EVER-GLORY INTERNATIONAL GROUP, INC. The following discussion and analysis of our financial condition and results of operations for the year endedDecember 31, 2019 should be read in conjunction with the Financial Statements and corresponding notes included in this annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors and Special Note Regarding Forward-Looking Statements in this report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," "target", "forecast" and similar expressions to identify forward-looking statements. Overview Our Business
We are a retailer of branded fashion apparel and leading global apparel supply
chain solution provider based in
We classify our businesses into two segments: Wholesale and Retail. Our wholesale business consists of wholesale-channel sales made principally to domestically and international recognized brands, and department stores located throughoutEurope , theU.S. ,Japan andthe People's Republic of China ("PRC"). We focus on well-known, middle-to-high end casual wear, sportswear, and outerwear brands. Our retail business consists of retail-channel sales directly to consumers through retail stores located throughout the PRC as well as sales via online stores at Tmall, Dangdang mall,JD.com , VIP.com etc. Although we have our own manufacturing facilities, we currently outsource most of the manufacturing to our long-term contractors as part of our overall business strategy. We believe outsourcing allows us to maximize our production capacity and maintain flexibility while reducing capital expenditures and the costs of keeping skilled workers on production lines during slow seasons. We oversee our long-term contractors with our advanced management solutions and inspect products manufactured by them to ensure that they meet our high-quality control standards and timely delivery requirement. Wholesale Business We conduct our original design manufacturing ("ODM") operations through seven wholly owned subsidiaries which are located in theNanjing Jiangning Economic and Technological Development Zone andShang Fang Town in theJiangning District inNanjing ,Jiangsu province,China , Chuzhou,Anhui province,China andSamoa :Ever-Glory International Group Apparel Inc. ("Ever-Glory Apparel"),Goldenway Nanjing Garments Company Limited ("Goldenway"),Nanjing New-Tailun Garments Company Limited ("New Tailun"),Nanjing Catch-Luck Garments Co., Ltd. ("Catch-Luck"),Haian Tai Xin Garments Trading Company Limited ("Haian Tai Xin"),Chuzhou Huirui Garments Co., Ltd. ("Huirui),Nanjing Tai Xin Garments Trading Company Limited ("Tai Xin"),Ever-Glory Supply Chain Service Co., Limited ("Ever-Glory Supply Chain") andEver-Glory International Group (HK)
Ltd.
("Ever-Glory HK").
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Retail Business
We conduct our retail operations throughShanghai LA GO GO Fashion Company Limited ("LA GO GO"),Jiangsu LA GO GO Fashion Company Limited ("Jiangsu LA GO GO"),Tianjin LA GO GO Fashion Company Limited ("Tianjin LA GO GO"),Shanghai Ya Lan Fashion Company Limited ("Ya Lan"),Shanghai Yiduo Fashion Company Limited ("Shanghai Yiduo") andXizang He Meida Trading Company Limited ("He Meida"). Business Objectives Wholesale Business
We believe the enduring strength of our wholesale business is mainly due to our consistent emphasis on innovative and distinctive product designs that stand for exceptional styling and quality. We maintain long-term, satisfactory relationships with a portfolio of well-known and mid-class global brands.
The primary business objective for our wholesale segment is to expand our portfolio into higher-class brands, expand our customer base and improve our profit. We believe that our growth opportunities and continued investment initiatives include:
? Expanding our global sourcing network;
? Expanding our overseas low-cost manufacturing base (outside of mainland
China );
? Focusing on high value-added products and continuing our strategy to
produce mid-to-high end apparel;
? Continuing to emphasize product design and technology utilization;
? Seeking strategic acquisitions of international distributors that could
enhance global sales and our distribution network; and? Maintaining stable revenue increase in the markets while shifting focus
to higher margin wholesale markets such as mainland China .
Retail Business
The business objectives for our retail segment are to establish leading brands
of women's apparel and to build a nationwide retail network in China . As of
December 31, 2019 , we had 1,101 stores (including store-in-stores), including
107 stores were opened and 387 stores were closed in 2019. We expect to open
additional 150 to 200 stores in 2020.
We believe that our growth opportunities and continued investment initiatives
include:
? Building our retail brand to be recognized as a major player in the
mid-to-high end women's apparel market in China ;
? Expanding our retail network throughout China ;
? Improving our retail stores' efficiency and increasing same-store
sales;
? Continuing to launch retail flagship stores in Tier-1 cities and
increasing our penetration and coverage in Tier-2 and Tier-3 cities;
and
? Becoming a multi-brand operator.
