UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F/A
(Amendment No. 1)
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For fiscal year ended December 31, 2014
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report______________
For the transition period from __________ to ___________
Commission file number 001-34477
FINCERA INC.
(Exact name of the Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
27/F, Kai Yuan Center, No. 5, East Main Street
Shijiazhuang, Hebei
People’s Republic of China
Tel: +86 311 8382 7688
Fax: +86 311 8381 9636
(Address of principal executive offices)
Yong Hui Li
27/F, Kai Yuan Center, No. 5, East Main Street
Shijiazhuang, Hebei
People’s Republic of China
Tel: +86 311 8382 7688
Fax: +86 311 8381 9636
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of each exchange on which registered | |
| Ordinary Shares, par value $0.001 per share | OTC QB |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
N/A
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or ordinary shares as of the close of the period covered by the annual report: 23,549,644 ordinary shares, par value $0.001 per share, as of December 31, 2014.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.¨ Yes x No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.¨
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.
| ¨ Large Accelerated filer | x Accelerated filer | ¨ Non-accelerated filer |
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| x US GAAP | ¨ International Financial | ¨ Other | ||
| Reporting Standards as issued by | ||||
| the International Accounting | ||||
| Standards Board |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
¨ Item 17 ¨ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes x No
Explanatory Note
This Amendment No. 1 to the Annual Report on Form 20-F for the year ended December 31, 2014 (the “Annual Report”) of Fincera Inc. (previously known as AutoChina International Limited) (the “Company”) is being filed in response to comments received from the Securities and Exchange Commission (“SEC”). Pursuant to the comments of the SEC, the Company is amending the Annual Report as follows:
| · | The Company has revised the disclosure in Item 5 – Liquidity and Capital Resources – Contractual Payment Obligations, to add disclosure relating to future interest payments. |
| · | The Company is refiling its certifications and the consent of its auditor to correctly refer to the Annual Report and the associated report of the of the auditor. |
Except as indicated above, no other changes have been made to the Annual Report other than revising Item 19 – Exhibits to accurately reflect the exhibits being filed with this Amendment No. 1.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
OVERVIEW
AutoChina International Limited (“AutoChina,” the “Company,” or “we”) is a holding company whose only business operations are conducted through its wholly owned subsidiary, AutoChina Group Inc. (“ACG”). ACG’s operations consist of the commercial vehicle sales, servicing, leasing and support business, which provides financing to customers to purchase commercial vehicles and related services, and the office leasing business, which leases out office space in the Kai Yuan Center building.
We were incorporated in the Cayman Islands on October 16, 2007 under the name “Spring Creek Acquisition Corp.” as a blank check company formed for the purpose of acquiring, through a stock exchange, asset acquisition or other similar business combination, or controlling, through contractual arrangements, an operating business, that had its principal operations in greater China.
On April 9, 2009, we acquired all of the outstanding securities of ACG, an exempt company incorporated in the Cayman Islands, from Honest Best Int’l Ltd., resulting in ACG becoming our wholly owned subsidiary. Promptly after our acquisition of ACG, we changed our name to “AutoChina International Limited.”
Prior to our acquisition of ACG, we had no operating business.
RESULTS OF OPERATIONS
2014 Compared to 2013
Overview
Although AutoChina’s net income decreased during the year ended December 31, 2014, there was an increase in revenue during the period as commercial vehicle sales increased in part due to growth in the commercial vehicle market and property lease and management revenues increased due to higher occupancy rates.
Details of the vehicles leased are as follows:
| Number of Vehicles Leased | ||||
| Balance at January 1, 2012 | 23,927 | |||
| New leases recorded in the year ended December 31, 2012 | 5,385 | |||
| Vehicles repossessed or loss to accident in 2012 | (793 | ) | ||
| Vehicles transferred to customers at the end of lease term in 2012 | (13,441 | ) | ||
| Balance at December 31, 2012 | 15,078 | |||
| New leases recorded in the year ended December 31, 2013 | 11,902 | |||
| Vehicles repossessed or loss to accident in 2013 | (782 | ) | ||
| Vehicles transferred to customers at the end of lease term in 2013 | (11,203 | ) | ||
| Balance at December 31, 2013 | 14,995 | |||
| New leases recorded in the year ended December 31, 2014 | 15,615 | |||
| Vehicles repossessed or loss to accident in 2014 | (488 | ) | ||
| Vehicles transferred to customers at the end of lease term in 2014 | (6,303 | ) | ||
| Balance at December 31, 2014 | 23,819 | |||
| 1 |
During the year ended December 31, 2014, the Company established an aggregate of 9 additional commercial vehicle sales, servicing, leasing and support centers in the Guangxi, Guangdong, Gansu, Guizhou, Hunan, and Jiangxi Provinces, bringing the total number of locations to 555 as of December 31, 2014. All the new stores were opened in provinces which had existing stores in order to enhance the coverage of the store network.
Revenues
The table below sets forth certain line items from the Company’s Statement of Income as a percentage of revenues:
| (in thousands) | Year ended December 31, 2014 | Year ended December 31, 2013 | ||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | Y-O-Y % CHANGE | ||||||||||||||||
| Commercial vehicles | $ | 736,145 | 90.5 | % | $ | 593,912 | 90.2 | % | 23.9 | % | ||||||||||
| Finance lease interests | 54,301 | 6.7 | % | 43,385 | 6.6 | % | 25.2 | % | ||||||||||||
| Insurance and other | 18,065 | 2.2 | % | 20,330 | 3.1 | % | (11.1 | )% | ||||||||||||
| Property lease and management | 4,937 | 0.6 | % | 501 | 0.1 | % | 885.4 | % | ||||||||||||
| Total revenues | $ | 813,448 | 100.0 | % | $ | 658,128 | 100.0 | % | 23.6 | % | ||||||||||
Revenues for the year ended December 31, 2014 were $813.4 million, an increase of 23.6% from $658.1 million in the prior year period, as a result of an increase in commercial vehicles revenue due to the increase in the volume of new vehicle leases and an increase in property lease and management revenue due to a higher percentage of available space being leased out.
Commercial vehicles revenue increased by 23.9%, which was primarily due to an increase in the volume of new vehicle leases during the year. AutoChina’s commercial vehicle sales, servicing, leasing and support business recorded 15,615 new leases in the year ended December 31, 2014, compared to 11,902 new leases in the year ended December 31, 2013. The increase in commercial vehicles revenue was partially offset by a decrease in average price per vehicle from $49,900 per vehicle in 2013 to $47,100 per vehicle in 2014. The Company, on a net basis after taking into account the net increase or decrease in the inventory of repossessed vehicles, repossessed 468 vehicles whose lessees had defaulted on installment payments, sold 495 vehicles (from this period and from prior periods), and recognized 25 lost vehicles during the year ended December 31, 2014. In comparison, there were 758 vehicles repossessed on a net basis, 763 vehicles sold and 30 lost vehicles recognized in the year ended December 31, 2013. The increase in commercial vehicle sales, servicing and leasing was primarily due to a general stabilization in the economy that led to favorable investment sentiment for prospective purchasers of commercial vehicles in addition to success of the peer stores business, which was launched in April 2014.
Revenues from value-added services (diesel, tire and insurance financing services) totaled $50,000 during the year ended December 31, 2014 compared with $129,000 during the prior year. During 2014, AutoChina continued to tighten the credit requirements for customers of the value-added services as a way to manage default risk, which led to a decrease in value-added services revenues. As of December 31, 2014, over 260 tire outlets and over 80 fueling stations participate in the program. The Company has de-emphasized its value-added services and second-hand commercial vehicle programs and may eventually retire them.
Commencing in July 2011, AutoChina restructured its second-hand commercial vehicle program and began offering leasing arrangements to approved customers. We recognized the second-hand vehicle leasing arrangements as a direct financing lease and leased 32 second-hand vehicles during fiscal 2014 compared with 284 second-hand vehicles leased in fiscal 2013. Revenue generated from second-hand commercial vehicle leasing arrangements during the year ended December 31, 2014 was $546,000, compared to $634,000 in the prior year.
We recognize revenue from membership fees during the term of our customer’s lease as lease revenue. We also charge service and support fees on a monthly basis when the services are rendered. Once the lease term ends (in June of 2010 the leases for our first customers began to end), a customer can elect to continue to participate in our service and support network, and we will also charge service and support fees on a monthly basis when the services are rendered. As of December 31, 2014 there were owners of 1,434 vehicles that continue to pay for services after the termination of the direct financing and sales-type lease, representing a retention rate of approximately 3.7%.
| 2 |
Finance lease interests revenue increased 25.2% as a result of the increase in the total outstanding number of commercial vehicle sales, servicing, leasing and support contracts in effect in the year ended December 31, 2014 compared to fiscal 2013. Insurance and other revenue decreased 11.1% compared to the prior year, as a result of a higher proportion of leases being originated through peer stores, which will typically not utilize our direct insurance agency business to purchase vehicle insurance.
Property lease and management revenues totaled $4,937 in the year ended December 31, 2014, and represent the revenues of the office leasing business. This represents an increase of 885.4% compared to the prior year due to a higher percentage of available space in the Kai Yuan Center being leased out to tenants. The office leasing business commenced operations during the third quarter of 2013.
