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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR QUARTER ENDING JUNE 30, 2003
COMMISSION FILE NUMBER 0-6247
ARABIAN AMERICAN DEVELOPMENT COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-1256622
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
10830 NORTH CENTRAL EXPRESSWAY, SUITE 175 75231
DALLAS, TEXAS (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 692-7872
Former name, former address and former fiscal year, if
changed since last report.
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES NO X
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES NO X
--- ---
Number of shares of the Registrant's Common Stock (par value $0.10 per share),
outstanding at June 30, 2003: 22,731,994.
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 254,131 $ 319,171
Trade Receivables 5,498,654 4,549,369
Inventories 838,298 900,061
--------------- ---------------
Total Current Assets 6,591,083 5,768,601
REFINERY PLANT, PIPELINE AND EQUIPMENT 18,309,881 18,250,302
Less: Accumulated Depreciation (8,982,063) (8,294,753)
--------------- ---------------
Refinery Plant, Pipeline and Equipment, net 9,327,818 9,955,549
AL MASANE PROJECT 35,929,430 35,818,157
OTHER INTERESTS IN SAUDI ARABIA 2,431,248 2,431,248
MINERAL PROPERTIES IN THE UNITED STATES 1,211,258 1,211,010
OTHER ASSETS 295,857 436,244
--------------- ---------------
TOTAL ASSETS $ 55,786,694 $ 55,620,809
=============== ===============
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 5,993,844 $ 4,217,014
Accrued Interest 3,079,267 2,558,478
Accrued Liabilities 842,132 759,591
Accrued Liabilities in Saudi Arabia 2,510,158 2,490,005
Notes Payable 11,743,780 11,743,780
Current Portion of Long-Term Debt 6,814,910 7,126,773
--------------- ---------------
Total Current Liabilities 30,984,091 28,895,641
DEFERRED REVENUE 181,986 177,806
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 840,806 844,298
STOCKHOLDERS' EQUITY
COMMON STOCK-authorized 40,000,000
shares of $.10 par value; issued and
outstanding, 22,431,994 shares in 2003
and 2002 2,243,199 2,243,199
ADDITIONAL PAID-IN CAPITAL 36,512,206 36,512,206
ACCUMULATED DEFICIT (14,975,594) (13,052,341)
--------------- ---------------
Total Stockholders' Equity 23,779,811 25,703,064
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,786,694 $ 55,620,809
=============== ===============
See notes to consolidated financial statements.
1
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JUNE 30, 2003 JUNE 30, 2002* JUNE 30, 2003 JUNE 30, 2002*
------------- --------------- ------------- --------------
REVENUES
Refined Product Sales $ 8,993,807 $ 8,063,221 $ 16,812,450 $ 15,953,780
Processing Fees 895,909 1,015,404 1,977,101 1,975,530
------------- -------------- ------------- -------------
9,889,716 9,078,625 18,789,551 17,929,310
OPERATING COSTS AND EXPENSES
Cost of Refined Product
Sales and Processing 8,836,162 7,582,844 17,308,559 13,296,792
General and Administrative 1,085,592 817,580 2,042,740 1,694,246
Depreciation 344,454 349,864 687,309 697,671
------------- -------------- ------------- -------------
10,266,208 8,750,288 20,038,608 15,688,709
------------- -------------- ------------- -------------
OPERATING INCOME (LOSS) (376,492) 328,337 (1,249,057) 2,240,601
OTHER INCOME (EXPENSE)
Interest Income 8,541 9,848 17,153 19,966
Interest Expense (409,032) (294,428) (776,577) (539,574)
Minority Interest 1,612 2,014 3,492 3,564
Foreign Exchange Transaction Gain (Loss) 113,690 439,970 (5,964) 355,642
Miscellaneous Income 58,741 64,950 87,700 91,090
------------- -------------- ------------- -------------
(226,448) 222,354 (674,196) (69,312)
------------- -------------- ------------- -------------
NET INCOME (LOSS) $ (602,940) $ 550,691 $ (1,923,253) $ 2,171,289
============= ============== ============= =============
Basic and Diluted Net Income (Loss)
per Common Share $ (0.03) $ 0.02 $ (0.08) $ 0.10
============= ============== ============= =============
Basic and Diluted Weighted Average Number
of Common Shares Outstanding 22,731,994 22,731,994 22,731,994 22,731,994
============= ============== ============= =============
*Restated. See Note 2.
See notes to consolidated financial statements.
2
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------
COMMON STOCK ADDITIONAL
----------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------ ------------ ------------ ------------ ------------
JANUARY 1, 2003 22,431,994 $ 2,243,199 $ 36,512,206 $(13,052,341) $ 25,703,064
Net Loss -- -- -- (1,923,253) (1,923,253)
------------ ------------ ------------ ------------ ------------
JUNE 30, 2003 22,431,994 $ 2,243,199 $ 36,512,206 $(14,975,594) $ 23,779,811
============ ============ ============ ============ ============
See notes to consolidated financial statements.
3
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30
------------------------------
2003 2002*
------------ ------------
OPERATING ACTIVITIES
Net Income (Loss) $ (1,923,253) $ 2,171,289
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by Operating Activities:
Depreciation 687,309 697,671
Increase in Deferred Revenue 4,180 31,405
Unrealized Gain on Feedstock Swaps -- (1,298,640)
Changes in Operating Assets and Liabilities
Increase in Trade Receivables (949,285) (766,442)
Decrease in Inventories 61,763 45,706
Decrease in Other Assets 140,387 53,447
Increase in Accounts Payable and Accrued Liabilities 1,859,371 41,941
Increase in Accrued Interest 520,789 21,369
Increase in Accrued Liabilities in Saudi Arabia 20,153 34,325
Other (3,491) (23,937)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 417,923 1,008,134
------------ ------------
INVESTING ACTIVITIES
Additions to Al Masane Project (111,273) (200,541)
Additions to Refinery Plant, Pipeline and Equipment (59,579) (311,073)
Additions to Mineral Properties in the United States (248) (190)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (171,100) (511,804)
------------ ------------
FINANCING ACTIVITIES
Additions to Notes Payable and Long-Term Obligations 10,288 56,767
Reduction of Notes Payable and Long-Term Obligations (322,151) (489,091)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (311,863) (432,324)
------------ ------------
NET DECREASE (INCREASE) IN CASH AND
CASH EQUIVALENTS (65,040) 64,006
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 319,171 199,529
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 254,131 $ 263,535
============ ============
*Restated. See Note 2.
