Form 8-K CHINA AUTOMOTIVE SYSTEMS For: Nov 09

November 9, 2018 6:13 AM EST

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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): November 9, 2018

 

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 2.02Results of Operations and Financial Condition

 

On November 9, 2018, China Automotive Systems, Inc. (the “Company”) issued a press release announcing financial results for the third quarter ended September 30, 2018. 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 9.01Financial Statements and Exhibits

 

(d)Exhibits

 

Exhibit No   Description
   
99.1 Press Release of China Automotive Systems, Inc. dated November 9, 2018.

 

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: November 9, 2018   By: /s/ Hanlin Chen  
      Hanlin Chen  
      Chairman  

 

3 

 

Exhibit 99.1

 

China Automotive Systems Reports
UNAUDITED 2018 Third Quarter RESULTS

WUHAN, China, November 9, 2018/PRNewswire/ -- China Automotive Systems, Inc. (Nasdaq: CAAS) ("CAAS" or the "Company"), a leading power steering components and systems supplier in China, today announced its unaudited financial results for the third quarter and nine months ended September 30, 2018.

 

Third Quarter 2018 Highlights

 

·Net sales were $112.1 million compared to $118.4 million in the third quarter of 2017;

·Gross margin decreased to $15.4 million from $22.5 million, and the gross margin declined to 13.7% from 19.0% in the third quarter of 2017;

·Income from operations was $1.8 million, with an operating margin of 1.6% compared with 4.2% in the same quarter last year;

·Net income attributable to parent company's common shareholders was $0.4 million, or diluted earnings per share of $0.01, compared to net income attributable to parent company's common shareholders of $5.1 million, or diluted earnings per share of $0.16, in the third quarter of 2017.

 

First Nine Months of 2018 Highlights

 

·Net sales increased 4.7% to $371.9 million, compared to $355.3 million in the first nine months of 2017;

·Gross margin was 14.5% compared with 19.2% in the same period last year;

·Diluted earnings per share attributable to parent company's common shareholders was $0.17 compared with $0.62 for the first nine months of 2017;

·Cash and cash equivalents, pledged cash deposits and short-term investments were $144.1 million as of September 30, 2018;

·Net cash flow from operating activities was $9.0 million.  

 

Mr. Qizhou Wu, the Chief Executive Officer of CAAS, commented, “Sales of our traditional hydraulic products continued to anchor our sales in the Chinese automotive market in the third quarter of 2018. Our advanced hydraulic steering products remain the primary sales driver to Chrysler and Ford for use in the North American markets with sales rising by 22.2% in the third quarter of 2018 compared to the same quarter last year. Sales of our steering columns also grew to help offset softness in the Chinese passenger vehicle and heavy-duty truck markets.”

 

“We continue to be optimistic about our electric power steering (“EPS”) business as our new joint venture, Hubei Henglong KYB Automobile Electric Steering System Co., Ltd., with KYB (China) Investment Co., Ltd., will receive all the EPS business in China from both joint venture partners. Our new joint venture will enhance EPS research and development and production capabilities at CAAS’s compound in Jingzhou City.”

 

 

 

 

Mr. Jie Li, the Chief Financial Officer of CAAS, commented, “We continue to focus on our financial strength and cash flow from operations to invest in new products and increase our market penetration.”

 

Third Quarter of 2018

 

In the third quarter of 2018, net sales were $112.1 million compared to $118.4 million in the same quarter of 2017. The decrease in net product sales was mainly due to a change in the product mix and lower domestic sales volume due to softer demand in the Chinese domestic brand automobile market. Net product sales to North America grew 22.2% to $30.3 million compared to $24.8 million for the same quarter in 2017. The increase in export sales to North America was mainly due to higher sales of the Company’s more advanced products.

 

Gross profit was $15.4 million in the third quarter of 2018, compared to $22.5 million in the third quarter of 2017. Gross margin was 13.7% compared to 19.0% for the same period of 2017, mainly due to an increase in the cost of raw materials and the changes in the product mix.

 

Selling expenses were $3.4 million in the third quarter of 2018, compared to $4.5 million in the third quarter of 2017. Lower selling expenses were mainly due to lower unit sales as well as utilizing lower cost shippers. Selling expenses represented 3.0% of net sales in the third quarter of 2018, compared to 3.8% in the third quarter of 2017.


