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China Automotive Systems Reports 2009 First Quarter Financial Results

Posted on: Tuesday, 12 May 2009, 05:00 CDT

WUHAN, Hubei, China, May 12 /PRNewswire-Asia/ -- China Automotive Systems, Inc., the "Company", (Nasdaq: CAAS), a leading power steering components and systems supplier in China, today announced its 2009 first quarter financial results for the period ended March 31, 2009.

-- First quarter 2009 net sales increased 7.8% year-over-year to $44.7 million; -- Net sales from steering components for passenger and light-duty vehicles increased 10.9% to $29.3 million; Net sales from steering components for commercial vehicles decreased to $9.7 million from $11.3 million; -- Income from operations was $7.1 million for the 2009 first quarter compared with $6.8 million in the 2008 first quarter; -- 2009 first quarter non-GAAP diluted EPS was $0.13 versus $0.18 in the 2008 first quarter, on 23.2% greater number of diluted shares outstanding in the 2009 first quarter; -- 2009 first quarter diluted EPS was $0.08 versus $0.18 in the 2008 first quarter, on 23.2% greater number of diluted shares outstanding in the 2009 first quarter; -- 2009 first quarter net cash flow from operations was $8.9 million compared with negative cash flow in the first quarter of 2008.

Mr. Qizhou Wu, Chief Executive Officer of the Company, commented, "China has continued to grow despite the global economic recession, and in January 2009, China became the largest automotive market in the world. First quarter vehicle sales were up almost 4% to over 2.6 million vehicles. This growth is in sharp contrast to other markets which continue to report deep declines in vehicle sales. To boost economic growth in China, the Chinese Government implemented a number of stimulus packages for the automotive and agricultural industries in the first quarter of 2009. Demand began to pick up for vehicles during the 2009 first quarter, and especially for smaller passenger vehicles affected by the reduction in sales tax and the Chinese Government's vehicle subsidy for the rural markets."

Total net sales for the first quarter of 2009 increased 7.8% to $44.7 million compared with $41.5 million in the first quarter of 2008, and compared with $38.3 million for the fourth quarter of 2008.

First quarter net sales for 2009 from steering products for passenger and light-duty vehicles increased by 10.9% year-over-year to $29.3 million compared with $26.4 million in the same quarter of 2008. Net sales from steering products for commercial vehicles for the first quarter of 2009 decreased 13.4% to $9.8 million year-over-year from the $11.3 million reported in the same quarter in 2008. Net sales from oil pumps and sensors for the 2009 first quarter increased 45.6% to $5.4 million from $3.7 million in the year ago quarter.

Gross profit for the first quarter of 2009 was $12.2 million compared with $12.2 million in the same quarter last year, and compared with $10.7 million in the fourth quarter of 2008. The gross margin was 27.3% for the three months ended March 31, 2009, a decrease of 2.2% from 29.5% in the similar period last year. The decline of the gross margin was mainly due to the higher sales volumes of lower-priced products.

Income from operations in the 2009 first quarter was $7.1 million compared with $6.8 million in the same quarter in 2008, and compared with $964,000 in the fourth quarter of 2008.

Pro forma net income was $4.2 million compared with $4.7 million in the first quarter of 2008. Pro forma diluted EPS was $0.13 in the first quarter of 2009 compared with $0.18 in the similar quarter in 2008, based on a 23.2% greater number of diluted shares outstanding in the 2009 quarter.

Net income for the 2009 first quarter was $2.3 million, or $0.08 per diluted share versus $4.4 million, or $ 0.18 per diluted share in the previous year's first quarter, based on a 23.2% greater number of diluted shares outstanding in the 2009 quarter.

Summary of Financial Results (US dollars except shares outstanding) For the Three Months Ended March 31, 2009 2008 Net income attributable to common shareholders $2,258,812 $4,430,174 Amortization related to convertible note discount 122,347 99,449 Interest expenses of convertible note 284,375 131,250 Loss on change in fair value of derivative 1,560,848 -- Pro forma Net Income 4,226,382 4,660,873 Adjustment to diluted EPS 0.05 -- Pro forma diluted EPS $0.13 $0.18 Diluted avg. number of common shares 31,947,823 25,936,500

Total cash and cash equivalents as of March 31, 2009 were $37.6 million compared with $37.1 million at December 31, 2008. Accounts receivable were $103.7 million at the end of the quarter. Through a strong cash management program, net cash flow from operations during the 2009 first quarter was $8.9 million compared with negative cash flow from operations for the first quarter last year. Stockholder's equity increased to $106.7 million.

