AutoChina International Reports 2011 Fourth Quarter and Year-end Financial Results

SHIJIAZHUANG, China--(BUSINESS WIRE)--AutoChina International Limited (“AutoChina” or the “Company”) (OTC: AUTCF), China’s largest commercial vehicle sales, servicing, leasing, and support network, today reported financial results for its fourth quarter and year ended December 31, 2011.

Q4 2011 Financial Highlights (comparisons are year over year)

• Total revenues of $107.4 million, compared to $155.9 million
• Gross profit of $26.5 million, compared to $25.6 million
• Net income of $6.9 million, compared to a net loss of $4.2 million
• Adjusted net income of $6.9 million, compared to $10.9 million
• Adjusted EBITDA of $16.2 million, compared to $18.2 million

Full-year 2011 Financial Highlights (comparisons are year over year)

• Total revenues of $598.1 million, compared to $618.1 million
• Gross profit of $107.5 million, compared to $88.0 million
• Net income of $26.1 million, compared to a net loss of $62.9 million
• Adjusted net income of $43.4 million, compared to $37.5 million
• Adjusted EBITDA of $80.0 million, compared to $69.1 million

2011 Operational Highlights

• 1,804 commercial vehicles leased in the fourth quarter of 2011
• 10,935 commercial vehicles leased during the year ended December 31, 2011
• Company focusing on growing its specialty finance business and service offerings, continuing its geographic expansion, sees continued margin expansion

Mr. Yong Hui Li, Chairman and CEO of AutoChina, stated, “Though AutoChina had to address a difficult set of challenges in 2011, we kept a firm focus on growing our business while remaining committed to providing our customers with quality service. We launched our used commercial vehicle sale-leaseback program in early 2011 and in the fourth quarter of 2011 established an insurance agency business whereby AutoChina intends to broker different insurance products from various carriers to existing and new customers. We also partnered with the Postal Savings Bank of China (“PSBC”), enabling qualified AutoChina customers to access credit cards through PSBC and also make payments to us directly from PSBC branches. Compared to the robust economic growth and heavy-truck demand of 2009 and 2010, 2011 was a year of normalization on both fronts. However, as AutoChina continues to increase its geographic presence across China, we believe that the country’s continuing economic development will remain the primary driver of demand for commercial vehicles in the long term. Further, we remain committed to leveraging the power of the store network we have created to offer a variety of specialty finance and insurance options to individuals throughout China, and continue to seek additional means of diversifying our revenues.”

Operational Review

Heavy Truck Sales

The Company leased 1,804 commercial vehicles in the fourth quarter of 2011, compared to 3,076 in the fourth quarter of 2010.

AutoChina’s commercial vehicle specialty finance business recorded 10,935 new leases during the year ended December 31, 2011, compared to 12,561 new leases in the prior year. The Company continues to maintain a low default rate, as AutoChina realized losses in lease-to-own loans on 169 vehicles, or 1.5%, for loss and accidents during the year ended December 31, 2011. There were 55, or 0.4%, such losses recognized in the previous year.

Value-Added Services

AutoChina also continues to make progress with its higher-margin value-added services (diesel, tires, and insurance) programs. Revenues from value-added services totaled $4.0 million for the year ended December 31, 2011, compared to $1.6 million in the prior-year period.

Used Vehicle Leasing

The Company officially launched its commercial vehicle sale-leaseback program in early 2011 and leased an additional 1,131 used vehicles under this program during the year ended December 31, 2011. Revenues generated from these secondhand commercial vehicle leasing arrangements during 2011 totaled $0.9 million.

Expansion of Specialty Finance Store Network

During the year ended December 31, 2011, the Company opened 206 additional financing and service centers. At December 31, 2011, AutoChina owned and operated 506 financing centers in 26 provinces or province-level regions across China, compared to 300 at December 31, 2010. Out of the 206 new locations, 94 were opened in provinces that did not have an AutoChina presence as of December 31, 2010. The Company now operates commercial vehicle financing and service centers in the Anhui, Beijing, Chongqing, Fujian, Gansu, Guangdong, Guangxi, Guizhou, Hebei, Henan, Hubei, Hunan, Inner Mongolia, Jiangsu, Jiangxi, Jilin, Liaoning, Ningxia, Shaanxi, Shandong, Shanghai, Shanxi, Sichuan, Tianjin, Yunnan, and Zhejiang areas of China.

