WEB NEWS Comments & Business Outlook
SECTION 1 – Registrant’s Business and Operations
Item 1.01 Entry into a Material Definitive Agreement
On July 11, 2016 (the “Closing Date”), Keyuan Petrochemicals, Inc. (the “Company”), entered into a share purchase and settlement agreement (the “Agreement”) with Dragon State International Limited (“Dragon State”), the sole shareholder of 5,333,340 shares of Series B preferred stock of the Company, par value $0.001 per share (the “Shares”), Delight Reward Limited, a controlling shareholder of the Company (“Delight Reward”), Keyuan Group Limited, a wholly owned Hong Kong subsidiary of the Company (“Keyuan HK”), Ningbo Keyuan Petrochemicals Co., Ltd., Ningbo Keyuan Plastics Co., Ltd., and Ningbo Keyuan Synthetic Rubbers Co., Ltd., each, a wholly owned Chinese subsidiary of the Company (collectively, the “Ningbo Subsidiaries”, together with the Company and Keyuan HK, the “Keyuan Group”), Mr. Chunfeng Tao, the Chairman and a majority shareholder of the Company through his 100% ownership of a company holding controlling shares of Delight Reward (“Tao”), and Prax Capital Equity Management Co., Ltd., an affiliated party to Dragon State.
Dragon State purchased from the Company on September 28, 2010 for an aggregate price of $20 million, the Shares together with 800,001 series C warrants to purchase 800,001 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price of $4.50 per share (subject to adjustments) and 800,001 series D warrants to purchase 800,001 shares of the Company’s Common Stock at a price of $5.25 per share (subject to adjustments, together, the “Warrants”) in a private placement (the “Private Placement”) in reliance upon the exemption from securities registration afforded by Regulation S as promulgated under the Securities Act of 1933, as amended.
On October 28, 2014, Dragon State filed a complaint against, among others, the Company and Tao, seeking rescission of the securities purchase agreement in the Private Placement and the return of $20 million, and in the alternative, seeking monetary damages to be determined at a trial but not less than $20 million (the “Complaint”).
On October 30, 2014, in connection with the Complaint and a motion for a temporary restraining order and preliminary injunction filed by Dragon State against the Company and Tao, a consent order was issued by the District Court for the Southern District of New York whereby the Company and Tao agreed that, notwithstanding anything contained in the certificate of Shares to the contrary, the Shares had not been, and should not be, automatically converted into shares of Company’s common stock, or any other security prior to the resolution of the Complaint; and the expiration of Series C and Series D warrants should be tolled pending the resolution of the Complaint.
CFO Trail
Item 5.02 Departure of Director or Principal Officers; Election of Directors; Appointment of Principal Officers
On April 8, 2016, Mr. Chunfeng Tao tendered his resignation to Keyuan Petrochemicals, Inc. (the “Company”) as the Company’s Chief Executive Officer and President due to personal reasons. Mr. Tao’s resignation did not result from any disagreement regarding any matter related to the Company’s operations, policies or practices.
On the same day, Mr. Dingan Zhang resigned from his position as the Chief Financial Officer and Vice President of Accounting of the Company. Mr. Zhang’s resignation did not result from any disagreement regarding any matter related to the Company’s operations, policies or practices.
On the same day, the Board of Directors of the Company approved the appointment of Ms. Feng Chen, the Acting Chief Financial Officer of the Company, as the Chief Executive Officer, President, Chief Financial Officer and Vice President of Accounting of the Company, effective immediately.
Ms. Feng Chen, 50 years old, has profound experience in financial management. Ms. Feng Chen has been a finance director and Chief Financial Officer of Ninbo Keyuan Plastic Corp., Ltd since 2007. From 2004 to 2007, Ms. Chen served as a finance manager at Zhejiang Dragon Fine Line Corp., Ltd. From 2000-2003, Ms. Feng Chen was an accountant at Ninbo Qilong Steel Industry Corp., Ltd. Ms. Chen holds a bachelor degree of accounting from Central Radio and Television University.
Auditor trail
Section 4 –Matters Relates to Accountants and Financial Statements
Item 4.01 Change in Registrant’s Certifying Accountant
Effective October 31, 2015, Keyuan Petrochemicals, Inc. (the “Company” or “Keyuan”) engaged Marcum Bernstein & Pinchuk LLP (“Marcum”) as its new Independent registered public accounting firm to provide annual audit services for the year ended December 31, 2014 and reviews for quarters during the fiscal year ended December 31, 2015. The decision to engage Marcum was approved by the Company’s audit committee of the board of directors. During its two most recent fiscal years, and during any subsequent interim period prior to the date of Marcum’s engagement, the Company did not consult the new auditor regarding either: (i) the application of accounting principles to a proposed or completed specified transaction, or the type of audit opinion that might be rendered, and neither a written report nor oral advice was provided that was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue; or (ii) any matter that was either the subject of a disagreement or reportable event within the meaning set forth in Regulation S-K, Item 304 a(1)(iv) or (a)(1)(v).
Comments & Business Outlook
Item 8.01 Other Events
Auditor trail
Item 4.01 Changes in Registrant’s Certifying Accountant
From July 5, 2011 when GHP Horwath was engaged, and subsequently through January 2, 2015, there were no disagreements between us and GHP Horwath on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of GHP Horwath would have caused them to make reference to the subject matter of the disagreements in connection with its reports.
The audit reports of GHP Horwath on the consolidated financial statements of the Company as of and for the years ended December 31, 2012 and 2013 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to audit scope, or accounting principles. The audit reports of GHP Horwath on the consolidated financial statements of the Company as of and for the each of the years ended December 31, 2012 and 2013 included an explanatory paragraph relating to the Company’s ability to continue as a going concern, and the audit report of GHP Horwath on the consolidated financial statements of the Company as of and for the year ended December 31, 2012 included explanatory paragraphs related to unusually important events that occurred in 2011 and significant transactions and relationships with related parties and certain other parties
CFO Trail
Item 5.02 Departure of Director or Principal Officers; Election of Directors; Appointment of Principal Officers
CFO Trail
Item 5.02 Departure of Director or Principal Officers; Election of Directors; Appointment of Principal Officers
Comments & Business Outlook
KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Amounts in thousands, except share and per share data)
Three Months Ended
Nine Months Ended
2014
2013
2014
2013
Sales
$
135,678
$
150,286
$
522,108
$
453,775
Cost of sales
132,000
140,030
501,596
432,389
Gross profit
3,678
10,256
20,512
21,386
Selling expenses
405
466
1,031
869
General and administration expenses
3,121
3,397
9,868
8,988
Total operating expenses
3,526
3,863
10,899
9,857
Income from operations
152
6,393
9,613
11,529
Other income (expense):
Interest income
3,344
2,461
9,225
6,363
Interest expense
(7,791
)
(4,481
)
(19,378
)
(14,601
)
Foreign exchange (loss) gain, net
(396
)
1,044
(4,534
)
7,249
Other expense, net
(1,554
)
(1,342
)
(4,420
)
(2,437
)
Total other expense
(6,397
)
(2,318
)
(19,107
)
(3,426
)
(Loss) income before income taxes
(6,245
)
4,075
(9,494
)
8,103
Income tax (benefit) expense
(586
)
1,284
(76
)
2,891
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders
(5,659
)
2,791
(9,418
)
5,212
Dividends to Series B convertible preferred stockholders
-
548
-
548
Net (loss) income attributable to Keyuan Petrochemicals Inc. common stockholders
$
(5,659
)
$
2,243
$
(9,418
)
$
4,664
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders
$
(5,659
)
$
2,791
$
(9,418
)
$
5,212
Other comprehensive income:
Foreign currency translation adjustment
8
538
(451
)
2,170
Comprehensive (loss) income
$
(5,651
)
$
3,329
$
(9,869
)
$
7,382
(Loss) earnings per share:
Attributable to common stock:
-Basic
$
(0.10
)
$
0.05
$
(0.16
)
$
0.09
-Diluted
$
(0.10
)
$
0.04
$
(0.16
)
$
0.08
Weighted average number of shares of common stock used in calculation:
-Basic
57,367,715
57,646,160
57,381,027
57,646,160
-Diluted
57,367,715
62,979,500
57,381,027
62,579,500
Management Discussion and Analysis
Sales: Our sales for the three months ended September 30, 2014 were approximately $136 million, compared to $150 million for the three months ended September 30, 2013, a decrease of $15 million, or 10%. The decrease was mainly due to lower sale quantities of SBS rubber products as the market continues to be stagnant in the three months ended September 30, 2014. We sold 119,945 tons of petrochemical and 4,124 tons of rubber products at an average price of $1,063 and $1,974 per metric ton, respectively, in the three months ended September 30, 2014, compared to 120,086 metric tons of petrochemical products and 11,519 tons of rubber products at an average price of $1,070 and $1,888 per metric ton, respectively, in the three months ended September 30, 2013. The average selling price for petrochemical products during the three months ended September 30, 2014 decreased slightly by 0.67% compared to the same period in 2013. Although the average sales price for SBS products for the three months ended September 30, 2014 increased by approximately 4.6 % compared to the same period of 2013, the quantity of SBS products sold decreased by 64% resulting in a decrease in total sales for the three months ended September 30, 2014.
Sales for the nine months ended September 30, 2014 were approximately $522 million, compared to $454 million for the nine months ended September 30, 2013, an increase of $68 million, or 15%. We incurred a 40-day production interruption for routine facilities inspection and maintenance in the quarter ended June 30, 2013. There was no production interruption in 2014. We sold 470,636 tons of petrochemical and 9,950 tons of rubber products at an average price of $1,070 and $1,862 per metric ton, respectively, in the nine months ended September 30, 2014, compared to 371,662 metric tons of petrochemical products and 30,563 tons of rubber products at an average price of $1,045 and $2,142 per metric ton, respectively, in the nine months ended September 30, 2013. For the nine months ended September 30, 2014, sales in the petrochemical segment accounted for approximately 96% of total revenue. There were no significant changes in the average selling prices for petrochemical products during the nine months ended September 30, 2014.
Net Income(Loss): Net Loss was approximately $5.6 million for the three months ended September 30, 2014, as compared to net income of approximately $2.8 million in the same period in 2013, a decrease of $8.4 million, or 303%. This decrease was mainly due to the lower gross profit and higher interest expenses, as well as a foreign exchange loss of $0.4 million for the three months ended September 30, 2014 as a result of the depreciation of the RMB, compared to an exchange gain of $1 million in the same period of 2013.
