Form 8-K CHINA AUTOMOTIVE SYSTEMS For: Aug 08

August 8, 2019 6:12 AM EDT

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 8-K

  

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): August 8, 2019

 

China Automotive Systems, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 000-33123 33-0885775
(State or other jurisdiction of incorporation or
organization)
(Commission File Number) (I.R.S. Employer Identification No.)

 

 

No. 1 Henglong Road, Yu Qiao Development Zone
Shashi District, Jing Zhou City
Hubei Province
The People’s Republic of China
(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code (86) 27-8757 0027

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

  

¨ Soliciting material pursuant to Rule 14a-12 under the Securities Exchange Act (17 CFR 240.14a-12)

  

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Securities Exchange Act (17 CFR 240.14d-2(b))

  

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Securities Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act. ¨

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading symbol Name of each exchange on which registered
Common Stock, $0.0001 par value CAAS The Nasdaq Capital Market

  

 

 

 

 

  

Item 2.02 Results of Operations and Financial Condition

 

On August 8, 2019, China Automotive Systems, Inc. (the “Company”) issued a press release announcing financial results for the second quarter ended June 30, 2019. The press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information in this Item 2.02 and in Exhibit 99.1 attached to this Form 8-K is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section.

  

Item 9.01 Financial Statements and Exhibits

 

  (d) Exhibits

 

Exhibit No     Description
     
99.1   Press Release of China Automotive Systems, Inc. dated August 8, 2019.

  

2 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

  

    China Automotive Systems, Inc.  
     
    (Registrant)  
         
Date: August 8, 2019  By:   /s/ Hanlin Chen  
      Hanlin Chen  
      Chairman  

 

3 

Exhibit 99.1

 

CHINA AUTOMOTIVE SYSTEMS REPORTS 2019 SECOND QUARTER
UNAUDITED FINANCIAL RESULTS

 

WUHAN, China, August 8, 2019 -- China Automotive Systems, Inc. (“CAAS” or the “Company”) (NASDAQ: CAAS), a leading power steering components and systems supplier in China, today announced its unaudited financial results for the second quarter and six months ended June 30, 2019.

 

Second Quarter 2019 Highlights

 

  · Net sales decreased 15.9% to $105.7 million from $125.8 million in the second quarter of 2018;
     
  · Gross profit declined 10.8% to $15.2 million and the gross margin increased to 14.4% from 13.5% in the second quarter of 2018;
     
  · Income from operations increased 369.2% to $2.7 million with an operating margin of 2.6% compared with $0.6 million and an operating margin of 0.5% in the second quarter of 2018;
     
  · Net income attributable to parent company’s common shareholders increased to $2.5 million or diluted earnings per share of $0.08, compared to net income attributable to parent company’s common shareholders of $0.8 million, or diluted earnings per share of $0.03, in the second quarter of 2018.

 

First Six Months of 2019 Highlights

 

  · Net sales decreased 17.3% to $214.9 million, compared to $259.8 million in the first six months of 2018;
     
  · Gross profit decreased to $29.2 million, compared to $38.7 million in the first six months of 2018; gross margin decreased to 13.6% in the first six months of 2019, compared to 14.9% in the first six months of 2018;
     
  · Income from operations decreased to $3.8 million from $5.2 million with an operating margin of 1.8% compared with 2.0% in the second quarter of 2018;
     
  · Net income attributable to parent company’s common shareholders was $4.0 million compared to $5.2 million in the first six months of 2018; diluted earnings per share attributable to parent company’s common shareholders was $0.13, compared to diluted earnings per share attributable to parent company’s common shareholders of $0.16 in the first six months of 2018.

 

Mr. Qizhou Wu, chief executive officer of CAAS, commented, "Our sales in the second quarter of 2019 reflected the slowing economy in China and softer consumer spending. As a leading supplier of steering products to the Chinese automobile market, our sales are affected by the performance of the OEM market. Automobile production has been disrupted by a pre-buy of less expensive National V-compliant vehicles before the stricter National VI emission standards are nationally implemented. Chinese-branded passenger vehicle sales declined by 27.9% year-over-year in April 2019 followed by a decline in May 2019 of 28.1% year-over-year. We anticipate that our new product development with Hyoseong Electric Co. Ltd. to sell electric motors for electric power steering systems, and a new development program for a recirculating-ball steering system with a major client’s autonomous vehicle development, will offer new growth opportunities for the future. We continue to build advanced steering products and broaden our product line to meet the needs of the marketplace and ensure our leadership position.”

