China Automotive Systems Reports Third Quarter 2010 Financial Results

WUHAN, China, Nov. 9, 2010 /PRNewswire-Asia-FirstCall/ -- China Automotive Systems, Inc., ("CAAS" or the "Company"), (Nasdaq: CAAS), a leading power steering components and systems supplier in China, today announced financial results for the third quarter and nine months ended September 30, 2010.

Third Quarter 2010 Highlights:

• Net sales increased 17.7% year-over-year to $76.1 million, a record high for any third quarter of operations;
• Gross profit increased 17.4% to $18.2 million, with a gross margin of 23.9%;
• Operating income rose 26.1% to $12.2 million, with an operating margin of 16.0%;
• Net income was $8.2 million, or $0.26 per diluted share, including only a $0.5 million non-cash gain in the fair value of the derivative compared to a $3.1 million non-cash gain in the fair value of the derivative in the previous year's quarter;
• Cash and equivalents were $49.2 million;
• Free cash flow was $5.6 million.

Nine Month 2010 Highlights:

• Net sales increased 42.8% year-over-year to $245.4 million and compared with $171.8 million reported in fiscal 2009;
• Operating income increased 47.1% to $41.8 million, exceeding $28.4 million reported in fiscal 2009;
• Net income was $27.1 million, or $0.88 per diluted share, surpassing $16.9 million, or $0.58 per diluted share achieved in fiscal 2009.

Mr. Qizhou Wu, Chief Executive Officer of China Automotive Systems commented, "We are very pleased with the strong sales results posted for the 2010 third quarter, as the summer season is our slowest sales period compared to other quarters. We continue to operate at a high capacity utilization rate and have invested over $24 million in the first nine months of 2010 to make sure we can meet future demand, especially for our new, more advanced products."

"In August, China Automotive Systems was ranked 23rd in FORTUNE Magazine's '100 Fastest-Growing Companies' list for 2010," continued Mr. Wu.  "Our high-quality products and excellent performance in this safety-related area have created strong brand recognition among customers, even during the turbulence of the global automotive markets in recent years. We are committed to maintaining the highest standards in production and performance and hope to see this reflected in future growth."

Third Quarter 2010 Results

Net sales increased 17.7% year-over-year to $76.1 million, a record sales performance for any third quarter in the Company's history. Net sales for the third quarter of 2009 were $64.7 million. This revenue increase was driven by purely organic growth. Third quarter, or the summer season, is typically a relatively slow sales period compared with other quarters.

Gross profit increased 17.4% to $18.2 million, compared with $15.5 million for the same quarter in 2009. Since the first quarter of 2010, the Company began reclassifying product warranty expenses under cost of goods sold, instead of its previous classification under selling expenses. The third quarter 2010 reclassified gross margin was 23.9%, in line with the reclassified gross margin for the same period of 2009. Before the warranty adjustment, the gross margin would have been 25.4% in the third quarter of 2010.

Selling expenses in the third quarter were $2.1 million, a slight decline from $2.2 million in the same quarter a year ago. Selling expenses as a percentage of revenue for the third quarter of 2010 declined to 2.8% from 3.4% for the same period in 2009, mainly due to higher sales in the 2010 third quarter, combined with a lower supply expense.

General and administrative (G&A) expenses in the third quarter were $2.3 million compared to $2.7 million in the same quarter a year ago, primarily due to reductions in option expenses. G&A as a percentage of revenue for the third quarter of 2010 decreased to 3.0% from 4.2% during the same quarter in 2009.

Research and development (R&D) expenses rose to $1.2 million in the third quarter from $0.5 million for the third quarter of 2009, as the Company continued to invest in R&D to develop more cost-efficient, advanced products and improve its production capabilities to maintain its industry leadership.

Total operating expenses decreased to $5.8 million from $6.1 million for the same period of 2009. As a percentage of revenue, operating expenses declined to 7.7% in the third quarter of 2010 from 9.5% in the third quarter of 2009 mainly due to enhanced operating efficiencies, which compensated for increased R&D spending.

