<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 00028358
---------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITY EXCHANGE
ACT OF 1934
For the transition period from _____________ to ______________
CHINA CONTAINER HOLDINGS LIMITED
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 11-2243727
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
61, EAST GARDEN ROAD, YANGZHOU, JIANGSU, CHINA 225003
(Address of principal executive offices)
Registrant's Telephone Number, Including area code, (212) 629-7378
Indicate by check mark whether the registrant: (1) has filed all
reports 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 Yes X No _________
---
Indicate the number of shares outstanding of each of the issue's class of
common stock, as of the latest practical date.
Common stock $0.001 par value; 25,000,273 shares outstanding at September
30, 1996.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
(Unaudited) (Unaudited)
Note ------------------------------------ ------------------------------------
1996 1995 1996 1995
US$ US$ US$ US$
<S> <C> <C> <C> <C>
NET SALES 6,483 18,067 72,800 66,636
COST OF SALES ( 8,499) ( 14,247) ( 64,028) ( 56,055)
SELLING AND ADMINISTRA-
TIVE EXPENSES ( 761) ( 855) ( 2,912) ( 2,970)
FINANCIAL EXPENSES, NET ( 510) ( 664) ( 1,842) ( 1,826)
OTHER INCOME, NET 47 240 58 595
REORGANIZATION - - - ( 2,052)
EXPENSES ------- -------- -------- --------
INCOME BEFORE INCOME
TAXES (3,240) 2,541 4,076 4,328
INCOME TAXES 3 2 ( 288) ( 559) ( 678)
------- -------- -------- --------
(3,238) 2,253 3,517 3,650
SHARE OF NET INCOME/
LOSSES) OF ASSOCIATED
COMPANIES 33 ( 195) 18 ( 548)
------- -------- -------- --------
INCOME BEFORE MINORITY
INTERESTS (3,205) 2,058 3,535 3,102
MINORITY INTERESTS ( 332) ( 411) ( 2,699) ( 1,031)
------- -------- -------- --------
NET INCOME/<Loss> (3,537) 1,647 836 2,071
======= ======== ======== ========
NET INCOME/<Loss> PER COMMON
SHARE (0.14) 0.07 0.03 0.08
======= ======== ======== ========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 25,000 25,000 25,000 25,000
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30
(unaudited) December 31
Note (Note 1) (audited)
------------------------ ------------------------
1996 1995
US$ US$
ASSETS
<S> <C> <C>
CURRENT ASSETS 4,224 7,431
Cash and Cash equivalents 29,410 7,642
Accounts receivable 9,219 9,996
Deposits and other receivables 32,307 21,605
Inventories 4 84 84
Deferred income taxes 925 1,234
Amount due from associated companies 6,624 3,757
Amount due from a related company ------- ------
TOTAL CURRENT ASSET 82,793 51,749
INTANGIBLE ASSETS 2,058 499
FIXED ASSETS 14,569 6,335
CONSTRUCTION IN PROGRESS 10,905 5,325
INTERESTS IN ASSOCIATED COMPANIES 2,849 5,826
AMOUNTS DUE FROM RELATED COMPANIES 310 670
OTHER ASSETS 301 901
------- ------
TOTAL 113,785 71,305
======= ======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30
(unaudited) December 31
(Note 1) (audited)
--------------------- -----------------------
1996 1995
US$ US$
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Bank loans and overdrafts 78,420 48,175
Accounts payable 6,701 3,705
Accrued liabilities and other payables 5,453 1,803
Income taxes payable 328 274
Deferred income taxes 101 0
Amount due to associated company 357 -
Amount due to a related company - 2,630
------- ------
TOTAL CURRENT LIABILITIES 91,360 56,587
MINORITY INTERESTS 9,850 3,060
------- ------
TOTAL LIABILITIES 101,210 59,647
------- ------
SHAREHOLDERS' EQUITY
Share capital- shares of 100,000,000
common stock of US$0.001 each and 5,000,000 preferred stock
of US$0.01 each authorized; shares 25,000,273 common stock
of US$0.001 each outstanding 25 25
Additional paid-in capital 4,683 4,683
Reserves 5,879 5,879
Retained earnings 1,988 1,181
Currency translation adjustments - ( 110)
------
TOTAL SHAREHOLDERS' EQUITY 12,575 11,658
------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 113,785 71,305
======= ======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(Amounts in thousands)
<TABLE>
<CAPTION>
Nine month ended