See notes to consolidated financial statements.
4
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The consolidated financial statements reflect all adjustments (consisting
only of normal and recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of Arabian American Development
Company and subsidiaries financial position and operating results for the
interim period. Interim period results are not necessarily indicative of the
results for the calendar year. Please refer to Management's Discussion and
Analysis of Financial Condition and Results of Operations for additional
information in the Company's December 31, 2002 Annual Report on Form 10-K.
These financial statements include the accounts of Arabian American
Development Company (the "Company") and its wholly-owned subsidiary, American
Shield Refining Company (the "Refining Company"), which owns all of the
capital stock of Texas Oil and Chemical Company II, Inc. ("TOCCO"). TOCCO
owns all of the capital stock of South Hampton Refining Company ("South
Hampton"), and South Hampton owns all of the capital stock of Gulf State Pipe
Line Company, Inc. ("Gulf State"). TOCCO also owns 92% of the capital stock
of Productos Quimicos Coin, S.A. de. C.V. ("Coin"), a specialty petrochemical
products refining company located near Veracruz, Mexico. The Company also
directly owns approximately 51% of the capital stock of a Nevada mining
company, Pioche-Ely Valley Mines, Inc. ("Pioche"), which does not conduct any
substantial business activity. The Refining Company and its subsidiaries
constitute the Company's Specialty Petrochemicals or Refining Segment. Pioche
and the Company's mineral properties in Saudi Arabia constitute its Mining
Segment.
2. RESTATEMENT
During 2002, the Company became aware that the natural gasoline swap
agreements (swap agreements) discussed in Note 8, did not qualify for cash
flow hedge accounting treatment. Additionally, sales of Coin were found to
have been understated and income tax expense was not applicable. The
following table highlights the effects of the restatement adjustments on the
previously reported consolidated statement of operations for the six months
ended June 30, 2002, accumulated other comprehensive income and accumulated
deficit. All notes have been restated as appropriate.
Accumulated other Accumulated
Net income comprehensive income deficit
June 30, 2002 June 30, 2002 June 30, 2002
-------------------- -------------------- --------------------
As previously reported $ 652,150 $ 792,750 $ (12,586,364)
Adjustments:
Fair value of natural gasoline swaps 1,298,640 (792,750) 792,750
Revenue 210,109 -- 210,109
Income tax expense 10,390 -- 10,390
-------------------- -------------------- --------------------
As restated $ 2,171,289 $ -- $ (11,573,115)
==================== ==================== ====================
Basic and diluted net income per share:
As previously reported $ 0.03
Adjustment 0.07
--------------------
As restated $ 0.10
====================
5
3. INVENTORIES
Inventories include the following:
JUNE 30, 2003 DECEMBER 31, 2002
------------------ ------------------
Refined products $ 838,298 $ 900,061
================== ==================
Inventories are recorded at the lower of cost, determined on the last-in,
first-out method (LIFO), or market, for inventory in the United States and on
the average cost method, or market, for inventories held in Mexico. At June
30, 2003, current cost exceeded LIFO value by approximately $83,000. At
December 31, 2002, current cost exceeded the LIFO value by approximately
$203,000.
4. NET INCOME (LOSS) PER COMMON SHARE
The following table (in thousands, except per share amounts) sets forth the
computation of basic and diluted net income (loss) per share for the three
and six months ended June 30, 2003 and 2002, respectively.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2003 2002* 2003 2002*
---------- ---------- ---------- ----------
Net Income (Loss) $ (603) $ 551 $ (1,923) $ 2,171
========== ========== ========== ==========
Weighted Average Shares Outstanding:
Basic and Diluted 22,732 22,732 22,732 22,732
========== ========== ========== ==========
Net Income (Loss) Per Share:
Basic and Diluted $ (.03) $ .02 $ (.08) $ .10
========== ========== ========== ==========
*Restated. See Note 2.
In the three and six months ended June 30, 2003 and 2002, options for 810,000
shares were excluded from diluted shares outstanding because their effect was
antidilutive.
5. SEGMENT INFORMATION
As discussed in Note 1, the Company has two business segments. The Company
measures segment profit or loss as operating income (loss), which represents
income (loss) before interest, minority interest, miscellaneous income and
foreign exchange transaction gain or loss. Information on the segments is as
follows:
THREE MONTHS ENDED JUNE 30, 2003 REFINING MINING TOTAL
- ---------------------------------- ----------- ----------- -----------
Revenue from external customers $ 9,889,716 $ -- $ 9,889,716
Depreciation 343,980 474 344,454
Operating loss (263,997) (112,495) (376,492)
Total assets $ 16,151,182 $39,635,512 $55,786,694
THREE MONTHS ENDED JUNE 30, 2002* REFINING MINING TOTAL
- ---------------------------------- ------------ ------------ ------------
Revenue from external customers $ 9,078,625 $ -- $ 9,078,625
Depreciation 349,297 567 349,864
Operating income (loss) 376,637 (48,300) 328,337
Total assets $ 17,357,405 $ 39,656,054 $ 57,013,459
6
SIX MONTHS ENDED JUNE 30, 2003 REFINING MINING TOTAL
- ---------------------------------- ------------ ------------ ------------
Revenue from external customers $ 18,789,551 $ -- $ 18,789,551
Depreciation 686,361 948 687,309
Operating loss (1,022,584) (226,473) (1,249,057)
SIX MONTHS ENDED JUNE 30, 2002* REFINING MINING TOTAL
- ---------------------------------- ----------- ----------- -----------
Revenue from external customers $17,929,310 $ -- $17,929,310
Depreciation 696,537 1,134 697,671
Operating income (loss) 2,342,204 (101,603) 2,240,601
Information regarding foreign operations for the three and six months ended
June 30, 2003 and 2002 follows (in thousands). Revenues are attributed to
countries based upon the origination of the transaction.
