UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
☒ | QUARTERLY REPORT |
For the quarterly period ended September 30, 2017
Or
| |
For the quarterly period ended June 30, 2021 | |
| |
Or | |
| |
☐ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| |
For the transition period from _________ to _________ |
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. | |
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, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which |
Common Stock, $0.0001 par value | CAAS | The Nasdaq Capital Market |
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 | ☒ | Smaller reporting company | ☒ |
| | 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 ☒
Yes ¨ No x
As of November 9, 2017,August 12, 2021, the Company had 31,644,00430,851,776 shares of common stock issued and outstanding.
CHINA AUTOMOTIVE SYSTEMS, INC.
INDEX
| Page | |||
| | | | |
| | | 4 | |
| | | | |
| | 4 | ||
| | | 4 | |
| | | 6 | |
| | | 7 | |
| | Notes to Condensed Unaudited Consolidated Financial Statements | | 8 |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. | | 24 | |
| | 37 | ||
| | 37 | ||
| | | | |
| | | 38 | |
| | | | |
| | 38 | ||
| | 38 | ||
| Unregistered Sales of Equity Securities and Use of Proceeds. | | 40 | |
| | 40 | ||
| | 40 | ||
| | 40 | ||
| | 41 | ||
| | | | |
| | 42 |
2
Cautionary Statement
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 this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2020, as filed with the Securities and Exchange Commission.
3
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 June 30, | ||||
|
| 2021 |
| 2020 | ||
Net product sales ($15,750 and $16,105 sold to related parties for the three months ended June 30, 2021 and 2020) | | $ | 120,604 | | $ | 83,184 |
Cost of products sold ($7,197 and $6,152 purchased from related parties for the three months ended June 30, 2021 and 2020) | |
| 104,775 | |
| 75,353 |
Gross profit | |
| 15,829 | |
| 7,831 |
Gain on other sales | |
| 725 | |
| 838 |
Less: Operating expenses | |
| | |
| |
Selling expenses | |
| 4,446 | |
| 2,977 |
General and administrative expenses | |
| 6,063 | |
| 4,759 |
Research and development expenses | |
| 5,926 | |
| 6,125 |
Total operating expenses | |
| 16,435 | |
| 13,861 |
Income from operations | |
| 119 | |
| (5,192) |
Other income, net | |
| 1,506 | |
| 1,257 |
Interest expense | |
| (294) | |
| (446) |
Financial income/(expense), net | |
| 182 | |
| (59) |
Income/(loss) before income tax expenses and equity in earnings of affiliated companies | |
| 1,513 | |
| (4,440) |
Less: Income taxes expense/(benefit) | |
| 198 | |
| (31) |
Add: Equity in earnings of affiliated companies | |
| 1,613 | |
| 169 |
Net income/(loss) | |
| 2,928 | |
| (4,240) |
Less: Net loss attributable to non-controlling interests | |
| (279) | |
| (142) |
Accretion to redemption value of redeemable non-controlling interests | | | (7) | | | 0 |
Net income/(loss) attributable to parent company’s common shareholders | | $ | 3,200 | | $ | (4,098) |
Comprehensive income: | |
| | |
| |
Net income/(loss) | | $ | 2,928 | | $ | (4,240) |
Other comprehensive income: | |
| | |
| |
Foreign currency translation income, net of tax | |
| 5,586 | |
| 358 |
Comprehensive income/(loss) | |
| 8,514 | |
| (3,882) |
Comprehensive income/(loss) attributable to non-controlling interests | |
| 73 | |
| (86) |
Accretion to redemption value of redeemable non-controlling interests | | | (7) | | | 0 |
Comprehensive income/(loss) attributable to parent company | | $ | 8,434 | | $ | (3,796) |
| |
| | |
| |
Net income/(loss) attributable to parent company’s common shareholders per share - | |
| | |
| |
Basic | | $ | 0.10 | | $ | (0.13) |
Diluted | | $ | 0.10 | | $ | (0.13) |
| | | | | | |
Weighted average number of common shares outstanding - | |
| | |
| |
Basic | |
| 30,851,776 | |
| 31,174,045 |
Diluted | |
| 30,855,406 | |
| 31,174,045 |
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
4
China Automotive Systems, Inc. and Subsidiaries
Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income
(In thousands of USD, except share and per share amounts)
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Net product sales ($7,563 and $9,950 sold to related parties for the three months ended September 30, 2017 and 2016) | $ | 118,365 | $ | 94,626 | ||||
Cost of products sold ($6,549 and $5,869 purchased from related parties for the three months ended September 30, 2017 and 2016) | 95,878 | 74,641 | ||||||
Gross profit | 22,487 | 19,985 | ||||||
Gain on other sales | 553 | 22 | ||||||
Less: Operating expenses | ||||||||
Selling expenses | 4,537 | 3,840 | ||||||
General and administrative expenses | 4,390 | 3,741 | ||||||
Research and development expenses | 9,194 | 6,723 | ||||||
Total operating expenses | 18,121 | 14,304 | ||||||
Income from operations | 4,919 | 5,703 | ||||||
Other income | 100 | 420 | ||||||
Interest expense | (318 | ) | (201 | ) | ||||
Financial income, net | 1,027 | 800 | ||||||
Income before income tax expenses and equity in earnings of affiliated companies | 5,728 | 6,722 | ||||||
Less: Income taxes | 991 | 1,167 | ||||||
Equity in earnings of affiliated companies | 491 | 304 | ||||||
Net income | 5,228 | 5,859 | ||||||
Net income attributable to non-controlling interests | 169 | 177 | ||||||
Net income attributable to parent company’s common shareholders | $ | 5,059 | $ | 5,682 | ||||
Comprehensive income: | ||||||||
Net income | $ | 5,228 | $ | 5,859 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation gain/(loss), net of tax | 6,705 | (2,139 | ) | |||||
Comprehensive income | 11,933 | 3,720 | ||||||
Comprehensive income attributable to non-controlling interests | 386 | 119 | ||||||
Comprehensive income attributable to parent company | $ | 11,547 | $ | 3,601 | ||||
Net income attributable to parent company’s common shareholders per share | ||||||||
Basic – | $ | 0.16 | $ | 0.18 | ||||
Diluted- | $ | 0.16 | $ | 0.18 | ||||
Weighted average number of common shares outstanding | ||||||||
Basic | 31,644,004 | 31,911,360 | ||||||
Diluted | 31,644,271 | 31,911,722 |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2021 |
| 2020 | ||
Net product sales ($32,325 and $23,599 sold to related parties for the six months ended June 30, 2021 and 2020) | | $ | 250,945 | | $ | 156,739 |
Cost of products sold ($15,411 and $9,286 purchased from related parties for the six months ended June 30, 2021 and 2020) | |
| 215,368 | |
| 137,756 |
Gross profit | |
| 35,577 | |
| 18,983 |
Gain on other sales | |
| 2,041 | |
| 1,438 |
Less: Operating expenses | |
| | |
| |
Selling expenses | |
| 10,055 | |
| 5,095 |
General and administrative expenses | |
| 10,678 | |
| 8,188 |
Research and development expenses | |
| 12,606 | |
| 11,318 |
Total operating expenses | |
| 33,339 | |
| 24,601 |
Income/(loss) from operations | |
| 4,279 | |
| (4,180) |
Other income, net | |
| 3,229 | |
| 1,374 |
Interest expense | |
| (637) | |
| (811) |
Financial expense, net | |
| (57) | |
| (590) |
Income/(loss) before income tax expenses and equity in earnings of affiliated companies | |
| 6,814 | |
| (4,207) |
Less: Income taxes expense | |
| 839 | |
| 483 |
Add: Equity in earnings/(loss) of affiliated companies | |
| 184 | |
| (178) |
Net income/(loss) | |
| 6,159 | |
| (4,868) |
Less: Net loss attributable to non-controlling interests | |
| (261) | |
| (742) |
Accretion to redemption value of redeemable non-controlling interests | | | (14) | | | 0 |
Net income/(loss) attributable to parent company’s common shareholders | | $ | 6,406 | | $ | (4,126) |
Comprehensive income: | |
| | |
| |
Net income/(loss) | | $ | 6,159 | | $ | (4,868) |
Other comprehensive income: | |
| | |
| |
Foreign currency translation income/(loss), net of tax | |
| 3,315 | |
| (4,603) |
Comprehensive income/(loss) | |
| 9,474 | |
| (9,471) |
Comprehensive loss attributable to non-controlling interests | |
| (52) | |
| (1,139) |
Accretion to redemption value of redeemable non-controlling interests | | | (14) | | | 0 |
Comprehensive income/(loss) attributable to parent company | | $ | 9,512 | | $ | (8,332) |
| |
| | |
| |
Net income/(loss) attributable to parent company’s common shareholders per share - | |
| | |
| |
Basic | | $ | 0.21 | | $ | (0.13) |
Diluted | | $ | 0.21 | | $ | (0.13) |
| | | | | | |
Weighted average number of common shares outstanding - | |
| | |
| |
Basic | |
| 30,851,776 | |
| 31,174,045 |
Diluted | |
| 30,856,571 | |
| 31,174,045 |
| | | | | | |
Share-based compensation included in operating expense above is as follows: | | | | | | |
General and administrative expenses | | | 88 | | | 0 |
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
5
China automotiveAutomotive Systems, Inc. and Subsidiaries
Condensed Unaudited Consolidated Statements of Operations and Comprehensive IncomeBalance Sheets
(In thousands of USD except share and per share amounts)unless otherwise indicated)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Net product sales ($25,684 and $28,589 sold to related parties for the nine months ended September 30, 2017 and 2016) | $ | 355,333 | $ | 312,497 | ||||
Cost of products sold ($20,195 and $18,912 purchased from related parties for the nine months ended September 30, 2017 and 2016) | 287,156 | 253,352 | ||||||
Gross profit | 68,177 | 59,145 | ||||||
Gain on other sales | 5,896 | 2,008 | ||||||
Less: Operating expenses | ||||||||
Selling expenses | 13,160 | 12,273 | ||||||
General and administrative expenses | 14,027 | 11,998 | ||||||
Research and development expenses | 23,666 | 18,849 | ||||||
Total operating expenses | 50,853 | 43,120 | ||||||
Income from operations | 23,220 | 18,033 | ||||||
Other (expense)/income, net | (2 | ) | 995 | |||||
Interest expense | (1,193 | ) | (524 | ) | ||||
Financial income, net | 1,909 | 1,270 | ||||||
Income before income tax expenses and equity in earnings of affiliated companies | 23,934 | 19,774 | ||||||
Less: Income taxes | 4,367 | 3,416 | ||||||
Equity in earnings of affiliated companies | 480 | 561 | ||||||
Net income | 20,047 | 16,919 | ||||||
Net income attributable to non-controlling interests | 353 | 164 | ||||||
Net income attributable to parent company’s common shareholders | $ | 19,694 | $ | 16,755 | ||||
Comprehensive income: | ||||||||
Net income | $ | 20,047 | $ | 16,919 | ||||
Other comprehensive income: | ||||||||
Foreign currency translation gain/(loss), net of tax | 14,148 | (8,435 | ) | |||||
Comprehensive income | 34,195 | 8,484 | ||||||
Comprehensive gain/(loss) attributable to non-controlling interests | 819 | (143 | ) | |||||
Comprehensive income attributable to parent company | $ | 33,376 | $ | 8,627 | ||||
Net income attributable to parent company’s common shareholders per share | ||||||||
Basic – | $ | 0.62 | $ | 0.52 | ||||
Diluted- | $ | 0.62 | $ | 0.52 | ||||
Weighted average number of common shares outstanding | ||||||||
Basic | 31,644,004 | 32,038,933 | ||||||
Diluted | 31,647,833 | 32,040,514 |
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
ASSETS |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | 83,113 | | $ | 97,248 |
Pledged cash | |
| 34,204 | |
| 30,813 |
Accounts and notes receivable, net - unrelated parties | |
| 204,782 | |
| 216,519 |
Accounts and notes receivable - related parties | |
| 23,679 | |
| 17,621 |
Inventories | |
| 95,971 | |
| 88,325 |
Other current assets | |
| 34,008 | |
| 25,132 |
Total current assets | |
| 475,757 | |
| 475,658 |
Non-current assets: | |
| | |
| |
Property, plant and equipment, net | |
| 135,899 | |
| 141,004 |
Land use rights, net | | | 10,737 | | | 10,774 |
Long-term investments | |
| 45,629 | |
| 49,766 |
Other non-current assets | |
| 27,523 | |
| 30,358 |
Total assets | | $ | 695,545 | | $ | 707,560 |
| | | | | | |
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY | |
| | |
| |
Current liabilities: | |
| | |
| |
Short-term loans | | $ | 36,415 | | $ | 44,238 |
Accounts and notes payable-unrelated parties | |
| 208,440 | |
| 212,522 |
Accounts and notes payable-related parties | |
| 12,000 | |
| 12,730 |
Accrued expenses and other payables | |
| 51,721 | |
| 55,607 |
