10-Q 1 cxdc_10q-093016.htm FORM 10-Q
 

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 September 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 November 4, 2016, the registrant had 49,556,541 shares of common stock, par value US$0.0001 per share, outstanding.
 
 
 


 

TABLE OF CONTENTS
 
PAGE
PART I. FINANCIAL INFORMATION
3
     
Item 1. Financial Statements
3
     
 
Unaudited Condensed Consolidated Balance Sheets
3
     
 
Unaudited Condensed Consolidated Statements of Comprehensive Income
4
   
 
Unaudited Condensed Consolidated Statements of Cash Flows
5
     
 
Notes to the Unaudited Condensed Consolidated Financial Statements
6
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
21
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk
37
   
Item 4. Controls and Procedures
37
     
PART II. OTHER INFORMATION
37
     
Item 1. Legal Proceedings
38
     
Item 1A. Risk Factors
38
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
38
     
Item 3. Defaults Upon Senior Securities
38
   
Item 4. Mine Safety Disclosures
38
     
Item 5. Exhibits
38
     
Signatures
39
 
 
 
 
2

 
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

   
September 30,
2016
   
December 31,
2015
 
   
US$
   
US$
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
   
100,144,999
     
119,928,485
 
Restricted cash
   
70,490,099
     
50,852,327
 
Time deposits
   
130,432,178
     
237,626,806
 
Accounts receivable, net
   
272,762,337
     
234,542,739
 
Amounts due from a related party
   
-
     
244,836
 
Inventories
   
415,254,822
     
294,665,195
 
Prepaid expenses and other current assets
   
38,697,013
     
15,675,848
 
    Total current assets
   
1,027,781,448
     
953,536,236
 
Property, plant and equipment, net
   
819,285,111
     
571,746,507
 
Land use rights, net
   
23,527,451
     
24,506,837
 
Prepayments to equipment and construction suppliers
   
85,252,121
     
183,226,006
 
Other non-current assets
   
12,509,168
     
18,966,622
 
    Total assets
   
1,968,355,299
     
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
   
466,402,042
     
284,339,089
 
Bills payable
   
61,916,200
     
33,522,287
 
Accounts payable
   
181,189,344
     
257,417,000
 
Amounts due to related parties
   
310,167
     
8,439
 
Income taxes payable
   
3,315,801
     
6,881,946
 
Accrued expenses and other current liabilities
   
163,318,425
     
140,988,712
 
  Total current liabilities
   
876,451,979
     
723,157,473
 
Long-term bank loans, excluding current portion
   
254,901,192
     
107,481,709
 
Notes payable
   
-
     
145,634,996
 
Deferred income
   
71,171,033
     
62,039,050
 
Other non-current liabilities
   
43,120,367
     
38,046,917
 
    Total liabilities
   
1,245,644,571
     
1,076,360,145
 
                 
Redeemable Series D convertible preferred stock (redemption amount of US$197,775,400 and US$184,461,800 as of September 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, 49,577,541 shares and 49,344,284 shares issued, 49,556,541 shares and 49,323,284 shares outstanding as of September  30, 2016 and December 31, 2015, respectively
   
4,956
     
4,933
 
Treasury stock, 21,000 shares at cost
   
(92,694
)
   
(92,694
)
Additional paid-in capital
   
82,585,871
     
81,919,932
 
Retained earnings
   
580,445,916
     
515,555,985
 
Accumulated other comprehensive loss
   
(37,809,886
)
   
(19,342,658
)
    Total stockholders' equity
   
625,134,263
     
578,045,598
 
Commitments and contingencies
   
-
     
-
 
    Total liabilities, redeemable convertible preferred stock and stockholders' equity
   
1,968,355,299
     
1,751,982,208
 

See accompanying notes to unaudited condensed consolidated financial statements.
 
 
3


 
CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

   
Three-Month Period Ended September 30,
   
Nine-Month Period Ended September 30,  
 
   
2016
   
2015
   
2016
    2015  
   
US$
   
US$
   
US$
   
US$
 
                         
Revenues
   
331,847,567
     
239,101,063
     
824,017,387
     
726,440,200
 
Cost of revenues
   
(262,206,936
)
   
(209,776,434
)
   
(659,218,624
)    
(596,980,399
)
    Gross profit
   
69,640,631
     
29,324,629
     
164,798,763
     
129,459,801
 
                                 
Selling expenses
   
(338,466
)
   
(356,417
)
   
(1,005,640
)    
(1,091,278
)
General and administrative expenses
   
(8,369,224
)
   
(5,763,886
)
   
(20,034,920
)    
(17,320,676
)
Research and development expenses
   
(7,864,732
)
   
(5,831,192
)
   
(18,681,018
)    
(18,304,365
)
    Total operating expenses
   
(16,572,422
)
   
(11,951,495
)
   
(39,721,578
)    
(36,716,319
)
                                 
    Operating income
   
53,068,209
     
17,373,134
     
125,077,185
     
92,743,482
 
                                 
Interest income
   
1,242,484
     
1,956,630
     
4,472,475
     
6,850,992
 
Interest expense
   
(10,870,903
)
   
(10,323,671
)
   
(32,403,784
)    
(31,991,319
)
Foreign currency exchange gains (losses)
   
(14,902
)
   
(1,261,404
)
   
356,672
     
(1,026,809
)
Loss on debt extinguishment
   
(18,963,834
)
   
-
     
(18,963,834
)    
-
 
Gains on foreign currency forward contracts
   
-
     
-
     
-
     
657,390
 
Government grant
   
1,011,870
     
1,547,381
     
1,438,589
     
1,552,195
 
    Total non-operating expense, net
   
(27,595,285
)
   
(8,081,064
)
   
(45,099,882
)    
(23,957,551
)
                                 
    Income before income taxes
   
25,472,924
     
9,292,070
     
79,977,303
     
68,785,931
 
                                 
Income tax expense
   
(5,296,118
)
   
(3,257,572
)
   
(15,087,372
)    
(11,868,804
)
                                 
    Net income
   
20,176,806
     
6,034,498
     
64,889,931
     
56,917,127
 
                                 
Earnings per common share:
                               
