Harbin Electric (NASDAQ:HRBN)

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Tuesday, August 9, 2011

Second Quarter 2011 Financial Summary

"We are pleased to report record quarterly revenues driven by sales growth across all major product lines. We expect our top line to remain solid in the second half of 2011," commented Mr. Tianfu Yang, Chairman and Chief Executive Officer of Harbin Electric. "Business conditions have been, and remain, challenging as input costs rose above historical levels due to inflationary pressure, negatively impacting our profit margins. We believe the best way to deal with these negative factors is to differentiate ourselves from our competition through innovation in technology and products. Therefore, we will continue to invest in new technology, improve manufacturing efficiency, and develop new and proprietary products. We are confident that this will allow us to stay competitive and sustain profitable growth longer term," concluded Mr. Yang.

Revenue

In the second quarter of 2011, total revenues were $131.4 million, up $26.0 million or 24.6%, compared with $105.4 million in the second quarter of 2010. The significant sales growth was mainly the result of higher sales across all major product lines. In linear motors and related systems, sales were up $4.5 million year-over-year. A slightly lower sales volumes in oil pumps (145 units in the second quarter of 2011, compared with 150 units in the same period of 2010) and in propulsion systems for coal transportation trains were more than offset by higher volumes in other linear motors and sales of new products. In specialty micro motors, sales increased by $3.1 million driven by higher volumes of existing products and sales of new products. Rotary motor sales were up $13.5 million and $5.6 million at Xi'an Tech Full Simo and at Weihai Tech Full Simo, respectively, driven primarily by higher volumes and higher pricing.

Net Income

The Company recorded a net income attributable to controlling interest of $17.2 million, or $0.55 per diluted share in the second quarter of 2011, compared with a net income attributable to controlling interest of $25.7 million, or $0.82 per diluted share in the same period of 2010. The net income attributable to controlling interest was 33.1% lower than in the second quarter of 2010 primarily due to the following factors:

Lower gross profit margin (see section titled "Gross Profit Margin");
Higher research & development expenses (see section titled "Operating Expenses");
Higher selling, general and administrative expenses (see section titled "Operating Expenses"); and
Higher income tax rate (see section titled "Income Tax").

The net profit margin (net income attributable to controlling interest as a percentage of total revenues) was 13.1% and 24.4% in the second quarter of 2011 and 2010, respectively.

Recent Events

On June 19, 2011, the Company entered into an Agreement and Plan of Merger, dated June 19, 2011 ("Merger Agreement"), with Tech Full Electric Company Limited, a Cayman Islands exempted company with limited liability, wholly owned indirectly by Mr. Tianfu Yang, the Company's Chairman and Chief Executive Officer ("Parent") and Tech Full Electric Acquisition, Inc., a Nevada corporation and a wholly-owned subsidiary of Parent ("Merger Sub").

Pursuant to the Merger Agreement, upon the terms and subject to the conditions thereof, at the effective time of the merger, Merger Sub will be merged with and into the Company, the Company will become a wholly-owned subsidiary of the Parent and each of the Company's shares of common stock issued and outstanding immediately prior to the effective time of the merger (the "Shares") will be converted into the right to receive $24.00 in cash without interest, except for Shares owned by Parent and Merger Sub (including shares to be contributed to Parent by Mr. Tianfu Yang, affiliates of Abax Global Capital ("Abax") and certain of the Company's employees and officers (collectively, the "Purchasing Group") prior to the effective time of the merger pursuant to a contribution agreement between Parent, each member of the Purchasing Group and Tianfu Investments Limited, a Cayman Islands company directly owning 100% of the equity interest in Parent). Currently, the Purchasing Group collectively beneficially owns approximately 40.4% of the Company's outstanding shares of common stock.

The Merger Agreement includes customary termination provisions for both the Company and Parent. If the Merger Agreement is terminated under certain circumstances, the Company will be required to pay Parent a termination fee of $22,500,000. If the Merger Agreement is terminated under certain other circumstances, Parent will be required to pay the Company a termination fee equal to $30,000,000.

The Company's Board of Directors, acting upon the unanimous recommendation of a special committee of the Board of Directors comprised solely of independent and disinterested directors (the "Special Committee"), approved and adopted the Merger Agreement and has recommended that the Company's shareholders vote to approve the Merger Agreement. The Special Committee negotiated the terms of the Merger Agreement with the assistance of legal and financial advisors to the Special Committee.