General and administrative expenses ("G&A expenses") were $3.7 million in the third quarter of 2018, compared to $4.4 million in the same quarter of 2017. The decline was primarily due to lower personnel expenses. G&A expenses represented 3.3% of net sales in the third quarter of 2018 compared with 3.7% in the third quarter of 2017.


Research and development expenses ("R&D expenses") were $7.0 million in the third quarter of 2018, compared to $9.2 million in the third quarter of 2017. R&D expenses represented 6.2% of net sales in the third quarter of 2018 compared with 7.8% in the third quarter last year. The lower R&D expenses were mainly due to greater cost controls over R&D expenditures and the transfer of some research projects to our new joint venture, Hubei Henglong KYB Automobile Electric Steering System Co., Ltd., for electric power steering.

Net financial income was $0.8 million in the third quarter of 2018 compared to net financial income of $1.0 million in the third quarter of 2017.


Income from operations was $1.8 million in the third quarter of 2018, compared to $4.9 million in the same quarter of 2017. The decrease was mainly due to lower gross profit and lower gross margin.


Income before income tax expenses and equity in earnings of affiliated companies was $1.8 million in the third quarter of 2018, compared to $5.7 million in the third quarter of 2017. The decrease in income before income tax expenses and equity in earnings of affiliated companies was mainly due to lower operating income in the third quarter of 2018 compared with the third quarter of 2017.

 

 

 


Net income attributable to parent company's common shareholders was $0.4 million in the third quarter of 2018, compared to net income attributable to parent company's common shareholders of $5.1 million in the third quarter of 2017. Diluted earnings per share were $0.01 in the third quarter of 2018, compared to diluted earnings per share of $0.16 in the third quarter of 2017.


The weighted average number of diluted common shares outstanding was 31,645,556 in the third quarter of 2018, compared to 31,644,271 in the third quarter of 2017.


First Nine Months of 2018

 

Net sales for the first nine months of 2018 were $371.9 million, compared to $355.3 million in the first nine months of 2017. Nine-month gross profit was $54.0 million, compared to $68.2 million in the corresponding period last year. Nine-month gross margin was 14.5%, compared to 19.2% for the corresponding period in 2017. For the nine months ended September 30, 2018, gain on other sales amounted to $3.0 million, compared to $5.9 million for the corresponding period in 2017. Income from operations was $7.0 million compared to $23.2 million in the first nine months of 2017. Operating margin was 1.9%, compared to 6.5% for the corresponding period of 2017.

 

Net income attributable to parent company's common shareholders was $5.5 million compared with $19.7 million in the corresponding period last year. Diluted earnings per share were $0.17 in the first nine months of 2018, compared to diluted earnings per share of $0.62 for the corresponding period in 2017.

 

Balance Sheet

 

As of September 30, 2018, total cash and cash equivalents, pledged cash deposits and short-term investments were $144.1 million, total accounts receivable including notes receivable were $249.6 million, accounts payable including notes payable were $196.6 million, and short-term loans were $70.9 million. Total parent company stockholders' equity was $309.5 million as of September 30, 2018, compared to $306.1 million as of December 31, 2017. 

 

Business Outlook

 

Management has reduced its revenue guidance for the full year 2018 to US$510 million from US$520.0 million. This target is based on the Company's current views on operating and market conditions, which are subject to change.

 

Conference Call

 

Management will conduct a conference call on November 9, 2018 at 8:00 A.M. EST/9:00 P.M. Beijing Time to discuss these results. A question and answer session will follow management's presentation. To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the "China Automotive Systems" conference call:

 

 

 

 

Phone Number: +1-877-407-8031 (North America)

 

Phone Number: +1-201-689-8031 (International)

 

A replay of the call will be available on the Company’s website under 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 eight 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 29, 2018, 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

