UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
Or
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to _________
Commission file number: 000-33123
China Automotive Systems, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 33-0885775 | |
| (State or other jurisdiction of incorporation or | (I.R.S. employer identification number) | |
| organization) |
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)
| (86) 716- 412- 7901 |
| Registrant’s telephone number |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ |
| Non-accelerated filer | x |
Smaller reporting company |
x |
| 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. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
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 |
As of June 23, 2020, the Company had 31,174,045 shares of common stock issued and outstanding.
CHINA AUTOMOTIVE SYSTEMS, INC.
INDEX
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EXPLANATORY NOTE
As previously reported in the Company’s Form 8-K filed on May 11, 2020, the Company was unable to file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 by the original deadline of May 15, 2020 due to circumstances related to COVID-19. The Company’s headquarters is located in Wuhan, Hubei Province, PRC, which is the epicenter of the COVID-19 epidemic. Beginning in January 2020, Hubei Province was under strict quarantine control and travel was severely restricted. The Company’s operations in Hubei Province were largely suspended since January 31, 2020. In addition, the government of Hubei Province did not permit employees to return to work between January 23, 2020 and March 21, 2020. As a result of these factors, the Company has relied on the SEC order dated March 25, 2020 (Release No. 34-88465) to extend the due date for the filing of its Form 10-Q until June 29, 2020 (45 days after the original due date).
Cautionary Statement
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. The Company’s expectations are as of the date this Form 10-Q is filed, and the Company does not intend to update any of the forward-looking statements after the date this Quarterly Report on Form 10-Q is filed to conform these statements to actual results, unless required by law. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the Securities and Exchange Commission.
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PART I — FINANCIAL INFORMATION
| Item 1. | FINANCIAL STATEMENTS. |
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 March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net product sales ($7,494 and $12,836 sold to related parties for the three months ended March 31, 2020 and 2019) | $ | 73,555 | $ | 109,193 | ||||
| Cost of products sold ($3,134 and $5,504 purchased from related parties for the three months ended March 31, 2020 and 2019) | 62,403 | 95,148 | ||||||
| Gross profit | 11,152 | 14,045 | ||||||
| Gain on other sales | 600 | 1,269 | ||||||
| Less: Operating expenses | ||||||||
| Selling expenses | 2,118 | 3,085 | ||||||
| General and administrative expenses | 3,429 | 4,590 | ||||||
| Research and development expenses | 5,053 | 6,602 | ||||||
| Total operating expenses | 10,600 | 14,277 | ||||||
| Income from operations | 1,152 | 1,037 | ||||||
| Other income, net | 117 | 1,407 | ||||||
| Interest expense | (365 | ) | (568 | ) | ||||
| Financial expense, net | (531 | ) | (665 | ) | ||||
| Income before income tax expenses and equity in (loss)/earnings of affiliated companies | 373 | 1,211 | ||||||
| Less: Income taxes | 514 | 198 | ||||||
| Equity in (loss)/earnings of affiliated companies | (347 | ) | 211 | |||||
| Net (loss)/income | (488 | ) | 1,224 | |||||
| Net loss attributable to non-controlling interests | (533 | ) | (243 | ) | ||||
| Net income attributable to parent company’s common shareholders | $ | 45 | $ | 1,467 | ||||
| Comprehensive income: | ||||||||
| Net (loss)/income | $ | (488 | ) | $ | 1,224 | |||
| Other comprehensive income: | ||||||||
| Foreign currency translation (loss)/income, net of tax | (4,961 | ) | 6,363 | |||||
| Comprehensive (loss)/income | (5,449 | ) | 7,587 | |||||
| Comprehensive (loss)/income attributable to non-controlling interests | (897 | ) | 214 | |||||
| Comprehensive (loss)/income attributable to parent company | $ | (4,552 | ) | $ | 7,373 | |||
| Net income attributable to parent company’s common shareholders per share - | ||||||||
| Basic | $ | - | $ | 0.05 | ||||
| Diluted | $ | - | $ | 0.05 | ||||
| Weighted average number of common shares outstanding - | ||||||||
| Basic | 31,174,045 | 31,507,487 | ||||||
| Diluted | 31,174,119 | 31,513,297 | ||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
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China Automotive Systems, Inc. and Subsidiaries
Condensed Unaudited Consolidated Balance Sheets
(In thousands of USD unless otherwise indicated)
| March 31, 2020 | December 31, 2019 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 108,171 | $ | 76,708 | ||||
| Pledged cash | 24,398 | 29,688 | ||||||
| Accounts and notes receivable, net - unrelated parties | 182,873 | 211,841 | ||||||
| Accounts and notes receivable - related parties | 13,625 | 21,164 | ||||||
| Inventories | 71,158 | 82,931 | ||||||
| Other current assets | 16,885 | 18,833 | ||||||
| Total current assets | 417,110 | 441,165 | ||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | 134,261 | 140,437 | ||||||
| Land use rights, net | 10,121 | 10,346 | ||||||
| Long-term investments | 40,790 | 39,642 | ||||||
| Other non-current assets | 27,395 | 28,374 | ||||||
| Total assets | $ | 629,677 | $ | 659,964 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term loans | $ | 44,057 | $ | 46,636 | ||||
| Accounts and notes payable - unrelated parties | 157,376 | 180,175 | ||||||
| Accounts and notes payable - related parties | 8,391 | 6,492 | ||||||
| Accrued expenses and other payables | 47,547 | 45,337 | ||||||
| Other current liabilities | 24,115 | 25,134 | ||||||
| Total current liabilities | 281,486 | 303,774 | ||||||
| Long-term liabilities: | ||||||||
| Long-term government loans | 7,057 | 7,167 | ||||||
| Other long-term payable | 3,938 | 4,948 | ||||||
| Long-term tax payable | 26,693 | 26,693 | ||||||
| Other non-current liabilities | 7,901 | 8,010 | ||||||
| Total liabilities | $ | 327,075 | $ | 350,592 | ||||
| Commitments and Contingencies (See Note 22) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued - 32,338,302 and 32,338,302 shares as of March 31, 2020 and December 31, 2019, respectively | $ | 3 | $ | 3 | ||||
| Additional paid-in capital | 64,400 | 64,429 | ||||||
| Retained earnings- | ||||||||
| Appropriated | 11,265 | 11,265 | ||||||
| Unappropriated | 220,493 | 221,237 | ||||||
| Accumulated other comprehensive income | (8,059 | ) | (3,462 | ) | ||||
| Treasury stock -1,164,257 and 1,164,257 shares as of March 31, 2020 and December 31, 2019, respectively | (4,261 | ) | (4,261 | ) | ||||
| Total parent company stockholders' equity | 283,841 | 289,211 | ||||||
| Non-controlling interests | 18,761 | 20,161 | ||||||
| Total stockholders' equity | 302,602 | 309,372 | ||||||
| Total liabilities and stockholders' equity | $ | 629,677 | $ | 659,964 | ||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
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China Automotive Systems, Inc. and Subsidiaries
Condensed Unaudited Consolidated Statements of Cash Flows
(In thousands of USD unless otherwise indicated)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash flows from operating activities: | ||||||||
| Net (loss)/income | $ | (488 | ) | $ | 1,224 | |||
| Adjustments to reconcile net (loss)/income from operations to net cash provided by/(used in) operating activities: | ||||||||
| Depreciation and amortization | 5,100 | 3,987 | ||||||
| Reversal of provision for doubtful accounts | (1 | ) | (355 | ) | ||||
| Deferred income taxes | (34 | ) | (84 | ) | ||||
| Equity in loss/(earnings) of affiliated companies | 347 | (211 | ) | |||||
| Government subsidy reclassified from government loans | 287 | - | ||||||
| Loss on fixed assets disposals | 52 | - | ||||||
| (Increase)/decrease in: | ||||||||
| Accounts and notes receivable | 33,303 | (1,977 | ) | |||||
| Inventories | 10,430 | (121 | ) | |||||
| Other current assets | (3,455 | ) | 2,387 | |||||
| Increase/(decrease) in: | ||||||||
| Accounts and notes payable | (18,047 | ) | (21,299 | ) | ||||
| Accrued expenses and other payables | 2,557 | (2,208 | ) | |||||
| Other current liabilities | (824 | ) | 443 | |||||
| Net cash provided by/(used in) operating activities | 29,227 | (18,214 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Increase in demand loans and employee housing loans included in other non-current assets | (212 | ) | (249 | ) | ||||
| Cash received from property, plant and equipment sales | 242 | 834 | ||||||
| Payments to acquire property, plant and equipment (including $242 and $760 paid to related parties for the three months ended March 31, 2020 and 2019, respectively) | (1,976 | ) | (8,777 | ) | ||||
| Payments to acquire intangible assets | - | (1,194 | ) | |||||
| Investment under the equity method | (2,579 | ) | - | |||||
| Purchase of short-term investments | - | (15,563 | ) | |||||
| Proceeds from maturities of short-term investments | 5,781 | 14,901 | ||||||
| Cash received from long-term investment | 448 | - | ||||||
| Net cash provided by/(used in) investing activities | 1,704 | (10,048 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from bank loans | 14,368 | 15,275 | ||||||
| Repayments of bank loans | (16,247 | ) | (11,881 | ) | ||||
| Repayments of the borrowing for sale and leaseback transaction | (1,028 | ) | (1,063 | ) | ||||
| Repurchase of common shares | - | (342 | ) | |||||
| Net cash (used in)/provided by financing activities | (2,907 | ) | 1,989 | |||||
| Effects of exchange rate on cash, cash equivalents and pledged cash | (1,851 | ) | 1,980 | |||||
| Net increase/(decrease) in cash, cash equivalents and pledged cash | 26,173 | (24,293 | ) | |||||
| Cash, cash equivalents and pledged cash at beginning of the period | 106,396 | 115,969 | ||||||
| Cash, cash equivalents and pledged cash at end of the period | $ | 132,569 | $ | 91,676 | ||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
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China Automotive Systems, Inc. and Subsidiaries
Notes to Condensed Unaudited Consolidated Financial Statements
Three Months Ended March 31, 2020 and 2019
| 1. | Organization and business |
China Automotive Systems, Inc., “China Automotive,” was incorporated in the State of Delaware on June 29, 1999 under the name Visions-In-Glass, Inc. China Automotive, including, when the context so requires, its subsidiaries described below, is referred to herein as the “Company.” The Company is primarily engaged in the manufacture and sale of automotive systems and components, as described below.
Great Genesis Holdings Limited, a company incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance in Hong Kong as a limited liability company, “Genesis,” is a wholly-owned subsidiary of the Company.
Henglong USA Corporation, “HLUSA,” incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and mainly engages in marketing of automotive parts in North America, and provides after-sales service and research and development support accordingly.
The Company owns the following aggregate net interests in the following subsidiaries organized in the People's Republic of China, the “PRC,” and Brazil as of March 31, 2020 and December 31, 2019.