September 30
(unaudited)
1996 1995
US$ US$
<S> <C> <C>
Net cash provided by (used in) operating activities (24,210) 2,335
CASH FLOWS USED IN INVESTING ACTIVITIES
Increase/decrease in fixed assets (1,286) -
Increase in construction in progress ( 7,956) ( 4,387)
Advances to related companies - ( 2,786)
Increase in long term receivables - ( 1,212)
Net cash used in investing activities (9,242) ( 8,385)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Dividends paid to minority interests
Dividends paid - (3,574)
Repayment of bank loans and overdrafts - (11,246)
Proceeds from bank loans and overdrafts 30,245 23,421
------- -------
Net cash provided by financing activities 30,245 8,601
------- -------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (3,207) 2,551
Cash and cash equivalents, at beginning of period 7,431 1,605
------- -------
Cash and cash equivalents, as end of period 4,224 4,156
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in thousands)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instruction to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine month periods ended September 30, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. The
unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Company's audited financial statements for the year ended
December 31, 1995.
The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
2. PURCHASE OF YANGZHOU TONGLEE REEFER CONTAINERS COMPANY LIMITED
On January 1, 1996, China Container's 80% subsidiary, TYC increased its
shareholding in Yangzhou Tonglee Reefer Containers Company Limited ("Tonglee")
from 50% to 51% for US$80. Due to the acquisition of control by TYC, the
results of Tonglee were consolidated into China Container since January 1,
1996.
The pro forma unaudited results of operations for the nine months ended
September 30, 1995, assuming consummation of the purchase as of January 1,
1995 are as follows:
Nine months ended
September 30
1995
-----------------
US$
Net sales 67,202
Net income 2,067
Net income per common share 0.08
======
Tonglee is a Sino-foreign equity joint venture company governed by the Income
Tax Law of the People's Republic of China concerning Foreign Investment
Enterprises and various local income tax laws (the "Income Tax Laws").
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Amounts in thousands)
2. PURCHASE OF YANGZHOU TONGLEE REEFER CONTAINERS COMPANY LIMITED (continued)
In the Yangzhou District, where Tonglee is located, the basic rate of
income tax applicable to Tonglee exclusive of the local income tax is 24%.
Tonglee's local income tax liability of 3% is exempted by the local tax
authorities. Pursuant to the Income Tax Laws, Tonglee was further exempted
from income taxes for a period of two years commencing from the first
profitable year (1996) and is entitled to a 50% tax exemption for the
following three years.
3. INCOME TAX
A reconciliation of the effective income tax rates (excluding the
reorganization expenses) with the statutory income tax rate in the PRC is as
follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
(unaudited) (unaudited)
-------------------- -------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Statutory PRC tax rate (24.0%) 24.0% 24.0% 24.0%
Tax holiday ( 3.7%) (12.0%) (15.0%) (12.0%)
Other Items 20.3% (0.7%) 4.7% (3.6%)
===== ===== ====== =====
0% 11.3% 13.7% 15.6%
</TABLE>
4. INVENTORIES
Inventories comprise:
<TABLE>
<CAPTION>
September 30 December 31
(unaudited) (audited)
--------- ---------
<S> <C> <C>
1996 1995
US$ US$
Raw materials 16,723 16,828
Finished goods 15,584 4,777
------ ------
32,307 21,605
====== ======
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a Nevada corporation whose principal activity is the
management of the business of its indirectly held operating subsidiaries, which
manufacture international standard commercial freight containers in the People's
Republic of China.
The statements in this section relate to the operations and conditions of
the Company and its consolidated subsidiaries.
