2014

SORL Auto Parts Reports Financial Results For the Third Quarter of 2012 - Free Cash Flow of $16.6 Million in First Nine Months -

ZHEJIANG, China, Nov. 14, 2012 /PRNewswire-FirstCall/ -- SORL Auto Parts, Inc. (NASDAQ: SORL) ("SORL" or the "Company"), a leading manufacturer and distributor of automotive brake systems as well as other key safety-related auto parts in China, announced today its financial results for the third quarter and first nine months ended September 30, 2012.

Third Quarter 2012 Financial Highlights

  • Revenues for the third quarter of 2012 were $46.7 million;
  • China domestic aftermarket sales rose 5.2% year-over-year;
  • Gross margin increased to 28.3% in the third quarter of 2012;
  • Net Income was $3.4 million, or $0.17 per diluted share, in the third quarter of 2012;
  • Cash flow from operating activities was $17.5 million and free cash-flow of $16.6 million was generated in the first nine months.

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, "We posted a strong quarter in the backdrop of continued weakness in the Chinese commercial vehicle market, especially the heavy-duty segment. Despite major disruptions in markets around the world and the slight decrease of our sales, the sales of our high-quality and cost-competitive products are growing and we are positioned to be a more competitive player internationally. Our average selling price ("ASP") grew in the international market primarily because we have successfully shifted our product mix towards more high-value-added new products. Lower truck fleet utilization and reduced construction activity continue to depress the domestic Chinese truck market. For the domestic OEM market, we are introducing new advanced products and targeting the bus and light-duty commercial vehicle market until the heavy-duty vehicle market rebounds.  The aftermarket is stable due to the higher number of vehicles in operation in China and the expiration of OEM warranties. With our well-established brand reputation and the nature of our products as key safe-related components, our domestic aftermarket business demonstrated strong resilience and we have further leveraged our sales network and reached deeper into new markets."

Ms. Jinrui Yu, SORL's Chief Operating Officer, commented, "Our production equipment and new product introductions in both domestic and international markets continue to have margin expansion. While many of our competitors are encountering more inflation-related challenges, we continue to not only maintain, but grew our gross margin. With one of highest gross margins in the industry, we strive to strengthen production efficiency and improve pricing power across all market segments. Our accelerated positive free cash-flow generation resulted from strong collections coupled with reduced capital expenditures. We are actively reducing short-term debt and encouraging customer prepayments to secure the supplies of our new products. We have positioned ourselves to take advantage of any market rebound with our efficient manufacturing equipment and processes, higher-margin new products, and improved financial flexibility."

Financial Performance

For the third quarter of 2012, net sales were $46.7 million, a slight decrease compared to $47.6 million for the third quarter of 2011. Revenues from the Company's domestic OEM customers were $18.7 million, a slight decrease compared to $20.8 million for the third quarter of 2011. Revenues from China's domestic aftermarket were $12.2 million, a 5.2% increase over the previous year's third quarter. Revenues from international markets were $15.8 million, a 3.9% increase over the $15.2 million from the same period in 2011. The increase of international business was mainly due to the improving conditions in the U.S. commercial vehicle market and a broadening global customer base, as well as the Company's continuous execution to strengthen and extend its distribution networks through ongoing focus on increasing brand recognition of SORL's products by end users.

China's GDP growth was 7.4% in the third quarter of 2012, which was below the 7.6% growth in the second quarter of 2012. These are the lowest quarterly growth rates in the past three years, and commercial vehicle sales were especially affected. According to industry data, overall commercial vehicle sales declined by 4.4% during the 2012 third quarter and sales of heavy-duty truck and trailers were 28.8% lower in the 2012 third quarter as compared with the same quarter last year. For the first time since China entered its industrialization and urbanization era, the growth rate of commercial vehicle sales declined there over the first nine month periods in two consecutive years. However, management believes that continuing urbanization and the Chinese government's promotion of public transportation will favor expansion of the bus OEM and aftermarket.

The gross profit for the third quarter of 2012 was $13.2 million, slightly above than the gross profit of $13.1 million, for the third quarter of 2011. Gross margin was 28.3%, higher than the 27.4% gross margin in the same period of 2011. The gross margin increase primarily resulted from the Company's improved production efficiencies and the increased sales of higher-profit new products.

