Note 10– Income tax
Pursuant to an approval from the local tax authority in July 2013, Sichuan Xinda, 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, Dubai Xinda, a subsidiary of China XD, is exempted from income taxes.
The effective income tax rates for the six-month periods ended June 30, 2017 and 2016 were 16.8% and 18.0%, respectively. The effective income tax rate reduced from 18.0% for the six-month period ended June 30, 2016 to 16.8% for the six-month period ended June 30, 2017, primarily due to a greater portion of the profit generated by Sichuan Xinda which enjoys preferential tax rate and the increase of super deduction of R&D expense. The effective income tax rate for the six-month period ended June 30, 2017 differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate difference on various subsidiaries not subject to the PRC statutory income tax rate.
As of June 30, 2017, the unrecognized tax benefits were US$29,472,797 and the interest relating to unrecognized tax benefits was US$7,704,366, of which the unrecognized tax benefits in 2012 amounting to US$2,830,792 and related accrued interest amounting to US$2,091,955 was classified as current liabilities due to that the five-year tax assessment period will expire on May 31, 2018. 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 11 – 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, extended to the Company RMB350 million (equivalent to US$51.7 million) to support the construction of the Sichuan plant, which has been received in full in the form of government repayment of bank loans on behalf of the Company.
In addition, the Company has received RMB159.8 million (equivalent to US$23.6 million) from Shunqing Government and RMB6.4 million (equivalent to US$0.9 million) from Ministry of Finance of the People's Republic of China to support the construction and RMB2.2 million (equivalent to US$0.3 million) special funds of ministerial key research projects from Ministry of Science and Technology of PRC as of June 30, 2017.
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.
The Sichuan factory has been operational since July 2016. A cumulative RMB24.8 million (equivalent to US$3.7 million) government grants have been amortized as other income proportionate to the depreciation of the related assets, of which RMB15.3 million (equivalent to US$2.2 million) was amortized in the six-month period ended June 30, 2017.
The Company also received RMB36 million (equivalent to US$5.3 million) from Shunqing Government with respect to interest subsidy for future bank. A cumulative RMB16.4 million (equivalent to US$2.4 million) government grants have been amortized as other income in line with the amount of related loan interest paid, of which RMB1.4 million (equivalent to US$0.2 million) was amortized in the six-month period ended June 30, 2017.
Note 12 – Other non-current liabilities
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
US$
|
|
US$
|
|
|
|
|
|
|
Income tax payable-noncurrent (i)
|
|
|
32,254,416
|
|
|
|
31,602,314
|
|
Deferred income tax liabilities
|
|
|
10,038,224
|
|
|
|
10,818,305
|
|
Total other non-current liabilities
|
|
|
42,292,640
|
|
|
|
42,420,619
|
|
(i) Income tax payable-noncurrent represents the cumulative balance of unrecognized tax benefits since 2013 and related accrued interest. As the five-year tax assessment period for unrecognized tax benefits occurred in 2012 will expire on May 31, 2018, so unrecognized tax benefits occurred in 2012 and related accrued interest amounting to RMB19.2 million (equivalent to US$2.8 million) and RMB14.2 million (equivalent to US$2.1 million), respectively, were classified as current liabilities.
Note 13 – Stockholders' equity
The changes of each caption of stockholders' equity for the six-month period ended June 30, 2017 are as follows:
|
|
Series B Preferred Stock
|
|
|
Common Stock
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
Other
|
|
|
Total
|
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Number
of Shares
|
|
|
Amount
|
|
|
Treasury Stock
|
|
|
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Comprehensive
Income
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
US$
|
|
|
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2017
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,511,541
|
|
|
|
4,952
|
|
|
|
(92,694
|
)
|
|
|
82,606,404
|
|
|
|
617,168,735
|
|
|
|
(65,427,831
|
)
|
|
|
634,259,666
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,964,981
|
|
|
|
-
|
|
|
|
37,964,981
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,669,664
|
|
|
|
17,669,664
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
347,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
347,046
|
|
Vesting of nonvested shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance as of June 30, 2017
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
49,511,541
|
|
|
|
4,952
|
|
|
|
(92,694
|
)
|
|
|
82,953,450
|
|
|
|
655,133,716
|
|
|
|
(47,758,167
|
)
|
|
|
690,241,357
|
|
Note 14 – Stock based compensation
Nonvested shares
A summary of the nonvested shares activity for the six-month ended June 30, 2017 is as follows:
|
|
Number of Nonvested
Shares
|
|
|
Weighted Average
Grant date Fair Value
|
|
|
|
|
US$
|
|
Outstanding as of December 31, 2016
|
|
|
402,210
|
|
|
|
6.10
|
|
Forfeited
|
|
|
(24,910
|
)
|
|
|
5.60
|
|
Outstanding as of June 30, 2017
|
|
|
377,300
|
|
|
|
6.13
|
|
The Company recognized US$181,688 and US$248,244 of share-based compensation expense in general and administration expenses relating to nonvested shares for the three-month periods ended June 30, 2017 and 2016, respectively, and US$347,046 and US$470,424 of share-based compensation expense in general and administration expenses relating to nonvested shares for the six-month periods ended June 30, 2017 and 2016, respectively. As of June 30, 2017, there was US$398,782 total unrecognized compensation cost relating to nonvested shares, which is to be recognized over a weighted average period of 0.53 years.
Note 15 - Earnings per share
Basic and diluted earnings per share are calculated as follows:
|
|
Three-Month Period Ended June 30,
|
|
|
Six-Month Period Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
|
US$
|
|
Net income
|
|
|
28,063,992
|
|
|
|
33,355,774
|
|
|
|
37,964,981
|
|
|
|
44,713,124
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings allocated to participating Series D convertible preferred stocks
|
|
|
(6,814,870
|
)
|
|
|
(8,088,078
|
)
|
|
|
(9,219,142
|
)
|
|
|
(10,843,682
|
)
|
Earnings allocated to participating nonvested shares
|
|
|
(160,703
|
)
|
|
|
(292,624
|
)
|
|
|
(217,469
|
)
|
|
|
(395,191
|
)
|
Net income for basic and diluted earnings per share
|
|
|
21,088,419
|
|
|
|
24,975,072
|
|
|
|
28,528,370
|
|
|
|
33,474,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic and diluted earnings per share
|
|
|
49,511,541
|
|
|
|
49,406,191
|
|
|
|
49,511,541
|
|
|
|
49,391,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
0.43
|
|
|
|
0.51
|
|
|
|
0.58
|
|
|
|
0.68
|
|
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, 2017 and 2016 because their effects are anti-dilutive:
|
Three-Month Period Ended June 30,
|
|
Six-Month Period Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Shares issuable upon conversion of Series D convertible preferred stocks
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
|
|
16,000,000
|
|
Note 16 - Commitments and contingencies
(1) Lease commitments
Future minimum lease payments under non-cancellable operating leases agreements as of June 30, 2017 were as follows.
|
|
US$
|
|
Period from July 1, 2017 to December 31, 2017
|
|
|
807,056
|
|
Years ending December 31,
|
|
|
|
|
2018
|
|
|
1,305,429
|
|
2019
|
|
|
255,127
|
|
2020
|
|
|
166,317
|
|
2021
|
|
|
102,881
|
|
2022 and thereafter
|
|
|
797,325
|
|
Rental expenses incurred for operating leases of plant and office spaces were US$894,643 and US$449,002 for the three-month periods ended June 30, 2017 and 2016, respectively, and US$1,554,993 and US$844,058 for the six-month periods ended June 30, 2017 and 2016, 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 purchase
On March 8, 2013, 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, 2017, the Company has a remaining commitment of RMB63.9 million (equivalent to US$9.4 million) mainly for facility construction.
