UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-Q



      [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 20142015
or

    [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

For the transition period from _________ to __________

COMMISSION FILE NUMBER 1-33926
 
 
TRECORA RESOURCES
(Exact name of registrant as specified in its charter)

DELAWARE75-1256622
(State or other jurisdiction of(I.R.S. employer incorporation or
organization)identification no.)

1650 Hwy 6 South, Suite 19077478
Sugar Land, Texas(Zip code)
(Address of principal executive offices) 

Registrant’s telephone number, including area code:  (409) 385-8300

Arabian American Development Company
Former name, former address and former fiscal year, if
changed since last report.

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  X    No                                

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  X    No                                

 
 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ____                                                      Accelerated filer _ X__

Non-accelerated filer  _____                                                      Smaller reporting company ____

Indicate by check mark whether the registrant is a shell company (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 August 5, 2014: 24,164,700.2015: 24,369,178.

 
 

 

TABLE OF CONTENTS

Item Number and Description
 
 
 
 
 1
 2
 3
 4
 5
 6
   
1517
   
2224
   
2224
 
 
 
 
2225
   
2225
   
2225

 
 


PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

TRECORA RESOURCES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 
JUNE 30,
2014
(unaudited)
  
DECEMBER 31,
2013
  
JUNE 30,
2015
(unaudited)
  
DECEMBER 31,
2014
 
ASSETS (thousands of dollars)  (thousands of dollars) 
Current Assets
            
Cash and cash equivalents $6,379  $7,608  $8,654  $8,506 
Trade receivables, net  28,176   22,069   22,122   28,271 
Advance to AMAK  -   536 
Inventories  11,702   12,063   15,058   12,815 
Prepaid expenses and other assets  2,269   2,075   3,400   3,257 
Contractual based intangible assets, net  -   104 
Taxes receivable  -   571   -   434 
Deferred income taxes  1,113   1,324   1,481   1,652 
Total current assets  49,639   46,350   50,715   54,935 
                
Plant, pipeline and equipment, net
  43,222   41,925   86,652   73,811 
                
Goodwill  21,798   21,750 
Other intangible assets, net  25,293   26,235 
Investment in AMAK  53,751   54,095   52,712   53,023 
Mineral properties in the United States  588   588   588   588 
Other assets  586   709   1,186   1,732 
                
TOTAL ASSETS $147,786  $143,667  $238,944  $232,074 
LIABILITIES
                
Current Liabilities                
Accounts payable $7,006  $7,362  $8,180  $9,535 
Accrued interest  80   102 
Current portion of derivative instruments  215   292   152   362 
Accrued liabilities  4,338   3,060   3,407   5,020 
Accrued liabilities in Saudi Arabia  140   140   495   495 
Current portion of post-retirement benefit  282   278   290   286 
Current portion of long-term debt  1,400   1,400   7,263   7,000 
Current portion of other liabilities  1,425   1,654   2,691   2,183 
Total current liabilities  14,886   14,288   22,478   24,881 
                
Long-term debt, net of current portion
  8,139   11,839   69,687   73,450 
Post-retirement benefit, net of current portion
  649   649   649   649 
Derivative instruments, net of current portion
  251   319   117   196 
Other liabilities, net of current portion
  775   1,369   901   1,039 
Deferred income taxes  11,141   11,984   10,231   10,471 
Total liabilities  35,841   40,448   104,063   110,686 
                
EQUITY                
Common stock-authorized 40 million shares of $.10 par value; issued and outstanding 23.9 million and 23.8 million shares in 2014 and 2013, respectively
  2,386   2,383 
Common stock-authorized 40 million shares of $.10 par value; issued and outstanding 24.1 million and 24.0 million shares in 2015 and 2014, respectively
  2,407   2,397 
Additional paid-in capital  47,125   46,064   49,607   48,282 
Accumulated other comprehensive loss  (303)  (366)
Retained earnings  62,448   54,849   82,578   70,420 
Total Trecora Resources Stockholders’ Equity  111,656   102,930   134,592   121,099 
Noncontrolling Interest  289   289   289   289 
Total equity  111,945   103,219   134,881   121,388 
                
TOTAL LIABILITIES AND EQUITY $147,786  $143,667  $238,944  $232,074 


See notes to consolidated financial statements.

 
1



TRECORA RESOURCES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


 THREE MONTHS ENDED  SIX MONTHS ENDED  THREE MONTHS ENDED  SIX MONTHS ENDED 
 JUNE 30,  JUNE 30,  JUNE 30,  JUNE 30, 
 2014  2013  2014  2013  2015  2014  2015  2014 
 (thousands of dollars)  (thousands of dollars) 
REVENUES                        
Petrochemical Product Sales $72,842  $54,762  $135,234  $106,382 
Petrochemical and Product Sales $56,665  $72,842  $107,206  $135,234 
Processing Fees  1,711   1,213   3,419   2,338   2,685   1,711   7,287   3,419 
  74,553   55,975   138,653   108,720   59,350   74,553   114,493   138,653 
                                
OPERATING COSTS AND EXPENSES                                
Cost of Sales and Processing                                
(including depreciation of $868, $838, $1,733, and $1,663, respectively)  62,853   47,408   118,239   93,474 
(including depreciation and amortization of $1,939, $868, $3,965, and $1,733, respectively)  44,166   62,853   83,596   118,239 
                                
GROSS PROFIT  11,700   8,567   20,414   15,246   15,184   11,700   30,897   20,414 
                                
GENERAL AND ADMINISTRATIVE EXPENSES                                
General and Administrative  4,154   3,452   8,343   6,957   5,523   4,154   11,288   8,343 
Depreciation  136   131   275   260   170   136   385   275 
  4,290   3,583   8,618   7,217   5,693   4,290   11,673   8,618 
                                
OPERATING INCOME  7,410   4,984   11,796   8,029   9,491   7,410   19,224   11,796 
                                
OTHER INCOME (EXPENSE)                                
Interest Income  9   --   18   1   7   9   13   18 
Interest Expense  11   (123)  (99)  (238)  (570)  11   (1,183)  (99)
Losses on Cash Flow Hedge Reclassified from OCI  (63)  (80)  (130)  (158)  -   (63)  -   (130)
Equity in earnings (loss) of AMAK  6   4,732   (344)  7,696 
Equity in Earnings (Losses) of AMAK  (369)  6   (310)  (344)
Miscellaneous Expense  (4)  (69)  (49)  (89)  (40)  (4)  (14)  (49)
  (41)  4,460   (604)  7,212   (972)  (41)  (1,494)  (604)
                                
INCOME BEFORE INCOME TAXES  7,369   9,444   11,192   15,241   8,519   7,369   17,730   11,192 
                                
INCOME TAXES  2,369   3,135   3,593   4,146   2,145   2,369   5,572   3,593 
                                
NET INCOME  5,000   6,309   7,599   11,095   6,374   5,000   12,158   7,599 
                                
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST  --   --   --   --   --   --   --   -- 
                                
NET INCOME ATTRIBUTABLE TO TRECORA RESOURCES $5,000  $6,309  $7,599  $11,095  $6,374  $5,000  $12,158  $7,599 
                                
Basic Earnings per Common Share                                
Net Income Attributable to Trecora Resources (dollars) $0.21  $0.26  $0.32  $0.46  $0.26  $0.21  $0.50  $0.32 
                                
Basic Weighted Average Number of Common Shares Outstanding  24,165   24,110   24,158   24,108   24,354   24,165   24,331   24,158 
                                
Diluted Earnings per Common Share                                
Net Income Attributable to Trecora Resources (dollars) $0.20  $0.26  $0.31  $0.45  $0.25  $0.20  $0.48  $0.31 
                                
Diluted Weighted Average Number of Common Shares Outstanding  24,813   24,652   24,866   24,655   25,155   24,813   25,150   24,866 

See notes to consolidated financial statements.

 
2



TRECORA RESOURCES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


 THREE MONTHS ENDED  SIX MONTHS ENDED  THREE MONTHS ENDED  
SIX MONTHS
ENDED
 
 JUNE 30,  JUNE 30,  JUNE 30,  JUNE 30, 
 2014  2013  2014  2013  2015  2014  2015  2014 
 (thousands of dollars)  (thousands of dollars) 
                        
NET INCOME $5,000  $6,309  $7,599  $11,095  $6,374  $5,000  $12,158  $7,599 
                                
OTHER COMPREHENSIVE GAIN, NET OF TAX                
OTHER COMPREHENSIVE INCOME, NET OF TAX                
Unrealized holding gains arising during period  82   152   193   285   -   82   -   193 
Less: reclassification adjustment for losses included in net income  63   80   130   158 
Less: reclassification adjustment included in net income  -   63   -   130 
                                
OTHER COMPREHENSIVE GAIN, NET OF TAX  19   72   63   127 
OTHER COMPREHENSIVE INCOME, NET OF TAX  -   19   -   63 
                                
COMPREHENSIVE INCOME $5,019  $6,381  $7,662  $11,222  $6,374  $5,019  $12,158  $7,662 

See notes to consolidated financial statements.

 
3


TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)


 TRECORA RESOURCES STOCKHOLDERS        TRECORA RESOURCES STOCKHOLDERS       
 COMMON STOCK  
ADDITIONAL
PAID-IN
  
ACCUMULATED
OTHER COMPREHENSIVE
  RETAINED     
NON-
CONTROLLING
  TOTAL  COMMON STOCK  
ADDITIONAL
PAID-IN
  RETAINED     
NON-
CONTROLLING
  TOTAL 
 SHARES  AMOUNT  CAPITAL  LOSS  EARNINGS  TOTAL  INTEREST  EQUITY  SHARES  AMOUNT  CAPITAL  EARNINGS  TOTAL  INTEREST  EQUITY 
 (thousands)  (thousands of dollars)  (thousands)                   
JANUARY 1, 2014  23,832  $2,383  $46,064  $(366) $54,849  $102,930  $289  $103,219 
JANUARY 1, 2015  23,975  $2,397  $48,282  $70,420  $121,099  $289  $121,388 
                                                            
Stock options                                                            
Issued to Directors  -   -   218   -   -   218   -   218   -   -   128   -   128   -   128 
Issued to Employees  -   -   701   -   -   701   -   701   -   -   657   -   657   -   657 
Warrants  -   -   54   -   -   54   -   54 
Issued to Former Director  -   -   48   -   48   -   48 
Restricted Common Stock                            
Issued to Employees  14   -   180   -   180   -   180 
Issued to Directors  -   -   6   -   6   -   6 
Common stock                                                            
Issued to Employees  32   3   88   -   -   91   -   91   64   8   308   -   316   -   316 
Unrealized Gain on Interest Rate Swap (net of income tax expense of $34)  -   -   -   63   -   63   -   63 
Issued to Directors  16   2   (2)  -   -   -   - 
Net Income  -   -   -   -   7,599   7,599   -   7,599   -   -   -   12,158   12,158   -   12,158 
                                                            
JUNE 30, 2014  23,864  $2,386  $47,125  $(303) $62,448  $111,656  $289  $111,945 
JUNE 30, 2015  24,069  $2,407  $49,607  $82,578  $134,592  $289  $134,881 

See notes to consolidated financial statements.


