UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission File Number: 000-53131
CHINA XD PLASTICS COMPANY LIMITED
(Exact name of registrant as specified in its charter)
Nevada
|
04-3836208
|
(State or other jurisdiction of incorporation or
organization)
|
(I.R.S. Employer Identification No.)
|
No. 9 Dalian North Road, Haping Road Centralized Industrial Park,
Harbin Development Zone, Heilongjiang Province, PRC 150060
(Address of principal executive offices) (Zip Code)
86-451-84346600
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
|
Accelerated filer ☒
|
Non-accelerated filer ☐
(Do not check if a smaller reporting company)
|
Smaller reporting company ☐
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 3, 2016, the registrant had 49,406,191 shares of common stock, par value US$0.0001 per share, outstanding.
TABLE OF CONTENTS
|
PAGE
|
PART I. FINANCIAL INFORMATION
|
2
|
|
|
|
Item 1. Financial Statements
|
2
|
|
|
|
|
Unaudited Condensed Consolidated Balance Sheets
|
2
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Comprehensive Income
|
3
|
|
|
|
|
Unaudited Condensed Consolidated Statements of Cash Flows
|
4
|
|
|
|
|
Notes to the Unaudited Condensed Consolidated Financial Statements
|
5
|
|
|
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
18
|
|
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
31
|
|
|
Item 4. Controls and Procedures
|
31
|
|
|
|
PART II. OTHER INFORMATION
|
32
|
|
|
|
Item 1. Legal Proceedings
|
32
|
|
|
|
Item 1A. Risk Factors
|
32
|
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
32
|
|
|
|
Item 3. Defaults Upon Senior Securities
|
32
|
|
|
Item 4. Mine Safety Disclosures
|
32
|
|
|
|
Item 5. Exhibits
|
32
|
|
|
|
Signatures
|
33
|
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
June 30,
2016
|
|
|
December 31,
2015
|
|
|
|
US$
|
|
|
US$
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
57,980,914
|
|
|
|
119,928,485
|
|
Restricted cash
|
|
|
64,502,724
|
|
|
|
50,852,327
|
|
Time deposits
|
|
|
282,452,648
|
|
|
|
237,626,806
|
|
Accounts receivable, net
|
|
|
200,490,313
|
|
|
|
234,542,739
|
|
Amounts due from a related party
|
|
|
-
|
|
|
|
244,836
|
|
Inventories
|
|
|
421,961,166
|
|
|
|
294,665,195
|
|
Prepaid expenses and other current assets
|
|
|
51,054,446
|
|
|
|
15,675,848
|
|
Total current assets
|
|
|
1,078,442,211
|
|
|
|
953,536,236
|
|
Property, plant and equipment, net
|
|
|
810,183,747
|
|
|
|
571,746,507
|
|
Land use rights, net
|
|
|
23,809,904
|
|
|
|
24,506,837
|
|
Prepayments to equipment and construction suppliers
|
|
|
14,415,697
|
|
|
|
183,226,006
|
|
Other non-current assets
|
|
|
12,677,399
|
|
|
|
18,966,622
|
|
Total assets
|
|
|
1,939,528,958
|
|
|
|
1,751,982,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term bank loans, including current portion of long-term bank loans
|
|
|
422,158,665
|
|
|
|
284,339,089
|
|
Bills payable
|
|
|
47,029,799
|
|
|
|
33,522,287
|
|
Accounts payable
|
|
|
195,336,669
|
|
|
|
257,417,000
|
|
Amounts due to related parties
|
|
|
131,394
|
|
|
|
8,439
|
|
Income taxes payable
|
|
|
2,989,790
|
|
|
|
6,881,946
|
|
Notes payable
|
|
|
146,231,067
|
|
|
|
-
|
|
Accrued expenses and other current liabilities
|
|
|
223,664,783
|
|
|
|
140,988,712
|
|
Total current liabilities
|
|
|
1,037,542,167
|
|
|
|
723,157,473
|
|
Long-term bank loans, excluding current portion
|
|
|
81,672,771
|
|
|
|
107,481,709
|
|
Notes payable
|
|
|
-
|
|
|
|
145,634,996
|
|
Deferred income
|
|
|
71,254,125
|
|
|
|
62,039,050
|
|
Other non-current liabilities
|
|
|
41,767,586
|
|
|
|
38,046,917
|
|
Total liabilities
|
|
|
1,232,236,649
|
|
|
|
1,076,360,145
|
|
|
|
|
|
|
|
|
|
|
Redeemable Series D convertible preferred stock (redemption amount of US$197,775,400 and US$184,461,800 as of June 30, 2016 and December 31, 2015)
|
|
|
97,576,465
|
|
|
|
97,576,465
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Series B preferred stock
|
|
|
100
|
|
|
|
100
|
|
Common stock, US$0.0001 par value, 500,000,000 shares authorized, 49,427,191 shares and 49,344,284 shares issued, 49,406,191 shares and 49,323,284 shares outstanding as of June 30, 2016 and December 31, 2015, respectively
|
|
|
4,941
|
|
|
|
4,933
|
|
Treasury stock, 21,000 shares at cost
|
|
|
(92,694
|
)
|
|
|
(92,694
|
)
|
Additional paid-in capital
|
|
|
82,390,348
|
|
|
|
81,919,932
|
|
Retained earnings
|
|
|
560,269,109
|
|
|
|
515,555,985
|
|
Accumulated other comprehensive loss
|
|
|
(32,855,960
|
)
|
|
|
(19,342,658
|
)
|
Total stockholders’ equity
|
|
|
609,715,844
|
|
|
|
578,045,598
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
Total liabilities, redeemable convertible preferred stock and stockholders’ equity
|
|
|
1,939,528,958
|
|
|
|
1,751,982,208
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
Three-Month Period Ended June 30,
|
|
|
Six-Month Period Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
277,139,662
|
|
|
|
265,412,742
|
|
|
|
492,169,820
|
|
|
|
487,339,137
|
|
Cost of revenues
|
|
|
(216,795,181
|
)
|
|
|
(213,919,846
|
)
|
|
|
(397,011,688
|
)
|
|
|
(387,203,965
|
)
|
Gross profit
|
|
|
60,344,481
|
|
|
|
51,492,896
|
|
|
|
95,158,132
|
|
|
|
100,135,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling expenses
|
|
|
(382,038
|
)
|
|
|
(438,041
|
)
|
|
|
(667,174
|
)
|
|
|
(734,861
|
)
|
General and administrative expenses
|
|
|
(6,596,023
|
)
|
|
|
(6,592,032
|
)
|
|
|
(11,665,697
|
)
|
|
|
(11,556,790
|
)
|
Research and development expenses
|
|
|
(5,906,719
|
)
|
|
|
(6,659,310
|
)
|
|
|
(10,816,286
|
)
|
|
|
(12,473,173
|
)
|
Total operating expenses
|
|
|
(12,884,780
|
)
|
|
|
(13,689,383
|
)
|
|
|
(23,149,157
|
)
|
|
|
(24,764,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
47,459,701
|
|
|
|
37,803,513
|
|
|
|
72,008,975
|
|
|
|
75,370,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,615,728
|
|
|
|
2,466,291
|
|
|
|
3,229,991
|
|
|
|
4,894,362
|
|
Interest expense
|
|
|
(10,628,222
|
)
|
|
|
(11,038,295
|
)
|
|
|
(21,532,881
|
)
|
|
|
(21,667,648
|
)
|
Foreign currency exchange gains (losses)
|
|
|
(56,091
|
)
|
|
|
322,056
|
|
|
|
371,574
|
|
|
|
231,641
|
|
Gains on foreign currency forward contracts
|
|
|
-
|
|
|
|
305,825
|
|
|
|
-
|
|
|
|
660,344
|
|
Government grant
|
|
|
218,286
|
|
|
|
4,814
|
|
|
|
426,719
|
|
|
|
4,814
|
|
Total non-operating expense, net
|
|
|
(8,850,299
|
)
|
|
|
(7,939,309
|
)
|
|
|
(17,504,597
|
)
|
|
|
(15,876,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
38,609,402
|
|
|
|
29,864,204
|
|
|
|
54,504,378
|
|
|
|
59,493,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(5,253,628
|
)
|
|
|
(4,385,601
|
)
|
|
|
(9,791,254
|
)
|
|
|
(8,611,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
33,355,774
|
|
|
|
25,478,603
|
|
|
|
44,713,124
|
|
|
|
50,882,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
0.51
|
|
|
|
0.39
|
|
|
|
0.68
|
|
|
|
0.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
33,355,774
|
|
|
|
25,478,603
|
|
|
|
44,713,124
|
|
|
|
50,882,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment, net of nil income taxes
|
|
|
(18,440,326
|
)
|
|
|
(616,961
|
)
|
|
|
(13,513,302
|
)
|
|
|
(781,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
14,915,448
|
|
|
|
24,861,642
|
|
|
|
31,199,822
|
|
|
|
50,100,908
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Six-Month Period Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
US$
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(93,887,642
|
)
|
|
|
71,660,883
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from maturity of time deposits
|
|
|
236,818,725
|
|
|
|
237,499,197
|
|
Purchase of time deposits
|
|
|
(286,909,102
|
)
|
|
|
(231,080,300
|
)
|
Purchase of land use rights
|
|
|
-
|
|
|
|
(6,904,447
|
)
|
Purchase of and deposits for property, plant and equipment
|
|
|
(40,022,079
|
)
|
|
|
(119,535,975
|
)
|
Government grant related to the construction of Sichuan plant
|
|
|
8,809,473
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(81,302,983
|
)
|
|
|
(120,021,525
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from bank borrowings
|
|
|
399,343,916
|
|
|
|
323,407,459
|
|
Repayments of bank borrowings
|
|
|
(280,843,603
|
)
|
|
|
(238,181,426
|
)
|
Release of restricted cash as collateral for bank borrowings
|
|
|
28,378,420
|
|
|
|
-
|
|
Placement of restricted cash as collateral for bank borrowings
|
|
|
(32,492,262
|
)
|
|
|
(29,729,123
|
)
|
Net cash provided by financing activities
|
|
|
114,386,471
|
|
|
|
55,496,910
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
(1,143,417
|
)
|
|
|
109,400
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(61,947,571
|
)
|
|
|
7,245,668
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
119,928,485
|
|
|
|
45,456,612
|
|
Cash and cash equivalents at end of period
|
|
|
57,980,914
|
|
|
|
52,702,280
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid, net of capitalized interest
|
|
|
20,737,714
|
|
|
|
20,159,080
|
|
Income taxes paid
|
|
|
10,654,265
|
|
|
|
3,706,530
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Government grant related to construction in the form of repayment of bank loan on behalf of the Company by the government
|
|
|
-
|
|
|
|
11,267,062
|
|
Accrual for purchase of equipment and construction included in accrued expenses and other current liabilities
|
|
|
88,224,035
|
|
|
|
295,893
|
|
See accompanying notes to unaudited condensed consolidated financial statements
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of presentation, significant concentrations and risks
(a) Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the United States Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet as of December 31, 2015 was derived from the audited consolidated financial statements of China XD Plastics Company Limited (“China XD”) and subsidiaries (collectively, the “Company”). The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated balance sheet of the Company as of December 31, 2015, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2016.
In the opinion of the management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of June 30, 2016, the results of operations for the three-month and six-month periods ended June 30, 2016 and 2015, and the cash flows for the six-month periods ended June 30, 2016 and 2015, have been made.
The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the recoverability of the carrying amounts of property, plant and equipment, the realizability of inventories, the useful lives of property, plant and equipment, the collectability of accounts receivable, the fair values of stock-based compensation awards, and the accruals for tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.