| Percentage Interest | ||||||||
| Name of Entity | March 31, 2020 | December 31, 2019 | ||||||
| Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong” 1 | 100.00 | % | 100.00 | % | ||||
| Jingzhou Henglong Automotive Parts Co., Ltd., “Henglong” 2 | 100.00 | % | 100.00 | % | ||||
| Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., “Shenyang” 3 | 70.00 | % | 70.00 | % | ||||
| Universal Sensor Application Inc., “USAI” 4 | 85.00 | % | 83.34 | % | ||||
| Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong” 5 | 85.00 | % | 85.00 | % | ||||
| Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu” 6 | 77.33 | % | 77.33 | % | ||||
| Hubei Henglong Automotive System Group Co., Ltd., “Hubei Henglong” 7 | 100.00 | % | 100.00 | % | ||||
| Jingzhou Henglong Automotive Technology (Testing) Center, “Testing Center” 8 | 100.00 | % | 100.00 | % | ||||
| Chongqing Henglong Hongyan Automotive System Co., Ltd., “Chongqing Henglong” 9 | 70.00 | % | 70.00 | % | ||||
| CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong” 10 | 95.84 | % | 95.84 | % | ||||
| Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie” 11 | 85.00 | % | 85.00 | % | ||||
| Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong” 12 | 100.00 | % | 100.00 | % | ||||
| Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou Qingyan”13 | 60.00 | % | 60.00 | % | ||||
| Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”14 | 66.60 | % | 66.60 | % | ||||
| Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”15 | 51.00 | % | 51.00 | % | ||||
| Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”16 | 100.00 | % | 100.00 | % | ||||
| 1. | Jiulong was established in 1993 and mainly engages in the production of integral power steering gears for heavy-duty vehicles. |
| 2. | Henglong was established in 1997 and mainly engages in the production of rack and pinion power steering gears for cars and light duty vehicles. |
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| 3. | Shenyang was established in 2002 and focuses on power steering parts for light duty vehicles. |
| 4. | USAI was established in 2005 and mainly engages in the production and sales of sensor modules. |
| 5. | Jielong was established in 2006 and mainly engages in the production and sales of automotive steering columns. |
| 6. | Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems. |
| 7. | On March 7, 2007, Genesis established Hubei Henglong, formerly known as Jingzhou Hengsheng Automotive System Co., Ltd., its wholly-owned subsidiary, to engage in the production and sales of automotive steering systems. On July 8, 2012, Hubei Henglong changed its name to Hubei Henglong Automotive System Group Co., Ltd. |
| 8. | In December 2009, Henglong, a subsidiary of Genesis, formed Testing Center, which mainly engages in the research and development of new products. |
| 9. | On February 21, 2012, Hubei Henglong and SAIC-IVECO Hongyan Company, “SAIC-IVECO,” established a Sino-foreign joint venture company, Chongqing Henglong, to design, develop and manufacture both hydraulic and electric power steering systems and parts. |
| 10. | On August 21, 2012, Brazil Henglong was established as a Sino-foreign joint venture company by Hubei Henglong and two Brazilian citizens, Ozias Gaia Da Silva and Ademir Dal’ Evedove. Brazil Henglong engages mainly in the import and sales of automotive parts in Brazil. In May 2017, the Company obtained an additional 15.84% equity interest in Brazil Henglong for nil consideration. The Company retained its controlling interest in Brazil Henglong and the acquisition of the non-controlling interest was accounted for as an equity transaction. |
| 11. | In May 2014, together with Hubei Wanlong, Jielong formed a subsidiary, Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”, which mainly engages in research and development, manufacture and sales of automobile electronic systems and parts. Wuhan Chuguanjie is located in Wuhan, China. |
| 12. | In January 2015, Hubei Henglong formed Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”, which mainly engages in the design and sales of automotive electronics. |
| 13. | In November 2017, Hubei Henglong formed Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou Qingyan”, which mainly engages in the research and development of intelligent automotive technology. |
| 14. | In August 2018, Hubei Henglong and KYB (China) Investment Co., Ltd. (“KYB”) established Hubei Henglong KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”, which mainly engages in design, manufacture, sales and after-sales service of automobile electronic systems. Hubei Henglong owns 66.6% of the shares of this entity and has consolidated it since its establishment. |
| 15. |
In March 2019, Hubei Henglong and Hyoseong Electric Co., Ltd. established Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”, which mainly engages in the design, manufacture and sales of automotive motors and electromechanical integrated systems. Hubei Henglong owns 51.0% of the shares of Wuhan Hyoseong and has consolidated it since its establishment. |
| 16. | In December 2019, Hubei Henglong formed Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”, which mainly engages in the development, manufacturing and sale of high polymer materials. |
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| 2. | Basis of presentation and significant accounting policies |
| (a) | Basis of Presentation |
Basis of Presentation - The accompanying condensed unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The details of subsidiaries are disclosed in Note 1. Significant inter-company balances and transactions have been eliminated upon consolidation. The condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions in Regulation S-X. Accordingly they do not include all of the information and footnotes required by such accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of the Company’s management, contain all necessary adjustments, which include normal recurring adjustments, for a fair statement of the results of operations, financial position and cash flows for the interim periods presented.
The condensed consolidated balance sheet as of December 31, 2019 is derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2020.
Estimation - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Foreign Currencies - China Automotive, the parent company, and HLUSA maintain their books and records in United States Dollars, “USD,” their functional currency. The Company’s subsidiaries based in the PRC and Genesis maintain their books and records in Renminbi, “RMB,” their functional currency. The Company’s subsidiary based in Brazil maintains its books and records in Brazilian reais, “BRL,” its functional currency. In accordance with ASC Topic 830, “FASB Accounting Standards Codification”, foreign currency transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the rate of exchange prevailing at the balance sheet date for monetary items. Nonmonetary items are remeasured at historical rates. Income and expenses are remeasured at the rate in effect on the transaction dates. Transaction gains and losses, if any, are included in the determination of net income for the period.
| (b) | Recent Accounting Pronouncements |
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13 ASC (Topic 326), Financial Instruments - Credit Losses. The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The Company adopted the CECL model to recognize credit losses of financial assets using a modified retrospective method of accounting as of January 1, 2020. The impact of adopting the new standard on the consolidated financial statements was a reduction of $0.8 million to beginning retained earnings.
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| (c) | Significant Accounting Policies |
| There have been no updates to the significant accounting policies set forth in the notes to the consolidated financial statements for the year ended December 31, 2019, except for the adoption of ASC Topic 326 (Note 2(b)). |
| 3. | Accounts and notes receivable, net |
The Company’s accounts and notes receivable, net as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
| March 31, 2020 | December 31, 2019 | |||||||
| Accounts receivable - unrelated parties | $ | 112,505 | $ | 141,423 | ||||
| Notes receivable - unrelated parties (1) (2) | 73,726 | 72,797 | ||||||
| Total accounts and notes receivable - unrelated parties | 186,231 | 214,220 | ||||||
| Less: allowance for doubtful accounts - unrelated parties (3) | (3,358 | ) | (2,379 | ) | ||||
| Accounts and notes receivable, net - unrelated parties | 182,873 | 211,841 | ||||||
| Accounts and notes receivable - related parties | 13,625 | 21,164 | ||||||
| Accounts and notes receivable, net | $ | 196,498 | $ | 233,005 | ||||
| (1) | Notes receivable represent accounts receivable in the form of bills of exchange for which acceptances are guaranteed and settlements are handled by banks. |
| (2) | As of March 31, 2020 and December 31, 2019, the Company pledged its notes receivable in amounts of $9.7 million and $9.7 million, respectively, as collateral in favor of the local government for the government loans. (See Note 7) |
| (3) | Provision for doubtful accounts and notes receivable recognized in the consolidated statements of operations amounted to $0.02 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively. |
As of March 31, 2020 and December 31, 2019, the Company pledged its accounts and notes receivable in amounts of $2.3 million and $7.4 million, respectively, as collateral for banks to endorse the payment of the Company’s notes payable to the noteholder upon maturity.
During the three months ended March 31, 2020, the Company’s five largest customers accounted for 53.7% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net sales, i.e., 33.7%. As of March 31, 2020, approximately 7.5% of accounts receivable were from trade transactions with the aforementioned customers and there was no individual customer with a receivables balance of more than 10% of total accounts receivable.
During the three months ended March 31, 2019, the Company’s five largest customers accounted for 44.0% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net sales i.e., 18.1%. As of March 31, 2019, approximately 6.2% of accounts receivable were from trade transactions with the aforementioned customer and there was no individual customer with a receivables balance of more than 10% of total accounts receivable.
| 4. | Inventories |
The Company’s inventories as of March 31, 2020 and December 31, 2019 consisted of the following (figures are in thousands of USD):
| March 31, 2020 | December 31, 2019 | |||||||
| Raw materials | $ | 23,737 | $ | 21,464 | ||||
| Work in process | 10,875 | 9,469 | ||||||
| Finished goods | 36,546 | 51,998 | ||||||
| Total | $ | 71,158 | $ | 82,931 | ||||
The Company recorded $0.8 million and $1.1 million of inventory write-down to cost of product sold for the three months ended March 31, 2020 and 2019, respectively.
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| 5. | Long-term investments |
The Company’s long-term investments at March 31, 2020 and December 31, 2019, are summarized as follows (figures are in thousands of USD):
| March 31, 2020 | December 31, 2019 | |||||||
| Chongqing Venture Fund | $ | 14,818 | $ | 15,085 | ||||
| Hubei Venture Fund (1) | 11,142 | 8,730 | ||||||
| Suzhou Venture Fund (2) | 8,210 | 9,141 | ||||||
| Beijing Henglong | 4,654 | 4,630 | ||||||
| Henglong Tianyu | 1,085 | 1,122 | ||||||
| Chongqing Jinghua | 469 | 523 | ||||||
| Jiangsu Intelligent | 412 | 411 | ||||||
| Total | $ | 40,790 | $ | 39,642 | ||||
| (1) | During the three months ended March 31, 2020, the Company made an equity investment of $2.6 million in the Hubei Venture Fund. |
| (2) | In January 2020, the Suzhou Venture Fund made distributions that were proportional to each owner’s allocated share of the fund, pursuant to which Hubei Henglong received $0.4 million. |
| 6. | Property, plant and equipment, net |
The Company’s property, plant and equipment, net as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
| March 31, 2020 | December 31, 2019 | |||||||
| Costs: | ||||||||
| Buildings | $ | 51,044 | $ | 51,750 | ||||
| Machinery and equipment | 198,375 | 199,536 | ||||||
| Electronic equipment | 5,459 | 5,799 | ||||||
| Motor vehicles | 4,913 | 5,229 | ||||||
| Construction in progress | 31,409 | 33,063 | ||||||
| Total amount of property, plant and equipment | 291,200 | 295,377 | ||||||
| Less: Accumulated depreciation (1) | (156,939 | ) | (154,940 | ) | ||||
| Total amount of property, plant and equipment, net (2)(3) | $ | 134,261 | $ | 140,437 | ||||
| (1) | Depreciation charges were $5.0 million and $3.9 million for the three months ended March 31, 2020 and 2019, respectively. |
| (2) | As of March 31, 2020 and December 31, 2019, the Company pledged property, plant and equipment with net book value of approximately $48.2 million and $50.9 million, respectively, as security for its comprehensive credit facilities with banks in China. |
| (3) | Interest costs capitalized for the three months ended March 31, 2020 and 2019, were $0.3 million and $0.1 million, respectively. |
| 7. | Loans |
Loans consist of the following as of March 31, 2020 and December 31, 2019 (figures are in thousands of USD):
| March 31, 2020 | December 31, 2019 | |||||||
| Short-term bank loans (1) | $ | 19,407 | $ | 23,536 | ||||
| Short-term bank loans (2) | 22,533 | 20,663 | ||||||
| Short-term government loan (3) | 2,117 | 2,150 | ||||||
| Current portion of long-term government loan (4) | - | 287 | ||||||
| Subtotal | 44,057 | 46,636 | ||||||
| Long-term government loans (4)(5) | 7,057 | 7,454 | ||||||
| Less: Current portion of long-term government loan (4) | - | (287 | ) | |||||
| Subtotal | 7,057 | 7,167 | ||||||
| Total bank and government loans | $ | 51,114 | $ | 53,803 | ||||
11
| (1) | These loans are secured by property, plant and equipment and land use rights of the Company and are repayable within one year (See Note 6). As of March 31, 2020 and December 31, 2019, the weighted average interest rate was 4.6% and 4.8% per annum, respectively. |
| (2) | On October 27, 2017, Henglong and Hubei Henglong entered into credit facility agreements with China CITIC Bank, the “CITIC Credit Facility”. The maturity date of the CITIC Credit Facility was originally set for October 27, 2018 and was extended to October 26, 2019. On December 5, 2019, the CITIC Credit Facility was further extended to June 5, 2020. The Company is currently in the process of negotiating with the bank to renew the credit facility. The Company’s property, plant and equipment and land use rights with book value amounting to $9.7 million were pledged as collateral for such loans. As of March 31, 2020 and December 31, 2019, the Company has drawn down loans with an aggregate amount of $19.8 million and $20.7 million, respectively. On March 1, 2019, Henglong and Hubei Henglong entered into credit facility agreements with China Merchants Bank, the “Merchants Credit Facility”. The maturity date of the Merchants Credit Facility was originally set for February 29, 2020. The Company is currently in the process of negotiating with the bank to renew the credit facility. As of March 31, 2020 and December 31, 2019, the Company has drawn down loans with an aggregate amount of $2.7 million and nil, respectively. The weighted average interest rate of the loans as of March 31, 2020 and December 31, 2019 was 3.27% and 3.46% per annum, respectively. |
| (3) | On December 26, 2019, the Company borrowed from the local government a loan of RMB 15.0 million, equivalent to approximately $2.1 million, with an interest rate of 3.48% per annum, which is due for repayment on December 25, 2020. Henglong pledged RMB 15.5 million, equivalent to approximately $2.2 million, of notes receivable as collateral for the loan (See Note 3). |
| (4) | On November 13, 2017, the Company borrowed from the local government a loan of RMB 2.0 million, equivalent to approximately $0.3 million, with an interest rate of 4.75% per annum, which was due for repayment on November 12, 2020. In the first quarter of 2020, the Company received a notice from the government that the loan was reclassified as government subsidy, so repayment was no longer required. As a result, the Company reduced the loan balance and recorded it as other income in the consolidated statements of operations for the three months ended March 31, 2020. |
| (5) | On August 7 and September 3, 2019, the Company borrowed from the local government loans of RMB 20.0 million and RMB 30.0 million, equivalent to approximately $2.8 million and $4.2 million, respectively. These loans are due for repayment on June 30, 2021 and have an interest rate of 3.80% per annum. Henglong pledged RMB 53.0 million, equivalent to approximately $7.5 million, of notes receivable as collateral for the local government loans (See Note 3). |
The Company must use the loans for the purpose as prescribed in the loan contracts. If the Company fails to do so, it will be charged penalty interest and/or trigger early repayment. The Company complied with such financial covenants as of March 31, 2020, and management expects it will continue to comply with them.
