Shengkai Innovations, Inc. (Nasdaq:VALV)
("the Company", "Shengkai", "we", or "our"), a
leading ceramic valve manufacturer in the People's Republic of
China (the "PRC"), today announced results for its fiscal year 2013
("FY2013") first quarter ended September 30, 2012.
FY2013 First Quarter Highlights
- Revenues were approximately $4.7 million compared with
approximately $11.0 million in the first quarter of fiscal year
2012 ("FY2012");
- Revenues from the electric power segment were approximately
$0.8 million compared with approximately $3.5 million in the first
quarter of FY2012;
- Revenues from the petrochemical and chemical segment were
approximately $3.4 million compared with approximately $6.7 million
in the first quarter of FY2012; and
- Gross profit was approximately $1.8 million with a gross margin
of 37.9%, compared with approximately $4.8 million and 43.7% in the
first quarter of FY2012.
FY2013 First Quarter Results
Revenues in the first quarter were approximately $4.7 million as
compared to approximately $11.0 million in the first quarter of
FY2012. Quarterly ceramic valves output was 952 sets as compared to
1,978 sets a year ago. Facing the general economic slowdown in the
PRC, Shengkai continues the transition of target market segment
from the electric power industry to domestic and international
petrochemical and chemical industry.
During the first quarter of FY2013, revenues from electric power
industry, petrochemical and chemical industry, and other industries
accounted for 16.4%, 72.9% and 10.7% of the quarterly revenues,
respectively, compared with 31.8%, 61.0% and 7.2% in the first
quarter of FY2012.
Specifically, revenues from the electric power industry were
approximately $0.8 million compared with approximately $3.5 million
in the first quarter of FY2012. The decrease was primarily due to
the general slowdown in economy as well as the ongoing operational
transition into the petrochemical and chemical industry.
During the first quarter, revenues from the petrochemical and
chemical industry were approximately $3.4 million compared with
approximately $6.7 million in the first quarter of FY2012. The
decrease was primarily due to the general slowdown in economy.
Revenues from other industries, including the aluminum and
metallurgy industries were approximately $0.5 million compared with
approximately $0.8 million in the first quarter of FY2012. Due to
its limited market potential, other industries will continue to
remain peripheral to the Company's core priorities.
In the first quarter, cost of sales decreased 53.2%
year-over-year to approximately $2.9 million from approximately
$6.2 million in the first quarter of FY2012. Cost of sales as a
percentage of revenues was 62.1% compared with 56.3% in the
comparable period a year ago due to decrease in sales volume and
decrease in average selling price of the product mix as we sold
more lower-priced products in this quarter.
Gross profit in the first quarter was approximately $1.8 million
compared with approximately $4.8 million for the first quarter of
FY2012. The decrease was primarily attributable to decrease in
sales volume and decrease in average selling price of the product
mix as we sold more lower priced products in this quarter. Gross
margin was 37.9%, compared with 43.7% for the first quarter of
FY2012. The decrease in gross margin was primarily due to increase
in material prices, which were spread over a smaller revenue
base.
Selling expenses in the first quarter decreased by 42.0%
year-over-year to approximately $0.6 million from approximately
$1.1 million for the comparable period in FY2012. Commissions paid
to agents for introducing new sales decreased year-over-year to
approximately $0.4 million from approximately $0.9 million in the
first quarter of FY2012. Since minor components of selling expenses
such as sales staff's salaries, sales offices' administrative
expenses and after-sale service expenses are flat-rate and did not
diminish proportionally to revenue decrease, selling expenses as a
percentage of quarterly sales increased to 13.1% from 9.5% in the
first quarter of FY2012.
General and administrative ("G&A") expenses in the first
quarter were approximately $1.0 million, down from approximately
$3.4 million for the comparable period in FY2012. Excluding the
non-cash share-based compensation, G&A expenses in the first
quarter were approximately $0.8 million, compared with
approximately $1.3 million for the comparable period of FY2012.