 
4


TRECORA RESOURCES AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
  SIX MONTHS ENDED 
  JUNE 30, 
  2014  2013 
  (thousands of dollars) 
OPERATING ACTIVITIES      
  Net Income Attributable to Trecora Resources $7,599  $11,095 
  Adjustments to Reconcile Net Income Attributable to Trecora Resources        
    To Net Cash Provided by Operating Activities:        
    Depreciation  2,008   1,923 
    Amortization of Contractual Based Intangible Asset  104   125 
    Accretion of Notes Receivable Discounts  (18)  (2)
    Unrealized Gain on Derivative Instruments  (48)  - 
    Stock-based Compensation  973   548 
    Deferred Income Taxes  (665)  1,148 
    Postretirement Obligation  4   5 
    Equity in (earnings) losses of AMAK  344   (3,700)
    Gain from additional equity issuance by AMAK  -   (3,996)
  Changes in Operating Assets and Liabilities:        
    Increase in Trade Receivables  (6,107)  (5,279)
    Decrease in Notes Receivable  141   20 
    Decrease in Taxes Receivable  571   1,182 
    (Increase) Decrease in Inventories  361   (2,476)
    Increase in Prepaid Expenses  (196)  (547)
    Increase in Accounts Payable and Accrued Liabilities  922   249 
    Increase (Decrease) in Accrued Interest  (22)  2 
    Increase in Other Liabilities  -   500 
         
    Net Cash Provided by Operating Activities  5,971   797 
         
INVESTING ACTIVITIES        
  Additions to Plant, Pipeline and Equipment  (4,127)  (3,142)
  Addition to Investment in AMAK  -   (7,500)
  Advance to AMAK, net  536   1,719 
         
    Net Cash Used in Investing Activities  (3,591)  (8,923)
         
FINANCING ACTIVITIES        
  Issuance of Common Stock  91   44 
  Additions to Long-Term Debt  3,000   6,000 
  Repayment of Long-Term Debt  (6,700)  (2,700)
         
    Net Cash Provided by (Used in) Financing Activities  (3,609)  3,344 
         
NET DECREASE IN CASH AND CASH EQUIVALENTS  (1,229)  (4,782)
         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  7,608   9,508 
         
CASH AND CASH EQUIVALENTS AT END OF PERIOD $6,379  $4,726 
         

 
 
Supplemental disclosure of cash flow information:   
  Cash payments for interest $245  $388 
  Cash payments for taxes $2,659  $1,390 
Supplemental disclosure of non-cash items:        
  Capital expansion amortized to depreciation expense $823  $540 
  Unrealized gain on interest rate swap, net of tax expense $63  $127 
  SIX MONTHS ENDED 
  JUNE 30, 
  2015  2014 
  (thousands of dollars) 
OPERATING ACTIVITIES      
  Net Income $12,158  $7,599 
  Adjustments to Reconcile Net Income of Trecora Resources        
    To Net Cash Provided by Operating Activities:        
    Depreciation  3,409   2,008 
    Amortization of Intangible Assets  942   104 
    Unrealized Gain on Derivative Instruments  (289)  (48)
    Share-based Compensation  1,289   973 
    Deferred Income Taxes  (69)  (665)
    Postretirement Obligation  4   4 
    Equity in losses of AMAK  310   344 
  Changes in Operating Assets and Liabilities:        
    (Increase) Decrease in Trade Receivables  6,149   (6,107)
    Decrease in Taxes Receivable  434   571 
    (Increase) Decrease in Inventories  (2,243)  361 
    Increase in Prepaid Expenses  (15)  (196)
    Decrease in Other Assets  419   101 
    Increase (Decrease) in Accounts Payable and Accrued Liabilities  (2,968)  922 
    Increase in Other Liabilities  969   - 
         
    Net Cash Provided by Operating Activities  20,499   5,971 
         
INVESTING ACTIVITIES        
  Additions to Plant, Pipeline and Equipment  (16,850)  (4,127)
  Acquisition Goodwill Adjustment  (47)  - 
  Advance to AMAK, net  -   536 
    Net Cash Used in Investing Activities  (16,897)  (3,591)
         
FINANCING ACTIVITIES        
  Issuance of Common Stock  46   91 
  Additions to Long-Term Debt  -   3,000 
  Repayment of Long-Term Debt  (3,500)  (6,700)
         
    Net Cash Used in Financing Activities  (3,454)  (3,609)
         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS  148   (1,229)
         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD  8,506   7,608 
         
CASH AND CASH EQUIVALENTS AT END OF PERIOD $8,654  $6,379 
         

Supplemental disclosure of cash flow information:   
  Cash payments for interest $1,147  $245 
  Cash payments for taxes, net of refunds $6,902  $2,659 
Supplemental disclosure of non-cash items:        
  Capital expansion amortized to depreciation expense $599  $823 

See notes to consolidated financial statements.

 
5


TRECORA RESOURCES AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1. BASIS OF PRESENTATIONGENERAL

Organization

Trecora Resources (the “Company”), was incorporated in the State of Delaware in 1967. Our principal business activities are the manufacturing of various specialty hydrocarbons and synthetic waxes and the provision of custom processing services.   Unless the context requires otherwise, references to “we,” “us,” “our,” and the “Company” are intended to mean Trecora Resources and its subsidiaries.

This document includes the following abbreviations:
(1)TREC – Trecora Resources
(2) TOCCO - Texas Oil & Chemical Co. II, Inc. - Wholly owned subsidiary of TREC and parent of SHR and TC
(3)SHR – South Hampton Resources, Inc. – Petrochemical segment
(4)GSPL – Gulf State Pipe Line Co, Inc. – Pipeline support for the petrochemical segment
(5)TC – Trecora Chemical, Inc. – Specialty wax segment
(6)AMAK – Al Masane Al Kobra Mining Company – Mining equity investment – 35% ownership
(7)PEVM – Pioche Ely Valley Mines, Inc. – Inactive mine - 55% ownership
(8)Acquisition – October 1, 2014, purchase of Trecora Chemical, Inc.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these unaudited financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with the financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.2014.

The unaudited condensed financial statements included in this document have been prepared on the same basis as the annual condensed financial statements and in management’s opinion reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented.  We have made estimates and judgments affecting the amounts reported in this document.  The actual results that we experience may differ materially from our estimates.  In the opinion of management, the disclosures included in these financial statements are adequate to make the information presented not misleading.

Unless the context requires otherwise, references to “we,” “us,” “our,” and the “Company” are intended to mean consolidated Trecora Resources and its subsidiaries.

Operating results for the three and six months ended June 30, 2014,2015, are not necessarily indicative of results for the year ending December 31, 2014.2015.

We currently operate in one segmenttwo segments, specialty petrochemical products and allspecialty synthetic waxes.  All revenue originates from United States’ sources, and all long-lived assets owned are located in the United States.

The Company owns a 35% interest in Al Masane Al Kobra Mining Company (“AMAK”),AMAK, a Saudi Arabian closed joint stock company which owns and is developing mining assets in Saudi Arabia.  We account for our investment under the equity method of accounting.   See Note 13.15.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014 the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements of FASB Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition and most industry-specific guidance throughout the Accounting Standards Codification, resulting in the creation of FASB ASC Topic 606, Revenue from Contracts with Customers.Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of retrospective adoption and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.2017. Early adoption iswould
6

be permitted but not permitted.before annual periods beginning after December 15, 2016.  We are currently assessing the potential impact of adopting this ASU on its consolidated financial statements and related disclosures.

In June 2014 the FASB issued ASU No. 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period.Period. The new standard requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 and can be applied either prospectively or retrospectively to all awards outstanding as of the beginning of the earliest annual period presented as an adjustment to opening retained earnings. Early adoption is permitted. We are currently assessing the potential impact of adopting this ASU on its consolidated financial statements and related disclosures.

In April 2015 the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and should be applied retrospectively.  Early adoption is permitted. We are currently assessing the potential impact of adopting this ASU on its consolidated financial statements and related disclosures.

3. TRADE RECEIVABLES

Trade receivables, net, at June 30, 2014, and December 31, 2013, consisted of the following:
6


 June 30, 2014  December 31, 2013  June 30, 2015  December 31, 2014 
 (thousands of dollars)  (thousands of dollars) 
Trade receivables $28,386  $22,279  $22,332  $28,481 
Less allowance for doubtful accounts  (210)  (210)  (210)  (210)
Trade receivables, net $28,176  $22,069  $22,122  $28,271 

Trade receivables servingserves as collateral for the Company’s line of credit with a domestic bank were $21.4 millionour amended and $17.7 million at June 30, 2014, and December 31, 2013, respectively (seerestated loan agreement. See Note 7).8.

4. INVENTORIES

Inventories include the following:

 June 30, 2014  December 31, 2013  June 30, 2015  December 31, 2014 
 (thousands of dollars)  (thousands of dollars) 
Raw material $3,059  $2,403  $2,930  $2,826 
Petrochemical products  8,643   9,660 
Work in process  76   49 
Finished products  12,052   9,940 
Total inventory $11,702  $12,063  $15,058  $12,815 

Inventories areThe difference between the calculated value of inventory under the FIFO and LIFO bases generates either a recorded LIFO reserve (i.e., where FIFO value exceeds the LIFO value) or an unrecorded negative LIFO reserve (i.e., where LIFO value exceeds the FIFO value).  In the latter case, in order to ensure that inventory is reported at the lower of cost determined onor market and in accordance with ASC 330-10, we do not increase the last-in, first-out method (LIFO), or market.  stated value of our inventory to the LIFO value.

At June 30, 2014,2015, and December 31, 2013, current cost exceeded2014, LIFO value by approximately $2.4 million and $1.5 million, respectively.of petrochemical inventory exceeded FIFO; therefore, in accordance with the above policy, no LIFO reserve was recorded.

Inventories servingInventory serves as collateral for the Company’s line of credit with a domestic bank were $4.4 millionour amended and $4.9 million at June 30, 2014, and December 31, 2013, respectively (seerestated loan agreement.  See Note 7).8.

Inventory included petrochemical products in transit valued at approximately $5.8$2.8 million and $4.4$3.5 million at June 30, 2014,2015, and December 31, 2013,2014, respectively.

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5. PLANT, PIPELINE AND EQUIPMENT

 Plant, pipeline and equipment at June 30, 2014, and December 31, 2013, consisted of the following:

 June 30, 2014  December 31, 2013  June 30, 2015  December 31, 2014 
 (thousands of dollars)  (thousands of dollars) 
Platinum catalyst $1,612  $1,612  $1,612  $1,612 
Land  1,577   1,577   4,577   4,577 
Plant, pipeline and equipment  73,458   71,115   97,576   95,351 
Construction in progress  2,606   824   26,025   11,590 
Total plant, pipeline and equipment  79,253   75,128   129,790   113,130 
Less accumulated depreciation and amortization  (36,031)  (33,203)
Less accumulated depreciation  (43,138)  (39,319)
Net plant, pipeline and equipment $43,222  $41,925  $86,652  $73,811 

Plant, pipeline, and equipment serve as collateral for a $14.0 million termour amended and restated loan with a domestic bank (seeagreement. See Note 7).8.

Interest capitalized for construction was approximately $56,000 and $95,000 for the three and six months ended June 30, 2015.  No amounts were capitalized during 2014.

Construction in progress during the first six months of 20142015 included preparation forpetrochemical construction on the D-TrainD Train expansion, constructionpurchase of additional warehousing, installation of additional truck loading stations,manufacturing equipment such as towers and various other improvements facility-wide.tanks, additions to the tank farm, upgrades to the electrical and flaring systems, and initial construction on the specialty wax hydrogenation project at TC.

Amortization relating to the platinum catalyst which is included in cost of sales was $21,068, $3,184, $42,135 and $6,368$21,067 for the three months and $42,135 for the six months ended June 30, 2014,2015, and 2013, respectively.2014.

6. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill and intangible assets were recorded in relation to the acquisition of TC on October 1, 2014.

Goodwill

The balance of Goodwill was $21.8 million at June 30, 2015, and December 31, 2014.  We believe due to the recent nature of the Acquisition, no goodwill impairment existed at June 30, 2015.

 Intangible Assets

The following tables summarize the gross carrying amounts and accumulated amortization of intangible assets by major class (in thousands):

  June 30, 2015 
Intangible assets subject to amortization
(Definite-lived)
 Gross  
Accumulated
Amortization
  Net 
Customer relationships $16,852  $(842) $16,010 
Non-compete agreements  94   (14)  80 
Licenses and permits  1,471   (97)  1,374 
Developed technology  6,131   (460)  5,671 
   24,548   (1,413)  23,135 
Intangible assets not subject to amortization
(Indefinite-lived)
            
Trade name  2,158   -   2,158 
Total $26,706  $(1,413) $25,293 
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  December 31, 2014 
Intangible assets subject to amortization
(Definite-lived)
 Gross  
Accumulated
Amortization
  Net 
Customer relationships $16,852  $(281) $16,571 
Non-compete agreements  94   (5)  89 
Licenses and permits  1,471   (32)  1,439 
Developed technology  6,131   (153)  5,978 
   24,548   (471)  24,077 
Intangible assets not subject to amortization
(Indefinite-lived)
            
Trade name  2,158   -   2,158 
Total $26,706  $(471) $26,235 

Amortization expense for intangible assets included in cost of sales for the three months was approximately $471,000 and $942,000 for the six months ended June 30, 2015.  There was no amortization expense in the first half of 2014 for these assets.

