China Valves Technology, Inc. Reports Third Quarter FY 2009 Results
KAIFENG,
Technology, Inc. (OTC Bulletin Board: CVVZ; Nasdaq: CVVT; “China Valves” or
the “Company”), a leading metal valve manufacturer with operations in
People’s Republic of China
for the third quarter ended
Highlights for the Third Quarter 2009 and Recent Developments
-- Net revenue was $27.9 million, an increase of 30.1% from the third
quarter of 2008
-- Gross profit was $13.7 million, an increase of 60.1% from the third
quarter of 2008, and gross margin was 49.1%, compared to 39.9% for the
third quarter of 2008
-- Net income was $3.8 million, or $0.12 per diluted share
-- Non-GAAP net income for the third quarter of 2009, after excluding non-
cash compensation expense of $3.8 million and non-cash items related to
the change in fair value of derivative instruments, was $7.4 million,
or $0.24 per diluted share, an increase of 61.6% from non-GAAP net
income of $4.6 million, or $0.20 per fully diluted share in the third
quarter of 2008
-- In the process of acquiring 100% equity ownership of Yangzhou Rock
Valve Lock Technology Co., Ltd. ("Yangzhou Rock") for $7.3 million in
cash
-- New production facility at the Company's Henan Kaifeng High Pressure
Valve Co., Ltd. ("Kaifeng Valve") subsidiary began formal production in
mid September 2009
-- Approved to list on the NASDAQ Global Market
“Our third quarter of 2009 was another strong quarter for our
high-performance products. Our high temperature, high pressure gate valves and
two-way metal sealing butterfly valves have continued as the main drivers of
growth and are helping us expand market share in the thermal power and water
supply industries,” said Mr.
“Moreover, we continued with our strategy to expand production capacity, our
product portfolio, and our end-user markets through acquisitions. The
integration of Yangzhou Rock helps us access a broader customer base and helps
us further establish our position as a provider of high-margin valve
products.”
Third Quarter 2009 Results
For the third quarter of 2009, China Valves’ net revenue was
an increase of 30.1% from
Net revenue increased primarily because of strong sales of gate valves
which are high pressure high temperature valves used in thermal power stations
and two-way metal sealing butterfly valves for water supply systems. Together,
these products were responsible for
approximately 69.2% of net revenue, in the third quarter of 2009. Strong
demand of these high-end valve products was mainly attributed to the expansion
of water supply networks, the increased demand from thermal power plants, and
our established brand presence. Sales to the power industry accounted for
26.3% of net revenue, and sales to the water supply and drainage industry
accounted for 33.9% of net revenue for the third quarter of 2009 compared to
19.9% and 22.9% respectively for the third quarter last year.
Gross profit for the third quarter of 2009 was
of 60.1% from
was 49.1%, compared to 39.9% for the third quarter of 2008. Gross profit
margin increased because of lower production costs due to increased sales of
high-end valve products, strengthened production cost control and lower raw
material costs compared to the year ago period.
General and administrative expenses excluding the non-cash compensation
for the third quarter of 2009 increase 11.9% to
in the third quarter of 2008. The increase is primarily attributable to
increase in salary expense to support the Company’s sales and administrative
as the Company expands. Additionally, travel expenses increased as well due to
increase in acquisition activities. Auditing, accounting and legal fees have
increased as well. During the quarter, the Company also incurred an accrual of
non-cash compensation expense of
good shares to be released contingent to the Company meeting its make good
target of
this non-cash expense on a quarterly basis, based on the determination the
Company is likely to achieve the make good target for 2009, excluding such
non-cash compensation expenses related to the make good. For more information,
please refer to the Company’s Form 10-Q to be filed on
Selling expenses increased 33.0% year-over-year to
million
Total other expenses were
compared to total other income of
Income tax expense was
third quarter of 2008. Income tax increased mainly due to increased taxable
earnings.
Net income for the third quarter 2009 was
million
were
weighted average diluted shares for the three months ended
compared to approximately 23,244,832 weighted average diluted shares for the
corresponding period in fiscal 2008.
After adjusting for the aforementioned
compensation charges and a gain of
warrant liabilities, non-GAAP net income for the third quarter of 2009 was
the third quarter of 2008. Diluted non-GAAP earnings per share were
the quarter ended
of
for a reconciliation of non-GAAP financial information to GAAP financial
information.
Nine Months 2009
Revenue for the first nine months of 2009 was
revenue of
of 2008. Gross margin was 49.2%, compared to 40.0% for the first nine months
of 2008. Net income was
ago. After adjusting for the aforementioned
compensation charges and
liabilities, non-GAAP net income for the first nine months of 2009 was
million
Financial Condition
As of
equivalents, compared to
receivable were
2008
Shareholders’ equity was
For the first nine months of 2009, the Company generated
cash from operating activities. The Company estimates that the total capital
expenditures in fiscal year 2009 will reach approximately
million
machinery and equipment for the new plant in Kaifeng and equipment purchase in
other two subsidiaries, Zhengdie and Taizhou Taide. The Company expects to use
approximately
and equipment, and the remaining
equipment and production line upgrades for the planned acquisition in 2009.
