Harbin
Electric Announces First Quarter 2009 Results





HARBIN, China, May 8
/PRNewswire-Asia-FirstCall/ -- Harbin Electric, Inc. (or the “Company”, Nasdaq:
HRBN), a leading Chinese developer and manufacturer of a wide array of electric
motors, today announced its financial results for the first quarter of
2009.





Financial
Summary: First Quarter 2009 versus First Quarter 2008





1Q09
                  
                  
                  
                  1Q08
                  
                  
                  YoY%ChangeRevenue
                  
                  $
                  30,724,893
                  
                  
                  $
                  22,458,185
                  
                  
                  
                  36.8
                  %Gross
      Profit
                  
                  $
                  10,923,778
                  
                  
                  $
                  10,759,477
                  
                  
                  
                  1.5
                  %Gross
      Profit Margin
                  
                  
                  35.6
                  %
                  
                  
                  47.9
                  %Operating
      Income
                  
                  $
                  8,025,592
                  
                  
                  $
                  8,635,823
                  
                  
                  
                  (7.1
                  %)Operating
      Margin
                  
                  
                  26.1
                  %
                  
                  
                  38.5
                  %Net
      Income
                  
                  $
                  8,654,334
                  
                  
                  $
                  5,353,236
                  
                  
                  
                  61.7
                  %Net
      Profit Margin
                  
                  
                  28.2
                  %
                  
                  
                  23.8
                  %Diluted
      EPS
                  
                  $
                  0.39
                  
                  
                  $
                  0.27
                  
                  
                  
                  44.4
                  %





"Despite the weakest economic
environment we have seen in decades, we continued to execute well and maintain
bottom line growth," said Tianfu Yang, Chairman and Chief Executive Officer of
Harbin Electric. "During the first quarter, we focused on cost control and
margin improvement. We further strengthened our balance sheet by increasing our
cash position to $63.57 million from $48.41 million at December 31, 2008 with
intense focus on reducing accounts receivables and inventories. I am very
pleased with our successful execution in areas under our control. We believe we
are well positioned to take advantage of a turnaround in the Chinese economy
under the government stimulus package."




Revenues increased 36.8% to $30.72
million from $22.46 million in 2008. Strong sales growth derived primarily from
the industrial rotary motor business acquired in July 2008. Revenues for linear
motor and its integrated application systems steadily increased 4.8% from the
prior year driven by higher sales of tower-type oil pump and other linear
motors. The Company delivered 60 units of the tower-type oil pump in the first
quarter of 2009, compared to 39 units in the same period of 2008. Excluding
acquisitions, organic revenues for the quarter were $19.87 million, reflecting
weaker sales primarily in specialty micro-motors.




International sales totaled $3.26
million or 10.6% of total sales for the quarter, down 14.3% compared with
international sales of $3.80 million in the first quarter of 2008, reflecting
weaker export sales of specialty micro-motors.




The following table shows the revenue
contribution by percentage for each major product line and the corresponding
average gross profit margin for the first quarters of 2009 and 2008,
respectively. The decline in overall gross profit margin was primarily due to
changes in product mix and lower gross margin in the rotary motor
business.





1Q09
                          
                          
                          1Q08Product
      Line
                          
                          %
      of Total
                          
                          
                          Gross
                          
                          
                          %
      of Total
                          
                          
                          GrossRevenues
                          
                          
                          Profit
                          
                          
                          Revenues
                          
                          
                          ProfitMargin
                          
                          
                          
                          
                          