| 8. | Accounts and notes payable |
The Company’s accounts and notes payable as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
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| March 31, 2020 | December 31, 2019 | |||||||
| Accounts payable - unrelated parties | $ | 100,367 | $ | 110,246 | ||||
| Notes payable - unrelated parties (1) | 57,009 | 69,929 | ||||||
| Accounts and notes payable - unrelated parties | 157,376 | 180,175 | ||||||
| Accounts and notes payable - related parties | 8,391 | 6,492 | ||||||
| Total | $ | 165,767 | $ | 186,667 | ||||
| (1) | Notes payable represent payables in the form of notes issued by the bank. As of March 31, 2020 and December 31, 2019, the Company has pledged cash of $24.4 million and $29.7 million, respectively, accounts and notes receivable of $2.3 million and $7.4 million, respectively, property, plant and equipment with net book value of $48.2 million and $50.9 million, respectively, and land use right with net book value of $5.4 million and $5.5 million, respectively, as collateral for banks to endorse the payment to the noteholder upon maturity. |
| 9. | Accrued expenses and other payables |
The Company’s accrued expenses and other payables as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
| March 31, 2020 | December 31, 2019 | |||||||
| Accrued expenses | $ | 7,124 | $ | 6,306 | ||||
| Accrued interest | 437 | 104 | ||||||
| Current portion of other long-term payable (See Note 10) | 3,603 | 3,593 | ||||||
| Other payables | 3,312 | 2,427 | ||||||
| Dividends payable to holders of non-controlling interests | 430 | - | ||||||
| Warranty reserves (1) | 32,641 | 32,907 | ||||||
| Total | $ | 47,547 | $ | 45,337 | ||||
| (1) | The Company provides for the estimated cost of product warranties when the products are sold. Such estimates of product warranties are based on, among other things, historical experience, product changes, material expenses, services and transportation expenses arising from the manufactured products. Estimates will be adjusted on the basis of actual claims and circumstances. |
For the three months ended March 31, 2020 and 2019, the warranties activities were as follows (figures are in thousands of USD):
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Balance at beginning of the period | $ | 32,907 | $ | 31,085 | ||||
| Additions during the period | 3,428 | 2,776 | ||||||
| Settlement within the period | (3,174 | ) | (2,294 | ) | ||||
| Foreign currency translation (gain)/loss | (520 | ) | 590 | |||||
| Balance at end of the period | $ | 32,641 | $ | 32,157 | ||||
| 10. | Other long-term payable |
On January 31, 2018, the Company entered into an equipment sales agreement with a third party (the “buyer-lessor”) and simultaneously entered into a four-year contract to lease back the equipment from the buyer-lessor. The carrying value of the equipment was RMB 91.3 million (equivalent to $12.9 million as of March 31, 2020) and the sales price was RMB 100 million (equivalent to $14.1 million as of March 31, 2020). Pursuant to the terms of the contract, the Company is required to pay to the buyer-lessor lease payments over 4 years with a quarterly lease payment of approximately $1.0 million and is entitled to obtain the ownership of this equipment at a nominal price upon the expiration of the lease. The Company is of the view that the transaction does not qualify as a sale. Therefore, the transaction was accounted for as a financing transaction by the Company. As of March 31, 2020, $3.6 million was recognized as other payable (See Note 9) and $3.9 million was recognized as other long-term payable to the buyer-lessor according to the contract term.
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| 11. | Additional paid-in capital |
The Company’s positions in respect of the amounts of additional paid-in capital for the three months ended March 31, 2020 and 2019, are summarized as follows (figures are in thousands of USD):
Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Balance at beginning of the period | $ | 64,429 | $ | 64,429 | ||||
| Acquisition of the non-controlling interest in USAI | (29 | ) | - | |||||
| Balance at end of the period | $ | 64,400 | $ | 64,429 | ||||
| 12. | Retained earnings |
Appropriated
Pursuant to the relevant PRC laws, the profits distribution of the Company’s subsidiaries, which are based on their PRC statutory financial statements, are available for distribution in the form of cash dividends after these subsidiaries have paid all relevant PRC tax liabilities, provided for losses in previous years, and made appropriations to statutory surplus at 10% of their respective after-tax profits each year. When the statutory surplus reserve reaches 50% of the registered capital of a company, no additional reserve is required. For the three months ended March 31, 2020 and 2019, no statutory reserve was appropriated by the subsidiaries in China.
The Company’s activities in respect of the amounts of appropriated retained earnings for the three months ended March 31, 2020 and 2019, are summarized as follows (figures are in thousands of USD):
Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Balance at beginning of the period | $ | 11,265 | $ | 11,104 | ||||
| Balance at end of the period | $ | 11,265 | $ | 11,104 | ||||
Unappropriated
The Company’s activities in respect of the amounts of the unappropriated retained earnings for the three months ended March 31, 2020 and 2019, are summarized as follows (figures are in thousands of USD):
Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Balance at beginning of the period | $ | 221,237 | $ | 211,439 | ||||
| Cumulative effect of accounting change - credit loss | (789 | ) | - | |||||
| Net income attributable to parent company | 45 | 1,467 | ||||||
| Balance at end of the period | $ | 220,493 | $ | 212,906 | ||||
| 13. | Accumulated other comprehensive income |
The Company’s activities in respect of the amounts of accumulated other comprehensive income for the three months ended March 31, 2020 and 2019, are summarized as follows (figures are in thousands of USD):
14
Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Balance at beginning of the period | $ | (3,462 | ) | $ | 1,855 | |||
| Foreign currency translation adjustment attributable to parent company | (4,597 | ) | 5,906 | |||||
| Balance at end of the period | $ | (8,059 | ) | $ | 7,761 | |||
| 14. | Treasury stock |
| Treasury stock represents shares repurchased by the Company that are no longer outstanding and are held by the Company. Treasury stock is accounted for under the cost method. On December 5, 2018, the Board of Directors of the Company approved a share repurchase program under which the Company was permitted to repurchase up to $5.0 million of its common stock from time to time in the open market at prevailing market prices not to exceed $4.00 per share through December 4, 2019. The Board of Directors of the Company approved the extension of such program to December 4, 2020. As of each of March 31, 2020 and December 31, 2019, the Company had cumulatively repurchased 1,164,257 shares of the Company’s common stock since the inception of the program. The repurchased shares are presented as “treasury stock” on the balance sheet. | |
| 15. | Non-controlling interests |
The Company’s activities in respect of the amounts of the non-controlling interests’ equity for the three months ended March 31, 2020 and 2019, are summarized as follows (figures are in thousands of USD):
Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Balance at beginning of the period | $ | 20,161 | $ | 18,950 | ||||
| Net loss attributable to non-controlling interests | (533 | ) | (243 | ) | ||||
| Acquisition of the non-controlling interest in USAI | 29 | - | ||||||
| Cumulative effect of accounting change - credit loss | (102 | ) | - | |||||
| Dividends declared to non-controlling interest holders of non-wholly owned subsidiaries | (430 | ) | - | |||||
| Foreign currency translation adjustment attributable to non-controlling interests | (364 | ) | 457 | |||||
| Balance at end of the period | $ | 18,761 | $ | 19,164 | ||||
| 16. | Net product sales |
Revenue Disaggregation
Management has concluded that the disaggregation level is the same under both the revenue standard and the segment reporting standard. Please refer to Note 24.
Contract Assets and Liabilities
Contract assets, such as costs to obtain or fulfill contracts, are an insignificant component of the Company’s revenue recognition process. The majority of the Company’s cost of fulfillment as a manufacturer of products is classified as inventory, fixed assets and intangible assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of the Company’s products and their respective manufacturing processes.
Contract liabilities are mainly customer deposits. As of March 31, 2020 and December 31, 2019, the Company has customer deposits of $1.0 million and $1.3 million, respectively, which were included in other current liabilities on the consolidated balance sheets. During the three months ended March 31, 2020, $0.3 million was received and $0.6 million (including $0.6 million from the beginning balance of customer deposits) was recognized as net product sales revenue. Customer deposits represent non-refundable cash deposits for customers to secure rights to an amount of products produced by the Company under supply agreements. When the products are shipped to customers, the Company will recognize revenue and bill the customers to reduce the amount of the customer deposit liability.
15
| 17. | Financial expense, net |
During the three months ended March 31, 2020 and 2019, the Company recorded financial expense, net which is summarized as follows (figures are in thousands of USD):
Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Interest income | $ | 351 | $ | 764 | ||||
| Foreign exchange loss, net | (711 | ) | (1,250 | ) | ||||
| Bank fees | (171 | ) | (179 | ) | ||||
| Total financial expense, net | $ | (531 | ) | $ | (665 | ) | ||
| 18. | Income tax |
Income tax expense was $0.5 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively. The increase in income tax expense was primarily due to the increase in Hubei Henglong’s income before income tax expenses and equity in earnings of affiliated companies
| 19. | Income per share |
Basic income per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted income per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. The dilutive effect of outstanding stock options is determined based on the treasury stock method.
The calculations of basic and diluted income per share attributable to the parent company for the three months ended March 31, 2020 and 2019, were as follows (figures are in thousands of USD, except share and per share amounts):
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Numerator: | ||||||||
| Net income attributable to the parent company’s common shareholders - Basic and Diluted | $ | 45 | $ | 1,467 | ||||
| Denominator: | ||||||||
| Weighted average shares outstanding | 31,174,045 | 31,507,487 | ||||||
| Dilutive effects of stock options | 74 | 5,810 | ||||||
| Denominator for dilutive income per share - Diluted | 31,174,119 | 31,513,297 | ||||||
| Net income per share attributable to parent company’s common shareholders - Basic | $ | - | $ | 0.05 | ||||
| Net income per share attributable to parent company’s common shareholders - Diluted | $ | - | $ | 0.05 | ||||
As of March 31, 2020 and 2019, the exercise prices for 22,500 shares and 112,500 shares, respectively, of outstanding stock options were above the weighted average market price of the Company’s common stock during the three months ended March 31, 2020 and 2019, respectively. Therefore, these stock options were excluded from the calculation of the diluted income per share for the corresponding periods presented.
16
| 20. | Significant concentrations |
A significant portion of the Company’s business is conducted in China where the currency is the RMB. Regulations in China permit foreign owned entities to freely convert the RMB into foreign currency for transactions that fall under the "current account", which includes trade related receipts and payments, interest and dividends. Accordingly, the Company’s Chinese subsidiaries may use RMB to purchase foreign exchange for settlement of such "current account" transactions without pre-approval.
China Automotive, the parent company, may depend on dividend payments from Genesis and HLUSA, which are generated from their subsidiaries in China, “China-based Subsidiaries,” after they receive payments from the China-based Subsidiaries. Regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Under PRC law China-based Subsidiaries are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to their general reserves until the cumulative amount reaches 50% of their paid-in capital. These reserves are not distributable as cash dividends, or as loans or advances. These foreign-invested enterprises may also allocate a portion of their after-tax profits, at the discretion of their boards of directors, to their staff welfare and bonus funds. Any amounts so allocated may not be distributed and, accordingly, would not be available for distribution to Genesis and HLUSA.
The PRC government also imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currencies out of China. The China-based Subsidiaries may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currencies. If China Automotive is unable to receive dividend payments from its subsidiaries, including the China-based subsidiaries, China Automotive may be unable to effectively finance its operations or pay dividends on its shares.
Transactions other than those that fall under the "current account" and that involve conversion of RMB into foreign currency are classified as "capital account" transactions; examples of "capital account" transactions include repatriations of investment by or loans to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity. "Capital account" transactions require prior approval from China's State Administration of Foreign Exchange, or SAFE, or its provincial branch to convert a remittance into a foreign currency, such as U.S. Dollars, and transmit the foreign currency outside of China.
