Form 8-K CHINA AUTOMOTIVE SYSTEMS For: Aug 14

August 14, 2020 6:09 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 14, 2020

 

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 Exchange Act (17 CFR 240.14a-12)

 

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

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the 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 Exchange Act. ¨

 

 

 

 

 

 

Item 2.02 Results of Operations and Financial Condition

 

On August 14, 2020, China Automotive Systems, Inc. (the “Company”) issued a press release announcing financial results for the quarter ended June 30, 2020. 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 14, 2020.

 

 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 14, 2020 By: /s/ Hanlin Chen
    Hanlin Chen
    Chairman

 

 3 

 

 

 

Exhibit 99.1

 

CHINA AUTOMOTIVE SYSTEMS REPORTS 2020 SECOND QUARTER
UNAUDITED FINANCIAL RESULTS

 

 

WUHAN, China, August 14, 2020 -- 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, 2020.

 

Second Quarter 2020 Highlights

 

  · Net sales were $83.2 million as compared to $105.7 million in the second quarter of 2019;
     
  · Gross profit was $7.8 million and the gross margin decreased to 9.4% from 14.4% in the second quarter of 2019;
     
  · Loss from operations was $5.2 million compared with income from operations of $2.6 million in the second quarter of 2019;
     
  ·

Net loss attributable to parent company’s common shareholders was $4.1 million, or diluted loss per share of $0.13, compared to net income attributable to parent company’s common shareholders of $2.5 million, or diluted earnings per share of $0.08, in the second quarter of 2019.

 

First Six Months of 2020 Highlights

 

  · Net sales were $156.7 million, compared to $214.9 million in the first six months of 2019;
     
  · Gross profit decreased to $19.0 million, compared to $29.2 million in the first six months of 2019; gross margin decreased to 12.1% in the first six months of 2020, compared to 13.6% in the first six months of 2019;
     
  · Loss from operations was $4.2 million compared with income from operations of $3.7 million in the first six months of 2019;
     
  · Net loss attributable to parent company’s common shareholders was $4.1 million compared with net income of $3.9 million in the first six months of 2019; diluted loss per share attributable to parent company’s common shareholders was $0.13, compared to diluted earnings per share of $0.12 in the first six months of 2019;
     
  · Net cash provided by operating activities was $31.4 million in the first six months of 2020.
     
·Cash and cash equivalents and pledged cash were $105.9 million as of June 30, 2020.

 

Mr. Qizhou Wu, chief executive officer of CAAS, commented, "Our sales in the second quarter of 2020 continued to show the enduring impact of the COVID-19 pandemic. In the second quarter of 2020, China’s economy resumed its growth as GDP increased by 3.2%. This growth rate was far below historical performance but was an improvement over the 6.8% economic contraction of the first quarter of 2020 which was severely impacted by the COVID-19 pandemic. Automobile sales declined by 16.9% year-over-year in the first half of 2020 with passenger vehicle sales down by 22.4% as MPV sales declined by 45.7%, sedan sales decreased by 26.0%, SUV sales were 14.9% lower and crossover vehicle sales were down by 19.8% according to statistics from the China Association of Automobile Manufacturers (“CAAM).”

 

“In the United States, the pandemic caused GDP to tumble at an annual rate of 32.9% in the second quarter of 2020, the largest quarterly decline in history. It has been estimated that 15 million Americans have become unemployed since February 2020 and consumer spending in the U.S. is down at a 34.6% annual rate in the second quarter of 2020, the largest decline ever recorded. U.S. auto sales declined by 33.3% in the second quarter of 2020 from a year earlier due to the coronavirus pandemic as passenger car sales declined by 46.9% while sales of trucks, minivans and SUVs for the quarter dropped by 27.7%.”

 

 

 

 

“We believe the worst is behind us in China and the government has rolled out a series of new fiscal and monetary policies to promote continued economic growth,” Mr. Wu concluded.

 

Jie Li, chief financial officer, commented, “We continued to generate positive cash flow despite lower sales and we focused on maintaining our excellent balance sheet to help retain shareholder value.”

 

Second Quarter of 2020

 

In the second quarter of 2020, net sales decreased by 21.3% to $83.2 million, compared to $105.7 million in the same quarter of 2019. Net sales of traditional steering products declined by 18.5% as demand weakened in the Chinese domestic brand automobile market related to the effects of the COVID-19 pandemic on the Chinese economy and passenger vehicle sales. Additionally, sales to the Company’s North American customers declined by $18.2 million due to the impact of the COVID-19 pandemic as production was suspended for much of the second quarter of 2020 as well as COVID-19’s impact on the economies in North America and the resulting decline in new automobile vehicle sales. Sales of electric power steering (“EPS”) represented 18.6% of total net sales.

