AUTCW Autochina International Limited - Warrant 02/26/2013 (Cayman Islands) (MM)

AutoChina International Limited (“AutoChina” or the “Company”) (NASDAQ: AUTC, AUTCW, AUTCU), a leading one-stop commercial vehicle sales and leasing company in China offering its customers affordable lease-to-own options, reported financial results for its third quarter and nine months ended September 30, 2009.

(1) The financial results through September 30, 2009 include those of the automotive dealership business, which is in the process of being sold. Pro forma statements of income for the nine months ended September 30, 2009 and the year ended December 31, 2008 and a pro forma balance sheet as of September 30, 2009, to present the pending sale of the automotive dealership business segment as a discontinued operation, are presented below. In addition, the financial results prior to April 9, 2009 reflect those of the Company’s operating subsidiary, AutoChina Group, Inc. (“ACG”) on a stand-alone basis, without adjustment, prior to its acquisition by Spring Creek Acquisition Corp. on April 9, 2009.

The Company’s Chairman and CEO, Mr. Yong Hui Li, noted, “We are pleased to have significantly improved our revenues and earnings through the third quarter. We achieved this through the rapid growth of our commercial vehicle sales and leasing business, which we expanded to over 150 branches across China in just the first 18 months of operations. We plan to continue to open branches as we further expand our store network across China. Our results have continued to improve since February 2009, when nationwide commercial vehicle sales rebounded and posted their first monthly increase since July 2008. In the third quarter the market has continued to gain momentum as highway freight volumes have increased and monthly commercial vehicles sales have posted strong year-over-year growth rates. We believe that we have a “first-mover” advantage with a scalable and cost-efficient business model that is well equipped to capitalize on this commercial vehicle expansion.”

Mr. Li continued, “While we had hoped to close the sale of the auto dealership business earlier this year, we now expect this transaction to close by the end of December. Proceeds from this sale will be utilized to fund our growth.”

2009 Third Quarter Financial Review

The Company reported revenues for the 2009 third quarter of $242.0 million, up 110.8% year-over-year from $114.8 million in the third quarter of 2008. The Company’s revenues by category were as follows:

• $128.6 million, or 53.1%, related to new automobiles;
• $97.4 million, or 40.3%, related to commercial vehicles;
• $11.4 million, or 4.7%, related to parts and service; and
• $4.6 million, or 1.9%, related to finance and insurance, attributable primarily to the commercial vehicle business

The Company’s commercial vehicle sales and leasing business recorded 2,531 vehicle financing agreements and sales in the third quarter of 2009, compared to 291 in the third quarter of 2008 and 1,535 in the second quarter of 2009. The Company did not realize any losses on any lease-to-own loans on its commercial vehicles during the first nine months of 2009. The increase in commercial vehicle sales was in part due to the effects of economic stimulus measures implemented by the Chinese government in the first quarter and strengthening demand for commercial vehicles in the third quarter.

Gross margin increased to 7.4% for the three months ended September 30, 2009, from 7.0% for the prior fiscal year period, and from 6.2% in the second quarter of 2009. The Company expects continued improvement in margin due to the increased contribution to revenues from the commercial vehicle sales and leasing business, which has higher margins than the dealership business.

Net income attributable to shareholders for the third quarter of 2009 increased to $7.0 million, or $0.60 per diluted share based on 11.7 million weighted average diluted shares outstanding, compared to $3.0 million, or $0.39 per diluted share based on 7.7 million weighted average diluted shares outstanding in the third quarter of 2008.

Adjusted EBITDA for the quarter ended September 30, 2009 increased to $12.4 million, from $5.7 million in the prior year quarter. A table reconciling Adjusted EBITDA to net income can be found at the end of this press release.

Nine Months Ended September 30, 2009 Financial Review

For the nine months ended September 30, 2009, revenues increased 70.1% to $565.2 million, from $332.2 million in the comparable prior year period. The Company’s revenues by sales category were as follows:

• $353.6 million, or 62.6% of revenues, related to new automobiles;
• $168.3 million, or 29.8%, related to commercial vehicles;
• $35.5 million, or 6.3%, related to parts and service; and
• $7.8 million, or 1.3%, related to finance and insurance.

Gross margin increased to 6.7% from 6.1% in the prior year period, which reflected the change in the revenue mix.

Net income attributable to shareholders for the nine months ended September 30, 2009 was $12.5 million, or $1.25 per diluted share, based on 10.0 million weighted average diluted shares outstanding, compared to $6.1 million, or $1.03 per diluted share based on 7.7 million weighted average diluted shares outstanding in the prior year period.

Adjusted EBITDA for the nine months ended September 30, 2009 increased to $25.3 million from $12.9 million in the prior year period. A table reconciling Adjusted EBITDA to net income can be found at the end of this press release.

