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,
2017 and 2016
|
1.
|
Organization and business
|
China Automotive Systems, Inc., “China
Automotive,” was incorporated in the State of Delaware on June 29, 1999 under the name Visions-In-Glass, Inc. China Automotive,
including, when the context so requires, its subsidiaries and the joint ventures described below, is referred to herein as the
“Company.” The Company is primarily engaged in the manufacture and sale of automotive systems and components, as described
below.
Great Genesis Holdings
Limited, a company incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance in Hong Kong as a limited liability
company, “Genesis,” is a wholly-owned subsidiary of the Company.
Henglong USA Corporation, “HLUSA,”
incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and mainly engages in marketing
of automotive parts in North America, and provides after-sales service and research and development support accordingly.
The Company owns the following aggregate net
interests in the following Sino-foreign joint ventures, wholly-owned subsidiaries and joint ventures organized in the People's
Republic of China, the “PRC,” and Brazil as of June 30, 2017 and December 31, 2016.
|
|
Percentage Interest
|
|
Name of Entity
|
|
June 30,
2017
|
|
|
December 31,
2016
|
|
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
|
|
|
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
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
Beijing Hainachun Henglong Automotive Steering 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
|
|
|
95.84
|
%
|
|
|
80.00
|
%
|
Fujian Qiaolong Special Purpose Vehicle Co., Ltd., “Fujian Qiaolong”
12
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”
13
|
|
|
85.00
|
%
|
|
|
85.00
|
%
|
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”
14
|
|
|
100.00
|
%
|
|
|
100.00
|
%
|
|
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
the Testing Center, which mainly engages in the research and development of new products.
|
|
9.
|
Beijing Henglong was established in 2010 and mainly engages
in the design, development and manufacture of both hydraulic and electric power steering systems and parts. 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 using the equity accounting 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. 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.
|
|
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. On April 17, 2016, Hubei Henglong entered into a share purchase agreement, the “Share Purchase
Agreement”, with Longyan Huanyu Emergency Equipment Technology Co., Ltd., “Longyan Huanyu”. Pursuant to the
Share Purchase Agreement, Hubei Henglong transferred its 51% equity interests in Fujian Qiaolong to Longyan Huanyu for total consideration
of RMB 20.0 million, equivalent to $3.0 million, in the second quarter of 2016. The Company recognized a gain on disposal of Fujian
Qiaolong of $0.7 million, which is included in other income in the consolidated statement of operations and comprehensive income
for the year ended December 31, 2016.
|
|
13.
|
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.
|
|
14.
|
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.
|
|
2.
|
Basis of presentation and significant accounting policies
|
(a)
Basis of Presentation
Basis of Presentation – The accompanying
condensed unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The details of
subsidiaries are disclosed in Note 1. Significant inter-company balances and transactions have been eliminated upon consolidation.
The condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions in Article
10 of Regulation S-X. Accordingly they do not include all of the information and footnotes required by such accounting principles
for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements
and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
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, 2016 is derived from the Company’s audited financial statements at that date but does not include all of
the information and footnotes required by U.S. GAAP for complete financial statements.
Certain information and footnote disclosures
normally included in financial statements that have been prepared in accordance with U.S. GAAP have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission, although the Company’s management believes that the
disclosures contained in these financial statements are adequate to make the information presented herein not misleading. For further
information, please refer to the financial statements and the notes thereto included in the Company’s 2016 Annual Report
on Form 10-K, as filed with the Securities and Exchange Commission.
The results of operations for the three months
and six months ended June 30, 2017 are not necessarily indicative of the results of operations to be expected for the full fiscal
year ending December 31, 2017.
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
In January 2017, the FASB issued ASU 2017-04:
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement
of goodwill, the Board eliminated Step 2 from the goodwill impairment test. Under the amendments in this Update, an entity should
perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.
An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity
should apply the amendments in this Update on a prospective basis. An entity is required to disclose the nature of and reason for
the change in accounting principle upon transition. A public business entity that is a U.S. Securities and Exchange Commission
(SEC) filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years
beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. The adoption of this guidance is not expected to have a material effect on the Company's consolidated
financial statements.
In February 2017, the FASB issued ASU 2017-05:
Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. ASU 2017-05 is designed
to provide guidance on how to recognize gain and losses on sales, including partial sales, of nonfinancial assets to noncustomers.
ASU 2017-05 is effective beginning January 1, 2018. Early adoption is permitted but the standard is required to be adopted concurrently
with ASU 2014-09. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial
statements.
In May 2017, the FASB issued guidance within
ASU 2017-09: Scope of Modification Accounting. The amendments in ASU 2017-09 to Topic 718, Compensation - Stock Compensation,
provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification
accounting. An entity should account for the effects of a modification unless all of the following conditions are met: the fair
value of the modified award is the same as the fair value of the original award immediately before the original award is modified;
the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the
original award is modified; and the classification of the modified award as an equity instrument or a liability instrument is
the same as the classification of the original award immediately before the original award is modified. The amendments should
be applied prospectively to an award modified on or after the adoption date. The amendments are effective for annual periods,
and interim periods within those annual periods, beginning after December 31, 2017. Early adoption is permitted, including adoption
in any interim period. The adoption of this guidance is not expected to have a material impact on the Company's consolidated financial
statements.
(c)
Significant Accounting Policies
There have been no updates to the significant
accounting policies set forth in the notes to the consolidated financial statements for the year ended December 31, 2016.
|
3.
|
Short-term investments
|
Short-term investments comprise time deposits
with terms of three months or more which are 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 consolidated statements of income over the contractual term
of the deposits.
As of June 30, 2017, the Company had pledged
short-term investments of RMB 43.9 million, equivalent to approximately $6.5 million, to secure standby letters of credit under
HSBC Bank and China CITIC Bank (Note 13). The use of the pledged short-term investments is restricted.
|
4.
|
Accounts and notes receivable, net
|
The Company’s accounts and notes receivable
as of June 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accounts receivable - unrelated parties
|
|
$
|
147,556
|
|
|
$
|
154,403
|
|
Notes receivable - unrelated parties
(1) (2)
|
|
|
142,572
|
|
|
|
132,409
|
|
Total accounts and notes receivable- unrelated parties
|
|
|
290,128
|
|
|
|
286,812
|
|
Less: allowance for doubtful accounts - unrelated parties
|
|
|
(1,143
|
)
|
|
|
(1,081
|
)
|
Accounts and notes receivable, net - unrelated parties
|
|
|
288,985
|
|
|
|
285,731
|
|
Accounts and notes receivable, net - related parties
|
|
|
18,459
|
|
|
|
20,984
|
|
Accounts and notes receivable, net
|
|
$
|
307,444
|
|
|
$
|
306,715
|
|
|
(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 June 30, 2017, the Company collateralized its notes
receivable in an amount of RMB 247.5 million, equivalent to approximately $36.5 million, as security for the credit facilities
with banks in China and the Chinese government, including RMB 158.5 million, equivalent to approximately $23.4 million, in favor
of Industrial and Commercial Bank of China, Jingzhou Branch, “ICBC Jingzhou”, for the purpose of obtaining the Henglong
Standby Letter of Credit (as defined in Note 13), which is used as security for the non-revolving credit facility in the amount
of $23.4 million provided by Industrial and Commercial Bank of China (Macau) Limited, “ICBC Macau”, RMB 10.0 million,
equivalent to approximately $1.5 million, as security in favor of the Chinese government for the low interest government loan
(See Note 13), and RMB 79.0 million, equivalent to approximately $11.7 million, in favor of China CITIC Bank, Wuhan Branch, “CITIC
Wuhan”, for the purpose of obtaining the Henglong Standby Letter of Credit(as defined in Note 13), which was used to obtain
the facility of Taishin Bank in the amount of $10.0 million(See Note 13).
