Gross Profit Margin

The following table presents the average gross profit margin by product line for 2Q09, in comparison to 2Q08 and 1Q09. The decline in overall gross profit margin was primarily due to changes in product mix and the lower gross margin in the rotary motor business.

          Product Line                       Gross Profit Margin (%)                                       2Q09           2Q08           1Q09   Linear Motors and Related Systems  56.9%          55.7%          54.1%   Specialty Micro-Motors             40.4%          38.0%          40.1%   Rotary Motors                      13.2%             NA          10.1%   Others                             48.0%          43.7%          49.3%   Corporate Average                  33.5%          47.8%          35.6%    International Business             42.6%          36.2%          44.8%     Operating Profit  

Operating profits of $8.82 million in 2Q09 increased from $8.22 million in 2Q08 and $8.03 million in 1Q09.

Compared with 2Q08, higher operating earnings benefited from the contribution of the industrial rotary motor business, partially offset by higher R&D expenses as well as higher selling, general and administrative ("SG&A") expenses. Operating margin declined to 23.0% from 34.3% in the same quarter of 2008, mainly due to lower gross margin in the industrial rotary motor business and higher R&D expenses as well as higher SG&A expenses.

Compared with 1Q09, operating earnings primarily benefited from higher sales and higher gross profit margin in the industrial rotary motor business, partially offset by higher SG&A expenses.