*Restated. See Note 2.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------- -----------------------------------
2003 2002* 2003 2002*
--------------- --------------- --------------- ---------------
REVENUES
United States $ 9,838 $ 8,612 $ 18,550 $ 16,855
Mexico 52 467 240 1,074
Saudi Arabia -- -- -- --
--------------- --------------- --------------- ---------------
$ 9,890 $ 9,079 $ 18,790 $ 17,929
=============== =============== =============== ===============
LONG-LIVED ASSETS
United States $ 6,085 $ 6,690
Mexico 4,750 4,913
Saudi Arabia 38,361 38,248
--------------- ---------------
$ 49,196 $ 49,851
=============== ===============
*Restated. See Note 2.
6. LEGAL PROCEEDINGS
At June 30, 2003, South Hampton, together with several other companies, was
a defendant in four pending lawsuits filed by former employees of South
Hampton and other refineries. The suits primarily claim illness and disease
resulting from alleged exposure to chemicals, including benzene, butadiene
and/or isoprene, during their employment. The plaintiffs claim the defendant
companies engaged in the business of manufacturing, selling and/or
distributing these chemicals in a manner which subjected them to liability
for unspecified actual and punitive damages. A motion for a summary judgment
was granted in October 2003 for one lawsuit. South Hampton intends to
vigorously defend itself against these lawsuits and believes it has adequate
insurance coverage to protect it financially from any damage awards that
might be incurred.
South Hampton also is a defendant in a lawsuit filed in September 2001,
which alleges that the plaintiff became ill from exposure to asbestos while
employed by South Hampton from 1961 through 1975. The plaintiff is seeking
unspecified amounts and a previously scheduled trial date for January 2004
has not been rescheduled. South Hampton is vigorously defending itself
against the claim. If this matter is resolved in an adverse manner, it could
have a material adverse effect on South Hampton's operating results and cash
flows in a future reporting period.
In August 1997, the Texas Commission on Environmental Quality ("TCEQ")
notified South Hampton that it had violated various rules and procedures. It
proposed administrative penalties totaling $709,408 and recommended that
South Hampton undertake certain actions necessary to bring its refinery
operations into compliance. The violations generally relate to various air
and water quality issues. Appropriate modifications have been made by South
Hampton where it appeared there were legitimate concerns.
7
On February 2, 2000, the TCEQ amended its pending administrative enforcement
action against South Hampton to add allegations dating through May 21, 1998
of 35 regulatory violations relating to air quality control and industrial
solid waste requirements. The TCEQ proposed that administrative penalties be
increased to approximately $765,000 and that certain corrective actions be
taken. On December 13, 2001, the TCEQ notified South Hampton that it found
several violations of its rules during a record review in October 2001 and
proposed a settlement for $59,375. South Hampton settled this particular
claim in April 2002 for approximately $5,900.
On April 11, 2003, the TCEQ reduced the penalties to approximately $690,000.
On May 25, 2003, a settlement hearing with the TCEQ was held and additional
information was submitted to the TCEQ on June 2, 2003. South Hampton
believes the original penalty and the additional allegations are incorrect
and intends to continue to vigorously defend itself against these
allegations, the proposed penalties and proposed corrective actions.
Management has accrued an estimate for a proposed settlement. There are no
assurances that the amounts settled will not be different than the amounts
accrued. Negotiations between South Hampton and the TCEQ are expected to
continue in order to reach a final settlement.
By letter dated March 11, 2003, the Company was advised that the Division of
Enforcement of the Securities and Exchange Commission ("SEC") was conducting
an informal, non-public inquiry concerning disclosure matters relating to
the Al Masane project and the Ministry's threatened termination of the Al
Masane mining lease. The Company fully cooperated with the SEC in the
conduct of the investigation, which became a formal investigation.
On October 16, 2003, without admitting or denying any findings of fact or
conclusions of law, the Company agreed to a cease-and-desist order with the
SEC settling alleged violations of the federal securities laws asserted by
the SEC relating to developments not previously disclosed concerning the
Company's mining lease for the Al Masane area of Saudi Arabia. In connection
with the settlement, the Company agreed to (i) cease and desist from
violating certain provisions of the Securities Exchange Act of 1934 and (ii)
comply with certain undertakings designed to improve its reporting and
record keeping practices and enhance its internal accounting controls.
On the same date, without admitting or denying any findings of fact or
conclusions of law, the Company's President and Chief Executive Officer,
Hatem El-Khalidi, agreed to a cease-and-desist order with the SEC settling
alleged violations of the federal securities laws relating to the same
matter and agreeing to pay a $25,000 penalty. In connection with the
settlement, Mr. El-Khalidi agreed to cease and desist from violating certain
provisions of the Securities Exchange Act of 1934.
7. LONG-TERM DEBT
South Hampton entered into a $2.25 million revolving credit agreement with a
bank in September 1999 that is collateralized by a first security interest
in certain of its assets. An amended agreement was entered into on June 30,
2000, which increased the total amount to $3.25 million. Amendments two
through ten extended the due dates from May 31, 2001 to June 15, 2003. The
agreement contained various restrictive covenants including the maintenance
of various financial ratios, net worth and limitations on distributions to
the Company. At June 30, 2003, South Hampton was not in compliance with the
covenant relating to distributions to the parent company, and therefore, the
debt is classified as current in the financial statements.
