Form 8-K CHINA AUTOMOTIVE SYSTEMS For: Nov 12

November 12, 2020 6:12 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 12, 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 November 12, 2020, China Automotive Systems, Inc. (the “Company”) issued a press release announcing financial results for the quarter ended September 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 November 12, 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: November 12, 2020   By:  /s/ Hanlin Chen  
      Hanlin Chen  
      Chairman  

 

 3 

Exhibit 99.1

 

China Automotive Systems Reports
UNAUDITED 2020 Third Quarter RESULTS

 

WUHAN, China, November 12, 2020/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, 2020.

  

Third Quarter 2020 Highlights

 

·Net sales increased 13.8% to $114.4 million compared with $100.5 million in the third quarter of 2019;

 

·Gross profit decreased to $13.6 million and gross margin declined to 11.9% from 17.2% in the third quarter of 2019;

 

·Income from operations was $0.1 million compared to income from operations of $4.4 million in the third quarter of 2019;

 

·Net income attributable to parent company's common shareholders was $2.4 million, or diluted earnings per share of $0.08, compared to net income attributable to parent company's common shareholders of $4.3 million, or diluted earnings per share of $0.14, in the third quarter of 2019;

 

·Approximately 322,000 shares of common stock were repurchased.

     

First Nine Months of 2020 Highlights

 

·Net sales were $271.2 million compared to $315.5 million in the first nine months of 2019;

·Gross margin was 12.0% compared with 14.8% in the same period last year;

·Diluted loss per share attributable to parent company's common shareholders was $0.06 compared to diluted earnings per share attributable to parent company's common shareholders of $0.26 for the first nine months of 2019;

·Net cash flow from operating activities was $52.7 million compared with $4.1 million for the first nine months of 2019;

·Cash and cash equivalents and pledged cash deposits were $113.5 million as of September 30, 2020.

  

Mr. Qizhou Wu, the Chief Executive Officer of CAAS, commented, “Our sales regained growth momentum in the third quarter as the Chinese economy has quickly rebounded from the worst effects of the COVID-19 pandemic. According to statistics from the China Association of Automobile Manufacturers (“CAAM”), new passenger car sales rose by 8.5% year-over-year in the month of July, by 6.0% in August and by 8.0% in September. As a leading supplier of steering products for Chinese-branded vehicles, I am pleased that our sales growth outpaced the overall market. We still have work to do but we are encouraged by the positive signs on our way to a strong recovery.”

 

“With the worst behind us in China, we believe the government will continue to promote policies to ensure continued economic growth and to introduce incentives for domestic consumption which will benefit the automobile industry,” Mr. Wu concluded.

 

Mr. Jie Li, the Chief Financial Officer of CAAS, commented, “Our operations continued to generate positive operating cash flow and we purchased less capital production equipment in the third quarter of 2020 as our capacity remains sufficient. Maintaining our financial strength has been one of our highest priorities as we continue to strengthen our balance sheet by reducing bank borrowing and controlling inventory. During the 3rd quarter, we also purchased approximately 322,000 shares of common stock in the open market that demonstrates our commitment to enhancing long-term shareholder value.”

 

Third Quarter of 2020

 

In the third quarter of 2020, net sales rose 13.8% to $114.4 million compared to $100.5 million in the same quarter of 2019. The increase in net product sales was mainly due to a change in the product mix and higher domestic sales volume of the Company’s hydraulic products combined with increased sales to North American customers. Net product sales to North America grew by 9.8% to $37.0 million compared to $33.8 million for the same quarter in 2019. Net product sales for the Company’s electric power steering (“EPS”) products were $16.7 million, or 14.6% of net sales.

 

 

 

 

Gross profit was $13.6 million in the third quarter of 2020, compared to $17.3 million in the third quarter of 2019. Gross margin was 11.9% compared to 17.2% for the same period of 2019, mainly due to higher unit costs for EPS and export products compared to the third quarter last year.

 

Selling expenses were $3.8 million in the third quarter of 2020, compared to $3.6 million in the third quarter of 2019. Selling expenses represented 3.3% of net sales in the third quarter of 2020, compared to 3.6% in the third quarter of 2019.