In September 2016, Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB17.0 million (equivalent to US$2.5 million) to purchase storage facility and testing equipment. Afterward, Sichuan Xinda cancelled two contracts with Hailezi for a consideration of RMB1.6 million (equivalent to US$0.2 million). As of June 30, 2017, Sichuan Xinda prepaid RMB6.0 million (equivalent to US$0.9 million) and has a remaining commitment of RMB9.4 million (equivalent to US$1.4 million).
On October 20, 2016, Sichuan Xinda entered into an equipment purchase agreement
purchase contract with Peaceful for a total consideration of RMB89.8 million (equivalent to US$13.3 million) to purchase certain production and testing equipment. As of June 30, 2017, the Company has a commitment of
RMB55.9 million (equivalent to
US$8.3 million).
On November 15, 2016, Sichuan Xinda entered into decoration contract with Beijin Construction to perform indoor and outdoor decoration work for a consideration of RMB237.6 million (equivalent to US$35.0 million). On February 20, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction to perform outdoor decoration work for a consideration of RMB2.9 million (equivalent to US$0.4 million). On June 10, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction to perform ground decoration work for a consideration of RMB23.8 million (equivalent to US$3.5 million). As of June 30, 2017, Sichuan Xinda prepaid RMB117.3 million (equivalent to US$17.3 million) of which RMB5.5 million (equivalent to US$0.9 million) was transferred to construction in progress and has a remaining commitment of RMB147.0 million (equivalent to US$21.6 million).
In connection with the Nanchong Project mentioned in Note 6 (i), Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB2,242.8 million (equivalent to US$331.1 million) to purchase production equipment and testing equipment in March 2017. By the end of June 2017, Sichuan Xinda expected to launch an integrated ERP system, which resulted in the equipment to be purchased under the original contracts with Hailezi not meeting the production requirements. Thus the original contracts have been terminated with the amount of RMB2,222.9 million (equivalent to US$328.1 million), and Hailezi agreed to refund the prepayment in the amount of RMB1,704.9 million (equivalent to US$251.7 million) by the end of March 2018, out of the total prepayment made by Sichuan Xinda of RMB1,722.9 million (equivalent to US$254.3 million). As of June 30, 2017, Sichuan Xinda prepaid RMB18.0 million (equivalent to US$2.6 million) and has a remaining commitment of RMB1.9 million (equivalent to US$0.4 million).
(3) Heilongjiang plant construction and equipment purchase
On September 26, 2016 and February 28, 2017, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi for a total consideration of RMB782.2 million (equivalent to US$115.5 million) to purchase storage facility and other equipment. Due to a redesign of outdoor storage facility in June 2017,
HLJ Xinda Group
entered into a supplementary agreement with Hailezi, which decreased the original contracts amounts to RMB 283.7 million (equivalent to US$41.9 million). Hailezi refunded RMB369.1 million (equivalent to US$54.5 million) to
HLJ Xinda Group
on June 22, 2017. As of June 30, 2017, HLJ Xinda Group has a remaining commitment of RMB31.2 million (equivalent to US$4.6 million).
(4) Dubai plant construction and equipment
On April 28, 2015, Dubai Xinda 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, 2017, the Company has a remaining commitment of AED3.3 million (equivalent to US$0.9 million).
(5) Xinda Beijing Investment office building decoration
On March 30, 2017, Xinda CI (Beijing) Investment Holding Co., Ltd. ("Xinda Beijing Investment") entered into a decoration contract with Beijing Fangyuan Decoration Engineering Co., Ltd for a total consideration of RMB5.8 million (equivalent to US$0.8 million) to decorate office building. As of June 30, 2017, the decoration work in the amount of RMB1.4 million (equivalent to US$0.2 million) was recorded in construction in progress. As of June 30, 2017, the Company has a remaining commitment of RMB4.4 million (equivalent to US$0.6 million).
On June 9, 2017, Xinda Beijing Investment entered into a decoration contract with Beijing Zhonghongwufang Stone Co., Ltd for a total consideration of RMB1.2 million (equivalent to US$0.2 million) to decorate office building. As of June 30, 2017, the decoration work in the amount of RMB0.6 million (equivalent to US$0.1 million) was recorded in construction in progress. As of June 30, 2017, the Company has a remaining commitment of RMB0.6 million (equivalent to US$0.1 million).
(6) 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 Consolidated Class Action Complaint without prejudice. On May 6, 2016, the lead plaintiffs moved the Court for leave to amend the Consolidated Class Action Complaint. On June 24, 2016, the Company filed its opposition to the lead plaintiffs’ motion. On August 8, 2016, in conjunction with filing the reply brief in support of their motion, the lead plaintiffs moved to strike certain documents referred to in the Company’s opposition. The Company filed its opposition to the lead plaintiffs’ motion to strike on September 16, 2016. On March 8, 2017, the Court entered an Order in the Company’s favor denying the lead plaintiffs’ motion for leave to amend and denying the lead plaintiffs’ motion to strike. The time for the lead plaintiffs to appeal the dismissal of their lawsuits has expired. In accordance with ASC Topic 450, no loss contingency was accrued as of June 30, 2017 since the lawsuit has been dismissed.
Note 17 - Subsequent events
On July 21, 2017, Heilongjiang Xinda Enterprise Group Company Limited (“HLJ Xinda Group) entered into three investment agreements with the Management Committee of Harbin Economic- Technological Development Zone with respect to the industrial project for 300,000 metric tons of biological composite materials, the industrial project for upgrading existing equipment for 100,000 metric tons of engineering plastics and the industrial project for a 3D printing intelligent manufacture demonstration factory and a 3D printing display and experience cloud factory (the "HLJ Project"). This Project will help the Company to expand its product mix into bio-based composites, 3D printing materials and functional masterbatch materials while maintaining our traditional petroleum-based materials, paving the path to non-auto applications and further diversifying the company's business as a key element of the Company's strategic plan. Pursuant to three investment agreements, HLJ Xinda Group will invest RMB 4,015 million (equivalent to be US$592.7 million), among which the investment in fixed assets shall be no less than RMB3,295 million (equivalent to US$486.4 million) in total.
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 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 420 certifications from manufacturers in the automobile industry as of June 30, 2017. 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 381 professionals and 8 consultants. As a result of the integration of our academic and technological expertise, we have a portfolio of 441 patents, 33 of which we have obtained the patent rights and the remaining 408 of which we have applications pending in China as of June 30, 2017.
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 29 automobile brands and 92 automobile models manufactured in China, including Audi, Mercedes Benz, BMW, Toyota, Buick, Chevrolet, Mazda, Volvo, Ford, Citroen, Jinbei, VW Passat, Golf, Jetta, etc. 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, 2017, HLJ Xinda Group 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, mainly backed by production capacity in our Harbin production plant till we installed 50 production lines with production capacity of 216,000 metric tons in the second half of 2016 in our Sichuan plant. As of June 30, 2017, there is still construction ongoing on the site of our Sichuan plant which is to be expected to be completed by the end of the first quarter of 2018.