Basic and diluted
   
0.31
     
0.09
     
0.98
     
0.87
 
                                 
Net Income
   
20,176,806
     
6,034,498
     
64,889,931
     
56,917,127
 
                                 
Other comprehensive loss
                               
Foreign currency translation adjustment, net of nil income taxes
   
(4,953,926
)
   
(15,730,269
)
   
(18,467,228
)
   
(16,511,990
)
                                 
Comprehensive income
   
15,222,880
     
(9,695,771
)
   
46,422,703
     
40,405,137
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
4



CHINA XD PLASTICS COMPANY LIMITED AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
   
Nine-Month Period Ended
September 30,
 
   
2016
   
2015
 
   
US$
   
US$
 
Cash flows from operating activities:
           
Net cash provided by (used in) operating activities
   
(145,259,464
)
   
1,388,960
 
                 
Cash flows from investing activities:
               
Proceeds from maturity of time deposits
   
389,418,762
     
346,827,273
 
Purchase of time deposits
   
(286,739,987
)
   
(306,089,846
)
Purchase of land use rights
   
-
     
(13,888,542
)
Purchase of and deposits for property, plant and equipment
   
(140,826,457
)
   
(130,141,806
)
Government grant related to the construction of Sichuan plant (note 13)
   
10,117,282
     
1,632,986
 
Net cash used in investing activities
   
(28,030,400
)
   
(101,659,935
)
                 
Cash flows from financing activities:
               
Proceeds from bank borrowings
   
762,880,805
     
422,179,682
 
Repayments of bank borrowings
   
(424,933,705
)
   
(280,822,310
)
Redemption of notes payable
   
(165,366,000
)
   
-
 
Release of restricted cash as collateral for bank borrowings
   
46,891,495
     
-
 
Placement of restricted cash as collateral for bank borrowings
   
(64,058,775
)
   
(33,270,497
)
Net cash provided by financing activities
   
155,413,820
     
108,086,875
 
                 
Effect of foreign currency exchange rate changes on cash and cash equivalents
   
(1,907,442
)
   
(2,176,382
)
Net increase (decrease) in cash and cash equivalents
   
(19,783,486
)
   
5,639,518
 
                 
Cash and cash equivalents at beginning of period
   
119,928,485
     
45,456,612
 
Cash and cash equivalents at end of period
   
100,144,999
     
51,096,130
 
                 
Supplemental disclosure of cash flow information:
               
Interest paid, net of capitalized interest
   
37,645,235
     
35,698,872
 
Income taxes paid
   
14,880,461
     
7,378,544
 
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
   
-
     
31,421,155
 
Government grant related to the construction of Sichuan plant in the form of restricted cash (note 13)
   
-
     
7,879,497
 
Accrual for purchase of equipment and construction included in accrued expenses and other current liabilities
   
97,201,202
     
4,020,089
 


See accompanying notes to unaudited condensed consolidated financial statements
 
 
5


 

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 and related notes to the condensed consolidated financial statements 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 September 30, 2016, the results of operations for the three-month and nine-month periods ended September 30, 2016 and 2015, and the cash flows for the nine-month periods ended September 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 an overseas customer 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 nine-month periods ended September 30, 2016 and 2015, are as follows:
   
Three-Month Period Ended September 30,
 
   
2016
   
2015
 
   
US$
   
%
   
US$
   
%
 
Distributor A, located in PRC
   
47,992,568
     
14
%
   
47,064,784
     
20
%
Distributor B, located in PRC
   
39,173,767
     
12
%
   
35,836,733
     
15
%
Distributor C, located in PRC
   
34,149,286
     
10
%
   
32,860,363
     
14
%
Distributor D, located in PRC
   
29,786,064
     
9
%
   
26,810,505
     
11
%
Distributor E, located in PRC
   
9,629,789
     
3
%
   
30,305,169
     
13
%
Direct Customer F, located in ROK
   
37,008,440
     
11
%
   
7,294,500
     
3
%
Total
   
197,739,914
     
59
%
   
180,172,054
     
76
%


6


   
Nine-Month Period Ended September 30,
 
   
2016
   
2015
 
   
US$
   
%
   
US$
   
%
 
Distributor A, located in PRC
   
122,731,035
     
15
%
   
129,198,965
     
18
%
Distributor B, located in PRC
   
106,653,182
     
13
%
   
107,415,390
     
15
%
Distributor C, located in PRC
   
91,437,791
     
11
%
   
91,297,886
     
13
%
Distributor D, located in PRC
   
85,542,045
     
10
%
   
76,475,405
     
11
%
Distributor E, located in PRC
   
48,036,288
     
6
%
   
81,685,215
     
11
%
Direct Customer F, located in ROK
   
72,531,200
     
9
%
   
71,380,400
     
10
%
Total
   
526,931,541
     
64
%
   
557,453,261
     
78
%
 

   
September 30,
   
December 31,
 
2016
2015
 
 
US$
 
%
 
US$
 
%
 
Accounts Receivable Balance:
               
Distributor A, located in PRC
   
37,400,617
     
14
%
   
54,359,831
     
23
%
Distributor B, located in PRC
   
27,754,030
     
10
%
   
40,862,920
     
17
%
Distributor C, located in PRC
   
22,011,670
     
8
%
   
32,231,011
     
14
%
Distributor D, located in PRC
   
17,529,314
     
6
%
   
26,129,037
     
11
%
Distributor E, located in PRC
   
5,339,851
     
2
%
   
23,729,706
     
10
%
Direct Customer F, located in ROK
   
58,331,200
     
21
%
   
-
     
0
%
Total
   
168,366,682
     
61
%
   
177,312,505
     
75
%

 
The Company expects revenues from these distributors and an end customer 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 62.5% (five distributors)  and 88.3% (seven distributors) of the Company's total raw materials purchases for the three-month periods ended September 30, 2016 and 2015, respectively, and 68.1% (five distributors) and 86.7% (seven distributors) of the Company's total raw materials purchases for the nine-month periods ended September 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 0% and 96.0% of the Company's total equipment purchases for the three-month periods ended September 30, 2016 and 2015, respectively, and accounted for 96.0% and 97.2% of the Company's total equipment purchases for the nine-month periods ended September 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.
 
