Arabian American Development Company Reports Operating Results (10-Q)
Arabian American Development Company has a market cap of $238.4 million; its shares were traded at around $10.12 with a P/E ratio of 18.3 and P/S ratio of 1.2.
Highlight of Business Operations:We reported second quarter 2012 earnings of $3.8 million up $3.6 million from the second quarter of 2011. Basic earnings per share of $0.16 were reported for 2012, up $0.15 from 2011. Sales volume of our petrochemical products increased 55.3% from the second quarter of 2011. Sales revenue from our petrochemical products increased 45.9% as compared to the second quarter of 2011.
The use of financial contracts helps provide some predictability for feedstock prices. Starting in late 2010, the Company adopted a strategy of moving its larger volume customers to formula based pricing to reduce the effect of feedstock cost volatility. With this pricing mechanism, product prices move in conjunction with feedstock prices without the necessity of announced price changes, although feedstock prices used in formula based pricing are typically based on the average cost during the prior month which may or may not reflect our actual feedstock cost for the month during which the product is actually sold. Implementation of this strategy has provided increased earnings predictability going forward; however, the Company continues to investigate alternative product pricing methods. Obvious downsides to formula based pricing occur when (i) feedstock costs decrease and the Company loses the ability to maintain product pricing and retain higher margins, or (ii) feedstock costs increase from one month to the next and the Company loses the ability to immediately pass through increased costs and retain higher margins.
Trade receivables increased by approximately $2.2 million (due to additional foreign sales with longer payment terms) as compared to an increase of $5.7 million (due to additional foreign sales with longer payment terms and an increase in the average selling price per gallon) in 2011;
Our critical accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the period reported. By their nature, these estimates, assumptions and judgments are subject to an inherent degree of uncertainty. We base our estimates, assumptions and judgments on historical experience, market trends and other factors that are believed to be reasonable under the circumstances. Estimates, assumptions and judgments are reviewed on an ongoing basis and the effects of revisions are reflected in the consolidated financial statements in the period they are determined to be necessary. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies have been discussed with the Audit Committee of the Board of Directors. We believe there have been no material changes to our critical accounting policies and estimates compared to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2011.
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