China Automotive Systems Reports Financial Results for Third Quarter of 2012

WUHAN, China, Nov. 8, 2012 /PRNewswire/ -- 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)

2,651


1,535

 - net of income tax  

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


-

 

SOURCE China Automotive Systems, Inc.



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