Fushi International, Inc. Reports Third Quarter 2006 Results
PR Newswire - November 15, 2006 08:26
DALIAN, China, Nov 15, 2006 /PRNewswire-FirstCall via COMTEX/ -- Fushi International, Inc., (OTC Bulletin Board: FSIN), a low-cost, emerging Chinese manufacturer of bimetallic wire used in a variety of communication, transmission and other electrical products, today announced financial results for the third quarter ended September 30, 2006.
Key Financial Indicators
(All numbers in thousands, except per-share amounts in USD)
Q3 2006 Q3 2005 Percent Change
Net Sales $12,956 $8,521 52.0%
Cost of goods sold $8,956 $4,626 93.6%
Gross Profit $4,000 $3,895 2.7%
Total Operating Expenses $928 $904 2.6%
Operating Income $3,073 $2,991 2.74%
GAAP Net Income $1,435 $2,364 (39.3%)
Pro forma Net Income $2,901 $2,364 22.7%
Fully Diluted EPS $0.06 $0.15 (60.0%)
Pro forma EPS $0.13 $0.15 (13.3%)
(1) Pro forma EPS excludes a $1.5 million non-cash penalty fee associated with a liquidated damages payable in common stock as a result of a delay in an effective registration statement for the resale of shares sold in the Company's December 2006 private placement.
Financial Results
For the quarter ended September 30, 2006, the Company reported revenue of $13.0 million as compared to $8.5 million during the third quarter last year, representing an increase of 52.0 percent. Reported revenues are net of the VAT or (Value Added Tax) of approximately 17.0 percent. The increase in sales was primarily attributable to increases in average selling prices and sales volume growth, which improved 24.2 percent and 22.4 percent respectively versus the comparable quarter last year. Additionally, end user applications have increased significantly year-over-year from new markets such as electromagnet wire, winding wire, shielding wire, as well as distribution and coils. Total capacity utilization at the end of the third quarter was approximately seventy five percent. The Company sold a total of 2,227 tons of bimetallic products during the quarter, an increase of 22.4 percent from the third quarter of last year.
During the third quarter, the Company continued to diversify its revenue stream as its top five customers accounted for 30 percent of total sales with the largest representing approximately 7.0 percent as compared to the third quarter of last year where five customers accounted for 55.0 percent of sales and three accounted for more than 10.0 percent.
The following table provides a recap of key products as a percentage of
overall revenue:
Q3 '06 % Q3 '05 %
CCA Coaxial $3,498,145 27% $7,242,855 85%
CCA Regular $3,239,023 25% $ 852,101 10%
CCA-M Regular $4,664,193 36% $ 426,050 5%
CCA Thin $906,926 7% N/A N/A
CCA-M Thin $647,805 5% N/A N/A
Total $12,956,092 100% $8,521,006 100%
The following table provides a summary of key metrics for each product
line:
ASP Average Unit Cost Gross Margin
Q3 06 Q3 05 Q3 06 Q3 05 Q3 06 Q3 05
Overall $5,817 $4,684 $4,021 $2,543 30.9% 45.7%
CCA Coaxial $5,609 $4,684 $3,943 $2,543 29.7% 45.7%
CCA Regular $5,593 $4,684 $3,740 $2,543 33.1% 45.7%
CCA-M Regular $5,817 $4,684 $3,955 $2,543 32.0% 45.7%
CCA Thin $6,787 N/A $4,106 N/A 39.5% N/A
CCA-M Thin $7,271 N/A $5,040 N/A 30.7% N/A
Cost of goods sold for the quarter ended September 30, 2006 increased by 93.6 percent to $9.0 million from $4.6 million in September 30, 2005, as a result of an increase in the purchasing costs of raw materials, specifically copper and aluminum, and incremental costs associated with higher production volumes. Based on the average price of copper during the third quarter 2006 the Company experienced an $8.4 million increase in total raw material costs, which accounted for 93.5 percent of the increase in cost of goods sold. Gross profit for the third quarter was $4.0 million, up 2.7 percent from gross profit of approximately $3.9 million for the third quarter of last year. Gross margins for the third quarter of 2006 were 30.9 percent compared to 45.7 percent in the year ago period and were principally impacted by lower real average selling prices in comparison to higher raw material costs, partially offset by improved product mix.