Operating expenses increased by 3.1% to $9.3 million in the third quarter of 2012 from $9.0 million in the third quarter of 2011. Operating expense increased to 19.9% of the revenue in the third quarter of 2012 from 18.9% in the same quarter of 2011 mainly due to the decrease of net sales by $0.1 million.

Selling and distribution expenses were $3.8 million, or 8.1% of quarterly revenue compared with $2.9 million, or 6.1% of revenues in the same quarter of 2011. The increase was mainly due to higher packaging expenses as international customers and domestic OEM customers have a specific requirement for packaging and the company set new internal policy on packaging improvement to avoid product damage during shipping and delivery.  

General and administrative (G&A) expenses in the third quarter of 2012 were $2.6 million, or 5.6% of revenue compared with $3.0 million, or 6.2% in the third quarter of 2011. The decrease in expenses was mainly related to lower sales in the third quarter of 2012 compared with the same quarter in 2011. 

Research and development (R&D) expenses were $2.4 million, or 5.0% of revenue in the third quarter of 2012 compared with $1.9 million, or 4.0% in the third quarter of 2011. The focus of the R&D program was mainly to develop higher-margin electronically controlled mechatronic products and upgrades to the Company's traditional valve products.

Operating income was $3.9 million for the third quarter of 2012, in line with the third quarter of 2011. Operating income as a percentage of sales was 8.4% in the third quarter of 2012 compared with 8.5% in the third quarter of 2011.

Income tax expense was $1.2 million in the third quarter of 2012 compared with $0.7 million in the same quarter of 2011. For the quarter ended September 30, 2012, the effective income tax rate was 25%. However, upon renewal of the High-Tech Enterprise certificate, the effective income tax rate will be reduced to 15% later in 2012. Upon receiving High-Tech Enterprise certificate, the Company will expect a tax refund of partial tax payment in the previous quarters, adjusting to the new tax rate.

Net income attributable to stockholders for the third quarter of 2012 was $3.4 million, or $0.17 per basic and diluted share, compared with $3.5 million, or $0.18 on per basic and diluted share, in the third quarter of 2011.

First Nine Months Financial Results

SORL's net sales for the first nine months of 2012 were $143.4 million, compared with $160.7 million for the same period in 2011.

For the nine months ended September 30, 2012, domestic OEM sales were $70.1 million, an 18.0% decrease from the same period in 2011. Aftermarket sales were $33.7 million reflecting a 2.4% increase from a year ago. International sales declined 6.4% to $39.6 million compared with last year's first nine month period.

SORL's gross profit declined to $39.6 million from $44.2 million during the first nine months in 2011. Gross margin was 27.6% in 2012 compared with 27.5% for the first nine months of 2011.

Income from operations declined to $11.6 million from $16.4 million for the first nine months of 2011. Operating margin was 8.1% versus10.2% in the year ago same period.

The net income attributable to stockholders was $8.7 million, compared with $13.3 million in the first nine months of 2011, with basic and diluted earnings per share ("EPS") of $0.45 and $0.69, respectively.

Balance Sheet

As of September 30, 2012, the Company had cash and cash equivalents of $27.9 million compared to $17.1 million on December 31, 2011. Bank acceptance notes to vendors decreased to $12.3 million from $18.0 million at December 31, 2011. Short-term bank loans were reduced to $12.5 million from $16.4 million at the end of 2011. Total shareholder equity was $182.7 million at the end of September 2012 compared with $174.1 million at December 31, 2011. Net cash flow from operating activities was $17.5 million at September 30, 2012. Working capital was $126.8 million with a current ratio of 4 to 1. Capital expenditures in the first nine months of 2012 were $0.9 million as compared to $7.6 million in the same period of 2011.

Recent Developments

On November 5, 2012, SORL announced the Company received a 400-unit order for its new electric air compressors from Shen Zhen Wuzhoulong Motors Group ("Wuzhoulong"). Released in July 2012, the new electric air compressors are selling at 8,000 RMB per unit. In addition to Wuzhoulong, the Company has also received indication of purchasing interest for the same products from other large bus manufacturers in China.