In order to meet the increasing demand from our customer in the ROK and to develop potential overseas markets, Dubai Xinda obtained one leased property and two purchased properties, approximately 52,530 square meters in total, including one leased 10,000 square meters, and two purchased 20,206 and 22,324 square meters on January 25, 2015, June 28, 2016 and September 21, 2016, respectively, from Jebel Ali Free Zone Authority ("JAFZA") in Dubai, UAE, with constructed building comprising warehouses, offices and service blocks. In addition to the earlier 10 trial production lines in Dubai Xinda, the Company is planning to complete installing 45 production lines with 12,000 metric tons of annual production capacity by first quarter of 2018, and an additional 50 production lines with 13,000 metric tons of annual production capacity by end of second quarter of 2018, bringing total installed production capacity in Dubai Xinda to 25,000 metric tons, targeting high-end products for the overseas market.
Highlights for the three months ended June 30, 2017 include:
● Revenues were $313.6 million, an increase of 13.2% from $277.1 million in the second quarter of 2016
● Gross profit was $63.1 million, a increase of 4.6% from $60.3 million in the second quarter of 2016
● Gross profit margin was 20.1%, compared to 21.8% in the second quarter of 2016
● Net income was $28.1 million, compared to $33.3 million in the second quarter of 2016
● Total volume shipped was 104,617 metric tons, up 17.0% from 89,403 metric tons in the second quarter of 2016
Results of Operations
The following table sets forth, for the periods indicated, statements of income data in thousands of USD:
(in millions, except percentage)
|
|
Three-Month Period Ended
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Change
|
|
|
June 30,
|
|
|
Change
|
|
|
|
2017
|
|
|
2016
|
|
|
%
|
|
|
2017
|
|
|
2016
|
|
|
%
|
|
Revenues
|
|
|
313.6
|
|
|
|
277.1
|
|
|
|
13.2
|
%
|
|
|
551.4
|
|
|
|
492.2
|
|
|
|
12.0
|
%
|
Cost of revenues
|
|
|
(250.5
|
)
|
|
|
(216.8
|
)
|
|
|
15.5
|
%
|
|
|
(453.5
|
)
|
|
|
(397.0
|
)
|
|
|
14.2
|
%
|
Gross profit
|
|
|
63.1
|
|
|
|
60.3
|
|
|
|
4.6
|
%
|
|
|
97.9
|
|
|
|
95.2
|
|
|
|
2.8
|
%
|
Total operating expenses
|
|
|
(19.1
|
)
|
|
|
(12.9
|
)
|
|
|
48.1
|
%
|
|
|
(32.5
|
)
|
|
|
(23.2
|
)
|
|
|
40.1
|
%
|
Operating income
|
|
|
44.0
|
|
|
|
47.4
|
|
|
|
(7.2
|
)%
|
|
|
65.4
|
|
|
|
72.0
|
|
|
|
(9.2
|
)%
|
Income before income taxes
|
|
|
32.2
|
|
|
|
38.6
|
|
|
|
(16.6
|
)%
|
|
|
45.7
|
|
|
|
54.5
|
|
|
|
(16.1
|
)%
|
Income tax expense
|
|
|
(4.1
|
)
|
|
|
(5.3
|
)
|
|
|
(22.6
|
)%
|
|
|
(7.7
|
)
|
|
|
(9.8
|
)
|
|
|
(21.4
|
)%
|
Net income
|
|
|
28.1
|
|
|
|
33.3
|
|
|
|
(15.6
|
)%
|
|
|
38.0
|
|
|
|
44.7
|
|
|
|
(15.0
|
)%
|
Three months ended June 30, 2017 compared to three months ended June 30, 2016
Revenues
Revenues were US$313.6 million in the second quarter ended June 30, 2017, an increase of US$36.5 million, or 13.2%, compared to US$277.1 million in the same period of last year,
as a result of an increase of 17.0% in sales volume, an increase of 1.8% in the average RMB selling price of our products, and 5.0% negative impact from exchange rate due to weakening RMB against US dollars, as compared with those of last year.
According to the China Association of Automobile Manufacturers, Automobile production in China increased by 4.6% for the first six months of 2017 as compared to the same period of 2016. An improvement in macroeconomic conditions since 2016 has improved business conditions. Driven by increased growth of 166.2% in Central China, 76.7% in Southwest China, 49.1% in South China, 22.1% in North China, 7.7% in East China, and 5.1% in Northeast China, domestic sales during the second quarter of 2017 increased by 16.2% as compared to the same period of the prior year.
As for the RMB selling price, the increase was mainly due to more sales of higher end product of modified PA66, Plastic Alloy, PLA and PPO in China.
Overseas sales were US$33.0 million in the second quarter of 2017 compared to US$35.7 million in the same period of the prior year. The ROK customer has an outstanding balance of US$65.1 million, among which balance of US$31.9 million was overdue as of June 30, 2017. The ROK customer has made payment of US$42.5 million in the first half year of 2017 and expect to pay off the outstanding balance in the third quarter of 2017.
The following table summarizes the breakdown of revenues by categories in millions of US$:
(in millions, except percentage)
|
|
Revenues
For the Three-Month Period Ended June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Plastic Alloy
|
|
|
101.9
|
|
|
|
32.5
|
%
|
|
|
99.8
|
|
|
|
36
|
%
|
|
|
2.1
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 66 (PA66)
|
|
|
75.4
|
|
|
|
24.0
|
%
|
|
|
60.4
|
|
|
|
21.8
|
%
|
|
|
15.0
|
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
59.4
|
|
|
|
18.9
|
%
|
|
|
59.5
|
|
|
|
21.5
|
%
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
49.8
|
|
|
|
15.9
|
%
|
|
|
43.1
|
|
|
|
15.6
|
%
|
|
|
6.7
|
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polylactic acid (PLA)
|
|
|
12.0
|
|
|
|
3.8
|
%
|
|
|
0.1
|
|
|
|
0.0
|
%
|
|
|
11.9
|
|
|
|
11,900.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
8.1
|
|
|
|
2.7
|
%
|
|
|
10.0
|
|
|
|
3.6
|
%
|
|
|
(1.9
|
)
|
|
|
(19.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
4.8
|
|
|
|
1.5
|
%
|
|
|
2.8
|
|
|
|
1.0
|
%
|
|
|
2.0
|
|
|
|
71.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
2.2
|
|
|
|
0.7
|
%
|
|
|
0.9
|
|
|
|
0.3
|
%
|
|
|
1.3
|
|
|
|
144.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
0.0
|
|
|
|
0
|
%
|
|
|
0.5
|
|
|
|
0.2
|
%
|
|
|
(0.5
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
313.6
|
|
|
|
100
|
%
|
|
|
277.1
|
|
|
|
100
|
%
|
|
|
36.5
|
|
|
|
13.2
|
%
|
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,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change in
|
|
|
Change in
|
|
|
|
MT
|
|
|
%
|
|
|
MT
|
|
|
%
|
|
|
MT
|
|
|
%
|
|
Modified Polypropylene (PP)
|
|
|
30,893
|
|
|
|
29.5
|
%
|
|
|
24,242
|
|
|
|
27.1
|
%
|
|
|
6,651
|
|
|
|
27.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
30,483
|
|
|
|
29.1
|
%
|
|
|
28,131
|
|
|
|
31.5
|
%
|
|
|
2,352
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
18,821
|
|
|
|
18.0
|
%
|
|
|
16,953
|
|
|
|
19.0
|
%
|
|
|
1,868
|
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 66 (PA66)
|
|
|
17,982
|
|
|
|
17.3
|
%
|
|
|
14,804
|
|
|
|
16.5
|
%
|
|
|
3,178
|
|
|
|
21.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
3,738
|
|
|
|
3.6
|
%
|
|
|
4,102
|
|
|
|
4.6
|
%
|
|
|
(364
|
)
|
|
|
(8.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLA
|
|
|
1,183
|
|
|
|
1.1
|
%
|
|
|
10
|
|
|
|
0.0
|
%
|
|
|
1,173
|
|
|
|
11,730.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
765
|
|
|
|
0.7
|
%
|
|
|
420
|
|
|
|
0.5
|
%
|
|
|
345
|
|
|
|
82.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
752
|
|
|
|
0.7
|
%
|
|
|
280
|
|
|
|
0.3
|
%
|
|
|
472
|
|
|
|
168.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
0.0
|
|
|
|
0.0
|
%
|
|
|
461
|
|
|
|
0.5
|
%
|
|
|
(461
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales Volume
|
|
|
104,617
|
|
|
|
100
|
%
|
|
|
89,403
|
|
|
|
100
|
%
|
|
|
15,214
|
|
|
|
17.0
|
%
|
The Company continued to shift production mix from traditional ABS to higher-end products such as PA66, POM, PLA 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 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)
|
2017
|
|
2016
|
|
Amount
|
|
|
%
|
|
Gross Profit
|
|
$
|
63.1
|
|
|
$
|
60.3
|
|
|
$
|
2.8
|
|
|
|
4.6
|
%
|
Gross Profit Margin
|
|
|
20.1
|
%
|
|
|
21.8
|
%
|
|
|
|
|
|
|
(1.7
|
)%
|
Gross profit was US$63.1 million in the second quarter ended June 30, 2017, compared to US$60.3 million in the same period of 2016. Our gross margin decreased to 20.1% during the second quarter ended June 30, 2017 from 21.8% during the same quarter of 2016 primarily due to the lower gross margin of higher-end products in domestic market for the second quarter ended June 30, 2017 as compared to that of the prior year.
