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China Recycling Energy Corporation Reports First Quarter 2014 Financial Results

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SOURCE China Recycling Energy Corp.

Interest Income on Sales-Type Leases Increased by 65% Year-over-Year

XI'AN, China, May 14, 2014 /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 unaudited financial results for the first quarter ended March 31, 2014.

First Quarter 2014 Financial Highlights

  • Interest income on sales-type leases increased by 64.9% to US$6.31 million from US$3.82 million for the first quarter of 2013.
  • Total sales were US$0.18 million, compared with US$14.34 million for the first quarter of 2013.
  • Net income was US$3.12 million, compared with US$3.30 million for the first quarter of 2013.
  • Basic and fully diluted earnings per share (EPS) was US$0.05, as compared with US$0.07 for the first quarter of 2013.

Summary of Financial Results:

(US$ in thousands, except for per share data)

Three Months Ended March 31


2014

2013

Total Sales (1) + (2)

178

14,341

(1) Sales of Systems

-

14,080

(2) Contingent Rental Income

178

261

Gross Profit

156

3,440

Interest Income on Sales-Type Leases

6,306

3,825

Total Operating Income

6,461

7,264

Net Income

3,123

3,298

Basic EPS

0.05

0.07

Diluted EPS

0.05

0.07

Mr. Guohua Ku, Chairman and CEO of CREG commented, "We are very pleased with the strong growth in the interest income on sales-type leases which now forms an important source of revenue and contributes to the long-term sustainable growth of our business by generating stable and recurring monthly lease payments over the course of the lease term. At US$6.3 million, we have reached a record high that will continue for the rest of this year. While we recognized very little sales this quarter as no project under construction was completed, these projects are progressing well and on schedule. Adding to our current backlog of future revenues, we signed a contract with Tangshan Baoliyuan Coking and entered into a framework agreement with Hebei Xuyang Coking."

"In February, Xi'an TCH entered into two trust loan agreements with Zhongrong International Trust Co., Ltd for an aggregate amount of US$46.6 million to support our CDQ projects. This demonstrates the continued confidence of the financial community in our business prospects on the back of a clear and strong commitment from the Chinese government to continue to address environmental challenges in order to improve the daily life of its citizens."

"With a strong pipeline and support from the financial community, we believe we are well positioned to capture the rising demand for energy savings and reducing pollution and emissions. We are confident in our ability to continue to grow our business and increase shareholder value."

First Quarter 2014 Financial Results

SALES. Total sales, including sales of systems and contingent rental income, were US$0.18 million for the first quarter of 2014, as compared with US$14.34 million for the same period of 2013, a decrease of $14.16 million as the Company did not recognize any revenues since no projects were completed in the first quarter of 2014.

Sales of systems for the first quarter of 2014 were US$0, as compared with US$14.08 million for the same period of 2013. For the three months ended March 31, 2014, no power generation system was completed and sold. In comparison, in the same period of 2013, the Shenqiu Phase II system was completed and sold. For the first quarter of 2014, the Company received contingent rental income of US$0.18 million from the usage of electricity in addition to the minimum lease payments, compared with US$0.26 million for the first quarter of 2013. For sales-type leases, sales and cost of sales ("COS") are recorded at the time of the lease; in addition to sales revenue, CREG's other major source of revenues is interest income from sales-type leases.

COST OF SALES. Cost of sales for the first quarter of 2014 was US$0.02, a decrease of US$10.88 million as compared with US$10.90 million in the same period of 2013. This decrease was mainly due to the lack of the completion and sales of any power generation systems for the first quarter of 2014, in comparison to the same period in 2013 when the Shenqiu Phase II project was sold.

GROSS PROFIT and GROSS MARGIN. Gross profit was US$0.16 million for the first quarter of 2014, compared with US$3.44 million for the same period of 2013. Blended gross margin for the first quarter of 2014 increased to 88% from 24% for the same period of 2013. The increased profit margin for the first quarter of 2014 was mainly attributable to contingent rental income; for the same period of 2013, the profit margin for project sales was lower, ranging between 23% to 28%.