Cost of Sales
The table below sets forth certain line items from the Company’s Statement of Income as a percentage of cost of sales:
| (in thousands) | Year ended December 31, 2014 | Year ended December 31, 2013 | ||||||||||||||||||
| Amount | % of Cost of sales | Amount | % of Cost of sales | Y-O-Y % CHANGE | ||||||||||||||||
| Commercial vehicles | $ | 34,582 | 4.8 | % | $ | 9,981 | 1.7 | % | 246.5 | % | ||||||||||
| Commercial vehicles, related parties | 686,847 | 94.6 | % | 569,807 | 97.5 | % | 20.5 | % | ||||||||||||
| Insurance | 1,887 | 0.3 | % | 3,485 | 0.6 | % | (45.9 | )% | ||||||||||||
| Property lease and management | 2,532 | 0.3 | % | 1,360 | 0.2 | % | 86.2 | % | ||||||||||||
| Total cost of sales | $ | 725,848 | 100.0 | % | $ | 584,633 | 100.0 | % | 24.2 | % | ||||||||||
Cost of sales – Commercial vehicles and Cost of Sales – Commercial vehicles, related parties consist of the purchase price of the leased vehicles plus the direct labor costs of the operations. The total costs of sales in the year ended December 31, 2014 totaled $725.8 million, as compared to $584.6 million in the prior year, an increase of 24.2%, mainly due to the increased sales volume in the commercial vehicle sales, servicing, leasing and support business, which was partially offset by a decrease in average unit cost per vehicle. The average cost per vehicle in the year ended December 31, 2014 was $46,200 as compared to $48,700 per vehicle in the prior year. The decrease in cost per vehicle was due to changes in customer demand and a higher proportion of vehicles being leased through our peer stores, which have a different sales mix than our own stores. Cost of Sales – Commercial vehicles totaled $34.6 million in the year ended December 31, 2014, as compared to $10.0 million in the prior year, an increase of 246.5%, mainly due to the increased sales volume in the commercial vehicle sales, servicing, leasing and support business and our sourcing of a slightly higher proportion of commercial vehicles from unrelated parties. As a result, the percentage increase in Cost of Sales – Commercial vehicles was greater than the percentage increase in Cost of Sales – Commercial vehicles, related parties and Commercial vehicles revenue during the year ended December 31, 2014. Cost of Sales – Commercial vehicles, related parties totaled $686.8 million during the year ended December 31, 2014 as compared to $569.8 million in fiscal 2013, an increase of 20.5%, due to the increased sales volume of commercial vehicles.
Cost of insurance in the year ended December 31, 2014 totaled $1.9 million, as compared to $3.5 million in the prior year, a decrease of 45.9%, mainly due to the decreased revenue from our direct insurance agency services as a result of a higher proportion of leases being originated through peer stores, who will typically not utilize our direct insurance agency business to purchase the vehicle insurance.
Cost of sales – Property lease and management consists of renovation costs, depreciation, property taxes, and personnel costs related to the office leasing business. Cost of sales – Property lease and management totaled $2.5 million during the year ended December 31, 2014, as compared to $1.4 million during fiscal 2013. The increase is mainly attributable to the Kai Yuan Center building being completed and beginning to be depreciated during the second quarter of 2013.
| 3 |
Gross Profit
The Company’s gross profit was $87.6 million in the year ended December 31, 2014, representing a gross margin of 10.8%, a slight decrease from 11.2% for the prior year, which is primarily due to the significantly higher number of new leases established during the period, which has a lower margin than the monthly amortized finance income, in addition to a higher proportion of leases being originated through the peer store network, which have a lower margin than leases originated through our own stores. Increased property lease and management revenue partially offset the decrease in gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2014 were $57.3 million, which was $2.9 million, or 4.8%, lower than the same period of 2013. This was mainly due to a smaller increase in allowance for credit losses than the prior year and a reduction in total headcount from 2,737 at December 31, 2013 to 2,644 at December 31, 2014.
From December 31, 2013 to December 31, 2014, we increased the provision for doubtful accounts from $21.3 million to $29.1 million. The increase was based on our management’s ongoing analysis of credit losses for the account receivables and net investments in direct financing and sales-type leases from our lessee customers. The Company evaluates the collectability of its accounts receivable based on a combination of factors, including customer credit-worthiness, residual value of the commercial vehicles under lease and historical collection experience. Management reviews the receivable and adjusts the allowance based on historical experience, financial condition of the customer and other relevant current economic factors. For example, risk factors including the general economic slow-down and increasing delinquency trend in monthly payments by customers led management to increase its estimate. The increase of provision for doubtful accounts during the year was recorded in general and administrative expenses, and accordingly affects the earnings for the year.
Litigation expense
Litigation expense totaled $4.35 million for year ended December 31, 2014. This represented the amount the Company agreed to pay to settle the outstanding lawsuit with the SEC (see Note 17 to the financial statements). There was no litigation expense during the year ended December 31, 2013.
Interest Expense
Interest expense totaled $22.8 million for the year ended December 31, 2014, of which $10.7 million of interest expense was incurred to affiliates, Alliance Rich, Beiguo Auto, Hebei Kaiyuan, Hebei Ruijie Hotel Management Company, Hebei Ruituo Auto Trading Co., Ltd. (“Ruituo”) and Xinji Beiguo Mall. It includes interest of $858,000 and $128,000 incurred for loans advanced from Hebei Kaiyuan and Hebei Ruijie Hotel Management Company, respectively. It also included interest of $2.4 million, $1.7 million and $4.6 million incurred for the purchase of commercial vehicles for leasing from Ruituo, Beiguo Auto and Xinji Beiguo Mall, respectively. $939,000 of interest expense was incurred to Alliance Rich for amounts still outstanding from the acquisition of Heat Planet.
Interest expense totaled $9.6 million for the year ended December 31, 2013, of which $2.0 million of interest expense was incurred to affiliates. Other interest expenses increased to $12.1 million from $7.6 million, which resulted from the increased average interest rates and borrowing balances from banks, lease securitization and affiliates during the year.
Other income
Other income totaled $12.4 million for the year ended December 31, 2014, as compared to $13.4 million in the prior year, a decrease of 8.0% as compared to 2013. The decrease was mainly attributable to a decrease in penalty income, which are late charges imposed on customers for late payment of their monthly installments.
| 4 |
Interest Income
Interest income decreased from $406,000 to $168,000 due to the decreased average cash balance over the year ended December 31, 2014.
Income Tax Expense
In the year ended December 31, 2014, the Company recorded income tax expense of $5.5 million, as compared to an income tax expense of $5.7 million in the year ended December 31, 2013. This decrease was due to the decreased pre-tax income generated by the Company’s Chinese subsidiaries.
Income from Operations and Net Income
Income from operations and net income in the year ended December 31, 2014 was $10.2 million, as compared to $11.8 million in year ended December 31, 2013, representing a decrease of 14.1%. The decrease primarily resulted from the litigation expense incurred during 2014, which resulted in higher operating expenses during the year.
2013 Compared to 2012
Overview
AutoChina’s earnings decreased during the year ended December 31, 2013, although there was a substantial increase in revenue during the period as commercial vehicle sales increased significantly in part due to growth in the commercial vehicle market.
Details of the vehicles leased are as follows:
| Number of Vehicles Leased | ||||
| Balance at January 1, 2011 | 19,629 | |||
| New leases recorded in the year ended December 31, 2011 | 10,935 | |||
| Vehicles repossessed or loss to accident in 2011 | (169 | ) | ||
| Vehicles transferred to customers at the end of lease term in 2011 | (6,468 | ) | ||
| Balance at December 31, 2011 | 23,927 | |||
| New leases recorded in the year ended December 31, 2012 | 5,385 | |||
| Vehicles repossessed or loss to accident in 2012 | (793 | ) | ||
| Vehicles transferred to customers at the end of lease term in 2012 | (13,441 | ) | ||
| Balance at December 31, 2012 | 15,078 | |||
| New leases recorded in the year ended December 31, 2013 | 11,902 | |||
| Vehicles repossessed or loss to accident in 2013 | (782 | ) | ||
| Vehicles transferred to customers at the end of lease term in 2012 | (11,203 | ) | ||
| Balance at December 31, 2013 | 14,995 | |||
During the year ended December 31, 2013, the Company established an aggregate of 12 additional commercial vehicle sales, servicing, leasing and support centers in the Anhui, Fujian, Liaoning, Sichuan, Yunnan and Zhejiang Provinces, bringing the total number of locations to 546 as of December 31, 2013. All the new stores were opened in provinces which have existing stores in order to enhance the store network.
| 5 |
Revenues
The table below sets forth certain line items from the Company’s Statement of Income as a percentage of revenues:
| (in thousands) | Year ended December 31, 2013 | Year ended December 31, 2012 | ||||||||||||||||||
| Amount | % of Revenue | Amount | % of Revenue | Y-O-Y % CHANGE | ||||||||||||||||
| Commercial vehicles | $ | 593,912 | 90.2 | % | $ | 249,040 | 74.8 | % | 138.5 | % | ||||||||||
| Finance | 43,385 | 6.6 | % | 69,804 | 21.0 | % | (37.8 | )% | ||||||||||||
| Insurance | 20,330 | 3.1 | % | 14,268 | 4.2 | % | 42.5 | % | ||||||||||||
| Property lease and management | 501 | 0.1 | % | 0 | 0.0 | % | 100.0 | % | ||||||||||||
| Total revenues | $ | 658,128 | 100.0 | % | $ | 333,112 | 100.0 | % | 97.6 | % | ||||||||||
Revenues for the year ended December 31, 2013 were $658.1 million, an increase of 97.6% from $333.1 million in the prior year period, as a result of a significant increase in commercial vehicles revenue due to the increase in the volume of new vehicle leases.
Commercial vehicles revenue increased by 138.5%, which was primarily due to an increase in the volume of new vehicle leases during the year. AutoChina’s commercial vehicle sales, servicing, leasing and support business recorded 11,902 new leases in the year ended December 31, 2013, compared to 5,385 new leases in the year ended December 31, 2012. The increase in commercial vehicles revenue was also contributed to by an increase in average price per vehicle from $46,200 per vehicle in 2012 to $49,900 per vehicle in 2013. The Company repossessed 758 vehicles whose lessees had defaulted on installment payments, sold 763 of these vehicles and other vehicles repossessed in prior periods, and realized losses relating to 30 vehicles during the year ended December 31, 2013. In comparison, there were 789 vehicles repossessed, 611 vehicles sold and 18 loss vehicles recognized in the year ended December 31, 2012. The increase in commercial vehicle sales, servicing and leasing was primarily due to a general stabilization in the economy that led to favorable investment sentiment for prospective purchasers of commercial vehicles.
