The accompanying notes are an integral part of these condensed
unaudited consolidated financial statements.
The accompanying notes are an integral part of these condensed
unaudited consolidated financial statements.
The accompanying notes are an integral part of these condensed
unaudited consolidated financial statements.
The accompanying notes are an integral part of these condensed
unaudited consolidated financial statements.
The accompanying notes are an integral part of these condensed
unaudited consolidated financial statements.
Notes to Condensed Unaudited Consolidated
Financial Statements
Three Months and Six Months Ended June
30, 2014 and 2013
|
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. Great Genesis is mainly engaged in the manufacture and sale of automotive systems
and components through its controlled subsidiaries and the joint ventures, as described below.
Henglong USA Corporation, “HLUSA,”
incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and is mainly engaged 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 entities established in the People's Republic of China, the “PRC,”
and Brazil as of June 30, 2014 and December 31, 2013.
|
|
Percentage Interest
|
|
Name of Entity
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong”
1
|
|
|
81.00
|
%
|
|
|
81.00
|
%
|
Jingzhou Henglong Automotive Parts Co., Ltd., “Henglong”
2
|
|
|
80.00
|
%
|
|
|
80.00
|
%
|
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
|
%
|
Jingzhou Henglong Automotive Technology (Testing) Center, “Testing Center”
8
|
|
|
80.00
|
%
|
|
|
80.00
|
%
|
Beijing Henglong Automotive System Co., Ltd., “Beijing Henglong”
9
|
|
|
50.00
|
%
|
|
|
50.00
|
%
|
Chongqing Henglong Hongyan Automotive System Co., Ltd., “Chongqing Henglong”
10
|
|
|
70.00
|
%
|
|
|
70.00
|
%
|
CAAS Brazil’s Imports And Trade In Automotive Parts Ltd., “Brazil Henglong”
11
|
|
|
80.00
|
%
|
|
|
80.00
|
%
|
Fujian Qiaolong Special Purpose Vehicle Co., Ltd., “Fujian Qiaolong”
12
|
|
|
51.00
|
%
|
|
|
-
|
|
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”
13
|
|
|
85.00
|
%
|
|
|
-
|
|
|
1.
|
Jiulong was established in 1993 and mainly engages in the production of integral power steering gear 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.
|
USAI was established in 2005 and mainly engages in the production and sales of sensor modules.
|
|
5.
|
Jielong was established in 2006 and mainly engages in the production and sales of electric power steering, “EPS.”
|
|
6.
|
Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems.
|
|
7.
|
On March 7, 2007, Genesis established Hubei Henglong, formerly known as Jingzhou Hengsheng Automotive System Co., Ltd., its wholly-owned subsidiary, to engage in the production and sales of automotive steering systems. On July 8, 2012, Hubei Henglong changed its name to Hubei Henglong Automotive System Group Co., Ltd.
|
|
8.
|
In December 2009, Henglong, a subsidiary of Genesis, formed the Testing Center, which mainly engages in the research and development of new products. The registered capital of the Testing Center was RMB30.0 million, equivalent to approximately $4.4 million.
|
|
9.
|
On January 24, 2010, Genesis entered into a joint venture contract with Beijing Hainachuan Auto Parts Co., Ltd. to establish Beijing Henglong as a joint venture company to design, develop and manufacture both hydraulic and electric power steering systems and parts. On September 16, 2010, with Beijing Hainachuan’s agreement, Genesis transferred its interest in the joint venture to Hubei Henglong, and left the other terms of the joint venture contract unchanged. According to the joint venture agreement, the Company does not have voting control of Beijing Henglong. Therefore, the Company’s consolidated financial statements do not include Beijing Henglong, and such investment is accounted for through the equity method.
|
|
10.
|
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.
|
|
11.
|
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.
|
|
12.
|
In the second quarter of 2014, the Company acquired a 51.0%
ownership interest in Fujian Qiaolong Special Purpose Vehicle Co., Ltd., “Fujian Qiaolong”, a special purpose
vehicle manufacturer and dealer with automobile repacking qualifications, based in Fujian, China. Fujian Qiaolong 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. The consideration was approximately $3.0 million.
|
|
13.
|
In May 2014, Jielong formed a wholly-owned subsidiary, Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”, which mainly engages in D&R, manufacture and sales of automobile electronic systems and parts. The new wholly-owned subsidiary is located in Wuhan, China.The registered capital of Wuhan Chuguanjie is RMB30.0 million, equivalent to approximately $4.9 million. At the date of release of this quarterly report, Jielong has not completed the capital injection.
|
|
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, 2013.
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, 2013 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 2013 Annual Report
on Form 10-K, as filed with the Securities and Exchange Commission.
The results of operations for the three
months and six months ended June 30, 2014 are not necessarily indicative of the results of operations to be expected for the full
fiscal year ending December 31, 2014.
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.
|
(b)
|
Recent Accounting Pronouncements
|
In
April 2014, the FASB issued Accounting Standards Update No. 2014-08 “Presentation of Financial Statements (Topic 205) and
Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an
Entity”. The new guidance changes the criteria for reporting discontinued operations while enhancing disclosures in this
area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations.
Those strategic shifts should have a major effect on the organization’s operations and financial results. Additionally, ASU
2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information
about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the
pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations
reporting.
ASU 2014-08 is effective for the Company in the first quarter of fiscal
2015. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in
financial statements previously issued or available for issuance.
The Company is currently evaluating the impact of adopting
this update on its
financial
statements
.
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), “Revenue from Contracts
with Customers (Topic 606)”. ASU 2014-09 will eliminate transaction-specific and industry-specific revenue recognition guidance
under current U.S. GAAP and replace it with a principle-based approach for determining revenue recognition. ASU 2014-09 will require
that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also
will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer
contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill
a contract. ASU 2014-09 is effective for reporting periods beginning after December 15, 2016, including interim periods within
that reporting period. Early adoption is not permitted. Entities can transition to the standard either retrospectively or as a
cumulative effect adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09
and the effect of the standard on our ongoing financial reporting.
In June 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update No. 2014-12 (“ASU 2014-12”), “Compensation—Stock
Compensation (Topic 718) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could
Be Achieved after the Requisite Service Period.” ASU 2014-12 requires that a performance target that affects vesting and
that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply
existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards.
As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost
should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent
the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance
target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation
cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized
during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted
to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and
still be eligible to vest in the award if the performance target is achieved. As indicated in the definition of vest, the stated
vesting period (which includes the period in which the performance target could be achieved) may differ from the requisite service
period. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual
periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business
entities and all other entities. Entities may apply the amendments in this Update either (a) prospectively to all awards granted
or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the
beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If
retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period
presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date.
Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation
cost. The Company is currently evaluating the impact of adopting this Update on its financial statements.
|
(c)
|
Significant Accounting
Policies
|
Business Combinations – A business
combination is recorded using the purchase method of accounting, and the cost of an acquisition is measured as the aggregate of
the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the
contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the
acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured
separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess
of (i) the total of consideration of acquisition, fair value of the non-controlling interests and acquisition date fair value of
any previously held equity interest in the subsidiary acquired over (ii) the fair value of the identifiable net assets of the subsidiary
acquired is recorded as goodwill. If the consideration of acquisition is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognized directly in the consolidated statements of comprehensive income (loss).