INTEREST INCOME ON SALES TYPE LEASES. Interest income on sales-type leases for the first quarter of 2014 was US$6.31 million, an increase of 64.9% from US$3.82 million for the same period of 2013. This increase was primarily due to a greater number of sales-type leases in the first period of 2014. During the first quarter of 2014, interest income was derived from fifteen sales-type leases, including TRT system to Changzhi (13 year term), CHPG systems to Jing Yang Shengwei (5 year term), BMPG systems to Pucheng Phase I and II (15 year and 11.75 year, respectively), BMPG systems to Shenqiu Phase I (11 year term) and Shenqiu Phase II (9.5 year term), WHPG system of Zhongbao (9 year term), WHPG systems of Jitie (24 year term), two TRT systems to Datong (30 year term), and five power and steam generating systems to Erdos (20 year term). In comparison, during the same period of 2013, interest income was derived from eleven systems.

OPERATING EXPENSES. Operating expenses totaled US$0.84 million for the first quarter of 2014, a decrease of 21.9% as compared with US$1.08 million in the same period of 2013. The decrease was mainly due to a US$0.25 million decrease in legal and consulting expenses compared to the same period of last year.

NON-OPERATING INCOME (EXPENSES). Non-operating expenses consisted of non-sales-type lease interest income, interest expenses, bank charges and miscellaneous expenses. For the first quarter of 2014, net non-operating expenses were US$1.28 million, compared with US$1.40 million for the same period of 2013.

NET INCOME. Net income for the first quarter of 2014 was US$3.12 million, a decrease of US$0.18 million compared with US$3.30 million for the same period of 2013. This decrease in net income was mainly due to the lack of sales of systems in the first quarter of 2014 though CREG significantly increased interest income from sales-type leases.

For the first quarter of 2014, basic and fully diluted EPS was US$0.05, compared with US$0.07 in the same period of 2013.

Financial Position as of March 31, 2014

As of March 31, 2014, the Company had cash and cash equivalents of US$16.24 million. Other current assets were US$12.93 million and current liabilities were US$31.39 million. Total shareholders' equity was US$156.39 million, as compared with US$154.68 million as of December 31, 2013.

Net Investment in Sales-Type Leases as of March 31, 2014

The components of the net investment in sales-type leases as of March 31, 2014 and December 31, 2013 are as follows:

(US$)

March 31, 2014

December 31, 2013

Total future minimum lease payments receivable

544,714,357

560,187,391

Less: executory cost

(131,019,483)

(134,447,605)

Less: unearned interest income

(233,333,440)

(241,234,839)

Net investment in sales - type leases

180,361,434

184,504,947

Current portion

8,353,510

9,063,386

Noncurrent portion

172,007,924

175,441,561

As of March 31, 2014, the future minimum rentals to be received on non-cancelable sales-type leases by years were as follows: 

2014

US$41,507,794

2015

39,108,706

2016

39,108,706

2017

39,108,706

2018

38,970,724

Thereafter

346,909,721

Total

US$544,714,357

Recent Business Development

CREG announced on March 31, 2014 that its wholly owned subsidiary Xi'an TCH has entered into a framework agreement with Hebei Xuyang Coking Co., Ltd. to build a Coke Dry Quenching ("CDQ") system and a CDQ waste heat power generation plant. Xi'an TCH will design, build and maintain two 25MW waste heat power generation systems. The energy-saving benefit sharing period is 20 years.

On March 28, 2014, CREG announced that its subsidiary Xi'an TCH was awarded Shaanxi Government Special Financial Award. According to "Notification of special development funds plan for small and medium enterprises" issued by the SME Promotion Bureau of Shaanxi Province, Xi'an TCH's application of "cement production line pure low temperature waste heat power generation" was granted a government subsidy.

On March 26, 2014, CREG announced that its subsidiary Xi'an TCH has signed an EMC Contract with Tangshan Baoliyuan Coking Co., Ltd., to invest in a Coke Dry Quenching (CDQ) waste heat power generation project using the BOT method. Xi'an TCH will construct a CDQ system and a 25MW waste heat power generation plant. The operation term is 20 years and the payback period is 4 years.

CREG announced on February 26, 2014, its subsidiary Xi'an TCH has entered into two trust loan agreements with an aggregate amount of US$46.6 million (RMB285 million) from Zhongrong International Trust Co., Ltd. to support the Company's CDQ projects.

Financial Results Conference Call

The Company will host a conference call at 8:30 a.m. EST on Thursday, May 15, 2014, to discuss the Company's first quarter 2014 financial results. Mr. Guohua Ku, Chief Executive Officer, and Mr. David Chong, Chief Financial Officer, will be hosting the call.