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Seasonality of Business
Our business is affected by seasonal trends, with higher levels of wholesale
sales in our third and fourth quarters and higher retail sales in our first and
fourth quarters. These trends primarily result from the timing of seasonal
wholesale shipments and holiday periods in the retail segment.
Collection Policy
Wholesale business
For our new customers, we generally require orders placed to be backed by letters of credit. For our long-term and established customers with good payment track records, we generally provide payment terms between 30 to 180 days following the delivery of finished goods.
Retail business For store-in-store shops, we generally receive payments from the stores between 60 to 90 days following the date of the register receipt. For our own flagship stores, we receive payments on the same day of the register receipt. For sales from e-commerce platforms such as Tmall, Dangdang mall,JD.com , VIP.com and etc., we generally receive payments between 5 to 15 days following the date
of the register receipt. Global Economic Uncertainty Our business is dependent on consumer demand for our products. We believe that the significant uncertainty in the global economy and the slowdown of economies inthe United States andEurope have increased our clients' sensitivity to the cost of our products. We have experienced continued pricing pressure. If the global economic environment continues to be weak, these worsening economic conditions could have a negative impact on our sales growth and operating margins in our wholesale segment in 2020. In addition, economic conditions inthe United States and other foreign markets in which we operate could substantially affect our sales profitability, cash position and collection of accounts receivable. Global credit and capital markets have experienced unprecedented volatility and disruption. Business credit and liquidity have tightened in much of the world. Some of our suppliers and customers may face credit issues and could experience cash flow problems and other financial hardships. These factors currently have not had an impact on the timeliness of receivable collections from our customers. We cannot predict at this time how this situation will develop and whether accounts receivable may need to be allowed for or written off in the coming quarters. Despite the various risks and uncertainties associated with the current global economy, we believe our core strengths will continue to allow us to execute our strategy for long-term sustainable growth in revenue, net income and operating cash flow.
Summary of Critical Accounting Policies
We have identified critical accounting policies that, as a result of judgments,
uncertainties, uniqueness and complexities of the underlying accounting
standards and operation involved could result in material changes to our
financial position or results of operations under different conditions or using
different assumptions.
Revenue Recognition
We recognize wholesale revenue from product sales, net of value-added taxes,
upon delivery for local sales and upon shipment of the products for export
sales, at such time title passes to the customer. We recognize wholesale revenue
from manufacturing fees charged to buyers for the assembly of garments from
materials provided by the buyers upon completion of the manufacturing process
and shipment of the products for export sales. Retail sales are recorded net of
promotional discounts, rebates, and return allowances. Retail store sales are
recognized at the time of the register receipt. Retail online sales are
recognized when products are shipped and customers receive the products because
we retain a portion of the risk of loss on these sales during transit.
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Our revenue recognition policy is in compliance with ASC 606, Revenue from Contracts with Customers that revenue is recognized when a customer obtains control of promised goods and is recognized in an amount that reflects the consideration that we expect to receive in exchange for those goods. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods. We apply the following five-step model in order to determine this amount: (i) identification of the promised goods and services in the contract;
(ii) determination of whether the promised goods and services are performance
obligations, including whether they are distinct in the context of the
contract;
(iii) measurement of the transaction price, including the constraint on
variable consideration;
(iv) allocation of the transaction price to the performance obligations; and
(v) recognition of revenue when (or as) the Company satisfies each performance
obligation.
We only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, we review the contract to determine which performance obligations we must deliver and which of these performance obligations are distinct. We recognize as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon delivery for local sales and upon shipment of the products for export sale.
For all reporting periods, we have not disclosed the value of unsatisfied performance obligations for all product revenue contracts with an original expected length of one year or less, which is an optional exemption that is permitted under the adopted rules.
Estimates and Assumptions In preparing our consolidated financial statements, we use estimates and assumptions that affect the reported amounts and disclosures. Our estimates are often based on complex judgments, probabilities and assumptions that we believe to be reasonable, but that are inherently uncertain and unpredictable. We are also subject to other risks and uncertainties that may cause actual results to differ from estimated amounts. Significant estimates in 2019 and 2018 include the assumptions used to value tax liabilities, derivative financial instruments, the estimates of the allowance for deferred tax assets, and the accounts receivable allowance, and impairment of long-lived assets and inventory write-offs.