 
7

 

 
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:

   
September 30, 2016,
   
December 31, 2015
 
   
US$
   
US$
 
RMB denominated bank deposits with:
           
Financial Institutions in the PRC
   
309,046,103
     
417,430,412
 
Financial Institutions in Hong Kong Special Administrative Region ("Hong Kong SAR")
   
8,249
     
13,778
 
Financial Institution in Dubai, United Arab Emirates ("UAE")
   
-
     
3,023
 
U.S. dollar denominated bank deposits with:
               
Financial Institution in the U.S.
   
204,988
     
226,010
 
Financial Institutions in the PRC
   
1,618,365
     
17,109
 
Financial Institution in Hong Kong SAR
   
383,670
     
63,854
 
Financial Institution in Macau Special Administrative Region ("Macau SAR")
   
1,718
     
37,120
 
Financial Institution in Dubai, UAE
   
102,278
     
7,474,960
 
Euro denominated bank deposits with:
               
Financial institution in Dubai, UAE
   
3,094
     
3,011
 
HK dollar denominated bank deposits with:
               
Financial institution in Hong Kong SAR
   
177
     
336
 
Dirham denominated bank deposits with:
               
Financial institution in Dubai, UAE
   
1,381
     
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 Hong Kong 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 $1,304,632 and $1,690,764 are insured as of September 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$10,302,794 and US$16,907,470 as of September 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$16,233,310 and US$8,069,475 as of September 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$54,256,789 and US$32,010,452 as of September 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$10,302,794 and US$16,907,470 as of September 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.
 
 
8


 

Note 2 - Accounts receivable

Accounts receivable consists of the following:

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
         
Accounts receivable
   
272,801,923
     
234,583,370
 
Allowance for doubtful accounts
   
(39,586
)
   
(40,631
)
Accounts receivable, net
   
272,762,337
     
234,542,739
 

As of September 30, 2016 and December 31, 2015, the accounts receivable balances also include notes receivable in the amount of US$608,449 and US$2,048,186, respectively. As of September 30, 2016 and December 31, 2015, US$65,773,611and 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 nine-month periods ended September 30, 2016 and 2015.

The following table provides an analysis of the aging of accounts receivable as of September 30, 2016 and December 31, 2015:

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
Aging:
           
– current
   
237,808,177
     
234,396,244
 
– 1-3 months past due
   
34,954,160
     
146,495
 
– 4-6 months past due
   
-
     
-
 
– 7-12 months past due
   
-
     
-
 
– greater than one year past due
   
39,586
     
40,631
 
Total accounts receivable
   
272,801,923
     
234,583,370
 

Note 3 - Inventories

Inventories consist of the following:

   
September 30, 2016
   
December 31, 2015
 
 
US$
 
US$
 
         
Raw materials
   
392,349,862
     
287,995,933
 
Work in progress
   
169,835
     
164,034
 
Finished goods
   
22,735,125
     
6,505,228
 
Total inventories
   
415,254,822
     
294,665,195
 

There were no write down of inventories for the three-month and nine-month periods ended September 30, 2016 and 2015.
 
 
9


 
Note 4 – Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
             
Receivables due from a customer in the ROK
   
-
     
9,471,222
 
Interest receivable
   
3,198,532
     
3,306,974
 
Value added taxes receivables
   
28,211,604
     
698,286
 
Advances to suppliers
   
3,173,219
     
68,354
 
Others (i)
   
4,113,658
     
2,131,012
 
    Total prepaid expenses and other current assets
   
38,697,013
     
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:

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
             
Machinery, equipment and furniture
   
404,758,351
     
258,173,175
 
Motor vehicles
   
2,780,137
     
2,009,440
 
Workshops and buildings
   
105,923,522
     
76,924,199
 
Construction in progress
   
416,027,493
     
323,955,531
 
    Total property, plant and equipment
   
929,489,503
     
661,062,345
 
Less accumulated depreciation
   
(110,204,392
)
   
(89,315,838
)
    Property, plant and equipment, net
   
819,285,111
     
571,746,507
 

All of the property, plant and equipment, net as of September 30, 2016 and December 31, 2015 were located in the PRC, except for US$357.6 million and US$83.8 million of property, plant and equipment, net were located in Dubai, UAE. 
 
 
10


 
For the three-month and nine-month periods ended September 30, 2016 and 2015, the Company capitalized US$627,819 and US$168,306, and US$1,854,251 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
September 30,    
 
 
2016
 
2015
 
 
US$
 
US$
 
         
Cost of revenues
   
8,181,737
     
5,878,813
 
General and administrative expenses
   
487,639
     
385,263
 
Research and development expenses
   
923,963
     
951,540
 
Selling expense
   
815
     
389
 
    Total depreciation expense
   
9,594,154
     
7,216,005
 

   
Nine-Month Period Ended
September 30, 
 
   
 2016
 
2015
 
   
US$ 
 
US$
 
         
Cost of revenues
   
19,543,468
     
16,184,391
 
General and administrative expenses
   
1,325,965
     
1,163,526
 
Research and development expenses
   
2,812,167
     
2,648,341
 
Selling expense
   
1,705
     
612
 
    Total depreciation expense
   
23,683,305
     
19,996,870
 
 
Note 6 - Prepayments to equipment suppliers

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
             
Hailezi (i)
   
79,434,020
     
-
 
Xiaoyun Huayuan (ii)
   
2,561,263
     
-
 
Peaceful (iii)
   
-
     
170,009,200
 
Jiamu (iv)
   
-
     
11,712,843
 
Others
   
3,256,838
     
1,503,963
 
Total Prepayments to equipment and construction suppliers
   
85,252,121
     
183,226,006
 
 

(i)
In September 2016, the Company's two subsidiaries, Heilongjiang Xinda Enterprise Group Company Limited ("HLJ Xinda Group") and Sichuan Xinda Enterprise Group Co., Ltd ("Sichuan Xinda") each entered into equipment purchase contracts with Harbin Hailezi Science and Technology Co., Ltd. ("Hailezi") to purchase production equipment, testing equipment and storage facility. Pursuant to the contracts with Hailezi, HLJ Xinda Group and Sichuan Xinda have prepaid RMB211.5 million (equivalent to US$31.7 million) and RMB319.0 million (equivalent to US$47.7 million) as of September 30, 2016, respectively.
 
