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 Ended March 31, 2020 and
2019
|
|
1.
|
Organization and business
|
China Automotive Systems, Inc., “China
Automotive,” was incorporated in the State of Delaware on June 29, 1999 under the name Visions-In-Glass, Inc. China Automotive,
including, when the context so requires, its subsidiaries described below, is referred to herein as the “Company.”
The Company is primarily engaged in the manufacture and sale of automotive systems and components, as described below.
Great Genesis Holdings Limited, a company
incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance in Hong Kong as a limited liability company, “Genesis,”
is a wholly-owned subsidiary of the Company.
Henglong USA Corporation, “HLUSA,”
incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and mainly engages in marketing
of automotive parts in North America, and provides after-sales service and research and development support accordingly.
The Company owns the following aggregate
net interests in the following subsidiaries organized in the People's Republic of China, the “PRC,” and Brazil as of
March 31, 2020 and December 31, 2019.
|
|
|
Percentage Interest
|
|
|
Name of Entity
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong” 1
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
Jingzhou Henglong Automotive Parts Co., Ltd., “Henglong” 2
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., “Shenyang” 3
|
|
|
70.00
|
%
|
|
|
70.00
|
%
|
|
Universal Sensor Application Inc., “USAI” 4
|
|
|
85.00
|
%
|
|
|
83.34
|
%
|
|
Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong” 5
|
|
|
85.00
|
%
|
|
|
85.00
|
%
|
|
Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu” 6
|
|
|
77.33
|
%
|
|
|
77.33
|
%
|
|
Hubei Henglong Automotive System Group Co., Ltd., “Hubei Henglong” 7
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
Jingzhou Henglong Automotive Technology (Testing) Center, “Testing Center” 8
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
Chongqing Henglong Hongyan Automotive System Co., Ltd., “Chongqing Henglong” 9
|
|
|
70.00
|
%
|
|
|
70.00
|
%
|
|
CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong” 10
|
|
|
95.84
|
%
|
|
|
95.84
|
%
|
|
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie” 11
|
|
|
85.00
|
%
|
|
|
85.00
|
%
|
|
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong” 12
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou Qingyan”13
|
|
|
60.00
|
%
|
|
|
60.00
|
%
|
|
Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”14
|
|
|
66.60
|
%
|
|
|
66.60
|
%
|
|
Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”15
|
|
|
51.00
|
%
|
|
|
51.00
|
%
|
|
Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”16
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
1.
|
Jiulong was established in 1993 and mainly engages in the production of integral power steering gears for heavy-duty vehicles.
|
|
|
|
|
2.
|
Henglong was established in 1997 and mainly engages in the production of rack and pinion power steering gears for cars and light duty vehicles.
|
|
|
|
|
3.
|
Shenyang was established in 2002 and focuses on power steering parts for light duty vehicles.
|
|
|
|
|
4.
|
USAI was established in 2005 and mainly engages in the production and sales of sensor modules.
|
|
|
|
|
5.
|
Jielong was established in 2006 and mainly engages in the production and sales of automotive steering columns.
|
|
|
|
|
6.
|
Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems.
|
|
|
|
|
7.
|
On March 7, 2007, Genesis established Hubei Henglong, formerly known as Jingzhou Hengsheng Automotive System Co., Ltd., its wholly-owned subsidiary, to engage in the production and sales of automotive steering systems. On July 8, 2012, Hubei Henglong changed its name to Hubei Henglong Automotive System Group Co., Ltd.
|
|
|
|
|
8.
|
In December 2009, Henglong, a subsidiary of Genesis, formed Testing Center, which mainly engages in the research and development of new products.
|
|
|
|
|
9.
|
On February 21, 2012, Hubei Henglong and SAIC-IVECO Hongyan Company, “SAIC-IVECO,” established a Sino-foreign joint venture company, Chongqing Henglong, to design, develop and manufacture both hydraulic and electric power steering systems and parts.
|
|
|
|
|
10.
|
On August 21, 2012, Brazil Henglong was established as a Sino-foreign joint venture company by Hubei Henglong and two Brazilian citizens, Ozias Gaia Da Silva and Ademir Dal’ Evedove. Brazil Henglong engages mainly in the import and sales of automotive parts in Brazil. In May 2017, the Company obtained an additional 15.84% equity interest in Brazil Henglong for nil consideration. The Company retained its controlling interest in Brazil Henglong and the acquisition of the non-controlling interest was accounted for as an equity transaction.
|
|
|
|
|
11.
|
In May 2014, together with Hubei Wanlong, Jielong formed a subsidiary, Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”, which mainly engages in research and development, manufacture and sales of automobile electronic systems and parts. Wuhan Chuguanjie is located in Wuhan, China.
|
|
|
|
|
12.
|
In January 2015, Hubei Henglong formed Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”, which mainly engages in the design and sales of automotive electronics.
|
|
|
|
|
13.
|
In November 2017, Hubei Henglong formed Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou Qingyan”, which mainly engages in the research and development of intelligent automotive technology.
|
|
|
|
|
14.
|
In August 2018, Hubei Henglong and KYB (China) Investment Co., Ltd. (“KYB”) established Hubei Henglong KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”, which mainly engages in design, manufacture, sales and after-sales service of automobile electronic systems. Hubei Henglong owns 66.6% of the shares of this entity and has consolidated it since its establishment.
