EX-99.1 2 v191718_ex99-1.htm

PRESS RELEASE

China BAK Reports Third Quarter Fiscal Year 2010 Financial Results

Shenzhen, China – July 28, 2010 ET – China BAK Battery, Inc. (“China BAK”, the “Company”, or “we”) (Nasdaq: CBAK), a leading global manufacturer of lithium-based battery cells, today announced its financial results for the third quarter of fiscal year 2010 (“Q3 2010”).

Recent Achievements and Highlights

· Increased revenues 31.0% year-over-year and 16.1% sequentially (Q3 2010 compared to Q2 2010);

· Doubled revenues from high power batteries sequentially in Q3 2010 due to robust demand for batteries used in electric buses and electric vehicles;

· Reported positive operating cash flow of $8.2 million after two quarters of negative operating cash flows, reflecting progress in the Company’s new turn-around plan;

· Reduced debt exposure with repayment of around $18 million of bank loans and implemented efficient capital expenditure controls expected to reduce expenditures by 20% for the whole year;

· Decreased Days Sales Outstanding to 125 days from 141 days last quarter and decreased Days Sales of Inventory to106 days from 169 days in the previous quarter.

· On May 14, 2010, the US District Court for the Northern District of Texas issued an order dismissing the Company without prejudice from a federal patent infringement suit against A123Systems that had been filed in 2006.

· China BAK’s Tianjin facility successfully completed ISO/TS16949 certification in May 2010.

During the quarter ended June 30, 2010, the Company recorded $14.5 million in non-cash expenses following a strategic review of its operations. The Company has presented non-GAAP gross profit, operating income, net income and diluted earnings per share excluding the impact of non-cash expenses on its financial results for the three months ended June 30, 2010, March 31, 2010 and June 30, 2009.  A reconciliation of these non-GAAP measures to the corresponding GAAP measure is provided in Table 4 below.  The Company uses the non-GAAP information in its internal performance measures to analyze performance between periods, develop internal projections and measure management performance. The Company believes the non-GAAP results provide investors with a measurement of operating results which are comparable with subsequent periods.

Third Quarter Fiscal Year 2010 Financial Results

Net revenues for the third quarter were $58.6 million, up 16.1% from $50.4 million last quarter and up 31.0% from $44.7 million for the same period in fiscal 2009.

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Revenues from prismatic products, including aluminum-case cells and battery packs, which are used in mobile phones and certain personal electronic devices, were $42.8 million, up 22.4% from $35.0 million last quarter and up 51.7% from $28.2 million for the same period in fiscal 2009.

Revenues from cylindrical cells used in notebook computers were $12.8 million, down 4.6% from $13.4 million sequentially and up 0.6% from $12.7 million for the same period in fiscal 2009.

Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $2.3 million, up 32.4% from last quarter and down 32.1% from the same period in fiscal 2009.

Revenues from high-power lithium battery cells, used in electric bicycles, power tools, uninterruptible power supplies, and other applications manufactured at the Company’s Tianjin facility, were $0.7 million, nearly doubled from last quarter and up more than seven times the revenue from the same period in fiscal 2009.

Gross loss for the third quarter of fiscal year 2010 was $1.2 million compared to gross profit of $5.0 million, or 11.3% of net revenues, for the same period in fiscal year 2009. The decline in gross profit was a result of the Company’s adoption of a competitive pricing strategy for its cylindrical cells to gain increased market share in the OEM market and sales of slow-moving inventory at discount to increase operating cash flow. Furthermore, the Company recorded a provision for obsolete inventory of $5.6 million. Excluding the impact of this non-cash expense, non-GAAP gross profit for the third fiscal quarter was $4.4 million, down 20.2% from non-GAAP gross profit of $5.5 million in the same period a year ago.

