ZHEJIANG, China, November 14, 2014 /PRNewswire/ — SORL Auto Parts, Inc. (NASDAQ: SORL) (“SORL” or the “Company”), a leading manufacturer and distributor of automotive brake systems as well as other key safety-related auto parts in China, announced today its unaudited financial results for the third quarter of 2014 and the first nine months ended September 30, 2014.

Third Quarter 2014 Financial Highlights

  • Net Sales increased 7.7% to $58.7 million in the third quarter of 2014 year-over-year;
  • Aftermarket sales rose 31.5% compared to the aftermarket sales in the third quarter of 2013;
  • Gross margin was 26.3% compared to 28.3% in the same period of 2013;
  • Net Income attributable to stockholders was $2.9 million, or $0.15 per diluted share;
  • Cash and cash equivalents increased to $37.9 million with a current ratio of 4.1 to 1 at September 30, 2014;
  • Annual guidance was reiterated for sales of $230 million and net income of $13.0 million.

Mr. Xiaoping Zhang, SORL’s Chief Executive Officer and Chairman, stated, “We continue to capture market share in the domestic Chinese market as we grew by 16.4% in the 2014 third quarter compared with a decline in commercial vehicle sales of 13.2% and with trucks sales declining by 21.3%. Our OEM and aftermarket sales continued to increase as our growing portfolio of advanced products address the needs of a greater range of vehicles. This expanding competitive advantage positions us to capture additional domestic market share in the future through greater penetration of current markets and expansion into new market segments.”

“The advanced features, high quality and low cost of our products developed by our research and development program, are increasingly recognized through greater sales in the domestic aftermarket and OEM markets. We continue to focus on areas with government public transportation support such as increased sales into the domestic bus market, infrastructure projects and the ongoing expansion of the highway and railway systems. Exports are growing in certain markets, but slow economic growth in Europe, especially in the Ukraine, caused an overall decline in our exports. We remain well positioned to take advantage of any strength in the European markets.”

Ms. Jinrui Yu, SORL’s Chief Operating Officer, commented, “We maintain a strong balance sheet to provide the resources to support our current operations and finance our future growth. Our investment in research and development has provided the upgrades and new products to enhance our customer relationships with a large portfolio of advanced products. New production equipment enhances our productivity to keep unit costs under control. More efficient manufacturing of advanced products will help maintain gross margins and cash flow.”

Third Quarter 2014 Financial Performance

For the third quarter of 2014, net sales increased by 7.7% to $58.7 million from $54.5 million in the third quarter of 2013. Revenues from the Company’s domestic OEM customers increased by 7.8% to $24.0 million from $22.3 million in the third quarter of 2013. Sales from China’s domestic aftermarket rose 31.5% to $17.2 million in the third quarter of 2014 from $13.1 million in the same quarter of 2013. Revenues from international markets declined to $17.5 million, compared to $19.1 million in the third quarter of 2013, mainly due to lower sales in Europe.

SORL’s commercial vehicle brake sales increased by 11.1% to $48.1 million, which represented 82.0% of total sales in the third quarter of 2014, compared to the commercial vehicle brake sales in the third quarter in 2013. This sales growth improved SORL’s leading market share in China as unit sales in the commercial vehicle market declined by 13.2% and truck market unit sales decreased by 21.3% in the third quarter of 2014, compared to the sales in the commercial vehicle market and truck market unit sales in the same quarter last year, respectively. Advanced new products and upgraded products have enhanced the Company’s ability to supply a larger number of vehicles to capture greater market share in the commercial vehicle market. The Company’s passenger vehicle brake sales declined slightly to $10.6 million in the third quarter of 2014, compared with sales of $11.2 million in the third quarter of 2013.

The gross profit for the third quarter of 2014 increased slightly to $15.5 million from $15.4 million for the third quarter of 2013. Gross margin for the third quarter of 2014 was 26.3%, compared with a gross margin of 28.3% in the same quarter of 2013, which is primarily due to new product promotions initiated during the third quarter of 2014.