|
|
|
As of December 31, 2016, the Company collateralized its
notes receivable in an amount of RMB 249.9 million, equivalent to approximately $36.0 million, as security for the credit facilities
with banks in China and the Chinese government, including RMB 224.6 million, equivalent to approximately $32.4 million, in favor
of Industrial and Commercial Bank of China, Jingzhou Branch, “ICBC Jingzhou”, for the purpose of obtaining the Henglong
Standby Letter of Credit (as defined in Note 13), which is used as security for the non-revolving credit facility in the amount
of $30.0 million provided by Industrial and Commercial Bank of China (Macau) Limited, “ICBC Macau”, and RMB 25.2 million,
equivalent to approximately $3.6 million, as security in favor of the Chinese government for the low-interest government loan
(See Note 13).
|
|
5.
|
Advance payments and others
|
The Company’s advance payments and others as of June 30, 2017
and December 31, 2016 consisted of the following:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Advance payments and others - unrelated parties
|
|
$
|
8,523
|
|
|
$
|
10,203
|
|
Less: allowance for doubtful accounts – unrelated parties
|
|
|
(1,050
|
)
|
|
|
-
|
|
Advance payments and others, net – unrelated parties
|
|
|
7,473
|
|
|
|
10,203
|
|
Advance payments and others - related parties
(1)
|
|
|
30,558
|
|
|
|
624
|
|
Total advance payments and others
|
|
|
38,031
|
|
|
|
10,827
|
|
|
(1)
|
On March 16, 2017, in order to generate higher returns
for the Company’s idle cash, one of the Company's subsidiaries, Hubei Henglong, lent RMB 200.0 million (equivalent to $28.8
million) to Henglong Real Estate, one of the Company's related parties, through an independent financial institution by way of
an entrusted loan. The term of the loan is one year and the annual interest rate is 6.35%.
|
|
(2)
|
Provision for the doubtful accounts amounted to $1.1 million
and nil for the six months ended June 30, 2017 and 2016, respectively.
|
The Company’s inventories as of June 30, 2017 and December
31, 2016 consisted of the following (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Raw materials
|
|
$
|
16,069
|
|
|
$
|
15,007
|
|
Work in process
|
|
|
13,299
|
|
|
|
10,852
|
|
Finished goods
|
|
|
36,102
|
|
|
|
42,191
|
|
Total
|
|
$
|
65,470
|
|
|
$
|
68,050
|
|
Provision for inventories amounted to $2.1 million and $1.9 million
for the six months ended June 30, 2017 and 2016, respectively.
|
7.
|
Other receivables, net
|
The Company’s other receivables as of June 30, 2017 and December
31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Other receivables - unrelated parties
(1)
|
|
$
|
889
|
|
|
$
|
738
|
|
Other receivables - employee housing loans
(2)
|
|
|
1,388
|
|
|
|
1,577
|
|
Less: allowance for doubtful accounts - unrelated parties
|
|
|
(65
|
)
|
|
|
(63
|
)
|
Other receivables, net - unrelated parties
|
|
$
|
2,212
|
|
|
$
|
2,252
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Other receivables - related parties
(1)
|
|
$
|
565
|
|
|
$
|
559
|
|
Less: allowance for doubtful accounts - related parties
|
|
|
(565
|
)
|
|
|
(559
|
)
|
Other receivables, net - related parties
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(1)
|
Other receivables consist of amounts advanced to both related
and unrelated parties, primarily as unsecured demand loans. These receivables originate as part of the Company's normal operating
activities and are periodically settled in cash.
|
|
(2)
|
On May 28, 2014, the board of directors of the Company
approved a loan program under which the Company will lend an aggregate of up to RMB 50.0 million, equivalent to approximately
$7.4 million, to the employees of the Company to assist them in purchasing houses. Employees are required to pay interest at an
annual rate of 3.8%. These loans are unsecured and the term of the loans is generally five years.
|
|
8.
|
Long-term time deposits
|
Long-term time deposits are time deposits with
maturities of longer than one year. Time deposits with original maturities of longer than one year but due within the next 12 months
are included in short-term investments. As of June 30, 2017 and December 31, 2016, short-term investments include $4.8 million
and $4.8 million, respectively, of time deposits with original maturities of longer than one year but due within the next 12 months.
As of June 30, 2017 and December 31, 2016, the Company had pledged
long-term time deposits of RMB 6.0 million (equivalent to approximately $0.9 million) to secure loans under the credit facility
issued by ICBC Brazil. The use of the pledged long-term time deposits is restricted (See Note 13).
On January 24, 2010, the Company invested $3.1
million to establish a joint venture company, Beijing Henglong, with Hainachuan. The Company owns 50% of the equity in Beijing
Henglong and can exercise significant influence over Beijing Henglong’s operating and financial policies. The Company accounted
for Beijing Henglong’s operational results using the equity method. As of June 30, 2017 and December 31, 2016, the Company
had $4.0 million and $3.8 million, respectively, of net equity in Beijing Henglong.
On September 22, 2014, Hubei Henglong entered
into an agreement with other parties to establish a venture capital fund, the “Suzhou Venture Fund”, which mainly focuses
on investments in emerging automobiles and parts industries. Hubei Henglong has committed to make investments of RMB 50.0 million,
equivalent to approximately $7.2 million, in the Suzhou Venture Fund in three installments. As of June 30, 2017, Hubei Henglong
has completed a capital contribution of RMB 40.0 million, equivalent to approximately $5.9 million, representing 11.8% of the Suzhou
Venture Fund’s shares. As a limited partner, Hubei Henglong has more than virtually no influence over the Suzhou Venture
Fund’s operating and financial policies. The investment is accounted for using the equity method. As of June 30, 2017 and
December 31, 2016, the Company had $6.0 million and $5.3 million, respectively, of net equity in the Suzhou Venture Fund.
In May 2016, Hubei Henglong entered into an
agreement with other parties to establish a venture capital fund, the “Chongqing Venture Fund”. Hubei Henglong has
committed to make investments of RMB 120.0 million, equivalent to approximately $18.0 million, in the Chongqing Venture Fund in
three installments. As of June 30, 2017, Hubei Henglong has completed a capital contribution of RMB 48.0 million, equivalent to
approximately $7.1 million, representing 23.5% of the Chongqing Venture Fund’s shares. As a limited partner, Hubei Henglong
has more than virtually no influence over the Chongqing Venture Fund’s operating and financial policies. The investment is
accounted for using the equity method. As of June 30, 2017 and December 31, 2016, the Company had $6.9 million and $6.8 million,
respectively, of net equity in the Chongqing Venture Fund.