Operating expenses totaled $17.2 million, or 29.4% of revenue, in the third quarter compared to $8.2 million, or 16.2% of revenue, in the last quarter and $8.6 million, or 19.3% of revenue, in the third quarter of fiscal 2009. Operating expenses in the third quarter of fiscal 2010 include an impairment charge of $5.1 million and a provision for doubtful debts of $3.4 million, compared with $0.9 million in the last quarter and $ 2.5 million in the third quarter of fiscal 2009.  Research and development expenses were $2.1 million, or 3.6% of revenue, as compared to $1.6 million, or 3.2% of revenue in the last quarter and $1.5 million, or 3.3% of revenue in the same quarter of fiscal 2009. Sales and marketing expenses were $2.6 million, or 4.4% of revenue compared to $1.7 million, or 3.4% of revenue in the last quarter and $1.6 million, or 3.5% of revenue in the same quarter of fiscal 2009. General and administrative expenses were $7.4 million, or 12.7% of revenue compared to $4.8 million, or 9.6% of revenue in the last quarter and $5.5 million or 12.4% of revenue in the same quarter of fiscal 2009.

Operating loss for the third quarter was $18.4 million compared to operating income of $0.9 million in the last quarter and operating loss of $3.6 million in the same quarter of fiscal 2009.Excluding the impact of non-cash expenses, including provisions for doubtful debts, obsolete inventories and impairment charges related to strategic review of business operations, non-GAAP operating loss was $3.9 million in the third quarter of fiscal 2010 compared to non-GAAP operating income of $2.7 million in the last quarter and non-GAAP operating loss of $37,000 in the same period a year ago.

Net loss was $18.3 million, or diluted loss per share of $0.29, in the third quarter of fiscal 2010 compared to net loss of $2.6 million, or diluted loss per share of $0.04, in the last quarter and net loss of $5.2 million, or diluted loss per share of $0.09, in the same quarter of fiscal 2009. Excluding the impact of non-cash expenses, including provisions for doubtful debts, obsolete inventories and impairment charges related to strategic review of business operations, non-GAAP net loss for the third quarter of fiscal 2010 was $3.8 million, or a loss of $0.06 per diluted share, compared to non-GAAP net loss of $686,000 in the previous quarter, or a loss of $0.01 per diluted share, and non-GAAP net loss of $1.6 million, or a loss of $0.03 in the same period a year ago.

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Financial Condition

On June 30, 2010 China BAK had $24.9 million in cash and cash equivalents. For the third quarter of fiscal year 2010, Days Sales Outstanding decreased to 125 days from 141 days last quarter and Days Sales of Inventory decreased to 106 days from 169 days last quarter. Short-term bank loans and long-term bank loans totaled $180.2 million as compared to $198.3 million on March 31, 2010. Shareholders’ equity totaled $155.4 million. China BAK had $66.2 million available for borrowing under its credit facilities. The Company generated $8.2 million from cash flow from operating activities in the third quarter of fiscal 2010.

Business Outlook

“Over the past four years we have invested heavily in strengthening our manufacturing and R&D capacity. As a result, we now have the production lines necessary to support our future development in the electric vehicle (EV) battery market and in the consumer electronic battery market. Despite the impact of severe price competition in cylindrical battery cells for laptop computer batteries on our short-term profitability, we made good progress penetrating other high-gross margin markets, such as electric vehicle and power tool applications,” commented Mr. Xiangqian Li, CEO of China BAK.

“We have already received orders from Taiwan’s Yulon-motor along with increased order flow from domestic motor manufacturers and we anticipate sales of batteries used in electric buses and electric vehicles to accelerate in the next quarter. We are optimistic that we are starting to enter a growth phase and expect to see strong top line growth and improvements in bottom line in the next few quarters,” Mr. Li concluded.

“We began implementing our turn around plan in late May 2010, and we have already made improvements in operating efficiency, cash flow and leverage.  We continue to direct our efforts in these areas in order to return the Company to growth and profitability with lower leverage. We are confident that our gross margin will recover to a double-digit level with our cost control measures and reduced inventories,” commented Jun Zou, CFO of China BAK.

