DALIAN, China, Nov. 6, 2009 (PRNewswire-Asia-FirstCall) -- Fushi Copperweld, Inc. (Nasdaq: 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 financial results for the third quarter ended September 30, 2009.
Third Quarter Highlights
-- GAAP EPS of $0.31
-- Adjusted Non-GAAP EPS of $0.26
-- Metric tons of volume shipped at Dalian increased 9.5% compared to
the third quarter 2008
-- Gross margin increased 530 basis points from 26.5% of revenues to
31.8% of revenues
-- Operating income increased 300 basis points from 19.2% to 22.2% of
revenues
-- Returned to profitability at Fayetteville facility; generated
approximately $0.2 million of net income
-- Generated $11.1 million of cash flow from operations in the quarter;
$15.6 million year-to-date
-- GAAP EPS for 4Q 2009 projected to be $0.26 - $0.30
Revenues for the third quarter of 2009 were $47.7 million compared to $63.8 million in the third quarter of the prior year, a decrease of $16.1 million or 25.2%. The decline was driven primarily by a decrease in average selling price (21.6%) resulting from lower raw material prices. Revenues were $38.9 million at the Company's Dalian, China facility and revenues from the Fayetteville, TN and Telford, UK facilities combined accounted for $8.8 million. Volume at the Company's Dalian facility increased 9.5% as compared to the third quarter 2008 due to increased 3G related demand, increased government spending on basic infrastructure projects in China and continued expansion into the utility market. On a consolidated basis, the Company experienced a slight decline of 3.7% in metric tons sold.
Gross profit for the third quarter of 2009 was $15.2 million compared to $16.9 million in the third quarter of the prior year, a decrease of $1.7 million or 10.1%. Gross margin as a percentage of revenues increased to 31.8% from 26.5% in the same period of the prior year. Gross margin at the Company's Dalian, China facility increased from 32.3% in the third quarter of 2008 to 34.6% in the third quarter of 2009 as the Company cycled through lower cost inventory. The gross margin at the Company's Fayetteville facility increased from 11.3% to 20.1% year over year mostly as a result of cost savings initiatives implemented by management. This gross margin represented the highest quarterly gross margin level achieved at the Fayetteville facility since the October 2007 acquisition of Copperweld Bimetallics.
Operating expenses for the third quarter 2009 remained relatively flat for the third quarter 2009 compared to the prior year's period at approximately $4.6 million. On a percentage basis, operating expenses in the third quarter 2009 increased 230 basis points to 9.6% from 7.3% in the prior year's quarter, primarily a result of lower sales in the third quarter of 2009.
Operating income was $10.6 million in the third quarter of 2009 compared $12.2 million in the third quarter of 2008, a decrease of $1.6 million or 13.6%. The decrease in operating income was primarily due to lower average selling prices resulting from lower raw material prices. On a percentage basis, operating income in the third quarter 2009 increased 300 basis points to 22.2% from 19.2% in the prior year's quarter.
Profit before tax for Dalian and Fayetteville and Telford combined was $10.9 million and $0.2 million respectively in the third quarter of 2009. The loss at the Fushi Copperweld parent company level was $1.0 million primarily due to interest expenses on the high yield notes, non-cash stock-based compensation, non-cash charges related to changes in fair value of derivative liabilities related to the convertible notes conversion options, as well as professional fees and outside service expenses and partially offset by gain from the repurchase of the convertible notes. On a consolidated basis, profit before tax was $10.1 million and we recognized a net tax expense of $0.9 million, reflecting an 8.9% effective tax rate.
Dalian Fayetteville Parent
& Telford Company Consolidated
Profit (Loss) before
income tax 10,947,268 218,310 (1,070,657) 10,094,921
Income tax expense
(credit) 1,788,366 -- (888,378) 899,988
Profit after income
tax 9,194,933
Net income on a GAAP basis of $9.2 million increased $0.2 million, or 2.2%, from $9.0 million for the same period in 2008. GAAP net income margin increased to 19.3% from 14.2% for the same period in 2008.