Recently Issued Accounting Pronouncements
InJune 2016 , the FASB issued ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"; InNovember 2019 , the FASB issued ASU No. 2019-10 "Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates"; InMarch 2020 , the FASB issued ASU No. 2020-03 "Codification Improvements to Financial Instruments"; which modifies the measurement of expected credit losses of certain financial instruments. This ASU is effective for fiscal years and interim periods within those years beginning afterDecember 15, 2022 . The Company is currently assessing the impact of this ASU on its consolidated financial statements. 29 InOctober 2018 , the FASB issued ASU No. 2018-17 "Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities" which could be improved in the following areas: 1. Applying the variable interest entity (VIE) guidance to private companies under common control. 2. Considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The Company is currently assessing the impact of this ASU on its condensed consolidated financial statements. For entities, other than private companies, the amendments in this Update are effective for fiscal years beginning afterDecember 15, 2019 , and interim periods within
those fiscal years. Results of Operations The following table summarizes our results of operations for the years endedDecember 31, 2019 and 2018. The table and the discussion below should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this report. Year Ended December 31, 2019 2018 (in thousands of U.S. Dollars, except for percentages) Sales$ 383,101 100.0 %$ 448,508 100.0 % Gross Profit 118,771 31.0 147,355 32.9 Operating Expense 115,303 30.1 132,336 29.5 Income From Operations 3,468 0.9 15,019 3.3 Other Income (Expenses) 2,313 0.6 1,363 0.3 Income tax expense 4,562 1.2 4,942 1.1 Net Income $ 1,219 0.3 %$ 11,440 2.6 % Revenue
The following table sets forth a breakdown of our total sales, by region, for
the years ended
Growth
2019 2018 (Decrease)
(In thousands of % of total (In thousands of % of total in 2019 compared
Wholesale business U.S. dollars) sales U.S. dollars) sales with 2018
Mainland China $ 74,008 19.3 % $ 89,269 19.9 % (17.1 )%
Hong Kong China 26,126 6.8 38,106 8.5 (31.4 )
Germany 3,510 0.9 6,748 1.5 (48.0 )
United Kingdom 14,864 3.9 15,460 3.4 (3.9 )
Europe-Other 22,158 5.8 30,747 6.9 (27.9 )
Japan 18,901 4.9 7,583 1.7 149.2
United States 35,589 9.3 30,696 6.8 15.9Total Wholesale business 195,156 50.9
218,609 48.7 (10.7 )
Retail business 187,945 49.1 229,899 51.3 (18.2 )
Total sales $ 383,101 100.0 % $ 448,508 100.0 % (14.6 )%
Total sales for the year ended December 31, 2019 were $383.1 million , a decrease
of 14.6% from the year ended December 31, 2018 . This decrease was primarily
attributable to a 10.7% decrease in sales in our wholesale business and an 18.2%
decrease in sales in our retail business.
30
Sales generated from our wholesale business contributed 50.9% or $195.2 million
of our total sales for the year ended December 31, 2019 , a decrease of 10.7%
compared with $218.6 million in the year ended December 31, 2018 . This decrease
was primarily attributable to decreased sales in Mainland China, United Kingdom ,
Hong Kong China , Germany and Europe-Other partially offset by increased sales in
Japan and United States .
Sales generated from our retail business contributed 49.1% or $187.9 million of
our total sales for the year ended December 31, 2019 , a decrease of 18.2%
compared with $229.9 million in the year ended December 31, 2018 . This decrease
was primarily due to a decrease in same store sales.
Total retail store square footage and sales per square foot for the years ended
2019 2018
Total store square footage 1,164,392 1,402,933
Number of stores 1,101 1,381
Average store size, square foot 1,058 1,005
Total store sales (in thousands of
$ 161 $ 164
Same-store sales and newly opened store sales for the years ended
2019 2018
(In thousands of U.S. dollars)
Sales from stores opened for a full year $ 161,507 $ 191,305
Sales from newly opened store sales $ 5,810 $ 14,689
Sales from e-commerce platform $ 13,660 $ 17,364
Other* $ 6,968 $ 6,541
Total $ 187,945 $ 229,899 * Primarily sales from stores that were closed in the current reporting period.