 

Gross profit decreased to $7.8 million in the second quarter of 2020, compared to $15.2 million in the second quarter of 2019. The gross margin was 9.4% in the second quarter of 2020, versus 14.4% in the second quarter of 2019. The gross profit decrease was mainly due to lower sales and changes in the product mix.

 

Gain on other sales was $0.8 million in the second quarter of 2020, compared to $2.5 million in the second quarter of 2019.

 

Selling expenses were $3.0 million in the second quarter of 2020, compared to $3.9 million in the second quarter of 2019. The decrease was mainly due to the lower freight expenses, resulting from the suspension of Hubei Henglong’s operations for most of the quarter due to the COVID-19 pandemic’s impact in North America. Selling expenses represented 3.6% of net sales in the second quarter of 2020 compare to 3.7% in the second quarter of 2019.

 

General and administrative expenses (“G&A expenses”) were $4.8 million in the second quarter of 2020 compared with $4.4 million for the second quarter of 2019. The increase in expenses was mainly due to higher office and maintenance expenses. G&A expenses represented 5.7% of net sales in the second quarter of 2020 compared to 4.2% in the second quarter of 2019.

 

Research and development expenses (“R&D expenses”) decreased to $6.1 million in the second quarter of 2020, compared to $6.8 million in the second quarter of 2019. R&D expenses continue to focus on the development of the Company’s EPS and other new products. R&D expenses represented 7.4% of sales in the second quarter of 2020, compared with 6.4% in the second quarter of 2019.

 

Loss from operations was $5.2 million in the second quarter of 2020, compared to income from operations of $2.6 million in the same quarter of 2019. The decrease was primarily due to much lower sales and gross profit related to the impact of the COVID-19 pandemic.

 

Net financial expense in the second quarter of 2020 was $0.06 million, compared to net financial income of $1.6 million in the second quarter of 2019.

 

Loss before income tax expenses and equity in earnings/(loss) of affiliated companies was $4.4 million in the second quarter of 2020, compared to income before income tax expenses and equity in earnings/ (loss) of affiliated companies of $3.0 million in the second quarter of 2019.

 

Net loss attributable to parent company’s common shareholders was $4.1 million in the second quarter of 2020, compared to net income attributable to parent company’s common shareholders of $2.5 million in the corresponding quarter of 2019. Diluted loss per share was $0.13 in the second quarter of 2020, compared to diluted earnings per share of $0.08 in the second quarter of 2019. The weighted average number of diluted common shares outstanding was 31,174,045 in the second quarter of 2020, compared to 31,499,577 in the second quarter of 2019.  

 

 

 

 

First Six Months of 2020 

 

Net sales decreased 27.1% to $156.7 million in the first six months of 2020, compared to $214.9 million in the first six months of 2019. Six-month gross profit was $19.0 million, compared to $29.2 million in the corresponding period last year. Six-month gross margin was 12.1% in the first six months of 2020 compared to 13.6% in the corresponding period in 2019. The gain on other sales was $1.4 million in the first six months of 2020 compared to $3.8 million in the corresponding period last year. Loss from operations was $4.2 million in the first six months of 2020, compared to income from operations of $3.7 million in the first six months of 2019.

 

Net loss attributable to parent company’s common shareholders was $4.1 million in the first six months of 2020, compared to net income attributable to parent company’s common shareholders of $3.9 million in the corresponding period in 2019. Diluted loss per share was $0.13 in the first six months of 2020, compared to diluted earnings per share of $0.12 in the corresponding period of 2019.

 

As of June 30, 2020, cash and equivalents, and pledged cash were $105.9 million. Total accounts receivable including notes receivable were $188.4 million. Accounts and notes payable were $172.0 million and short-term loans were $55.2 million. Total parent company stockholders' equity was $280.0 million as of June 30, 2020, compared to $289.3 million as of December 31, 2019.

 

Net cash provided by operating activities was $31.4 million in the first six months of 2020 compared with net cash used in operating activities of $25.7 million in the first six months of 2019. Payments to acquire property, plant and equipment were $4.5 million compared with $10.3 million in the first six months of 2019.

 

Business Outlook

 

In April, the Company regained its full operating capacity after lockdown restrictions were removed and reopened its Wuhan headquarters after a temporary relocation to Jingzhou City in March. However, due to the lingering effects of the COVID-19, it has taken substantial time to create economic growth, restore consumer confidence and bring supply chains into full capacity in China. The COVID-19 pandemic continues to afflict our North and South American markets.