Based on identified intangible assets that are subject to amortization as of June 30, 2015, we expect future amortization expenses for each period to be as follows (in thousands):

  
Remainder of
2015
  2016  2017  2018  2019 
Customer relationships $562  $1,123  $1,123  $1,123  $1,123 
Non-compete agreements  9   19   19   19   14 
Licenses and permits  65   123   106   106   106 
Developed technology  306   613   613   613   613 
Total future amortization expense $942  $1,878  $1,861   1,861  $1,856 

7. NET INCOME PER COMMON SHARE ATTRIBUTABLE TO TRECORA RESOURCES

The following table (in thousands, except per share amounts) sets forth the computation of basic and diluted net income per share attributable to Trecora Resources for the three and six months ended June 30, 2014,2015, and 2013,2014, respectively.

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Three Months Ended
June 30, 2015
  
Three Months Ended
June 30, 2014
 
        Per Share        Per Share 
  Income  Shares  Amount  Income  Shares  Amount 
Basic Net Income per Share:                  
Net Income Attributable to Trecora Resources $6,374   24,354  $0.26  $5,000   24,165  $0.21 
                         
Unvested restricted stock grant      148           -     
Dilutive stock options outstanding      653           648     
                         
Diluted Net Income per Share:                        
Net Income Attributable to Trecora Resources $6,374   25,155  $0.25  $5,000   24,813  $0.20 

  
Three Months Ended
June 30, 2014
  
Three Months Ended
June 30, 2013
 
        Per Share        Per Share 
  Income  Shares  Amount  Income  Shares  Amount 
Basic Net Income per Share:                  
Net Income Attributable to Trecora Resources $5,000   24,165  $0.21  $6,309   24,110  $0.26 
                         
Dilutive stock options outstanding      648           542     
                         
Diluted Net Income per Share:                        
Net Income Attributable to Trecora Resources $5,000   24,813  $0.20  $6,309   24,652  $0.26 

 
Six Months Ended
June 30, 2014
  
Six Months Ended
June 30, 2013
  
Six Months Ended
June 30, 2015
  
Six Months Ended
June 30, 2014
 
       Per Share        Per Share        Per Share        Per Share 
 Income  Shares  Amount  Income  Shares  Amount  Income  Shares  Amount  Income  Shares  Amount 
Basic Net Income per Share:                                    
Net Income Attributable to Trecora Resources $7,599   24,158  $0.32  $11,095   24,108  $0.46  $12,158   24,331  $0.50  $7,599   24,158  $0.32 
                                                
Unvested restricted stock grant      133                 
Dilutive stock options outstanding      708           547           686           708     
                                                
Diluted Net Income per Share:                                                
Net Income Attributable to Trecora Resources $7,599   24,866  $0.31  $11,095   24,655  $0.45  $12,158   25,150  $0.48  $7,599   24,866  $0.31 

At June 30, 2015, and 2014, 1,497,771 and 2013, 662,068 and 449,189 potential common stock shares, respectively were issuable upon the exercise of options.options and warrants.

The earnings per share calculations for the periods ended June 30, 2014,2015, and 2013,2014, include 300,000 shares of the Company that are held in the treasury of TOCCO.

7.
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8. LIABILITIES AND LONG-TERM DEBT

In September 2007On October 1, 2014, we entered into a $10.0 million term loan agreementan Amended and Restated Credit Agreement (“ARC”) with a domestic bankthe lenders which from time to finance the expansion of the petrochemical facility.  An amendment was entered into in November 2008 which increased the term loan to $14.0 million duetime are parties to the increased costARC and Bank of America, N.A., as Administrative Agent for the expansion.  This note is collateralized by plant, pipelineLenders, and equipment. The agreement expiresMerrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger.

Under the ARC, we may borrow, repay and re-borrow revolving loans from time to time during the period ending September 30, 2019, up to but not exceeding $40.0 million.  All outstanding loans under the revolving loans must be repaid on October 31, 2018.  At1, 2019.  As of June 30, 2015, and December 31, 2014, there was a short-term amount of $1.4 million and a long-term amount of $4.7 million outstanding. At December 31, 2013, there was a short-term amount of $1.4 million and a long-term amount of $5.4$7.2 million outstanding.  The interest rate on the loan varies according to several options.  At June 30, 2014, and December 31, 2013, the rate was 2.25%.  However, as discussed in Note 9, effective August 2008, the Company entered into a pay-fixed, receive-variable interest rate swap with the lending bank which has the effect of converting the interest rate on $10.0 million of the loan to a fixed rate.  Principal payments of $350,000 are paid quarterly with interest paid monthly.

In May 2006 we entered into a $12.0 million revolving loan agreement with a domestic bank secured by accounts receivable and inventory.    The loan was originally due to expire on October 31, 2008, but was amended to extend the termination date to June 30, 2018, and ultimately increase the availability of the line to $18.0 million based upon our accounts receivable and inventory.  At June 30, 2014, and December 31, 2013, there was a long-term amount outstanding of $3.5 million and $6.5 million, respectively. The credit agreement contains a sub-limit of $3.0 million available to be used in support of the hedging program.  The interest rate on the loan varies according to several options.  At June 30, 2014, and December 31, 2013, the rate was 2.25%.  The borrowing base is determined by a formula in the loan agreement. If the amount outstanding exceeds the borrowing base, a principal payment is due to reduce the amount outstanding to the calculated borrowing base.  Interest is paid monthly.  Loan covenants that must be maintained quarterly include EBITDA, capital expenditures, dividends payable to parent, and leverage ratio. Interest on the loan is paid monthly and a commitment fee of 0.25%0.37% is due quarterly on the unused portion of the loan.  At June 30, 2014,2015, approximately $14.5$32.8 million was available to be drawn, and the Company was in compliance with all covenants.drawn.

On July 10, 2014,Under the ARC, we entered intoalso borrowed $70.0 million in a credit agreement with a domestic bank for a $25.0 million multiplesingle advance term loan facility(the “Acquisition Loan”) to partially finance the constructionacquisition of TC.  Interest on the Acquisition Loan is payable quarterly using a ten year commercial style amortization.  Principal is also payable on the last business day of each March, June, September and December in an amount equal to $1,750,000, provided that the final installment on the September 30, 2019, maturity date shall be in an amount equal to the then outstanding unpaid principal balance of the capital expansion project known as “D-Train”Acquisition Loan.  At June 30, 2015, there was a short-term amount of $7.0 million and a long-term amount of $57.8 million outstanding.  At December 31, 2014, there was a short-term amount of $7.0 million and a long-term amount of $61.3 million outstanding.

Under the ARC, we also have the right to borrow $25.0 million in 2014 through 2015.  D-Train will be located at South Hampton’s petrochemical facility in Silsbee, Texas and will increase penhex capacity from 6,700 barrels per day to approximately 11,000 barrels per day.  Thea multiple advance loan will be secured by a Deed of Trust, Security Agreement and UCC Financing Statement for Fixture Filing, an Assignment of Rights Under Construction Contracts, Permits, Plans and Contracts.(“Term Loans”).  Borrowing availability under the loan began on July 10, 2014 andTerm Loans ends on December 31, 2015.  The loan convertsTerm Loans convert from a multiple advance loan to a “mini-perm” loan once wecertain obligations have been fulfilled certain obligations such as certification that construction wasof D-Train has been completed in a good and workmanlike manner, receipt of applicable permits and releases from governmental authorities, and receipt of releases of liens from the contractor and each subcontractor and supplier; provided thatsupplier.  Interest on the conversion date may not occur afterTerm Loans is paid monthly.  At June 30, 2015, and December 31, 2015.   On the date the loan converts into mini-perm loan, the2014, there was a short-term amount of $0.3 million and $0 and a long-term amount due of $4.7 million and $5.0 million, respectively with $20.0 million available to be drawn.

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loan will amortize based on a fifteen year commercial style amortization method and installments of principal and interest shall be due on the first business day of each January, April, July and October until the maturity date when all outstanding principal and interest is due and payable.  The interest rate on all of the loanabove loans varies according to several options.  At June 30, 2015, and December 31, 2014, no amountsthe rate was 2.44 % and 2.67%.  We were outstanding.in compliance with all covenants at June 30, 2015.

8.9. FAIR VALUE MEASUREMENTS

The following items are measured at fair value on a recurring basis subject to disclosure requirements of ASC Topic 820 at June 30, 2014,2015, and December 31, 2013:2014:

Assets and Liabilities Measured at Fair Value on a Recurring Basis

    Fair Value Measurements Using     Fair Value Measurements Using 
 June 30, 2014  Level 1  Level 2  Level 3  June 30, 2015  Level 1  Level 2  Level 3 
 (thousands of dollars)  (thousands of dollars) 
Liabilities:                        
Interest rate swap $466  $-  $466  $-  $269   -  $269   - 

    Fair Value Measurements Using     Fair Value Measurements Using 
 December 31, 2013  Level 1  Level 2  Level 3  December 31, 2014  Level 1  Level 2  Level 3 
 (thousands of dollars)  (thousands of dollars) 
Liabilities:                        
Interest rate swap $563  $-  $563  $-  $378   -  $378   - 
Commodity financial instruments  48   48           180   180   -   - 

The carrying value of cash and cash equivalents, accounts receivable, notes receivable, taxes receivable, advance to AMAK,trade receivables, accounts payable, accrued interest, accrued liabilities, accrued liabilities in Saudi Arabia and other liabilities approximate the fair value due to the immediate or short-term maturity of these financial instruments. The fair value of variable rate long term debt and notes payable reflect recent market transactions and approximate carrying value.  We used other observable inputs that would qualify as Level 2 inputs to make our assessment of the approximate fair value of accounts receivable, notes receivable, taxes receivable, advance to AMAK,our cash and cash equivalents, trade receivables,  accounts payable, accrued interest, accrued liabilities, accrued liabilities in Saudi Arabia, other liabilities and variable rate long term debt and notes payable.  We used observable inputs that would qualify as Level 1 inputs to make our assessment of the approximate fair value of cash and cash equivalents.debt.  The fair value of the derivative instruments are described below.
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Commodity Financial Instruments

We periodically enter into financial instruments to hedge the cost of natural gasoline (the primary feedstock) and natural gas (used as fuel to operate the plant).  

We assess the fair value of the financial swaps on feedstock using quoted prices in active markets for identical assets or liabilities (Level 1 of fair value hierarchy).  At June 30, 2014,2015, no commodity financial instruments were outstanding.  At December 31, 2013,2014, we had derivative contracts with settlement dates through February 2014.January 2015.  For additional information see Note 9.10.

Interest Rate Swap

In March 2008 we entered into an interest rate swap agreement with Bank of America related to thea $10.0 million term loan secured by plant, pipeline and equipment.  The interest rate swap was designed to minimize the effect of changes in the London InterBank Offered Rate (“LIBOR”) rate.  We havehad designated the interest rate swap as a cash flow hedge under ASC Topic 815, Derivatives and Hedging.Hedging; however, due to the ARC, we felt that the hedge was no longer entirely effective.  Due to the time required to make the determination and the immateriality of the hedge, we began treating it as ineffective as of October 1, 2014.

South Hampton assessesWe assess the fair value of the interest rate swap using a present value model that includes quoted LIBOR rates and the nonperformance risk of the Company and Bank of America based on the Credit Default Swap Market (Level 2 of fair value hierarchy).

We have consistently applied valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivative contracts it holds.we hold. See discussion of our derivative instruments in Note 9.10.