The Company believes that, after taking into consideration its present banking facilities, its financing arrangement with its affiliate, its existing cash resources, the cash flows expected to be generated from continuing operations, and the proceeds to be received from the sale of the consumer automotive dealership business, it has adequate sources of liquidity to meet its short-term obligations and working capital requirements.

Additional information with respect to the Company, including more detailed information with respect to the Company’s September 30, 2009 interim financial statements, will be available on Form 6-K, which the Company expects to file with the Securities and Exchange Commission on December 11, 2009 (available without charge at www.sec.gov).

About AutoChina International Limited:

AutoChina International Limited is a leading one-stop commercial auto financing and sales company in China. AutoChina’s operating subsidiary was founded in 2005 by nationally recognized Chairman and CEO, Yong Hui Li. 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 automobile 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;
• Whether the transaction to sell the automobile dealership business is consummated;
• 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 INCOME (Unaudited)

(in thousands except share and per share data)      

Three months ended September 30,

 

Nine months ended September 30,

2009

 

2008

2009

 

2008

  Revenues New automobiles $ 128,530 $ 91,827 $ 353,624 $ 270,164 Commercial vehicles 97,374 11,428 168,332 33,102 Parts and services 11,427 10,752 35,468 27,327 Finance and insurance 4,647   794   7,779   1,613   Total revenues 241,978   114,801   565,203   332,206     Cost of sales New automobiles 123,542 89,000 339,981 261,108 Commercial vehicles 91,206 10,512 158,988 31,188 Parts and services 9,261   7,208   28,111   19,584   Total cost of sales 224,009   106,720   527,080   311,880     Gross profit 17,969   8,081   38,123   20,326     Operating expenses Selling and marketing 3,151 1,261 8,059 4,541 General and administrative 3,646 1,610 8,412 4,808 Other income, net (356 ) (230 ) (888 ) (467 ) Total operating expenses 6,441   2,641   15,583   8,882     Income from operations 11,528   5,440   22,540   11,444     Other income (expense) Floor plan interest expense (133 ) (178 ) (561 ) (630 ) Interest expense (541 ) (873 ) (1,464 ) (1,736 ) Interest expense, related parties (854 ) - (1,075 ) - Interest income 125 222 344 450 Accretion of share repurchase obligations (221 ) - (531 ) - Equity in earnings (loss) of unconsolidated subsidiaries - (33 ) 37 (50 ) Acquisition-related costs -   -   (295 ) -   Other expense, net   (1,624 )   (862 ) (3,545 )   (1,966 )   Income from continuing operations before income taxes 9,904 4,578 18,995 9,478   Income tax provision 2,419   1,220   4,958   2,285   Income from continuing operations 7,485 3,358 14,037 7,193 Loss from discontinued operations, net of taxes -   (2 ) -   (153 )   Net income 7,485 3,356 14,037 7,040 Net income attributable to noncontrolling interests (493 ) (313 ) (1,552 ) (930 ) Net income attributable to shareholders $ 6,992   $ 3,043   $ 12,485   $ 6,110  

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - Continued

(in thousands except share and per share data)

     

Three months ended September 30,

 

Nine months ended September 30,

2009

 

2008

2009

 

2008

  Earnings (loss) per share Basic Continuing operations $ 0.76 $ 0.39 $ 1.46 $ 1.05 Discontinued operations - - - (0.02 ) $ 0.76 $ 0.39 $ 1.46 $ 1.03 Diluted Continuing operations $ 0.60 $ 0.39 $ 1.25 $ 1.05 Discontinued operations - - - (0.02 ) $ 0.60 $ 0.39 $ 1.25 $ 1.03   Weighted average shares outstanding Basic 9,212,703 7,745,625 8,572,134 7,745,625 Diluted 11,733,174 7,745,625 10,027,442 7,745,625     Amounts attributable to shareholders Income from continuing operations, net of taxes $ 6,992 $ 3,045 $ 12,485 $ 6,263 Discontinued operations, net of taxes - (2 ) - (153 ) Net income $ 6,992 $ 3,043 $ 12,485 $ 6,110

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)           September 30,  

December 31,

 

 