General and Administrative Expenses
|
Three-Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2017
|
|
2016
|
|
Amount
|
|
|
%
|
|
General and Administrative Expenses
|
|
$
|
8.8
|
|
|
$
|
6.6
|
|
|
$
|
2.2
|
|
|
|
33.3
|
%
|
as a percentage of revenues
|
|
|
2.8
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
0.4
|
%
|
General and administrative (G&A) expenses were US$8.8 million for the quarter ended June 30, 2017 compared to US$6.6 million in the same period in 2016, representing an increase of 33.3%, or US$2.2 million. This increase is primarily due to the increase of (i) US$1.3 million in salary and welfare which was resulted from the increase in the number of management and general staff from supporting departments and in the average salary and bonus; (ii) US$0.3 million in professional fee; (iii) US$0.2 million in depreciation and amortization; (iv) US$0.1 million in taxation and (v) US$0.1 million in rental fee.
Research and Development Expenses
|
Three–Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2017
|
|
2016
|
|
Amount
|
|
|
%
|
|
Research and Development Expenses
|
|
$
|
9.5
|
|
|
$
|
5.9
|
|
|
$
|
3.6
|
|
|
|
61.0
|
%
|
as a percentage of revenues
|
|
|
3.0
|
%
|
|
|
2.1
|
%
|
|
|
|
|
|
|
0.9
|
%
|
Research and development (R&D) expenses were US$9.5 million during the quarter ended June 30, 2017 compared with US$5.9 million during the same period in 2016, an increase of US$3.6 million, or 61.0%. This increase was primarily
due to (i) elevated R&D activities to meet the higher quality requirements of potential customers from Europe mainly engaged in automobile accessories industry; (ii) increased efforts directed towards applications in new electrical equipment and electronics, alternative energy applications, power devices, aviation equipment and ocean engineering, in addition to other new products primarily for advanced industrialized applications in the automobile sector and in new verticals such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices; and (iii) an increase in depreciation expenses after additional R&D equipment was put into use at Sichuan Xinda.
As of June 30, 2017, the number of ongoing research and development projects was
286
. 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$44.0 million in the second quarter ended June 30, 2017 compared to $47.4 million in the same period of 2016, representing a decrease of 7.2% or US$3.4 million. This decrease is primarily due to higher G&A expenses and higher R&D expenses.
Interest Income (Expenses)
|
|
Three-Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Interest Income
|
|
$
|
1.0
|
|
|
$
|
1.6
|
|
|
$
|
(0.6
|
)
|
|
|
(37.5
|
)%
|
Interest Expenses
|
|
|
(12.0
|
)
|
|
|
(10.6
|
)
|
|
|
(1.4
|
)
|
|
|
13.2
|
%
|
Net Interest Expenses
|
|
$
|
(11.0
|
)
|
|
$
|
(9.0
|
)
|
|
$
|
(2.0
|
)
|
|
|
22.2
|
%
|
as a percentage of revenues
|
|
|
(3.5
|
)%
|
|
|
(3.3
|
)%
|
|
|
|
|
|
|
(0.2
|
)%
|
Net interest expenses were US$11.0 million for the three-month period ended June 30, 2017, compared to $9.0 million in the same period of 2016, representing an increase of 22.2% or US$2.0 million, primarily
due to (i) the increase of interest expense due to the increase of average short-term and long-term loan balance in amount of US$849.0 million for the
three-month period ended June 30
, 2017 compared to US$496.6 million for the same period in 2016, which was partially offset by the decrease of weighted loan interest rate of 4.9% for the three-month period ended June 30, 2017 as compared to 5.2% of the same period of 2016.and (ii) a decrease of interest income resulting from the average interest rate decreased to 1.5% for
the three-month period ended June 30
, 2017 compared to 2.4 % of the same period in 2016, and the decrease of average deposit balance in the amount of US$266.9 million for the
three-month period ended June 30
, 2017 compared to US$409.6 million for the same period in 2016.
Income Taxes
|
|
Three-Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Income before Income Taxes
|
|
$
|
32.2
|
|
|
$
|
38.6
|
|
|
$
|
(6.4
|
)
|
|
|
(16.6
|
)%
|
Income Tax Expense
|
|
|
(4.1
|
)
|
|
|
(5.3
|
)
|
|
|
1.2
|
|
|
|
(22.6
|
)%
|
Effective income tax rate
|
|
|
12.8
|
%
|
|
|
13.6
|
%
|
|
|
|
|
|
|
(0.8
|
)%
|
The effective income tax rates for the three-month periods ended June 30, 2017 and 2016 were 12.8% and 13.6%, respectively. The decrease of effective income tax rate was primarily due to a greater portion of the profit generated by Sichuan Xinda which enjoys preferential tax rate and the increase of super deduction of R&D expense. The effective income tax rate for the three-month ended June 30, 2017 differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate difference on various subsidiaries not subject to the PRC statutory income tax rate.
Our PRC and Dubai subsidiaries have US$557.8 million of cash and cash equivalents, restricted cash and time deposits as of June 30, 2017, 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 Xinda in Dubai, UAE, on undistributed earnings.
Net Income
As a result of the above factors, we had a net income of US$28.1 million in the second quarter of 2017 compared to a net income of US$33.3 million in the same quarter of 2016.
Six months ended June 30, 2017 compared to six months ended June 30, 2016
Revenues
Revenues were US$551.4 million in the six-month period ended June 30, 2017, an increase of US$59.2 million, or 12.0%, compared with US$492.2 million in the same period of last year, due to approximately 14.4% increase in sales volume, 2.8%
increase in the average RMB selling price of our products, and 5.0% negative impact from exchange rate due to weakening RMB against US dollars, as compared with those of last year.