Net Loss was approximately $9.4 million for the nine months ended September 30, 2014, as compared to a net income of approximately $5.2 million in the same period in 2013, a decrease of $14.6 million, or 281%. This decrease was primarily due to the decrease in both selling prices and sales quantities for SBS products during the nine months ended September 30, 2014 compared to the same period in 2013, as well as a foreign exchange loss of $4.5 million in the first nine months of 2014, compared to a foreign exchange gain of $7.2 million in the same period of 2013. The exchange rate for USD to RMB appreciated from 6.31 to 1 on January 1, 2013, to 6.15 to 1 on September 30, 2013, however, the exchange rate for USD to RMB depreciated from 6.11 to 1 on January 1, 2014, to 6.15 to 1 on September 30, 2014.
Comments & Business Outlook
Second Quarter 2014 Financial Results
Sales for the three months ended June 30, 2014 were approximately $185 million, compared to $94 million for the three months ended June 30, 2013, an increase of $90 million, or 96%.
(Loss) earnings per share Basic and Diluted was $(0.02) vs. last years same quarter of $(0.01)
"We are pleased that our sales have increased significantly year over year due to an increase in sales and production volume in the last quarter compared with the same period of 2013," stated Mr. Chunfeng Tao, Chairman and the Chief Executive Officer of the Company. "I believe the Company will continue to keep sustainable growth while we are preparing the launching of some new products late this year. In addition, it is expected that the petrochemical market in China will become more stabilized soon and Keyuan's core earnings potential will continue to improve."
Comments & Business Outlook
KEYUAN PETROCHEMICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Amounts in thousands, except share and per share data)
Three Months
Six Months
2014
2013
2014
2013
Sales
$
184,536
$
94,257
$
386,430
$
303,811
Cost of sales
174,845
91,628
369,596
292,360
Gross profit
9,691
2,629
16,834
11,451
Selling expenses
307
236
625
403
General and administration expenses
3,266
2,621
6,748
5,591
Total operating expenses
3,573
2,857
7,373
5,994
Income (loss) from operations
6,118
(228
)
9,461
5,457
Other income (expense):
Interest income
3,089
3,151
5,880
3,902
Interest expense
(6,620
)
(7,045
)
(11,588
)
(10,441
)
Foreign exchange (loss) gain, net
(1,694
)
4,652
(4,139
)
6,205
Other expense, net
(1,402
)
(715
)
(2,862
)
(1,095
)
Total other (expense) income, net
(6,627
)
43
(12,709
)
(1,429
)
(Loss) income before income taxes
(509
)
(185
)
(3,248
)
4,028
Income tax expense
511
312
511
1,607
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders
(1,020
)
(497
)
(3,759
)
2,421
Dividends to Series B convertible preferred stockholders
-
-
-
-
Net (loss) income attributable to Keyuan Petrochemicals Inc. common stockholders $ (1,020 ) $ (497 ) $ (3,759 ) $ 2,421
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders
$
(1,020
)
$
(497
)
$
(3,759
)
$
2,421
Other comprehensive income:
Foreign currency translation adjustment
381
1,101
(459
)
1,632
Comprehensive (loss) income $ (639 ) $ 604 $ (4,218 ) $ 4,053
(Loss) earnings per share:
Attributable to common stock:
-Basic
$
(0.02
)
$
(0.01
)
$
(0.07
)
$
0.04
-Diluted
$
(0.02
)
$
(0.01
)
$
(0.07
)
$
0.04
Weighted average number of shares of common stock used in calculation:
-Basic
57,404,048
57,646,160
57,404,048
57,646,160
-Diluted
57,404,048
57,646,160
57,404,048
62.979,500
Management Discussion and Analysis
Sales: Our sales for the three months ended June 30, 2014 were approximately $185 million, compared to $94 million for the three months ended June 30, 2013, an increase of $90 million, or 96%. The increase was mainly due to the increase in sales and production volume in the second quarter of 2014, compared with the 40 days of production interruptions in the second quarter of 2014, which resulted in 98,000 metric tons of lost production. During the three months ended June 30, 2014, we sold 170,979 metric tons of petrochemical products at an average price of $1,079 per metric ton, compared to85,999 metric tons of petrochemical products at an average price of $1,096 per metric ton in the three months ended June 30, 2013. The average sales price per MT in the second quarter of 2014 dropped 1.5% compared with the same period of 2013, mainly due to the stagnant condition of the overall SBS market.
Net loss: Net Loss was approximately $1 million for the three months ended June 30, 2014, as compared to net loss of approximately $0.5 million in the same period in 2013, an increase of $0.5 million, or 105%. This increase in loss was mainly due to the foreign exchange loss of $1.7 million from the depreciation of RMB, compared to an exchange gain of $4.7 million in the same period of 2013.
Comments & Business Outlook
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(Amounts in thousands, except share and per share data)
Note
Three Months Ended
March 31,
2014
2013
Sales
$ 201,894 $ 209,554
Cost of sales
194,751 200,732
Gross profit
7,143 8,822
Selling expenses
318 167
General and administration expenses
3,482 2,970
Total operating expenses
3,800 3,137
Income from operations
3,343 5,685
Other income (expenses):
Interest income
2,791 751
Interest expense
(4,968 ) (3,396 )
Foreign exchange gain (loss) , net
(2,445 ) 1,553
Other expenses, net
(1,460 ) (380 )
Total other income (expenses), net
(6,082 ) ( 1,472 )
(Loss) income before income taxes
(2,739 ) 4,213
Income tax expense
8 - 1,295
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders
(2,739 ) 2,918
Dividends to Series B convertible preferred stockholders
- -
Net (loss) income attributable to Keyuan Petrochemicals Inc. common stockholders
$ (2,739 ) $ 2,918
Net (loss) income attributable to Keyuan Petrochemicals Inc. stockholders
$ (2,739 ) $ 2,918
Other comprehensive (loss) income:
Foreign currency translation adjustment
(837 ) 531
Comprehensive (loss) income
$ (3,576 ) $ 3,449
(Loss) earnings per share:
Attributable to common stock:
-Basic
9 $ (0.05 ) $ 0.05
-Diluted
$ (0.05 ) $ 0.05
Weighted average number of shares of common stock used in calculation:
-Basic
57,505,098 57,646,160
-Diluted
57,505,098 62,979,500
Management Discussion and Analysis
Sales
Our sales for the three months ended March 31, 2014 were approximately $201.9 million, compared to sales of $209.6 million for the three months ended March 31, 2014, a decrease of $7.7 million, or 3.66%. The reason for the decrease in our sales was because that the average sale prices decreased by 4.2%, even though our sale quantity increased by 1%, compared to the comparable period in 2013. During the three months ended March 31, 2014, we sold 185,538 metric tons of chemical products at an average price of $1,088 per metric ton, as compared to the sale of 184,581 metric tons of chemical products at an average price of $1,135 per metric ton during the comparable period in 2013.
Net Income/loss
Net loss was approximately $2.2 million for the three months ended March 31, 2014, as compared to net income of approximately $2.9 million in the same period in 2013, a decrease of $5.1 million, or 175.8%. This reason for the loss was mainly due to the decrease in sales and the increase in operating expenses and interest expenses compared to the same period in 2013.
Comments & Business Outlook
Fourth Quarter 2013 Financial Results
"I am pleased to report positive net income for 2013. Our 2013 financial results benefitted from solid customer demand, our realignment of product profiles, along with the general stabilization of the petrochemical industry in China," declared Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "I believe Keyuan's core earnings potential continues to improve as a result of the operation of the SBS facility and a series of initiatives on major projects."
Comments & Business Outlook
(Amounts in thousands, except share and per share data)
Note
Year Ended December 31,
2013
2012
Sales
$ 646,549 $ 750,628
Cost of sales
620,040 721,519
Gross profit
26,509 29,109
Selling expenses
1,563 1,132
General and administration expenses
14,736 12,510
Total operating expenses
16,299 13,642
Income from operations
10,210 15,467
Other income (expense):
Interest income
8,422 5,940
Interest expense
(18,809 ) (25,065 )
Foreign exchange gain (loss) , net
10,118 (1,319 )
Other (expense) income, net
(1,833 ) (79 )
Total other expense, net
(2,102 ) (20,523 )
Income (loss) before income taxes
8,108 (5,056 )
Income tax expense
19 3,476 794
Net Income (loss) attributable to Keyuan Petrochemicals Inc. stockholders
4,632 (5,850 )
Dividends to Series B convertible preferred stockholders
548 -
Net Income (loss) attributable to Keyuan Petrochemicals Inc. common stockholders
4,084 (5,850 )
Other comprehensive income (loss):
Foreign currency translation adjustment
2,754 945
Comprehensive income (loss)
$ 7,386 $ (4,905 )
Earnings (loss) per share:
Attributable to common stock:
-Basic
$ 0.07 $ (0.1 0 )
-Diluted
$ 0.07 $ (0.1 0 )
Weighted average number of shares of common stock used in calculation:
-Basic
57,551,991 57,646,160
-Diluted
57,551,991 57,646,160
Management Discussion and Analysis
Sales
Our sales for the year ended December 31, 2013 were $ 646,549 compared to sales of $750,628 for the year ended December 31, 2012, a decrease of $104,078, or 13.9%. The substantial decrease in our sales is a result of 41 days production suspension for a routine maintenance of our production facilities.
In 2013, we sold 529,957 MT of chemical products at an average price of $1.167 per MT, as compared to sales of 646,753 MT of chemical products at the average price of $1.051 per MT in 2012. This represents a reduction of 116,796 MT, or a decrease of approximately 18.1% in sold products. Compared with 15 days of production suspension for inspection in 2012, we lost 41 days of production for system maintenance during 2013.
In 2013, SBS production was 36,959 MT of finished products at an average sale price of $ 2.110 per MT generating sales of $77,984 In 2012, the SBS facility produced 28,730 MT of finished products at the average sale price of $ 2.471 per MT generating total sales of $70,992. Our sales for SBS products increased $ 6,992 or 9.8%. The main reason for the increase is that we became more experienced in stabilizing the facility operating conditions and reducing interruptions, as well as increasing the output after the first year’s trial operation.
We did not incur any sales to related parties for the years ended December 31, 2013 and 2012. For additional information on related party transactions, please refer to Footnote 22 of the financial statements.