Other current liabilities | |
| 29,339 | |
| 29,387 |
Total current liabilities | |
| 337,915 | |
| 354,484 |
Long-term liabilities: | |
| | |
| |
Other long-term payable | |
| — | |
| 1,126 |
Long-term tax payable | |
| 21,074 | |
| 23,884 |
Other non-current liabilities | |
| 8,153 | |
| 8,151 |
Total liabilities | | $ | 367,142 | | $ | 387,645 |
| | | | | | |
Commitments and Contingencies (See Note 23) | |
| | |
| |
| | | | | | |
Mezzanine equity: | | | | | | |
Redeemable non-controlling interests | | | 537 | | | 523 |
| | | | | | |
Stockholders’ equity: | |
| | |
| |
Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued - 32,338,302 and 32,338,302 shares as of June 30, 2021 and December 31, 2020, respectively | | $ | 3 | | $ | 3 |
Additional paid-in capital | |
| 63,731 | |
| 64,273 |
Retained earnings- | |
| | |
| |
Appropriated | |
| 11,303 | |
| 11,303 |
Unappropriated | |
| 221,897 | |
| 215,491 |
Accumulated other comprehensive income | |
| 20,519 | |
| 17,413 |
Treasury stock - 1,486,526 and 1,486,526 shares as of June 30, 2021 and December 31, 2020, respectively | |
| (5,261) | |
| (5,261) |
Total parent company stockholders' equity | |
| 312,192 | |
| 303,222 |
Non-controlling interests | |
| 15,674 | |
| 16,170 |
Total stockholders' equity | |
| 327,866 | |
| 319,392 |
Total liabilities, mezzanine equity and stockholders' equity | | $ | 695,545 | | $ | 707,560 |
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
6
China Automotive Systems, Inc. and Subsidiaries
Condensed Unaudited Consolidated Balance SheetsStatements of Cash Flows
(In thousands of USD unless otherwise indicated)
September 30, 2017 | December 31, 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 55,382 | $ | 31,092 | ||||
Pledged cash | 31,075 | 30,799 | ||||||
Short-term investments | 23,829 | 30,475 | ||||||
Accounts and notes receivable, net - unrelated parties | 269,943 | 285,731 | ||||||
Accounts and notes receivable, net - related parties | 17,607 | 20,984 | ||||||
Advance payments and others - unrelated parties | 12,235 | 10,203 | ||||||
Advance payments and others - related parties | 31,397 | 624 | ||||||
Inventories | 73,030 | 68,050 | ||||||
Current deferred tax assets | 7,476 | 7,946 | ||||||
Total current assets | 521,974 | 485,904 | ||||||
Non-current assets: | ||||||||
Long-term time deposits | 6,027 | 865 | ||||||
Property, plant and equipment, net | 115,302 | 101,478 | ||||||
Intangible assets, net | 512 | 617 | ||||||
Other receivables, net - unrelated parties | 2,234 | 2,252 | ||||||
Advance payment for property, plant and equipment - unrelated parties | 14,222 | 14,506 | ||||||
Advance payment for property, plant and equipment - related parties | 4,813 | 5,005 | ||||||
Long-term investments | 25,341 | 16,431 | ||||||
Non-current deferred tax assets | 4,295 | 4,641 | ||||||
Total assets | $ | 694,720 | $ | 631,699 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Bank and government loans | $ | 73,594 | $ | 40,820 | ||||
Accounts and notes payable - unrelated parties | 224,758 | 216,993 | ||||||
Accounts and notes payable - related parties | 5,749 | 6,803 | ||||||
Customer deposits | 869 | 700 | ||||||
Accrued payroll and related costs | 7,460 | 6,971 | ||||||
Accrued expenses and other payables | 32,883 | 35,882 | ||||||
Accrued pension costs | 4,750 | 4,130 | ||||||
Taxes payable | 3,800 | 11,674 | ||||||
Amounts due to shareholders/directors | 335 | 312 | ||||||
Advances payable (current portion) | 399 | 382 | ||||||
Current deferred tax liabilities | 190 | 193 | ||||||
Total current liabilities | 354,787 | 324,860 | ||||||
Long-term liabilities: | ||||||||
Long-term bank loan | - | 608 | ||||||
Advances payable | 354 | 339 | ||||||
Total liabilities | $ | 355,141 | $ | 325,807 | ||||
Commitments and Contingencies (See Note 29) | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued – 32,338,302 and 32,338,302 shares as of September 30, 2017 and December 31, 2016, respectively | $ | 3 | $ | 3 | ||||
Additional paid-in capital | 64,406 | 64,764 | ||||||
Retained earnings- | ||||||||
Appropriated | 10,673 | 10,549 | ||||||
Unappropriated | 248,533 | 228,963 | ||||||
Accumulated other comprehensive income/(loss) | 12,722 | (892 | ) | |||||
Treasury stock – 694,298 and 694,298 shares as of September 30, 2017 and December 31, 2016, respectively | (2,907 | ) | (2,907 | ) | ||||
Total parent company stockholders' equity | 333,430 | 300,480 | ||||||
Non-controlling interests | 6,149 | 5,412 | ||||||
Total stockholders' equity | 339,579 | 305,892 | ||||||
Total liabilities and stockholders' equity | $ | 694,720 | $ | 631,699 |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2021 |
| 2020 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net income/(loss) | | $ | 6,159 | | $ | (4,868) |
Adjustments to reconcile net income from operations to net cash (used in)/provided by operating activities: | |
| | |
| |
Share-based compensation | |
| 88 | |
| 0 |
Depreciation and amortization | |
| 13,117 | |
| 10,562 |
Provision/(reversal) of credit losses | |
| 311 | |
| (239) |
Deferred income taxes | |
| 469 | |
| 21 |
Equity in gain/(loss) of affiliated companies | |
| (184) | |
| 178 |
Government subsidy reclassified from government loans | | | 0 | | | 287 |
Loss on fixed assets disposals | | | 9 | | | 42 |
(Increase)/decrease in: | |
| | |
| |
Accounts and notes receivable | |
| 6,887 | |
| 41,917 |
Inventories | |
| (7,036) | |
| (1,281) |
Other current assets | |
| (1,250) | |
| (1,355) |
Increase/(decrease) in: | |
| | |
| |
Accounts and notes payable | |
| (6,291) | |
| (11,924) |
Accrued expenses and other payables | |
| (4,030) | |
| 2,683 |
Long-term taxes payable | | | (2,809) | | | (2,809) |
Other current liabilities | |
| 105 | |
| (1,835) |
Net cash provided by operating activities | |
| 5,545 | |
| 31,379 |
Cash flows from investing activities: | |
| | |
| |
Increase in demand loans included in other non-current assets | |
| (137) | |
| (3) |
Repayment of loan from a related party | | | 154 | | | 0 |
Cash received from property, plant and equipment sales | |
| 206 | |
| 586 |
Payments to acquire property, plant and equipment (including $330 and $760 paid to related parties for the six months ended June 30, 2021 and 2020, respectively) | |
| (3,927) | |
| (4,525) |
Payments to acquire intangible assets | |
| (303) | |
| (390) |
Investment under the equity method | | | 0 | | | (5,360) |
Purchase of short-term investments | |
| (31,253) | |
| (27,128) |
Proceeds from maturities of short-term investments | | | 23,806 | | | 5,781 |
Cash received from long-term investment | |
| 4,785 | |
| 448 |
Net cash used in by investing activities | |
| (6,669) | |
| (30,591) |
Cash flows from financing activities: | |
| | |
| |
Proceeds from bank loans | |
| 34,990 | |
| 36,135 |
Repayments of bank loans | |
| (43,081) | |
| (33,890) |
Repayments of the borrowing for sale and leaseback transaction | |
| (2,217) | |
| (2,041) |
Cash received from capital contributions by non-controlling interest holder | | | 0 | | | 212 |
Deemed distribution to shareholders | | | 0 | | | (88) |
Acquisition of non-controlling interest | | | (538) | | | (81) |
Net cash (used in)/provided by financing activities | |
| (10,846) | |
| 247 |
Effects of exchange rate on cash, cash equivalents and pledged cash | |
| 1,226 | |
| (1,558) |
Net decrease in cash, cash equivalents and pledged cash | |
| (10,744) | |
| (523) |
Cash, cash equivalents and pledged cash at beginning of the period | |
| 128,061 | |
| 106,403 |
Cash, cash equivalents and pledged cash at end of the period | | $ | 117,317 | | $ | 105,880 |
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
7
China Automotive Systems, Inc. and Subsidiaries
Condensed Unaudited Consolidated Statements of Cash Flows
(In thousands of USD unless otherwise indicated)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 20,047 | $ | 16,919 | ||||
Adjustments to reconcile net income from operations to net cash provided by operating activities: | ||||||||
Share-based compensation | 100 | - | ||||||
Depreciation and amortization | 10,933 | 10,732 | ||||||
Increase in/(reversal of) provision for doubtful accounts | 1,034 | (126 | ) | |||||
Inventory write downs | 4,436 | 2,353 | ||||||
Deferred income taxes | 1,354 | (142 | ) | |||||
Equity in earnings of affiliated companies | (480 | ) | (561 | ) | ||||
Gain on disposal of Fujian Qiaolong | - | (698 | ) | |||||
Gain on fixed assets disposals | (2,204 | ) | (6 | ) | ||||
Changes in operating assets and liabilities | ||||||||
(Increase) decrease in: | ||||||||
Pledged cash | 1,226 | 9,711 | ||||||
Accounts and notes receivable | 32,807 | (18,471 | ) | |||||
Advance payments and others | (1,527 | ) | (2,798 | ) | ||||
Inventories | (6,441 | ) | (18,244 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts and notes payable | (3,023 | ) | 14,990 | |||||
Customer deposits | 158 | (613 | ) | |||||
Accrued payroll and related costs | 182 | 544 | ||||||
Accrued expenses and other payables | (6,216 | ) | 1,309 | |||||
Accrued pension costs | 443 | (160 | ) | |||||
Taxes payable | (9,806 | ) | (1,582 | ) | ||||
Advance payable | - | (75 | ) | |||||
Net cash provided by operating activities | 43,023 | 13,082 | ||||||
Cash flows from investing activities: | ||||||||
Decrease in other receivables | 159 | 2,382 | ||||||
Proceeds from disposition of a subsidiary, net of cash disposed of $1,063 | - | 1,953 | ||||||
Cash received from property, plant and equipment sales | 2,351 | 511 | ||||||
Payments to acquire property, plant and equipment(including $7,656 and $5,662 paid to related parties for the nine months ended September 30, 2017 and 2016, respectively) | (19,187 | ) | (27,161 | ) | ||||
Payments to acquire intangible assets | - | (60 | ) | |||||
Purchase of short-term investments | (25,017 | ) | (28,181 | ) | ||||
Purchase of long-term time deposit | (5,836 | ) | - | |||||
Proceeds from maturities of short-term investments | 33,749 | 13,236 | ||||||
Investment under equity method | (7,629 | ) | (8,682 | ) | ||||
Loan to a related party | (29,044 | ) | - | |||||
Net cash used in investing activities | (50,454 | ) | (46,002 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from bank and government loans | 69,635 | 12,151 | ||||||
Repayments of bank and government loans | (39,271 | ) | (7,145 | ) | ||||
Dividends paid to the non-controlling interest holders | - | (464 | ) | |||||
Repurchases of common stock | - | (991 | ) | |||||
Net cash provided by financing activities | 30,364 | 3,551 | ||||||
Effects of exchange rate on cash and cash equivalents | 1,357 | (1,245 | ) | |||||
Net increase/decrease in cash and cash equivalents | 24,290 | (30,614 | ) | |||||
Cash and cash equivalents at beginning of period | 31,092 | 69,676 | ||||||
Cash and cash equivalents at end of period | $ | 55,382 | $ | 39,062 |
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
China Automotive Systems, Inc. and Subsidiaries
Condensed Unaudited Consolidated Statements of Cash Flows (continued)
(In thousands of USD unless otherwise indicated)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash paid for interest | $ | 573 | $ | 219 | ||||
Cash paid for income taxes | 4,343 | 1,396 |
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Property, plant and equipment recorded during the period which previously were advance payments | $ | 12,331 | $ | 12,771 | ||||
Accounts payable for acquiring property, plant and equipment | 890 | 844 | ||||||
Dividends payable to non-controlling interests | 621 | - |
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
China automotive Systems, Inc. and Subsidiaries
Notes to Condensed Unaudited Consolidated Financial Statements
Three Months and NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
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 and the joint ventures 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 Sino-foreign joint ventures, wholly-owned subsidiaries and joint ventures organized in the People'sPeople’s Republic of China, the “PRC,” and Brazil as of SeptemberJune 30, 20172021 and December 31, 2016.2020.
