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8-K - FORM 8-K - CHINA AUTOMOTIVE SYSTEMS INCv327978_8k.htm

 


China Automotive Systems Reports
Financial Results for Third Quarter of 2012

 

WUHAN, China, November 8, 2012 -- China Automotive Systems, Inc. (“CAAS” or the “Company”) (NASDAQ: CAAS), a leading power steering components and systems supplier in China, today announced financial results for the third quarter and the nine months ended September 30, 2012. All results are for continuing operations, unless stated otherwise.

 

Third Quarter 2012 Highlights

 

·Net sales increased by 3.2% to $73.2 million, compared to $70.9 million in the third quarter of 2011

 

·Gross profit was $12.5 million, compared to $12.6 million in the third quarter of 2011; gross margin was 17.1% in the third quarter of 2012, compared to 17.8% in the same quarter of last year

 

·Research and development (“R&D”) expenses were $2.8 million, compared to $2.5 million in the third quarter of 2011

 

·Operating margin was 7.5%, compared to 7.7% in the third quarter of 2011

 

·Diluted earnings per share from continuing operations was $0.12, compared to diluted earnings per share from continuing operations of $0.09 in the third quarter of 2011

 


First Nine Months of 2012 Highlights

 

·Net sales were $234.5 million, compared to $235.5 million for the first nine months of 2011

 

·Gross profit was $43.5 million, compared to $45.1 million in the first nine months of 2011; gross margin was 18.6% in the first nine months of 2012, compared to 19.2% in the same period last year

 

·Operating margin was 8.7%, compared to 10.0% in the first nine months of 2011

 

·Diluted earnings per share from continuing operations was $0.44, compared to diluted earnings per share from continuing operations of $0.48 in the first nine months of 2011

 

·Net cash flow provided by operations was $11.4 million, compared to net cash flow from operations of $31.7 million in the first nine months of 2011

 

·Cash and cash equivalents were $72.5 million at September 30, 2012, decreased from $73.0 million at December 31, 2011

 

Mr. Qizhou Wu, chief executive officer of CAAS, commented: “We are pleased to continue to generate growth even though we are affected by both the slowdown in passenger vehicle sales and the continuing decrease in commercial vehicle sales. However, we have noticed a gradual recovery in demand for passenger vehicles following the incentive policy announced by the PRC central government in May 2012 to assist the sales of low-emission cars and fuel-efficient cars. With new leadership in the PRC central government, we believe the number of infrastructure projects in China will increase and China’s real estate market may rebound. As we are the leader in power steering systems in China, we are leveraging our growing expertise first in North America and soon in Brazil and other emerging markets. Many of these emerging markets are dominated by imports of foreign products and we believe we can effectively compete against these products in the markets.”

 

 
 

 

Mr. Jie Li, chief financial officer of CAAS, added, “Our financial standing remains solid, as we generated positive cashflow from operations in the third quarter. Further, by redeeming our convertible notes early, we have achieved greater financial strength and flexibility to support our research and development efforts and growth programs to build our brand and enhance shareholder value.”

 

Third Quarter of 2012

 

For the third quarter of 2012, net sales increased by 3.2% to $73.2 million, compared to $70.9 million in the corresponding quarter of 2011. The net sales increase was mainly due to higher exports of new products into the North American market especially Chrysler North America and the growing domestic passenger vehicle market. A new incentive policy launched by the Chinese government in May 2012 aided purchases of low-emission cars and fuel-efficient cars. Greater unit sales and the appreciation of the Chinese RMB versus the U.S. dollar offset lower average unit prices during the third quarter of 2012.

 

Gross profit was $12.5 million in the third quarter of 2012, compared to $12.6 million in the third quarter of last year. The gross margin was 17.1%, compared to 17.8% in the same quarter in 2011, mainly due to an increase in sales volumes of lower gross margin products.

 

Selling expenses increased by 20.0% to $2.4 million from $2.0 million in the third quarter of 2011, which was mainly due to a greater number of sales personnel employed. As a percentage of net sales, selling expenses were 3.3% in the third quarter of 2012, compared to 2.8% in the third quarter of 2011.

 

General and administrative (“G&A expenses”) expenses declined by 20.5% to $2.5 million in the third quarter of 2012 from $3.1 million in the corresponding quarter of 2011. The decrease in G&A expenses was primarily due to lower wage and salary expenses and lower performance bonuses. As a percentage of net sales, G&A expenses decreased to 3.4% in the third quarter of 2012 from 4.4% in the corresponding quarter of 2011.