Net Income for the year ended December 31, 2013 was approximately $4,632, as compared to a net loss of approximately $5,850 for the year ended December 31, 2012, an increase of $10,482 or 179.2 %. The increase in net income was mainly due to the exchange gain of $10,712 from the appreciation of RMB. For instance, the exchange rate for USD to RMB is 6.11 to 1 on December 31,2012 as compared to 6.3 to 1 on December 31, 2013.
Comments & Business Outlook
Item 8.01. Other Events
decided to temporarily suspend the stock repurchase program from April 2, 2014. The Company plans to resume the stock repurchase program after it files the Form 10-K for fiscal year 2013.
CFO Trail
NINGBO, China, January 8, 2014 /PRNewswire / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China, today announced that on January 3, 2014, the Board of Directors of Keyuan approved the appointment of Mr. Baoyun Zhen as the Chief Financial Officer of the Company, effective immediately replacing Mr. Fan Zhang, who the Company intends to appoint as the Chief General Manager of Zhejiang Zhongke Xunen Import and Export Ltd, a to be formed new Company which is the process of incorporation. Zhejiang Zhongke Xunen Import and Export Ltd. will be responsible for international exporting and importing to enlarge the scope of business activities. Mr. Zhang will be in charge of its incorporation and management operations. The ownership of the new company is still being negotiated and no final amounts have been determined.
Mr. Zhen as the new CFO will be responsible for the accounting and finance management of the Company. Mr. Zhen has over 18 years of experience in financial management. Before joining the Company, from 2011 to 2013, Mr. Zhen served as a finance director of Ningbo AIERNI Group Co., Ltd and from 2002 to 2011, Mr. Zhen served as a finance director at Ningbo YunShen Corp., Ltd. Mr. Zhen holds a bachelor degree of accounting and financial management from Zhejiang Financial and Science University.
The Company further announced that Mr. Jintao Ma resigned from his position of Vice President and the Chief General Manager of Ningbo Keyuan Petrochemicals due to personal reasons. Mr. Ma was responsible for the sales and marketing, raw materials sourcing and market analysis for the Company. The Company is searching for a qualified candidate and plans to fill in the vacancy caused by Mr. Ma's resignation in a short time.
"This new company will be a positive effort to explore the global trade market that we are excited to be a part of," said Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc.
Comments & Business Outlook
(Amounts in thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2013
2012
2013
2012
Sales
$ 150,286 $ 164,347 $ 453,775 $ 532,098
Cost of sales
140,030 160,472 432,389 512,330
Gross profit
10,256 3,875 21,386 19,768
Selling expenses
466 251 869 892
General and administration expenses
3,397 2,127 8,988 7,394
Total operating expenses
3,863 2,378 9,857 8,286
Income from operations
6,393 1,497 11,529 11,482
Other income (expense):
Interest income
2,461 1,519 6,363 4,341
Interest expense
(4,481 ) (5,864 ) (14,601 ) (13,173 )
Foreign exchange gain (loss) , net
1,044 331 7,249 (33 )
Other (expense) income, net
(1,342 ) (5,439 ) (2,437 ) (5,656 )
Total other (expense) income, net
(2,318 ) (9,453 ) (3,426 ) (14,521 )
Income (loss) before income taxes
4,075 (7,956 ) 8,103 (3,039 )
Income tax expense (benefit)
1,284 (1,018 ) 2,891 991
Net Income (loss) attributable to Keyuan Petrochemicals Inc. stockholders
2,791 (6,938 ) 5,212 (4,030 )
Dividends to Series B convertible preferred stockholders
548 - 548 -
Net Income (loss) attributable to Keyuan Petrochemicals Inc. common stockholders
$ 2,243 $ (6,938 ) $ 4,664 $ (4,030 )
Net Income (loss) attributable to Keyuan Petrochemicals Inc. stockholders
$ 2,791 $ (6,938 ) $ 5,212 $ (4,030 )
Other comprehensive income:
Foreign currency translation adjustment
538 (827 ) 2,170 (697 )
Comprehensive income (loss)
$ 3,329 $ (7,765 ) $ 7,382 $ (4,727 )
Earnings (loss) per share:
Attributable to common stockholders :
-Basic
$ 0.04 $ (0.12 ) $ 0.08 $ (0.07 )
-Diluted
$ 0.04 $ (0.12 ) $ 0.08 $ (0.07 )
Weighted average number of shares of common stock used in calculation:
-Basic
57,646,160 57,646,160 57,646,160 57,646,160
-Diluted
62,979,500 57,646,160 62,979,500 57,646,160
Notable Share Transactions
NINGBO, China , Oct. 22, 2013 /PRNewswire-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), today announced its Board of Directors has authorized the recommencement of the repurchase of $2 Million of the Company's common stock up to $1.50 per share. The original plan was approved on September 17, 2012.
On April 17, 2013, in connection with the delay in filing the Company's Annual Report on Form 10-K for the year ended December 31, 2012, the Company decided to temporarily suspend the stock repurchase program until after it filed its Form 10-K for fiscal year 2012. Since the Company is now current with its periodic reporting requirements, management has decided to resume the stock repurchase program, effective immediately.
The Company's common stock may be purchased from time to time in the open market or in privately negotiated transactions. The timing and amount of any shares repurchased will be determined by the Company's management based on its evaluation of market conditions and other factors. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. The repurchase program may be suspended or discontinued at any time. Any repurchased shares will be available for use in connection with its stock plans and for other corporate purposes.
Keyuan is funding the share repurchases from cash on hand. As of June 30, 2013, the Company had approximately $299 million of cash and pledged bank deposits in financial institutions. As of September 30, 2013, the Company has approximately 57.65 million shares of common stock outstanding and 5.33 million shares of Series B Preferred Stock outstanding.
Comments & Business Outlook
Second Quarter 2013 Financial Results
Sales were approximately $94 million, compared to $184 million for the three months ended June 30, 2012, a decrease of $90 million, or 48.9%.
EPS (Diluted) Q2 2013 $(0.01) vs last years $0.02
"Although our sales volume was negatively impacted by the 40-day facilities shutdown for the thorough routine inspection and maintenance that generally occurs every two years," commented Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "I believe that with our healthy backlog of sales and a clear growth strategy, Keyuan's core earnings potential will improve in the next quarter and going forward."
Comments & Business Outlook
First Quarter 2013 Financial Results
Sales for the three months ended March 31, 2013 were approximately $209.6 million, compared to sales of $183.3 million for the three months ended March 31, 2012, an increase of $26.2 million, or 14.31%
EPS diluted was $0.05 vs. last years $0.03
"We are pleased that our first three months of 2013 revenue benefited from solid customer demands and the improvement of production efficiency," commented Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Although our gross margins were negatively impacted by extreme fluctuations in international oil prices and the industry environment, I believe Keyuan's core earnings potential will continue to improve as a result of our engagement with research institutes, our initiatives on major projects, and our SBS facility ramping into commercial production."
Comments & Business Outlook
(Amounts in thousands, except share and per share data)
Note
Three Months Ended March 31,
2013
2012
Sales
$ 209,554 $ 183,325
Cost of sales
200,732 173,852
Gross profit
8,822 9,473
Selling expenses
167 253
General and administration expenses
2,970 2,610
Total operating expenses
3,137 2,863
Income from operations
5,685 6,610
Other income (expenses):
Interest income
751 939
Interest expense
(3,396 ) (4,379 )
Foreign exchange gain (loss), net
1,553 (178 )
Other income (expenses), net
(380 ) (8 )
Total other income, net
1,472 3,626
Income before income taxes
4,213 2,984
Income tax expense
9 1,295 1,346
Net income attributable to Keyuan Petrochemicals Inc. stockholders
2,918 1,638
Dividends to Series B convertible preferred stockholders
- -
Net income attributable to Keyuan Petrochemicals Inc. common stockholders
$ 2,918 $ 1,638
Net income attributable to Keyuan Petrochemicals Inc. stockholders
$ 2,918 $ 1,638
Other comprehensive income:
Foreign currency translation adjustment
531 577
Comprehensive income
$ 3,449 $ 2,215
Earnings per share:
Attributable to common stock:
-Basic
10 $ 0. 0 5 $ 0.03
-Diluted
$ 0. 0 5 $ 0.03
Weighted average number of shares of common stock used in calculation:
-Basic
57,646,160 57,646,160
-Diluted
62.979,500 62.979,500
Comments & Business Outlook
Full Year 2012 Financial Results
Keyuan sales for the year ended December 31, 2012 were $750.6 million compared to sales of $626.7 million for the year endedDecember 31, 2011, an increase of $123.9 million, or 19.8%.
Gross profit for the year ended December 31, 2012 was $29.1 million, compared to $22.0 for the year ended December 31, 2011. Keyuan's gross profit margin increased from 3.5% for the year ended December 31, 2011 to 3.9% for the year endedDecember 31, 2012. The main reasons for the increase in the gross margin are the increase in sales volume, and the new SBS products which yield a higher gross profit margin of 10.7%.
Net loss for the year ended December 31, 2012 was approximately $5.9 million, as compared to a net loss of approximately $7.1 million for the year ended December 31, 2011, a decrease of $1.3 million. The decrease in net loss is mainly due to a higher yield rate and decreased legal, consulting and investigation expenses.
Keyuan did not incur any sales to related parties for the year ended December 31, 2012 as compared to approximately $92,772,000 of sales to related parties for the year ended December 31, 2011.
"Our 2012 revenues benefitted from solid customer demand and expanded production capacity," declared Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Although our margins were negatively impacted by higher raw materials costs and labor cost, I believe Keyuan's core earnings potential continues to improve as a result of the operation of the SBS facility and a series of initiatives on major projects."
Business Expansion Plan
In order to meet increasing customer demands, Keyuan has been working on expanding its manufacturing capacity by focusing on the following improvements to our infrastructure. In anticipation of the increase in both the market demand for the finished goods and environmental protection requirements, the Company has adjusted its original expansion plans and is currently working on refining its manufacturing capacity as follows:
Notable Share Transactions
NINGBO, China, September 18, 2012 /PR Newswire-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), today announced its Board of Directors has authorized the repurchase of $2 Million of the Company's common stock up to $1.50 per share. The Company's common stock may be purchased from time to time in the open market or in privately negotiated transactions.
"We have a strong belief in our growth and the fundamental strength of our business model as our first half 2012 revenue benefitted from solid customer demand and the improvement of production efficiency," declared Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "We believe Keyuan's core earnings potential will continue to improve with engagement in Research Institutes, a series of initiatives on major projects and our SBS facility ramping into commercial production and that our stock represents an attractive value."