On October 15, 2012, SORL announced that the Company obtained a patent in the People's Republic of China ("PRC") for a new proprietary electric air dryer that is specifically designed for new energy electric buses and specialty commercial vehicles. Equipped with an internal electronic control unit to achieve continuing desiccant regeneration, SORL's new electric air dryer has a prolonged useful life and improves the working environment of the vehicle's air control system. As a result, the dryer extends the operating life of the entire air control system and improves the vehicles' safety performance. The patent will be in effect from 2012 through 2030.

On September 24, 2012, the Company announced that it won a new contract from Shanxi Automobile Group Co., Ltd. ("Shanqi") to supply 90% of the re-card spring brake chambers for the Delong F3000 heavy-duty truck models. The Delong F3000 series is one of the heavy-duty truck models from Shaanxi Auto and can be used in logistics, heavy loads, construction and bridge building, ore transportation, municipal sanitation and the transportation of hazardous materials. The new F3000 provides superior quality for its customers.

On August 27, 2012, SORL announced the launch of its newly developed electrically controlled power steering pump, marking a technological breakthrough for the electric bus market. SORL's electrically controlled power steering pump is specifically designed for use in new energy electric buses.

On July 18, 2012, the Company announced it had launched a new generation of electric air brake compressors to be used in electric buses.  Air brake compressors used in traditional vehicles are powered by an internal combustion engine. SORL's new generation of electric air brake compressors are powered by an electric motor, thereby increasing fuel conservation and reducing pollution. The new compressors have an extended life span as their control mechanism has been significantly improved from standard air brake compressors. An electric air compressor is a key safety related component for all electric buses with an air brake system. 

Business Outlook

For the fiscal year 2012, management revised their expectation for net sales to be approximately $191.4 million and net income to be approximately $11.5 million. The net income guidance is currently based upon 25% tax rate which is subject to change upon the renewal approval of High-Tech Enterprise status. These targets are based on the Company's current views on the operating and market conditions, which are subject to change.

Conference Call

Management will host a conference call on Wednesday, November 14, 2012 at 8:00 a.m. EST / 9:00 p.m. Beijing Time to discuss its 2012 third quarter financial results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778, or +1-201-689-8565 for international callers. A live web cast of the conference call will also be available at http://www.sorl.cn.

A replay of the call will be available shortly after the conference call through 11:59 p.m. EST on December 14, 2012. The replay dial-in numbers are:  U.S. toll free number +1-877-660-6853, or the international number is +1-201-612-7415; using Account "286" and Conference ID "403633" to access the replay.

About SORL Auto Parts, Inc.

As a global tier one supplier of brake and control systems to the commercial vehicle industry, SORL Auto Parts, Inc. is the market leader for brake systems of commercial vehicles, such as trucks and buses in China. The Company distributes products both within China and internationally under the SORL trademark. SORL is listed among the top 100 auto component suppliers in China, with a product range that includes 65 categories with over 2000 specifications in brake systems and others. The Company has four authorized international sales centers in UAE, India, the United States and Europe. SORL is working to establish a broader global sales network. For more information, please visit http://www.sorl.cn.

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements. Forward-looking statements can be identified by the use of forward-looking terminology such as "will", "believes", "expects" or similar expressions. These forward-looking statements may also include statements about the Company's proposed discussions related to its business or growth strategy, which are subject to change. Such information is based upon expectations of the Company's management that were reasonable when made, but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond the Company's control and upon assumptions with respect to future business decisions, which are subject to change. The Company does not undertake to update the forward-looking statements contained in this press release. For additional information regarding known material factors that could cause the Company's results to differ from its projected results, please see its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.

Contact Information

Raymond Lin
86+13967776556
86+577+65817721
Email: ljf@sorl.com.cn

Phyllis Huang
86+15167705972
86+577+65817721
Email: Phyllis@sorl.com.cn

Kevin Theiss
Grayling
+1 646 284 9409
Email: kevin.theiss@grayling.com

 

- Tables follow –

 

SORL Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)











September 30, 2012


December 31, 2011








Assets





Current Assets






Cash and Cash Equivalents

US$

27,894,332

US$

17,116,692


Accounts Receivable, Net of Provision,
   including $1,518,832 and $747,053
   due from related parties at September 30, 2012
   and December 31, 2011, respectively.