 

Research and development expenses (“R&D expenses”) rose by approximately 12.0% in the third quarter of 2012, to $2.8 million from $2.5 million in the same quarter of 2011, mainly due to the continued development of the Company’s electric power steering (“EPS”) systems. Expenses rose for additional R&D staff, improvement of production molds and external technical support during the third quarter of 2012, compared to the same quarter last year. As a percentage of net sales, R&D expenses rose to 3.8% from 3.5% in the third quarter of 2011.

 

Income from operations was $5.5 million in the third quarter of 2012, consistent with $5.5 million in the third quarter of 2011. As a percentage of net sales, income from operations was 7.5% in the third quarter of 2012, compared to 7.7% in the corresponding period last year.

 

Net financial expenses declined by 69.2% to $0.4 million, compared to $1.3 million for the third quarter of 2011, mainly due to lower interest expense resulting from the Company’s early redemption of its convertible notes.

 

The Company redeemed all outstanding convertible notes in May 2012. Therefore, there was no gain or loss on change of fair value of derivatives associated with convertible notes for the three months ended September 30, 2012. The gain on the change in fair value of derivatives was $7.8 million in the third quarter of 2011, primarily due to the Company’s stock price movement during the third quarter of 2011, and it was non-cash in nature.

 

Income before income tax expenses and equity in earnings of affiliated companies was $5.3 million in the third quarter of 2012, compared to $12.0 million in the corresponding quarter last year. The decrease in income before income tax expenses and equity in earnings of affiliated companies was mainly due to a decrease in the gain on change in fair value of derivatives as compared to the third quarter of 2011.


Income tax expense was $0.9 million for the third quarter of 2012, compared to $1.0 million for the corresponding quarter last year. The decrease of $0.1 million was mainly due to a decrease in income before income tax. The effective tax rate increased to 16.9% for the third quarter of 2012, from 8.3% for the corresponding period in 2011, which was primarily due to the permanent difference for the gain on change in the fair value of derivatives recorded in the third quarter of 2011. Since the derivative was settled in the second quarter of 2012 due to the redemption of all convertible notes, there is no similar difference in the quarter of 2012.

 

 
 

 

Net income from continuing operations was $4.4 million for the third quarter of 2012, compared to $11.1 million for the corresponding quarter of 2011. The decrease was mainly due to a decline in income before income tax expenses and equity in earnings of affiliated companies and lower income tax expenses of $0.1 million.

 

In May 2012, CAAS discontinued its operations in Zhejiang Henglong & Vie Pump-Manu Co., Ltd. (“Zhejiang”) and sold its 51% equity interest in Zhejiang. Accordingly, the business of Zhejiang is recorded as a discontinued operation. There were no net operational results from the business of Zhejiang for the third quarter of 2012, compared with after-tax income of $0.4 million for the third quarter last year.

 

Net income attributable to parent company’s shareholders was $3.4 million in the third quarter of 2012, compared to $9.0 million, including $0.4 million from discontinued operations, in the corresponding quarter of 2011. Diluted earnings per share was $0.12 in the third quarter of 2012, compared to diluted earnings per share of $0.10, including diluted earnings per share of $0.01 from discontinued operations, in the same quarter of 2011. The weighted average number of diluted common shares outstanding was 28,260,880 in the third quarter of 2012, compared to 31,503,995 in the corresponding quarter of 2011.

 

First Nine Months of 2012

 

Net sales for the first nine months of 2012 decreased by 0.4% to $234.5 million, compared to $235.5 million in the first nine months of last year. Nine-month gross profit was $43.5 million, compared to $45.1 million in the corresponding period a year ago. Nine-month gross margin was 18.6%, compared to 19.2% for the corresponding nine-month period in 2011. Income from operations was $20.4 million, compared to $23.5 million in the first nine months of 2011. Operating margin was 8.7%, compared to 10.0% for the corresponding period of 2011. Income from continuing operations was $16.3 million in the first nine months of 2012, compared to $37.8 million in the corresponding period in 2011. Diluted earnings per share for continuing operations were $0.44 in the first nine months of 2012, compared to diluted earnings per share for continuing operations of $0.48 in the first nine months of 2011. Net income attributable to the parent company’s common shareholders, including net income from discontinued operations, decreased to $14.7 million from $30.3 million in the first nine months of 2011. Diluted earnings per share was $0.52 in the first nine months of 2012, compared to diluted earnings per share of $0.50 for the corresponding period in 2011.


As of September 30, 2012, total cash and cash equivalents were $72.5 million, compared to $73.0 million at December 31, 2011. Working capital was $123.9 million as of September 30, 2012. Net cash flows from operations in the first nine months of 2012 were $11.4 million.