The timing and amount of any shares repurchased will be determined by the company's management based on its evaluation of market conditions and other factors. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the company might otherwise be precluded from doing so under insider trading laws. The repurchase program may be suspended or discontinued at any time. Any repurchased shares will be available for use in connection with its stock plans and for other corporate purposes.
Keyuan will fund the share repurchases from cash on hand. As of June 30, 2012, the company had approximately $250 million of cash and equivalents and approximately 58 million shares of common stock and 5.33 million shares of Series B Preferred stock outstanding.
Conference Call Notes
NINGBO, China , August 15, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China , today announced that it filed Form 12b-25 with the Securities and Exchange Commission on August 15, 2012 to extend the filing of the Company's Form 10-Q for the three months ended June 30, 2012 within the 5-day grace period.
The Company is in the process of compiling and disseminating the information required to be included in its Form 10-Q interim report for the three months ended June 30, 2012 , as well as the completion of the required review of the Company's financial information, however, the process could not be completed by August 14, 2012 without incurring undue hardship and expense. Keyuan expects to announce its second three months of 2012 financial results on or before August 20, 2012 .
The Company expects revenues of $184 million and169,107 MT for the three months ended June 30, 2012 , compared to revenues of $150.9 million for the three months ended June 30, 2011 , an increase of $33.5 million , or 22%. The Company expects a net income of approximately $1.9 million for the three months ended June 30, 2012 , as compared to net loss of approximately $1 .8 million in the same period in 2011, an increase of $3.7 million , or 204%. The increase was mainly due to a higher yield rate and a decrease in legal, consulting and investigation expenses.
Comments & Business Outlook
Second Quarter 2012 Results
Net revenues for the second quarter 2012 were $184.4 million vs. $150.9 million in prior year quarter.
Earnings per share for the second quarter 2012 were $0.02 vs a loss of $0.04 in prior year quarter.
"We are pleased that our first half 2012 revenue benefitted from solid customer demand and the improvement of production efficiency," declared Mr. Chunfeng Tao , Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Although our margins were negatively impacted by extreme fluctuations in international oil prices and the industry environment, I believe Keyuan's core earnings potential will continue to improve as a result of our engagement with research institutes, our initiatives on major projects, and our SBS facility ramping into commercial production."
Full Year 2012 Guidance
The profits of most enterprises in Ningbo declined in the first half of 2012 due to the complex and volatile global economic environment and the slower growth in the Chinese economy. Management has adjusted our guidance and forecasts $880 million of revenues, $20 million of net income and 760,000 MT of production for 2012.
Conference Call Notes
NINGBO, China , August 7, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China , today announced that it has completed the trial production and comprehensive tests of its second production line for Styrene-Butadiene-Styrene ("SBS") and has now commenced commercial production.
Keyuan completed construction of the new 70,000 tons SBS production facility in September 2011 . After several months' of trial production that included various technique tests, the Company started commercial production with the first production line in January 2012. As of June 30, 2012 , this production line had produced 13,049 metric tons of SBS. As a result of the trial production, testing and the operational experience gained from the first line, management believes that second production line will be better adjusted and optimized for commercial production. SBS is currently selling at $3,175 per ton in China .
The Company has received positive feedback from the domestic customers about its SBS products. Meanwhile, the Company has started preparation to enter into global markets, reaching out to several potential foreign customers and sending out samples for testing. Some of the potential foreign customers have already expressed their interest in SBS products and intention to purchase as Keyuan's samples have passed their tests.
"In order to provide high quality products, we always make various adjustments and tests according to different industrial and internal standard before the approval of commercial production. The performance of our SBS production facility has surpassed our expectation, both in technique and market acceptance," said Mr. Chunfeng Tao Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "We are confident that the full launch of SBS commercial production will bring better profit and returns to the Company and its shareholders."
Comments & Business Outlook
NINGBO, China , July 19, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or the "Company"), an independent manufacturer and supplier of various petrochemical products in China , today announced that it has engaged with Shanghai East China University of Science and Technology and Ningbo Institute of Technology, Zhejiang University to study on improving our production efficiency and expanding our product diversity in order to reduce adverse effect by oil price fluctuation and outside industry environment.
In the first six months of 2012, the international extreme fluctuation of oil price has caused substantial negative impact on the whole petrochemical industry and most petrochemical companies including Keyuan. To address this issue, Keyuan engaged with research institutes in Shanghai and Zhejiang province to study the possibility and feasibility to diversify its products, develop high value-added products and improve its production efficiency so that the Company can have more stable long-term development and optimized product structures.
"Currently, the company is focusing to improve its operation, to adjust its original products structure, and ultimately maximize shareholder value with strong performance," explained Mr. Chunfeng Tao , Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "As always, every action we are taking is aimed for the Company's long-term development and to improve the Company from all aspects."
Comments & Business Outlook
First Quarter 2012 Results
Sales for the first quarter ended March 31, 2012 were $183.3 million , an increase of $36.5 million , or 24.9% from the first quarter of 2011.
Net income attributable to common shareholders was $1.6 million for the first quarter of 2012, with diluted net loss per share of $0.03 compared to net income of $4.9 million and diluted earnings per share of $0.08 in the first quarter of 2011.
"Our first three months 2012 revenues benefitted from solid customer demand and expanded production capacity," declared Mr. Chunfeng Tao , Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Although our margins were negatively impacted by higher raw materials costs, with a series of initiatives on major projects and our SBS facility ramping into commercial production, I believe Keyuan's core earnings potential continues to improve."
Full Year 2012 Guidance
Management is forecasting $880 million of revenues, $30 million of net income and 760,000 MT of production for 2012. This assumes approximately $100 million to $110 million of revenue and $10 million to $11 million of net income contribution from its SBS production facility.
Updates on Internal Control
Since early 2012, the Company has implemented an overall comprehensive budget management system ("The General Rule of Budget Performance Assessment"), which is executed and controlled by the planning finance department to review and instruct all other departments. The budget control system includes evaluating a "Budget Enforcement Monthly Assessment Form" and a "Budget Enforcement Monthly Record Form" on monthly basis to greatly improve the Company's operating efficiency.
The Company began to implement a management and evaluation system for personnel position responsibility standards, training, assessment and promotion which defines the talent introduction plan and payroll multiplication plan; forms the effective incentive system and commitment system; and is designed to retain personnel and prevent talent losses.
Comments & Business Outlook
NINGBO, China, May 16, 2012 /PRNewswire-Asia-FirstCall/ -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China, today announced that it filed Form 12b-25 with the Securities and Exchange Commission on May 15, 2012 to extend the filing of the Company's Form 10-Q for the three months ended March 31, 2012 within the 5-day grace period.
The Company is unable to file its Form 10-Q for the three months ended March 31, 2012 in a timely manner because the compilation, dissemination and review of the information required to be presented in the Form 10-Q has imposed time constraints on the Company that have rendered timely filing of the Form 10-Q impracticable without undue hardship and expense to the Company.
The Company expects to report revenues of approximately $183.3 million based on sales of 157,854 MT of products during the three months ended March 31, 2012.
Comments & Business Outlook
Fourth Quarter 2011 Results
Sales for the fourth quarter ended December 31 , 2011 were $164.4 million , an increase of $6.4 million , or 4% from the fourth quarter of 2010.
Net loss attributable to common shareholders was $0.1 million for the fourth quarter of 2011, with diluted net loss per share of $0.00 compared to net income of $6.2 million and earnings per share of $0.11 in the fourth quarter of 2010.
Our 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, legal and administrative expenses related to the investigation, and 44 days of production interruptions; we generated positive cash flows, which allow us to continue funding our growth initiatives. With a series of initiatives on major projects and SBS facility entering into operation, I believe Keyuan's core earnings potential continues to improve."
Full Year 2012 Guidance
Management is forecasting $880 million of revenues, $30 million of net income and 760,000 MT of production for 2012. This assumes approximately $100 to $110 million of revenue and $10 to $11 million of net income contribution from its SBS production facility.
Investor Alert
NINGBO, China , April 12, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (OTCQB: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China , announced today that it has received a letter from NASDAQ regarding a permanent delisting of its stock. The Company's stock will continue to trade on OTC Markets under the ticker symbol "KEYP".
NASDAQ will file a Form 25 with the Securities and Exchange Commission to complete the delisting. The delisting becomes effective ten days after the Form 25 is filed.
"We are disappointed in NASDAQ's decision to delist our stock," stated Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "Since we began trading on the NASDAQ, we have taken all measures to comply with NASDAQ's listing requirements. Upon completing our independent investigation in September of 2011, we have taken extensive measures to improve our internal controls and corporate governance. We firmly believe Keyuan is a stronger and more sustainable company than it has ever been. We remain committed to the U.S. capital markets and delivering value to our shareholders."
Comments & Business Outlook
NINGBO, China , March 5, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China , today announced preliminary production results for the fourth quarter and full year 2011, which exceeded previously announced revenue and production guidance of $625.0 million and 570,000 MT, respectively. The Company also announced it has commenced operation of a 35-ton boiler at its petrochemical manufacturing facility as a means to reduce electricity costs for Keyuan while having a positive impact on the local environmental.
Preliminary 2011 Results :
The Company provided preliminary, unaudited production results for the fourth quarter and full year 2011:
Q4 2011
FY 2011
Petrochemical production (metric tons):
137 , 883
584,370
Total Revenues (Million):
$ 166.7
$ 626.7
The Company will report fourth quarter and full year 2011 results in mid-late March 2012 . Additional information will be provided once the details have been finalized.
Keyuan brought online a 35-ton boiler that converts waste gas from its petrochemicals production to produce steam, which is then used to generate electricity. The new facility reduces energy consumption and unnecessary gas emissions. Additionally, the Company can reduce its dependence on outside sources for electricity and lower its costs by approximately $4.8 million per year.
"We constantly strive to be more efficient and environmentally friendly," stated Mr. Chunfeng Tao , Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "As we gain more experience operating our production lines, we are finding diverse ways to increase our output and reduce our costs. This initiative coupled with the addition of higher margin products such as SBS, will help deliver greater overall margins for 2012."
Joint Venture
NINGBO, China , February 22, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or the "Company"), an independent manufacturer and supplier of various petrochemical products in China , today announced that it has signed a long-term supplier agreement with Shell Petrochemicals Company Limited ("CSPC"), a joint venture between CNOOC and Royal Dutch Shell Group, to purchase butadiene, an essential raw material used in the production of Styrene-Butadiene-Styrene (SBS).