Key Accomplishments in 2009 First Quarter:

On March 16, 2009, the Company announced that officials from the Hubei Provincial Government and the Hubei Provincial Ministry of Technology visited the Company's wholly owned subsidiary, Jingzhou Hengsheng Automotive System Co., Ltd., "Hengsheng". This subsidiary produces high-end products mainly focused to meet the stringent quality demands of Chinese joint ventures and the global export market. Equipped with state-of-the-art machine tools, assembly lines, and testing equipment in a 200,000 square meter facility, Hengsheng has a designed annual production capacity of 1.3 million units. As a wholly owned foreign enterprise, Hengsheng benefits from an income tax exemption through 2010 followed by preferential tax treatment (at a 15% rate) for the following 3 years thereafter.

On March 11, 2009, the Company announced that Shashi Jiulong Power Steering Gears Co., Ltd., "Jiulong", CAAS' subsidiary specializing in producing power steering systems for commercial vehicles in China, recovered its production to normal levels in February 2009 and expected to produce 45,000 units of power steering in March 2009, a new record for monthly production, in response to new orders.

On March 5, 2009 the Company announced that its subsidiary, Jingzhou Henglong Automotive Parts Co., Ltd., "Henglong", planned to have record monthly production of 85,000 power steering units for passenger vehicles in March 2009, and subsidiary Zhejiang Henglong & Vie Pump-Manufacturing Co. Limited, "WanAn", matched its record daily production rate of 1,600 units following the Chinese New Year in response to a large number of new orders.

On February 17, 2009, the Company announced that its subsidiary, Wuhu HengLong Automotive Steering System Co., Ltd., "Wuhu", won two awards from China's leading independent domestic auto maker, Chery Automobile Co., Ltd., "Chery Auto". Chery Auto hosted over 500 domestic and foreign suppliers and Chery Auto honored Wuhu as the "Best Core Supplier" and the "Best Auto Component Supplier" at the ceremony. The Company supplied approximately 75% of the power steering units used by Chery Auto in 2008. Sales to Chery Auto represented approximately 16% of the Company's total revenues.

On January 26, 2009, the Company announced that the ERP system of its subsidiary and joint venture with Chery Auto, Wuhu, has been recognized as one of the key science and technology projects in Wuhu City. As one of the best ERP systems, Wuhu received a technology grant from the local government.

On January 12, 2009, the Company announced that it was recognized as one of the 100 "Best Enterprises" and Mr. Hanlin Chen was named as one of the 10 "Best Entrepreneurs" by Jinzhou City.

Recent Developments

On April 14, 2009, the Company announced that the R&D center of Henglong had evolved into the leading automotive steering technology research operation in China, as the Company enters the global steering market. Since 2006, the R&D center developed 28 power steering-related national patents including 2 invention and 26 utility model patents. New products have been manufactured by the Company for more than 20 domestic and foreign automotive OEMs, and sales totaled over RMB 847 million by the end of 2008. Among new steering being developed are: low-noise power steering technology, stabilizing power steering valves, electric power steering (EPS), electronically controlled hydraulic power steering (EHPS), and other innovative technologies. The R&D center also develops proprietary manufacturing equipment and processes.

On April 7, 2009, the Company's subsidiaries, Henglong and Jiulong, were recognized as High-Tech Enterprises by the Chinese Government, which qualified the two subsidiaries for a preferential income tax rate of 15% through 2011. Henglong and Jiulong were the two largest contributors to revenues and together, provided over $12 million of net income in 2008.

2009 Outlook

Based on current operating and market expectations, management anticipates that revenue growth will be between 10-15% for the 2009 year. These current expectations are subject to change at any time.

Mr. Hanlin Chen, Chairman of the Company said, "We believe that the stimulus will continue to generate growth in the Chinese market and it has been reported that the Chinese Association of Automobile Manufacturers (CAAM) has increased its growth outlook for vehicle sales from 5% to 8.7% for the 2009 year. Many of our key customers such as Chery Auto, Geely and in particular BYD and ChangAn, are benefiting from the high demand for small, fuel-efficient cars in the tier 2 to tier 4 cities and townships. On the commercial vehicle side, in late March, we saw healthy recovery as the large- scale government stimulus efforts have boosted continued infrastructure construction. Also, truck sales started to revive, as National 3 engine products are gradually coming into the marketplace. In response to the turning market, we have leveraged our excellent R&D capabilities to quickly introduce more new products to address the needs of the latest vehicle models and automotive technologies entering into the marketplace. We remain cautiously optimistic for the short term. Our long-term goals remain to maintain market leadership and strengthen our relationships with OEMs."