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9.10. DERIVATIVE INSTRUMENTS

Commodity Financial Contracts

Hydrocarbon based manufacturers, such as the Company, are significantly impacted by changes in feedstock and natural gas prices. Not considering derivative transactions, feedstock and natural gas used for the six months ended June 30, 2014,2015, and 2013,2014, represented approximately 81.8%69.2% and 79.7%81.8% of our petrochemical operating expenses, respectively. The significant percentage decrease of petrochemical operating expenses illustrates the impact that feedstock price changes have on our operations.  During the first half of 2015, feedstock prices declined industry-wide.

We endeavor to acquire feedstock and natural gas at the lowest possible cost.  Our primary feedstock (natural gasoline) is traded over the counter and not on organized futures exchanges.  Financially settled instruments (fixed price swaps) are the principal vehicle used to give some predictability to feed prices. We do not purchase or hold any derivative financial instruments for trading or speculative purposes and arehedging is limited by our risk management policy to hedging a maximum of 40% of monthly feedstock requirements.

Generally,Typically, financial contracts are not designated as hedges.  As of June 30, 2014, South Hampton2015, we had no outstanding committed financial contracts.

The following tables detail (in thousands) the impact the agreements had on the financial statements:

  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2014  2013  2014  2013 
             
Unrealized loss $-  $-  $(48) $- 
Realized gain  -   -   87   - 
Net gain $-  $-  $39  $- 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2015  2014  2015  2014 
             
Unrealized gain (loss) $-  $-  $180  $(48)
Realized gain (loss)  -   -   (180)  87 
Net gain $-  $-  $-  $39 

  June 30, 2014  December 31, 2013 
       
Fair value of financial contracts – liability $-  $48 
  June 30, 2015  December 31, 2014 
       
Fair value of financial contracts – liability $-  $180 

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The realized and unrealized gains/(losses) are recorded in Cost of Sales and Processing for the periods ended June 30, 2014,2015, and 2013.2014.  As a percentage of Cost of Sales and Processing, realized and unrealized gains/(losses) accounted for 0% and 0% for the three months and 0% and 0% for the six months ended June 30, 2014,2015, and 2013, respectively.2014.

Interest Rate Swap

OnIn March 21, 2008, we entered into a pay-fixed, receive-variable interest rate swap agreement with Bank of America related to a $10.0 million of our(later increased to $14 millionmillion) term loan secured by plant, pipeline and equipment. The effective date of the interest rate swap agreement iswas August 15, 2008, and terminates on December 15, 2017.  The notional amount of the interest rate swap was $3.25 million and $3.75 million at June 30, 2014.  South Hampton receives2015, and December 31, 2014, respectively.  We receive credit for payments of variable rate interest made on the term loan at the loan’s variable rates, which are based upon LIBOR,the London InterBank Offered Rate (LIBOR), and payspay Bank of America an interest rate of 5.83% less the credit on the interest rate swap.  We haveoriginally designated the transaction as a cash flow hedge.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 Comprehensive Income.Stockholders’ Equity.  We entered into the interest rate swap to minimize the effect of changes in the LIBOR rate.

The following tables detail (in thousands) the impact the agreement had on the financial statements:

 June 30,  June 30, 
 2014  2013  2015  2014 
Other Comprehensive Loss            
Cumulative loss $(466) $(696) $-  $(466)
Deferred tax benefit  163   243   -   163 
Net cumulative loss $(303) $(453) $-  $(303)
                
Interest expense reclassified from other comprehensive loss $130  $158  $-  $130 

  June 30, 2014  December 31, 2013 
       
Fair value of interest rate swap  - liability $466  $563 
  June 30, 2015  December 31, 2014 
       
Fair value of interest rate swap  - liability $269  $378 

Due to the ARC, we believe that the hedge is no longer entirely effective; therefore, we began treating the interest rate swap as ineffective at that point.  The changes in fair value are now recorded in the Statement of Income.  For the three months ended June 30, 2015, an unrealized loss of approximately $1,000 and a realized loss of approximately $49,000 were recorded.  For the six months ended June 30, 2015, an unrealized gain of approximately $9,000 and a realized loss of approximately $101,000 were recorded.

11. STOCK-BASED COMPENSATION

Stock-based compensation of approximately $588,000 and $548,000 during the three months and $1,289,000 and $973,000 during the six months ended June 30, 2015, and 2014, respectively, was recognized.

Restricted Stock Awards

On May 20, 2015, we awarded 30,000 shares of restricted stock to a director at a grant date price of $12.39.  The restricted stock award vests over 5 years in 20% increments with the first tranche to be issued on May 19, 2016.  Compensation expense recognized during the three and six months ended June 30, 2015, was approximately $6,000.

On April 14, 2015, we awarded 1,000 shares of restricted stock to two of our 30 year employees at a grant date price of $12.03.  The restricted stock award was fully vested.  Compensation expense recognized during the three and six months ended June 30, 2015, was approximately $12,000.

On February 12, 2015, we awarded 18,000 shares of fully vested restricted stock to various employees at a grant date price of $14.34.  Compensation expense recognized during the three and six months ended June 30, 2015, was approximately $77,000 and $258,000.

On February 10, 2015, we awarded 118,040 shares of restricted stock to our officers at a grant date price of $14.59.  The restricted stock award vests over 4 years in 25% increments with the first tranche to be issued on February 9, 2016.  
 
 
1012

 
The cumulative loss from the changes in the swap contract’s fair value that is included in other comprehensive loss will be reclassified into income when interest is paid. The net amount of pre-tax loss in other comprehensive income (loss) as of June 30, 2014, predicted to be reclassified into earnings within the next 12 months is approximately $215,000. See further discussion of the fair value of the derivative instruments in Note 8.

10. STOCK-BASED COMPENSATION

On February 21, 2014, we awarded 10 year options to various employees for 500,000 shares.  These options have an exercise price equal to the closing price of the stock on February 21, 2014, which was $12.26 and vest in 25% increments over a 4 year period.  Compensation expense recognized during the three months and six months ended June 30, 2014,2015, was approximately $277,000$108,000 and $400,000, respectively.  The fair value of the options granted was calculated using the Black-Scholes option valuation model with the following assumptions:$179,000.

Expected volatility84%
Expected dividendsNone
Expected term (in years)6.25
Risk free interest rate1.95%
Restricted stock activity in the first six months of 2015 was as follows:

  
Shares of Restricted
Stock
  
Weighted Average Grant Date Price per Share
 
       
Outstanding at January 1, 2015  -  $- 
   Granted  167,040   14.56 
   Vested  (19,000)  14.34 
Outstanding at June 30, 2015  148,040  $14.59 

Stock Option and Warrant Awards

A summary of the status of our stock option awards and warrants is presented below:

 
Number of Stock Options & Warrants
  
Weighted Average Exercise Price per Share
  
Weighted
Average
Remaining
Contractual
Life
  
Number of Stock Options & Warrants
  
Weighted Average Exercise Price per Share
  
Weighted
Average
Remaining
Contractual
Life
 
                  
Outstanding at January 1, 2014  1,326,360  $4.75    
Outstanding at January 1, 2015  1,598,191  $7.16    
Granted  500,000   12.26      --   --    
Exercised  (31,820)  2.86      (100,420)  4.13    
Expired  --   --      --   --    
Cancelled  --   --      --   --    
Forfeited  (20,000) $2.82      --   --    
Outstanding at June 30, 2014  1,774,540  $6.92   7.1 
Exercisable at June 30, 2014  662,068  $4.53   5.9 
Outstanding at June 30, 2015  1,497,771  $7.36   6.4 
Exercisable at June 30, 2015  735,271  $6.23   5.7 

The fair value of the previously issued options granted below was calculated using the Black Scholes option valuation model with the assumptions as disclosed in prior quarterly and annual filings.

Directors’ compensation of approximately $76,000$53,000 and $94,000$76,000 during the three months and $170,000$128,000 and $189,000$170,000 during the six months ended June 30, 2015, and 2014,  and 2013, respectively, werewas recognized related to options to purchase shares vesting through 2017.

Excluding the options granted in 2014 as disclosed above, employeeEmployee compensation of approximately $150,000$309,000 and $119,000$427,000 during the three months and $300,000$657,000 and $238,000$701,000 during the six months ended June 30, 2014,2015, and 2013,2014, respectively, was recognized related to options with a 4 year vesting period which were awarded to officers and key employees.  These options vest through 2017.2018.

Post-retirement compensation of approximately $24,000 was recognized during the three months and $49,000 during the six months ended June 30, 2014,2015, and 2013,2014, related to options awarded to Mr. Hatem El Khalidi in July 2009.  On May 9, 2010, the Board of Directors determined that Mr. El Khalidi forfeited these options and other retirement benefits when he made various demands against the Company and other AMAK Saudi shareholders which would benefit him personally and were not in the best interests of the Company and its shareholders.  The Company is litigating its right to withdraw the options and benefits and as such, these options and benefits continue to be shown as outstanding.  See further discussion in Note 15.17.

Investor relations expense of approximately $21,000$0 and $42,000$21,000 during the three months and $54,000$0 and $71,000$54,000 during the six months ended June 30, 2014,2015, and 2013,2014, respectively, was recognized related to warrants issued for the purchase of 100,000 shares of common stock to Genesis Select Corporation (“Genesis”).  These warrants vest through 2017 contingent upon continuous investor relations service under the consultingOur agreement with Genesis.
Genesis was terminated effective September 30, 2014; therefore, no additional amounts will vest going forward.

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See the Company’s Annual Report on Form 10-K for the year ended December 31, 2013,2014, for additional information.
13


11.12. SEGMENT INFORMATION

We operate through business segments according to the nature and economic characteristics of our products as well as the manner in which the information is used internally by our key decision maker, who is our Chief Executive Officer.

Our petrochemical segment includes SHR and GSPL.  Our specialty wax segment includes TC.  We also separately identify our corporate overhead and investing which includes financing and administrative activities such as legal, accounting, consulting, investor relations, officer and director compensation, corporate insurance, and other administrative costs.

The tables below reflect only 2015 transactions for TC since that is the time period affected by segment reporting due to the acquisition closing in the fourth quarter of 2014.

  Three Months Ended June 30, 2015 
  Petrochemical  Specialty Wax  Corporate  Consolidated 
  (in thousands) 
Product sales $52,342  $4,323  $-  $56,665 
Processing fees  1,521   1,164   -   2,685 
Net revenues  53,863   5,487   -   59,350 
Operating profit before depreciation and amortization  12,850   430   (1,679)  11,601 
Operating profit (loss)  11,902   (732)  (1,679)  9,491 
Depreciation and amortization  949   1,161   -   2,110 
Capital expenditures  6,204   2,903       9,107 

  Six Months Ended June 30, 2015 
  Petrochemical  Specialty Wax  Corporate  Consolidated 
  (in thousands) 
Product sales $99,525  $7,681  $-  $107,206 
Processing fees  3,045   4,242   -   7,287 
Net revenues  102,570   11,923   -   114,493 
Operating profit before depreciation and amortization  24,562   2,504   (3,491)  23,575 
Operating profit (loss)  22,519   196   (3,491)  19,224 
Depreciation and amortization  2,044   2,307   -   4,351 
Capital expenditures  13,019   3,831       16,850 

  June 30, 2015 
  Petrochemical  Specialty Wax  Corporate  Eliminations  Consolidated 
  (in thousands) 
Goodwill and intangible assets, net $-  $47,091  $-  $-  $47,091 
Total assets  180,025   82,399   100,516   (123,996)  238,944 

  Year Ended December 31, 2014 
  Petrochemical  Specialty Wax  Corporate  Eliminations  Consolidated 
  (in thousands) 
Goodwill and intangible assets, net $-  $47,985  $-  $-  $47,985 
Total assets  172,945   79,135   99,360   (119,366)  232,074 

13. INCOME TAXES

We file an income tax return in the U.S. federal jurisdiction and a margin tax return in Texas. Tax returns for the years 2010 through 2013 remain open for examination  in various tax jurisdictions in which we operate.  As of June 30, 2014,2015, and December 31, 2013,2014, we recognized no material adjustments in connection with uncertain tax positions.  The effective tax rate varies from the federal statutory rate of 35% primarily as a result of state tax expense, stock option based compensation and  the manufacturing deduction.