This year (2012) will be the first full year of commercial SBS production. In the past twelve months, the price for butadiene has ranged between approximate $2,144 /t and $5,083 /t, with current prices at approximate $4,765 /t. The one-year agreement with CSPC ensures Keyuan has adequate supply of butadiene to meet its 70,000-ton SBS production target in 2012.
"This agreement provides important stability for one of our new business units," explained Mr. Chunfeng Tao , Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "We have secured an adequate supply from a trusted partner and at a reasonable cost. Having recently secured strong orders for SBS, we can now focus on optimizing our production for the remainder of 2012."
CSPC is a joint venture between CNOOC and Shell Nahai BV, a subsidiary of the Royal Dutch Shell Group. With its butadiene production facilities located in Huizhou , Guangdong Province and annual production capacity of 165,000 metric tons of butadiene, CSPC can conveniently ship materials directly to Keyuan's production plants in Ningbo .
Comments & Business Outlook
NINGBO, China , January 23, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals Inc. (OTCQB: KEYP), ("Keyuan" or "the Company"), an independent manufacturer and supplier of various petrochemical products in China , today announced that one of its production lines for Styrene-Butadiene-Styrene ("SBS") has commenced commercial production after successful trial production and testing in the fourth quarter of 2011.
The Company began construction of its new 70,000 ton SBS production facility in September 2010 and completed construction in September 2011 . After several trials and adjustments, one SBS production line began commercial production in December 2011 . The Company produced and sold approximately 2,733 MT and 2,623 MT of SBS in the fourth quarter, respectively.
"We are pleased with the initial results from our new SBS production lines," said Mr. Chunfeng Tao , Chairman and Chief Executive Officer of Keyuan Petrochemicals Inc. "We have shipped products to 20 customers and are in active discussions with several more. With solid demand for SBS in China and abroad, we expect to quickly ramp production and sales throughout this year."
Comments & Business Outlook
NINGBO, China , January 19, 2012 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (OTCQB: KEYP), ("Keyuan" or the "Company"), an independent manufacturer and supplier of various petrochemical products in China , today announced that it has signed a cooperation agreement with Fangchenggang City to build a new production facility in Guangxi Province . The Company expects to commence construction in February 2012 .
After conducting extensive preliminary studies for the past 12 months, the Company has decided to build a new petrochemicals production facility , Guangxi Keyuan New Materials Industrial Park, in Fangchenggang City. Keyuan chose this facility due to a combination of factors, including proximity to raw materials supplies, access to stable sources of power and skilled labor, and vast market potential. Furthermore, it could improve the Company's competitive position by extending and expanding its supply chain and manufacturing base. Once the facility is fully operational, Guangxi Keyuan New Materials Industrial Park is expected to have annual production capacity of 400,000 metric tons of ABS (Acrylonitrile Butadiene Styrene).
"This new project is an important component of our long term growth strategy," stated Mr. Chunfeng Tao , Chairman and Chief Executive Officer of Keyuan Petrochemicals, Inc. "It will further diversify our product and customer base, as well as expand our access to the Southern part and Western part of China and the ASEAN (Association of Southeast Asian Nations) markets. We expect to fund this project with bank financing and internal cash flows."
Going Private News
On January 10, 2012, Mr. Lei (“Michael”) Xu joined the Board of Directors of Keyuan Petrochemicals, Inc. (the “Company”) as an non-voting observer, effective immediately.
Mr. Xu is a general partner of Prax Capital, one of leading private equity firms with the investment focus in China . Prax Capital, through Dragon State International Limited, invested $20M in the Company in September 2010 and is the largest institutional shareholder of the Company. Prior to joining Prax Capital in 2003, Mr. Xu worked at New Margin Ventures, Kamsky Associates, Inc. and Deloitte & Touch. Mr. Xu has about 15 years experience in venture investment and business advisory in China. Mr. Xu holds an MBA from the Wharton School at the University of Pennsylvania and a law degree from Ningbo University in China.
Comments & Business Outlook
First Half 2011 Financial Results
6 months ended June 30, 2011
1H 2011
1H 2010
% Chg.
Net Revenues
$297.7 million
$249.4 million
19.4%
Gross Profits
$14.5 million
$17.5 million
(17.1%)
Net Income(a)
$2.8 million
$9.0 million
(68.9%)
EPS (Diluted)
$0.05
$0.18
(72.2%)
Adjusted Net Income(a)
$5.8 million(3)
$9.0 million
(35.6%)
Adjusted EPS (Diluted)
$0.09(3)
$0.18
(50.0%)
Diluted Shares O/S
63.8
51.3
24.4%
Our first half 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."
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.
Comments & Business Outlook
Year Ended
Note
December 31, 2010
December 31, 2009
Sales
Third parties
$ 446,891,336 $ 47,161,960
Related parties
24 111,860,733 21,491,643
Total Sales
558,752,069 68,653,603
Cost of sales
Third parties
388,846,702 56,363,391
Related parties
24 102,076,731 18,948,204
Cost of sales
490,923,433 75,311,595
Gross profit (loss)
67,828,636 (6,657,992 )
Selling expenses
623,652 24,836
General and administrative expenses
9,517,814 2,714,093
Total operating expenses
10,141,466 2,738,929
Income (loss) from operations
57,687,170 (9,396,921 )
Other income (expense):
Interest income
556,159 84,778
Interest expense
(9,945,389 ) (2,116,761 )
Foreign exchange gain (loss), net
2,711,984 (5,666 )
Other expense, net
(396,797 ) (342,849 )
Total other expense, net
(7,074,043 ) (2,380,498 )
Income (loss) before income taxes
50,613,127 (11,777,419 )
Income tax expense (benefit)
20 13,492,704 (2,944,350 )
Net income (loss) attributable to Keyuan
Petrochemicals Inc. stockholders
37,120,423 (8,833,069 )
Dividends to Series A convertible preferred stockholders
14 831,032 -
Dividends to Series B convertible preferred stockholders
14 306,247 -
Net income (loss) attributable to Keyuan
Petrochemicals Inc. common stockholders
$ 35,983,144 $ (8,833,069 )
Earnings (loss) per share:
Attributable to common stock:
- Basic
21 $ 0.71 $ -
- Diluted
21 $ 0.66 $ -
Weighted average number of shares of common stock used in calculation
Basic
21 $ 50,929,526 $ -
Diluted
21 $ 56,057,994 $ -
CFO Trail
NINGBO, China , October 19, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China , announced today that it has appointed Mr. Fan Zhang , the Vice President of Accounting, as the Acting Chief Financial Officer ("CFO") effective immediately. Mr. Zhang joined the Company in May 2011 and replaced Mr. Weifeng Xue as the Vice President of Accounting in August 2011 . The Company has commenced a search for a permanent CFO.
Before joining Keyuan, Mr. Zhang was a Finance Director in Ningbo LG Yongxing Chemical Co., Ltd., a Sino-Korean joint venture between Ningbo Yongxing Chemical Investment Co. Ltd., and LG Chemical Co. Ltd., the largest chemical company in Korea. Ningbo LG Yongxing Chemical Co. Ltd is the largest ABS producer in China . Mr. Zhang has more than twelve years' experience in financial reporting and controls, tax planning, fund management, ERP operation system management, internal audit and property insurance planning. Mr. Zhang holds a Bachelor degree in Economics from Hangzhou Electronic Technical University.
Ms. Aichun Angela Li resigned as CFO of the Company effective October 12, 2011 . Ms. Li is currently retained by the Company as a consultant to assist with the transition and other tasks as directed by the Board of Directors.
Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals, began, "I would like to thank Ms. Li for her hard work throughout this process. I am confident that the improvements we have already made in our financial reporting and internal controls, in addition to Mr. Zhang and a new permanent CFO, will make Keyuan a stronger company."
Investor Alert
NINGBO, China , October 7, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China , announced today that on October 5th, 2011 , the Company received a letter from the NASDAQ Hearings Panel ("the Panel") regarding the Company's appeal to remain listed. NASDAQ notified the Company that its common stock will be suspended from the Nasdaq Stock Market effective October 6th .
Management, the board of directors and the independent committees all worked diligently to provide the Nasdaq with all requested information in a timely manner and meet the deadlines previously imposed. Despite the Company's best efforts to become compliant on all of NASDAQ's requirements, the Panel suspended Keyuan's listing from the Nasdaq Stock Market. As a result, the Company's shares will resume trading in the pink sheets under the ticker symbol KEYP beginning Friday, October 7th .
Investor Alert
NINGBO, China , October 4, 2011 /PRNewswire/ -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan" or the "Company"), a leading merchant manufacturer of various petrochemical products in China , announced today that the Company provided the NASDAQ Hearings Panel ("the Panel") with a copy of the Audit Committee's final investigation report along with a comprehensive list of actions the Company has taken and is committed to taking with regard to remediating accounting and internal control issues.
As previously announced on September 7 , the Panel accepted the Company's request to remain listed on The Nasdaq Stock Market subject to certain conditions and the continuance of its trading halt. These conditions included providing the Panel with a copy of the final report of the Audit Committee and filing all delinquent periodic filings with any required restatements.
In order to fully comply with the terms of this exception, the Company plans to file its 10-K for 2010 along with its 10-Q's for the first and second quarter of 2011 by October 12, 2011 .
The Company must be able to demonstrate compliance with all requirements for continued listing on NASDAQ. In the event the Company is unable to do so, its securities may be de-listed from NASDAQ.
"We are pleased with the completion of the final independent investigation and have submitted the Audit Committee's final report to the Nasdaq Hearings Panel," stated Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals. "We are working diligently with the Audit Committee and our auditor, GHP Horwath, to complete our full year 2010 audit and financial results for the first six months of 2011. We are committed to meeting all requirements for continued listing on NASDAQ."
Investor Alert
NINGBO, China , September 7, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China , announced today that on September 2, 2011 , the Company received a letter from the NASDAQ Hearings Panel ("the Panel") stating that the Panel has determined to grant the request of the Company to remain listed on The Nasdaq Stock Market, subject to a trading halt and to the following conditions:
On or before September 30, 2011 , the Company shall provide the Panel with a copy of the final report of the Audit Committee, along with a comprehensive list of the actions the Company has taken and is committed to taking with regard to remediating the accounting and control issues identified.
On or before October 12, 2011 , the Company shall file all of the periodic filings that are delinquent as of that date, and any required restatements. In order to fully comply with the terms of this exception, the Company must be able to demonstrate compliance with all requirements for continued listing on NASDAQ. In the event the Company is unable to do so, its securities may be de-listed from NASDAQ.