Conference Call

Management will conduct a conference call today at 8:00 a.m. Eastern Daylight Time to discuss these results. A question and answer session will follow management's presentation. To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the "China Automotive Systems" conference call:

Phone Number: +1-877-407-9205 (North America)

Phone Number: +1-201-689-8054 (International)

In addition, the conference call will be broadcast live over the Internet at: http://www.caasauto.com

Please go to the web site at least 15 minutes early to register, download and install any necessary software.

A telephone replay of the call will be available after the conclusion of the conference call through 11:59 PM Eastern Daylight Time on Tuesday, May 26, 2009. The dial-in details for the replay are: U.S. Toll Free Number +1-877-660-6853, International dial-in number +1-201-612-7415; using Account "286" and Conference ID "322107" to access the replay. The internet audio stream will also be available until 11:59 pm Eastern Daylight Time on Tuesday, May 26.

About China Automotive Systems, Inc.

Based in Hubei Province, People's Republic of China, China Automotive Systems, Inc. is a leading supplier of power steering components and systems to the Chinese automotive industry, operating through eight Sino-foreign joint ventures. The Company offers a full range of steering system parts for passenger automobiles and commercial vehicles. The Company currently offers 4 separate series of power steering and 307 models of power steering with an annual production capacity of over 1.5 million sets, steering columns, steering oil pumps and steering hoses. Its customer base is comprised of leading Chinese auto manufacturers such as China FAW Group, Corp., Dongfeng Auto Group Co., Ltd., Brilliance China Automotive Holdings Ltd., Beiqi Foton Motor Co., Ltd. and Chery Automobile Co., Ltd., etc. For more information, please visit: http://www.caasauto.com

Safe Harbor Statement

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward- looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning the Company's operations, financial performance and condition, and the impact of acquisitions on its financial performance. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. The Company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others, the impact of competitive products, pricing and new technology; changes in demand for the Company's products; changes in consumer preferences and tastes; and effectiveness of marketing; changes in laws and regulations; fluctuations in costs of production, delays and cost overruns related to developing and opening new production facilities; the continued growth of the Chinese economy and the domestic automotive industry, and other factors as those discussed in the Company's reports filed with the Securities and Exchange Commission from time to time.