Total operating expenses in the first quarter of FY2013 were
approximately $1.6 million compared with approximately $4.5 million
for the comparable period in FY2012. Operating income in the first
quarter of FY2013 was approximately $0.1 million compared with
approximately $0.4 million for the comparable period in FY2012.
Excluding the non-cash share-based compensation, non-GAAP
operating income was approximately $0.3 million, compared with
non-GAAP operating income of approximately $2.5 million for the
comparable period in FY2012.
Provision for income taxes in the first quarter was
approximately $0.2 million compared with approximately $0.5 million
in the first quarter of FY2012. In April 2010, Tianjin Shengkai,
the Company's operating entity in Tianjin, PRC, was awarded the
status of "High Technology" enterprise by the local government. The
tax rate for a "High Technology" enterprise is 15% and Tianjin
Shengkai was taxed at that rate from January 1, 2010 through
December 31, 2011. The Company expects to renew such treatment in
calendar 2012.
GAAP net income was approximately $53,000 compared with
approximately $0.9 million in the first quarter of FY2012. Diluted
earnings per share were $0.003 compared to $0.052 in the first
quarter of FY2012.
Excluding the non-cash items of share-based compensation and
changes in fair value of instruments, non-GAAP net income was
approximately $0.3 million in the first quarter compared with
approximately $2.2 million in the first quarter of FY2012. The
decrease was primarily due to the decline in revenues resulting
from slowdown in PRC economy and operational transition, coupled
with higher raw material costs. Non-GAAP earnings were $0.015 per
diluted share compared with $0.12 per diluted share in the first
quarter of FY2012.
Note: The earnings per share data for the first
quarter of FY2012 have been retroactively restated to reflect the
1-for-2 reverse stock split effected on March 9, 2012.
GAAP to Non-GAAP
Reconciliation Table (Unaudited) |
(in U.S.
Dollars) |
|
|
|
For the Three Months
Ended September 30, |
|
2012 |
2011 |
GAAP Net Income |
$ 52,777 |
$ 944,338 |
Add back/(Subtract): |
|
|
Share-based compensation – employee options
and stock awards |
194,027 |
2,146,968 |
Changes in fair value of
instruments |
20,536 |
(926,637) |
Non-GAAP Net Income |
$ 267,340 |
$ 2,164,669 |
GAAP Earnings per share (diluted) |
$ 0.003 |
$ 0.052 |
Non-GAAP Earnings per share (diluted) |
$ 0.015 |
$ 0.120 |
Financial Condition
As of September 30, 2012, the Company had cash and cash
equivalents of approximately $66.7 million and accounts receivable
of approximately $8.5 million compared to approximately $64.8
million cash and cash equivalents and approximately $9.4 million of
accounts receivable as of June 30, 2012. Total current liabilities
as of September 30, 2012 were approximately $2.9 million, compared
with approximately $3.5 million as of June 30, 2012. Additionally,
the Company has no short-term or long-term debts.
Net cash flow provided by operating activities was approximately
$2.2 million for the first quarter of FY2013 compared with
approximately $2.0 million in the first quarter of FY2012. The
increase was primarily attributable to the reduced working capital
requirements in the first quarter of FY2013 despite the decrease in
net income.
Business
Outlook
In response to the business disruptions and changes in the
global ceramic valves industry as well as in PRC's economic
conditions, management of the Company has decided to gradually
phase out its less profitable domestic market segments including
the electric power market and focus on expanding its presence in
the more profitable domestic and foreign oil and chemical
industries where ceramic valve products typically command higher
prices. The Company has increased its product sales price to match
industry levels and to reflect its superior product quality. The
Company has also been making efforts to streamline operations
through headcount reduction and other cost-saving measures to
conserve capital and reduce the impact of revenue loss.
Additionally, the Company will continue to leverage its
self-developed ceramic material technologies to continue in-house
and joint research and development of innovative and
superior-performance products for the international oil and
chemical markets and commit its resources to expanding the
acceptance of its products overseas.
