SORL Auto Parts Reports Record High Second-Quarter Sales In 2014

ZHEJIANG, China, August 15, 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 second quarter of 2014 and the first six months ended June 30, 2014.

Second Quarter 2014 Financial Highlights

  • Sales increased 14.3% year-over-year to a second-quarter record high of $65.7 million;
  • Gross margin was 28.2% in the second quarter of 2014 compared to 29.3% in the same period of 2013;
  • Net Income attributable to stockholders was $4.1 million, or $0.21 per diluted share;
  • Cash and cash equivalents were $27.0 million with a current ratio of 3.79 to 1 at June 30, 2014;
  • Annual guidance was reiterated for sales of $225 million and net income of $12.5 million.

Mr. Xiaoping Zhang, SORL’s Chief Executive Officer and Chairman, stated, “We are pleased to report an outstanding quarter with the highest sales for any second quarter in our history. We believe customers in all three of our business segments – OEM, aftermarket and international – recognized the superior value of our products through higher purchases.”

“Our investment in new products is having a positive result, as our growing portfolio of advanced innovative products is expanding the vehicle models we supply. In June and July of 2014, we began shipping our new braking products to two new models of commercial vehicles – Sichuan Hyundai Motor Company’s Chuanghu brand premium heavy-duty truck, and Shaanxi Automotive Group’s new model M3000 heavy-duty vehicles. These new orders further acknowledge the high performance and reliability of SORL’s advanced safety-related braking products. As the technological and performance standards increase, the barriers to entry in the commercial braking market grow higher.”

“We continue to position ourselves in markets where the Chinese government’s policies and spending increases demand for commercial vehicles such as the ongoing expansion of highways and railways, as well as other infrastructure projects. Our goal is to become a leader in each sector by leveraging our products and technologies to penetrate deeper in each market. Government programs also continue to support urban and regional public transportation. We are benefitting from expanded bus service, and advanced emission standards that require new buses to improve air quality in China’s many cities. We continue to seek opportunities in adjacent markets where our products or technologies can be applied.”

Ms. Jinrui Yu, SORL’s Chief Operating Officer, commented, “We are committed to provide our customers with products that strengthen their competitiveness through advanced technologies, high quality and low cost. We have enhanced our research and development with new technologies to supply a steady stream of state-of-the-art products. Our large product portfolio provides a competitive advantage especially in the Chinese aftermarket, to expand our market share. Advanced production equipment has improved product quality, controlled unit costs and combined with our new products, maintained our industry-leading gross margin. We remain focusing on capturing market share in our domestic market as we build our international operations.”

Second Quarter 2014 Financial Performance

For the second quarter of 2014, net sales increased by 14.3% to $65.7 million from $57.5 million for the second quarter of 2013. SORL’s commercial vehicle brake sales rose in each market segment in the second quarter of 2014 compared with the second quarter in 2013. Revenues from the Company’s domestic OEM customers increased by 4.2% to $31.9 million from $30.6 million in the second quarter of 2013, and increased from $28.6 million in the first quarter of 2014. Sales from China’s domestic aftermarket rose 20.3% to $15.4 million in the second quarter of 2014 from $12.8 million in the same quarter of 2013, and increased from $10.5 million in the first quarter of 2014. Revenues from international markets increased 30.5% to $18.4 million, compared to $14.1 million in the second quarter of 2013, and substantially improved from the $10.9 million in export sales in the first quarter of 2014.

SORL’s commercial vehicle brake sales represented 82.0% of total sales and increased by 14.9% in the second quarter of 2014 to $53.9 million, compared with the second quarter in 2013. This sales growth improved SORL’s leading market share in China as unit sales in the truck market declined by 14.4% in the 2014 second quarter. SORL’s high-quality, low-cost products continued to generate higher sales and further penetrated the commercial vehicle market. The Company’s passenger vehicle brake sales increased by 11.3% to $11.8 million in the second quarter of 2014, compared with the passenger vehicle brake sales in the second quarter last year.

