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Keyuan Petrochemicals Inc. Announces Third Quarter 2011 Financial Results

-- Q3 2011 revenues increased 8.9% YOY to approximately $164.7 million

-- $20.7 million Cash Flows from Operations in first nine months of 2011

-- Reaffirms FY 2011 revenue and production guidance of $625.0 million and 570,000 MT, respectively

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NINGBO, China, Nov. 22, 2011 /PRNewswire-Asia-FirstCall/ -- Keyuan Petrochemicals Inc. (OTC: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China, today announced the Company's financial results for the nine months ended September 30, 2011.

"Our first nine months 2011 revenues benefitted from solid customer demand and expanded production capacity," declared Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Although our margins were negatively impacted by higher raw materials costs and one-time legal and administrative expenses related to the investigation, we generated strong cash flows, which allow us to continue funding our growth initiatives. With our new SBS production facility ramping into commercial production later this month, I believe Keyuan's core earnings potential continues to improve."

Financial Summary



Q3 2011

Q3 2010

Chg.

YTD 2011

YTD 2010

Chg.

Net Revenues

$164.7M

$151.3M

8.9%

$462.3M

$400.7M

15.4%

Gross Profits

($3.4M)

$32.8M

(110.3%)

$11.1M

$50.2M

(77.9%)

Net Income (loss)(a)

($11.0M)

$20.7M

(152.8%)

($8.2M)

$29.7M

(127.6%)

EPS (Diluted)

($0.19)

$0.37

--

($0.14)

$0.57

--

Adjusted Net Income(a)

($7.1M)(1)

$21.2M

(133.5%)

($0.6M)(2)

$30.4M

(102.1%)

Adjusted EPS (Diluted)

($0.12)(1)

$0.37

(132.4%)

($0.01)(2)

$0.57

(101.8%)

Diluted Shares O/S

57.6M

57.9M

(1%)

57.6

53.6

7.5%








(1) Q3 2011 Adjusted net income and EPS (Non-GAAP) excludes approximately $0.4 million of non-cash stock compensation expenses; $1.8 million of legal expenses related to the independent investigation; and $1.4 million accrued liquidated damages expense.

(2) YTD 2011 Adjusted net income and EPS (Non-GAAP) excludes approximately $1.7 million of non-cash stock compensation expenses; $3.5 million of legal expenses related to the independent investigation; and $2.7 million accrued liquidated damages expense.


(a) Net Income (loss) attributable to KEYP common stockholders.



Third Quarter 2011 Financial Results

Sales for the third quarter ended September 30, 2011 were $151.3 million, an increase of $13.3 million, or 8.9%. The Company sold 162,552 metric tons (MT) of petrochemical products at an average price of $1,013 per metric ton compared to 181,282 MT and $835 per MT, respectively, in the third quarter of 2010.

In third quarter of 2011, Keyuan incurred production interruptions related to an unexpected power grid upgrade conducted by a local government utility agency. This resulted in 19 days of lost production, equating to approximately 41,000 tons of production, approximately $40 million of revenues. In addition, as a result of the power shutdown, we were forced to hold onto raw materials that we had already purchased during the period of production suspension during which time the sale price of our products decreased as a result of decreased raw material prices following the shutdown.

Cost of goods sold was $168.0 million compared to $118.6 million in the third quarter of 2010, with a gross margin loss of $3.4 million compared to a gross profit of $32.7 million in the same period a year ago. The loss was mainly due to the higher cost of sales and the increase in legal, consulting and investigation expenses, in addition to a 19 day suspension of production caused by the upgrade of the local power grid. The higher cost of sales was mainly caused by the timing of the Company's procurement of raw materials.

Operating expenses for the third quarter of 2011 were approximately $5.3 million, consisting of $0.1 million in selling expenses and $5.2 million in general and administrative expenses. General and administrative expenses were higher by approximately $3.1 million year-over-year due to $0.4 million of non-cash stock compensation expenses and $1.8 million related to the independent investigation. The Company incurred a $8.7 million loss from operations in the three months ended September 30, 2011 compared to a $30.5 million operating income in the corresponding period a year ago.

Net loss attributable to common shareholders was $11.0 million for the third quarter of 2011, with diluted loss per share of $0.19 compared to $21.2 million and $0.37 in the third quarter of 2010. Non-GAAP adjusted net loss and net loss per share for were $7.1 million and $0.12, respectively, for the third quarter of 2011. The weighted average shares outstanding decreased slightly from 57.9 million a year ago to 57.6 million in the third quarter of 2011.