Conference Call

China BAK will host a conference call at 9:30 p.m. ET on Wednesday, July 28, 2010 to discuss results for the third quarter of Fiscal Year 2010 ended June 30, 2010. Joining Xiangqian Li, China BAK's President and Chief Executive Officer on the call will be Jun Zou, Chief Financial Officer. To participate in the conference call, please dial the following number approximately fifteen minutes prior to the scheduled conference call time: 866-800-8648. International callers should dial (617) 614-2702. The pass code for the call is 158-23-930. If you are unable to participate in the call at this time, a replay will be available from 11:30 p.m. ET on Wednesday, July 28, 2010 through 11:30 p.m. ET, Wednesday, August 11, 2010. To access the replay, please dial 888-286-8010. International callers should dial (617) 801-6888. The pass code for the replay is 656-08-015. The conference call will be broadcast live over the Internet and can be accessed by all interested parties on the China BAK website at http://www.bak.com.cn/. To listen to the live webcast, please go to China BAK’s website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, after the call a replay will be available on China BAK’s website for a period of one year.

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About China BAK Battery Inc.

China BAK Battery, Inc. (NASDAQ: CBAK) is a leading global manufacturer of lithium-based battery cells. The Company produces battery cells that are the principal component of rechargeable batteries commonly used in cellular phones, notebook computers and portable consumer electronics such as digital media devices, portable media players, portable audio players, portable gaming devices, and PDAs. China BAK Battery, Inc.’s production facilities, located in Shenzhen and Tianjin, PRC, cover over three million square feet and have been recently expanded to support the production of larger batteries for various types of vehicles. For more information regarding China BAK Battery, Inc., please visit www.bak.com.cn.

Safe Harbor Statement

This press release contains forward-looking statements, which are subject to change. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All “forward-looking statements” relating to the business of China BAK Battery, Inc. and its subsidiary companies, which can be identified by the use of forward-looking terminology such as “believes,” “expects” or similar expressions, involve known and unknown risks and uncertainties which could cause actual results to differ. These factors include but are not limited to: risks related to China BAK’s business and risks related to operating in China. Please refer to China BAK’s Annual Report on Form 10-K for the fiscal year ended September 30, 2009, as well as China BAK's Quarterly Reports on Form 10-Q that have been filed since the date of such annual report, for specific details on risk factors. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. China BAK’s actual results could differ materially from those contained in the forward-looking statements. China BAK undertakes no obligation to revise or update its forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

For more information, please contact:

Mr. Jun Zou

China BAK Battery, Inc.

Chief Financial Officer

E-mail: ir@bak.com.cn

Tracy Li

China BAK Battery, Inc.

Investor Relations Manager

Tel: +86 (755) 8977-0093

E-mail: ir@bak.com.cn

Ms. Elaine Ketchmere,

CCG Investor Relations

VP of Financial Writing

Tel: +1-310-954-1345

E-mail: elaine.ketchmere@ccgir.com

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-Financial Tables Follow-

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Table 1

China BAK Battery, Inc. and Subsidiaries

Condensed Interim Consolidated Statements of Operations and Comprehensive Loss

For the Three Months Ended June 30, 2010, March 31, 2010 and June 30, 2009

 (Amounts in thousands, except per share data)

		Three Months Ended
		June 30, 2010				March 31, 2010				June 30, 2009
		(Unaudited)				(Unaudited)				(Unaudited)
Net Revenues		$	58,557			$	50,424			$	44,689
Cost of revenues			(59,764	)			(41,421	)			(39,641	)
Gross profit / (loss)			(1,207	)			9,003				5,048
Operating expenses:
Research and development expenses			(2,129	)			(1,625	)			(1,472	)
Sales and marketing expenses			(2,587	)			(1,706	)			(1,581	)
General and administrative expenses			(7,429	)			(4,819	)			(5,551	)
Impairment charge			(5,058	)			-				-
Total operating expenses			(17,203	)			(8,150	)			(8,604	)
Operating (loss) / income			(18,410	)			853				(3,556	)
Finance costs, net			(2,022	)			(2,190	)			(1,897	)
Government grant income			58				79				222
Other income / (expense)			107				(145	)			(353	)
Loss before income taxes			(20,267	)			(1,403	)			(5,584	)
Income tax benefit / (expense)			2,004				(1,147	)			413
Net loss		$	(18,263	)		$	(2,550	)		$	(5,171	)
Other comprehensive income / (loss)
- Foreign currency translation adjustment			1,298				(164	)			(141	)
Comprehensive loss		$	(16,965	)		$	(2,714	)		$	(5,312	)
Net loss per share:
Basic		$	(0.29	)		$	(0.04	)		$	(0.09	)
Diluted		$	(0.29	)		$	(0.04	)		$	(0.09	)
Weighted average shares outstanding:
Basic			62,888				62,882				56,967
Diluted			62,888				62,882				56,967