We remodeled or relocated 117 stores in 2019, and plan to relocate or remodel an aggregate of 50-100 stores in 2020. Remodels and relocations typically drive incremental same-store sales growth. A relocation typically results in an improved, more visible and accessible location, and usually includes increased square footage. We believe we will continue to have opportunities for additional remodels and relocations beyond 2019. Same-store sales are calculated based upon stores that were open at least 12 full fiscal months in each reporting period and remain open at the end of each reporting period. Costs and Expenses
Cost of Sales and Gross Margin
Cost of goods sold includes the direct raw material cost, direct labor cost, and
manufacturing overhead including depreciation of production equipment and rent,
consistent with the revenue earned. Cost of goods sold excludes warehousing
costs, which historically have not been significant.
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The following table sets forth the components of our cost of sales and gross
profit both in amounts and as a percentage of total sales for the years ended
December 31, 2019 and 2018.
Growth
(Decrease) in
2019
Year ended December 31, Compared
2019 2018 with 2018
(In thousands of U.S. dollars, except for percentages)Net Sales for Wholesale Sales$ 195,156 100.0 %
$ 218,609 100.0 % (10.7 )% Raw Materials 88,072 45.1 97,173 44.5 (9.4 ) Labor 1,379 0.7 2,103 1.0 (34.4 )
Outsourced Production Costs 65,491 33.6 77,228 35.3 (15.2 ) Other and Overhead 345 0.2 305 0.1 13.2 Total Cost of Sales for Wholesale 155,287 79.6 176,809 80.9 (12.2 ) Gross Profit for Wholesale 39,869 20.4
41,800 19.1 (4.6 )
Net Sales for Retail 187,945 100.0 229,899 100.0 (18.2 )
Production Costs 67,629 36.0 76,314 33.2 (11.4 )
Rent 41,414 22.0 48,030 20.9 (13.8 )Total Cost of Sales for Retail 109,043 58.0 124,344 54.1 (12.3 ) Gross Profit for Retail 78,902 42.0
105,555 45.9 (25.2 )
Total Cost of Sales 264,330 69.0 301,153 67.1 (12.2 )
Gross Profit $ 118,771 31.0 % $ 147,355 32.9 % (19.4 )%
Raw material costs for our wholesale business were 45.1% of our total wholesale
business sales in 2019, compared with 44.5% in 2018. The increase was mainly due
to higher raw materials prices.
Labor costs for our wholesale business were 0.7% of our total wholesale business
sales in 2019, compared with 1.0% in 2018. The marginal decrease was mainlydue to the deceased sales.
Outsourced manufacturing costs for our wholesale business were 33.6% of our total wholesale sales in 2019, compared with 35.3% in 2018. This decrease was primarily attributable to increased outsourced orders to our related entities inVietnam , which have lower labor costs compared to orders outsourced to Chinese factories.
Overhead and other expenses for our wholesale business accounted for 0.2% and 0.1% of our total wholesale sales in 2019 and 2018, respectively.
Gross profit for our wholesale business in 2019 was$40.0 million , a decrease of 4.6% from 2018. As a percentage of total wholesale business sales, gross profit was 20.4% of our total wholesale business sales in 2019, compared with 19.1% in 2018. The decrease in gross margin was mainly due to increased raw material costs. Production costs for our retail business for the year endedDecember 31, 2019 were$67.6 million compared with$76.3 million for the year endedDecember 31, 2018 . As a percentage of our total retail sales, production costs were 36.0% of our total retail sales for the year endedDecember 31, 2019 , compared with 33.2% for the year endedDecember 31, 2018 . The increase was due to higher discounts on our out-of-season products in the year endedDecember 31, 2019 compared with the same period of the prior year in percentage of sales. Rent costs for our retail business for the year endedDecember 31, 2019 were$41.4 million compared with$48.0 million for the year endedDecember 31, 2018 . As a percentage of total retail sales, rent costs were 22.0% of our total retail sales for the year endedDecember 31, 2019 compared with 20.9% for the year endedDecember 31, 2018 . The decrease was primarily attributable to lower rent at certain locations. Gross profit for our retail business for the year endedDecember 31, 2019 was$79.0 million compared with$105.6 million for the year endedDecember 31, 2018 . Gross margin for our retail business for the year endedDecember 31, 2019 was 42.0% compared with 45.9% for the year endedDecember 31, 2018 . Total cost of sales for the year endedDecember 31, 2019 was$264.3 million , a 12.3% decrease compared with the year endedDecember 31, 2018 . As a percentage of total sales, total costs were 69.0% of total sales for the year endedDecember 31, 2019 , compared with 67.1% for the year endedDecember 31, 2018 . Total gross margin for the year endedDecember 31, 2019 was 31.0% compared with 32.9% for the year endedDecember 31, 2018 . 32