According to the China Association of Automobile Manufacturers, Automobile production in China increased by 4.6% for the first six months of 2017 as compared to the same period of 2016. An improvement in macroeconomic conditions since 2016 has improved business conditions. Driven by increased growth of 100.6% in Central China, 70.5% in South China, 53.0% in Southwest China and 18.4% in North China, and 6.8% in Northeast China, domestic sales during the six-month period ended June 30, 2017 increased by 13.6% as compared to the same period of the prior year.
As for the RMB selling price, the increase was mainly due to more sales of higher-end products in domestic market of PA66, PLA and PPO in China.
Overseas sales were US$33.0 million in H1 2017 compared to US$35.7 million in the same period of the prior year. The ROK customer has an outstanding balance of US$65.1 million, among which balance of US$31.9 million was overdue as of June 30, 2017. The ROK customer has made payment of US$42.5 million in the first half year of 2017 and expects to pay off the outstanding balance in the third quarter of 2017.
The following table summarizes the breakdown of revenues by categories in millions of US$:
(in millions, except percentage)
|
|
Revenues
For the Six-Month Period Ended June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
Modified Polyamide 66 (PA66)
|
|
|
140.1
|
|
|
|
25.4
|
%
|
|
|
111.3
|
|
|
|
22.6
|
%
|
|
|
28.8
|
|
|
|
25.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
164.6
|
|
|
|
29.9
|
%
|
|
|
159.8
|
|
|
|
32.5
|
%
|
|
|
4.8
|
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
117.0
|
|
|
|
21.2
|
%
|
|
|
110.6
|
|
|
|
22.4
|
%
|
|
|
6.4
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
87.8
|
|
|
|
15.9
|
%
|
|
|
83.0
|
|
|
|
16.9
|
%
|
|
|
4.8
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
14.5
|
|
|
|
2.6
|
%
|
|
|
18.6
|
|
|
|
3.8
|
%
|
|
|
(4.1
|
)
|
|
|
(22.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLA
|
|
|
12.1
|
|
|
|
2.2
|
%
|
|
|
0.1
|
|
|
|
0.0
|
%
|
|
|
12.0
|
|
|
|
12,000.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
10.6
|
|
|
|
1.9
|
%
|
|
|
6.2
|
|
|
|
1.3
|
%
|
|
|
4.4
|
|
|
|
71.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
4.7
|
|
|
|
0.9
|
%
|
|
|
1.7
|
|
|
|
0.3
|
%
|
|
|
3.0
|
|
|
|
176.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
0.0
|
|
|
|
0.0
|
%
|
|
|
0.9
|
|
|
|
0.2
|
%
|
|
|
(0.9
|
)
|
|
|
(100.0
|
)%
|
Total Revenues
|
|
|
551.4
|
|
|
|
100
|
%
|
|
|
492.2
|
|
|
|
100
|
%
|
|
|
59.2
|
|
|
|
12.0
|
%
|
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,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
MT
|
|
|
%
|
|
|
MT
|
|
|
%
|
|
|
Change in
MT
|
|
|
Change in
%
|
|
Modified Polyamide 66 (PA66)
|
|
|
32,590
|
|
|
|
17.2
|
%
|
|
|
27,044
|
|
|
|
16.3
|
%
|
|
|
5,546
|
|
|
|
20.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastic Alloy
|
|
|
55,003
|
|
|
|
28.9
|
%
|
|
|
50,915
|
|
|
|
30.6
|
%
|
|
|
4,088
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polyamide 6 (PA6)
|
|
|
36,825
|
|
|
|
19.4
|
%
|
|
|
31,773
|
|
|
|
19.1
|
%
|
|
|
5,052
|
|
|
|
15.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Polypropylene (PP)
|
|
|
54,321
|
|
|
|
28.6
|
%
|
|
|
46,419
|
|
|
|
27.9
|
%
|
|
|
7,902
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified Acrylonitrile butadiene styrene (ABS)
|
|
|
6,600
|
|
|
|
3.5
|
%
|
|
|
7,637
|
|
|
|
4.6
|
%
|
|
|
(1,037
|
)
|
|
|
(13.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLA
|
|
|
1,194
|
|
|
|
0.6
|
%
|
|
|
11
|
|
|
|
0.0
|
%
|
|
|
1,183
|
|
|
|
10,754.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyphenylene Oxide (PPO)
|
|
|
1,670
|
|
|
|
0.9
|
%
|
|
|
930
|
|
|
|
0.6
|
%
|
|
|
740
|
|
|
|
79.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Polyoxymethylenes (POM)
|
|
|
1,614
|
|
|
|
0.8
|
%
|
|
|
550
|
|
|
|
0.3
|
%
|
|
|
1,064
|
|
|
|
193.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
|
|
|
216
|
|
|
|
0.1
|
%
|
|
|
879
|
|
|
|
0.6
|
%
|
|
|
(663
|
)
|
|
|
(75.4
|
)%
|
Total Sales Volume
|
|
|
190,033
|
|
|
|
100
|
%
|
|
|
166,158
|
|
|
|
100
|
%
|
|
|
23,875
|
|
|
|
14.4
|
%
|
The Company continued to shift production mix from traditional ABS 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.
Gross Profit and Gross Profit Margin
|
Six-Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|
Gross Profit
|
|
$
|
97.9
|
|
|
$
|
95.2
|
|
|
$
|
2.7
|
|
|
|
2.8
|
%
|
Gross Profit Margin
|
|
|
17.8
|
%
|
|
|
19.3
|
%
|
|
|
|
|
|
|
(1.5
|
)%
|
Gross profit was US$97.9 million during the six months ended June 30, 2017, as compared to US$95.2 million in the same period of 2016. Our gross margin decreased to 17.8% during the six months ended June 30, 2017 from 19.3% during the same quarter of 2016 primarily due to the lower gross margin of higher-end products in domestic market during the six months ended June 30, 2017 as compared to that of the prior year.
General and Administrative Expenses
|
Six-Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
2017
|
|
2016
|
|
|
Amount
|
|
%
|
|
General and Administrative Expenses
|
|
$
|
15.9
|
|
|
$
|
11.7
|
|
|
$
|
4.2
|
|
|
|
35.9
|
%
|
as a percentage of revenues
|
|
|
2.9
|
%
|
|
|
2.4
|
%
|
|
|
|
|
|
|
0.5
|
%
|
General and administrative (G&A) expenses were US$15.9 million in the six-month period ended June 30, 2017 compared to US$11.7 million in the same period in 2016, representing an increase of 35.9%, or US$4.2 million. This increase is primarily due to the increase of (i) US$3.7 million in salary and welfare which was due to the increase in the number of management and general staff from supporting departments and in the average salary; (ii) US$0.3 million of depreciation and amortization.
Research and Development Expenses
|
Six-Month Period Ended June 30,
|
|
Change
|
|
(in millions, except percentage)
|
2017
|
|
2016
|
|
Amount
|
|
|
%
|
|
Research and Development Expenses
|
|
$
|
15.4
|
|
|
$
|
10.8
|
|
|
$
|
4.6
|
|
|
|
42.6
|
%
|
as a percentage of revenues
|
|
|
2.8
|
%
|
|
|
2.2
|
%
|
|
|
|
|
|
|
0.6
|
%
|
Research and development (R&D) expenses were US$15.4 million during for the six months ended June 30, 2017 compared with US$10.8 million during the same period in 2016, an increase of US$4.6 million, or 42.6%. This increase was primarily
due to (i) elevated research and development activities to meet the higher quality requirements of potential customers from Europe mainly engaged in automobile accessories industry; (ii) increased efforts directed towards applications in new electrical equipment and electronics, alternative energy applications, power devices, aviation equipment and ocean engineering, in addition to other new products primarily for advanced industrialized applications in the automobile sector and in new verticals such as ships, airplanes, high-speed rail, 3D printing materials, biodegradable plastics, and medical devices; and (iii) an increase in depreciation expenses after additional R&D equipment was put into use at Sichuan Xinda.
