CHINA AUTOMOTIVE SYSTEMS, INC. The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this report.
GENERAL OVERVIEW
China Automotive Systems, Inc. , including, when the context so requires, its subsidiaries and the subsidiaries' interests in the Sino-foreign joint ventures described below, is referred to herein as the "Company." The Company, through its Sino-foreign joint ventures, engages in the manufacture and sales of automotive systems and components inthe People's Republic of China , the "PRC," or "China ." Genesis, a company incorporated onJanuary 3, 2003 under the Companies Ordinance ofHong Kong as a limited liability company, is a wholly-owned subsidiary of the Company.Henglong USA Corporation , "HLUSA," which was incorporated onJanuary 8, 2007 inTroy, Michigan , is a wholly-owned subsidiary of the Company, and mainly engages in marketing of automotive parts inNorth America , and provides after sales service and research and development support. Furthermore, the Company owns the following aggregate net interests in the subsidiaries incorporated in the PRC andBrazil as ofDecember 31, 2022
and
2021.
Aggregate Net Interest
December 31, December 31,
Name of Entity 2022 2021
Henglong 100.00 % 100.00 %
Jiulong 100.00 % 100.00 %
Shenyang 70.00 % 70.00 %
Wuhu 100.00 % 100.00 %
Jielong 85.00 % 85.00 %
Hubei Henglong 100.00 % 100.00 %
Testing Center 100.00 % 100.00 %
Chongqing Henglong 70.00 % 70.00 %
Brazil Henglong 95.84 % 95.84 %
Wuhan Chuguanjie 85.00 % 85.00 %
Shanghai Henglong 100.00 % 100.00 %
Jingzhou Qingyan - % 60.00 %
Henglong KYB 66.60 % 66.60 %
Wuhan Hyoseong 51.00 % 51.00 %
Wuhu Hongrun 62.00 % 62.00 %
Changchun Hualong 100.00 % 100.00 %
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RESULTS OF OPERATIONS
Selected highlights from our operations (in thousands of
2022 2021 Change Change%
Net product sales $ 529,551 $ 497,993 $ 31,558 6.3 %
Cost of products sold 446,157 425,914 20,243 4.8
Net gain on other sales 3,696 4,368 (672) (15.4)
Selling expenses 16,910 18,278 (1,368) (7.5)General and administrative expenses 26,120 24,423 1,697 6.9 Research and development expenses 36,109 28,228
7,881 27.9
Other income, net 5,782 6,668 (886) (13.3)
Interest expense 1,450 1,437 13 0.9Financial (income)/expense, net (10,753) 2,350
(13,103) (557.6) Income taxes 3,082 4,004 (922) (23.0) Net income 22,343 10,726 11,617 108.3 Net income/(loss) attributable to non-controlling interest 1,132 (352) 1,484 (421.6) Net income attributable to parent company's common shareholders 21,181 11,050
10,131 91.7 %
Net Product Sales and Cost of Products Sold
For the years ended
Net Sales Cost of sales
2022 2021 Change 2022 2021 Change
Henglong $ 246,594 $ 202,612 $ 43,982 21.7 % $ 225,682 $ 188,973 $ 36,709 19.4 %
Jiulong 70,113 94,510 (24,397) (25.8) 61,924 85,025 (23,101) (27.2)
Shenyang 11,942 16,510 (4,568) (27.7) 10,404 13,084 (2,680) (20.5)
Wuhu 42,243 27,227 15,016 55.2 39,069 25,708 13,361 52.0
Hubei Henglong 126,652 128,142 (1,490) (1.2) 109,842 105,969 3,873 3.7
Henglong KYB 121,139 80,683 40,456 50.1 106,621 75,277 31,344 41.6
Brazil Henglong 39,280 25,513 13,767 54.0 34,265 22,001 12,264 55.7
Other Entities 80,971 70,884 10,087 14.2 63,178 54,799 8,379 15.3
Total segment 738,934 646,081 92,853 14.4 650,985 570,836 80,149 14.0
Eliminations (209,383) (148,088) (61,295) 41.4 (204,828) (144,922) (59,906) 41.3 Total 529,551 497,993 31,558 6.3 % 446,157 425,914 20,243 4.8 %
Net Product Sales
Net product sales were$529.6 million for the year endedDecember 31, 2022 , as compared to$498.0 million for the year endedDecember 31, 2021 , representing an increase of$31.6 million , or 6.3%, mainly due to the Company's increased sales of electric power steering ("EPS") systems and parts. Net sales of traditional steering products were$373.3 million for the year endedDecember 31, 2022 , which is generally consistent with$382.7 million for 2021. Net sales of EPS were$156.3 million for the year endedDecember 31, 2022 , compared to$115.3 million for 2021, representing an increase of$41.0 million , or 35.6%. As a percentage of net sales, the sales of EPS were 29.5% for the year endedDecember 31, 2022 , compared to 23.2% for 2021.