On July 29, 2003, South Hampton entered into a Purchase and Sale Agreement
(the "Agreement) with the bank, whereby the bank will purchase the accounts
receivable of South Hampton at a 15% discount. The discounted amount is
returned to South Hampton, less fees, when the invoice is collected. Under
this factoring agreement, the bank has agreed to purchase up to $4.5 million
of invoices. The initial proceeds of the Agreement were used to retire the
$3.25 million revolving credit agreement. Management expects the fees and
interest charged by the bank in this arrangement will equate to an effective
interest rate of approximately 9.0%. The Agreement is secured by cash
accounts, accounts receivable and inventory and imposes limitations on
distributions to the Company.
In connection with the acquisition of the common stock of Coin, South
Hampton and Gulf State entered into the $3.5 million loan agreement with a
commercial lending company in December 1999 that is collateralized by a
first security interest on all of South Hampton's and Gulf State's assets,
except those dedicated to the bank mentioned in the preceding paragraph.
Interest is at 10.55% per annum. A new agreement dated April 1, 2001
provides for principal and interest payments in the amount of $58,340 on a
monthly basis beginning July 1, 2001 and continuing until January 2004. At
June 30, 2003, South Hampton and
8
Gulf State were not in compliance with a covenant relating to distributions
to the Company, and therefore, the debt is classified as current in the
financial statements.
Coin has two loans payable to Mexican banks, which are collateralized by all
of the assets of Coin. The first loan is payable in monthly payments through
2004, while the second loan is payable in quarterly payments through 2007.
The first loan bears interest at 5% per annum and the second loan bears
interest at the LIBOR rate plus seven points (LIBOR was 1.31% at March 31,
2003). At June 30, 2003, Coin was in default of the loan covenants as a
result of not having made its monthly and quarterly payments and therefore
the loans are classified as current in the financial statements. Unpaid
interest and penalty interest of $2,777,809 has been accrued at June 30,
2003.
By not being in compliance with the loan agreement covenants, the creditors
have the right to declare the debt to be immediately due and payable. If
this were to occur, the Company would currently be unable to pay the entire
amounts due.
8. NATURAL GASOLINE SWAP AGREEMENTS
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative instrument's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative instrument's gains and losses to offset related results on the
hedged item in the income statement, to the extent effective, and requires
that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. Statement No.
133, as amended, was adopted by the Company on January 1, 2001. The Company
periodically enters into commodity swap derivative agreements to decrease
the price volatility of its natural gasoline feedstock requirements. These
derivative agreements were not designated as hedges by the Company.
South Hampton's primary source of feedstock is natural gasoline. In 2001 and
2002 South Hampton entered into three swap agreements to limit the effect of
significant fluctuations in natural gasoline prices. The last of these
agreements expired in January 2003. In March and April 2003 two new
agreements were entered into with the last agreement expiring on July 31,
2003. The effect of these agreements is to limit the company's exposure by
fixing the natural gasoline price of a portion of its feedstock purchases
over the term of the agreements. The agreements cover approximately 20% to
40% of the average monthly feedstock requirements. For the six months ended
June 30, 2003 and 2002, the net realized loss from swap agreements was
$89,300 and $15,120, respectively. There was an unrealized gain related to
derivative contracts for the six months ended June 30, 2003 and 2002 of
approximately $18,000 and $1,299,000, respectively.
9
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Statements in Part 1, Item 2 as well as elsewhere in, or incorporated by
reference in, this Quarterly Report on Form 10-Q regarding the Company's
financial position, business strategy and plans and objectives of the Company's
management for future operations and other statements that are not historical
facts, are "forward-looking statements" as that term is defined under applicable
Federal securities laws. In some cases, "forward-looking statements" can be
identified by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "contemplates," "proposes," believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. Forward-looking statements are subject to risks, uncertainties and
other factors that could cause actual results to differ materially from those
expressed or implied by such statements. Such risks, uncertainties and factors
include, but are not limited to, general economic conditions domestically and
internationally; insufficient cash flows from operating activities; difficulties
in obtaining financing; outstanding debt and other financial and legal
obligations; competition; industry cycles; feedstock, specialty petrochemical
product and mineral prices; feedstock availability; technological developments;
regulatory changes; environmental matters; foreign government instability;
foreign legal and political concepts; and foreign currency fluctuations, as well
as other risks detailed in the Company's filings with the U.S. Securities and
Exchange Commission, including this Quarterly Report on Form 10-Q, all of which
are difficult to predict and many of which are beyond the Company's control.
LIQUIDITY AND CAPITAL RESOURCES
The Company operates in two business segments, specialty petrochemicals
(which is composed of the entities owned by the Refining Company) and mining.
Its corporate overhead needs are minimal. A discussion of each segment's
liquidity and capital resources follows.
SPECIALTY PETROCHEMICALS SEGMENT. Historically, this segment has contributed
substantially all of the Company's internally generated cash flows from
operating activities and its primary sources of revenue are the specialty
products refineries owned and operated by South Hampton near Silsbee, Texas and
by Coin in Mexico. Management took steps, beginning in July 2001, to protect the
operations from extreme fluctuations in the price of its feedstock purchases by
entering into swap agreements covering approximately 20% to 40% of its needs
through December 2002. In addition, the purchase price of natural gas, which is
used as fuel gas, has been fixed by agreement for the period from July 2001
through February 2003.
As mentioned in Note 7, South Hampton and Coin were not in compliance with
certain covenants contained in their loan agreements at June 30, 2003, and
therefore, the creditors have the right to declare the debt to be immediately
due and payable. If this were to occur, the Company would currently be unable to
pay the entire amounts due.
MINING SEGMENT. This segment is in the development stage. Its most
significant asset is the Al Masane mining project in Saudi Arabia, which is a
net user of the Company's available cash and capital resources. Implementation
of the project has been delayed until the open market prices for the minerals to
be produced by the mine improve.