As of June 30, 2017, the number of ongoing research and development projects was
286
. 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$65.4 million for the six months ended June 30, 2017 compared to US$72.0 million in the same period of 2016, representing a decrease of 9.2% or US$6.6 million. This decrease is primarily due to higher G&A expenses and higher research and development expenses.
Interest Income (Expenses)
|
|
Six-Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Interest Income
|
|
$
|
2.1
|
|
|
$
|
3.2
|
|
|
$
|
(1.1
|
)
|
|
|
(34.4
|
)%
|
Interest Expenses
|
|
|
(22.0
|
)
|
|
|
(21.5
|
)
|
|
|
(0.5
|
)
|
|
|
0.2
|
%
|
Net Interest Expenses
|
|
$
|
(19.9
|
)
|
|
$
|
(18.3
|
)
|
|
$
|
(1.6
|
)
|
|
|
8.7
|
%
|
as a percentage of revenues
|
|
|
(3.6
|
)%
|
|
|
(3.7
|
)%
|
|
|
|
|
|
|
0.1
|
%
|
Net interest expenses were US$19.9 million for the six-month period ended June 30, 2017, compared to $18.3 million in the same period of 2016, representing an increase of 8.7% or US$1.6 million, primarily
due to (i) the increase of interest expense due to the increase of average short-term and long-term loan balance in amount of US$818.7 million for the
six-month period ended June 30
, 2017 compared to US$457.4 million for the same period in 2016, which was partially offset by the decrease of interest rate of 1.3% for the six-month period of 2017 as compared to 1.7% of the same period of 2016 and (ii) a decrease of interest income resulting from the average interest rate decreased to 4.8% for
the six-month period ended June 30
, 2017 compared to 5.2% of the same period in 2016, which was partially offset by the increase of average deposit balance in the amount of US$752.6 million for the
six-month period ended June 30
, 2017 compared to US$388.6 million for the same period in 2016.
Income Taxes
|
|
Six Month Period Ended June 30,
|
|
|
Change
|
|
(in millions, except percentage)
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
%
|
|
Income before Income Taxes
|
|
$
|
45.7
|
|
|
$
|
54.5
|
|
|
$
|
(8.8
|
)
|
|
|
(16.1
|
)%
|
Income Tax Expense
|
|
|
(7.7
|
)
|
|
|
(9.8
|
)
|
|
|
2.1
|
|
|
|
(21.4
|
)%
|
Effective income tax rate
|
|
|
16.8
|
%
|
|
|
18.0
|
%
|
|
|
|
|
|
|
(1.2
|
)%
|
The effective income tax rate for the six-month period ended June 30, 2017 and 2016 were 16.8% and 18.0%, respectively. The decrease of effective income tax rate was primarily to a greater portion of the profit generated by Sichuan Xinda which enjoys preferential tax rate and the increase of super deduction of R&D expense. The effective income tax rate for the six-month ended June 30, 2017 differs from the PRC statutory income tax rate of 25% primarily due to the effect of tax rate difference on various subsidiaries not subject to the PRC statutory income tax rate.
Net Income
As a result of the above factors, we had a net income of US$38.0 million for the six months ended June 30, 2017 compared to net income of US$44.7 million in the same period of 2016.
Selected Balance Sheet Data as of June 30, 2017 and December 31, 2016:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
Change
|
(
in millions, except percentage)
|
|
|
|
|
|
|
|
Amount
|
|
|
%
|
Cash and cash equivalents
|
|
|
279.8
|
|
|
|
168.1
|
|
|
|
111.7
|
|
|
|
66.4
|
%
|
Restricted cash
|
|
|
120.1
|
|
|
|
103.5
|
|
|
|
16.6
|
|
|
|
16.0
|
%
|
Time deposits
|
|
|
159.7
|
|
|
|
184.8
|
|
|
|
(25.1
|
)
|
|
|
(13.6
|
)%
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
152.0
|
|
|
|
410.0
|
|
|
|
(258.0
|
)
|
|
|
(62.9
|
)%
|
Inventories
|
|
|
363.2
|
|
|
|
280.9
|
|
|
|
82.3
|
|
|
|
29.3
|
%
|
Prepaid expenses and other current assets
|
|
|
306.5
|
|
|
|
125.4
|
|
|
|
181.1
|
|
|
|
144,4
|
%
|
Property, plant and equipment, net
|
|
|
826.0
|
|
|
|
806.4
|
|
|
|
19.6
|
|
|
|
2.4
|
%
|
Land use rights, net
|
|
|
26.0
|
|
|
|
22.5
|
|
|
|
3.5
|
|
|
|
15.6
|
%
|
Prepayments to equipment and construction suppliers
|
|
|
63.1
|
|
|
|
14.2
|
|
|
|
48.9
|
|
|
|
344.4
|
%
|
Other non-current assets
|
|
|
0.6
|
|
|
|
10.5
|
|
|
|
(9.9
|
)
|
|
|
(94.3
|
)%
|
Total assets
|
|
|
2,297.3
|
|
|
|
2,126.5
|
|
|
|
170.8
|
|
|
|
8.0
|
%
|
Short-term bank loans, including current portion of long-term bank loans
|
|
|
642.2
|
|
|
|
444.8
|
|
|
|
197.4
|
|
|
|
44.4
|
%
|
Bills payable
|
|
|
167.9
|
|
|
|
148.4
|
|
|
|
19.5
|
|
|
|
13.1
|
%
|
Accounts payable
|
|
|
124.0
|
|
|
|
320.0
|
|
|
|
(196.0
|
)
|
|
|
(61.3
|
)%
|
Income taxes payable, including noncurrent portion
|
|
|
28.7
|
|
|
|
26.7
|
|
|
|
2.0
|
|
|
|
7.5
|
%
|
Accrued expenses and other current liabilities
|
|
|
259.6
|
|
|
|
119.3
|
|
|
|
140.3
|
|
|
|
117.6
|
%
|
Long-term bank loans, excluding current portion
|
|
|
195.6
|
|
|
|
249.5
|
|
|
|
(53.9
|
)
|
|
|
(21.6
|
)%
|
Deferred income
|
|
|
75.7
|
|
|
|
69.3
|
|
|
|
6.4
|
|
|
|
9.2
|
%
|
Redeemable Series D convertible preferred stocks
|
|
|
97.6
|
|
|
|
97.6
|
|
|
|
-
|
|
|
|
-
|
|
Stockholders' equity
|
|
|
690.2
|
|
|
|
634.3
|
|
|
|
55.9
|
|
|
|
8.8
|
%
|
Our financial condition continued to improve as measured by an increase of 8.8% in stockholders' equity as of June 30, 2017 as compared to that of December 31, 2016. Cash and cash equivalents, restricted cash and time deposits increased by 22.6% or US$103.2 million due to the operating cash inflows. Accounts receivable decreased by 62.9% or US$258.0 million due to the management efforts to collect outstanding balances due from the overseas customer. Inventories increased by 29.3% as a result of more purchases of the raw materials and the Company's strategy to stock up the finished goods for the upcoming order. Prepayment to equipment and construction suppliers increased by 344.4% mainly because advance to purchases for the Nanchong Project. The aggregate short-term and long-term bank loans increased by 20.7%
due to the utilization of existing lines of credit
. We define the manageable debt level as the sum of aggregate short-term and long-term loans, and notes payable over total assets.