 

 

 

Second Quarter of 2019

 

In the second quarter of 2019, net sales decreased 15.9% to $105.7 million, compared to $125.8 million in the same quarter of 2018. Net sales of traditional steering products declined by 15.9% as demand weakened in the Chinese domestic brand automobile market. Additionally, Company’s sales to its North American customers declined by $1.1 million. Sales of electric power steering (“EPS”) represented 21.4% of total net sales.

 

Gross profit decreased to $15.2 million in the second quarter of 2019, compared to $17.0 million in the second quarter of 2018. The gross margin was 14.4% in the second quarter of 2019, versus 13.5% in the second quarter of 2018. The gross profit decrease was mainly due to lower sales, higher unit cost and a change in product mix.

 

Gain on other sales was $2.5 million in the second quarter of 2019, compared to $1.0 million in the second quarter of 2018.

 

Selling expenses were $3.9 million in the second quarter of 2019, compared to $4.9 million in the second quarter of 2018. The decrease was mainly due to lower logistics expenses related to decreased sales during the quarter. Selling expenses represented 3.7% of net sales in the second quarter of 2019 compared with 3.9% in the second quarter of 2018.

 

General and administrative expenses (“G&A expenses”) were $4.4 million in the second quarter of each of 2019 and 2018. G&A expenses represented 4.2% of net sales in the second quarter of 2019 compared to 3.5% in the second quarter of 2018. The percentage increase was mainly due to reduced sales in the second quarter of 2019.

 

Research and development expenses (“R&D expenses”) decreased 18.5% to $6.6 million in the second quarter of 2019, compared to $8.1 million in the second quarter of 2018. R&D expenses continue to focus on the development of the Company’s EPS and other new products. R&D expenses represented 6.2% of sales in the second quarter of 2019, compared with 6.4% in the second quarter of 2018.

 

Income from operations was $2.7 million in the second quarter of 2019, compared to $0.6 million in the same quarter of 2018. The increase was primarily due to a higher gain on other sales and lower operating costs. As a percentage of net sales, the operating margin was 2.6% in the second quarter of 2019, compared to 0.5% in the second quarter of 2018.

 

Net financial income in the second quarter of 2019 was $1.6 million compared with $0.9 million in the second quarter of 2018.

 

Income before income tax expenses and equity in earnings of affiliated companies increased 143.5% to $3.1 million in the second quarter of 2019, compared to $1.3 million in the second quarter of 2018.

 

Net income attributable to parent company’s common shareholders increased 196.3% to $2.5 million in the second quarter of 2019, compared to net income attributable to parent company’s common shareholders of $0.8 million in the corresponding quarter of 2018. Diluted earnings per share were $0.08 in the second quarter of 2019, compared to diluted earnings per share of $0.03 in the second quarter of 2018. The weighted average number of diluted common shares outstanding was 31,499,577 in the second quarter of 2019, compared to 31,647,305 in the second quarter of 2018.  

 

First Six Months of 2019 

 

Net sales decreased 17.3% to $214.9 million in the first six months of 2019, compared to $259.8 million in the first six months of 2018. Six-month gross profit was $29.2 million, compared to $38.7 million in the corresponding period last year. Six-month gross margin was 13.6% in the first six months of 2019 compared to 14.9% in the corresponding period in 2018. The gain on other sales was $3.8 million in the first six months of 2019 compared with $2.5 million in the corresponding period last year. Income from operations was $3.8 million in the first six months of 2019, compared to $5.2 million in the first six months of 2018. Operating margin was 1.8% in the first six months of 2019, compared to 2.0% in the corresponding period of 2018. 

 

Net income attributable to parent company’s common shareholders was $4.0 million in the first six months of 2019, compared to $5.2 million in the corresponding period in 2018. Diluted earnings per share were $0.13 in the first six months of 2019, compared to diluted earnings per share of $0.16 in the corresponding period of 2018.

 

As of June 30, 2019, cash and equivalents, and pledged cash were $89.1 million. Total accounts receivable including notes receivable were $255.1 million. Accounts payable were $184.1 million and short-term loans were $71.0 million. Total parent company stockholders' equity was $308.5 million as of June 30, 2019, compared to $304.8 million as of December 31, 2018.

 

 

 

Net cash used in operating activities was $25.7 million in the first six months of 2019 compared with net cash used in operating activities of $5.4 million in the first six months of 2018. Payments to acquire property, plant and equipment were $10.3 million compared with $17.3 million in the first six months of 2018.

 

Business Outlook

 

Management revised its revenue guidance for the full year 2019 to $430 million from US$510 million. This target is based on the Company's current views on operating and market conditions, which are subject to change.