62,505,358


65,344,441


Bank acceptance notes from customers


12,321,831


17,980,145


Inventories


55,858,143


56,377,556


Prepayments


6,551,428


2,484,026


Other current assets


1,949,043


4,960,061


Deferred tax assets


738,758


605,539


 Total Current Assets


167,818,893

 


164,868,460

Fixed Assets






Machinery


51,620,272


49,879,491


Molds


1,376,067


1,384,825


Office equipment


1,542,569


1,439,305


Vehicles


1,999,715


1,853,111


Buildings


8,832,512


8,888,723


Machinery held under capital lease


18,097,156


18,166,087


Construction in progress


152,947


1,503,200


Less: Accumulated Depreciation


(35,918,734)


(30,905,671)


    Property, Plant and Equipment, Net


47,702,504


52,209,071


Leasehold Improvements in Progress


348,418


375,604







Land Use Rights, Net


14,740,843


15,111,078







Other Non-Current Assets












Intangible Assets


174,758


175,871


Less: Accumulated Amortization


(104,131)


(92,237)


     Intangible Assets, Net


70,627


83,634


Security Deposits On Lease Agreement


1,868,002


1,879,890


     Total Other Non-Current Assets


1,938,629


1,963,524


Total Assets

US$

232,549,287

 

US$

234,527,737








Liabilities and Stockholders' Equity





Current Liabilities






Accounts Payable, including $1,692,436 and $524,148
   due to related parties at September 30, 2012 and
   December 31, 2011, respectively.

US$

7,877,553

US$

10,772,396


Bank acceptance notes to vendors


1,878,253


5,589,678


Deposit Received from Customers


5,529,296


5,074,532


Short term bank loans


12,453,336


16,448,527


Income tax payable


1,137,724


273,781


Accrued Expenses


9,481,855


8,808,788


Current Portion Of Capital Lease Obligations


2,449,040


2,305,125


Other Current Liabilities, including $217,088 and $143,950
   due to related parties at September 30, 2012 and
   December 31, 2011, respectively.


189,921


467,850


 Total Current Liabilities


40,996,978


49,740,677







Non-Current Liabilities






Non-Current Portion Of Capital Lease Obligations


8,543,777


10,469,265


Deferred tax liabilities


276,341


236,385


 Total Non-Current Liabilities


8,820,118


10,705,650








     Total Liabilities

US$

49,817,096

US$

60,446,327







Stockholders' Equity












Preferred Stock - No Par Value; 1,000,000 authorized;
   none issued and outstanding as of September 30, 2012
   and December 31, 2011


-


-


Common Stock - $0.002 Par Value; 50,000,000 authorized,






   19,304,921 and 19,304,921 issued and outstanding as of






   September 30, 2012 and December 31, 2011


38,609


38,609


Additional Paid In Capital


42,199,014


42,199,014


Reserves


9,237,054

 


8,375,392


Accumulated other comprehensive income


20,944,526


21,910,957


Retained Earnings


92,439,528

 


84,610,260


Total SORL Auto Parts, Inc. Stockholders' equity


164,858,731


157,134,232


Noncontrolling Interest In Subsidiaries


17,873,460


16,947,178


Total Equity


182,732,191


174,081,410


Total Liabilities and Stockholders' Equity

US$

232,549,287

US$

234,527,737







 

SORL Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)




























Three Months Ended September 30,


Nine Months Ended September 30,







2012

2011


2012

2011












Sales





US$

46,708,959

47,583,678


143,399,372

160,683,535

Include: sales to related parties



1,092,343

1,195,634


5,046,533

2,488,750

Cost of Sales





33,485,059

34,531,204


103,779,982

116,459,662












Gross Profit






13,223,900

13,052,474


39,619,390

44,223,873












Expenses:











Selling and Distribution Expenses

3,765,768

2,923,832


10,460,168

9,452,586

General and Administrative Expenses

2,630,786

2,968,222


9,981,552

9,647,944

Research and development expenses

2,352,958

1,893,985


5,916,934

6,071,593

Financial Expenses





541,326

1,227,502


1,668,945

2,667,700












Total Expenses





9,290,838

9,013,541


28,027,599

27,839,823












Operating Income





3,933,062

4,038,933


11,591,791

16,384,050












Other Income





1,207,961

488,747


1,972,781

953,104

Non-Operating Expenses





(112,927)