By letter dated May 11, 1999, the Company informed the Ministry of Petroleum
and Mineral Resources that implementation of the Al Masane project would be
delayed until open market prices for the minerals improved. One year later in
May 2000, a reply was received from the Ministry to the Company's letter of May
11, 1999 notifying the Company that it must immediately implement the Al Masane
project. In September 2000 the Company was further notified that the project
should be immediately implemented or the mining lease would be terminated. A
second notice from the Ministry several weeks later stated that the Committee of
the Supreme Council of Petroleum and Minerals in Saudi Arabia had recommended
giving the Company six months to take positive steps to implement the project.
Another notice from the Ministry in August 2001 stated that the Council of
Ministers of Saudi Arabia had issued a resolution in which it refused the
Company's request to postpone implementation of the project, that the Company
must start implementation of the project within six months of the date of the
resolution and that, if the project was not then started, the Ministry was
authorized to begin procedures to terminate the mining lease. Subsequent
correspondence from the Ministry in the fall of 2001 reiterated the threat to
terminate the mining lease if the project was not immediately implemented. A
letter from the Ministry in March
10
2002 stated that the six-month period to implement the project had expired
without the Company taking positive steps towards that end.
The Company has vigorously contested the legality of the threats of the
Ministry to terminate the Company's mining lease. The Company has written
numerous letters to the Ministry and the Company and its Saudi Arabian legal
advisors also have had meetings with officials of the Ministry. In September
2002, the Company sent a letter to Saudi Arabian Crown Prince Abdullah Ben Abdul
Aziz, in his capacity as Deputy Chairman of the Saudi Supreme Council of
Petroleum and Minerals (the King of Saudi Arabia is the chairman), in which the
Company contested the legality of the threats of the Ministry to terminate the
mining lease and requested his advice. As stated in these letters, the Company
believes that the Ministry's letters to the Company asking for the
implementation of the project, without any regard to metal market conditions, is
contrary to the Saudi Mining Code and the mining lease agreement. In addition,
the Company has had correspondence and a meeting with the United States
Ambassador to Saudi Arabia where the Company presented its opinion regarding the
legality of the Ministry's actions. This opinion also was conveyed in a recent
letter to the United States Secretary of Commerce, who replied that the United
States Embassy is working to set up meetings with Saudi Arabian government
officials in an effort to resolve the matter. The Secretary of Commerce assured
the Company that the Department of Commerce has a strong commitment in helping
United States companies whenever possible. In a further letter from the
Department of Commerce dated March 6, 2003, the Assistant Secretary for Market
Access and Compliance stated the following: "After investigating the matter, the
U.S. Embassy in Riyadh has been informed by the Ministry of Petroleum that it
did not cancel your mining lease. According to the Ministry, it is waiting
development of the site by Arabian American Development Company." To date, the
Company has not received a written notice of termination of the lease. An order
of termination of the mining lease by the Minister can be appealed to the Board
of Lease Appeals in accordance with Article (55) of the Saudi Mining Code, which
is an independent Board, chosen regardless of nationality, from eminent and
highly reputable jurists and judges experienced in international law and
problems relating to leases.
When the market prices for the minerals rise to acceptable levels, plans to
implement the project will be resumed. At that time, the Company will attempt to
locate a joint venture partner, form a joint venture and, together with the
joint venture partner, attempt to obtain acceptable financing to commercially
develop the project. There are no assurances that a joint venture partner can be
located, a joint venture formed or, if it is formed, that the joint venture
would be able to obtain acceptable financing for the project. Financing plans
for the above are currently being studied. In the meantime, the Company intends
to maintain the Al Masane mining lease through the payment of the annual advance
surface rental, the implementation of a drilling program to attempt to increase
proven and probable reserves and to attempt to improve the metallurgical
recovery rates beyond those stated in the feasibility study, which may improve
the commercial viability of the project. At June 30, 2003, unpaid annual rental
payments total approximately $543,000.
On June 22, 1999, the Company submitted a formal application for a five-year
exclusive mineral exploration license for the Greater Al Masane Area of
approximately 2,850 square kilometers, which surrounds the Al Masane mining
lease area and includes the Wadi Qatan and Jebel Harr areas. The Company
previously worked in the Greater Al Masane Area after obtaining written
authorization from the Saudi Ministry of Petroleum and Mineral Resources, and
has expended over $3 million in exploration work. Geophysical, geochemical and
geological work and diamond core drilling on the Greater Al Masane area has
revealed mineralization similar to that discovered at Al Masane. The application
for the new exploration license is still pending and is expected to be acted
upon after the proposed new Saudi Arabian Mining Code is issued. If the Saudi
Arabian government does not issue the exploration license, the Company believes
that it will be entitled to a refund of the monies expended, since the Company
was authorized by the Saudi Arabian government to carry out exploration work in
this area while waiting for the exploration license to be issued.
The Company's mineral interests in the United States are its ownership
interest in Pioche, which has been inactive for many years. Its properties
include 48 patented and 5 unpatented claims totaling approximately 1,500 acres
in Lincoln County, Nevada. There are prospects and mines on these claims that
previously produced silver, gold, lead, zinc and copper. There is also a
300-ton-a-day processing mill on property owned by Pioche. The mill is not
currently in use and a significant expenditure would be required in order to put
the mill into continuous operation, if commercial mining is to be conducted on
the property.
Management also is addressing two other significant financing issues within
this segment. These issues are the $11.0 million note payable due the Saudi
Arabian government and accrued salaries and termination benefits of
approximately $943,000 due employees working in Saudi Arabia (this amount does
not include any amounts due the Company's President and Chief Executive Officer
who also primarily works in Saudi Arabia and is owed approximately $1,133,000).
Regarding the note payable, this loan was originally due in ten annual
installments beginning in 1984. The Company has not made any repayments nor has
it received any payment demands or other communications regarding the note
payable from the Saudi government. By memorandum to the
11
King of Saudi Arabia in 1986, the Saudi Ministers of Finance and Petroleum
recommended that the $11.0 million note be incorporated into a loan from SIDF to
finance 50% of the cost of the Al Masane project, repayment of the total amount
of which would be made through a mutually agreed upon repayment schedule from
the Company's share of the operating cash flows generated by the project. The
Company remains active in Saudi Arabia and received the Al Masane mining lease
at a time when it had not made any of the agreed upon repayment installments.