Revenues from value-added services (diesel, tire and insurance financing services) totaled $129,000 during the year ended December 31, 2013 compared with $650,000 during the prior year. During 2013, AutoChina continued to tighten the credit requirements for customers of the value-added services as a way to manage default risk, which led to a decrease in value-added services revenues. In addition the Company has de-emphasized the services and may eventually retire them. As of December 31, 2013, over 260 tire outlets and over 80 fueling stations participate in the program. Meanwhile, commencing July 2011, AutoChina restructured its second-hand commercial vehicle program and began offering leasing arrangements to approved customers. We recognized the second-hand vehicle leasing arrangements as a direct financing lease and leased 284 second-hand vehicles during fiscal 2013 compared with 824 second-hand vehicles leased in fiscal 2012. Revenue generated from second-hand commercial vehicle leasing arrangements during the year ended December 31, 2013 was $634,000, compared to $2,684,000in the prior year.
We recognize revenue from membership fees during the term of our customer’s lease as lease revenue. We also charge service and support fees on a monthly basis when the services are rendered. Once the lease term ends (in June of 2010 the leases for our first customers began to end), a customer can elect to continue to participate in our service and support network, and we will also charge service and support fees on a monthly basis when the services are rendered. As of December 31, 2013 there were owners of 1,217 vehicles that continue to pay for services after the termination of the direct financing and sales-type lease, representing a retention rate of approximately 3.7%.
Finance revenue decreased 37.8% as a result of the decrease in the total outstanding number of commercial vehicle sales, servicing, leasing and support contracts in effect in the year ended December 31, 2013 compared to fiscal 2012. Insurance and other revenue increased 42.5% compared to the prior year, as a result of the continued growth of the new direct insurance agency business that commenced in late 2011.
Property lease and management revenues totaled $501,000 in the year ended December 31, 2013 and represent the revenues of the office leasing business. This business commenced operations during the third quarter of 2013 and therefore there were no revenues during the year ended December 31, 2012.
| 6 |
Cost of Sales
The table below sets forth certain line items from the Company’s Statement of Income as a percentage of cost of sales:
| (in thousands) | Year ended December 31, 2013 | Year ended December 31, 2012 | ||||||||||||||||||
| Amount | % of Cost of sales | Amount | % of Cost of sales | Y-O-Y % CHANGE | ||||||||||||||||
| Commercial vehicles | $ | 9,981 | 1.7 | % | $ | 7,350 | 3.0 | % | 35.8 | % | ||||||||||
| Commercial vehicles, related parties | 569,807 | 97.5 | % | 234,781 | 96.1 | % | 142.7 | % | ||||||||||||
| Insurance and other | 3,485 | 0.6 | % | 2,159 | 0.9 | % | 61.4 | % | ||||||||||||
| Property lease and management | 1,360 | 0.2 | % | — | 0.0 | % | 100.0 | % | ||||||||||||
| Total cost of sales | $ | 584,633 | 100.0 | % | $ | 244,290 | 100.0 | % | 139.3 | % | ||||||||||
Cost of sales – Commercial vehicles and Cost of Sales – Commercial vehicles, related parties consist of the purchase price of the leased vehicles plus the direct labor costs of the operations. The total costs of sales in the year ended December 31, 2013 totaled $584.6 million, as compared to $244.3million in the prior year, an increase of 139.3%, mainly due to the increased sales volume in the commercial vehicle sales, servicing, leasing and support business, which was contributed to by an increase in average unit cost per vehicle. The average cost per vehicle in the year ended December 31, 2013 was $48,700 as compared to $45,000 per vehicle in the prior year. The increase in cost per vehicle was due to changes in customer demand and our resulting sales mix trending towards higher priced vehicles. Cost of Sales – Commercial vehicles totaled $10.0million in the year ended December 31, 2013, as compared to $7.4 million in the prior year, an increase of 35.8%, mainly due to the increased sales volume in the commercial vehicle sales, servicing, leasing and support business and our sourcing of a slightly higher proportion of commercial vehicles from unrelated parties. As a result, the percentage increase in Cost of Sales – Commercial vehicles was greater than the percentage increase in Cost of Sales – Commercial vehicles, related parties and Commercial vehicles revenue during the year ended December 31, 2013. Cost of Sales – Commercial vehicles, related parties totaled $569.8million during the year ended December 31, 2013 as compared to $234.8 million in fiscal 2012, an increase of 142.7%, due to the increased sales volume of commercial vehicles.
Cost of insurance in the year ended December 31, 2013 totaled $3.5 million, as compared to $2.2 million in the prior year, an increase of 61.4%, mainly due to the additional cost incurred for the direct insurance agency services as a result of the continued growth of that business.
Cost of sales – Property lease and management consists of renovation costs, depreciation, property taxes, and personnel costs related to the office leasing business. Cost of sales – Property lease and management totaled $1.4 million during the year ended December 31, 2013. There were no Cost of sales – Property lease and management during the prior year period since the office leasing business did not exist during the year ended December 31, 2012.
Gross Profit
The Company’s gross profit was $73.5 million in the year ended December 31, 2013, representing a gross margin of 11.2%, a decrease from 26.7% for the prior year, which is primarily due to the significantly higher number of new leases established during the period, which has a lower margin than the monthly amortized finance income. Increased insurance and other revenue partially offset the decrease in gross margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2013 were $60.2 million, which was $8.1 million, or 15.5%, higher than the same period of 2012. This was mainly due to growth in the number of commercial vehicle sales, servicing, leasing and support centers and increased allowance for credit losses. The increase in selling, general and administrative expenses was partially offset by a reduction in the number of employees due to a reduction in headcount at each store.
From December 31, 2012 to December 31, 2013, we increased the provision for doubtful accounts from $12.3 million to $21.3 million. The increase was based on our management’s ongoing analysis of credit losses for the account receivables and net investments in direct financing and sales-type leases from our lessee customers. The Company evaluates the collectability of its accounts receivable based on a combination of factors, including customer credit-worthiness, residual value of the commercial vehicles under lease and historical collection experience. Management reviews the receivable and adjusts the allowance based on historical experience, financial condition of the customer and other relevant current economic factors. For example, risk factors including the general economic slow-down and increasing delinquency trend in monthly payments by customers led management to increase its estimate. The increase of provision for doubtful accounts during the year was recorded in general and administrative expenses, and accordingly affects the earnings for the year.
| 7 |
Interest Expense
Interest expense totaled $9.6 million for the year ended December 31, 2013, of which $2.0 million of interest expense was incurred to affiliates, Alliance Rich, Beiguo Auto, Hebei Shengrong Kaiyuan Auto Parts Co., Ltd., (“Kaiyuan Shengrong”), Hebei Kaiyuan, Hebei Ruituo Auto Trading Co., Ltd. (“Ruituo”) and Xinji Beiguo Mall. It includes interest of $325,000 and $329,000 incurred for loans advanced from Kaiyuan Shengrong and Hebei Kaiyuan, respectively. It also included the interest of $896,000, $20,000 and $61,000 incurred for the purchase of commercial vehicles for leasing from Ruituo, Beiguo Auto and Xinji Beiguo Mall, respectively. $339,000 of interest expense was incurred to Alliance Rich for amounts still outstanding from the acquisition of Heat Planet.
Interest expense totaled $11.5 million for the year ended December 31, 2012, of which $0.9 million of interest expense was incurred to affiliates. Other interest expenses decreased to $7.6 million from $10.6 million, which resulted from the decreased average interest rates and borrowing balances from banks, lease securitization and affiliates during the year.
Other income
Other income totaled $13.4 million for the year ended December 31, 2013, as compared to $7.1 million in the prior year, an increase of 89.2% as compared to 2012. The increase was mainly attributable to an increase in penalty income, which are late charges imposed on customers for late payment of their monthly installments.
Interest Income
Interest income increased from $308,000 to $406,000 due to the increased average cash balance over the year ended December 31, 2013.
Income Tax Expense
In the year ended December 31, 2013, the Company recorded income tax expense of $5.7 million, as compared to an income tax expense of $9.1 million in the year ended December 31, 2012. This decrease was due to the decreased pre-tax income generated by the Company’s Chinese subsidiaries.
Income (loss) from Operations and Net Income
Income (loss) from operations and net income in the year ended December 31, 2013 was $11.8 million, as compared to $23.5 million in year ended December 31, 2012, representing a decrease of 49.8% from the same period in 2012. The decrease primarily resulted from the decreased gross profit generated from commercial vehicles and increased operating expenses during the year.
LIQUIDITY AND CAPITAL RESOURCES
Financing arrangements
The Company’s capital expenditures have been financed primarily through short-term borrowings from financial institutions and affiliates. The interest rates of such short-term borrowings during the periods have ranged from 5.60% to 9.00% per annum.
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As of December 31, 2014, the Company’s outstanding borrowings from affiliates amounted to $3.9 million, $5.8 million, $15.7 million, $144,000 and $9,000 from Alliance Rich, Hebei Kaiyuan, Hebei Ruijie Hotel Management Company, Mr. Li and Smart Success Investment Limited (“Smart Success”), respectively. Alliance Rich, Hebei Kaiyuan and Smart Success are indirectly controlled by Mr. Li. Each of these loans was entered into to satisfy the Company’s short-term capital needs except for the amount due to Alliance Rich which represented the consideration for the acquisition of Heat Planet. The amount is payable within six months of occupation of the Kai Yuan Center by the Company, which occurred in April 2013, and delivery of the audited financial statements for the five months ended May 31, 2012 of Heat Planet, which were delivered in December 2012, and any unpaid amounts after such six months have begun to accrue interest at the one-year rate announced by the People’s Bank of China (5.600% as of December 31, 2014). The amount due to Hebei Kaiyuan was non-interest bearing, unsecured and due on demand. In September 2011, Hebei Kaiyuan began charging interest at 8.00% per annum on amounts owed to it. Hebei Ruijie Hotel Management Company charges interest at 5.60% per annum on amounts owed to it. The amount due to AutoChina Inc., Mr. Li and Smart Success Investment Limited were non-interest bearing, unsecured and due on demand by the lenders.