The merger is currently expected to close in the fourth quarter of this year, and is subject to customary closing conditions as well as approval and adoption of the Merger Agreement by the Company's shareholders (including the affirmative approval of the holders of a majority in combined voting power of the outstanding Shares not owned by the Purchasing Group). Accordingly, no assurance can be given that the merger will be completed.

On July 13, 2011, the Company filed a Preliminary Proxy Statement ("Preliminary Merger Proxy") together with a Schedule 13E-3 with the Securities Exchange Commission ("SEC") indicating its intention to call a special meeting of its shareholders at a still to be specified date to vote on the Merger Agreement for the Company to go private.

If completed, the merger will result in the Company becoming a privately-held company, and the Shares will no longer be listed on any public market.

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Wednesday, May 11, 2011

First Quarter Results:

For the first quarter of 2011, total revenues were $103.8 million, down slightly from $105.5 million in the first quarter of 2010
The Company recorded a net income attributable to controlling interest of $10.8 million, or $0.34 per diluted share in the first quarter of 2011, compared with a net income attributable to controlling interest of $20.6 million, or $0.66 per diluted share in the same period of 2010

GeoTeam® Note: 2011 First quarter analyst EPS estimates were $0.59.

"We had a flat quarter year over year as we have reached full capacity in rotary motors while sales of older linear and micro motors slowed as we started to ramp up sales of new products," said Mr. Tianfu Yang, Chairman and Chief Executive Officer of Harbin Electric.

On October 10, 2010, our Board of Directors received a non-binding proposal from Mr. Tianfu Yang ("Mr. Yang") and Baring Private Equity Asia Group Limited ("Baring") for Mr. Yang and an investment fund advised by Baring to acquire all of the outstanding shares of Common Stock of Harbin Electric not currently owned by Mr. Yang and his affiliates for $24.00 per share in cash, subject to certain conditions ("Going Private Proposal"). Mr. Yang owns 31.1% of our Common Stock. According to the proposal letter, Mr. Yang and Baring intended to form an acquisition vehicle for the purpose of completing the acquisition and that they intend to finance the acquisition with a combination of debt and equity capital. On November 22, 2010, Mr. Yang advised our Board of Directors that, by mutual agreement, Mr. Yang and Baring had amended and restated their previously announced agreement, pursuant to which they had agreed to work together exclusively on the Going Private Proposal to provide that Baring's participation in the Going Private Proposal would consist solely of a right (but not an obligation) to provide up to 10% of the financing for the transaction, in the form of debt and/or equity and that Mr. Yang would not be restricted from seeking alternative sources of financing, in the form of debt and/or equity, for the transaction

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Thursday, March 17, 2011

Fourth Quarter Highlights:

For the quarter ended December 31, 2010, total revenues were $106.2 million, relatively flat compared with $107.2 million in 4Q09.
Excluding these non-recurring items, the adjusted non-GAAP net income totaled to $19.6 million in 4Q10, or $0.62 per diluted share, as compared to $19.4 million in 4Q09, or $0.62 per diluted share.

"We are very pleased to report another record year in our Company's history," said Mr. Tianfu Yang, Chairman and Chief Executive Officer of Harbin Electric. "Revenues nearly doubled, while our earnings, including operating earnings and net earnings, grew significantly. Our growth was reflected in all product lines, thanks to successful acquisitions over the past few years that have enhanced our earnings power and strengthened our position in the industry. During the year, we were also able to secure $35 million and RMB100 million loan facilities and became one of very few small private enterprises to receive financing from China Development Bank. This, we believe, is recognition of our growing importance in China's economy and of the quality of our operational and financial performance.

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Tuesday, November 9, 2010

Third quarter of 2010

Revenues For the third quarter of 2010, total revenues were $109.35 million, up $62.42 million or 133%, compared with $46.93 million in the third quarter of 2009.
Net income attributable to controlling interest of $17.87 million ($0.57 per diluted share) in the third quarter of 2010, compared with a net loss of $1.91 million (a loss of $0.07 per diluted share) in the same period of 2009. The net loss in the third quarter of 2009 included special non-cash and non-recurring items totaling a net loss of $12.86 million or $(0.47) per diluted share.