Operating expenses increased to $11.9 million in the third quarter of 2014 from $11.4 million in the third quarter of 2013. The increase in operating expenses in the third quarter of 2014 mainly reflected higher selling and distribution expenditures due to higher freight and packaging expenses, and an increase in administrative fees. As a percentage of revenue, operating expenses were 20.2% in the third quarter of 2014, compared with 20.8% in the third quarter of 2013.

  • Selling and distribution expenses were $5.9 million, or 10.0% of quarterly revenues, compared with $5.3 million, or 9.7% in the same quarter of 2013. Higher expenses were primarily due to higher packaging and freight expenses during the third quarter of 2014.
  • General and administrative (“G&A”) expenses in the third quarter of 2014 were $3.8 million, or 6.4% of revenue, compared with $3.7 million, or 6.8% in the third quarter of 2013. The increase in expenses was mainly due to higher personnel and administrative expenses in the third quarter of 2014.
  • Research and development (“R&D”) expenses were $2.2 million in the third quarter of 2014 compared with $2.4 million in the third quarter of 2013. As a percentage of revenue, R&D was 3.8% in the third quarter of 2014, compared with 4.4% of revenue in the third quarter of 2013. The R&D program continues to mainly focus on the development of new, higher-margin, electronically controlled mechatronic products and upgrading the Company’s traditional brake products to capture greater market share.

Financial expenses were $634,282 in the third quarter of 2014 compared to $770,418 in the third quarter of 2013, primarily due to reduced interest expense related to bank loans, and discounted bank and trade acceptance notes.

Income before provision for income taxes was $3.6 million for the third quarter of 2014 compared to $4.1 million for the third quarter of 2013. The slightly lower income was primarily due to higher operating expenses and reduced other operating income in the third quarter of 2014 compared with the third quarter of 2013. The pretax income margin was 6.1% in the third quarter of 2014, compared with 7.5% in the third quarter of 2013.

The provision for income taxes was $0.4 million, or a 11.0% tax rate, in the third quarter of 2014, which is compared with $0.3 million, or a 8.2% tax rate, in the third quarter in 2013.

Net income attributable to stockholders for the third quarter of 2014 was $2.9 million, or $0.15 per basic and diluted share, compared with $3.3 million, or $0.17 on per basic and diluted share, in the third quarter of 2013.

First Nine Months 2014 Financial Performance

Net sales for the first nine months of 2014 increased 13.8% to $174.4 million from $153.3 million for the first nine months of 2013, as each segment experienced growth in the period. Revenues from the Company’s China OEM customers increased 11.6% to $84.5 million from $75.7 million in the same period in 2013. Revenues from China’s domestic aftermarket increased 22.8% to $43.1 million from $35.1 million in the first nine months of 2013. Revenues from international markets increased 9.9% to $46.8 million from $42.5 million in the first nine months of 2013.

Gross profit for the first nine months of 2014 increased 11.0% to $49.4 million from $44.5 million in the same period in 2013. Gross margin for the first nine months of 2014 decreased to 28.3% from 29.0% for the first nine months of 2013.

Operating income for the first nine months of 2014 increased to $14.1 million from $12.7 million in the same period in 2013. Operating margin was 8.1% for the first nine months of 2014 versus 8.3% in first nine months of 2013.

Net income attributable to stockholders for the first nine months of 2014 was $9.8 million, or $0.51 per basic and diluted share, compared with $8.6 million, or $0.44 per basic and diluted share, in the same period in 2013.

Balance Sheet

As of September 30, 2014, the Company had cash and cash equivalents of $37.9 million compared to $28.2 million on December 31, 2013. Total equity increased to $214.5 million at September 30, 2014 compared with $199.5 million at December 31, 2013. On September 30, 2014, working capital was $158.7 million with a current ratio of 4.1 to 1.

Recent Events

In July 2014, SORL entered into an agreement to supply its braking products to Sichuan Hyundai Motor Company (“SHMC”) for its Chuanghu brand premium heavy-duty trucks. SHMC is a joint venture owned equally by Ziyang Nanjun Automobile Co., Ltd. and Hyundai Motor Group in South Korea.