|
|
|
|
|
15.
|
In March 2019, Hubei Henglong
and Hyoseong Electric Co., Ltd. established Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”,
which mainly engages in the design, manufacture and sales of automotive motors and electromechanical integrated systems. Hubei
Henglong owns 51.0% of the shares of Wuhan Hyoseong and has consolidated it since its establishment.
|
|
|
|
|
16.
|
In December 2019, Hubei Henglong formed Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”, which mainly engages in the development, manufacturing and sale of high polymer materials.
|
|
|
2.
|
Basis of presentation and significant accounting policies
|
|
|
(a)
|
Basis of Presentation
|
Basis of Presentation - The accompanying
condensed unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The details of
subsidiaries are disclosed in Note 1. Significant inter-company balances and transactions have been eliminated upon consolidation.
The condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions in Regulation
S-X. Accordingly they do not include all of the information and footnotes required by such accounting principles for complete financial
statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The accompanying interim condensed consolidated
financial statements are unaudited, but in the opinion of the Company’s management, contain all necessary adjustments, which
include normal recurring adjustments, for a fair statement of the results of operations, financial position and cash flows for
the interim periods presented.
The condensed consolidated balance sheet
as of December 31, 2019 is derived from the Company’s audited financial statements at that date but does not include all
of the information and footnotes required by U.S. GAAP for complete financial statements.
The results of operations for the three
months ended March 31, 2020 are not necessarily indicative of the results of operations to be expected for the full fiscal year
ending December 31, 2020.
Estimation - The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Foreign Currencies - China Automotive,
the parent company, and HLUSA maintain their books and records in United States Dollars, “USD,” their functional currency.
The Company’s subsidiaries based in the PRC and Genesis maintain their books and records in Renminbi, “RMB,”
their functional currency. The Company’s subsidiary based in Brazil maintains its books and records in Brazilian reais, “BRL,”
its functional currency. In accordance with ASC Topic 830, “FASB Accounting Standards Codification”, foreign currency
transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the rate
of exchange prevailing at the balance sheet date for monetary items. Nonmonetary items are remeasured at historical rates. Income
and expenses are remeasured at the rate in effect on the transaction dates. Transaction gains and losses, if any, are included
in the determination of net income for the period.
|
|
(b)
|
Recent Accounting Pronouncements
|
On January 1, 2020, the Company adopted
Accounting Standards Update (“ASU”) No. 2016-13 ASC (Topic 326), Financial Instruments - Credit Losses. The ASU introduces
a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and
additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for
the recognition of credit losses at the time the financial asset is originated or acquired. The Company adopted the CECL model
to recognize credit losses of financial assets using a modified retrospective method of accounting as of January 1, 2020. The impact
of adopting the new standard on the consolidated financial statements was a reduction of $0.8 million to beginning retained earnings.
|
|
(c)
|
Significant Accounting Policies
|
|
There have been no updates to the significant accounting policies set forth in the notes to the consolidated financial statements for the year ended December 31, 2019, except for the adoption of ASC Topic 326 (Note 2(b)).
|
|
|
3.
|
Accounts and notes receivable, net
|
The Company’s accounts and notes
receivable, net as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Accounts receivable - unrelated parties
|
|
$
|
112,505
|
|
|
$
|
141,423
|
|
|
Notes receivable - unrelated parties (1) (2)
|
|
|
73,726
|
|
|
|
72,797
|
|
|
Total accounts and notes receivable - unrelated parties
|
|
|
186,231
|
|
|
|
214,220
|
|
|
Less: allowance for doubtful accounts - unrelated parties (3)
|
|
|
(3,358
|
)
|
|
|
(2,379
|
)
|
|
Accounts and notes receivable, net - unrelated parties
|
|
|
182,873
|
|
|
|
211,841
|
|
|
Accounts and notes receivable - related parties
|
|
|
13,625
|
|
|
|
21,164
|
|
|
Accounts and notes receivable, net
|
|
$
|
196,498
|
|
|
$
|
233,005
|
|
|
(1)
|
Notes receivable represent accounts receivable in the form of bills of exchange for which acceptances are guaranteed and settlements are handled by banks.
|
|
|
|
|
(2)
|
As of March 31, 2020 and December 31, 2019, the Company pledged its notes receivable in amounts of $9.7 million and $9.7 million, respectively, as collateral in favor of the local government for the government loans. (See Note 7)
|
|
|
|
|
(3)
|
Provision for doubtful accounts and notes receivable recognized in the consolidated statements of operations amounted to $0.02 million and $0.1 million for the three months ended March 31, 2020 and 2019, respectively.
|
As of March 31, 2020 and December 31, 2019,
the Company pledged its accounts and notes receivable in amounts of $2.3 million and $7.4 million, respectively, as collateral
for banks to endorse the payment of the Company’s notes payable to the noteholder upon maturity.
During the three months ended March 31,
2020, the Company’s five largest customers accounted for 53.7% of its consolidated net product sales, with one customer individually
accounting for more than 10% of consolidated net sales, i.e., 33.7%. As of March 31, 2020, approximately 7.5% of accounts receivable
were from trade transactions with the aforementioned customers and there was no individual customer with a receivables balance
of more than 10% of total accounts receivable.