The gross profit for the second quarter of 2014 increased 10.1% to $18.5 million from $16.8 million for the second quarter of 2013. Gross margin for the second quarter of 2014 was 28.2%, compared with a gross margin of 29.3% in the same quarter of 2013.

Operating expenses increased to $13.4 million in the second quarter of 2014 from $11.7 million in the second quarter of 2013. The increase in operating expenses in the second quarter of 2014 reflected higher selling and distribution expenditures as more units were shipped, packaging expenses increased, and research and development costs rose. As a percentage of revenue, operating expenses were 20.4% in the second quarter of 2014, compared with 20.4% in the second quarter of 2013, and compared with 23.0% in the first quarter of 2014.

  • Selling and distribution expenses were $6.5 million, or 9.8% of quarterly revenues, compared with $4.9 million, or 8.5% in the same quarter of 2013. Higher expenses were primarily due to higher packaging and freight expenses during the quarter.
  • General and administrative (“G&A”) expenses in the second quarter of 2014 were $4.7 million, or 7.2% of revenue, compared with $5.2 million, or 9.1% in the second quarter of 2013. The decrease in expenses was mainly due to the decrease in allowance for doubtful accounts. In the second fiscal quarter of 2014, as compared to the same period in 2013, our allowance for doubtful accounts decreased, because we had less overdue account receivables.
  • Research and development (“R&D”) expenses were $2.2 million in the second quarter of 2014 compared with $1.6 million in the same quarter of 2013. As a percentage of revenue, R&D was 3.3% in the second quarter of 2014 and compared with 2.8% of revenue in the second quarter of 2013. The R&D program continues to mainly focus on the development of new, higher-margin, electronically controlled mechatronic products and to upgrade the Company’s traditional brake products to capture market share.

Financial expenses were $479,058 in the second quarter of 2014 compared with $492,094 in the second 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 $5.2 million for the second quarter of 2014 compared to $5.1 million for the second quarter of 2013. The slightly higher income reflected lower financial expenses and increased other income during the second quarter of 2014 compared with the same quarter of 2013. The pretax income margin was 8.0% in the second quarter of 2014, compared with 8.8% in the second quarter of 2013.

The provision for income taxes was $0.7 million, or a 12.4% tax rate, in the second quarter of 2014, which is compared with $0.5 million, or a 10.6% tax rate, in the second quarter in 2013. The increase was mainly due to increased pre-tax income.

Net income attributable to stockholders for the second quarter of 2014 was $4.1 million, or $0.21 per basic and diluted share, compared with $4.0 million, or $0.21 on per basic and diluted share, in the second quarter of 2013.

First Six Months 2014 Financial Performance

Net sales for the first six months of 2014 increased 17.1% to $115.7 million from $98.8 million for the first six months of 2013. Revenues from the Company’s China OEM customers increased 13.3% to $60.5 million from $53.4 million in the same period in 2013. Revenues from China’s domestic aftermarket increased 17.7% to $25.9 million from $22.0 million in the first six months of 2013. Revenues from international markets increased 25.2% to $29.3 million from $23.4 million in the first six months of 2013.

Gross profit for the first six months of 2014 increased 16.7% to $33.9 million from $29.0 million in for the same period in 2013. Gross margin for the six months ended June 30, 2014, decreased to 29.4% from 29.5% for the first six months of 2013.

Operating income for the first six months of 2014 increased to $9.9 million from $8.2 million in the same period in 2013. Operating margin was 8.6% versus 8.3% in first six months of 2013.

Net income attributable to stockholders for the first six months of 2014 was $6.9 million, or $0.36 per basic and diluted share, compared with $5.3 million, or $0.27 per basic and diluted share, in the same period in 2013.

Balance Sheet

As of June 30, 2014, the Company had cash and cash equivalents of $27.0 million compared to $28.2 million on December 31, 2013. Total equity increased to $211.5 million at June 30, 2014 compared with $199.5 million at December 31, 2013. On June 30, 2014, working capital was $155.5 million with a current ratio of 3.8 to 1.