As such, we expect that in the immediately following quarter
ended December 31, 2012, total revenues would remain flat, and
major contribution to our sales would be from the petrochemical and
chemical industry. Such situation may persist until our marketing
and sales efforts on some new customers and projects pay off, and
the expansion in the international market picks up meaningfully.
Successful penetration into international oil and chemical markets
would also require the Company to obtain various certifications,
including but not limited to different class API certification,
such as API 6A which covers higher pressure valve products, and
other firm-specific supplier qualifications, which will take time
to go through various application procedures, develop new products
and invest in additional or different equipment.
Non GAAP Financial Measures
To supplement the Company's consolidated financial statements
for the three months ended September 30, 2012 and 2011 presented on
a GAAP basis, the Company provided non-GAAP financial information
in this release that excludes the impact of non-cash items of i)
share-based compensation costs related to the stock options and
stock awards granted to independent directors and management staff,
and (ii) changes in the fair value of instruments as a result
of adoption on July 1, 2009 of FASB ASC Topic 815, "Derivative and
Hedging" ("ASC 815"). The Company's management believes that these
non-GAAP measures, namely non-GAAP operating and 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.
About Shengkai Innovations, Inc.
Shengkai Innovations is primarily engaged in the design,
manufacture and sale of ceramic valves, high-tech ceramic materials
and the provision of technical consultation and related services.
The Company's industrial valve products are used by companies in
the electric power, petrochemical and chemical, metallurgy and
other industries as high-performance, more durable alternatives to
traditional metal valves. The Company was founded in 1994 and is
headquartered in Tianjin, PRC.
The Company is one of the few ceramic valve manufacturers in the
world with research and development, engineering, and production
capacity for structural ceramics and is able to produce large-sized
ceramic valves with calibers of 6" (150mm) or more. The Company's
product portfolio includes a broad range of valves that are sold
throughout the PRC, to Europe, North America, United Arab Emirates,
and other countries in the Asia-Pacific region. The Company has
over 200 customers, and is the only ceramic valve supplier
qualified to supply SINOPEC. The Company joined the supply network
of China National Petroleum Corporation ("CNPC") in 2006 and
subsequently received a CNPC Certificate of Material Supplier for
valve products in 2011.
Safe Harbor Statements
Under the Private Securities Litigation Reform Act of 1995: Any
statements set forth above that are not historical facts are
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from those in
the forward-looking statements. Such factors include, but are not
limited to, the effect of political, economic, and market
conditions and geopolitical events, legislative and regulatory
changes, the Company's ability to expand and upgrade its production
capacity, the actions and initiatives of current and potential
competitors, and other factors detailed from time to time in the
Company's filings with the United States Securities and Exchange
Commission and other regulatory authorities. All forward-looking
statements attributable to the Company or to persons acting on its