In October 2016, Hubei Henglong invested RMB
3.0 million, equivalent to approximately $0.4 million, to establish a joint venture company, Chongqing Jinghua Automotive Intelligent
Manufacturing Technology Research Co., Ltd., “Chongqing Jinghua”, with five other parties. The Company owns 30% of
the equity in Chongqing Jinghua, and can exercise significant influence over Chongqing Jinghua’s operating and financial
policies. The Company accounts for Chongqing Jinghua’s operational results with the equity method. As of June 30, 2017, the
Company had $0.3 million of net equity in Chongqing Jinghua.
The Company’s consolidated financial
statements reflect the net loss of non-consolidated affiliates of $0.01 million and net income of non-consolidated affiliates of
$0.3 million for the six months ended June 30, 2017 and 2016, respectively.
|
10.
|
Property, plant and equipment, net
|
The Company’s property, plant and equipment
as of June 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Land use rights and buildings
|
|
$
|
48,256
|
|
|
$
|
47,448
|
|
Machinery and equipment
|
|
|
144,148
|
|
|
|
134,361
|
|
Electronic equipment
|
|
|
5,438
|
|
|
|
4,979
|
|
Motor vehicles
|
|
|
4,542
|
|
|
|
4,395
|
|
Construction in progress
|
|
|
30,763
|
|
|
|
24,890
|
|
Total amount of property, plant and equipment
|
|
|
233,147
|
|
|
|
216,073
|
|
Less: Accumulated depreciation
(1)
|
|
|
(124,501
|
)
|
|
|
(114,595
|
)
|
Total amount of property, plant and equipment, net
(2)(3)
|
|
$
|
108,646
|
|
|
$
|
101,478
|
|
|
(1)
|
As of June 30, 2017 and December 31, 2016, the Company
pledged property, plant and equipment with a net book value of approximately $27.0 million and $28.5 million, respectively as
security for its comprehensive credit facilities with banks in China.
|
|
(2)
|
Depreciation charges were $3.6 million and $3.5 million
for the three months ended June 30, 2017 and 2016, respectively, and $7.7 million and $7.1 million for the six months ended June
30, 2017 and 2016, respectively.
|
|
(3)
|
Interest costs capitalized for the three months ended June
30, 2017 and 2016, were $0.2 million and $0.1 million, respectively, and $0.3 million and $0.2 million were capitalized for the
six months ended June 30, 2017 and 2016, respectively.
|
The Company’s intangible assets as of
June 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Costs:
|
|
|
|
|
|
|
|
|
Patent technology
|
|
$
|
2,034
|
|
|
$
|
1,986
|
|
Management software license
|
|
|
1,194
|
|
|
|
1,165
|
|
Total intangible assets
|
|
|
3,228
|
|
|
|
3,151
|
|
Less: Amortization
(1)
|
|
|
(2,684
|
)
|
|
|
(2,534
|
)
|
Total intangible assets, net
|
|
$
|
544
|
|
|
$
|
617
|
|
(1)
|
Amortization expenses were $0.1 million and $0.1 million for the three months ended June 30, 2017 and 2016, respectively, and $0.1 million and $0.2 million for the six months ended June 30, 2017 and 2016, respectively.
|
|
12.
|
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, 2017 and December 31, 2016 are as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Losses carry forward (U.S.)
(1)
|
|
$
|
6,188
|
|
|
$
|
6,216
|
|
Losses carry forward (Non-U.S.)
(1)
|
|
|
2,367
|
|
|
|
2,887
|
|
Product warranties and other reserves
|
|
|
4,646
|
|
|
|
4,766
|
|
Property, plant and equipment
|
|
|
4,453
|
|
|
|
4,204
|
|
Share-based compensation
|
|
|
247
|
|
|
|
247
|
|
Bonus accrual
|
|
|
187
|
|
|
|
231
|
|
Other accruals
|
|
|
1,432
|
|
|
|
1,551
|
|
Deductible temporary difference related to revenue recognition
|
|
|
96
|
|
|
|
191
|
|
Others
|
|
|
1,291
|
|
|
|
1,206
|
|
Total deferred tax assets, net
|
|
|
20,907
|
|
|
|
21,499
|
|
Less: Valuation allowance
|
|
|
(9,014
|
)
|
|
|
(8,912
|
)
|
Total deferred tax assets, net of valuation allowance
(2)
|
|
$
|
11,893
|
|
|
$
|
12,587
|
|
|
(1)
|
The net operating losses carry forward for the U.S. entities
for income tax purposes are available to reduce future years' taxable income. These carry forward losses will expire, if not utilized,
at various times over the next 20 years. Net operating losses carry forward for China entities can be carried forward for 5 years
to offset taxable income. However, as of June 30, 2017, the valuation allowance was $9.0 million, including $6.4 million allowance
for the Company’s deferred tax assets in the United States and $2.6 million 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 deferred tax assets in other countries, pursuant to
certain tax laws and regulations, management believes such amount will not be used to offset future taxable income.
|
|
(2)
|
Approximately $4.2 million and $4.6 million of net deferred
income tax assets as of June 30, 2017 and December 31, 2016, respectively, are included in non-current deferred tax assets in
the accompanying condensed unaudited consolidated balance sheets. The remaining $7.7 million and $6.6 million of net deferred
income tax assets as of June 30, 2017 and December 31, 2016, respectively, are included in current deferred tax assets.
|
|
13.
|
Bank and government loans
|
Loans consist of the following as of June 30, 2017 and December
31, 2016 (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Short-term bank loans
(1)
|
|
$
|
2,214
|
|
|
$
|
2,162
|
|
Short-term bank loans
(2) (3) (4) (5)
|
|
|
35,478
|
|
|
|
35,054
|
|
Short-term bank loans
(6)
|
|
|
28,211
|
|
|
|
-
|
|
Short-term government loan
(7)
|
|
|
1,476
|
|
|
|
3,604
|
|
Bank and government loans
|
|
$
|
67,379
|
|
|
$
|
40,820
|
|
|
(1)
|
These loans are secured by property, plant and equipment
of the Company and are repayable within one year (See Note 10). As of June 30, 2017 and December 31, 2016, the weighted average
interest rate was 5.2% and 5.2% per annum, respectively. Interest is to be paid monthly or quarterly on the twentieth day of the
applicable month or quarter and the principal repayment is at maturity.
|
|
(2)
|
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) one month before the expiry of the standby letter of credit obtained by Henglong from
ICBC Jingzhou as security for the Credit Facility, the “Henglong Standby Letter of Credit”. The interest rate of the
Credit Facility is calculated based on a three-month LIBOR plus 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
of 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 207.1 million, equivalent to approximately $32.6 million. The Company also paid an arrangement fee of $0.1 million to ICBC Macau and $0.1 million to ICBC Jingzhou. The original maturity date of the Credit Facility was May 22, 2013 and was extended to May 12, 2017. The interest rate of the Credit Facility under the extended term is three-month LIBOR plus 0.7% per annum. Except for the above, all other terms and conditions as stipulated in the Credit Agreement remained unchanged. As of December 31, 2016, the interest rate of the Credit Facility was 1.7% per annum.