During the three months ended March 31,
2019, the Company’s five largest customers accounted for 44.0% of its consolidated net product sales, with one customer individually
accounting for more than 10% of consolidated net sales i.e., 18.1%. As of March 31, 2019, approximately 6.2% of accounts receivable
were from trade transactions with the aforementioned customer and there was no individual customer with a receivables balance of
more than 10% of total accounts receivable.
The Company’s inventories as of March
31, 2020 and December 31, 2019 consisted of the following (figures are in thousands of USD):
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Raw materials
|
|
$
|
23,737
|
|
|
$
|
21,464
|
|
|
Work in process
|
|
|
10,875
|
|
|
|
9,469
|
|
|
Finished goods
|
|
|
36,546
|
|
|
|
51,998
|
|
|
Total
|
|
$
|
71,158
|
|
|
$
|
82,931
|
|
The Company recorded $0.8 million and $1.1
million of inventory write-down to cost of product sold for the three months ended March 31, 2020 and 2019, respectively.
The Company’s
long-term investments at March 31, 2020 and December 31, 2019, are summarized as follows (figures are in thousands of USD):
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Chongqing Venture Fund
|
|
$
|
14,818
|
|
|
$
|
15,085
|
|
|
Hubei Venture Fund (1)
|
|
|
11,142
|
|
|
|
8,730
|
|
|
Suzhou Venture Fund (2)
|
|
|
8,210
|
|
|
|
9,141
|
|
|
Beijing Henglong
|
|
|
4,654
|
|
|
|
4,630
|
|
|
Henglong Tianyu
|
|
|
1,085
|
|
|
|
1,122
|
|
|
Chongqing Jinghua
|
|
|
469
|
|
|
|
523
|
|
|
Jiangsu Intelligent
|
|
|
412
|
|
|
|
411
|
|
|
Total
|
|
$
|
40,790
|
|
|
$
|
39,642
|
|
|
(1)
|
During the three months ended March 31, 2020, the Company made an equity investment of $2.6 million in the Hubei Venture Fund.
|
|
|
|
|
(2)
|
In January 2020, the Suzhou Venture Fund made distributions that were proportional to each owner’s allocated share of the fund, pursuant to which Hubei Henglong received $0.4 million.
|
|
6.
|
Property, plant and equipment, net
|
The Company’s property, plant and
equipment, net as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Costs:
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
51,044
|
|
|
$
|
51,750
|
|
|
Machinery and equipment
|
|
|
198,375
|
|
|
|
199,536
|
|
|
Electronic equipment
|
|
|
5,459
|
|
|
|
5,799
|
|
|
Motor vehicles
|
|
|
4,913
|
|
|
|
5,229
|
|
|
Construction in progress
|
|
|
31,409
|
|
|
|
33,063
|
|
|
Total amount of property, plant and equipment
|
|
|
291,200
|
|
|
|
295,377
|
|
|
Less: Accumulated depreciation (1)
|
|
|
(156,939
|
)
|
|
|
(154,940
|
)
|
|
Total amount of property, plant and equipment, net (2)(3)
|
|
$
|
134,261
|
|
|
$
|
140,437
|
|
|
(1)
|
Depreciation charges were $5.0 million and $3.9 million for the three months ended March 31, 2020 and 2019, respectively.
|
|
|
|
|
(2)
|
As of March 31, 2020 and December 31, 2019, the Company pledged property, plant and equipment with net book value of approximately $48.2 million and $50.9 million, respectively, as security for its comprehensive credit facilities with banks in China.
|
|
|
|
|
(3)
|
Interest costs capitalized for the three months ended March 31, 2020 and 2019, were $0.3 million and $0.1 million, respectively.
|
Loans consist of the following as of March 31, 2020 and December
31, 2019 (figures are in thousands of USD):
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Short-term bank loans (1)
|
|
$
|
19,407
|
|
|
$
|
23,536
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term bank loans (2)
|
|
|
22,533
|
|
|
|
20,663
|
|
|
Short-term government loan (3)
|
|
|
2,117
|
|
|
|
2,150
|
|
|
Current portion of long-term government loan (4)
|
|
|
-
|
|
|
|
287
|
|
|
Subtotal
|
|
|
44,057
|
|
|
|
46,636
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term government loans (4)(5)
|
|
|
7,057
|
|
|
|
7,454
|
|
|
Less: Current portion of long-term government loan (4)
|
|
|
-
|
|
|
|
(287
|
)
|
|
Subtotal
|
|
|
7,057
|
|
|
|
7,167
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bank and government loans
|
|
$
|
51,114
|
|
|
$
|
53,803
|
|
|
(1)
|
These loans are secured by property, plant and equipment and land use rights of the Company and are repayable within one year (See Note 6). As of March 31, 2020 and December 31, 2019, the weighted average interest rate was 4.6% and 4.8% per annum, respectively.
