Keyuan Petrochemicals Inc. Announces Fourth Quarter and Full Year 2010 Financial Results
- 2010 Revenues increased 714% YOY to $558.8 million
- 2010 Net Income increased to $37.1 million, surpassing its $36.3 million guidance
- 2010 Cash Flows from Operations were $2.4 million with $127.4 million in cash and restricted bank deposits on the balance sheet on December 31, 2010
- Company expects to file its first half 2011 financial results by end of October, which will be accompanied by a shareholder update and guidance
NINGBO, China, Oct. 20, 2011 /PRNewswire-Asia-FirstCall/ -- Keyuan Petrochemicals Inc. (OTC: KEYP), ("Keyuan" or "the Company"), a leading manufacturer and supplier of various petrochemical products in China, today announced the Company's financial results for the full year of 2010.
"Our full year 2010 revenues, sales volume and net income were at or slightly ahead of our forecasts," declared Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Demand for our products in 2010 were strong, as reflected by our production facilities operating at full capacity during the majority of 2010."
The Company achieved several milestones during the last twelve months:
- The Company successfully ramped commercial production of petrochemicals using its proprietary catalytic pyrolysis process. In the twelve months ended December 31, 2010, Keyuan manufactured 635,782 MT of petrochemicals compared to 93,222 MT in the corresponding period in 2009.
- On January 25, 2011, the Company received approval for a utility patent from the National Intellectual Property Bureau in China. The Company's proprietary production process, called multiple ethylene propylene ("MEP") improves the manufacturing efficiency and flexibility for a variety of petrochemicals.
- Keyuan commenced construction of its first Styrene-Butadiene-Styrene ("SBS") production facility adjacent to its existing production facility in September 2010. The facility, completed in September 2011, will have an annual production capacity of 70,000 metric tons.
Full Year 2010 Financial Results
For the twelve months ended December 31, 2011, the Company sold 658,570 metric tons (MT) of petrochemical products, up 777.1% from 75,081 MT of products sold last year. Revenues for the twelve months ended December 31, 2010 totaled $558.8 million, up 714% from $68.7 million of revenues in the full year 2009. For the twelve months of 2010, cost of goods sold was $490.9 million, with gross profit of $67.8 million. Gross margin was 12.1% for the twelve months of 2010 compared to a loss in the corresponding period last year.
Operating expenses for the twelve months of 2010 were approximately $10.1 million, consisting of $0.6 million in selling expenses and $9.5 million in general and administrative expenses. Operating income totaled $57.7 million, with operating margins of approximately 10.3%, compared to an operating loss of $9.4 million during the twelve months of 2009. Excluding approximately $1.5 million of non-cash stock compensation expenses, operating income and operating margin in fiscal 2010 were $59.2 million and 10.6%, respectively. Net income for the twelve months of 2010 was $37.1 million with corresponding earnings per share of $0.66 based on 56.1 million weighted average diluted shares outstanding. The net loss of $8.8 million was reported for the twelve months ended December 31, 2009.
The Company had $127.4 million of cash and restricted cash at December 31, 2010 compared to $20.0 million at December 31, 2009. For the twelve months of 2010, the Company generated $2.4 million in cash flow from operations compared to $46.3 million of net cash used for operations in fiscal 2009. Inventories were $86.8 million at December 31, 2010 and advance payments for the suppliers amounted to $14.1 million. The Company had no accounts receivable at December 31, 2010 as 86% of its sales are done through distributors who pay the entire purchase price prior to shipment. The Company completed a $26.2 million private placement in May 2010, in addition to a $20.3 million raise in September 2010.
*Quarterly financial summaries for 2010 will be provided once they are finalized.
Year-to-date 2011 Business Updates
Operations during the nine months ended September 30, 2011 were negatively impacted by three factors: rising raw materials costs, lower global demand for petrochemicals, and production disruptions. Due to mandatory shutdowns enacted by the local government, production was suspended for 25 days in the second quarter of 2011 and 19 days in the third quarter of 2011. Additionally, from April 2011 to September 2011, Management expended considerable resources on the Independent Investigation commenced by our Audit Committee. The Company incurred approximately $5 million of one-time expenses related to this investigation.