As of December 31, 2014, the Company had short-term borrowings of $155.3 million, represented by loans from various Chinese banks, which have terms within one year. The Company had long-term borrowings of $17.2 million, represented by a loan from a Chinese bank, which has terms within two years. The Company had long-term payables of $10.0 million, representing security deposits from customers and borrowings under the mortgage financing arrangement with CITIC bank. Both the security deposit policy and the mortgage financing arrangement were initiated in March 2013.
After taking into consideration our financing arrangements with our affiliates, our existing cash resources, we believe we have adequate sources of liquidity to meet our short-term obligations and working capital requirements for at least the next 12 months. However, the Company may elect to obtain addition funding to expand and grow its operations, which may include borrowings from financial institutions and/or the sale of equity.
Working Capital
As of December 31, 2014 and 2013, the Company had working capital of $141.5 million and $47.9 million, respectively.
During the year ended December 31, 2014, the Company decreased its short-term borrowings, repaying net funds amounting to $5.4 million. The Company had a net decrease of amounts due to affiliates of $12.5 million, and a net increase in accounts payable, related parties of $50.6 million, during fiscal 2014. The net impact generated additional cash for operations.
The Company anticipates that it will have adequate sources of working capital in the next 12 months. However, the Company may elect to obtain addition funding to expand and grow its operations, which may include debt offering, borrowings from financial institutions and/or the sale of equity.
Financial Condition
The following table sets forth the major balance sheet accounts of AutoChina at December 31, 2014, 2013 and 2012(in thousands):
| As of December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Assets: | ||||||||||||
| Cash and cash equivalents | $ | 26,027 | $ | 31,370 | $ | 75,777 | ||||||
| Restricted cash | 988 | 1,244 | 160 | |||||||||
| Other financing receivables, net | 48,506 | — | — | |||||||||
| Other financing receivables, net, related parties | 782 | — | — | |||||||||
| Short-term net investment in sales-type leases | 56,975 | — | — | |||||||||
| Long-term net investment in direct financing and sales-type leases | 345,153 | 390,099 | 234,952 | |||||||||
| Construction in progress | — | — | 76,669 | |||||||||
| Property, equipment and improvements, net | 80,152 | 82,254 | 4,985 | |||||||||
| Liabilities: | ||||||||||||
| Accounts payable, related parties | $ | 108,211 | $ | 57,586 | $ | 2,228 | ||||||
| Short-term borrowings | 155,342 | 160,737 | 102,458 | |||||||||
| Long-term payables | 10,001 | 11,293 | — | |||||||||
| Due to affiliates | 25,644 | 38,143 | 65,595 | |||||||||
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Restricted cash was pledged as a condition for our insurance agency business and also to secure financing under the mortgage financing arrangement with China CITIC Bank, whereby CITIC Bank provides up to 50% of the mortgage financing to Ganglian Finance Leasing’s lessees of commercial vehicles. At December 31, 2014 and 2013, restricted cash was $988,000 and $1,244,000, respectively. The decrease in restricted cash is primarily due to the phaseout of the mortgage financing arrangement with CITIC Bank, which commenced in March 2013.
Other financing receivables, net began in April 2014 as a result of the inception of the peer stores business under which the Company provides financing services to third-party owned stores that lease commercial vehicles. As the revenue increased during the period, the balance of other financing receivables, net increased accordingly
Net investment in direct financing and sales-type leases began in March 2008 as a result of the inception of the commercial vehicles sales, servicing, leasing, and support business under which the Company enters into monthly installment arrangements with customers for a 26-month period. The balance of net investment in leases decreased as sales of other financing products, such as financing to peer stores, were emphasized.
Construction in progress decreased to nil as of December 31, 2013, a decrease of $76.7 million (100.0%) as compared with December 31, 2012. The amount originally represented the cost of construction for the Kai Yuan Center which had not yet been completed as of December 31, 2012. We completed the acquisition of the Kai Yuan Center in the second quarter of 2013, and the amount was subsequently reclassified to Property, equipment and leasehold improvements, net.
Property, equipment and improvements decreased to $80.2 million as of December 31, 2014, a decrease of $2.1 million, or 2.6%, as compared with December 31, 2013. The decrease mainly relates to depreciation on property and equipment.
Accounts payable, related parties related to the financing arrangement for the Company’s purchase of commercial vehicles for leasing as part of the commercial vehicle sales, servicing, leasing and support business. Accounts payable, related parties increased from $57.6 to $108.2 million as of December 31, 2014, an increase of $50.6 million, or 87.9%, as compared with December 31, 2013. Such amounts were primarily related to the payables to our affiliates: Ruituo, Beiguo Auto and Xinji Beiguo Mall, to purchase commercial vehicles that were subsequently leased.
Short-term borrowings represent loans from various banks in the PRC. Short-term borrowings were used for working capital and capital expenditure purposes. The borrowings decreased to $155.3 million as of December 31, 2014, from $160.7 million as of December 31, 2013, because the Company decreased bank borrowings by $5.4 million during the year. The terms of the remaining outstanding bank borrowings range from 6 months to12 months and began to expire in March 2015.
Long-term payables represent security deposits from customers and amounts due under the mortgage financing arrangement with CITIC Bank, where the Company’s customers obtain mortgage financing from CITIC while the Company provides a guarantee. The Company enters into a lease contract directly with the customer and also enters into a contractual obligation to repay the mortgage financing on behalf of the customer. The CITIC mortgage financing has a 24-month term and as a result the Company recognizes a long-term liability for amounts borrowed under the CITIC mortgage financing arrangement. Long-term payables decreased from $11.3 million as of December 31, 2013 to $10.0 million as of December 31, 2014. The security deposit program and the mortgage financing arrangement began in March 2013. At the present time, the Company does not anticipate further utilizing the mortgage financing arrangement in the future.
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The following table sets forth certain historical information with respect to the Company’s statements of cash flows (in thousands):
| Years Ended December 31, | ||||||||||||
| 2014 | 2013 | 2012 | ||||||||||
| Net cash (used in) provided by operating activities | $ | (46,680 | ) | $ | (129,080 | ) | $ | 262,938 | ||||
| Net cash (used in) investing activities | (7,389 | ) | (8,892 | ) | (71,978 | ) | ||||||
| Net cash provided by (used in) financing activities | 49,168 | 91,167 | (158,465 | ) | ||||||||
| Effect of exchange rate change | (442 | ) | 2,398 | 234 | ||||||||
| Net (decrease) increase in cash and cash equivalents | $ | (5,343 | ) | $ | (44,407 | ) | $ | 32,729 | ||||
Operating Activities. Net cash used in operating activities for the year ended December 31, 2014 was $46.7 million, as compared to net cash used in operating activities of $129.1 million and net cash provided by operating activities of $262.9 million for the years ended December 31, 2013 and December 31, 2012, respectively. The decrease in cash flows used in operating activities during fiscal 2014 was attributable primarily to a decrease in the number of vehicles leased through our own store network, which caused a decrease in our net investment in sales-type leases. However, this was more than offset by an increase in trucks leased and financing provided through peer stores. The decrease in cash flows provided by operating activities during fiscal 2013 was attributable primarily to the increase in growth of net investment in direct financing and sales-type leases, as a result of the increase in the number of new leases during fiscal 2013 as compared to fiscal 2012.
In the year ended December 31, 2014, operating activities used $46.7 million of cash. During 2014, the Company had net income of $10.2 million. In addition, the Company had a decrease of restricted cash of $0.3 million, an increase of accounts receivable of $13.3 million, an increase of provision for bad debts of $13.6 million, an increase in financing receivable, net of $48.7 million, an increase of short-term net investment of $57.3 million, a decrease of net investment in direct financing and sales-type leases of $43.0 million, and an increase of prepaid expense and other current assets of $0.3 million. The remaining balance arises from changes in inventories, accounts payable, other payable and accrued liabilities, customer deposits, income tax payable, depreciation and amortization and other items.
In the year ended December 31, 2013, operating activities used $129.1 million of cash. During 2013, the Company had net income of $11.8 million. In addition, the Company had an increase of restricted cash of $1.1 million, an increase of accounts receivable of $12.8 million, an increase of provision for bad debts of $18.8 million, an increase of net investment in direct financing and sales-type leases of $145.4 million, and an increase of prepaid expense and other current assets of $0.6 million. The remaining balance arises from changes in inventories, deposits for inventories, accounts payable, other payable and accrued liabilities, customer deposits, income tax payable, depreciation and amortization and other items.
In the year ended December 31, 2012, operating activities provided $262.9 million to the Company. During 2012, the Company had net income of $23.5 million. In addition, the Company had an increase of accounts payable of $15.9 million, an increase of provision for bad debts of $14.6 million, a decrease of net investment in direct financing and sales-type leases by $209.1 million, a decrease of deposits for inventories, related party of $14.5 million, a decrease of prepaid expense and other current assets of $7.7 million. However, there were increased accounts receivable by $22.3 million. The remaining balance arises from changes in inventories, deposits for inventories, other payable and accrued liabilities, customer deposits, income tax payable, depreciation and amortization and other items.
Investing Activities. Net cash used in investing activities was $7.4 million and $8.9 million in the years ended December 31, 2014 and December 31, 2013, respectively. Net cash used in investing activities was $72.0 million in the year ended December 31, 2012.
Financing Activities. Net cash provided by financing activities was $49.2 million in the year ended December 31, 2014, while net cash provided by financing activities was $91.2 million and net cash used in financing activities was $158.5 million in the years ended December 31, 2013 and 2012, respectively. In the year ended December 31, 2014, the Company increased total net borrowings by $10.9 million and increased the net amount of accounts payable, related parties by $50.6 million from its affiliates, Ruituo, Beiguo Auto, Hebei Ruijie Hotel Management Company and Xinji Beiguo Mall as part of a financing arrangement to purchase commercial vehicles for leasing. The Company also received proceeds of $68.2 million from its affiliates, Hebei Kaiyuan and Hebei Ruijie Hotel Management Company, and it repaid the amount of $80.5 million to its affiliates, Hebei Kaiyuan, Hebei Ruijie Hotel Management Company and Alliance Rich.