 

Management reiterates its revenue guidance for the full year 2020 of $360 million. This target is based on the Company's current views on operating and market conditions, which are subject to change.

 

Second Quarter 2020 Conference Call

 

Management will conduct a conference call on August 14, 2020 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 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 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 and Ford Motor Company 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 May 14, 2020 and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for automobile sales, the slowdown in regional and national economic growth, weakened liquidity and financial condition of our customers or other factors that we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations. A prolonged disruption or any further unforeseen delay in our operations of the manufacturing, delivery and assembly process within any of our production facilities could continue to result in delays in the shipment of products to our customers, increased costs and reduced revenue. 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, 
   2020   2019 
Net product sales ($16,105 and $14,310 sold to related parties for the three months ended June 30, 2020 and 2019)  $83,184   $105,748 
Cost of products sold ($6,152 and $6,130 purchased from related parties for the three months ended June 30, 2020 and 2019)   75,353    90,563 
Gross profit   7,831    15,185 
Gain on other sales   838    2,485 
Less: Operating expenses          
Selling expenses   2,977    3,859 
General and administrative expenses   4,759    4,434 
Research and development expenses   6,125    6,752 
Total operating expenses   13,861    15,045 
(Loss)/income from operations   (5,192)   2,625 
Other income/(expense), net   1,257    (447)
Interest expense   (446)   (731)
Financial (expense)/income, net   (59)   1,552 
(Loss)/income before income tax expenses and equity in earnings/(loss) of affiliated companies   (4,440)   2,999 
Less: Income tax (benefit)/expense   (31)   674 
Equity in earnings/(loss) of affiliated companies   169    (207)
Net (loss)/income   (4,240)   2,118 
Net loss attributable to non-controlling interests   (142)   (332)
Net (loss)/income attributable to parent company’s common shareholders  $(4,098)  $2,450 
Comprehensive income:          
Net (loss)/income  $(4,240)  $2,118 
Other comprehensive income:          
Foreign currency translation income/(loss), net of tax   358    (6,881)
Comprehensive loss   (3,882)   (4,763)
Comprehensive loss attributable to non-controlling interests   (86)   (776)
Comprehensive loss attributable to parent company  $(3,796)  $(3,987)
           
Net (loss)/income attributable to parent company’s common shareholders per share -          
           
Basic  $(0.13)  $0.08 
           
Diluted  $(0.13)  $0.08 
Weighted average number of common shares outstanding -          
Basic   31,174,045    31,497,723 
Diluted   31,174,045    31,499,577 

 

 

 

 

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, 
   2020   2019 
Net product sales ($23,599 and $27,146 sold to related parties for the six months ended June 30, 2020 and 2019)  $156,739   $214,941 
Cost of products sold ($9,286 and $11,634 purchased from related parties for the six months ended June 30, 2020 and 2019)   137,756    185,711 
Gross profit   18,983    29,230 
Gain on other sales   1,438    3,754 
Less: Operating expenses          
Selling expenses   5,095    6,944 
General and administrative expenses   8,188    9,024 
Research and development expenses   11,318    13,355 
Total operating expenses   24,601    29,323 
(Loss)/income from operations   (4,180)   3,661 
Other income, net   1,374    960 
Interest expense   (811)   (1,299)
Financial (expense)/income, net   (590)   887 
(Loss)/income before income tax expenses and equity in (loss)/earnings of affiliated companies   (4,207)   4,209 
Less: Income taxes   483    872 
Equity in (loss)/earnings of affiliated companies   (178)   4 
Net (loss)/income   (4,868)   3,341 
Net loss attributable to non-controlling interests   (742)   (575)
Net (loss)/income attributable to parent company’s common shareholders  $(4,126)  $3,916 
Comprehensive income:          
Net (loss)/income  $(4,868)  $3,341 
Other comprehensive income:          
Foreign currency translation loss, net of tax   (4,603)   (518)
Comprehensive (loss)/income   (9,471)   2,823 
Comprehensive loss attributable to non-controlling interests   (1,139)   (562)
Comprehensive (loss)/income attributable to parent company  $(8,332)  $3,385 
           
Net (loss)/income attributable to parent company’s common shareholders per share -          
           
Basic  $(0.13)  $0.12 
           
Diluted  $(0.13)  $0.12 
Weighted average number of common shares outstanding -          
Basic   31,174,045    31,501,889 
Diluted   31,174,082    31,505,721 

 

 

 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(In thousands of USD unless otherwise indicated)

 