|
|
|
|
|
(2)
|
On October 27, 2017, Henglong and Hubei Henglong entered into
credit facility agreements with China CITIC Bank, the “CITIC Credit Facility”. The maturity date of the CITIC
Credit Facility was originally set for October 27, 2018 and was extended to October 26, 2019. On December 5, 2019, the CITIC
Credit Facility was further extended to June 5, 2020. The Company is currently in the process of negotiating with the bank to
renew the credit facility. The Company’s property, plant and equipment and land use rights with book value amounting to
$9.7 million were pledged as collateral for such loans. As of March 31, 2020 and December 31, 2019, the Company has drawn
down loans with an aggregate amount of $19.8 million and $20.7 million, respectively. On March 1, 2019, Henglong and Hubei
Henglong entered into credit facility agreements with China Merchants Bank, the “Merchants Credit Facility”. The
maturity date of the Merchants Credit Facility was originally set for February 29, 2020. The Company is currently in the
process of negotiating with the bank to renew the credit facility. As of March 31, 2020 and December 31, 2019, the Company
has drawn down loans with an aggregate amount of $2.7 million and nil, respectively. The weighted average interest rate of
the loans as of March 31, 2020 and December 31, 2019 was 3.27% and 3.46% per annum, respectively.
|
|
|
|
|
(3)
|
On December 26, 2019, the Company borrowed from the local government a loan of RMB 15.0 million, equivalent to approximately $2.1 million, with an interest rate of 3.48% per annum, which is due for repayment on December 25, 2020. Henglong pledged RMB 15.5 million, equivalent to approximately $2.2 million, of notes receivable as collateral for the loan (See Note 3).
|
|
|
|
|
(4)
|
On November 13, 2017, the Company borrowed from the local government a loan of RMB 2.0 million, equivalent to approximately $0.3 million, with an interest rate of 4.75% per annum, which was due for repayment on November 12, 2020. In the first quarter of 2020, the Company received a notice from the government that the loan was reclassified as government subsidy, so repayment was no longer required. As a result, the Company reduced the loan balance and recorded it as other income in the consolidated statements of operations for the three months ended March 31, 2020.
|
|
|
|
|
(5)
|
On August 7 and September 3, 2019, the Company borrowed from the local government loans of RMB 20.0 million and RMB 30.0 million, equivalent to approximately $2.8 million and $4.2 million, respectively. These loans are due for repayment on June 30, 2021 and have an interest rate of 3.80% per annum. Henglong pledged RMB 53.0 million, equivalent to approximately $7.5 million, of notes receivable as collateral for the local government loans (See Note 3).
|
The Company must use the loans for the
purpose as prescribed in the loan contracts. If the Company fails to do so, it will be charged penalty interest and/or trigger
early repayment. The Company complied with such financial covenants as of March 31, 2020, and management expects it will continue
to comply with them.
|
8.
|
Accounts and notes payable
|
The Company’s accounts and notes payable as of March 31,
2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Accounts payable - unrelated parties
|
|
$
|
100,367
|
|
|
$
|
110,246
|
|
|
Notes payable - unrelated parties (1)
|
|
|
57,009
|
|
|
|
69,929
|
|
|
Accounts and notes payable - unrelated parties
|
|
|
157,376
|
|
|
|
180,175
|
|
|
Accounts and notes payable - related parties
|
|
|
8,391
|
|
|
|
6,492
|
|
|
Total
|
|
$
|
165,767
|
|
|
$
|
186,667
|
|
|
(1)
|
Notes payable represent payables in the form of notes issued by the bank. As of March 31, 2020 and December 31, 2019, the Company has pledged cash of $24.4 million and $29.7 million, respectively, accounts and notes receivable of $2.3 million and $7.4 million, respectively, property, plant and equipment with net book value of $48.2 million and $50.9 million, respectively, and land use right with net book value of $5.4 million and $5.5 million, respectively, as collateral for banks to endorse the payment to the noteholder upon maturity.
|
|
9.
|
Accrued expenses and other payables
|
The Company’s accrued expenses and
other payables as of March 31, 2020 and December 31, 2019 are summarized as follows (figures are in thousands of USD):
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Accrued expenses
|
|
$
|
7,124
|
|
|
$
|
6,306
|
|
|
Accrued interest
|
|
|
437
|
|
|
|
104
|
|
|
Current portion of other long-term payable (See Note 10)
|
|
|
3,603
|
|
|
|
3,593
|
|
|
Other payables
|
|
|
3,312
|
|
|
|
2,427
|
|
|
Dividends payable to holders of non-controlling interests
|
|
|
430
|
|
|
|
-
|
|
|
Warranty reserves (1)
|
|
|
32,641
|
|
|
|
32,907
|
|
|
Total
|
|
$
|
47,547
|
|
|
$
|
45,337
|
|
|
(1)
|
The Company provides for the estimated cost of product warranties when the products are sold. Such estimates of product warranties are based on, among other things, historical experience, product changes, material expenses, services and transportation expenses arising from the manufactured products. Estimates will be adjusted on the basis of actual claims and circumstances.
|
For the three months ended March 31, 2020
and 2019, the warranties activities were as follows (figures are in thousands of USD):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance at beginning of the period
|
|
$
|
32,907
|
|
|
$
|
31,085
|
|
|
Additions during the period
|
|
|
3,428
|
|
|
|
2,776
|
|
|
Settlement within the period
|
|
|
(3,174
|
)
|
|
|
(2,294
|
)
|
|
Foreign currency translation (gain)/loss
|
|
|
(520
|
)
|
|
|
590
|
|
|
Balance at end of the period
|
|
$
|
32,641
|
|
|
$
|
32,157
|
|
|
10.