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Table 2

China BAK Battery, Inc. and Subsidiaries

Condensed Interim Consolidated Balance Sheets

As of June 30, 2010 and September 30, 2009

(Amounts in thousands)

		June 30,				September 30,
		2010				2009
		(Unaudited)				(Audited)
Assets
Current assets
Cash and cash equivalents		$	24,875			$	30,678
Pledged deposits			9,295				31,115
Trade accounts receivable, net			79,629				83,292
Inventories			64,799				65,535
Prepayments and other receivables			5,600				4,632
Deferred tax assets			8,151				3,895
Assets held for sale			800				804
Total current assets			193,149				219,951
Property, plant and equipment, net			224,012				219,685
Lease prepayments, net			31,606				32,166
Intangible assets, net			202				239
Deferred tax assets			54				43
Total assets		$	449,023			$	472,084
Liabilities
Current liabilities
Short-term bank loans		$	138,944			$	139,159
Current maturities of long-term bank loans			11,797				16,114
Accounts and bills payable			80,258				92,572
Accrued expenses and other payables			21,236				18,425
Total current liabilities			252,235				266,270
Long-term bank loans, less current maturities			29,493				39,553
Deferred revenue			7,314				7,442
Other long-term payables			3,382				1,940
Deferred tax liabilities			1,201				278
Total liabilities			293,625				315,483
Commitments and contingencies
Shareholders’ equity:
Ordinary shares US$ 0.001 par value; 100,000,000 authorized; 57,737,481 and 63,608,776 issued and outstanding as of September 30, 2009 and June 30, 2010, respectively			64				58
Donation Shares			14,102				14,102
Additional paid-in-capital			123,131				101,161
Statutory reserves			7,315				7,227
Retained earnings			(10,964	)			13,328
Accumulated other comprehensive income			25,817				24,791
Less: Treasury shares			(4,067	)			(4,066	)
Total shareholders’ equity			155,398				156,601
Total liabilities and shareholders’ equity		$	449,023			$	472,084

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Table 3

China BAK Battery, Inc. and Subsidiaries

Condensed Interim Consolidated Statements of Cash Flows

For the Three Months Ended June 30, 2010, March 31, 2010 and June 30, 2009

(Amounts in thousands)