Acquisition of Yangzhou Rock and Commencement of Production at New
Facility
In
ownership of Yangzhou Rock for a total of
third quarter, the Company has made the prepayment of
Rock mainly designs, manufactures and distributes interlock valves, valve lock
devices, magnetic lock valves, and mechanical interlock machines that are
widely used by manufacturing companies in the petrochemical, chemical, natural
gas, thermal power station and metallurgy industries.
In September, 2009, the Company’s new production facility at its Kaifeng
Valve subsidiary began formal production. This new production facility,
expected to reach full utilization by the end of 2009, mainly focuses on the
production of high-end large diameter metal valves used in thermal and nuclear
power plants, as well as by the oil petrochemical and water supply and
drainage industries.
Recent Developments
On
stock on NASDAQ Global Market, and will begin trading on
2009
Business Outlook
Supported by governmental infrastructure spending especially on municipal
water supply and drainage projects and a replacement cycle within power plants,
China Valves expects to see continued demand for high-end valve products in
2009 and 2010. Moreover, the Company expects to see accelerated growth from
the nuclear power industry in the future.
“In June we signed a contract with China Guangdong Nuclear Power Group to
deliver nuclear valves worth
order by the end of
additional orders from the nuclear power industry remain small for the time
being, we expect this industry to be a significant contributor to future
growth. We have applied for a license to manufacture valves for the core
island of nuclear power plants, and expect to receive an approval around the
As of
approximately
For the full year 2009, the Company remains confident in meeting the
target of annual net income of
of derivative instruments and using 31,446,247 weighed average diluted shares.
“Given our adjusted year-to-date net income of
well positioned to meet our guidance for 2009. Because of many of our
customers slowing orders in the last months of the year in anticipation of
reduced capacity utilization in the first quarter for the
holiday, we expect our fourth quarter to be slightly slower than our third
quarter,” said Mr. Fang, “In 2010, we expect growth to come from our expansion
in manufacturing capacity throughout 2009, which includes the construction of
a new facility, upgrades to existing production capacity, and two completed
acquisitions. Moreover, we are constantly evaluating new acquisition targets
that complement our existing business and that expand our product offerings
and exposure to growing end-user markets.”
Conference call
China Valves’ management will host a conference call at
Standard Time
for the third quarter 2009 ended
live conference call, please dial the following number five to ten minutes
prior to the scheduled conference call time: 888 339-2688. International
callers should call +1 617 847-3007. The Conference Pass Code is 657 997 54.
If you are unable to participate in the call at this time, a replay will
be available for fourteen days starting from
on
International callers should call +1 617-801-6888. The Conference Pass Code is
21500853.
Non GAAP Financial Measures
To supplement the Company’s condensed consolidated financial statements
for the three and nine months ended
presented on a GAAP basis, the Company provided non-GAAP financial information
in this release that exclude the impact of non-cash stock compensation expense
related to the Company’s private placement financings and non cash income or
expense related to changes in the fair value of warrant liabilities. The
Company’s management believes that these non-GAAP measures, non-GAAP net
income and non-GAAP diluted earnings per share, provide investors with a
better understanding of how the results relate to the Company’s current and
historical performance. The additional non-GAAP information is not meant to be
considered in isolation or as a substitute for GAAP financials. The non-GAAP
financial information that the Company provides also may differ from the
non-GAAP information provided by other companies. Management believes that
these non-GAAP financial measures are useful to investors because they exclude
non-cash expenses that management excludes when it internally evaluates the
performance of the Company’s business and makes operating decisions, including
internal budgeting, and performance measurement, because these measures
provide a consistent method of comparison to historical periods. Moreover,
management believes that these non-GAAP measures reflect the essential
operating activities of the Company. In addition, the provision of these
non-GAAP measures allows investors to evaluate the Company’s performance using
the same methodology and information as that used by the Company’s management.