behalf are expressly qualified in their entirety by these factors
other than as required under the securities laws. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
SHENGKAI
INNOVATIONS, INC. |
|
|
(F/K/A
SOUTHERN SAUCE COMPANY, INC.) AND SUBSIDIARIES |
|
|
CONSOLIDATED
BALANCE SHEETS |
|
|
AS AT
SEPTEMBER 30, 2012 AND JUNE 30, 2012 |
|
|
(Stated in US
Dollars) |
|
|
|
|
|
|
September 30,
2012 |
June 30, 2012 |
|
|
|
ASSETS |
|
|
Current Assets |
|
|
Cash and cash equivalents |
$ 66,738,082 |
$ 64,819,870 |
Restricted cash |
-- |
124,433 |
Accounts receivable, net |
8,546,808 |
9,388,820 |
Notes receivable |
-- |
167,873 |
Other receivables |
2,873,169 |
2,879,422 |
Advances to suppliers |
2,378,166 |
2,339,362 |
Inventories |
2,577,088 |
2,750,907 |
Total Current Assets |
83,113,313 |
82,470,687 |
Property, plant and equipment, net |
53,062,298 |
54,068,143 |
Land use rights, net |
2,513,714 |
2,533,684 |
Other intangible assets, net |
4,293,434 |
4,524,058 |
TOTAL ASSETS |
$ 142,982,759 |
$ 143,596,572 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Current Liabilities |
|
|
Notes payable |
-- |
124,433 |
Accounts payable |
1,814,606 |
1,942,262 |
Advances from customers |
235,062 |
316,020 |
Other payables and accrued expenses |
673,557 |
899,491 |
Income tax payable |
183,582 |
240,438 |
Total Current
Liabilities |
2,906,807 |
3,522,644 |
Warrant liabilities |
784 |
1,761 |
Preferred (conversion option)
liabilities |
502,641 |
481,128 |
TOTAL LIABILITIES |
$ 3,410,232 |
$ 4,005,533 |
|
|
|
Commitments and
Contingencies |
$ -- |
$ -- |
|
|
|
|
|
|
SHENGKAI
INNOVATIONS, INC. |
|
|
(F/K/A
SOUTHERN SAUCE COMPANY, INC.) AND SUBSIDIARIES |
|
|
CONSOLIDATED
BALANCE SHEETS (Continued) |
|
|
AS AT
SEPTEMBER 30, 2012 AND JUNE 30, 2012 |
|
|
(Stated in US
Dollars) |
|
|
|
|
|
|
|
|
|
September 30,
2012 |
June 30,
2012 |
|
|
|
STOCKHOLDERS' EQUITY |
|
|
Preferred stock – $0.001 par value 15,000,000
shares authorized; 1,971,842 and 1,971,842 issued and outstanding
as of September 30, 2012 and June 30, 2012, respectively. |
$ 1,971 |
$ 1,971 |
Common stock -- $0.001 par value 100,000,000
shares authorized; 17,196,229 and 17,196,071 shares issued and
outstanding as of September 30, 2012 and June 30, 2012,
respectively. |
17,197 |
17,197 |
Additional paid-in capital |
71,889,594 |
71,695,567 |
Statutory reserves |
11,196,604 |
11,196,604 |
Retained earnings |
45,144,288 |
45,091,511 |
Accumulated other comprehensive income |
11,322,873 |
11,588,189 |
TOTAL STOCKHOLDER'S
EQUITY |
139,572,527 |
139,591,039 |
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY |
$ 142,982,759 |
$ 143,596,572 |
|
|
|
SHENGKAI
INNOVATIONS, INC. |
|
|
(F/K/A
SOUTHERN SAUCE COMPANY, INC.) AND SUBSIDIARIES |
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
|
|
FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 |
|
|
(Stated in US
Dollars) |
|
|
|
|
|
|
Three months
ended September 30, |
|
2012 |
2011 |
|
|
|
Revenues |
$ 4,674,285 |
$ 11,011,127 |
Cost of sales |
(2,901,143) |
(6,196,651) |
Gross profit |
1,773,142 |
4,814,476 |
Operating expenses: |
|
|
Selling expenses |
(610,381) |
(1,051,480) |
General and administrative expenses |
(1,034,493) |
(3,406,035) |
Total operating
expenses |
(1,644,874) |
(4,457,515) |
Income from operations |
128,268 |
356,961 |
Other income, net |
-- |
13,473 |
Interest income, net |
128,650 |
165,942 |
Changes in fair value of instruments – gain
(loss) |
(20,536) |
926,637 |
Income before income
taxes |
236,382 |
1,463,013 |
Income taxes |
(183,605) |
