August 6, 2009
Arabian American Development Announces Second Quarter 2009
Financial Results
First Half 2009 Net Income Increases 46.8% Year over
Year
DALLAS, Aug. 6 /PRNewswire-FirstCall/ -- Arabian
American Development Co. (Nasdaq: ARSD - News) today announced
financial results for the quarter and six months ended June 30,
2009.
Financial and Operational Highlights
Sales volume of petrochemical products for the
second quarter of 2009 increased approximately 11.7% compared to
the same period in 2008.
Net Income for the Quarter Ended June 30, 2009 was
$2.6 million and for the six months ended June 30, 2009 increased 46.8%
to $6.7 million or $0.28 per basic and diluted share compared to
net income of $4.6 million, or $0.20 per basic and $0.19 per
diluted share for the prior-year period.
Gross profit for the three months ended June 30,
2009, and comparable period in 2008 was $5.8 million and $1.4
million, respectively (excluding realized and unrealized net
hedging gains of $603,000 and $5.4 million), resulting in Gross
Margin of 20.4%
Gross profit for the six months ended June 30, 2009
and comparable period in 2008 was $14.3 million and $4.0 million,
respectively (excluding realized and unrealized net hedging gains
of $1.1 million and $7.7 million)
Nicholas Carter succeeded Hatem El Khalidi as
President and CEO of ARSD effective July 1, 2009.
The South Hampton Resources petrochemical plant
expansion is processing at approximately 60% of new capacity. This
is lower on a percentage basis due to the increased baseline
capacity of 123% completed in 2008.
ARSD was added to the Russell Microcap� Index on
June 30, 2009, and will remain there for one year. This means
automatic inclusion in the appropriate growth and value style
equity indexes.
ARSD filed a $20 million shelf S-3 Registration
Statement for working capital and strategic opportunities in the
specialty chemical area.
Second Quarter 2009 Financial Results
Consolidated
revenue for the quarter ended June 30, 2009 decreased 32.9% to
$28.6 million, compared to revenue of $42.6 million in the second
quarter of 2008 and a 4.3% sequential increase compared to revenue
of $27.4 million in the first quarter of 2009. Excluding
transloading revenues of $1.2 million generated in the second
quarter, revenues for the second quarter were $27.4 million, a
20.8% decrease from the year-ago period and a 14.2% sequential
increase compared to first quarter 2009. Petrochemical product
sales (predominantly C5 and C6 hydrocarbons and related products)
represented $26.5 million, or 92.6%, of total revenue for the
second quarter of 2009 and $33.5 million, or 78.7% of total revenue
for the second quarter last year.. Petrochemical sales were down
dollarwise in the quarter due to lower prices to our customers,
however from a volume standpoint, increased 11.7% for the quarter.
The Company generated $0.9 million in toll processing fees during
the second quarter of 2009 compared with $1.0 million for the prior
year's second quarter. Toll processing customers are active and
remain on long-term contracts.
During the
second quarter of 2009, the cost of petrochemical sales and
processing (including depreciation) decreased approximately $13.6
million or 38.0% compared to the same period in 2008. Consequently,
total gross profit margin on revenue for the second quarter of 2009
decreased approximately $400,000, or 6.1%, to $6.4 million, from
$6.8 million for the same period in 2008. The slight decrease in
gross profit margin for the period was due to a significant
decrease in the realized and unrealized gains in the second
quarter. The cost of petrochemical product sales and processing and
gross profit for the three months ended June 30, 2009, includes an
unrealized gain of approximately $603,000. The unrealized gain
represents a reversal of write downs in previous periods and the
changing value of those instruments still outstanding. The
outstanding instruments, crude oil call options and offsetting put
options will have no future cash effect. The cost of petrochemical
product sales and processing and gross profit for the three months
ended June 30, 2008 includes an unrealized gain of approximately $2.6
million and a realized gain of approximately $2.8 million for a net
gain effect of approximately $5.4 million. Excluding realized and
unrealized net gains of $603,000 and $5.4 million, respectively,
from derivatives for the three months ended June 30, 2009, and June
30, 2008, gross profit would have been $5.8 million and $1.4
million respectively.
General
and administrative costs for the second quarter of 2009 increased
approximately $72,000 as compared to the same period in 2008 due
primarily to expensing expenditures in Saudi Arabia versus their
capitalization in the prior year.
The Company reported net income in the second quarter of 2009 of
$2.6 million or $0.11 per basic and diluted share (based on 23..7
million and 24.0 million weighted average number of shares
outstanding, respectively). This compares to net income of $3.2
million, or $0.14 per basic and $0.13 per diluted share for second
quarter of 2008 (based on 23.5 million and 23.9 million weighted
average number of shares outstanding, respectively).
