KAIFENG, China, Nov. 13 /PRNewswire-Asia-FirstCall/ -- China Valves
Technology, Inc. (OTC Bulletin Board: CVVZ; Nasdaq: CVVT; "China
Valves" or the "Company"), a leading metal valve manufacturer with
operations in the People's Republic of China (the "PRC"), today
announced its financial results for the third quarter ended
September 30, 2009. 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. Siping
Fang, Chairman and CEO of China Valves. "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 $27.9 million,
an increase of 30.1% from $21.4 million for the third quarter of
2008. 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 $19.4 million of net revenue, 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 $13.7 million, an increase of 60.1% from $8.6 million
for the third quarter of 2008. Gross profit margin 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 $1.8
million from $1.6 million 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 $3.8
million that relates to 4,194,344 make good shares to be released
contingent to the Company meeting its make good target of $21
million in net income for fiscal year 2009. The Company accrues
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 November 13, 2009. Selling expenses
increased 33.0% year-over-year to $1.7 million from $1.3 million
for the third quarter of 2008 mainly due to increased sales. Total
other expenses were $0.1 million for the third quarter of 2009,
compared to total other income of $0.5 million for the third
quarter of 2008. Income tax expense was $2.5 million, compared to
$1.5 million for the third quarter of 2008. Income tax increased
mainly due to increased taxable earnings. Net income for the third
quarter 2009 was $3.8 million, compared with $4.6 million in net
income for the third quarter 2008. Diluted earnings per share were
$0.12 for third quarter 2009, compared to diluted earnings per
share of $0.20 for the third quarter 2008. The Company has
approximately 31,446,247 weighted average diluted shares for the
three months ended September 30, 2009, compared to approximately
23,244,832 weighted average diluted shares for the corresponding
period in fiscal 2008. After adjusting for the aforementioned $3.8
million in non-cash compensation charges and a gain of $90,491 due
to changes in the fair value of warrant liabilities, non-GAAP net
income for the third quarter of 2009 was $7.4 million, a 61.6%
increase from non-GAAP net income of $4.6 million for the third
quarter of 2008. Diluted non-GAAP earnings per share were $0.24 for
the quarter ended September 30, 2009, compared to diluted earnings
per share of $0.20 for the quarter ended September 30, 2008. Please
see the table below for a reconciliation of non-GAAP financial
information to GAAP financial information. Nine Months 2009 Revenue
for the first nine months of 2009 was $70.0 million, up 51.5% from
revenue of $46.2 million for the first nine months of 2008. Gross
profit was $34.4 million, up 86.1% from gross profit of $18.5
million for the nine months of 2008. Gross margin was 49.2%,
compared to 40.0% for the first nine months of 2008. Net income was
$6.9 million, or $0.23 per diluted share, compared to $8.1 million,
or $0.38 per basic and diluted share, for the same period a year
ago. After adjusting for the aforementioned $11.3 million in
non-cash compensation charges and $0.3 million in changes in fair
value of warrant liabilities, non-GAAP net income for the first
nine months of 2009 was $18.5 million, or $0.61 per diluted share,
a year-over-year increase of 130.5 %. Financial Condition As of
September 30, 2009, the Company had $16.7 million in cash and cash
equivalents, compared to $16.4 million as of December 31, 2008.
Accounts receivable were $27.5 million compared to $26.1 million as
of December 31, 2008. Working capital was $37.8 million, compared
to $33.1 million as of December 31, 2008. As of September 30, 2009,
the Company had no long term debt. Shareholders' equity was $105.4
million as of September 30, 2009, compared to $76.6 million as of
December 31, 2008. For the first nine months of 2009, the Company
generated $20.1 million in cash from operating activities. The
Company estimates that the total capital expenditures in fiscal
year 2009 will reach approximately $11.6 million: $8.6 million of
which has been used to complete construction and purchase new
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 $1.0 million to upgrade
Taizhou Taide's production technology and equipment, and the
remaining $2.0 million to be used for purchase of new equipment and
production line upgrades for the planned acquisition in 2009.
Acquisition of Yangzhou Rock and Commencement of Production at New
Facility In August 2009, the Company entered into agreement to
acquire 100% equity ownership of Yangzhou Rock for a total of $7.3
million in cash, and during the third quarter, the Company has made
the prepayment of $6.0 million. Yangzhou 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 November 10, 2009 China Valves
received approval to list its common stock on NASDAQ Global Market,
and will begin trading on Monday November 16, 2009. The Company
will trade on NASDAQ under the ticker symbol "CVVT." 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 $4.7 million and expect to deliver 50% of this order by the
end of November 2009 and the other half within 2010. Although
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 Chinese New Year in
February 2010." As of September 30, 2009, the Company's backlog was
RMB 320 million, or approximately $47 million. For the full year
2009, the Company remains confident in meeting the target of annual
net income of $23 million and diluted earnings per share of $0.73,
excluding any non-cash compensation charges and changes in fair
value of derivative instruments and using 31,446,247 weighed
average diluted shares. "Given our adjusted year-to-date net income
of $18.5 million, we are very 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 Chinese New Year 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 8:00 a.m. Eastern
Standard Time on Friday, November 13, 2009 to discuss its financial
results for the third quarter 2009 ended September 30, 2009. To
participate in this 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 10:00 a.m. Eastern Standard Time on
Friday, November 13, 2009. To access the replay, call 888-286-8010.
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 September 30, 2009 and September 30,
2008 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
China's valve industry, and 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 Asia and Europe. For more information, visit
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: Web: http://www.cvalve.com/ CCG Investor
Relations Crocker Coulson, President Tel: +1-646-213-1915 Email:
Web: http://www.ccgirasia.com/ DATASOURCE: China Valves Technology,
Inc. CONTACT: China Valves Technology, Inc.: Ray Chen, VP of
Investor Relations, +1-650-281-8375, or +86-139-2527-9478, or ; or
CCG Investor Relations, Crocker Coulson, President,
+1-646-213-1915, or Web site: http://www.cvalve.com/
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