(b) Significant concentrations and risks
Sales concentration
The Company sells its products primarily through approved distributors in the People's Republic of China (the "PRC"). To a lesser extent, the Company also sells its products to overseas customers in the Republic of Korea (the "ROK"). The Company's sales are highly concentrated. Sales to distributors and end customer, which individually exceeded 10% of the Company's revenues for the three-month and six-month periods ended June 30, 2016 and 2015, are as follows:
|
|
Three-Month Period Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
%
|
|
|
US$
|
|
|
%
|
|
Distributor A, located in PRC
|
|
|
39,632,852
|
|
|
|
14.3
|
%
|
|
|
47,121,285
|
|
|
|
17.8
|
%
|
Distributor B, located in PRC
|
|
|
31,669,861
|
|
|
|
11.4
|
%
|
|
|
38,766,823
|
|
|
|
14.6
|
%
|
Distributor C, located in PRC
|
|
|
30,270,133
|
|
|
|
10.9
|
%
|
|
|
27,377,033
|
|
|
|
10.3
|
%
|
Distributor D, located in PRC
|
|
|
28,827,605
|
|
|
|
10.4
|
%
|
|
|
32,232,229
|
|
|
|
12.1
|
%
|
Distributor E, located in PRC
|
|
|
16,204,373
|
|
|
|
5.8
|
%
|
|
|
28,722,000
|
|
|
|
10.8
|
%
|
Direct Customer F, located in ROK
|
|
|
35,499,160
|
|
|
|
12.8
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
Direct Customer G, located in ROK
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
29,139,000
|
|
|
|
11.0
|
%
|
Total
|
|
|
182,103,984
|
|
|
|
65.6
|
%
|
|
|
203,358,370
|
|
|
|
76.6
|
%
|
|
|
Six-Month Period Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
%
|
|
|
US$
|
|
|
%
|
|
Distributor A, located in PRC
|
|
|
74,738,467
|
|
|
|
15.2
|
%
|
|
|
82,134,181
|
|
|
|
16.9
|
%
|
Distributor B, located in PRC
|
|
|
67,479,415
|
|
|
|
13.7
|
%
|
|
|
71,578,657
|
|
|
|
14.7
|
%
|
Distributor C, located in PRC
|
|
|
55,755,981
|
|
|
|
11.3
|
%
|
|
|
49,664,900
|
|
|
|
10.2
|
%
|
Distributor D, located in PRC
|
|
|
57,288,505
|
|
|
|
11.6
|
%
|
|
|
58,437,523
|
|
|
|
12.0
|
%
|
Distributor E, located in PRC
|
|
|
38,406,499
|
|
|
|
7.8
|
%
|
|
|
51,380,046
|
|
|
|
10.5
|
%
|
Direct Customer G, located in ROK
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
64,085,900
|
|
|
|
13.2
|
%
|
Total
|
|
|
293,668,867
|
|
|
|
59.6
|
%
|
|
|
377,281,207
|
|
|
|
77.5
|
%
|
The Company expects revenues from these distributors and end customers (other than Direct Customer G) to continue to represent a substantial portion of its revenue in the future. Any factor adversely affecting the automobile industry in the PRC, electronic application industry in the ROK or the business operations of these customers will have a material effect on the Company's business, financial position and results of operations.
Purchase concentration of raw materials and equipment
The principal raw materials used for the Company's production of modified plastics products are plastic resins, such as polypropylene, ABS and nylon. The Company purchased its raw materials through a limited number of distributors, which individually exceeded 10% of the Company's total raw material purchases, accounted for approximately 77.6% (six distributors) and 71.8% (five distributors) of the Company's total raw materials purchases for the three-month periods ended June 30, 2016 and 2015, respectively, and 81.6% (six distributors) and 67.1% (five distributors) of the Company's total raw materials purchases for the six-month periods ended June 30, 2016 and 2015, respectively. Management believes that other suppliers could provide similar raw materials on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect the Company's business, financial position and results of operations.
The Company purchased equipment from two major equipment distributors, which accounted for 96.5% and 96.1% of the Company's total equipment purchases for the three-month periods ended June 30, 2016 and 2015, respectively, and accounted for 96.4% and 97.9% of the Company's total equipment purchases for the six-month periods ended June 30, 2016 and 2015. Management believes that other suppliers could provide similar equipment on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would adversely affect the Company's business, financial position and results of operations. The majority owner of one of the major equipment distributors, is also the majority owner of Distributor E presented above.
Cash concentration
Cash and cash equivalents, short-term restricted cash, time deposits and long-term restricted cash included in other non-current assets mentioned below maintained at banks consist of the following:
|
|
June 30, 2016,
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
RMB denominated bank deposits with:
|
|
|
|
|
|
|
Financial Institutions in the PRC
|
|
|
414,281,521
|
|
|
|
417,430,412
|
|
Financial Institutions in Hong Kong Special Administrative Region ("Hong Kong SAR")
|
|
|
8,602
|
|
|
|
13,778
|
|
Financial Institution in Dubai, United Arab Emirates ("UAE")
|
|
|
17,830
|
|
|
|
3,023
|
|
U.S. dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial Institution in the U.S.
|
|
|
318,162
|
|
|
|
226,010
|
|
Financial Institutions in the PRC
|
|
|
67,637
|
|
|
|
17,109
|
|
Financial Institution in Hong Kong SAR
|
|
|
42,568
|
|
|
|
63,854
|
|
Financial Institution in Macau Special Administrative Region ("Macau SAR")
|
|
|
14,968
|
|
|
|
37,120
|
|
Financial Institution in Dubai, UAE
|
|
|
411,835
|
|
|
|
7,474,960
|
|
Euro denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
3,155
|
|
|
|
3,011
|
|
HK dollar denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Hong Kong SAR
|
|
|
206
|
|
|
|
336
|
|
Dirham denominated bank deposits with:
|
|
|
|
|
|
|
|
|
Financial institution in Dubai, UAE
|
|
|
139,982
|
|
|
|
37,278
|
|
The bank deposits with financial institutions in the PRC are insured by the government authority for up to RMB500,000. The bank deposits with financial institutions in the HK SAR are insured by the government authority for up to HK$500,000. The bank deposits with financial institutions in the Macau SAR are insured by the government authority for up to MOP$500,000. Total bank deposits amounted to $1,391,694 and $1,690,764 are insured as of June 30, 2016 and December 31, 2015, respectively. The Company has not experienced any losses in uninsured bank deposits and does not believe that it is exposed to any significant risks on cash held in bank accounts. To limit exposure to credit risk, the Company primarily places bank deposits with large financial institutions in the PRC, Hong Kong SAR, Macau SAR and Dubai, UAE with acceptable credit rating.
Cash deposits in bank that are restricted as to withdrawal or usage for up to 12 months are reported as restricted cash in the condensed consolidated balance sheets and excluded from cash in the condensed consolidated statements of cash flows. Cash deposits of US$10,375,196 and US$16,907,470 as of June 30, 2016 and December 31, 2015 that are restricted for period beyond 12 months from the balance sheet date are included in other non-current assets in the condensed consolidated balance sheets.
Short-term bank deposits that are pledged as collateral for bills payable relating to purchases of raw materials are reported as restricted cash and amounted to US$12,248,582 and US$8,069,475 as of June 30, 2016 and December 31, 2015, respectively. Upon maturity and repayment of the bills payable, which is generally within 6 months, the cash becomes available for use by the Company. The cash will be available for use by the Company 90 days from the issuance of the letter of credit. The cash flows from the pledged bank deposits, which relate to purchases of raw materials, are reported within cash flows from operating activities in the condensed consolidated statements of cash flows.
Short-term bank deposits that are pledged as collateral for short-term and long-term bank borrowings are reported as restricted cash and amounted to US$41,669,078 and US$32,010,452 as of June 30, 2016 and December 31, 2015, respectively. Long-term bank deposits that are pledged as collateral for issuance of letter of guarantee are reported as other non-current assets and amounted to US$10,375,196 and US$16,907,470 as of June 30, 2016 and December 31, 2015, respectively. The cash flows from such bank deposits are reported within cash flows from financing activities in the condensed consolidated statements of cash flows.
Short-term bank deposits that are related to government grant are reported as restricted cash and amounted to U$10,585,064 and US$10,772,400 as June 30, 2016 and December 31, 2015, respectively. The amount is reported as non-cash investing and financing activities in the condensed consolidated statements of cash flows.
Note 2 - Accounts receivable
Accounts receivable consists of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
Accounts receivable
|
|
|
200,530,177
|
|
|
|
234,583,370
|
|
Allowance for doubtful accounts
|
|
|
(39,864
|
)
|
|
|
(40,631
|
)
|
Accounts receivable, net
|
|
|
200,490,313
|
|
|
|
234,542,739
|
|
As of June 30, 2016 and December 31, 2015, the accounts receivable balances also include notes receivable in the amount of US$341,024 and US$2,048,186, respectively. As of June 30, 2016 and December 31, 2015, US$73,641,325 and US$54,664,219 of accounts receivable are pledged for the short-term bank loans, respectively.
There was no accrual of additional provision or write-off of accounts receivable for the three-month and six-month periods ended June 30, 2016 and 2015.
The following table provides an analysis of the aging of accounts receivable as of June 30, 2016 and December 31, 2015:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Aging:
|
|
|
|
|
|
|
– current
|
|
|
200,490,313
|
|
|
|
234,396,244
|
|
– 1-3 months past due
|
|
|
-
|
|
|
|
146,495
|
|
– 4-6 months past due
|
|
|
-
|
|
|
|
-
|
|
– 7-12 months past due
|
|
|
-
|
|
|
|
-
|
|
– greater than one year past due
|
|
|
39,864
|
|
|
|
40,631
|
|
Total accounts receivable
|
|
|
200,530,177
|
|
|
|
234,583,370
|
|
Note 3 - Inventories
Inventories consist of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Raw materials
|
|
|
394,938,565
|
|
|
|
287,995,933
|
|
Work in progress
|
|
|
175,434
|
|
|
|
164,034
|
|
Finished goods
|
|
|
26,847,167
|
|
|
|
6,505,228
|
|
Total inventories
|
|
|
421,961,166
|
|
|
|
294,665,195
|
|
There were no write down of inventories for the three-month and six-month periods ended June 30, 2016 and 2015.
Note 4 – Prepaid expenses and other current assets
Prepaid expenses and other current assets consist of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Receivables due from a customer in the ROK
|
|
|
-
|
|
|
|
9,471,222
|
|
Interest receivable
|
|
|
3,257,727
|
|
|
|
3,306,974
|
|
Value added taxes receivables
|
|
|
38,763,061
|
|
|
|
698,286
|
|
Advances to suppliers
|
|
|
4,393,320
|
|
|
|
68,354
|
|
Others (i)
|
|
|
4,640,338
|
|
|
|
2,131,012
|
|
Total prepaid expenses and other current assets
|
|
|
51,054,446
|
|
|
|
15,675,848
|
|
(i) Others mainly include prepaid miscellaneous service fees, staff advances and prepaid rental fee.
Note 5 – Property, plant and equipment, net
Property, plant and equipment consist of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Machinery, equipment and furniture
|
|
|
316,589,584
|
|
|
|
258,173,175
|
|
Motor vehicles
|
|
|
2,309,311
|
|
|
|
2,009,440
|
|
Workshops and buildings
|
|
|
92,909,638
|
|
|
|
76,924,199
|
|
Construction in progress
|
|
|
499,853,899
|
|
|
|
323,955,531
|
|
Total property, plant and equipment
|
|
|
911,662,432
|
|
|
|
661,062,345
|
|
Less accumulated depreciation
|
|
|
(101,478,685
|
)
|
|
|
(89,315,838
|
)
|
Property, plant and equipment, net
|
|
|
810,183,747
|
|
|
|
571,746,507
|
|
All of the property, plant and equipment, net as of June 30, 2016 and December 31, 2015 were located in the PRC, except for US$346.5 million and US$83.8 million of property, plant and equipment, net were located in Dubai, UAE.
For the three-month and six-month periods ended June 30, 2016 and 2015, the Company capitalized US$625,324 and US$168,306, and US$1,226,431 and US$168,306 of interest costs as a component of the cost of construction in progress, respectively. Depreciation expense on property, plant and equipment was allocated to the following expense items:
|
|
Three-Month Period Ended
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
5,681,237
|
|
|
|
5,525,990
|
|
General and administrative expenses
|
|
|
435,142
|
|
|
|
403,135
|
|
Research and development expenses
|
|
|
942,387
|
|
|
|
901,082
|
|
Selling expense
|
|
|
506
|
|
|
|
223
|
|
Total depreciation expense
|
|
|
7,059,272
|
|
|
|
6,830,430
|
|
|
|
Six-Month Period Ended
June 30,
|
|
|
|
2016 |
|
2015
|
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Cost of revenues
|
|
|
11,361,731
|
|
|
|
10,305,578
|
|
General and administrative expenses
|
|
|
838,326
|
|
|
|
778,263
|
|
Research and development expenses
|
|
|
1,888,204
|
|
|
|
1,696,801
|
|
Selling expense
|
|
|
890
|
|
|
|
223
|
|
Total depreciation expense
|
|
|
14,089,151
|
|
|
|
12,780,865
|
|
Note 6 - Prepayments to equipment suppliers
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Jiamu (i)
|
|
|
11,128,200
|
|
|
|
11,712,843
|
|
Peaceful (ii)
|
|
|
-
|
|
|
|
170,009,200
|
|
Bagader Trading (iii)
|
|
|
1,225,030
|
|
|
|
-
|
|
Others
|
|
|
2,062,467
|
|
|
|
1,503,963
|
|
Total Prepayments to equipment and construction suppliers
|
|
|
14,415,697
|
|
|
|
183,226,006
|
|
(i) |
In December 2013, the Company entered into an equipment purchase contract with Harbin Jiamu Import & Export Trading Co., Ltd ("Jiamu Trading") for a consideration of RMB89.7 million to purchase testing equipment. In August 2015, the Company signed a supplemental contract with Harbin Jiamu Science and Technology Co., Ltd. (together with Jiamu Trading as "Jiamu") to purchase testing equipment for a consideration of RMB16.3 million (equivalent to US$2.5 million). The balance of Jiamu as of June 30, 2016 and December 31, 2015 mainly represents the prepayment for testing equipment. |
(ii) |
On January 5, 2015, AL Composites Materials FZE ("AL Composites") entered into an equipment purchase contract with Peaceful Treasure Limited ("Peaceful") for a total consideration of US$271.2 million to purchase certain production and testing equipment. As of June 30, 2016, all production equipment for a total amount of US$264.7 were delivered to the Company. |
(iii) |
On June 28, 2016, AL Composites entered into a facility purchase contract with Bagader Trading EST for a total consideration of AED45 million (equivalent to US$12.3 million). Pursuant to the contract with Bagader Trading, the Company has paid AED 4.5 million (equivalent to US$1.2 million) as prepayments as of June 30, 2016. |
Note 7 – Fair value measurement
Short-term financial instruments, including cash and cash equivalents, restricted cash, time deposits, accounts receivable, short-term bank loans, bills payable, accounts payable, amounts due to related parties, income taxes payable and accrued expenses and other current liabilities - carrying amounts approximate fair values because of the short maturity of these instruments.