|
|
On April 20, 2017, the Company entered into a credit facility
agreement, the “Credit Agreement,” with ICBC Macau to obtain a non-revolving credit facility in the amount of $20.0
million, the “Credit Facility”. The Credit Facility will expire on May 12, 2018 unless the Company draws down the
line of credit in full prior to such expiration date, and the maturity date for the loan drawdown is the earlier of (i) 12 months
from the date of drawdown or (ii) one month before the expiry of the standby letter of credit obtained by Henglong from ICBC Jingzhou
as security for the Credit Facility, the “Henglong Standby Letter of Credit”. The interest rate of the Credit Facility
is calculated based on a three-month LIBOR plus 1.30% per annum, subject to the availability of funds and fluctuation at ICBC
Macau’s discretion. Interest is calculated daily based on a 360-day year and it is fixed one day before the first day of
each interest period. The interest period is defined as three months from the date of drawdown. As security for the Credit Facility,
the Company was required to provide ICBC Macau with the Henglong Standby Letter of Credit for a total amount of not less than
$23.4 million if the Credit Facility is fully drawn.
|
On May 5, 2017, the Company drew down the full amount of $20.0 million under the Credit Facility and provided the Henglong Standby Letter of Credit for an amount of $23.4 million in favor of ICBC Macau. The Henglong Standby Letter of Credit issued by ICBC Jingzhou is collateralized by Henglong’s notes receivable of RMB 158.5 million, equivalent to approximately $23.4 million. The Company also paid an arrangement fee of $0.04 million to ICBC Jingzhou. The maturity date of the Credit Facility is May 12, 2018.
|
(3)
|
On April 25, 2017, Great Genesis entered into a credit
facility agreement, the “Taishin Bank Credit Facility”, with Taishin Bank to obtain a non-revolving credit facility
in the amount of $10.0 million. The Taishin Bank Credit Facility will expire on April 25, 2018 and has an annual interest rate
of 2.7%. Interest is paid quarterly and the principal repayment is payable at maturity. As security for the Taishin Bank Credit
Facility, the Company’s subsidiary Henglong was required to provide Taishin Bank with the Standby Letter of Credit for a
total amount of not less than $10.0 million if the Taishin Bank Credit Facility is fully drawn. On April 28, 2017, Great
Genesis drew down the full amount of $9.9 million under the Taishin Bank Credit Facility and provided the Henglong Standby Letter
of Credit for an amount of $10.0 million in favor of Taishin Bank. Henglong’s Standby Letter of Credit issued by China CITIC
Bank Wuchang branch is collateralized by Henglong’s short-term investments of RMB 4.0 million, equivalent to approximately
$0.6 million, and notes receivable of RMB 79.0 million, equivalent to approximately $11.7 million.
|
|
(4)
|
On July 16, 2014, Great Genesis entered into a credit facility agreement with HSBC HK to
obtain a non-revolving credit facility in the amount of $5.0 million, the “HSBC Credit Facility”. The HSBC
Credit Facility expired on July 1, 2015 and had an annual interest rate of 1.7%. Interest was paid on the twentieth day of
each month and the principal repayment was at maturity. As security for the HSBC Credit Facility, the Company’s
subsidiary Hubei Henglong was required to provide HSBC HK with the Standby Letter of Credit for a total amount of not less
than $5.4 million if the HSBC Credit Facility was fully drawn.
|
On July 22, 2014, Great Genesis
drew down a loan amounting to $5.0 million provided by HSBC HK and Hubei Henglong provided a Standby Letter of Credit for an amount
of $5.4 million in favor of HSBC HK. Hubei Henglong’s Standby Letter of Credit was issued by HSBC Bank (China) Company Limited
Wuhan branch and is collateralized by long-term time deposits of Hubei Henglong of RMB 33.0 million, equivalent to approximately
$4.8 million.
On July 7, 2016, HSBC HK agreed
to extend the maturity date of the HSBC Credit Facility to July 1, 2017. Hubei Henglong provided a Standby Letter of Credit in
an amount of $5.1 million in favor of HSBC HK. The Standby Letter of Credit was issued by HSBC Bank (China) Company Limited Wuhan
branch and was collateralized by short-term time deposits of Hubei Henglong of RMB 36.0 million, equivalent to approximately $5.2
million. The interest rate of the HSBC Credit Facility under the extended term was revised as three-month LIBOR plus 0.8% per
annum, i.e. 1.95% per annum. Except for the above, all other terms and conditions as stipulated in the Credit Agreement remained
unchanged.
|
(5)
|
On April 1, 2016, Brazil Henglong entered into a credit
facility agreement with HSBC Brazil to obtain a credit facility in the amount of $0.1 million, the “HSBC Brazil Credit Facility”.
The HSBC Brazil Credit Facility will expire on October 27, 2017. As security for the HSBC Credit Facility, the Company’s
subsidiary Hubei Henglong was required to provide HSBC Brazil with the Standby Letter of Credit for a total amount of $0.1 million
if the HSBC Brazil Credit Facility is fully drawn.
|
On May 6, 2016, Brazil Henglong
drew down a loan amounting to $0.1 million provided by HSBC Brazil. The loan will mature on October 9, 2017 and has an annual
interest rate of 8.2%. The principal and interest are paid each month. Hubei Henglong provided a Standby Letter of Credit for
an amount of $0.1 million in favor of HSBC Brazil. Hubei Henglong’s Standby Letter of Credit was issued by China CITIC Bank
Wuhan branch and is collateralized by short-term investments of Hubei Henglong of RMB 0.5 million, equivalent to approximately
$0.1 million.
On August 26, 2016, Brazil Henglong entered into a credit facility agreement with Bank of China (Brazil) to obtain a credit facility in the amount of $0.6 million, the “Bank of China Credit Facility”. The Bank of China Credit Facility will expire on January 15, 2018. As security for the Bank of China Credit Facility, the Company’s subsidiary Hubei Henglong was required to provide Bank of China (Brazil) with a Standby Letter of Credit for a total amount of $0.9 million if the Bank of China Credit Facility is fully drawn.
On August 26, 2016, Brazil Henglong
drew down a loan amounting to $0.6 million provided by Bank of China (Brazil). The loan will mature on January 15, 2018 and has
an annual interest rate of 3.9%. Interest is paid semiannually and the principal repayment is at maturity. Hubei Henglong provided
a Standby Letter of Credit for an amount of $0.9 million in favor of Bank of China (Brazil). Hubei Henglong’s Standby Letter
of Credit was issued by Bank of China Jingzhou branch and is collateralized by long-term time deposits of Hubei Henglong of RMB
6.0 million, equivalent to approximately $0.9 million.
|
(6)
|
On September 26, 2016, Henglong entered into a credit facility
agreement with China CITIC Bank to obtain credit facilities in the amount of $25.5 million, the “Henglong CITIC Credit Facility”.
The Henglong CITIC Credit Facility will expire on September 26, 2017. As security for the Henglong CITIC Credit Facility, Henglong’s
property, plant and equipment were pledged and Hubei Henglong provided a guarantee. On March 3, 2017, Henglong drew down loans
amounting to $4.7 million, $4.7 million and $4.4 million, respectively. The loans will mature on February 5, 6 and 7, 2018, respectively.