Percentage Interest | ||||||||
Name of Entity | September 30, 2017 | December 31, 2016 | ||||||
Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong”1 | 100.00 | % | 100.00 | % | ||||
JingzhouHenglong 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 | 83.34 | % | 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 | % | ||||
JingzhouHenglong Automotive Technology (Testing) Center, “Testing Center”8 | 100.00 | % | 100.00 | % | ||||
Beijing HainachunHenglong Automotive Steering System Co., Ltd., “Beijing Henglong”9 | 50.00 | % | 50.00 | % | ||||
Chongqing HenglongHongyan Automotive System Co., Ltd., “Chongqing Henglong”10 | 70.00 | % | 70.00 | % | ||||
CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong”11 | 95.84 | % | 80.00 | % | ||||
Fujian Qiaolong Special Purpose Vehicle Co., Ltd., “Fujian Qiaolong”12 | 0.00 | % | 0.00 | % | ||||
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”13 | 85.00 | % | 85.00 | % | ||||
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”14 | 100.00 | % | 100.00 | % |
| | | | | |
| | Percentage Interest |
| ||
|
| June 30, |
| December 31, |
|
Name of Entity | | 2021 | | 2020 |
|
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 | % |
Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong” 4 |
| 85.00 | % | 85.00 | % |
Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu” 5 |
| 100.00 | % | 77.33 | % |
Hubei Henglong Automotive System Group Co., Ltd., “Hubei Henglong” 6 |
| 100.00 | % | 100.00 | % |
Jingzhou Henglong Automotive Technology (Testing) Center, “Testing Center” 7 |
| 100.00 | % | 100.00 | % |
Chongqing Henglong Hongyan Automotive System Co., Ltd., “Chongqing Henglong” 8 |
| 70.00 | % | 70.00 | % |
CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong” 9 |
| 95.84 | % | 95.84 | % |
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie” 10 |
| 85.00 | % | 85.00 | % |
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong” 11 |
| 100.00 | % | 100.00 | % |
Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou Qingyan”12 |
| 60.00 | % | 60.00 | % |
Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”13 |
| 66.60 | % | 66.60 | % |
Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”14 | | 51.00 | % | 51.00 | % |
Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”15 | | 62.00 | % | 62.00 | % |
Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong”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. |
3. | Shenyang was established in 2002 and focuses on power steering parts for light duty vehicles. |
4. |
Jielong was established in 2006 and mainly engages in the production and sales of automotive steering columns. |
8
5. | Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems. In April 2021, the Company obtained an additional 22.67% equity interest in Wuhu for total consideration of RMB 6.9 million, equivalent to approximately $1.1 million, from the other shareholder. The Company retained its controlling interest in Wuhu and the acquisition of the non-controlling interest was accounted for as an equity transaction. |
6. | On March 7, 2007, Genesis established Hubei Henglong, formerly known as |
7. |
In December 2009, Henglong, a subsidiary of Genesis, formed |
8. |
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. |
9. | 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 |
10. |
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. |
11. | 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. |
12. | 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. |
13. | 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. |
14. | 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. |
15. | 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. Hubei Henglong owns 62.0% of the shares of Wuhu Hongrun and has consolidated it since its establishment. |
16. | In April 2020, Hubei Henglong acquired 100.0% of the equity interests of Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong”, for total consideration of RMB 1.2 million, equivalent to approximately $0.2 million from an entity controlled by Hanlin Chen. Before the acquisition, 52.1% of the shares of Changchun Hualong were ultimately owned by Hanlin Chen and 47.9% of the shares were owned by third parties. Changchun Hualong mainly engages in design and R&D of automotive parts. |
9
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 Article 10 of 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, 2016.2020.
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, 20162020 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.
Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission, although the Company’s management believes that the disclosures contained in these financial statements are adequate to make the information presented herein not misleading. For further information, please refer to the financial statements and the notes thereto included in the Company’s 2016 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission.
The results of operations for the three months and ninesix months ended SeptemberJune 30, 20172021 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2017.2021.
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,real, “BRL,” its functional currency. In accordance with ASCFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 |
In January 2017,No accounting standards newly issued during the FASB issued ASU 2017-04: Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity should apply the amendments in this Update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. A public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 is designed to provide guidance on how to recognize gain and losses on sales, including partial sales, of nonfinancial assets to noncustomers. ASU 2017-05 is effective beginning January 1, 2018. Early adoption is permitted but the standard is required to be adopted concurrently with ASU 2014-09. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In May 2017, the FASB issued guidance within ASU 2017-09: Scope of Modification Accounting. The amendments in ASU 2017-09 to Topic 718, Compensation - Stock Compensation, provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity should account for the effects of a modification unless all of the following conditions are met: the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified; the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified; and the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The amendments should be applied prospectively to an award modified on or after the adoption date. The amendments are effective for annual periods, and interim periods within those annual periods, beginning after December 31, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this guidance is not expected to havesix months ended June 30, 2021, had a material impact on the Company's consolidatedCompany’s financial statements.statements or disclosures.
(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, 2016.2020.
Short-term investments comprise time deposits with terms
10
The Company’s short-term investments as of September 30, 2017 and December 31, 2016 are summarized as follows
(figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Time deposits | $ | 5,100 | $ | 30,217 | ||||
Wealth management financial products measured at fair value | 18,729 | 258 | ||||||
Total | $ | 23,829 | $ | 30,475 |
As of September 30, 2017, the Company had pledged short-term investments of RMB 13.9 million, equivalent to approximately $2.1 million, to secure standby letters of credit under Bank of China and China CITIC Bank (Note 13). The use of the pledged short-term investments is restricted.
3. Accounts and notes receivable, net |
The Company’s accounts and notes receivable, net as of SeptemberJune 30, 20172021 and December 31, 20162020 are summarized as follows (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||||||||
| | | | | | | ||||||||
|
| June 30, 2021 |
| December 31, 2020 | ||||||||||
Accounts receivable - unrelated parties | $ | 150,696 | $ | 154,403 | | $ | 138,866 | | $ | 141,018 | ||||
Notes receivable - unrelated parties(1) (2) | 120,438 | 132,409 | ||||||||||||
Total accounts and notes receivable- unrelated parties | 271,134 | 286,812 | ||||||||||||
Notes receivable - unrelated parties | |
| 75,753 | |
| 85,354 | ||||||||
Total accounts and notes receivable - unrelated parties | |
| 214,619 | |
| 226,372 | ||||||||
Less: allowance for doubtful accounts - unrelated parties | (1,191 | ) | (1,081 | ) | |
| (9,837) | |
| (9,853) | ||||
Accounts and notes receivable, net - unrelated parties | 269,943 | 285,731 | |
| 204,782 | |
| 216,519 | ||||||
Accounts and notes receivable - related parties | | | 24,120 | | | 17,622 | ||||||||
Less: allowance for doubtful accounts - related parties | | | (441) | | | (1) | ||||||||
Accounts and notes receivable, net - related parties | 17,607 | 20,984 | |
| 23,679 | |
| 17,621 | ||||||
Accounts and notes receivable, net | $ | 287,550 | $ | 306,715 | | $ | 228,461 | | $ | 234,140 |
Notes receivable represent accounts receivable in the form of bills of exchange for which acceptances are guaranteed and settlements are handled by banks. |
As of June 30, 2021 and December 31, 2016,2020, the Company collateralizedpledged its notes receivable in an amountamounts of RMB 249.9NaN and $8.2 million, equivalent to approximately $36.0 million,respectively, as security for the credit facilities with banks in China and the Chinese government, including RMB 224.6 million, equivalent to approximately $32.4 million, in favor of Industrial and Commercial Bank of China, Jingzhou Branch, “ICBC Jingzhou”, for the purpose of obtaining the Henglong Standby Letter of Credit (as defined in Note 13), which is used as security for the non-revolving credit facility in the amount of $30.0 million provided by Industrial and Commercial Bank of China (Macau) Limited, “ICBC Macau”, and RMB 25.2 million, equivalent to approximately $3.6 million, as securitycollateral in favor of the Chineselocal government for the low-interest government loanloans; and pledged its notes receivable in amounts of $4.4 million and $5.5 million, respectively, as collateral for banks to endorse the payment of the Company’s notes payable to the noteholders upon maturity (See Note 13)8).
Provision for doubtful accounts and notes receivable, as provided in the unaudited consolidated statements of operations, amounted to $0.6 million and $0.4 million for the three and six months ended June 30, 2021, respectively.
Provision for doubtful accounts and notes receivable reversed, as provided in the unaudited consolidated statements of operations, amounted to $0.1 million and $0.2 million for the three and six months ended June 30, 2020, respectively.
During the three months ended June 30, 2021, the Company’s 5 largest customers accounted for 41.8% of its consolidated net product sales, with two customers individually accounting for more than 10% of consolidated net sales, i.e., 18.3% and 10.0% respectively. During the six months ended June 30, 2021, the Company’s 5 largest customers accounted for 42.3% of its consolidated net product sales, with one customer accounting for more than 10% of consolidated net sales, i.e., 17.4%. As of June 30, 2021, approximately 8.5% 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.
During the three months ended June 30, 2020, the Company’s 5 largest customers accounted for 38.4% of its consolidated net product sales, with one customer accounting for more than 10% of consolidated net sales, i.e., 10.1%. During the six months ended June 30, 2020, the Company’s 5 largest customers accounted for 44.4% of its consolidated net product sales, with one customer accounting for more than 10% of consolidated net sales, i.e., 21.1%. As of June 30, 2020, approximately 6.7% 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.
11
4. Inventories
The Company’s advance payments and othersinventories as of SeptemberJune 30, 20172021 and December 31, 20162020 consisted of the following (figures are in thousands of USD):
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Raw materials | | $ | 27,014 | | $ | 24,367 |
Work in process | |
| 8,754 | |
| 10,098 |
Finished goods | |
| 60,203 | |
| 53,860 |
Total | | $ | 95,971 | | $ | 88,325 |
September 30, 2017 | December 31, 2016 | |||||||
Advance payments and others - unrelated parties | $ | 13,307 | $ | 10,203 | ||||
Less: allowance for doubtful accounts – unrelated parties(2) | (1,072 | ) | - | |||||
Advance payments and others, net – unrelated parties | 12,235 | 10,203 | ||||||
Advance payments and others - related parties(1) | 31,397 | 624 | ||||||
Total advance payments and others | $ | 43,632 | $ | 10,827 |
The Company recorded $1.1 million and $0.6 million of inventory write-down to cost of product sold for the three months ended June 30, 2021 and 2020, respectively, and $2.3 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively.
5. Long-term investments
The Company’s inventories as of Septemberlong-term investments at June 30, 20172021 and December 31, 2016 consisted of the following (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Raw materials | $ | 16,637 | $ | 15,007 | ||||
Work in process | 17,379 | 10,852 | ||||||
Finished goods | 39,014 | 42,191 | ||||||
Total | $ | 73,030 | $ | 68,050 |
Provision for inventories amounted to $4.4 million and $2.4 million for the nine months ended September 30, 2017 and 2016, respectively.
The Company’s other receivables as of September 30, 2017 and December 31, 20162020, are summarized as follows (figures are in thousands of USD):
September 30, 2017 | December 31,2016 | |||||||
Other receivables - unrelated parties(1) | $ | 1,009 | $ | 738 | ||||
Other receivables - employee housing loans(2) | 1,291 | 1,577 | ||||||
Less: allowance for doubtful accounts - unrelated parties | (66 | ) | (63 | ) | ||||
Other receivables, net - unrelated parties | $ | 2,234 | $ | 2,252 |
September 30, 2017 | December 31, 2016 | |||||||
Other receivables - related parties(1) | $ | 576 | $ | 559 | ||||
Less: allowance for doubtful accounts - related parties | (576 | ) | (559 | ) | ||||
Other receivables, net - related parties | $ | - | $ | - |
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Chongqing Venture Fund (1) | | $ | 19,695 | | $ | 20,230 |
Hubei Venture Fund (3) | |
| 11,969 | |
| 14,473 |
Suzhou Venture Fund | |
| 7,987 | |
| 7,740 |
Beijing Henglong (2) | |
| 4,017 | |
| 5,241 |
Henglong Tianyu | |
| 998 | |
| 1,070 |
Chongqing Jinghua | |
| 550 | |
| 599 |
Jiangsu Intelligent | |
| 413 | |
| 413 |
Total | | $ | 45,629 | | $ | 49,766 |
(1) |
(2) |
(3) | In April 2021, Hubei Venture Fund made distributions that were proportional to |
Long-term time deposits are time deposits with maturities of longer than one year. Time deposits with original maturities of longer than one year but due within the next 12 months are included in short-term investments. As of September 30, 2017 and December 31, 2016, short-term investments include $1.0 million and $4.8 million, respectively, of time deposits with original maturities of longer than one year but due within the next 12 months.
As of September 30, 2017 and December 31, 2016, the Company had pledged long-term time deposits of nil and RMB 6.0 million (equivalent to approximately $0.9 million), respectively, to secure loans under the credit facility issued by ICBC Brazil. The usecondensed financial information of the pledged long-term time deposits is restricted (See Note 13).
On January 24, 2010, the Company invested $3.1 million to establish a joint venture company, Beijing Henglong, with Hainachuan. The Company owns 50% of theCompany’s significant equity in Beijing Henglong and can exercise significant influence over Beijing Henglong’s operating and financial policies. The Company accounted for Beijing Henglong’s operational results using the equity method. As of September 30, 2017 and December 31, 2016, the Company had $4.2 million and $3.8 million, respectively, of net equity in Beijing Henglong.