                          MarginLinear
      Motors and Related Systems
                          
                          
                          40.3
                          %
                          
                          
                          54.1
                          %
                          
                          
                          50.6
                          %
                          
                          
                          53.5
                          %Specialty
      Micro-Motors
                          
                          
                          19.9
                          %
                          
                          
                          40.1
                          %
                          
                          
                          38.1
                          %
                          
                          
                          42.2
                          %Rotary
      Motors
                          
                          
                          35.3
                          %
                          
                          
                          10.1
                          %
                          
                          
                          0
                          %
                          
                          NAOthers
                          
                          
                          4.5
                          %
                          
                          
                          49.3
                          %
                          
                          
                          11.3
                          %
                          
                          
                          45.2
                          %Total
                          
                          
                          100
                          %
                          
                          
                          35.6
                          %
                          
                          
                          100
                          %
                          
                          
                          47.9
                          %








Operating profit of $8.03 million in
the first quarter of 2009 decreased by 7.1% from $8.64 million in the first
quarter of 2008. Operating margin declined to 26.1% from 38.5% for the same
quarter of 2008, mainly due to lower gross margin in the industrial rotary motor
business and higher research and development expenses as well as higher selling,
general and administrative expenses ("SG&A"). The year-over-year increase in
SG&A was primarily associated with the newly acquired company, the start-up
of the Shanghai facility, higher shipping and handling costs, and higher
depreciation expenses. As a percentage of total sales, the Company’s total
SG&A expenses declined to 8.2% from 9.0% in the same quarter last
year.




Net income for the quarter totaled
$8.65 million, compared to $5.35 million for the same quarter of last year, a
61.7% increase year-over-year.  Net income for the quarter benefited
from $2.57 million change in fair value of warrants due to the adoption of EITF
07-5 at January 1, 2009. Additionally, higher other income and lower interest
expense including lower amortization expense of debt discount contributed to
higher net income. Excluding the adjustment due to the adoption of the new
accounting pronouncement, net income totaled $6.08 million for the quarter, a
13.6% increase over the prior year.




Earnings per diluted share increased
44.4% to $0.39 from $0.27 in the first quarter of 2008, with an additional 2.2
million weighted average number of shares. Excluding the accounting adjustment,
earnings per share was flat.





Financial
Summary: First Quarter 2009 versus Fourth Quarter 2008





1Q09
                  
                  
                  
                  4Q08
                  
                  
                  YoY%Revenue
                  
                  $
                  30,724,893
                  
                  
                  $
                  34,743,375
                  
                  
                  
                  (11.6
                  )%Gross
      Profit
                  
                  $
                  10,923,778
                  
                  
                  $
                  11,489,202
                  
                  
                  
                  (4.9
                  )%Gross
      Profit Margin
                  
                  
                  35.6
                  %
                  
                  
                  33.1
                  %Operating
      Income
                  
                  $
                  8,025,592
                  
                  
                  $
                  7,013,528
                  
                  
                  
                  14.4
                  %Operating
      Margin
                  
                  
                  26.1
                  %
                  
                  
                  20.2
                  %Net
      Income
                  
                  $
                  8,654,334
                  
                  
                  $
                  6,040,852
                  
                  
                  
                  43.3
                  %Net
      Profit Margin
                  
                  
                  28.2
                  %
                  
                  
                  17.4
                  %Diluted
      EPS
                  
                  $
                  0.39
                  
                  
                  $
                  0.27
                  
                  
                  
                  44.4
                  %





Compared to the fourth quarter of 2008,
total revenues declined 11.6% due to seasonality with a long holiday in January
coupled with continued weakness in the global economy and, particularly,
worsening conditions in the U.S. auto industry. However, net income excluding
the accounting adjustment of $2.57 million held stable at $6.08 million versus
$6.04 million in the fourth quarter of 2008, reflecting improved margins
resulting from stringent cost control.




The following table shows revenue
contribution by percentage for each major product line and the corresponding
average gross profit margin in the first quarter of 2009 and the fourth quarter
of 2008.