The annual interest rate of the loans is 4.99%. The principal and interest will be paid at maturity.
|
On September 26, 2016, Hubei Henglong
entered into a credit facility agreement with China CITIC Bank to obtain credit facilities in the amount of $15.0 million, the
“Hubei Henglong CITIC Credit Facility”. The Hubei Henglong CITIC Credit Facility will expire on September 26, 2017.
Henglong provided a guarantee for the Hubei Henglong CITIC Credit Facility. On March 3, 2017, Hubei Henglong drew down loans amounting
to $4.2 million, $ 4.2 million and $5.5 million, respectively. The loans will mature on February 2, 8 and 9, 2018, respectively.
The annual interest rate of the loans is 5.0%. The principal and interest will be paid at maturity.
|
(7)
|
On April 21, 2017, the Company received an interest-free
Chinese government loan of RMB 10.0 million, equivalent to approximately $1.5 million, which will mature on December 8, 2017.
Jiulong pledged RMB 10.0 million, equivalent to approximately $1.5 million, of notes receivable as security for the Chinese government
loan (See Note 4).
|
|
14.
|
Accounts and notes payable
|
The Company’s accounts and notes payable
as of June 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accounts payable - unrelated parties
|
|
$
|
134,325
|
|
|
$
|
138,053
|
|
Notes payable - unrelated parties
(1)
|
|
|
87,046
|
|
|
|
78,940
|
|
Accounts and notes payable - unrelated parties
|
|
|
221,371
|
|
|
|
216,993
|
|
Accounts payable - related parties
|
|
|
4,814
|
|
|
|
6,803
|
|
Balance at end of period
|
|
$
|
226,185
|
|
|
$
|
223,796
|
|
|
(1)
|
Notes payable represent accounts payable in the form of
notes issued by the Company. The notes are endorsed by banks to ensure that noteholders will be paid after maturity. The Company
has pledged cash deposits, short-term investments, notes receivable and certain property, plant and equipment to secure notes
payable granted by banks.
|
|
15.
|
Accrued expenses and other payables
|
The Company’s accrued expenses and other
payables as of June 30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accrued expenses
|
|
$
|
7,520
|
|
|
$
|
8,605
|
|
Accrued interest
|
|
|
577
|
|
|
|
88
|
|
Dividends payable to holders of non-controlling interests
(3)
|
|
|
608
|
|
|
|
-
|
|
Other payables
|
|
|
1,995
|
|
|
|
964
|
|
Warranty reserves
(1)
(2)
|
|
|
23,898
|
|
|
|
26,225
|
|
Total
|
|
$
|
34,598
|
|
|
$
|
35,882
|
|
|
(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.
|
|
(2)
|
In January 2017, the Company initiated two recalls related
to the Company’s products. The Company has accrued anticipated costs for handling the recalls amounting to $5.0 million
in warranty reserves for the year ended December 31, 2016.
|
|
(3)
|
In accordance with the resolution of the Board of Directors
of Shenyang, in the second quarter of 2017, Shenyang declared a dividend amounting to $2.0 million to its shareholders, of which
$0.6 million was payable to the holders of the non-controlling interests. As of June 30, 2017, the dividends have not been paid.
|
For the three months ended June 30, 2017 and
2016, the warranties activities were as follows (figures are in thousands of USD):
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
25,738
|
|
|
$
|
23,187
|
|
Additions during the period
|
|
|
3,680
|
|
|
|
1,945
|
|
Settlement within period, by cash or actual materials
|
|
|
(5,189
|
)
|
|
|
(4,505
|
)
|
Foreign currency translation (gain)/loss
|
|
|
(331
|
)
|
|
|
611
|
|
Balance at end of the period
|
|
$
|
23,898
|
|
|
$
|
21,238
|
|
For the six months ended June 30, 2017 and
2016, and for the year ended December 31, 2016, the warranties activities were as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
26,225
|
|
|
$
|
23,059
|
|
|
$
|
23,059
|
|
Additions during the period
|
|
|
6,756
|
|
|
|
3,740
|
|
|
|
16,522
|
|
Settlement within period, by cash or actual materials
|
|
|
(8,608
|
)
|
|
|
(6,056
|
)
|
|
|
(11,781
|
)
|
Foreign currency translation loss
|
|
|
(475
|
)
|
|
|
495
|
|
|
|
(1,575
|
)
|
Balance at end of the period
|
|
$
|
23,898
|
|
|
$
|
21,238
|
|
|
$
|
26,225
|
|
The Company’s taxes payable as of June
30, 2017 and December 31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Value-added tax payable
|
|
$
|
3,541
|
|
|
$
|
7,662
|
|
Income tax payable
|
|
|
1,428
|
|
|
|
3,390
|
|
Other tax payable
|
|
|
428
|
|
|
|
622
|
|
Total
|
|
$
|
5,397
|
|
|
$
|
11,674
|
|
As of June 30, 2017 and December 31, 2016, advances payable by the
Company were $0.7 million and $0.7 million, respectively.
The amounts are special subsidies made by the
Chinese government to the Company to offset the costs 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 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.
|
18.
|
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, 2017 and 2016, and the year ended December 31, 2016
are summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
64,764
|
|
|
$
|
64,627
|
|
|
$
|
64,627
|
|
Acquisition of the non-controlling interest in Brazil Henglong
(1)
|
|
|
(458
|
)
|
|
|
-
|
|
|
|
-
|
|
Share-based compensation
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
137
|
|
Balance at end of the period
|
|
$
|
64,306
|
|
|
$
|
64,627
|
|
|
$
|
64,764
|
|
|
(1)
|
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.
|
|
(2)
|
On December 2, 2016, the Company granted 22,500 stock
options to the Company’s independent directors, with the exercise price equal to the closing price of the Company’s
common stock traded on NASDAQ on the date of grant. The fair value of the stock options was determined at the date of grant using
the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions,
including expected term, expected volatility, risk-free rate and dividend yield. The expected term represents the period of time
that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including
the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical
volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual
life of stock-based compensation instruments. The dividend yield assumption is based on historical patterns and future expectations
for the Company’s dividends.
|
Assumptions used to estimate the fair value
of the stock options on the grant dates are as follows:
Issuance Date
|
|
|
Expected volatility
|
|
|
|
Risk-free rate
|
|
|
|
Expected term (years)
|
|
|
|
Dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2, 2016
|
|
|
134.8
|
%
|
|
|
1.84
|
%
|
|
|
5
|
|
|
|
0.00
|
%
|
The stock options granted during 2016 were
exercisable immediately. Their fair value on the grant date using the Black-Scholes option pricing model was $0.1 million. For
the year ended December 31, 2016, the Company recognized stock-based compensation expenses of $0.1 million.
Appropriated
Pursuant to the relevant PRC laws, the profits
distribution of the Company’s Sino-foreign subsidiaries, which are based on their PRC statutory financial statements, other
than the financial statement that was prepared in accordance with generally accepted accounting principles in the United States
of America, are available for distribution in the form of cash dividends after these subsidiaries have paid all relevant PRC tax
liabilities, provided for losses in previous years, and made appropriations to statutory surplus at 10%.