2009

2008

(unaudited) ASSETS Current assets Cash and cash equivalents $ 38,136 $ 17,406 Restricted cash 53,530 40,824 Accounts receivable 3,196 4,272 Inventories 34,529 37,463 Deposits for inventories 41,673 21,621 Prepaid expenses and other current assets 6,981 5,474 Due from unconsolidated subsidiary 439 529 Current maturities of net investment in sales-type leases 82,258 14,867 Deferred income tax assets 2,741 1,020 Total current assets 263,483 143,476   Investment in unconsolidated subsidiaries 266 229 Property, equipment and leasehold improvements, net 28,450 26,907 Net investment in sales-type leases, net of current maturities 56,980 8,492 Goodwill 941 941   Total assets $ 350,120 $ 180,045   LIABILITIES AND EQUITY Current liabilities Floor plan notes payable - manufacturer affiliated $ 11,115 $ 12,379 Notes payable 28,841 3,921 Trade notes payable 65,586 60,134 Short-term loan 14,590 - Deposit for pending disposal of consumer automotive dealership business 29,255 - Accounts payable 3,948 1,270 Accounts payable, related parties 83,388 2,272 Other payables and accrued liabilities 8,729 5,189 Share repurchase obligations 2,537 - Due to affiliates 5,456 5,894 Customer deposits 5,424 3,224 Customer deposits, related party - 16,095 Income tax payable 3,042 1,674 Total current liabilities 261,911 112,052   Long term debt Net deferred income tax liabilities 2,020 405 Total liabilities 263,931 112,457

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - Continued

(in thousands except share and per share data)         September 30,   December 31,

2009

2008

(unaudited) 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 - 10,716,720 shares and 8,606,250 shares at September 30, 2009 and December 31, 2008, respectively; outstanding – 9,557,095 shares and 7,745,625 shares at September 30, 2009 and December 31, 2008, respectively 11 9 Additional paid-in capital 40,639 35,912 Statutory reserves 741 741 Retained earnings 30,276 17,791 Accumulated other comprehensive income 6,166 6,185 Total shareholders’ equity 77,833 60,638 Noncontrolling interest 8,356 6,950 Total equity 86,189 67,588   Total liabilities and equity $ 350,120 $ 180,045

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

  Nine Months Ended September 30, 2009 2008    

Cash flow from operating activities:

  Net income attributable to shareholders $ 12,485 $ 6,110  

Adjustments to reconcile net income attributableto shareholders to net cash used in operatingactivities:

Depreciation and amortization 2,647 1,627

Loss on disposal of property, equipment andleasehold improvements

90 - Deferred income taxes (106) (112) Equity in (earnings) loss of unconsolidated subsidiaries (37) 50 Gain on disposal of equity in subsidiary - (52) Stock-based compensation 112 - Accretion of share repurchase obligations 531 - Noncontrolling interests 1,552 930  

Changes in operating assets and liabilities, netof acquisitions and divestitures:

Accounts receivable 1,076 (283) Net investment in sales-type leases (115,879) (23,693) Inventories 2,934 (14,443) Deposits for inventories (20,052) 6,467 Prepaid expense and other current assets (1,443) 4,315 Floor plan notes payable – manufacturer affiliated (1,264) 2,213 Trade notes payable 5,452 21,985 Accounts payable 2,678 (1,138) Other payable and accrued liabilities 1,808 (8,512) Customers deposits 2,200 (975) Customers deposits, related party (16,095) - Income tax payable 1,368 745 Net cash provided by discontinued operations - 7,648     Net cash (used in) provided by operating activities $ (119,943) $ 2,882

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - Continued

(in thousands)

  Nine Months Ended September 30, 2009 2008     Cash flow from investing activities:   Business acquisitions, net of cash acquired $ - $ (3,560) Purchase of property, equipment and leasehold improvements (5,645) (8,871)

Proceeds from the sale of property, equipment andleasehold improvements

2,425 2,206 Cash received from sales of equity in subsidiaries 2,928 - Cash relinquished upon sale of equity in discontinued subsidiary - (5,432)

Deposits received from pending sale of consumerautomotive dealership business

29,255 - Increase in restricted cash (12,706) (13,311)   Net cash provided by (used in) investing activities 16,257 (28,968)   Cash flow from financing activities: Floor plan borrowings - non-manufacturer affiliated, net - (716) Proceeds from borrowings 59,201 25,267 Repayments of borrowings (20,120) (8,543) Proceeds from affiliates 4,692 - Repayment to affiliates (5,499) - Increase in accounts payable, related party 81,116 - Capital contributions - 16,218 Cash acquired in reverse merger 1,697 - Release of restricted cash held in escrow 4,987 - Repurchase of warrants subsequent to closing of reverse merger (449) - Dividends paid to noncontrolling interest (1,250)

(2,406)

  Net cash provided by financing activities 124,375 29,820   Effect of foreign currency translation on cash 41 1,107   Net increase in cash and cash equivalents 20,730 4,841   Cash and cash equivalents, beginning of the period 17,406 12,820   Cash and cash equivalents, end of the period $ 38,136 $ 17,661     Supplemental disclosure of cash flow information:   Interest paid $ 2,403 $ 1,684 Income taxes paid $ 5,514 $ 2,203 Supplemental disclosure of non-cash financing activity: Settlement of share repurchase obligations $ 5,902 $ -