Financial Review

2011 Fourth Quarter

• The Company reported revenues for the fourth quarter ended December 31, 2011, of $107.4 million, compared to the $155.9 million reported in the fourth quarter of 2010. The decrease in revenues primarily resulted from lower demand for heavy trucks from the extraordinarily robust levels in 2010, which was partially offset by higher finance and insurance income during the period. The Company reported $83.4 million in commercial vehicle revenues, and $24.0 million, or 22.3% of revenues, related to finance and insurance.
• The Company’s cost of sales during the period totaled $80.9 million, with an average cost per commercial vehicle of $44,800. Gross margin increased to 24.7% for the three months ended December 31, 2011, from 16.4% for the prior-year period. The increase in gross margin was due to a higher contribution to revenues from finance and insurance versus direct sales of commercial vehicles.
• Net income in the three months ended December 31, 2011, was $6.9 million, or $0.29 earnings per share based on 23.5 million diluted weighted average shares outstanding, compared to a net loss of $4.2 million, or $0.22 earnings per share based on 19.6 million diluted weighted average shares outstanding, in the three months ended December 31, 2010. The year-over-year increase of net income from a net loss position primarily resulted from the decrease of loss on change in fair value of the Earn-out obligation.
• Adjusted net income was $6.9 million, compared to $10.9 million for the fourth quarter of 2010.
• Adjusted EBITDA for the quarter ended December 31, 2011, was $16.2 million, compared to $18.2 million in the prior-year quarter.

See “Non-GAAP Financial Measures” below for a description of adjusted net income and adjusted EBITDA.

Full-year 2011

• For the year ended December 31, 2011, the Company reported revenues of $598.1 million, compared to $618.1 million for 2010. The decrease in revenues was primarily due to lower demand for heavy trucks compared to the high demand levels of 2010. The Company reported $505.6 million in sales of its commercial vehicles, and $92.5 million, or 15.5% of sales, related to finance and insurance. The increase in finance and insurance revenue is due to an increase in the total leasing customer base compared to the prior period.
• The Company’s gross profit was $107.5 million for the year ended December 31, 2011, representing a gross margin of 18.0%, an increase from gross margin of 14.2% in 2010, which is primarily due to the increased number of outstanding leasing contracts signed that increased the contribution to monthly finance and insurance income.
• Net income for the year ended December 31, 2011, was $26.1 million, or $1.11 earnings per share based on 23.6 million diluted weighted average shares outstanding, compared to a net loss of $62.9 million, or $3.42 per share based on 18.4 million diluted weighted average shares outstanding, for the year ended December 31, 2010. This year-over-year increase was primarily due to the decrease of loss on change in fair value of the Earn-out obligation, significant increase in profits generated from the finance and insurance revenue, and improved gross profit margin.
• Adjusted net income was $43.4 million, a 15.8% increase from adjusted net income of $37.5 million in 2010.
• Adjusted EBITDA for full-year 2011 increased to $80.0 million, from $69.1 million in the prior-year period.

Balance Sheet Highlights

At December 31, 2011, AutoChina’s cash and cash equivalents (not including restricted cash) were $43.0 million, working capital was $170.7 million, total debt was $230.1 million (including due to affiliates and accounts payable, related parties), and stockholders’ equity was $290.3 million, compared to $30.9 million, $127.4 million, $326.6 million (includes $73.1 million in Earn-out obligation), and $156.8 million, respectively, at December 31, 2010.

Mr. Li concluded, “The Company believes itself to be a partner to individuals and small business owners. By providing access to affordable commercial vehicle ownership, we enable them to transport their high-demand goods all over the vast and rapidly developing Chinese countryside and grow their businesses, which, in turn, enable them to support their families. We remain committed to this vision and will continue to work toward our goal of becoming a vertically integrated specialty finance provider in China.”