(518,675) |
Net income |
52,777 |
944,338 |
Foreign currency translation adjustment |
(265,316) |
1,285,784 |
Comprehensive income
(loss) |
(212,539) |
2,230,122 |
|
|
|
Basic earnings per share* |
$ 0.003 |
$ 0.058 |
|
|
|
Diluted earnings per share* |
$ 0.003 |
$ 0.052 |
|
|
|
Basic weighted average shares
outstanding* |
17,196,219 |
16,375,534 |
|
|
|
Diluted weighted average shares
outstanding* |
18,182,140 |
18,052,914 |
|
|
|
* The earnings per
share data and the weighted average shares outstanding for all
periods have been retroactively restated to reflect the 1-for-2
reverse stock split effected on March 9, 2012. |
|
|
|
SHENGKAI
INNOVATIONS, INC. |
|
|
(F/K/A
SOUTHERN SAUCE COMPANY, INC.) AND SUBSIDIARIES |
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS |
|
|
FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 |
|
|
(Stated in US
Dollars) |
|
|
|
Three months
ended September 30, |
|
2012 |
2011 |
Cash flows from operating
activities |
|
|
Net income |
$ 52,777 |
$ 944,338 |
Adjustments to reconcile net income
to net cash provided by operating activities: |
|
|
Depreciation |
902,503 |
929,917 |
Amortization |
257,999 |
254,089 |
Provision for doubtful accounts |
(74,384) |
44,402 |
Changes in fair value of instruments –
(gain) |
20,536 |
(926,637) |
Stock based compensation |
194,027 |
2,146,968 |
Changes in operating assets and
liabilities: |
|
|
(Increase) decrease in
assets: |
|
|
Accounts receivable |
898,394 |
2,850,347 |
Notes receivable |
167,570 |
(133,619) |
Other receivables |
700 |
(3,304) |
Advances to suppliers |
(43,283) |
23,259 |
Inventories |
168,535 |
207,172 |
Increase (decrease) in
liabilities: |
|
|
Notes payable |
(124,209) |
(1,093,491) |
Accounts payable |
160,272 |
(951,308) |
Advances from customers |
(80,358) |
306,793 |
Other payables |
(162,440) |
(1,251,412) |
Accruals |
(61,789) |
(71,761) |
Income tax payable |
(56,400) |
(1,313,407) |
Net cash provided by operating
activities |
2,220,450 |
1,962,346 |
Cash flows from investing
activities |
|
|
Proceeds from disposition of property, plant
and equipment |
-- |
(43,661) |
Purchase of property, plant and
equipment |
(808) |
(403,440) |
Payment of construction in progress |
-- |
(131,198) |
Purchase of intangible assets |
(20,983) |
-- |
(Decrease) in accounts payable related to
equipment purchase |
(284,198) |
-- |
Decrease in restricted cash |
124,209 |
1,093,491 |
Net cash provided by (used in)
investing activities |
(181,780) |
515,192 |
|
|
|
SHENGKAI
INNOVATIONS, INC. |
|
|
(F/K/A
SOUTHERN SAUCE COMPANY, INC.) AND SUBSIDIARIES |
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued) |
|
|
FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 |
|
|
(Stated in US
Dollars) |
|
|
|
|
|
|
Three months
ended September 30, |
|
2012 |
2011 |
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents |
$ 2,038,670 |
$ 2,477,538 |
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
(120,458) |
587,698 |
|
|
|
Cash and cash equivalents–beginning of
year |
64,819,870 |
59,870,108 |
|
|
|
Cash and cash equivalents–end of
year |
$ 66,738,082 |
$ 62,935,344 |
|
|
|
Supplementary cash flow
information: |
|
|
|
|
|
Interest received |
$ 128,655 |
$ 165,942 |
|
|
|
Taxes paid |
$ 240,005 |
$ 1,832,081 |
|
|
|
Non-cash transaction: |
|
|
Preferred stock conversion to common
stock |
$ -- |
$ 2,900 |
Common stock issuance |
$ -- |
$ 600 |
CONTACT: Shengkai Innovations, Inc.
Linbin Zhang, Interim CFO
+86-22-5883-8509
ir@shengkai.com
http://www.shengkaiinnovations.com
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