For further information, please contact: Jie Li Chief Financial Officer China Automotive Systems Email: jieli@chl.com.cn Kevin Theiss Investor Relations Grayling Tel: +1-646-284-9409 Email: ktheiss@hfgcg.com --Tables Follow-- Condensed Consolidated Statements of Operations (Unaudited, US dollars) Three Months Ended March 31, 2009 2008 Net product sales, including $559,011 and $2,051,082 to related parties at March 31, 2009 and 2008 $44,697,446 $41,467,043 Cost of product sold, including $2,126,737 and $1,952,390 purchased from related parties at March 31, 2009 and 2008 32,499,615 29,254,673 Gross profit 12,197,831 12,212,370 Add: Gain on other sales 66,879 134,190 Less: Operating expenses- Selling expenses 2,359,166 2,475,341 General and administrative expenses 1,801,702 1,616,150 R&D expenses 439,922 175,678 Depreciation and amortization 571,413 1,294,727 Total Operating expenses 5,172,203 5,561,896 Income from operations 7,092,507 6,784,664 Add: Other income, net -- 199,459 Financial income (expenses) net (439,480) 20,693 Gain (loss) on change in fair value of derivative (1,560,848) -- Income before income taxes 5,092,179 7,004,816 Less: Income taxes 1,449,670 824,395 Net income 3,642,509 6,180,421 Net income attributable to noncontrolling interest 1,383,697 1,750,247 Net income attributable to common shareholders 2,258,812 4,430,174 Net income per common share- Basic and diluted $0.08 $0.18 Weighted average number of common shares outstanding - Basic 26,983,244 23,959,702 Diluted 31,947,823 25,936,500 Condensed Consolidated Balance Sheets US dollars March 31, 2009 December 31, 2008 (Unaudited) (audited) ASSETS Current assets: Cash and cash equivalents $ 37,585,291 $ 37,113,375 Pledged cash deposits 7,840,724 6,739,980 Accounts and notes receivable, net, Including $1,583,182 and $1,285,110 from related parties at March 31, 2009 and December 31, 2008 103,671,922 96,424,856 Advance payments and other, including $349,320 and $9,374 to related parties at March 31, 2009 and December 31, 2008 2,221,351 1,442,614 Inventories 27,945,742 26,571,755 Total current assets $ 179,265,030 $ 168,292,580 Long-term Assets: Property, plant and equipment, net $ 55,945,266 $ 51,978,905 Intangible assets, net 745,474 504,339 Other receivables, net, including $743,209 and $903,674 from related parties at March 31, 2009 and December 31, 2008 1,439,303 1,349,527 Advance payments for property, plant and equipment, including $1,442,579 and $2,473,320 to related parties at March 31, 2009 and December 31, 2008 4,659,474 6,459,510 Long-term investments 78,995 79,010 Deferred income tax assets 2,270,161 2,383,065 Total assets $ 244,403,703 $ 231,046,936 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank loans $ 5,120,028 $ 7,315,717 Accounts and notes payable, including $1,522,755 and $1,097,642 to related parties at March 31, 2009 and December 31, 2008 66,304,165 59,246,043 Convertible notes payable, net, including discount of convertible note payable at March 31, 2009 33,044,424 32,922,077 Derivative liabilities 3,065,422 1,502,597 Customer deposits 516,736 236,018 Accrued payroll and related costs 2,805,411 2,715,116 Accrued expenses and other payables 13,066,626 12,460,784 Accrued pension costs 3,714,541 3,806,519 Taxes payable 9,495,915 5,717,438 Amounts due to shareholders/directors 337,272 337,370 Total current liabilities $ 137,470,540 $ 126,259,679 Long-term liabilities: Advances payable 233,679 234,041 Total liabilities $ 137,704,219 $ 126,493,720 Related Party Translations -- Commitments and contingencies -- Stockholders' equity: Preferred stock, $0.0001 par value - Authorized - 20,000,000 shares Issued and outstanding - None $ -- $ -- Common stock, $0.0001 par value - Authorized - 80,000,000 Shares Issued and Outstanding - 26,983,244 shares at March 31, 2009 and December 31, 2008, respectively 2,698 2,698 Additional paid-in capital 27,148,206 27,148,206 Retained earnings- Appropriated 7,702,835 7,525,777 Unappropriated 38,108,270 36,026,516 Deferred stock compensation (500,052) (500,052) Accumulated other comprehensive income 11,117,342 11,127,505 Minority interests 23,120,185 23,222,566 Total stockholders' equity $ 106,699,484 $ 104,553,216 Total liabilities and stockholders' equity $ 244,403,703 $ 231,046,936 Condensed Consolidated Statements of Cash Flows (Unaudited, US dollars) Three Months Ended March 31, 2009 2008 Cash flows from operating activities: Net income $ 3,642,509 $ 6,180,421 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 2,026,816 2,315,922 Allowance for doubtful accounts (Recovered) (650,590) (632,095) Deferred income taxes assets 112,451 (109,320) Amortization for discount of convertible note payable 122,347 99,449 (Gain) loss on change in fair value of derivative 1,560,848 -- Other operating adjustments (1,235) (16,769) Changes in operating assets and liabilities: (Increase) decrease in: Pledged deposits (1,102,026) (596,632) Accounts and notes receivable (6,482,746) (10,110,607) Advance payments and other (779,328) (1,388,073) Inventories (1,379,040) (1,674,877) Accounts and notes payable 7,069,389 5,328,884 Customer deposits 280,763 (19,651) Accrued payroll and related costs 90,811 (93,253) Accrued expenses and other payables 690,931 (29,553) Accrued pension costs (91,254) 253,894 Taxes payable 3,779,564 218,004 Net cash provided by (used in) operating activities $ 8,890,210 $ (274,256) Cash flows from investing activities: (Increase) decrease in other receivables (111,395) (427,014) Cash received from equipment sales 34,020 -- Cash paid to acquire property, plant and equipment (4,296,391) (2,999,504) Cash paid to acquire intangible assets (292,573) (99,672) Net cash (used in) investing activities $(4,666,339) $(3,526,190) Cash flows from financing activities: (Decrease) in proceeds from bank loans (2,194,298) (712,353) Dividends paid to the minority interest holders of Joint-venture companies (1,550,637) (712,352) (Decrease) in amounts due to shareholders/directors -- (70,294) Proceeds from issuance of convertible note payable -- 35,000,000 Net cash provided by (used in) financing activities $(3,744,935) $33,505,001 Cash and cash equivalents effected by foreign currency $ (7,020) $ 770,308 Net increase (decrease) in cash and cash equivalents 471,916 30,474,863 Cash and cash equivalents at beginning of period 37,113,375 19,487,159 Cash and cash equivalents at end of period $37,585,291 $49,962,022

SOURCE China Automotive Systems, Inc.

Source: PR Newswire

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