12.Our state income tax rate was affected by Texas House Bill 32 which was signed in June 2015.  The Texas margin tax rate was reduced for tax reports due on or after January 1, 2016.  We have adopted the U.S. Treasury Department and IRS final regulations that address costs incurred in acquiring, producing, or improving tangible property.  These final regulations
14

require a tax accounting method change to be filed with the IRS. We do not anticipate the impact of these changes to be material to our consolidated financial statements.

14. POST-RETIREMENT OBLIGATIONS

In January 2008 an amended retirement agreement replacing the February 2007 agreement, was entered into with Mr. Hatem El Khalidi. The amended agreement provides $6,000 per month in benefits to Mr. El Khalidi upon his retirement for the remainder of his life. Additionally, upon his death $4,000 per month will be paid to his surviving spouse for the remainder of her life. A health insurance benefit will also be provided.  An additional $382,000 was accrued in January 2008 for the increase in benefits. A liability of approximately $900,000 based upon an annuity single premium value contract plus accrued interest was outstanding at June 30, 2014, and was included in post-retirement benefits.  As of June 30, 2014, no payments have been made pursuant to this agreement.

In June 2009 the Company’s Board of Directors awarded Mr. El Khalidi a retirement bonus in the amount of $31,500 for 42 years of service. While there is no written policy regarding retirement bonus compensation, the Company has historically awarded all employees (regardless of job position) a retirement bonus equal to $750 for each year of service.  Since Mr. El Khalidi was employed by the Company for 42 years, the Board of Directors voted to award him a $31,500 retirement bonus, consistent with that provided to all other retired employees. This amount remained outstanding at June 30, 2014, and was included in post-retirement benefits.

OnKhalidi; however, on May 9, 2010, the Board of Directors terminated the retirement agreement options, retirement bonus, and any outstanding directors’ fees due to actions of Mr. El Khalidi; however, due to the outstanding litigation discussed inKhalidi.  See Note 15, all17.  All amounts which have not met termination dates remain recorded until a resolution is achieved. As of June 30, 2015, and 2014, approximately $1.0 million and $0.9 million, respectively, remained outstanding and was included in post-retirement benefits.

13.See the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, for additional information.

15. INVESTMENT IN AL MASANE AL KOBRA MINING COMPANY (“AMAK”)AMAK

As of June 30, 2014,2015, and December 31, 2013,2014, the Company had a non-controlling equity interest (35%) of approximately $53.8$52.7 million and $54.1$53.0 million, respectively. This investment is accounted for under the equity method. There were no events or changes in circumstances that may have an adverse effect on the fair value of our investment in AMAK at June 30, 2014.2015.

AMAK’s financial statements were prepared in the functional currency of AMAK which is the Saudi Riyal (SR).  In June 1986 the SR was officially pegged to the U. S. Dollar (USD) at a fixed exchange rate of 1 USD to 3.75 SR.

The summarized results of operation and financial position for AMAK are as follows:

 Results of Operations

  Three Months Ended June 30,  Six Months Ended June 30, 
  2014  2013  2014  2013 
  (Thousands of Dollars) 
Sales $30,431  $15,333  $30,698  $46,495 
Gross Profit  4,045   8,128   4,684   18,034 
General, administrative and other expenses  4,982   7,029   7,570   9,815 
Net Income (loss) $(937) $1,099  $(2,886) $8,219 




12




  Three Months Ended June 30,  Six Months Ended June 30, 
  2015  2014  2015  2014 
  (Thousands of Dollars) 
Sales $13,283  $30,431  $18,584  $30,698 
Gross Profit  1,034   4,045   2,746   4,684 
General, administrative and other expenses  3,036   4,982   5,538   7,570 
Net Loss $(2,002) $(937) $(2,792) $(2,886)
Depreciation, depletion and amortization  5,905   4,157   11,015   10,814 
Net Income before depreciation, depletion and amortization $3,903  $3,220  $8,223  $7,928 

 Financial Position

 June 30,  December 31,  June 30,  December 31, 
 2014  2013  2015  2014 
 (Thousands of Dollars)  (Thousands of Dollars) 
Current assets $26,558  $32,923  $40,478  $17,782 
Noncurrent assets  263,961   264,997   262,920   265,584 
Total assets $290,519  $297,920  $303,398  $283,366 
                
Current liabilities $16,109  $22,497  $24,336  $23,034 
Long term liabilities  77,700   75,826   89,120   67,598 
Shareholders' equity  196,710   199,597   189,942   192,734 
 $290,519  $297,920  $303,398  $283,366 



15

The equity in the income or loss of AMAK reflected on the consolidated statement of income for the three and six months ended June 30, 2014,2015, and 2013,2014, is comprised of the following:

  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2014  2013  2014  2013 
  (Thousands of Dollars) 
Company’s share of income (loss) reported by AMAK $(331) $399  $(1,018) $3,026 
Amortization of difference between Company’s investment in AMAK and Company’s share of net assets of AMAK  337   337   674   674 
Gain from additional equity issuance by AMAK  -   3,996   -   3,996 
Equity in income (loss) of AMAK $6  $4,732  $(344) $7,696 

At December 31, 2013, we had an outstanding advance to AMAK of approximately $0.5 million for interim funding on a short term basis.  The entire balance owed was paid in the second quarter of 2014; therefore, at June 30, 2014, there was no amount outstanding.
  
Three months ended
June 30,
  
Six months ended
June 30,
 
  2015  2014  2015  2014 
  (Thousands of Dollars) 
Company’s share of loss reported by AMAK $(706) $(331) $(984) $(1,018)
Amortization of difference between Company’s investment in AMAK and Company’s share of net assets of AMAK  337   337   674   674 
Equity in earnings (loss) of AMAK $(369) $6  $(310) $(344)

See our Annual Report on Form 10-K for the year ended December 31, 2013,2014, for additional information.

14.16. RELATED PARTY TRANSACTIONS

Ghazi Sultan, a former Company director, was paid $35,000 during both three month periods and $69,000 during both six month periods ended June 30, 2014, and 2013, respectively for serving as the Company’s Saudi branch representative.

Consulting fees of approximately $0 and $35,000$0 were incurred during the three month periodsmonths and $21,000$25,000 and $55,000$21,000 during the six month periodsmonths ended June 30, 2014,2015, and 2013,2014, respectively from IHS Global FZ LLC of which Company Director Gary K Adams holds the position of Chief Advisor – Chemicals.

15.17. COMMITMENTS AND CONTINGENCIES

Guarantees

South Hampton, in 1977, guaranteed a $160,000 note payable of a limited partnership in which it has a 19% interest. Included in Accrued Liabilities at June 30, 2014, and 2013, is $66,570 related to this guaranty.

On October 24, 2010, we executed a limited Guarantee in favor of the Saudi Industrial Development Fund (“SIDF”) whereby we agreed to guaranty up to 41% of the SIDF loan to AMAK in the principal amount of 330.0 million Saudi Riyals (US$88.0 million) (the “Loan”). The term of the loan is through June 2019.  As a condition of the Loan, SIDF required all shareholders of AMAK to execute personal or corporate Guarantees; as a result, our guarantee is for approximately 135.33 million Saudi Riyals (US$36.1 million). The loan was necessary to continue construction of the AMAK facilities and provide working capital needs.  We received no consideration in connection with extending the guarantee and did so to maintain and enhance the value of its investment.  The total amount outstanding to the SIDF at June 30, 2014,2015, was 269.8310.0 million Saudi Riyals (US$71.982.7 million).

13

Litigation -

On May 9, 2010, after numerous attempts to resolve certain issues with Mr. Hatem El Khalidi, the Board of Directors terminated the retirement agreement, options, retirement bonuses, and all outstanding directors’ fees due to Mr. El Khalidi, former CEO, President and Director of the Company. In June 2010 Mr. El Khalidi filed suit against the Company in the labor courts of Saudi Arabia alleging additional compensation owed to him for holidays and overtime.  The Company believes that the claims are unsubstantiated and continues to vigorously defend the case. 

In March 21, 2011, Mr. El Khalidi filed suit against the Company in Texas alleging breach of contract and other claims.  On July 24, 2013, the 88thThe 88th Judicial District Court of Hardin County, Texas dismissed all claims and counterclaims for want of prosecution in this matter.  On May 22, 2014, thematter on July 24, 2013.  The Ninth Court of Appeals subsequently affirmed the dismissal for want of prosecution.prosecution and the Supreme Court of Texas denied Mr. El-Khalidi recently filed a motion for extension of time to fileEl Khalidi’s petition for review with the Texas Supreme Court on July 18, 2014 presumably evidencing his intent to further appeal the dismissal.  In addition, onreview.  On May 1, 2014, Mr. El-KhalidiEl Khalidi refiled his lawsuit against the Company for breach of contract and defamation in the 356th356th Judicial District Court of Hardin County, Texas.  The case was transferred to the 88th88th Judicial District Court of Hardin County, Texas where it is currently pending.  The Company believesOn April 6, 2015, Mr. El-Khalidi nonsuited his defamation claim.  We believe that the remaining claims are unsubstantiated and plansplan to vigorously defend the case.  Liabilities of approximately $1.1$1.0 million remain recorded, and the stock options at issue will continue to accrue in accordance with their own terms until all matters are resolved.

On September 14, 2010, South HamptonSHR received notice of a lawsuit filed in the 58th Judicial District Court of Jefferson County, Texas which was subsequently transferred to the 11th11th Judicial District Court of Harris County, Texas.  The suit alleges that the plaintiff became ill from exposure to asbestos.  There are approximately 44 defendants named in the suit.  South HamptonSHR has placed its insurers on notice of the claim and plans to vigorously defend the case. 

No accrual has been recorded for the lastthis claim.  We are involved in various claims and lawsuits incidental to our business.

On April 30, 2015, TC and TREC received notice of a lawsuit filed in the 152Environmental Remediationnd -Judicial District Court of Harris County, Texas.  The suit alleges that the plaintiff, an independent contractor employee, was injured while working on a product line at TC.  We have placed our insurers on notice and plan to vigorously defend the case. 

In 2008 we learned of a claim by the U.S. Bureau of Land Management (“BLM”) against World Hydrocarbons, Inc. for contamination of real property owned by the BLM north of and immediately adjacent to the processing mill situated on property owned by Pioche Ely Valley Mines, Inc. (“PEVM”).  The BLM’s claim alleged that mine tailings from the processing mill containing lead and arsenic migrated onto BLM property during the first half of the twentieth century.  World Hydrocarbons, Inc. responded to the BLM by stating that it does not own the mill and that PEVM is the owner and responsible party.  PEVM subsequently retained an environmental consultant and a local contractor to assist with the cleanup.  In June and July 2013 the contractor excavated and transported tailings from BLM property and other surrounding properties to an impoundment area located on PEVM property.  PEVM completed the cleanup during the first quarter of 2014, and the contractor demobilized from the site. PEVM received a no-further-action letter (NFA) from BLM in July 2014.  The environmental consultant submitted a report to the Nevada Division of Environmental Protection on the entire removal project including a neighbor’s adjoining property, and PEVM received an NFA in October 2013.  We agreed to advance approximately $250,000 to PEVM for payment of the contractor and in return, PEVM will transfer interest in selected patented mining claims of equivalent value to the Company.  An accrual for $350,000 was recorded by PEVM in 2010 and $171,000 remained outstanding at June 30, 2014.