+1-212-521-4050

kevin.theiss@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 September 30, 
   2018   2017 
Net product sales ($8,207 and $7,563 sold to related parties for the three months ended September 30, 2018 and 2017)  $112,084   $118,365 
Cost of products sold ($4,659 and $6,549 purchased from related parties for the three months ended September 30, 2018 and 2017)   96,718    95,878 
     Gross profit   15,366    22,487 
Gain on other sales   482    553 
Less: Operating expenses          
Selling expenses   3,353    4,537 
General and administrative expenses   3,708    4,390 
Research and development expenses   6,957    9,194 
Total operating expenses   14,018    18,121 
     Income from operations   1,830    4,919 
Other (expense)/income, net   (461)   100 
Interest expense   (431)   (318)
Financial income, net   815    1,027 
Income before income tax expenses and equity in earnings of affiliated companies   1,753    5,728 
Less: Income taxes   326    991 
Equity in losses of affiliated companies   (1,049)   491 
Net income   378    5,228 
Net (loss)/income attributable to non-controlling interests   1    169 
     Net income attributable to parent company’s common
     shareholders
  $377   $5,059 
Comprehensive income:          
Net income  $378   $5,228 
Other comprehensive income:          
Foreign currency translation (loss)/gain, net of tax   (13,012)   6,705 
Comprehensive (loss)/income   (12,634)   11,933 
Comprehensive (loss)/income attributable to non-controlling interests   (619)   386 
Comprehensive (loss)/income attributable to parent company  $(12,015)  $11,547 
           
Net income attributable to parent company’s common shareholders per share          
           
Basic –  $0.01   $0.16 
           
Diluted-  $0.01   $0.16 
Weighted average number of common shares outstanding          
Basic   31,644,004    31,644,004 
Diluted   31,645,556    31,644,271 

 

 

 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands of USD, except share and per share amounts)

 

   Nine Months Ended September 30, 
   2018   2017 
Net product sales ($29,909 and $25,684 sold to related parties for the nine months ended September 30, 2018 and 2017)  $371,884   $355,333 
Cost of products sold ($20,336 and $20,195 purchased from related parties for the nine months ended September 30, 2018 and 2017)   317,858    287,156 
     Gross profit   54,026    68,177 
Gain on other sales   2,972    5,896 
Less: Operating expenses          
Selling expenses   14,067    13,160 
General and administrative expenses   12,574    14,027 
Research and development expenses   23,349    23,666 
Total operating expenses   49,990    50,853 
     Income from operations   7,008    23,220 
Other income/(expense), net   760    (2)
Interest expense   (1,647)   (1,193)
Financial income, net   947    1,909 
Income before income tax expenses and equity in earnings of affiliated companies   7,068    23,934 
Less: Income taxes   1,116    4,367 
Equity in (losses)/earnings of affiliated companies   (546)   480 
Net income   5,406    20,047 
Net (loss)/income attributable to non-controlling interests   (130)   353 
     Net income attributable to parent company’s common
     shareholders
  $5,536   $19,694 
Comprehensive income:          
Net income  $5,406   $20,047 
Other comprehensive income:          
Foreign currency translation (loss)/gain, net of tax   (17,237)   14,148 
Comprehensive (loss)/income   (11,831)   34,195 
Comprehensive (loss)/income attributable to non-controlling interests   (814)   819 
Comprehensive (loss)/income attributable to parent company  $(11,017)  $33,376 
           
Net income attributable to parent company’s common shareholders per share          
           
Basic –  $0.17   $0.62 
           
Diluted-  $0.17   $0.62 
Weighted average number of common shares outstanding          
Basic   31,644,004    31,644,004 
Diluted   31,645,622    31,647,833 

 

 

 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(In thousands of USD unless otherwise indicated)

 

   September 30, 2018   December 31, 2017 
ASSETS          
Current assets:          
Cash and cash equivalents  $95,788   $64,558 
Pledged Cash   26,115    31,535 
Short-term investments   22,241    29,587 
Accounts and notes receivable, net - unrelated parties   232,114    274,989 
Accounts and notes receivable, net - related parties   17,522    19,086 
Advance payments and others - unrelated parties   14,160    12,790 
Advance payments and others - related parties   413    20,841 
Inventories   87,769    79,217 
     Total current assets   496,122    532,603 
Non-current assets:          
Property, plant and equipment, net   124,823    126,033 
Intangible assets, net   605    661 
Other receivables, net - unrelated parties   1,609    2,188 
Advance payment for property, plant and equipment - unrelated parties   8,657    9,657 
Advance payment for property, plant and equipment - related parties   6,566    5,264 
Long-term investments   30,874    27,596 
Deferred tax assets   12,680    13,367 
     Total assets  $681,936   $717,369 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Short term loans  $70,900   $72,711 
Accounts and notes payable - unrelated parties   192,146    233,048 
Accounts and notes payable - related parties   4,468    7,168 
Customer deposits   950    1,128 
Accrued payroll and related costs   7,488    8,577 
Accrued expenses and other payables   39,251    40,127 
Accrued pension costs   3,587    4,051 
Taxes payable   8,855    5,927 
Amounts due to shareholders/directors   316    343 
Advances payable (current portion)   363    383 
     Total current liabilities   328,324    373,463 
Long-term liabilities:          
Long-term loans   291    306 
Advances payable   342    359 
Other long-term payable   9,568    - 
Long-term tax payable   29,874    32,719 
Deferred tax liabilities   4,029    4,393 
     Total liabilities  $372,428   $411,240 
           