(1,796)


(366,119)

(41,723)












Income (Loss) Before Provision for Income Taxes

5,028,096

4,525,884


13,198,453

17,295,431












Provision for Income Taxes




1,180,601

660,446


3,479,019

2,583,266












Net Income

US$

3,847,495

3,865,438


9,719,434

14,712,165







Other Comprehensive Income - Foreign Currency Translation Adjustment

(460,819)

3,041,821


(1,068,653)

6,656,889












Total Comprehensive Income



3,386,676

6,907,259


8,650,781

21,369,054












Less:











Net income attributable to Noncontrolling Interest In Subsidiaries

486,581

358,632


1,028,504

1,380,839












Other Comprehensive Income Attributable to Non-controlling Interest's Share

(45,971)

304,278


(102,222)

665,905












Total Comprehensive Income Attributable to Non-controlling Interest's Share

440,610

662,910


926,282

2,046,744












Net Income Attributable to Stockholders

US$

3,360,914

3,506,806


8,690,930

13,331,326












Other Comprehensive Income Attributable to Stockholders

(414,848)

2,737,543


(966,431)

5,990,984












Total Comprehensive Income Attributable to Stockholders

US$

2,946,066

6,244,349


7,724,499

19,322,310












Weighted average common share - Basic

19,304,921

19,304,921


19,304,921

19,304,921












Weighted average common share - Diluted

19,304,921

19,304,921


19,304,921

19,304,921












EPS - Basic






0.17

0.18


0.45

0.69












EPS - Diluted




US$

0.17

0.18


0.45

0.69

 

SORL Auto Parts, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine months Ended September 30, 2012 and 2011













Nine Months Ended September 30,






2012

2011








Cash Flows from Operating Activities




Net Income




US$

9,719,434

14,712,165

  Adjustments to reconcile net income (loss) to net cash




      from operating activities:





  Bad Debt Expense




(143,830)

498,014

  Depreciation and Amortization



5,602,370

5,253,922

  Loss on disposal of Fixed Assets



10,359

-

  Changes in Assets and Liabilities:




  Accounts Receivable




3,102,469

(10,107,006)

  Bank acceptance notes from customers


5,587,439

7,868,796

  Other Currents Assets




2,491,925

(1,291,002)

  Inventories





172,988

(14,663,142)

  Prepayments




(4,112,124)

(1,688,537)

  Deferred tax assets




 

(138,079)

 

(164,779)

  Accounts Payable and Bank acceptance notes to vendors


(6,544,574)

5,354,507

  Income Tax Payable




866,586

81,293

  Deposits Received from Customers



487,330

(3,412,311)

  Other Current Liabilities and Accrued Expenses


373,621

1,609,813

  Deferred tax liabilities




41,633

40,407


  Net Cash Flows from Operating Activities


17,517,547

4,092,139








Cash Flows from Investing Activities




Acquisition of Property and Equipment


(941,286)

(7,589,518)

Sales proceeds of disposal of fixed assets


6,886

-

Leasehold Improvements in Progress


(31,069)

-









  Net Cash Flows from Investing Activities


(965,469)

(7,589,518)








Cash Flows from Financing Activities




Proceeds from (Repayment of) Bank Loans


(3,921,092)

(1,586,011)

Proceeds from (Repayment of) Capital lease


(1,708,171)

11,242,350
















  Net Cash flows from Financing Activities


(5,629,263)

9,656,339








Effects on changes in foreign exchange rate


(145,175)

508,648








Net Change in Cash and Cash Equivalents


10,777,640

6,667,608








Cash and Cash Equivalents- Beginning of the year


17,116,692

6,691,078








Cash and cash Equivalents - End of the period

US$

27,894,332

13,358,686















Supplemental Cash Flow Disclosures:




  Interest Paid




1,929,388

2,044,898

  Tax Paid





4,765,828

2,626,344

 

 

SOURCE SORL Auto Parts, Inc.



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