 
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD LOOKING AND CAUTIONARY STATEMENTS

Except for the historical information and discussion contained herein, statements contained in this release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in the economic environment; the Company’s failure to meet growth and productivity objectives; fluctuations in revenues and purchases; impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the Company’s pension plans; ineffective internal controls; the Company’s use of accounting estimates; competitive conditions; the Company’s ability to attract and retain key personnel and its reliance on critical skills; impact of relationships with critical suppliers; currency fluctuations; impact of changes in market liquidity conditions and customer credit risk on receivables; the Company’s ability to successfully manage acquisitions and alliances; general economic conditions domestically and internationally; insufficient cash flows from operating activities; difficulties in obtaining financing; outstanding debt and other financial and legal obligations; industry cycles; specialty petrochemical product and mineral prices; feedstock availability; technological developments; regulatory changes; 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 release, all of which are difficult to predict and many of which are beyond the Company's control.

Overview

The following discussion and analysis of our financial results, as well as the accompanying unaudited consolidated financial statements and related notes to consolidated financial statements to which they refer, are the responsibility of our management.  Our accounting and financial reporting fairly reflect our business model involving the manufacturing and marketing of petrochemical products.products and synthetic waxes.  Our business model involves the manufacture and sale of tangible products.products and the provision of custom processing services.  Our consistent approach to providing high purity products and quality services to our customers has helped to sustain our current position as a preferred supplier of various petrochemical products.

The discussion and analysis of financial condition and the results of operations which appears below should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements which appear in our Annual Report on Form 10-K for the year ended December 31, 2013.2014.

We believe we are well-positioned to participate in new investments to grow the Company.  While petrochemical prices are volatile on a short-term basis and our volume expectations depend on the demand of our customers’ products, our investment decisions are based on our long-term business outlook using a disciplined approach in selecting and pursuing the most attractive investment opportunities.  The drop in petroleum prices, which began in mid-September of last year and continued through February, reduced our average feedstock price per gallon approximately 44% over the first half of 2014.  The price reduction had a positive effect on our business.  Typically as prices drop, we see increased cash flow as the cash required for replacement feedstock is less at lower prices.  Also, the formulas we use to sell our products typically have a 30 day trailing feed cost basis; and therefore, are slightly favorable to us during falling prices but are unfavorable when prices rise.  In addition, we have not seen that reduced petroleum prices would be unfavorable to our customers or would require them to curtail operations in any manner.  The chemical industry in general remains robust and is experiencing unprecedented capital investment.

Review of Second Quarter and Year-to-Date 20142015 Results

We reported second quarter 20142015 earnings of $5.0$6.4 million down $1.3up from $5.0 million from the second quarter of 2013. Basic2014. Diluted earnings per share of $0.21$0.25 were reported for second quarter 2014, down $0.052015, up from 2013.  Second quarter 2013 earnings included a gain$0.20 from the additional equity issuance by AMAK of approximately $4.0 million and equity in earnings of about $0.7 million whereas there was no gain in second quarter 2014 and only minimal equity in earnings.2014.  Sales volume of our petrochemical products increased 32.0%decreased 5.5%, and sales revenue from our petrochemical products increased 33.0%decreased 28.1% as compared to the second quarter of 2013.  Second quarter 2014 represented2014.  However, due to a record quartersignificant decrease in termspetrochemical feedstock cost, our gross profit increased $3.5 million.  This, combined with a reduction of bothapproximately 0.5 million gallons of by-product sales, volume and revenue.generated an increase in operating income of $2.1 million from 2014.

We reported year-to-date 20142015 earnings of approximately$12.2 million up from $7.6 million down $3.5 million from the first half of 2013.  Basic2014. Diluted earnings per share of $0.32$0.48 were reported for the first half of 2014, down $0.142015, up from the first half of 2013.  As reported above, there was a gain$0.31 from the additional equity issuance by AMAK of approximately $4.0 million in the first half of 2013.2014.  Sales volume of our petrochemical products increased 30.0%decreased 4.7%, and sales revenue from our petrochemical products decreased 26.4% as compared to the first half of 2013, and2014.  However,
17

due to a significant decrease in petrochemical feedstock cost, our gross profit increased $10.5 million.  This, combined with a reduction of approximately 1.9 million gallons of by-product sales, revenuegenerated an increase in operating income of $7.4 million from petrochemical products increased 27.1%.2014.

Liquidity and Capital Resources

Working Capital

Our approximate working capital days are summarized as follows:
15


 June 30, 2014  December 31, 2013  June 30, 2013  June 30, 2015  December 31, 2014  June 30, 2014 
Days sales outstanding in accounts receivable  36.8   34.1   35.1   35.0   35.6   36.8 
Days sales outstanding in inventory  15.3   18.6   20.5   23.8   16.1   15.3 
Days sales outstanding in accounts payable  9.1   11.4   9.9   12.9   12.0   9.1 
Days of working capital  42.9   41.4   45.7   45.8   39.8   42.9 

Our days sales outstanding in accounts receivable remained fairly consistent.  Our days sales outstanding in inventory increased as of the end of the second quarter of 20142015 due to an increasedecreases in deferred sales.  Deferred sales increasedvolume sold for both segments, additional raw material purchases by approximately $1.4 million over the second quarter of 2013.  Deferred sales are not recognized until the customer accepts delivery of the productTC, and title has transferred.  The majority of these sales are to foreign customers with longer payment terms due to increased shipping times.inventory for hurricane backup purposes at SHR.  Our days sales outstanding in inventory decreased as of the end of theaccounts payable also remained fairly consistent from year-end 2014 but higher than second quarter of 20142015 due to expenditures for the D Train expansion.  Since days of working capital is calculated using the above three metrics, it increased demand for our products.

Sources and Uses of Cashthe reasons discussed.

Cash and cash equivalents decreased $1.2increased $0.1 million during the six months ended June 30, 2014,2015, as compared to a decrease of $4.8$1.2 million for the six months ended June 30, 2013.2014.

The change in cash and cash equivalents is summarized as follows:

 2014  2013  2015  2014 
Net cash provided by (used in) (thousands of dollars)  (thousands of dollars) 
Operating activities $5,971  $797  $20,499  $5,971 
Investing activities  (3,591)  (8,923)  (16,897)  (3,591)
Financing activities  (3,609)  3,344   (3,454)  (3,609)
Decrease in cash and equivalents $(1,229) $(4,782)
Increase (decrease) in cash and equivalents $148  $(1,229)
Cash and cash equivalents $6,379  $4,726  $8,654  $6,379 

Operating Activities
 
Cash provided by operating activities totaled $6.0$20.5 million for the first half of 2014 which was $5.22015, $14.3 million higher than the first half of 2013.2014.    For the first half of 20142015 net income decreasedincreased by approximately $3.5$4.6 million as compared to the corresponding period of 2013.2014. Major non-cash items affecting income included a decreaseincreases in thedepreciation and amortization of $2.2 million, unrealized gain from additional equity issuance by AMAK of $4.0 million, a decrease in the equity in earnings from AMAK of $4.0 million, an increase in the share-based compensation of approximately $0.4$0.2 million, and a decrease in deferred income taxes of approximately $1.8$0.6 million.

Significant factorsFactors leading to an increase in cash provided by operating activities included:

·  InventoryTrade receivables decreased approximately $0.4$6.1 million (due to increased demand for our products)a decrease in sales volume from fourth quarter 2014) as compared to an increase of approximately $2.5 million (due to an increase in the amount of deferred sales at the end of the second quarter and an intentional build in preparation for hurricane season) in 2013 and

·  Accounts payable and accrued liabilities increased approximately $0.9 million (due to an increase in transportation, fuel gas, and property tax accruals and additional purchases relating to the D Train expansion) as compared to an increase of approximately $0.2$6.1 million in 2013.

These sources of cash were partially offset by the following decreases in cash provided by operations:

·  Trade receivables increased approximately $6.1 million2014 (due to a 5.3% increase ofin volume sold and a 6.6% increase in average selling price as compared to the fourth quarter of 2013 and an increase in foreign sales with longer payment terms) as compared to an increase of approximately $5.3 million in 2013 (due to a 13.5% increase of volume sold compared to the fourth quarter of 2012 and an increase in foreign sales with longer payment terms),

·  Income tax receivableOther liabilities increased approximately $1.0 million (due to payments received from processing customers) as compared to no change in 2014.

These provisions of cash were partially offset by the following decreases in cash used by operations:

·  Accounts payable and accrued liabilities decreased approximately $0.6$3.0 million (due to the receivable being used for estimated taxes)variability in payment dates and decreases in federal and state taxes and officer compensation accruals) as compared to a decreasean increase of $1.2approximately $0.9 million in 20132014 (due to an increase in transportation, fuel gas, and property tax accruals and additional purchases relating to the receivable being used for the 2013 estimated tax payment).D Train expansion) and


 
1618


·  Inventory increased approximately $2.2 million (due to lower sales volume and increased raw material purchases) as compared to a slight decrease of approximately $0.4 million in 2014 (due to increased sales volume).

Investing Activities

Cash used by investing activities during the first half of 20142015 was approximately $3.6$16.9 million, representing a decreasean increase of approximately $5.3$13.3 million over the corresponding period of 2013.2014. During the first half of 2015 we purchased equipment for the D train expansion, tank farm improvements, spare equipment, various facility upgrades, hydrogenation expansion and improvements at our specialty wax facility.  During the first half of 2014 we began preparing for the expansion of our penhex unit (D-Train) and made various other facility improvements. During the first half of 2013 we purchased an additional $7.5 million of stock in AMAK, and expended $3.1 million for equipment for debottlenecking South Hampton’s penhex unit, expansion of the sales loading rack facility, and various other improvements.  These uses of cash were partially offset by the return of approximately $1.7 million from AMAK which was previously advanced.

Financing Activities

Cash used by financing activities during the first half of 20142015 was approximately $3.6$3.5 million versus cash providedused of $3.3$3.6 million during the corresponding period of 2013.2014.  During 2015 we made principal payments on our acquisition loan of $3.5 million.  During 2014 we drew $3.0 million on our line of credit and made principal payments on our line of credit of $6.7 million and $0.7 million on our term debt.  During 2013 we drew $6.0 million on our line of credit for working capital purposes and to fund the capital contribution to AMAK and made principal payments of $0.7 million on our term debt and $2.0 million on our line of credit.

Anticipated Cash Needs

We believe that the Company is capable of supporting its operating requirements and capital expenditures through internally generated funds supplemented with debt.

Results of Operations

 Comparison of Three Months Ended June 30, 20142015 and 20132014

  
2014
  
2013
  
Change
  
%Change
 
  (in thousands)    
Petrochemical Product Sales $72,842  $54,762  $18,080   33.0%
Processing  1,711   1,213   498   41.1%
Gross Revenue $74,553  $55,975  $18,578   33.2%
                 
Volume of Sales (gallons)                
  Petrochemical Products  20,745   15,711   5,034   32.0%
                 
  Cost of Sales $62,853  $47,408  $15,445   32.6%
  Total Operating Expense**  12,890   11,499   1,391   12.1%
  Natural Gas Expense**  1,573   1,535   38   2.5%
  Operating Labor Costs**  2,973   2,627   346   13.2%
  Transportation Costs**  5,837   4,916   921   18.7%
  General & Administrative Expense  4,154   3,452   702   20.3%
  Depreciation*  1,004   969   35   3.6%
                 
  Equity in Earnings of AMAK  6   735   (729)  (99.2%)
  Gain on Equity Issuance AMAK  -   3,996   (3,996)  (100.0%)
  Capital Expenditures  2,407   1,650   757   45.9%
Specialty Petrochemical Segment (including corporate transactions for comparative purposes)

These tables do not include the results for our specialty wax segment since it was acquired in the fourth quarter of 2014; therefore, we have no basis for comparison.