|
Other long-term payable
|
On January 31, 2018, the Company
entered into an equipment sales agreement with a third party (the “buyer-lessor”) and simultaneously entered into
a four-year contract to lease back the equipment from the buyer-lessor. The carrying value of the equipment was RMB 91.3
million (equivalent to $12.9 million as of March 31, 2020) and the sales price was RMB 100 million (equivalent to $14.1
million as of March 31, 2020). Pursuant to the terms of the contract, the Company is required to pay to the buyer-lessor
lease payments over 4 years with a quarterly lease payment of approximately $1.0 million and is entitled to obtain the
ownership of this equipment at a nominal price upon the expiration of the lease. The Company is of the view that the
transaction does not qualify as a sale. Therefore, the transaction was accounted for as a financing transaction by the
Company. As of March 31, 2020, $3.6 million was recognized as other payable (See Note 9) and $3.9 million was recognized as
other long-term payable to the buyer-lessor according to the contract term.
|
11.
|
Additional paid-in capital
|
The Company’s positions in respect
of the amounts of additional paid-in capital for the three months ended March 31, 2020 and 2019, are summarized as follows (figures
are in thousands of USD):
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance at beginning of the period
|
|
$
|
64,429
|
|
|
$
|
64,429
|
|
|
Acquisition of the non-controlling interest in USAI
|
|
|
(29
|
)
|
|
|
-
|
|
|
Balance at end of the period
|
|
$
|
64,400
|
|
|
$
|
64,429
|
|
Appropriated
Pursuant to the relevant PRC laws, the
profits distribution of the Company’s subsidiaries, which are based on their PRC statutory financial statements, are available
for distribution in the form of cash dividends after these subsidiaries have paid all relevant PRC tax liabilities, provided for
losses in previous years, and made appropriations to statutory surplus at 10% of their respective after-tax profits each year.
When the statutory surplus reserve reaches 50% of the registered capital of a company, no additional reserve is required. For the
three months ended March 31, 2020 and 2019, no statutory reserve was appropriated by the subsidiaries in China.
The Company’s activities in respect
of the amounts of appropriated retained earnings for the three months ended March 31, 2020 and 2019, are summarized as follows
(figures are in thousands of USD):
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance at beginning of the period
|
|
$
|
11,265
|
|
|
$
|
11,104
|
|
|
Balance at end of the period
|
|
$
|
11,265
|
|
|
$
|
11,104
|
|
Unappropriated
The Company’s activities in respect
of the amounts of the unappropriated retained earnings for the three months ended March 31, 2020 and 2019, are summarized as follows
(figures are in thousands of USD):
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance at beginning of the period
|
|
$
|
221,237
|
|
|
$
|
211,439
|
|
|
Cumulative effect of accounting change - credit loss
|
|
|
(789
|
)
|
|
|
-
|
|
|
Net income attributable to parent company
|
|
|
45
|
|
|
|
1,467
|
|
|
Balance at end of the period
|
|
$
|
220,493
|
|
|
$
|
212,906
|
|
|
13.
|
Accumulated other comprehensive income
|
The Company’s activities in respect
of the amounts of accumulated other comprehensive income for the three months ended March 31, 2020 and 2019, are summarized as
follows (figures are in thousands of USD):
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance at beginning of the period
|
|
$
|
(3,462
|
)
|
|
$
|
1,855
|
|
|
Foreign currency translation adjustment attributable to parent company
|
|
|
(4,597
|
)
|
|
|
5,906
|
|
|
Balance at end of the period
|
|
$
|
(8,059
|
)
|
|
$
|
7,761
|
|
|
14.
|
Treasury stock
|
|
|
|
Treasury stock represents shares repurchased by the Company that are no longer outstanding and are held by the Company. Treasury stock is accounted for under the cost method. On December 5, 2018, the Board of Directors of the Company approved a share repurchase program under which the Company was permitted to repurchase up to $5.0 million of its common stock from time to time in the open market at prevailing market prices not to exceed $4.00 per share through December 4, 2019. The Board of Directors of the Company approved the extension of such program to December 4, 2020. As of each of March 31, 2020 and December 31, 2019, the Company had cumulatively repurchased 1,164,257 shares of the Company’s common stock since the inception of the program. The repurchased shares are presented as “treasury stock” on the balance sheet.
|
|
15.
|
Non-controlling interests
|
The Company’s activities in respect
of the amounts of the non-controlling interests’ equity for the three months ended March 31, 2020 and 2019, are summarized
as follows (figures are in thousands of USD):
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Balance at beginning of the period
|
|
$
|
20,161
|
|
|
$
|
18,950
|
|
|
Net loss attributable to non-controlling interests
|
|
|
(533
|
)
|
|
|
(243
|
)
|
|
Acquisition of the non-controlling interest in USAI
|
|
|
29
|
|
|
|
-
|
|
|
Cumulative effect of accounting change - credit loss
|
|
|
(102
|
)
|
|
|
-
|
|
|
Dividends declared to non-controlling interest holders of non-wholly owned subsidiaries
|
|
|
(430
|
)
|
|
|
-
|
|
|
Foreign currency translation adjustment attributable to non-controlling interests
|
|
|
(364
|
)
|
|
|
457
|
|
|
Balance at end of the period
|
|
$
|
18,761
|
|
|
$
|
19,164
|
|
Revenue Disaggregation
Management has concluded that the disaggregation
level is the same under both the revenue standard and the segment reporting standard. Please refer to Note 24.