 
 
 
11


 
(ii)
On July 15, 2016, Xinda CI (Beijing) Investment Holding Co., Ltd. ("Beijing Investment") purchased an apartment to be used as the employee canteen from Beijing Xiaoyun Huayuan Property Co., Ltd. ("Xiaoyun Huayuan") for a consideration of RMB17.1 million (equivalent to US$2.6 million). As of September 30, 2016, the total consideration has been fully paid.  The Company obtained the apartment in October 2016.

(iii)
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. Pursuant to the contract with Peaceful, on November 30, 2015, the Company made prepayment of US$271.2 million.  As of September 30, 2016, all production equipment were delivered to the Company.

(iv)
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 (equivalent to US$13.4 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$2.4 million). Pursuant to the contract with Jiamu, on August 31, 2014, the Company made prepayment of RMB76.2 million (equivalent to US$11.7 million).  Due to the delayed completion of the construction of the R&D building of Sichuan facility, Jiamu terminated the contract in September 2016 and subsequently returned the full advance payment to the Company in October 2016.


Note 7 – Fair value measurement

Short-term financial instruments, including cash and cash equivalents, restricted cash, time deposits, accounts receivable, amounts due from a related party, 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.

 
 
 
12


 
Note 8 – Borrowings

(a)  Current

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
Unsecured loans
   
260,043,848
     
64,555,795
 
Loans secured by accounts receivable
   
52,412,472
     
43,037,196
 
Loans secured by restricted cash
   
42,480,000
     
27,100,000
 
Current portion of long-term bank loans (note (b))
   
111,465,722
     
149,646,098
 
                 
    Total short-term loans, including current portion of long-term bank loans
   
466,402,042
     
284,339,089
 

As of September 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 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 (0.5244% as of September 30, 2016) plus 1.8%. This loan was secured by restricted cash of RMB17.8 million (equivalent to US$2.7 million) in 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 (0.5244% as of September 30, 2016) plus 1.8%. This loan was secured by restricted cash of RMB25.5 million (equivalent to US$3.8 million) in the HSBC Bank in Harbin, China.

In April 2016, the Company obtained nine six-month secured loans in a total amount of RMB350 million (equivalent to US$52.4 million) by accounts receivables of RMB439.2 million (equivalent to US$65.8 million) at an annual interest rate of 4.350% from Harbin Longjiang Bank.

In August 2016, the Company obtained a one-year secured loan of US$13.9 million from Industrial and Commercial Bank of China (Abu Dhabi Branch) at an interest of three-month LIBOR (0.8377% as of September 30, 2016) plus 2.0%. This loan was secured by restricted cash of RMB100.0 million (equivalent to US$15.0 million) in the Industrial and Commercial Bank of China in Harbin, China. The interest rate is reset every three months.
 
 
13


 

(b) Non-current

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
Secured loans
   
91,400,000
     
81,164,800
 
Unsecured loans
   
101,380,694
     
175,963,007
 
Syndicate loan facility
   
173,586,220
     
-
 
Less: current portion
   
111,465,722
     
149,646,098
 
Total long-term bank loans, excluding current portion
   
254,901,192
     
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 (0.8377% as of September 30, 2016). The loan is secured by restricted cash of RMB110 million (equivalent to US$16.5 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 amounting to US$46 million is due on June 9, 2017. In accordance with the requirements of the bank, additional RMB109 million (equivalent to US$16.3 million) is pledged as restricted cash for this long-term bank loan on July 22, 2016.

On December 11, 2014, the Company obtained a two-year unsecured loan of RMB197 million (equivalent to US$29.5 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$15.0 million) at an annual interest rate of 6.0% from Agriculture Bank of China. Both loans are due in January 2017.

On April 22, 2015, the Company obtained a two-year unsecured loan of RMB40 million (equivalent to US$6.0 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$38.9 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$12.0 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 (0.8377% as of September 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 (0.8377% as of September 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 (0.8377% as of September 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$10.3 million). All of these loans are due on March 22, 2018.

On August 22, 2016, Xinda Holding (HK) Company Limited ("Xinda Holding (HK") a wholly owned subsidiary of the Company, entered into a facility agreement on August 22, 2016 for a loan facility in an aggregate amount of US$180 million with a consortium of banks and financial institutions led by Standard Chartered Bank (Hong Kong) Limited. The Company paid arrangement fees and legal fees in the amount of US$6.77 million for the related loan. The loan has a two-year maturity period with an interest rate of one-month LIBOR (0.5244% as of September 30, 2016) plus 2.6%. US$22.5 million, US$22.5 million, US$45.0 million and US$90.0 million of the principal amount will be repaid on November 22, 2017, February 22, 2018, May 22, 2018 and August 22, 2018, respectively.

As of September 30, 2016, the Company had total lines of credit of RMB7,547.4 million (US$1,130.2 million) including unused lines of credit of RMB3,538.5million (US$529.8 million) with remaining terms less than 12 months and RMB351.4million (US$52.6 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 September 30, 2016, the Company has met these financial covenants.
 
 
14

 
Note 9 - Redemption of the senior notes

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 a redemption price equal to 100% of the principal amount of the Notes plus the applicable premium  as of the Redemption Date plus accrued and unpaid interest up to (but not including) the Redemption Date.

On the Redemption Date, the Company fully redeemed all of the Notes for the aggregate principal amount of the Notes in the amount of US$150,000,000, plus the applicable premium in the amount of US$15,382,395 and accrued and unpaid interest in the amount of US$1,223,958.  The total aggregate amount paid to redeem the Notes was US$166,606,353, which resulted in a US$18,963,834 loss on debt extinguishment in the third quarter of 2016.

Note 10 - Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:

   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
Payables for purchase of property, plant and equipment
   
109,082,041
     
42,524,903
 
Accrued freight expenses
   
4,169,921
     
1,579,936
 
Accrued interest expenses
   
560,405
     
7,800,481
 
Advance from customers (i)
   
40,009,863
     
82,009,002
 
Non income tax payables
   
4,216,971
     
4,353,730
 
Others (ii)
   
5,279,224
     
2,720,660
 
Total accrued expenses and other current liabilities
   
163,318,425
     
140,988,712
 

(i) Advance from customers mainly represent the advance received during the fourth quarter of 2015 from two customers in the PRC for the raw material purchases. The Company delivered raw material in the amount of USD40,607,286 to these two customers during the nine-month period ended September 30, 2016.