Long-term bank loans-fair value is based on the amount of future cash flows associated with each loan discounted at the Company's current borrowing rate for similar debt instruments of comparable terms. The carrying value of the long-term bank loans approximate their fair values as the long-term bank loans carry interest rates which approximate rates currently offered by the Company's banks for similar debt instruments of comparable maturities.
Notes payable - fair values of the Company’s notes payable are estimated based on quoted market prices which are categorized as Level 1 measurement in the fair value hierarchy. As of June 30, 2016, the carrying amount and estimated fair value of the notes payable were US$146,231,067 and US$114,375,000 respectively.
Note 8 – Borrowings
(a) Current
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Unsecured loans
|
|
|
220,933,439
|
|
|
|
64,555,795
|
|
Loans secured by accounts receivable
|
|
|
57,304,862
|
|
|
|
43,037,196
|
|
Loans secured by restricted cash
|
|
|
32,100,000
|
|
|
|
27,100,000
|
|
Current portion of long-term bank loans (note (b))
|
|
|
111,820,364
|
|
|
|
149,646,098
|
|
|
|
|
|
|
|
|
|
|
Total short-term loans, including current portion of long-term bank loans
|
|
|
422,158,665
|
|
|
|
284,339,089
|
|
As of June 30, 2016 and December 31, 2015, the Company's short-term bank loans (including the current portion of long-term bank loans) bear a weighted average interest rate of 4.1% and 4.2% per annum, respectively. All short-term bank loans mature at various times within one year and contain no renewal terms.
In July 2015, the Company obtained a one-year secured loan of US$3.5 million from Bank of China Luxemburg Branch at an annual interest rate of one-year LIBOR (1.2303% as of June 30, 2016) plus 0.75%. These loans were secured by restricted cash of RMB23.0 million (equivalent to US$3.5 million) by the Bank of China in Harbin, China.
In January 2016, the Company obtained a one-year secured loan of US$12 million from HSBC Middle East at an annual interest rate of one-month LIBOR (0.4651% as of June 30, 2016) plus 1.8%. These loans were secured by restricted cash of RMB17.8 million (equivalent to US$2.7 million) by the HSBC Bank in Harbin, China.
In January 2016, the Company obtained a one-year secured loan of US$16.6 million from HSBC Middle East at an annual interest rate of one-month LIBOR (0.4651% as of June 30, 2016) plus 1.8%. These loans were secured by restricted cash of RMB25.5 million (equivalent to US$3.8 million) by the HSBC Bank in Harbin, China.
On February 18, 2016, the Company obtained a six-month secured loan of RMB30 million (equivalent to US$4.5 million) by accounts receivable of RMB39.2 million (equivalent to US$5.9 million) at an annual interest rate of 4.300% from ICBC in Harbin.
In April 2016, the Company obtained nine six-month secured loans with a total amount of RMB350 million (equivalent to US$52.8 million) by accounts receivables of RMB449.2 million (equivalent to US$67.7 million) at an annual interest rate of 4.350% from Harbin Longjiang Bank.
(b) Non-current
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Secured loans
|
|
|
91,400,000
|
|
|
|
81,164,800
|
|
Unsecured loans
|
|
|
102,093,135
|
|
|
|
175,963,007
|
|
Less: current portion
|
|
|
111,820,364
|
|
|
|
149,646,098
|
|
Total long-term bank loans, excluding current portion
|
|
|
81,672,771
|
|
|
|
107,481,709
|
|
On June 12, 2014, the Company obtained a three-year secured loan of US$70 million from Bank of China Paris Branch at interest rate of three-month LIBOR (0.6541% as of June 30, 2016). The loan is secured by restricted cash of RMB110 million (equivalent to US$16.6 million). The Company repaid US$4 million in 2015, and repaid US$5 million on June 9, 2016. The loan in the amount of US$15 million is due on December 9, 2016, and the remaining of the loan amounted to US$46 million is due on June 9, 2017.
On December 11, 2014, the Company obtained a two-year unsecured loan of RMB197 million (equivalent to US$29.7 million) from Bank of Communication at an annual interest rate of 6.60%. The loan is due on December 10, 2016.
On January 23, 2015, the Company obtained two two-year unsecured loans in the total amount of RMB100 million (equivalent to US$15.1 million) at an annual interest rate of 6.0% from Agriculture Bank of China. The amount of RMB 45 million is due on January 12 and the remaining amount of RMB 55 million is due on January 19, 2017. On April 22, 2015, the Company obtained a two-year unsecured loan of RMB40 million (equivalent to US$6 million) at an annual interest rate of 5.75% from Agriculture Bank of China. The loan is due on April 20, 2017.
In October and November, 2015, the Company obtained three five-year unsecured loans of RMB260 million (equivalent to US$39.2 million) at an annual interest rate of 4.75% from Bank of China. In January 2016, the Company obtained one four-year unsecured loans of RMB80 million (equivalent to US$12.1 million) at an annual interest rate of 4.75% from Bank of China. All of these loans are due on October 28, 2020.
On May 13, 2016, the Company obtained two two-year secured loans of US$14.3 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (0.6541% as of June 30, 2016) plus 1.6%. On May 17, 2016, the Company obtained two two-year secured loans of US$12.3 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (0.6541% as of June 30, 2016) plus 1.6%. On May 22, 2016, the Company obtained a two-year secured loan of US$3.8 million from China Construction Bank (Dubai) at an interest of three-month LIBOR (0.6541% as of June 30, 2016) plus 1.6%. The interest rate is reset every three months. These loans are secured by restricted cash of RMB68.8 million (equivalent to US$10.4 million). All of these loans are due on March 22, 2018.
As of June 30, 2016, the Company had total lines of credit of RMB5,356.0 million (US$807.7 million) including unused lines of credit of RMB1,368.9 million (US$206.5 million) with remaining terms less than 12 months and RMB646.0 million (US$97.4 million) with remaining terms beyond 12 months.
Certain lines of credit contain financial covenants such as total stockholders' equity, debt asset ratio, current ratio, contingent liability ratio and net profit. As of June 30, 2016, the Company has met these financial covenants.
Note 9 - Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
Payables for purchase of property, plant and equipment
|
|
|
129,668,126
|
|
|
|
42,524,903
|
|
Accrued freight expenses
|
|
|
2,459,663
|
|
|
|
1,579,936
|
|
Accrued interest expenses
|
|
|
7,934,070
|
|
|
|
7,800,481
|
|
Advance from customers (i)
|
|
|
75,198,592
|
|
|
|
82,009,002
|
|
Non income tax payables
|
|
|
5,238,290
|
|
|
|
4,353,730
|
|
Others (ii)
|
|
|
3,166,042
|
|
|
|
2,720,660
|
|
Total accrued expenses and other current liabilities
|
|
|
223,664,783
|
|
|
|
140,988,712
|
|
(i) Advance from customers mainly represent the advance received from two customers in the PRC for the raw material purchases during the 4th quarter of 2015. The Company delivered raw material in the amount of USD 6,810,410 to these two customers during the six-month periods ended June 30, 2016.
(ii) Others mainly represent accrued payroll and employee benefits and other accrued miscellaneous operating expenses.
Note 10 – Related party transactions
The Company entered into related party transactions with Harbin Xinda High-Tech Co., Ltd. ("Xinda High-Tech"), an entity controlled by the wife of Mr. Han, the chief executive officer and controlling stockholder of the Company and Mr. Han's son. The significant related party transactions are summarized as follows:
|
|
Three-Month Period Ended June 30,
|
|
Six-Month Period Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
US$
|
|
US$
|
|
|
US$
|
|
Costs and expenses resulting from transactions with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expenses for plant and office spaces
|
|
|
184,525
|
|
|
|
165,500
|
|
|
|
369,061
|
|
|
|
360,714
|
|
The related party balances are summarized as follows:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
US$
|
|
US$
|
|
Amounts due from a related party:
|
|
|
|
|
Prepaid rent expenses to Xinda High-Tech
|
|
|
-
|
|
|
|
244,836
|
|
Total:
|
|
|
-
|
|
|
|
244,836
|
|
Amounts due to a related party:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Rental payable to Xinda High-Tech
|
|
|
120,107
|
|
|
|
-
|
|
Rental payable to Mr Han's son
|
|
|
11,287
|
|
|
|
8,439
|
|
Total:
|
|
|
131,394
|
|
|
|
8,439
|
|
The Company rents the following plant and office buildings in Harbin, Heilongjiang province from Xinda High-Tech:
Premise Leased
|
Area (M2)
|
|
Annual Rental Fee (US$)
|
|
Period of Lease
|
Office building
|
|
|
23,894
|
|
|
|
732,010
|
|
Between January 1, 2014 and December 31, 2018
|
The Company rents the following facility in Harbin, Heilongjiang province from Mr. Han's son:
Premise Leased
|
Area (M2)
|
|
Annual Rental Fee (US$)
|
|
Period of Lease
|
Facility
|
|
|
200
|
|
|
|
6,127
|
|
Between August 17, 2014 and August 16, 2016
|
Note 11– Income tax
Pursuant to an approval from the local tax authority in July 2013, Sichuan Xinda Enterprise Group Co., Ltd. ("Sichuan Xinda Group"), a subsidiary of China XD, became a qualified enterprise located in the western region of the PRC, which entitled it to a preferential income tax rate of 15% from January 1, 2013 to December 31, 2020. Under the current laws of Dubai, AL Composites Materials FZE ("AL Composites"), a subsidiary of China XD, is exempted from income taxes.
The effective income tax rates for the six-month periods ended June 30, 2016 and 2015 were 18.0% and 14.3%, respectively. The effective income tax rate increased from 14.3% for the six-month period ended June 30, 2015 to 18.0% for the six-month period ended June 30, 2016, primarily due to less sales to overseas market of Dubai Xinda which was exempted from income taxes. The effective income tax rate for the six-month period ended June 30, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate differential on entities not subject to PRC income tax, super deduction of R&D expense and partially offset by the effect of non-deductible expenses.
As of June 30, 2016, the unrecognized tax benefits were US$24,993,661 and the interest relating to unrecognized tax benefits was US$4,269,280. No penalties expense related to unrecognized tax benefits were recorded. The Company is currently unable to provide an estimate of a range of the total amount of unrecognized tax benefits that is reasonably possible to change significantly within the next twelve months.
Note 12 – Deferred Income
On January 26, 2015, the Company entered into a memorandum and a fund support agreement (the "Agreement") with the People's Government of Shunqing District, Nanchong City, Sichuan Province ("Shunqing Government") pursuant to which Shunqing Government, through its investment vehicle, will extend to the Company RMB350 million (equivalent to US$52.8 million) to support the construction of the Sichuan plant. As of June 30, 2016, the Company has received RMB280 million (equivalent to US$42.2 million) in total from Shunqing Government in the form of government repayment of bank loans on behalf of the Company. The Company also received RMB70 million (equivalent to US$10.6 million) pursuant to the Agreement for which the amount was restricted to use subject to the progress of the construction, which has been recorded as restricted cash as of June 30, 2016.
In addition, the Company has received RMB89.9 million (equivalent to US$13.6 million) from Shunqing Government and RMB6.4 million (equivalent to US$1.0 million) from Ministry of Finance of the People's Republic of China to support the construction as of June 30, 2016.