RESULTS OF OPERATIONS
Third Quarter of 1996 Compared With Third Quarter of 1995
1. Sales decreased by 64.1% from US$18.1 million in the three months
ended September 30, 1995 to US$6.5 million in the three months ended September
30, 1996, and sales quantity decreased by 81.7% from 12,352 TEU in 1995 to 2,257
TEU in 1996. This was primarily due to the temporary shutdown for modernization
of the main production facilities at the Company's TY Container subsidiary
during the third quarter and start up problems at the Company's Tongsheng
subsidiary which came on line in May 1996, more than offsetting the
consolidation of the results of the Company's subsidiary which manufactures
refrigerated containers ("Reefer") following the Company's acquisition of
control of Reefer as at January 1, 1996.
2. The gross profit margin decreased from 21.0% on net sales in the
third quarter of 1995 to a negative 30.8% in the third quarter of 1996 primarily
because (i) the average sales price per TEU dropped approximately 10% and 12%
for dry box containers and refrigerated containers, respectively, while the cost
of raw material remained essentially unchanged, and (ii) while the sale quantity
decreased significantly, the fixed assets are still allocated to production and
thus cause the unit cost to increase thereby decreasing the gross margin.
3. Selling and administrative expenses decreased by 11.1% from
US$900,000 in the third quarter of 1995 to US$800,000 in the third quarter of
1996, reflecting the decrease in sales over the same periods.
4. Financial expenses decreased by 28.6% from US$700,000 in the third
quarter of 1995 to US$500,000 in the third quarter of 1996, primarily because a
higher percentage of the Company's outstanding bank loan for this period were
utilized for construction in progress relating to the modernization of the
production facilities and thus a significant portion of the interest thereon was
capitalized.
Nine Months Ended September 30, 1996 Compared With Nine Months Ended September
30, 1995
1. Sales increased by 9.3% from US$66.6 million in the nine months
ended September 30, 1995 to US$72.8 million in the nine months ended September
30, 1996, and sales quantity decreased by 14.9% from 29,566 TEU in 1995 to
25,148 TEU in 1996. This was
-8-
<PAGE>
primarily due to the consolidation of the results of Reefer, which offset the
results of the third quarter of 1996.
2. The gross profit margin decreased from 15.8% on net sales in 1995
to 12.0% in 1996 primarily because of the results of the third quarter.
FINANCIAL CONDITION
1. Accounts Receivable increased by 286.8% from US$7.6 million as at
December 31, 1995 to US$29.4 million as at September 30, 1996, primarily due to
the consolidation of the results of Reefer.
2. Inventories increased by 49.5% from US$21.6 million as at December
31, 1995 to US$32.3 million as at September 30, 1996, primarily due to an
increase in raw materials in anticipation of fourth quarter orders.
3. Accounts Payable increased by 81.1% from US$3.7 million as at
December 31, 1995 to US$6.7 million as at September 30, 1996, primarily due to
(i) the consolidation of the results of Reefer, (ii) an increase in the amount
of raw materials purchased, relating to the order from the PRC Railway Ministry,
and (iii) the lengthening of the average payment terms for amounts payable by
the Company to its suppliers.
4. Accrued Liabilities and other payables increased by 205.6% from
US$1.8 million as at December 31, 1995 to US$5.5 million as at September 30,
1996, primarily due to (i) the consolidation of the results of Reefer, (ii)
provision for sales commissions and (iii) provision for the payment of certain
non-salary employee benefits.