Non-GAAP measures are subject to inherent limitations because they do not
include all of the expenses included under GAAP and because they involve the
exercise of judgment of which charges are excluded from the non-GAAP financial
measure. However, the Company’s management compensates for these limitations
by providing the relevant disclosure of the items excluded. A reconciliation
of each non-GAAP measures to the nearest GAAP measure is appears in the table
below.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008
Income From
Operations 6,402,334 5,661,653 12,950,279 10,377,905
Add back (Deduct):
Non-Cash Compensation
Expenses 3,779,849 -- 11,279,336 --
Adjusted Income from
Operations 10,182,183 5,661,653 24,229,615 10,377,905
Net Income (Loss) 3,753,970 4,641,328 6,934,032 8,071,696
Add back (Deduct):
Non-Cash Change in
Warrant Liabilities (90,491) (34,740) 310,143 (34,774)
Non-Cash Compensation
Expenses 3,779,849 -- 11,279,336 --
Adjusted Net Income 7,443,328 4,606,588 18,523,511 8,036,956
61.6% 130.5%
Diluted EPS 0.12 0.20 0.23 0.38
Add back (Deduct):
Non-Cash Change in
Warrant Liabilities 0.003 0.001 0.01 --
Non-Cash Compensation
Expenses 0.12 -- 0.37 --
Adjusted EPS 0.24 0.20 0.61 0.38
About China Valves Technology, Inc.
China Valves Technology, Inc. through its subsidiaries, Zhengzhou Zhengdie
Valve Co, Ltd. and Henan Kaifeng High Pressure Valve Co., Ltd., is engaged in
development, manufacture and sale of high-quality metal valves for the
electricity, petroleum, chemical, water, gas and metallurgy industries. The
Company has one of the best known brand names in
its history can be traced back to 1959 when it was formed as a state-owned
enterprise. The Company develops valve products by extensive research and
development and owns a number of patents. It enjoys significant domestic
market shares and exports to
http://www.cvalve.com .
Safe Harbor Statements
This press release contains certain statements that may include “forward
looking statements”. All statements other than statements of historical fact
included herein are “forward-looking statements”. These forward looking
statements are often identified by the use of forward-looking terminology such
as “believes,” “expects” or similar expressions, involve known and unknown
risks and uncertainties. Although the Company believes that the expectations
reflected in these forward-looking statements are reasonable, they do involve
assumptions, risks and uncertainties, and these expectations may prove to be
incorrect. You 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 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 VALVES TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
SALES $ 27,890,991 $ 21,441,850 $ 70,008,554 $ 46,208,006
COST OF
GOODS SOLD 14,191,615 12,884,586 35,565,231 27,702,722
GROSS
PROFIT 13,699,376 8,557,264 34,443,323 18,505,284
OPERATING
EXPENSES:
Selling 1,739,431 1,307,590 4,654,287 3,170,950
General and
Administrative 1,762,085 1,513,622 5,520,928 4,783,324
Research and
development 15,677 74,399 38,493 173,105
Non-cash stock
compensation
expense 3,779,849 -- 11,279,336 --
Total
operating
expenses 7,297,042 2,895,611 21,493,044 8,127,379
INCOME FROM
OPERATIONS 6,402,334 5,661,653 12,950,279 10,377,905
OTHER EXPENSE
(INCOME):
Other expense
(income), net 224,352 (621,229) (812,743) (908,213)
Interest and
finance
expense, net 11,879 132,026 138,031 423,620
Change in
fair value
of warrant
liabilities (90,491) (34,740) 310,143 (34,740)
Total
other
expense
(income),
net 145,740 (523,943) (364,569) (519,333)
INCOME BEFORE
PROVISION FOR
INCOME TAXES 6,256,594 6,185,596 13,314,848 10,897,238
INCOME TAX
EXPENSE 2,502,624 1,544,268 6,380,816 2,825,542
NET INCOME 3,753,970 4,641,328 6,934,032 8,071,696
OTHER
COMPREHENSIVE
INCOME:
Foreign
currency
translation
(loss) gain 65,058 49,582 (16,007) 2,376,660
COMPREHENSIVE
INCOME $ 3,819,028 $ 4,690,910 $ 6,918,025 $ 10,448,356
BASIC EARNINGS
PER SHARE:
Weighted
average
number of
shares 31,398,770 23,244,832 30,559,609 21,124,876
Earnings per
share 0.12 0.20 0.23 0.38
DILUTED EARNINGS
PER SHARE:
Weighted
average
number of
shares 31,446,247 23,244,832 30,670,673 21,124,876
Earnings
per
share $ 0.12 $ 0.20 $ 0.23 $ 0.38
CHINA VALVES TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008
ASSETS
September 30, December 31,
2009 2008
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 16,669,586 $ 16,427,883
Restricted cash 3,180,091 3,191,237
Notes receivable 243,522 880,200
Accounts receivable, net of allowance
for doubtful accounts of $1,163,457
and $1,163,457 as of September 30,
2009 and December 31, 2008, respectively 27,483,141 26,119,447
Other receivables 5,082,414 4,841,691
Inventories 10,358,228 11,244,442