Since the funding is related to construction of long-term assets, the amounts were recognized as government grant, which is included in deferred income on the condensed consolidated balance sheets, and to be recognized as other income in the condensed consolidated statements of comprehensive income over the periods and in the proportions in which depreciation expense on the long-term assets is recognized.
In addition, the Company also received RMB36 million (equivalent to US$5.4 million) from Shunqing Government with respect to interest subsidy for further loan borrowing cost as of June 30, 2016, among which RMB9.8 million (equivalent to US$1.5 million) have been recognized as other income when related interest expense was recognized as of June 30, 2016.
Note 13 – Other non-current liabilities
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
US$
|
|
|
US$
|
|
|
|
|
|
|
|
|
Income tax payable-noncurrent (i)
|
|
|
29,262,941
|
|
|
|
24,172,693
|
|
Deferred income tax liabilities
|
|
|
12,504,645
|
|
|
|
13,874,224
|
|
Total other non-current liabilities
|
|
|
41,767,586
|
|
|
|
38,046,917
|
|
(i) Income tax payable-noncurrent represents the accumulative balance of unrecognized tax benefits and related accrued interest.
Note 14 – Redeemable Series D convertible preferred stock
According to the securities purchase agreement of the Redeemable Series D Convertible Preferred Stock (the “Series D preferred stock”), the Company has the right to require each holder of the Series D preferred stock to convert Series D preferred stock into common stock from September 28, 2014, as the Company has met the performance target for each of the fiscal years ended December 31, 2011, 2012 and 2013, respectively. Since the Series D preferred stock is not redeemable currently and is not probable that the Series D preferred stock will become redeemable, an adjustment of the carrying value of the Series D preferred stock to the redemption amount is not necessary.
Note 15 – Stockholders’ equity
The changes of each caption of stockholders’ equity for the six-month period ended June 30, 2016 are as follows:
|
|
Series B Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Treasury Stock
|
|
|
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Comprehensive
Loss
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2016
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,323,284
|
|
|
|
4,933
|
|
|
|
(92,694
|
)
|
|
|
81,919,932
|
|
|
|
515,555,985
|
|
|
|
(19,342,658
|
)
|
|
|
578,045,598
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,713,124
|
|
|
|
-
|
|
|
|
44,713,124
|
|
Other comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,513,302
|
)
|
|
|
(13,513,302
|
)
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
470,424
|
|
|
|
-
|
|
|
|
-
|
|
|
|
470,424
|
|
Vesting of nonvested shares
|
|
|
-
|
|
|
|
-
|
|
|
|
82,907
|
|
|
|
8
|
|
|
|
-
|
|
|
|
(8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of June 30, 2016
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,406,191
|
|
|
|
4,941
|
|
|
|
(92,694
|
)
|
|
|
82,390,348
|
|
|
|
560,269,109
|
|
|
|
(32,855,960
|
)
|
|
|
609,715,844
|
|
Note 16 – Stock based compensation
Nonvested shares
A summary of the nonvested shares activity for the six-month ended June 30, 2016 is as follows:
|
|
Number of Nonvested
Shares
|
|
|
Weighted Average
Grant date Fair Value
|
|
|
|
|
|
|
US$
|
|
Outstanding as of December 31, 2015
|
|
|
614,727
|
|
|
|
5.54
|
|
Vested
|
|
|
(10,907
|
)
|
|
|
3.08
|
|
Forfeited
|
|
|
(27,770
|
)
|
|
|
5.04
|
|
Outstanding as of June 30, 2016
|
|
|
576,050
|
|
|
|
5.60
|
|
The Company recognized US$248,244 and US$130,645 of share-based compensation expense in general and administration expenses relating to nonvested shares for the three-month periods ended June 30, 2016 and 2015, respectively, and US$470,424 and US$386,371 of share-based compensation expense in general and administration expenses relating to nonvested shares for the six-month periods ended June 30, 2016 and 2015, respectively. As of June 30, 2016, there was US$1,304,494 total unrecognized compensation cost relating to nonvested shares, which is to be recognized over a weighted average period of 1.16 years.
Note 17 - Earnings per share
Basic and diluted earnings per share are calculated as follows:
|
|
Three-Month Period Ended June 30,
|
|
|
Six-Month Period Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Net income
|
|
|
33,355,774
|
|
|
|
25,478,603
|
|
|
|
44,713,124
|
|
|
|
50,882,629
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings allocated to participating Series D convertible preferred stock
|
|
|
(8,088,078
|
)
|
|
|
(6,199,413
|
)
|
|
|
(10,843,682
|
)
|
|
|
(12,379,759
|
)
|
Earnings allocated to participating nonvested shares
|
|
|
(292,624
|
)
|
|
|
(230,996
|
)
|
|
|
(395,191
|
)
|
|
|
(466,567
|
)
|
Net income for basic and diluted earnings per share
|
|
|
24,975,072
|
|
|
|
19,048,194
|
|
|
|
33,474,251
|
|
|
|
38,036,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share
|
|
|
49,406,191
|
|
|
|
49,161,284
|
|
|
|
49,391,710
|
|
|
|
49,159,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
0.51
|
|
|
|
0.39
|
|
|
|
0.68
|
|
|
|
0.77
|
|
The following table summarizes potentially dilutive securities excluded from the calculation of diluted earnings per share for the three-month periods and six-month periods ended June 30, 2016 and 2015 because their effects are anti-dilutive:
|
Three-Month Period Ended June 30,
|
|
Six-Month Period Ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Shares issuable upon conversion of Series D convertible preferred stock
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
Note 18 - Commitments and contingencies
(1) Lease commitments
Future minimum lease payments under non-cancellable operating leases agreements as of June 30, 2016 were as follows.
|
|
US$
|
|
Period from July 1, 2016 to December 31, 2016
|
|
|
495,307
|
|
Years ending December 31,
|
|
|
|
|
2017
|
|
|
1,272,455
|
|
2018
|
|
|
984,733
|
|
2019
|
|
|
113,999
|
|
2020
|
|
|
113,999
|
|
2021
|
|
|
113,999
|
|
After 2021
|
|
|
930,994
|
|
Rental expenses incurred for operating leases of plant and office spaces were US$449,002 and US$499,500 for the three-month periods ended June 30, 2016 and 2015, respectively, and US$844,058 and US$728,649 for the six-month periods ended June 30, 2016 and 2015, respectively. There are no step rent provisions, escalation clauses, capital improvement funding requirements, other lease concessions or contingent rent in the lease agreements. The Company has no legal or contractual asset retirement obligations at the end of leases. The Company's leases do not contain any contingent rent payments terms.
(2) Sichuan plant construction and equipment
On March 8, 2013, Xinda Holding (HK) Company Limited ("Xinda Holding (HK)") entered into an investment agreement with Shunqing Government, pursuant to which Xinda Holding (HK) will invest RMB1.8 billion in property, plant and equipment and approximately RMB0.6 billion in working capital, for the construction of Sichuan plant. As of June 30, 2016, the Company has a remaining commitment of RMB88.9 million (equivalent to US$13.4 million) mainly for facility construction, and RMB17.9 million (equivalent to US$2.7 million) for the acquisition of equipment.
(3) Dubai plant construction and equipment
On January 5, 2015, AL Composites entered into an equipment purchase contract with Peaceful for a total consideration of US$271.2 million to purchase certain production and testing equipment. As of June 30, 2016, the Company has a remaining commitment of US$5.9 million for the remaining equipment acquisition. On April 28, 2015, AL Composites entered into a warehouse construction contract with Falcon Red Eye Contracting Co. L.L.C. for a total consideration of AED6.7 million (equivalent to US$1.8 million). As of June 30, 2016, the Company has a remaining commitment of US$0.9 million. On June 28, 2016, AL Composites entered into a plant purchasing contract with Bagader Trading Est for a total consideration of ADE45.0 million (equivalent to US$12.3 million).As of June 20, 2016, the Company has a remaining commitment of US$11.0 million.
(4) Xinda Group equipment
As of June 30, 2016, Xinda Group has a remaining commitment of RMB9.7 million (equivalent to US$1.5 million) for the acquisition of equipment.
(5) Contingencies
The Company and certain of its officers were named as defendants in two putative securities class action lawsuits filed on July 15, 2014 and July 16, 2014 in the United States District Court for the Southern District of New York. On March 23, 2016, the Court issued an Opinion and Order dismissing the Complaint without prejudice. On May 6, 2016, plaintiffs moved the Court for leave to amend the Complaint. On June 24, 2016, the Company filed its opposition to the plaintiffs' motion. The plaintiffs' reply to the Company's opposition is due August 8, 2016. The Company, after consultation with its legal counsel, continues to believe that the lawsuits are without merit and will continue to vigorously defend against them. Nevertheless, there is a possibility that a loss may have been incurred. In accordance with ASC Topic 450, no loss contingency was accrued as of June 30, 2016 since the possible loss or range of loss cannot be reasonably estimated.
Note 19 - Subsequent Events
On June 30, 2016, the Company announced to redeem all of the 11.75% guaranteed senior notes due on February 4, 2019 (the "Notes") outstanding on August 29, 2016 (the “Redemption Date”) at redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium (as defined in the Indenture) as of the Redemption Date (the “Redemption Price”) plus accrued and unpaid interest up to (but not including) the Redemption Date. The Notes has an aggregate principal amount of US$ 150,000,000 and the estimated carrying amount of US$146,432,000 on August 29, 2016. The redemption amount on Redemption Date is estimated to be approximately US$ 165,285,000 and accrued and unpaid interest up to (but not including) the Redemption Date equal to approximately US$1,224,000. Loss upon extinguishment of the Notes in the amount of approximately US$ 18,853,000 representing the difference between the redemption amount and the net carrying amount of the Notes, is to be recognized in the statement of comprehensive income in the quarter ended September 30, 2016.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We make forward-looking statements in this report, in other materials we file with the Securities and Exchange Commission (the “SEC”) or otherwise release to the public, and on our website. In addition, our senior management might make forward-looking statements orally to analysts, investors, the media and others. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings) and demand for our products and services, and other statements of our plans, beliefs, or expectations, including the statements contained in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” regarding our future plans, strategies and expectations are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You are cautioned not to place undue reliance on these forward-looking statements because these forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Thus, our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in: economic conditions generally and the automotive modified plastics market specifically, legislative or regulatory changes that affect our business, including changes in regulation, the availability of working capital, the introduction of competing products, and other risk factors described herein. These risks and uncertainties, together with the other risks described from time-to-time in reports and documents that we filed with the SEC should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
China XD Plastics Company Limited ("China XD", "we", and the "Company", and "us" or "our" shall be interpreted accordingly) is one of the leading specialty chemical companies engaged in the research, development, manufacture and sale of modified plastics primarily for automotive applications in China, and to a lesser extent, in Dubai, UAE. Through our wholly-owned operating subsidiaries in China and UAE we develop modified plastics using our proprietary technology, manufacture and sell our products primarily for use in the fabrication of automobile parts and components. We have 379 certifications from manufacturers in the automobile industry as of June 30, 2016. We are the only company certified as a National Enterprise Technology Center in modified plastics industry in Heilongjiang province. Our Research and Development (the "R&D") team consists of 338 professionals and 14 consultants, including one consultant who is a member of Chinese Academy of Engineering, and one consultant who is the former chief scientist of Specialty Plastics Engineering Institute of Jilin University. As a result of the integration of our academic and technological expertise, we have a portfolio of 357 patents, 29 of which we have obtained the patent rights and the remaining 328 of which we have applications pending in China as of June 30, 2016.
Our products include eleven categories: Modified Polypropylene (PP), Modified Acrylonitrile Butadiene Styrene (ABS), Modified Polyamide 66 (PA66), Modified Polyamide 6 (PA6), Modified Polyoxymethylenes (POM), Modified Polyphenylene Oxide (PPO), Plastic Alloy, Modified Polyphenylene Sulfide (PPS), Modified Polyimide (PI), Modified Polylactic acid (PLA) and Poly Ether Ether Ketone (PEEK).