About AutoChina International Limited:

AutoChina International Limited is China’s largest commercial vehicle sales, servicing, leasing, and support network. AutoChina’s operating subsidiary was founded in 2005 by nationally recognized Chairman and CEO, Yong Hui Li. As of December 31, 2011, the Company owned and operated 506 commercial vehicle financing centers across China, and primarily provides sales-type leasing and support services for local customers. The Company’s website is http://www.autochinaintl.com.

Safe Harbor Statement:

This press release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about the Company. Forward-looking statements are statements that are not historical facts. Such forward-looking statements, based upon the current beliefs and expectations of the Company's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. The following factors, among others, could cause actual results to meaningfully differ from those set forth in the forward-looking statements:

• Continued compliance with government regulations;
• Changing legislation or regulatory environments;
• Requirements or changes affecting the businesses in which the Company is engaged;
• Industry trends, including factors affecting supply and demand;
• Labor and personnel relations;
• Credit risks affecting the Company's revenue and profitability;
• Changes in the commercial vehicle industry;
• The Company’s ability to effectively manage its growth, including implementing effective controls and procedures and attracting and retaining key management and personnel;
• Changing interpretations of generally accepted accounting principles;
• General economic conditions; and
• Other relevant risks detailed in the Company’s filings with the Securities and Exchange Commission.

The information set forth herein should be read in light of such risks. The Company does not assume any obligation to update the information contained in this press release.

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands except share and per share data)
	Three months ended December 31,						Year ended December 31,
	2011			2010			2011			2010
Revenues
Commercial vehicles	$	83,422		$	136,539		$	505,618		$	558,004
Finance and insurance		23,998			19,118			92,476			59,405
Agency service, related parties		—			222			—			664
Total revenues		107,420			155,879			598,094			618,073
Cost of sales
Commercial vehicles		638			49,565			86,055			419,383
Commercial vehicles, related parties		80,242			80,749			404,572			110,728
Total cost of sales		80,880			130,314			490,627			530,111
Gross profit		26,540			25,565			107,467			87,962
Operating expenses (income)
Selling and marketing		2,353			2,485			8,055			6,260
General and administrative		10,049			5,915			27,198			17,590
Interest expense		4,157			3,269			15,920			10,512
Interest expense, related parties		1,049			1,576			3,020			6,945
Other expenses (income), net		(596	)		147			(3,415	)		(789	)
Total operating expenses		17,012			13,392			50,778			40,518
Income from operations		9,528			12,173			56,689			47,444
Other income (expense)
Loss on change in fair value of earn-out obligation		—			(15,100	)		(17,300	)		(100,400	)
Interest income		65			—			160			433
Other income (expense), net		65			(15,100	)		(17,140	)		(99,967	)
Income (loss) before income taxes		9,593			(2,927	)		39,549			(52,523	)
Income tax provision		(2,726	)		(1,305	)		(13,419	)		(10,369	)
Net (loss) income	$	6,867		$	(4,232	)	$	26,130		$	(62,892	)
Foreign currency translation adjustment		2,806			3,539			14,072			6,894
Comprehensive income (loss)	$	9,673		$	(693	)	$	40,202		$	(55,998	)
Earnings (loss) per share
Basic	$	0.29		$	(0.22	)	$	1.11		$	(3.42	)
Diluted	$	0.29		$	(0.22	)	$	1.11		$	(3.42	)
Weighted average shares outstanding
Basic		23,538,919			19,619,876			23,538,919			18,415,305
Diluted		23,538,919			19,619,876			23,612,398			18,415,305

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands except share and per share data)
	December 31,
	2011		2010
ASSETS
Current assets
Cash and cash equivalents	$	43,019	$	30,931
Restricted cash		159		—
Accounts receivable, net of provision for doubtful accounts of $4,830 and $1,464, respectively		25,357		22,101
Inventories		2,529		1,412
Deposits for inventories		105		1,004
Deposits for inventories, related party		14,539		—
Prepaid expenses and other current assets		12,096		8,113
Prepaid interest expenses, related parties		—		604
Due from an affiliate		—		9,000
Current maturities of net investment in direct financing and sales-type leases, net of provision  for doubtful accounts of $714 and $281, respectively		329,111		282,108
Total current assets		426,915		355,273
Property, equipment and leasehold improvements, net		3,356		2,669
Deferred income tax assets		1,811		259
Net investment in direct financing and sales-type leases, net of current maturities		114,447		142,005
Total assets	$	546,529	$	500,206