  
2015
  
2014
  
Change
  
%Change
 
  (thousands of dollars) 
Petrochemical Product Sales $52,342  $72,842  $(20,500)  (28.1%)
Processing  1,521   1,711   (190)  (11.1%)
Net Revenue $53,863  $74,553  $(20,690)  (27.8%)
                 
Volume of Sales (gallons)                
  Petrochemical Products  19,603   20,745   (1,142)  (5.5%)
                 
  Cost of Sales $38,997  $62,853  $(23,856)  (38.0%)
  Total Operating Expense**  12,523   12,890   (367)  (2.8%)
  Natural Gas Expense**  962   1,573   (611)  (38.8%)
  Operating Labor Costs**  3,437   2,973   464   15.6%
  Transportation Costs**  5,515   5,837   (322)  (5.5%)
  General & Administrative Expense  4,494   4,154   340   8.2%
  Depreciation and Amortization*  949   1,004   (55)  (5.5%)
  Equity in Earnings (Losses) of AMAK  (369)  6   (375)  (6,250.0%)
  Capital Expenditures $6,204  $2,407  $3,797   157.7%
 *Includes $801 and $868 for 2015 and $838 for 2014, and 2013, respectively, which is included in operating expense
 ** Included in cost of sales

Gross Revenue

Gross Revenue increaseddecreased during the second quarter of 2015 from 2014 from 2013 by 33.2%27.8% primarily due to an increasea decrease in the average selling price of 24.0% coupled with a decrease in volume of 32.0% and an increase in processing fees5.5%.


19



Petrochemical Product Sales

Petrochemical product sales increased 33.0%decreased by 28.1% during the second quarter of 20142015 from 20132014 due to an increasea decrease in the average selling price of 24.0% and a decrease in volume sold of 32.0% as noted above.5.5%.  Our average selling price decreased because a large portion of our sales are contracted with formulas which are tied to Natural Gas Liquid (NGL) prices which is our primary competitor experienced production interruptions which increasedfeedstock.  NGL prices fell significantly during the first half of 2015 reflecting the drop in petroleum prices.  Sales volume decreased slightly primarily because of fluctuations in demand from customers who typically purchase product elsewhere.  In addition, one customer continued to require shipments above
17

contracted volumes during the quarter.  As a note, deferred sales volume increased 15.0% during the second quarter of 2014 from 2013 which delays recognition until the subsequent quarter.our primary oil sands customer.

Processing

Processing revenues increased 41.1%decreased 11.1% during the second quarter of 2015 from 2014 from 2013 as we continuedue to see the benefit of the increasea decrease in fees charged under new contracts.production required by our customers.

Cost of Sales

Cost of Sales increased 32.6%decreased 38.0% during the second quarter of 20142015 from 20132014 due to higher volumes processed to support the demandsubstantial decrease in NGL prices as mentioned above.  Volume processed increased 28.0%, andOur average feedstock pricecost per gallon increased 6.1% during the second quarter of 2014 from 2013.decreased 41.6% and volume processed decreased 8.0%.  We use natural gasoline as feedstock which is the heavier liquid remaining after butane and propane are removed from liquids produced by natural gas wells.  The material is a commodity product in the oil/petrochemical markets and generally is readily available.  The price of natural gasoline normally correlates approximately 93% with the price of crude oil.  We continue to investigate alternative feedstock sources which contain lower percentages of less desirable components in an effort to reduce the amount of byproduct sold into fuel markets at lower prices, thereby increasing overall profitability.
 
Total Operating Expense

Total Operating Expense increased 12.1%decreased 2.8% during the second quarter of 20142015 from 2013.2014.  Natural gas, labor and transportation are the largest individual expenses in this category.

The cost of natural gas purchased increased 2.5%decreased 38.8% during the second quarter of2015 from 2014 as compared to the second quarter of 2013 primarily due to an increasea decrease in the average per unit cost.cost and in the quantity purchased.  The average price per MMBTU for the second quarter of 20142015 was $4.58$2.94 whereas, for the second quarter of 20132014 the per-unit cost was $4.32.  In addition, volume consumed increased slightly$4.58.  Volume decreased to approximately 347,000334,000 MMBTU from about 345,000 MMBTU during347,000 MMBTU.  The volume of natural gas consumed in the same period in 2013.quarter decreased due to lower sales volumes.

Labor costs were higher by 13.2% during the second quarterapproximately15.6% due to cost of 2014 as comparedliving and competitive wage adjustments averaging 3% to the second quarter of 20134%, operational overtime because of higherloading demands and training, maintenance overtime because of turnarounds, and additional profit sharing distributions during second quarter of 2014 based upon higher operating income.

Transportation costs were higher by 18.7% during the second quarter of 2014 as compared to the second quarter of 2013 due to the increase in operating income and personnel. We are studying ways to reduce overtime caused by the numbershort term surge of rail shipments.  We experiencedloading iso-containers which occurs periodically.  The overtime created by the training for the new equipment and processes of D Train will continue until the project is complete and operating routinely.  The maintenance overtime was higher than traditionally seen during turnarounds due to the extended nature of the work including the arrangements for testing capacities for higher volumes of production.

Transportation costs decreased 5.5% due to a 24.8% increasedecrease in the number of rail shipments in the second quarter of 2014 as compared to the second quarter of 2013.  These shipments were primarily in support of the one customer requiring volumes above contracted amounts.shipments.  These costs are recovered throughincluded in our selling price.prices.

General and Administrative Expense

General and Administrative costs for the second quarter of 2015 from 2014 from 2013 increased 20.3%by 8.2% due primarily to increases in officer compensation (stock option grant), insurance premiums (health, property(due to a restricted stock grant and liability increased), property taxes (increased basis), consulting fees (usethe accrual for end of additional contractors),year bonuses) and accounting and auditing fees (additional costs associated with accounting for AMAK)contributions to the 401(k) plan (due to contributions being generated from profit sharing distributions).

Depreciation and Amortization

Depreciation increased 3.6%and amortization decreased 5.5% during the second quarter of 20142015 from 20132014 due to an increaseconstruction in progress accounting for most of the amount of depreciable assets.
Equitycapital purchases.  Depreciation will begin on these purchases when complete and in Earnings (Losses) of AMAK/Gain on Equity Issuance of AMAKuse.

Equity in Earnings (Losses) of AMAK

Equity in Earnings of AMAK decreased $0.7$0.4 million during the second quarter of 20142015 from 2013.2014.  See discussion in six months ended June 30, 2014, section below.

Our equity in AMAK’s results of operations for the three months ended June 30, 2013, included a gain from the additional equity issuance by AMAK of $4.0 million.  There was no gain in 2014.
Capital Expenditures

Capital Expenditures increased 45.9% during the second quarter of 2014 from 2013 primarily due to preparations for our D-Train expansion, expanding the sales loading rack and various other improvements.
 
 
1820

Capital Expenditures

Capital Expenditures increased 157.7% during the second quarter of 2015 from 2014 primarily due to improvements in the petrochemical facility as detailed above under “Investing Activities”.

 Comparison of Six Months Ended June 30, 20142015 and 20132014

  
2014
  
2013
  
Change
  
%Change
 
  (in thousands)    
Petrochemical Product Sales $135,234  $106,382  $28,852   27.1%
Processing  3,419   2,338   1,081   46.2%
Gross Revenue $138,653  $108,720  $29,933   27.5%
                 
Volume of sales (thousand gallons)                
  Petrochemical products  39,570   30,432   9,138   30.0%
                 
 Cost of Sales $118,239  $93,474  $24,765   26.5%
 Total Operating Expense**  24,951   21,732   3,219   14.8%
 Natural Gas Expense**  3,400   2,777   623   22.4%
 Operating Labor Costs**  5,722   5,138   584   11.4%
 Transportation Costs**  10,645   8,957   1,688   18.8%
 General & Administrative Expense  8,343   6,957   1,386   19.9%
 Depreciation*  2,008   1,923   85   4.4%
                 
  Equity in Earnings (Losses) of AMAK  (344)  3,699   (4,043)  (109.3%)
  Gain on Equity Issuance AMAK  -   3,996   (3,996)  (100.0%)
  Capital Expenditures  4,127   3,142   985   31.3%
Specialty Petrochemical Segment (including corporate transactions for comparative purposes)

These tables do not include the results for our specialty wax segment since it was acquired in the fourth quarter of 2014; therefore, we have no basis for comparison.

  
2015
  
2014
  
Change
  
%Change
 
  (thousands of dollars) 
Petrochemical Product Sales $99,525  $135,234  $(35,709)  (26.4%)
Processing  3,045   3,419   (374)  (10.9%)
Net Revenue $102,570  $138,653  $(36,083)  (26.0%)
                 
Volume of Sales (gallons)                
  Petrochemical Products  37,707   39,570   (1,863)  (4.7%)
                 
  Cost of Sales $73,996  $118,239  $(44,243)  (37.4%)
  Total Operating Expense**  25,020   24,951   69   0.3%
  Natural Gas Expense**  2,270   3,400   (1,130)  (33.2%)
  Operating Labor Costs**  6,910   5,722   1,188   20.8%
  Transportation Costs**  10,423   10,645   (222)  (2.1%)
  General & Administrative Expense  9,204   8,343   861   10.3%
  Depreciation and Amortization*  2,044   2,008   36   1.8%
  Equity in Earnings (Losses) of AMAK  (310)  (344)  34   (9.9%)
  Capital Expenditures $13,019  $4,127  $8,892   215.5%
 
 *Includes*Includes $1,701 and $1,733 for 2015 and $1,663 for 2014, and 2013, respectively, which is included in operating expense
 ** Included in cost of sales

Gross Revenue

Gross Revenue increased 27.5%decreased during the first half of 2015 from 2014 from 2013by 26.0% primarily due to an increasea decrease in total salesthe average selling price of 22.8%, a decrease in volume of 30.0%4.7%, and an increasea 10.9% decrease in processing fees of 46.2%.fees.

Petrochemical Product Sales

Petrochemical product sales increased 27.1%decreased by 26.4% during the first half of 2015 from 2014 fromdue to a decrease in the average selling price of 22.8% and a decrease in volume sold of 4.7%.  Our average selling price decreased because a large portion of our sales are contracted with formulas which are tied to Natural Gas Liquid (NGL) prices which is our primary feedstock.  NGL prices fell significantly during the first half of 2013 due to an increase2015 reflecting the drop in total salespetroleum prices.  Sales volume decreased primarily because of 30.0% as noted above.  As stated under the quarterly discussion,fluctuations in demand from our volume increased primarily due a competitor’s production issues and one customer taking volumes above contracted amounts.primary oil sands customer.

Processing

Processing revenues increaseddecreased 10.9% during the first half of 20142015 from 2013 by 46.2%2014 due to an increasea decrease in tolling fees charged under new contracts.production required by our customers.

Cost of Sales

Cost of Sales increased 26.5%decreased 37.4% during the first half of 20142015 from 20132014 due to an increasethe substantial decrease in NGL prices as mentioned above.  Our average feedstock cost per gallon decreased 44.3% and volume processed decreased 2.9%.  We use natural gasoline as feedstock which is the heavier liquid remaining after butane and propane are removed from liquids produced by natural gas wells.  The material is a commodity product in the oil/petrochemical markets and generally is readily available.  The price of 24.2%natural gasoline normally correlates approximately 93% with the price of crude oil.  We continue to investigate alternative feedstock sources which contain lower percentages of less desirable components in supportan effort to reduce the amount of the growth in demand.byproduct sold into fuel markets at lower prices, thereby increasing overall profitability.

21

Total Operating Expense

Total Operating Expense increased 14.8%0.3% during the first half of 20142015 from 2013.2014.  Natural gas, labor and transportation are the largest individual expenses in this category.

The cost of natural gas purchased increased 22.4%decreased 33.2% during the first half of2015 from 2014 from 2013 due to higher per-unit costsa decrease in the average per unit cost and 1.1 % higher volumes.in the quantity purchased.  The average price per MMBTU for the first half of 2015 was $3.13 whereas, for 2014 the per-unit cost was $4.78; whereas,$4.78.  Volume increased slightly to approximately 707,000 MMBTU from about 705,000 MMBTU.  The volume of natural gas consumed in 2015 increased despite lower sales volumes due to testing of the newly increased capacities of the units and catalyst treatments during maintenance shutdowns.  These activities use fuel gas but do not produce product.
Labor costs were higher by approximately 20.8% due to cost of living and competitive wage adjustments averaging 3% to 4%, operational overtime because of loading demands and training, maintenance overtime because of turnarounds, and additional profit sharing due to the increase in operating income and personnel. We are studying ways to reduce overtime caused by the short term surge of loading iso-containers which occurs periodically.  The overtime created by the training for the new equipment and processes of D Train will continue until the project is complete and operating routinely.  The maintenance overtime was higher than traditionally seen during turnarounds due to the extended nature of the work including the arrangements for testing capacities for higher volumes of production.