Contract Assets and Liabilities
Contract assets, such as costs to obtain
or fulfill contracts, are an insignificant component of the Company’s revenue recognition process. The majority of the Company’s
cost of fulfillment as a manufacturer of products is classified as inventory, fixed assets and intangible assets, which are accounted
for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial due to the nature of
the Company’s products and their respective manufacturing processes.
Contract liabilities are mainly
customer deposits. As of March 31, 2020 and December 31, 2019, the Company has customer deposits of $1.0 million and $1.3
million, respectively, which were included in other current liabilities on the consolidated balance sheets. During the three
months ended March 31, 2020, $0.3 million was received and $0.6 million (including $0.6 million from the beginning balance of
customer deposits) was recognized as net product sales revenue. Customer deposits represent non-refundable cash deposits for
customers to secure rights to an amount of products produced by the Company under supply agreements. When the products are
shipped to customers, the Company will recognize revenue and bill the customers to reduce the amount of the customer deposit
liability.
|
17.
|
Financial expense, net
|
During the three months ended March 31,
2020 and 2019, the Company recorded financial expense, net which is summarized as follows (figures are in thousands of USD):
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Interest income
|
|
$
|
351
|
|
|
$
|
764
|
|
|
Foreign exchange loss, net
|
|
|
(711
|
)
|
|
|
(1,250
|
)
|
|
Bank fees
|
|
|
(171
|
)
|
|
|
(179
|
)
|
|
Total financial expense, net
|
|
$
|
(531
|
)
|
|
$
|
(665
|
)
|
Income tax expense was $0.5 million and
$0.2 million for the three months ended March 31, 2020 and 2019, respectively. The increase in income tax expense was primarily
due to the increase in Hubei Henglong’s income before income tax expenses and equity in earnings of affiliated companies
Basic income per share is computed using
the weighted average number of ordinary shares outstanding during the period. Diluted income per share is computed using the weighted
average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. The dilutive effect of
outstanding stock options is determined based on the treasury stock method.
The calculations of basic and diluted income
per share attributable to the parent company for the three months ended March 31, 2020 and 2019, were as follows (figures are in
thousands of USD, except share and per share amounts):
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Net income attributable to the parent company’s common shareholders - Basic and Diluted
|
|
$
|
45
|
|
|
$
|
1,467
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
31,174,045
|
|
|
|
31,507,487
|
|
|
Dilutive effects of stock options
|
|
|
74
|
|
|
|
5,810
|
|
|
Denominator for dilutive income per share - Diluted
|
|
|
31,174,119
|
|
|
|
31,513,297
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to parent company’s common shareholders - Basic
|
|
$
|
-
|
|
|
$
|
0.05
|
|
|
Net income per share attributable to parent company’s common shareholders - Diluted
|
|
$
|
-
|
|
|
$
|
0.05
|
|
As of March 31, 2020 and 2019, the exercise
prices for 22,500 shares and 112,500 shares, respectively, of outstanding stock options were above the weighted average market
price of the Company’s common stock during the three months ended March 31, 2020 and 2019, respectively. Therefore, these
stock options were excluded from the calculation of the diluted income per share for the corresponding periods presented.
|
20.
|
Significant concentrations
|
A significant portion of the Company’s
business is conducted in China where the currency is the RMB. Regulations in China permit foreign owned entities to freely convert
the RMB into foreign currency for transactions that fall under the "current account", which includes trade related receipts
and payments, interest and dividends. Accordingly, the Company’s Chinese subsidiaries may use RMB to purchase foreign exchange
for settlement of such "current account" transactions without pre-approval.
China Automotive, the parent company, may
depend on dividend payments from Genesis and HLUSA, which are generated from their subsidiaries in China, “China-based Subsidiaries,”
after they receive payments from the China-based Subsidiaries. Regulations in the PRC currently permit payment of dividends of
a PRC company only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Under
PRC law China-based Subsidiaries are required to set aside at least 10% of their after-tax profit based on PRC accounting standards
each year to their general reserves until the cumulative amount reaches 50% of their paid-in capital. These reserves are not distributable
as cash dividends, or as loans or advances. These foreign-invested enterprises may also allocate a portion of their after-tax profits,
at the discretion of their boards of directors, to their staff welfare and bonus funds. Any amounts so allocated may not be distributed
and, accordingly, would not be available for distribution to Genesis and HLUSA.
The PRC government also imposes controls
on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currencies out of China. The China-based
Subsidiaries may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currencies.
If China Automotive is unable to receive dividend payments from its subsidiaries, including the China-based subsidiaries, China
Automotive may be unable to effectively finance its operations or pay dividends on its shares.
Transactions other than those that fall
under the "current account" and that involve conversion of RMB into foreign currency are classified as "capital
account" transactions; examples of "capital account" transactions include repatriations of investment by or loans
to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity. "Capital account" transactions
require prior approval from China's State Administration of Foreign Exchange, or SAFE, or its provincial branch to convert a remittance
into a foreign currency, such as U.S. Dollars, and transmit the foreign currency outside of China.