Goodwill - Goodwill represents the excess
of the purchase price over the fair value of the identifiable assets and liabilities acquired as a result of the Company’s
acquisition of interests in its subsidiary. We test goodwill for impairment at the reporting unit level on an annual basis as of
December 31, and between annual tests when an event occurs or circumstances change that could indicate that the asset might be
impaired. The Company adopted the Financial Accounting Standards Board (“FASB”) revised guidance on “Testing
of Goodwill for Impairment.” Under this guidance, the Company has the option to choose whether it will apply the qualitative
assessment first and then the quantitative assessment, if necessary, or to apply the quantitative assessment directly. For a reporting
unit applying a qualitative assessment first, the Company starts the goodwill impairment test by assessing qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the
Company determines that it is more likely than not the fair value of a reporting unit is less than its carrying amount, the quantitative
impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test uses a two-step process.
In the first step, the fair value of a reporting unit is compared to its carrying value. If the fair value of a reporting unit
exceeds the carrying value of the net assets assigned to a reporting unit, goodwill is considered not impaired and no further testing
is required. If the carrying value of the net assets assigned to a reporting unit exceeds the fair value of a reporting unit, the
second step of the impairment test is performed in order to determine the implied fair value of a reporting unit’s goodwill.
Determining the implied fair value of goodwill requires valuation of a reporting unit’s tangible and intangible assets and
liabilities in a manner similar to the allocation of purchase price in a business combination. If the carrying value of a reporting
unit’s goodwill exceeds its implied fair value, goodwill is deemed impaired and is written down to the extent of the difference.
The Company estimates total fair value of the reporting unit using discounted cash flow analysis, and makes assumptions regarding
future revenue, gross margins, working capital levels, investments in new products, capital spending, tax, cash flows, and the
terminal value of the reporting unit.
There have been no other updates to the
significant accounting policies set forth in the notes to the consolidated financial statements for the year ended December 31,
2013.
In the
second quarter of 2014, the Company acquired a 51.0% ownership interest in Fujian Qiaolong Special Purpose Vehicle Co., Ltd.,
“Fujian Qiaolong”,a special purpose vehicle manufacturer and dealer with automobile repacking qualification,
based in Fujian, China. Fujian Qiaolong mainly manufactures and distributes drainage and rescue vehicle 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. The acquisition expands
the Company’s scope of business and improves the Company’s product mix. The results of Fujian Qiaolong have been
included since the date of acquisition and are reflected in the Company’s
Condensed
Unaudited Consolidated Statements of Operations and Comprehensive Income. The total purchase price was approximately $3.0
million. The goodwill resulting from the acquisition is not deductible for tax purposes.
The following table summarizes the allocation
of consideration and the respective fair values of the assets acquired and liabilities assumed in the Fujian Qiaolong acquisition
as of the date of purchase (figures are in thousands of USD):
Total purchase price:
|
|
|
|
|
Cash consideration paid to acquire ownership interest
|
|
$
|
3,007
|
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
31
|
|
Current assets, net of cash acquired
|
|
|
8,428
|
|
Deferred tax asset
|
|
|
69
|
|
Property and equipment
|
|
|
3,694
|
|
Intangible assets
|
|
|
864
|
|
Goodwill
|
|
|
642
|
|
Total assets consolidated into the Group
|
|
$
|
13,728
|
|
Liabilities
|
|
|
|
|
Current liabilities, excluding current deferred tax liabilities
|
|
|
(7,352
|
)
|
Deferred tax liabilities
|
|
|
(448
|
)
|
Other liabilities
|
|
|
(128
|
)
|
Total liabilities consolidated into the Group
|
|
|
(7,928
|
)
|
Non-controlling interests at fair value
|
|
|
(2,793
|
)
|
Total equity consolidated into the Group
|
|
$
|
3,007
|
|
Pro forma results of operations for the acquisition of Fujian
Qiaolong have not been presented because it is not material to the consolidated results of operations.
For the acquisition of Fujian Qiaolong, intangible assets which
have been assessed and recognized, such as patents and developed technology, have a weighted-average useful life of 4.7 years.
Pledged cash deposits are used as guarantees
for the Company’s notes payable and their use is restricted. The Company regularly pays some of its suppliers by bank notes.
The Company has to make a cash deposit, equivalent to 30 % - 100 % of the face value of the relevant bank note in order to obtain
the bank note.
|
5.
|
Short-term investments
|
Short-term investments comprise time deposits
with maturity terms of more than three months but due within one year. The carrying values of time deposits approximate fair value
because of their short maturities. The interest earned is recognized in the condensed unaudited statements of operations and comprehensive
income over the contractual term of the deposit.
|
6.
|
Accounts and notes receivable,
net
|
The Company’s accounts and notes
receivable as of June 30, 2014 and December 31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2014
|
|
|
December 31,
2013
|
|
Accounts receivable - unrelated parties
(1)
|
|
$
|
157,495
|
|
|
$
|
140,920
|
|
Notes receivable - unrelated parties
(2) (3)
|
|
|
129,111
|
|
|
|
128,068
|
|
Total accounts and notes receivable- unrelated parties
|
|
|
286,606
|
|
|
|
268,988
|
|
Less: allowance for doubtful accounts - unrelated parties
|
|
|
(1,424
|
)
|
|
|
(1,349
|
)
|
Accounts and notes receivable, net - unrelated parties
|
|
|
285,182
|
|
|
|
267,639
|
|
Accounts and notes receivable, net - related parties
|
|
|
24,658
|
|
|
|
17,194
|
|
Accounts and notes receivable, net
|
|
$
|
309,840
|
|
|
$
|
284,833
|
|
|
(1)
|
As of June 30, 2014 and December 31, 2013, the Company has pledged $11.9 million and $19.1 million, respectively, of accounts receivable as security for its comprehensive credit facility with banks in China.
|
|
(2)
|
Notes receivable represent accounts receivable in the form of bills of exchange for which acceptances are guaranteed and settlements are handled by banks.
|
|
(3)
|
As of June 30, 2014, Henglong collateralized its notes receivable in an amount of RMB 228.1 million (equivalent to approximately $37.1 million) as security for the credit facility with banks in China and the Chinese government, including RMB 197.1 million (equivalent to approximately $32.0 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 14) 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 31.0 million (equivalent to approximately $5.0 million) in favor of the Chinese government as security for the low-interest government loan (see Note 14). As of December 31, 2013, Henglong collateralized its notes receivable in an amount of RMB 196.3 million (equivalent to approximately $32.2 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 14) 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.”
