- Q3 Net Revenue: $82.0 million Generally Accepted Accounting
Principles ("GAAP") (a year-on-year increase of 9.7%) - Q3 Net
Income attributable to Cogo Group, Inc.: $3.4 million GAAP and $6.7
million Non-GAAP - Q3 EPS Diluted attributable to Cogo Group, Inc.:
$0.09 GAAP and $0.18 Non-GAAP (a year-on-year increase of 28.6%
Non-GAAP) - Company provides Q4 guidance of $86-88 million in
revenue and Non-GAAP EPS Diluted attributable to Cogo Group, Inc.
of $0.18-0.19. SHENZHEN, China, Nov. 4 /PRNewswire-FirstCall/ --
Cogo Group, Inc. (NASDAQ:COGO), a leading provider of customized
design solutions for the technology manufacturing sector in China,
today announced unaudited financial results for its third quarter
of 2009. The Company posted quarterly revenue of $82.0 million, up
9.7% year-over-year, compared to $74.8 million reported in the
third quarter of 2008. Net income attributable to Cogo Group, Inc.
for the third quarter of 2009 was $3.4 million, up 144.2% from $1.4
million in the same period last year, with Non-GAAP net income
attributable to Cogo Group, Inc. of $6.7 million, up 24.5% over the
same period last year. Earnings per share ("EPS") Diluted
attributable to Cogo Group, Inc. on a U.S. GAAP basis was $0.09.
Non-GAAP EPS Diluted attributable to Cogo Group, Inc. (which
excludes share-based compensation expense and acquisition related
costs, net including amortization, impairment and extraordinary
gain of intangible assets, related deferred taxation and impairment
loss of goodwill) was $0.18, up 28.6% from the third quarter of
2008. Key Financial Indicators (all numbers in USD thousands,
except Earnings per share data) Q3 2009(1) Q3 2008(1) Percent
Change Net Revenue $82,042 $74,794 9.7% Cost of Sales $70,201
$64,453 8.9% Gross Profit $11,841 $10,341 14.5% Net Operating
Expenses $9,206 $10,200 (9.7%) Income from Operations $2,635 $141
1768.8% Net Income Attributable to Cogo Group, Inc.(2) $3,363
$1,377 144.2% EPS Diluted Attributable to Cogo Group, Inc. $0.09
$0.04 125.0% Non-GAAP EPS Diluted attributable to Cogo Group,
Inc.(2) $0.18 $0.14 28.6% (1) The US dollar amounts are calculated
based on the conversion rate of US $1 to RMB 6.8262 as of September
30, 2009, US $1 to RMB 6.7899 as of September 30, 2008. (2)
Included in the Q3 2009 net income attributable to Cogo Group, Inc.
was an amount of $2.2 million in respect of share-based
compensation expense in accordance with Accounting Standards
Codification ("ASC") 718, Compensation - Stock Compensation and
$1.1 million, net acquisition related costs including amortization,
impairment and extraordinary gain of intangible assets and related
deferred taxation. Non-GAAP net income attributable to Cogo Group,
Inc., excluding the effects of share-based compensation expense and
acquisition related costs, was $6.7 million or $0.18 Non-GAAP EPS
Diluted attributable to Cogo Group, Inc. Included in the Q3 2008
net income was an amount of $1.5 million for share-based
compensation expense and $2.5 million acquisition related costs
(including amortization, impairment and extraordinary gain of
intangible assets and related deferred taxation). Recent
Developments In September, the Company announced a series of design
wins within multiple Smartphone and Smartbook products on both
Windows Mobile and Android platforms. The Company continued to
experience sequential growth in the telecommunications equipment
and combined digital media and handset businesses while
aggressively pursuing new opportunities within the Industrial
Applications business. "Since Cogo's Industrial business was first
introduced in the first quarter of 2008, it has grown to 13.5% of
sales, and we expect that it will continue to grow much faster than
the overall company through 2010 and beyond," said Jeffrey Kang,
CEO and Chairman of Cogo. "Growth in our Industrial Applications
business is being driven by the aggressive build-out of China's
Smart Power Grid, high speed railways and roll-out of Smart Meters.