The increase in net product sales was mainly due to the offsetting effects of the increase in sales volume of passenger vehicles and decline in demand of commercial vehicles.
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Further analysis is as follows:
Henglong mainly engages in providing passenger vehicle steering systems. Net
sales for Henglong were
- compared with
an increase of
increase in sales volume of products used in passenger vehicles.
sales for
- compared with
a decrease of
decline in demand of commercial vehicles.
- manufacturers in
ended
decrease was mainly due to the decline in demand from Jinbei.
Wuhu mainly engages in providing vehicle steering systems to Chery Automobile
Co., Ltd., "Chery", one of the major automotive manufacturers in
- sales for Wuhu were
compared with
an increase of
increase in sales volume of products used in passenger vehicles from Chery.
Hubei Henglong mainly engages in providing vehicle steering systems to Chrysler
- and
Henglong KYB mainly engages in providing passenger EPS products. Net sales for
Henglong KYB were
- with
increase of
increase in sales volume of EPS products used in passenger vehicles.
Brazil Henglong mainly provides steering systems to
sales for Brazil Henglong were
- 2022, compared to
representing an increase of
due to the increase in demand of
Net product sales for other entities were
-
2021, representing an increase of
mainly due to the increases in sales volume from Wuhan Hyoseong.
Cost of Products Sold
For the year endedDecember 31, 2022 , the cost of sales was$446.1 million , compared with$425.9 million for the year endedDecember 31, 2021 , representing an increase of$20.2 million , or 4.7%. The increase in cost of sales was mainly due to the increase in sales volume and increase in unit cost. Further analysis is as follows:
Cost of sales for Henglong was
- 2022, compared to
representing an increase of
due to the increase in sales volumes and the increase in unit cost.
Cost of sales for
2022, compared to
- representing a decrease of
to the decrease in sales volumes and the offsetting of the increase in unit
cost.
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Cost of sales for
2022, compared with
- representing a decrease of
to the decrease in sales volumes and the offsetting of the increase in unit
cost.
Cost of sales for Wuhu was
- compared to
increase of$13.4 million , or 52.1%. The increase was mainly due to the increase in sales volumes and the increase in unit cost.
Cost of sales for Hubei Henglong was
- 31, 2022, compared with
representing an increase of
to the increase in unit cost.
Cost of sales for Henglong KYB was
- 31, 2022, compared to
representing an increase of
due to the increase in sales volumes and the increase in unit cost.
Cost of products sold for Brazil Henglong was
-
2021, representing an increase of
mainly due to the increase in sales volumes.
Cost of products sold for other entities was$63.2 million for the year endedDecember 31, 2022 , compared to$54.8 million for the year endedDecember 31, 2021 , representing an increase of$8.4 million , or 15.3%.
Gross margin was 15.7% for the year ended
Gain on other sales mainly consisted of rental income, gain on disposal of property, plant and equipment and R&D revenue. For the year endedDecember 31, 2022 , gain on other sales amounted to$3.7 million , which is stable compared to$4.4 million for the year endedDecember 31, 2021 .