 

General and administrative expenses ("G&A expenses") were $5.1 million in the third quarter of 2020, compared to $4.4 million in the same quarter of 2019. The increase was primarily due to higher office expenses. G&A expenses represented 4.5% of net sales in both the third quarter of 2020 and the third quarter of 2019.

 

Research and development expenses ("R&D expenses") were $6.1 million in the third quarter of 2020, compared to $6.0 million in the third quarter of 2019. R&D expenses represented 5.3% of net sales in the third quarter of 2020 compared with 6.0% in the third quarter last year. The lower R&D percentage was mainly due to more strict cost controls over R&D expenditures.

 

Net financial expense was $2.3 million in the third quarter of 2020 compared to net financial income of $1.6 million in the third quarter of 2019, which was mainly due to foreign exchange losses compared with foreign exchange gains in last year’s third quarter.

 

Income from operations was $0.1 million in the third quarter of 2020, compared to income from operations of $4.4 million in the same quarter of 2019. The lower income from operations was mainly due to reduced gross profit and lower gross margin in the third quarter of 2020.

 

Loss before income tax expenses and equity in earnings of affiliated companies was $2.3 million in the third quarter of 2020, compared to income before income tax expenses and equity in earnings of affiliated companies of $5.3 million in the third quarter of 2019. The loss before income tax expenses and equity in earnings of affiliated companies was mainly due to lower gross profit and the lower income from operations in the third quarter of 2020 compared with the third quarter of 2019.

 

Net income attributable to parent company's common shareholders was $2.4 million in the third quarter of 2020, compared to net income attributable to parent company's common shareholders of $4.3 million in the third quarter of 2019. Diluted earnings per share were $0.08 in the third quarter of 2020, compared to diluted earnings per share of $0.14 in the third quarter of 2019.

 

The weighted average number of diluted common shares outstanding was 31,113,374 in the third quarter of 2020, compared to 31,492,035 in the third quarter of 2019.

 

First Nine Months of 2020

 

Net sales for the first nine months of 2019 were $271.2 million, compared to $315.5 million in the first nine months of 2019, reflecting the impact of the COVID-19 pandemic on the automobile industry in China and globally. Nine-month gross profit was $32.6 million, compared to $46.6 million in the corresponding period last year. Nine-month gross margin was 12.0%, compared to 14.8% for the corresponding period in 2019. For the nine months ended September 30, 2020, gain on other sales amounted to $2.9 million, compared to $4.9 million for the corresponding period in 2019. Loss from operations was $4.1 million compared to income from operations of $8.1 million in the first nine months of 2019.

 

Net loss attributable to parent company's common shareholders was $1.8 million compared with net income attributable to parent company's common shareholders of $8.2 million in the corresponding period last year. Diluted loss per share was $0.06 in the first nine months of 2020, compared to diluted earnings per share of $0.26 for the corresponding period in 2019.

 

As of September 30, 2020, total cash and cash equivalents and pledged cash deposits were $113.5 million. Total accounts receivable including notes receivable were $209.0 million. Accounts payable including notes payable were $201.4 million, and short-term loans were $44.6 million. Total parent company stockholders' equity was $293.2 million as of September 30, 2020, compared to $289.3 million as of December 31, 2019. 

 

Net cash provided by operating activities was $52.7 million in the first nine months of 2020 compared with net cash provided by operating activities of $4.1 million in the first nine months of 2019. Payments to acquire property, plant and equipment were $8.9 million compared with $23.6 million in the first nine months of 2019. Approximately 322,000 shares of common stock were repurchased during the third quarter of 2020, and the Company expects to repurchase more shares in the future, reflecting market conditions.