5. Cash and cash equivalents decreased by 43.2% from US$7.4 million
as at December 31, 1995 to US$4.2 million as at September 30, 1996, primarily
due to payments made to suppliers.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
On September 12, 1996 China Container Holdings Limited issued the
following press release, the content of which has not been previously reported
in a report on Form 8-K:
CHINA CONTAINER HOLDINGS LIMITED RECEIVES $52 MILLION ORDER
FOR CHINA'S RAILROADS
FIRST ORDER EVER FOR CARGO CONTAINERS TO BE USED FOR
CHINA'S EXPANDED RAILWAY TRANSPORTATION SYSTEM
Yangzhou, China, September 12, 1996 -- China Container Holdings
Limited (OTC: CCHL) announced today that it has received an order to produce
18,000 TEUs (20 foot equivalent unit, standard unit used in the container
industry) for the Railway Ministry of the People's Republic of China as part of
the government's program to containerize the country's expanding railroad
transportation infrastructure. The order will be filled by CCHL's majority-
owned subsidiaries, Yangzhou Tongsheng Container Co. Ltd. and Yangzhou Tongyun
Container Company Ltd.
The order for 18,000 TEUs is valued at $52 million, or $2,890 per unit, and
is scheduled to be delivered in its entirety by the end of November 1996.
Beihai Tonghai Container Company, a minority-owned CCHL subsidiary, also
received an order to produce 7,000 TEUs for the Railway Ministry at a cost of
$20.2 million. Both orders from the Ministry provide for an 8-year payment
schedule.
<PAGE>
"The opening up of China's railway transportation network to
containerization represents a whole new market for CCHL, and one that is
expected to grow substantially over the next decade as the government invests
heavily in modernizing the country's railway transportation network," commented
Mr. Cheung Sau Yung, President and CEO of China Container Holdings Limited. "We
fully expect that this order will soon be followed by additional orders from the
Railway Ministry."
The Company announced earlier this week that its revenues for the first six
months of 1996 had risen by 37% to $66.4 million from $48.4 million a year ago.
Net income for the 1996 six month period increased to a record $4.4 million, or
$0.18 per share, compared with $423,000, or $0.02 per share, for the first six
months of 1995
China Container Holdings Limited is one of China's leading manufacturers of
dry freight and refrigerated "reefer" containers. As a U.S. holding company,
CCHL is the majority owner of three container manufacturing facilities:
Yangzhou Tongyun Container Co. Ltd., Yangzhou Tongsheng Container Co. Ltd. and
Yangzhou Tonglee Reefer Container Co. Ltd. These three operating container
ventures serve the nearby ports of Shanghai, Nanjing, Zhenjiang, Zhangjiagang,
Ningvo and Lianyungang, the largest delivery ports for goods exported from
China. The combined container manufacturing capacity of CCHL's majority-owned
container companies is approximately 85,000 TEUs annually. CCHL's exports the
majority of its production to container leasing and shipping companies located
outside of China, with approximately 75% of such sales to U.S.-based companies.
The Company also has minority interests in container-component production and
container transportation companies.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(i) Articles of Incorporation of Registrant, filed August 8,
1995 and Articles of Amendment thereto filed April 16, 1986 and May 15,
1995.
3(ii) By-laws of Registrant.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHINA CONTAINER HOLDINGS LIMITED
Date: November 7, 1997 By: /s/ Ma Tieyi
Ma Tieyi
Secretary and Treasurer
<PAGE>
CHINA CONTAINER HOLDINGS LIMITED
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
3(i) Articles of Incorporation of Registrant,
filed August 8, 1995 and Articles of Amendment
thereto filed April 16, 1986 and May 15,
1995, incorporated by reference to the
Registrant's Form 10 and Amendment No. 1
thereto.
3(ii) By-laws of Registrant, incorporated by
reference to the Registrant's Form 10 and
Amendment No. 1 thereto.
27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4224
<SECURITIES> 0
<RECEIVABLES> 29410
<ALLOWANCES> 0
<INVENTORY> 32307
<CURRENT-ASSETS> 82793
<PP&E> 17960
<DEPRECIATION> 4077
<TOTAL-ASSETS> 113785
<CURRENT-LIABILITIES> 91360
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 12550
<TOTAL-LIABILITY-AND-EQUITY> 113785
<SALES> 6483
<TOTAL-REVENUES> 6483
<CGS> 8499
<TOTAL-COSTS> 8499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1199
<INCOME-PRETAX> (3238)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3537)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