1Q09
                          
                          
                          4Q08Product
      Line
                          
                          %
      of Total
                          
                          
                          Gross
                          
                          
                          %
      of Total
                          
                          
                          GrossRevenues
                          
                          
                          Profit
                          
                          
                          Revenues
                          
                          
                          ProfitMargin
                          
                          
                          
                          
                          
                          MarginLinear
      Motors and Related Systems
                          
                          
                          40.3
                          %
                          
                          
                          54.1
                          %
                          
                          
                          36.9
                          %
                          
                          
                          52.5
                          %Specialty
      Micro-Motors
                          
                          
                          19.9
                          %
                          
                          
                          40.1
                          %
                          
                          
                          22.3
                          %
                          
                          
                          40.3
                          %Rotary
      Motors
                          
                          
                          35.3
                          %
                          
                          
                          10.1
                          %
                          
                          
                          36.5
                          %
                          
                          
                          8.6
                          %Others
                          
                          
                          4.5
                          %
                          
                          
                          49.3
                          %
                          
                          
                          4.3
                          %
                          
                          
                          47.0
                          %Total
                          
                          
                          100
                          %
                          
                          
                          35.6
                          %
                          
                          
                          100
                          %
                          
                          
                          33.1
                          %








Outlook




Mr. Yang commented, “With the first
quarter behind us, we see strong signs of economic improvement in China, largely
driven by the Chinese government stimulus package. Our customers and markets are
primarily in China and we expect to benefit from this. We have started
experiencing strong demand growth in our industrial rotary motor business as a
result of the government stimulus package that focuses on infrastructure and
agriculture development.  We expect sales of industrial rotary motors
in the next quarter to surpass that in the first quarter.”




“We expect our legacy linear motors
business to remain stable, with upside potential in a few areas. First, we would
like to reaffirm our expectation to double the volume of tower-type oil pumps
over the prior year. Second, we expect meaningful sales contribution in the
second half of the year from linear motors for the mass transit systems. We have
just delivered a few units to our customer and expect the testing of the first
domestically made linear motor driven subway train to begin soon. Additionally,
we continue to focus on developing new products and new markets and expect new
products in our pipeline to reach market in the coming months.”




Mr. Yang continued, “As for our
specialty micro-motor business, we experienced a decrease in demand for our
products during the first quarter of 2009 and a delay in the start-up of the
Shanghai facility, due to the severe global economic downturn and the downturn
in the U.S. auto industry. However, I strongly believe that these weak market
conditions are only temporary. We have already started to see improvement in
auto sales in China, from which we believe our business will benefit in the
longer term. We continue to explore other markets outside the U.S. and expect to
gain new markets and new customers in the future.”




Mr. Yang concluded, “With strong signs
that the Chinese economy is improving across the board, we believe that our
Company is positioned very competitively to benefit from China’s continued
economic growth.”




Conference Call Details




The Company will host a conference call
to discuss the first quarter 2009 financial results at 8:30 a.m. EDT on Friday,
May 8th, 2009. Tianfu Yang, Chairman and Chief Executive Officer, Zedong Xu,
Chief Financial Officer, and Christy Shue, Executive Vice President will be on
the call. The Company plans to release its first quarter 2009 financial results
before the conference call.




To participate in the conference call,
please dial any of the following numbers:




USA:             1-800-603-1779


International:  +1-706-643-7429


North
China:     10-800-713-0924


South
China:     10-800-130-0748





The conference ID for the call is
97298235





A replay of the call will be available
beginning at 9:30 a.m. EDT on May 8th, 2009 and will remain available through
midnight on May 15th, 2009.





To access the replay, please dial any
of the following numbers:




USA:            1-800-642-1687


International:  +1-706-645-9291





Passcode is 97298235.





This conference call will be broadcast
live over the Internet. To listen to the live webcast, go to
http://www.harbinelectric.com and click on ‘Harbin Electric Q1 2009 Financial
Results Conference Call’. The replay of the webcast will be available for 30
days and will be archived on the Investor Kits page of the website after 30
days.








About Harbin Electric,
Inc.




Harbin Electric, headquartered in
Harbin, China, is a leading developer and manufacturer of a wide array of
electric motors with a focus on innovative, customized and value-added products.
Its major product lines include linear motors, automobile specialty
micro-motors, and industrial rotary motors. The Company’s products are purchased
by a broad range of domestic and international customers, including those
involved in oil services, factory automation, food processing, packaging,
transportation, automobile, medical devices, machinery and tool manufacturing,
petrochemical, as well as in the metallurgical and mining
industries.