   June 30, 2020   December 31, 2019 
ASSETS          
Current assets:          
Cash and cash equivalents  $80,376   $76,715 
Pledged cash   25,504    29,688 
Accounts and notes receivable, net - unrelated parties   170,059    211,841 
Accounts and notes receivable - related parties   18,383    21,164 
Inventories   82,861    82,931 
Other current assets   37,086    18,974 
Total current assets   414,269    441,313 
Non-current assets:          
Property, plant and equipment, net   131,657    140,481 
Land use rights, net   10,062    10,346 
Long-term investments   43,774    39,642 
Other non-current assets   31,431    28,374 
Total assets  $631,193   $660,156 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Short-term loans  $55,191   $46,636 
Accounts and notes payable - unrelated parties   162,803    180,175 
Accounts and notes payable - related parties   9,233    6,492 
Accrued expenses and other payables   47,758    45,341 
Other current liabilities   22,629    25,135 
Total current liabilities   297,614    303,779 
Long-term liabilities:          
Long-term government loans   -    7,167 
Other long-term payable   2,998    4,948 
Long-term tax payable   23,884    26,693 
Other non-current liabilities   8,099    8,010 
Total liabilities  $332,595   $350,597 
           
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, 2020 and December 31, 2019, respectively

  $3   $3 
Additional paid-in capital   64,273    64,466 
Retained earnings-          
Appropriated   11,265    11,265 
Unappropriated   216,383    221,298 
Accumulated other comprehensive income   (7,668)   (3,462)
Treasury stock -1,164,257 and 1,164,257 shares as of June 30, 2020 and December 31, 2019, respectively   (4,261)   (4,261)
Total parent company stockholders' equity   279,995    289,309 
Non-controlling interests   18,603    20,250 
Total stockholders' equity   298,598    309,559 
Total liabilities and stockholders' equity  $631,193   $660,156 

 

 

 

 

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, 
   2020   2019 
Cash flows from operating activities:          
Net (loss)/income  $(4,868)  $3,341 
Adjustments to reconcile net (loss)/income from operations to net cash provided by/(used in) operating activities:          
Depreciation and amortization   10,562    9,283 
Reversal of provision for doubtful accounts   (239)   (673)
Deferred income taxes   21    (1,124)
Equity in loss/(earnings) of affiliated companies   178    (4)
Government subsidy reclassified from government loans   287    - 
Loss/(gain) on fixed assets disposals   42    (733)
(Increase)/decrease in:          
Accounts and notes receivable   41,917    969 
Inventories   (1,281)   (3,294)
Other current assets   (1,355)   4,760 
Increase/(decrease) in:          
Accounts and notes payable   (11,924)   (31,049)
Accrued expenses and other payables   2,683    (3,055)
Long-term taxes payable   (2,809)   (2,810)
Other current liabilities   (1,835)   (1,342)
Net cash provided by/(used in) operating activities   31,379    (25,731)
Cash flows from investing activities:          
Decrease/(increase) in demand loans and employee housing loans included in other non-current assets   (3)   1,057 
Cash received from property, plant and equipment sales   586    700 
Payments to acquire property, plant and equipment (including $760 and $2,271 paid to related parties for the six months ended June 30, 2020 and 2019, respectively)   (4,525)   (10,335)
Payments to acquire intangible assets   (390)   (1,387)
Investment under the equity method   (5,360)   (2,348)
Purchase of short-term investments and long-term time deposits   (27,128)   (17,031)
Government subsidy received for purchase of property, plant and equipment   -    1,898 
Proceeds from maturities of short-term investments   5,781    17,087 
Cash received from long-term investment   448    579 
Net cash used in investing activities   (30,591)   (9,780)
Cash flows from financing activities:          
Proceeds from bank loans   36,135    29,036 
Repayments of bank loans   (33,890)   (18,910)
Repayments of the borrowing for sale and leaseback transaction   (2,041)   (2,116)
Dividends paid to non-controlling interest holders of non-wholly owned subsidiaries   -    (333)
Cash received from capital contributions by non-controlling interest holder   212    1,438 
Deemed distribution to shareholders   (88)   - 
Acquisition of non-controlling interest   (81)   - 
Repurchase of common shares   -    (342)
Net cash provided by financing activities   247    8,773 
Effects of exchange rate on cash, cash equivalents and pledged cash   (1,558)   (172)
Net decrease in cash, cash equivalents and pledged cash   (523)   (26,910)
Cash, cash equivalents and pledged cash at beginning of the period   106,403    115,969 
Cash, cash equivalents and pledged cash at end of the period  $105,880   $89,059 

 

 

 



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