		Three Months Ended
		June 30, 2010				March 31, 2010				June 30, 2009
		(Unaudited)				(Unaudited)				(Unaudited)
Cash flow from operating activities
Net loss		$	(18,263	)		$	(2,550	)		$	(5,171	)
Adjustments to reconcile net loss to net cash (used in) / provided by operating activities:
Depreciation and amortization			4,469				4,600				3,983
Provision for doubtful debts			3,447				921				2,539
Provision for obsolete inventories			5,574				142				426
Impairment charge			5,058				-				-
Share-based compensation			415				800				554
Deferred income taxes			(2,004	)			200				(713	)
Deferred revenue			(58	)			(58	)			(58	)
Exchange loss / (gain)			558				416				(346	)
Changes in operating assets and liabilities:
Trade accounts receivable			1,545				(10,399	)			1,735
Inventories			5,843				3,475				(4,545	)
Prepayments and other receivables			1,954				4,754				3,141
Accounts and bills payable			1,111				(7,593	)			4,014
Accrued expenses and other payables			(1,443	)			3,774				(399	)
Net cash provided by / (used in) operating activities		$	8,206			$	(1,518	)		$	5,160
Cash flow from investing activities
Purchases of property, plant and equipment			(12,530	)			(3,804	)			(1,766	)
Purchases of intangible assets			(12	)			-				(49	)
Net cash used in investing activities		$	(12,542	)		$	(3,804	)		$	(1,815	)
Cash flow from financing activities
Proceeds from borrowings			47,073				100,894				38,457
Repayment of borrowings			(66,303	)			(74,555	)			(19,802	)
Decrease / (increase) in pledged deposits			8,795				1,018				(17,656	)
Net cash (used in) / provided by financing activities		$	(10,435	)		$	27,357			$	999
Effect of exchange rate changes on cash and cash equivalents			2				(694	)			(80	)
Net (decrease) / increase in cash and cash equivalents			(14,769	)			21,341				4,264
Cash and cash equivalents at the beginning of the period			39,644				18,303				25,375
Cash and cash equivalents at the end of the period		$	24,875			$	39,644			$	29,639

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Table 4i

China BAK Battery, Inc. and subsidiaries

Reconciliation of non-GAAP to GAAP measures

		For the quarter ended  June 30, 2010				For the quarter ended  March 31, 2010				For the quarter ended  June 30, 2009
Gross Profit as reported under GAAP			(1,207,145	)			9,002,755				5,047,796
Add: Provision for obsolete inventories			5,573,979				142,130				425,929
Non-GAAP Gross Profit			4,366,834				9,144,885				5,473,725
Operating Income (Loss) as reported under GAAP			(18,410,448	)			853,268				(3,556,284	)
Add: Provision for doubtful debts			3,447,312				921,213				2,538,670
Add: Provision for obsolete inventories			5,573,979				142,130				425,929
Add: Share-based compensation costs			414,912				799,675				553,848
Add: Impairment charge			5,057,745				-				-
Non-GAAP Operating Income (Loss)			(3,916,500	)			2,716,286				(37,837	)
Net Income (Loss) as reported under GAAP			(18,262,965	)			(2,549,811	)			(5,171,027	)
Add: Provision for doubtful debts			3,447,312				921,213				2,538,670
Add: Provision for obsolete inventories			5,573,979				142,130				425,929
Add: Share-based compensation costs			414,912				799,675				553,848
Add: Impairment charge			5,057,745				-				-
Non-GAAP Net Income (Loss)			(3,769,017	)			(686,793	)			(1,652,580	)
Diluted Earnings (Loss) Per Share reported under GAAP		$	(0.29	)		$	(0.04	)		$	(0.09	)
Add: Provision for doubtful debts		$	0.05			$	0.02			$	0.04
Add: Provision for obsolete inventories		$	0.09			$	0.00			$	0.01
Add: Share-based compensation costs		$	0.01			$	0.01			$	0.01
Add: Impairment charge		$	0.08			$	0.00			$	0.00
Non-GAAP Diluted (Loss) Earnings Per Share		$	(0.06	)		$	(0.01	)		$	(0.03	)
Diluted weighted average number of common stock outstanding			62,887,664				62,881,663				56,966,619

i Note: This earnings release includes financial information that excludes the impact of the specified non-cash expenses set forth above, a financial measure not permitted under US GAAP. For purposes of Regulation G, a non−GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statement of income, balance sheet, or statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. In this regard, GAAP refers to generally accepted accounting principles in the United States. Pursuant to the requirements of Regulation G, the Company has provided the table above which includes a reconciliation of gross profit, operating income (loss), net income (loss), and diluted earnings (loss) per share excluding the impact of the non-cash expense items indicated in the above table, to the figures as reported under GAAP. The Company uses the non-GAAP information in its internal performance measures to analyze performance between periods, develop internal projections and measure management performance. The Company's management believes that the presentation of these non-GAAP financial information provides useful information regarding the Company’s results of operations because it assists in measuring operating results which are comparable with subsequent periods.

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