The following table provides the non-GAAP financial measure and a reconciliation of the non-GAAP measure to the GAAP net income.

	Three Months Ended September 30,
	2010		2009
Net Income Attributable to Controlling Interest (Loss)	$	17,872,932	$	(1,907,964)
Add Back (Deduct):

Gain on debt repurchase	$	0	$	(4,155,000)
Amortization associated with debt repurchase	$	0	$	7,279,487
Loss on cross currency interest rate swap settlement	$	0	$	9,000,000
Provision for bad debts	$	2,033,621	$	0
Change in fair value of warrant	$	301,918	$	736,546
Adjusted Net Income Attributable to Controlling Interest	$	20,208,471	$	10,953,069

Diluted EPS Attributable to Controlling Interest	$	0.57	$	(0.07)
Add Back (Deduct):

Gain on debt repurchase	$	0	$	(0.15)
Amortization associated with debt repurchase	$	0	$	0.27
Loss on cross currency interest rate swap settlement	$	0	$	0.33
Provision for bad debts	$	0.07	$	0
Change in fair value of warrant	$	0.01	$	0.02
Adjusted Diluted EPS Attributable to Controlling Interest	$	0.65	$	0.40

GeoTeam® Note: Estimates for the third quarter 2010 was $0.74

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Monday, August 9, 2010

2010 Second Quarter Financial Highlights:

Total revenues were $105.44 million, up 175% from $38.36 million in 2Q09.
Operating income totaled $28.08 million, up 219% from $8.82 million in 2Q09.
Adjusted net income attributable to controlling interest was $24.02 million, up 224% compared to $7.42 million in 2Q09.
GAAP earnings per diluted share attributable to controlling interest were $0.82, compared to a net loss of $0.24 in 2Q09.
Adjusted earnings per diluted share attributable to controlling interest were $0.77 per diluted share, compared to $0.33 in 2Q09

Outlook

"Despite concerns about the slowing down of the Chinese economy, we continue to see strong demand for many of our products. As we expect continued strong order volume for our rotary motors, our focus in the months ahead is to address production capacity constraints at our Weihai and Xi'an facilities. In our specialty motor lines including linear motors and specialty micro-motors, where speed of product development and market launch is the key to future growth, we have made substantial capital investments. We believe that capacity expansion and the expected and long-awaited launch of new products, coupled with our success in business integration, restructuring, and consolidation, will help us further extend our leadership position in the industry. "

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Tuesday, July 13, 2010

"We believe that our business diversification efforts are paying off. We exited the quarter seeing continued strength in demand, setting us up nicely for the seasonally stronger second quarter. We are also encouraged by signs of stronger global economic activity, particularly in our North American market," commented Mr. Yang.

"We understand that some of our investors are concerned that the recent Chinese government efforts to cool down the real estate market and combat inflation might impact our business negatively. However, we believe that our business is a key foundation of China's overall economic growth and supports a wide range of economic sectors from agriculture to industry and manufacturing. Thanks to our diversification strategy, we do not expect a slowdown in the real estate sector in China to negatively impact our business. We continue to be very focused on restructuring our newly acquired Xi'an Simo business and improving manufacturing efficiency in Weihai. Our first quarter results reflect some early achievements in a very short period of time. We expect to expand on these positive results in the coming quarters."

Source: PR Newswire (May 10, 2010)

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Wednesday, March 10, 2010

Looking ahead, Mr. Yang commented, "We are ready to move the Company forward to a sustained profitability in 2010 supported by a solid platform that we have built over the past years as we expect continuous growth and leverage our strong financial position and promising portfolio of products. Although the first quarter is traditionally slower with the long Chinese new-year holiday, we do not expect this seasonality to impact our business significantly compared to the fourth quarter. We also expect that the Chinese government's commitment to sustainable economic growth and the accelerated industrialization and urbanization of China will continue to drive our business and support our long term growth objectives. We look forward to a productive 2010 as we continue to capture the synergies of the Xi'an Simo acquisition, advance R&D and strengthen growth in all core businesses. We believe that 2010 will be another strong year for Harbin Electric and we remain committed to our strategies to achieve both our near and long term goals and maximize value for our shareholders."

Source: PR Newswire (March 10, 2010)

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