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In the year ended December 31, 2013, the Company increased total net borrowings by $65.2 million and increased the net amount of accounts payable, related parties by $54.4 million from its affiliates, Ruituo, Beiguo Auto and Xinji Beiguo Mall as part of a financing arrangement to purchase commercial vehicles for leasing. The Company also received proceeds of $22.2 million from its affiliates, Hebei Kaiyuan and Beijing Wantong, and it repaid the amount of $50.7 million to its affiliates, Hebei Kaiyuan, Beijing Wantong, Kaiyuan Shengrong and Alliance Rich.
In the year ended December 31, 2012, the Company decreased total net borrowings by $92.1 million and increased the net amount of accounts payable by $2.2 million from its affiliate, Ruituo, as part of a financing arrangement to purchase commercial vehicles for leasing. On the other hand, the Company received proceeds of $137.1 million from its affiliates, Hebei Kaiyuan and Kaiyuan Shengrong, and it repaid the amount of $170.5 million to its affiliates, Honest Best, Kaiyuan Shengrong and AutoChina Inc. In addition, the Company used $29.3 million for a capital distribution and paid a special cash dividend of $5.9 million (or $0.25 per share) to its shareholders.
Historically, most or all available cash is used to fund the investment in direct financing and sales-type leases, financing receivable, short-term net investment, inventory growth and for capital expenditures. To the extent the investment in direct financing, sales-type leases, financing receivable, short-term net investment, inventory growth, and capital expenditures exceed income from operations, the Company generally increases the borrowings under its financing facilities and from affiliates.
The Company currently leases all of the properties where commercial vehicle sales, servicing, leasing and support centers are located. It expects to continue to lease the majority of the properties where new stores or centers are located.
At December 31, 2014, the Company had $27.0 million of cash on hand, with $24.2 million of cash held in Renminbi. On a short-term basis, the Company’s principal sources of liquidity include income from operations, short-term borrowings from financial institutions including accounts payable, related party and borrowings from affiliates. On a longer-term basis, the Company expects its principal sources of liquidity to consist of income from operations, borrowings from financial institutions, affiliates and/or fixed interest term loans. Further, the Company believes, if necessary, it could raise additional capital through the issuance of debt and equity securities. The Company expects to use cash to (i) increase its net investment in direct financing and sales-type leases, financing receivable and short-term net investment in line with its revenue growth; (ii) purchase property and equipment and to make improvements on existing property by the end of the year; and (iii) capital expenditures for maintenance and improvements of the Kai Yuan Center. In fiscal 2014, we incurred $1.1 million of capital expenditures for Kai Yuan Center. For fiscal 2015 we do not anticipate any significant capital expenditures related to the Kai Yuan Center. We believe that we have adequate liquidity to satisfy our capital needs for the near term, however we may need to raise additional capital to maintain our high rate of growth.
AutoChina’s borrowings primarily consisted of: (i) Short-term borrowings; (ii) Long-term borrowings; (iii) Accounts payable, related parties; and (iv) Due to affiliates.
Short-term borrowings. Short-term borrowings represented loans from various financial institutions that were used for working capital and capital expenditures purposes. The loans from various financial institutions bear interest at rates ranging from 6.60% to 7.80% as of December 31, 2014 and have terms of up to one year.
Long-term borrowings. Long-term borrowings represented a loan from a financial institution that was used for working capital and capital expenditures purposes. The loan bears interest at 6.77% as of December 31, 2014 and has a term within two years.
Accounts payable, related parties. Accounts payable from related parties was primarily related to the payables for purchases of commercial vehicles for leasing due to the affiliates: Ruituo, a company which is controlled by Mr. Li, and Beiguo Auto and Xinji Beiguo Mall, companies in which Mr. Li holds an indirect beneficial ownership of approximately 20.92%. The payable balance for Ruituo is unsecured, bears interest at 8.00% per annum and is due on demand by Ruituo. The payable balances for Beiguo Auto and Xinji Beiguo Mall are unsecured and bear interest at 9.00% per annum. The Company expects to continue to rely on the financing from these three affiliates and believes they have sufficient capital to continue providing such financing to us in the foreseeable future.
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Due to Affiliates. Due to affiliates represented the short-term loans borrowed from the Company’s affiliates to satisfy the Company’s short-term capital needs. The amount due to Alliance Rich represented a portion of the consideration paid in the acquisition of Heat Planet. The amount was payable within six months of occupation of the Kai Yuan Center by the Company, which was completed in April 2013 and delivery of the audited financial statements for the five months ended May 31, 2012 of Heat Planet, which were delivered in December 2012. In October 2013, the unpaid amount began to accrue interest at the one-year rate announced by the People’s Bank of China (5.60% as of December 31, 2014). The amount due to Hebei Kaiyuan was initially non-interest bearing, unsecured and due on demand by the lender. In September 2011, Hebei Kaiyuan began charging interest at 8.00% per annum to the Company. Hebei Ruijie Hotel Management Company charges interest at 5.60% per annum on amounts owed to it. The amounts due to Mr. Li and Smart Success Investment Limited were non-interest bearing, unsecured and due on demand by the lenders. The Company expects to continue relying on the financing from affiliates and believes the affiliates have sufficient capital to continue provide such financing to us in the foreseeable future.
The Company’s borrowings fluctuate based upon a number of factors, including (i) revenues, (ii) changes in: net investment in direct financing and sales-type leases, other financing receivables and short-term net investment, (iii) capital expenditures, and (iv) inventory and deposits for inventories changes. Historically, income from operations, as well as borrowings on the revolving credit facilities, have driven accounts and notes receivable growth, inventory growth and capital expenditures.
We believe that our available cash and cash equivalents and cash provided by operating activities, together with cash available from borrowings, will be adequate to meet presently anticipated cash needs for at least the next twelve months.
Cash and cash equivalents as of December 31, 2014 are mainly held by the Company’s subsidiaries and VIEs. These cash balances cannot be transferred to the Company by loan or advance according to existing PRC laws and regulations. However, these cash balances can be utilized by the Company for its normal operations pursuant to the Enterprise Agreements.
Regulations on Dividend Distribution
The principal laws and regulations in China governing distribution of dividends by foreign-invested companies include:
| · | The Sino-foreign Equity Joint Venture Law (1979), as amended; |
| · | The Regulations for the Implementation of the Sino-foreign Equity Joint Venture Law (1983), as amended; |
| · | The Sino-foreign Cooperative Enterprise Law (1988), as amended; |
| · | The Detailed Rules for the Implementation of the Sino-foreign Cooperative Enterprise Law (1995), as amended; |
| · | The Foreign Investment Enterprise Law (1986), as amended; and |
| · | The Regulations of Implementation of the Foreign Investment Enterprise Law (1990), as amended. |
Under these regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds unless such reserve funds have reached 50% of their respective registered capital. These reserves are not distributable as cash dividends. Each of our PRC subsidiaries is continuing to make contributions to their respective reserve funds as they have not reached the 50% threshold. We record these as contributions to equity.
| 13 |
Contractual Payment Obligations
The following is a summary of the Company’s contractual obligations for operations as of December 31, 2014 (in thousands):
| Payments due by period | ||||||||||||||||||||
| Total | Less than 1 Year | 1 to 3 Years | 3 to 5 Years | More than 5 Years | ||||||||||||||||
| Operating leases | $ | 1,397 | $ | 617 | $ | 745 | $ | 35 | $ | — | ||||||||||
| Short-term borrowings | 155,342 | 155,342 | — | — | — | |||||||||||||||
| Long-term borrowings | 17,159 | 2,451 | 14,708 | — | — | |||||||||||||||
| Long-term payables | 10,001 | 899 | 9,102 | — | — | |||||||||||||||
| Accounts payable, related parties | 108,211 | 108,211 | — | — | — | |||||||||||||||
| Due to affiliates | 25,644 | 25,644 | — | — | — | |||||||||||||||
| Total | $ | 317,754 | $ | 293,164 | $ | 24,555 | $ | 35 | $ | — | ||||||||||
The Company leases certain facilities under long-term, non-cancelable leases and month-to-month leases. These leases are accounted for as operating leases.
At December 31, 2014, the Company had estimated future interest payments related to short-term borrowings, long-term borrowings and long-term payables of $6,975, estimated future interest payments related to accounts payable, related parties of $1,027, and estimated future interest payments related to due to affiliates of $239.
Recently Issued Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards or pronouncements, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations is based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to accounts receivable and the related provision for doubtful accounts, tangible and intangible long-lived assets, the assessment of the valuation allowance on deferred tax assets, the purchase price allocation on acquisitions, and contingencies and litigation, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of its consolidated financial statements: long-lived assets, income taxes and accounts receivable.
Principles of Consolidation. The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs. All significant inter-company balances and transactions have been eliminated in consolidation.
| 14 |
Impairment of Long-Lived Assets. The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company assesses the recoverability of the long-lived assets by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition where the fair value is lower than the carrying value, measurement of an impairment loss is recognized in the statements of operations for the difference between the fair value, using the expected future discounted cash flows, and the carrying value of the assets. No impairment of long-lived assets was recognized for the periods presented.
Income Taxes. The Company accounts for income taxes in accordance with U.S. GAAP, which require recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of income in the period that includes the enactment date. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Long-Term Net Investment in Direct Financing and Sales-Type Leases.Long-term net investment in direct financing and sales-type leases are stated at the amount the Company expects to collect from its commercial vehicle leasing customers (individuals) and represent commercial vehicle leases that the Company originates directly through its own store network. These leases have an average length of 26 months and are secured by the commercial vehicle with GPS device tracing.