Commitments and Contingencies          
           
Stockholders’ equity:          
Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued – 32,338,302 and 32,338,302 shares as of September 30, 2018 and December 31, 2017, respectively  $3   $3 
Additional paid-in capital   64,406    64,406 
Retained earnings-          
Appropriated   10,830    10,707 
Unappropriated   214,872    209,459 
Accumulated other comprehensive income   1,227    17,780 
Treasury stock – 694,298 and 694,298 shares as of September 30, 2018 and December 31, 2017, respectively   (2,907)   (2,907)
Total parent company stockholders' equity   288,431    299,448 
Non-controlling interests   21,077    6,681 
     Total stockholders' equity   309,508    306,129 
Total liabilities and stockholders' equity  $681,936   $717,369 

 

 

 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Cash Flows

(In thousands of USD unless otherwise indicated)

 

   Nine Months Ended September 30, 
   2018   2017 
Cash flows from operating activities:          
Net income  $5,406   $20,047 
Adjustments to reconcile net income from operations to net cash provided by operating activities:          
Depreciation and amortization   13,590    10,933 
Share-based compensation   -    100 
Increase in provision for doubtful accounts   253    1,034 
Inventory write downs   4,971    4,436 
Deferred income taxes   (134)   1,354 
Equity in earnings/(losses) of affiliated companies   546    (480)
(Loss)/gain on fixed assets disposals   6    (2,204)
Changes in operating assets and liabilities          
(Increase) decrease in:          
Accounts and notes receivable   29,758    32,807 
Advance payments and others   (1,604)   (1,527)
Inventories   (18,220)   (6,441)
Increase (decrease) in:          
Accounts and notes payable   (28,744)   (3,023)
Customer deposits   (148)   158 
Accrued payroll and related costs   (756)   182 
Accrued expenses and other payables   3,513    (6,216)
Accrued pension costs   (237)   443 
Taxes payable   807    (9,806)
Net cash provided by operating activities   9,007    41,797 
Cash flows from investing activities:          
Increase in other receivables   453    159 
Cash received from property, plant and equipment sales   263    2,351 
Payments to acquire property, plant and equipment (including $6,747 and $7,656 paid to related parties for the nine months ended September 30, 2018 and 2017, respectively)   (24,295)   (19,187)
Purchase of short-term investments   (19,974)   (25,017)
Purchase of long-term time deposit   -    (5,836)
Proceeds from maturities of short-term investments   26,793    33,749 
Investment under equity method   (5,957)   (7,629)
Cash received for related party loan repayment   20,430    - 
Loan to a related party   -    (29,044)
Net cash used in investing activities   (2,287)   (50,454)
Cash flows from financing activities:          
Proceeds from bank loans   67,938    69,635 
Repayments of bank loans   (69,025)   (39,271)
Proceeds from sale and leaseback transaction   11,758    - 
Repayments of the borrowing for sale and leaseback transaction   (2,181)   - 
Dividends paid to non-controlling shareholder   (524)   - 
Cash received from capital contributions by non-controlling shareholder   15,728    - 
Net cash provided by financing activities   23,694    30,364 
Effects of exchange rate on cash, cash equivalents and pledged cash   (4,603)   2,859 
Net increase in cash, cash equivalents and pledged cash   25,811    24,566 
Cash, cash equivalents and pledged cash at beginning of period   96,093    61,891 
Cash, cash equivalents and pledged cash at end of period  $121,904   $86,457 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

   Nine Months Ended September 30, 
   2018   2017 
Cash paid for interest  $706   $573 
Cash paid for income taxes   731    4,343 

 

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

   Nine Months Ended September 30, 
   2018   2017 
Property, plant and equipment recorded during the period which previously were advance payments  $11,666   $12,331 
Accounts payable for acquiring property, plant and equipment   614    890 
Dividends payable to non-controlling interests   -    621 

 

 



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