 

Business Outlook

 

Management’s revenue guidance is for annual revenues to be even with those for the year 2011. This target is based on the Company’s current views on operating and market conditions, which are subject to change.

 

Conference Call

 

Management will conduct a conference call on November 8, 2012 at 8:00 A.M. EST/9:00 P.M. Beijing Time to discuss these results. A question and answer session will follow management’s presentation. To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the “China Automotive Systems” conference call:

 

Phone Number: +1-877-407-8031 (North America)

Phone Number: +1-201-689-8031 (International)

 

In addition, the conference call will be broadcast live over the Internet at http://www.caasauto.com. Please go to the web site at least 15 minutes early to register, download and install any necessary software.

 

 
 

 

A telephone replay of the call will be available after the conclusion of the conference call through 11:59 P.M. EST on December 8, 2012. The dial-in details for the replay are: U.S. Toll Free Number +1-877-660-6853, International dial-in number +1-201-612-7415; using Account "286" and Conference ID "403402" to access the replay. The replay can also be accessed at the Investor Relations section of the CAAS website.

 

About China Automotive Systems, Inc.

 

Based in Hubei Province, the People's Republic of China, China Automotive Systems, Inc. is a leading supplier of power steering components and systems to the Chinese automotive industry, operating through ten Sino-foreign joint ventures. The Company offers a full range of steering system parts for passenger automobiles and commercial vehicles. The Company currently offers four separate series of power steering with an annual production capacity of over 3.5 million sets, steering columns, steering oil pumps and steering hoses. Its customer base is comprised of leading Chinese auto manufacturers, such as China FAW Group, Corp., Dongfeng Auto Group Co., Ltd., BYD Auto Company Limited, Beiqi Foton Motor Co., Ltd., Chery Automobile Co., Ltd. and Chrysler North America, outside of North America. For more information, please visit: http://www.caasauto.com.

 

Forward Looking Statements

 

This press release contains statements that are "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our estimates and assumptions only as of the date of this press release. These forward-looking statements include statements regarding the qualitative and quantitative effects of the accounting errors, the periods involved, the nature of the Company's review and any anticipated conclusions of the Company or its management and other statements that are not historical facts. Our actual results may differ materially from the results described in or anticipated by our forward-looking statements due to certain risks and uncertainties. As a result, the Company's actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the heading "Risk Factors" in the Company's Form 10-K annual report for the year ended December 31, 2011 and under the heading "Risk Factors" in the Company's Form 10-Q for the nine months ended September 30, 2012 filed with the Securities and Exchange Commission on March 9, 2012 and November 8, 2012, respectively, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. We expressly disclaim any duty to provide updates to any forward-looking statements made in this press release, whether as a result of new information, future events or otherwise.

 

For further information, please contact:

 

Jie Li

Chief Financial Officer

China Automotive Systems, Inc.

Email: jieli@chl.com.cn

 

Kevin Theiss

Investor Relations

Grayling

Tel: +1-646-284-9409

Email: kevin.theiss@grayling.com

 

 

(Tables Follow)

 

 
 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands of USD, unless otherwise indicated)

 

 

  September 30, 
2012
   December 31,
2011
 
ASSETS  (Unaudited)     
Current assets:          
Cash and cash equivalents  $72,490   $72,961 
Pledged cash deposits   24,494    21,821 
Accounts and notes receivable, net - unrelated parties   196,540    200,940 
Accounts and notes receivable, net - related parties   9,432    11,519 
Accounts receivable from sale of a subsidiary   4,361    - 
Advance payments and others - unrelated parties   1,590    2,215 
Advance payments and others - related parties   446    630 
Inventories   48,033    51,607 
Current deferred tax assets   3,750    3,687 
Total current assets   361,136    365,380 
Non-current assets:          
Property, plant and equipment, net   85,501    84,843 
Intangible assets, net   711    837 
Other receivables, net - unrelated parties   2,791    1,877 
Other receivables, net - related parties   1,071    500 
Advance payment for property, plant and equipment - unrelated parties   1,714    1,472 
Advance payment for property, plant and equipment - related parties   4,276    3,712 
Long-term investments   3,602    3,485 
Non-current deferred tax assets   4,379    4,341 
Total assets  $465,181   $466,447 
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Bank and government loans  $37,001   $10,316 
Accounts and notes payable - unrelated parties   157,558    169,456 
Accounts and notes payable - related parties   3,713    2,053 
Customer deposits   1,253    1,181 
Accrued payroll and related costs   4,736    5,177 
Accrued expenses and other payables   22,151    22,618 
Accrued pension costs   4,355    4,067 
Taxes payable   6,132    2,029 
Amounts due to shareholders/directors   341    352 
Deferred tax liabilities   31    311 
Total current liabilities   237,271    217,560 
Long-term liabilities:          
Convertible notes payable   -    23,571 
Compound derivative liabilities   -    559 
Accrued make-whole redemption interest expense of convertible notes   -    7,616 
Advances payable   3,184    984 
Total liabilities   240,455    250,290 
           
