AutoChina International Limited (“AutoChina” or the “Company”)
(NASDAQ: AUTC), China’s largest commercial vehicle sales,
servicing, leasing, and support network, today announced that the
Company has reviewed and disagrees with the follow-up blog post
from yesterday afternoon by a disclosed short-seller. As with the
anonymous author’s earlier blog post, the Company finds many of the
statements lacking in credibility, substance, and accuracy.
On February 3, 2011, AutoChina issued a press release and open
letter to shareholders where it addressed several factual
inaccuracies in the original blog post made on February 1, 2011 by
the author.
In his follow-up post, the author complains that AutoChina
“ignored the most damaging questions, while manipulating and
sensationalized [sic] others.” However, the author failed to
acknowledge the many errors in his initial post that AutoChina
refuted, including the use of incorrect information in his primary
accounting allegation against the Company
(http://edg1.vcall.com/irwebsites/autochinaintl/Shareholder%20Letter_February%202011.pdf?x=2).
AutoChina encourages current and potential shareholders to draw
their own conclusions about the author’s claims. In addition, the
Company encourages everyone to be aware that the author profits if
AutoChina’s stock declines, since he discloses that he holds a
short position in AutoChina stock.
The author’s follow-up post also included a number of additional
material misstatements that the Company would like to clarify:
Regarding AutoChina’s VIE
Structure
AutoChina reiterates that the VIE structure has become an
established and common holding structure for Chinese companies that
are publicly traded outside of China, and that some of the best
known, widely vetted, and longstanding public Chinese companies
including Baidu and Sina use the structure. Furthermore, the use of
this structure is fully disclosed in the Company’s public filings,
which also contains disclosure regarding potential risk factors.
These risk factors are substantially similar for all Chinese
companies using the VIE structure.
Historically, AutoChina has conducted its leasing operations
through CITIC Trust Co. Ltd. (“CITIC Trust”), a division of CITIC
Group, whereby CITIC Trust acts as an intermediary for all of the
Company’s leases. Since November 2010, AutoChina has also been
conducting its leasing operations through a new financial leasing
company that is directly and wholly owned by AutoChina, and
therefore is not part of the Company’s VIE holding structure.
Regarding AutoChina’s Related Party
Interest Expense
The author noted that a potential impact of $0.74 per share to
the Company’s income statement could occur if AutoChina’s interest
from related party debt were increased to “market rates” of 7%. In
his calculation, the author dramatically overstated the amount of
related party debt that the Company has outstanding and therefore
the impact of an increase in its funding costs. The author’s
overstatement also forms the basis of his claim that the Company’s
$4.8 million of reported related party interest expense
year-to-date is too low and irreconcilable.
For example, the author’s analysis incorrectly estimated $510.1
million of related party loans when the actual amount of total
related party debt outstanding as of September 30, 2010 was only
$126.2 million. In addition, the Company’s related party loans have
been declining, and the average amount outstanding over the past
four quarters is approximately $161.3 million. Assuming that this
average amount is provided to AutoChina at the 7% rate that the
author suggests, the total interest difference would be
approximately $0.24 per share pre-tax (assuming 20 million shares),
not $0.74 per share as the author asserts. Based on this analysis,
the author has overstated, by over 3 times, the potential impact of
increasing AutoChina’s interest rate (from 4% to 7%) on related
party loans. Although interest expense would naturally go up with a
higher interest rate, the author’s use of incorrect information
resulted in his significantly miscalculating the effect of such an
increase.
Furthermore, based on AutoChina’s quarterly filings, the average
amount of related party debt outstanding from Beiguo was
approximately $126.8 million over the past nine months, which, at
4% interest equals approximately $3.8 million in interest – which
is below the $4.8 million that was actually reported by the
Company. Therefore, the author’s claim that AutoChina’s reported
$4.8 million in related party interest expense appears too low is
completely without merit.
Regarding the Earnout’s EBITDA
Targets
The author incorrectly asserts that the Company’s earnout is
based upon EBITDA targets that are not reset annually and are
“absurdly low.” The earnout’s EBITDA targets are indeed reset
annually and are and have been publicly disclosed since AutoChina
became a public company in April 2009. For example, if EBITDA in
Year One was $100, then EBITDA in Year Two would have to be at
least $130 (30% growth) for any earnout award to be issued. If
actual EBITDA in Year Two was $130, EBITDA in Year Three would have
to be at least $169 (30% growth from Year Two) for any earnout
award to be issued.
Mr. Yong Hui Li, AutoChina’s Chairman and CEO, stated,
“AutoChina provided a detailed response to the initial post because
it contained several misstatements about AutoChina, and AutoChina
is putting out this release to correct additional
misstatements.”
Mr. Li continued, “Nonetheless, we respect the author’s right to
whatever opinion he has about the Company, though, of course, we
generally disagree with the author. We will continue to correct any
inaccurate information in the marketplace, but do not believe it is
appropriate for AutoChina to attempt to counter subjective
statements that are the opinion of the author. Once again, we
encourage any current shareholder, potential investor, or member of
the accredited press to learn more about the Company by visiting
any of our 300 branch locations in China or by speaking with
management.”
AutoChina believes that investors would be best served by
reviewing the Company's public reports filed with the Securities
and Exchange Commission and making their own decision about the
quality of AutoChina and its business after reviewing such
information.
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. The Company owns and operates 300
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.
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