Year-to-Date 2011 Financial Results

For the nine months ended September 30, 2011, sales were approximately $462.3 million compared to $400.7 million for the nine months ended September 30, 2010. The Company sold 447,147 metric tons (MT) of petrochemical products, down 7.2% from 481,983 MT of products sold in the corresponding period in 2010. The average sales price per metric ton was $1,034 during the first nine months of 2011, a 24.4% increase from $829 per metric ton in the first nine months of 2010.

Cost of goods sold increased 41.7% in the nine months ended September 30, 2011 to $168 million. Gross margin fell to 2.4% from 12.5% in the corresponding period a year ago due to higher raw material prices.

Operating expenses for the nine months of 2011 were approximately $13.8 million compared to $4.6 million a year ago due to $1.7 million of non-cash stock compensation expenses and $3.5 million of expenses related to the independent investigation.

Keyuan had an operating loss of $2.7 million compared to $45.6 million operating profit during the nine months of 2010. Excluding the above-mentioned non-cash and one-time expenses related to the independent investigation, operating income and operating margin in the first nine months of 2011 were $2.5 million and 0.5%, respectively.

GAAP net income attributable to common stockholders for the nine months of 2011 was a $8.2 million loss with corresponding net loss per share of $0.14. Non-GAAP adjusted net income attributable to common shareholders was $0.3 million and non-GAAP adjusted EPS was $0.01 in the first nine months of 2011.

Liquidity and Capital Resources

The Company had $162.5 million of cash and restricted cash at September 30, 2011 compared to $127.4 million at December 31, 2010. For the nine months of 2011, the Company generated $20.7 million in cash flow from operations. Inventories were $47.5 million at September 30, 2011 and advance payments for the suppliers amounted to $19.6 million.

Keyuan had approximately $217.2 million of bank loans outstanding at September 30, 2011 with maturity dates from December 2011 to October 2012 and interest rates from 2.97% to 8.13% per annum. Management expects all unpaid loan balances will be extended at their due date.

Full Year 2011 Guidance

Management reiterates its prior guidance for $625.0 million of revenues and 570,000 MT of production for the twelve months ending December 31, 2011. This assumes approximately $30.0 million of revenue contribution from its SBS production facility.

Business Updates

The Company completed construction of its new 70,000 MT Styrene-Butadiene-Styrene ("SBS") production facility in September 2011. Trial production commenced in October and is expected to continue through the end of November before the facility will be ready for commercial production. Management expects to generate between $100 and $110 million in net revenues from SBS in 2012 with a net income between $10 and $11 million.

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 2010, 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 which was completed in September 2011 and is currently on trial production, additional storage capacity, a raw material pre-treatment facility, and an asphalt production facility.

About Non-GAAP Financial Measures

To supplement our consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: adjusted net income and adjusted EPS (basic and diluted). The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our "recurring core business operating results". We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. We believe these non-GAAP financial measures are useful to investors because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business.

Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income (Unaudited):



Q3 2011

Q3 2010

Net Income attributable to KEYP common stockholders

($10,659,203)

$21,156,172

Non-cash stock compensation expense

$409,893

--

Legal expense related to the independent   investigation

$1,800,000

--

Liquidated damages expense

$1,400,000


Adjusted Net Income

($7,049,310)

$21,156,172




Basic and diluted weighted average shares outstanding



Basic

57,579,490

50,839,504

Diluted

57,579,490

57,948,173




Adjusted Earnings per share



Basic

($0.12)

$0.42

Diluted

($0.12)

$0.37





YTD 2011

YTD 2010

Net Income attributable to KEYP common stockholders

($7,267,598)

$30,409,993

Non-cash stock compensation expense

$1,695,078

--

Legal expense related to the independent   investigation

$3,500,000

--

Liquidated damages expense

($2,725,339)


Adjusted Net Income

$627,480

$30,409,993




Basic and diluted weighted average shares outstanding



Basic

57,579,096

49,525,972

Diluted

57,579,096

53,609,751




Adjusted Earnings per share



Basic

$0.01

0.61

Diluted

$0.01

0.57




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 months 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:

Ted Haberfield, President
MZ North America, IR
Tel: +1-760-755-2716
Email: thaberfield@hcinternational.net
Web: www.mz-ir.com

Mr. Andrew Haag, Managing Partner, USA
Hampton Growth, LLC
Tel: +1-877-368-3566
Email: andrew@hamptongrowth.com
Web: www.hamptongrowth.com