Selling Expenses
For the years ended
Year Ended December 31,
2022 2021 Increase/(Decrease) Percentage
Transportation expense $ 6,523 $ 9,870 $ (3,347) (33.9) %
Marketing and office expense 3,679 2,822 857 30.4 %
Salaries and wages 3,582 3,280 302 9.2 %
Warehousing and inventory handling expenses 2,495 2,146 349 16.3 %
Other expense 631 160 471 294.4 %
Total $ 16,910 $ 18,278 $ (1,368) (7.5) %
Selling expenses were $16.9 million for the year ended December 31, 2022 ,
compared to $18.3 million for the year ended December 31, 2021 , representing a
decrease of $1.4 million , or 7.7%, which was mainly due to a decrease in
transportation expenses as a result of decreased air freight, with an offsetting
impact of increased marketing and office expense caused by the increased sales
in 2022.
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General and Administrative Expenses
For the years ended
Year Ended December 31,
2022 2021 Increase/(Decrease) Percentage
Salaries and wages $ 10,141 $ 9,693 $ 448 4.6 %Allowances for credit losses 4,456 2,738
1,718 62.7 %
Office expense 3,118 3,361 (243) (7.2) %
Labor insurance expense 2,128 2,221 (93) (4.2) %Depreciation and amortization expense 1,798 2,233
(435) (19.5) %
Listing expenses (1) 1,464 1,445 19 1.3 %
Property and other taxes 1,238 1,474 (236) (16.0) %Maintenance and repair expenses 1,183 947
236 24.9 %
Other expense 594 311 283 91.0 %
Total $ 26,120 $ 24,423 $ 1,697 6.9 %
(1) Listing expenses consisted of the costs associated with legal, accounting and
auditing fees for operating a public company.
General and administrative expenses were$26.1 million for the year endedDecember 31, 2022 , as compared to$24.4 million for the year endedDecember 31, 2021 , representing an increase of$1.7 million , or 7.0%, which was mainly due to the increase of provision of allowance for doubtful accounts.
Research and Development Expenses
Research and development expenses, "R&D" expenses, were$36.1 million for the year endedDecember 31, 2022 as compared to$28.2 million for the year endedDecember 31, 2021 , representing an increase of$7.9 million , or 28.0%, which was mainly due to the increase of expenditures on R&D activities for new projects.
Other Income, Net
Other income, net was$5.8 million for the year endedDecember 31, 2022 , as compared to$6.7 million for the year endedDecember 31, 2021 , representing a decrease of$0.9 million , which was primarily due to the provision for impairment of prepayment for the investment inHefei Senye (See Note 10), with an offsetting impact of an increase in the amount of government subsidies from$4.9 million in 2021 to$6.3 million in 2022.
Interest Expense
Interest expense was
Financial Income/(Expense), net
Financial income, net was$10.8 million for the year endedDecember 31, 2022 , as compared to financial expense, net of$2.4 million for the year endedDecember 31, 2021 , representing an increase in financial income of$13.2 million , which was primarily due to an increase in the foreign exchange gains due to the sharp fluctuations of the US dollar against the RMB and the Brazilian Real.
Income Taxes
Income tax expense was$3.1 million for the year endedDecember 31, 2022 , as compared to$4.0 million for the year endedDecember 31, 2021 , representing a decrease of$0.9 million , or 22.5%, which was mainly due to the less valuation allowance in the year endedDecember 31, 2022 and offsetting by the increase in income before income tax expenses. 39 | Page Table of Contents
Net Income/(loss) Attributable to Non-controlling Interests
Net income attributable to non-controlling interests amounted to$1.1 million for the year endedDecember 31, 2022 , compared to net loss attributable to non-controlling interests of$0.4 million for the year endedDecember 31, 2021 , representing an increase in net income attributable to non-controlling interests of$1.5 million .
Net Income Attributable to Parent Company's Common Shareholders
Net income attributable to parent company's common shareholders was
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources and Use of Cash
The Company has historically financed its liquidity requirements from a variety of sources, including short-term borrowings under bank credit agreements, bankers' acceptances, issuances of capital stock and notes and internally generated cash. As ofDecember 31, 2022 , the Company had cash and cash equivalents and short-term investments of$134.1 million , compared with$133.5 million as ofDecember 31, 2021 , representing an increase of$0.6 million . The Company had working capital (total current assets less total current liabilities) of$156.5 million as ofDecember 31, 2022 , compared with$149.6 million as ofDecember 31, 2021 , representing an increase of$6.9 million , or 4.6%.