The Company's products are primarily used in the production of exterior and interior trim and functional components of more than 28 automobile brands and 80 automobile models manufactured in China, including Audi, Mercedes Benz, BMW, Buick, Chevrolet, VW Passat, Golf and Jetta, Mazda, and Toyota. Our research center is dedicated to the research and development of modified plastics, and benefits from its cooperation with well-known scientists from prestigious universities in China. We operate three manufacturing plants in Harbin, Heilongjiang in the PRC. As of June 30, 2016, in domestic market, we had approximately 390,000 metric tons of production capacity across 84 automatic production lines utilizing German twin-screw extruding systems, automatic weighing systems and Taiwanese conveyer systems. In December 2013, we broke ground on the construction of our fourth production plant in Nanchong City, Sichuan Province, with additional 300,000 metric tons of annual production capacity, expecting to bring total domestic installed production capacity to 690,000 metric tons with additional 70 new production lines at the completion of the construction of our fourth production plant. Sichuan Xinda has supplied to its customers since 2013, backed by production capacity in our Harbin production plant. To streamline the management in Sichuan, the Company completed a restructuring in July 2015 by merging its subsidiary in Nanchong City, the entire registered capital (US$99.99 million) of which was owned by Xinda (Heilongjiang) Investment Co., Ltd, into Sichuan Xinda. During the second quarter of 2016, we installed 20 production lines stationed in completed plants in our Sichuan plant, which was launched on July 7, 2016. There is still construction ongoing on the site of our Sichuan plant to be expected to be completed by the end of 2016. In addition, we completed the trial production in the plant in Dubai, UAE with additional 2,500 metric tons of production capacity ("Phase 1") targeting high-end products for the overseas markets. In order to meet the increasing demand from our customers in the ROK and to develop potential overseas markets, on January 25, 2015, AL Composites Materials FZE ("AL Composites") obtained a leased property of approximately 10,000 square meters from Jebel Ali Free Zone Authority ("JAFZA") in Dubai, UAE with constructed building comprising a warehouse, office and service block with a lease term of 15 years. The Company is planning to complete installing 75 production lines with additional 14,000 metric tons ("Phase 2") of annual production capacity in that property around the end of 2016, bringing total production capacity in Dubai to 16,500 metric tons. On June 28, 2016, AL Composite signed a lease agreement pertaining approximately 20,206 square meters property in JAFZA in Dubai, UAE with constructed building including a warehouse, office and service block with a minimum term of 10 years and further extension of 10 additional years.
Highlights for the three months ended June 30, 2015 include:
● Revenues were $277.1 million, an increase of 4.4% from $265.4 million in the second quarter of 2015
● Gross profit was $60.3 million, an increase of 17.1% from $51.5 million in the second quarter of 2015
● Gross profit margin was 21.8%, compared to 19.4% in the second quarter of 2015
● Net income was $33.3 million, compared to $25.5 million in the second quarter of 2015
● Total volume shipped was 89,403 metric tons, up 5.4% from 84,833 metric tons in the second quarter of 2015
Results of Operations
The following table sets forth, for the periods indicated, statements of income data in millions of USD:
(in millions, except percentage)
|
|
Three-Month Period Ended
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
Change
|
|
|
|
2016
|
|
|
2015
|
|
|
%
|
|
|
2016
|
|
|
2015
|
|
|
%
|
|
Revenues
|
|
|
277.1
|
|
|
|
265.4
|
|
|
|
4.4
|
%
|
|
|
492.2
|
|
|
|
487.3
|
|
|
|
1.0
|
%
|
Cost of revenues
|
|
|
(216.8
|
)
|
|
|
(213.9
|
)
|
|
|
1.4
|
%
|
|
|
(397.0
|
)
|
|
|
(387.2
|
)
|
|
|
2.5
|
%
|
Gross profit
|
|
|
60.3
|
|
|
|
51.5
|
|
|
|
17.1
|
%
|
|
|
95.2
|
|
|
|
100.1
|
|
|
|
(4.9
|
)%
|
Total operating expenses
|
|
|
(12.9
|
)
|
|
|
(13.7
|
)
|
|
|
(5.8
|
)%
|
|
|
(23.2
|
)
|
|
|
(24.8
|
)
|
|
|
(6.5
|
)%
|
Operating income
|
|
|
47.4
|
|
|
|
37.8
|
|
|
|
25.4
|
%
|
|
|
72.0
|
|
|
|
75.3
|
|
|
|
(4.4
|
)%
|
Income before income taxes
|
|
|
38.6
|
|
|
|
29.9
|
|
|
|
29.1
|
%
|
|
|
54.5
|
|
|
|
59.4
|
|
|
|
(8.2
|
)%
|
Income tax expense
|
|
|
(5.3
|
)
|
|
|
(4.4
|
)
|
|
|
(20.5
|
)%
|
|
|
(9.8
|
)
|
|
|
(8.5
|
)
|
|
|
15.3
|
%
|
Net income
|
|
|
33.3
|
|
|
|
25.5
|
|
|
|
30.6
|
%
|
|
|
44.7
|
|
|
|
50.9
|
|
|
|
(12.2
|
)%
|
Three months ended June 30, 2016 compared to three months ended June 30, 2015
Revenues
Revenues were US$277.1 million in the second quarter ended June 30, 2016, an increase of US$11.7 million, or 4.4%, compared to US$265.4 million in the same period of last year, due to 4.0% increase in the average RMB selling price of our products and 4.5% negative impact from exchange rate due to weakening RMB against US dollars, and approximately 5.4% increase in sales volume.
In order to stimulate the growth of the auto industry, on September 29, 2015, the Chinese government implemented a tax incentive policy of 50% reduction of the sales tax for eligible purchase of vehicles with engines of 1.6 liters and less. This helped the recovery of vehicle sales in China since the fourth quarter of 2015. Passenger vehicles production increased by 7.3% in the first half year of 2016 compared to the same period of the prior year. The Company has been actively marketing its higher-end products to customers to better allocate its production capacity, diversifying its business to reduce its concentration in the Chinese market. Driven by accelerating growth of 18.9% in Central China and 80.5% in South China, domestic sales during the second quarter of 2015 increased by 4.4% as compared to the same period of the prior year.
Oversea sales was US$35.7 million in the second quarter of 2016 compared to US$29.1 million in the same period of the prior year due to the supply to a new ROK customer in the second quarter of 2016. The customer has made payment of US$9.4 million in the second quarter of 2016 with unpaid balance of US$26.3 million.
The following table summarizes the breakdown of revenues by categories in millions of US$:
(in millions, except percentage)
|
|
Revenues
For the Three-Month Period Ended June 30,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Modified Polyamide 66 (PA66)
|
|
|
60.4
|
|
|
|
21.8
|
%
|
|
|
53.0
|
|
|
|
20.0
|
%
|
|
|
7.4
|
|
|
|
14.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
59.5
|
|
|
|
21.5
|
%
|
|
|
52.1
|
|
|
|
19.6
|
%
|
|
|
7.4
|
|
|
|
14.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
99.8
|
|
|
|
36.0
|
%
|
|
|
99.0
|
|
|
|
37.3
|
%
|
|
|
0.8
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
43.1
|
|
|
|
15.6
|
%
|
|
|
44.6
|
|
|
|
16.8
|
%
|
|
|
(1.5
|
)
|
|
|
(3.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
10.0
|
|
|
|
3.6
|
%
|
|
|
10.8
|
|
|
|
4.1
|
%
|
|
|
(0.8
|
)
|
|
|
(7.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
0.9
|
|
|
|
0.3
|
%
|
|
|
0.9
|
|
|
|
0.3
|
%
|
|
|
0.0
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
2.8
|
|
|
|
1.0
|
%
|
|
|
3.3
|
|
|
|
1.3
|
%
|
|
|
(0.5
|
)
|
|
|
(15.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polylactic acid (PLA)
|
|
|
0.1
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
n/
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
0.5
|
|
|
|
0.2
|
%
|
|
|
1.7
|
|
|
|
0.6
|
%
|
|
|
(1.2
|
)
|
|
|
(70.6
|
)%
|
Total Revenues
|
|
|
277.1
|
|
|
|
100
|
%
|
|
|
265.4
|
|
|
|
100
|
%
|
|
|
11.7
|
|
|
|
4.4
|
%
|
The following table summarizes the breakdown of metric tons (MT) by product mix:
(in MTs, except percentage)
|
|
Sales Volume
For the Three-Month Period Ended June 30,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change in
|
|
|
Change in
|
|
|
|
MT
|
|
|
%
|
|
|
MT
|
|
|
%
|
|
|
MT
|
|
|
%
|
|
Modified Polyamide 66 (PA66)
|
|
|
14,804
|
|
|
|
16.5
|
%
|
|
|
12,342
|
|
|
|
14.5
|
%
|
|
|
2,462
|
|
|
|
19.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
16,953
|
|
|
|
19.0
|
%
|
|
|
14,399
|
|
|
|
17.0
|
%
|
|
|
2,554
|
|
|
|
17.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
28,131
|
|
|
|
31.5
|
%
|
|
|
28,357
|
|
|
|
33.5
|
%
|
|
|
(226
|
)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
24,242
|
|
|
|
27.1
|
%
|
|
|
23,542
|
|
|
|
27.8
|
%
|
|
|
700
|
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
4,102
|
|
|
|
4.6
|
%
|
|
|
4,185
|
|
|
|
4.9
|
%
|
|
|
(83
|
)
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
280
|
|
|
|
0.3
|
%
|
|
|
270
|
|
|
|
0.3
|
%
|
|
|
10
|
|
|
|
3.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
420
|
|
|
|
0.5
|
%
|
|
|
453
|
|
|
|
0.5
|
%
|
|
|
(33
|
)
|
|
|
(7.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polylactic acid (PLA)
|
|
|
10
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
n/
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
461
|
|
|
|
0.5
|
%
|
|
|
1,285
|
|
|
|
1.5
|
%
|
|
|
(824
|
)
|
|
|
(64.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Volume
|
|
|
89,403
|
|
|
|
100
|
%
|
|
|
84,833
|
|
|
|
100
|
%
|
|
|
4,570
|
|
|
|
5.4
|
%
|
The Company continued to shift production mix from traditional Modified Polypropylene (PP) to higher-end products such as PA66, PA6 and POM, primarily due to (i) the greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality from end consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, and U.S. and Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China.
Gross Profit and Gross Profit Margin
|
Three-Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
% |
|
Gross Profit
|
|
$
|
60.3
|
|
|
$
|
51.5
|
|
|
$
|
8.8
|
|
|
|
17.1
|
%
|
Gross Profit Margin
|
|
|
21.8
|
%
|
|
|
19.4
|
%
|
|
|
|
|
|
|
2.4
|
%
|
Gross profit was US$60.3 million in the second quarter ended June 30, 2016 compared to US$51.5 million in the same period of 2016, representing an increase of 17.1%. Our gross margin increased to 21.8% during the quarter ended June 30, 2016 from 19.4% during the same quarter of 2015 primarily due to higher contribution from our higher-margin products sold overseas.
General and Administrative Expenses
|
Three-Month Period Ended June,
|
|
Change
|
|
(in millions, except percentage)
|
2016
|
|
2015
|
|
Amount
|
|
|
%
|
|
General and Administrative Expenses
|
|
$
|
6.6
|
|
|
$
|
6.6
|
|
|
$
|
0.0
|
|
|
|
0.0
|
%
|
as a percentage of revenues
|
|
|
2.4
|
%
|
|
|
2.5
|
%
|
|
|
|
|
|
|
(0.1
|
)%
|
General and administrative (G&A) expenses were stable as US$6.6 million in the quarter ended June 30, 2016 compared to US$6.6 million in the same period in 2015.
Research and Development Expenses
|
Three–Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
Research and Development Expenses
|
|
$
|
5.9
|
|
|
$
|
6.7
|
|
|
$
|
(0.8
|
)
|
|
|
(11.9
|
)%
|
as a percentage of revenues
|
|
|
2.1
|
%
|
|
|
2.5
|
%
|
|
|
|
|
|
|
(0.4
|
)%
|
R&D expenses were US$5.9 million in the quarter ended June 30, 2016 compared with US6.7 million during the same period in 2015, a decrease of US$0.8 million, or 11.9%, reflecting our improved efficiency in R&D projects and the Company's efforts to adjust research and development activities on new products primarily for industrialized applications from automotive to other advanced fields such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices.
As of June 30, 2016, the number of ongoing research and development projects was 187. We expect to complete and commence to realize economic benefits on approximately 25% of the projects in the near term. The remaining projects are expected to be carried out for a longer period.
Operating Income
Total operating income was US$47.4 million in the second quarter ended June 30, 2016 compared to $37.8 million in the same period of 2015, representing an increase of 25.4% or US$9.6 million. This increase is primarily due to higher gross margin, and lower research and developed expenses, with stable general and administrative expenses.
