China Recycling Energy Corporation Reports Full Year 2012 Financial Results
XI'AN, China, April 1, 2013
XI'AN, China, April 1, 2013 /PRNewswire-FirstCall/ -- China Recycling Energy
Corp. (NASDAQ: CREG; "CREG" or "the Company"), a leading industrial
waste-to-energy solution provider in China, today announced its financial
results for the fourth quarter and fiscal year ended December 31, 2012.
Summary of Financial Results:
(In '000s of U.S. Dollars, except for per FULL YEAR ENDED DEC 31
Total Sales (1) + (2) 1,246 31,198
(1) System Sales - 30,106
(2) Contingent Rental Income 1,246 1,091
Gross Profit 1,246 8,276
Interest income on sales-type leases 18,234 22,104
Total Operating Income 19,480 30,380
Net Income 3,407 21,450
Comprehensive Net Income 3,677 26,650
Basic EPS 0.07 0.51
Diluted EPS 0.07 0.39
Adjusted Net Income in non-GAAP(1) 5,509 15,004
Adjusted EPS in Non-GAAP(1) (2) 0.12 0.35
(1) CREG provides adjusted net income and earnings per share on a non-GAAP
basis that excludes non-cash, share-based compensation expense and non-cash
interest expense on the amortization of the beneficial conversion feature for
the convertible notes and non-cash deferred income tax expenses, as described
below, to enable investors to better assess the Company's operating
performance. The non-GAAP measures are described below and reconciled to the
corresponding GAAP measure in the section below titled "Non-GAAP Financial
(2) Non-GAAP diluted weighted average shares outstanding were calculated based
on outstanding shares, issued options, and estimated shares under the
assumption that they would be converted from our convertible debentures.
Mr. Guohua Ku, Chairman and CEO of CREG, commented, "Our full year 2012
financial results showed large decrease in net income, this is mostly caused
by the decrease in our system sales as we did not complete any new projects
during the year 2012. All our projects operated well and generated constant
cash flow. During this year, we further strengthened our operations and
increased operational efficiencies, while maintaining our fiscal discipline
and cost controls. Currently, we have eleven operating systems and a series of
potential projects which will bring our company a great growth in the future."
"The Company noted that in 2012 our systems related revenue is 0. It is
important to note that we have a non-linear systems revenue flow. We only
recognize system sales revenue when we complete new projects
accordingtosales-typeleaserevenuerecognition under US GAAP. Sales revenue
from sales of completed power plants is not necessarily indicative of future
revenue flows as the Company cannot complete new systems on a routine basis.
The Company's main revenue is from interest income on sales-type leases, which
kept stable quarter by quarter. And we have an increased contingent rental
income from our operating projects."
Positioned for Growth:
"During the year, we made great effort in positioning the Company for growth,"
said Mr. Ku. "Most notably, we expanded our waste-to-energy project portfolio
with Shenqiu Project Phase II. On October 8, 2012, Xi'an TCH, our wholly owned
subsidiary, entered into a Letter of Intent for Technical Transformation with
Shenqiu for technical transformation to enlarge the capacity of the Shenqiu
Project Phase I, which will expand our existing 12 MW system to 24 MW."
"We currently have 11 waste-to-energy systems in operation and 2
waste-to-energy projects under construction." Mr. Ku added, "As more projects
are completed, the trend of increasing interest income from sales type leases
will continue to grow."
"We were granted two significant government awards in 2012; one is Xi'an City
High Tech Development Special Financial Reward; the other one is Shaanxi
Province Technology Innovation Award and provincial government grant, which
indicates that the government's acknowledgement of our recycling energy
technology, and their attention and great support to the development of
recycling energy technology. These awards demonstrate the company's leading
comprehensive competence in energy recycling's high-tech research and
While developing new projects, we will focus on the innovation and improvement
of recycling energy technology, and apply the technology to ongoing projects
with the purpose of developing more projects, which in turn becomes a
beneficial cycle for us and customers. We intend to lead the development of
recycling energy technology, bring more social and economic benefits to our
customers, provide better results to stockholders, and make greater
contributions to the environmental protection of the country."