 

Unaudited Second Quarter 2019 Conference Call

 

Management will conduct a conference call on August 8, 2019 at 8:00 A.M. EDT/8:00 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)

China Toll Free: +86-400-120-2840

 

A replay of the call will be available on the Company's website in the investor relations section.

 

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 nine 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 6 million sets of steering gears, columns and steering hoses. Its customer base is comprised of leading auto manufacturers, such as China FAW Group, Corp., Dongfeng Auto Group Co., Ltd., BYD Auto Company Limited, Beiqi Foton Motor Co., Ltd. and Chery Automobile Co., Ltd. in China, and Chrysler Group LLC in 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 filed with the Securities and Exchange Commission on March 28, 2019, 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

+1-212-521-4050

Email: Kevin@awakenlab.com

 

– tables follow –

  

 

 

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 June 30, 
   2019   2018 
Net product sales ($14,310 and $10,856 sold to related parties for the three months ended June 30, 2019 and 2018)  $105,748   $125,782 
Cost of products sold ($6,130 and $7,428 purchased from related parties for the three months ended June 30, 2019 and 2018)   90,563    108,761 
Gross profit   15,185    17,021 
Gain on other sales   2,485    977 
Less: Operating expenses          
Selling expenses   3,859    4,887 
General and administrative expenses   4,434    4,442 
Research and development expenses   6,637    8,085 
Total operating expenses   14,930    17,414 
Income from operations   2,740    584 
Other (expense)/income, net   (447)   600 
Interest expense   (731)   (801)
Financial income, net   1,552    897 
Income before income tax expenses and equity in earnings of affiliated companies   3,114    1,280 
Less: Income taxes   674    202 
Equity in loss of affiliated companies   (207)   (82)
Net income   2,233    996 
Net (loss)/gain attributable to non-controlling interests   (277)   149 
Net income attributable to parent company’s common shareholders  $2,510   $847 
Comprehensive income:          
Net income  $2,233   $996 
Other comprehensive income:          
Foreign currency translation loss, net of tax   (6,881)   (17,467)
Comprehensive loss   (4,648)   (16,471)
Comprehensive loss attributable to non-controlling interests   (776)   (431)
Comprehensive loss attributable to parent company  $(3,872)  $(16,040)
           
Net income attributable to parent company’s common shareholders per share          
           
Basic -  $0.08   $0.03 
           
Diluted -  $0.08   $0.03 
Weighted average number of common shares outstanding          
Basic   31,497,723    31,644,004 
Diluted   31,499,577    31,647,305 

  

 

 

 

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)

 

   Six Months Ended June 30, 
   2019   2018 
Net product sales ($27,146 and $21,702 sold to related parties for the six months ended June 30, 2019 and 2018)  $214,941   $259,800 
Cost of products sold ($11,634 and $15,677 purchased from related parties for the six months ended June 30, 2019 and 2018)   185,711    221,140 
Gross profit   29,230    38,660 
Gain on other sales   3,754    2,490 
Less: Operating expenses          
Selling expenses   6,944    10,714 
General and administrative expenses   9,024    8,866 
Research and development expenses   13,239    16,392 
Total operating expenses   29,207    35,972 
Income from operations   3,777    5,178 
Other income, net   960    1,221 
Interest expense   (1,299)   (1,216)
Financial income, net   887    132 
Income before income tax expenses and equity in earnings of affiliated companies   4,325    5,315 
Less: Income taxes   872    790 
Equity in earnings of affiliated companies   4    503 
Net income   3,457    5,028 
Net loss attributable to non-controlling interests   (520)   (131)
Net income attributable to parent company’s common shareholders  $3,977   $5,159 
Comprehensive income:          
Net income  $3,457   $5,028 
Other comprehensive income:          
Foreign currency translation loss, net of tax   (518)   (4,225)
Comprehensive income   2,939    803 
Comprehensive loss attributable to non-controlling interests   (562)   (195)
Comprehensive income attributable to parent company  $3,501   $998 
           
Net income attributable to parent company’s common shareholders per share          
           
Basic -  $0.13   $0.16 
           
Diluted -  $0.13   $0.16 
Weighted average number of common shares outstanding          
Basic   31,501,889    31,644,004 
Diluted   31,505,721    31,645,655 

 

 

 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(In thousands of USD unless otherwise indicated)

 