In September 2014, SORL began supplying its three-pedal braking system to the new model M3000 heavy-duty vehicles produced by the Shaanxi Automotive Group.

Business Outlook

For the fiscal year 2014, management reiterated that net sales are expected to be approximately $230.0 million and net income is expected to be approximately $13.0 million. These targets are based on the Company’s current views on the operating and market conditions, which are subject to change.

Conference Call

Management will host a conference call on Friday, November 14, 2014 at 8:00 A.M. EST/ 9:00 P.M. Beijing Time to discuss its 2014 third quarter financial results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778, +1-201-689-8565 for international callers, and Mainland China toll free number +86-400-120-2840. A live webcast of the conference call will also be available at http://www.sorl.cn.

A replay of the call will be available shortly after the conference call through 11:59 P.M. EST on December 14, 2014, or 12:59 A.M. Beijing Time on December 15, 2014. The replay dial-in numbers are: U.S. toll free number +1-877-660-6853, or the international number is +1-201-612-7415; using Conference ID “13595105” to access the replay.

About SORL Auto Parts, Inc.

As a global tier one supplier of brake and control systems to the commercial vehicle industry, SORL Auto Parts, Inc. is the market leader for commercial vehicles brake systems, such as trucks and buses in China. The Company distributes products both within China and internationally under the SORL trademark. SORL is listed among the top 100 auto component suppliers in China, with a product range that includes 65 categories with over 2000 specifications in brake systems and others. The Company has four authorized international sales centers in UAE, India, the United States and Europe. SORL is working to establish a broader global sales network. For more information, please visit http://www.sorl.cn .

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of forward-looking terminology such as “expects,” “anticipates,” “believes,” “targets,” “goals,” “projects,” “intends,” “plans,” “seeks,” “estimates,” “may,” “will,” “should” or similar expressions. These forward-looking statements may also include statements about the Company’s proposed discussions related to its business or growth strategy, which are subject to change. Such information is based upon expectations of the Company’s management that were reasonable when made, but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond the Company’s control and upon assumptions with respect to future business decisions, which are subject to change. The Company does not undertake to update the forward-looking statements contained in this press release. These risks and uncertainties may include, but are not limited to general political, economic and business conditions which may impact the demand for commercial vehicles or passenger vehicles in China and the other significant markets where the Company’s products are sold, uncertainty regarding such political, economic and business conditions, trends in consumer debt levels and bad debt write-offs, general uncertainty related to possible recessions, natural disasters, the political stability of China and the impact of any of those events on demand for commercial or passenger vehicles, changes in consumer confidence, new product development and introduction, competitive products and pricing, seasonality, availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier’s inability to fulfill the Company’s orders, cost of labor and raw materials, the loss of or curtailed sales to significant customers, the Company’s dependence on key employees and officers, the ability to secure and protect trademarks, patents and other intellectual property rights, potential effects of competition in the Company’s business, the dependency of the Company upon the normal operation of its sole manufacturing facility, potential effect of the economic and currency instability in China and countries to which the Company sold its products, the ability of the Company to successfully manage its expenses on a continuing basis, the continued availability to the Company of financing and credit on favorable terms, business disruptions, disease, general risks associated with doing business in China or other countries including, without limitation, foreign trade policies, import duties, tariffs, quotas, political and economic stability, and the other factors discussed in the Company’s Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. For additional information regarding known material factors that could cause the Company’s results to differ from its projected results, please see its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Copies of filings made with the SEC are available through the SEC’s electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.

