Cogo Reports Unaudited Earnings for Second Quarter 2013 - Cogo's unaudited revenue in the second quarter ended June 30, 2013, was $184.9 million, down 4.1% from a year earlier, while net income for the same period was $1.7 million, down 6.2% from $1.8 million reported in the same period in 2012. - Non-GAAP net income was $4.4 million down 14.4% from $5.2 million reported for the same period in 2012. - Diluted Earnings per share ("EPS") came to $0.05 and, on a non-GAAP basis, $0.13 a share. - Cogo's Audit Committee continues to review its Chairman and CEO's proposed purchase of certain net assets PR Newswire SHENZHEN, China, Aug. 15, 2013 SHENZHEN, China, Aug. 15, 2013 /PRNewswire/ --Cogo Group, Inc. (NASDAQ: COGO) ("Cogo" or the "Company"), one of the leading gateways for global semiconductor companies to access the industrial and technology markets in China, today announced unaudited financial results for its second quarter ended June 30, 2013. Unaudited revenue in the second quarter was $184.9 million, down 4.1% year-over-year from $192.9 million in the second quarter of 2012. Jeffrey Kang, CEO and Chairman of Cogo, commented, "The Audit Committee, comprising the three independent board members of Cogo, continues to make progress in the due diligence process on my proposal to purchase certain of Cogo's net assets." Mr. Kang said: "If the transaction is approved, it is expected that Cogo would dispose most of its components business while all services and technical solutions businesses would become Cogo's core business. The bulk of Cogo's accounts receivable, inventories, accounts payable and bank loans would be sold to the buyer under the proposal. The disposal of the net assets in a cash transaction is expected to increase Cogo's net cash position. The sale would allow the company to focus on developing a higher margin service and technical solution business, thus creating greater value for shareholders." Mr. Kang added, "Management believes that retaining the Company's listing will provide greater return for its shareholders than privatization. While the proceeds could also fund the Company's buyback program for investors who wish to sell their shares of the Company, it allows the Company to continue to leverage its listed status to develop higher margin business and venture to new business to generate greater value to shareholders." Financial Results Cogo's net income in the second quarter of 2013 was $1.7 million, down 6.2% from $1.8 million in the same period in 2012, with non-GAAP net income at $4.4 million down 14.4% from $5.2 million a year earlier. Diluted EPS was $0.05, unchanged from the second quarter of 2012, and non-GAAP diluted EPS was $0.13, down 7.1% from the second quarter of 2012. Key Financial Indicators (all numbers in USD thousands, except share data) Q2 2013 ^(1) Q2 2012^(1) Percentage Change (unaudited) (unaudited) Net Revenue $184,928 $192,861 -4.1% Cost of Sales $172,762 $179,104 -3.5% Gross Profit $12,166 $13,757 -11.6% Operating Expenses $9,111 $9,923 -8.2% Net Income attributable to Cogo $1,684^(2) $1,796 -6.2% Group, Inc. Diluted EPS attributable to Cogo $0.05 $0.05 0.0% Group, Inc. Non-GAAP Diluted EPS attributable $0.13 $0.14 7.1% to Cogo Group, Inc. The US dollar ("USD") amounts are calculated based on the conversion rate (1) of $1 to RMB6.1374 as of June 30, 2013 and $1 to RMB6.353 as of June 30, 2012. Included in the Q2 2013 net income attributable to Cogo Group, Inc. was $1.9 million of share-based compensation expenses recognized in accordance (2) with Accounting Standards Codification ("ASC") 718, Compensation-Stock Compensation and $0.9 million of amortization of intangible assets and related deferred taxation. Non-GAAP net income attributable to Cogo Group, Inc. was $4.4 million. Revenue Review Revenue for the second quarter was $184.9 million, a decrease of 4.1% from $192.9 million in the same period in 2012. The revenue breakdown includes: $69.1 million, or 37.4% of total sales for digital media (including the mobile handset business), down 5.2% year-over-year; $79.8 million or 43.2% of total sales for telecommunications equipment, representing a 5.7% decrease year-over-year; and $35.2 million or 19.0% of total sales relating to industrial business, down 0.6% year-over-year. The Company recorded $0.8 million or 0.4% of total sales from the service business in the second quarter of 2013, increased 100% from $0.4 million recorded in the first quarter of 2013. Cost of sales, which includes the aggregate purchase of components from suppliers and the direct cost of services, was $172.8 million, down 3.5% from $179.1 million in the second quarter of 2012. Gross profit for the second quarter was $12.2 million, down 11.6% from $13.8 million in the