Nick
Carter, President and Chief Executive Officer, commented,
"Sales volume is really a key metric in our business and sales
volume of petrochemical products for the second quarter of 2009
versus 2008 increased approximately 11.7%." Mr. Carter continued,
"Demand remained strong for most products through the first
six months of 2009. Our expanded South Hampton Resources processing
facilities ran at 54% of the new, expanded capacity per calendar
day for the first half of the year. For the second quarter of 2009,
the process ran at 60%, and we are picking up volume from top tier
customers that are utilizing our increased capacity. In addition,
the Company continues to pursue export opportunities with current
sales in Australia, Brazil, Europe and the Middle East, as well as
other areas. A marketing office has been opened in Europe to better
serve customers in the Eastern Hemisphere and for the six months
ended June 30, 2009, we saw international sales volume increase
43.4% over the same period in 2008. Personnel were moved to Europe
on assignment in June 2009.
"Transloading
is the only area of our business that has shown a slow down because
it is simply a service business related to the strength of the
crude oil market. Transloading sales for the second quarter of 2009
decreased 85.0% due to the contract expiration of the transloading
venture undertaken by the Company in April 2008. The contract
expired in April 2009 and was not renewed because the market for
crude oil fell to comparatively low levels in the latter part of
2008. This portion of our business is low margin and only generated
gross margin of about $405,000 for the first six months of 2008 and
$606,000 for the same period in 2009. Of course, the amount making
its way to the bottom line was even less. Therefore, we do not
anticipate the reduction in revenue from transloading to
significantly impact our profitability for the year. Certain
customers have recently approached the Company about a possible
contract for the 2010 calendar year, and negotiations are underway
to secure other contracts. This business is good if we can make use
of existing facilities and manpower in an efficient manner, but
it's not a key component of our operation."
Year-to-Date
2009 Financial Results
Consolidated
revenue for the six months ended June 30, 2009 decreased 24.2% to
$56.0 million, compared to revenue of $73.8 million in the same
period in 2008. Excluding transloading revenues of $4.6 million
generated in the period ended June 30, 2009, revenues were $51.4 million,
a 21.9% decrease from $65.8 million in the year-ago period, which
excluded $8.0 million in transloading revenues. Petrochemical
product sales (predominantly C5 and C6 hydrocarbons and related
products) represented $49.5 million, or 88.5%, of total revenue for
the six months ended June 30, 2009, down 22.2% compared to
petrochemical product sales of $63.7 million, or 86.2% of total
revenue for the six months ended June 30, 2008. Sales decreased on
a dollar basis but saw significantly higher margins given pricing
strength and feedstock price declines. Petrochemical sales volume
for the six months decreased 12.2%. The Company generated $1.8
million in toll processing fees during the six months ended June
30, 2009, which is a decrease of 15.1% compared to $2.1 million in
the year-ago period.
Total
gross profit margin on petrochemical product sales, transloading
sales and processing during the first six months of 2009 increased
approximately $3.7 million as compared to the same period in 2008.
The cost of petrochemical product sales and processing and gross
profit margin for the six month period ending June 30, 2009,
includes an estimated unrealized gain of approximately $7.0
million, a realized loss of $5.9 million for a net gain effect of
approximately $1.1 million. The cost of petrochemical product sales
and processing and gross profit margin for the six month period
ending June 30, 2008, includes an estimated unrealized gain of
approximately $4.6 million, a realized gain of $3.1 million for a
net gain effect of approximately $7.7 million. Excluding realized
and unrealized net gains of $1.1 million and $7.7 million,
respectively, from derivatives for the six months ended June 30,
2009, and June 30, 2008, gross profit would have been $14.3 million
and $4.0 million respectively.
General
and administrative costs for the first half of 2009 decreased
approximately $522,000 as compared to the same period in 2008. This
decrease is primarily attributable to approximately $579,000 less
expense related to post-retirement benefits, directors' fees, and
officer compensation, an increase of $94,000 related to Saudi
expenses, and a decrease of approximately $29,000 in insurance
costs.
For the first half 2009, net income attributable to Arabian
American Development increased 46.8% to $6.7 million, or $0.28 per
basic and diluted share (based on 23.7 million and 23.9 million
weighted average shares outstanding, respectively) compared to net
income of $4.6 million, or $.20 per basic and $0.19 per diluted
share (based on 23.3 million and 23.7 million weighted average
shares outstanding, respectively) for the year-ago period.