This system could be changed at any time and any such change may affect the ability of the Company or its subsidiaries in China to repatriate capital or profits, if any, outside China. Furthermore, SAFE has a significant degree of administrative discretion in implementing the laws and has used this discretion to limit convertibility of current account payments out of China. Whether as a result of a deterioration in the Chinese balance of payments, a shift in the Chinese macroeconomic prospects or any number of other reasons, China could impose additional restrictions on capital remittances abroad. As a result of these and other restrictions under the laws and regulations of the People's Republic of China, or the PRC, the Company’s China subsidiaries are restricted in their ability to transfer a portion of their net assets to the parent. The Company has no assurance that the relevant Chinese governmental authorities in the future will not limit further or eliminate the ability of the Company’s China subsidiaries to purchase foreign currencies and transfer such funds to the Company to meet its liquidity or other business needs. Any inability to access funds in China, if and when needed for use by the Company outside of China, could have a material and adverse effect on the Company’s liquidity and its business.
| 21. | Related party transactions and balances |
Related party transactions are as follows (figures are in thousands of USD):
Related sales
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Merchandise sold to related parties | $ | 7,494 | $ | 12,836 | ||||
| Materials and others sold to related parties | 270 | 461 | ||||||
| Rental income obtained from related parties | 77 | 80 | ||||||
| Total | $ | 7,841 | $ | 13,377 | ||||
17
Related purchases
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Materials purchased from related parties | $ | 3,134 | $ | 5,504 | ||||
| Equipment purchased from related parties | 69 | 760 | ||||||
| Others purchased from related parties | 4 | 11 | ||||||
| Total | $ | 3,207 | $ | 6,275 | ||||
Related receivables
| March 31, 2020 | December 31, 2019 | |||||||
| Accounts and notes receivable from related parties | $ | 13,625 | $ | 21,164 | ||||
Related advance payments
| March 31, 2020 | December 31, 2019 | |||||||
| Advance payments for property, plant and equipment to related parties | $ | 2,514 | $ | 2,311 | ||||
| Advance payments and others to related parties | 1,494 | 1,287 | ||||||
| Total | $ | 4,008 | $ | 3,598 | ||||
Related payables
| March 31, 2020 | December 31, 2019 | |||||||
| Accounts and notes payable | $ | 8,391 | $ | 6,492 | ||||
These transactions were consummated under similar terms as those with the Company's third party customers and suppliers.
As of June 23, 2020, Hanlin Chen, the chairman of the board of directors of the Company, owns 57.3% of the common stock of the Company and has the effective power to control the vote on substantially all significant matters without the approval of other stockholders.
| 22. | Commitments and contingencies |
Legal proceedings
On January 7, 2019, three purported stockholders of the Company filed a stockholder derivative complaint on behalf of the Company against the Company’s directors Hanlin Chen, Qizhou Wu and Guangxun Xu and former directors Arthur Wong and Robert Tung in the Delaware Court of Chancery, alleging that they had (a) breached their fiduciary duties by approving and paying excessive compensation to the non-employee directors of the Company, Arthur Wong, Guangxun Xu and Robert Tung, and (b) failed to make full and accurate disclosure of all material information with respect to director qualification and director compensation paid in 2017 in the Company’s annual proxy statement on Schedule 14A filed on October 10, 2018. The directors have engaged their own counsel to answer this complaint. On April 9, 2019, the Company moved to dismiss the complaint. The motion to dismiss was denied on July 17, 2019. The directors of the Company will continue to answer this complaint. Management expects the impact of the suit on the Company’s consolidated financial statements to be immaterial.
Other than as described above, the Company is not a party to any pending or, to the best of the Company’s knowledge, any threatened legal proceedings and no director, officer or affiliate of the Company, or owner of record of more than five percent of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.
18
Other commitments and contingencies
In addition to the bank loans, notes payables and the related interest, the following table summarizes the Company’s major commitments and contingencies as of March 31, 2020 (figures are in thousands of USD):
| Payment obligations by period | ||||||||||||||||||||
| 2020 | 2021 | 2022 | Thereafter | Total | ||||||||||||||||
| Obligations for investment contracts (1) | $ | 4,841 | $ | 423 | $ | - | $ | - | $ | 5,264 | ||||||||||
| Obligations for purchasing and service agreements | 21,225 | 1,229 | - | - | 22,454 | |||||||||||||||
| Total | $ | 26,066 | $ | 1,652 | $ | - | $ | - | $ | 27,718 | ||||||||||
| (1) |
In March 2018, Hubei Henglong entered into an agreement with other parties to establish a venture capital fund, the “Hubei Venture Fund”. Hubei Henglong has committed to make investments of RMB 76.0 million, equivalent to approximately $11.5 million. In March 2020, Hubei Henglong entered into an agreement with Jingzhou Henglong Real Estate Co., Ltd. to purchase 8.0% of the Hubei Venture Fund’s equity for nil consideration, and Hubei Henglong has committed to increase its investments in Hubei Venture Fund to RMB 98.5 million, equivalent to approximately $13.9 million. As of March 31, 2020, Hubei Henglong has made investments of RMB 78.8 million, equivalent to approximately $11.1 million, representing 35.2% of Hubei Venture Fund’s equity. According to the agreement, the remaining capital commitment of RMB 19.7 million, equivalent to approximately $2.8 million, will be paid in 2020.
In April 2019, Hubei Henglong entered into an agreement with other parties and committed to contribute RMB 5.0 million, equivalent to approximately $0.7 million, to Jiangsu Intelligent Networking Automotive Innovation Center Co. Ltd., “Jiangsu Intelligent”, representing 19.2% of Jiangsu Intelligent’s shares. As of March 31, 2020, Hubei Henglong has completed a capital contribution of RMB 3.0 million, equivalent to approximately $0.4 million. According to the agreement, the remaining capital commitment of RMB 2.0 million, equivalent to approximately $0.3 million, will be paid in 2020.
In November 2019, Hubei Henglong entered into an agreement with other parties and committed to purchase 70% of the shares of Hefei Senye Light Plastic Technology Co., Ltd. for total consideration of RMB 33.6 million, equivalent to approximately $4.8 million. As of March 31, 2020, Hubei Henglong has paid the amount of RMB 18.0 million, equivalent to approximately $2.5 million, which was reported in other non-current assets as the transfer of shares had not been consummated. According to the agreement, of the remaining consideration of RMB 15.6 million, equivalent to approximately $2.2 million, $1.8 million will be paid in 2020 and the remaining $0.4 million will be paid in 2021. |
| 23. | Off-balance sheet arrangements |
As of March 31, 2020 and December 31, 2019, the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet arrangements.
| 24. | Segment reporting |
The accounting policies of the product sectors (each entity manufactures and sells different products and represents a different product sector) are the same as those described in the summary of significant accounting policies disclosed in the Company’s 2019 Annual Report on Form 10-K except that the disaggregated financial results for the product sectors have been prepared using a management approach, which is consistent with the basis and manner in which management internally disaggregates financial information for the purposes of assisting them in making internal operating decisions. Generally, the Company evaluates performance based on stand-alone product sector operating income and accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, at current market prices. Each product sector is considered a reporting segment.
19
As of March 31, 2020, the Company had 14 product sectors, six of which were principal profit makers and were reported as separate sectors and engaged in the production and sales of power steering (Henglong, Jiulong, Shenyang, Wuhu, Henglong KYB and Hubei Henglong), and one holding company (Genesis). The other eight sectors were engaged in the production and sale of modular sensors (USAI), automobile steering columns (Jielong), provision of after sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong), manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie), research and development of intelligent automotive technology (Jingzhou Qingyan) and manufacture and sales of automotive motors and electromechanical integrated systems (Wuhan Hyoseong).
As of March 31, 2019, the Company had 13 product sectors, six of which were principal profit makers and were reported as separate sectors and engaged in the production and sales of power steering (Henglong, Jiulong, Shenyang, Wuhu, Henglong KYB and Hubei Henglong), and one holding company (Genesis). The other seven sectors were engaged in the production and sale of sensor modular (USAI), automobile steering columns (Jielong), provision of after-sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong), manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie) and research and development of intelligent automotive technology (Jingzhou Qingyan).
The Company’s product sector information for the three months ended March 31, 2020 and 2019, is as follows (figures are in thousands of USD):
| Net Product Sales | Net (Loss)/Income | |||||||||||||||
| Three Months Ended | Three Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Henglong | $ | 23,907 | $ | 40,964 | $ | (682 | ) | $ | (2,121 | ) | ||||||
| Jiulong | 12,759 | 22,122 | (1,450 | ) | 1,168 | |||||||||||
| Shenyang | 2,793 | 4,895 | (170 | ) | (299 | ) | ||||||||||
| Wuhu | 2,803 | 6,998 | 239 | (175 | ) | |||||||||||
| Hubei Henglong | 28,132 | 28,175 | 4,065 | 1,372 | ||||||||||||
| Henglong KYB | 6,126 | 19,954 | (907 | ) | (396 | ) | ||||||||||
| Other Entities | 9,482 | 17,296 | (1,795 | ) | 1,455 | |||||||||||
| Total Segments | 86,002 | 140,404 | (700 | ) | 1,004 | |||||||||||
| Corporate | - | - | (61 | ) | (301 | ) | ||||||||||
| Eliminations | (12,447 | ) | (31,211 | ) | 273 | 521 | ||||||||||
| Total | $ | 73,555 | $ | 109,193 | $ | (488 | ) | $ | 1,224 | |||||||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
The following discussion and analysis should be read in conjunction with the Company’s condensed unaudited consolidated financial statements and the related notes thereto and the other financial information contained elsewhere in this Report.
General Overview
China Automotive Systems, Inc. is a leading power steering systems supplier for the China automobile industry. The Company has business relations with more than sixty vehicle manufacturers, including JAC Motors, Changan Automobile Group, BAIC Group, SAIC Group and Dongfeng Auto Group, the five largest automobile manufacturers in China; Shenyang Brilliance Jinbei Co., Ltd., the largest light vehicle manufacturer in China; Chery Automobile Co., Ltd., the largest state owned car manufacturer in China; BYD Auto Co., Ltd. and Zhejiang Geely Automobile Co., Ltd., the largest privately owned car manufacturers in China. The PRC-based joint ventures of General Motors (GM), Volkswagen, Citroen and Chrysler North America are all key customers. Starting in 2008, the Company has supplied power steering pumps and power steering gear to the Sino-foreign joint ventures established by GM, Citroen and Volkswagen in China. The Company has supplied power steering gears to Fiat Chrysler North America since 2009 and to Ford Motor Company since 2016.
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Most of the Company’s production and research and development institutes are located in China. The Company has approximately 3,998 employees dedicated to design, development, manufacture and sales of its products. By leveraging its extensive experience, innovative technology and geographic strengths, the Company aims to grow leading positions in automotive power steering systems and to further improve overall margins, long-term operating profitability and cash flows. To achieve these goals and to respond to industry factors and trends, the Company is continuing work to improve its operations and business structure and achieve profitable growth.
As a result of the COVID-19 outbreak in the first quarter of 2020, the Company’s net product sales decreased by 33% in the first quarter of 2020 compared with the same quarter of last year. In addition, the Company’s businesses, results of operations, financial position and cash flows will be materially and adversely affected in the second quarter of 2020 with potential continuing impacts on subsequent periods, including but not limited to the material adverse impact on the Company’s revenues as result of the suspension of operations, interruption of supply chain and reduction of demand by the Company’s customers. Because of the significant uncertainties surrounding COVID-19, which are still evolving, the extent of the business disruption, including the duration and the related financial impact on subsequent periods cannot be reasonably estimated at this time. See “Item 1A. Risk Factors—Our business operations have been and may continue to be materially and adversely affected by the outbreak of the coronavirus disease (COVID-19)” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Corporate Structure
The Company, through its subsidiaries, engages in the manufacture and sales of automotive systems and components. Great Genesis Holdings Limited, a company incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance of Hong Kong as a limited liability company, “Genesis,” is a wholly-owned subsidiary of the Company and the holding company of the Company’s joint ventures in the PRC. Henglong USA Corporation, “HLUSA,” incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and mainly engages in marketing of automotive parts in North America, and provides after-sales service and research and development support. CAAS Brazil’s Imports And Trade In Automotive Parts Ltd., “Brazil Henglong,” was established by Hubei Henglong Automotive System Group Co., Ltd., formerly known as Jingzhou Hengsheng Automotive System Co., Ltd., “Hubei Henglong,” as a Sino-foreign joint venture company with two Brazilian citizens in Brazil in August 2012. In May 2017, the Company obtained an additional 15.84% equity interest in Brazil Henglong for nil consideration. The Company retained its controlling interest in Brazil Henglong and the acquisition of the non-controlling interest was accounted for as an equity transaction. Fujian Qiaolong was acquired by the Company in the second quarter of 2014, as a joint venture company that mainly manufactures and distributes drainage and rescue vehicles with mass flow, drainage vehicles with vertical downhole operation, crawler-type mobile pump stations, high-altitude water supply and discharge drainage vehicles, long-range control crawler-type mobile pump stations and other vehicles, which was disposed of by the Company in the second quarter of 2016. USAI was established in 2005, and the Company and Hubei Wanlong owned 83.34% and 16.66%, respectively. During the first quarter of 2020, USAI merged with and into Wuhan Chuguanjie, a wholly-owned subsidiary of Wuhan Jielong, and deregistered from the local business administration on April 28, 2020. Following the merger, 85.0% of Wuhan Chuguanjie was owned by the Company and 15.0% was owned by Hubei Wanlong.