Harbin Electric has built a strong
research and development capability by recruiting talent worldwide and through
collaborations with top scientific institutions. The Company owns numerous
patents in China and has developed award-winning products for its customers.
Through its U.S. and China-based subsidiaries, the Company operates three
manufacturing facilities in China located in Harbin, Weihai, and Shanghai with a
total of approximately 2,000 employees. Each of the three manufacturing
facilities is dedicated to a specific product line and is equipped with
state-of-the-art production equipment and quality control systems.




As China continues to grow its
industrial base, Harbin Electric aspires to be a pioneer in leading the
industrialization and technology transformation of the Chinese manufacturing
sector. To learn more about Harbin Electric, visit http://www.harbinelectric.com
..




Safe Harbor Statement




The actual results of Harbin Electric,
Inc. could differ materially from those described in this press release.
Detailed information regarding factors that may cause actual results to differ
materially from the results expressed or implied by statements in this press
release may be found in the Company’s periodic filings with the U.S. Securities
and Exchange Commission, including the factors described in the section entitled
‘Risk Factors’ in its annual report on Form 10-K for the year ended December 31,
2008. The Company does not undertake any obligation to update forward-looking
statements contained in the press release. This press release contains
forward-looking information about the Company that is intended to be covered by
the safe harbor for forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
statements that are not historical facts. These statements can be identified by
the use of forward-looking terminology such as ‘believe,’ ‘expect,’ ‘may,’
‘will,’ ‘should,’ ‘project,’ ‘plan,’ ‘seek,’ ‘intend,’ or ‘anticipate’ or the
negative thereof or comparable terminology, and include discussions of strategy,
and statements about industry trends and the Company’s future performance,
operations and products.








HARBIN
ELECTRIC, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS OF
MARCH 31, 2009 AND DECEMBER 31, 2008





March
      31,
                
                
                December
      31,2009
                
                
                2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                
                $
                63,570,781
                
                
                $
                48,412,263Restricted
      cash
                
                
                —
                
                
                
                513,450Notes
      receivable
                
                
                95,642
                
                
                
                1,451,977Accounts
      receivable, net of allowance for doubtful accounts of $152,946 and
      $153,155 as of March 31, 2009 and December 31, 2008,
      respectively
                
                
                20,132,666
                
                
                
                30,284,080Inventories
                
                
                18,679,403
                
                
                
                21,960,084Other
      receivables
                
                
                1,627,799
                
                
                
                248,552Advances
      on inventory purchases
                
                
                3,426,740
                
                
                
                3,529,607Total
      current assets
                
                
                107,533,031
                
                
                
                106,400,013PLANT
      AND EQUIPMENT, net
                
                
                97,670,800
                
                
                
                94,931,999OTHER
      ASSETS:Debt
      issuance costs, net
                
                
                1,536,669
                
                
                
                1,672,279Advances
      on equipment purchases
                
                
                10,401,987
                
                
                
                10,416,187Advances
      on intangible assets
                
                
                3,123,380
                
                
                
                1,892,430Goodwill
                
                
                12,273,778
                
                
                
                12,273,778Other
      intangible assets, net of accumulated amortization
                
                
                6,159,277
                
                
                
                6,430,397Other
      assets
                
                
                508,498
                
                
                
                471,220Deposit
      in derivative hedge
                
                
                1,000,000
                
                
                
                1,000,000Total
      other assets
                
                
                35,003,589
                
                
                
                34,156,291Total
      assets
                
                $
                240,207,420
                
                
                $
                235,488,303LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIES:Notes
      payable - short term
                
                $
                —
                
                
                $
                1,026,900Accounts
      payable
                
                
                8,107,130
                
                
                
                8,415,919Short
      term loan - bank
                
                
                4,175,250
                
                
                
                4,180,950Other
      payables & accrued liabilities
                
                
                1,732,481
                
                
                
                2,789,792Customer
      deposits
                
                
                3,108,330
                
                
                