(ii) Others mainly represent accrued payroll and employee benefits and other accrued miscellaneous operating expenses.
 
 
15


Note 11 – 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 September 30,
 
Nine-Month Period Ended September 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
   
179,962
     
194,871
     
549,023
     
555,585
 

The related party balances are summarized as follows:

   
September 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 parties:
 
September 30, 2016
   
December 31, 2015
 
Rental payable to Xinda High-Tech
   
298,171
     
-
 
Rental payable to Mr Han's son
   
11,996
     
8,439
 
Total:
   
310,167
     
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
     
726,917
 
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
     
6,085
 
Between August 17, 2014 and August 16, 2016



16


Note 12– 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, AL Composites Materials FZE ("AL Composites"), a subsidiary of China XD, is exempted from income taxes.

The effective income tax rates for the nine-month periods ended September 30, 2016 and 2015 were 18.9% and 17.3%, respectively.  The effective income tax rate increased from 17.3% for the nine-month period ended September 30, 2015 to 18.9% for the nine-month period ended September 30, 2016, primarily due to the mix of profits in different entities and the effect of loss on senior notes redemption. The effective income tax rate for the nine-month period ended September 30, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the effect of the preferential tax rate of Sichuan Xinda, the 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 September 30, 2016, the unrecognized tax benefits were US$26,167,182 and the interest relating to unrecognized tax benefits was US$5,110,115.  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 13 – 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$52.4 million) to support the construction of the Sichuan plant.  As of September 30, 2016, the Company has received RMB350 million (equivalent to US$52.4 million) in total from Shunqing Government in the form of government repayment of bank loans on behalf of the Company.

In addition, the Company has received RMB 98.9 million (equivalent to US$14.8 million) from Shunqing Government and RMB6.4million (equivalent to US$1.0 million) from Ministry of Finance of the People's Republic of China to support the construction as of September 30, 2016.

Upon Sichuan facility was ready for use in July 2016, RMB3.9 million (equivalent to US$0.6 million) government grants have been recognized as other income when related depreciation was recognized during the three-month period ended September 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 future bank, among which RMB12.2 million (equivalent to US$1.8 million) have been recognized as other income when related interest expense was recognized during nine-month period ended September 30, 2016.
 
 
 
17


 
Note 14 – Other non-current liabilities
 
             
   
September 30, 2016
   
December 31, 2015
 
   
US$
   
US$
 
             
Income tax payable-noncurrent (i)
   
31,277,297
     
24,172,693
 
Deferred income tax liabilities
   
11,843,070
     
13,874,224
 
Total other non-current liabilities
   
43,120,367
     
38,046,917
 

(i) Income tax payable-noncurrent represents the accumulative balance of unrecognized tax benefits and related accrued interest.

Note 15 – 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 16 – Stockholders' equity

The changes of each caption of stockholders' equity for the nine-month period ended September 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
   
-
     
-
     
-
     
-
     
-
     
-
     
64,889,931
     
-
     
64,889,931
 
Other comprehensive loss
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(18,467,228
)
   
(18,467,228
)
Stock based compensation
   
-
     
-
     
-
     
-
     
-
     
665,962
     
-
     
-
     
665,962
 
Vesting of nonvested shares
   
-
     
-
     
233,257
     
23
     
-
     
(23
)
   
-
     
-
     
-
 
Balance as of September  30, 2016
   
1,000,000
     
100
     
49,556,541
     
4,956
     
(92,694
)
   
82,585,871
     
580,445,916
     
(37,809,886
)
   
625,134,263
 

 Note 17 – Stock based compensation

Nonvested shares

A summary of the nonvested shares activity for the nine-month ended September 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
   
(161,257
)
   
4.24
 
Forfeited
   
(45,460
)
   
5.18
 
Outstanding as of  September 30, 2016
   
408,010
     
6.09
 

The Company recognized US$195,536 and US$237,258 of share-based compensation expense in general and administration expenses relating to nonvested shares for the three-month periods ended September 30, 2016 and 2015, respectively, and US$665,962 and US$623,629 of share-based compensation expense in general and administration expenses relating to nonvested shares for the nine-month periods ended September 30, 2016 and 2015, respectively. As of September 30, 2016, there was US$1,029,388 total unrecognized compensation cost relating to nonvested shares, which is to be recognized over a weighted average period of 0.94 years. 
 
 
18


 

Note 18 - Earnings per share

Basic and diluted earnings per share are calculated as follows:

   
Three-Month Period Ended September 30,
   
Nine-Month Period Ended September 30,
 
   
2016
   
2015
   
2016
   
2015
 
   
US$
   
US$
   
US$
   
US$
 
Net income
   
20,176,806
     
6,034,498
     
64,889,931
     
56,917,127
 
Less:
                               
Earnings allocated to participating Series D convertible preferred stock
   
(4,895,398
)
   
(1,466,034
)
   
(15,736,883
)
   
(13,841,079
)
Earnings allocated to participating nonvested shares
   
(137,471
)
   
(55,083
)
   
(539,108
)
   
(521,103
)
Net income for basic and diluted earnings per share
   
15,143,937
     
4,513,381
     
48,613,940
     
42,554,945
 
                                 
Denominator
                               
Denominator for basic and diluted earnings per share
   
49,496,074
     
49,258,132
     
49,426,752
     
49,192,635
 
                                 
Earnings per share:
                               
Basic and diluted
   
0.31
     
0.09
     
0.98
     
0.87
 

The following table summarizes potentially dilutive securities excluded from the calculation of diluted earnings per share for the three-month periods and nine-month periods ended September 30, 2016 and 2015 because their effects are anti-dilutive:

 
Three-Month Period Ended September 30,
 
Nine-Month Period Ended September  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 19 - Commitments and contingencies

(1)    Lease commitments

Future minimum lease payments under non-cancellable operating leases agreements as of September 30, 2016 were as follows. 

   
US$
 
Period from October 1, 2016 to December 31, 2016
   
261,609
 
Years ending December 31,
       
2017
   
 1,676,409
 
2018
   
 1,046,309
 
2019
   
 113,964
 
2020
   
 113,964
 
2021
   
  113,964
 
After 2021
   
930,709
 

Rental expenses incurred for operating leases of plant and office spaces were US$667,375 and US$439,793 for the three-month periods ended September 30, 2016 and 2015, respectively, and US$1,511,433 and US$1,168,442 for the nine-month periods ended September 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) 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 September 30, 2016, the Company has a remaining commitment of RMB72.5 million (equivalent to US$10.9 million) mainly for facility construction.