"We are working diligently with the Audit Committee and our auditor, GHP Horwath to complete all requirements for continued listing on NASDAQ," stated Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals. "Our entire management team and board are committed to meeting the conditions set forth by the NASDAQ Hearing Panel."
Investor Alert
NINGBO, China , August 25, 2011 /PRNewswire-Asis-FirstCall / -- Keyuan Petrochemicals, Inc. (NASDAQ: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China , today announced it has received an additional notice from NASDAQ stating the Company is not in compliance with Listing Rule 5250(c)(1) for continued listing due to not filing its Form 10-Q for the three months ended June 30, 2011 by the due date of August 15, 2011 .
As previously announced, the Company received notices from the NASDAQ on April 7, 2011 and on May 19, 2011 , stating that the Company was not in compliance with Listing Rule 5250(c)(1) for continued listing due to not filing its Form 10-K for the year ended December 31, 2010 by the due date of March 31, 2011, and its Form 10-Q for the three months ended March 31, 2011 by the due date of May 16, 2011, respectively.
Management would like to remind shareholders that on July 26th the NASDAQ Hearings Panel granted a stay of delisting of the Company's securities pending the Company's scheduled hearing to be held on August 25, 2011 . As a result, the Company's securities will remain listed, however halted, on the NASDAQ Global Select Market pending further action by the Hearings Panel.
Resolution of Legal Issues
NINGBO, China, July 26, 2011 -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan” or the "Company"), a leading merchant manufacturer of various petrochemical products in China,
announced today that the NASDAQ Hearings Panel has granted a stay of delisting of the Company's securities pending the Company’s scheduled hearing to be held on August 25, 2011. As a result, the Company's securities will remain listed, however halted, on the NASDAQ Global Select Market pending further action by the Hearings Panel. The Company is working diligently to complete its 2010 and 1H 2011 filings as soon as possible and continuing its full cooperation with the Audit Committee’s investigation. With these filings and completion of the investigation, Keyuan believes that it will regain compliance with the requirements for continued listing.
Investor Alert
On July 5, 2011, Keyuan Petrochemicals, Inc. (the “Company”) received a letter from The NASDAQ Stock Market (“NASDAQ”) indicating that based on its review of the Company and pursuant to NASDAQ Listing Rule 5101 and Listing Rule 5250 (c)(1), the NASDAQ staff (the “Staff”) has determined that “continued listing of the Company’s securities on The Nasdaq Stock Market is unwarranted.”
In accordance with the procedures set forth in the NASDAQ Listing Rules, the Company timely appealed the Staff determination, and requested a hearing before a Hearings Panel.
In response to questions raised concerning the Investigation Team’s interim report , referred to in the Company’s press release published on July 11, 2011 and included in its Interim Report on Form 8-K filed with the SEC on July 11, 2011, the Company would like to clarify the following points: (1) the final investigation has not been completed by the Investigation Team, (2) the Investigation Team was not in a position to determine that the Company's accounting for revenue from certain customers had been "accounted for appropriately," as these are determinations to be made by the Company and its independent auditors, (3) the interim report was issued by the Investigation Team to report its findings in connection with certain sales and customer transactions, neither Pillsbury, Deloitte, King & Wood nor the industry expert “separately verified the accuracy of information related to the Company's 2010 sales”, and (4) the Investigation Team made no determination in the interim report that the Company is on "solid financial footing."
Comments & Business Outlook
NINGBO, China, July 12, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China, announced today that the audit committee has received initial findings of its independent investigation of the Company's 2010 sales and revenue. Deloitte Financial Advisory Services ("Deloitte"), King & Wood, Pillsbury Winthrop Shaw Pittman LLP ("Pillsbury") and a petrochemicals industry expert, separately verified the accuracy of information related to the Company's 2010 sales.
On March 31, 2011, the Company's audit committee hired Pillsbury, Deloitte, and King and Wood to conduct an independent investigation of issues identified by the Company's former independent public accountant, KPMG. A team of lawyers and forensic accountants reviewed scores of documents at Keyuan's offices, visited select customer locations throughout China, and interviewed representatives of the customers, and senior officers and personnel of the Company. The independent investigators also consulted an industry expert, who has years of experience in the petrochemicals industry, to analyze Keyuan's production plants and operations.
Based on results from the independent investigation, the independent investigators made the following conclusions:
1. "…nothing has come to our attention to indicate that the Company has inappropriately accounted for the specific customer transactions we were able to test, other than the documentation issues notes above";(1)
2. "the Company-arranged interviews with selected customers supported that the customers transacted business with the Company in 2010";
3. "in the documents that we have reviewed, we have found no documents reflecting any intent by the Company to misstate revenues;"
4. "plant visit and document review by an expert in the petrochemical industry supports the finding that the plant is operating and producing petrochemicals at a quantity consistent with the revenues stated by the Company"; and
5. "interviews with management and selected Company personnel were consistent with the above findings."
"We are pleased with the results of the independent investigation," stated Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals. "The findings support our assertion throughout this process that we are an excellent company on solid financial footing with a clear and focused growth strategy. Having cooperated fully with examiners and regulators during this extensive review process, we will continue to focus on completing our 2010 and 1H 2011 audits."
(1) Please refer to Form 8-K we filed on July 11, 2011 for further information
Shareholder Letters
Shareholder Update :
Interim independent investigation completed. Results favorable: Company accounted for revenue properly
• Secured new auditor - GHP Horwath; will be compliant with regulatory filings as soon as possible
• Unaudited revenues of $292 million for the first six months ending June 30, 2011, representing 17% Y-O-Y growth
• Production and sales volume expected to increase in 2H 2011
• Cash dividend will continue - next distribution scheduled for July 15th
NINGBO, China, July 11, 2011 /PRNewswire-Asia-FirstCall/ -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China, announced today that it has received a letter from NASDAQ regarding a delisting of its stock based on the NASDAQ staff's review of the Company and pursuant to NASDAQ Listing Rule 5101 and Listing Rule 5250 (c)(1).
The Company has requested a hearing to appeal this decision and management is working diligently with all relevant authorities to regain compliance with its regulatory requirements.
Information regarding the Management conference call can be found below.
Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals, provided an update to shareholders regarding the Company's operations, investigation and corporate actions:
"We apologize to our shareholders for the challenges we have experienced over the past few months. While these issues have taken longer to resolve than we originally anticipated, I assure you that the entire board of directors and senior management team is cooperating with all parties, including NASDAQ, to come to an expeditious resolution. I am especially proud of our employees and operations managers, who have continued to do an excellent job running our business throughout this process. I would also like to thank the Audit Committee and CFO who have stood by us during this difficult time and worked to complete the investigation and audit.
"Demand for our products remains strong, and we continue to sign new customers. I look forward to resolving all pending issues as soon as possible. In the meantime, we welcome all investors to come visit our facilities to witness the tremendous progress we are making," Mr. Tao concluded.
On April 1, 2011, Keyuan filed for an extension of its 2010 10-K filing with the SEC after issues were raised by the independent auditor primarily related to certain cash transactions and recorded sales. The Audit Committee engaged the services of independent legal counsel, Pillsbury Winthrop Shaw Pittman LLP ("Pillsbury"), who in turn engaged the services of Deloitte & Touche LLP ("Deloitte"), a forensic accountant, and King & Wood, Audit Committee's legal counsel in PRC, to commence an investigation of the issues raised by the Registrant's auditors at the time, KPMG. While our new auditors, GHP Horwath, will commence work immediately we must first complete this independent investigation being carried out by Pillsbury, Deloitte and King & Wood before the 2010 audit can be completed. NASDAQ's notification to delist the Company's stock from the exchange is based primarily on the Company's inability to file audited financial statements on a timely basis, as well as issues raised by KPMG.
The Company has filed a request of an appeal to NASDAQ on the basis of Management's confidence that we will regain compliance with all regulatory requirements in a reasonable amount of time. In the event that the stay to delist is not granted, the Company's shares will continue to be listed on NASDAQ but trade on the OTC Pink beginning July 26, 2011 until the decision of the appeal is released.
Management has fully cooperated with Pillsbury, Deloitte and King &Wood to provide the information they have requested. The interim report of the Company's unaudited sales to certain customers in fiscal year 2010 provided by the investigative team found that the sales were accounted for appropriately. Once the full investigation is completed, the Company is confident that it will be able to regain compliance with the applicable securities laws.
New Auditor Secured
On July 5, Keyuan engaged GHP Horwath to be the Company's new auditor. GHP Horwath will begin to audit the Company's 2010 financial results immediately.
Business Updates
Keyuan continues to operate its business as usual and is executing the growth plan according to schedule.
• From January 1, 2011 to June 30, 2011, our unaudited revenue was $292 million, representing 17% growth over the same period last year. Market demand for our products remains strong.
• We completed our capacity expansion on time and on budget in April, 2011 and now have 720,000 metric tons of annual capacity. Due to the expanded capacity and strong market demand, we sold 113,971 metric tons (MT) products in the two months of May and June 2011, representing 4.2% growth over the same period last year. We expect sales volume to increase in the second half of the year as our newly expanded facility continues to ramp up production.
• Our next phase facility expansion is progressing well. The expansion of the storage facility and the addition of the raw material pre-treatment facility and asphalt facility are now in the final stage of approvals by the local authorities. The Styrene-Butadiene-Styrene ("SBS") production facility is progressing on schedule.
• Keyuan signed a joint technology development agreement with Hangzhou Zhongce Rubber Company to develop new commercial applications for a Solution Polymerization styrene Butadiene Rubber ("SSBR"). SSBR, which is a safer, more environmentally friendly raw material used primarily in tires, represents a new opportunity in a fast-growing market.
• We continue to enjoy strong support from the local government and banks in Ningbo, PRC. Our strong and growing businesses support the local economy through 437 employees we hired and the $164 million we have invested in infrastructure and land since breaking ground in 2008. Because we maintain a healthy balance sheet with no receivables and positive cash flows, the local banks continue to supply us with working capital loans to support our business.
Corporate Actions
The Board remains committed to paying a quarterly cash dividend. The dividend record dates for the distribution of the quarterly cash dividend of $0.09 per share for 2011 will be the first of March, June, September and December with payment dates on the fifteenth of April, July, October and January, or the following business day if the fifteenth of those months fall on Saturday or Sunday.
Separately, Prax Capital, who invested $20 million in our Company in September 2010, reiterated their commitment to Keyuan and our management team. "We are as confident as before on the management and business prospect of Keyuan," said by Michael Xu, a partner of Prax Capital, "I believe Keyuan will come out much stronger after the unfortunate special investigation and deliver fundamental value."