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, 2017 and December 31, 2016, we had US$279.8 million and US$168.1 million, respectively, in cash and cash equivalents
which were primarily deposited with banks in China (including Hong Kong and Macau SAR), UAE and U.S. As of June 30, 2017, we had US$642.2 million outstanding short-term bank loans (including the current portion of long-term bank loans), including US$392.6 million unsecured loan and US$48.9 million loans secured by accounts receivable, US$56.9 million loans secured by restricted cash, and US$143.8 long-term bank loans that due in one year. We also had US$195.6 million long-term bank loans (excluding the current portion), including US$109.2 million unsecured loan and US$86.4 million syndicate loan facility. Short-term and long-term bank loans in total bear a weighted average interest rate of 4.1% per annum. We have historically been able to make repayments when due. As of June 30, 2017, our current ratio was 1.2 as compared to 1.2 as of December 31, 2016.
A summary of lines of credit for the six-month period ended June 30, 2017 and the remaining line of credit as of June 30, 2017 is as below:
(in millions)
|
|
June 30, 2017
|
|
|
|
Lines of Credit, Obtained
|
|
|
Remaining
Available
|
|
Name of Financial Institution
|
|
Date of Approval
|
|
RMB
|
|
|
USD
|
|
|
USD
|
|
Bank of Longjiang, Heilongjiang
|
|
March 16, 2016
|
|
|
400.0
|
|
|
|
59.0
|
|
|
|
2.8
|
|
China Everbright Bank
|
|
July 21, 2016
|
|
|
100.0
|
|
|
|
14.8
|
|
|
|
7.4
|
|
China CITIC Bank
|
|
May 19, 2016
|
|
|
100.0
|
|
|
|
14.8
|
|
|
|
-
|
|
Bank of China
|
|
July 28, 2016
|
|
|
1,589.0
|
|
|
|
234.6
|
|
|
|
163.0
|
|
HSBC
|
|
August 16, 2015
|
|
|
193.7
|
|
|
|
28.6
|
|
|
|
16.6
|
|
Agriculture Bank of China
|
|
March 17, 2017
|
|
|
400.0
|
|
|
|
59.0
|
|
|
|
29.5
|
|
China Construction Bank
|
|
January 8, 2016
|
|
|
745.9
|
|
|
|
110.1
|
|
|
|
57.6
|
|
ICBC
|
|
September 27, 2016
|
|
|
2,605.0
|
|
|
|
384.5
|
|
|
|
209.3
|
|
Societe Generale (China) Limited
|
|
March 1, 2017
|
|
|
50.0
|
|
|
|
7.4
|
|
|
|
-
|
|
Export-Import Bank of China
|
|
March 30, 2017
|
|
|
400.0
|
|
|
|
59.0
|
|
|
|
29.5
|
|
Bank of Communications
|
|
January 13, 2017
|
|
|
300.0
|
|
|
|
44.3
|
|
|
|
-
|
|
Postal Savings Bank of China
|
|
March 30, 2017
|
|
|
400.0
|
|
|
|
59.0
|
|
|
|
14.7
|
|
Sichuan Tianfu Bank
|
|
|
|
|
50.0
|
|
|
|
7.4
|
|
|
|
-
|
|
Subtotal (credit term<=1 year)
|
|
|
|
|
7,333.6
|
|
|
|
1,082.5
|
|
|
|
530.4
|
|
Bank of China
|
|
July 28, 2016
|
|
|
335.0
|
|
|
|
49.5
|
|
|
|
0.7
|
|
Nanchong Shuntou Development Group Ltc.
|
|
January 5, 2017
|
|
|
420.0
|
|
|
|
62.0
|
|
|
|
-
|
|
Subtotal (credit term>1 year)
|
|
|
|
|
755.0
|
|
|
|
111.5
|
|
|
|
0.7
|
|
Total
|
|
|
|
|
8,088.6
|
|
|
|
1,194.0
|
|
|
|
531.1
|
|
We have historically been able to make repayments when due. As of June 30, 2017, we have contractual obligations to pay (i) lease commitments in the amount of US$3.5 million, including US$1.6 million due in one year; (ii) equipment acquisition and facility construction in the amount of US$47.3 million; and (iii) long-term bank loan in the amount of US$360.9 million (including principals and interests).
We expect that we will be able to meet our needs to fund operations, capital expenditures and other commitments in the next 12 months primarily with our cash and cash equivalents, operating cash flows and bank borrowings.
We may, however, require additional cash resources due to changes in business conditions or other future developments. If these sources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity or equity-linked securities could result in additional dilution to stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict operations. Financing may not be available in amounts or on terms acceptable to us, or at all.
The following table sets forth a summary of our cash flows for the periods indicated.
|
|
Six-Month Period Ended June 30,
|
|
(in millions US$)
|
|
2017
|
|
|
2016
|
|
Net cash provided by (used in) operating activities
|
|
|
152.7
|
|
|
|
(93.9
|
)
|
Net cash used in investing activities
|
|
|
(176.3
|
)
|
|
|
(81.3
|
)
|
Net cash provided by financing activities
|
|
|
130.1
|
|
|
|
114.4
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
5.2
|
|
|
|
(1.1
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
111.7
|
|
|
|
(61.9
|
)
|
Cash and cash equivalents at the beginning of period
|
|
|
168.1
|
|
|
|
119.9
|
|
Cash and cash equivalents at the end of period
|
|
|
279.8
|
|
|
|
58.0
|
|
Operating Activities
Net cash provided in operating activities increased to US$152.7 million for the six-month period ended June 30, 2017 from net cash outflow by operating activities of US$93.9 million for the six-month period ended June 30, 2016, primarily due to (i) approximately US$270.7 million more cash collected from our customers (ii) the decrease of US$3.4 million interest payments, (iii) the decrease of US$3.3 million in income tax payments for the six-month period ended June 30, 2017, (iv) the increase of US$0.4 million in Interest income received partially offset by (v) the increase of approximately US$21.0 million in cash operating payments, including raw material purchases, rental and personnel costs (vi) the decrease of approximately US$8.1 million released from restricted cash, (vii) the decrease of US$2.1 million received from government grant.
Investing Activities
Net cash used in the investing activities was US$176.3 million for the six-month period ended June 30, 2017 as compared to US$81.3 million for the same period of last year, mainly due to (i) the increase of US$241.5 million purchase of property, plant and equipment, (ii) the increase of US$6.2 million acquisition of land use right, and (iii) the decrease of US$1.7 million government grant related to the construction of Sichuan plant, partially offset by (iv) the increase of US$75.2 million refund of deposit from an equipment supplier, (v) the decrease of US$71.2 million purchase of time deposits, and (vi) the increase of US$8.0 million proceeds from maturity of time deposits for the six-month period ended June 30, 2017.
Financing Activities
Net cash provided by the financing activities was US$130.1 million for the six-month period ended June 30, 2017, as compared to US$114.4 million for the same period of last year, primarily as a result of (i) the increase of US$42.1 million borrowings of bank loans, (ii) the increase of US$12.2 million release from restricted cash as collateral for bank borrowings, partially offset by (iii) the increase of US$30.5 million repayments of bank borrowings for the six-month period ended June 30, 2017, and (iv) the increase of US$8.2 million of placement of restricted cash as collateral for bank borrowings.