On September 22, 2014, Hubei Henglong entered into an agreement with other parties to establish a venture capital fund, the “Suzhou Venture Fund”, which mainly focuses on investments in emerging automobiles and parts industries. Hubei Henglong has committed to make investments of RMB 50.0 million, equivalent to approximately $7.5 million, in the Suzhou Venture Fund in three installments. As of September 30, 2017, Hubei Henglong has completed a capital contribution of RMB 50.0 million, equivalent to approximately $7.5 million, representing 12.5% of the Suzhou Venture Fund’s shares. As a limited partner, Hubei Henglong has more than virtually no influence over the Suzhou Venture Fund’s operating and financial policies. The investment is accounted for using the equity method. As of September 30, 2017 and December 31, 2016, the Company had $8.1 million and $5.3 million, respectively, of net equity in the Suzhou Venture Fund.
In May 2016, Hubei Henglong entered into an agreement with other parties to establish a venture capital fund, the “Chongqing Venture Fund”. Hubei Henglong has committed to make investments of RMB 120.0 million, equivalent to approximately $18.1 million, in the Chongqing Venture Fund in three installments. As of September 30, 2017, Hubei Henglong has completed a capital contribution of RMB 84.0 million, equivalent to approximately $12.7 million, representing 35.0% of the Chongqing Venture Fund’s shares. As a limited partner, Hubei Henglong has more than virtually no influence over the Chongqing Venture Fund’s operating and financial policies. The investment is accounted for using the equity method. As of September 30, 2017 and December 31, 2016, the Company had $12.5 million and $6.8 million, respectively, of net equity in the Chongqing Venture Fund.
In October 2016, Hubei Henglong invested RMB 3.0 million, equivalent to approximately $0.5 million, to establish a joint venture company, Chongqing Jinghua Automotive Intelligent Manufacturing Technology Research Co., Ltd., “Chongqing Jinghua”, with five other parties. The Company owns 30% of the equity in Chongqing Jinghua, and can exercise significant influence over Chongqing Jinghua’s operating and financial policies. The Company accounts for Chongqing Jinghua’s operational results with the equity method. As of September 30, 2017 and December 31, 2016, the Company had $0.5 million and $0.4 million, respectively, of net equity in Chongqing Jinghua.
The Company’s consolidated financial statements reflect the net income of non-consolidated affiliates of $0.5 million and $0.6 millioninvestees for the ninethree and six months ended SeptemberJune 30, 2017 and 2016, respectively.
The Company’s property, plant and equipment as of September 30, 2017 and December 31, 20162021 are summarized as follows (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Land use rights and buildings | $ | 55,067 | $ | 47,448 | ||||
Machinery and equipment | 150,928 | 134,361 | ||||||
Electronic equipment | 5,636 | 4,979 | ||||||
Motor vehicles | 4,954 | 4,395 | ||||||
Construction in progress | 28,832 | 24,890 | ||||||
Total amount of property, plant and equipment | 245,417 | 216,073 | ||||||
Less: Accumulated depreciation(1) | (130,115 | ) | (114,595 | ) | ||||
Total amount of property, plant and equipment, net(2)(3) | $ | 115,302 | $ | 101,478 |
| | | | | | | | | | | | |
| | Three | | Six | ||||||||
| | Months Ended | | Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Revenue | | $ | 8,320 | | $ | — | | $ | 2,126 | | $ | — |
Gross profit | |
| 8,320 | |
| — | |
| 2,126 | |
| — |
Income from continuing operations | |
| 7,705 | |
| (231) | |
| 1,512 | |
| (183) |
Net income | | $ | 7,705 | | $ | (231) | | $ | 1,512 | | $ | (183) |
12
6. Property, plant and equipment, net
The Company’s property, plant and equipment, net as of June 30, 2021 and December 31, 2020 are summarized as follows (figures are in thousands of USD):
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Costs: |
| |
|
| |
|
Buildings | | $ | 62,470 | | $ | 61,035 |
Machinery and equipment | |
| 240,136 | |
| 233,273 |
Electronic equipment | |
| 6,612 | |
| 6,491 |
Motor vehicles | |
| 5,113 | |
| 5,064 |
Construction in progress | |
| 21,304 | |
| 20,813 |
Total amount of property, plant and equipment | |
| 335,635 | |
| 326,676 |
Less: Accumulated depreciation (1) | |
| (199,736) | |
| (185,672) |
Total amount of property, plant and equipment, net (2)(3) | | $ | 135,899 | | $ | 141,004 |
(1) | Depreciation charges were $6.4 million and $5.3 million for the three months ended June 30, 2021 and 2020, respectively, and $12.7 million and $10.6 million for the six months ended June 30, 2021 and 2020, respectively. |
(2) | As of |
(3) | Interest costs capitalized for the three months ended |
7. Loans
Loans consist of the following as of June 30, 2021 and December 31, 2020 (figures are in thousands of USD):
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Short-term bank loans (1) | | $ | 36,415 | | $ | 36,575 |
Current portion of long-term government loan (2) | | | 0 | | | 7,663 |
Subtotal | | | 36,415 | | | 44,238 |
Long-term government loans (2) | |
| 0 | |
| 7,663 |
Less: Current portion of long-term government loans (2) | | | 0 | | | (7,663) |
Subtotal | | | 0 | | | 0 |
Total bank and government loans | | $ | 36,415 | | $ | 44,238 |
(1) |
(2) | 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 $3.0 million and $4.6 million, respectively. These loans were due for repayment on June 30, 2021 and have an interest rate of 3.80% per annum. As of June 30, 2021 and December 31, 2020, Henglong pledged NaN and RMB 53.5 million, equivalent to approximately NaN and $8.2 million, respectively, of notes receivable as collateral for the local government loans (See Note 3). The Company repaid these government loans on April 15, 2021. |
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 June 30, 2021.
13
8. Accounts and notes payable
The Company’s intangible assetsaccounts and notes payable as of SeptemberJune 30, 20172021 and December 31, 20162020 are summarized as follows (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Costs: | ||||||||
Patent technology | $ | 2,076 | $ | 1,986 | ||||
Management software license | 1,218 | 1,165 | ||||||
Total intangible assets | 3,294 | 3,151 | ||||||
Less: Amortization(1) | (2,782 | ) | (2,534 | ) | ||||
Total intangible assets, net | $ | 512 | $ | 617 |
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Accounts payable - unrelated parties | | $ | 129,094 | | $ | 132,349 |
Notes payable - unrelated parties (1) | |
| 79,346 | |
| 80,173 |
Accounts and notes payable - unrelated parties | |
| 208,440 | |
| 212,522 |
Accounts and notes payable - related parties | |
| 12,000 | |
| 12,730 |
Total | | $ | 220,440 | | $ | 225,252 |
(1) |
In accordance with the provisions ofASC Topic 740, “Income Taxes”, the Company assesses, on a quarterly basis, its ability to realize its deferred tax assets. Based on the more likely than not standard in the guidance and the weight of available evidence, the Company believes a valuation allowance against its deferred tax assets is necessary. In determining the need for a valuation allowance, the Company considered the following significant factors: an assessment of recent years’ profitability and losses by tax authorities; the Company’s expectation of profits based on margins and volumes expected to be realized, which are based on current pricing and volume trends; the long period in all significant operating jurisdictions before the expiry of net operating losses, noting further that a portion of the deferred tax asset is composed of deductible temporary differences that are subject to an expiry period until realized under tax law. The Company will continue to evaluate the provision of valuation allowance in future periods.
The components of estimated deferred income tax assets as of September 30, 2017 and December 31, 2016 are as follows (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Losses carry forward (U.S.)(1) | $ | 6,389 | $ | 6,216 | ||||
Losses carry forward (Non-U.S.)(1) | 2,307 | 2,887 | ||||||
Product warranties and other reserves | 4,290 | 4,766 | ||||||
Property, plant and equipment | 4,422 | 4,204 | ||||||
Share-based compensation | 220 | 247 | ||||||
Bonus accrual | 230 | 231 | ||||||
Other accruals | 1,439 | 1,551 | ||||||
Deductible temporary difference related to revenue recognition | 153 | 191 | ||||||
Others | 1,365 | 1,206 | ||||||
Total deferred tax assets, net | 20,815 | 21,499 | ||||||
Less: Valuation allowance | (9,044 | ) | (8,912 | ) | ||||
Total deferred tax assets, net of valuation allowance(2) | $ | 11,771 | $ | 12,587 |
Loans consist of the following as of September 30, 2017 and December 31, 2016 (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Short-term bank loan(1) | $ | 9,794 | $ | 2,162 | ||||
Short-term bank loan(2) (3) (4) (5) | 30,484 | 35,054 | ||||||
Short-term bank loans(6) | 28,796 | - | ||||||
Short-term government loan(7) | 4,520 | 3,604 | ||||||
Bank and government loans | $ | 73,594 | $ | 40,820 |
On May 22, 2012, the Company drew down the full amount of $30.0 million under the Credit Facility9. Accrued expenses and provided the Henglong Standby Letter of Credit for an amount of $31.6 million in favor of ICBC Macau. The Henglong Standby Letter of Credit issued by ICBC Jingzhou is collateralized by Henglong’s notes receivable of RMB 207.1 million, equivalent to approximately $32.6 million. The Company also paid an arrangement fee of $0.1 million to ICBC Macau and $0.1 million to ICBC Jingzhou. The original maturity date of the Credit Facility was May 22, 2013 and was extended to May 12, 2017. The interest rate of the Credit Facility under the extended term is three-month LIBOR plus 0.7% per annum. Except for the above, all other terms and conditions as stipulated in the Credit Agreement remained unchanged. As of December 31, 2016, the interest rate of the Credit Facility was 1.7% per annum.
On April 20, 2017, the Company entered into a credit facility agreement, the “Credit Agreement,” with ICBC Macau to obtain a non-revolving credit facility in the amount of $20.0 million, the “Credit Facility”. The Credit Facility will expire on May 12, 2018 unless the Company draws down the line of credit in full prior to such expiration date, and the maturity date for the loan drawdown is the earlier of (i) 12 months from the date of drawdown or (ii) one month before the expiry of the standby letter of credit obtained by Henglong from ICBC Jingzhou as security for the Credit Facility, the “Henglong Standby Letter of Credit”. The interest rate of the Credit Facility is calculated based on a three-month LIBOR plus 1.30% per annum, subject to the availability of funds and fluctuation at ICBC Macau’s discretion. Interest is calculated daily based on a 360-day year and it is fixed one day before the first day of each interest period. The interest period is defined as three months from the date of drawdown. As security for the Credit Facility, the Company was required to provide ICBC Macau with the Henglong Standby Letter of Credit for a total amount of not less than $23.9 million if the Credit Facility is fully drawn.
On May 5, 2017, the Company drew down the full amount of $20.0 million under the Credit Facility and provided the Henglong Standby Letter of Credit for an amount of $23.4 million in favor of ICBC Macau. The Henglong Standby Letter of Credit issued by ICBC Jingzhou is collateralized by Henglong’s notes receivable of RMB 158.9 million, equivalent to approximately $23.9 million. The Company also paid an arrangement fee of $0.04 million to ICBC Jingzhou. The maturity date of the Credit Facility is May 12, 2018.
On April 28, 2017, Great Genesis drew down the full amount of $9.9 million under the Taishin Bank Credit Facility and provided the Henglong Standby Letter of Credit for an amount of $10.0 million in favor of Taishin Bank. Henglong’s Standby Letter of Credit issued by China CITIC Bank Wuchang branch is collateralized by Henglong’s short-term investments of RMB 4.0 million, equivalent to approximately $0.6 million, and notes receivable of RMB 79.4 million, equivalent to approximately $12.0 million.
On July 22, 2014, Great Genesis drew down a loan amounting to $5.0 million provided by HSBC HK and Hubei Henglong provided a Standby Letter of Credit for an amount of $5.4 million in favor of HSBC HK. Hubei Henglong’s Standby Letter of Credit was issued by HSBC Bank (China) Company Limited Wuhan branch and is collateralized by long-term time deposits of Hubei Henglong of RMB 33.0 million, equivalent to approximately $4.8 million.
On July 7, 2016, HSBC HK agreed to extend the maturity date of the HSBC Credit Facility to July 1, 2017. Hubei Henglong provided a Standby Letter of Credit in an amount of $5.1 million in favor of HSBC HK. The Standby Letter of Credit was issued by HSBC Bank (China) Company Limited Wuhan branch and was collateralized by short-term time deposits of Hubei Henglong of RMB 36.0 million, equivalent to approximately $5.2 million. The interest rate of the HSBC Credit Facility under the extended term was revised as three-month LIBOR plus 0.8% per annum, i.e. 1.95% per annum. Except for the above, all other terms and conditions as stipulated in the Credit Agreement remained unchanged. The Company repaid this bank loan on July 14, 2017.
On May 6, 2016, Brazil Henglong drew down a loan amounting to $0.1 million provided by HSBC Brazil. The loan matured on October 9, 2017 and has an annual interest rate of 8.2%.Hubei Henglong provided a Standby Letter of Credit for an amount of $0.1 million in favor of HSBC Brazil. Hubei Henglong’s Standby Letter of Credit was issued by China CITIC Bank Wuhan branch and is collateralized by short-term investments of Hubei Henglong of RMB 0.5 million, equivalent to approximately $0.1 million. The Company repaid this bank loan on October 9, 2017.