Contact Information

Raymond Lin
+86.139.6777.6556
+86.577.6581.7721
ljf@sorl.com.cn

Phyllis Huang
+86.151.6770.5972
+86.577.6581.7721
phyllis@sorl.com.cn

Kevin Theiss
Grayling
+1.646.284.9409
kevin.theiss@grayling.com

– Tables Follow –


SORL Auto Parts, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2014 and December 31, 2013

September 30, 2014

December 31, 2013

(Unaudited)

(Audited)

Assets

Current Assets

Cash and cash equivalents

US$

37,902,347

US$

28,241,983

Accounts receivable, net of provision

65,347,362

57,912,384

Bank acceptance notes from customers

14,390,355

20,186,787

Inventories

81,310,370

76,364,019

Prepayments

6,595,695

3,773,750

Current portion of prepaid capital lease interest

326,269

453,053

Other current assets

1,871,590

2,537,300

Deferred tax assets

1,829,624

1,392,955

Total Current Assets

209,573,612

190,862,231

Fixed Assets

Machinery

50,225,617

46,475,961

Molds

1,418,227

1,388,218

Office equipment

2,110,131

1,960,476

Vehicles

2,062,119

2,248,280

Buildings

9,103,122

8,910,501

Machinery held under capital lease

29,012,601

28,396,853

Less: accumulated depreciation

(50,114,599)

(44,175,888)

Property, plant and equipment, net

43,817,218

45,204,401

Leasehold improvements

220,632

264,612

Land Use Rights, Net

14,437,566

14,409,170

Other Non-Current Assets

Intangible assets

81,051

176,302

Less: accumulated amortization

(40,526)

(126,031)

Intangible assets, net

40,525

50,271

Security deposits on lease agreement

1,857,549

1,818,244

Non-current portion of prepaid capital lease interest

151,753

371,355

Total Other Non-Current Assets

2,049,827

2,239,870

Total Assets

US$

270,098,855

US$

252,980,284

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable, including $792,275 and $810,310
due to related parties at September 30, 2014 and
December 31, 2013, respectively.

US$

8,627,664

US$

13,290,282

Deposit received from customers

15,733,550

13,931,658

Short term bank loans

8,187,452

4,526,863

Income tax payable

477,655

494,658

Accrued expenses

12,324,370

10,066,969

Current portion of capital lease obligations

3,715,098

3,636,488

Other current liabilities, including $203,560
and $94,246 due to related parties at September 30, 2014
and December 31, 2013, respectively.

1,853,114

256,430

Total Current Liabilities

50,918,903

46,203,348

Non-Current Liabilities

Non-current portion of capital lease obligations

4,643,873

7,272,975

Total Non-Current Liabilities

4,643,873

7,272,975

Total Liabilities

US$

55,562,776

US$

53,476,323

Stockholders’ Equity

Preferred stock – no par value; 1,000,000 authorized;
none issued and outstanding as of September 30, 2014
and December 31, 2013

Common stock – $0.002 par value; 50,000,000 authorized,
19,304,921 issued and outstanding as of September 30, 2014
and December 31, 2013

38,609

38,609

Additional paid-in capital

42,199,014

42,199,014

Reserves

11,600,638

10,609,435

Accumulated other comprehensive income

26,357,421

22,465,720

Retained earnings

113,356,629

104,544,120

Total SORL Auto Parts, Inc. Stockholders’ Equity

193,552,311

179,856,898

Noncontrolling Interest In Subsidiaries

20,983,768

19,647,063

Total Equity

214,536,079

199,503,961

Total Liabilities and Stockholders’ Equity

US$

270,098,855

US$

252,980,284


SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For The Three Months and Nine Months Ended September 30, 2014 and 2013 (Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2014

2013

2014

2013

Sales

US$

58,702,505

US$

54,488,640

US$

174,419,540

US$

153,317,804

Include: sales to related parties

534,195

825,101

2,169,778

2,067,673

Cost of sales

43,240,746

39,075,431

125,056,960

108,858,673

Gross profit

15,461,759

15,413,209

49,362,580

44,459,131

Expenses:

Selling and distribution expenses

5,871,463

5,277,020

18,050,068

14,596,863

General and administrative expenses

3,759,307

3,696,715

12,786,335

13,079,992

Research and development expenses

2,242,620

2,384,902

5,934,377

5,392,513

Total operating expenses

11,873,390

11,358,637

36,770,780

33,069,368

Other operating income

545,752

444,791

1,471,014

1,280,683

Income from operations

4,134,121

4,499,363

14,062,814

12,670,446

Other income

100,534

413,862

352,130

505,215

Financial expenses

(634,282)