Short-term Net Investment in Sales-Type Leases and Other Financing Receivables.Both short-term net investment in sales-type leases and other financing receivables represent financing provided to the peer stores, which are guaranteed by their legal representative, and are stated at the amount the Company expects to collect. Short-term net investment in sales-type leases is for commercial vehicle leases provided to peer stores, with terms within 1 year. Other financing receivables represent 1) financing provided to peer stores for the insurance and taxes related to the purchase of a new commercial vehicle, usually with a term of ten months; and 2) loans provided to SMBs with a 6 month term. Since the Company launched the K-Lend business, certain loan receivables were transferred to individual investors. The transfer of financial assets originating from the K-Lend platform to investors does not meet the criteria of a sale of financial assets because the Company believes it still has continuing involvement and maintains effective control of the financial assets. Accordingly, the proceeds received from the investors under the financing agreement are accounted for as secured borrowings. The Company evaluates the collectability of such receivables based on a combination of factors, including customer credit-worthiness, aging, and historical collection experience. Management reviews such receivables and adjusts the allowance based on the aging of the receivables. The allowance for different agings is evaluated and determined based on historical experience and current market conditions and is evaluated on a quarterly basis or more often as necessary.
Accounts Receivable.Accounts receivable represents the following: i) the amount the Company expects to collect from the value added services, such as the tires, fuel and insurance financing services with the term of one to three months. ii) commissions the Company expects to collect from insurance institutions for referring its customers to buy auto insurance; iii) the reclassified past due monthly installments from long-term net investment in direct financing and sales-type leases, and short-term net investment in sales-type leases.
Provision for doubtful accounts.The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
The Company evaluates, on an individual basis, the collectability of its long-term net investment in direct financing and sales-type leases based on a combination of factors, including customer credit-worthiness, residual value of the commercial vehicles under lease and historical collection experience. Management reviews the receivable and adjusts the allowance based on historical experience, financial condition of the customer and other relevant current economic factors. The allowances were deducted from accounts receivable on an individual basis, and the portion in excess of accounts receivable were then deducted from the long-term net investment in direct financing and sales-type leases.
For short-term net investment in sales-type leases and other financing receivables arising from transactions with peer stores, the Company provides a general provision based on 1.5% of the ending balances. Certain various percentages of allowance are further provided when the monthly installments default, according to the aging of such defaults. Such allowances are deducted from accounts receivable, short-term net investment in sales-type leases and other financing receivables, respectively.
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Other financing receivables.Other financing receivables represent financing provided to peer stores for the insurance and taxes related to the purchase of a new commercial vehicle, usually in the term of ten months. The Company evaluates the collectability of such receivables based on a combination of factors, including customer credit-worthiness, aging, and historical collection experience. Management reviews such receivables and adjusts the allowance based on the aging of the receivables. The allowance for different agings is evaluated and determined based on historical experience and current market conditions and is evaluated on a quarterly basis or more often as necessary.
Revenue Recognition
Commercial vehicles. The Company recognizes its current new commercial vehicle lease financing arrangement, including leases under the mortgage financing arrangement with China CITIC Bank, as a sales-type lease. For new commercial vehicles financed by the Company, the Company recognizes revenue when the following conditions are met: (a) when the lease contract is signed, (b) when the customer has taken possession of the vehicle, and (c) if the collectability of owed amounts are reasonably assured. The Company recognizes revenue using the fair value of the commercial vehicles by reference to the retail market price of the vehicles. The Company also records the sale of the GPS tracking unit sold to the lessee upon the transfer of the title and delivery of the product. These sales revenues are recorded as “Commercial Vehicles”.
Finance. The Company recognizes its second-hand vehicle lease financing arrangement as a direct financing lease because it does not give rise to dealer’s profit or loss to the Company. Under the second-hand vehicle lease financing program, the Company holds the title of the used vehicle and then transfers title to the customer at the end of the lease term. The excess of aggregate lease rentals over the acquisition cost of leased second-hand vehicle constitutes unearned lease income to be taken into income over the lease term by using the effective interest method.
A membership fee is charged to all lessees for the privilege of utilizing the Company’s store branch network for certain services, which include general support services, licensing and permit services, insurance services and registration services. The membership fee is charged and collected by the Company when a direct financing and sales-type lease is signed. The Company records the amount as a deduction of minimum lease payment receivable. Revenue from our membership fee is deferred and recognized ratably over the term of the direct financing and sales-type lease. The difference between the gross investment in the lease (and the fair value of the commercial vehicles) is recorded as unearned income and amortized based on the effective interest rate method over the lease term. Management servicing fees are recognized when services are rendered.
With respect to the value added services (tires, fuel, insurance financing services), the Company provides one to three months of revolving credit facilities to eligible customers, from which tires, fuel and insurance services that are charged and collected at the beginning of the financing period are deferred and recognized ratably based on the effective interest rate method over the term of the financing period.
For financing provided to peer stores for the insurance and taxes related to the purchase of a new commercial vehicle, the Company charges peer stores an up-front service fee which is collected at the beginning of the financing period and is deferred and recognized ratably based on the effective interest rate method over the term of the financing period.
The Company recognizes interest income on K-Lend loans based on the effective interest rate method over the term of the financing period.
Interest from direct financing and sales-type lease, the membership fee amortization, management servicing fee, interest from value added services, service fee for the financing of the insurance and taxes under the peer stores business and interest on K-Lend loans are recorded as “Finance”.
| 16 |
Recognition of income is suspended and a lease/receivable is placed on non-accrual status when management determines that collection of future income is not probable. Accrual is resumed, and previously suspended income is recognized, when the lease/receivable becomes contractually current and/or collection doubts are removed. Cash receipts on impaired leases/receivable are recorded against the net investment/receivable and then to any unrecognized income.
Insurance and other. The Company also receives commissions from insurance institutions for referring its customers to buy auto insurance. Insurance commission and agency income is recorded when the insurance contract is signed and the insurance premium is paid to the insurance company. The insurance commission and agency fee is recorded as “Insurance and other”.
Penalty income generated from the lessees and K-Pay users for late payment is recognized when the payment is overdue and the collectability is reasonably assured. This income is recorded as “Insurance and other”.
K-Pay merchants are charged transaction fees, which are recorded as “Insurance and other” when incurred.
Property lease and management. Minimum contractual rental income related to office leases are recognized on a straight-line basis over the terms of the respective leases. Straight-line rental revenue commences when the customer assumes control of the leased premises. In accordance with the Company's standard lease terms, rental payments are generally due on a monthly basis. Deferred rent receivable represents the cumulative difference between rental revenue as recorded on a straight line basis and rents received from the tenants. As of December 31, 2014, about $1.2 million deferred rent receivable was recorded. Tenant recovery revenue includes payments from tenants as reimbursements for management fees and utilities, etc, which are recognized when the related expenses are incurred. Rental from office lease and tenant recovery revenue together were recorded as “Property lease and management.”
Foreign Currency Translation. The Company’s operations in China and Hong Kong use the local currencies - Renminbi (“RMB”) and Hong Kong dollar (“HKD”) as its functional currencies whereas amounts reported in the accompanying consolidated financial statements and disclosures are stated in U.S. dollars, the reporting currency of the Company, unless stated otherwise. As such, the consolidated balance sheets of the Company have been translated into U.S. dollars at the current rates listed by the People’s Bank of China as of December 31, 2014 and 2013 and the consolidated statements of income and comprehensive income for the years ended December 31, 2014, 2013 and 2012 have been translated into U.S. dollars at the average rates during the periods the transactions were recognized. The resulting translation adjustments are recorded as other comprehensive income in the consolidated statement of income and comprehensive income. The following are the exchange rates used by the Company as of December 31, 2014, 2013 and 2012 and for the years ended December 31, 2014, 2013 and 2012.
| December 31, 2014 | December 31, 2013 | December 31, 2012 | ||||
| Exchange rates as of the date specified for | 6.1190:1 RMB to USD | 6.0969:1 RMB to USD | 6.2855:1 RMB to USD | |||
| the year ended on the date specified | 7.7567:1 HKD to USD | 7.7546:1 HKD to USD | 7.7522:1 HKD to USD | |||
| Average exchange rates for the years ended | 6.1443:1 RMB to USD | 6.1983:1 RMB to USD | 6.3114:1 RMB to USD | |||
| 7.7556:1 HKD to USD | 7.7573:1 HKD to USD | 7.7575:1 HKD to USD |
Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
AutoChina’s exposure to interest rate risk primarily relates to its outstanding debts and interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. AutoChina has not used derivative financial instruments in its investment portfolio. Interest-earning instruments carry a degree of interest rate risk. As of December 31, 2014, AutoChina’s total outstanding interest-bearing loans amounted to $306.4 million with interest rates in the range of 5.60% to 9.00% per annum. AutoChina has not been exposed, nor does it anticipate being exposed, to material risks due to changes in market interest rates.
| 17 |
Credit Risk
AutoChina is exposed to credit risk from its cash and cash equivalents, accounts receivable and net investment in direct financing and sales-type leases. The credit risk on cash and cash equivalents is limited because the counterparties are recognized financial institutions. Accounts receivable and net investment in direct financing and sales-type leases are subjected to credit evaluations and evaluation analysis on the residual value of the relevant leased commercial vehicles. An allowance would be made, if necessary, for estimated irrecoverable amounts by reference to past default experience, if any, and by reference to the current economic environment.
Foreign Currency Risk
Substantially all of AutoChina’s revenues and expenditures are denominated in Renminbi. As a result, fluctuations in the exchange rate between the U.S. dollars and Renminbi will affect AutoChina’s financial results in U.S. dollars terms without giving effect to any underlying change in AutoChina’s business or results of operations. The Renminbi’s exchange rate with the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. The exchange rate for conversion of Renminbi into foreign currencies is heavily influenced by intervention in the foreign exchange market by the People’s Bank of China. From 1995 until July 2005, the People’s Bank of China intervened in the foreign exchange market to maintain an exchange rate of approximately 8.3 Renminbi per U.S. dollar. On July 21, 2005, the PRC government changed this policy and began allowing modest appreciation of the Renminbi versus the U.S. dollar. However, the Renminbi is restricted to a rise or fall of no more than 0.5% per day versus the U.S. dollar, and the People’s Bank of China continues to intervene in the foreign exchange market to prevent significant short-term fluctuations in the Renminbi exchange rate. Nevertheless, under China’s current exchange rate regime, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. There remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. dollar.