 

 

 

 

Business Outlook

 

Management has increased its revenue guidance from $360 million to $390 million for the full year 2020. 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 12, 2020 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)

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

 

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 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 March 28, 2019, 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 September 30, 
   2020   2019 
Net product sales ($16,840 and $12,277 sold to related parties for the three months ended September 30, 2020 and 2019)  $114,417   $100,542 
Cost of products sold ($7,012 and $6,474 purchased from related parties for the three months ended September 30, 2020 and 2019)   100,842    83,225 
Gross profit   13,575    17,317 
Gain on other sales   1,497    1,102 
Less: Operating expenses          
Selling expenses   3,800    3,563 
General and administrative expenses   5,142    4,429 
Research and development expenses   6,072    5,988 
Total operating expenses   15,014    13,980 
Income from operations   58    4,439 
Other income   350    171 
Interest expense   (403)   (787)
Financial (expense)/income, net   (2,313)   1,552 
(Loss)/income before income tax expenses and equity in earnings/(loss) of affiliated companies   (2,308)   5,375 
Less: Income tax (benefit)/expense   (189)   948 
Equity in earnings/(loss) of affiliated companies   3,632    (226)
Net income   1,513    4,201 
Net loss attributable to non-controlling interests   (848)   (113)
Accretion to redemption value of redeemable non-controlling interests   (3)   - 
Net income attributable to parent company’s common shareholders  $2,358   $4,314 
Comprehensive income:          
Net income  $1,513   $4,201 
Other comprehensive income:          
Foreign currency translation income/(loss), net of tax   12,774    (9,703)
Comprehensive income/(loss)   14,287    (5,502)
Comprehensive income/(loss) attributable to non-controlling interests   80    (837)
Comprehensive income/(loss) attributable to parent company  $14,207   $(4,665)
           
Net income attributable to parent company’s common shareholders per share -          
           
Basic  $0.08   $0.14 
           
Diluted  $0.08   $0.14 
Weighted average number of common shares outstanding -          
Basic   31,112,076    31,492,035 
Diluted   31,113,374    31,492,035 

 

 

 

 

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, 
   2020   2019 
Net product sales ($40,439 and $39,458 sold to related parties for the nine months ended September 30, 2020 and 2019)  $271,156   $315,483 
Cost of products sold ($16,298 and $18,108 purchased from related parties for the nine months ended September 30, 2020 and 2019)   238,598    268,936 
Gross profit   32,558    46,547 
Gain on other sales   2,935    4,856 
Less: Operating expenses          
Selling expenses   8,895    10,507 
General and administrative expenses   13,330    13,453 
Research and development expenses   17,390    19,343 
Total operating expenses   39,615    43,303 
(Loss)/income from operations   (4,122)   8,100 
Other income, net   1,724    1,131 
Interest expense   (1,214)   (2,086)
Financial (expense)/income, net   (2,903)   2,439 
(Loss)/income before income tax expenses and equity in earnings/(loss) of affiliated companies   (6,515)   9,584 
Less: Income taxes   294    1,820 
Equity in earnings/(loss) of affiliated companies   3,454    (222)
Net (loss)/income   (3,355)   7,542 
Net loss attributable to non-controlling interests   (1,590)   (688)
Accretion to redemption value of redeemable non-controlling interests   (3)   - 
Net (loss)/income attributable to parent company’s common shareholders  $(1,768)  $8,230 
Comprehensive income:          
Net (loss)/income  $(3,355)  $7,542 
Other comprehensive income:          
Foreign currency translation income/(loss), net of tax   8,171    (10,221)
Comprehensive income/(loss)   4,816    (2,679)
Comprehensive loss attributable to non-controlling interests   (1,059)   (1,454)
Comprehensive income/(loss) attributable to parent company  $5,875   $(1,225)
           
Net (loss)/income attributable to parent company’s common shareholders per share -          
           
Basic  $(0.06)  $0.26 
           
Diluted  $(0.06)  $0.26 
Weighted average number of common shares outstanding -          
Basic   31,153,162    31,498,553 
Diluted   31,153,619    31,501,108 

 

 

 

 

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(In thousands of USD unless otherwise indicated)

 

   September 30, 2020   December 31, 2019 
ASSETS          
Current assets:          
Cash and cash equivalents  $81,767   $76,715 
Pledged cash   31,721    29,688 
Accounts and notes receivable, net - unrelated parties   189,144    211,841 
Accounts and notes receivable - related parties   19,881    21,164 
Inventories   82,011    82,931 
Other current assets   35,834    18,974 
Total current assets   440,358    441,313 
Non-current assets:          
Property, plant and equipment, net   136,058    140,481 
Land use rights, net    10,392    10,346 
Long-term investments   49,754    39,642 
Other non-current assets   30,859    28,374 
Total assets  $667,421   $660,156 
           