second quarter of last year. The gross margin for the second quarter of 2013 was 6.6%, down from 7.1% a year earlier. Operating expenses, including selling, general and administrative, and research and development expenses, totaled $9.1 million, down 8.2% from $9.9 million in the second quarter of 2012. Income from operations was $3.1 million, down 20.3% from $3.8 million in the same period of 2012. The operating margin was 1.7%, down from 2.0% in the second quarter of 2012. Excluding the effects of share-based compensation expenses and amortization of intangible assets and related deferred taxation, operating margin would have been 3.2% for the second quarter of 2013, compared to 3.8% in the second quarter of 2012. The effective tax rate for the second quarter of 2013 was 12.0%, up from 10.8% a year earlier. Cogo's net income for the second quarter of 2013 was $1.7 million, with diluted EPS of $0.05 on a GAAP basis, compared to net income of $1.8 million and diluted EPS $0.05, in the second quarter of 2012. Included in the second quarter of 2013 were $1.9 million for share-based compensation expenses and $0.9 million for amortization of intangible assets and related deferred taxation. Excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation, the non-GAAP net income would have been $4.4 million, or Non-GAAP Diluted EPS of $0.13. The weighted average number of shares used in the calculation of diluted EPS was 33.1 million compared to 36.4 million in the second quarter of 2012. For the six-month period ended June 30, 2013, the Company reported revenue of $369.5 million, up 2.4% from $360.7 million in the first-half year of 2012. Gross profit was $24.3 million, down 3.2% from $25.1 million in the first-half year of 2012. The gross margin was 6.6%, compared to 7.0% in the same period last year. Net operating expenses were $18.1 million, down 4.7% from $19.0 million in the first half of 2012. Income from operations was $6.2 million, down 1.6% from the $6.1 million reported a year earlier. The non-GAAP operating margin, excluding share-based compensation expenses and amortization of intangible assets, was 3.3%, compared to 3.6% in the same period last year, as a result of a lower gross margin. The Company had an effective tax rate of 11.4% compared to 11.9% during the same period last year. Non-controlling interests' share of income was $1.9 million, up from $1.7 million in the first-half of 2012. Cogo's net income for the half-year period was up 3.3% at $3.1 million from the same period last year. Balance Sheets and Cash Flows Total cash, including pledged bank deposits, was $140.8 million at the end of the second quarter, down from $141.5 million as of December 31, 2012. Bank borrowings decreased to $90.1 million as of June 30, 2013, from $98.6 million at the end of 2012. The Company has a current ratio of 2.6 to 1 and has operating cash outflow of $6.8 million during the second quarter of 2013. Inventories decreased from $82.9 million as of December 31, 2012, to $67.2 million as of June 30, 2013. Inventory turnover days numbered 35 days in the second quarter of 2013 down from 41 days in the fourth quarter of 2012. Accounts receivable increased from $113.2 million as of December 31, 2012, to $170.6 million as of June 30, 2013, and the Days Sales Outstanding increased from 52 days in the fourth quarter of 2012 to 84 days. Accounts payable increased from $16.5 million at the end of 2012 to $23.2 million as of June 30, 2013, and Days Payable Outstanding increased from 8 days to 12 days. Cogo's cash conversion cycle increased from 85 days in the fourth quarter of 2012 to 107 days in the second quarter of 2013. Total equity was $261.3 million as of June 30, 2013, an increase of 2.4% from $255.3 million as of December 31, 2012. During the second quarter of 2013, the Company repurchased approximately 2.2 million ordinary shares at an average price of $1.98 per share and a total cost of more than $4.3 million pursuant to the current stock repurchase program. Cogo has repurchased almost 6.4 million shares since September 24, 2012. Under the current repurchase program, and there are approximately 3.6 million shares left out of the 10 million shares authorized for the program. Cogo continues to view share buybacks as a strategic use of cash. Cogo 2013 Q2 Earnings Results Conference Call Date/ Time: August 15, 2013 (Thursday) @ 8:00 PM (ET) Conference Call: Toll-Free 1-877-941-4774 Toll/International +1-480-629-9760 Webcast/ Audio Recording: http://public.viavid.com/index.php?id=105721 Replay (from 8/15/2013 at 11:00 pm to 8/17/2013 at 11:59 pm ET): US/ Canada Toll-Free: 1-877-870-5176 (Passcode: 4635093) International: +1-858-384-5517 (Passcode: 4635093) About Cogo Group, Inc.: Cogo Group, Inc. (Nasdaq: COGO) is the leading gateway for global semiconductor companies to access the rapidly growing Industrial and Technology sectors in China. Through its unique business-to-business services platform, Cogo designs customized embedded solutions using technology from suppliers including Broadcom, Xilinx, Atmel and others for a customer base of over 2,100 Chinese OEMs/ODMs. Cogo's customer list includes approximately 100 blue-chip companies, including ZTE, BYD and NARI, as well as nearly 2,000 Small and Medium Enterprises (SMEs). The Company serves a broad list of rapidly growing end-markets in China, including 3G Smartphones, Tablets, Automotives, High-Speed Railway, Smart Meter/Smart Grid, Healthcare and High Definition Television "HDTV." For further information: Investor Relations www.cogo.com.cn/investorinfo.html email@example.com H.K.: +852 2730 1518 U.S.: +1 (646) 291 8998 Fax:+86 755 2674 3522 Safe Harbor Statement: This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include statements about our proposed discussions related to our business or growth strategy such as growth in digital media, telecommunications and industrial applications businesses, as well as our potential acquisitions which are subject to change. Such information is based upon expectations of our management that were reasonable when made, but may prove to be incorrect. All such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. For further descriptions of other risks and uncertainties, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 20-F, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at www.sec.gov. About Non-GAAP Financial Measures: To supplement Cogo's unaudited consolidated financial results presented in accordance with GAAP, Cogo uses the following measures defined as Non-GAAP financial measures by the SEC: 1) Non-GAAP net income attributable to Cogo Group, Inc. which is net income attributable to Cogo Group, Inc. excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation, and 2) Non-GAAP diluted EPS attributable to Cogo Group, Inc., which is diluted EPS excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation. The presentation of these Non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these Non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of Non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release. Cogo believes that these Non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation that may not be indicative of its operating performance from a cash perspective. Cogo believes that both management and investors benefit from referring to these Non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These Non-GAAP financial measures also facilitate management's internal comparisons to Cogo's historical performance and liquidity. Cogo computes its Non-GAAP financial measures using the same consistent method from quarter to quarter. Cogo believes these Non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using Non-GAAP net income attributable to Cogo Group, Inc., Non-GAAP diluted Earnings Per Share attributable to Cogo Group, Inc., Non-GAAP income from operations and Non-GAAP operating margin is that these Non-GAAP measures exclude share-based compensation expenses and amortization of intangible assets and related deferred taxation that have been and will continue to be for the foreseeable future a recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each Non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures. Tables Attached FINANCIAL INFORMATION UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS COGO GROUP, INC. and SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012 December 31, June 30, 2013 2012 USD'000 RMB'000 RMB'000 Assets Current assets: Cash 30,169 185,159 324,839 Pledged bank deposits 110,648 679,091 556,941 Accounts receivable, net 170,592 1,046,993 704,968 Bills receivable 4,064 24,943 27,945 Amount due from related party — — 35,743 Inventories 67,230 412,616 516,372 Income taxes receivable 581 3,566 2,098 Prepaid expenses and other receivables 7,883 48,384 56,266 Total current assets 391,167 2,400,752 2,225,172 Property and equipment, net 4,504 27,645 17,515 Intangible assets, net 18,927 116,162 128,810 Other assets 6 35 261 Total Assets 414,604 2,544,594 2,371,758 Liabilities and equity Current liabilities: Accounts payable 23,249 142,690 102,878 Bank borrowings 90,074 552,823 614,045 Income taxes payable 1,105 6,781 7,155 Amount due to related party 27,966 171,638 — Accrued expenses and other liabilities 7,799 47,865 35,734 Total current liabilities 150,193 921,797 759,812 Deferred tax liabilities 3,123 19,167 21,254 Total liabilities 153,316 940,964 781,066 Equity Common stock: Par value: USD0.01 Authorized: 200,000,000 Shares