The
Company completed the quarter with $2.2 million in cash and cash
equivalents compared to $2.8 million as of December 31, 2008. Trade
receivables increased during the first six months by $0.7 million
to $12.6 million due to increased credit terms being extended to
foreign customers. The average collection period remains normal for
the business. Inventories increased from December 31, 2008 due to
an increase in the volume and price of inventory the Company had on
hand at the end of the period. Derivative instruments decreased
from a current liability of approximately $8.7 million to $1.1
million due to settlements of instruments during the first half of
2009 and changes in fair value of contracts on hand at June 30,
2009.
The Company had $15.1 million in working capital as of June 30,
2009 and ended the quarter with a current ratio of 2.4 to 1.
Property, Pipeline and Equipment remained relatively unchanged from
December 31, 2008. Shareholders' equity increased 15.2 % at June
30, 2009 to $54.3 million from $47.1 million as of December 31,
2008.
In further
developments on the mining project in Saudi Arabia, the Company
disclosed in the first quarter 2009 10-Q that during an April 2009
AMAK Board meeting, a Saudi director, who is also an AMAK
shareholder, questioned the validity of the Partnership Agreement
between the Company and several of the Saudi investors which has
been relied upon by the Company as the operating document since it
was signed. The issues raised include: discrepancies between the
terms of the original Memorandum of Understanding and the
Partnership Agreement; an allegation that various signatures for
one or more of the Saudi investors on the Partnership Agreement were
not authorized; the Saudi attorney that prepared the Partnership
Agreement exceeded his authority; and whether the Company's capital
contribution for 50% of AMAK's stock is fully paid. The Company has
relied upon the Partnership Agreement for the past year and has not
been accused of any wrongdoing.
Subsequently,
with regard to settlement of the AMAK Partnership Agreement
dispute, the Board of Directors of the Company determined that
while the documents relating to the formation of AMAK were poorly
written and ambiguous in certain areas, a business decision should
be made to settle the dispute and move the project forward rather
than spend time and legal fees resolving the issues in the judicial
arena of Saudi Arabia with the outcome uncertain and potentially
damaging to the progress of the venture. The Company and Saudi
investors therefore reached a tentative oral agreement. The
significant terms include a) changing the ownership structure to a
41/59% split, b) transfer of the $11 million dollar note from ARSD
to AMAK, and c) removing any potential obligation for ARSD to
contribute further capital to the project. More detail of the
agreement is in the second quarter 10-Q. The terms and conditions
were reduced to writing and forwarded to the Saudi investors for
signature. Once the agreement has been executed by all Saudi
investors, it will be disclosed by the Company pursuant to an 8-K
filing.
Mr. Carter
commented on this development, "The decision came down to
whether it was in the best interest of the Company to move forward
at a reduced equity level, assuring there would be no further need
for capital contributions, or whether we should get into a
protracted legal battle on foreign soil with an unknown outcome. We
chose to compromise in a way that we feel is beneficial for the
long term and are looking forward to the project moving ahead on a
positive basis."
Management
will conduct a conference call and live web cast at 4:30 p.m.
Eastern Time, on Thursday, August 6, 2009. Anyone interested in
participating should call 877-941-1848 if calling within the United
States or 480-629-9722 if calling internationally. There will be a
playback available until August 13, 2009. To listen to the
playback, please call 800-406-7325 if calling within the United
States or 303-590-3030 if calling internationally. Please use pin
number 4131340 for the replay.
A link to
a simultaneous webcast of the teleconference will be available at
www.arabianamericandev.com through Windows Media Player or
RealPlayer.. A replay of the call will also be available through
the same link.
About
Arabian American Development Company (ARSD)
ARSD owns
and operates a petrochemical facility located in southeast Texas
which specializes in high purity petrochemical solvents and other
solvent type manufacturing that is used by manufacturers of
packaging products and other industrial uses. The Company is also
the original developer and an equity investor in a Saudi Arabian
joint stock company involving a mining project in the Al-Masane
area of Saudi Arabia which is currently under construction. The
mine is scheduled to be in production in late 2010 and will produce
economic quantities of zinc, copper, gold, and silver.
Statements
in this release that are not historical facts are forward looking
statements as defined in the Private Securities Litigation Reform
Act of 1995. Forward looking statements are based upon management's
belief as well as assumptions made by and information currently
available to management. Because such statements are based upon
expectations as to future economic performance and are not
statements of fact, actual results may differ from those projected.
These risks, as well as others, are discussed in greater detail in
Arabian American's filings with the Securities and Exchange
Commission, including Arabian American's Annual Report on Form 10-K
for the year ended December 31, 2008 and the Company's subsequent
Quarterly Reports on Form 10-Q.
Nick
Carter, President and Chief Executive Officer
Cameron
Donahue Hayden IR
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