In September 2016, HLJ Xinda Group and Sichuan Xinda entered into equipment purchase contracts with Harbin Hailezi Science and Technology Co., Ltd. ("Hailezi"). Subsequently, on November 7, 2016, in order to seek a better solution for equipment,  HLJ Xinda Group  and Sichuan Xinda agreed with Hailezi to partially terminate the abovementioned contracts such that the remaining consideration under these contracts with Sichuan Xinda are RMB15.4 million (equivalent to US$2.3million) to purchase storage facility and testing equipment. Sichuan Xinda has prepaid RMB6.0 million (equivalent to US$ 0.9million) and has a remaining commitment of RMB9.4 million (equivalent to US$1.4 million) as of September 30, 2016.


 
 
19

 

 
(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 September 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 September 30, 2016, the Company has a remaining commitment of US$0.9 million. On September 21, 2016, AL Composites entered into a plant purchase contract with Samin Group FZE for a total consideration of ADE55.3 million (equivalent to US$15.0 million). As of September 30, 2016, the Company has a remaining commitment of US$15.0 million.

(4)    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.  The lead plaintiffs filed their reply on October 7, 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 September 30, 2016 since the possible loss or range of loss cannot be reasonably estimated.

 
Note 20 – Recently issued accounting pronouncements

 
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. This standard will be effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-09 on its consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which addressed and provided guidance for each of eight specific cash flow issues with the objective of reducing the existing diversity in practice. This standard will be effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact of adopting ASU 2016-15 on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This standard required that companies recognize the income tax consequences of an intra-entity transfer of an asset (other than inventory) when the transfer occurs. Current guidance prohibits companies from recognizing current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard will be effective for public companies for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the impact this guidance may have on its consolidated financial statements.
 
 
 
20


 
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 390 certifications from manufacturers in the automobile industry as of September 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 487 professionals and 22  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 398 patents, 24 of which we have obtained the patent rights and the remaining 374 of which we have applications pending in China as of September 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).
 
 
21

 

 
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 September 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, mainly backed by production capacity in our Harbin production plant. We installed 50 production lines with production capacity of 60,000 metric tons in the second half year of 2016 in our Sichuan plant as of September 30, 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 customer 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 and September 21, 2016, AL Composite signed two purchase agreements pertaining approximately 20,206 square meters and 22,324 square meters property, respectively, in JAFZA in Dubai, UAE with constructed building including a warehouse, office and service block respectively.
 
Highlights for the three months ended September 30, 2015 include:

● Revenues were $331.8 million, an increase of 38.8% from $239.1 million in the third quarter of 2015
● Gross profit was $69.6 million, an increase of 137.5% from $29.3 million in the third quarter of 2015
● Gross profit margin was 21.0%, compared to 12.3% in the third quarter of 2015
● Net income was $20.2 million, compared to $6.0 million in the third quarter of 2015
● Total volume shipped was 108,633 metric tons, up 33.0% from 81,663 metric tons in the third quarter of 2015
 
 
22

 
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
         
Nine-Month Period Ended
       
   
September 30,
   
Change
   
September 30,
   
Change
 
   
2016
   
2015
   
%
   
2016
   
2015
   
%
 
Revenues
   
331.8
     
239.1
     
38.8
%
   
824.0
     
726.4
     
13.4
%
Cost of revenues
   
(262.2
)
   
(209.8
)
   
25.0
%
   
(659.2
)
   
(597.0
)
   
10.4
%
Gross profit
   
69.6
     
29.3
     
137.5
%
   
164.8
     
129.4
     
27.4
%
Total operating expenses
   
(16.5
)
   
(12.0
)
   
37.5
%
   
(39.7
)
   
(36.7
)
   
8.2
%
Operating income
   
53.1
     
17.3
     
206.9
%
   
125.1
     
92.7
     
35.0
%
Income before income taxes
   
25.5
     
9.3
     
174.2
%
   
80.0
     
68.7
     
16.4
%
Income tax expense
   
(5.3
)
   
(3.3
)
   
60.6
%
   
(15.1
)
   
(11.8
)
   
28.0
%
Net income
   
20.2
     
6.0
     
236.7
%
   
64.9
     
56.9
     
14.1
%

Three months ended September 30, 2016 compared to three months ended September 30, 2015

Revenues
 
Revenues were US$331.8 million in the third quarter ended September 30, 2016, an increase of US$92.7 million, or 38.8%, compared to US$239.1 million in the same period of last year, due to 33.0% increase in sales volume and 10.0% increase in the average RMB selling price of our products offset by approximately 6.0% negative impact from exchange rate due to weakening RMB against US dollars.

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 14.7% in the first nine months 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 133.3% in Central China and 300.3% in South China, domestic sales during the third quarter of 2016 increased by 27.2% as compared to the same period of the prior year.
 
Oversea sales was US$37.0 million in the third quarter of 2016 compared to US$7.3 million in the same period of the prior year due to the supply to a ROK customer in the third quarter of 2016. The ROK customer has made payment of US$5.1 million in the third quarter of 2016 with an outstanding balance of US$58.3 million, among which balance of US$34.9 million was overdue as of September 30, 2016.  The overdue payment was due to the ROK customer's expansion and tight funding. The management has taken actions to obtain undertaking from the ROK customer to make the payment in early December, 2016

 

23


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 September 30,
             
   
2016
   
2015
   
Change in
   
Change in
 
   
Amount
   
%
   
Amount
   
%
   
Amount
   
%
 
Modified Polyamide 66 (PA66)
   
70.1
     
21.1
%
   
55.7
     
23.4
%
   
14.4
     
25.9
%
                                                 
Modified Polyamide 6 (PA6)
   
78.8
     
23.7
%
   
50.7
     
21.2
%
   
28.1
     
55.4
%
                                                 
Plastic Alloy
   
114.2
     
34.4
%
   
74.5
     
31.2
%
   
39.7
     
53.3
%
                                                 
Modified Polypropylene (PP)
   