Critical Accounting Estimates
The Company prepares its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions. The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s condensed consolidated financial statements.
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The Company considers an accounting estimate to be critical if:
| · | It requires the Company to make assumptions about matters that were uncertain at the time it was making the estimate, and |
| · | Changes in the estimate or different estimates that the Company could have selected would have had a material impact on the Company’s financial condition or results of operations. |
The table below presents information about the nature and rationale for the Company’s critical accounting estimates:
| Balance Sheet Caption |
Critical Estimate Item |
Nature of Estimates Required |
Assumptions/Approaches Used |
Key Factors | ||||||
|
Accrued liabilities and other long-term liabilities
|
Warranty obligations
|
Estimating warranty requires the Company to forecast the resolution of existing claims and expected future claims on products sold. OEMs (Original Equipment Manufacturers) are increasingly seeking to hold suppliers responsible for product warranties, which may impact the Company’s exposure to these costs. | The Company bases its estimate on historical trends of units sold and payment amounts, combined with its current understanding of the status of existing claims and discussions with its customers. |
·OEM sourcing ·OEM policy decisions regarding warranty claims
| ||||||
| Property, plant and equipment, intangible assets and other long-term assets |
Valuation of long- lived assets and investments
|
The Company is required from time to time to review the recoverability of certain of its assets based on projections of anticipated future cash flows, including future profitability assessments of various product lines. | The Company estimates cash flows using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments. |
·Future production estimates ·Customer preferences and decisions | ||||||
|
Accounts receivable |
Allowance for doubtful accounts |
The Company is required from time to time to review the credit of customers and make timely provision of allowance for doubtful accounts. |
The Company estimates the collectability of the receivables based on the future cash flows using historical experiences. | Customer credit | ||||||
|
Inventory
|
Write-down of inventory
|
The Company is required from time to time to review the cash ability of inventory based on projections of anticipated future cash flows, including write-down of inventory for prices that are higher than market price and undesirable inventories. | The Company estimates cash flows using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments. |
·Future production estimates ·Customer preferences and decisions | ||||||
|
Deferred income taxes
|
Recoverability of deferred tax assets
|
The Company is required to estimate whether recoverability of its deferred tax assets is more likely than not based on forecasts of taxable earnings in the related tax jurisdiction. | The Company uses historical and projected future operating results, based upon approved business plans, including a review of the eligible carry forward period, tax planning opportunities and other relevant considerations. |
·Tax law changes ·Variances in future projected profitability, including by taxing entity |
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Recent Accounting Pronouncements
Please see Note 2 to the consolidated financial statements under Item 1 of Part I of this report.
Results of Operations
Three Months Ended March 31, 2020 and 2019
Selected highlights from our results of operations are as follows (in thousands of U.S. dollars):
| Three Months Ended March 31, | ||||||||||||||||
| 2020 | 2019 | Change | Change% | |||||||||||||
| Net product sales | $ | 73,555 | $ | 109,193 | $ | (35,638 | ) | -32.6 | % | |||||||
| Cost of products sold | 62,403 | 95,148 | (32,745 | ) | -34.4 | |||||||||||
| Gain on other sales | 600 | 1,269 | (669 | ) | -52.7 | |||||||||||
| Selling expenses | 2,118 | 3,085 | (967 | ) | -31.3 | |||||||||||
| General and administrative expenses | 3,429 | 4,590 | (1,161 | ) | -25.3 | |||||||||||
| Research and development expenses | 5,053 | 6,602 | (1,549 | ) | -23.5 | |||||||||||
| Other income, net | 117 | 1,407 | (1,290 | ) | -91.7 | |||||||||||
| Interest expense | (365 | ) | (568 | ) | 203 | -35.7 | ||||||||||
| Income taxes | 514 | 198 | 316 | 159.6 | ||||||||||||
| Net (loss)/income | (488 | ) | 1,224 | (1,712 | ) | -139.9 | ||||||||||
| Net loss attributable to non-controlling interests | (533 | ) | (243 | ) | (290 | ) | 119.3 | |||||||||
| Net income attributable to parent company’s common shareholders | 45 | 1,467 | (1,422 | ) | -96.9 | % | ||||||||||
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Net Product Sales and Cost of Products Sold
| Net Product Sales | Cost of Products Sold | |||||||||||||||||||||||||||||||||||
| (in thousands of USD, except percentages) |
(in thousands of USD, except percentages) |
|||||||||||||||||||||||||||||||||||
| 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||||||||||||||
| Henglong | $ | 23,907 | $ | 40,964 | $ | (17,057 | ) | -41.6 | % | $ | 23,069 | $ | 40,742 | $ | (17,673 | ) | -43.4 | % | ||||||||||||||||||
| Jiulong | 12,759 | 22,122 | (9,363 | ) | -42.3 | 13,347 | 18,837 | (5,490 | ) | -29.1 | ||||||||||||||||||||||||||
| Shenyang | 2,793 | 4,895 | (2,102 | ) | -42.9 | 2,421 | 4,546 | (2,125 | ) | -46.7 | ||||||||||||||||||||||||||
| Wuhu | 2,803 | 6,998 | (4,195 | ) | -59.9 | 2,375 | 6,745 | (4,370 | ) | -64.8 | ||||||||||||||||||||||||||
| Hubei Henglong | 28,132 | 28,175 | (43 | ) | -0.2 | 19,307 | 21,920 | (2,613 | ) | -11.9 | ||||||||||||||||||||||||||
| Henglong KYB | 6,126 | 19,954 | (13,828 | ) | -69.3 | 6,083 | 19,130 | (13,047 | ) | -68.2 | ||||||||||||||||||||||||||
| Other Entities | 9,482 | 17,296 | (7,814 | ) | -45.2 | 8,389 | 14,624 | (6,235 | ) | -42.6 | ||||||||||||||||||||||||||
| Total Segments | 86,002 | 140,404 | (54,402 | ) | -38.7 | 74,991 | 126,544 | (51,553 | ) | -40.7 | ||||||||||||||||||||||||||
| Elimination | (12,447 | ) | (31,211 | ) | 18,764 | -60.1 | (12,588 | ) | (31,396 | ) | 18,808 | -59.9 | ||||||||||||||||||||||||
| Total | $ | 73,555 | $ | 109,193 | $ | (35,638 | ) | -32.6 | % | $ | 62,403 | $ | 95,148 | $ | (32,745 | ) | -34.4 | % | ||||||||||||||||||
Net Product Sales
Net product sales were $73.6 million for the three months ended March 31, 2020, compared to $109.2 million for the same period in 2019, representing a decrease of $35.6 million, or 32.6%, mainly due to the impact of the outbreak of COVID-19.
Net sales of traditional steering products and parts were $65.5 million for the three months ended March 31, 2020, compared to $87.0 million for the same period in 2019, representing a decrease of $21.5 million, or 24.7%. Net sales of electric power steering (“EPS”) were $8.1 million for the three months ended March 31, 2020 and $22.2 million for the same period in 2019, representing a decrease of $14.1 million, or 63.5%. As a percentage of net sales, sales of EPS were 11.0% for the three months ended March 31, 2020, compared with 20.3% for the same period in 2019.
The decrease in net product sales was due to the effects of three major factors: i) the decrease in sales volume led to a sales decrease of $27.1 million due to the significant decline of demand as a result of the suspension of manufacturing and operations of the Company’s customers due to the outbreak of COVID-19; ii) the decrease in average selling price of steering gears led to a sales decrease of $4.1 million; and iii) the depreciation of the RMB against the U.S. dollar in this quarter compared to the same quarter last year, resulting in a sales decrease of $4.4 million.
Further analysis by segment (before elimination) is as follows:
| · | Henglong mainly engages in providing passenger vehicle steering systems. Net product sales for Henglong were $23.9 million for the three months ended March 31, 2020, compared with $41.0 million for the three months ended March 31, 2019, representing a decrease of $17.1 million, or 41.7%. A decrease in sales volume led to a sales decrease of $14.5 million, a decrease in selling price led to a sales decrease of $1.2 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $1.4 million. |
| · | Jiulong mainly engages in providing commercial vehicle steering systems. Net product sales for Jiulong were $12.8 million for the three months ended March 31, 2020, compared with $22.1 million for the three months ended March 31, 2019, representing a decrease of $9.3 million, or 42.1%. A decrease in sales volume led to a sales decrease of $7.5 million, a decrease in selling price led to a sales decrease of $1.0 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $0.8 million. |
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| · | Shenyang mainly engages in providing vehicle steering systems to Shenyang Brilliance Jinbei Automobile Co., Ltd. (“Jinbei”), one of the major automotive manufacturers in China. Net product sales for Shenyang were $2.8 million for the three months ended March 31, 2020, compared to $4.9 million for the same period in 2019, representing a decrease of $2.1 million, or 42.9%. A decrease in sales volume led to a sales decrease of $1.7 million, a decrease in selling price led to a sales decrease of $0.3 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $0.1 million. |
| · | Wuhu mainly engages in providing vehicle steering systems to Chery Automobile Co., Ltd. (“Chery”), one of the major automotive manufacturers in China. Net product sales for Wuhu were $2.8 million for the three months ended March 31, 2020, compared to $7.0 million for the same period in 2019, representing a decrease of $4.2 million, or 60.0%. A decrease in sales volumes led to a sales decrease of $4.4 million, an increase in selling prices led to a sales increase of $0.4 million and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $0.2 million. |
| · | Hubei Henglong mainly engages in providing vehicle steering systems to Chrysler and Ford. Net product sales for Hubei Henglong were $28.1 million for the three months ended March 31, 2020, compared with $28.2 million for the three months ended March 31, 2019, representing a decrease of $0.1 million, or 0.4%. An increase in sales volume led to a sales increase of $1.0 million, a decrease in selling price led to a sales decrease of $0.1 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $1.0 million. |
| · | Henglong KYB mainly engages in providing passenger EPS products. Net product sales for Henglong KYB were $6.1 million for the three months ended March 31, 2020, compared with $20.0 million for the three months ended March 31, 2019, representing a decrease of $13.9 million, or 69.5%. A decrease in sales volume led to a sales decrease of $12.5 million, a decrease in selling price led to a sales decrease of $0.8 million, and the effect of foreign currency translation of the RMB against the U.S. dollar led to a sales decrease of $0.6 million. |
| · | Net product sales for other entities were $9.5 million for the three months ended March 31, 2020, compared to $17.3 million for the same period in 2019, representing a decrease of $7.8 million, or 45.1%. |
Cost of Products Sold
For the three months ended March 31, 2020, the cost of products sold was $62.4 million, compared to $95.1 million for the same period of 2019, representing a decrease of $32.7 million, or 34.4%. The decrease in cost of sales was mainly due to the effect of the following major factors: i) the decrease in sales volumes led to a cost of sales decrease of $25.8 million; ii) the decrease in unit cost led to a cost of sales decrease of $2.9 million; and iii) the depreciation of the RMB against the U.S. dollar resulted in a cost of sales decrease of $4.0 million. Further analysis is as follows:
| · | Cost of products sold for Henglong was $23.1 million for the three months ended March 31, 2020, compared to $40.7 million for the same period of 2019, representing a decrease of $17.6 million, or 43.2%. The decrease in cost of sales was mainly due to a decrease in sales volumes resulting in a cost of sales decrease of $15.5 million, a decrease in unit cost resulting in a cost of sales decrease of $0.8 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales decrease of $1.3 million. |
| · | Cost of products sold for Jiulong was $13.3 million for the three months ended March 31, 2020, compared to $18.8 million for the same period of 2019, representing a decrease of $5.5 million, or 29.3%. The decrease in cost of sales was mainly due to a decrease in sales volumes resulting in a cost of sales decrease of $6.5 million, an increase in unit cost resulting in a cost of sales increase of $1.6 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales decrease of $0.6 million. |
| · | Cost of products sold for Shenyang was $2.4 million for the three months ended March 31, 2020, compared to $4.5 million for the same period of 2019, representing a decrease of $2.1 million, or 46.7%. The decrease in cost of sales was mainly due to a decrease in sales volumes resulting in a cost of sales decrease of $1.6 million, a decrease in unit cost resulting in a cost of sales decrease of $0.4 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales decrease of $0.1 million. |
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| · | Cost of products sold for Wuhu was $2.4 million for the three months ended March 31, 2020, compared to $6.7 million for the same period of 2019, representing a decrease of $4.3 million, or 64.2%. The decrease in cost of sales was mainly due to a decrease in sales volumes resulting in a cost of sales decrease of $4.2 million, an increase in unit cost resulting in a cost of sales increase of $0.1 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales decrease of $0.2 million. |
| · | Cost of products sold for Hubei Henglong was $19.3 million for the three months ended March 31, 2020, compared to $21.9 million for the same period of 2019, representing a decrease of $2.6 million, or 11.9%. The decrease in cost of sales was mainly due to an increase in sales volumes resulting in a cost of sales increase of $0.2 million, a decrease in unit cost resulting in a cost of sales decrease of $2.1 million, and the effect of foreign currency translation of the RMB against the U.S. dollar resulting in a cost of sales decrease of $0.7 million. |
| · | Cost of products sold for Henglong KYB was $6.1 million for the three months ended March 31, 2020, compared to $19.1 million for the same period of 2019, representing a decrease of $13.0 million, or 68.1%. The decrease in cost of sales was mainly due to a decrease in sales volumes resulting in a cost of sales decrease of $12.0 million, a decrease in unit cost resulting in a cost of sales decrease of $0.5 million, and the depreciation of the RMB against the U.S. dollar resulting in a cost of sales decrease of $0.5 million. |
| · | Cost of products sold for other entities was $8.4 million for the three months ended March 31, 2020, compared to $14.6 million for the same period in 2019, representing a decrease of $6.2 million, or 42.5%. |
Gross margin was 15.2% for the three months ended March 31, 2020, compared to 12.9% for the same period of 2019, representing an increase of 2.3%, mainly due to the changes in the product mix for the three months ended March 31, 2020.