GAAP earnings per diluted share were $0.31 per diluted share compared with $0.31 per diluted share in the third quarter of 2008. GAAP results included :(1) $2.1 million charge related to changes in fair value of derivative liability -- conversion option, (2) $3.8 million of gain on the convertible notes extinguishment (3) $0.2 million of stock-based compensation cost. Excluding the non-cash gains and expenses related to changes in fair value of derivative liability and share-based compensation, adjusted non-GAAP net income was $7.5 million, or $0.26 per diluted share in the third quarter of 2009.
During the quarter, the Company generated $11.1 million of cash flows from operations, which represented a $27.3 million increase over the same period in the previous year. The Company's cash position at the end of the third quarter was $60.0 million and the Company's debt position was $39.0 million compared to debt of $67.3 million at December 31, 2008. Accounts receivables at September 30, 2009 were $69.1 million compared to $49.8 million on December 31, 2008, an increase of 38.8%. This increase is primarily a result of extended credit terms in 2009 to certain credible customers that have long-standing business relationships with us in order to capture increased market share.
Mr. Li Fu, Chairman and Chief Executive Officer of Fushi Copperweld, commented, "We are extremely pleased with achieving yet another successful quarter for the Company. Despite the global slowdown, we were able to realize profit at all our facilities worldwide. Our China operations remained strong and we are optimistic that our results will continue to improve as we realize further benefits from the Chinese government's stimulus package and 3G network infrastructure build out. We have been prudently expanding our Chinese operations and believe we are well positioned to capitalize on the increasing demand. Market conditions in North America and Europe have stabilized, and despite flat sales our Fayetteville and Telford operations achieved profitability for the first quarter this year, a clear indication that cost savings initiatives have successfully lowered the breakeven levels at Fayetteville and Telford."
Mr. Fu continued, "We are especially pleased with the addition of Linda Zhang as Chief Financial Officer and the expertise she has brought at a pivotal time in our strategic growth plan. I am also very proud and pleased with the overall performance of our entire management team and their individual contributions will only serve to strengthen our team in total. I am confident that our current team will take us to the next level and build a stronger Company."
Fourth Quarter 2009 Outlook and Macro Trends
In the 2009 fourth quarter, the Company expects adjusted fully diluted earnings per share before the impact of non-cash expense related to stock- based compensation between $0.26 and $0.30 based on an estimated weighted average diluted share count of approximately 29.4 million shares. This expectation is based on an effective tax rate at the consolidated level of 8%.
Mr. Fu continued, "As we look forward, we continue to be optimistic and expect continued growth in demand for CCA-based telecom products due to China's 3G infrastructure investments. We also continue to believe that the electrical utility market presents significant opportunities as stimulus packages increase national transmission and distribution spending and we prep the market for the introduction of 8,200 metric tons of CCS cladding capacity by the end of first quarter 2010. At our Fayetteville and Telford facilities, we have successfully lowered the breakeven level at our Fayetteville facility and have recalibrated costs to match economic conditions. With markets stabilizing, we are now in a stronger position to pursue incremental growth opportunities."
Accounting for derivative liability -- conversion option
Effective January 1, 2009, the Company adopted the provisions of EITF Issue 07-5 "Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock", which is effective for financial statements for fiscal years beginning after December 15, 2008 and which replaced the previous guidance on this topic in EITF Issue 01-6. As a result, from January 1, 2009, the Company is required to separately account for the conversion option embedded in the Company's $5,000,000 convertible notes as a derivative instrument liability, carried at fair value and marked-to-market each period, with changes in the fair value each period charged or credited to income. In the third quarter of 2009, the Company recorded non-cash charges to income for changes in the fair value of these derivative liabilities of $2.1 million, or $0.07 per diluted share. There is no impact on periodic cash flows.
Reconciliation of Non-GAAP Financial Measures
Our net income was materially impacted by certain non-cash expenses including stock-based compensation and change in the fair value of derivative liabilities related to the conversion in our outstanding convertible notes. In the third quarter 2009, we also recognized a one-time non-cash gain on redemption of convertible notes.