At the National People's Congress (NPC) and Chinese People's Political
Consultative Conference, the current environmental situation has drawn great
attention from the government. As a result, further controlling and lowering
of environmental pollution will be conducted widely in China. CREG will take
this opportunity to seek cooperation with more enterprises to make great
contributions to environmental protection. Besides the methods we currently
applied in waste power generation, we are focusing on developing coke dry
quenching (CDQ) waste heat power generation. With large-scale application of
coke ovens, CDQ is a trend in the future for the industry. By using CDQ
technology, the energy could be used more efficiently and pollution will be
greatly reduced. Therefore, CDQ waste power generation could reduce the costs
of electricity for enterprises and also help them to reduce environmental
pollution. By doing this, we could expand our market share and develop more
Projects in the Development Phase:
"The Company noted that Shanxi Datong project was previously halted due to a
business reorganization of Shanxi Datong and a renegotiation of one of the
power stations with Xi'an TCH to amend certain construction plans. The
construction work cannot be completed during the recent severe winter weather.
The Company expects to complete one of the power stations by the end of the
second quarter of fiscal year 2013. The capacity of Shanxi Datong is 23 MW,
the revenue on these systems will be recognized at the point of system
delivery and monthly lease payments, based on off-take agreements with the
customers, begin thereafter."
"On October 8, 2012, our wholly owned subsidiary Xi'an TCH entered into a
Letter of Intent for Technical Transformation of Shenqiu Project Phase II with
Shenqiu for technical tranformation to enlarge the capacity of the Shenqiu
Project Phase I. After the reformation, the generation capacity of the power
plant will increase from 12 MW to 24MW. The project commenced in October 25,
2012 and is expected to be completed by the end of the first quarter of 2013.
After the completion, we will rent the station and generate monthly income of
$238,644 (RMB 1,500,000) for 9 and half years."
Looking ahead, we are more confident in our continued growth in 2013 and
beyond, since we are in full swing rolling out our efforts to fulfill the
engagement in various phases for all our projects with all partners. We are
excited about the coming year and the seemingly endless pipeline we have ahead
of us. We look forward to updating you as more projects are finalized.
Financial Results for Full Year Ended December 31, 2012.
Net sales for the year ended December 31, 2012 were $1.25 million and our net
sales for the year ended December 31, 2011 were $31.19 million, a decrease of
$29.95 million. This decrease was primarily due to no power stations being
completed and sold, and the fact that we only received $1.25 million from
contingent rental income during the year ended December 31, 2012. During the
year ended December 31, 2011, we had (1) the completion and sale of the 3rd
9MW capacity power station of Erdos Phase II project through sales-type
leasing arrangements, (2) the completion and sale of the 12MW Shenqiu biomass
power generation system, and (3) $1.09 million from contingent rental income.
Sales-type lease, sales and cost of sales are recorded at the time of lease.
In addition to sales revenue, interest income from the sales-type leases is
our other major revenue source.
Cost of sales for the year ended December 31, 2012 was 0 and our cost of sales
for the year ended December 31, 2011 was $22.92 million, a decrease of $22.92
million. No projects were completed and sold in 2012. In comparision, during
the year ended December 31, 2011, the 3rd 9MW capacity power station of Erdos
Phase II project and the 12MW Shenqiu biomass power generation system were
completed and sold.
Gross profit was $1.25 million for the year ended December 31, 2012 compared
to $8.28 million for the year ended December 31, 2011. This decrease was
mainly due to no gross profit for systems sold in 2012; while in 2011, we had
$7.18 million gross profit or 24% gross margin for system solds.