Except for the expected distribution of dividends from the Company's PRC
subsidiaries to the Company in order to fund the payment of the one-time
transition tax due to the
The pandemic of COVID-19 has had certain impacts on our cash flow for the year of 2022 with potential continuing impacts on subsequent periods. However, based on our liquidity assessment, we believe that our current cash position, cash flow from operations and proceeds from our financing activities will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the foreseeable future and for at least 12 months subsequent to the filing of this annual report.
Capital Source
The Company's capital source is multifaceted, such as bank loans and banks' acceptance facilities. In financing activities and operating activities, the Company's banks require the Company to sign line of credit agreements and repay such facilities within one to two years. On the condition that the Company can provide adequate mortgage security and has not violated the terms of the line of credit agreement, such facilities can be extended for another one to two years.
The Company had short-term loans of
The Company currently expects to be able to obtain similar bank loans, i.e., RMB loans, and bankers' acceptance facilities in the future if it can provide adequate mortgage security following the termination of the above-mentioned agreements, see the table under "Bank Arrangements" below for more information. If the Company is not able to do so, it will have to refinance such debt as it becomes due or repay that debt to the extent it has cash available from operations or from the proceeds of additional issuances of capital stock. Due to a depreciation of assets, the value of the mortgages securing the above-mentioned bank loans and banker's acceptances is expected to be reduced by approximately$17.0 million over the next 12 months. If the Company wishes to maintain the same amount of bank loans and banker's acceptances in the future, it may be required by the banks to provide additional mortgages of$17.0 million as of the maturity date of such line of credit agreements, see the table under "Bank Arrangements" below for more information. The Company can still obtain lines of credit with a reduction of$10.9 million , which is 64.0%, the mortgage ratio, of$17.0 million , if it cannot provide additional mortgages. The Company expects that the reduction in bank loans will not have a material adverse effect on its liquidity. 40 | Page Table of Contents Bank Facilities As ofDecember 31, 2022 , the principal outstanding under the Company's credit facilities and lines of credit was as follows (figures are in thousands of USD). Assessed Due Amount Amount Mortgage Bank
Date Available (3) Used (4) Value (5) 1. Comprehensive credit facilities
China CITIC Bank (2) Aug-2024 69,638 47,411 27,447
2. Comprehensive credit facilities Shanghai Pudong Development Bank (1) (2) Jan-2023
18,666 12,743 16,729
3. Comprehensive credit facilities Hubei Bank(2) Mar-2024 24,409 774 74,377
4. Comprehensive credit facilities Chongqing Bank Mar-2025 1,005 571 1,833
5. Comprehensive credit facilities China Constitution Bank Sep-2025 2,872 2,297 6,516
6. Comprehensive credit facilities China Merchants Bank(1) Jun-2024 14,358 5,529 -
7. Comprehensive credit facilities Bank of China (1) Aug-2023 13,066 5,743 -
8. Comprehensive credit facilities China Everbright Bank
Dec-2025 4,307 - 9,020
Total $ 148,321 $ 75,068 $ 135,922 (1) The facility has expired. The Company is currently in the process of
negotiating with the bank to renew the credit facility.
The comprehensive credit facilities with China CITIC Bank are guaranteed by
Henglong and Hubei Henglong in addition to the above pledged assets. The
comprehensive credit facilities with Shanghai Pudong Development Bank are
guaranteed by Henglong in addition to the above pledged assets. The
(2) comprehensive credit facilities with
in addition to the above pledged assets. The comprehensive credit facilities
with
account receivables in addition to the above pledged assets. The
comprehensive credit facilities with
Henglong in addition to the above pledged assets.
"Amount available" is used for the drawdown of bank loans and issuance of (3) bank notes at the Company's discretion. If the Company elects to utilize the
facility by issuance of bank notes, additional collateral is requested to be
pledged to the bank.
"Amount used" represents the credit facilities used by the Company for the
purpose of bank loans or notes payable during the facility contract period.