|
The Company’s inventories as of June
30, 2014 and December 31, 2013 consisted of the following (figures are in thousands of USD):
|
|
June 30, 2014
|
|
|
December 31,
2013
|
|
Raw materials
|
|
$
|
14,465
|
|
|
$
|
12,185
|
|
Work in process
|
|
|
13,256
|
|
|
|
8,079
|
|
Finished goods
|
|
|
35,587
|
|
|
|
31,128
|
|
Total
|
|
$
|
63,308
|
|
|
$
|
51,392
|
|
Provision for inventories valuation amounted
to $1.9 million and $0.3 million for the six months ended June 30, 2014 and 2013, respectively.
|
8.
|
Other receivables, net
|
The Company’s other receivables as
of June 30, 2014 and December 31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Other receivables - unrelated parties
(1)
|
|
$
|
507
|
|
|
$
|
314
|
|
Less: allowance for doubtful accounts- unrelated parties
|
|
|
(66
|
)
|
|
|
(62
|
)
|
Other receivables, net - unrelated parties
|
|
$
|
441
|
|
|
$
|
252
|
|
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Other receivables - related parties
(1)
|
|
$
|
714
|
|
|
$
|
729
|
|
Less: allowance for doubtful accounts- related parties
|
|
|
(653
|
)
|
|
|
(621
|
)
|
Other receivables, net - related parties
|
|
$
|
61
|
|
|
$
|
108
|
|
|
(1)
|
Other receivables consist of amounts advanced to both related and unrelated parties, primarily as unsecured demand loans, with no stated interest rate or due date. These receivables originate as part of the Company's normal operating activities and are periodically settled in cash.
|
According to the agreement signed between
the Company and Jingzhou Land Reserve Center (“JLRC”), a local PRC government bureau, the Company has agreed to transfer
the land use rights over 136,392 square meters of a piece of land in total located at Jingzhou city, Hubei Province, the PRC, to
JLRC for total consideration of approximately $13.0 million. The collection of the consideration is subject to JLRC’s completion
of its sale of such land use rights to be tendered in the open market.
In the third quarter of 2013, the Company
recognized and received consideration of $4.6 million upon the completion of the sale of the first portion of the land use rights
by JLRC. As of December 31, 2013, the balance of assets held for sale represented the remaining land use rights to be sold within
the 12 months following such date.
In April 2014, JLRC successfully sold the remaining land use
rights through an open tender. The consideration for the remaining land use rights was approximately $8.4 million, of which $ 6.5
million was received by the Company as of June 30, 2014 and the remaining $1.9 million has been recorded in accounts and notes
receivable on the accompanying condensed unaudited consolidated balance sheets. Accordingly, the Company recorded $7.5 million
for the sale of the rest of the land use rights as gain on other sales on the accompanying condensed unaudited consolidated statements
of operations and comprehensive income.
|
10.
|
Long term investments
|
As of June 30, 2014 and December 31, 2013,
the Company’s balance of long-term investment was $4.1 million and $4.0 million, respectively. For the long-term investments
in which the Company has no voting control, such investments were accounted for using the equity method or cost method.
On January 24, 2010, the Company invested
$3.1 million to establish a fifty-fifty joint venture company, Beijing Henglong, with an unrelated party. The Company accounts
for its operating results with the equity method of accounting.
The Company’s share of net assets
and net income is reported as “long-term investment” on the condensed unaudited consolidated balance sheets and “equity
in earnings of affiliated companies” on the condensed unaudited consolidated statements of operations and comprehensive income.
The Company’s condensed unaudited consolidated financial statements reflect the equity earnings of non-consolidated affiliates
of $0.13 million and $0.13 million for the six months ended June 30, 2014 and 2013, respectively.
|
11.
|
Property, plant and
equipment, net
|
The Company’s property, plant and equipment as of June
30, 2014 and December 31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Land use rights and buildings
|
|
$
|
46,895
|
|
|
$
|
43,849
|
|
Machinery and equipment
|
|
|
114,549
|
|
|
|
110,322
|
|
Electronic equipment
|
|
|
7,517
|
|
|
|
7,414
|
|
Motor vehicles
|
|
|
4,058
|
|
|
|
3,195
|
|
Construction in progress
|
|
|
6,976
|
|
|
|
5,133
|
|
Total amount of property, plant and equipment
(1)
|
|
|
179,995
|
|
|
|
169,913
|
|
Less: Accumulated depreciation
(2)
|
|
|
(96,297
|
)
|
|
|
(89,895
|
)
|
Total amount of property, plant and equipment, net
(3)
|
|
$
|
83,698
|
|
|
$
|
80,018
|
|
|
(1)
|
Through the acquisition of Fujian Qiaolong in the second quarter of 2014, the Company acquired $3.7 million of property, plant and equipment, consisting of $3.4 million of land use rights and buildings, $0.2 million of machinery and equipment, and $0.1 million of motor vehicles, which are depreciated over a weighted average life of 43.0 years, 3.5 years, and 3.1 years, respectively.
|
|
(2)
|
Depreciation charges were $4.0 million and $3.7 million for the three months ended June 30, 2014 and 2013, respectively, and $7.63 million and $7.13 million for the six months ended June 30, 2014 and 2013, respectively.
|
|
(3)
|
As of June 30, 2014 and December 31, 2013, the Company had pledged property, plant and equipment with net book value of $51.0 million and $51.4 million, respectively, for its comprehensive credit facilities with banks in China.
|
The Company’s intangible assets as
of June 30, 2014 and December 31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Costs:
|
|
|
|
|
|
|
|
|
Patent technology
|
|
$
|
2,911
|
|
|
$
|
2,067
|
|
Management software license
|
|
|
699
|
|
|
|
699
|
|
Total intangible assets
(1)
|
|
|
3,610
|
|
|
|
2,766
|
|
Less: Amortization
(2)
|
|
|
(2,186
|
)
|
|
|
(2,080
|
)
|
Total intangible assets, net
|
|
$
|
1,424
|
|
|
$
|
686
|
|
|
(1)
|
Through the acquisition
of Fujian Qiaolong in the second quarter of 2014, the Company acquired $0.9 million of intangible assets, consisting of $0.9 million
of patent technology and $nil of management software licenses, which are amortized over a weighted average life of 4.7 years and
1.1 years, respectively.
|
|
(2)
|
Amortization expenses were
$0.08 million and $0.04 million for the three months ended June 30, 2014 and 2013, respectively, and $0.12 million and $0.09 million
for the six months ended June 30, 2014 and 2013, respectively.
|
|
13.
|
Deferred income tax
assets
|
In accordance with the provisions of
ASC
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
June 30, 2014 and December 31, 2013 are as follows (figures are in thousands of USD):
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
|
|
|
|
|
|
|
Losses carry forward (U.S.)