   June 30, 2019   December 31, 2018 
ASSETS          
Current assets:          
Cash and cash equivalents  $70,866   $86,346 
Pledged cash   18,194    29,623 
Accounts and notes receivable, net - unrelated parties   225,681    237,519 
Accounts and notes receivable - related parties   29,449    18,825 
Inventories   90,850    88,021 
Other current assets   30,880    35,094 
Total current assets   465,920    495,428 
Non-current assets:          
Property, plant and equipment, net   142,008    129,853 
Long-term investments   35,459    32,620 
Other non-current assets   27,357    32,598 
Total assets  $670,744   $690,499 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Short-term loans  $70,976   $60,952 
Accounts and notes payable - unrelated parties   176,118    205,643 
Accounts and notes payable - related parties   8,041    4,477 
Accrued expenses and other payables   43,964    47,032 
Other current liabilities   21,154    23,196 
Total current liabilities   320,253    341,300 
Long-term liabilities:          
Long-term government loan   291    291 
Other long-term payable   6,905    8,726 
Long-term tax payable   26,693    29,503 
Other non-current liabilities   8,073    5,852 
Total liabilities  $362,215   $385,672 
           
Stockholders’ equity:          
Common stock, $0.0001 par value - Authorized – 80,000,000 shares; Issued – 32,338,302 and 32,338,302 shares as of June 30, 2019 and December 31, 2018, respectively  $3   $3 
Additional paid-in capital   64,429    64,429 
Retained earnings-          
Appropriated   11,104    11,104 
Unappropriated   215,416    211,439 
Accumulated other comprehensive income   1,379    1,855 
Treasury stock – 840,579 and 711,698 shares as of June 30, 2019 and December 31, 2018, respectively   (3,295)   (2,953)
Total parent company stockholders' equity   289,036    285,877 
Non-controlling interests   19,493    18,950 
Total stockholders' equity   308,529    304,827 
Total liabilities and stockholders' equity  $670,744   $690,499 

 

 

 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Cash Flows

(In thousands of USD unless otherwise indicated)
 

   Six Months Ended June 30, 
   2019   2018 
Cash flows from operating activities:          
Net income  $3,457   $5,028 
Adjustments to reconcile net income from operations to net cash provided by operating activities:          
Depreciation and amortization   9,277    8,837 
(Reversal)/accrual of provision for doubtful accounts   (673)   242 
Inventory write downs   2,232    3,456 
Deferred income taxes   (1,124)   (231)
Equity in earnings of affiliated companies   (4)   (503)
(Gain)/loss on fixed assets disposals   (733)   9 
Changes in operating assets and liabilities          
(Increase)/decrease in:          
Accounts and notes receivable   969    6,644 
Inventories   (5,526)   (16,062)
Other current assets   4,645    (1,374)
Increase/(decrease) in:          
Accounts and notes payable   (31,049)   (15,574)
Accrued expenses and other payables   (3,055)   2,245 
Long-term taxes payable   (2,810)   - 
Other current liabilities   (1,336)   1,890 
Net cash used in operating activities   (25,730)   (5,393)
Cash flows from investing activities:          
Increase in demand loans and employee housing loans included in other non-current assets   1,057    1,190 
Cash received from property, plant and equipment sales   700    199 
Payments to acquire property, plant and equipment (including $2,271 and $5,694 paid to related parties for the six months ended June 30, 2019 and 2018, respectively)   (10,335)   (17,299)
Payments to acquire intangible assets   (1,387)   - 
Investment under equity method   (2,348)   (5,957)
Purchase of short-term investments   (17,031)   (18,502)
Proceeds from maturities of short-term investments   17,087    21,687 
Government subsidy received for purchase of property, plant and equipment   1,898    - 
Cash received from long-term investment   579    - 
Cash received from repayment of the loan to a related party   -    20,430 
Net cash (used in)/provided by investing activities   (9,780)   1,748 
Cash flows from financing activities:          
Proceeds from bank loans   29,036    19,672 
Repayments of bank loans   (18,910)   (35,664)
Proceeds from sale and leaseback transaction   -    11,758 
Repayments of the borrowing for sale and leaseback transaction   (2,116)   (1,125)
Dividends paid to non-controlling interest holders of non-wholly owned subsidiaries   (333)   - 
Cash received from capital contributions by non-controlling interest holder   1,438    - 
Repurchase of common shares   (342)   - 
Net cash provided by/(used in) financing activities   8,773    (5,359)
Effects of exchange rate on cash, cash equivalents and pledged cash   (172)   (1,604)
Net decrease in cash, cash equivalents and pledged cash   (26,909)   (10,608)
Cash, cash equivalents and pledged cash at beginning of the period   115,969    96,093 
Cash, cash equivalents and pledged cash at end of the period  $89,060   $85,485 

 

 



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