The loans or notes payable under the credit facilities will remain (4) outstanding regardless of the expiration of the relevant credit facilities
until the separate loans or notes payable expire. The amount used includes
bank loans of
31, 2022.
In order to obtain lines of credit, the Company needs to pledge certain
(5) assets to banks. As of
property, plant and equipment and land use rights with an aggregate assessed
value of
The Company may request the banks to issue notes payable or bank loans within its credit line using a 365-day revolving line.
The Company renewed its existing short-term loans and borrowed new loans during 2022 at annual interest rates ranging from 1.60% to 3.90%, and the Company's loan terms range from 3 months to 35 months. The large spread in interest rates was due to the different lenders. Pursuant to the comprehensive credit line arrangement, the Company pledged and guaranteed:
Land use rights and buildings with an assessed value of approximately
BankWuhan Branch. 41 | Page Table of Contents
Land use rights and buildings with an assessed value of approximately
Shanghai Pudong Development Bank.
3. Equipment with an assessed value of approximately
for its revolving comprehensive credit facility with
4. Buildings with an assessed value of approximately
its comprehensive credit facility with
Land use rights and buildings with an assessed value of approximately
Land use rights and buildings with an assessed value of approximately
Everbright Bank . 42 | Page Table of Contents Cash Requirements The following table summarizes the Company's expected cash outflows resulting from financial contracts and commitments. The Company has not included information on its recurring purchases of materials for use in its manufacturing operations. These amounts are generally consistent from year to year, closely reflecting the Company's levels of production, and are not long-term in nature (being less than three months in length). (in thousands of USD) Less than 1 More than 5 Total year 1-3 years 3-5 years Years
Loans including interest payable$ 46,695 $ 46,121 $ 574 $ - $ - Notes payable (1) 91,693 91,693 - - - Taxes payable and withholding tax liabilities due toU.S. Tax Reform (See Note 22) 21,075 5,270 15,805 - - Obligation for investment contract (2) 6,350 6,350 - - - Other contractual purchase commitments, including service agreements 28,612 23,962
4,650 - -
Total $ 194,425 $ 173,396 $ 21,029 $ - $ -
(1) Notes payable do not bear interest.
In
party controlled by the Company's controlling shareholder, Mr.
In accordance with the agreement, CAAS would purchase 200 shares,
representing 40% of
total consideration of
purchase agreement, the Company has the right to appoint two directors to the
board of directors, so it can exercise significant influence over Sentient
AB. Therefore, the investment is accounted for using the equity method. As of
approximately
million, equivalent to approximately
InJanuary 2022 , Hubei Henglong entered into an agreement with other parties and committed to purchase 27.78% of the shares of Suzhou Qingshan for total consideration ofRMB 60.0 million , equivalent to approximately$9.5 million at the prevailing rate. As ofDecember 31, 2022 , Hubei Henglong has paidRMB 30.0 million , equivalent to approximately$4.7 million . According to the agreement, the remaining consideration ofRMB 30.0 million , equivalent to approximately$4.3 million , will be paid in 2023. 43 | Page Table of Contents
Short-term Loans and Long-term Loans
The following table summarizes the contract information of short-term borrowings between the banks and the Company as ofDecember 31, 2022 (figures are in thousands of USD). Borrowing Annual Date of Bank Borrowing Term Interest Interest Government Purpose Date (Months) Principal Rate Payment Due DateBank of China Working Capital October 28, 2022 12 2,872 3.80 % Pay monthly October 28, 2023Bank of China Working Capital September 28, 2022 12 2,872 3.00 % Pay monthly September 27, 2023 China CITIC Bank(1) Working Capital April 27, 2022 9 1,436 3.90 % Pay monthly January 27, 2023 China CITIC Bank(1) Working Capital May 20, 2022 8 1,436 3.90 % Pay quarterly January 20, 2023 China CITIC Bank Working Capital September 26, 2022 12 718 3.65 % Pay monthly September 25, 2023 China CITIC Bank Working Capital September 26, 2022 12 718 3.65 % Pay monthly September 25, 2023