Based on its experience to date, management believes that as long as the Company
diligently attempts to explore and develop the Al Masane project no repayment
demand will be made. The Company has communicated to the Saudi government that
its delay in repaying the note is a direct result of the government's lengthy
delay in granting the Al Masane lease and has requested formal negotiations to
restructure this obligation. Based on its interpretation of the Al Masane mining
lease and other documents, management believes the government is likely to agree
to link repayment of this note to the Company's share of the operating cash
flows generated by the commercial development of the Al Masane project and to a
long-term installment repayment schedule. In the event the Saudi government was
to demand immediate repayment of this obligation, which management considers
unlikely, the Company would be unable to pay the entire amount due.
With respect to the accrued salaries and termination benefits due employees
working in Saudi Arabia, the Company plans to continue employing these
individuals until it is able to generate sufficient excess funds to begin
payment of this liability. Management will then begin the process of gradually
releasing certain employees and paying its obligations as they are released from
the Company's employment. The salary and social security benefits for these
employees currently total approximately $108,000 per year.
At this time, the Company has no definitive plans for the development of its
domestic mining assets. It periodically receives proposals from outside parties
who are interested in possibly developing or using certain assets. Management
will continue to review these proposals as they are received, but at this time
does not anticipate making any significant domestic mining capital expenditures
or receiving any significant proceeds from the sale or use of these assets.
If the Company seeks additional outside financing, there is no assurance
that sufficient funds could be obtained. It is also possible that the terms of
any additional financing that the Company would be able to obtain would be
unfavorable to the Company and its existing shareholders.
RESULTS OF OPERATIONS
SPECIALTY PETROCHEMICALS SEGMENT. In the quarter ended June 30, 2003, total
refined product sales increased approximately $931,000 or 12%, while the cost of
sales (excluding depreciation) increased approximately $1,253,000 or 17% from
the same period in 2002. Coin's sales decreased approximately $205,000 or 80%,
while its cost of sales decreased approximately $380,000 or 75%. Consequently,
the total gross profit margin on sales in the second quarter of 2003 decreased
approximately $322,000 or 67% compared to the same period in 2002. Coin had a
negative gross profit margin for this quarter of approximately $73,000, compared
to a negative gross profit margin of approximately $248,000 for the same quarter
in 2002.
In the six months ended June 30, 2003, total refined product sales increased
approximately $859,000 or 5%, while the cost of sales (excluding depreciation)
increased approximately $4,012,000 or 30% from the same period in 2002. Coin's
sales decreased approximately $834,000 or 78%, while its cost of sales decreased
approximately $779,000 or 74%. Consequently, the total gross profit margin on
product sales in the first six months of 2003 decreased approximately $3,153,000
compared to the same period in 2002. Coin had a negative gross profit margin for
the six months of approximately $33,000, compared to a gross profit margin of
approximately $22,000 for the same period in 2002.
The second quarter of 2003 began to take on the pattern of low margins and
high fuel costs that plagued the Company and the industry in general for the
remainder of the year. After the conflict in Iraq was defined and speculation
regarding the situation ended, feedstock prices fell almost 20% to the $.75 per
gallon range from the highs of $.96 per gallon in the previous quarter. These
price levels on feedstock would normally indicate that the Company could make a
reasonable margin on its products and operating income would reach acceptable,
although not necessarily record levels. Unfortunately, at the same time
feedstock was falling, the gas industry in the U.S. was experiencing unusually
strong prices. Most of the strength in pricing, early in the year, was related
to speculation about how fast U.S. gas storage would recover from the winter
usage and whether enough gas could be put back in storage to provide for the
2003-2004 winter period. The Company had planned its hedging program around
protecting its fuel cost during the winter months and then riding the spot
market during the warm months when gas prices historically are moderate to soft.
The plan worked well in the winter as the Company enjoyed fuel prices some 60%
to 70% below market prices, but when the warm weather came and gas prices stayed
at the $5.50 to $6.50 MMBTU levels, the Company's operating expenses were too
high and could not be totally passed through to its customers.
12
The Company uses natural gasoline for the base feedstock of most of its
products. Natural gasoline is classified as an LPG and is the heavier liquid
produced when the field gas from wells is separated from the propane, butane,
and natural gasoline contained therein. Natural gasoline does not follow the
price of crude oil directly but studies over recent years have shown an 88%
correlation with the price of crude oil. During the buildup prior to the
conflict in Iraq, the price of natural gasoline went from an average of $.65 per
gallon during 2002 to an average price of over $.93 per gallon during the first
quarter of 2003 and back down to an average price per gallon of $.75 in the
second quarter. While the Company attempts to raise sales prices to offset as
much of the feedstock cost as possible, the ability to raise prices is
constrained by a lack of price movement from the major oil company which
competes in the same market. The Company has a loyal customer base and has been
able to adjust sales prices to some extent, but economic conditions have forced
the customers to be more price conscious than might ordinarily be the case, when
service and product quality are the driving factors.
The toll processing business has been steady and continued to contribute to
the Company's performance throughout the second quarter of 2003. The toll
processing customers continued to operate strongly throughout the second quarter
but had some reductions from the first quarter results mainly due to a build up
of inventories in the period. Total sales revenue from toll processing for the
first quarter of 2003 was over $1.080 million, which was slightly above the
quarterly average for 2002, but dropped 15% to $895 thousand in the second
quarter. This revenue for the second quarter of 2003 decreased by approximately
$119,000 from the same period in 2002. Total processing fee revenue for the
first six months of 2003 of approximately $1,977,000 was a slight increase over
the fees for the same period in 2002. While there were some fluctuations in the
tolling volumes handled, toll processing has developed into very steady business
over the last five years.
