Debt and Notes Payable

12 Months Ended

Dec. 31, 2013

Debt and Notes Payable

Debt and Notes Payable

 2. Debt and Notes Payable

Long-term Debt – Financial Institutions

Following is a summary of our long-term debt to financial institutions as of December 31, 2013 and 2012:

(In thousands)		December 31,
		2013		2012
Fixed Rate term note payable to a U.S. bank, with an interest rate of 5.5% at December 31, 2013, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.	$	911	$	1,309
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.85% at December 31, 2013, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€256)		351		363
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.3% at December 31, 2013, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€280)		386		395
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at December 31, 2013, due July 31, 2015, secured by TPT's assets.  (€58)		80		143
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at December 31, 2013, due July 5, 2014, secured by TPT's assets.  (€101)		139		442
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 6.6% at December 31, 2013, due March 1, 2015, secured by TMM's property, plant and equipment. (RM 2,625)		801		866
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 6.6% at December 31, 2013, due October 25, 2018, secured by TMM's property, plant and equipment. (RM 4,229)		1,290		-
Total		3,958		3,518
Less current maturities		1,040		1,202
Total long-term debt - financial institutions, net of current maturities	$	2,918	$	2,316

United States Operations

U.S. Credit Agreement and Term Loan

On December 31, 2010, the Company entered into a credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”).  The Agreement consists of a $2 million term loan, which matures December 31, 2015 and a $2 million line of credit.  The term loan bears interest at a fixed rate of 5.5% per annum.  Monthly principal and interest payments commenced on February 1, 2011.  The monthly principal and interest payment are $38,620.  At December 31, 2013, the balance on the term loan was $911,000.

The Agreement is secured by certain assets of the Company which are located in the United States or which arise from the Company’s operations in the United States.  Collateral under the Agreement does not include the Company’s ownership or other interests in TMM and TPT, any assets or operations of either TMM or TPT or any proceeds thereof.

 On January 17, 2014, the Company entered into the third amendment (the “Amendment”) with the Lender, which has an effective date of January 1, 2014.  Under the terms of the Amendment, which waived the debt covenant for the four-quarter period ended December 31, 2013, the Company is required to pledge a certificate of deposit in the amount of $350,000 as additional security against the outstanding loan balance of $911,000.  In addition, the Company will be required to maintain a ratio of cash flow to debt service as follows:

1.       at least 1.25 to 1.0 measured on a rolling four-quarter basis beginning with the four-quarter period ending December 31, 2010 and ending with the four-quarter period ending September 30, 2013;

2.       at least 1.0 to 1.0 for the four months ending April 30, 2014;

3.       at least 1.0 to 1.0 for the six months ending June 30, 2014;

4.       at least 1.0 to 1.0 for the nine months ending September 30, 2014;

5.       at least 1.25 to 1.0 for the twelve months ending December 31, 2014; and

6.       at least 1.25 to 1.0 measured on a rolling, four-quarter basis beginning with the four-quarter period ending March 31, 2015, and similarly measured at the end of each quarter thereafter.

The Agreement also includes certain additional affirmative and negative covenants, including limitations on incurring additional indebtedness, becoming a guarantor or surety, making loans or advances to other parties, except trade credit extended in the normal course of business, or changing the President or Board of Directors of the Company without the Lender’s written consent.

European Operations

On July 7, 2004, TPT entered into a mortgage loan (the “First Mortgage”) with Rabobank.  The First Mortgage, in the amount of €485,000, is to be repaid over 25 years and the interest rate is to be adjusted every five years.  Under the terms of the agreement, the interest was adjusted to a fixed rate of 3.85%, effective August 1, 2013, for a period of five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  TPT utilized €325,000 of the loan to finance the July 14, 2004, purchase of land and an office building, as well as to remodel the office building.  The balance of the loan proceeds, €160,000, was used for the expansion of TPT’s existing building.  Monthly principal and interest payments commenced on September 1, 2004, and will continue through July 1, 2029.  The monthly principal payment is €1,616.  The loan balance at December 31, 2013 was €256,000 ($351,000).  The mortgage loan is secured by the land and office building purchased on July 7, 2004.

On January 3, 2005, TPT entered into a second mortgage loan (the “Second Mortgage”) with Rabobank to fund the acquisition of a 10,000 square foot warehouse with a loading dock that is located adjacent to TPT’s existing production facility.  The Second Mortgage, in the amount of €470,000, is to be repaid over 25 years and the interest rate is to be adjusted every five years.  Under the terms of the agreement, the interest was adjusted to a fixed rate of 3.3%, effective January 3, 2013, for a period of five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  Monthly principal and interest payments commenced on February 28, 2005 and will continue through January 31, 2030.  The monthly principal payment is €1,566.  The mortgage is secured by the land and building purchased by TPT on January 3, 2005.  The loan balance at December 31, 2013 was €280,000 ($386,000).

On July 19, 2005, TPT entered into a new term loan with Rabobank to fund the completion of its building expansion.  The loan, in the amount of €500,000, will be repaid over 10 years with interest fixed at 6.1% per year for the first five years.  Under the terms of the agreement, the interest was adjusted to a fixed rate of 4.05%, effective July 19, 2010, for a period of five years.  Thereafter, the rate will change to Rabobank prime plus 1.75%.  Monthly principal and interest payments commenced on August 31, 2005 and will continue through July 31, 2015.  The monthly principal payment is €4,167.  The loan is secured by TPT’s assets.  The loan balance at December 31, 2013 was €58,000 ($80,000).