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS – Continued (in thousands except share and per share data)
	December 31,
	2011			2010
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings (including short-term borrowings of the consolidated VIEs without recourse to AutoChina of $111,095 and $106,864 as of December 31, 2011 and 2010, respectively)	$	149,979		$	117,485
Long-term borrowings, current (including long-term borrowings, current of the consolidated VIEs without recourse to AutoChina of $44,438 and nil as of December 31, 2011 and 2010, respectively)		44,438			—
Accounts payable (including accounts payable of the consolidated VIEs without recourse to AutoChina of $112 and $408 as of December 31, 2011 and 2010, respectively)		404			911
Accounts payable, related parties (including accounts payable, related parties of the consolidated VIEs without recourse to AutoChina of nil and $16,202 as of December 31, 2011 and 2010, respectively)		—			16,202
Other payables and accrued liabilities (including other payables and accrued liabilities of the consolidated VIEs without recourse to AutoChina of $4,415 and $5,626 as of December 31, 2011 and 2010, respectively)		13,652			7,425
Due to affiliates (including due to affiliates of the consolidated VIEs without recourse to AutoChina of $3,244 and nil as of December 31, 2011 and 2010, respectively)		35,661			77,295
Customer deposits (including customer deposits of the consolidated VIEs without recourse to AutoChina of $508 and $1,014 as of December 31, 2011 and 2010, respectively)		1,152			1,198
Income tax payable (including income tax payable of the consolidated VIEs without recourse to AutoChina of $1,548 and $7,012 as of December 31, 2011 and 2010, respectively)		2,799			7,147
Deferred income tax liabilities (including deferred income tax liabilities of the consolidated VIEs without recourse to AutoChina of $4,764 and $192 as of December 31, 2011 and 2010, respectively)		8,162			192
Total current liabilities		256,247			227,855
Noncurrent liabilities
Long-term borrowings (including long-term borrowings of the consolidated VIEs without recourse to AutoChina of nil and $42,485 as of December 31, 2011 and 2010, respectively)		—			42,485
Earn-out obligation		—			73,100
Total liabilities		256,247			343,440
Commitment and Contingencies
Shareholders’ equity
Preferred shares, $0.001 par value authorized - 1,000,000 shares; issued - none		—			—
Ordinary shares - $0.001 par value authorized - 50,000,000 shares; issued and outstanding – 23,538,919 shares and 19,615,766 shares at December 31, 2011 and 2010, respectively		24			20
Additional paid-in capital		379,952			286,642
Statutory reserves		13,016			6,272
Accumulated losses		(124,349	)		(143,735	)
Accumulated other comprehensive income		21,639			7,567
Total shareholders’ equity		290,282			156,766
Total liabilities and shareholders’ equity	$	546,529		$	500,206

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
	December 31,
	2011			2010
Cash flow from operating activities:
Net income (loss)	$	26,130		$	(62,892	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss on change in fair value of earn-out obligation		17,300			100,400
Depreciation and amortization		1,420			952
Provision for bad debts		4,271			1,447
Deferred income taxes		6,261			(959	)
Stock-based compensation expenses		2,914			3,281
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable		(5,997	)		(20,263	)
Notes receivable		—			222
Net investment in direct financing and sales-type leases		2,175			(194,490	)
Inventories		(1,024	)		(1,255	)
Deposits for inventories		923			16,567
Deposits for inventories, related party		(14,177	)		—
Prepaid expense and other current assets		(3,511	)		(1,828	)
Trade notes payable		—			(12,561	)
Accounts payable		(536	)		(2,756	)
Accounts payable, related parties		—			16,104
Other payable and accrued liabilities		5,730			4,229
Customers deposits		(100	)		(182	)
Income tax payable		(4,568	)		4,912
Net cash provided by (used in) operating activities		37,211			(149,072	)
Cash flow from investing activities:
Purchase of property, equipment and leasehold improvements		(1,967	)		(1,427	)
(Increase) decrease) in restricted cash		(155	)		12,561
Decrease (increase) in due from an affiliate		9,000			(9,000	)
Net cash provided by investing activities		6,878			2,134