We purchase the majority of our raw materials directly from numerous local fabric and accessories suppliers. Some of our customers also furnish us with raw materials so that we can manufacture their products. For our wholesale business, purchases from our five largest suppliers represented in aggregate approximately 14.5% and 16.2% of raw material purchases for the years endedDecember 31, 2019 and 2018, respectively. No single supplier provided more than 10% of our raw material purchases for the years endedDecember 31, 2019 and 2018. For our retail business, purchases from our five largest suppliers represented approximately 93.3% and 72.1% of raw material purchases for the year endedDecember 31, 2019 and 2018, respectively. Five suppliers provided approximately 35.6%, 19.6%, 15.2%, 12.9% and 10.2% of our raw material purchases for the year endedDecember 31, 2019 . Five suppliers provided approximately 24.0%, 18.2%, 15.1%, 13.9% and 8.1% of our raw material purchases for the year endedDecember 31, 2018 . We have not experienced difficulty in obtaining raw materials essential to our business, and we believe we maintain good relationships with our suppliers. We also purchase finished goods from contract manufacturers. For our wholesale business, purchases from our five largest contract manufacturers represented approximately 41.4% and 38.8% of finished goods purchases for the year endedDecember 31, 2019 and 2018, respectively. Two contract manufacturers provided approximately 10.4% and 10.2% of our finished goods purchases for the year endedDecember 31, 2019 . One contract manufacturer provided approximately 18.1% of our finished goods purchases for the year endedDecember 31, 2018 . For our retail business, our five largest contract manufacturers represented approximately 18.0% and 16.3% of finished goods purchases for the year endedDecember 31, 2019 and 2018, respectively. No contract manufacturer provided more than 10% of our retail finished goods purchases for the years endedDecember 31, 2019 and 2018. We have not experienced difficulty in obtaining finished products from our contract manufacturers and we believe we maintain good relationships with our contract manufacturers.
Selling, General and Administrative Expenses
Our selling expenses consist primarily of local transportation, unloading charges, product inspection charges, salaries for retail staff and decoration and marketing expenses associated with our retail business.
Our general and administrative expenses include administrative salaries, office
expense, certain depreciation and amortization charges, repairs and maintenance,
legal and professional fees, warehousing costs and other expenses that are not
directly attributable to our revenues.
Costs of our distribution network that are excluded from cost of sales consist
of local transportation and unloading charges, and product inspection charges.
Accordingly, our gross profit amounts may not be comparable to those of other
companies who include these amounts in costs of sales.
Increase
(Decrease) in
Year ended December 31, 2019 Compared
2019 2018 to 2018
(In thousands of U.S. dollars, except for percentages)
Gross Profit $ 118,771 31.0 % $ 147,355 32.9 % (19.4 )%
Operating Expenses:
Selling Expenses 80,180 20.9 91,439 20.4 (12.3 )General and Administrative Expenses 35,123 9.2 39,811 8.9 (11.8 ) Intangible asset impairment - -
1,086 0.2 -
Total 115,303 30.1 132,336 29.5 (12.9 )
Income from Operations $ 3,468 0.9 % $ 15,019 3.3 % (76.9 )%
Selling expenses for the year ended
33
General and administrative expenses for the year ended December 31, 2019 were
$35.1 million an 11.8% decrease compared with the year ended December 31, 2018 .
As a percentage of total sales, general and administrative expenses accounted
for 9.2% of total sales for the year ended December 31, 2019 , compared with 8.9%
of total sales for the year ended December 31, 2018 . The decrease in absolute
amount was mainly attributable to the decline in number of stores.