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY          
Current liabilities:          
Short-term loans  $44,588   $46,636 
Accounts and notes payable - unrelated parties   189,915    180,175 
Accounts and notes payable - related parties   11,518    6,492 
Accrued expenses and other payables   48,866    45,341 
Other current liabilities   25,918    25,135 
Total current liabilities   320,805    303,779 
Long-term liabilities:          
Long-term government loans   -    7,167 
Other long-term payable   2,103    4,948 
Long-term tax payable   23,884    26,693 
Other non-current liabilities   8,013    8,010 
Total liabilities  $354,805   $350,597 
           
Mezzanine equity:          
Redeemable non-controlling interests   517    - 
           
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, 2020 and December 31, 2019, respectively  $3   $3 
Additional paid-in capital   64,273    64,466 
Retained earnings-          
Appropriated   11,265    11,265 
Unappropriated   218,741    221,298 
Accumulated other comprehensive income   4,181    (3,462)
Treasury stock - 1,486,526 and 1,164,257 shares as of September 30, 2020 and December 31, 2019, respectively   (5,261)   (4,261)
Total parent company stockholders' equity   293,202    289,309 
Non-controlling interests   18,897    20,250 
Total stockholders' equity   312,099    309,559 
Total liabilities, mezzanine equity and shareholders’ equity  $667,421   $660,156 

 

 

 

 

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, 
   2020   2019 
Cash flows from operating activities:          
Net (loss)/income  $(3,356)  $7,542 
Adjustments to reconcile net (loss)/income from operations to net cash provided by operating activities:          
Depreciation and amortization   15,935    13,052 
Reversal of provision for doubtful accounts   (360)   (692)
Deferred income taxes   464    (601)
Equity in (earnings)/loss of affiliated companies   (3,454)   222 
Loss/(gain) on fixed assets disposals   67    (692)
Government subsidy reclassified from government loans   287    - 
(Increase)/decrease in:          
Accounts and notes receivable   29,454    16,243 
Inventories   2,644    (1,615)
Other current assets   1,214    4,725 
Increase/(decrease) in:          
Accounts and notes payable   10,493    (28,793)
Accrued expenses and other payables   2,451    (4,374)
Long-term taxes payable   (2,809)   (2,810)
Other current liabilities   (1,330)   1,882 
Net cash provided by operating activities   52,741    4,089 
Cash flows from investing activities:          
Decrease in demand loans and employee housing loans included in other non-current assets   44    185 
Cash received from property, plant and equipment sales   1,444    1,164 
Payments to acquire property, plant and equipment (including $1,577 and $514 paid to related parties for the nine months ended September 30, 2020 and 2019, respectively)   (8,879)   (23,571)
Payments to acquire intangible assets   (422)   (1,435)
Investment under the equity method   (5,360)   (2,491)
Purchase of short-term investments and long-term time deposits   (42,716)   (19,647)
Government subsidy received for purchase of property, plant and equipment   -    1,898 
Proceeds from maturities of short-term investments   21,626    27,040 
Cash received from long-term investment   448    579 
Net cash used in investing activities   (33,815)   (16,278)
Cash flows from financing activities:          
Proceeds from bank loans   39,586    54,675 
Repayments of bank loans   (50,550)   (52,486)
Repayments of the borrowing for sale and leaseback transaction   (3,078)   (3,143)
Dividends paid to non-controlling interest holders of non-wholly owned subsidiaries   -    (333)
Cash received from capital contributions by non-controlling interest holder    722    3,542 
Deemed distribution to shareholders   (88)   - 
Acquisition of non-controlling interest   (81)   - 
Repurchase of common shares   (1,000)   (443)
Net cash (used in)/provided by financing activities   (14,489)   1,812 
Effects of exchange rate on cash, cash equivalents and pledged cash   2,648    (3,284)
Net increase/(decrease) in cash, cash equivalents and pledged cash   7,085    (13,661)
Cash, cash equivalents and pledged cash at beginning of the period   106,403    115,977 
Cash, cash equivalents and pledged cash at end of the period  $113,488   $102,316 

 

 

 



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