Interest income on sales-type leases for the year ended December 31, 2012 was
$18.23 million, a $3.87 million decrease from $22.10 million for the year
ended December 31, 2011.During the year ended December 31, 2012, interest
income was derived from 11 systems: one TRT systems, two CHPG systems, two
systems with Erdos Phase I project and three systems of Erdos Phase II
project, the Pucheng biomass power generation system, Shenqiu biomass power
generation system and Zhongbao WHPG system. In comparison, during the year
ended December 31, 2011, interest income was derived from 12 systems:two TRT
systems,two CHPG systems, one WGPG system, two waste heat power generating
systems associated with our Erdos Phase I project and two systems of Erdos
Phase II project, the Pucheng biomass power generation system, Shenqiu biomass
power generation system and Zhongbao WHPG system, and the 3rd 9MW waste heat
power generating system of Erdos Phase II project. Xingtai power generation
system reached maturity of the lease term in January, 2012, and the system was
transferred to Xingtai.
Operating expenses consisted of selling, general and administrative expenses
totaling $5.66 million for the year ended December 31, 2012 compared to $4.74
million for the year ended December 31, 2011, an increase of $0.92 million or
19%. The increase was mainly due to $2.97 million loss resulting from the
termination of the Erdos TCH Phase III power generation projects. Our regular
G&A expenses decreased by $2.04 million in 2012 as a result of our efforts
relating to operational efficiency and expense control.
Non-operating expenses consisted of non sales-type lease interest income,
interest expenses, bank charges and some miscellaneous expenses. For the year
ended December 31, 2012, net non-operating expense was $7.67 million compared
to net non-operating income of $0.99 million for the year ended December 31,
2011. In the year ended December 31, 2012, we had $9.25 million interest
expense on loans and $1.13 million non-cash income from changes in fair value
of BCF of the convertible note from China Cinda. In the year ended December
31, 2011 we had $12.57 million interest expenses on loans and $11.77 million
non-cash income from changes in the fair value of the conversion feature
liability of the convertible note from China Cinda, a $6.70 million loss on
extinguishment of Cinda Notes, and an $8.25 million gain on settlement of debt
from the issuance of the shares to a third party for equipment purchase.
Net income for the year ended December 31, 2012 was $3.41 million compared to
$21.45 million for the year ended December 31, 2011, a decrease of $18.04
million. This decrease in net income was mainly due to decreased total revenue
and interest income, and increased non-operating expenses as explained above.
For the year ended December 31, 2012, GAAP diluted EPS was $0.07 with
approximately 50.2 million shares of common stock outstanding, as compared
with $0.39 for the year ended 2011, when the Company had approximately 46.5
million shares of common stock outstanding.
Financial Position as of December 31, 2012
As of December 31, 2012, the Company had cash and cash equivalents of $45
million, other current assets were $14.80 million and current liabilities were
$59.98 million. Total shareholders' equity was $114.98 million, as compared
to $108.21 million as of December 31, 2011.
Net Investment in Sales-Type Leases as of December 31, 2012
The Company, through its subsidiary, Xi'an TCH Energy Technology Co., Ltd
("Xi'an TCH"), sells and leases energy saving systems and equipment. Under
sales-type leases, Xi'an TCH leased TRT systems to Zhangzhi with terms of 5
and 13 years, respectively; and leased CHPG systems to Tong Chuan, Shengwei,
and Jing Yang Shengwei respectively for 5 years, BMPG systems to Pucheng for
15 years, BMPG systems to Shenqiu for 11 years, and a power and steam
generating system from waste heat from metal refining to Erdos (five projects)
for 20 years. The components of the net investment in sales-type leases as of
December 31, 2012 and 2011 are as follows:
Total future minimum lease payments receivable $380,608,263 $415,796,738
Less: executory cost (113,529,216) (121,384,498)
Less: unearned interest income (138,668,584) (158,110,200)
Net investment in sales - type leases 128,410,463 136,302,040
Current portion 10,389,028 8,725,345
Noncurrent portion $118,021,435 $127,576,695
As of December 31, 2012, the future minimum rentals to be received on
non-cancelable sales-type leases by years are as follows:
Non-GAAP Financial Measures
The Company believes that "adjusted net income" and "adjusted earnings per
share" information, when taken in conjunction with reported results, provide a
useful measure of financial performance since they eliminate the impact of
certain non-recurring, non-cash charges. These non-GAAP measures should not be
considered in isolation or as a substitute for the most comparable GAAP
measures. Additionally, the non-GAAP financial measures used by CREG may not
be comparable to non-GAAP financial measures used by other companies.