As of June 30, 2017, our cash and cash equivalents balance was US$279.8 million, compared to US$168.1 million at December 31, 2016.
Days Sales Outstanding ("DSO") has decreased from 96 days for the year ended December 31, 2016 to 92 days for six-month ended June 30, 2017 as a result of the management efforts to improve receivables collection of the customer in ROK.
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, 2017
|
Year ended December 31, 2016
|
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 109 days for the year ended December 31, 2016 to 128 days for six-month ended June 30, 2017. Turnover days of payables have decreased from 109 days for the year ended December 31, 2016 to 88 days for six-month ended June 30, 2017.
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.
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, 2017 are as follows:
Contractual obligations
|
|
Total
|
|
|
Payment due
less than 1 year
|
|
|
1 – 3 years
|
|
|
3-5 years
|
|
|
More than 5
years
|
|
Lease commitments
|
|
|
3,497,134
|
|
|
|
1,552,189
|
|
|
|
993,299
|
|
|
|
205,761
|
|
|
|
745,885
|
|
Purchase of land use rights, plant equipment, and construction in progress (2)
|
|
|
47,297,164
|
|
|
|
46,946,438
|
|
|
|
350,726
|
|
|
|
-
|
|
|
|
-
|
|
Long-term bank loans (1)
|
|
|
360,858,345
|
|
|
|
156,899,780
|
|
|
|
192,712,182
|
|
|
|
11,246,383
|
|
|
|
-
|
|
Total
|
|
|
411,652,643
|
|
|
|
205,398,407
|
|
|
|
194,056,207
|
|
|
|
11,452,144
|
|
|
|
745,885
|
|
(1) Includes interest of US$16.9 million accrued at the interest rate under the loan agreements. For borrowings with a floating rate, the most recent rate as of June 30, 2017 was applied.
(2) Plant construction and equipment purchase
On March 8, 2013, 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, 2017, the Company has a remaining commitment of RMB63.9 million (equivalent to US$9.4 million) mainly for facility construction.
In September 2016, Sichuan Xinda entered into equipment purchase contracts with Hailezi for a consideration of RMB17.0 million (equivalent to US$2.5 million) to purchase storage facility and testing equipment. Afterward, Sichuan Xinda cancelled 2 contracts with Hailezi for a consideration of RMB1.6 million (equivalent to US$0.2 million).As of June 30, 2017, Sichuan Xinda prepaid RMB6.0 million (equivalent to US$0.9 million) and has a remaining commitment of RMB9.4 million (equivalent to US$1.4 million).
On October 20, 2016, Sichuan Xinda entered into an equipment purchase agreement purchase contract with Peaceful Treasure Limited ("Peaceful") for a total consideration of RMB89.8 million (equivalent to US$13.3 million) to purchase certain production and testing equipment As of June 30, 2017, the Company has a commitment of RMB55.9 million (equivalent to US$8.3 million).
On November 15, 2016, Sichuan Xinda entered into decoration contract with Beijin Construction to perform indoor and outdoor decoration work for a consideration of RMB237.6 million (equivalent to US$35.0 million). On February 20, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction to perform outdoor decoration work for a consideration of RMB2.9 million (equivalent to US$0.4 million). On June 10, 2017, Sichuan Xinda entered into another decoration contract with Beijin Construction to perform ground decoration work for a consideration of RMB23.8 million (equivalent to US$3.5 million).As of June 30, 2017, Sichuan Xinda prepaid RMB117.3 million (equivalent to US$17.3 million) of which RMB5.5 million (equivalent to US$0.9 million) was transferred to construction in progress and has a remaining commitment of RMB147.0 million (equivalent to US$21.6 million).
In connection with the Nanchong Project discussed in Note 6(i), Sichuan Xinda entered into four equipment purchase contracts with Hailezi for a consideration of RMB2,242.8 million (equivalent to US$331.1 million) to purchase production equipment and testing equipment in March 2017. By the end of June 2017, Sichuan Xinda expected to launch an integrated ERP system, which resulted in the equipment to be purchased under the original contracts with Hailezi not meeting the production requirements. Thus the original contracts have been terminated with the amount of RMB2,222.9 million (equivalent to US$328.1 million) and Hailezi agreed to refund the prepayment at the amount of RMB1,704.9 million (equivalent to US$251.7 million) by the end of March 2018, out of the total prepayment made by Sichuan Xinda of RMB1,722.9 million (equivalent to US$254.3 million). As of June 30, 2017, Sichuan Xinda prepaid RMB18.0 million (equivalent to US$2.6 million) and has a remaining commitment of RMB1.9 million (equivalent to US$0.4 million).
(ii) HLJ Xinda Group
On September 26, 2016 and February 28, 2017, HLJ Xinda Group entered into two equipment purchase contracts with Hailezi for a total consideration of RMB782.2 million (equivalent to US$115.5 million) to purchase storage facility and other equipment. Due to a redesign of outdoor storage facility in June 2017, HLJ Xinda Group entered into a supplementary agreement with Hailezi, which decreased the original contracts amounts to RMB 283.7 million (equivalent to US$41.9). Hailezi refunded RMB369.1 million (equivalent to US$54.5 million) to HLJ Xinda Group on June 22, 2017. As of June 30, 2017, HLJ Xinda Group has a remaining commitment of RMB31.2 million (equivalent to US$4.6 million).
On April 28, 2015, Dubai Xinda 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 31, 2017, the Company has a remaining commitment of AED3.3 million (equivalent to US$0.9 million).
(iv)
|
Xinda Beijing Investment office building decoration
|
On March 30, 2017, Xinda CI (Beijing) Investment Holding Co., Ltd. ("Xinda Beijing Investment") entered into a decoration contract with Beijing Fangyuan Decoration Engineering Co., Ltd for a total consideration of RMB5.8 million (equivalent to US$0.8 million) to decorate office building. As of June 30, 2017, the decoration work in the amount of RMB1.4 million (equivalent to US$0.2 million) which was recorded in construction in progress. As of June 30, 2017, the Company has a remaining commitment of RMB4.4 million (equivalent to US$0.6 million).
On June 9, 2017, Xinda Beijing Investment entered into a decoration contract with Beijing Zhonghongwufang Stone Co., for a total consideration of RMB1.2 million (equivalent to US$0.2 million) to decorate office building. As of June 30, 2017, the decoration work in the amount of RMB0.6 million (equivalent to US$0.1 million) which was recorded in construction in progress. As of June 30, 2017, the Company has a remaining commitment of RMB0.6 million (equivalent to US$0.1 million).
Legal Proceedings
The Company and certain of its officers and directors were 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 alleged 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 alleged 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 asserted 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 sought 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, the lead plaintiffs moved the Court for leave to amend the Consolidated Class Action Complaint. On June 24, 2016, the Company filed its opposition to the lead plaintiffs’ motion. On August 8, 2016, in conjunction with filing the reply brief in support of their motion, the lead plaintiffs moved to strike certain documents referred to in the Company’s opposition. The Company filed its opposition to the lead plaintiffs’ motion to strike on September 16, 2016. The lead plaintiffs filed their reply on October 7, 2016. On March 8, 2017, the Court entered an Order in the Company’s favor denying the lead plaintiffs’ motion for leave to amend and denying the lead plaintiffs’ motion to strike. The time for the lead plaintiffs to appeal the dismissal of their lawsuits has expired.
Off-Balance Sheet Arrangements
We have not engaged in any off-balance sheet transactions.