Interest Income (Expenses)
|
|
Three-Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
Interest Income
|
|
$
|
1.6
|
|
|
$
|
2.5
|
|
|
$
|
(0.9
|
)
|
|
|
(36.0
|
)%
|
Interest Expenses
|
|
|
(10.6
|
)
|
|
|
(11.0
|
)
|
|
|
0.4
|
|
|
|
(3.6
|
)%
|
Net Interest Expenses
|
|
$
|
(9.0
|
)
|
|
$
|
(8.5
|
)
|
|
$
|
(0.5
|
)
|
|
|
5.9
|
%
|
as a percentage of revenues
|
|
|
(3.3
|
)%
|
|
|
(3.2
|
)%
|
|
|
|
|
|
|
(0.1
|
)%
|
Net interest expense was US$9.0 million for the three-month period ended June 30, 2016, compared to net interest expense of US$8.5 million in the same period of 2015, primarily due to (i) the decrease of interest income was caused by the decrease of average interest rate of 2.4% for the three month period ended June 30, 2016 compared to 3.1% for the same period of 2015, which was partially offset by the increase of average deposit balance in the amount of US$409.6 million for the three months ended June 30, 2016 compared to US$344.5 million for the same period of 2015; and partially offset by (ii) the decrease of interest expense which was caused by the decrease of average interest rate 5.2% for the three months ended June 30, 2016 as compared to 5.3% for the three months ended June 30, 2015, which was partially offset by the increase of short-term and long-term loans in the amount of US$496.6 million for the three months ended June 30, 2016 as compared to US$409.9 million of prior year.
Income Taxes
|
Three–Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
Income before Income Taxes
|
|
$
|
38.6
|
|
|
$
|
29.9
|
|
|
$
|
8.7
|
|
|
|
29.1
|
%
|
Income Tax Expense
|
|
|
(5.3
|
)
|
|
|
(4.4
|
)
|
|
|
(0.9
|
)
|
|
|
20.5
|
%
|
Effective income tax rate
|
|
|
13.6
|
%
|
|
|
14.7
|
%
|
|
|
|
|
|
|
(1.1
|
)%
|
The effective income tax rate for the three-month periods ended June 30, 2016 and 2015 was 13.6% and 14.7%, respectively. The decrease was primarily due to Heilongjiang Xinda Group's R&D expense super deduction, partially offsetting by effect of tax rate differential on entities not subject to PRC income tax, effect of non-deductible expenses and increase of valuation allowances against deferred income tax assets of certain subsidiaries, which were at cumulative loss position. The effective income tax rate for the three-month period ended June 30, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate differential on entities not subject to PRC income tax, super deduction of R&D expense and partially offset by the effect of non-deductible expenses.
Our PRC and Dubai subsidiaries have US$405.0 million of cash and cash equivalents, restricted cash and time deposits as of June 30, 2016, which are planned to be indefinitely reinvested in the PRC and Dubai. The distributions from our PRC and Dubai subsidiaries are subject to the U.S. federal income tax at 34%, less any applicable foreign tax credits. Due to our policy of indefinitely reinvesting our earnings in our PRC business, we have not provided for deferred income tax liabilities related to PRC withholding income tax on undistributed earnings of our PRC subsidiaries. In addition, due to our policy of indefinitely reinvesting our earnings in Dubai, UAE, we have not provided for deferred income tax liabilities related to Dubai Composites in Dubai, UAE, on undistributed earnings.
Net Income
As a result of the above factors, we had a net income of US$33.3 million in the second quarter of 2016 compared to a net income of US$$25.5 million in the same quarter of 2015.
Six months ended June 30, 2016 compared to six months ended June 30, 2015
Revenues
Revenues were US$492.2 million in the six-month period ended June 30, 2016, an increase of US$4.9 million, or 1.0%, compared with US$487.3 million in the same period of last year, due to approximately 7.8% increase in sales volume and 6.3% decrease in the average selling price of our products.
For the six months ended June 30, 2016, we had an increase of 3.1% in the average RMB selling price of our products while the sales volume increased by 9.6% compared with those of last year in the domestic market. More sales were achieved in South China, Central China and Southwest China because of our marketing efforts to develop new customers. As for the RMB selling price, the increase was mainly due to higher-end product of modified PA6 and PA66 in China.
For the six months ended June 30, 2016 in the overseas market, we had a significant decrease of 41.9% in sales volume and 4.0% decrease in the average selling price as compared with those of last year, primarily due to the ongoing suspension of supply to a major ROK customer in the first half of 2016.
The following table summarizes the breakdown of revenues by categories in millions of US$:
(in millions, except percentage)
|
|
Revenues
For the Six -Month Period Ended June 30,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Change in
Amount
|
|
|
Change in
%
|
|
Modified Polyamide 66 (PA66)
|
|
|
111.3
|
|
|
|
22.6
|
%
|
|
|
89.1
|
|
|
|
18.3
|
%
|
|
|
22.2
|
|
|
|
24.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
110.6
|
|
|
|
22.4
|
%
|
|
|
95.0
|
|
|
|
19.5
|
%
|
|
|
15.6
|
|
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
159.8
|
|
|
|
32.5
|
%
|
|
|
191.2
|
|
|
|
39.2
|
%
|
|
|
(31.4
|
)
|
|
|
(16.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
83.0
|
|
|
|
16.9
|
%
|
|
|
84.1
|
|
|
|
17.3
|
%
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
18.6
|
|
|
|
3.8
|
%
|
|
|
19.2
|
|
|
|
3.9
|
%
|
|
|
(0.6
|
)
|
|
|
(3.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
1.7
|
|
|
|
0.3
|
%
|
|
|
1.4
|
|
|
|
0.3
|
%
|
|
|
0.3
|
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
6.2
|
|
|
|
1.3
|
%
|
|
|
6.2
|
|
|
|
1.3
|
%
|
|
|
0.0
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polylactic acid (PLA)
|
|
|
0.1
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.1
|
|
|
|
n/
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
0.9
|
|
|
|
0.2
|
%
|
|
|
1.1
|
|
|
|
0.2
|
%
|
|
|
(0.2
|
)
|
|
|
(18.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
492.2
|
|
|
|
100
|
%
|
|
|
487.3
|
|
|
|
100
|
%
|
|
|
4.9
|
|
|
|
1.0
|
%
|
The following table summarizes the breakdown of metric tons (MT) by product mix:
(in MTs, except percentage)
|
|
Sales Volume
For the Six-Month Period Ended June 30,
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
MT
|
|
|
%
|
|
|
MT
|
|
|
%
|
|
|
Change in
MT
|
|
|
Change in
%
|
|
Modified Polyamide 66 (PA66)
|
|
|
27,044
|
|
|
|
16.3
|
%
|
|
|
20,789
|
|
|
|
13.5
|
%
|
|
|
6,255
|
|
|
|
30.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
31,773
|
|
|
|
19.1
|
%
|
|
|
26,380
|
|
|
|
17.1
|
%
|
|
|
5,393
|
|
|
|
20.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
50,915
|
|
|
|
30.6
|
%
|
|
|
52,500
|
|
|
|
34.0
|
%
|
|
|
(1,585
|
)
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
46,419
|
|
|
|
27.9
|
%
|
|
|
44,485
|
|
|
|
28.8
|
%
|
|
|
1,934
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
7,637
|
|
|
|
4.6
|
%
|
|
|
7,491
|
|
|
|
4.9
|
%
|
|
|
146
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
550
|
|
|
|
0.3
|
%
|
|
|
408
|
|
|
|
0.3
|
%
|
|
|
142
|
|
|
|
34.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
930
|
|
|
|
0.6
|
%
|
|
|
849
|
|
|
|
0.6
|
%
|
|
|
81
|
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polylactic acid (PLA)
|
|
|
11
|
|
|
|
0.0
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
n/
|
a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
879
|
|
|
|
0.6
|
%
|
|
|
1,285
|
|
|
|
0.8
|
%
|
|
|
(406
|
)
|
|
|
(31.6
|
)%
|
Total Sales Volume
|
|
|
166,158
|
|
|
|
100
|
%
|
|
|
154,187
|
|
|
|
100
|
%
|
|
|
11,971
|
|
|
|
7.8
|
%
|
The Company continued to shift production mix from traditional Modified Polypropylene (PP) to higher-end products such as PA66, PA6, POM and PPO, primarily due to (i) greater growth potential of advanced modified plastics in luxury automobile models in China, (ii) the stronger demand as a result of promotion by the Chinese government for clean energy vehicles and (iii) better quality from and consumer recognition of higher-end cars made by automotive manufacturers from Chinese and Germany joint ventures, and U.S. and Japanese joint ventures, which manufacturers tend to use more and higher-end modified plastics in quantity per vehicle in China. In addition, the Company sold primarily higher-end Plastic Alloy to the recently developed customer in the Republic of Korea.
Gross Profit and Gross Profit Margin
|
Six-Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
Gross Profit
|
|
$
|
95.2
|
|
|
$
|
100.1
|
|
|
$
|
(4.9)
|
|
|
|
(4.9)
|
%
|
Gross Profit Margin
|
|
|
19.3
|
%
|
|
|
20.5
|
%
|
|
|
|
|
|
|
(1.4)
|
%
|
Gross profit was US$95.2 million for the six months ended June 30, 2016 compared to US$100.1 million in the same period of 2015, representing a decrease of 4.9%. Our gross margin decreased to 19.3% during the six months ended June 30, 2016 from 20.5% during the same period of 2015, primarily due to lower contribution of higher-margin product sales overseas for the six months ended June 30, 2016 as compared to that of the prior year.
General and Administrative Expenses
|
Six-Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
General and Administrative Expenses
|
|
$
|
11.7
|
|
|
$
|
11.6
|
|
|
$
|
0.1
|
|
|
|
0.9
|
%
|
as a percentage of revenues
|
|
|
2.4
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
(0.0)
|
%
|
General and administrative (G&A) expenses were US$11.7 million for the six months ended June 30, 2016 compared to US$11.6 million in the same period in 2015, representing an increase of 0.9%, or US$0.1 million. This increase is primarily due to the increase salary and welfare due to the increase in the number of management staff offset by decreased non-income taxation expenses.
Research and Development Expenses
|
Six-Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
Research and Development Expenses
|
|
$
|
10.8
|
|
|
$
|
12.5
|
|
|
$
|
(1.7
|
)
|
|
|
(13.6
|
)%
|
as a percentage of revenues
|
|
|
2.2
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
(0.4)
|
%
|
Research and development (R&D) expenses were US$10.8 million for the six months ended June 30, 2016 compared with US$12.5 million during the same period in 2015, a decrease of US$1.7 million, or 13.6%, reflecting the Company's efforts to adjust research and development activities on new products primarily for industrialized applications from automotive to other advanced fields such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices.
Operating Income
Total operating income was US$72.0 million for the six months ended June 30, 2016 compared to US$75.3 million in the same period of 2015, representing a decrease of 4.4% or US$3.3 million. This decrease is primarily due to lower gross profit, partially offset by reduced R&D expenses.
Interest Income (Expenses)
|
|
Six-Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
|
2016
|
|
|
2015
|
|
|
Amount
|
|
|
%
|
|
Interest Income
|
|
$
|
3.2
|
|
|
$
|
4.9
|
|
|
$
|
(1.7
|
)
|
|
|
(34.7
|
)%
|
Interest Expenses
|
|
|
(21.5
|
)
|
|
|
(21.7
|
)
|
|
|
0.2
|
|
|
|
(0.9
|
)%
|
Net Interest Expenses
|
|
$
|
(18.3
|
)
|
|
$
|
(16.8
|
)
|
|
$
|
(1.5
|
)
|
|
|
8.9
|
%
|
as a percentage of revenues
|
|
|
(3.7
|
)%
|
|
|
(3.4
|
)%
|
|
|
|
|
|
|
(0.3
|
)%
|
Net interest expense was US$18.3 million for the six-month period ended June 30, 2016, compared to net interest expense of US$16.8 million in the same period of 2015, primarily due to (i) the decrease of interest income was due to the decrease average interest rate of 1.70% for the six months ended June 30, 2016 compared to 2.88 % of the same period in 2015, and partially offset by the increase of average deposit balance in amount of US$388.6 million for the six months ended June 30, 2016 compared to US$330.9 million for the same period in prior year, leading to the decrease of interest income; partially offset by (ii) the decrease of interest expense which was due to the decrease average interest rate of 5.16% for the six months ended June 30, 2016 compared to 5.55% of the same period in 2015, and partially offset by the increase of average short-term and long-term loan balance in amount of US$457.4 million for the six months ended June 30, 2016 compared to US$397.1 million for the same period in 2015.
Income Taxes
|
|
Six Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|
Income before Income Taxes
|
|
$
|
|
54.5
|
|
|
$
|
59.4
|
|
$
|
(4.9)
|
|
(8.2)
|
%
|
Income Tax Expense
|
|
|
|
(9.8
|
)
|
|
|
(8.5
|
)
|
|
(1.3)
|
|
15.3
|
%
|
Effective income tax rate
|
|
|
|
18.0
|
%
|
|
|
14.3
|
%
|
|
|
|
3.7
|
%
|
The effective income tax rate for the six-month period ended June 30, 2016 and 2015 were 18.0% and 14.3%, respectively, which differ from the PRC statutory income tax rate of 25%. The increase was primarily due to less profit generated from Dubai Xinda in the six-month period ended June 30, 2016 compared with that of 2015, which was exempted from income taxes. The effective income tax rate differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate differential on entities not subject to PRC income tax, super deduction of R&D expense and partially offset by the effect of non-deductible expenses.