(In'000sofU.S.Dollars,exceptfor 3 Months Full Year
Ended Dec 31
persharedata) Ended Dec 31
Adjusted Net Income and EPS 2012 2011 2012 2011
Net Income 1,566 4,537 3,407 21,450
Deferred Income Taxes (574) (2,009) 1,000 6
Interest expense related to
beneficiary conversion feature of 389 7,696 2,140 12,116
Stock based compensation expenses (112) (156) 89 1,455
Interest income from changes in fair - (1,793) (1,127) (11,772)
value of conversion liability
Gain on settlement of debt (8,251) (8,251)
Adjusted Net Income (1) 1,269 23 5,509 15,005
Basic Weighted Average Shares 50,224,350 44,811,946 47,560,416 42,454,304
Adjusted EPS in Non-GAAP (1) 0.03 0.00 0.12 0.35
(1) CREG provides adjusted net income and earnings per share on a non-GAAP basis
that excludes non-cash, share-based compensation expense and non-cash interest
expense on the amortization of the beneficial conversion feature for the
convertible notes and non-cash deferred income tax expenses, as described below,
to enable investors to better assess the Company's operating performance. The
non-GAAP measures are described below and reconciled to the corresponding GAAP
measure in the section below titled "About Non-GAAP Financial Measures."
For the year ended December 31, 2012, Non-GAAP net income was $5.51 million,
as compared to $15.01 million in the same period of 2011.
For more information regarding China Recycling Energy Corp's financial
performance during the year ended December 31, 2012, please refer to the
Annual Report on Form 10-K, which was filed with the Securities and Exchange
Commission on April 1, 2013.
About Non-GAAP Financial Measures
This press release contains non-GAAP financial measures for earnings that
exclude the effect of non-cash, non-operating expenses related to the
Convertible Notes issued in April 2008, and the compensation expenses for the
fair value of stock options, as well as deferred income tax expenses. The
Company uses non-GAAP financial measures when it internally evaluates the
performance of its business and makes operating decisions, including internal
budgeting and performance measurement. The Company believes that providing the
non-GAAP measures is useful to investors for a number of reasons. The non-GAAP
measures provide a consistent basis for investors to understand CREG's
financial performance in comparison to historical periods, and it allows
investors to evaluate CREG's performance using the same methodology and
information as that used by the Company's management. However, investors need
to be aware that non-GAAP measures are subject to inherent limitations because
they do not include all of the expenses included under GAAP, and they involve
the exercise of judgment of which charges are excluded from the non-GAAP
About China Recycling Energy Corp.
China Recycling Energy Corp. (NASDAQ: CREG or "the Company") is based in
Xi'an, China and provides environmentally friendly waste-to-energy
technologies to recycle industrial byproducts for steel mills, cement
factories and coke plants in China. Byproducts include heat, steam, pressure,
and exhaust to generate large amounts of lower-cost electricity and reduce the
need for outside electrical sources. The Chinese government has adopted
policies to encourage the use of recycling technologies to optimize resource
allocation and reduce pollution. Currently, recycled energy represents only an
estimated 1 percent of total energy consumption and this renewable energy
resource is viewed as a growth market due to intensified environmental
concerns and rising energy costs as the Chinese economy continues to expand.
The management and engineering teams have over 20 years of experience in
industrial energy recovery in China. For more information about CREG, please
Safe Harbor Statement
This press release may contain certain "forward-looking statements" relating
to the business of China Recycling Energy Corp. and its subsidiary companies.
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. Investors 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 at
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.
For more information, please contact:
Mr. David Chong
Chief Financial Officer
China Recycling Energy Corp.
SOURCE China Recycling Energy Corp.
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