Issued: 44,579,871 shares in 2013, 567 3,481 3,409 43,423,556 shares in 2012 Outstanding:29,518,358 shares in 2013, 31,110,922 shares in 2012 Additional paid in capital 240,163 1,473,976 1,448,396 Retained earnings 98,331 603,498 584,364 Accumulated other comprehensive loss (21,441) (131,594) (122,513) 317,620 1,949,361 1,913,656 Less cost of common stock in treasury, 15,061,513 shares in 2013 and 12,312,634 (65,755) (403,566) (369,217) shares in 2012 Total Cogo Group, Inc. equity 251,865 1,545,795 1,544,439 Noncontrolling interests 9,423 57,835 46,253 Total equity 261,288 1,603,630 1,590,692 Total liabilities and equity 414,604 2,544,594 2,371,758 COGO GROUP, INC. and SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended June 30, 2013 and 2012 Three months ended June 30, 2013 2013 2012 USD'000 RMB'000 RMB'000 Net Revenue 184,928 1,134,978 1,225,247 Cost of sales (172,762) (1,060,311) (1,137,850) Gross profit 12,166 74,667 87,397 Selling, general and administrative (6,765) (41,521) (39,023) expenses Research and development expenses (3,100) (19,023) (24,009) Other operating income (expense) 754 4,630 (12) Income from operations 3,055 18,753 24,353 Interest expense (753) (4,621) (6,741) Interest income 511 3,135 3,608 Earnings before income taxes 2,813 17,267 21,220 Income tax expense (337) (2,067) (2,286) Net income 2,476 15,200 18,934 Less net income attributable to (792) (4,858) (7,528) noncontrolling interests Net income attributable to Cogo 1,684 10,342 11,406 Group, Inc. Earnings per share attributable to Cogo Group, Inc. Basic 0.05 0.31 0.31 Diluted 0.05 0.31 0.31 Weighted average number of common shares outstanding Basic 33,002,573 36,379,789 Diluted 33,111,295 36,379,789 Comprehensive income: Net income 2,476 15,200 18,934 Other comprehensive income, net of nil tax Foreign currency translation (1,227) (7,528) 2,624 adjustments Total comprehensive income 1,249 7,672 21,558 Less comprehensive income, net of nil tax, attributable (742) (4,556) (6,783) toNoncontrolling interests Comprehensive income attributable to 507 3,116 14,775 Cogo Group, Inc. COGO GROUP, INC. and SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income and Comprehensive Income for the Six months ended June 30, 2013 and 2012 Six months ended June 30, 2013 2013 2012 USD'000 RMB'000 RMB'000 Net Revenue 369,507 2,267,815 2,291,688 Cost of sales (345,182) (2,118,517) (2,131,953) Gross profit 24,325 149,298 159,735 Selling, general and administrative (12,914) (79,254) (74,823) expenses Research and development expenses (6,530) (40,078) (47,898) Other operating income 1,303 7,998 1,729 Income from operations 6,184 37,964 38,743 Interest expense (1,433) (8,795) (12,110) Interest income 946 5,803 7,627 Earnings before income taxes 5,697 34,972 34,260 Income tax expense (647) (3,969) (4,082) Net income 5,050 31,003 30,178 Less net income attributable to (1,934) (11,869) (10,836) noncontrolling interests Net income attributable to Cogo 3,116 19,134 19,342 Group, Inc. Earnings per share attributable to Cogo Group, Inc. Basic 0.09 0.57 0.53 Diluted 0.09 0.57 0.53 Weighted average number of common shares outstanding Basic 33,557,265 36,201,755 Diluted 33,762,091 36,201,755 Comprehensive income: Net income 5,050 31,003 30,178 Other comprehensive income, net of nil tax Foreign currency translation (1,526) (9,368) 2,926 adjustments Total comprehensive income 3,524 21,635 33,104 Less comprehensive income, net of nil tax, attributable (1,887) (11,582) (10,835) toNoncontrolling interests Comprehensive income attributable to 1,637 10,053 22,269 Cogo Group, Inc. COGO GROUP, INC. and SUBSIDIARIES UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO THE MOST COMPARABLE GAAP MEASURES Three Months ended June, 2013 2012 $'000 $'000 Net Income GAAP net income attributable to Cogo Group, 1,684 1,796 Inc. Share-based compensation expenses 1,903 2,569 Amortization of intangible assets and 860 831 related deferred taxation Non-GAAP net income attributable to Cogo 4,447 5,196 Group, Inc. Income from operations GAAP income from operations 3,055 3,834 Share-based compensation expenses 1,903 2,569 Amortization of intangible assets 1,030 995 Non-GAAP income from operation 5,988 7,398 Operating Margin GAAP operating margin 1.7% 2.0% Non-GAAP operating margin 3.2% 3.8% Earnings per share $ $ GAAP net income attributable to Cogo Group, 0.05 0.05 Inc. per common share-Diluted Non-GAAP net income attributable to Cogo 0.13 0.14 Group, Inc. per common share-Diluted Weighted average number of common shares outstanding Basic 33,002,573 36,379,789 Diluted 33,111,295 36,379,789 SOURCE Cogo Group, Inc. Website: http://www.comtech.com.cn
Cogo Reports Unaudited Earnings for Second Quarter 2013
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