12 1,436 3.50 % Pay monthly September 26,
2023
Chongqing Bank Working Capital April 14, 2022 12 14 3.85 % Pay semiannually April 14, 2023
Chongqing Bank Working Capital April 14, 2022 18 14 3.85 % Pay semiannually October 14, 2023
Chongqing Bank Working Capital April 14, 2022 35 39 3.85 % Pay semiannually March 20, 2025
Chongqing Bank Working Capital April 27, 2022 35 120 3.85 % Pay semiannually March 20, 2025
Chongqing Bank Working Capital May 12, 2022 34 75 3.85 % Pay semiannually March 20, 2025
Chongqing Bank Working Capital May 24, 2022 34 55 3.85 % Pay semiannually March 20, 2025
Chongqing Bank Working Capital June 16, 2022 33 43 3.85 % Pay semiannually March 20, 2025
Chongqing Bank Working Capital June 29, 2022 33 116 3.85 % Pay semiannually March 20, 2025
Chongqing Bank Working Capital July 28, 2022 33 80 3.85 % Pay semiannually April 13, 2025
China CITIC Bank Working Capital June 16, 2022 12 6,872 2.30 % Pay in arrear June 15, 2023
China CITIC Bank(1) Working Capital March 21, 2022 12 1,392 3.00 % Pay in arrear March 21, 2023
China CITIC Bank(1) Working Capital March 23, 2022 12 4,455 3.00 % Pay in arrear March 23, 2023
China CITIC Bank Working Capital June 16, 2022 12 4,909 2.30 % Pay in arrear June 15, 2023
Hankou Bank(1) Working Capital March 18, 2022 12 2,817 1.90 % Pay in arrear March 13, 2023
China CITIC Bank(1) Working Capital March 21, 2022 12 5,151 3.00 % Pay in arrear March 21, 2023
China CITIC Bank(1) Working Capital September 5, 2022 6 504 1.70 % Pay in arrear February 28, 2023
China CITIC Bank(1) Working Capital September 21, 2022
5
China CITIC Bank(1) Working Capital September 21, 2022 4 143 1.70 % Pay in arrear January 18, 2023
China CITIC Bank(1) Working Capital September 21, 2022 4 143 1.70 % Pay in arrear January 18, 2023
China CITIC Bank(1) Working Capital September 21, 2022 5 338 1.70 % Pay in arrear February 9, 2023
China CITIC Bank(1) Working Capital September 21, 2022 5 285 1.70 % Pay in arrear February 13, 2023
China CITIC Bank(1) Working Capital September 21, 2022 5 285 1.70 % Pay in arrear March 2, 2023
44 | Page
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Borrowing Annual Date of
Bank Borrowing Term Interest Interest
Government Purpose Date (Months) Principal Rate Payment Due Date
China CITIC Bank Working Capital
71 1.65 % Pay in arrear
China CITIC Bank Working Capital
427 1.65 % Pay in arrear
China CITIC Bank Working Capital
142 1.65 % Pay in arrear
China CITIC Bank Working Capital
214 1.65 % Pay in arrear
China CITIC Bank(1) Working Capital
286 1.65 % Pay in arrear
China CITIC Bank(1) Working Capital
372 1.65 % Pay in arrear
China CITIC Bank Working Capital
712 1.65 % Pay in arrear
China CITIC Bank Working Capital
285 1.65 % Pay in arrear
China CITIC Bank(1) Working Capital
143 1.65 % Pay in arrear
China CITIC Bank Working Capital
71 1.65 % Pay in arrear
China CITIC Bank Working Capital
27 1.65 % Pay in arrear
China CITIC Bank Working Capital
45 1.65 % Pay in arrear
China CITIC Bank Working Capital
143 1.65 % Pay in arrear
China CITIC Bank Working Capital
143 1.65 % Pay in arrear
China CITIC Bank Working Capital
63 1.65 % Pay in arrear
China CITIC Bank Working Capital
143 1.65 % Pay in arrear
China CITIC Bank Working Capital
100 1.65 % Pay in arrear
China CITIC Bank Working Capital
285 1.65 % Pay in arrear
China CITIC Bank Working Capital
285 1.65 % Pay in arrear
China CITIC Bank Working Capital
143 1.65 % Pay in arrear
China CITIC Bank Working Capital
143 1.65 % Pay in arrear
China CITIC Bank Working Capital
427 1.65 % Pay in arrear
China CITIC Bank Working Capital
285 1.60 % Pay in arrear
China CITIC Bank Working Capital
285 1.60 % Pay in arrear
China CITIC Bank Working Capital
285 1.60 % Pay in arrear
China CITIC Bank Working Capital
285 1.60 % Pay in arrear
China CITIC Bank Working Capital
50 1.60 % Pay in arrear
287 1.25 % Pay in arrear
142 1.25 % Pay in arrear
287 1.25 % Pay in arrear January 7, 2023
Total 46,199
(1) These bank loans were repaid during the period from January to March 2023
when they became due.