On August 26, 2016, Brazil Henglong entered into a credit facility agreement with Bank of China (Brazil) to obtain a credit facility in the amount of $0.6 million, the “Bank of China Credit Facility”. The Bank of China Credit Facility will expire on January 15, 2018. As security for the Bank of China Credit Facility, the Company’s subsidiary Hubei Henglong is required to provide Bank of China (Brazil) with a Standby Letter of Credit for a total amount of $0.9 million if the Bank of China Credit Facility is fully drawn.
On August 26, 2016, Brazil Henglong drew down a loan amounting to $0.6 million provided by Bank of China (Brazil). The loan will mature on January 15, 2018 and has an annual interest rate of 4.0%. Interest is paid semiannually and the principal repayment is at maturity. Hubei Henglong provided a Standby Letter of Credit for an amount of $0.9 million in favor of Bank of China (Brazil). Hubei Henglong’s Standby Letter of Credit was issued by Bank of China Jingzhou branch and is collateralized by long-term time deposits of Hubei Henglong of RMB 6.0 million, equivalent to approximately $0.9 million.
On September 26, 2016, Hubei Henglong entered into a credit facility agreement with China CITIC Bank to obtain credit facilities in the amount of RMB 100.0 million (equivalent to $15.1 million as of September 30, 2017), the “Hubei Henglong CITIC Credit Facility”. The Hubei Henglong CITIC Credit Facility expired on September 26, 2017. Henglong provided a guarantee for the Hubei Henglong CITIC Credit Facility. On March 3, 2017, Hubei Henglong drew down loans amounting to RMB 28.7 million, RMB 28.7 million and 38.2 million (equivalent to $4.3 million, $4.3 million and $5.8 million), respectively. The loans will mature on February 2, 8 and 9, 2018, respectively. The annual interest rate of the loans is 5.0%. The principal and interest will be paid at maturity.
On April 21, 2017, the Company received an interest-free Chinese government loan of RMB 10.0 million, equivalent to approximately $1.5 million, which will mature on December 8, 2017. Jiulong pledged RMB 10.0 million, equivalent to approximately $1.5 million, of notes receivable as security for the Chinese government loan (See Note 4).
payables
The Company’s accountsaccrued expenses and notes payableother payables as of SeptemberJune 30, 20172021 and December 31, 20162020 are summarized as follows (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Accounts payable - unrelated parties | $ | 142,594 | $ | 138,053 | ||||
Notes payable - unrelated parties(1) | 82,164 | 78,940 | ||||||
Accounts and notes payable- unrelated parties | 224,758 | 216,993 | ||||||
Accounts payable - related parties | 5,749 | 6,803 | ||||||
Balance at end of period | $ | 230,507 | $ | 223,796 |
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Warranty reserves (1) | | $ | 36,537 | | $ | 36,215 |
Accrued expenses | | | 8,752 | | | 8,627 |
Current portion of other long-term payable (See Note 10) | | | 3,242 | | | 4,131 |
Payables for overseas transportation and custom clearance | |
| 1,358 | |
| 3,278 |
Dividends payable to holders of non-controlling interests | |
| 464 | |
| 460 |
Accrued interest | | | 144 | | | 646 |
Other payables | |
| 1,224 | |
| 2,250 |
Balance at end of year | | $ | 51,721 | | $ | 55,607 |
(1) |
The Company’s accrued expenses and other payables as of September 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Accrued expenses | $ | 7,975 | $ | 8,605 | ||||
Accrued interest | 953 | 88 | ||||||
Dividends payable to holders of non-controlling interests(3) | 621 | - | ||||||
Other payables | 2,483 | 964 | ||||||
Warranty reserves(1) (2) | 20,851 | 26,225 | ||||||
Total | $ | 32,883 | $ | 35,882 |
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 and six months ended SeptemberJune 30, 20172021 and 2016,2020, the warranties activities were as follows (figures are in thousands of USD):
Three Months Ended September 30, | ||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||
| | | | | | | | | | | | | ||||||||
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||||||
Balance at beginning of the period | $ | 23,898 | $ | 21,238 | | $ | 35,985 | | $ | 32,642 | | $ | 36,215 | | $ | 32,907 | ||||
Additions during the period | 4,426 | 1,693 | |
| 4,017 | |
| 4,927 | |
| 7,698 | |
| 8,355 | ||||||
Settlement within period, by cash or actual materials | (6,814 | ) | (2,378 | ) | ||||||||||||||||
Foreign currency translation (gain)/loss | (659 | ) | 160 | |||||||||||||||||
Settlement within the period | |
| (4,085) | |
| (3,564) | |
| (7,730) | |
| (6,739) | ||||||||
Foreign currency translation loss/(gain) | |
| 620 | |
| 26 | |
| 354 | |
| (492) | ||||||||
Balance at end of the period | $ | 20,851 | $ | 20,713 | | $ | 36,537 | | $ | 34,031 | | $ | 36,537 | | $ | 34,031 |
14
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 $14.1 million as of June 30, 2021) and the sales price was RMB 100.0 million (equivalent to $15.5 million as of June 30, 2021). Pursuant to the terms of the contract, the Company is required to pay to the buyer-lessor lease payments over four years with a quarterly lease payment of approximately $1.1 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 June 30, 2021, $3.2 million was recognized as other payable (See Note 9) and NaN was recognized as the other long-term payable.
11. Redeemable non-controlling interests
In September 2020, one of the Company’s subsidiaries issued shares to Hubei Venture Fund amounting to $0.7 million. The shares will be transferred to the Company and the other shareholder of the subsidiary on a pro rata basis at the holder’s option if the subsidiary fails to complete a qualified IPO in a pre-agreed period of time after their issuance with a transfer price of par plus 6% per year. $0.5 million of the shares are subject to purchase by the Company and are therefore accounted for as redeemable non-controlling interests in mezzanine equity and are accreted to the redemption value over the period starting from the issuance date.
For the ninethree and six months ended SeptemberJune 30, 2017 and 2016, and for the year ended December 31, 2016, the warranties activities were as follows (figures are in thousands of USD):
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||
2017 | 2016 | 2016 | ||||||||||
Balance at beginning of the period | $ | 26,225 | $ | 23,059 | $ | 23,059 | ||||||
Additions during the period | 11,182 | 5,433 | 16,522 | |||||||||
Settlement within period, by cash or actual materials | (15,423 | ) | (8,434 | ) | (11,781 | ) | ||||||
Foreign currency translation loss | (1,133 | ) | 655 | (1,575 | ) | |||||||
Balance at end of the period | $ | 20,851 | $ | 20,713 | $ | 26,225 |
The Company’s taxes payable as of September 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
September 30, 2017 | December 31, 2016 | |||||||
Value-added tax payable | $ | 2,374 | $ | 7,662 | ||||
Income tax payable | 1,019 | 3,390 | ||||||
Other tax payable | 407 | 622 | ||||||
Total | $ | 3,800 | $ | 11,674 |
As of September 30, 2017 and December 31, 2016, advances payable by2021, the Company were $0.8recognized accretion of $0.007 million and $0.7$0.014 million respectively.
The amounts are special subsidies made by the Chinese governmentrespectively, to the Company to offset the costs and charges related to the improvement of production capacities and improvementredemption value of the quality of products. Forshares over the government subsidiesperiod starting from the issuance date with no further conditionsa corresponding reduction to be met, the amounts are recorded as other income when received; for the amounts with certain operating conditions, the government subsidies are recorded as advances payable when received and will be recorded as a deduction of related expenses and cost when the conditions are met.retained earnings, respectively.
The balances are unsecured, interest-free and will be repayable to the Chinese government if the usage of such advance does not continue to qualify for the subsidy.
12. Additional paid-in capital |
The Company’s positions in respect of the amounts of additional paid-in capital for the ninethree and six months ended SeptemberJune 30, 20172021 and 2016, and the year ended December 31, 20162020, are summarized as follows (figures are in thousands of USD):
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2016 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||||||||||
Balance at beginning of the period | $ | 64,764 | $ | 64,627 | $ | 64,627 | | $ | 64,361 | | $ | 64,437 | | $ | 64,273 | | $ | 64,466 | ||||||
Acquisition of the non-controlling interest in Brazil Henglong(1) | (458 | ) | - | - | ||||||||||||||||||||
Share-based compensation | 100 | - | 137 | | | 0 | | | 0 | | | 88 | | | 0 | |||||||||
Acquisition of the non-controlling interest in Wuhu | | | (630) | | | — | | | (630) | | | — | ||||||||||||
Acquisition of the non-controlling interest in Universal Sensor Application Inc., "USAI" | | | — | | | — | | | — | | | (29) | ||||||||||||
Acquisition of the non-controlling interest in Changchun Hualong | | | 0 | | | (76) | | | 0 | | | (76) | ||||||||||||
Deemed distribution to shareholders | | | — | | | (88) | | | — | | | (88) | ||||||||||||
Balance at end of the period | $ | 64,406 | $ | 64,627 | $ | 64,764 | | $ | 63,731 | | $ | 64,273 | | $ | 63,731 | | $ | 64,273 |
13. Stock Options
The Company’s stock option plan was approved at the Annual Meeting of Stockholders held on June 28, 2005, and extended to June 27, 2025 at the Annual Meeting of Stockholders held on September 16, 2014. The maximum common shares available for issuance under this plan is 2,200,000. The stock incentive plan provides for the issuance, to the Company’s officers, directors, management and employees who served over three years or have given outstanding performance, of options to purchase shares of the Company’s common stock. The Company has issued 658,850 stock options under this plan, and there remain 1,541,150 stock options issuable in the future as of June 30, 2021.
Under the aforementioned plan, the stock options granted will have an exercise price equal to the closing price of the Company’s common stock traded on NASDAQ one day before the date of grant, and will expire two to five years after the grant date. The stock options granted during the three months ended June 30, 2021 were exercisable immediately on the grant date. Stock options will be settled in shares of the Company’s common stock upon exercise and are recorded in the Company’s consolidated balance sheets under the caption “Additional paid-in capital.” As of June 30, 2021, the Company has sufficient unissued registered common stock for settlement of the stock incentive plan mentioned above.
15
The fair value of stock options was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instruments. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
AssumptionsFor the stock options granted during the six months ended June 30, 2021, assumptions used to estimate the fair value of the stock options on the grant dates aredate is as follows:
| | | | | | | | | |
Issuance Date |
| Expected volatility |
| Risk-free rate |
| Expected term (years) |
| Dividend yield |
|
February 3, 2021 |
| 76.91 | % | 0.46 | % | 5 |
| 0.00 | % |
Issuance Date | Expected volatility | Risk-free rate | Expected term (years) | Dividend yield | ||||||||||||
December 2, 2016 | 134.8 | % | 1.84 | % | 5 | 0.00 | % | |||||||||
August 16, 2017 | 139.2 | % | 1.79 | % | 5 | 0.00 | % |
The stock options granted during 2017 and 2016the six months ended June 30, 2021 were exercisable immediately. Theirimmediately and their fair valuesvalue on the grant datesdate using the Black-Scholes option pricing model were$0.1 million andwas $0.1 million, respectively.million. For the ninesix months ended SeptemberJune 30, 20172021 and the year ended December 31, 2016,2020, the Company recognized stock-based compensation expenses of $0.1 million and NaN, respectively.
The activities of stock options are summarized as follows, including granted, exercised and forfeited.
| | | | | | | |
| | | | | | | Weighted- |
| | | | Weighted- | | Average | |
| | | | Average | | Contractual | |
|
| Shares |
| Exercise Price |
| Term (years) | |
Outstanding - January 1, 2020 |
| 30,000 | | $ | 4.99 |
| 5 |
Expired |
| (7,500) | |
| 5.58 |
| 5 |
Outstanding - December 31, 2020 |
| 22,500 | | $ | 4.79 |
| 5 |
Granted |
| 22,500 | |
| 6.26 |
| 5 |
Outstanding - June 30, 2021 |
| 45,000 | | $ | 5.52 |
| 5 |
The following is a summary of the range of exercise prices for stock options that are outstanding and exercisable at June 30, 2021:
| | | | | | | | | |
| | Outstanding Stock | | Weighted Average | | Weighted Average | | Number of Stock | |
Range of Exercise Prices |
| Options |
| Remaining Life |
| Exercise Price |
| Options Exercisable | |
$2.37 - $6.95 | | 45,000 | | 2.14 | | $ | 5.52 | | 45,000 |
As of June 30, 2021 and December 31, 2020, the total intrinsic value of the Company’s stock options that were exercisable was $0.2 million and $0.1 million, respectively.
For the three and six months ended June 30, 2021 and 2020, 0 Company’s stock options were exercised.
Appropriated
Pursuant to the relevant PRC laws, the profits distribution of the Company’s Sino-foreign subsidiaries, which are based on their PRC statutory financial statements, other than the financial statement that was prepared in accordance with generally accepted accounting principles in the United States of America, 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, 0 additional reserve is no longer required. However,For the three months ended June 30, 2021 and 2020, 0 statutory reserve cannot be distributed to joint venture partners. Based onwas appropriated by the business licensessubsidiaries in China.