Recent Events

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

In June 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 expected the sales to be approximately $225.0 million and net income to be approximately $12.5 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, August 15, 2014 at 8:00 a.m. EDT / 8:00 p.m. Beijing Time to discuss its 2014 second quarter and six month 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 China toll free 864 001 202 840. A live web cast 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. EDT on September 15, 2014, or 12:59 a.m. Beijing Time on September 16, 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 “13588326” 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

June 30, 2014 and December 31, 2013

June 30, 2014

December 31, 2013

(Unaudited)

(Audited)

Assets

Current Assets

Cash and cash equivalents

US$

27,020,085

US$

28,241,983

Accounts receivable, net of provision

69,189,724

57,912,384

Bank acceptance notes from customers

23,641,110

20,186,787

Inventories

82,450,896

76,364,019

Prepayments

4,622,474

3,773,750

Current portion of prepaid capital lease interest

371,777

453,053

Other current assets

2,302,279

2,537,300

Deferred tax assets

1,731,372

1,392,955

Total Current Assets

211,329,717

190,862,231

Fixed Assets

Machinery

49,341,407

46,475,961

Molds

1,418,158

1,388,218

Office equipments

2,096,657

1,960,476

Vehicles

2,066,179

2,248,280

Buildings

9,102,678

8,910,501

Machinery held under capital lease

29,012,601

28,396,853

Less: accumulated depreciation

(48,383,297)

(44,175,888)

Property, plant and equipment, net

44,654,383

45,204,401

Leasehold improvements in progress

227,933

264,612

Land Use Rights, Net

14,531,221

14,409,170

Other Non-Current Assets

Intangible assets

180,104

176,302

Less: accumulated amortization

(136,511)

(126,031)

Intangible assets, net

43,593

50,271

Security deposits on lease agreement

1,857,459

1,818,244

Non-current portion of prepaid capital lease interest

216,238

371,355

Total Other Non-Current Assets

2,117,290

2,239,870

Total Assets

US$

272,860,544

US$

252,980,284

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable, including $3,031,309 and $810,310 due to related parties at June 30, 2014 and December 31, 2013, respectively.

US$

13,267,766

US$

13,290,282

Deposit received from customers

13,737,468

13,931,658

Short-term bank loans

11,116,360

4,526,863

Income tax payable

800,102

494,658

Accrued expenses

11,928,934

10,066,969

Current portion of capital lease obligations

3,714,917

3,636,488

Other current liabilities, including $40,570 and $94,246 due to related parties at June 30, 2014 and December 31, 2013, respectively.

1,242,209

256,430

Total Current Liabilities

55,807,756

46,203,348

Non-Current Liabilities

Non-current portion of capital lease obligations

5,572,376

7,272,975

Total Non-Current Liabilities

5,572,376

7,272,975

Total Liabilities

US$

61,380,132

US$

53,476,323

Stockholders’ Equity

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

Common stock – $0.002 par value; 50,000,000 authorized, 19,304,921 issued

and outstanding as of

June 30, 2014 and December 31, 2013

38,609

38,609

Additional paid-in capital

42,199,014

42,199,014

Reserves

11,315,415

10,609,435

Accumulated other comprehensive income

26,396,341

22,465,720

Retained earnings

110,740,917

104,544,120

Total SORL Auto Parts, Inc. stockholders’ equity

190,690,296

179,856,898

Noncontrolling Interest In Subsidiaries

20,790,116

19,647,063

Total Equity

211,480,412

199,503,961

Total Liabilities and Stockholders’ Equity

US$

272,860,544

US$

252,980,284

SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For The Three Months and Six Months Ended on June 30, 2014 and 2013 (Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Sales

US$

65,723,746

US$

57,511,004

US$

115,717,035

US$

98,829,164

Include: sales to related parties

1,345,506

1,004,391

1,635,583

1,242,572

Cost of sales

47,209,861

40,688,905

81,816,214

69,783,242

Gross profit

18,513,885

16,822,099

33,900,821

29,045,922

Expenses:

Selling and distribution expenses

6,473,111

4,911,344

12,178,605

9,319,843

General and administrative expenses

4,710,874

5,220,131

9,027,028

9,383,277

Research and development expenses

2,200,558

1,617,147

3,691,757

3,007,611

Total operating expenses

13,384,543

11,748,622

24,897,390

21,710,731

Other operating income

549,130

632,105

925,262

835,892

Income from operations

5,678,472

5,705,582

9,928,693

8,171,083

Other income

213,292

251,596

91,353

Financial expenses

(479,058)

(492,094)

(1,138,941)

(1,438,338)

Non-operating expenses

(181,401)

(127,224)

(233,308)

(195,301)

Income before provision for income taxes

5,231,305

5,086,264

8,808,040

6,628,797

Provision for income taxes

651,210

539,334

1,164,445

708,188

Net income

US$

4,580,095

US$

4,546,930

US$

7,643,595

US$

5,920,609

Net income attributable to noncontrolling

interest in subsidiaries

447,621

512,138

740,818

652,438

Net income attributable to common stockholders

4,132,474

4,034,792

6,902,777

5,268,171

Comprehensive income:

Net income

4,580,095

4,546,930

7,643,595

5,920,609

Foreign currency translation adjustments

(25,135)

1,150,709

4,332,856

3,810,071

Comprehensive income

4,554,960

5,697,639

11,976,451

9,730,680

Comprehensive income attributable to

noncontrolling interest in subsidiaries

445,057

628,535

1,143,053

1,031,926

Comprehensive income attributable to

common shareholders

4,109,903

5,069,104

10,833,398

8,698,754

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$

0.21

US$

0.21

US$

0.36

US$

0.27

EPS – diluted

US$

0.21

US$

0.21

US$

0.36

US$

0.27


SORL Auto Parts, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For The Six Months Ended on June 30, 2014 and 2013 (Unaudited)

Six Months Ended June 30,

2014

2013

Cash Flows from Operating Activities

Net income

US$

7,643,595

US$

5,920,609

Adjustments to reconcile net income to net cash

from operating activities:

Allowance for doubtful accounts

1,194,754

1,634,203

Depreciation and amortization

3,732,381

3,625,115

Deferred income tax

(307,429)

(233,687)

Loss on disposal of fixed assets

28,075

Changes in Assets and Liabilities:

Account receivable

(11,133,975)

3,762,142

Bank acceptance notes from customers

(3,098,660)

(7,323,135)

Other currents assets

325,030

18,266

Inventories

(4,449,536)

(8,496,818)

Prepayments

(743,265)

1,590,962

Prepaid capital lease interest

252,772

342,776

Accounts payable and bank acceptance notes to vendors

(254,762)

(5,092,453)

Income tax payable

296,017

Deposits received from customers

(488,943)

2,737,611

Other current liabilities and accrued expenses

2,624,773

2,513,792

Net Cash Flows Provided By (Used In) Operating Activities

(4,379,173)

999,383

Cash Flows from Investing Activities

Acquisition of property and equipment

(2,061,662)

(2,219,689)

Proceeds of disposal of fixed assets

53,437

Net Cash Flows Used In Investing Activities

(2,008,225)

(2,219,689)

Cash Flows from Financing Activities

Proceeds from bank loans

22,292,424

48,751,425

Repayment of bank loans

(15,904,045)

(53,812,232)

Repayment of capital lease

(1,847,655)

(10,473,023)

Proceeds from capital lease

12,783,841

Net Cash flows Provided By (Used In) Financing Activities

4,540,724

(2,749,989)

Effects on changes in foreign exchange rate

624,776

726,068

Net change in cash and cash equivalents

(1,221,898)

(3,244,227)

Cash and cash equivalents- beginning of the year

28,241,983

41,253,353

Cash and cash Equivalents – End of the period

US$

27,020,085

US$

38,009,126

Supplemental Cash Flow Disclosures:

Interest paid

722,728

859,771

Tax paid

US$

1,171,310

US$

972,107