SORL Auto Parts Reports Financial Results For the Third Quarter of 2012

- Free Cash Flow of $16.6 Million in First Nine Months -

14 Nov, 2012, 06:00 ET from SORL Auto Parts, Inc.

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.



RELATED LINKS

http://www.sorl.cn