These forces had a negative impact on the Company's revenues and margins. Therefore, although sales increased by approximately 19% for the six months ended June 30, 2011, Keyuan experienced a decrease in profits compared to 2010. The Company will provide additional details when it reports first half 2011 results at the end of October.
GHP Horwath, P.C., hired as the Company's new independent auditor on July 5, 2011, completed the full year 2010 audit. In addition, Keyuan will file amended financial results for the second and third quarter of 2009 once Patrizio & Zhao, LLC, the Company's prior auditor, completes the review.
Corporate Governance Updates
During the process of preparing the Company's annual audit for the year ended December 31, 2010, KPMG, the Company's former independent auditor, raised certain issues related to certain unexplained cash transactions and recorded sales and requested the Company's Audit Committee to conduct an independent investigation. The Audit Committee engaged Pillsbury Winthrop Shaw Pittman LLP ("Pillsbury"), Deloitte Financial Advisory Services LLP ("Deloitte"), and King & Wood to conduct an independent investigation of the issues raised by KPMG.
The Investigation Team completed the investigation on September 28, 2011 and submitted the findings to the Company's Audit Committee. On October 3, 2011, the Company provided the Nasdaq Hearings Panel (the "Panel") with a copy of the final investigation report. The Company was notified on October 5, 2011 that the Panel exercised its discretionary authority pursuant to NASDAQ Listing Rule 5101 to delist the Company's securities from the Nasdaq Stock Market. As a result, the Company's shares resumed trading in the Pink Sheets under the ticker symbol KEYP.PK beginning October 7, 2011.
The Company has taken comprehensive remedial actions to improve its internal controls and procedures and corporate governance. These include but are not limited to hiring Mr. Fan Zhang as VP of Accounting/Chinese CFO to replace Mr. Xue, the former Chinese CFO; engaging an outside firm to assist with SOX-404 compliance; restructuring the accounting department; providing the accounting staff with additional training in U.S. GAAP; hiring additional qualified accounting personnel; and implementing new procedures for identifying and approving potential related party transactions.
About Keyuan Petrochemicals, Inc.
Keyuan Petrochemicals, Inc., established in 2007 and operating through its wholly-owned subsidiary, Keyuan Plastics, Co. Ltd., is located in Ningbo, China and is a leading independent manufacturer and supplier of various petrochemical products. Having commenced production in October 2009, Keyuan's operations include an annual petrochemical manufacturing design capacity of 720,000 MT for a variety of petrochemical products, with facilities for the storage and loading of raw materials and finished goods, and a technology that supports the manufacturing process with low raw material costs and high utilization and yields. In order to meet increasing market demand, Keyuan plans to expand its manufacturing capacity to include a SBS production facility, additional storage capacity, a raw material pre-treatment facility, and an asphalt production facility.
Cautionary Statement Regarding Forward-Looking Information
This press release may contain certain "forward-looking statements" relating to the business of Keyuan Petrochemicals, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding the impact of the proceeds from the private placement on the Company's short term business and operations, the general ability of the Company to achieve its commercial objectives, including the ability of the Company to sustain growth; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov ). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
For more information, please contact:
Investor Relations: |
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MZ North America |
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Ted Haberfield, President |
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Tel: +1-760-755-2716 |
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Email: [email protected] |
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Web: www.mz-ir.com |
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Mr. Andrew Haag, Managing Partner, USA |
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Hampton Growth, LLC |
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Tel: +1-877-368-3566 |
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Email: [email protected] |
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KEYUAN PETROCHEMICALS, INC. AND SUBSIDIAIRES |
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CONSOLIDATED BALANCE SHEETS |
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ASSETS |
2010 |
2009 |
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Current assets: |
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Cash |
$ 29,336,241 |
$ 14,030,655 |
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Pledged bank deposits |
98,053,146 |
6,012,690 |
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Bills receivable |
9,194,513 |
400,491 |
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Inventories |
86,831,556 |
30,777,622 |
|
Prepayments to suppliers |
14,071,219 |
7,417,202 |
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Consumption tax refund receivable |
39,144,688 |
- |
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Amounts due from related parties |
5,332,193 |
261,493 |
|
Other current assets |
28,608,833 |
16,652,903 |
|
Deferred income tax assets |
469,914 |
3,486,922 |
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Total current assets |
311,042,303 |
79,039,978 |
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Property, plant and equipment, net |
129,781,304 |
133,644,791 |
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Intangible assets, net |
1,045,466 |
1,110,030 |
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Land use rights |
11,099,875 |
5,265,535 |
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Total assets |
$ 452,968,948 |
$ 219,060,334 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Short-term bank borrowings |
$ 135,768,634 |
$ 82,885,500 |
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Bills payable |
60,224,900 |
13,719,134 |