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The Company must use the loans for the purpose described and repay the principal
outstanding on the specified date in the table. If it fails to do so, it will be
charged additional 30% to 100% penalty interest.
The Company had complied with such financial covenants as of
Notes Payable
The following table summarizes the contract information of issuing notes payable between the banks and the Company as ofDecember 31, 2022 (figures are in thousands of USD): Amount Payable on Purpose Term (Month) Due Date Due Date Working Capital (1) 6 Jan-2023 14,454 Working Capital (1) 6 Feb-2023 10,732 Working Capital (1) 6 Mar-2023 14,083 Working Capital 6 Apr-2023 22,587 Working Capital 6 May-2023 16,731 Working Capital 6 Jun-2023 13,106 Total $ 91,693
(1) The notes payable were repaid in full on their respective due dates.
The Company must use notes payable for the purpose described in the table. If it fails to do so, the banks will no longer issue the notes payable, and it may have an adverse effect on the Company's liquidity and capital resources. The Company has to deposit a sufficient amount of cash on the due date of notes payable for payment to the suppliers. If the bank has advanced payment for the Company, it will be charged an additional 50% penalty interest. The Company complied with such financial covenants as ofDecember 31, 2022 , and management believes it will continue to comply with them.
Cash flows
(a)Operating Activities
Net cash provided by operating activities for the year endedDecember 31, 2022 was$48.0 million , compared to net cash provided by operating activities of$28.3 million for the year endedDecember 31, 2021 , representing an increase in net cash inflows by$19.8 million , which was mainly due to the offsetting impact of (1) the increase in net income excluding non-cash items by$16.0 million , (2) the decrease in the cash outflows from movements of inventory by$20.3 million , (3) the decrease in the cash inflows from movements of accounts and notes receivable by$63.5 million , (4) the decrease in the cash outflows from movements of accounts and notes payable by$30.1 million , and (5) a combination of other factors contributing an increase of cash inflows by$16.9 million , including the decrease in the cash outflows from movements of taxes payable
by$7.4 million . (b)Investing Activities
Net cash used in investing activities for the year endedDecember 31, 2022 was$32.7 million , as compared to net cash provided by investing activities of$3.0 million in 2021, representing an increase in cash outflows by$35.7 million , which was mainly due to the net effect of (1) an increase in purchase of short-term investments and long-term time deposits of$16.8 million , (2) a decrease in cash received from long-term investments$16.6 million , (3) a combination of other factors contributing to a decrease of cash inflows by$2.3 million , including an increase in the payment to acquire property, plant and equipment by$11.0 million , and a decrease in cash prepaid for investment under equity method by$13.5 million .
(c)Financing Activities
Net cash used in financing activities for the year endedDecember 31, 2022 was$1.6 million , compared net cash used in financing activities of$3.1 million for 2021, representing a decrease in outflows by$1.5 million , which was mainly
due
to the net effect of (1) a
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decrease in repayment of the borrowing under sale and leaseback transaction by$3.3 million , and (2) an increase in repurchase of common share by$2.4 million , (3) a combination of other factors contributed an increase of cash inflows by$0.6 million .
OFF-BALANCE SHEET ARRANGEMENTS
On
SUBSEQUENT EVENTS None.