Selling Expenses
Selling expenses were $2.1 million for the three months ended March 31, 2020, as compared with $3.1 million for the same period of 2019, representing a decrease of $1.0 million, or 32.3%, which was primarily due to the lower freight expenses, resulting from the suspension of the Company’s operations for most of the quarter due to the outbreak of the COVID-19 pandemic.
General and Administrative Expenses
General and administrative expenses were $3.4 million for the three months ended March 31, 2020, as compared to $4.6 million for the same period of 2019, representing a decrease of $1.2 million, or 26.1%, which was primarily due to lower office expenses, resulting from the suspension of the Company’s operations for most of the quarter due to the outbreak of the COVID-19 pandemic.
Research and Development Expenses
Research and development expenses were $5.1 million for the three months ended March 31, 2020, as compared to $6.6 million for the three months ended March 31, 2019, representing a decrease of $1.5 million, or 22.7%, which was mainly due to cost control on research and development expenditures and the suspension of the Company’s operations for most of the quarter due to the outbreak of the COVID-19 pandemic.
Other Income, Net
Other income, net was $0.1 million for the three months ended March 31, 2020, compared to $1.4 million for the three months ended March 31, 2019, representing a decrease of $1.3 million in other income.
Interest Expense
Interest expense was $0.4 million for the three months ended March 31, 2020, compared to $0.6 million for the three months ended March 31, 2019, which was primarily due to decreased loans.
Income Taxes
Income tax expense was $0.5 million for the three months ended March 31, 2020, compared to $0.2 million for the three months ended March 31, 2019, which was due to greater valuation allowance provided for the loss-making entities.
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Net Loss Attributable to Non-controlling Interests
Net loss attributable to non-controlling interests amounted to $0.5 million for the three months ended March 31, 2020, compared to $0.2 million for the three months ended March 31, 2019.
Net Income Attributable to Parent Company’s Common Shareholders
Net income attributable to parent company’s common shareholders was $0.1 million for the three months ended March 31, 2020, compared to $1.5 million for the three months ended March 31, 2019, representing a decrease of $1.4 million.
Liquidity and Capital Resources
Capital Resources and Use of Cash
The Company has historically financed its liquidity requirements from a variety of sources, including short-term borrowings under bank credit agreements, bankers’ acceptances, issuances of capital stock and notes and internally generated cash. As of March 31, 2020, the Company had cash and cash equivalents and short-term investments of $108.2 million, compared to $82.5 million as of December 31, 2019, representing an increase of $25.7 million, or 31.2%.
The Company had working capital (total current assets less total current liabilities) of $135.6 million as of March 31, 2020, compared to $137.4 million as of December 31, 2019, representing a decrease of $1.8 million, or 1.3%.
Except for the expected distribution of dividends from the Company’s PRC subsidiaries to the Company in order to fund the payment of the one-time transition tax due to the U.S. Tax Reform, the Company intends to indefinitely reinvest the funds in subsidiaries established in the PRC.
We expect that the outbreak of COVID-19 will have material and adverse impacts on our cash flow for the second quarter of 2020 with potential continuing impacts on subsequent periods. However, based on our liquidity assessment, we believe that our cash flow from operations and proceeds from our financing activities will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the foreseeable future and for at least twelve months subsequent to the filing of this report.
Capital Source
The Company’s capital source is multifaceted, such as bank loans and banks’ acceptance facilities. In financing activities and operating activities, the Company’s banks require the Company to sign line of credit agreements and repay such facilities within one to two years. On the condition that the Company can provide adequate mortgage security and has not violated the terms of the line of credit agreement, such facilities can be extended for another one to two years.
The Company had short-term loans of $44.1 million (See Note 7) and bankers’ acceptances of $58.1 million (See Note 8) as of March 31, 2020.
The Company currently expects to be able to obtain similar bank loans, i.e., RMB loans, and bankers’ acceptance facilities in the future if it can provide adequate mortgage security following the termination of the above-mentioned agreements, see the table under “Bank Arrangements” below for more information. If the Company is not able to do so, it will have to refinance such debt as it becomes due or repay that debt to the extent it has cash available from operations or from the proceeds of additional issuances of capital stock. Due to a depreciation of assets, the value of the mortgages securing the above-mentioned bank loans and banker's acceptances is expected to be reduced by approximately $12.5 million over the next 12 months. If the Company wishes to obtain the same amount of bank loans and banker's acceptances, it will have to provide additional mortgages of $12.5 million as of the maturity date of such line of credit agreements, see the table under “Bank Arrangements” below for more information. The Company can still obtain a reduced line of credit with a reduction of $8.5 million, which is 68.0%, the mortgage rate, of $12.5 million, if it cannot provide additional mortgages. The Company expects that the reduction in bank loans will not have a material adverse effect on its liquidity.
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Bank Arrangements
As of March 31, 2020, the principal outstanding under the Company’s credit facilities and lines of credit was as follows (figures are in thousands of USD):
| Bank | Due Date | Amount Available(3) | Amount Used(4) | Assessed Mortgage Value(5) | ||||||||||||
| 1. Comprehensive credit facilities | Bank of China(2) | Sep-2020 | $ | 16,373 | $ | 6,491 | $ | - | ||||||||
| 2. Comprehensive credit facilities | Hubei Bank(1) | Nov-2019 | 25,405 | 10,247 | 53,261 | |||||||||||
| 3. Comprehensive credit facilities | Shanghai Pudong Development Bank(2) | Jul-2020 | 18,348 | 9,583 | 20,748 | |||||||||||
| 4. Comprehensive credit facilities | China CITIC Bank(1) (2) | Jun-2020 | 71,982 | 32,931 | 20,107 | |||||||||||
| China CITIC Bank | Jun-2022 | 3,049 | 1,976 | 6,225 | ||||||||||||
| 5. Comprehensive credit facilities | China Everbright Bank | Mar-2021 | 4,234 | 3,414 | 8,976 | |||||||||||
| 6. Comprehensive credit facilities | China Merchants Bank(1) (2) | Feb-2020 | 21,171 | 1,605 | - | |||||||||||
| 7. Comprehensive credit facilities | Bank of Chongqing | Sep-2021 | 706 | 494 | 2,205 | |||||||||||
| 8. Comprehensive credit facilities | Hankou Bank(1) (2) | Dec-2019 | 15,526 | 5,646 | - | |||||||||||
| 9. Comprehensive credit facilities | Agricultural Bank of China | Mar-2021 | 988 | 988 | 3,921 | |||||||||||
| 10. Comprehensive credit facilities | Huishang Bank(1) | May-2020 | 2,117 | - | - | |||||||||||
| Total | $ | 179,899 | $ | 73,375 | $ | 115,443 | ||||||||||
| (1) | These facilities have expired. The Company is currently in the process of negotiating with these banks to renew the credit facilities. |
| (2) | The comprehensive credit facilities with Shanghai Pudong Development Bank are guaranteed by Jielong and Huibei Henglong in addition to the above pledged assets. The comprehensive credit facilities with China CITIC Bank are guaranteed by Henglong and Hubei Henglong in addition to the above pledged assets. The comprehensive credit facilities with Bank of China are guaranteed by Hubei Henglong. The comprehensive credit facilities with Hankou Bank are guaranteed by Henglong. The comprehensive credit facilities with China Merchants Bank are guaranteed by Hubei Henglong. |
| (3) | “Amount available” is used for the drawdown of bank loans and issuance of bank notes at the Company’s discretion. If the Company elects to utilize the facility by issuance of bank notes, additional collateral is requested to be pledged to the bank. |
| (4) | “Amount used” represents the credit facilities used by the Company for the purpose of bank loans or notes payable during the facility contract period. The loans or notes payable under the credit facilities will remain outstanding regardless of the expiration of the relevant credit facilities until the separate loans or notes payable expire. The amount used includes bank loans of $41.9 million and notes payable of $32.5 million as of March 31, 2020. |
| (5) | In order to obtain lines of credit, the Company needs to pledge certain assets to banks. As of March 31, 2020, the pledged assets included property, plant and equipment and land use rights with an aggregate assessed value of $115.4 million. |
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The Company may request the banks to issue notes payable or bank loans within its credit line using a 365-day revolving line.
The Company’s bank loan terms range from 6 months to 23 months. Pursuant to the comprehensive credit line arrangement, the Company pledged and guaranteed:
1. Land use rights and buildings with an assessed value of approximately $20.7 million as security for its revolving comprehensive credit facility with Shanghai Pudong Development Bank.
2. Land use rights and buildings with an assessed value of approximately $20.1 million as security for its comprehensive credit facility with China CITIC Bank Wuhan branch.
3. Land use rights and buildings with an assessed value of approximately $6.2 million as security for its comprehensive credit facility with China CITIC Bank Shenyang branch.
4. Equipment with an assessed value of approximately $53.3 million as security for its revolving comprehensive credit facility with Hubei Bank.
5. Land use rights and buildings with an assessed value of approximately $9.0 million as security for its comprehensive credit facility with China Everbright Bank.
6. Land use rights and buildings with an assessed value of approximately $3.9 million as security for its comprehensive credit facility with Agricultural Bank of China.
7. Land use rights and buildings with an assessed value of approximately $2.2 million as security for its comprehensive credit facility with Bank of Chongqing.
Short-term and Long-term Loans
The following table summarizes the contract information of short-term and long-term borrowings between the banks, government and the Company as of March 31, 2020 (figures are in thousands of USD).