Mr. Tao concluded "In conclusion, I am deeply humbled by the collateral damage resulting from our short-term challenges. I want to personally thank our 437 dedicated employees and our shareholders for maintaining their trust in our management team through these difficult times. We are committed to assisting with the completion of this independent investigation and to regain reporting and listing compliance. Furthermore, we continue to grow our business through facility expansions and new customers. With the tremendous assets we have already built and a clear growth plan, I am confident we will generate significant shareholder returns."
Auditor trail
NINGBO, China, July 6, 2011 /PRNewswire-Asia-FirstCal l/ -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China, announced today that it has engaged GHP Horwath P.C., ("GHP Horwath") a member of Crowe Horwath International, as its new auditor. GHP Horwath will commence its work immediately with the audit of the Company's 2010 financial statements, which are to be included in the Company's 2010 Annual Report on form 10-K.
Mr. Chunfeng Tao, Chairman and Chief Executive Officer of Keyuan Petrochemicals stated, "After an extensive search process, we decided to engage GHP Horwath as our new auditor. As a member of a top 10 network of worldwide audit firms with extensive experience with U.S. and Chinese accounting standards, we believe GHP Horwath will provide us with quality audit services."
Joint Venture
NINGBO, China, June 28, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) ("Keyuan or the "Company"), a leading merchant manufacturer of various petrochemical products in China, today announced that KEYP and Hangzhou Zhongce Rubber Company Limited "Hangzhou Zhongce") have formally agreed to jointly develop commercial applications for Solution Polymerization Styrene Butadiene Rubber ("SSBR").
"This agreement is another example of our ongoing commitment to develop new products using our innovative technologies," began Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan. "Hangzhou Zhongce is a proven leader in tire production with strong R&D capabilities. Sales of car tires worldwide were $140 billionin 2010(1), which is the largest user of SSBR today, especially for high gear radials. By engaging early in this technology, we expect to gain an advantage by developing commercial applications for SSBR in new markets and capitalizing on a significant growth opportunity."
Tires using SSBR are safer, more fuel efficient and have a lower environmental impact than existing products(2). The EU is encouraging the use of more environmentally friendly tires by enforcing stricter labeling requirements starting in November 2012(3). China is still in the early stage of applying SSBR into tire production, but the market prospect is promising.
Keyuan is working with researchers from Hangzhou Zhongce Rubber Company Limited to develop SSBR over the next several years. The Companies will share the rights to products and technologies developed from this cooperation. Upon successful development of SSBR, Keyuan will be able to produce this new product using the same facility of SBS (Styrene-Butadiene-Styrene) that is currently under construction.
Investor Alert
KPMG was engaged as principal accountants on January 17, 2011 and the decision to engage KPMG was approved by the Company’s audit committee of the board of directors. During the preparation of our Annual Report on Form 10-K for the year ending December 31, 2010, KPMG raised certain issues, primarily relating to unexplained issues regarding certain cash transactions and recorded sales. KPMG brought these issues to the attention of our Audit Committee on or about March 24, 2011 and requested that the Audit Committee conduct an independent investigation. On March 31, 2011, our Audit Committee elected to commence such an investigation of the issues raised and engaged the services of independent counsel, Pillsbury Winthrop Shaw Pittman LLP, which in turn engaged the services of King & Wood and Deloitte (the “Investigation”). The Investigation is currently in process and the Company is fully cooperating with the Investigation. Despite the fact that the Investigation is currently being carried out with the full cooperation of the Company and the results of such Investigation have neither been formulated nor concluded,
KPMG has elected to terminate the client-auditor relationship with the Company.
Investor Alert
On April 7, 2011, we received notice from Nasdaq stating that we are not in compliance with Listing Rule 5250(c)(1) for continued listing due to the fact that we have not yet filed our Form 10-K for the year ended December 31, 2010 by the due date of March 31, 2011 (extended to April 15, 2011 by Exchange Act Rule 12b-25).
As a result, to maintain our Nasdaq listing, we submitted a plan of compliance to the Exchange for an evaluation. If the plan is accepted, we may be able to continue our listing during the plan period up to October 12, 2011, during which time we will be subject to periodic review to determine if we are making progress consistent with the plan. If our plan is not accepted, or if our plan is accepted but we fail to make progress consistent with our plan, or we are not in compliance by October 12, 2011, we will be subject to delisting proceedings. Under Nasdaq rules, we have the right to appeal any determination by Nasdaq to initiate delisting proceedings.
On May 19, 2011, we received an additional notice from Nasdaq stating that we do not comply with Listing Rule 5250 (c) (1) for continued listing due to the fact that we have not yet filed our Form 10-Q for the three months ended March 31, 2011 on time. Nasdaq further stated in the notice that it will take this delinquency along with our previous failure to timely file the Form 10-K for fiscal year 2010 into the consideration when determining whether to delist the Company.
Comments & Business Outlook
NINGBO, China, May 4, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. announced that is has successfully completed its capacity expansion.
The Company commenced the capacity expansion project on March 19th, 2011 and completed all equipment installation and testing by the end of April. Keyuan now has approximately 720,000 metric tons (MT) of annual production design capacity, up from 550,000 MT previously.
Investor Alert
On April 7, 2011,
we received notice from Nasdaq stating that we are not in compliance with Listing Rule 5250(c)(1) for continued listing due to the fact that we were not able to file our Form 10-K for the year ended December 31, 2010 by the due date of March 31, 2011. In addition, we disclosed that our auditors have identified concerns that have prompted our audit committee to initiate an independent investigation and we expressed uncertainty that we would be able to file Form 10-K within the 15 day extension period allowed under Form 12b-25
Investor Alert
NINGBO, China, April 1, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. (Nasdaq: KEYP) today announced that it has not completed its 2010 consolidated financial statements by the March 31, 2011 deadline. The Company has applied for an extension with the SEC and is required to file the Annual Report by April 15, 2011.
Analyst Reports
Rodman and Renshaw on KEYP 4/01/2011
KEYP: Rating Under Review
Company Announcement: KEYP announced today a delay in the filing of Form 10-K Annual Report, rescheduling of earnings call and a commencement of an independent investigation undertaken by the company’s audit committee into certain cash transactions and recorded sales. The audit committee has engaged Pillsbury Winthrop Shaw Pittman LLP as its independent legal counsel. Pillsbury Winthrop Shaw Pittman LLP will be responsible for retaining an independent accounting firm to assist it in the investigation. The filing of the Form 10-K will be delayed until the investigation is concluded. Consequently, management requested and was granted a trading halt from NASDAQ.
Management Comments: While KEYP management was not able to provide any further details at this time regarding the specific issues being investigated, we were assured that it is aware of the urgency of the matter and is fully cooperating with the audit committee to address the raised concerns. No specific timeline for the investigation and anticipated filing of the annual report could be provided as the pace of the inquiry will be determined by the audit committee. Management has also reiterated that it will pay its first quarterly dividend of $0.09 per share to the shareholders of record as of March 1, 2011 with the distribution occurring on April 15, 2011.
Rating Under Review : In light of today’s announcement and a halt in KEYP trading, we are placing our Market Outperform/Speculative Risk rating and $7 price target under review pending the resolution of the aforementioned issues and filing of the Form 10-K for FY10. We will continue to monitor company’s progress in addressing these issues and adjust our rating accordingly.
Company Description
Keyuan Petrochemicals, Inc. is a China based company that focuses on supplying primary and intermediate petrochemicals that serve as a base material for the production of many downstream petrochemical products used in construction, agriculture, automotive sector, consumer goods packaging and other applications. The company owns and operates a 550,000 MT petrochemical processing facility located in Qingshi Chemical Park in Ningbo, Zhejiang Province, PRC used primarily for the production of BTX aromatics, propylene, styrene, liquid petroleum gas (LPG), and methyl tertiary butyl ether (MTBE) and other petrochemical products. Patented multiple ethylene propylene (MEP) processing technology commercialized by Keyuan enables it to generate higher yields while using lower grade feedstock. Keyuan Petrochemicals is incorporated in Nevada and is listed on NASDAQ Global Market under the ticker symbol KEYP.Notice Regarding Privacy and Confidentiality:
Investor Presentations
On March 7, 2011, management of Keyuan Petrochemicals, Inc. held
presentations for potential investors.
Analyst Reports
Rodman and Renshaw on KEYP 2/10/2011
Initiating Coverage with a Market Outperform rating and $7 Price Target
Investment Thesis
We are initiating coverage on Keyuan Petrochemicals, Inc (KEYP) with a Market Outperform/Speculative Risk rating and a price target of $7. Keyuan is an emerging provider of primary and intermediate petrochemicals utilized in the production of resins, plastics, chemical fiber, coatings, paints and pesticides for automotive, consumer, real estate and agricultural end markets. A relative newcomer to the petrochemical industry, the company is quickly establishing itself as a major player in the sector through aggressive capacity expansion and commercialization of proprietary patented technology that enables cost-effective production of aromatics from cheaper and more readily available heavy oil instead of traditionally used naphtha. Trading at 9x FY10 fully diluted earnings the stock is relatively inexpensive given the company’s strong revenue growth and projected capacity expansion to over 1 million MT by the end of 2012. Overall, we believe Keyuan stands to benefit from the long-term economic growth in China which will fuel the demand for a variety of primary and intermediate petrochemicals.
Management guides for strong revenue growth in both FY10 and FY11, expecting revenues and net income of approximately $550 million and $36.3 million, respectively, on 660,000 MT sales in FY10 and revenues of $650.5 million on projected sales of 740,000 MT in FY11. We forecast revenues and adjusted net income of $550.1 million and $35.2 million (after preferred dividends) for FY10 and $654.1 million and $35.6 million in FY11, respectively, which translates to fully diluted adjusted EPS of $0.59 (including the effect of consumption tax rebate) in FY10 and $0.52 in FY11. We view the stock’s present valuation as attractive and recommend investors accumulate positions at current level.
Valuation
We initiate on Keyuan with a Market Outperform/Speculative Risk rating and target price of $7, implying a 37% upside to the current price. Keyuan is currently trading at 9x our FY10 fully diluted EPS estimate of $0.59 (including the effect of consumption tax rebate) and 10x our FY11 fully diluted EPS estimate of $0.52. These multiples are below the current FY10 and FY11 industry averages of 18x and 14x for the U.S.- listed petrochemical companies and 26x and 19x for the Asia-listed petrochemical peer group. On EV/EBITDA basis, the stock is currently valued at 6.3x our FY11 forecasts. We believe the current valuation does not fully reflect the company’s technological advantages, rapid historical and projected revenue growth, increasing capacity and strong demand for its products. Our price target of $7 is based on the shares attaining a relatively conservative P/E level of 13x our FY11 fully diluted EPS estimate and 8x FY11 EV/EBITDA multiple.