This system could be changed at any time
and any such change may affect the ability of the Company or its subsidiaries in China to repatriate capital or profits, if any,
outside China. Furthermore, SAFE has a significant degree of administrative discretion in implementing the laws and has used this
discretion to limit convertibility of current account payments out of China. Whether as a result of a deterioration in the Chinese
balance of payments, a shift in the Chinese macroeconomic prospects or any number of other reasons, China could impose additional
restrictions on capital remittances abroad. As a result of these and other restrictions under the laws and regulations of the People's
Republic of China, or the PRC, the Company’s China subsidiaries are restricted in their ability to transfer a portion of
their net assets to the parent. The Company has no assurance that the relevant Chinese governmental authorities in the future will
not limit further or eliminate the ability of the Company’s China subsidiaries to purchase foreign currencies and transfer
such funds to the Company to meet its liquidity or other business needs. Any inability to access funds in China, if and when needed
for use by the Company outside of China, could have a material and adverse effect on the Company’s liquidity and its business.
|
21.
|
Related party transactions and balances
|
Related party transactions are as follows (figures are in thousands
of USD):
Related sales
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Merchandise sold to related parties
|
|
$
|
7,494
|
|
|
$
|
12,836
|
|
|
Materials and others sold to related parties
|
|
|
270
|
|
|
|
461
|
|
|
Rental income obtained from related parties
|
|
|
77
|
|
|
|
80
|
|
|
Total
|
|
$
|
7,841
|
|
|
$
|
13,377
|
|
Related purchases
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Materials purchased from related parties
|
|
$
|
3,134
|
|
|
$
|
5,504
|
|
|
Equipment purchased from related parties
|
|
|
69
|
|
|
|
760
|
|
|
Others purchased from related parties
|
|
|
4
|
|
|
|
11
|
|
|
Total
|
|
$
|
3,207
|
|
|
$
|
6,275
|
|
Related receivables
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Accounts and notes receivable from related parties
|
|
$
|
13,625
|
|
|
$
|
21,164
|
|
|
|
|
|
|
|
|
|
|
|
Related advance payments
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Advance payments for property, plant and equipment to related parties
|
|
$
|
2,514
|
|
|
$
|
2,311
|
|
|
Advance payments and others to related parties
|
|
|
1,494
|
|
|
|
1,287
|
|
|
Total
|
|
$
|
4,008
|
|
|
$
|
3,598
|
|
Related payables
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Accounts and notes payable
|
|
$
|
8,391
|
|
|
$
|
6,492
|
|
These transactions were consummated under
similar terms as those with the Company's third party customers and suppliers.
As of June 23, 2020, Hanlin Chen, the chairman
of the board of directors of the Company, owns 57.3% of the common stock of the Company and has the effective power to control
the vote on substantially all significant matters without the approval of other stockholders.
|
22.
|
Commitments and contingencies
|
Legal proceedings
On January 7, 2019, three purported stockholders
of the Company filed a stockholder derivative complaint on behalf of the Company against the Company’s directors Hanlin Chen,
Qizhou Wu and Guangxun Xu and former directors Arthur Wong and Robert Tung in the Delaware Court of Chancery, alleging that they
had (a) breached their fiduciary duties by approving and paying excessive compensation to the non-employee directors of the Company,
Arthur Wong, Guangxun Xu and Robert Tung, and (b) failed to make full and accurate disclosure of all material information with
respect to director qualification and director compensation paid in 2017 in the Company’s annual proxy statement on Schedule
14A filed on October 10, 2018. The directors have engaged their own counsel to answer this complaint. On April 9, 2019, the Company
moved to dismiss the complaint. The motion to dismiss was denied on July 17, 2019. The directors of the Company will continue to
answer this complaint. Management expects the impact of the suit on the Company’s consolidated financial statements to be
immaterial.
Other than as described above, the
Company is not a party to any pending or, to the best of the Company’s knowledge, any threatened legal proceedings and
no director, officer or affiliate of the Company, or owner of record of more than five percent of the securities of the
Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a
material interest adverse to the Company in reference to pending litigation.
Other commitments and contingencies
In addition to the bank loans, notes payables
and the related interest, the following table summarizes the Company’s major commitments and contingencies as of March 31,
2020 (figures are in thousands of USD):
|
|
|
Payment obligations by period
|
|
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
Thereafter
|
|
|
Total
|
|
|
Obligations for investment contracts (1)
|
|
$
|
4,841
|
|
|
$
|
423
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,264
|
|
|
Obligations for purchasing and service agreements
|
|
|
21,225
|
|
|
|
1,229
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,454
|
|
|
Total
|
|
$
|
26,066
|
|
|
$
|
1,652
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
27,718
|
|
|
(1)
|
In March 2018, Hubei Henglong entered into
an agreement with other parties to establish a venture capital fund, the “Hubei Venture Fund”. Hubei Henglong has committed
to make investments of RMB 76.0 million, equivalent to approximately $11.5 million. In March 2020, Hubei Henglong entered into
an agreement with Jingzhou Henglong Real Estate Co., Ltd. to purchase 8.0% of the Hubei Venture Fund’s equity for nil consideration,
and Hubei Henglong has committed to increase its investments in Hubei Venture Fund to RMB 98.5 million, equivalent to approximately
$13.9 million. As of March 31, 2020, Hubei Henglong has made investments of RMB 78.8 million, equivalent to approximately $11.1
million, representing 35.2% of Hubei Venture Fund’s equity. According to the agreement, the remaining capital commitment
of RMB 19.7 million, equivalent to approximately $2.8 million, will be paid in 2020.