We expect that the inclusion of new opportunities, like auto
electronics, will only further accelerate our growth in this
end-market." Financial Results Net revenue for the third quarter
was $82.0 million, an increase of 9.7% compared to $74.8 million
reported for the third quarter of last year. The net revenue
breakdown is as follows: $11.1 million, or 13.5% of total revenue
representing a 259.6% year-over-year increase, from component sales
relating to industrial applications business, which includes
industrial solutions targeted at the electrical grid and other
sectors; $49.4 million, or 60.2% of total revenue for digital media
end-market (including handset business), up 1.5% from the same
period in 2008 and $20.3 million, or 24.7% of total revenue for
telecommunications equipment, representing a 9.4% decrease
year-over-year.. The Company's service business contributed $1.3
million in net revenues for the third quarter and accounted for
approximately 1.6% of total net revenue. Cost of sales, which
includes the aggregate purchase cost of components from suppliers
and the direct cost of services, was $70.2 million, compared to
$64.5 million in the same period last year, representing an
increase of 8.9% year-over-year. Gross profit for the third quarter
was $11.8 million, up 14.5% compared to the $10.3 million during
the third quarter of last year. Gross margin for the third quarter
increased to 14.4%, compared to 13.8% reported during the third
quarter of 2008. The increase in both gross profit and gross profit
margin was primarily attributable to the increased revenue in
industrial business end-market, which generally had a higher gross
margin than that of the digital media and telecommunications
equipment end-markets. Selling, general and administrative expenses
totaled $6.9 million, remained stable as compared to $6.9 million
reported for the third quarter of last year. Research and
development ("R&D") expenses increased by 7.7% to $2.3 million
compared to $2.1 million in the third quarter of 2008. The increase
was primarily attributable to an increase in share-based
compensation costs of $0.7 million as a result of new stock awards
granted to research staff in 2009. Income from operations was $2.6
million as compared to $0.1 million for the third quarter of 2008.
Operating margin for the third quarter was 3.2% versus 0.2% for the
third quarter of 2008. Excluding the effects of share-based
compensation and acquisition-related costs including amortization
of intangible assets, operating margin would have been 8.7% for the
third quarter of 2009, compared to 6.1% for the same period in
2008. Noncontrolling interests' share of income was $0.3 million,
an increase of 200.9% as compared to $0.1 during the same period in
2008. Net income attributable to Cogo Group, Inc. for the third
quarter was $3.4 million or EPS Diluted attributable to Cogo Group,
Inc. of $0.09 on a U.S. GAAP basis, compared to net income
attributable to Cogo Group, Inc. of $1.4 million, or EPS Diluted
attributable to Cogo Group, Inc. of $0.04 in the third quarter of
2008. Included in the third quarter 2009 net income attributable to
Cogo Group, Inc. was $2.2 million for share-based compensation
expenses, $1.1 million, net for acquisition-related costs
(including amortization, impairment and extraordinary gain of
intangible assets and related deferred taxation). Excluding the
share-based compensation expenses and acquisition-related costs
(including amortization, impairment and extraordinary gain of
intangible assets and related deferred taxation), the Company would
have reported net income attributable to Cogo Group, Inc. of $6.7
million, or $0.18 Non-GAAP EPS Diluted attributable to Cogo Group,
Inc. for the third quarter, as compared to $0.14 for the third
quarter of 2008. The weighted average number of shares used in the
calculation of diluted EPS attributable to Cogo Group, Inc. was
37.7 million compared to 39.2 million in the third quarter of 2008.
For the nine-month period ended September 30, 2009, the Company
reported revenue of $219.0 million, an increase of 6.4% compared to
$205.9 million reported during the same period of 2008. Gross
profit was $31.3 million, a decrease of 10.1% compared to $34.9
million reported during the nine-month period ended September 30,
2008. Gross margin was 14.3% of sales, compared to a gross margin
of 16.9% for the same period last year. Net operating expenses were
$25.0 million, an increase of 4.2% as compared to $24.0 million for
the same period last year. Income from operations was $6.4 million,
a decrease of 41.6% from the $10.9 million reported during the
prior year period. Non-GAAP operating margins, excluding
share-based compensation expenses and acquisition-related costs
(including amortization, impairment and extraordinary gain of
intangible assets and related deferred taxation), were 7.9%, down
1.9% as compared to the same period last year, as a result of the
lower gross margin. Balance Sheet As of September 30, 2009, cash
was $101.5 million, up $0.5 million from $101.0 million at June 30,
2009. Pledged bank deposits were $17.0 million as of September 30,
2009 and June 30, 2009. The Company continues to be in a strong
financial position with a current ratio of 4.6 to 1. Inventory
turnover was shortened slightly to 27 days from 31 days as of
September 30, 2009. Accounts receivable were collected in an
average of 95 days. Net cash used in operating activities for the
nine months ended September 30, 2009 was $3.6 million. The Company
had bank borrowings of $14.0 million as of September 30, 2009 as
compared to $4.4 million as of June 30, 2009. Total equity was
$223.1 million as of September 30, 2009, an increase of 3.3% from
$215.9 million as of June 30, 2009. Business Outlook Based on
current visibility and new business in the pipeline, management is
providing 2009 Q4 guidance of $86-88 million in revenue and
Non-GAAP EPS Diluted attributable to Cogo Group, Inc. of
$0.18-0.19. Mr. Kang remarked, "I believe that Cogo's unique
business position within the Chinese market, together with the
breadth of its business relationships across a growing range of end
markets and our large net cash position will support the company's
accelerating revenue growth in 2010. Simply, given the business
momentum we are seeing, particularly in the Industrial sector and
with our Small and Medium Enterprise customers, we expect to move
back into a high-growth phase in 2010. We continue to believe that
the worst of the Chinese economic situation is behind us and see
the opportunity to continue to expand our operating margin towards
our target of 10%." Cogo 2009 Q3 Earnings Results Conference Call
Date/ Time: November 4, 2009 (Wednesday) @ 4:30 PM (ET) Conference
Call: US/ Canada Toll-Free: 1-877-941-4775 International: +1 (480)
629 9761 Webcast/ Audio Recording:
http://viavid.net/dce.aspx?sid=00006AD5 . Replay (from 11/04/2009
at 7:30 pm to 11/11/2009 at 11:59 pm ET): US/ Canada Toll-Free:
1-800-406-7325 (Passcode: 4167390) International: +1 (303) 590 3030
(Passcode: 4167390) About Cogo Group, Inc.: Cogo Group, Inc.