16
The Company’s activities in respect of the amounts of appropriated retained earnings for the ninethree and six months ended SeptemberJune 30, 20172021 and 2016, and the year ended December 31, 20162020, are summarized as follows (figures are in thousands of USD):
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2016 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||||||||||
Balance at beginning of the period | $ | 10,549 | $ | 10,379 | $ | 10,379 | | $ | 11,303 | | $ | 11,265 | | $ | 11,303 | | $ | 11,265 | ||||||
Appropriation of retained earnings | 124 | 142 | 170 | |||||||||||||||||||||
Balance at end of the period | $ | 10,673 | $ | 10,521 | $ | 10,549 | | $ | 11,303 | | $ | 11,265 | | $ | 11,303 | | $ | 11,265 |
Unappropriated
The Company’s activities in respect of the amounts of the unappropriated retained earnings for the ninethree and six months ended SeptemberJune 30, 20172021 and 2016, and the year ended December 31, 20162020, are summarized as follows (figures are in thousands of USD):
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2016 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||||||||||
Balance at beginning of the period | $ | 228,963 | $ | 206,622 | $ | 206,622 | | $ | 218,697 | | $ | 220,481 | | $ | 215,491 | | $ | 221,298 | ||||||
Net income attributable to parent company | 19,694 | 16,755 | 22,511 | |||||||||||||||||||||
Appropriation of retained earnings | (124 | ) | (142 | ) | (170 | ) | ||||||||||||||||||
Cumulative effect of accounting change - credit loss | | | — | | | — | | | — | | | (789) | ||||||||||||
Net income/(loss) attributable to parent company | | | 3,207 | | | (4,098) | | | 6,420 | | | (4,126) | ||||||||||||
Accretion of redeemable non-controlling interests | |
| (7) | |
| — | |
| (14) | |
| — | ||||||||||||
Balance at end of the period | $ | 248,533 | $ | 223,235 | $ | 228,963 | | $ | 221,897 | | $ | 216,383 | | $ | 221,897 | | $ | 216,383 |
15. Accumulated other comprehensive income |
The Company’s activities in respect of the amounts of the accumulated other comprehensive income for the ninethree and six months ended SeptemberJune 30, 20172021 and 2016, and the year ended December 31, 20162020, are summarized as follows (figures are in thousands of USD):
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||||||
2017 | 2016 | 2016 | ||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||
| | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||||||||||
Balance at beginning of the period | $ | (892 | ) | $ | 18,412 | $ | 18,412 | | $ | 15,285 | | $ | (7,970) | | $ | 17,413 | | $ | (3,462) | |||||
Other comprehensive income related to the non-controlling interests acquired by the Company | (67 | ) | - | - | ||||||||||||||||||||
Foreign currency translation adjustment attributable to parent company | 13,681 | (8,128 | ) | (19,304 | ) | |
| 5,234 | |
| 302 | |
| 3,106 | |
| (4,206) | |||||||
Balance at end of the period | $ | 12,722 | $ | 10,284 | $ | (892 | ) | | $ | 20,519 | | $ | (7,668) | | $ | 20,519 | | $ | (7,668) |
16. 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 18, 2015,August 13, 2020, 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 or in privately negotiated transactionsnot to exceed $3.50 per share through December 17, 2016. The repurchase program terminated on December 17, 2016. DuringAugust 12, 2021. As of June 30, 2021, the year ended December 31, 2016,Company had cumulatively repurchased 322,269 of the shares that were authorized to be repurchased under the repurchase program the Company repurchased 477,015 shares of the Company’s common stock for cash consideration of $1.9 millionthat was approved on the open market.August 13, 2020. The repurchased shares are presented as “treasury stock” on the balance sheet.
17 |
The Company’s activities in respect of the amounts of the non-controlling interests’ equity for the ninethree and six months ended SeptemberJune 30, 20172021 and 2016, and the year ended December 31, 20162020, are summarized as follows (figures are in thousands of USD):
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||
2017 | 2016 | 2016 | ||||||||||
Balance at beginning of the period | $ | 5,412 | $ | 8,252 | $ | 8,252 | ||||||
Income attributable to non-controlling interests | 353 | 164 | 466 | |||||||||
Dividends declared to the non-controlling interest holders of joint-venture companies (See Note 15) | (608 | ) | (464 | ) | (464 | ) | ||||||
Acquisition of the non-controlling interest in Brazil Henglong | 458 | - | - | |||||||||
Other comprehensive income related to the non-controlling interests acquired by the Company | 67 | - | - | |||||||||
Non-controlling interests change due to the disposal of Fujian Qiaolong | - | (2,150 | ) | (2,150 | ) | |||||||
Foreign currency translation adjustment attributable to non-controlling interests | 467 | (307 | ) | (692 | ) | |||||||
Balance at end of the period | $ | 6,149 | $ | 5,495 | $ | 5,412 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Balance at beginning of the period | | $ | 16,045 | | $ | 18,694 | | $ | 16,170 | | $ | 20,250 |
Net loss attributable to non-controlling interests | |
| (279) | |
| (142) | |
| (261) | |
| (742) |
Acquisition of the non-controlling interest in Wuhu | | | (444) | | | 0 | | | (444) | | | — |
Acquisition of the non-controlling interest in USAI | | | 0 | | | 0 | | | — | | | 29 |
Acquisition of the non-controlling interest in Changchun Hualong | | | 0 | | | (5) | | | — | | | (5) |
Cumulative effect of accounting change - credit loss | | | 0 | | | 0 | | | — | | | (102) |
Dividends declared to non-controlling interest holders of non-wholly owned subsidiaries | | | 0 | | | 0 | | | — | | | (430) |
Foreign currency translation adjustment attributable to non-controlling interests | |
| 352 | |
| 56 | |
| 209 | |
| (397) |
Balance at end of the period | | $ | 15,674 | | $ | 18,603 | | $ | 15,674 | | $ | 18,603 |
Gain
18. 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 25.
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 June 30, 2021 and December 31, 2020, the Company has customer deposits of $3.8 million and $1.5 million, respectively, which were included in other current liabilities on other sales mainly consisted of net amount retained from sales of materials, property, plant and equipment, and scraps. For the nineconsolidated balance sheets. During the six months ended SeptemberJune 30, 2017, gain on other2021, $3.9 million was received and $1.6 million (including $1.5 million from the beginning balance of customer deposits) was recognized as net product sales amounted to $5.9 million as compared to $2.0 million forrevenue. During the ninesix months ended SeptemberJune 30, 2016, representing2020, $1.1 million was received and $0.8 million (including $0.8 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 increaseamount of $3.9 million. During the second quarter of 2017,products produced by the Company disposedunder supply agreements. When the products are shipped to customers, the Company will recognize revenue and bill the customers to reduce the amount of a building located in Jingzhou and recognized a gain of $2.2 million. the customer deposit liability.
19. Financial expense, net |
During the ninethree and six months ended SeptemberJune 30, 20172021 and 2016,2020, the Company recorded financial income,expense, net which is summarized as follows (figures are in thousands of USD):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Interest income | $ | 2,474 | $ | 1,777 | ||||
Foreign exchange loss, net | (173 | ) | (30 | ) | ||||
Gain of cash discount, net | - | 3 | ||||||
Bank fees | (392 | ) | (480 | ) | ||||
Total financial income, net | $ | 1,909 | $ | 1,270 |
| | | | | | | | | | | | |
| | Three Months Ended June 30, |
| Six Months Ended June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Interest income | | $ | 206 | | $ | 397 | | $ | 521 | | $ | 748 |
Foreign exchange gain/(loss), net | |
| 191 | |
| (413) | |
| (278) | |
| (1,124) |
Bank charges | |
| (215) | |
| (43) | |
| (300) | |
| (214) |
Total financial expense, net | | $ | 182 | | $ | (59) | | $ | (57) | | $ | (590) |
The Company’s subsidiaries registered in the PRC are subject to national and local income taxes within the PRC at the applicable tax rate
18
Pursuant to the New China Income Tax Law and the Implementing Rules, “New CIT”, which became effective as of January 1, 2008, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise to its foreign investors will be subject to a 10% withholding tax if the foreign investors are considered non-resident enterprises without any establishment or place within China or if the dividends payable have no connection with the establishment or place of the foreign investors within China, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.
Genesis, the Company’s wholly-owned subsidiary and the direct holder of the equity interests in the Company’s subsidiaries in China, is incorporated in Hong Kong. According to the Mainland China and Hong Kong Taxation Arrangement, dividends paid by a foreign-invested enterprise in China to its direct holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5%, if the foreign investor directly owns at least 25% of the shares of the foreign-invested enterprise. Under the New CIT, if Genesis is regarded as a non-resident enterprise, it is required to pay an additional 5% withholding tax for any dividends payable to it from the PRC subsidiaries.
According to PRC tax regulation, the Company should withhold income taxes for the profits distributed from the PRC subsidiaries to Genesis, the subsidiaries’ holding company incorporated in Hong Kong. For the profits that the PRC subsidiaries intended to distribute to Genesis, the Company accrues the withholding income tax as deferred tax liabilities. As of September 30, 2017, the Company has recognized deferred tax liabilities of $0.2 million for the remaining undistributed profits to Genesis of $4.5 million. The Company intended to re-invest the remaining undistributed profits generated from the PRC subsidiaries in those subsidiaries permanently. As of September 30, 2017 and December 31, 2016, the Company still had undistributed earnings of approximately $266.4 million and $239.8 million, respectively, from investment in the PRC subsidiaries that are considered permanently reinvested. Had the undistributed earnings been distributed to Genesis and not permanently reinvested, the tax provision as of September 30, 2017 and December 31, 2016 of approximately $13.3 million and $12.0 million, respectively, would have been recorded. Such undistributed profits will be reinvested in Genesis and not further distributed to the parent company incorporated in the United States going forward.
In 2014, Jiulong was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it is subject to enterprise income tax at a rate of 15% from 2014 to 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.
In 2014, Henglong was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it is subject to enterprise income tax at a rate of 15% from 2014 to 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.
In 2009, Shenyang was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2009, 2010 and 2011. In 2012, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continued to be taxed at the 15% tax rate in 2012, 2013 and 2014. In 2015, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017.
In 2012, Wuhu was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2013 and 2014. In 2015, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate in 2015 and 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.
In 2013, Jielong was awarded the title of “High & New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2013, 2014 and 2015. In 2016, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate from 2016 to 2018.
In 2011, Hubei Henglong was awarded the title of “High & New Technology Enterprise”. Based on the PRC income tax law, it was subject to enterprise income tax at a rate of 15% for 2013. The Company has passed the re-assessment in 2014 and continues to qualify as a “High & New Technology Enterprise”. Accordingly, it continues to be taxed at the 15% tax rate in 2014, 2015 and 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.
According to the New CIT, USAI, Wuhan Chuguanjie, Shanghai Henglong and Testing Center are subject to income tax at a rate of 25% in 2016 and 2017.
Chongqing Henglong was established in 2012. According to the New CIT, Chongqing Henglong is subject to income tax at a uniform rate of 25%. No provision for Chongqing Henglong is made as it had no assessable income for the nine months ended September 30, 2017 and 2016.
Based on Brazilian income tax laws, Brazil Henglong is subject to income tax at a uniform rate of 15%, and a resident legal person is subject to additional tax at a rate of 10% for the part of taxable income over $0.12 million, equivalent to approximately BRL 0.24 million. The Company had no assessable income in Brazil for the nine months ended September 30, 2017 and 2016.
The profits tax rate of Hong Kong is 16.5%. No provision for Hong Kong tax is made as Genesis is an investment holding company, and had no assessable income in Hong Kong for the nine months ended September 30, 2017 and 2016.
The enterprise income tax rate of the United States is 35%. No provision for U.S. tax is made for CAAS and HLUSA as a whole, as the Company had no assessable income in the United States for the nine months ended September 30, 2017 and 2016.
The Company’s effective tax rate was 17.3% and 18.2% for the three months and nine months ended September 30, 2017, respectively, compared with 17.4% and 17.3% for the three months and nine months ended September 30, 2016, respectively.