29
Bank Government | Purpose |
Borrowing Date | Borrowing Term (Months) | Annual Interest Rate | Date of Interest Payment | Due Date | Amount Payable on Due Date | |||||||||||||
| Bank of China(1) | Working Capital | May 27, 2019 | 12 | 4.35 | % | Pay monthly | May 26, 2020 | 6,492 | ||||||||||||
| China CITIC Bank(1) | Working Capital | Jun 26, 2019 | 12 | 3.49 | % | Pay in arrear | Jun 19, 2020 | 887 | ||||||||||||
| Hankou Bank | Working Capital | Jun 28, 2019 | 12 | 4.80 | % | Pay monthly | Jun 28, 2020 | 5,646 | ||||||||||||
| China CITIC Bank | Working Capital | Jul 01, 2019 | 12 | 3.49 | % | Pay in arrear | Jun 24, 2020 | 464 | ||||||||||||
| China CITIC Bank | Working Capital | Jul 08, 2019 | 12 | 3.47 | % | Pay in arrear | Jul 03, 2020 | 1,290 | ||||||||||||
| China CITIC Bank | Working Capital | Jul 09, 2019 | 12 | 3.47 | % | Pay in arrear | Jul 07, 2020 | 4,309 | ||||||||||||
| China CITIC Bank | Working Capital | Jul 09, 2019 | 12 | 3.47 | % | Pay in arrear | Jul 07, 2020 | 1,759 | ||||||||||||
| China CITIC Bank | Working Capital | Aug 06, 2019 | 12 | 5.22 | % | Pay monthly | Aug 06, 2020 | 1,976 | ||||||||||||
| Financial Bureau of Jingzhou Development Zone | Working Capital | Aug 07, 2019 | 23 | 3.80 | % | Pay annually | Jun 30, 2021 | 2,823 | ||||||||||||
| China CITIC Bank(1) | Working Capital | Aug 23, 2019 | 8 | 4.80 | % | Pay monthly | Apr 23, 2020 | 1,411 | ||||||||||||
| Financial Bureau of Jingzhou Development Zone | Working Capital | Sep 03, 2019 | 22 | 3.80 | % | Pay annually | Jun 30, 2021 | 4,234 | ||||||||||||
| China CITIC Bank | Working Capital | Sep 11, 2019 | 12 | 3.15 | % | Pay in arrear | Sep 09, 2020 | 2,531 | ||||||||||||
| China CITIC Bank | Working Capital | Sep 20, 2019 | 12 | 3.04 | % | Pay in arrear | Sep 11, 2020 | 1,041 | ||||||||||||
| Financial Bureau of Jingzhou Development Zone | Working Capital | Dec 26, 2019 | 12 | 3.48 | % | Pay annually | Dec 25, 2020 | 2,117 | ||||||||||||
| Bank of Chongqing | Working Capital | Jan 16, 2020 | 12 | 4.35 | % | Pay monthly | Jan 13, 2021 | 282 | ||||||||||||
| China Merchants Bank | Working Capital | Jan 21, 2020 | 6 | 2.78 | % | Pay in arrear | Jul 19, 2020 | 2,700 | ||||||||||||
| Bank of Chongqing | Working Capital | Feb 18, 2020 | 12 | 4.35 | % | Pay monthly | Feb 17, 2021 | 212 | ||||||||||||
| China CITIC Bank | Working Capital | Mar 23, 2020 | 8 | 4.35 | % | Pay monthly | Nov 23, 2020 | 2,399 | ||||||||||||
| Agricultural Bank of China | Working Capital | Mar 25, 2020 | 12 | 4.05 | % | Pay monthly | Mar 22, 2021 | 988 | ||||||||||||
| China CITIC Bank | Working Capital | Mar 27, 2020 | 12 | 2.50 | % | Pay in arrear | Mar 26, 2021 | 3,990 | ||||||||||||
| China CITIC Bank | Working Capital | Mar 27, 2020 | 12 | 2.50 | % | Pay in arrear | Mar 26, 2021 | 3,563 | ||||||||||||
| $ | 51,114 | |||||||||||||||||||
| (1) | These bank loans were repaid between April 2020 and June 2020 when they became due. |
The Company must use the loans for the purpose described and repay the principal outstanding on the specified date in the table. If it fails to do so, it will be charged additional 30% to 100% penalty interest.
The Company has complied with such financial covenants as of March 31, 2020, and management expects it will continue to comply with them.
30
Notes Payable
The following table summarizes the contract information of issuing notes payable between the banks and the Company as of March 31, 2020 (figures are in thousands of USD):
| Purpose | Term (Months) | Due Date | Amount Payable on Due Date | |||||||
| Working Capital(1) | 6 | Apr. 2020 | 14,684 | |||||||
| Working Capital(1) | 6 | May 2020 | 9,951 | |||||||
| Working Capital | 6 | Jun. 2020 | 12,177 | |||||||
| Working Capital | 6 | Jul. 2020 | 9,977 | |||||||
| Working Capital | 6 | Aug. 2020 | 71 | |||||||
| Working Capital | 6 | Sep. 2020 | 11,269 | |||||||
| Total (See Note 8) | $ | 58,129 | ||||||||
| (1) | The notes payable were repaid in full on their respective due dates. |
The Company must use notes payable for the purpose described in the table. If it fails to do so, the banks will no longer issue the notes payable, and it may have an adverse effect on the Company’s liquidity and capital resources. The Company has to deposit sufficient cash in the designated account of the bank on the due date of notes payable for payment to the suppliers. If the bank has advanced payment for the Company, it will be charged a penalty interest at 50% of the loan rate that is published by the People’s Bank of China for the same period. The Company complied with such financial covenants as of March 31, 2020, and management expects it will continue to comply with them.
Cash Flows
| (a) | Operating Activities |
Net cash provided by operating activities for the three months ended March 31, 2020 was $29.2 million, compared with net cash used in operating activities of $18.2 million for the same period of 2019, representing an increase in net cash inflows by $47.4 million, which was mainly due to (1) the decrease in net income excluding non-cash items by $0.4 million and (2) the increase in cash inflows from movements of operating assets and liabilities by $47.8 million.
| (b) | Investing Activities |
Net cash provided by investing activities for the three months ended March 31, 2020 was $1.7 million, as compared to net cash used in investing activities of $10.0 million for the same period of 2019, representing an increase in net cash inflows by $11.7 million, which was mainly due to the net effect of (1) a decrease in payments to acquire property, plant and equipment by $6.8 million, and (2) a combination of other factors contributing an increase of cash inflows by $4.9 million, including a decrease in purchase of short-term investment by $15.6 million, offset by the decrease in cash received from proceeds from maturities of short-term investments by $9.1 million.
| (c) | Financing Activities |
Net cash used in financing activities for the three months ended March 31, 2020 was $2.9 million, compared to net cash provided by financing activities of $2.0 million for the same period of 2019, representing an increase in net cash outflows by $4.9 million, which was mainly due to the net effect of (1) a decrease in proceeds from bank loan by $0.9 million, (2) an increase in repayment of bank loans by $4.3 million, and (3) a decrease in payment for common share repurchases by $0.3 million.
Off-Balance Sheet Arrangements
As of March 31, 2020 and December 31, 2019, the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet arrangements.
31
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
There were no material changes to the disclosure made in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 regarding this matter.
| ITEM 4. | CONTROLS AND PROCEDURES. |
| A. | Disclosure Controls and Procedures |
The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer, Messrs. Wu Qizhou and Li Jie, respectively, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2020, the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this Form 10-Q, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Wu and Li concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2020.
The Company’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of its disclosure control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected.
| B. | Changes in Internal Control Over Financial Reporting |
There have been no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. — OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS. |
On January 7, 2019, three purported stockholders of the Company filed a stockholder derivative complaint on behalf of the Company against the Company’s directors Hanlin Chen, Qizhou Wu and Guangxun Xu and former directors Arthur Wong and Robert Tung in the Delaware Court of Chancery, alleging that they had (a) breached their fiduciary duties by approving and paying excessive compensation to the non-employee directors of the Company, Arthur Wong, Guangxun Xu and Robert Tung, and (b) failed to make full and accurate disclosure of all material information with respect to director qualification and director compensation paid in 2017 in the Company’s annual proxy statement on Schedule 14A filed on October 10, 2018. The directors have engaged their own counsel to answer this complaint. On April 9, 2019, the Company moved to dismiss the complaint. The motion to dismiss was denied on July 17, 2019. The directors of the Company will continue to answer this complaint. Management expects the impact of the suit on the Company’s consolidated financial statements to be immaterial.
Other than as described above, the Company is not a party to any pending or, to the best of the Company’s knowledge, any threatened legal proceedings and no director, officer or affiliate of the Company, or owner of record of more than five percent of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.
32
| ITEM 1A. | RISK FACTORS. |
The following language is added to the risk factor “The audit report included in this annual report is prepared by an auditor that is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection” disclosed in Item 1A of the Company’s 2019 Annual Report on Form 10-K:
As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China's, in June 2019, a bipartisan group of lawmakers introduced bills in both houses of Congress that would require the SEC to maintain a list of issuers for which the PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The Ensuring Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for such issuers and, beginning in 2025, the delisting from national securities exchanges of issuers included on the SEC’s list for three consecutive years.
On May 20, 2020, the U.S. Senate passed S.945, the Holding Foreign Companies Accountable Act. If passed by the U.S. House of Representatives and signed by the U.S. President, this bill would amend the Sarbanes-Oxley Act of 2002 to direct the SEC to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded "over-the-counter" if the auditor of the registrant's financial statements is not subject to PCAOB inspection for three consecutive years. Enactment of any of such legislation or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, the market price of our shares could be adversely affected, and we could be delisted if we are unable to cure the situation to meet the PCAOB inspection requirement in time. It is unclear if and when any of such proposed legislation will be enacted. Furthermore, there have been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based companies from accessing U.S. capital markets. On June 4, 2020, the U.S. President issued a memorandum ordering the President's Working Group on Financial Markets to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or the PCAOB with respect to Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the United States. However, it remains unclear what further actions, if any, will be taken by the U.S. Executive Branch, the SEC and PCAOB. If any such deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance of China-based issuers listed in the United States.
Other than the above, there have been no material changes from the risk factors previously disclosed in Item 1A of the Company’s 2019 Annual Report on Form 10-K.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
None.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
| ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
| ITEM 5. | OTHER INFORMATION. |
None.