Net income for the year ended December 31, 2014 of RMB62.5 million is reported as $10,166,000 based on the 2014 year-to-date average Renminbi to U.S. dollar exchange rate of 6.1443. Net income would increase $42,000 to $10,208,000 based on the December 31, 2014 exchange rate of 6.1190 Renminbi per U.S. dollar. However, net income would decrease $2,640,000 to $7,526,000 based on the pre-July 2005 exchange rate of 8.3000 Renminbi per U.S. dollar.
Net income for the year ended December 31, 2013 of RMB73.3 million is reported as $11,828,000 based on the 2013 year-to-date average Renminbi to U.S. dollar exchange rate of 6.1983. Net income would increase $197,000 to $12,025,000 based on the December 31, 2013 exchange rate of 6.0969 Renminbi per U.S. dollar. However, net income would decrease $2,995,000 to $8,833,000 based on the pre-July 2005 exchange rate of 8.3000 Renminbi per U.S. dollar.
Net income for the year ended December 31, 2012 of RMB148.6 million is reported as $23,549,000 based on the 2012 year-to-date average Renminbi to U.S. dollar exchange rate of 6.3114. Net income would increase $123,000 to $23,672,000 based on the December 31, 2012 exchange rate of 6.2855 Renminbi per U.S. dollar. However, net income would decrease $7,146,000 to $16,403,000 based on the pre-July 2005 exchange rate of 8.3000 Renminbi per U.S. dollar.
Very limited hedging transactions are available in China to reduce AutoChina’s exposure to exchange rate fluctuations. To date, AutoChina has not entered into any hedging transactions in an effort to reduce its exposure to foreign currency exchange risk. While AutoChina may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedging transactions may be limited and it may not be able to successfully hedge its exposure at all. In addition, AutoChina’s currency exchange losses may be magnified by PRC exchange control regulations that restrict its ability to convert Renminbi into foreign currency.
Seasonality
Our first fiscal quarter (January through March) and third fiscal quarter (July through September) are expected to be slower for commercial vehicles sales. Conversely, our second fiscal quarter (April through June) and fourth fiscal quarter (October through December) are expected to have stronger sales. Therefore, we generally expect to realize a higher proportion of our revenue and operating profit during the second and fourth fiscal quarters. We expect this trend to continue in future periods. If conditions arise that impair vehicle sales during the second to fourth fiscal quarters, the adverse effect on its revenues and operating profit for the year could be disproportionately large.
| 18 |
Off-Balance Sheet Arrangements
In March 2013, Ganglian Finance Leasing entered into a mortgage financing arrangement with China CITIC Bank, Shijiazhuang, Hebei Province Branch (“CITIC Bank”), whereby CITIC Bank agreed to provide up to 50% of the mortgage financing to Ganglian Finance Leasing’s lessees of commercial vehicles. Ganglian Finance Leasing agreed to provide a full guarantee to CITIC Bank for such mortgage financing and provided a pledge of the ownership of the commercial vehicle to CITIC Bank to secure its guarantees. As of December 31, 2014, the loan balance guaranteed by the Company amounted to $924.
Impact of Inflation
Inflation has not historically been a significant factor impacting the Company’s results.
| ITEM 19. | EXHIBITS |
Exhibit No. | Description | |
| 1.1 | Second Amended and Restated Memorandum and Articles of Association (1) | |
| 1.2 | Amendment to Memorandum and Articles of Association* | |
| 2.1 | Specimen Ordinary Share Certificate (2) | |
| 4.1 | Share Exchange Agreement (3) | |
| 4.2 | Form of Indemnification Agreement (4) | |
| 4.3 | Form of AutoChina International Limited 2009 Equity Incentive Plan (5) | |
| 4.4 | Executive Employment Agreement between the Registrant and Yong Hui Li, dated April 9, 2012 (11) | |
| 4.5 | Executive Employment Agreement between the Registrant and Wei Xing, dated April 9, 2012 (11) | |
| 4.6 | Executive Employment Agreement between the Registrant and Chen Lei, dated April 9, 2012 (11) | |
| 4.7 | Executive Employment Agreement between the Registrant and Jason Wang, dated October 11, 2012 (11) | |
| 4.8 | Business Operation Agreement (Xuhan Trading) between Hebei Kaiyuan Real Estate Development Co., Ltd. and Hebei Chuanglian Trade Co., Ltd., dated December 15, 2009 (11) | |
| 4.9 | Equity Pledge Agreement (Xuhan Trading) between Hebei Kaiyuan Real Estate Development Co., Ltd. and Hebei Chuanglian Trade Co., Ltd., dated December 15, 2009 (11) | |
| 4.10 | Option Agreement (Xuhan Trading) between Hebei Kaiyuan Real Estate Development Co., Ltd. and Hebei Chuanglian Trade Co., Ltd., dated December 15, 2009 (11) | |
| 4.11 | Services Agreement (Xuhan Trading) between Hebei Kaiyuan Real Estate Development Co., Ltd. and Hebei Chuanglian Trade Co., Ltd., dated December 15, 2009 (11) | |
| 4.12 | Voting Attorney Agreement (Xuhan Trading) between Hebei Kaiyuan Real Estate Development Co., Ltd. and Hebei Chuanglian Trade Co., Ltd., dated December 15, 2009 (11) | |
| 4.13 | Business Operation Agreement (Kaiyuan Auto Trade) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd.., dated January 31, 2013 (11) | |
| 4.14 | Equity Pledge Agreement (Kaiyuan Auto Trade) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) | |
| 4.15 | Option Agreement (Kaiyuan Auto Trade) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) | |
| 4.16 | Services Agreement (Kaiyuan Auto Trade) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) | |
| 4.17 | Voting Attorney Agreement (Kaiyuan Auto Trade) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) | |
| 4.18 | Business Operation Agreement (Kaiyuan Logistics) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd.., dated January 31, 2013 (11) | |
| 4.19 | Equity Pledge Agreement between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) | |
| 4.20 | Option Agreement (Kaiyuan Logistics) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) |
| 19 |
| 4.21 | Services Agreement (Kaiyuan Logistics) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) | |
| 4.22 | Voting Attorney Agreement (Kaiyuan Logistics) between Hebei Shengrong Investment Co., Ltd. and Hebei Chuanglian Finance Leasing Co., Ltd., dated January 31, 2013 (11) | |
| 4.23 | Summary of Lease Securitization Agreement, by and between Chuangjie Trading and Citic Trust Co., Ltd., dated October 28, 2010 (6) | |
| 4.25 | Summary of Loan Agreement dated July 3, 2012 between Ganglian Finance Leasing Co., Ltd. and Hebei Shengrong Kaiyuan Auto Parts Co., Ltd. (10) | |
| 4.26 | Summary of Loan Agreement dated July 4, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.27 | Summary of Loan Agreement dated August 30, 2012 between Hebei Xuhua Trading Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.28 | Summary of Loan Agreement dated August 30, 2012 between Shijie Kaiyuan Auto Trade Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.29 | Summary of Loan Agreement dated August 30, 2012 between Hebei Chuanglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.30 | Summary of Loan Agreement dated September 3, 2012 between Shijie Kaiyuan Auto Trade Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.31 | Summary of Loan Agreement dated September 24, 2012 between Hebei Chuanglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.32 | Summary of Loan Agreement dated September 24, 2012 between Ganglian Finance Leasing Co., Ltd. and Hebei Shengrong Kaiyuan Auto Parts Co., Ltd. (10) | |
| 4.33 | Summary of Loan Agreement dated November 5, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.34 | Summary of Loan Agreement dated January 31, 2013 among Shijie Kaiyuan Auto Trade Co., Ltd., Guotai Junan Securities Assets Management Limited and Hua Xia Bank Shijiazhuang Jianhua Branch (10) | |
| 4.35 | Summary of Maximum Pledge Contract dated March 6, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.36 | Summary of Maximum Pledge Contract dated July 4, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.37 | Summary of Maximum Pledge Contract dated July 4, 2012 between Hebei Chuanglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.38 | Summary of Maximum Pledge Contract dated August 30, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.39 | Summary of Maximum Pledge Contract dated August 30, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.40 | Summary of Maximum Pledge Contract dated January 31, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch (10) | |
| 4.41 | Summary of Maximum Mortgage Contract dated January 28, 2011 between Hebei Kaiyuan Real Estate Developing Co., Ltd. and CITIC Shijiazhuang Branch (7) | |
| 4.42 | Summary of Maximum Mortgage Contract dated March 6, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.43 | Summary of Guarantee Contract dated January 31, 2013 between Hebei Chuanglian Finance Leasing Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch (10) | |
| 4.44 | Summary of Guarantee Contract dated January 31, 2013 between Hebei Xuhua Trading Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch (10) | |
| 4.45 | Summary of Guarantee Contract dated January 31, 2013 between Ganglian Finance Leasing Co., Ltd and Hua Xia Bank Shijiazhuang Jianhua Branch (10) | |
| 4.46 | Summary of Guarantee Contract dated January 31, 2013 between Hebei Ruihua Real Estate Development Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch (10) | |
| 4.47 | Summary of Guarantee Contract dated January 31, 2013 between Hebei Ruituo Auto Trade Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch (10) | |
| 4.48 | Summary of Comprehensive Facility Contract dated July 4, 2012 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (10) | |
| 4.49 | Summary of Domestic Factoring Agreement dated February 28, 2012 between Shijie Kaiyuan Auto Trade Co., Ltd. and ICBC Bank Hebei Branch (8) |
| 20 |
| 4.50 | Summary of Domestic Factoring Agreement dated August 16, 2012 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (10) | |
| 4.51 | Summary of Domestic Factoring Agreement dated August 21, 2012 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (10) | |
| 4.52 | Summary of Domestic Factoring Agreement dated October 7, 2012 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (10) | |
| 4.53 | Summary of Domestic Factoring Agreement dated March 29, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (10) | |
| 4.54 | Summary of Loan Agreement dated April 19, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.55 | Summary of Domestic Factoring Agreement dated April 19, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.56 | Summary of Loan Agreement dated August 23, 2013 between Ganglian Finance Leasing Co., Ltd and CITIC Shijiazhuang Branch (11) | |