For the year ended December 31, 2018 , we recognized a marketing related
intangible asset acquired from Yiduo acquisition in 2015 impairment loss. A
number of factors, including sustaining negative profits and the slower than
expected growth of business were considered. Based on our impairment test of
intangible asset, the fair value amount was lower than the carrying amount of
the marketing related intangible assets recorded and it was concluded that
carrying amount of marketing related intangible assets of $1.1 million wasimpaired. Income from Operations Income from operations for the year endedDecember 31, 2019 was$3.5 million , a 76.9% decrease from$15.0 million for the year endedDecember 31, 2018 . This decrease was due to decreased gross profit. Interest Expense
Interest expense was
Other Income Other income was$2.5 million and$2.0 million for the years endedDecember 31, 2019 and 2018, respectively. The increase was due to an increase in government financial incentives. Income Tax Expenses
Income tax expense for the year endedDecember 31, 2019 was$4.6 million , a 7.1% decrease compared to the same period of 2018. The decrease was primarily due to lower business profits.
The Company's operating subsidiaries are governed by the Income Tax Law of the
PRC concerning
All PRC subsidiaries, except for He Meida, are subject to income tax at the 25% statutory rate.
He Meida incorporated inXizang (Tibet) Autonomous Region is subject to income tax at 15% statutory rate. The local government has implemented an income tax reduction from 15% to 9% valid throughDecember 31, 2019 .
Perfect Dream was incorporated in the
Ever-Glory HK was incorporated in
Ever-Glory Supply Chain Service Co., Limited was incorporated in Hongkong onDecember 27, 2017 . Under the current laws of Hongkong, its income tax rate is 8.25% when its profit is underHKD 2.0 million and its income tax rate is 16.5% when its profit is overHKD 2.0 million . The PRC's Enterprise Income Tax Law imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise in PRC to its immediate holding company outsideChina ; such distributions were exempted under the previous income tax law and regulations. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainlandChina and the jurisdiction of the foreign holding company. The foreign invested enterprise became subject to the withholding tax starting fromJanuary 1, 2008 . Given that the undistributed profits of the Company's subsidiaries inChina are intended to be retained inChina for business development and expansion purposes, no withholding tax accrual has been made. 34
NewU.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the "U.S. Tax Reform"), was signed into law onDecember 22, 2017 . TheU.S. Tax Reform modified theU.S. Internal Revenue Code by, among other things, reducing the statutoryU.S. federal corporate income tax rate from 35% to 21% for taxable years beginning afterDecember 31, 2017 ; limiting and/or eliminating many business deductions; migrating theU.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminatingU.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment. The Company measured the current and deferred taxes based on the provisions of the Tax legislation. After the Company's measurement, no deferred tax expense (income) relating to the Tax Act changes for the year endedDecember 31, 2019 .
Net Income attributable to the Company
Net income for the year endedDecember 31, 2019 was$1.3 million , a decrease of 83.8% compared with the same period in 2018. Our basic and diluted earnings per share were$0.09 and$0.81 for the years endedDecember 31, 2019 and 2018,
respectively. Summary of Cash Flows Summary cash flows information for the years endedDecember 31, 2019 and 2018 is as follows: 2019 2018 (In thousands of U.S. dollars) Net cash provided by operating activities$ 3,985 $ 2,562 Net cash used in investing activities$ (8,675 ) $ (12,182 ) Net cash provided by (used in) financing activities$ 6,117 $ (5,281 ) Net cash provided by operating activities was$4.0 million for the year endedDecember 31, 2019 , compared with net cash provided by$2.6 million during the year endedDecember 31, 2018 . The increase was primarily due to decrease in accounts receivable. Net cash used in investing activities was$8.7 million for the year endedDecember 31, 2019 , compared with$12.2 million during the year endedDecember 31, 2018 . This decrease was mainly due to the decreased in purchase of property and equipment and remodeling expenditure in 2019. Net cash provided by financing activities was$6.1 million for the year endedDecember 31, 2019 compared with net cash used in$5.3 million during the year endedDecember 31, 2018 . During the year endedDecember 31, 2019 , we repaid$58.7 million of bank loans and received bank loan proceeds of$59.5 million . Also, under the counter-guarantee agreement, we received$13.6 million from and paid$8.4 million to the related party during the year endedDecember 31, 2019 .