                1,244,622Taxes
      payable
                
                
                2,764,566
                
                
                
                2,096,521Interest
      payable
                
                
                195,970
                
                
                
                800,954Cross
      currency hedge payable
                
                
                108,513
                
                
                
                175,986Total
      current liabilities
                
                
                20,192,240
                
                
                
                20,731,644LONG
      TERM LIABILITIES:Amounts
      due to original shareholder
                
                
                732,500
                
                
                
                733,500Notes
      payable, net of debt discount of $11,266,520 and $12,389,135 as of March
      31, 2009 and December 31, 2008, respectively
                
                
                32,733,480
                
                
                
                33,610,866Fair
      value of derivative instrument
                
                
                8,292,034
                
                
                
                5,762,958Warrant
      liabilities
                
                
                4,898,017
                
                
                
                —Total
      liabilities
                
                
                66,848,271
                
                
                
                60,838,968COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITY:Common
      Stock, $0.00001 par value, 100,000,000 shares authorized, 22,102,078 and
      22,102,078 shares issued and outstanding as of March 31, 2009 and December
      31, 2008, respectively
                
                
                220
                
                
                
                220Paid-in-capital
                
                
                81,756,934
                
                
                
                95,029,290Retained
      earnings
                
                
                65,647,535
                
                
                
                52,100,479Statutory
      reserves
                
                
                15,823,552
                
                
                
                14,573,994Accumulated
      other comprehensive income
                
                
                10,130,908
                
                
                
                12,945,352Total
      shareholders’ equity
                
                
                173,359,149
                
                
                
                174,649,335Total
      liabilities and shareholders’ equity
                
                $
                240,207,420
                
                
                $
                235,488,303








HARBIN
ELECTRIC, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


FOR THE
THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(Unaudited)





Three
      Months Ended March 31,2009
                
                
                2008REVENUES
                
                $
                30,724,893
                
                
                $
                22,458,185COST
      OF SALES
                
                
                19,801,115
                
                
                
                11,698,708GROSS
      PROFIT
                
                
                10,923,778
                
                
                
                10,759,477RESEARCH
      AND DEVELOPMENT EXPENSE
                
                
                393,282
                
                
                
                97,695SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                2,504,904
                
                
                
                2,025,959INCOME
      FROM OPERATIONS
                
                
                8,025,592
                
                
                
                8,635,823OTHER
      (INCOME) EXPENSE, NETOther
      (income) expenses, net
                
                
                (539,379
                )
                
                
                9,190Interest
      expense, net
                
                
                1,441,384
                
                
                
                2,282,780Change
      in fair value of warrants
                
                
                (2,573,421
                )
                
                
                —Total
      other (income) expense, net
                
                
                (1,671,416
                )
                
                
                2,291,970INCOME
      BEFORE PROVISION FOR INCOME TAXES
                
                
                9,697,008
                
                
                
                6,343,853PROVISION
      FOR INCOME TAXES
                
                
                1,042,674
                
                
                
                990,617NET
      INCOME
                
                
                8,654,334
                
                
                
                5,353,236OTHER
      COMPREHENSIVE INCOME (LOSS)Foreign
      currency translation adjustment
                
                
                (285,368
                )
                
                
                5,307,825Change
      in fair value of derivative instrument
                
                
                (2,529,076
                )
                
                
                (4,493,886
                )COMPREHENSIVE
      INCOME
                
                $
                5,839,890
                
                
                $
                6,167,175EARNINGS
      PER SHARE:Basic
                
                $
                0.39
                
                
                $
                0.29Diluted
                
                $
                0.39
                
                
                $
                0.27WEIGHTED
      AVERAGE NUMBER OF SHARESBasic
                
                
                22,102,078
                
                
                
                18,209,978Diluted
                
                
                22,158,573
                
                
                
                19,952,721










HARBIN
ELECTRIC, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR THE
THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(Unaudited)





Three
      Months Ended March 31,2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income
                
                $
                8,654,334
                
                
                $
                5,353,236Adjustments
      to reconcile net income to cash provided by (used in) operating
      activities:Depreciation
                