(1)
|
|
$
|
6,946
|
|
|
$
|
6,825
|
|
Losses carry forward (PRC)
(1)
|
|
|
2,150
|
|
|
|
1,838
|
|
Product warranties and other reserves
|
|
|
4,408
|
|
|
|
4,207
|
|
Property, plant and equipment
|
|
|
4,480
|
|
|
|
4,346
|
|
Share-based compensation
|
|
|
297
|
|
|
|
296
|
|
Bonus accrual
|
|
|
418
|
|
|
|
557
|
|
Other accruals
|
|
|
721
|
|
|
|
850
|
|
Others
|
|
|
1,070
|
|
|
|
1,103
|
|
Total deferred tax assets
|
|
|
20,490
|
|
|
|
20,022
|
|
Less: taxable temporary difference related to revenue recognition
|
|
|
(586
|
)
|
|
|
(793
|
)
|
Total deferred tax assets, net
|
|
|
19,904
|
|
|
|
19,229
|
|
Less: Valuation allowance
|
|
|
(9,212
|
)
|
|
|
(8,918
|
)
|
Total deferred tax assets, net of valuation allowance
(2)
|
|
$
|
10,692
|
|
|
$
|
10,311
|
|
|
(1)
|
The net operating losses carry forward for the U.S. entity for income tax purposes are available to reduce future years' taxable income. These losses will expire, if not utilized, in 20 years. Net operating losses carry forward for non-U.S. entities can be carried forward for 5 years to offset taxable income. However, as of June 30, 2014 and December 31, 2013, the valuation allowance was $9.2 million and $8.9 million, respectively, including $7.2 million and $7.3 million, respectively, allowance for the Company’s deferred tax assets in the United States and $2.0 million and $1.7 million, respectively, allowance for the Company’s non-U.S. deferred tax assets. Based on the Company’s current operations in the United States, management believes that the deferred tax assets in the United States are not likely to be realized in the future. For the non-U.S. deferred tax assets, pursuant to certain tax laws and regulations in China, the management believes such amount will not be used to offset future taxable income.
|
|
(2)
|
Approximately $4.7 million and $4.5 million of net deferred income tax asset as of June 30, 2014 and December 31, 2013, respectively, are included in non-current deferred tax assets in the accompanying condensed unaudited consolidated balance sheets. The remaining $6.0 million and $5.8 million of net deferred income tax assets as of June 30, 2014 and December 31, 2013, respectively, are included in current deferred tax assets.
|
|
14.
|
Bank and government
loans, net
|
Loans consist of the following at June 30, 2014 and December
31, 2013 (figures are in thousands of USD):
|
|
June 30, 2014
|
|
|
December 31,
2013
|
|
Short-term bank loan
(1) (2)
|
|
$
|
7,964
|
|
|
$
|
7,381
|
|
Short-term bank loan
(3)
|
|
|
30,000
|
|
|
|
30,000
|
|
Short-term government loan
(4)
|
|
|
4,876
|
|
|
|
-
|
|
Subtotal
|
|
|
42,840
|
|
|
|
37,381
|
|
Debt issue cost
|
|
|
-
|
|
|
|
(57
|
)
|
Amortization
|
|
|
-
|
|
|
|
57
|
|
Bank and government loans, net
|
|
$
|
42,840
|
|
|
$
|
37,381
|
|
|
(1)
|
These loans are secured
by property, plant and equipment of the Company and are repayable within one year (see Note 11). As of June 30, 2014 and December
31, 2013, the weighted average interest rate was 6.86% and 6.22% per annum, respectively. Interest is paid on the twentieth day
of each month and the principal repayment is at maturity.
|
|
(2)
|
On July 18, 2013, Jiulong
entered into a one-year loan agreement with China Construction Bank Jingzhou branch in the amount of $1.6 million. The agreement
contains certain financial and non-financial covenants, including but not limited to restrictions on the utilization of the funds
and the maintenance of an asset-liability ratio not exceeding 60%. As of June 30, 2014, the asset-liability ratio of Jiulong was
53.4% and the Company was in compliance with these covenants at June 30, 2014.
|
|
(3)
|
On May 18, 2012, 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 $30.0
million, the “Credit Facility”. The Credit Facility would have expired on November 3, 2012 unless the Company drew
down the line of credit in full prior to such expiration date, and the maturity date for the loan drawdown was the earlier of
(i) 18 months from the drawdown or (ii) 1 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 2.25% per annum, subject to the availability of funds and fluctuation
at ICBC Macau’s discretion. The 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
not less than $31.6 million if the Credit Facility is fully drawn.
|
On May 22, 2012, the Company
drew down the full amount of $30.0 million under the Credit Facility 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 197.1 million (equivalent to approximately $32.0 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.
On May 7, 2013, ICBC Macau agreed
to extend the maturity date of the Credit Facility to May 13, 2014. The interest rate of the Credit Facility under the extended
term is revised as the three-month LIBOR plus 2.0% per annum, Except for the above, all other terms and conditions as stipulated
in the Credit Agreement remain unchanged.
On May 13, 2014, ICBC Macau agreed to extend the
maturity date of the Credit Facility to May 12, 2015. The interest rate of the Credit Facility under the extended term is revised
as the three-month LIBOR plus 2.55% per annum. Except for the above, all other terms and conditions as stipulated in the Credit
Agreement remain unchanged. As of June 30, 2014, the interest rate of the Credit Facility was 2.78% per annum.
|
(4)
|
On March 28, 2014, the
Company received a Chinese government loan of RMB 30.0 million (equivalent to approximately $4.9 million), with an interest rate
of 3% per annum, that will mature on March 15, 2015. Henglong has pledged RMB 31.0 million (equivalent to approximately $5.0 million)
of notes receivable as security for such government loan (see Note 6).
|
|
15.
|
Accounts and notes payable
|
The Company’s accounts and notes
payable as of June 30, 2014 and December 31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Accounts payable - unrelated parties
|
|
$
|
137,471
|
|
|
$
|
120,202
|
|
Notes payable - unrelated parties
(1)
|
|
|
70,418
|
|
|
|
78,217
|
|
Total accounts and notes payable - unrelated parties
|
|
|
207,889
|
|
|
|
198,419
|
|
Total accounts and notes payable - related parties
|
|
|
4,921
|
|
|
|
4,634
|
|
Total accounts and notes payable
|
|
$
|
212,810
|
|
|
$
|
203,053
|
|
|
(1)
|
Notes payable represent
accounts payable in the form of bills of exchange whose acceptances are guaranteed and settlements are handled by banks. The Company
has pledged cash deposits, notes receivable and certain property, plant and equipment to secure notes payable granted by banks.
|
|
16.
|
Accrued expenses and
other payables
|
The Company’s accrued expenses and
other payables as of June 30, 2014 and December 31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Accrued expenses
|
|
$
|
4,492
|
|
|
$
|
4,980
|
|
Accrued interest
|
|
|
112
|
|
|
|
85
|
|
Other payables
|
|
|
2,204
|
|
|
|
1,858
|
|
Warranty reserves
(1)
|
|
|
23,986
|
|
|
|
22,104
|
|
Dividends payable to common shareholders
(2)
|
|
|
5,047
|
|
|
|
-
|
|
Dividends payable to non-controlling interests
(3)
|
|
|
8,127
|
|
|
|
35
|
|
Total
|
|
$
|
43,968
|
|
|
$
|
29,062
|
|
|
(1)
|
The Company provides for the estimated cost of product warranties when the products are sold. Such estimates of product warranties
are based on, among other things, historical experience, product changes, material expenses, services and transportation expenses
arising from the manufactured products. Estimates will be adjusted on the basis of actual claims and circumstances.