| 4.57 | Summary of Maximum Pledge Contract dated August 23, 2013 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.58 | Summary of Maximum Pledge Contract dated August 23, 2013 between Hebei Chuanglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.59 | Summary of Maximum Pledge Contract dated August 23, 2013 between Yong Hui Li and CITIC Shijiazhuang Branch (11) | |
| 4.60 | Summary of Loan Agreement dated August 29, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.61 | Summary of Domestic Factoring Agreement dated August 29, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.62 | Summary of Loan Agreement dated September 2, 2013 between Hebei Chuanglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.63 | Summary of Maximum Pledge Contract dated September 2, 2013 between Hebei Xuhua Trading Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.64 | Summary of Loan Agreement dated September 2, 2013 between Hebei Xuhua Trading Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.65 | Summary of Maximum Mortgage Contract dated September 2, 2013 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.66 | Summary of Maximum Pledge Contract dated September 2, 2013 between Hebei Chuanglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.67 | Summary of Maximum Pledge Contract dated September 2, 2013 between Yong Hui Li and CITIC Shijiazhuang Branch (11) | |
| 4.68 | Summary of Loan Agreement dated October 9, 2013 between Hebei Xuhua Trading Co., Ltd. and CITIC Shijiazhuang Branch (11) | |
| 4.69 | Summary of Loan Agreement dated October 9, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.70 | Summary of Domestic Factoring Agreement dated October 9, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.71 | Summary of Loan Agreement dated October 29, 2013 between Ganglian Finance Leasing Co., Ltd and CITIC Shijiazhuang Branch (11) | |
| 4.72 | Summary of Loan Agreement dated October 30, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.73 | Summary of Pledge Contract dated October 30, 2013 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch (11) | |
| 4.74 | Summary of Loan Agreement dated January 3, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.75 | Summary of Maximum Mortgage Contract dated January 3, 2014 between Hebei Ruiliang Trading Co,. Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.76 | Summary of Loan Agreement dated February 26, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Minsheng Bank * | |
| 4.77 | Summary of Maximum Pledge Contract dated February 28, 2014 between Hebei Chuanglian Finance Leasing Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch* |
| 21 |
| 4.78 | Summary of Loan Agreement dated March 6, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.79 | Summary of Domestic Factoring Agreement dated March 6, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.80 | Summary of Loan Agreement dated March 30, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.81 | Summary of Loan Agreement dated April 1, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.82 | Summary of Domestic Factoring Agreement dated March 30, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.83 | Summary of Loan Agreement dated June 27, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.84 | Summary of Maximum Pledge Contract dated June 27, 2014 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.85 | Summary of Maximum Guarantee Contract dated June 27, 2014 between Yong Hui Li and CITIC Shijiazhuang Branch* | |
| 4.86 | Summary of Loan Agreement dated August 15, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.87 | Summary of Maximum Pledge Contract dated June 27, 2014 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.88 | Summary of Maximum Guarantee Contract dated June 27, 2014 between Yong Hui Li and CITIC Shijiazhuang Branch* | |
| 4.89 | Summary of Loan Agreement dated August 26, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.90 | Summary of Domestic Factoring Agreement dated August 22, 2014 between Ganglian Finance Leasing Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.91 | Summary of Loan Agreement dated September 5, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.92 | Summary of Domestic Factoring Agreement dated September 5, 2014 between Ganglian Finance Leasing Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.93 | Summary of Loan Agreement dated October 8, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.94 | Summary of Maximum Pledge Contract dated October 8, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.95 | Summary of Guarantee Contract dated October 8, 2014 between Hebei Chuanglian Finance Leasing Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.96 | Summary of Guarantee Contract dated October 8, 2014 between Ganglian Finance Leasing Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.97 | Summary of Guarantee Contract dated October 8, 2014 between Hebei Xuhua Trading Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.98 | Summary of Guarantee Contract dated October 8, 2014 between Hebei Ruituo Auto Trading Co., Ltd. and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.99 | Summary of Guarantee Contract dated October 8, 2014 between Hebei Ruijie Hotel Management Company and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.100 | Summary of Guarantee Contract dated October 8, 2014 between Hebei Ruiliang Property Services and Hua Xia Bank Shijiazhuang Jianhua Branch* | |
| 4.101 | Summary of Loan Agreement dated November 7, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.102 | Summary of Maximum Mortgage Contract dated November 11, 2014 between Hebei Ruiliang Trading Co,. Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.103 | Summary of Loan Agreement dated November 7, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.104 | Summary of Maximum Mortgage Contract dated November 11, 2014 between Hebei Ruiliang Trading Co,. Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.105 | Summary of Loan Agreement dated June 26, 2014 between Ganglian Finance Leasing Co., Ltd. and China Minsheng Bank Shijiazhuang Branch* |
| 22 |
| 4.106 | Summary of Maximum Guarantee Contract dated June 19, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and China Minsheng Bank Shijiazhuang Branch* | |
| 4.107 | Summary of Maximum Mortgage Contract dated June 19, 2014 between Ganglian Finance Leasing Co., Ltd. and China Minsheng Bank Shijiazhuang Branch* | |
| 4.108 | Summary of Loan Agreement dated August 4, 2014 between Ganglian Finance Leasing Co., Ltd. and Bank of East Asia (China) Limited Shijiazhuang Branch* | |
| 4.109 | Summary of Maximum Mortgage Contract dated August 4, 2014 between Hebei Ruiliang Trading Co,. Ltd. and China Minsheng Bank Shijiazhuang Branch* | |
| 4.110 | Summary of Maximum Pledge Contract dated August 4, 2014 between Hebei Chuanglian Finance Leasing Co,. Ltd. and China Minsheng Bank Shijiazhuang Branch* | |
| 4.111 | Summary of Guarantee Contract dated August 4, 2014 between Yong Hui Li and China Minsheng Bank Shijiazhuang Branch* | |
| 4.112 | Summary of Loan Agreement dated June 27, 2014 between Hebei Xuhua Trading Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.113 | Summary of Maximum Pledge Contract dated June 27, 2014 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.114 | Summary of Maximum Guarantee Contract dated June 27, 2014 between Yong Hui Li and CITIC Shijiazhuang Branch* | |
| 4.115 | Summary of Loan Agreement dated August 15, 2014 between Hebei Xuhua Trading Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.116 | Summary of Maximum Pledge Contract dated June 27, 2014 between Ganglian Finance Leasing Co., Ltd. and CITIC Shijiazhuang Branch* | |
| 4.117 | Summary of Maximum Guarantee Contract dated June 27, 2014 between Yong Hui Li and CITIC Shijiazhuang Branch* | |
| 4.118 | Summary of Loan Agreement dated December 26, 2014 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.119 | Summary of Maximum Mortgage Contract dated December 26, 2014 between Hebei Ruiliang Trading Co,. Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.120 | Summary of Loan Agreement dated February 15, 2015 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.121 | Summary of Maximum Mortgage Contract dated February 15, 2015 between Hebei Ruiliang Trading Co,. Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.122 | Summary of Loan Agreement dated March 12, 2015 between Shijie Kaiyuan Auto Trade Co., Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 4.123 | Summary of Maximum Mortgage Contract dated March 12, 2015 between Hebei Ruiliang Trading Co,. Ltd. and Agricultural Bank of China Shijiazhuang North City Branch* | |
| 8.1 | Subsidiaries of the Registrant* | |
| 11 | Code of Ethics (9) | |
| 12.1 | Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended | |
| 12.2 | Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended | |
| 13 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 15.1 | Consent of Marcum Bernstein & Pinchuk LLP, independent registered public accounting firm | |
| 101 | Interactive Data File* |
| * | Previously filed. |
| (1) | Incorporated by reference to Registration Statement on Form F-1, filed with the SEC on Form F-1 filed May 29, 2009. |
| (2) | Incorporated by reference to AutoChina’s Registration Statement (File No. 333-147284), filed with the SEC on Form S-1 dated January 30, 2008. |
| (3) | Incorporated by reference to Annex C to AutoChina’s Final Proxy Statement, filed as Exhibit 99.1 to AutoChina’s Current Report on Form 6-K filed with the SEC on March 11, 2009. |
| (4) | Incorporated by reference to Schedule N to Annex C to AutoChina’s Final Proxy Statement, filed as Exhibit 99.1 to AutoChina’s Current Report on Form 6-K filed with the SEC on March 11, 2009. |
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| (5) | Incorporated by reference to Annex E to AutoChina’s Final Proxy Statement, filed as Exhibit 99.1 to AutoChina’s Current Report on Form 6-K filed with the SEC on March 11, 2009. |
| (6) | Incorporated by reference to AutoChina's Amendment No. 1 to the Annual Report on Form 20-F/A, filed with the SEC on December 6, 2011. |
| (7) | Incorporated by reference to AutoChina's Annual Report on Form 20-F, filed with the SEC on November 30, 2011. |
| (8) | Incorporated by reference to AutoChina's Annual Report on Form 20-F, filed with the SEC on April 5, 2012. |
| (9) | Incorporated by reference to AutoChina’s Annual Report, filed with the SEC on Form 20-F filed June 9, 2009. |
| (10) | Incorporated by reference to AutoChina’s Annual Report on Form 20-F, filed with the SEC on April 30, 2013. |
| (11) | Incorporated by reference to AutoChina’s Annual Report on Form 20-F, filed with the SEC on April 18, 2014. |
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SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| AUTOCHINA INTERNATIONAL LIMITED | ||
| December 30, 2015 | By: | /s/ Yong Hui Li |
| Yong Hui Li | ||
| Chief Executive Officer | ||
| December 30, 2015 | By: | /s/ Jason Wang |
| Jason Wang | ||
| Chief Financial Officer | ||