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS – Continued (in thousands)
	December 31,
	2011			2010
Cash flow from financing activities:
Proceeds from borrowings		189,850			220,028
Repayments of borrowings		(163,567	)		(73,269	)
Proceeds from affiliates		320,641			283,311
Repayment to affiliates		(364,175	)		(245,988	)
Increase in accounts payable, related parties		404,492			451,525
Repayment to accounts payable, related parties		(421,036	)		(570,637	)
Issue of shares on exercise of warrants		—			10,296
Issue of shares for cash, net of offering costs of $3,758		—			66,242
Shares repurchase		—			(1,630	)
Net cash (used in) provided by financing activities		(33,795	)		139,878
Net cash provided by (used in) operating, financing and investing activities		10,294			(7,060	)
Effect of exchange rate fluctuation on cash and cash equivalents		1,794			1,223
Net increase (decrease) in cash and cash equivalents		12,088			(5,837	)
Cash and cash equivalents, beginning of the year		30,931			36,768
Cash and cash equivalents, end of the year	$	43,019		$	30,931

Non-GAAP Financial Measures ($ in 000s)
A reconciliation of Adjusted Net Income to net income (loss) is provided below:
	Three Months Ended December 31,						Year Ended December 31,
	2011			2010			2011			2010
Net income (loss)	$	6,867		$	(4,232	)	$	26,130		$	(62,892	)
Loss (gain) on change in fair value of earn-out obligation		—			15,100			17,300			100,400
Adjusted Net Income	$	6,867		$	10,868		$	43,430		$	37,508
A reconciliation of Adjusted EBITDA to net income (loss) is provided below:
	Three Months Ended December 31,						Year Ended December 31,
	2011			2010			2011			2010
Net income (loss)	$	6,867		$	(4,232	)	$	26,130		$	(62,892	)
Interest expenses		5,206			4,845			18,940			17,457
Interest income		(65	)		—			(160	)		(433	)
Income tax provision		2,726			1,305			13,419			10,369
Loss (gain) on change in fair value of earn-out obligation		—			15,100			17,300			100,400
Stock-based compensation		936			967			2,914			3,281
Depreciation & Amortization		539			262			1,420			952
Adjusted EBITDA	$	16,209		$	18,247		$	79,963		$	69,134

USE OF NON-GAAP MEASURES

AutoChina defines Adjusted Net Income as net income (loss) before gain (loss) on change in fair value of earn-out obligation and Adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization, as well as certain other adjustments, including Loss (gain) on change in fair value of earn-out obligation, stock-based compensation and accretion of stock repurchase obligations. Adjusted Net Income and Adjusted EBITDA exclude certain financial information that would be included in net income (loss), the most directly comparable GAAP financial measure. Users of this financial information should consider the type of material events and transactions that are excluded from Adjusted Net Income and Adjusted EBITDA, and the material limitations of therein. Adjusted EBITDA does not include net interest expense, but because AutoChina has borrowed money to finance its operations, interest expense is a necessary and ongoing part of its costs and has assisted AutoChina in generating revenue; Adjusted EBITDA does not include taxes, although payment of taxes is a necessary and ongoing part of AutoChina’s operations; and Adjusted EBITDA does not include depreciation and amortization expense, but because AutoChina uses capital assets to generate revenue, depreciation and amortization expense is a necessary element of its cost structure. Therefore, Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income, as determined in accordance with GAAP, since it omits the impact of these expenses incurred by AutoChina.

AutoChina believes that the presentation of these non-GAAP financial measures is warranted and useful to its shareholders because it provides an additional analytical tool for understanding the Company’s financial performance by excluding certain items that may obscure trends in the core operating performance of the Company’s business. Using Adjusted Net Income and Adjusted EBITDA also facilitates management's internal comparisons to AutoChina's historical performance and liquidity. AutoChina computes Adjusted Net Income and Adjusted EBITDA using the same consistent method from quarter to quarter. The accompanying table has more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.