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 calculationcalculations of basic and diluted income per share attributable to the parent company for the three months ended SeptemberJune 30, 20172021 and 2016, was2020, were as follows (figures are in thousands of USD, except share and per share amounts):
Three Months Ended September 30, | ||||||||||||||
2017 | 2016 | |||||||||||||
| | | | | | | ||||||||
| | Three Months Ended June 30, | ||||||||||||
|
| 2021 |
| 2020 | ||||||||||
Numerator: |
| |
|
| |
| ||||||||
Net income attributable to the parent company’s common shareholders – Basic and Diluted | $ | 5,059 | $ | 5,682 | ||||||||||
Net income/(loss) attributable to the parent company’s common shareholders - Basic and Diluted | | $ | 3,200 | | $ | (4,098) | ||||||||
Denominator: | |
| | |
| | ||||||||
Weighted average shares outstanding | 31,644,004 | 31,911,360 | |
| 30,851,776 | |
| 31,174,045 | ||||||
Dilutive effects of stock options | 267 | 362 | |
| 3,630 | |
| 0 | ||||||
Denominator for dilutive income per share – Diluted | 31,644,271 | 31,911,722 | ||||||||||||
Net income per share attributable to parent company’s common shareholders – Basic | $ | 0.16 | $ | 0.18 | ||||||||||
Net income per share attributable to parent company’s common shareholders – Diluted | $ | 0.16 | $ | 0.18 | ||||||||||
Denominator for dilutive income per share - Diluted | |
| 30,855,406 | |
| 31,174,045 | ||||||||
| | | | | | | ||||||||
Net income/(loss) per share attributable to parent company’s common shareholders - Basic | | $ | 0.10 | | $ | (0.13) | ||||||||
Net income/(loss) per share attributable to parent company’s common shareholders - Diluted | | $ | 0.10 | | $ | (0.13) |
The calculationcalculations of basic and diluted income per share attributable to the parent company for the ninesix months ended SeptemberJune 30, 20172021 and 2016, was2020, were as follows (figures are in thousands of USD, except share and per share amounts):
Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | |||||||||||||
| | | | | | | ||||||||
| | Six Months Ended June 30, | ||||||||||||
|
| 2021 |
| 2020 | ||||||||||
Numerator: |
| |
|
| |
| ||||||||
Net income attributable to the parent company’s common shareholders – Basic and Diluted | $ | 19,694 | $ | 16,755 | ||||||||||
Net income/(loss) attributable to the parent company’s common shareholders - Basic and Diluted | | $ | 6,406 | | $ | (4,126) | ||||||||
Denominator: | |
| | |
| | ||||||||
Weighted average shares outstanding | 31,644,004 | 32,038,933 | |
| 30,851,776 | |
| 31,174,045 | ||||||
Dilutive effects of stock options | 3,829 | 1,581 | |
| 4,795 | |
| — | ||||||
Denominator for dilutive income per share – Diluted | 31,647,833 | 32,040,514 | ||||||||||||
Net income per share attributable to parent company’s common shareholders – Basic | $ | 0.62 | $ | 0.52 | ||||||||||
Net income per share attributable to parent company’s common shareholders – Diluted | $ | 0.62 | $ | 0.52 | ||||||||||
Denominator for dilutive income per share - Diluted | |
| 30,856,571 | |
| 31,174,045 | ||||||||
| |
| | |
| | ||||||||
Net income/(loss) per share attributable to parent company’s common shareholders - Basic | | $ | 0.21 | | $ | (0.13) | ||||||||
Net income/(loss) per share attributable to parent company’s common shareholders - Diluted | | $ | 0.21 | | $ | (0.13) |
As of SeptemberJune 30, 2017 and 2016,2021, the exercise prices for 90,000 shares and 82,500 shares, respectively, of37,500 outstanding stock options were above the weighted average market price of the Company’s common stock during the ninethree months ended SeptemberJune 30, 2017 and 2016, respectively, and2021. Therefore, these stock options were excluded from the calculation of the diluted income per share for the corresponding periods presented.
As of June 30, 2021, the exercise prices for 30,000 outstanding stock options were above the weighted average market price of the Company’s common stock during the six months ended June 30, 2021. Therefore, these stock options were excluded from the calculation of the diluted income per share for the corresponding periods presented.
For the three and six months ended June 30, 2020, assumed conversion of the stock options has not been reflected in the dilutive calculation pursuant to ASC 260, “Earnings Per Share,” due to the anti-dilutive effect as a result of the Company’s net loss. The effects of all outstanding share options with common share equivalents of NaN and 37 shares respectively, have been excluded from the calculation of the diluted loss per share for the three and six months ended June 30, 2020, due to their anti-dilutive effect.
19
21. 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,"account", which includes trade related receipts and payments, interest and dividends. Accordingly, the Company’s Chinese subsidiaries may use RMB to purchase foreign exchangecurrency for settlement of such "current account" transactions without pre-approval. However, pursuant to applicable regulations, foreign-invested enterprises
China Automotive, the parent company, may depend on dividend payments from Genesis and HLUSA, which are generated from their subsidiaries in China, may pay“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 their accumulated profits if any,as determined in accordance with theaccounting standards and regulations in China. Under PRC law. In calculating accumulated profits, foreign investment enterprises in Chinalaw China-based Subsidiaries are required to allocateset aside at least 10% of their annual net incomeafter-tax profit based on PRC accounting standards each year if any, to fund certain reserve funds, including mandated employee benefits funds, unless thesetheir general reserves have reacheduntil 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 registered capitaldiscretion 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 enterprises.
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 USD,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 PRCChina 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 PRCChina 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.
The Company grants credit to its customers including Xiamen Joylon, Xiamen Automotive Parts, Shanghai Fenglong and JingzhouYude, which are related parties20
Table of the Company. The Company’s customers are mostly located in the PRC.Contents
During the nine months ended September 30, 2017, the Company’s ten largest customers accounted for 56.1% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net sales i.e., 14.75%. As of September 30, 2017, approximately 6.6% 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.
During the nine months ended September 30, 2016, the Company’s ten largest customers accounted for 62.7% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net sales, i.e., 12.9%. As of September 30, 2016, approximately 3.8% 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.
22. Related party transactions and balances |
Related party transactions are as follows (figures are in thousands of USD):
Related sales
Three Months Ended September 30, | ||||||||||||||
2017 | 2016 | |||||||||||||
| | | | | | | ||||||||
| | Three Months Ended June 30, | ||||||||||||
|
| 2021 |
| 2020 | ||||||||||
Merchandise sold to related parties | $ | 7,563 | $ | 9,950 | | $ | 15,750 | | $ | 16,105 | ||||
Materials and others sold to related parties | |
| 522 | |
| 446 | ||||||||
Rental income obtained from related parties | 20 | 23 | |
| 135 | |
| 164 | ||||||
Materials and others sold to related parties | 376 | 551 | ||||||||||||
Total | $ | 7,959 | $ | 10,524 | | $ | 16,407 | | $ | 16,715 |
Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | |||||||||||||
| | | | | | | ||||||||
| | Six Months Ended June 30, | ||||||||||||
|
| 2021 |
| 2020 | ||||||||||
Merchandise sold to related parties | $ | 25,684 | $ | 28,589 | | $ | 32,325 | | $ | 23,599 | ||||
Materials and others sold to related parties | |
| 948 | |
| 716 | ||||||||
Rental income obtained from related parties | 66 | 91 | |
| 241 | |
| 241 | ||||||
Materials and others sold to related parties | 1,186 | 1,231 | ||||||||||||
Total | $ | 26,936 | $ | 29,911 | | $ | 33,514 | | $ | 24,556 |
Related purchases
Three Months Ended September 30, | ||||||||||||||
2017 | 2016 | |||||||||||||
| | | | | | | ||||||||
| | Three Months Ended June 30, | ||||||||||||
|
| 2021 |
| 2020 | ||||||||||
Materials purchased from related parties | $ | 6,549 | $ | 5,869 | | $ | 7,197 | | $ | 6,152 | ||||
Technology purchased from related parties | - | 135 | ||||||||||||
Equipment purchased from related parties | 4,857 | 4,370 | |
| 289 | |
| 518 | ||||||
Others purchased from related parties | 156 | 149 | ||||||||||||
Total | $ | 11,562 | $ | 10,523 | | $ | 7,486 | | $ | 6,670 |
Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | |||||||||||||
| | | | | | | ||||||||
| | Six Months Ended June 30, | ||||||||||||
|
| 2021 |
| 2020 | ||||||||||
Materials purchased from related parties | $ | 20,195 | $ | 18,912 | | $ | 15,411 | | $ | 9,286 | ||||
Technology purchased from related parties | - | 362 | ||||||||||||
Equipment purchased from related parties | 9,281 | 7,900 | |
| 1,380 | |
| 587 | ||||||
Others purchased from related parties | 371 | 524 | |
| 11 | |
| 4 | ||||||
Total | $ | 29,847 | $ | 27,698 | | $ | 16,802 | | $ | 9,877 |
Loan transaction to a related party
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Related party loan | $ | 29,182 | $ | - |
Related receivables
September 30, 2017 | December 31, 2016 | |||||||
Accounts and notes receivable from related parties | $ | 17,607 | $ | 20,984 |
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Accounts and notes receivable from related parties | | $ | 24,120 | | $ | 17,622 |
Related advances and loan balanceadvance payments
September 30, 2017 | December 31, 2016 | |||||||||||||
| | | | | | | ||||||||
|
| June 30, 2021 |
| December 31, 2020 | ||||||||||
Advance payments for property, plant and equipment to related parties | $ | 4,813 | $ | 5,005 | | $ | 2,234 | | $ | 3,284 | ||||
Advance payments and others to related parties | 31,397 | 624 | |
| 801 | |
| 522 | ||||||
Total | $ | 36,210 | $ | 5,629 | | $ | 3,035 | | $ | 3,806 |
Related payables
September 30, 2017 | December 31, 2016 | |||||||
Accounts and notes payable | $ | 5,749 | $ | 6,803 |
| | | | | | |
|
| June 30, 2021 |
| December 31, 2020 | ||
Accounts and notes payable | | $ | 12,000 | | $ | 12,730 |
These transactions were consummated under similar terms as those with the Company's third party customers and suppliers.
21
As of November 9, 2017,August 12, 2021, Hanlin Chen, the Company’s Chairman,chairman of the board of directors of the Company, owns 56.4%57.9% 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.
23. 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. In November 2020, the Company reached a settlement to resolve the lawsuit for the sum of $55,998. The Company did not admit any liability in reaching the settlement. On February 5, 2021, the Court of Chancery conducted a hearing to confirm the settlement of the stockholder derivative action. The Court entered a Final Order and Judgment approving the settlement. The Court further ordered that the plaintiffs’ application for an award of attorneys’ fees and reimbursement of litigation expenses be reduced from $100,000 to $30,000. The Court’s Final Order and Judgment is publicly available on the Court of Chancery docket. As of June 30, 2021, the Company has received above settlement of $55,998 from the directors and paid the above attorneys’ fees and reimbursement of litigation expenses.
TheOther 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. In addition,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 SeptemberJune 30, 20172021 (figures are in thousands of USD):
| | | | | | | | | | | | | | | |
| | Payment obligations by period | |||||||||||||
|
| 2021 |
| 2022 |
| 2023 |
| Thereafter |
| Total | |||||
Obligations for investment contracts (1) | | $ | 2,724 | | $ | 0 | | $ | — | | $ | 0 | | $ | 2,724 |
Obligations for purchasing and service agreements | |
| 20,001 | |
| 1,565 | |
| — | |
| 0 | |
| 21,566 |
Total | | $ | 22,725 | | $ | 1,565 | | $ | — | | $ | 0 | | $ | 24,290 |
Payment obligations by period | ||||||||||||||||||||||||
2017 (1) | 2018 | 2019 | 2020 | Thereafter | Total | |||||||||||||||||||
Obligations for investment contracts(1) | - | $ | 5,424 | $ | - | $ | - | $ | - | $ | 5,424 | |||||||||||||
Obligations for purchasing and service agreements | 16,496 | 5,650 | 2,530 | - | - | 24,676 | ||||||||||||||||||
Total | $ | 16,496 | $ | 11,074 | $ | 2,530 | $ | - | $ | - | $ | 30,100 |
(1) | In |
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 $5.2 million. As of June 30, 2021, Hubei Henglong has paid the amount of RMB 18.0 million, equivalent to approximately $2.8 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 $2.4 million, will be paid in 2021.
24. Off-balance sheet arrangements
As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet arrangements.
22 |
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 2020 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 segmentinter-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.
As of SeptemberJune 30, 2017,2021 and 2020, the Company had 1115 product sectors, five6 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 one1 holding company (Genesis). The other six9 sectors were engaged in the productiondevelopment, manufacturing and sale of sensor modular (USAI)high polymer materials (Wuhu Hongrun), R&D services (Changchun Hualong), automobile steering columns (Jielong), provision of after salesafter-sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong), and manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie). Since the revenues, net income, research and net assetsdevelopment of these six sectors collectively are less than 10% of consolidated revenues, net income and net assets, respectively, in the condensed unaudited consolidated financial statements, the Company incorporated these six sectors into “Other Sectors.”
As of September 30, 2016, the Company had eleven product sectors, five 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 and Hubei Henglong), and one holding company (Genesis). The other six 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),intelligent automotive technology (Jingzhou Qingyan) and manufacture and sales of automobile electronicautomotive motors and electromechanical integrated systems and parts (Wuhan Chuguanjie)Hyoseong). Since the revenues, net income and net assets of these seven sectors collectively are less than 10% of consolidated revenues, net income and net assets, respectively, in the condensed unaudited consolidated financial statements, the Company incorporated these six sectors into “Other Sectors.”