Net Income
As a result of the above factors, we had a net income of US$44.7 million for the six months ended June 30, 2016 compared to net income of US$50.9 million in the same period of 2015.
Selected Balance Sheet Data as of June 30, 2016 and December 31, 2015:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
Change
|
|
(in millions, except percentage)
|
|
|
|
|
|
|
|
Amount
|
|
|
%
|
|
Cash and cash equivalents
|
|
|
58.0
|
|
|
|
119.9
|
|
|
|
(61.9
|
)
|
|
|
(51.6
|
)%
|
Restricted cash
|
|
|
64.5
|
|
|
|
50.9
|
|
|
|
13.6
|
|
|
|
26.7
|
%
|
Time deposits
|
|
|
282.5
|
|
|
|
237.6
|
|
|
|
44.9
|
|
|
|
18.9
|
%
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
200.5
|
|
|
|
234.5
|
|
|
|
(34.0
|
)
|
|
|
(14.5
|
)%
|
Inventories
|
|
|
422.0
|
|
|
|
294.7
|
|
|
|
127.3
|
|
|
|
43.2
|
%
|
Prepaid expenses and other current assets
|
|
|
51.0
|
|
|
|
15.7
|
|
|
|
35.3
|
|
|
|
224.8
|
%
|
Property, plant and equipment, net
|
|
|
810.1
|
|
|
|
571.7
|
|
|
|
238.4
|
|
|
|
41.7
|
%
|
Land use rights, net
|
|
|
23.8
|
|
|
|
24.5
|
|
|
|
(0.7
|
)
|
|
|
(2.9
|
)%
|
Prepayments to equipment and construction suppliers
|
|
|
14.4
|
|
|
|
183.2
|
|
|
|
(168.8
|
)
|
|
|
(92.1
|
)%
|
Other non-current assets
|
|
|
12.7
|
|
|
|
19.0
|
|
|
|
(6.3
|
)
|
|
|
(33.2
|
)%
|
Total assets
|
|
|
1,939.5
|
|
|
|
1752.0
|
|
|
|
187.5
|
|
|
|
10.7
|
%
|
Short-term bank loans, including current portion of long-term bank loans
|
|
|
422.2
|
|
|
|
284.3
|
|
|
|
137.9
|
|
|
|
48.5
|
%
|
Bills payable
|
|
|
47.0
|
|
|
|
33.5
|
|
|
|
13.5
|
|
|
|
40.3
|
%
|
Accounts payable
|
|
|
195.3
|
|
|
|
257.4
|
|
|
|
(62.1
|
)
|
|
|
(24.1
|
)%
|
Income taxes payable, including noncurrent portion
|
|
|
28.0
|
|
|
|
28.0
|
|
|
|
-
|
|
|
|
-
|
|
Accrued expenses and other current liabilities
|
|
|
223.7
|
|
|
|
141.0
|
|
|
|
82.7
|
|
|
|
58.7
|
%
|
Notes payable within one-year
|
|
|
146.2
|
|
|
|
-
|
|
|
|
146.2
|
|
|
|
n/a
|
%
|
Long-term bank loans, excluding current portion
|
|
|
81.7
|
|
|
|
107.5
|
|
|
|
(25.8
|
)
|
|
|
(24.0
|
)%
|
Notes payable
|
|
|
-
|
|
|
|
145.6
|
|
|
|
(145.6
|
)
|
|
|
(100.0
|
)%
|
Deferred income
|
|
|
71.3
|
|
|
|
62.0
|
|
|
|
9.3
|
|
|
|
15.0
|
%
|
Redeemable Series D convertible preferred stock
|
|
|
97.6
|
|
|
|
97.6
|
|
|
|
-
|
|
|
|
0.0
|
%
|
Stockholders' equity
|
|
|
609.7
|
|
|
|
578.0
|
|
|
|
31.7
|
|
|
|
5.5
|
%
|
Our financial condition continued to improve as measured by an increase of 5.5% in stockholders' equity as of June 30, 2016 as compared to that of December 31, 2015. Cash and cash equivalents, restricted cash and time deposits decreased by 0.8% or US$3.4 million due to the operating cash outflows. Inventories increased by 43.2% as a result of more purchases made by the Company to take advantage of the lower purchase price of the raw materials and the Company's strategy to stock up the inventory and prepare for the opening of Sichuan plant. Prepayment to equipment suppliers decreased by 92.1% mainly because the equipment was delivered to Dubai, UAE. The aggregate short-term and long-term bank loans increased by 28.6% due to the utilization of existing lines of credit. We believe our current debt level is manageable. We define the manageable debt level as the sum of aggregate short-term and long-term loans, and notes payable over total assets. As of June 30, 2016, notes payable within one-year was US$146.2 million under the 11.75% guaranteed senior notes due in 2019, net of discount.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary uses of cash have been to finance working capital needs and capital expenditures for new production lines. We have financed these requirements primarily from cash generated from operations, bank borrowings and the issuance of our convertible preferred stocks and debt financings. As of June 30, 2016 and December 31, 2015, we had US$58.0 million and US$119.9 million, respectively, in cash and cash equivalents, which were primarily deposited with banks in China (including Hong Kong and Macau SAR). As of June 30, 2016, we had US$422.2 million outstanding short-term bank loans (including the current portion of long-term bank loans), including US$220.9 million unsecured loan and US$57.4 million loans secured by accounts receivable, US$32.1 million loans secured by restricted cash, and US$111.8 long-term bank loans that due in one year. We also had US$81.7 million long-term bank loans (excluding the current portion), including US$30.4 million loans secured by long-term deposits and US$51.3 million unsecured loan. Short-term and long-term bank loans in total bear a weighted average interest rate of 5.16% per annum and do not contain any renewal terms. We have historically been able to make repayments when due. In addition, the Company has US$146.2 million of 11.75% guaranteed senior notes, all of which the Company announced to redeem on August 29, 2016 at a redemption amount of approximately US$ 165,285,000.
A summary of lines of credit for the six-month period ended June 30 2016 and the remaining line of credit as of June 30, 2016 is as below:
(in millions)
|
June 30, 2016
|
|
|
Lines of Credit, Obtained
|
|
|
Remaining Available
|
|
Name of Financial Institution
|
Date of Approval
|
|
RMB
|
|
|
USD
|
|
|
USD
|
|
Bank of Communications
|
December 09, 2014
|
|
|
200.0
|
|
|
|
30.2
|
|
|
|
0.5
|
|
Bank of Longjiang, Heilongjiang
|
March 16, 2016
|
|
|
400.0
|
|
|
|
60.3
|
|
|
|
-
|
|
Bank of China
|
April 28, 2015
|
|
|
1,118.4
|
|
|
|
168.7
|
|
|
|
73.9
|
|
HSBC
|
August 16, 2015
|
|
|
630.0
|
|
|
|
95.0
|
|
|
|
54.8
|
|
Agriculture Bank of China
|
November 25, 2015
|
|
|
400.0
|
|
|
|
60.3
|
|
|
|
-
|
|
China Construction Bank
|
January 8, 2016
|
|
|
540.0
|
|
|
|
81.4
|
|
|
|
58.8
|
|
ICBC
|
October 28, 2015
|
|
|
500.0
|
|
|
|
75.4
|
|
|
|
-
|
|
Societe Generale (China) Limited
|
October 15, 2015
|
|
|
80.0
|
|
|
|
12.1
|
|
|
|
-
|
|
Export-Import Bank of China
|
March 30, 2016
|
|
|
300.0
|
|
|
|
45.2
|
|
|
|
-
|
|
Subtotal (credit term<=1 year)
|
|
|
|
4168.4
|
|
|
|
628.6
|
|
|
|
206.5
|
|
Bank of China
|
April 28, 2015
|
|
|
977.6
|
|
|
|
147.4
|
|
|
|
96.1
|
|
China Construction Bank
|
May 12, 2016
|
|
|
210.0
|
|
|
|
31.7
|
|
|
|
1.3
|
|
Subtotal (credit term>1 year)
|
|
|
|
1,187.6
|
|
|
|
179.1
|
|
|
|
97.4
|
|
Total
|
|
|
|
5,356.0
|
|
|
|
807.7
|
|
|
|
303.9
|
|
We have historically been able to make repayments when due. As of June 30, 2016, we have contractual obligations to pay (i) lease commitments in the amount of US$4.0 million, including US$1.1 million due in one year; (ii) equipment acquisition and facility construction in the amount of US$35.4 million; (iii) long-term bank loan in the amount of US$208.7 million (including principals and interests); and (iv) notes payable in the amount of US$175.3 million (including redemption amount and accrued interests).
We expect that we will be able to meet our needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.
We may, however, require additional cash resources due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, or at all.
The following table sets forth a summary of our cash flows for the periods indicated.
|
|
Six-Month Period Ended June 30,
|
|
(in millions US$)
|
|
2016
|
|
|
2015
|
|
Net cash provided by (used in) operating activities
|
|
|
(93.9
|
)
|
|
|
71.7
|
|
Net cash used in investing activities
|
|
|
(81.3
|
)
|
|
|
(120.1
|
)
|
Net cash provided by financing activities
|
|
|
114.4
|
|
|
|
55.5
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
(1.1
|
)
|
|
|
0.1
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(61.9
|
)
|
|
|
7.2
|
|
Cash and cash equivalents at the beginning of period
|
|
|
119.9
|
|
|
|
45.5
|
|
Cash and cash equivalents at the end of period
|
|
|
58.0
|
|
|
|
42.7
|
|
Operating Activities
Net cash used in operating activities decreased to US$93.9 million cash outflow for the six-month period ended June 30, 2016 from net cash provided by operating activities of US$71.7 million for the six-month period ended June 30, 2015, primarily due to (i) the increase of approximately US$193.0 million in cash operating payments, including raw material purchases, rental and personnel costs, (ii) the increase of US$6.9 million in income tax payments, and, (iii) the decrease of approximately US$3.2 million released from restricted cash, (iv) the decrease of US$1.5 million in interest income received, (v) the increase of US$0.6 million interest payments and, (vi) the decrease of approximately US$0.7 million cash inflow due to the forward contract settlement, partially offset by (vii) the increase of approximately US$38.1 million in cash collected from our customers for the six-month period ended June 30, 2016, and (viii) the increase of US$2.2 million received from government grant for the six-month period ended June 30, 2016.
Investing Activities
Net cash used in the investing activities was US$81.3 million for the six-month period ended June 30, 2016 as compared to US$120.1 million for the same period of last year, mainly due to (i) the decrease of US$79.5 million purchase of property, plant and equipment, (ii) the decrease of US$6.9 million acquisition of land use right and, (iii) the increase of US$8.8 million government grant related to the construction of Sichuan plant, partially offset by (iv) the increase of US$55.8 million purchase of time deposits, and (v) the decrease of US$0.7 million proceeds from maturity of time deposits.
Financing Activities
Net cash provided by the financing activities was US$114.4 million for the six-month period ended June 30, 2016, as compared to US$55.5 million for the same period of last year, primarily as a result of (i) the increase of US$75.9 million borrowings of bank loans, and (ii) the increase of US$28.4 million release from restricted cash as collateral for bank borrowings for the six-month period ended June 30, 2016, partially offset by (iii) the increase of US$42.7 million repayments of bank borrowings and (iv) the increase of US$2.8 million of placement of restricted cash as collateral for bank borrowings.
As of June 30, 2016, our cash and cash equivalents balance was US$58.0 million, compared to US$119.9 million at December 31, 2015.
Days Sales Outstanding ("DSO") has increased from 78 days for the year ended December 31, 2015 to 79 days for the six-month ended June 30, 2016.
We believe that our DSO is still well below industry average Industry Standard Customer and Supplier Payment Terms (days) as below:
|
Six-month period ended June 30, 2016
|
Year ended December 31, 2015
|
Customer Payment Term
|
Payment in advance/up to 90 days
|
Payment in advance/up to 90 days
|
Supplier Payment Term
|
Payment in advance/up to 90 days
|
Payment in advance/up to 90 days
|
Inventory turnover days has increased from 120 days for the year ended December 31, 2015 to 162 days for the six-month ended June 30, 2016. The Company has the credit terms with major suppliers for 90 days in 2016, in order to better manage its operating cash flows. Turnover days of payables have increased from 90 days for the year ended December 31, 2015 to 103 days for the six-month ended June 30, 2016.