In April 2019, Hubei Henglong entered into
an agreement with other parties and committed to contribute RMB 5.0 million, equivalent to approximately $0.7 million, to Jiangsu
Intelligent Networking Automotive Innovation Center Co. Ltd., “Jiangsu Intelligent”, representing 19.2% of Jiangsu
Intelligent’s shares. As of March 31, 2020, Hubei Henglong has completed a capital contribution of RMB 3.0 million, equivalent
to approximately $0.4 million. According to the agreement, the remaining capital commitment of RMB 2.0 million, equivalent to approximately
$0.3 million, will be paid in 2020.
In November 2019, Hubei Henglong entered
into an agreement with other parties and committed to purchase 70% of the shares of Hefei Senye Light Plastic Technology Co., Ltd.
for total consideration of RMB 33.6 million, equivalent to approximately $4.8 million. As of March 31, 2020, Hubei Henglong
has paid the amount of RMB 18.0 million, equivalent to approximately $2.5 million, which was reported in other non-current assets
as the transfer of shares had not been consummated. According to the agreement, of the remaining consideration of RMB 15.6 million,
equivalent to approximately $2.2 million, $1.8 million will be paid in 2020 and the remaining $0.4 million will be paid in 2021.
|
|
23.
|
Off-balance sheet arrangements
|
As of March 31, 2020 and December 31, 2019,
the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet
arrangements.
The accounting policies of the
product sectors (each entity manufactures and sells different products and represents a different product sector) are the
same as those described in the summary of significant accounting policies disclosed in the Company’s 2019 Annual Report
on Form 10-K except that the disaggregated financial results for the product sectors have been prepared using a management
approach, which is consistent with the basis and manner in which management internally disaggregates financial information
for the purposes of assisting them in making internal operating decisions. Generally, the Company evaluates performance based
on stand-alone product sector operating income and accounts for inter-segment sales and transfers as if the sales or
transfers were to third parties, at current market prices. Each product sector is considered a reporting segment.
As of March 31, 2020, the Company had 14
product sectors, six of which were principal profit makers and were reported as separate sectors and engaged in the production
and sales of power steering (Henglong, Jiulong, Shenyang, Wuhu, Henglong KYB and Hubei Henglong), and one holding company (Genesis).
The other eight sectors were engaged in the production and sale of modular sensors (USAI), automobile steering columns (Jielong),
provision of after sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil
Henglong), manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie), research and development of intelligent
automotive technology (Jingzhou Qingyan) and manufacture and sales of automotive motors and electromechanical integrated systems
(Wuhan Hyoseong).
As of March 31, 2019, the Company had 13
product sectors, six of which were principal profit makers and were reported as separate sectors and engaged in the production
and sales of power steering (Henglong, Jiulong, Shenyang, Wuhu, Henglong KYB and Hubei Henglong), and one holding company (Genesis).
The other seven sectors were engaged in the production and sale of sensor modular (USAI), automobile steering columns (Jielong),
provision of after-sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil
Henglong), manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie) and research and development of
intelligent automotive technology (Jingzhou Qingyan).
The Company’s product sector information
for the three months ended March 31, 2020 and 2019, is as follows (figures are in thousands of USD):
|
|
|
Net Product Sales
|
|
|
Net (Loss)/Income
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
Henglong
|
|
$
|
23,907
|
|
|
$
|
40,964
|
|
|
$
|
(682
|
)
|
|
$
|
(2,121
|
)
|
|
Jiulong
|
|
|
12,759
|
|
|
|
22,122
|
|
|
|
(1,450
|
)
|
|
|
1,168
|
|
|
Shenyang
|
|
|
2,793
|
|
|
|
4,895
|
|
|
|
(170
|
)
|
|
|
(299
|
)
|
|
Wuhu
|
|
|
2,803
|
|
|
|
6,998
|
|
|
|
239
|
|
|
|
(175
|
)
|
|
Hubei Henglong
|
|
|
28,132
|
|
|
|
28,175
|
|
|
|
4,065
|
|
|
|
1,372
|
|
|
Henglong KYB
|
|
|
6,126
|
|
|
|
19,954
|
|
|
|
(907
|
)
|
|
|
(396
|
)
|
|
Other Entities
|
|
|
9,482
|
|
|
|
17,296
|
|
|
|
(1,795
|
)
|
|
|
1,455
|
|
|
Total Segments
|
|
|
86,002
|
|
|
|
140,404
|
|
|
|
(700
|
)
|
|
|
1,004
|
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
(301
|
)
|
|
Eliminations
|
|
|
(12,447
|
)
|
|
|
(31,211
|
)
|
|
|
273
|
|
|
|
521
|
|
|
Total
|
|
$
|
73,555
|
|
|
$
|
109,193
|
|
|
$
|
(488
|
)
|
|
$
|
1,224
|
|