The Company’s product sector information for the three months and ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, is as follows (figures are in thousands of USD):
Net Product Sales | Net Income (Loss) | |||||||||||||||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||||||||||||
September 30 | September 30 | |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
| | Net Product Sales | | Net Income/(Loss) | ||||||||||||||||||||||||
| | Three Months Ended | | Three Months Ended | ||||||||||||||||||||||||
| | June 30, | | June 30, | ||||||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||||||||||||||||
Henglong | $ | 55,790 | $ | 57,530 | $ | 689 | $ | 3,771 | | $ | 49,135 | | $ | 35,743 | | $ | 144 | | $ | 191 | ||||||||
Jiulong | 26,067 | 17,787 | 478 | 1,083 | |
| 25,402 | |
| 26,310 | |
| (476) | |
| 574 | ||||||||||||
Shenyang | 10,103 | 8,239 | 486 | 457 | |
| 4,237 | |
| 3,445 | |
| 84 | |
| 505 | ||||||||||||
Wuhu | 6,503 | 5,088 | 118 | 21 | |
| 5,561 | |
| 2,718 | |
| 104 | |
| 84 | ||||||||||||
Hubei Henglong | 24,812 | 13,912 | 2,680 | 735 | |
| 31,857 | |
| 11,419 | |
| 664 | |
| (1,913) | ||||||||||||
Other Sectors | 14,961 | 11,588 | 777 | (269 | ) | |||||||||||||||||||||||
Henglong KYB | |
| 16,660 | |
| 12,563 | |
| (722) | |
| (532) | ||||||||||||||||
Other Entities | |
| 21,554 | |
| 12,829 | |
| 3,936 | |
| (585) | ||||||||||||||||
Total Segments | 138,236 | 114,144 | 5,228 | 5,798 | |
| 154,406 | |
| 105,027 | |
| 3,734 | |
| (1,676) | ||||||||||||
Corporate | - | - | 317 | 808 | |
| 0 | |
| 0 | |
| (832) | |
| (1,027) | ||||||||||||
Eliminations | (19,871 | ) | (19,518 | ) | (317 | ) | (747 | ) | |
| (33,802) | |
| (21,843) | |
| 26 | |
| (1,537) | ||||||||
Total | $ | 118,365 | $ | 94,626 | $ | 5,228 | $ | 5,859 | | $ | 120,604 | | $ | 83,184 | | $ | 2,928 | | $ | (4,240) |
Net Product Sales | Net Income (Loss) | |||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30 | September 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Henglong | $ | 191,093 | $ | 195,940 | $ | 6,300 | $ | 13,389 | ||||||||
Jiulong | 75,525 | 54,976 | 3,739 | 2,219 | ||||||||||||
Shenyang | 28,777 | 24,898 | 1,271 | 995 | ||||||||||||
Wuhu | 18,254 | 15,897 | 215 | 96 | ||||||||||||
Hubei Henglong | 66,855 | 42,815 | 5,518 | 2,286 | ||||||||||||
Other Sectors | 40,821 | 29,558 | 1,341 | 162 | ||||||||||||
Total Segments | 421,325 | 364,084 | 18,384 | 19,147 | ||||||||||||
Corporate | - | - | 3,367 | (1,317 | ) | |||||||||||
Eliminations | (65,992 | ) | (51,587 | ) | (1,704 | ) | (911 | ) | ||||||||
Total | $ | 355,333 | $ | 312,497 | $ | 20,047 | $ | 16,919 |
| | | | | | | | | | | | |
| | Net Product Sales | | Net (Loss)/Income | ||||||||
| | Six Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Henglong | | $ | 98,214 | | $ | 59,650 | | $ | 943 | | $ | (491) |
Jiulong | |
| 59,121 | |
| 39,069 | |
| 524 | |
| (876) |
Shenyang | |
| 8,329 | |
| 6,238 | |
| 437 | |
| 335 |
Wuhu | |
| 9,720 | |
| 5,521 | |
| 111 | |
| 323 |
Hubei Henglong | |
| 67,315 | |
| 39,551 | |
| 1,330 | |
| 2,152 |
Henglong KYB | |
| 34,866 | |
| 18,689 | |
| (557) | |
| (1,439) |
Other Entities | |
| 42,791 | |
| 22,311 | |
| 4,444 | |
| (2,520) |
Total Segments | |
| 320,356 | |
| 191,029 | |
| 7,232 | |
| (2,516) |
Corporate | |
| 0 | |
| 0 | |
| (1,049) | |
| (1,088) |
Eliminations | |
| (69,411) | |
| (34,290) | |
| (24) | |
| (1,264) |
Total | | $ | 250,945 | | $ | 156,739 | | $ | 6,159 | | $ | (4,868) |
23
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 relationsrelationships with more than sixty vehicle manufacturers, including China’s top ranking domestic automobile manufacturers such as JAC Motors,motors, Changan Automobile Group, BAIC Group, SAICDongfeng 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 ofas well as Sino-foreign or foreign automobile manufacturer such as General Motors, (GM), Volkswagen, Citroen, andFiat Chrysler North America are all key customers.and Ford. Starting in 2008, the Company has supplied power steering pumps and power steering geargears to the Sino-foreign joint ventures established by GM, Citroen and Volkswagen in China. The Company has supplied power steering gearsgear to Fiat Chrysler North America since 2009.
2009 and to Ford Motor Company since 2016.
Most of the Company’s production and research and development institutes are located in China. TheAs of June 30, 2021, the Company has approximately 3,0004,526 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.
In addition, as a result of COVID-19, the Company’s businesses, results of operations, financial position and cash flows had been materially and adversely affected in the first quarter of 2020. The Company resumed operation in March of 2020. However, 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, 2020.
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 JingzhouHengshengJingzhou 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. In May 2020, USAI merged with and into Wuhan Chuguanjie, a wholly-owned subsidiary of Wuhan Jielong, and it 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. In April 2020, Hubei Henglong acquired 100.00% of the shares of Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong”, for total consideration of RMB 1.20 million, equivalent to approximately $0.2 million. Changchun Hualong mainly engages in design and R&D of automotive parts. Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun” was formed in December 2019, which mainly engages in the development, manufacturing and sale of high polymer materials. In April 2021, the Company obtained an additional 22.67% equity interest in Wuhu, for total consideration of RMB 6.9 million, equivalent to approximately $1.1 million, from the other shareholder. Following the acquisition, the Company owned 100% of the equity interests of Wuhu Henglong.
24
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.
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 |
Recent Accounting Pronouncements Please see Note 2 to the consolidated financial statements under Item 1 of Part I of this 25 Results of Operations
Selected highlights from our results of operations are as follows (in thousands of U.S. dollars):
Net Product Sales and Cost of Products Sold
Net Product Sales Net product sales were
The increase in net product sales was
26
Cost of For the three months ended
27
Gross margin was
and gross margin increased. Selling
General and Administrative Expenses General and administrative expenses were $6.1 million for the three months ended June 30, 2021, as compared to $4.8 million for the same period of 2020, representing an increase of $1.3 million, or Research and Development Expenses Research and development expenses were 28 Other Income Other income, net was
Interest Expense Interest expense was $0.3 million for the three months ended Income Taxes Income tax expense
Net Net
Net Net income attributable to parent company’s common shareholders was Results of Selected highlights from our results of operations are as follows (in thousands of U.S. dollars):
29 Net Product Sales and Cost of Products Sold
Net Product Sales Net product sales were
The increase in net product sales was
Further analysis by segment (before elimination) is as follows:
30
Cost of Products Sold For the six months ended June 30, 2021, the cost of products sold was $215.4 million, compared to $137.8 million for the same period of 2020, representing an increase of $77.6 million, or 56.3%. The increase in cost of sales was mainly due to the effect of the following major factors: i) the increase in sales volumes led to a cost of sales increase of $74.6 million; ii) the decrease in unit cost led to a cost of sales decrease of $10.0 million; and iii) the depreciation of the RMB against the U.S. dollar resulted in a cost of sales increase of $13.0 million. Further analysis is as follows:
31
Selling Expenses
General and Administrative Expenses General and administrative expenses were $10.7 million for the
receivable. Research and Development Expenses Research and development expenses were
Other Income
2020.
Income Taxes Income tax expense was
32 Net Net
2020. Net Net income attributable to parent company’s common shareholders was
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 The Company had working capital (total current assets less total current liabilities) of
Capital Source The Company’s capital source is multifaceted, such as bank loans and one to two years. The Company had short-term loans of 2021. 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. 33
Bank Arrangements As of
(1)The comprehensive credit facilities with Shanghai Pudong Development Bank are guaranteed by 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 China Merchants Bank are guaranteed by Hubei Henglong. The comprehensive credit facilities with China Everbright Bank are guaranteed by Hubei Henglong. (2)“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. (3)“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 $36.4 million and notes payable of $45.3 million as of June 30, 2021. (4)In order to obtain lines of credit, the Company needs to pledge certain assets to banks. As of June 30, 2021, the pledged assets included property, plant and equipment and land use rights with an aggregate assessed value of $138.5 million. 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 1.
2. Buildings with an assessed value of approximately $22.8 million as security for its revolving comprehensive credit facility with Shanghai Pudong Development Bank. 34 3. Land use rights and buildings with an assessed value of approximately $20.2 million as security for its comprehensive credit facility with China CITIC Bank Wuhan Branch. 4. Land use rights and buildings with an assessed value of approximately
6. Buildings with an assessed value of approximately $2.4 million as security for its comprehensive credit facility with Bank of Chongqing. 7.
China. Short-term The following table summarizes the contract information of short-term borrowings between the banks and the Company as of
The Company must use the loans for the purpose described
35 Notes Payable The following table summarizes the contract information of issuing notes payable between the banks and the Company as of
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 a sufficient cash Cash Flows (a)Operating Activities Net cash provided (b)Investing Activities Net cash used in investing activities for the six months ended June 30, 2021 was $6.7 million, as compared to net cash used by investing activities of $30.6 million for the same period of 2020, representing a decrease in net cash outflows by $23.9 million, which was mainly due to the net effect of (1) (c)Financing Activities
Off-Balance Sheet Arrangements As of 36
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,
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 2021. 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.
There have been no changes in the Company’s internal control over financial reporting during the three months ended 37 PART II. — OTHER INFORMATION
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. In November 2020, the Company reached a settlement to resolve the lawsuit for the sum of $55,998. The Company did not admit any liability in reaching the settlement. On February 5, 2021, the Court of Chancery conducted a hearing to confirm the settlement of the stockholder derivative action. The Court entered a Final Order and Judgment approving the settlement. The Court further ordered that the plaintiffs’ application for an award of attorneys’ fees and reimbursement of litigation expenses be reduced from $100,000 to $30,000. The Court’s Final Order and Judgment is publicly available on the Court of Chancery docket. As of June 30, 2021, the Company has received above settlement of $55,998 from the directors and paid the above attorneys’ fees and reimbursement of litigation expenses. 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
Recently, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which were available to the public on July 6, 2021, which further emphasized their goal to strengthen the cross-board regulatory collaboration, to improve relevant laws and regulations on data security, cross-border data transmission, and confidential information management, and provided that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of securities overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of cross-border information provision mechanisms and procedures. However, these opinions were newly issued, and there were no further explanations or detailed rules or regulations with respect to such opinions, and there are still uncertainties regarding the interpretation and implementation of these opinions. China intends to improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading. China will also check sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China has also opened a cyber security probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data. If the Chinese government’s interference expands, our operations may be negatively impacted in a significant way, although, presently, there is no discernible immediate impact. 38 If the Company becomes directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matters. Any unfavorable results from the investigations could harm our business operations and our reputation. Recently, U.S. public companies that have substantially all of their operations in China have been subjects of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on financial and accounting irregularities, lack of effective internal control over financial accountings, inadequate corporate governance and ineffective implementation thereof and, in many cases, allegations of fraud. As a result of enhanced scrutiny, criticism and negative publicity, the publicly traded stocks of many U.S. listed Chinese companies have sharply decreased in value and, in some cases, have become virtually worthless or illiquid. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effects the sector-wide investigations will have on the Company. If the Company becomes a subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, the Company will have to expend significant resources to investigate such allegations and defend the Company. If such allegations were not proven to be baseless, the Company would be severely hampered and the price of the stock of the Company could decline substantially. If such allegations were proven to be groundless, the investigation might have significantly distracted the attention of the Company’s management. The Company could be delisted if it is unable to timely meet the PCAOB inspection requirements established by the Holding Foreign Companies Accountable Act. On December 18, 2020, the Holding Foreign Companies Accountable Act, or HFCAA, was enacted. In essence, the act requires the SEC to prohibit securities of any foreign companies from being listed on U.S. securities exchanges or traded “over-the-counter” if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. Our independent registered public accounting firm is located in and organized under the laws of the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, and therefore our auditors are not currently inspected by the PCAOB. On March 24, 2021, the SEC adopted interim final amendments, which will become effective 30 days after publication in the Federal Register, relating to the implementation of certain disclosure and documentation requirements of the HFCAA. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. Before any registrant will be required to comply with the interim final amendments, the SEC must implement a process for identifying such registrants. As of the date of this annual report, the SEC is seeking public comment on this identification process. Consistent with the HFCAA, the amendments will require any identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a government entity in that jurisdiction, and will also require, among other things, disclosure in the registrant’s annual report regarding the audit arrangements of, and government influence on, such registrant. On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two. The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President's Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended that the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than the HFCAA. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022. 39 It is unclear when the SEC will complete its rulemaking, when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The enactment of the HFCAA and the implications of any additional rulemaking efforts to increase U.S. regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants, including us, and the market price of our stock could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement in time, we could be delisted from the Nasdaq Capital Market and our stock will not be permitted for trading “over-the-counter” either. Such a delisting would substantially impair your ability to sell or purchase our stock when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our stock. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects. Except for as set forth, there have been no material changes from the risk factors previously disclosed in Item 1A of the Company’s
None.
None.
Not applicable.
None. 40
INDEX TO EXHIBITS
41 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.
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