China Automotive Systems(CAAS) - 2020 Q1 - Quarterly Report

Part I — Financial Information Item 1. Unaudited Financial Statements Presents Q1 2020 and 2019 unaudited consolidated financial statements, showing significant decline in net product sales and net income due to COVID-19 - The filing of this Form 10-Q was delayed until June 29, 2020, due to the COVID-19 epidemic, as the company's headquarters in Wuhan, Hubei Province, was under strict quarantine, leading to a suspension of operations from January 31, 2020, to March 21, 2020[6] Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income Q1 2020 net product sales decreased by 32.6% to $73.6 million, with net income plummeting to $45 thousand from $1.47 million Consolidated Statements of Operations Highlights (in thousands of USD) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net product sales | $73,555 | $109,193 | | Gross profit | $11,152 | $14,045 | | Income from operations | $1,152 | $1,037 | | Net income attributable to parent company | $45 | $1,467 | | Basic EPS | $0.00 | $0.05 | | Diluted EPS | $0.00 | $0.05 | Condensed Unaudited Consolidated Balance Sheets As of March 31, 2020, total assets decreased to $629.7 million from $660.0 million, with total liabilities also decreasing Consolidated Balance Sheet Highlights (in thousands of USD) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $417,110 | $441,165 | | Total Assets | $629,677 | $659,964 | | Total Current Liabilities | $281,486 | $303,774 | | Total Liabilities | $327,075 | $350,592 | | Total Stockholders' Equity | $302,602 | $309,372 | Condensed Unaudited Consolidated Statements of Cash Flows Q1 2020 net cash from operations significantly improved to $29.2 million, while investing activities provided $1.7 million Consolidated Statements of Cash Flows Highlights (in thousands of USD) | Cash Flow Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $29,227 | $(18,214) | | Net cash provided by/(used in) investing activities | $1,704 | $(10,048) | | Net cash (used in)/provided by financing activities | $(2,907) | $1,989 | | Net increase/(decrease) in cash | $26,173 | $(24,293) | Notes to Condensed Unaudited Consolidated Financial Statements Details accounting policies, CECL adoption, customer concentration, PRC regulations, and ongoing stockholder derivative complaint - The company adopted the new Current Expected Credit Losses (CECL) model on January 1, 2020, which resulted in a $0.8 million reduction to beginning retained earnings[34] - For the three months ended March 31, 2020, the company's five largest customers accounted for 53.7% of its consolidated net product sales, with one customer representing 33.7% of net sales[40] - The company's operations in China are subject to PRC government controls on currency conversion and remittance, requiring PRC subsidiaries to set aside at least 10% of after-tax profits to a general reserve until it reaches 50% of paid-in capital, restricting funds for distribution to the parent company[75][76] - A stockholder derivative complaint was filed against company directors in January 2019, alleging breaches of fiduciary duties related to excessive non-employee director compensation; the case is ongoing, though management expects the financial impact to be immaterial[84] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Attributes Q1 2020 sales decrease to COVID-19, noting improved gross margin despite lower sales, and sufficient liquidity - The COVID-19 outbreak led to a 33% decrease in net product sales in Q1 2020 compared to Q1 2019, with the company anticipating continued material adverse effects in Q2 2020 and potentially subsequent periods[99] Q1 2020 vs Q1 2019 Performance (in thousands of USD) | Metric | Q1 2020 | Q1 2019 | Change | Change % | | :--- | :--- | :--- | :--- | :--- | | Net product sales | $73,555 | $109,193 | $(35,638) | -32.6% | | Gross Profit | $11,152 | $14,045 | $(2,893) | -20.6% | | Operating Expenses | $10,600 | $14,277 | $(3,677) | -25.8% | | Net income attributable to parent | $45 | $1,467 | $(1,422) | -96.9% | - Net sales of electric power steering (EPS) products decreased by 63.5% to $8.1 million in Q1 2020, accounting for 11.0% of total net sales, down from 20.3% in Q1 2019[110] - As of March 31, 2020, the company had total available credit facilities of $179.9 million, with $73.4 million used, and was negotiating renewals for several expired facilities[138] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures from the 2019 Annual Report on Form 10-K - There were no material changes to the company's market risk disclosures from the 2019 Form 10-K[159] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[160] - No changes occurred in the company's internal control over financial reporting during Q1 2020 that have materially affected or are likely to materially affect these controls[161] Part II — Other Information Item 1. Legal Proceedings Discusses an ongoing stockholder derivative complaint alleging fiduciary duty breaches by directors, with management expecting immaterial financial impact - A stockholder derivative complaint filed in January 2019 alleges breaches of fiduciary duties by directors regarding excessive compensation and inadequate disclosure; the company's motion to dismiss was denied in July 2019, and the case remains ongoing[162] Item 1A. Risk Factors Updates risks including the Holding Foreign Companies Accountable Act and a U.S. Presidential review of Chinese listed companies - A significant new risk is the Holding Foreign Companies Accountable Act (S.945), passed by the U.S. Senate on May 20, 2020, which could lead to the delisting of the company's stock from U.S. exchanges if its auditor cannot be inspected by the PCAOB for three consecutive years[166] - On June 4, 2020, the U.S. President ordered a review of Chinese companies listed on U.S. exchanges, which could lead to recommendations for actions by the executive branch, SEC, or PCAOB, potentially impacting the company's stock performance and market access[166] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the period - None[167] Item 3. Defaults Upon Senior Securities No defaults upon senior securities occurred during the period - None[167] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[167] Item 5. Other Information No other information to report for the period - None[167] Item 6. Exhibits Lists exhibits filed with the Form 10-Q, including corporate governance documents, key agreements, and certifications - Exhibits filed include corporate governance documents, key agreements, required CEO/CFO certifications, and financial data in XBRL format[167]