Liquidity and Capital Resources
As of
Bank Loans InDecember 2019 , Goldenway entered into a line of credit agreement with Industrial and Commercial Bank of China, which allows the Company to borrow up to approximately$5.7 million (RMB40.0 million ). These loans are collateralized by the Company's property and equipment. As ofDecember 31, 2019 , Goldenway had borrowed$5.7 million (RMB40.0 million ) from Industrial and Commercial Bank of China with an annual interest rate 3.26% and due onFebruary 2020 . 35 InNovember 2018 , Ever-Glory Apparel entered into a line of credit agreement for approximately$14.3 million (RMB100.0 million ) with Industrial and Commercial Bank of China and collateralized by assets ofJiangsu Ever-Glory's equity investee, Nanjing Knitting, under a collateral agreement executed among Ever-Glory Apparel, Nanjing Knitting and the bank. As ofDecember 31, 2019 , Ever-Glory Apparel had borrowed$12.9 million (RMB 90.0 million ) under this line of credit with annual interest rates ranging from 3.92% to 4.7% and due on from March toOctober 2020 . As ofDecember 31, 2019 , approximately$1.4 million was unused and available under this line of credit. InAugust 2018 , Goldenway entered into a line of credit agreement withNanjing Bank , which allows the Company to borrow up to approximately$7.2 million (RMB50.0 million ). These loans are guaranteed byJiangsu Ever-Glory International Group Corp. ("Jiangsu Ever-Glory"), an entity controlled byMr. Kang , the Company's Chairman and Chief Executive Officer. These loans are also collateralized by the Company's property and equipment. As ofDecember 31, 2019 , approximately$7.2 million was unused and available under this line of credit. InAugust 2018 , Ever-Glory Apparel entered into a line of credit agreement for approximately$8.6 million (RMB60.0 million ) withNanjing Bank and guaranteed byJiangsu Ever-Glory ,Mr. Kang and Goldenway. As ofDecember 31, 2019 ,Ever-Glory Apparel had borrowed$4.3 million (RMB30.0 million ) fromNanjing Bank with an annual interest rates 5.0% and due on various dates from January toJune 2020 . As ofDecember 31, 2019 , approximately$4.3 million was unused and available under this line of credit. InJune 2019 , LA GO GO entered into a revolving line of credit agreement withNanjing Bank , which allows the Company to borrow up to approximately$2.9 million (RMB20.0 million ). The line of credit is guaranteed byMr. Kang and Goldenway. As ofDecember 31, 2019 , LA GO GO had borrowed$2.1 million (RMB15.0 million ) under this line of credit with an annual interest rate of 5.22% and due inJune 2020 . As ofDecember 31, 2019 , approximately$0.8 million was unused and available under this line of credit. InJune 2018 , LA GO GO entered into a line of credit agreement for approximately$2.9 million (RMB20.0 million ) withChina Minsheng Bank and guaranteed by Ever-Glory Apparel andMr. Kang . As ofDecember 31, 2019 , LA GO GO had borrowed$2.9 million (RMB20.0 million ) fromChina Minsheng Bank with an annual interest rate of 5.0% and due inNovember 2020 . InNovember 2018 , LA GO GO entered into a line of credit agreement for approximately$2.9 million (RMB20.0 million ) with the Bank of Communications and guaranteed byJiangsu Ever-Glory , Ever-Glory Apparel and Jiangsu LAGOGO. As ofDecember 31, 2019 , LA GO GO had borrowed$1.4 million (RMB10.0 million ) from the Bank of Communications with an annual interest rate 5.0% and due onJanuary 2020 . As ofDecember 31, 2019 , approximately$1.5 million was unused and available under this line of credit.
In
InJanuary 2015 , Ever-Glory Apparel and Goldenway collectively entered into a secured banking facility agreement for a combined revolving import facility, letter of credit, invoice financing facilities and a credit line for treasury products of up to$2.5 million with theNanjing Branch ofHSBC (China) Company Limited ("HSBC"). This agreement is guaranteed by the Company andMr. Kang . As ofDecember 2019 , Ever-Glory Apparel had borrowed$0.6 million from HSBC with an annual interest rate of 3.0% and due inOctober 2018 , and collateralized by approximately$0.7 million of accounts receivable from our wholesale customers. These bank loans are to be repaid upon receipt of payments from customers. As ofDecember 31, 2019 , approximately$1.9 million was unused and available under this line of credit.
All bank loans are used to fund our daily operations. All loans have been repaid before or at maturity date.