The Mexico refinery continues to struggle with economic conditions in
Mexico. High oil prices have affected their economy, as it has for much of the
world. While Mexico is a major oil producer, and hence the recipient of
increased oil revenue, much of the benefit gets tied up in Pemex, the state
owned oil company, and does not have the effect on the general population that
it possibly could. The Coin operation was shut down late in the fourth quarter
of 2002 due to market conditions and began in late March 2003 to re-establish
its feedstock supply from Pemex. The plant resumed operations late in the second
quarter and early in the third quarter of 2003.
MINING SEGMENT AND GENERAL CORPORATE EXPENSES. None of the Company's other
operations generate significant operating or other revenues. The minority
interest amount represents the Pioche and Coin minority stockholders' share of
the losses from the Pioche and Coin operations. Pioche losses are primarily
attributable to the costs of maintaining the Nevada mining properties.
The Company assesses the carrying values of its assets on an ongoing basis.
Factors which may affect the carrying values of the mining properties include,
but are not limited to, mineral prices, capital cost estimates, the estimated
operating costs of any mines and related processing, ore grade and related
metallurgical characteristics, the design of any mines and the timing of any
mineral production. Prices currently used to assess the recoverability of the Al
Masane project costs, based on production to begin no sooner that 2004, are
$1.04 per pound for copper, $.60 per pound for zinc. Copper and zinc comprise in
excess of 80% of the expected value of production. Using these price
assumptions, there were no asset impairments at June 30, 2003. There are no
assurances that, particularly in the event of a prolonged period of depressed
mineral prices, the Company will not be required to take a material write-down
of its mineral properties in the future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Other than as disclosed, there have been no material changes in the
Company's exposure to market risk from the disclosure included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES.
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's President and
Chief Executive Officer and Treasurer, of the effectiveness of the Company's
disclosure controls and procedures, as of the end of the period covered by this
report. Based upon that evaluation, the President and Chief Executive Officer
and Treasurer concluded that, as of the end of the period covered by this
report, the Company's disclosure controls and procedures were effective such
that information relating to the Company (including its consolidated
subsidiaries) required to be disclosed in the Company's Securities and Exchange
Commission reports (i) is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms and (ii) is accumulated
13
and communicated to the Company's management, including the President and Chief
Executive Officer and Treasurer, as appropriate to allow timely decisions
regarding required disclosure.
During the period covered by this report, there have been no changes in
the Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
14
ARABIAN AMERICAN DEVELOPMENT COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Note 6 to the consolidated financial statements
contained in this report for a discussion of material pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Reference is made to Note 7 of the consolidated financial statements and Part
I. Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in this report for a discussion of the $11.0
million note payable due the Saudi Arabian government and the loans payable by
Coin to Mexican banks.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION.
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed or incorporated by reference as exhibits
to this report. Exhibits marked with an asterisk (*) are management
contracts or a compensatory plan, contract or arrangement.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3(a) - Certificate of Incorporation of the Company as
amended through the Certificate of Amendment
filed with the Delaware Secretary of State on
July 19, 2000 (incorporated by reference to
Exhibit 3(a) to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000
(File No. 0-6247)).
3(b) - Bylaws of the Company, as amended through March
4, 1998 (incorporated by reference to Exhibit
3(b) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999 (File No.
0-6247)).
10(a) - Contract dated July 29, 1971 between the
Company, National Mining Company and Petromin
(incorporated by reference to Exhibit 10(a) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (File No. 0-6247)).
10(b) - Loan Agreement dated January 24, 1979 between
the Company, National Mining Company and the
Government of Saudi Arabia (incorporated by
reference to Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
15
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10(c) - Mining Lease Agreement effective May 22, 1993 by
and between the Ministry of Petroleum and
Mineral Resources and the Company (incorporated
by reference to Exhibit 10(c) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(d) - Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 10(d) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (File No.
0-6247)).*
10(e) - 1987 Non-Employee Director Stock Plan
(incorporated by reference to Exhibit 10(e) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (File No.
0-6247)).*
10(f) - Phantom Stock Plan of Texas Oil & Chemical Co.
II, Inc. (incorporated by reference to Exhibit
10(f) to the Company's Annual Report on Form
10-K for the year ended December 31, 1999 (File
No. 0-6247)).*
10(g) - Agreement dated March 10, 1988 between Chevron
Research Company and South Hampton Refining
Company, together with related form of proposed
Contract of Sale by and between Chevron Company
and South Hampton Refining Company (incorporated
by reference to Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(h) - Addendum to the Agreement Relating to AROMAX(R)
Process - Second Commercial Demonstration dated
June 13, 1989 by and between Chevron Research
Company and South Hampton Refining Company
(incorporated by reference to Exhibit 10(h) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (File No. 0-6247)).
10(i) - Vehicle Lease Service Agreement dated September
28, 1989 by and between Silsbee Trading and
Transportation Corp. and South Hampton Refining
Company (incorporated by reference to Exhibit
10(i) to the Company's Annual Report on Form
10-K for the year ended December 31, 1999 (File
No. 0-6247)).
10(j) - Letter Agreement dated May 3, 1991 between
Sheikh Kamal Adham and the Company (incorporated
by reference to Exhibit 10(j) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(k) - Promissory Note dated February 17, 1994 from
Hatem El-Khalidi to the Company (incorporated by
reference to Exhibit 10(k) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(l) - Letter Agreement dated August 15, 1995 between
Hatem El-Khalidi and the Company (incorporated
by reference to Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(m) - Letter Agreement dated August 24, 1995 between
Sheikh Kamal Adham and the Company (incorporated
by reference to Exhibit 10(m) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(n) - Letter Agreement dated October 23, 1995 between
Sheikh Fahad Al-Athel and the Company
(incorporated by reference to Exhibit 10(n) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (File No. 0-6247)).