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Current portion of long-term bank borrowings |
17,445,500 |
7,628,400 |
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Accounts payable |
92,225,936 |
2,171,572 |
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Advances from customers |
10,479,217 |
13,375,056 |
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Accrued expenses and other payables |
18,205,110 |
46,737,820 |
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Income taxes payable |
10,699,778 |
- |
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Dividends payable |
234,393 |
- |
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Amounts due to related parties |
115,535 |
4,506,369 |
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Total current liabilities |
345,399,003 |
171,023,875 |
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Long-term bank borrowings |
15,170,000 |
37,408,500 |
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Total liabilities |
$ 360,569,003 |
$ 208,432,375 |
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Series B convertible preferred stock: |
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Par value: $0.001; Authorized: 5,400,010 shares, 6% cumulative dividend, |
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Issued and outstanding: 5,400,010 shares in 2010, liquidation preference of $20,250,000 |
16,701,565 |
- |
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Commitments and contingencies |
- |
- |
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Stockholders’ equity: |
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Series M convertible preferred stock: |
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Par value: $0.001; Authorized: 47,658 shares; |
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Issued and outstanding: nil in 2010 and 47,658 shares in 2009 |
- |
48 |
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Common stock: |
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Par value: $0.001; Authorized: 100,000,000 shares; |
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Issued and outstanding: 57,577,840 shares in 2010, and nil in 2009 |
57,578 |
- |
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Additional paid-in capital |
47,012,061 |
20,229,949 |
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Statutory reserve |
3,075,356 |
- |
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Accumulated other comprehensive income |
3,310,416 |
1,062,781 |
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Retained earnings (deficit) |
22,242,969 |
-10,664,819 |
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Total stockholders’ equity |
75,698,380 |
10,627,959 |
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Total liabilities and stockholders' equity |
$ 452,968,948 |
$ 219,060,334 |
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KEYUAN PETROCHEMICALS, INC. AND SUBSIDIAIRES |
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CONSOLIDATED STATEMENT OF OPERATIONS |
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Year Ended |
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December 31, 2010 |
December 31, 2009 |
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Sales |
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Third parties |
446,891,336 |
47,161,960 |
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Related parties |
111,860,732 |
21,491,643 |
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Total Sales |
558,752,069 |
68,653,603 |
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Cost of sales |
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Third parties |
388,846,702 |
56,363,391 |
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Related parties |
102,076,731 |
18,948,204 |
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Cost of sales |
490,923,433 |
75,311,595 |
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Gross profit (loss) |
67,828,636 |
(6,657,992) |
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------------------------------- |
----------------------------- |
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Selling expenses |
623,652 |
24,836 |
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General and administrative expenses |
9,517,814 |
2,714,093 |
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Total operating expenses |
10,141,466 |
2,738,929 |
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Income (loss) from operations |
57,687,170 |
(9,396,921) |
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Other income (expense): |
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Interest income |
556,159 |
84,778 |
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Interest expense |
(9,945,389) |
(2,116,761) |
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Foreign exchange gain (loss), net |
2,711,984 |
(5,666) |
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Other expense, net |
(396,797) |
(342,849) |
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Total other expense, net |
(7,074,043) |
(2,380,498) |
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Income (loss) before income taxes |
50,613,127 |
(11,777,419) |
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Income tax expense (benefit) |
13,492,704 |
(2,944,350) |
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Net income (loss) attributable to Keyuan |
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Petrochemicals Inc. stockholders |
37,120,423 |
(8,833,069) |
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Dividends to Series A convertible |
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preferred stockholders |
831,032 |
- |
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Dividends to Series B convertible |
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preferred stockholders |
306,247 |
- |
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Net income (loss) attributable to Keyuan |
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Petrochemicals Inc. common stockholders |
35,983,144 |
(8,833,069) |
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Earnings (loss) per share: |
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Attributable to common stock: |
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- Basic |
0.71 |
- |