Advances on inventory purchases 2,206,656 1,108,512
Advances on inventory purchases - related
party 1,281,316 1,367,446
Prepaid expenses 44,777 52,921
Total current assets 66,549,731 65,233,779
PLANT AND EQUIPMENT, net 26,580,568 16,184,894
OTHER ASSETS:
Accounts receivable - retainage, long term 2,788,490 2,541,418
Deposit for acquisition 6,014,700 --
Advances on equipment purchases 1,405,860 2,001,733
Long term receivable 300,802 382,552
Goodwill - purchased 20,811,767 20,811,767
Intangibles, net of accumulated
amortization 8,980,342 823,331
Other investments, at lower of cost or
market 764,515 764,515
Total other assets 41,066,476 27,325,316
Total assets $134,196,775 $108,743,989
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade $ 8,439,279 $ 6,630,574
Short term loans 4,139,811 7,839,960
Short term loans - related parties 456,511 596,791
Other payables 3,327,025 4,453,881
Other payables - related party 1,470,313 1,975,462
Notes payable 2,347,200 2,934,000
Accrued liabilities 2,984,031 2,382,138
Customer deposits 3,015,111 3,129,708
Taxes payable 2,101,853 1,227,338
Warrant liabilities 478,422 924,291
Total current liabilities 28,759,556 32,094,143
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $0.001 par value;
300,000,000 shares authorized;
31,398,878 shares and 31,192,552 shares
issued and outstanding as of September
30, 2009 and December 31, 2008,
respectively 31,402 31,192
Additional paid-in-capital 78,971,106 66,935,968
Common stock subscription receivable -- (9,834,000)
Statutory reserves 4,892,263 2,958,659
Retained earnings 15,399,478 10,399,050
Accumulated other comprehensive income 6,142,970 6,158,977
Total shareholders' equity 105,437,219 76,649,846
Total liabilities and
shareholders' equity $134,196,775 $108,743,989
CHINA VALVES TECHNOLOGY INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(Unaudited)
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,934,032 $ 8,071,696
Adjustments to reconcile net income
to cash provided by operating
activities:
Depreciation 1,111,294 683,455
Amortization 175,413 46,359
Bad debt provision 200,595 554,672
Loss (gain) on disposal of
fixed assets 52,098 (24,705)
Change in fair value of warrant
liabilities 310,143 (34,740)
Stock compensation cost 11,279,336 --
Change in operating assets and
liabilities:
Restricted cash due to sales
covenant (571,331) (96,857)
Note receivable 636,201 (57,348)
Accounts receivable-trade (1,609,558) (7,749,222)
Other receivables (441,139) (738,305)
Inventories 885,549 1,146,008
Advance on inventory purchases (1,097,320) (212,157)
Advance on inventory
purchases-related party 106,946 (122,415)
Prepaid expenses 8,138 347,644
Accounts payable-trade 1,807,350 (107,055)
Long term receivable 81,689 --
Other payables (1,136,336) (2,652,648)
Accrued liabilities 601,564 1,653,736
Customer deposits (114,511) 1,087,270
Taxes payable 873,859 497,363
Net cash provided by operating
activities 20,094,012 2,292,751
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intangible assets (768,192) (252,938)
Advance on equipment purchases -- (1,485,584)
Purchases of plant and equipment (8,636,494) (3,243,024)
Proceeds from sale of equipment -- 62,366
Investment deposit (6,010,190) --
Net cash used in investing
activities (15,414,876) (4,919,180)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash due to covenant (3,894) (1,628,130)
Restricted cash due to notes
payable 586,360 --
Repayment from notes payable (586,360) --
Other payables-related party (505,130) (2,246,978)
Proceeds from short term debt 3,037,517 6,904,760
Proceeds from short term
loans-related parties 99,307 796,633
Repayments of short term debt (6,733,530) (4,994,553)
Repayments of short term
loans-related parties (251,638) --
Proceeds from shareholder -- 1,317,095
Proceeds from private placement
financing -- 27,288,231
Net cash (used in) provided by
financing activities (4,357,368) 27,437,058
EFFECTS OF EXCHANGE RATE CHANGES ON
CASH (80,065) 275,980
INCREASE IN CASH 241,703 25,086,609
CASH and CASH EQUIVALENTS, beginning 16,427,883 2,773,262
CASH and CASH EQUIVALENTS, ending $ 16,669,586 $ 27,859,871
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 138,133 $ 376,939
Cash paid for income taxes $ 1,324,470 $ 2,326,037
Additional Non-cash investing and
financing activities
Cashless exercise of warrants $ 756,012 $ --
Common stock issued for real
estate acquisition $ 9,834,000 $ --
For more information, please contact:
China Valves Technology, Inc.
Ray Chen, VP of Investor Relations
Tel: +1-650-281-8375
+86-139-2527-9478
Email: raychen@cvalve.net
Web: http://www.cvalve.com
CCG Investor Relations
Crocker Coulson, President
Tel: +1-646-213-1915
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com
SOURCE China Valves Technology, Inc.