|
For the six months ended June 30, 2014
and 2013, and for the year ended December 31, 2013, the warranties activities were as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Balance at beginning of the period
|
|
$
|
22,104
|
|
|
$
|
18,081
|
|
|
$
|
18,081
|
|
Additions during the period
|
|
|
5,055
|
|
|
|
5,637
|
|
|
|
12,707
|
|
Settlement within period, by cash or actual material
|
|
|
(2,972
|
)
|
|
|
(4,013
|
)
|
|
|
(9,244
|
)
|
Foreign currency translation gain (loss)
|
|
|
(201
|
)
|
|
|
313
|
|
|
|
560
|
|
Balance at end of the period
|
|
$
|
23,986
|
|
|
$
|
20,018
|
|
|
$
|
22,104
|
|
|
(2)
|
On May 27, 2014, the Company announced the payment of a special cash dividend of $0.18 per common share to the
Company’s shareholders of record as of the close of
business on June 26, 2014.
|
|
(3)
|
In accordance with the resolution of the board of directors of Henglong, in June 2014, Henglong declared a dividend
amounting to $40.6 million to its shareholders, of which $8.1 million was payable to the holder of the
non-controlling interests.
|
The Company’s taxes payable as of June 30, 2014 and December
31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2014
|
|
|
December 31,
2013
|
|
Value-added tax payable
|
|
$
|
4,007
|
|
|
$
|
5,494
|
|
Income tax payable
|
|
|
3,904
|
|
|
|
1,841
|
|
Other tax payable
|
|
|
376
|
|
|
|
457
|
|
Total
|
|
$
|
8,287
|
|
|
$
|
7,792
|
|
As of June 30, 2014 and December 31, 2013,
advances payable by the Company were $2.9 million and $2.8 million, respectively.
The amounts are special subsidies made
by the Chinese government to the Company to offset the cost and charges related to the improvement of production capacities and
improvement of the quality of products. For the government subsidies with no further conditions 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 of acquired assets when the conditions are
met.
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.
|
19.
|
Additional paid-in capital
|
The Company’s positions in respect of the amounts of additional
paid-in capital for the six months ended June 30, 2014 and 2013, and the year ended December 31, 2013 are summarized as follows
(figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Balance at beginning of the period
|
|
$
|
39,565
|
|
|
$
|
39,371
|
|
|
$
|
39,371
|
|
Share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
194
|
|
Return of common shareholders’ investment cost
(1)
|
|
|
(5,047
|
)
|
|
|
-
|
|
|
|
-
|
|
Balance at end of the period
|
|
$
|
34,518
|
|
|
$
|
39,371
|
|
|
$
|
39,565
|
|
|
(1)
|
On May 27, 2014, the Company
announced a special cash dividend of $0.18 per common share to the Company’s shareholders of record as of the close of business
on June 26, 2014. As China Automotive Systems, the parent company, had an accumulated deficit position as of the date of the dividend
declaration, the dividends distributed to the Company’s common shareholders described above are treated as a return of common
shareholders’ investment cost.
|
Appropriated
Pursuant to the relevant PRC laws and regulations,
the profits distribution of the Company’s PRC subsidiaries, which are based on their PRC statutory financial statements,
rather than the financial statement that was prepared in accordance with U.S. GAAP, 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%.
When the statutory surplus reserve reaches
50% of the registered capital of a company, additional reserve is no longer required. However, the reserve cannot be distributed
to venture partners. Based on the business licenses of the PRC subsidiaries, the registered capital of Henglong, Jiulong, Shenyang,
Jielong, Wuhu, Hubei Henglong and Chongqing are $10.0 million, $4.2 million (equivalent to RMB 35.0 million), $8.1 million (equivalent
to RMB 67.5 million), $6.0 million, $3.8 million (equivalent to RMB 30.0 million), $39 million and $9.5 million (equivalent to
RMB 60.0 million), respectively, and the registered capital of USAI is $2.6 million.
The Company’s activities in respect of the amounts of
the appropriated retained earnings for the six months ended June 30, 2014 and 2013, and the year ended December 31, 2013 are summarized
as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Balance at beginning of the period
|
|
$
|
10,048
|
|
|
$
|
9,953
|
|
|
$
|
9,953
|
|
Appropriation of retained earnings
|
|
|
130
|
|
|
|
95
|
|
|
|
95
|
|
Balance at end of the period
|
|
$
|
10,178
|
|
|
$
|
10,048
|
|
|
$
|
10,048
|
|
Unappropriated
The Company’s activities in respect
of the amounts of the unappropriated retained earnings for the six months ended June 30, 2014 and 2013, and the year ended December
31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Balance at beginning of the period
|
|
$
|
146,023
|
|
|
$
|
119,329
|
|
|
$
|
119,329
|
|
Net income attributable to parent company
|
|
|
17,781
|
|
|
|
10,921
|
|
|
|
26,789
|
|
Appropriation of retained earnings
|
|
|
(130
|
)
|
|
|
(95
|
)
|
|
|
(95
|
)
|
Balance at end of the period
|
|
$
|
163,674
|
|
|
$
|
130,155
|
|
|
$
|
146,023
|
|
21.
|
Accumulated other comprehensive income
|
The Company’s activities in respect of the amounts of
the accumulated other comprehensive income for the six months ended June 30, 2014 and 2013, and the year ended December 31, 2013
are summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Balance at beginning of the period
|
|
$
|
32,061
|
|
|
$
|
25,898
|
|
|
$
|
25,898
|
|
Foreign currency translation adjustment attributable to parent company
|
|
|
(2,017
|
)
|
|
|
3,361
|
|
|
|
6,163
|
|
Balance at end of the period
|
|
$
|
30,044
|
|
|
$
|
29,259
|
|
|
$
|
32,061
|
|
|
22.
|
Non-controlling interests
|
The Company’s activities in respect
of the amounts of the non-controlling interests’ equity for the six months ended June 30, 2014 and 2013, and the year ended
December 31, 2013 are summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2013
|
|
Balance at beginning of the period
|
|
$
|
45,071
|
|
|
$
|
38,846
|
|
|
$
|
38,846
|
|
Fair value of the non-controlling interests arising from the acquisition of Fujian Qiaolong
(1)
|
|
|
2,793
|
|
|
|
-
|
|
|
|
-
|
|
Income attributable to non-controlling interests
|
|
|
4,116
|
|
|
|
2,811
|
|
|
|
6,276
|
|
Dividends declared to the non-controlling interest holders of joint-venture companies
|
|
|
(10,077
|
)
|
|
|
(405
|
)
|
|
|
(1,299
|
)
|
Foreign currency translation adjustment attributable to non-controlling interests
|
|
|
(405
|
)
|
|
|
687
|
|
|
|
1,248
|
|
Balance at end of the period
|
|
$
|
41,498
|
|
|
$
|
41,939
|
|
|
$
|
45,071
|
|
|
(1)
|
In the second quarter of
2014, the Company acquired a 51.0% equity interest in Fujian Qiaolong (see Note 3). The fair value of the non-controlling interest
of Fujian Qiaolong is $2.8 million.