Operating income increased by 26.1% to $12.2 million in the third quarter of 2010, compared with $9.7 million in the third quarter of 2009. Operating margin was 16.0%, compared with 14.9% for the same quarter in 2009. The increase in operating income reflected higher gross profit and lower operating expenses, notably, general and administrative expenses.

Income before taxes was flat at $12.4 million for the third quarter compared to the previous year's period. The non-cash gain due to the change in the fair value of the derivative was $0.5 million for the current quarter compared to $3.1 million in the same quarter of 2009. This $2.6 million decrease in non-cash gain due to the change in the fair value of the derivative offset the higher income generated in the current quarter.

Primarily as a result of the decrease in non-cash gain due to the change in the fair value of the derivative, net income attributable to common shareholders was $8.2 million for the third quarter of 2010, or $0.26 per diluted share, compared with $8.6 million, or $0.28 per diluted share in the same quarter in 2009. The net margin for net income attributable to common shareholders was 10.9% in the 2010 third quarter. The diluted weighted average shares outstanding were 31.6 million in the third quarter of 2010, compared with 31.4 million in the third quarter of 2009.

Nine Month Results

Total revenue for the first nine months of 2010 increased 42.8% to $245.4 million from $171.8 million for the nine months of last year. Gross profit for the nine-month period increased 41.7% to $60.5 million, from $42.7 million in the comparable period a year ago. Gross margin was 24.7% for the first nine months of 2010. Income from operations increased 47.1% to $41.8 million from $28.4 million in the first nine months of 2009, and operating margin for the 2010 period was 17.0% compared with 16.5% in the nine months of 2009. Net income attributable to common shareholders for the nine-month period was $27.1 million, with fully diluted earnings per share of $0.88, compared with $16.9 million, or diluted earnings per share of $0.58 for the first nine months of 2009.

Financial Conditions

As of September 30, 2010, total cash and cash equivalents were $49.2 million, $5.7 million higher than $43.5 million as of December 31, 2009. Stockholders' equity increased to $168.7 million as of September 30, 2010, from $132.8 million as of December 31, 2009. Net cash flow from operations was $29.6 million, compared with $24.3 million for the same period of 2009, an increase of $5.3 million. Working capital was $83.2 million. Free cash flow, defined as net cash flow from operations minus capital expenditure, was $5.6 million, despite investing approximately $24 million in plant and equipment costs in the first nine months of 2010.

Business Outlook

Management raises revenue guidance to 30% growth for the 2010 fiscal year. This target is based on the Company's current views on operating and market conditions, which are subject to change. The Company will periodically update this guidance.

Conference Call

Management will conduct a conference call on Tuesday, November 9th at 8:00 A.M. ET/9:00 P.M. Beijing Time to discuss these results. A question and answer session will follow management's presentation.

To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the "China Automotive Systems" conference call:

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

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

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

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

A telephone replay of the call will be available after the conclusion of the conference call through 11:59 PM ET on December 9, 2010. The dial-in details for the replay are: U.S. Toll Free Number +1-877-660-6853, International dial-in number +1-201-612- 7415; using Account "286" and Conference ID "359756" to access the replay.

About China Automotive Systems, Inc.

Based in Hubei Province, People's Republic of China, China Automotive Systems, Inc. is a leading supplier of power steering components and systems to the Chinese automotive industry, operating through nine Sino-foreign joint ventures. The Company offers a full range of steering system parts for passenger automobiles and commercial vehicles. The Company currently offers 4 separate series of power steering with an annual production capacity of over 2.5 million sets, steering columns, steering oil pumps and steering hoses. Its customer base is comprised of leading Chinese auto manufacturers such as China FAW Group, Corp., Dongfeng Auto Group Co., Ltd., BYD Auto Company Limited, Beiqi Foton Motor Co., Ltd. and Chery Automobile Co., Ltd., etc. For more information, please visit: http://www.caasauto.com.

Safe Harbor Statement

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