China XD (CXDC) Restates Certain FY09, FY10 Financials; Guids Q3 Revs Above
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China XD Plastics Company Limited (Nasdaq: CXDC) will restate certain financial statements for the years ended December 31, 2009 and 2010, the third quarters ended September 30, 2009 and 2010, and the first quarters ended March 31, 2010 and 2011 and file amendments to those affected periodic filings for years 2010 and 2011. The restatements will reflect certain technical corrections regarding non-cash adjustments relating to the calculation of basic and diluted earnings-per-share ("EPS") and classification adjustments relating to certain items in the consolidated statements of cash flows.
The Company previously disclosed the adjustments to the calculation of basic and diluted EPS in its Form 10-Q filed with the Securities and Exchange Commission ("SEC") on August 15, 2011 and referenced the adjustments on its earnings call of the same date. The EPS adjustment only impacts the consolidated statements of income and other comprehensive income below the operating line and is non-cash in nature. The restatements will have no effect on the Company's business operations, financial position, cash position, total assets, liabilities, revenue or net income, as previously reported. Moreover, there is no impact on non-GAAP operating earnings which the Company deems as reflective of its operating results.
Overview of Restated Results
The restatements will reflect (1) certain technical corrections regarding non-cash adjustments relating to the calculation of basic and diluted EPS and (2) classification adjustments relating to certain items in the consolidated statements of cash flows. A detailed explanation, as well as the impact, of these items on prior periods is provided below:
Calculation of Basic and Diluted EPS
As previously disclosed in August 2011, the Company did not apply the two-class method in the calculation of basic and diluted EPS in the prior periods' financial statements. After application of the two-class method, both basic and diluted EPS for the quarter ended March 31, 2010 should be reduced by US$0.02 per share and the basic and diluted EPS for the year ended December 31, 2010 should be reduced by US$0.01 and US$0.02 per share, respectively. In addition, the Company did not deduct the non-cash changes in fair values of warrants from net income attributable to common stockholders in the calculation of diluted EPS. After the accounting for the deduction of such non-cash changes in fair values of warrants from net income attributable to common stockholders, the diluted EPS for the quarters ended March 31, 2010, December 31, 2010 and March 31, 2011, and for the year ended December 31, 2010 should be reduced by US$0.04 per share, US$0.05 per share, US$0.01 per share and US$0.08 per share, respectively. The diluted EPS for the quarters ended June 30, 2010, September 30, 2010 and June 30, 2011 were not impacted.
Classification of Certain Cash Flow Items
The Company identified that the following three classification adjustments were required in its consolidated statements of cash flows:
The Company is in the process of amending and restating the affected financial statements. The Company will be filing Amendment No.2 to the Annual Report on Form 10-K for the year ended December 31, 2010 (the "Form 10-K/A"), Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, and Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (collectively, the "Form 10-Q/As") with the SEC on November 2, 2011. The Form 10-K/A and Form 10-Q/As will contain the amended and restated financial statements. The Company expects that this process will not impact its ability to timely file its results for the third quarter of 2011.
The items described above and corresponding restatements have been discussed with Moore Stephens Hong Kong, the Company's predecessor independent registered public accounting firm from November 2, 2009 to August 15, 2011.
Preliminary Summary of Third Quarter Results
Based on preliminary information, the Company currently expects third quarter revenue to range between US$100 million and US$106 million and net income attributable to common shareholders to range between US$14.5 million and US$15 million. The Street is currently looking for revs of $90.67 million.
The Company will update its outlook for fiscal 2011 when it reports earnings on November 15, 2011.
The Company previously disclosed the adjustments to the calculation of basic and diluted EPS in its Form 10-Q filed with the Securities and Exchange Commission ("SEC") on August 15, 2011 and referenced the adjustments on its earnings call of the same date. The EPS adjustment only impacts the consolidated statements of income and other comprehensive income below the operating line and is non-cash in nature. The restatements will have no effect on the Company's business operations, financial position, cash position, total assets, liabilities, revenue or net income, as previously reported. Moreover, there is no impact on non-GAAP operating earnings which the Company deems as reflective of its operating results.
Overview of Restated Results
The restatements will reflect (1) certain technical corrections regarding non-cash adjustments relating to the calculation of basic and diluted EPS and (2) classification adjustments relating to certain items in the consolidated statements of cash flows. A detailed explanation, as well as the impact, of these items on prior periods is provided below:
Calculation of Basic and Diluted EPS
As previously disclosed in August 2011, the Company did not apply the two-class method in the calculation of basic and diluted EPS in the prior periods' financial statements. After application of the two-class method, both basic and diluted EPS for the quarter ended March 31, 2010 should be reduced by US$0.02 per share and the basic and diluted EPS for the year ended December 31, 2010 should be reduced by US$0.01 and US$0.02 per share, respectively. In addition, the Company did not deduct the non-cash changes in fair values of warrants from net income attributable to common stockholders in the calculation of diluted EPS. After the accounting for the deduction of such non-cash changes in fair values of warrants from net income attributable to common stockholders, the diluted EPS for the quarters ended March 31, 2010, December 31, 2010 and March 31, 2011, and for the year ended December 31, 2010 should be reduced by US$0.04 per share, US$0.05 per share, US$0.01 per share and US$0.08 per share, respectively. The diluted EPS for the quarters ended June 30, 2010, September 30, 2010 and June 30, 2011 were not impacted.
Classification of Certain Cash Flow Items
The Company identified that the following three classification adjustments were required in its consolidated statements of cash flows:
- The Company did not consider the impact of the unpaid amounts relating to property, plant and equipment in preparing the consolidated statements of cash flows for the interim and annual periods from January 1, 2009 to June 30, 2011.
- The Company settled purchase obligations due to its equipment vendors using bank acceptance notes the Company received from its customers. The Company reported such transactions as both operating cash inflows and investing cash outflows, instead of non-cash transactions.
- In the year ended December 31, 2009, the Company settled a related party loan using bank acceptance notes the Company received from its customers. The Company reported such transaction as both operating cash inflows and financing cash outflows, instead of non-cash transactions. The adjustment is not applicable to the year ended December 31, 2010.
The Company is in the process of amending and restating the affected financial statements. The Company will be filing Amendment No.2 to the Annual Report on Form 10-K for the year ended December 31, 2010 (the "Form 10-K/A"), Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, and Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 (collectively, the "Form 10-Q/As") with the SEC on November 2, 2011. The Form 10-K/A and Form 10-Q/As will contain the amended and restated financial statements. The Company expects that this process will not impact its ability to timely file its results for the third quarter of 2011.
The items described above and corresponding restatements have been discussed with Moore Stephens Hong Kong, the Company's predecessor independent registered public accounting firm from November 2, 2009 to August 15, 2011.
Preliminary Summary of Third Quarter Results
Based on preliminary information, the Company currently expects third quarter revenue to range between US$100 million and US$106 million and net income attributable to common shareholders to range between US$14.5 million and US$15 million. The Street is currently looking for revs of $90.67 million.
The Company will update its outlook for fiscal 2011 when it reports earnings on November 15, 2011.
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