|
Gain on other sales mainly consisted of
net amount retained from sales of materials, property, plant and equipment, land use rights, and scraps. For the six months ended
June 30, 2014, gain on other sales amounted to $9.1 million as compared to $1.7 million for the six months ended June 30, 2013,
representing an increase of $7.4million. In the second quarter of 2014, the Company sold the remaining land use rights (see Note
9) and recognized a gain of $7.5 million, which represented the difference between the selling price of $8.4 million
and the net book value of the land use rights of $0.9 million. There was no such gain in the same period in 2013.
|
24.
|
Financial (income) expenses,
net
|
During the three months and six months
ended June 30, 2014 and 2013, the Company recorded financial expenses, net which are summarized as follows (figures are in thousands
of USD):
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Interest expense
|
|
$
|
546
|
|
|
$
|
582
|
|
Interest income
|
|
|
(496
|
)
|
|
|
(698
|
)
|
Foreign exchange gain, net
|
|
|
(196
|
)
|
|
|
(21
|
)
|
Loss (gain) of cash discount, net
|
|
|
(3
|
)
|
|
|
5
|
|
Bank fees
|
|
|
177
|
|
|
|
240
|
|
Total financial expense, net
|
|
$
|
28
|
|
|
$
|
108
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Interest expense
|
|
$
|
824
|
|
|
$
|
1,005
|
|
Interest income
|
|
|
(1,253
|
)
|
|
|
(1,155
|
)
|
Foreign exchange gain, net
|
|
|
(1
|
)
|
|
|
47
|
|
Loss (gain) of cash discount, net
|
|
|
(62
|
)
|
|
|
12
|
|
Bank fees
|
|
|
306
|
|
|
|
400
|
|
Total financial (income) expense, net
|
|
$
|
(186
|
)
|
|
$
|
309
|
|
The Company’s subsidiaries registered
in the PRC are subject to state and local income taxes within the PRC at the applicable tax rate of 25% on the taxable income as
reported in their PRC statutory financial statements in accordance with the relevant income tax laws applicable to foreign invested
enterprise, unless preferential tax treatment is granted by local tax authorities. If the enterprise meets certain preferential
terms according to the China income tax law, such as assessment as a “High & New Technology Enterprise” by the
government, then, the enterprise will be subject to enterprise income tax at a rate of 15%.
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 as 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
owns directly at least 25% of the shares of the foreign-invested enterprise. Under the New CIT, if Genesis is regarded as a non-resident
enterprise and therefore 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 profit distributed from the PRC subsidiaries to Genesis, the subsidiaries’ holding company
incorporated in Hong Kong. For the profit that the PRC subsidiaries intended to distribute to Genesis, the Company accrues the
withholding income tax as deferred tax liabilities. During the six months ended June 30, 2014 and the year ended December 31, 2013,
the Company recognized deferred tax liabilities of $0.07 million and $0.07 million, respectively, for profit to be distributed
to Genesis of $1.5 million and $1.4 million, respectively. The Company intended to re-invest the remaining undistributed profits
generated from the PRC subsidiaries in those subsidiaries permanently. As of June 30, 2014 and December 31, 2013, the Company still
has undistributed earnings of approximately $176.5 million and $158.5 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 June 30, 2014 and December 31, 2013 of approximately $8.8 million and $7.9 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.
During 2008, Jiulong 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 2008, 2009 and 2010. In 2011, the Company passed the re-assessment of the government based on PRC income
tax laws. Accordingly, the Company continued to be taxed at the 15% tax rate in 2011, 2012 and 2013. The Company estimated the
applied tax rate in 2014 to be 15% as it will probably pass the re-assessment in 2014 and continue to qualify as “High &
New Technology Enterprise”.
During 2008, Henglong 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 2008, 2009 and 2010. In 2011, 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 2011, 2012 and 2013. The Company estimated the applied tax
rate in 2014 to be 15% as it will probably pass the re-assessment in 2014 and continue to qualify as “High & New Technology
Enterprise”.
During 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 will continue to be taxed at the 15% tax rate in 2012, 2013 and 2014.
During 2013, Jielong 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% for 2013, 2014 and 2015.
According to the New CIT, Hubei Henglong
has been subject to tax at a rate of 12.5% from 2010 to 2012. In November 2011, Hubei Henglong was awarded the title of “High
& New Technology Enterprise”, based on the PRC income tax law. Accordingly, it will be subject to enterprise income tax
at a rate of 15% for 2013. The Company estimated the applied tax rate in 2014 to be 15% as it will probably pass the re-assessment
in 2014 and continue to qualify as “High & New Technology Enterprise”.
According to the New CIT, USAI and Testing
Center were exempted from income tax in 2009, and each has been subject to income tax at a rate of 12.5% in 2010 and 2011, and
25% in 2012, 2013 and 2014.
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 three months and six months ended June 30, 2014 and 2013.
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 BRL 0.24 million). The Company had no assessable income
in Brazil for the three months and six months ended June 30, 2014 and 2013.
Fujian Qiaolong was acquired in the second
quarter of 2014. In November 2011, Fujian Qiaolong 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 2011, 2012 and 2013. The Company
estimates that it will continue to be taxed at the 15% tax rate in 2014, as a result of the Company being able to pass the re-assessment
and continue to qualify as “High & New Technology Enterprise”. No provision for Fujian Qiaolong is made as it had
no assessable income for the three months and six months ended June 30, 2014.
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 three months and six months ended June 30, 2014 and 2013.
The enterprise income tax rate of the United
States is 35%. No provision for U.S. tax is made for HLUSA as HLUSA had no assessable income in the United States for the three
months and six months ended June 30, 2013. HLUSA made a provision for assessable income for the three months and six months ended
June 30, 2014.
The enterprise income tax rate of the United
States is 35%. No provision for U.S. tax is made for the Company as the Company had no assessable income in the United States for
the three months and six months ended June 30, 2014 and 2013.
The effective tax rate decreased to 18.8%
and 19.0% for the three months and six months ended June 30, 2014 from 20.4% and 19.6% for the same periods in 2013, which was
primarily due to a significant increase in assessable income of Henglong which has a low effective tax rate of 15.0%.
Basic income per share is calculated by
dividing net income by the weighted average number of common shares outstanding during the period. Diluted income per share is
calculated 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 calculation of basic and diluted income
per share attributable to the parent company for the three months ended June 30, 2014 and 2013, were (figures are in thousands
of USD , except share and per share amounts ):
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to the parent company’s common shareholders – Basic and Diluted
|
|
$
|
11,006
|
|
|
$
|
4,981
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
28,043,019
|
|
|
|
28,043,019
|
|
Dilutive effects of stock options
|
|
|
21,357
|
|
|
|
5,770
|
|
Denominator for dilutive income per share – Diluted
|
|
|
28,064,376
|
|
|
|
28,048,789
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to parent company’s common shareholders – Basic
|
|
$
|
0.39
|
|
|
$
|
0.18
|
|
Net income per share attributable to parent company’s common shareholders – Diluted
|
|
$
|
0.39
|
|
|
$
|
0.18
|
|
As of June 30, 2014 and 2013, the exercise
prices for 60,000 shares and 45,000 shares, respectively, of outstanding stock options were above the weighted average market price
of the Company’s common stock during the three months ended June 30, 2014 and 2013, respectively, and these stock options
were excluded from the calculation of the diluted income per share for the corresponding periods presented.