(770,418)

(1,773,223)

(2,208,756)

Non-operating expenses

(44,637)

(77,073)

(277,945)

(272,374)

Income before provision for income taxes

3,555,736

4,065,734

12,363,776

10,694,531

Provision for income taxes

391,988

332,027

1,556,433

1,040,215

Net income

US$

3,163,748

US$

3,733,707

US$

10,807,343

US$

9,654,316

Net income attributable to
noncontrolling interest in subsidiaries

262,813

423,087

1,003,631

1,075,525

Net income attributable to
common stockholders

US$

2,900,935

US$

3,310,620

US$

9,803,712

US$

8,578,791

Comprehensive income:

Net income

US$

3,163,748

US$

3,733,707

US$

10,807,343

US$

9,654,316

Foreign currency translation adjustments

(108,081)

1,023,444

4,224,775

4,833,515

Comprehensive income

3,055,667

4,757,151

15,032,118

14,487,831

Comprehensive income attributable to
noncontrolling interest in subsidiaries

193,652

532,333

1,336,705

1,564,259

Comprehensive
income attributable
to common shareholders

US$

2,862,015

US$

4,224,818

US$

13,695,413

US$

12,923,572

Weighted average common share
– basic

19,304,921

19,304,921

19,304,921

19,304,921

Weighted average common share
– diluted

19,304,921

19,304,921

19,304,921

19,304,921

EPS – basic

US$

0.15

US$

0.17

US$

0.51

US$

0.44

EPS – diluted

US$

0.15

US$

0.17

US$

0.51

US$

0.44

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For The Nine Months Ended September 30, 2014 and 2013 (Unaudited)

Nine Months Ended September 30,

2014

2013

Cash Flows from Operating Activities

Net income

US$

10,807,343

US$

9,654,316

Adjustments to reconcile net income to net cash

from operating activities:

Allowance for doubtful accounts

1,697,068

1,371,727

Depreciation and amortization

5,597,867

5,617,369

Deferred income tax

(405,594)

(252,018)

Loss on disposal of fixed assets

35,655

5,196

Changes in assets and liabilities:

Account receivable

(7,790,502)

8,037,713

Bank acceptance notes from customers

6,153,022

(12,252,121)

Other currents assets

755,849

(1,756,558)

Inventories

(3,305,061)

(12,687,012)

Prepayments

(2,716,212)

(319,823)

Prepaid capital lease interest

362,790

342,776

Accounts payable

(4,895,398)

(6,259,596)

Income tax payable

(26,461)

Deposits received from customers

1,506,420

7,317,768

Other current liabilities and accrued expenses

3,630,457

2,248,257

Net Cash Flows Provided By Operating Activities

11,407,243

1,067,994

Cash Flows from Investing Activities

Acquisition of property and equipment

(2,994,571)

(3,356,852)

Proceeds of disposal of fixed assets

57,339

14,602

Net Cash Flows Used In Investing Activities

(2,937,232)

(3,342,250)

Cash Flows from Financing Activities

Proceeds from bank loans

28,383,953

60,307,996

Repayment of bank loans

(24,924,952)

(69,079,151)

Repayment of capital lease

(2,776,407)

(11,400,163)

Proceeds from capital lease

12,783,841

Net Cash flows Provided By (Used In) Financing Activities

682,594

(7,387,477)

Effects on changes in foreign exchange rate

507,759

928,771

Net change in cash and cash equivalents

9,660,364

(8,732,962)

Cash and Cash Equivalents- Beginning of the Year

28,241,983

41,253,353

Cash and Cash Equivalents – End of the Period

US$

37,902,347

US$

32,520,391

Supplemental Cash Flow Disclosures:

Interest paid

US$

1,126,215

US$

1,247,619

Tax paid

US$

1,983,823

US$

1,772,230

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