Commitments and Contingencies          
Stockholders’ equity-          
           
           
Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued and Outstanding – 28,260,302 shares at September 30, 2012 and December 31, 2011   3    3 
          
Additional paid-in capital   39,371    39,296 
Retained earnings-          
Appropriated   9,953    9,026 
Unappropriated   114,243    99,513 
Accumulated other comprehensive income   24,267    25,291 
Total parent company stockholders' equity    187,837    173,129 
Noncontrolling interests   36,889    43,028 
Total stockholders' equity   224,726    216,157 
Total liabilities and stockholders' equity  $465,181   $466,447 

 

 

 
 

 

    China Automotive Systems, Inc. and Subsidiaries  
    Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income  
    (In thousands of USD, except share and per share amounts)  

 

   Three Months Ended 
September 30,
 
   2012   2011 
Net product sales          
Unrelated parties  $70,245   $63,262 
Related parties   2,939    7,652 
    73,184    70,914 
Cost of product sold          
Unrelated parties   56,231    55,496 
Related parties   4,452    2,830 
    60,683    58,326 
Gross profit   12,501    12,588 
Gain on other sales   704    466 
Less: Operating expenses          
Selling expenses   2,437    2,010 
General and administrative expenses   2,487    3,128 
Research and development expenses   2,818    2,466 
Total operating expenses   7,742    7,604 
    Income from operations   5,463    5,450 
Other income, net   238    49 
Financial expenses, net   (437)   (1,281)
Gain on change in fair value of derivative   -    7,788 
Income before income tax expenses and equity in earnings of affiliated companies   5,264    12,006 
Less: Income taxes   891    992 
Equity in earnings of affiliated companies   27    43 
Income from continuing operations   4,400    11,057 
Discontinued operations - net of income tax    -    434 
Net income   4,400    11,491 
Net income attributable to noncontrolling interests   996    1,382 
Net income attributable to parent company   3,404    10,109 
Allocation to convertible notes holders   -    (1,071)
    Net income attributable to parent company’s common shareholders  $3,404   $9,038 
Net income attributable to parent company’s common shareholders per share          
Basic          
Income from continuing operations attributable to shareholders  $0.12   $0.31 
Income per share from discontinued operations   -   $0.01 
Net income attributable to shareholders  $0.12   $0.32 
Diluted          
Income from continuing operations attributable to shareholders  $0.12   $0.09 
Income per share from discontinued operations   -   $0.01 
Net income attributable to shareholders  $0.12   $0.10 
Weighted average number of common shares outstanding          
Basic   28,260,302    28,083,534 
Diluted   28,260,880    31,503,995 
    Comprehensive income:          
Net income  $4,400   $11,491 
Foreign currency translation (loss) gain, net of tax   (556)   4,212 
Comprehensive income   3,844    15,703 
Comprehensive income attributable to noncontrolling interests   904    2,112 
Comprehensive income attributable to parent company  $2,940   $13,591 

 

 
 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands of USD, except share and per share amounts)

 

 

   Nine Months Ended 
September 30,
 
   2012   2011 
Net product sales          
Unrelated parties  $215,157   $205,543 
Related parties   19,325    29,954 
    234,482    235,497 
Cost of product sold          
Unrelated parties   176,834    177,573 
Related parties   14,137    12,858 
    190,971    190,431 
Gross profit   43,511    45,066 
Gain on other sales   2,625    1,375 
Less: Operating expenses          
Selling expenses   6,704    6,653 
General and administrative expenses   8,999    10,290 
Research and development expenses   10,060    5,986 
Total operating expenses   25,763    22,929 
Income from operations   20,373    23,512 
Other income, net   317    154 
Financial expenses, net   (1,850)   (2,887)
Gain (loss) on change in fair value of derivative   (449)   19,374 
Gain on redemption of convertible notes   1,421    - 
Gain on convertible notes conversion   -    1,564 
Income before income tax expenses and equity in earnings of affiliated companies   19,812    41,717 
Less: Income taxes   3,666    4,045 
Equity in earnings of affiliated companies   139    129 
Income from continuing operations   16,285    37,801 
Discontinued operations (including after-tax disposition gain of $2,494)
 - net of income tax
   2,651    1,535 
Net income   18,936    39,336 
Net income attributable to noncontrolling interests   3,279    5,241 
Net income attributable to parent company   15,657    34,095 
Allocation to convertible notes holders   (925)   (3,831)
Net income attributable to parent company’s common shareholders  $14,732   $30,264 
Net income attributable to parent company’s common shareholders per share          
    Basic          
Income from continuing operations attributable to shareholders  $0.44   $1.06 
Income per share from discontinued operations  $0.08   $0.03 
Net income attributable to shareholders  $0.52   $1.09 
    Diluted          
Income from continuing operations attributable to shareholders  $0.44   $0.48 
Income per share from discontinued operations  $0.08   $0.02 
Net income attributable to shareholders  $0.52   $0.50 
Weighted average number of common shares outstanding          
Basic   28,260,302    27,881,821 
Diluted   28,261,529    31,531,253 