                
                667,780
                
                
                
                211,710Amortization
      of intangible assets
                
                
                292,927
                
                
                
                242,303Amortization
      of debt issuance costs
                
                
                135,610
                
                
                
                228,181Amortization
      of debt discount
                
                
                1,122,614
                
                
                
                1,343,929Loss
      (gain) on derivative instrument
                
                
                219,188
                
                
                
                (168,214
                )Share-based
      compensation
                
                
                341,362
                
                
                
                456,232Change
      in fair value of warrants
                
                
                (2,573,421
                )
                
                
                —Change
      in operating assets and liabilitiesNotes
      receivable
                
                
                1,354,449
                
                
                
                —Accounts
      receivable
                
                
                10,111,075
                
                
                
                (5,286,259
                )Inventories
                
                
                3,250,970
                
                
                
                120,299Other
      receivables
                
                
                (1,379,675
                )
                
                
                (815,265
                )Advances
      on inventory purchases
                
                
                98,070
                
                
                
                (877,424
                )Other
      assets
                
                
                (37,918
                )
                
                
                -Accounts
      payable
                
                
                (298,129
                )
                
                
                (139,993
                )Other
      payables & accrued liabilities
                
                
                (1,053,384
                )
                
                
                (1,191,355
                )Other
      payables - related party
                
                
                —
                
                
                
                (46,377
                )Customer
      deposits
                
                
                1,865,532
                
                
                
                (1,896
                )Taxes
      payable
                
                
                670,942
                
                
                
                879,686Interest
      payable
                
                
                (559,618
                )
                
                
                (868,177
                )Net
      cash provided by (used in) operating activities
                
                
                22,882,708
                
                
                
                (559,384
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      deposit on acquisition
                
                
                —
                
                
                
                (698,850
                )Payment
      for advances on intangible assets
                
                
                (1,233,614
                )
                
                
                —Payment
      for advances on equipment purchases
                
                
                —
                
                
                
                (5,813,976
                )Purchase
      of intangible assets
                
                
                (30,555
                )
                
                
                (697,544
                )Purchases
      of plant and equipment
                
                
                (175,791
                )
                
                
                (2,164,933
                )Additions
      to construction in progress
                
                
                (3,360,011
                )
                
                
                —Net
      cash used in investing activities
                
                
                (4,799,971
                )
                
                
                (9,375,303
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Decrease
      in restricted cash
                
                
                512,785
                
                
                
                —Proceeds
      received from conversion of warrants and options
                
                
                —
                
                
                
                785,548Payment
      of cross currency hedge
                
                
                (332,027
                )
                
                
                —Payment
      on notes payable
                
                
                (2,000,000
                )
                
                
                (2,000,000
                )Decrease
      of notes payable-short term
                
                
                (1,025,570
                )
                
                
                —Net
      cash used in financing activities
                
                
                (2,844,812
                )
                
                
                (1,214,452
                )EFFECTS
      OF EXCHANGE RATE CHANGE ON CASH
                
                
                (79,407
                )
                
                
                2,519,430INCREASE
      (DECREASE) IN CASH
                
                
                15,158,518
                
                
                
                (8,629,709
                )CASH
      AND CASH EQUIVALENTS, beginning of period
                
                
                48,412,263
                
                
                
                45,533,893CASH
      AND CASH EQUIVALENTS, end of period
                
                $
                63,570,781
                
                
                $
                36,904,184










For investor and media inquiries,
please contact:





In
China


Harbin
Electric, Inc.


Tel:   +86-451-8611-6757


Email:
MainlandIR@Tech-full.com





In the
U.S.


Christy
Shue


Harbin
Electric, Inc.


Executive
VP, Finance & Investor Relations


Tel:   +1-631-312-8612


Email:
cshue@HarbinElectric.com





Kathy
Li


Christensen
Investor Relations


Tel:   +1-212-618-1987


Email:
kli@christensenir.com





SOURCE  Harbin
Electric, Inc.