KEYUAN PETROCHEMICALS, INC. AND SUBSIDIAIRES

CONDENSED CONSOLIDATED BALANCE SHEETS





September 30,



December 31,




2011



2010




(Unaudited)




ASSETS







Current assets:







Cash


$

3,743,446


$

29,336,241

Restricted bank deposits



158,847,306



98,053,146

Bills receivable



2,405,796



9,194,513

Inventories



47,517,210



86,831,556

Prepayments to suppliers



19,615,813



14,071,219

Consumption tax refund receivable



53,246,555



39,144,688

Amounts due from related parties



39,125



5,332,193

Other current assets



44,582,436



28,608,833

Income tax receivable



1,937,958



-

Deferred income tax assets



484,783



469,914








Total current assets



332,420,428



311,042,303








Property, plant and equipment, net



173,002,050



129,781,304

Intangible assets, net



999,318



1,045,466

Land use rights



11,116,868



11,099,875

Prepayments for property, plant and equipment



4,466,803



-








Total assets


$

522,005,467


$

452,968,948








LIABILITIES AND STOCKHOLDERS' EQUITY







Current liabilities:







Short-term bank borrowings


$

196,930,884


$

135,768,634

Bills payable



52,662,250



60,224,900

Current portion of long-term bank borrowings



14,241,500



17,445,500

Accounts payable



109,494,566



92,225,936

Advances from customers



18,679,760



10,479,217

Accrued expenses and other payables



36,475,059



18,205,110

Income taxes payable



-



10,699,778

Dividends payable



2,085,499



234,393

Amounts due to related parties



360,903



115,535








Total current liabilities



430,930,421



345,399,003

Long-term bank borrowings



6,103,500



15,170,000








Total liabilities



437,033,921



360,569,003











Series B convertible preferred stock:







   Par value: $0.001; Authorized: 5,400,010 shares







6% cumulative dividend with liquidation preference







over common stock







   Issued and outstanding: 5,400,010 shares







     liquidation preference of $20,250,000



16,701,565



16,701,565




Commitments and contingencies



-



-















Stockholders' equity:







Common stock:







   Par value: $0.001; Authorized: 100,000,000 shares;







   Issued and outstanding: 57,579,490 shares on September 30, 2011







   and 57,577,840 shares on December 31, 2010



57,580



57,578

Additional paid-in capital



48,613,629



47,012,061

Statutory reserve



3,075,356



3,075,356

Accumulated other comprehensive income



5,984,800



3,310,416

Retained earnings



10,538,616



22,242,969








Total stockholders' equity



68,269,981



75,698,380








Total liabilities and stockholders' equity


$

522,005,467


$

452,968,948




KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)




For the Three Months Ended


For the Nine Months Ended



September 30,


September 30,



2011


2010


2011


2010

Sales









   Third parties


$

123,429,226


$

112,547,711


$

362,865,970


$

314,729,952

   Related parties      



41,225,747



38,796,255



99,443,224



85,983,117














Total Sales



164,654,973



151,343,966



462,309,194



400,713,069














Cost of sales













   Third parties



126,185,505



84,197,313



351,055,636



271,636,985

   Related parties  



41,846,664



34,397,567



100,123,349



78,865,712














Total Cost of sales



168,032,169



118,594,880



451,178,985



350,502,697














Gross (loss) profit



(3,377,196)



32,749,086



11,130,209



50,210,372














Operating expenses













   Selling expenses



91,607



97,871



846,287



441,284

General and administrative expenses



5,220,525



2,157,939



12,985,350



4,176,551














Total operating expenses



5,312,132



2,255,810



13,831,637



4,617,835














(Loss) income from operations



(8,689,328)



30,493,276



(2,701,428)



45,592,537














Other income (expenses):













     Interest income



1,497,644



104,115



3,186,530



166,470

     Interest expense



(5,963,264)



(3,954,826)



(11,798,628)



(6,680,644)

     Foreign exchange gain (loss), net



1,466,275



131,774



4,666,631



424,802

     Liquidated damages expense



(1,424,609)



-



(2,725,339)



-

     Non-operating income (expenses)  



(159,370)



1,765,232



2,409,165



1,481,804














Total other income (expenses)



(4,583,324)



(1,953,705)



(4,261,641)



(4,607,568)














(Loss) income before income taxes



(13,272,652)



28,539,571



(6,963,069)



40,984,969














Income tax (benefit) expense  



(2,613,449)