Listeners may access the call by dialing:

International:

+852-3056-2688

US Toll Free:

1877-679-2987

China:

400-603-9021

Participant PIN Code:

665723#

If you are unable to participate in the call at this time, a replay of the call will be available for one hour following the call starting at 9:30 a.m. EST, May 15, 2014 and ending at 9:30 a.m. EST on June 13, 2014. Listeners may access the replay by dialing:

International:

+852-3060-0238

US Toll Free:

1866-345-5132

China Toll Free:

1080-0265-2561 (Southern China); 1080-0650-0588 (Northern China)

Conference Reference: 

212644#

10Q Filing

For more information regarding China Recycling Energy Corp.'s financial performance during the first quarter ended March 31, 2014, please refer to the Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on May 14, 2014.

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; +65-9721 6163
Email: chongscd@creg-cn.com

Christensen

Mr. Rene Vanguestaine (China and US)
Chairman and CEO
Tel: +86 135 2160 9333
Email: rvanguestaine@christensenIR.com

Mr. Christian Arnell (China)
Vice President
Phone: +86-10-5900-1548
E-mail: carnell@christensenir.com


CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2014 AND DECEMBER 31, 2013












2014

2013


 (UNAUDITED) 


 ASSETS 










 CURRENT ASSETS 





      Cash & equivalents  

$

16,237,957

$

7,701,530

      Restricted cash 


731,458


2,296,249

      Accounts receivable 


12,535


71,573

      Current portion of investment in sales type leases, net  


8,353,510


9,063,386

      Interest receivable on sales type leases 


1,148,898


765,010

      Prepaid expenses  


991,438


1,045,802

      Other receivables 


1,604,529


1,813,220

      Notes receivable 


-


656,071

      Prepaid loan fees - current 


82,899


83,649






         Total current assets 


29,163,224


23,496,490






 NON-CURRENT ASSETS 





      Prepaid loan fees - noncurrent 


103,623


125,474

      Investment in sales type leases, net 


172,007,924


175,441,561

      Long term investment 


702,833


738,513

      Long term deposit 


381,618


385,073

      Property and equipment, net 


34,334


44,243

      Construction in progress 


105,178,173


83,719,596






         Total non-current assets 


278,408,505


260,454,459






 TOTAL ASSETS 

$

307,571,729

$

283,950,949






 LIABILITIES AND STOCKHOLDERS' EQUITY 










 CURRENT LIABILITIES 





      Accounts payable 

$

2,661,885

$

2,642,662

      Notes payable - bank acceptances 


3,576,015


5,740,622

      Taxes payable  


2,205,596


1,560,829

      Accrued liabilities and other payables 


1,597,252


1,517,191

      Due to related parties 


7,287,929


2,420,391

      Deferred tax liability  


1,351,555


1,442,317

      Loans payable - current 


10,971,864


14,925,618

      Interest payable on entrusted loans 


283,722


287,887

      Current portion of long term payable 


1,456,452


1,441,051






          Total current liabilities 


31,392,270


31,978,568






 NONCURRENT LIABILITIES 





       Deferred tax liability, net 


12,201,609


11,884,068

       Refundable deposit from customers for systems leasing 


1,154,077


1,164,526

       Long term payable  


1,989,108


2,385,422

       Loans payable 


42,034,427


18,862,045

       Entrusted loan payable 


62,092,619


62,654,792






          Total noncurrent liabilities 


119,471,840


96,950,852






          Total liabilities 


150,864,110


128,929,421






 CONTINGENCIES AND COMMITMENTS 


-


-






 STOCKHOLDERS' EQUITY 





      Common stock, $0.001 par value; 100,000,000 shares  

            authorized, 60,910,058 shares issued and  

            outstanding as of March 31, 2014 and 2013 


60,910


60,910

      Additional paid in capital 


78,130,053


78,130,053

      Statutory reserve 


10,041,240


9,672,754

      Accumulated other comprehensive income 


14,796,918


16,209,403

      Retained earnings  


53,357,830


50,603,291






          Total Company stockholders' equity  


156,386,951


154,676,411






          Noncontrolling interest 


320,668


345,117






          Total equity 


156,707,619


155,021,528






 TOTAL LIABILITIES AND EQUITY 

$

307,571,729

$

283,950,949


CHINA RECYCLING ENERGY CORPORATION

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)







 THREE MONTHS ENDED MARCH 31, 


2014

2013


(UNAUDITED)