INFLATION AND CURRENCY MATTERS
China's economy has experienced rapid growth recently, mostly through the issuance of debt. Debt-induced economic growth can lead to growth in the money supply and rising inflation. If prices for the Company's products rise at a rate that is insufficient to compensate for the rise in the cost of supplies, it may harm the Company's profitability. In order to control inflation, the Chinese government has imposed controls on bank credit, limits on loans for fixed assets and restrictions on state bank lending. Such policies can lead to a slowing of economic growth. Rises in interest rates by the central bank would likely slow economic activity inChina which could, in turn, materially increase the Company's costs and also reduce demand for the Company's products. Foreign operations are subject to certain risks inherent in conducting business abroad, including price and currency exchange controls, and fluctuations in the relative value of currencies. During 2022, the Company mainly supplied products toNorth America and settled in cash inU.S. dollars. As a result, appreciation or currency fluctuation of the RMB against theU.S. dollar would increase the cost of export products, and adversely affect the Company's financial performance. InJuly 2005 , the Chinese government adjusted its exchange rate policy from "Fixed Rate" to "Floating Rate." DuringDecember 2021 toDecember 2022 , the exchange rate between RMB andU.S. dollar appreciated fromRMB1.00 to$0.1568 toRMB1.00 to$0.1436 . The depreciation of the RMB may continue. Significant depreciation of the RMB is likely to decrease the Company's income generated fromChina .
RECENT ACCOUNTING PRONOUNCEMENTS
Information regarding new accounting pronouncements is included in Note 2 to the Consolidated Financial Statements.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted inthe United States of America . The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amount of revenues and expenses during the reporting periods. Management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions. The following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's consolidated financial statements.
The Company considers an accounting estimate to be critical if:
? it requires the Company to make assumptions about matters that were uncertain
at the time it was making the estimate; and
changes in the estimate or different estimates that the Company could have
? selected would have had a material impact on the Company's financial condition
or results of operations.
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Table of Contents
The table below presents information about the nature and rationale for the Company critical accounting estimates:
Critical
Balance Sheet Estimate Assumptions/Approaches
Nature of Estimates
Caption Item Required Used Key Factors
Accrued Warranty Estimating warranty The Company bases its · OEM sourcing
liabilities and obligations requires the Company to estimate on historical · OEM policy
other long-term forecast the resolution trends of units sold decisions
liabilities of existing claims and and payment amounts, regarding
expected future claims combined with its warranty
on products sold. OEMs current understanding claims
are increasingly of the status of
seeking to hold existing claims and
suppliers responsible discussions with its
for product warranties, customers.
which may impact the
Company's exposure to
these costs.
Property, plant Valuation of The Company is The Company estimates · Future
and equipment, long- lived required, from cash flows using production
intangible assets and time-to-time, to review internal budgets based estimates
assets and other investments the recoverability of on recent sales data, · Customer
long-term assets certain of its assets independent automotive preferences
based on projections of production volume and decisions
anticipated future cash estimates and customer
flows, including future commitments.
profitability
assessments of various
product lines.
Accounts Allowance for The Company is TheCompany estimates · Customer receivable doubtful required, from time to the collectability of credit
accounts time, to review the the receivables based
credit of customers and on the future cash
make timely provision flows using historical
of allowance for experiences.
doubtful accounts.
Inventory Provision for The Company is The Company estimates · Future
inventory required, from time to cash flows using production
impairment time, to review the internal budgets based estimates
turnover of inventory on recent sales data, · Customer
based on projections of independent automotive preferences
anticipated future cash production volume and decisions
flows, including estimates and customer
provision of inventory commitments.
impairment for over
market price and
undesirable
inventories.
Deferred income Recoverability The Company is required The Company uses · Tax law
taxes of deferred to estimate whether historical and changes
tax assets recoverability of its projected future · Variances in
deferred tax assets is operating results, future
more likely than not based upon approved projected
based on forecasts of business plans, profitability,
taxable earnings in the includinga review of including by
related tax the eligible taxing entity
jurisdiction. carry-forward period,
tax planning
opportunities and
other relevant
considerations.© Edgar Online, source