 

Comprehensive income:          
Net income  $18,936   $39,336 
Foreign currency translation (loss) gain, net of tax   (1,280)   9,228 
Comprehensive income   17,656    48,564 
Comprehensive income attributable to noncontrolling interests   3,023    6,842 
Comprehensive income attributable to parent company  $14,633   $41,722 

 

 
 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Cash Flows

(In thousands of USD, unless otherwise indicated)

  

   Nine Months Ended
September 30,
 
   2012   2011 
Cash flows from operating activities:          
Net income  $18,936   $39,336 
Adjustments to reconcile net income from operations to net cash provided by operating activities:          
Stock-based compensation   76    - 
Depreciation and amortization   10,668    10,144 
Increase (decrease) in allowance for doubtful accounts   16    (78)
Inventory write downs   501    - 
Deferred income taxes   (1,268)   (251)
Equity in earnings of affiliated companies   (139)   (129)
Gain on sales of a subsidiary   (2,848)   - 
Gain on convertible notes conversion   -    (1,564)
Gain on redemption of convertible notes   (1,421)   - 
Loss (gain) on change in fair value of derivative   449    (19,374)
Amortization of debt issue cost   135    - 
Loss on fixed assets disposals   44    116 
Changes in operating assets and liabilities:          
(Increase) decrease in:          
Pledged deposits   (5,118)   1,460 
Accounts and notes receivable   (4,741)   6,714 
Advance payments and others   570    506 
Inventories   (4,306)   (12,614)
Increase (decrease) in:          
Accounts and notes payable   (462)   8,504 
Customer deposits   337    252 
Accrued payroll and related costs   (180)   (249)
Accrued expenses and other payables   (6,702)   1,489 
Accrued pension costs   315    (81)
Taxes payable   4,294    (2,798)
Advances payable   2,210    346 
    Net cash provided by operating activities   11,366    31,729 
Cash flows from investing activities:          
Decrease (increase) in other receivables   (1,598)   625 
Proceeds from disposal of equipment   622    134 
Payments to acquire property, plant and equipment   (16,982)   (10,805)
Payments to acquire intangible assets   (62)   (121)
Proceeds from sales of a subsidiary   3,561    - 
Net cash used in investing activities   (14,459)   (10,167)
Cash flows from financing activities:          
Proceeds from government and bank loan   36,402    8,655 
Repayments of bank loan   (7,097)   (3,863)
Paid debt issue cost for bank loan   (230)   - 
Dividends paid to the noncontrolling interests   (2,387)   (1,692)
Redemption of convertible notes   (23,571)   - 
Increase (decrease) in amounts due to shareholders/directors   (8)   (20)
    Net cash provided by financing activities   3,109    3,080 
Effects of exchange rate on cash and cash equivalents   (487)   2,001 
    Net increase in cash and cash equivalents   (471)   26,643 
Cash and cash equivalents at beginning of period   72,961    49,424 
Cash and cash equivalents at end of period  $72,490   $76,067 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      

           

   Nine Months Ended 
   September 30, 
   2012   2011 
Cash paid for interest  $10,435   $1,689 
Cash paid for income taxes  $3,810   $7,190 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          

 

   Nine Months Ended 
   September 30, 
   2012   2011 
Issuance of common shares for the conversion of convertible notes  $-   $10,112 
Advance payments for acquiring property, plant and equipment   5,990    7,303 
Dividends payable to noncontrolling interests   707    - 
Noncontrolling interests contribution of capital with property, plant and equipment   2,846    - 
Accounts receivable from sale of a subsidiary   4,361    - 

 

 

 

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