 Revenue 





      Sales of systems 

$

-

$

14,079,796

      Contingent rental income 


177,607


260,775






 Total revenue 


177,607


14,340,571






 Cost of sales 





      Cost of contingent rental income and systems 


21,904


10,900,912






 Total cost of sales 


21,904


10,900,912






 Gross profit 


155,703


3,439,659






 Interest income on sales-type leases 


6,305,716


3,824,840






      Total operating income 


6,461,419


7,264,499






 Operating expenses 





      General and administrative  


844,975


1,082,446






      Total operating expenses 


844,975


1,082,446






 Income from operations 


5,616,444


6,182,053






 Non-operating income (expenses) 





      Interest income  


39,289


92,588

      Interest expense  


(912,573)


(1,494,496)

      Investment income 


11,313


-

      Other expenses 


(415,391)


(980)






      Total non-operating expenses, net 


(1,277,362)


(1,402,888)






 Income before income tax 


4,339,082


4,779,165

 Income tax expense  


1,237,529


1,360,054






 Income before noncontrolling interest 


3,101,553


3,419,111






 Less: Income (loss) attributable to noncontrolling interest 


(21,471)


120,921






 Net income attributable to China Recycling Energy Corp 


3,123,024


3,298,190






 Other comprehensive items 





      Foreign currency translation gain (loss)
     attributable to China Recycling Energy Corp 


(1,412,485)


325,334

      Foreign currency translation gain
     attributable to noncontrolling interest 


(2,978)


11,774






 Comprehensive income attributable to China Recycling Energy Corp 

$

1,710,539

$

3,623,524






 Comprehensive income (loss) attributable to noncontrolling interest 

$

(24,449)

$

132,695






 Basic weighted average shares outstanding 


60,912,775


50,224,350

 Diluted weighted average shares outstanding  


61,103,645


50,945,906






 Basic earnings per share  

$

0.05

$

0.07

 Diluted earnings per share  

$

0.05

$

0.07


CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS







 THREE MONTHS ENDED MARCH 31, 


2014

2013


(UNAUDITED)






 CASH FLOWS FROM OPERATING ACTIVITIES: 





             Income including noncontrolling interest 

$

3,101,553

$

3,419,111

             Adjustments to reconcile income including noncontrolling 





               interest to net cash provided by (used in) operating activities: 





             Changes in sales type leases receivables  


-


(14,079,796)

             Depreciation and amortization 


9,565


11,305

             Amortization of prepaid loan fees 


20,840


20,307

             Changes in deferred tax 


348,282


751,402

                          Changes in assets and liabilities: 





                                    Interest receivable on sales type lease 


(392,930)


850,419

                                    Collection of principal on sales type leases 


2,501,901


2,179,702

                                    Prepaid expenses 


45,231


(3,749)

                                    Accounts receivable 


58,721


26,074

                                    Other receivables 


222,711


(78,746)

                                    Construction in progress 


(22,333,546)


1,655,880

                                    Accounts payable 


(2,081,703)


4,268,535

                                    Taxes payable 


662,444


128,657

                                    Interest payable 


(1,591)


975,447

                                    Accrued liabilities and other payables 


89,872


271,341

                                    Accrued interest on convertible notes 


-


179,183






             Net cash provided by (used in) operating activities 


(17,748,650)


575,072






 CASH FLOWS FROM INVESTING ACTIVITIES: 





             Changes of restricted cash 


1,552,795


1,692,761

             Acquisition of property & equipment 


-


(4,420)






             Net cash provided by investing activities 


1,552,795


1,688,341






 CASH FLOWS FROM FINANCING ACTIVITIES: 





             Notes receivable  


653,808


(637,095)

             Proceeds from loans  


27,149,395


4,778,211

             Repayment of loans 


(7,518,797)


(6,848,770)

             Long term payable 


(348,512)


-

             Convertible note 


-


(313,941)

             Advance from related parties 


4,916,108


482,283






             Net cash provided by (used in) financing activities 


24,852,002


(2,539,312)






 EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS 


(119,720)


121,144






 NET INCREASE (DECREASE) IN CASH & EQUIVALENTS 


8,536,427


(154,755)

 CASH & EQUIVALENTS, BEGINNING OF PERIOD 


7,701,530


45,004,304






 CASH & EQUIVALENTS, END OF PERIOD 

$

16,237,957

$

44,849,549






 Supplemental cash flow data: 





    Income tax paid 

$

500,315

$

481,732

    Interest paid 

$

3,540,294

$

513,574

 

 

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