Arabian American Development Company has a market cap of $58.5 million; its shares were traded at around $2.8 with a P/E ratio of 249.4 and P/S ratio of 0.5.
Highlight of Business Operations:During the first nine months of 2010, the Company reduced total debt by $3,050,000 due to improved cash flow. At September 30, 2010, total debt was $21,789,488 compared to $24,839,488 at year-end 2009. The Company s debt to total equity ratio was 39.5% at the end of the third quarter of 2010 compared to 47.3% at year-end 2009.
The Company s net income for the first nine months of 2010 decreased by approximately $5,189,000 or 71.4% in 2010 as compared to the corresponding period of 2009. Major non-cash items affecting income included an increase in depreciation of approximately $29,000, a decrease in accretion of note receivable discounts of about $29,000, a decrease in the unrealized gain on derivative instruments of approximately $6,778,000, an increase in stock-based compensation of about $442,000, a decrease in deferred income taxes of roughly $7,098,000, a decrease in post retirement obligations of approximately $143,000, and an increase in the equity loss in AMAK of about $263,000.
Cash used by financing activities during fiscal 2010 was approximately $3,050,000 representing an increase of approximately $262,000 over the corresponding period of 2009. The Company made net principal payments on long-term debt during 2010 of $1,050,000 on the Company s term loan and $2,000,000 on its line of credit. In 2009 long term debt decreased due to net payments on the line of credit of approximately $1.5 million and $1.3 million on the term loan.
On March 21, 2008, South Hampton entered into an interest rate swap agreement with Bank of America related to the $10.0 million term loan secured by plant, pipeline and equipment. The effective date of the interest rate swap agreement is August 15, 2008 and terminates on December 15, 2017. As part of the interest rate swap agreement South Hampton will pay an interest rate of 5.83% and receive interest based upon LIBOR or a base rate plus a markup from Bank of America. South Hampton has designated the transaction as a cash flow hedge according to ASC Topic 815, Derivatives and Hedging. Beginning on August 15, 2008, the derivative instrument was reported at fair value with any changes in fair value reported within other comprehensive income (loss) in the Company s Statement of Stockholders Equity. At September 30, 2010, Accumulated Other Comprehensive Loss net of $438,000 tax was $850,000 related to this transaction.
Total Operating Expense for the Petrochemical Company increased approximately 16.8% from the third quarter of 2009 to 2010. Natural gas and labor are the largest individual expenses in this category. The cost of natural gas purchased increased 24.0% from 2009 to 2010 due to higher per-unit costs. The average price per MMBTU for the third quarter of 2009 was $3.59; whereas, for 2010 the per-unit cost was $4.67 (a 30% increase). The average price of gas in the third quarter of 2009 is viewed as unreasonably low considering the historical pattern of pricing for that commodity. Volume purchased decreased from approximately 285,000 MMBTU to about 272,000 MMBTU due to operating efficiency improvements. Labor costs were higher by approximately 11.9% due to an increase in the profit sharing and safety award accrual of approximately $224,000 and a decrease in the amount of capitalized labor of approximately $66,000. The number of employees was essentially the same for both periods.
General and Administrative costs from the third quarter of 2009 to 2010 increased 2.1%. Payroll costs increased due to the addition of personnel and higher salaries due mainly to cost of living adjustments. Insurance premiums increased largely due to additional property coverage and an increase in health insurance premiums plus the addition of a foreign credit insurance policy. Consulting fees increased due to efforts to meet and maintain compliance with SEC reporting guidelines. Other increases in general and administrative expenses from 2009 to 2010 were officers compensation of approximately $38,000, directors fees of $56,000 and legal fees of $111,000. These were offset by a decrease in expenses in Saudi Arabia due to the termination of the lease for the Company s branch office.
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