Risks
(1) Fluctuating feedstock prices (2) Effect of tighter monetary policies on major end markets (3) Execution risk (4) Liquidity (5) Dilution to existing shareholders.Notice Regarding Privacy and Confidentiality:
Comments & Business Outlook
NINGBO, China, Feb. 1, 2011 /PRNewswire-Asia / -- Keyuan Petrochemicals, Inc. today announced that it has signed an agreement with Ningbo Institute of Technology, an affiliate of Zhejiang University, to jointly develop commercial applications for K-resin. This is one component of Keyuan's long-term strategy to invest in technology advancement.
Keyuan will work with researchers from the Ningbo Institute of Technology to research and develop synthesis technology for K-resin over the next 2 years. K-resin is a block co-polymer with excellent transparency and anti-impact properties, including flexibility and durability. It is currently used in packaging and plastic products such as medical instruments and toys. This partnership will focus on developing commercial applications for K-resin in synthetic rubber products. Keyuan and Ningbo Institute of Technology will share the rights to products and technologies developed from this cooperation.
Auditor trail
NINGBO, China, Jan.18, 2011 /PRNewswire-Asia-FirstCall / -- Keyuan Petrochemicals, Inc. announced it has engaged KPMG as its new auditor. KPMG will commence its services for Keyuan starting with the financial statements for the Company's fiscal year ended December 31, 2010.
"We appreciate the services provided by Patrizio & Zhao," stated Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan. "Given the growth in our business, our listing to the NASDAQ Global Market, and the expansion of our shareholder base, we look forward to leveraging KPMG's extensive experience with China-based, U.S.-listed companies and accounting and auditing expertise to help us become an even stronger company."
Comments & Business Outlook
NINGBO, China, Dec. 14, 2010 /PRNewswire / -- Keyuan Petrochemicals, Inc. announced a plan to expand its design production capacity by approximately 30% from 550,000 to 720,000 metric tons (MT) per year.
"Our team designed our manufacturing facilities in order to balance time to market and operational efficiency," explained Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan. "Initially, using our proprietary catalytic pyrolysis technology, the Company built a facility capable of producing 550,000 metric tons of petrochemicals per annum, serviced by heavy oil feedstock. Our flexible production process and design allow us to change the mix of feedstock to maximize production volumes, sales and profits. This attribute has enabled us to produce and sell approximately 482,000 MT of petrochemical products in the first three quarters of 2010, or 17% above the original 550,000 MT design capacity on an annualized basis."
Keyuan expects to spend approximately $3.8 million to upg rade the catalytic pyrolysis processing equipment used in its existing production facilities. The Company has started the design work and installation is scheduled to begin in March 2011. Once the installation and annual maintenance is completed by the end of the second quarter of 2011, Keyuan's design capacity will increase to 720,000 MT per year .
Comments & Business Outlook
Nne Ended September 30,
2010
2009
2010
2009
Sales
$ 151,343,966 $ 7,362,101 $ 400,713,069 $ 7,362,101
Cost of sales
138,277,229 6,091,133 370,185,046 6,091,133
Gross profit
13,066,737 1,270,968 30,528,023 1,270,968
Operating expenses
Selling expenses
97,871
3,404
441,284
3,404
General and administrative expenses
1,645,321
839,699
3,539,109
2,076,292
Total operating expenses
1,743,192
843,103
3,980,393
2,079,696
Income (loss) from operations
11,323,545
427,865
26,547,630
(808,728
)
Other income (expenses):
Interest expense, net
(3,850,777
)
(568,242
)
(6,514,240
)
(821,422
)
Non-operating income (expense)
1,897,007
(86,426
)
1,906,606
(227,332
)
Total other expenses
(1,953,770
)
(654,668
)
(4,607,634
)
(1,048,754
)
Income (loss) before provision for income Taxes
9,369,775
(226,803
)
21,939,996
(1,857,482
)
Provision (benefit) for income taxes
Current tax provision
1,477,677
-
3,392,623
Deferred tax benefit
(56,700
)
-
(464,370
)
Total
1,477,677
(56,700
)
3,392,623
(464,370
)
Net Income (loss)
7,892,098
(170,103
)
18,547,373
(1,393,112
)
Other comprehensive income
Foreign currency translation adjustment
1,976,139
24,841
2,175,395
20,363
Comprehensive Income (loss)
$
9,868,237
$
(145,262
)
$
20,722,768
$
(1,372,749
)
Basic earnings per common share
$
2.26
$
0.00
$
9.56
$
0.00
Diluted earnings per common share
$
0.14
$
0.00
$
0.35
$
0.00
Weighted average number of common shares outstanding
Basic
3,181,504
-
1,867,972
-
Diluted
57,948,173
53,609,751
-
Financial Outlook for 2010
Management is expecting its full year 2010 guidance of approximately $550.0 million of revenues. This guidance assumes sales volume of 660,000 metric tons. The company's net income target is $36.3 million for the full year 2010, excluding public company expenses.
Management expects to generate approximately $650.5 million of revenue for the full year 2011. This assumes sales volume of 740,000 metric tons.
Liquidity Requirements
In order to develop our business to meet the increasing customer purchase orders, our management team has made plans to expand our manufacturing capacity to include an SBS production facility, additional storage capacity, a raw material pre-treatment facility and an asphalt production facility. The estimated cost of building the SBS facility is $17.5 million, and the estimated cost of the other three expansion plans is approximately $70 million including $20 million for facility construction, $40 million for new equipment and $10 million for working capital for the whole business. The estimates do not include the $5.8 million land purchased in August 2010.
We plan to be funded the aforementioned expansion projects through short-term borrowings, partial proceeds from the prior private financings, cash from operations and potential equity financing .
Deal Flow
On September 28, 2010 in connection with a security purchase agreement between Keyuan Petrochemicals, Inc. and the investors closed a private placement of $20,250,000 from offering a total of 540,001 units at a purchase price of $37.5 per Unit , each consisting of,
(a) ten (10) shares of Series B convertible preferred stock of the Company.
(b) one and a half three year Series C warrant (the “Series C Warrants”) to purchase one (1) share of Common Stock, at an exercise price of $4.50 per share, and
(c) one and a half three year Series D warrant (the “Series D Warrants,” together with the Series C Warrants collectively hereinafter referred to as “Warrants”) to purchase one share of Common Stock, at an exercise price of $5.25 per share (the “Private Placement”) in reliance upon the exemption from securities registration afforded by Regulation S as promulgated under the Securities Act of 1933.
Comments & Business Outlook
Second Quarter 2010 Financial Results :
Revenue totaled $132.0 million . The Company had no revenue in the quarter ended June 30, 2009 , having commenced production in October 2009 . Net income was $4.9 million vs. a loss of ( 841,408 ). EPS was $0.11 .
"Our performance during the second quarter of 2010 reflects continued strong demand for our products," stated Mr. Chunfeng Tao , founder, chairman and chief executive officer of the Company. "With a healthy backlog and a clear growth strategy, we are doubling our storage capacity from 100,000 tons to 200,000 tons, building a raw material pre-treatment facility and an asphalt production facility in order to meet growing customer demand. Once completed, our new facilities will allow us to reduce raw material costs, improve production yield and maximize profits from all stages of production. We also believe this expansion will position Keyuan to achieve significant growth in cash flows and profits and establish ourselves as a leading producer of refined petrochemical products in China ."
Dilution may be in the cards:
The Company also plans to double its storage capacity to 200, 000 MT by the end of 2011 and to add a new raw material pre-treatment facility and an asphalt production facility in 2012. The total cost of the expansion is projected to be approximately
$78 million including $8 million for purchasing land.
$20 million for facility construction.
$40 million for new equipment.
$10 million for working capital.
We expect to fund expansion with cash on hand, bank loans, cash flows generated by our business and potential equity financing.
Comments & Business Outlook
"We are pleased with our performance during the first quarter of 2010 , as we continued to capitalize on China's growing demand and supply imbalance for refined petrochemical products," stated Mr. Chunfeng Tao, founder, chairman and chief executive officer of the Company. "This growing demand, which has surpassed supply in recent years, has led to record contract signings and backlog for Keyuan's various products. To meet this order backlog and customer demand, we are expanding our production and storage capacity in order to deliver additional tonnage of industry leading products to our customers in China. Like our current production facilities, this expansion will include manufacturing technologies that enable us to achieve above-industry-average margins by reducing raw material costs and increasing utilization rates and yields. As a result, we believe we are well-positioned to drive
Financial Outlook for 2010 For fiscal year 2010 ,
Revenue of approximately $461.3 million
Net income of approximately $36.3 million, excluding public company expenses.
Gross margins are expected to improve to 12%
Net margins expected to improve to 8.0%.
This guidance assumes average annual sales volume of 550,000 MT of refined petrochemical product sales in 2010.
Financial Outlook for 2011 For fiscal year 2011
Revenue of approximately $518.2 million
Net income of approximately $48.2 million, excluding public company expenses.
Gross margins are expected to improve to 13.0%, with net margins expected to improve to 9.0%. This guidance assumes average annual volume of 600,000 MT of refined petrochemical product sales in 2011
Reverse Merger Activity
Keyuan International Group Limited completes reverse merger and Simultaneous private placement, effective April 22, 2010.
Company Snapshot:
Shares Count :
As a result of this placement, the Company now has 50,661,562 shares of common stock issued and outstanding (assuming Series M shares are fully converted), 5,954,058 shares of preferred stock outstanding (convertible into the same number of shares of common stock), and warrants outstanding exercisable for an aggregate of 1,958,224 shares of common stock including placement agent warrants.
Financial Snapshot: (Began generating revenues in October of 2009).
For fiscal year 2010, the Company expects to generate revenue of $461.3 million.
For fiscal year 2010, the Company expects to generate net income of $36.3 million. excluding public company expenses.
Implied 2010 EPS: $0.72 .
Financial Target Agreements
As a component of the private placement,
effective April 22, 2010 , management entered into a Make Good provision which includes a performance threshold of
$33 million in net income for fiscal year ending December 31, 2010, as determined in accordance with GAAP, as adjusted for certain non-cash charges.