(NASDAQ:COGO) Cogo Group, Inc. (NASDAQ:Cogo) is a leading provider
of customized module and subsystem design solutions in China. The
Company believes it acts as a proxy to China's technology industry
as it works with virtually all the major ODMs and OEMs in China.
Cogo leverages these relationships and combines their IP to create
designs that Cogo then sells to electronic manufacturers. These
designs allow manufacturers to reduce their time to market for new
products and ultimately increase sales. Cogo focuses on the
telecommunications equipment, digital media and industrial
applications end-markets for their customized design modules while
also offering business and engineering services to their large
telecommunications equipment vendor customers. Over the last twelve
years, Cogo has grown its customer list to include nearly 1,300
manufacturers across the telecommunications equipment, digital
media and industrial applications markets, covering both
multinational Chinese subsidiaries and Chinese domestic companies.
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, mobile handset
and telecommunications 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 10-K, and our
subsequent SEC filings, including our most recent Forms S-1 and/or
S-3. Copies of filings made with the SEC are available through the
SEC's electronic data gathering analysis retrieval system (EDGAR)
at http://www.sec.gov/. About Non-GAAP Financial Measures: To
supplement Cogo's 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
acquisition related costs, net such as amortization, impairment and
extraordinary gain of intangible assets, related deferred taxation
and impairment of goodwill, 2) Non-GAAP basic and diluted earnings
per share attributable to Cogo Group, Inc., which is basic and
diluted earnings per share attributable to Cogo Group, Inc.
excluding share-based compensation expenses and acquisition related
costs, net such as amortization, impairment and extraordinary gain
of intangible assets, related deferred taxation and impairment of
goodwill, 3) Non-GAAP operating margin, which is operating margin
excluding share-based compensation expenses and acquisition related
costs such as amortization and impairment of intangible assets, and
impairment of goodwill, and 4) Non-GAAP income from operation,
which is income from operation excluding share-based compensation
expenses and acquisition related costs such as amortization and
impairment of intangible assets, and impairment of goodwill. 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 acquisition related costs, net such as amortization,
impairment and extraordinary gain of intangible assets, related
deferred taxation and impairment of goodwill 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 basic and 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 acquisition related costs,
net such as amortization, impairment and extraordinary gain of
intangible assets, related deferred taxation and impairment of
goodwill 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 COGO GROUP, INC.
and SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
INCOME Three Months ended September 30,
-------------------------------- 2009 2009 2008 USD'000 RMB'000
RMB'000 Net Revenue Product sales 80,728 551,063 503,128 Services
revenue 1,314 8,970 4,717 ------ ------- ------- 82,042 560,033
507,845 Cost of sales Cost of goods sold (69,147) (472,010)
(433,954) Cost of services (1,054) (7,194) (3,674) ------ -------
------- (70,201) (479,204) (437,628) Gross profit 11,841 80,829
70,217 Selling, general and administrative expenses (6,949)
(47,437) (47,065) Research and development expenses (2,308)
(15,756) (14,550) Impairment loss on goodwill and intangible assets
- - (7,653) Other operating income, net 51 349 8 ------ -------
------- Income from operations 2,635 17,985 957 Interest expense
(84) (572) (191) Interest income 544 3,716 7,366 ------ -------
------- Earnings before income taxes 3,095 21,129 8,132 Income tax
benefit 248 1,691 1,936 ------ ------- ------- Net income 3,343
22,820 10,068 Less net income attributable to noncontrolling
interest (319) (2,175) (717) ------ ------- ------- Net income
before extraordinary item 3,024 20,645 9,351 Extraordinary item
(less applicable income taxes benefit of RMB 4,423 thousand) 339
2,315 - ------ ------- ------- Net income attributable to Cogo
Group, Inc. 3,363 22,960 9,351 ====== ======= ======= Earnings per
share attributable to Cogo Group, Inc. USD RMB RMB Income before
extraordinary item 0.08 0.56 0.24 Extraordinary item 0.01 0.06 -
------ ------- ------- - Basic 0.09 0.62 0.24 Income before
extraordinary item. 0.08 0.55 0.24 Extraordinary item 0.01 0.06 -
------ ------- ------- - Diluted 0.09 0.61 0.24 Weighted average
number of common shares outstanding - Basic 36,809,304 38,869,625 -
Diluted 37,745,926 39,233,125 COGO GROUP, INC. and SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS September 30,
December 31, ------------- ------------ 2009 2009 2008 ---- ----
---- USD'000 RMB'000 RMB'000 Assets Current assets: Cash 101,485
692,753 686,379 Pledged bank deposits 17,000 116,045 115,983
Accounts receivable, net 85,063 580,657 497,992 Bills receivable
1,561 10,658 13,555 Inventories 20,444 139,557 95,855 Prepaid
expenses and other receivables 3,009 20,543 20,211 ----- ------
------ Total current assets 228,562 1,560,213 1,429,975 Property
and equipment, net 2,238 15,274 17,993 Goodwill and intangible
assets, less accumulated amortization, RMB65,392 thousand (USD9,580
thousand) in 2009 and RMB42,819 thousand in 2008 46,674 318,609
237,234 Other assets 61 416 1,608 --- --- ----- Total Assets
277,535 1,894,512 1,686,810 ======= ========= ========= Liabilities
and equity Current liabilities: Accounts payable 13,049 89,080
107,512 Bank borrowings 14,003 95,585 - Income taxes payable 1,739
11,872 8,225 Accrued expenses and other liabilities 20,908 142,722
141,925 ------ ------- ------- Total current liabilities 49,699
339,259 257,662 Deferred tax liabilities 2,936 20,044 19,693 Other
non-current liabilities 1,757 11,992 - ----- ------ --- Total
liabilities 54,392 371,295 277,355 Equity Common stock: Par value:
USD 0.01 Authorized 200,000,000 shares Issued: 40,079,336 shares
Outstanding: 36,134,925 shares in 2009 35,231,661 shares in 2008
477 3,258 3,196 Additional paid in capital 176,758 1,206,585
1,146,840 Retained earnings 84,252 575,121 524,240 Accumulated
other comprehensive loss (15,721) (107,318) (107,645) --------
--------- --------- 245,766 1,677,646 1,566,631 Less cost of common
stock in treasury, 3,944,411 shares in 2009 and 2008 (23,833)
(162,687) (162,687) -------- --------- --------- Total Cogo Group,
Inc. equity 221,933 1,514,959 1,403,944 Noncontrolling interest
1,210 8,258 5,511 ----- ----- ----- Total equity 223,143 1,523,217
1,409,455 ------- --------- --------- Total liabilities and equity
277,535 1,894,512 1,686,810 ======= ========= ========= COGO GROUP,
INC. and SUBSIDIARIES UNAUDITED RECONCILIATION OF NON-GAAP MEASURES
TO THE MOST COMPARABLE GAAP MEASURES Three Months ended September
30, ------------------ 2009 2008 ---- ---- $'000 $'000 Net Income
GAAP net income attributable to Cogo Group, Inc. 3,363 1,377
Share-based compensation expense 2,191 1,506 Acquisition related
costs, extraordinary item and related deferred taxation 1,129 2,487
----- ----- Non-GAAP net income attributable to Cogo Group, Inc.
6,683 5,370 Income from operation GAAP income from operations 2,635
141 Share-based compensation expense 2,191 1,506 Acquisition
related costs 2,288 2,884 ----- ----- Non-GAAP income from
operation 7,114 4,531 ===== ===== Operating Margin GAAP operating
margin 3.2% 0.2% Non-GAAP operating margin 8.7% 6.1% Earnings per
share $ $ GAAP net income attributable to Cogo Group, Inc. per
common share- Basic 0.09 0.04 ==== ==== GAAP net income
attributable to Cogo Group, Inc. per common share- Diluted 0.09
0.04 ==== ==== Non-GAAP net income attributable to Cogo Group, Inc.
per common share- Basic 0.18 0.14 ==== ==== Non-GAAP net income
attributable to Cogo Group, Inc. per common share- Diluted 0.18
0.14 ==== ==== Weighted average number of common shares outstanding
Basic 36,809,304 38,869,625 ========== ========== Diluted
37,745,926 39,233,125 ========== ========== DATASOURCE: Cogo Group,
Inc. CONTACT: Cogo Group, Inc. Investor Relations, HK, +852 2730
1518, or US, +1-646-291-8998 Web Site:
http://www.cogo.com.cn/investorinfo.html
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