Based on past performance and current expectations, we believe our cash and cash equivalents provided by operating activities and financing activities will satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations for at least the next 12 months. It is anticipated that the redemption will be funded by the Company’s cash and bank deposits, existing credit facilities and other funding sources.
The majority of the Company's revenues and expenses were denominated primarily in Renminbi ("RMB"), the currency of the People's Republic of China. There is no assurance that exchange rates between the RMB and the U.S. Dollar will remain stable. Inflation has not had a material impact on the Company's business.
COMMITMENTS AND CONTINGENCIES
Contractual Obligations
Our contractual obligations as of June 30, 2016 are as follows:
Contractual obligations
|
|
Total
|
|
|
Payment due
less than 1 year
|
|
|
1 – 3 years
|
|
|
3-5 years
|
|
|
More than 5
years
|
|
Lease commitments
|
|
|
4,025,486
|
|
|
|
1,131,535
|
|
|
|
1,677,960
|
|
|
|
227,998
|
|
|
|
987,993
|
|
Purchase of land use rights, plant equipment, and construction in progress (3)(4)(5)
|
|
|
35,436,535
|
|
|
|
35,436,535
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Long-term bank loans (1)
|
|
|
208,675,384
|
|
|
|
118,257,107
|
|
|
|
35,846,996
|
|
|
|
54,571,281
|
|
|
|
-
|
|
Notes payable (2)
|
|
|
175,321,458
|
|
|
|
175,321,458
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
423,458,863
|
|
|
|
330,146,635
|
|
|
|
37,524,956
|
|
|
|
54,799,279
|
|
|
|
987,993
|
|
(1) Includes interest of US$15.2 million accrued at the interest rate under the loan agreements. For borrowings with a floating rate, the most recent rate as of June 30, 2016 was applied.
(2) On February 4, 2014, Favor Sea (BVI), a wholly owned subsidiary of the Company, issued US$150,000,000 aggregate principal amount of 11.75% Guaranteed Senior Notes due 2019 with issuance price of 99.080% (the "Notes"). The Notes bear interest at a rate of 11.75% per annum, payable on February 4 and August 4 of each year, commencing August 4, 2014. The Notes will be redeemed on August 29, 2016 in advance at a redemption amount of approximately US$165,285,000.
(3) Sichuan plant construction and equipment
On March 8, 2013, Xinda Holding (HK) Company Limited ("Xinda Holding (HK)") entered into an investment agreement with Shunqing Government, pursuant to which Xinda Holding (HK) will invest RMB1.8 billion in property, plant and equipment and approximately RMB0.6 billion in working capital, for the construction of Sichuan plant. As of June 30, 2016, the Company has a remaining commitment of RMB88.9 million (equivalent to US$13.4 million) mainly for facility construction, and RMB17.9 million (equivalent to US$2.7 million) for the acquisition of equipment.
(4) Dubai plant construction and equipment
On January 5, 2015, AL Composites entered into an equipment purchase contract with Peaceful for a total consideration of US$271.2 million to purchase certain production and testing equipment. As of June 30, 2016, the Company has a remaining commitment of US$5.9 million for the remaining equipment acquisition. On April 28, 2015, AL Composites entered into a warehouse construction contract with Falcon Red Eye Contracting Co. L.L.C. for a total consideration of AED6.7 million (equivalent to US$1.8 million). As of June 30, 2016, the Company has a remaining commitment of US$0.9 million. On June 28, 2016, AL Composites entered into a plant purchasing contract with Bagader Trading Est for a total consideration of ADE45.0 million (equivalent to US$12.3 million). As of June 20, 2016, the Company has a remaining commitment of US$11.0 million.
(5) Xinda Group equipment
As of June 30, 2016, Xinda Group has a remaining commitment of RMB9.7 million (equivalent to US$1.5 million) for the acquisition of equipment.
Legal Proceedings
The Company and certain of its officers and directors have been named as defendants in two putative securities class action lawsuits filed in the United States District Court for the Southern District of New York. These actions, which allege violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, were filed on July 15, 2014 and July 16, 2014 and are captioned Yang v. Han, et al., No. 14-cv-5308 (GBD) and Tompkins v. China XD Plastics Company Ltd., et al., No. 14-cv-5359 (GBD), respectively. On November 21, 2014, the Court consolidated the actions and appointed lead plaintiffs. On February 17, 2015, the lead plaintiffs filed a Consolidated Class Action Complaint on behalf of a class of all persons other than the defendants who purchased the common stock of China XD Plastics Company Limited between March 25, 2014 and July 10, 2014, both dates inclusive. Specifically, the lead plaintiffs allege that the Company and two of its officers made false or misleading statements and/or omitted material facts in the Company's Form 10-K for the year ended December 31, 2013 and the Company's Form 10-Q for the first quarter ended March 31, 2014. They also assert that the individual defendants are liable because they allegedly controlled the Company during the time the allegedly false and misleading statements and omissions were made. The lead plaintiffs seek damages in unspecified amounts. On April 3, 2015, the Company moved to dismiss the Consolidated Class Action Complaint. On March 23, 2016, the Court entered an Opinion and Order dismissing the Consolidated Class Action Complaint without prejudice. On May 6, 2016, plaintiffs moved the Court for leave to amend the Complaint. On June 24, 2016, the Company filed its opposition to the plaintiffs' motion. The plaintiffs' reply to the Company's opposition is due August 8, 2016. Management believes the proposed amendment is without merit and intends to vigorously defend against it.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet transactions.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
Interest Rate Risk
We are exposed to interest rate risk primarily with respect to our short-term loans, long-term bank loans, notes payable, cash and cash equivalents, restricted cash and time deposits. Although the interest rates, which are based on the banks' prime rates are fixed for the terms of the loans and deposits, increase in interest rates will increase our interest expense.
A hypothetical 1.0% increase in the annual interest rate for all of our credit facilities under which we had outstanding borrowings as of June 30, 2016 would decrease income before income taxes by approximately US$3.3 million for the six-month ended June 30, 2016. Management monitors the banks' prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.
Foreign Currency Exchange Rates
The majority of our revenues are collected in and our expenses are paid in RMB. We face foreign currency rate translation risks when our results are translated to U.S. dollars.
The RMB was relatively stable against the U.S. dollar at approximately 8.28 RMB to the US$1.00 until July 21, 2005 when the Chinese currency regime was altered resulting in a 2.1% revaluation versus the U.S. dollar. From July 21, 2005 to June 30, 2010, the RMB exchange rate was no longer linked to the U.S. dollar but rather to a basket of currencies with a 0.3% margin of fluctuation resulting in further appreciation of the RMB against the U.S. dollar. Since June 30, 2009, the exchange rate had remained stable at 6.8307 RMB to 1.00 U.S. dollar until June 30, 2010 when the People's Bank of China allowed a further appreciation of the RMB by 0.43% to 6.798 RMB to 1.00 U.S. dollar. The People's Bank of China allowed the RMB and U.S. dollar exchange rate to fluctuate within 1% on April 16, 2012 and 2% on March 17, 2014, respectively. On June 30, 2016, the RMB traded at 6.6312 RMB to 1.00 U.S. dollar.
There remains international pressure on the Chinese government to adopt an even more flexible currency policy and the exchange rate of RMB is subject to changes in China's government policies which are, to a large extent, dependent on the economic and political development both internationally and locally and the demand and supply of RMB in the domestic market. There can be no assurance that such exchange rate will continue to remain stable in the future amongst the volatility of currencies, globalization and the unstable economies in recent years. Since (i) our revenues and net income of our PRC operating entities are denominated in RMB, and (ii) the payment of dividends, if any, will be in U.S. dollars, any decrease in the value of RMB against U.S. dollars would adversely affect the value of the shares and dividends payable to shareholders, in U.S. dollars.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company’s management has evaluated, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operations of the Company’s disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)), as of the end of the period covered by this report. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective because of material weakness in our internal control over financial reporting as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Notwithstanding management’s assessment that our internal control over financial reporting was ineffective as of December 31, 2015 due to one material weakness as identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, we believe that our unaudited condensed consolidated financial statements included in this Quarterly Report present fairly our financial position, results of operations and cash flows for the quarter ended June 30, 2016 in all material respects.
(b) Changes in internal controls.
During the six-month ended June 30, 2016, our efforts to improve our internal controls over financial reporting include (1) recruiting qualified accounting staff in Xinda Beijing Investment with requisite expertise and knowledge to help improve our internal control procedures, (2) adopting procedures to evaluate and assess performance of directors, officers and employees of the Company, (3) internal meetings, discussions, trainings and seminars periodically to review and improve our internal control procedures. We plan to improve on the above-referenced weakness by the end of the fiscal year ending December 31, 2016.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and certain of its officers and directors have been named as defendants in two putative securities class action lawsuits filed in the United States District Court for the Southern District of New York. These actions, which allege violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934, were filed on July 15, 2014 and July 16, 2014 and are captioned Yang v. Han, et al., No. 14-cv-5308 (GBD) and Tompkins v. China XD Plastics Company Ltd., et al., No. 14-cv-5359 (GBD), respectively. On November 21, 2014, the Court consolidated the actions and appointed lead plaintiffs. On February 17, 2015, the lead plaintiffs filed a Consolidated Class Action Complaint on behalf of a class of all persons other than the defendants who purchased the common stock of China XD Plastics Company Limited between March 25, 2014 and July 10, 2014, both dates inclusive. Specifically, the lead plaintiffs allege that the Company and two of its officers made false or misleading statements and/or omitted material facts in the Company's Form 10-K for the year ended December 31, 2013 and the Company's Form 10-Q for the first quarter ended March 31, 2014. They also assert that the individual defendants are liable because they allegedly controlled the Company during the time the allegedly false and misleading statements and omissions were made. The lead plaintiffs seek damages in unspecified amounts. On April 3, 2015, the Company moved to dismiss the Consolidated Class Action Complaint. On March 23, 2016, the Court entered an Opinion and Order dismissing the Consolidated Class Action Complaint without prejudice. On May 6, 2016, plaintiffs moved for leave to amend the Complaint. On June 24, 2016, the Company filed its opposition to the plaintiffs' motion. The plaintiffs' reply to the Company's opposition is due August 8, 2016. Management believes the proposed amendment is without merit and will continue to vigorously defend against it.
Item 1A. Risk Factors
Part I. Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2015 includes a detailed discussion of risks and uncertainties which could adversely affect our future results. We operate in a changing environment that involves numerous known and unknown risks and uncertainties that could materially affect our operations. The risks, uncertainties and other factors set forth in our Annual Report on Form 10-K may cause our actual results, performances and achievements to be materially different from those expressed or implied by our forward-looking statements. If any of these risks or events occurs, our business, financial condition or results of operations may be adversely affected. Except as set forth below, during the six months ended June 30, 2016, there have been no material changes to the Risk Factors disclosed in "Part I. Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
The redemption of our senior notes may have adverse effects on our results of operations, financial condition and/or liquidity.
On February 5, 2014, the Company's wholly owned subsidiary, Favor Sea Limited (the "Note Issuer"), completed the sale of US$150 million in aggregate principal amount of 11.75% guaranteed senior notes due on February 4, 2019 (the "Notes"). The Notes are guaranteed on a senior basis by the Company (the "Parent Guarantor") and Xinda Holding (HK) Company Limited, a subsidiary wholly owned by the Note Issuer (the "Subsidiary Guarantor") and secured by a pledge of the shares of the Note Issuer and the Subsidiary Guarantor. On June 30, 2016, the Company announced to redeem all of the 11.75% guaranteed senior notes due on February 4, 2019 (the "Notes") outstanding on August 29, 2016 (the “Redemption Date”) at redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium (as defined in the Indenture) as of the Redemption Date (the “Redemption Price”) plus accrued and unpaid interest up to (but not including) the Redemption Date. The redemption may result in our incurring substantial costs and the diversion of our resources, which may have a material adverse effect on our results of operations, financial condition and/or liquidity.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit
No.
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Document Description
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31.1
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Certification of the Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
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32.2
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Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
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101
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Interactive Data Files Pursuant to Rule 405 of Regulation S-T.
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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.
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China XD Plastics Company Limited
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Date: August 5, 2016
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By:
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/s/ Jie Han
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Name: Jie Han
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Title: Chief Executive Officer
(Principal Executive Officer)
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Date: August 5, 2016
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By:
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/s/ Taylor Zhang
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Name: Taylor Zhang
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Title: Chief Financial Officer
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Exhibit Index
Exhibit
No.
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Document Description
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31.1
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Certification of the Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
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32.2
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Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
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101
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Interactive Data Files Pursuant to Rule 405 of Regulation S-T.
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34