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 joint venture partners. Based on the business licenses of the PRC subsidiaries, the registered capital of Henglong, Jiulong,
Shenyang, USAI, 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), $2.6 million, $6.0 million, $3.8 million (equivalent to RMB 30.0 million), $39.0 million
and $9.5 million (equivalent to RMB 60.0 million), respectively.
The Company’s activities in respect of the amounts of appropriated
retained earnings for the six months ended June 30, 2017 and 2016, and the year ended December 31, 2016 are summarized as follows
(figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
10,549
|
|
|
$
|
10,379
|
|
|
$
|
10,379
|
|
Appropriation of retained earnings
|
|
|
124
|
|
|
|
142
|
|
|
|
170
|
|
Balance at end of the period
|
|
$
|
10,673
|
|
|
$
|
10,521
|
|
|
$
|
10,549
|
|
Unappropriated
The Company’s activities in respect of
the amounts of the unappropriated retained earnings for the six months ended June 30, 2017 and 2016, and the year ended December
31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
228,963
|
|
|
$
|
206,622
|
|
|
$
|
206,622
|
|
Net income attributable to parent company
|
|
|
14,635
|
|
|
|
11,073
|
|
|
|
22,511
|
|
Appropriation of retained earnings
|
|
|
(124
|
)
|
|
|
(142
|
)
|
|
|
(170
|
)
|
Balance at end of the period
|
|
$
|
243,474
|
|
|
$
|
217,553
|
|
|
$
|
228,963
|
|
|
20.
|
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, 2017 and 2016, and the year ended December
31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
(892
|
)
|
|
$
|
18,412
|
|
|
$
|
18,412
|
|
Other comprehensive income related to the non-controlling interests acquired by the Company
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment attributable to parent company
|
|
|
7,194
|
|
|
|
(6,060
|
)
|
|
|
(19,304
|
)
|
Balance at end of the period
|
|
$
|
6,235
|
|
|
$
|
12,352
|
|
|
$
|
(892
|
)
|
Treasury stock represents shares repurchased
by the Company that are no longer outstanding and are held by the Company. Treasury stock is accounted for under the cost method.
On December 18, 2015, the Board of Directors of the Company approved a share repurchase program under which the Company was permitted
to repurchase up to $5.0 million of its common stock from time to time in the open market at prevailing market prices or in privately
negotiated transactions through December 17, 2016. The repurchase program terminated on December 17, 2016. During the year ended
December 31, 2016, under the repurchase program, the Company repurchased 477,015 shares of the Company’s common stock for
cash consideration of $1.9 million on the open market. The repurchased shares are presented as “treasury stock” on
the balance sheet.
|
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, 2017 and 2016, and the year ended
December 31, 2016 are summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
Year Ended
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2016
|
|
Balance at beginning of the period
|
|
$
|
5,412
|
|
|
$
|
8,252
|
|
|
$
|
8,252
|
|
Income/(loss) attributable to non-controlling interests
|
|
|
184
|
|
|
|
(13
|
)
|
|
|
466
|
|
Dividends declared to the non-controlling interest holders of joint-venture companies (See Note 15)
|
|
|
(608
|
)
|
|
|
(464
|
)
|
|
|
(464
|
)
|
Acquisition of the non-controlling interest in Brazil Henglong
(1)
|
|
|
458
|
|
|
|
-
|
|
|
|
-
|
|
Other comprehensive income related to the non-controlling interests acquired by the Company
|
|
|
67
|
|
|
|
|
|
|
|
|
|
Non-controlling interests change due to the disposal of Fujian Qiaolong
|
|
|
-
|
|
|
|
(2,150
|
)
|
|
|
(2,150
|
)
|
Foreign currency translation adjustment attributable to non-controlling interests
|
|
|
249
|
|
|
|
(236
|
)
|
|
|
(692
|
)
|
Balance at end of the period
|
|
$
|
5,762
|
|
|
$
|
5,389
|
|
|
$
|
5,412
|
|
Gain on other sales mainly consisted of net
amount retained from sales of materials, property, plant and equipment, and scraps. For the six months ended June 30, 2017, gain
on other sales amounted to $5.3 million as compared to $2.0 million for the six months ended June 30, 2016, representing an increase
of $3.3 million. During the second quarter of 2017, the Company disposed of a building located in Jingzhou and recognized
a gain of $2.2 million.
|
24.
|
Financial income, net
|
During the six months ended June 30, 2017 and
2016, the Company recorded financial income, net which is summarized as follows (figures are in thousands of USD):
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(1,481
|
)
|
|
$
|
(1,342
|
)
|
Foreign exchange loss/(gain), net
|
|
|
242
|
|
|
|
548
|
|
Gain of cash discount, net
|
|
|
-
|
|
|
|
(3
|
)
|
Bank fees
|
|
|
357
|
|
|
|
327
|
|
Total financial income, net
|
|
$
|
(882
|
)
|
|
$
|
(470
|
)
|
The Company’s subsidiaries registered
in the PRC are subject to national 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, 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 non-resident enterprises without any establishment or place within China or if the dividends payable have
no connection with the establishment or place of the foreign investors within China, unless any such foreign investor’s jurisdiction
of incorporation has a tax treaty with China that provides for a different withholding arrangement.
Genesis, the Company’s wholly-owned subsidiary
and the direct holder of the equity interests in the Company’s subsidiaries in China, is incorporated in Hong Kong. According
to the Mainland China and Hong Kong Taxation Arrangement, dividends paid by a foreign-invested enterprise in China to its direct
holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5%, if the foreign investor directly
owns at least 25% of the shares of the foreign-invested enterprise. Under the New CIT, if Genesis is regarded as a non-resident
enterprise, it is required to pay an additional 5% withholding tax for any dividends payable to it from the PRC subsidiaries.
According to PRC tax regulation, the Company
should withhold income taxes for the profits distributed from the PRC subsidiaries to Genesis, the subsidiaries’ holding
company incorporated in Hong Kong. For the profits that the PRC subsidiaries intended to distribute to Genesis, the Company accrues
the withholding income tax as deferred tax liabilities. As of June 30, 2017, the Company has recognized deferred tax liabilities
of $0.2 million for the remaining undistributed profits to Genesis of $4.09 million. The Company intended to re-invest the remaining
undistributed profits generated from the PRC subsidiaries in those subsidiaries permanently. As of June 30, 2017 and December 31,
2016, the Company still had undistributed earnings of approximately $259.2 million and $239.8million, 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, 2017 and December 31, 2016 of approximately $13.0 million and
$12.0 million, respectively, would have been recorded. Such undistributed profits will be reinvested in Genesis and not further
distributed to the parent company incorporated in the United States going forward.
In 2014, Jiulong was awarded the title of “High
& New Technology Enterprise” and, based on the PRC income tax law, it is subject to enterprise income tax at a rate of
15% from 2014 to 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment
in 2017 and continue to qualify as “High & New Technology Enterprise”.
In 2014, Henglong was awarded the title of
“High & New Technology Enterprise” and, based on the PRC income tax law, it is subject to enterprise income tax
at a rate of 15% from 2014 to 2016. The Company estimated the applied tax rate in 2017 to be 15% as it is probable to pass the
re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.