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Reclassified For Discontinued Operations)

(in thousands except share and per share data)

  Nine Months

Ended

September 30,

2009

Year

Ended

December 31,

2008

(unaudited)   Revenues Commercial vehicles $ 168,332 $ 34,059 Finance and insurance 7,042 2,239 Total revenues 175,374 36,298 Cost of sales Commercial vehicles 158,988 31,970 Gross profit 16,386 4,328   Operating expenses: Selling and marketing 1,537 965 General and administrative 3,905 2,177 Other income, net (93) (162) Total operating expenses 5,349 2,980 Income from operations 11,037 1,348   Other income (expense) : Interest expense (286) (5) Interest expense, related parties (1,075) - Interest income 25 14 Accretion of share repurchase obligations (531) - Acquisition-related costs (295) -   Other income (expense), net (2,162) 9 Income from continuing operations

before income taxes

8,875 1,357 Income tax provision 1,967 185 Income from continuing operations 6,908 1,172 Income from discontinued operations, net of

income taxes

5,577 6,871 Net income attributable to shareholders $ 12,485 $ 8,043 Earnings per share Basic Continuing operations $ 0.81 $ 0.15 Discontinued operations 0.65 0.89 1.46 1.04 Diluted Continuing operations $ 0.69 $ 0.15 Discontinued operations 0.56 0.89 $ 1.25 $ 1.04 Weighted average shares outstanding Basic 8,572,134 7,745,625 Diluted 10,027,442 7,745,625

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

(Reclassified For Discontinued Operations)

September 30, 2009

      (in thousands)

    ASSETS   Current assets   Cash and cash equivalents $ 22,042 Restricted cash 12,434 Accounts receivable 2,086 Inventories 200 Deposits for inventories 21,574 Prepaid expenses and other current assets 3,086 Current maturities of net investment in sales-type leases 82,258 Deferred income tax assets 2,416 Assets of discontinued operations 145,119   Total current assets 291,215   Property, equipment and leasehold improvements, net 1,925 Net investment in sales-type leases, net of current maturities 56,980   Total assets $ 350,120

AUTOCHINA INTERNATIONAL LIMITED AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) - Continued

(Reclassified For Discontinued Operations)

September 30, 2009

(in thousands)

      LIABILITIES AND EQUITY Current liabilities Notes payable $ 8,777 Trade notes payable 12,434 Short-term loan 14,590 Deposit received from pending disposal of consumer automotive dealership business 29,255 Accounts payables 2,096 Accounts payables, related parties 83,388 Other payables and accrued liabilities 5,007 Share repurchase obligations 2,537 Due to affiliates 5,706 Customer deposits 1,868 Income tax payable 1,230 Liabilities of discontinued operations 94,935   Total current liabilities 261,823     Long term debt Net deferred income tax liabilities 2,108   Total liabilities 263,931   Equity Ordinary shares 11 Additional paid-in capital 40,639 Statutory reserves 741 Retained earnings 30,276 Accumulated other comprehensive income 6,166   Total shareholders’ equity 77,833 Noncontrolling interests 8,356 Total equity 86,189   Total liabilities and equity $ 350,120

USE OF NON-GAAP MEASURES

AutoChina defines Adjusted EBITDA as net income before interest expense, income taxes, depreciation and amortization, as well as certain other adjustments, including net income attributable to noncontrolling interests, equity in earnings (loss) of unconsolidated subsidiaries, accretion of share repurchase obligations, stock-based compensation and acquisition-related costs. Adjusted EBITDA excludes 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 EBITDA, and the material limitations of Adjusted EBITDA, such as: 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 this non-GAAP financial measure 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 EBITDA also facilitates management's internal comparisons to AutoChina's historical performance and liquidity. AutoChina computes 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.

A reconciliation of Adjusted EBITDA to net income attributable to shareholders is provided below:

Three months endedSeptember 30,   Nine months endedSeptember 30, 2009   2008   2009   2008 (in thousands) (in thousands) (in thousands) (in thousands)   Net income attributable to shareholders $ 6,992 $ 3,043 $ 12,485 $ 6,110 Income attributable to noncontrolling shareholders 493 313 1,552 930 Interest expenses 1,528 1,051 3,100 2,366 Interest income (125) (222) (344) (450) Equity in loss (earnings) - 33 (37) 50 Income tax provision 2,419 1,220 4,958 2,285 Accretion of stock repurchase obligations 221 - 531 - Stock-based compensation 112 - 112 - Acquisition-related costs - - 295 - Depreciation and amortization 805 272 2,647 1,627 Adjusted EBITDA $ 12,445 $ 5,710 $ 25,299 $ 12,918