DERIVATIVE LIABILITY
At
During 2018, the Company had entered into four foreign currency swap contracts with three banks. Due to the increased demand of effective control on financial management for daily operations, Ever-Glory Apparel had entered into different foreign currency swap contracts to exchange$6.0 million for equivalent RMB with Bank of China in May, entered into a foreign currency swap contract to exchange$3.0 million for equivalent RMB with Industrial and Commercial Bank of China in June and entered into a foreign currency swap contract to exchange$6.0 million and$4.0 million for equivalent RMB with Shanghai Pudong Development Bank in July. The terms of three foreign currency contracts are both six months and the contract of$4.0 million with Shanghai Pudong Development Bank is three months. Ever-Glory Apparel and the banks swapped two currencies by same pre-determined exchange rate at the beginning and end of the contracts. During the period, the Company pays annual interest of 1.43% for the RMB received and receives 0 interest for the USD exchanged with theBank of China and Industrial and Commercial Bank of China. The company pays annual interest of 0.98% for the RMB received and receives 0.0001% interest for the USD exchanged with Shanghai Pudong Development Bank. If the Company failed to execute the exchange at the expiration of contracts, the banks would sell the USD at the market rate then the difference in RMB will be converted into bank loan for the Company. As ofDecember 31, 2018 , the fair value of principal amounts are included in other receivable ($4.0 million plus unrealized gain) and other payables (equivalent RMB payables) in the consolidated balance sheets, and unrealized gain of$0.2 million for the year endedDecember 31, 2018 is recognized in the income from operations. 36 Capital Commitments
We have a continuing program for the purpose of improving our manufacturing facilities and extending our retail stores. We anticipate that cash flows from operations and borrowings from banks will be used to pay for these capital commitments.
Uses of Liquidity
Our cash requirements for the next year will be primarily to fund daily operations and the growth of our business, some of this being used to fund new stores.
Sources of Liquidity Our primary sources of liquidity for our short-term cash needs are expected to be from cash flows generated from operations, and cash equivalents currently on hand. We believe that we will be able to borrow additional funds if necessary. We believe our cash flows from operations together with our cash and cash equivalents currently on hand will be sufficient to meet our needs for working capital, capital expenditure and other commitments for the next year. No assurance can be made that additional financing will be available to us if required, and adequate funds may not be available on terms acceptable to us. If funding is insufficient at any time in the future, we will develop or enhance our products or services and expand our business through our own cash flows
from operations. As ofDecember 31, 2018 , we had access to approximately$50.2 million in lines of credit, of which approximately$20.9 million was unused and available. These credit facilities do not include any covenants. We have agreed to provideJiangsu Ever-Glory a counter-guarantee of not more than 70% of the maximum aggregate lines of credit and borrowings guaranteed byJiangsu Ever-Glory and collateralized by the assets ofJiangsu Ever-Glory under agreements executed between the Company,Jiangsu Ever-Glory and the banks. The maximum aggregate lines of credit and available borrowings was approximately$33.0 million (RMB 230 million ) and approximately$33.0 (RMB 230 million ) was provided toJiangsu Ever-Glory as the counter guarantee as ofDecember 31, 2019 .
Foreign Currency Translation Risk
Our operations are, for the most part, located in the PRC, which may give rise to significant foreign currency risks from fluctuations and the degree of volatility in foreign exchange rates betweenthe United States dollar and the Chinese RMB. Most of our sales are in dollars. During 2003 and 2004, the exchange rate of RMB to the dollar remained constant atRMB 8.26 to the dollar. OnJuly 21, 2005 , the Chinese government adjusted the exchange rate fromRMB 8.26 to 8.09 to the dollar. From that time, the RMB continued to appreciate against theU.S. dollar. As ofDecember 31, 2019 , the market foreign exchange rate had increased toRMB 6.98 toone U.S. dollar . We are continuously negotiating price adjustments with most of our customers based on the daily market foreign exchange rates, which we believe will reduce our exposure to exchange rate fluctuations in the future and will pass some of the increased cost to our customers.
In addition, the financial statements of Goldenway, New-Tailun, Catch-Luck, Haian TaiXin, Ever-Glory Apparel, Taixin, He Meida, Huirui, Shanghai LA GO GO, Yalan, Shanghai Yiduo, Tianjin LA GO GO and Jiangsu LA GO GO (whose functional currency is RMB) are translated into US dollars using the closing rate method. The balance sheet items are translated into US dollars using the exchange rates at the respective balance sheet dates. The capital and various reserves are translated at historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average exchange rate for the period. All translation adjustments are included in accumulated other comprehensive income in the statement of equity. The foreign currency translation loss for the year endedDecember 31, 2019 and 2018 was ($0.7 million ) and ($6.1 million ), respectively. 37
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our investors.
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