In 2009, Shenyang was awarded the title of
“High & New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax
at a rate of 15% for 2009, 2010 and 2011. In 2012, the Company passed the re-assessment of the government based on PRC income tax
laws. Accordingly, it continued to be taxed at the 15% tax rate in 2012, 2013 and 2014. In 2015, the Company passed the re-assessment
of the government based on PRC income tax laws. Accordingly, it continues to be taxed at the 15% tax rate in 2015, 2016 and 2017.
In 2012, Wuhu was awarded the title of “High
& New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate
of 15% for 2013 and 2014. In 2015, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly,
it continues to be taxed at the 15% tax rate in 2015 and 2016. The Company estimated the applied tax rate in 2017 to be 15% as
it is probable to pass the re-assessment in 2017 and continue to qualify as “High & New Technology Enterprise”.
In 2013, Jielong was awarded the title of “High
& New Technology Enterprise” and, based on the PRC income tax law, it was subject to enterprise income tax at a rate
of 15% for 2013, 2014 and 2015. In 2016, the Company passed the re-assessment of the government based on PRC income tax laws. Accordingly,
it continues to be taxed at the 15% tax rate from 2016 to 2018.
In 2011, Hubei Henglong was awarded the title
of “High & New Technology Enterprise”. Based on the PRC income tax law, it was subject to enterprise income tax
at a rate of 15% for 2013. The Company has passed the re-assessment in 2014 and continues to qualify as a “High & New
Technology Enterprise”. Accordingly, it continues to be taxed at the 15% tax rate in 2014, 2015 and 2016. The Company estimated
the applied tax rate in 2017 to be 15% as it is probable to pass the re-assessment in 2017 and continue to qualify as “High
& New Technology Enterprise”.
According to the New CIT, USAI, Wuhan Chuguanjie,
Shanghai Henglong and Testing Center are subject to income tax at a rate of 25% in 2016 and 2017.
Chongqing Henglong was established in 2012.
According to the New CIT, Chongqing Henglong is subject to income tax at a uniform rate of 25%. No provision for Chongqing Henglong
is made as it had no assessable income for the six months ended June 30, 2017 and 2016.
Based on Brazilian income tax laws, Brazil
Henglong is subject to income tax at a uniform rate of 15%, and a resident legal person is subject to additional tax at a rate
of 10% for the part of taxable income over $0.12 million, equivalent to approximately BRL 0.24 million. The Company had no assessable
income in Brazil for the six months ended June 30, 2017 and 2016.
The profits tax rate of Hong Kong is 16.5%.
No provision for Hong Kong tax is made as Genesis is an investment holding company, and had no assessable income in Hong Kong for
the six months ended June 30, 2017 and 2016.
The enterprise income tax rate of the United
States is 35%. No provision for U.S. tax is made for CAAS and HLUSA as a whole, as the Company had no assessable income in the
United States for the six months ended June 30, 2017 and 2016.
The Company’s effective tax rate was
19.6% and 18.5% for the three months and six months ended June 30, 2017, respectively, compared with 18.4% and 17.2% for the three
months and six months ended June 30, 2016, respectively.
Basic income per share is computed using the
weighted average number of ordinary shares outstanding during the period. Diluted income per share is computed using the weighted
average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. The dilutive effect of
outstanding stock options is determined based on the treasury stock method.
The calculation of basic and diluted income
per share attributable to the parent company for the three months ended June 30, 2017 and 2016, was (figures are in thousands of
USD, except share and per share amounts):
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to the parent company’s common shareholders – Basic and Diluted
|
|
$
|
8,921
|
|
|
$
|
5,364
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
31,644,004
|
|
|
|
32,085,822
|
|
Dilutive effects of stock options
|
|
|
5,318
|
|
|
|
1,812
|
|
Denominator for dilutive income per share – Diluted
|
|
|
31,649,322
|
|
|
|
32,087,634
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to parent company’s common shareholders – Basic
|
|
$
|
0.28
|
|
|
$
|
0.17
|
|
Net income per share attributable to parent company’s common shareholders – Diluted
|
|
$
|
0.28
|
|
|
$
|
0.17
|
|
The calculation of basic and diluted income
per share attributable to the parent company for the six months ended June 30, 2017 and 2016, was (figures are in thousands of
USD, except share and per share amounts):
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income attributable to the parent company’s common shareholders – Basic and Diluted
|
|
$
|
14,635
|
|
|
$
|
11,073
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
31,644,004
|
|
|
|
32,103,420
|
|
Dilutive effects of stock options
|
|
|
5,611
|
|
|
|
2,191
|
|
Denominator for dilutive income per share – Diluted
|
|
|
31,649,615
|
|
|
|
32,105,611
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to parent company’s common shareholders – Basic
|
|
$
|
0.46
|
|
|
$
|
0.34
|
|
Net income per share attributable to parent company’s common shareholders – Diluted
|
|
$
|
0.46
|
|
|
$
|
0.34
|
|
As of June 30, 2017 and 2016, the exercise
prices for 82,500 shares and 82,500 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, 2017 and 2016, 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 Jingzhou 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, 2017,
the Company’s ten largest customers accounted for 56.7% of its consolidated net product sales, with one customer individually
accounting for more than 10% of consolidated net sales i.e., 13.2%. As of June 30, 2017, approximately 4.3% of accounts receivable
were from trade transactions with the aforementioned customer and there was no individual customer with a receivables balance of
more than 10% of total accounts receivable.
During the six months ended June 30, 2016,
the Company’s ten largest customers accounted for 69.4% of its consolidated net product sales, with two customers individually
accounting for more than 10% of consolidated net sales, i.e., 12.9% and 10.1%. As of June 30, 2016, approximately 3.3% and 2.7%
of accounts receivable were from trade transactions with the aforementioned two customers and there was no individual customer
with a receivables balance of more than 10% of total accounts receivable.
|
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,
|
|
|
|
2017
|
|
|
2016
|
|
Merchandise sold to related parties
|
|
$
|
8,583
|
|
|
$
|
10,054
|
|
Rental income obtained from related parties
|
|
|
32
|
|
|
|
38
|
|
Materials and others sold to related parties
|
|
|
510
|
|
|
|
457
|
|
Total
|
|
$
|
9,125
|
|
|
$
|
10,549
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Merchandise sold to related parties
|
|
$
|
18,120
|
|
|
$
|
18,639
|
|
Rental income obtained from related parties
|
|
|
46
|
|
|
|
69
|
|
Materials and others sold to related parties
|
|
|
811
|
|
|
|
680
|
|
Total
|
|
$
|
18,977
|
|
|
$
|
19,388
|
|
Related purchases
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Materials purchased from related parties
|
|
$
|
6,283
|
|
|
$
|
6,168
|
|
Technology purchased from related parties
|
|
|
-
|
|
|
|
227
|
|
Equipment purchased from related parties
|
|
|
1,412
|
|
|
|
1,015
|
|
Others purchased from related parties
|
|
|
93
|
|
|
|
110
|
|
Total
|
|
$
|
7,788
|
|
|
$
|
7,520
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Materials purchased from related parties
|
|
$
|
13,645
|
|
|
$
|
13,043
|
|
Technology purchased from related parties
|
|
|
-
|
|
|
|
227
|
|
Equipment purchased from related parties
|
|
|
4,424
|
|
|
|
3,530
|
|
Others purchased from related parties
|
|
|
216
|
|
|
|
375
|
|
Total
|
|
$
|
18,285
|
|
|
$
|
17,175
|
|
Loan transaction to a related party
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Related party loan
|
|
$
|
29,182
|
|
|
$
|
-
|
|
Related receivables
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accounts and notes receivable from related parties
|
|
$
|
18,459
|
|
|
$
|
20,984
|
|
Related advances and loan balance
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Advance payments for property, plant and equipment to related parties
|
|
$
|
3,361
|
|
|
$
|
5,005
|
|
Advance payments and others to related parties
|
|
|
30,558
|
|
|
|
624
|
|
Total
|
|
$
|
33,919
|
|
|
$
|
5,629
|
|
Related payables
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accounts and notes payable
|
|
$
|
4,814
|
|
|
$
|
6,803
|
|
These transactions were consummated under similar
terms as those with the Company's third party customers and suppliers.