The calculations of basic and diluted income
per share attributable to the parent company for the six months ended June 30, 2014 and 2013, were (figures are in thousands of
USD , except share and per share amounts ):
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to the parent company’s common shareholders – Basic and Diluted
|
|
$
|
17,781
|
|
|
$
|
10,921
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
28,043,019
|
|
|
|
28,043,019
|
|
Dilutive effects of stock options
|
|
|
20,920
|
|
|
|
6,844
|
|
Denominator for dilutive income per share – Diluted
|
|
|
28,063,939
|
|
|
|
28,049,863
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to parent company’s common shareholders – Basic
|
|
$
|
0.63
|
|
|
$
|
0.39
|
|
Net income per share attributable to parent company’s common shareholders – Diluted
|
|
$
|
0.63
|
|
|
$
|
0.39
|
|
As of June 30, 2014 and 2013, the exercise
prices for 60,000 shares and 45,000 shares, respectively, of outstanding stock options were above the weighted average market price
of the Company’s common stock during the six months ended June 30, 2014 and 2013, respectively, and these stock options were
excluded from the calculation of the diluted income per share for the corresponding periods presented.
|
27.
|
Significant concentrations
|
A significant portion of the Company’s
business is conducted in China where the currency is the RMB. Regulations in China permit foreign owned entities to freely convert
the RMB into foreign currency for transactions that fall under the "current account," which includes trade related receipts
and payments, interest and dividends. Accordingly, the Company’s Chinese subsidiaries may use RMB to purchase foreign exchange
for settlement of such "current account" transactions without pre-approval. However, pursuant to applicable regulations,
foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance
with the PRC law. In calculating accumulated profits, foreign investment enterprises in China are required to allocate at least
10% of their annual net income each year, if any, to fund certain reserve funds, including mandated employee benefits funds, unless
these reserves have reached 50% of the registered capital of the enterprises.
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, 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 PRC,
the Company’s PRC 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 PRC 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 Jiangling Yude, which are related parties of the Company.
The Company’s customers are mostly located in the PRC.
During the six months ended June 30, 2014,
the Company’s ten largest customers accounted for 68.7% of its consolidated net product sales, with one customer individually
accounting for more than 10% of consolidated net sales, i.e., 11.6%. As of June 30, 2014, approximately 4.9% of accounts receivable
were from trade transactions with the aforementioned one customer, and there was one other individual customer with a receivables
balance of more than 10% of total accounts receivable, i.e. 12.3%.
During the six months ended June 30, 2013,
the Company’s ten largest customers accounted for 74.0% of its consolidated net sales, with the largest customer individually
accounting for more than 10% of consolidated net sales, i.e., 11.5%. As of June 30, 2013, approximately 6.4% of accounts receivable
were from trade transactions with the aforementioned one customer, and there were two other individual customers with a receivables
balance of more than 10% of total accounts receivable, i.e. 11.9% and 12.4%, respectively.
|
28.
|
Related party transactions
and balances
|
Related party transactions are as follows
(figures are
in thousands of USD):
Related sales
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Merchandise sold to related parties
|
|
$
|
14,928
|
|
|
$
|
9,035
|
|
|
|
$
|
14,928
|
|
|
$
|
9,035
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Merchandise sold to related parties
|
|
$
|
26,738
|
|
|
$
|
17,178
|
|
|
|
$
|
26,738
|
|
|
$
|
17,178
|
|
Related purchases
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Materials purchased from related parties
|
|
$
|
7,461
|
|
|
$
|
6,006
|
|
Technology purchased from related parties
|
|
|
72
|
|
|
|
421
|
|
Equipment purchased from related parties
|
|
|
336
|
|
|
|
1051
|
|
Total
|
|
$
|
7,869
|
|
|
$
|
7,478
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Materials purchased from related parties
|
|
$
|
14,652
|
|
|
$
|
12,671
|
|
Technology purchased from related parties
|
|
|
164
|
|
|
|
517
|
|
Equipment purchased from related parties
|
|
|
1,254
|
|
|
|
1,383
|
|
Total
|
|
$
|
16,070
|
|
|
$
|
14,571
|
|
Related receivables
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Accounts receivable
|
|
$
|
24,658
|
|
|
$
|
17,194
|
|
Other receivables
|
|
|
61
|
|
|
|
108
|
|
Total
|
|
$
|
24,719
|
|
|
$
|
17,302
|
|
Related advances
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Advance equipment payment to related parties
|
|
$
|
1,522
|
|
|
$
|
2,097
|
|
Advance payments and others to related parties
|
|
|
625
|
|
|
|
866
|
|
Total
|
|
$
|
2,147
|
|
|
$
|
2,963
|
|
Related payables
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Accounts payable
|
|
$
|
4,921
|
|
|
$
|
4,634
|
|
These transactions were consummated under
similar terms as those with the Company's third party customers and suppliers.
Related parties pledged certain land use
rights and buildings as security for the Company’s credit facilities provided by banks.
Loans to Related
Parties
For the six months ended June 30, 2013,
certain of the Company’s subsidiaries provided short-term loans to related parties of the Company in the aggregate principal
amount of $ 0.7 million (RMB 4.3 million). The contractual period of each loan was three months or less from the date of the extension
of the loan and the Company did not charge interest due to their short-term maturity. The loans to related parties were entered
into for the purpose of assisting the borrowing entities in addressing certain cash flow needs. All of these loans qualified for
net reporting in accordance with ASC 230 “Statement of Cash Flows”. As of June 30, 2013, all of these loans had been
repaid to the Company.
For the three months ended June 30, 2014 and 2013, there were
no loan activities with related parties.
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Loans to related parties
|
|
|
-
|
|
|
$
|
686
|
|
As of August 13, 2014, Hanlin Chen, the
Company’s Chairman, owns 63.65% 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.
|
29.
|
Commitments and contingencies
|
Legal proceedings
Securities Action
- Southern District
of New York. On October 25, 2011, a purported securities class action was filed in the United States District Court for the Southern
District of New York on behalf of all purchasers of the Company’s securities between March 25, 2010 and March 17, 2011. On
February 24, 2012, the plaintiffs filed an amended complaint, changing the purported class period to between May 12, 2009 and March
17, 2011. The amended complaint alleged that the Company, certain of its present officers and directors, and the Company’s
former independent accounting firm violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and the rules promulgated
thereunder, and sought unspecified damages. The Company filed a motion to dismiss the amended complaint, which the court denied
on August 8, 2012. On September 4, 2012, the Company filed an answer to the amended complaint. On January 15, 2013, plaintiffs
filed a motion to certify the purported class, which the court denied on May 31, 2013. On July 17, 2013, plaintiffs filed a petition
for permission to appeal the order denying class certification, and, on August 1, 2013, the Company filed an answer in opposition
to the petition. On October 23, 2013, the Court of Appeals for the Second Circuit denied plaintiffs’ petition for permission
to appeal. On December 6, 2013, plaintiffs filed a motion for preliminary approval of a settlement with the Company’s former
independent accounting firm and certification of a proposed settlement class, which the district court denied on January 15, 2014.