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- Diluted |
0.66 |
- |
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Weighted average number of shares of common stock used in calculation |
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Basic |
50,929,526 |
- |
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Diluted |
56,057,994 |
- |
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KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
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Year Ended |
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December 31, 2010 |
December 31, 2009 |
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Cash flows from operating activities: |
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Net income (loss) |
$ 37,120,423 |
$ (8,833,069) |
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Adjustments to reconcile net income (loss) to net cash |
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provided by (used in) operating activities: |
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Depreciation |
7,909,613 |
121,712 |
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Amortization |
99,859 |
98,412 |
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Land use rights amortization |
274,589 |
168,381 |
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Deferred income tax expense (benefit) |
3,058,129 |
(2,944,350) |
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Share-based compensation expense |
1,515,907 |
- |
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Changes in operating assets and liabilities: |
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Bills receivable |
(8,562,744) |
(400,245) |
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Inventories |
(53,641,596) |
(30,758,740) |
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Prepayments to suppliers |
(11,295,931) |
(7,412,651) |
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Consumption tax refund receivable |
(38,174,457) |
- |
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Other current assets |
2,086,940 |
(16,515,855) |
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Accounts payable |
58,179,877 |
2,768,180 |
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Advances (to) from customers |
(6,357,494) |
16,539,489 |
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Income taxes payable |
10,434,575 |
- |
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Accrued expenses and other payables |
(228,610) |
893,992 |
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Net cash provided by (used in) operating activities |
2,419,080 |
(46,274,744) |
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Cash flows from investing activities: |
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Purchase of land use rights |
(5,789,302) |
- |
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Purchase of property, plant and equipment, |
(12,706,733) |
(41,722,805) |
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Net cash used in investing activities |
(18,496,035) |
(41,722,805) |
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Cash flows from financing activities: |
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Pledged bank deposits used for bank borrowings |
(89,559,311) |
(6,009,001) |
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Proceeds from short-term bank borrowings |
176,683,746 |
85,766,850 |
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Repayment of short-term bank borrowings |
(127,866,341) |
(2,932,200) |
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Proceeds from bank notes |
77,816,440 |
21,041,218 |
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Repayment of bank notes |
(32,919,357) |
(7,330,500) |
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Repayments of long-term bank borrowings |
(13,610,480) |
- |
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Short-term financing from related parties |
30,839,377 |
18,550,629 |
|
Short-term financing to related parties |
(30,949,048) |
(18,550,629) |
|
Short-term financint to/from Litong (Note 24) |
(961,610) |
952,965 |
|
Repayments to related parties |
- |
(8,224,165) |
|
Capital contribution from stockholders |
220,000 |
9,665,472 |
|
Proceeds from Series A Private Placement, net |
23,312,091 |
- |
|
Proceeds from Series B Private Placement, net |
18,949,232 |
- |
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Repurchase of common stock |
(400,000) |
- |
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Dividends paid |
(902,886) |
- |
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Net cash provided by financing activities |
30,651,853 |
92,930,639 |
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Effect of foreign currency exchange rate changes on cash |
730,688 |
3,028 |
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Net increase in cash |
15,305,586 |
4,936,118 |
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Cash at beginning of year |
14,030,655 |
9,094,537 |
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Cash at end of year |
$ 29,336,241 |
$ 14,030,655 |
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Supplemental disclosure of cash flow information: |
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Income taxes paid |
- |
- |
|
Interest paid, net of capitalized interest |
$ 9,945,389 |
$ 2,116,761 |
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Non-cash investing and financing activities: |
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Issuance of warrants to placement agent in connection with |
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Series A Private Placement |
349,683 |
- |
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Issuance of warrants to placement agent in connection with |
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Series B Private Placement |
534,341 |
- |
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Payable for purchase of property, plant and equipment |
- |
45,374,656 |
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Reclassification of input VAT from property, plant and equipment to |
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other current assets |
13,006,984 |
- |
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SOURCE Keyuan Petrochemicals, Inc.
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