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CTI Industries Corp. Reports Operating Results (10-Q)

May 14, 2010 | About:
10qk

10qk

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CTI Industries Corp. (CTIB) filed Quarterly Report for the period ended 2010-03-31.

Cti Industries Corp. has a market cap of $15.8 million; its shares were traded at around $5.7 with a P/E ratio of 10.5 and P/S ratio of 0.4.

Highlight of Business Operations:

During the three months ended March 31, 2010, there were two customers whose purchases represented more than 10% of the Company s consolidated net sales. The sales to each of these customers for the three months ended March 31, 2010 were $3,154,000 or 25.4%, and $2,357,000 or 19.0% of consolidated net sales, respectively. Sales of these customers in the same period of 2009 were $2,500,000 or 26.0%, and $438,000 or 4.6% of consolidated net sales, respectively. As of March 31, 2010, the total amount owed to the Company by these customers was $2,329,000 or 26.8%, and $1,336,000 or 15.4% of the Company s consolidated accounts receivables. The amounts owed at March 31, 2009 were $1,602,000, or 24.7%, and $313,000 or 4.8% of the Company s consolidated net accounts receivables, respectively.

Selling. During the three months ended March 31, 2010, selling expenses were $340,000 or 2.7% of net sales, compared to $177,000 or 1.8% of net sales for the same period in 2009. The increase in selling expenses during the first three months of 2010, compared to the corresponding period of 2009, is attributable to (i) an increase in royalties expense of $58,000, (ii) an increase in consulting expense of $42,000 and (iii) selling expenses of $49,000 incurred in our Europe subsidiary.

Net Income. For the three months ended March 31, 2010, the Company had net income of $599,000 or $0.22 per share (basic) and $0.21 per share (diluted), compared to net income of $93,000 for the same period of 2009 or $0.03 per share (basic and diluted).

Significant changes in working capital items during the three months ended March 31, 2010 consisted of (i) an increase in accounts receivable of $1,302,000, (ii) an increase in inventories of $410,000, (iii) depreciation and amortization in the amount of $496,000, (iv) an increase in trade payables of $364,000, (v) an increase in accrued liabilities of $279,000 and (vi) an decrease of $39,000 in prepaid expenses and other assets. The increase in receivables is short term and we anticipate a reduction in the level of receivables during the second quarter of 2010.

Also, under the loan agreement, we were required to purchase a swap agreement with respect to at least 60% of the mortgage and term loan portions of our loan. On April 5, 2006, we entered into a swap arrangement with RBS Citizens N.A. with respect to 60% of the principal amounts of the mortgage loan and the term loan, which had the effect of fixing the interest rate for such portions (totaling $3,780,000) of the loans at 8.49% for the balance of the loan terms. On January 28, 2008 we entered into a swap arrangement with RBS Citizens for an additional $3,000,000 on our revolving line of credit, which had the effect of fixing the interest rate at 6.17%. These swap agreements are designated as a cash flow hedge and hedge the Company s exposure to interest rate fluctuations on the Company s floating rate loans. These swap arrangements are derivative financial instruments with respect to which we determine and record the fair market value each quarter. We record the fair market value of these contracts in the balance sheet, with an offset to other comprehensive loss. The fair market value of these swap agreements as of March 31, 2010 was a liability of $155,000. For the three months ended March 31, 2010, the other comprehensive gain included $34,000 of unrecognized gain representing the change in the mark-to-market value of the Company s interest rate swap agreements for such periods. The swap agreements require monthly settlements of the difference between the amount to be received and paid under the agreements, the amount of which is recognized in current earnings as interest expense.

On April 29, 2010, we entered into a Credit Agreement and associated documents with Harris N.A. (“Harris”) under which Harris agreed to extend to the Company a credit facility in the aggregate amount of $14,417,000. The facility includes (i) a Revolving Credit providing for maximum advances to Registrant, and letters of credit, based upon the level of availability measured by the levels of eligible receivables and inventory of the Company of $9,000,000, (ii) an Equipment Loan of up to $2,500,000 providing for loans for the purchase of equipment, (iii) a Mortgage Loan of $2,333,000 and (iv) a Term Loan in the amount of $583,000. The maturity date of the loans is April 29, 2013.

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