16
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10(o) - Letter Agreement dated November 30, 1996 between
Sheikh Fahad Al-Athel and the Company
(incorporated by reference to Exhibit 10(o) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 2001 (File No. 0-6247)).
10(p) - Stock Purchase Agreement dated as of January 25,
2000 between Spechem, S.A. de. C.V. and Texas
Oil and Chemical Co. II, Inc. (incorporated by
reference to Exhibit 10(p) to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1999 (File No. 0-6247)).
10(q) - Loan and Security Agreement dated as of December
30, 1999 by and among Heller Financial Leasing,
Inc., South Hampton Refining Company and the
Gulf State Pipe Line Company, Inc., together
with related Promissory Note, Guaranty made by
the Company, Guaranty made by American Shield
Refining Company, Guaranty made by Texas Oil and
Chemical Co. II, Inc., Pledge Agreement made by
Texas Oil and Chemical Co. II, Inc., Pledge
Agreement made by South Hampton Refining
Company, Ground Lease, Sub-Ground Lease and
Hazardous Materials Indemnity Agreement
(incorporated by reference to Exhibit 10(q) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (File No. 0-6247)).
- (a) Agreement dated as of April 1, 2001 among
South Hampton Refining Company, Gulf State Pipe
Line Company and Heller Financial Leasing, Inc.,
together with Amended and Restated Promissory
Note (incorporated by reference to Exhibit 10(a)
to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2001 (File No.
0-6247)).
10(r) - Loan Agreement dated as of September 30, 1999
between South Hampton Refining Company and
Southwest Bank of Texas, N.A., together with
related Promissory Note, Security Agreement,
Arbitration Agreement and Guaranty Agreement
made by Texas Oil and Chemical Co. II, Inc.
(incorporated by reference to Exhibit 10(r) to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1999 (File No. 0-6247)).
- (a) First Amendment to Loan Agreement dated June
20, 2000 between South Hampton Refining Company
and Southwest Bank of Texas, N.A., together with
related Promissory Note, Security Agreement,
Arbitration Agreement and Guaranty Agreement
made by Texas Oil and Chemical Co. II, Inc.
(incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001 (File No.
0-6247)).
- (b) Second Amendment to Loan Agreement dated as
of May 31, 2001 between South Hampton Refining
Company and Southwest Bank of Texas, N.A.,
together with related Promissory Note
(incorporated by reference to Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2001 (File No.
0-6247)).
- (c) Third Amendment to Loan Agreement dated as
of July 31, 2001 between South Hampton Refining
Company and Southwest Bank of Texas, N.A.,
together with related Promissory Note
(incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2001 (File No.
0-6247)).
17
EXHIBIT
NUMBER DESCRIPTION
------ -----------
- (d) Fourth Amendment to Loan Agreement dated as
of October 31, 2001 between South Hampton
Refining Company and Southwest Bank of Texas,
N.A., together with related Promissory Note
(incorporated by reference to Exhibit 10(r)(d)
to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 (File No.
0-6247)).
- (e) Fifth Amendment to Loan Agreement dated as
of December 31, 2001 between South Hampton
Refining Company and Southwest Bank of Texas,
N.A., together with related Promissory Note
(incorporated by reference to Exhibit 10(r)(e)
to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 (File No.
0-6247)).
- (f) Sixth Amendment to Loan Agreement dated as
of April 30, 2002 between South Hampton Refining
Company and Southwest Bank of Texas, N.A.,
together with related Promissory Note
(incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 2002 (File No.
0-6247)).
- (g) Seventh Amendment to Loan Agreement dated as
of August 31, 2002 between South Hampton
Refining Company and Southwest Bank of Texas,
N.A., together with related Promissory Note
(incorporated by reference to Exhibit 10(a) to
the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2002 (File No.
0-6247)).
- (h) Eighth Amendment to Loan Agreement dated as
of December 31, 2002 between South Hampton
Refining Company and Southwest Bank of Texas.
N.A., together with related Promissory Note
(incorporated by reference to Exhibit 10(r)(h)
to the Company's Annual Report on Form 10-K for
the year ended December 31, 2002 (File No.
0-6247)).
- (i) Ninth Amendment to Loan Agreement dated as
of February 28, 2003 between South Hampton
Refining Company and Southwest Bank of Texas.
N.A., together with related Promissory Note
(incorporated by reference to Exhibit 10(r)(i)
to the Company's Annual Report on Form 10-K for
the year ended December 31, 2002 (File No.
0-6247)).
- (j) Tenth Amendment to Loan Agreement dated as
of April 30, 2003 between South Hampton Refining
Company and Southwest Bank of Texas. N.A.,
together with related Promissory Note
(incorporated by reference to Exhibit 10(r)(j)
to the Company's Annual Report on Form 10-K for
the year ended December 31, 2002 (File No.
0-6247)).
10(s) - Purchase and Sale Agreement/Security Agreement
dated July 29, 2003 between Southwest Bank of
Texas, N.A. and South Hampton Refining Company,
together with related Restricted Payments Letter
Agreement and Guaranty of Texas Oil & Chemical
Co. II, Inc. (incorporated by reference to
Exhibit 10(s) to the Company's Annual Report on
Form 10-K for the year ended December 31, 2002
(File No. 0-6247)).
31.1 - Certification of Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 - Certification of Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
18
EXHIBIT
NUMBER DESCRIPTION
------ -----------
32.1 - Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 - Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) REPORTS ON FORM 8-K
A Form 8-K report, dated June 16, 2003 and filed on June 17, 2003, reported
that Moore Stephens Travis Wolff, L.L.P. was engaged as the new independent
accountant of the Company on June 16, 2003.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: February 12, 2004
ARABIAN AMERICAN DEVELOPMENT COMPANY
-----------------------------------------
(Registrant)
/s/ DREW WILSON, JR.
-----------------------------------------
Drew Wilson, Jr. Secretary/Treasurer
(Authorized Officer and Principal
Financial and Accounting Officer)
20