33
| ITEM 6. | EXHIBITS. |
INDEX TO EXHIBITS
| 101* | The following materials from the China Automotive Systems, Inc. Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, were filed on June 23, 2020 formatted in Extensible Business Reporting Language (XBRL): | |||
| (i) | Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income, | |||
| (ii) | Condensed Unaudited Consolidated Balance Sheets, | |||
| (iii) | Condensed Unaudited Consolidated Statements of Cash Flows, and | |||
| (iv) | related notes | |||
| * | filed herewith | |||
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CHINA AUTOMOTIVE SYSTEMS, INC. | ||
| (Registrant) | ||
| Date: June 23, 2020 | By: | / s/ Qizhou Wu |
| Qizhou Wu | ||
| President and Chief Executive Officer | ||
| Date: June 23, 2020 | By: | /s/ Jie Li |
| Jie Li | ||
| Chief Financial Officer | ||
35
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION FOR FORM 10-Q
I, Qizhou Wu, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of China Automotive Systems, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 23, 2020 | By: | /s/ Qizhou Wu |
| Qizhou Wu | ||
| President and Chief Executive Officer | ||
1
Exhibit 31.2
RULE 13a-14(a) CERTIFICATION FOR FORM 10-Q
I, Jie Li, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of China Automotive Systems, Inc.; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: June 23, 2020 | By: | /s/ Jie Li |
| Jie Li | ||
| Chief Financial Officer | ||
1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of China Automotive Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Qizhou Wu, the Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: June 23, 2020 | By: | /s/ Qizhou Wu |
| Qizhou Wu | ||
| President and Chief Executive Officer | ||
1
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of China Automotive Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jie Li, the Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: June 23, 2020 | By: | /s/ Jie Li |
| Jie Li | ||
| Chief Financial Officer | ||
1
Treasury stock |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Treasury stock | |
| Treasury stock | 14. Treasury stock Treasury stock represents shares repurchased by the Company that are no longer outstanding and are held by the Company. Treasury stock is accounted for under the cost method. On December 5, 2018, the Board of Directors of the Company approved a share repurchase program under which the Company was permitted to repurchase up to $5.0 million of its common stock from time to time in the open market at prevailing market prices not to exceed $4.00 per share through December 4, 2019. The Board of Directors of the Company approved the extension of such program to December 4, 2020. As of each of March 31, 2020 and December 31, 2019, the Company had cumulatively repurchased 1,164,257 shares of the Company’s common stock since the inception of the program. The repurchased shares are presented as “treasury stock” on the balance sheet. |
Income tax |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Income tax | |
| Income tax | 18. Income tax Income tax expense was $0.5 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively. The increase in income tax expense was primarily due to the increase in Hubei Henglong’s income before income tax expenses and equity in earnings of affiliated companies
|
Commitments and contingencies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and contingencies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and contingencies | 22. Commitments and contingencies Legal proceedings On January 7, 2019, three purported stockholders of the Company filed a stockholder derivative complaint on behalf of the Company against the Company’s directors Hanlin Chen, Qizhou Wu and Guangxun Xu and former directors Arthur Wong and Robert Tung in the Delaware Court of Chancery, alleging that they had (a) breached their fiduciary duties by approving and paying excessive compensation to the non-employee directors of the Company, Arthur Wong, Guangxun Xu and Robert Tung, and (b) failed to make full and accurate disclosure of all material information with respect to director qualification and director compensation paid in 2017 in the Company’s annual proxy statement on Schedule 14A filed on October 10, 2018. The directors have engaged their own counsel to answer this complaint. On April 9, 2019, the Company moved to dismiss the complaint. The motion to dismiss was denied on July 17, 2019. The directors of the Company will continue to answer this complaint. Management expects the impact of the suit on the Company’s consolidated financial statements to be immaterial. Other than as described above, the Company is not a party to any pending or, to the best of the Company’s knowledge, any threatened legal proceedings and no director, officer or affiliate of the Company, or owner of record of more than five percent of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation. Other commitments and contingencies In addition to the bank loans, notes payables and the related interest, the following table summarizes the Company’s major commitments and contingencies as of March 31, 2020 (figures are in thousands of USD):
In April 2019, Hubei Henglong entered into an agreement with other parties and committed to contribute RMB 5.0 million, equivalent to approximately $0.7 million, to Jiangsu Intelligent Networking Automotive Innovation Center Co. Ltd., “Jiangsu Intelligent”, representing 19.2% of Jiangsu Intelligent’s shares. As of March 31, 2020, Hubei Henglong has completed a capital contribution of RMB 3.0 million, equivalent to approximately $0.4 million. According to the agreement, the remaining capital commitment of RMB 2.0 million, equivalent to approximately $0.3 million, will be paid in 2020. In November 2019, Hubei Henglong entered into an agreement with other parties and committed to purchase 70% of the shares of Hefei Senye Light Plastic Technology Co., Ltd. for total consideration of RMB 33.6 million, equivalent to approximately $4.8 million. As of March 31, 2020, Hubei Henglong has paid the amount of RMB 18.0 million, equivalent to approximately $2.5 million, which was reported in other non-current assets as the transfer of shares had not been consummated. According to the agreement, of the remaining consideration of RMB 15.6 million, equivalent to approximately $2.2 million, $1.8 million will be paid in 2020 and the remaining $0.4 million will be paid in 2021. |
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Commitments and contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and contingencies | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of major commitments and contingencies | In addition to the bank loans, notes payables and the related interest, the following table summarizes the Company’s major commitments and contingencies as of March 31, 2020 (figures are in thousands of USD):
|
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Non-controlling interests (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interests | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of non-controlling interests | The Company’s activities in respect of the amounts of the non-controlling interests’ equity for the three months ended March 31, 2020 and 2019, are summarized as follows (figures are in thousands of USD):
|
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Accrued expenses and other payables (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued expenses and other payables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accrued expenses and other payables | The Company’s accrued expenses and other payables as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
|
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| Schedule of product warranty liability | For the three months ended March 31, 2020 and 2019, the warranties activities were as follows (figures are in thousands of USD):
|
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Condensed Unaudited Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Condensed Unaudited Consolidated Balance Sheets | ||
| Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 80,000,000 | 80,000,000 |
| Common stock, shares issued | 32,338,302 | 32,338,302 |
| Treasury stock, shares | 1,164,257 | 1,164,257 |
Document and Entity Information - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Jun. 23, 2020 |
|
| Document and Entity Information [Abstract] | ||
| Document Type | 10-Q | |
| Amendment Flag | false | |
| Document Period End Date | Mar. 31, 2020 | |
| Document Fiscal Year Focus | 2020 | |
| Document Fiscal Period Focus | Q1 | |
| Entity Registrant Name | CHINA AUTOMOTIVE SYSTEMS INC | |
| Entity Central Index Key | 0001157762 | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Current Reporting Status | Yes | |
| Entity Interactive Data Current | Yes | |
| Entity Filer Category | Non-accelerated Filer | |
| Trading Symbol | CAAS | |
| Entity Common Stock, Shares Outstanding | 31,174,045 | |
| Entity Small Business | true | |
| Entity Emerging Growth Company | false | |
| Entity Shell Company | false |
Accrued expenses and other payables (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Accrued expenses and other payables | ||
| Accrued expenses | $ 7,124 | $ 6,306 |
| Accrued interest | 437 | 104 |
| Current portion of other long-term payable (See Note 10) | 3,603 | 3,593 |
| Other payables | 3,312 | 2,427 |
| Dividends payable to holders of non-controlling interests | 430 | |
| Warranty reserves | 32,641 | 32,907 |
| Total | $ 47,547 | $ 45,337 |
Basis of Presentation and Significant Accounting Policies |
3 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||
| Basis of presentation and significant accounting policies | |||||||||||||
| Basis of Presentation and Significant Accounting Policies | 2. Basis of presentation and significant accounting policies
Basis of Presentation – The accompanying condensed unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The details of subsidiaries are disclosed in Note 1. Significant inter-company balances and transactions have been eliminated upon consolidation. The condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions in Regulation S-X. Accordingly they do not include all of the information and footnotes required by such accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of the Company’s management, contain all necessary adjustments, which include normal recurring adjustments, for a fair statement of the results of operations, financial position and cash flows for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2019 is derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2020. Estimation - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Foreign Currencies - China Automotive, the parent company, and HLUSA maintain their books and records in United States Dollars, “USD,” their functional currency. The Company’s subsidiaries based in the PRC and Genesis maintain their books and records in Renminbi, “RMB,” their functional currency. The Company’s subsidiary based in Brazil maintains its books and records in Brazilian reais, “BRL,” its functional currency. In accordance with ASC Topic 830, “FASB Accounting Standards Codification”, foreign currency transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the rate of exchange prevailing at the balance sheet date for monetary items. Nonmonetary items are remeasured at historical rates. Income and expenses are remeasured at the rate in effect on the transaction dates. Transaction gains and losses, if any, are included in the determination of net income for the period.
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13 ASC (Topic 326), Financial Instruments - Credit Losses. The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The Company adopted the CECL model to recognize credit losses of financial assets using a modified retrospective method of accounting as of January 1, 2020. The impact of adopting the new standard on the consolidated financial statements was a reduction of $0.8 million to beginning retained earnings.
There have been no updates to the significant accounting policies set forth in the notes to the consolidated financial statements for the year ended December 31, 2019, except for the adoption of ASC Topic 326 (Note 2(b)). |
Retained earnings - Appropriated (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
Mar. 31, 2019 |
|---|---|---|---|
| Retained earnings | |||
| Balance at beginning of the period | $ 11,265 | $ 11,104 | $ 11,104 |
| Balance at end of the period | $ 11,265 | $ 11,265 | $ 11,104 |
Organization and business - Additional Information (Details) - USD ($) $ in Thousands |
1 Months Ended | ||||
|---|---|---|---|---|---|
May 31, 2017 |
Mar. 31, 2020 |
Dec. 31, 2019 |
Mar. 31, 2019 |
Aug. 31, 2018 |
|
| Organization And Principal Activities [Line Items] | |||||
| Equity Method Investment, Ownership Percentage | 15.84% | ||||
| Consideration for additional equity interest acquired | $ 0 | ||||
| Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd., "Henglong KYB" [Member] | |||||
| Organization And Principal Activities [Line Items] | |||||
| Equity Method Investment, Ownership Percentage | 66.60% | 66.60% | 66.60% | ||
| Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., "Wuhan Hyoseong"[Member] | |||||
| Organization And Principal Activities [Line Items] | |||||
| Equity Method Investment, Ownership Percentage | 51.00% | 51.00% | 51.00% |
Inventories (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Inventories | ||
| Raw materials | $ 23,737 | $ 21,464 |
| Work in process | 10,875 | 9,469 |
| Finished goods | 36,546 | 51,998 |
| Total | $ 71,158 | $ 82,931 |
Property, plant and equipment, net - Additional Information (Details) - USD ($) $ in Millions |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
| Property, plant and equipment, net | |||
| Depreciation | $ 5.0 | $ 3.9 | |
| Pledged Assets Separately Reported, Loans Pledged for Other Debt Obligations, at Fair Value | 48.2 | $ 50.9 | |
| Interest Costs Capitalized | $ 0.3 | $ 0.1 | |
Income per share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Numerator: | ||
| Net income attributable to the parent company's common shareholders - Basic and Diluted | $ 45 | $ 1,467 |
| Denominator: | ||
| Weighted average shares outstanding | 31,174,045 | 31,507,487 |
| Dilutive effects of stock options | 74 | 5,810 |
| Denominator for dilutive income per share - Diluted | 31,174,119 | 31,513,297 |
| Net income per share attributable to the parent company's common shareholders | ||
| Basic | $ 0.05 | |
| Diluted | $ 0.05 | |
Non-controlling interests (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
| Non-controlling interests | ||
| Balance at beginning of the period | $ 20,161 | $ 18,950 |
| Net loss attributable to non-controlling interests | (533) | (243) |
| Acquisition of the non-controlling interest in USAI | 29 | |
| Cumulative effect of accounting change - credit loss | (102) | |
| Dividends declared to non-controlling interest holders of non-wholly owned subsidiaries | (430) | |
| Foreign currency translation adjustment attributable to non-controlling interests | (364) | 457 |
| Balance at end of the period | $ 18,761 | $ 19,164 |
Property, plant and equipment, net |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | 6. Property, plant and equipment, net The Company’s property, plant and equipment, net as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
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Other long-term payable |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Other long-term payable | |
| Other long-term payable | 10. Other long-term payable On January 31, 2018, the Company entered into an equipment sales agreement with a third party (the “buyer-lessor”) and simultaneously entered into a four-year contract to lease back the equipment from the buyer-lessor. The carrying value of the equipment was RMB 91.3 million (equivalent to $12.9 million as of March 31, 2020) and the sales price was RMB 100 million (equivalent to $14.1 million as of March 31, 2020). Pursuant to the terms of the contract, the Company is required to pay to the buyer-lessor lease payments over 4 years with a quarterly lease payment of approximately $1.0 million and is entitled to obtain the ownership of this equipment at a nominal price upon the expiration of the lease. The Company is of the view that the transaction does not qualify as a sale. Therefore, the transaction was accounted for as a financing transaction by the Company. As of March 31, 2020, $3.6 million was recognized as other payable (See Note 9) and $3.9 million was recognized as other long-term payable to the buyer-lessor according to the contract term. |
Loans (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of loans | Loans consist of the following as of March 31, 2020 and December 31, 2019 (figures are in thousands of USD):
|
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Accounts and notes receivable, net (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts and notes receivable, net | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of accounts and notes receivable | The Company’s accounts and notes receivable, net as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
|
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Off-balance sheet arrangements |
3 Months Ended |
|---|---|
Mar. 31, 2020 | |
| Off-balance sheet arrangements | |
| Off-balance sheet arrangements | 23. Off-balance sheet arrangements As of March 31, 2020 and December 31, 2019, the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet arrangements. |
Property, plant and equipment, net (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Total amount of property, plant and equipment | $ 291,200 | $ 295,377 |
| Less: Accumulated depreciation | (156,939) | (154,940) |
| Total amount of property, plant and equipment, net | 134,261 | 140,437 |
| Buildings | ||
| Property, Plant and Equipment [Line Items] | ||
| Total amount of property, plant and equipment | 51,044 | 51,750 |
| Machinery and equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total amount of property, plant and equipment | 198,375 | 199,536 |
| Electronic equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total amount of property, plant and equipment | 5,459 | 5,799 |
| Motor vehicles [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total amount of property, plant and equipment | 4,913 | 5,229 |
| Construction in progress [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Total amount of property, plant and equipment | $ 31,409 | $ 33,063 |
Accounts and notes receivable, net - Additional Information (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
|---|---|---|---|---|
Jun. 30, 2020 |
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
|
| Financing Receivables [Line Items] | ||||
| Financing Receivable, Net | $ 9,700 | $ 9,700 | ||
| Accounts Receivable, Credit Loss Expense (Reversal) | $ 20 | $ 100 | ||
| Notes receivable pledged as collateral | $ 2,300 | $ 7,400 | ||
| Concentration Risk, Percentage | 33.70% | 18.10% | ||
| Product Concentration Risk [Member] | ||||
| Financing Receivables [Line Items] | ||||
| Concentration Risk, Percentage | 53.70% | 44.00% | ||
| Accounts receivable | ||||
| Financing Receivables [Line Items] | ||||
| Concentration Risk, Percentage | 7.50% | 6.20% | ||
Income per share - Additional Information (Details) - shares |
3 Months Ended | 9 Months Ended |
|---|---|---|
Mar. 31, 2020 |
Sep. 30, 2018 |
|
| Equity Option [Member] | ||
| Earnings Per Share, Basic and Diluted [Line Items] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 22,500 | 112,500 |
Net product sales (Details) - USD ($) $ in Millions |
3 Months Ended | ||
|---|---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
Jan. 01, 2019 |
|
| Contract with Customer, Liability, Current | $ 1.0 | $ 1.3 | $ 0.6 |
| Revenue from Contract with Customer, Including Assessed Tax | 0.3 | ||
| Sale revenue | |||
| Revenue from Contract with Customer, Including Assessed Tax | $ 0.6 |
Long-term investments |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term Investments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-term investments | 5. Long-term investments The Company’s long-term investments at March 31, 2020 and December 31, 2019, are summarized as follows (figures are in thousands of USD):
|
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