On March 28, 2014, the Company and plaintiffs entered into a settlement agreement. As part of the settlement, on April 29, 2014,
the Company and plaintiffs filed a stipulation dismissing all claims by plaintiffs against the Company and its current and former
officers and directors, with no admission of any wrongdoing or liability. On April 29, 2014, the court entered an order granting
the dismissal. The settlement had no material effect on the condensed unaudited consolidated financial statements for the three
months and six months ended June 30, 2014.
Other than the 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, 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 June 30,
2014 (figures are in thousands of USD):
|
|
Payment obligations by period
|
|
|
|
2014
(1)
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
Thereafter
|
|
|
Total
|
|
Interest on short-term bank loan
|
|
$
|
643
|
|
|
$
|
331
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
974
|
|
Obligations for purchasing agreements
|
|
|
4,470
|
|
|
|
4,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,667
|
|
Total
|
|
$
|
5,113
|
|
|
$
|
4,528
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,641
|
|
|
(1)
|
Remaining 6 months in 2014.
|
30.
|
Off-balance sheet arrangements
|
As of June 30, 2014 and December 31, 2013,
the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet
arrangements.
The accounting policies of the product
sectors are the same as those described in the summary of significant accounting policies except that the disaggregated financial
results for the product sectors have been prepared using a management approach, which is consistent with the basis and manner in
which management internally disaggregates financial information for the purposes of assisting them in making internal operating
decisions. Generally, the Company evaluates performance based on stand-alone product sector operating income and accounts for inter
segment sales and transfers as if the sales or transfers were to third parties, at current market prices.
As of June
30, 2014, the Company had 12 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 seven sectors were engaged in the production and sale of sensor modular (USAI), EPS (Jielong), provision
of after sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong),
commercial vehicle repacking and sales (Fujian Qiaolong), and manufacture and sales of automobile electronic systems and parts
(Wuhan Chuguanjie). 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 seven sectors into “Other Sectors.”
As of June 30, 2013, the Company had 10
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
five sectors were engaged in the production and sale of sensor modular (USAI), EPS (Jielong), provision of after sales and R&D
services (HLUSA), production and sale of power steering (Chongqing Henglong) and trade (Brazil Henglong). Since the revenues, net
income and net assets of these five 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 five sectors into “Other
Sectors.”
As discussed
in Acquisition (see Note 3) above, the Company acquired a 51.0% equity interest in Fujian Qiaolong in the second quarter of 2014.
The results of Fujian Qiaolong have been included since the date of acquisition and are reflected in
Other
Sectors in the Company’s segment reporting.
The Company’s product sector information
for the three months and six months ended June 30, 2014 and 2013, is as follows (figures are in thousands of USD):
|
|
Net Product Sales
|
|
|
Net Income (Loss)
|
|
|
|
Three Months Ended June 30,
|
|
|
Three Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henglong
|
|
$
|
71,665
|
|
|
$
|
57,829
|
|
|
$
|
11,799
|
|
|
$
|
5,071
|
|
Jiulong
|
|
|
20,155
|
|
|
|
21,019
|
|
|
|
399
|
|
|
|
615
|
|
Shenyang
|
|
|
12,043
|
|
|
|
10,202
|
|
|
|
506
|
|
|
|
227
|
|
Wuhu
|
|
|
5,857
|
|
|
|
5,689
|
|
|
|
(35
|
)
|
|
|
(10
|
)
|
Hubei Henglong
|
|
|
13,684
|
|
|
|
12,422
|
|
|
|
42,106
|
(1)
|
|
|
719
|
|
Other Sectors
|
|
|
11,372
|
|
|
|
7,723
|
|
|
|
406
|
|
|
|
828
|
|
Total Segments
|
|
|
134,776
|
|
|
|
114,884
|
|
|
|
55,181
|
|
|
|
7,450
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,188
|
)
|
|
|
(1,069
|
)
|
Eliminations
|
|
|
(19,300
|
)
|
|
|
(16,995
|
)
|
|
|
(40,407
|
)
|
|
|
(175
|
)
|
Total
|
|
$
|
115,476
|
|
|
$
|
97,889
|
|
|
$
|
13,586
|
|
|
$
|
6,206
|
|
(1)
|
$40.3 million included in the amount of net income is
attributable to the dividend from Henglong, which has been eliminated at the consolidation level.
|
|
|
Net Product Sales
|
|
|
Net Income (Loss)
|
|
|
|
Six Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henglong
|
|
$
|
143,085
|
|
|
$
|
121,990
|
|
|
$
|
17,533
|
|
|
$
|
11,384
|
|
Jiulong
|
|
|
41,789
|
|
|
|
40,043
|
|
|
|
1,582
|
|
|
|
1,237
|
|
Shenyang
|
|
|
23,940
|
|
|
|
19,069
|
|
|
|
762
|
|
|
|
516
|
|
Wuhu
|
|
|
12,404
|
|
|
|
12,165
|
|
|
|
(79
|
)
|
|
|
(167
|
)
|
Hubei Henglong
|
|
|
27,283
|
|
|
|
22,827
|
|
|
|
43,402
|
(1)
|
|
|
1,458
|
|
Other Sectors
|
|
|
20,323
|
|
|
|
17,308
|
|
|
|
995
|
|
|
|
894
|
|
Total Segments
|
|
|
268,824
|
|
|
|
233,402
|
|
|
|
64,195
|
|
|
|
15,322
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,023
|
)
|
|
|
(2,511
|
)
|
Eliminations
|
|
|
(39,042
|
)
|
|
|
(38,350
|
)
|
|
|
(40,275
|
)
|
|
|
921
|
|
Total
|
|
$
|
229,782
|
|
|
$
|
195,052
|
|
|
$
|
21,897
|
|
|
$
|
13,732
|
|
|
(1)
|
$40.3 million included
in the amount of net income is attributable to the dividend from Henglong, which has been eliminated at the consolidation level.
|
32. Subsequent event
On August 11, 2014, the Company entered
into a Stock Exchange Agreement (the “Agreement”) to acquire from Jingzhou City Jiulong Machinery Electricity Manufacturing
Co., Ltd. (“Jiulong Machinery Electricity”) its minority interest in Henglong, such minority interest being a 20% equity
interest therein; and Jiulong, such minority interest being a 19% equity interest therein.
The consideration for the acquisition is
the issuance of 4,078,000 new shares of the Company to Jiulong Machinery Electricity, with 3,260,000 new shares of the Company
being exchanged for the 20% equity interest in Henglong and 818,000 new shares of the Company being exchanged for the 19% equity
interest in Jiulong. The shares will be issued in a private placement transaction that is exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933, as amended.
The Company expects to complete the acquisition
pursuant to the provisions of the Agreement in the third quarter of 2014. Upon consummation of the transaction, Henglong and Jiulong
will become wholly-owned subsidiaries of the Company.