On July 5, 2011, TPT entered into a three year term loan in the amount of €700,000 with a fixed interest rate of 4.25%.  The loan proceeds were used to fund TPT’s plant expansion and is secured by TPT’s assets.  Monthly principal and interest payments began on August 5, 2011 and continue through July 5, 2014.  The monthly principal payment is €19,444 and the loan balance at December 31, 2013 was €101,000 ($139,000).  The loan is secured by TPT’s production equipment.

  Asian Operations

On March 2, 2012, TMM amended their banking facility with HSBC Bank Malaysia Berhad (“HSBC”), a Malaysian Bank, to include a new Term Loan in the amount of Malaysian Ringgits (“RM”) 3,500,000 ($1,068,000) for the purpose of upgrading the operation’s synthetic rutile production process.  Under the terms of the facility, the loan will be paid in 35 equal monthly installments of RM 97,223 (excluding interest) and a final installment of RM 97,195 or approximately $29,661 and $29,652, respectively, commencing one month after full drawdown or 18 months after initial drawdown, whichever is earlier.  The interest rate is 2.00% above prime and will be payable monthly.  The loan balance at December 31, 2013 was RM 2,625,000 ($801,000).

On October 25, 2013, TMM entered into an agreement with HSBC to amend the banking facility currently in place between TMM & HSBC.  Under the terms of the agreement, HSBC granted a new term loan to TMM in the amount of RM 5,000,000 ($1,525,090).  Under the terms of the agreement, the term loan will be amortized over a period of five (5) years, and the interest rate will be 2.0% per annum above the HSBC’s base lending rate, which is currently 6.6% per annum.  Monthly principal payments, in the amount of RM 83,333 ($25,423), will commence one month after the loan is fully funded or 12 months after the initial drawdown, whichever is earlier.  The funds will be used to finance part of the cost of plant improvements to increase efficiency and production capacity.  The loan balance at December 31, 2013 was RM 4,229,000 ($1,290,000).

On October 25, 2013, TMM entered into an agreement with RHB Bank Berhad (“RHB”), a Malaysian Bank, to amend the banking facility currently in place between TMM & RHB.  Under the terms of the agreement, RHB granted a new term loan to TMM in the amount of RM 3,200,000 ($1,018,300).  Under the terms of the agreement, the term loan will be amortized over a period of five (5) years, and the interest rate will be 1.25% per annum above the RHB’s base lending rate, which is currently 6.6% per annum.  The funds will be used to finance part of the cost of plant improvements to increase efficiency and production capacity.  At December 31, 2013, no funds had been drawn down on the loan.

Liquidity

Management believes that it has adequate liquidity for fiscal year 2014 and expects to maintain compliance with all financial covenants throughout 2014.

The following is a summary of the future maturities of long-term debt to financial institutions as of December 31, 2014:

Years Ending December 31,
(In thousands)
2014	$	1,040
2015	946
2016	527
2017	487
2018	486
Thereafter	472
Total	$	3,958

Short-term Debt – Financial Institutions

U.S. Operations

On December 31, 2010, the Company entered into a credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”), and on March 1, 2012, the Line was increased from $1,000,000 to $2,000,000.  On May 15, 2013, the Company and the Lender entered into the second amendment which extended the maturity date from October 15, 2013 to October 15, 2014 and reduced the minimum interest rate floor from 5.5% to 4.5%.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a borrowing base, which is based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the Line bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 4.5%.  At December 31, 2013, no funds were outstanding on the Line.

European Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of bank prime plus 2.8% (currently at 3.432%), is secured by TPT’s accounts receivable and inventory.  At December 31, 2013, TPT had utilized €783,000 ($1,077,000) of its short-term credit facility.

TPT’s loan agreements covering both the Credit Facility and the term loans include subjective acceleration clauses that allow Rabobank to accelerate payment if, in the judgment of the bank, there are adverse changes in our business.  We believe that such subjective acceleration clauses are customary in The Netherlands for such borrowings.  However, if demand is made by Rabobank, we may be unable to refinance the demanded indebtedness, in which case the bank could foreclose on the assets of TPT.

Asian Operations

On May 21, 2013, TMM amended its banking facility with HSBC to extend the maturity date from April 30, 2013 to April 30, 2014.  The HSBC facility includes the following in RM:  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($152,000, $1,971,000 and $1,525,000, respectively).

On April 17, 2013, TMM amended its banking facility with RHB to extend the maturity date from March 5, 2013 to March 24, 2014.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($305,000, $2,837,000, $366,000 and $7,627,000, respectively).  At December 31, 2013, the outstanding balance on the foreign exchange contract RM 1,311,000 ($400,000) at a current interest rate of 2.80%.

The banking facilities with both HSBC and RHB bear an interest rate on the overdraft facilities at 1.25% over bank prime and the ECR facilities bear interest at 1.0% above the funding rate stipulated by the Export-Import Bank of Malaysia Berhad.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At December 31, 2013, the outstanding balance on the ECR facilities was RM 12,672,000 ($3,866,000) at a current interest rate of 4.62%.

The borrowings under both the HSBC and the RHB short term credit facilities are subject to certain subjective acceleration covenants based on the judgment of the banks and a demand provision that provide that the banks may demand repayment at any time.  We believe such a demand provision is customary in Malaysia for such facilities.  The loan agreements are secured by TMM’s property, plant and equipment.  However, if demand is made by HSBC or RHB, we may be unable to refinance the demanded indebtedness, in which case, the lenders could foreclose on the assets of TMM.  The credit facilities prohibit TMM from paying dividends, and the HSBC facility further prohibits loans to related parties without the prior consent of HSBC.