Accounting & Tax

CDC Restates over Acquisition Accounting

Problems were uncovered during a change in auditors.
Stephen TaubMay 21, 2007

Mostly because of missteps involving deferred taxes associated with acquired entities, Software developer CDC will restate results for the three years ended December 2005 and adjust previously reported financial information for the year ended December 2006.

While the company expects to revise net income upward by a total of $5.9 million for the three-year period ended 2006. it doesn’t expect any material adjustments to 2003 net income. CDC also acknowledged that a material weakness existed in its internal controls over financial reporting as of December 31, 2006.

Based in Beijing and Atlanta, the company’s divisions include CDC Mobile, CDC Games, an enterprise applications and services unit called CDC Software, and a portals division, China.com.

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The company reported that the issues that led to the restatement were uncovered during a change in auditors, from Ernst & Young to Deloitte & Touche, and during a review of corporate initiatives that included a proposed carve-out of CDC Software.

CFO Mike Latimore asserted that the company “has aggressively moved to establish the financial foundation that will allow the company to scale into a much larger organization and capture the numerous growth opportunities that lie ahead in enterprise software, on-line games, and mobile content. We have made significant strides in improving our financial infrastructure and we will continue to make further improvements to our financial control environment.”

CDC also disclosed that in April, a court issued a verdict against the company regarding a breach-of-contract claim by NOW Solutions regarding the sale of a division of a subsidiary of the company to NOW. CDC added that it is awaiting the issuance of the final order and judgment by the court, at which time it will decide whether to appeal.

In addition, the company announced that CDC Corp. executive vice chairman and chief executive officer Peter Yip has stepped down as chief executive of the CDC Software division to assume the same role at CDC Games. The games division is also the subject of a proposed carve-out, noted the company, which added that the restatement will not affect that transaction.

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