45.4
     
13.7
%
   
40.8
     
17.0
%
   
4.6
     
11.3
%
                                                 
Modified Acrylonitrile butadiene styrene (ABS)
   
10.5
     
3.1
%
   
10.7
     
4.5
%
   
(0.2
)
   
(1.9
)%
                                                 
Polyoxymethylenes (POM)
   
5.2
     
1.6
%
   
1.1
     
0.5
%
   
4.1
     
372.7
%
                                                 
Polyphenylene Oxide (PPO)
   
5.2
     
1.6
%
   
3.5
     
1.4
%
   
1.7
     
48.6
%
                                                 
Modified Polylactic acid (PLA)
   
1.2
     
0.4
%
   
-
     
0.0
%
   
1.2
     
n
/a
                                                 
Raw Materials
   
1.2
     
0.4
%
   
1.5
     
0.6
%
   
(0.3
)
   
(20.0
)%
                                                 
Others
   
-
     
0.0
%
   
0.6
     
0.2
%
   
(0.6
)
   
(100.0
)%
                                                 
Total Revenues
   
331.8
     
100
%
   
239.1
     
100
%
   
92.7
     
38.8
%

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 September 30,
             
   
2016
   
2015
   
Change in
   
Change in
 
   
MT
   
%
   
MT
   
%
   
MT
   
%
 
Modified Polyamide 66 (PA66)
   
17,527
     
16.1
%
   
13,467
     
16.5
%
   
4,060
     
30.1
%
                                                 
Modified Polyamide 6 (PA6)
   
23,603
     
21.7
%
   
14,629
     
17.9
%
   
8,974
     
61.3
%
                                                 
Plastic Alloy
   
33,450
     
30.8
%
   
26,176
     
32.1
%
   
7,274
     
27.8
%
                                                 
Modified Polypropylene (PP)
   
26,319
     
24.2
%
   
21,994
     
26.9
%
   
4,325
     
19.7
%
                                                 
Modified Acrylonitrile butadiene styrene (ABS)
   
4,299
     
4.0
%
   
4,264
     
5.2
%
   
35
     
0.8
%
                                                 
Polyoxymethylenes (POM)
   
1,695
     
1.6
%
   
329
     
0.4
%
   
1,366
     
415.2
%
                                                 
Polyphenylene Oxide (PPO)
   
810
     
0.7
%
   
490
     
0.6
%
   
320
     
65.3
%
                                                 
Modified Polylactic acid (PLA)
   
209
     
0.2
%
   
-
     
0.0
%
   
209
     
n
/a 
                                                 
Raw Materials
   
721
     
0.7
%
   
314
     
0.4
%
   
407
     
129.6
%
                                                 
Total Sales Volume
   
108,633
     
100
%
   
81,663
     
100
%
   
26,970
     
33.0
%




24




The Company continued to shift production mix from traditional Modified Polypropylene (PP) to higher-end products such as PA66, PA6, Plastic Alloy 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 September 30,
   
Change
 
(in millions, except percentage)
2016
   
2015
   
Amount
   
 %
 
Gross Profit
 
$
69.6
   
$
29.3
   
$
40.3
     
137.5
%
Gross Profit Margin
   
21.0
%
   
12.3
%
           
8.7
%
 
Gross profit was US$69.6 million in the quarter ended September 30, 2016 compared to US$29.3 million in the same period of 2015, representing an increase of 137.5%. Our gross margin increased to 21.0% during the quarter ended September 30, 2016 from 12.3% 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 September,
 
Change
 
(in millions, except percentage)
2016
 
2015
 
Amount
   
%
 
General and Administrative Expenses
 
$
8.4
   
$
5.8
   
$
2.6
     
44.8
%
as a percentage of revenues
   
2.5
%
   
2.4
%
           
0.1
%

General and administrative (G&A) expenses were US$8.4 million in the quarter ended September 30, 2016 compared to US$5.8 million in the same period in 2015, an increase of US$2.6 million, or 44.8%, This increase was primarily due to the increase of US$1.2 million in salary and welfare which was due to the increase in the number of management and general staff from supporting departments, US$0.6 million in commencement ceremony of Sichuan Xinda, US$0.2 million in rental fee and US$0.6 million of other miscellaneous expenses.

Research and Development Expenses

 
Three–Month Period Ended September 30,
 
Change
 
(in millions, except percentage)
2016
 
2015
 
Amount
 
%
 
Research and Development Expenses
 
$
7.9
   
$
5.8
   
$
2.1
     
36.2
%
as a percentage of revenues
   
2.4
%
   
2.4
%
           
0.0
%

R&D expenses were US$7.9 million in the quarter ended September 30, 2016 compared with US$5.8 million during the same period in 2015, an increase of US$2.1 million, or 36.2%, reflecting our continuous 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 September 30, 2016, the number of ongoing research and development projects was 196. 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.
 
 
25

 

 
Operating Income

Total operating income was US$53.1 million in the quarter ended September 30, 2016 compared to $17.3 million in the same period of 2015, representing an increase of 206.9% or US$35.8 million. This increase is primarily due to higher gross margin, partially offset by the higher general and administrative expenses and higher research and developed expenses.
 
Interest Income (Expenses)

   
Three-Month Period Ended September 30,
   
Change
 
(in millions, except percentage)
 
2016
   
2015
   
Amount
   
%
 
Interest Income
 
$
1.2
   
$
2.0
   
$
(0.8
)
   
(40.0
)%
Interest Expenses
   
(10.9
)
   
(10.3
)
   
(0.6
)
   
5.8
%
Net Interest Expenses
 
$
(9.7
)
 
$
(8.3
)
 
$
(1.4
)
   
16.9
%
as a percentage of revenues
   
(2.9
)%
   
(3.5
)%
           
0.6
%
 
Net interest expense was US$9.7 million for the three-month period ended September 30, 2016, compared to net interest expense of US$8.3 million in the same period of 2015, primarily due to (i) the decrease of interest income which was caused by the decrease of average interest rate of 1.4% for the three month period ended September 30, 2016 compared to 2.5% for the same period of  2015, which was partially offset by the increase of average deposit balance in the amount of US$355.8 million for the three months ended September 30, 2016 compared to US$306.8 million for the same period of 2015; and (ii) the increase of interest expense which was caused by the increase of short-term and long-term loans in the amount of US$666.3 million for the three months ended September  30, 2016 as compared to US$368.0 million of prior year, which was partially offset by the decrease of average interest rate 4.5% for the three months ended September 30, 2016 as compared to 5.2% for the three months ended September 30, 2015.

Loss on Debt Extinguishment
 
 
Three-Month Period Ended September 30,
 
Change
 
(in millions, except percentage)
2016
 
2015
 
Amount
   
%
 
Loss on Debt Extinguishment
 
$
19.0
   
$
-
   
$
19.0
     
n
/a
as a percentage of revenues 
    5.7 %     0.0 %             5.7 %
 
On August 29, 2016 (the "Redemption Date"), the Company fully redeemed all of its 11.75% guaranteed senior notes due on February 4, 2019 (the "Notes") plus accrued and unpaid interest to the redemption date.  The aggregate amount paid to redeem the Notes was US$166.6 million, plus accrued and unpaid interest to the redemption date, which resulted in a charge of U$19.0 million as loss on debt extinguishment in the third quarter of 2016.
 
Income Taxes
 
Three–Month Period Ended September 30,
 
Change
 
(in millions, except percentage)
2016
 
2015
 
Amount
   
%
 
Income before Income Taxes
 
$
25.5
   
$
9.3
   
$
16.2
     
174.2
%
Income Tax Expense
   
(5.3
)
   
(3.3
)
   
(2.0
)
   
60.6
%
Effective income tax rate
   
20.8
%
   
35.5
%
           
(14.7
)%
 
The effective income tax rate for the three-month periods ended September 30, 2016 and 2015 was 20.8% and 35.5%, respectively. The decrease was primarily due to the increase of US$17.4 million profits generated in tax exempted Dubai Composites for the three-month ended September 30, 2016 as compared to the same period of the prior year,  partially offset by the US$19.0 loss on notes redemption by Favor Sea Limited which is exempted from income taxes on August 29, 2016.
 
 
 
26


 
The effective income tax rate for the three-month period ended September 30, 2016 differs from the PRC statutory income tax rate of 25% primarily due to the effect of the preferential tax rate of Sichuan Xinda, the 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$298.9 million of cash and cash equivalents, restricted cash and time deposits as of September 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$20.2 million in the third quarter of 2016 compared to a net income of US$6.0 million in the same quarter of 2015.

Nine months ended September 30, 2016 compared to nine months ended September 30, 2015

Revenues

Revenues were US$824.0 million in the nine-month period ended September 30, 2016, an increase of US$97.6 million, or 13.4%, compared with US$726.4 million in the same period of last year, due to approximately 16.5% increase in sales volume and 2.6% decrease in the average selling price of our products.

For the nine-month ended September 30, 2016, we had an increase of 3.3% in the average RMB selling price of our products while the sales volume increased by 16.7% 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, PA66 and Plastic Alloy in China.

For the nine-month ended September 30, 2016 in the overseas market, we had a 1.9% increase in revenues due to the significant increase of 9.5% in sales volume, partially offset by 6.9% decrease in the average selling price as compared with those of last year.
 
 
27


 
The following table summarizes the breakdown of revenues by categories in millions of US$: 

(in millions, except percentage)
 
Revenues
For the Nine -Month Period Ended September 30,
             
   
2016
   
2015
             
   
Amount
   
%
   
Amount
   
%
   
Change in
Amount
   
Change in
%
 
Modified Polyamide 66 (PA66)
   
181.4
     
22.0
%
   
144.8
     
19.9
%
   
36.6
     
25.3
%
                                                 
Modified Polyamide 6 (PA6)
   
189.4
     
23.0
%
   
145.7
     
20.1
%
   
43.7
     
30.0
%
                                                 
Plastic Alloy
   
274.0
     
33.3
%
   
265.7
     
36.6
%
   
8.3
     
3.1
%
                                                 
Modified Polypropylene (PP)
   
128.4
     
15.6
%
   
124.9
     
17.2
%
   
3.5
     
2.8
%
                                                 
Modified Acrylonitrile butadiene styrene (ABS)
   
29.1
     
3.5
%
   
29.9
     
4.1
%
   
(0.8
)
   
(2.7
)%
                                                 
Polyoxymethylenes (POM)
   
6.9
     
0.8
%
   
2.5
     
0.3
%
   
4.4
     
176.0
%
                                                 
Polyphenylene Oxide (PPO)
   
11.4
     
1.4
%
   
9.7
     
1.3
%
   
1.7
     
17.5
%
                                                 
Modified Polylactic acid (PLA)
   
1.3
     
0.2
%
   
-
     
0.0
%
   
1.3
     
n
/a
                                                 
Raw Materials
   
2.1
     
0.2
%
   
2.6
     
0.4
%
   
(0.5
)
   
(19.2
)%
                                                 
Others
   
-
     
0.0
%
   
0.6
     
0.1
%
   
(0.6
)
   
(100.0
)%
                                                 
Total Revenues
   
824.0
     
100
%
   
726.4
     
100
%
   
97.6
     
13.4
%


 
28

The following table summarizes the breakdown of metric tons (MT) by product mix:

(in MTs, except percentage)
 
Sales Volume
For the Nine-Month Period Ended September 30,
             
   
2016
   
2015
             
   
MT
   
%
   
MT
   
%
   
Change in
MT
   
Change in
%
 
Modified Polyamide 66 (PA66)
   
44,571
     
16.2
%
   
34,256
     
14.5
%
   
10,315
     
30.1
%
                                                 
Modified Polyamide 6 (PA6)
   
55,376
     
20.2
%
   
41,009
     
17.3
%
   
14,367
     
35.0
%
                                                 
Plastic Alloy
   
84,365
     
30.7
%
   
78,675
     
33.4
%
   
5,690
     
7.2
%
                                                 
Modified Polypropylene (PP)
   
72,738
     
26.5
%
   
66,480
     
28.2
%
   
6,258
     
9.4
%
                                                 
Modified Acrylonitrile butadiene styrene (ABS)
   
11,936
     
4.3
%
   
11,755
     
5.0
%
   
181
     
1.5
%
                                                 
Polyoxymethylenes (POM)
   
2,245
     
0.8
%
   
737
     
0.3
%
   
1,508