As of August 10, 2017, Hanlin Chen, the Company’s
Chairman, owns 56.4% 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
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,
2017 (figures are in thousands of USD):
|
|
Payment obligations by period
|
|
|
|
2017
(1)
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
Thereafter
|
|
|
Total
|
|
Obligations for investment contracts
(1)(2)
|
|
|
6,790
|
|
|
$
|
5,314
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,104
|
|
Obligations for purchasing and service agreements
|
|
|
14,816
|
|
|
|
7,737
|
|
|
|
602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23,155
|
|
Total
|
|
$
|
21,606
|
|
|
$
|
13,051
|
|
|
$
|
602
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
35,259
|
|
|
(1)
|
On September 22, 2014, Hubei Henglong entered into an agreement
with other parties to establish the Suzhou Venture Fund, under which Hubei Henglong has committed to make investments of RMB 50.0
million, equivalent to approximately $7.6 million, into the Suzhou Venture Fund in three installments. As of June 30, 2017, Hubei
Henglong has completed a capital contribution of RMB 40.0 million, equivalent to approximately $5.9 million, representing 11.8%
of the Suzhou Venture Fund’s shares. According to the agreement, the remaining capital commitment of RMB 10.0 million, equivalent
to approximately $1.5 million, will be paid upon capital calls received from the Suzhou Venture Fund.
|
|
(2)
|
In May 2016, Hubei Henglong entered into an agreement with
other parties to establish a venture capital fund, the “Chongqing Venture Fund”. Hubei Henglong has committed to make
investments of RMB 120.0 million, equivalent to approximately $18.0 million, in the Chongqing Venture Fund in three installments.
As of June 30, 2017, Hubei Henglong has completed a capital contribution of RMB 48.0 million, equivalent to approximately $7.1
million, representing 23.5% of the Chongqing Venture Fund’s shares. According to the agreement, the remaining capital commitment
of RMB 72.0 million, equivalent to approximately $10.6 million, will be paid upon capital calls received from the Chongqing Venture
Fund.
|
|
30.
|
Off-balance sheet arrangements
|
As of June 30, 2017 and December 31, 2016, 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, 2017, the Company had 11 product
sectors, five of which were principal profit makers and were reported as separate sectors and engaged in the production and sales
of power steering (Henglong, Jiulong, Shenyang, Wuhu and Hubei Henglong), and one holding company (Genesis). The other six sectors
were engaged in the production and sale of sensor modular (USAI), automobile steering columns (Jielong), provision of after sales
and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong), and manufacture
and sales of automobile electronic systems and parts (Wuhan Chuguanjie). Since the revenues, net income and net assets of these
six sectors collectively are less than 10% of consolidated revenues, net income and net assets, respectively, in the condensed
unaudited consolidated financial statements, the Company incorporated these six sectors into “Other Sectors.”
As of June 30, 2016, the Company had 11 product
sectors, five of which were principal profit makers and were reported as separate sectors and engaged in the production and sales
of power steering (Henglong, Jiulong, Shenyang, Wuhu and Hubei Henglong), and one holding company (Genesis). The other six sectors
were engaged in the production and sale of sensor modular (USAI), automobile steering columns (Jielong), provision of after sales
and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), trade (Brazil Henglong), 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.”
The Company’s product sector information
for the three months and six months ended June 30, 2017 and 2016, is as follows (figures are in thousands of USD):
|
|
Net Product Sales
|
|
|
Net Income (Loss)
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Henglong
|
|
$
|
64,478
|
|
|
$
|
62,517
|
|
|
$
|
2,295
|
|
|
$
|
3,903
|
|
Jiulong
|
|
|
27,161
|
|
|
|
20,449
|
|
|
|
2,186
|
|
|
|
1,110
|
|
Shenyang
|
|
|
10,665
|
|
|
|
9,438
|
|
|
|
323
|
|
|
|
485
|
|
Wuhu
|
|
|
5,644
|
|
|
|
5,429
|
|
|
|
167
|
|
|
|
147
|
|
Hubei Henglong
|
|
|
23,896
|
|
|
|
14,525
|
|
|
|
2,249
|
|
|
|
1,581
|
|
Other Sectors
|
|
|
13,150
|
|
|
|
6,814
|
|
|
|
(43
|
)
|
|
|
(23
|
)
|
Total Segments
|
|
|
144,994
|
|
|
|
119,172
|
|
|
|
7,177
|
|
|
|
7, 203
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
3,211
|
|
|
|
(1,684
|
)
|
Eliminations
|
|
|
(27,334
|
)
|
|
|
(18,155
|
)
|
|
|
(1,507
|
)
|
|
|
(4
|
)
|
Total
|
|
$
|
117,660
|
|
|
$
|
101,017
|
|
|
$
|
8,881
|
|
|
$
|
5,515
|
|
|
|
Net Product Sales
|
|
|
Net Income (Loss)
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Henglong
|
|
$
|
135,312
|
|
|
$
|
138,411
|
|
|
$
|
5,614
|
|
|
$
|
9,618
|
|
Jiulong
|
|
|
49,447
|
|
|
|
37,189
|
|
|
|
3,576
|
|
|
|
1,136
|
|
Shenyang
|
|
|
18,669
|
|
|
|
16,659
|
|
|
|
785
|
|
|
|
538
|
|
Wuhu
|
|
|
11,752
|
|
|
|
10,808
|
|
|
|
97
|
|
|
|
75
|
|
Hubei Henglong
|
|
|
42,029
|
|
|
|
28,902
|
|
|
|
2,487
|
|
|
|
1,551
|
|
Other Sectors
|
|
|
25,861
|
|
|
|
17,969
|
|
|
|
599
|
|
|
|
430
|
|
Total Segments
|
|
|
283,070
|
|
|
|
249,938
|
|
|
|
13,158
|
|
|
|
13,348
|
|
Corporate
|
|
|
-
|
|
|
|
-
|
|
|
|
3,043
|
|
|
|
(2,125
|
)
|
Eliminations
|
|
|
(46,102
|
)
|
|
|
(32,067
|
)
|
|
|
(1,382
|
)
|
|
|
(163
|
)
|
Total
|
|
$
|
236,968
|
|
|
$
|
217,871
|
|
|
$
|
14,819
|
|
|
$
|
11,060
|
|