Operating expenses were $0.9 million in the third quarter which increased slightly from last year and as a percentage of net sales decreased to 7.2 percent as compared to 10.6 percent respectively. Operating income increased 2.7 percent to $3.1 million for the third quarter and as a result of the aforementioned higher raw material costs operating margins decreased to 23.7 percent from 35.1 percent in the comparable quarter last year.
"While we were pleased with our year-over-year increase in revenue and a further diversification of both our product and customer base, the third quarter was challenging on a number of fronts," commented Mr. Chris Wang, CFO of Fushi International. "It had become customary based on the escalating price of copper that customers frequently prepay in order to be assured of a timely delivery of necessary raw materials. As a result the Company locked in volume commitments on copper at higher prices and was impacted by volatility in the overall price of copper based products in the market during the third quarter which had a negative impact on our gross margins. While further volatility may occur we will look to employ several initiatives to return gross margins back to historical levels of more than thirty six percent.
During the third quarter the Company did not incur an income tax expense due to Fushi International becoming a wholly owned foreign enterprise and also being recognized in the special economic region as a high tech enterprise within China. Management expects to pay minimal income tax outside of the VAT during the next two years. GAAP net income for the third quarter decreased 39.3 percent to $1.4 million, or $0.06 per diluted share compared to net income of $2.4 million, or $0.15 per fully diluted share in the comparable quarter last year. Pro forma net income which excludes $1.5 million in non- cash penalties associated with the delayed registration of the January 2006 private placement was $2.9 million and increased 22.7 as compared to the same period last year with respective earnings per share of $0.13 per weighted average diluted share. The Company utilized 22.8 million weighted average fully diluted outstanding shares as compared to 15.5 million in the same period a year ago.
For the first nine months ending September 30, 2006 revenues increased 153.9 percent to $45.9 million, which was driven by higher selling prices, increased sales volume due to significantly expanded manufacturing capacity and the addition of new product offerings. Cost of goods sold increased 178.7 percent to $28.5 million primarily as a result of higher raw material prices. Gross profit increased 121.6 percent to $17.4 million resulting in gross margins of 37.9 percent as compared to 43.5 percent last year with the decrease versus last year due to factors mentioned previously. Operating expenses increased 60.1 percent to $2.7 million as expenses increased to support higher sales volumes in addition to costs associated with being public as compared to no such expense last year. Operating income for the period totaled $14.7 million, or a 138.2 percent increase as compared to $6.2 million in the comparable period last year yielding operating margins of 32.1 percent and 34.3 percent respectively. GAAP net income increased 153.1 percent to $12.4 million with respective weighted average fully diluted earnings per share of $0.55 compared to $5.0 million and $0.32 in the year ago period. Excluding the aforementioned non-cash penalty, proforma net income was $13.9 million with EPS of $0.61 per weighted average diluted share.
The Company reported a cash balance as of September 30, 2006 of $14.9 million which increased $8.7 million from December 31, 2005 driven by positive net income and improved working capital management particularly in the third quarter 2006. Accounts receivable were $7.7 million at the end of the third quarter representing a 23.8 percent increase versus the end of the year 2005. Accounts receivable did decrease 25.6 percent sequentially as the Company improved collections. Inventory increased 27.1 percent to $9.7 million from the end of 2005 and management believes the increase in inventory is adequate to support anticipated revenue growth. The current ratio at the end of the third quarter was 1.7 to 1 with the Company maintaining working capital of $15.7 million. Cash generated from operations for the nine month period ending September 30, 2006 was $8.4 million. Total debt at quarter end was $27.1 million which increased approximately $9.9 million from the end of 2005. Total debt for the quarter was inclusive of a $4.5 million, interest free loan made by Mr. Li Fu, the Chairman and largest shareholder, on September 20 to fund working capital following a work stoppage because funds were unavailable to buy enough copper to keep pace with rising orders.
"While results are below our internal expectations we did make progress in several of our stated initiatives which included expanding production and sales capacity, specifically for our new fine wire offering, and strengthening our balance sheet through improvements in working capital management. We are now operating a total of ten fine wire production lines, which when coupled with our 20 regular and coaxial lines, has afforded us the opportunity to further grow and diversify our product and customer base. The Company ended the third quarter in a significantly better financial position as evidenced by our key balance sheet metrics. We are currently pursuing a new financing facility which will enable the Company to further expand production capabilities during 2007 while obtaining the necessary working capital to optimize output and meet customer demand," stated Mr. Li Fu, the Chairman and Chief Executive Officer of Fushi International.
About Fushi International:
