China Recycling Energy Corporation Reports Full Year 2012 Financial Results
China Recycling Energy Corporation Reports Full Year 2012 Financial Results PR Newswire 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 share data) 2012 2011 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 Measures"; (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 according to sales-type lease revenue recognition 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 development. 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 project." 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: 2012 2011 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: 2013 $36,607,448 2014 28,769,009 2015 26,385,338 2016 26,385,338 2017 26,385,338 Thereafter 236,075,792 Total $380,608,263 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 '000s of U.S. Dollars, except for 3 Months Full Year Ended Dec 31 per share data) Ended Dec 31 Adjusted Net Income and EPS 2012 2011 2012 2011 Net Income 1,566 4,537 3,407 21,450 Adjustments Deferred Income Taxes (574) (2,009) 1,000 6 Interest expense related to beneficiary conversion feature of 389 7,696 2,140 12,116 convertible debentures 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 Outstanding (Shares) 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 financial measure. 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 visit http://www.creg-cn.com. 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. Tel: +86-1370-1813139 Email: email@example.com SOURCE China Recycling Energy Corp.