ZHEJIANG, China — SORL Auto Parts, a manufacturer and distributor of commercial vehicle air brake systems as well as related auto parts in China, announced financial results for the second quarter and six months ended June 30, 2010.

Xiaoping Zhang, SORL Auto Parts' CEO and chairman, said, "We are very excited about our second quarter results as we exceeded our guidance. Our strong momentum in the OEM business, especially in the more profitable heavy-duty truck segment, substantially outpaced overall market growth, showing the effectiveness of our branding strategy and customer relationship efforts. We strive to continue to improve our products' quality and safety. On the product development front, the new products we introduced have been well received by our domestic and international customers. Despite cost pressure from raw materials and payroll growth, we continue to optimize our product mix by rolling out more value-added new products to maintain an attractive margin."

Second Quarter 2010 Results
Revenue for the second quarter of 2010 achieved a quarterly record of $49.9 million, up 67.8 percent from $29.7 million for the same period of 2009. Revenues from the company's domestic OEM customers were $31.2 million, a 121.3 percent increase over the second quarter of 2009. Revenues from China's domestic aftermarket were $6.7 million, slightly below the $7.2 million in the same period of 2009. Revenues from international markets were $12.0 million, a 42.9 percent increase from the same period of 2009. The increase was primarily due to the growing sales of OEM new model vehicles, an optimized SORL sales network and new market expansion strategy, and an increased focus on new product development, which helped generate larger demand.

During the second quarter of 2010, revenues from sales to OEMs were 63 percent of total revenue, compared with 48 percent a year ago. The company says this increase reflects its continued effort to promote our integrated system and modular supplies of air brake systems to our OEM customers, and to our expanded sales network. The company continued to focus on the light duty, bus and agricultural vehicle markets during the second quarter, and also experienced strong sales in the heavy-duty truck market.

Gross profit increased 60 percent to a quarterly record of $13.5 million, up from $8.4 million in the same period a year ago. Gross margin was 27 percent, as compared to 28.3 percent for the same period of 2009. The decline in gross margin was primarily due to higher costs of primary raw materials and payroll expense. The company expects its continued expansion of new, higher-profit valve products to benefit gross profit margins in the future.

Operating expenses increased 76.3 percent to $7.7 million, up from $4.3 million for the same period of 2009. As a percentage of revenue, operating expenses increased to 15.4 percent of revenue in the second quarter of 2010 from 14.6 percent in the second quarter of 2009, mainly due to increased expenses discussed above, partially offset by increased management efficiencies, enhanced technologies of products and an improved product portfolio.

Selling and distribution expenses were $2.8 million compared to $2.1 million for the same period of 2009. The increase was primarily due to increased transportation expense and accrued warranty expense as a result of higher unit sales. As a percentage of revenue, selling and distribution expenses decreased to 5.7 percent in the second quarter of 2010 from 6.9 percent for the same period of 2009.

General and administrative (G&A) expenses in the second quarter were $2.8 million, or 5.6 percent of revenue, as compared to $1.5 million, or 5 percent for the same period of 2009. The increase was mainly due to increased professional expenses and provisions for doubtful accounts due to higher sales.

Research and development (R&D) expenses were $1.7 million, or 3.5 percent of revenue, compared with $0.8 million, or 2.7 percent of revenue for the same period of 2009. Our continued investment in R&D resulted in the award of five patents during the quarter, including one from the United States Patent and Trademark Office.

Quarterly operating income increased 42.7 percent to $5.8 million, up from $4.1 million for the same quarter last year.

Net income attributable to stockholders for the second quarter of 2010 increased 79.7 percent to a quarterly record of $5.4 million, or $0.28 per diluted share on a greater number of shares outstanding, from $3 million, or $0.16 per diluted share for the same period of 2009.

Six-Month Results
Total revenue for the first six months of 2010 increased 68.1 percent year-over-year to $84 million from $50 million in the first half of 2009. Gross profit for the first six months of 2010 was $23.1 million, up 66 percent from $13.9 million in the comparable period a year ago. Gross margin was 27.5 percent for the first six months of 2010, in line with the same period in 2009. Income from operations was $9.8 million, up 79.8 percent from $5.5 million in the first six months of 2009, and the 2010 operating margin was 11.7 percent compared with 10.9 percent in the previous year's same period. Net income attributable to common shareholders was $8.5 million, with fully diluted earnings per share of $0.45 on a greater number of shares outstanding, compared with $3.9 million, or diluted earnings per share of $0.22 in the first six months of 2009.