7,383,399



304,529



10,574,976














Net income (loss) attributable to Keyuan













   Petrochemicals Inc. stockholders



(10,659,203)



21,156,172



(7,267,598)



30,409,993














Dividends to Series A convertible













    Preferred stockholders



-



396,300



-



684,798














Dividends to Series B convertible













    preferred stockholders 



306,247



9,986



908,753



9,986














Net (loss) income attributable to Keyuan













   Petrochemicals Inc. common stockholders


$

(10,965,450)


$

20,749,886


$

(8,176,351)


$

29,715,209














Net (loss) income attributable to Keyuan













   Petrochemicals Inc. stockholders


$

(10,659,203)


$

21,156,172


$

(7,267,598)


$

30,409,993














Other comprehensive income













Foreign currency translation adjustment



942,212



2,202,386



2,674,383



2,396,334














Comprehensive (loss) income


$

(9,716,991)


$

23,358,558


$

(4,593,215)


$

32,806,327














(Loss) Earnings  per share:













Attributable to common stock:













- Basic   


$

(0.19)


$

0.41


$

(0.14)


$

0.60

- Diluted   


$

(0.19)


$

0.37


$

(0.14)


$

0.57














Weighted average number of shares of

 common stock used in calculation













Basic  



57,579,490



50,839,504



57,579,096



49,525,972

Diluted  



57,579,490



57,948,173



57,579,096



53,609,751





KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)




Nine Months Ended September 30,



2011


2010






Cash flows from operating activities:





Net (loss) income


$

(7,267,598)


$

30,409,993

Adjustments to reconcile net (loss) income to net cash







  provided by (used in) operating activities:







     Loss on disposal of property, plant and equipment



3,528



-

     Depreciation



6,994,230



6,131,537

     Amortization



78,033



74,470

     Land use rights amortization



329,183



168,354

     Deferred income tax expense



-



3,496,430

     Share-based compensation expense



1,695,078



770,270

Changes in operating assets and liabilities:







Bills receivable



6,972,884



(2,833,738)

Inventories



41,427,530



(43,112,327)

Prepayments to suppliers



(9,138,576)



(10,420,393)

Consumption tax refund receivable



(12,669,298)



(28,345,187)

Other current assets



(9,613,538)



(4,804,553)

Accounts payable



14,233,205



53,154,501

Advances (to) from customers



7,750,302



6,154,441

Income taxes payable/receivable



(12,780,611)



-

Accrued expenses and other payables



(7,281,521)



67,445








Net cash provided by operating activities



20,732,831



10,911,243








Cash flows from investing activities:







  Proceeds from disposal of property, plant and equipment



10,582



-

Purchase of property, plant and equipment,



(23,631,456)



(25,029,998)

 Purchase of land use rights



-



(5,900,639)








Net cash used in investing activities



(23,620,874)



(30,930,637)








Cash flows from financing activities:







Pledged bank deposits used for bank borrowings



(56,821,639)



(61,205,447)

Proceeds from short-term bank borrowings



189,192,525



135,343,173

Repayment of short-term bank borrowings



(130,501,038)



(97,488,517)

Proceeds from bills payable



85,470,630



60,605,200

Repayment of bills payable



(94,796,100)



(22,435,442)

Repayments of long-term bank borrowings



(13,101,900)



(5,884,000)

Short-term financing from related parties



13,232,658



14,415,800

Short-term financing to related parties



(13,118,390)



(14,505,958)

  Repayment to Ningbo Litong



-



(735,500)

Repayments to unrelated parties



-



(956,150)

Proceeds from warrant exercises



7,332



-

Proceeds from private placements



-



42,081,321

Dividends paid



(2,585,647)



-






















Net cash (used in) provided by financing activities



(23,021,569)



49,234,480








Effect of foreign currency exchange rate changes on cash



316,817



1,686,882








Net (decrease) increase  in cash



(25,592,795)



30,901,968








Cash at beginning of the period



29,336,241



14,030,655








Cash at end of the period


$

3,743,446


$

44,932,623








Supplemental disclosure of cash flow information:







Income taxes paid


$

13,085,140


$

-

Interest paid, net of interest capitalized



11,798,628



6,680,643

Dividends accrued



4,436,753



694,784

Non-cash financing activities:







          Payable for purchase of property, plant and equipment



14,668,112



(24,248,530)




SOURCE Keyuan Petrochemicals, Inc.



RELATED LINKS
http://www.keyuanpetrochemicals.com

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