Transportation costs decreased 2.1% due to a decrease in the number of shipments.  
General and Administrative Expense

General and Administrative costs for the first half of 20132015 from 2014 increased by 10.3% due primarily to increases in officer compensation (due to a restricted stock grant and the per-unit cost was $3.94.  Volume purchasedaccrual for end of year bonuses) and contributions to the 401(k) plan (due to contributions being generated from profit sharing distributions).

Depreciation and Amortization

Depreciation and amortization increased slightly by 1.8% during the first half of 2015 from 2014 due to approximately 705,000 MMBTUa fairly stable asset base.  In addition, due to construction in progress accounting for most of the capital purchases during the quarter, depreciation will begin on these purchases when complete and in use.

Equity in Earnings (Losses) of AMAK

Equity in Earnings of AMAK decreased slightly during the first half of 2015 from 2014.

For the six months ended June 30, 2014, from about 697,000 MMBTU during2015, shipments were 56.1% short of budgeted volumes as indicated in the table below.  There was only one shipment of zinc in the first quarter of 2015 and one shipment of copper in the second quarter of 2015 due to ship availability delays, moving shipments into the following quarters.

AMAK volumes in dry metric tons (dmt) for the six months ended June 30, 2013.2015, were as follows:

Labor costs were higher by 11.4% during the first half of 2014 from 2013 because of higher profit sharing distributions during the first half of 2014 based upon higher operating income.
  Actual  Budgeted  Variance 
 
Ore tons processed
  330,791   350,481   (19,690)
 
Concentrate to the port
            
  Copper  13,680   13,476   204 
  Zinc  19,634   21,509   (1,875)
   33,314   34,985   (1,671)
             
Shipments            
   Copper  8,959   15,180   (6,221)
   Zinc  8,214   23,920   15,706 
   17,173   39,100   (21,927)

Transportation costs were higherThe water issues experienced by 18.8% during the first half of 2014 from 2013 mainly due to the increase in rail shipments. We experienced a 29.4% increase in the number of rail shipmentsAMAK in the first halfquarter were largely resolved by the end of 2014the second quarter as comparedthe region experienced significant rains in addition to, thesome water storage improvements that have been made.  There was not a
 
 
 
1922

 
first half of 2013.   These costs are recovered through our selling price.  Higher transportation costs accounted for 52.4% of the increase in operating expense during the first six months of 2014.

General and Administrative Expense

General and Administrative costs increased 19.9% during the first half of 2014 from 2013 due to increases in officer compensation (stock option grant), insurance premiums (health, property and liability increased), property taxes (increased basis), consulting fees (use of additional contractors), accounting and auditing fees (additional costs associated with accounting for AMAK).

Depreciation

Depreciation increased 4.4% during the first half of 2014 from 2013 due to an increaselarge maintenance shutdown in the amount of depreciable assets.

Equity in Earnings (Losses) of AMAK/Gain on Equity Issuance of AMAK

Equity in Earnings (Losses) of AMAK decreased 109.3% during the first half of 2014 from 2013 due to reasons detailed below.  Our equity in AMAK’s results of operations for the six months ended June 30, 2013, also included a gain from the additional equity issuance by AMAK of $4.0 million.  There was no gain in 2014.

The mining sectorsecond quarter, and as a whole has been depressed due to low metal prices and demand.  However, the performance of AMAK to date has been below our expectation, and steps are being taken to improve performance and solidify its position over the long term.  The project is self-supporting and cash flow is adequate to meet current needs.

For the six months ended June 30, 2014, shipmentsresult, ore tons processed were 12.9% short of budgeted volumes as indicated26% higher in the table below.  There were no shipmentssecond quarter (plant run time was approximately 90%) than in the first quarter of 2014 due(plant run time was approximately 75%). Feed chute issues that AMAK was experiencing in the first quarter have also been largely resolved.

The new management team continues to logistics delaysmake progress on improving recoveries and operating efficiencies.  A few additional personnel will be added where specific skill sets are required, and some existing personnel will be replaced.  We expect to see real improvement from these changes in late 2015; thereby, positioning AMAK for a successful IPO on the rebuildingSaudi Arabian Stock Exchange which is currently targeted for late 2016.The precious metals circuit was down for most of warehouse stocks.  Sales on shipments in the second quarter due to governmental concern with storage of 2014, while up in number (4), were limited by volume shipped.  AMAK volumes (dmt)the cyanide required for the six months ended June 30, 2014, were as follows:

  Actual  Budgeted  Variance 
 
Ore tons processed
  328,394   341,020   (12,626)
 
Concentrate to the port
            
  Copper  14,997   14,699   298 
  Zinc  15,830   16,215   (385)
   30,827   30,914   (87)
             
Shipments            
   Copper  11,856   14,699   (2,843)
   Zinc  15,057   16,216   (1,159)
   26,913   30,915   (4,002)

In addition, AMAK faced operational issues including mechanical issues and water shortage which caused the plant run time to decrease to 64% versus the 80+% whichthis process.  The issue has been the norm over the first 18 months of operation.  The water issues have been largely resolved, with the addition of more wells, purchases of supplemental water via truck from nearby sources, and the additioncircuit should run all of a damthe second half of 2015.  The talc circuit is now operational leading to further recovery and holding area in a nearby drainage area.  The mechanical problems, while a continued concern due to the remote location and lack of expertise within the country, are being addressed with the identification and stocking of critical spares and a change of management staff.

During 2014 AMAK hired a new CEO (who is a US citizen), a new mining engineer (who is a Canadian citizen), and a new mill manager (who is an Australian citizen).  Individuals previously in those positions did a creditable job in starting up the facility and getting it to the point of production.  However, the AMAK Board felt that for AMAK to advance to a consistent and profitable operation, a different set of skills was needed.  AMAK incurred expenses to transition the new and old personnel.other operational improvements.

Finally, in an area inover which AMAK has little to no control, average metal prices were softerslightly better for the periodsecond quarter than the first due to a run up in spot commodity prices in April but have declined somewhat since.  Copper prices are at numbers last seen six years ago and affected AMAK’s financial results.  While copper prices maywill likely continue to be volatile zincas they are largely affected by economic data announcements from China.  Zinc prices are predictedexpected to be stronger as time passes due to the rundown and closure of several large mines this year and next.next; however, there are no guarantees.
Specialty Synthetic Wax Segment


20

2015; however, there were $1.7 million in processing fees which had been generated during the twelve months ended March 31, 2015, which were recognized during the first quarter of 2015 due to contract wording that dictated revenue recognition.

Improvements are expected over the last half of 2014.  Our expectation for better performance is based upon the activation of the precious metal circuit scheduled for October 2014; improved recoveries and product quality based upon better process control and improvements being installed in the mill equipment; an ore blending program whichinitial focus has been initiated and will help theon ensuring wax production capacity along with product quality and production levels:consistency.  We have now proven our throughput capability and beginning in November 2014are growing wax volumes on a favorably revisedmarket by market basis.  Customers are excited about our new product which has now been qualified by four different adhesive customers.
Our processing fees continue to lag as some custom processing capacity has been used to produce high quality wax.  A new wax distillation column has been installed, and amended contractcustom processing capacity has been released.
As previously mentioned, we are also adding new hydrogenation and distillation capabilities which will help us leverage existing relationships with our petrochemical customers and drive new custom processing business.  We expect the Chinese company who suppliesproject to be completed on schedule by the labor and manyend of the chemicals for the mill operation.first quarter of 2016.  We do not expect significant customer processing growth before this unit comes on stream.
 
Capital Expenditures

Capital Expenditures increased 31.3%215.5% during the first half of 20142015 from 20132014 primarily due to preparations for D-Train expansion, expandingimprovements in the sales loading rack and various other improvements.petrochemical facility as detailed above under “Investing Activities”.

Contractual Obligations

The table below summarizes the following contractual obligations (in thousands) of the Company:Company at June 30, 2015:

 Payments due by period  Payments due by period 
 Total  
Less than
1 year
  1-3 years  3-5 years  More than 5 years  Total  
Less than
1 year
  1-3 years  3-5 years  More than 5 years 
Operating Lease Obligations $5,781  $1,821  $2,764  $738  $458  $8,327  $2,294  $3,213  $1,541  $1,279 
Long-Term Debt Obligations  9,539   1,400   2,800   5,339   -   76,950   7,667   16,667   52,616   - 
Total $15,320  $3,221  $5,564  $6,077  $458  $85,056  $8,957  $19,291  $55,905  $903 

On October 1, 2014, we entered into an Amended and Restated Credit Agreement with the lenders which from time to time are parties to the Amended and Restated Credit Agreement (collectively, the “Lenders”) and Bank of America, N.A., a national banking association, as Administrative Agent for the Lenders, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger.  Refer to Note 8 on pages 9 through 10 of this Form 10-Q for a detailed discussion.

Guarantee of Saudi Industrial Development Fund (“SIDF”) Loan to AMAK

As discussed in Note 1517 to the consolidated financial statements, as a condition of the Loan from the SIDF in the principal amount of 330.0 million SR (US$88.0 million) to AMAK, we were required to execute a Guarantee of up to 41% of the Loan.  The decision to provide a limited corporate guarantee in favor of AMAK was difficult as we considered numerous facts and circumstances.  One of the factors considered was that without the US$88.0 million from the SIDF, construction
23

activity on the project would likely have ceased.  Another factor considered was that prior to making a firm commitment regarding funding, the SIDF performed its own exhaustive due diligence of the project and obviously reached the conclusion that the project is viable and capable of servicing the debt.  Yet another factor considered was our ability to reach agreement with various AMAK Saudi shareholders whereby they agreed to use best efforts to have their personal guarantees stand ahead of and pay required payments to SIDF before our corporate guarantee.  Finally, we researched numerous loans made by the SIDF to others and were unable to find a single instance where the SIDF actually called a guarantee or foreclosed on a project.  Based on the above, we determined that it was in the best interest of the Company and its shareholders to provide the limited corporate guarantee to facilitate completion of the mining project in a timely manner.   We also determined that the stand-in-front agreement in conjunction with the actual value of plant and equipment on the ground should act in concert to minimize any exposure arising from the corporate guarantee.  The total amount outstanding to the SIDF at June 30, 2014,2015, was 269.8310.0 million Saudi Riyals (US$71.982.7 million).

Critical Accounting Policies and Estimates

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, 2013.2014. 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, 2013.


21

2014.

Recent and New Accounting Standards

See Note 2 to the Consolidated Financial Statements for a summary of recent accounting guidance.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Derivative Instrument Risk

Refer to Note 810 on page 9pages 11 through 12 of this Form 10-Q.

Interest Rate Risk
 
Refer to Note 810 on page 9pages 11 through 12 of this Form 10-Q.

Except as noted above, 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, 2013.2014.

ITEM 4. CONTROLS AND PROCEDURES.

(a)  
Evaluation of disclosure controls and procedures.  Our chief executive officer and chief financial officer, with the participation of management, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934) and determined that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)  
Changes in internal control.  There waswere no changesignificant changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2014,2015, that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.  On October 1, 2014, we completed the TC Acquisition which included certain existing information systems and internal controls over financial reporting.  We are currently evaluating and integrating TC’s historical internal controls over financial reporting with ours.  We expect to complete the integration in 2015.

24


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None other than the pending claims and lawsuits as discussed in Note 1517 to the consolidated financial statements.

ITEM 1A. RISK FACTORS.

There have been no material changes fromAs of the date of this filing, the Company and its operations continue to be subject to the risk factors previously disclosed in our "Risk Factors" in the Company’s2014 Annual Report, on Form 10-K foras well as the year ended December 31, 2013.following risk factor:

AMAK’s operations could be negatively affected by the conflict in Yemen

The conflict and hostilities in Yemen could disrupt or interfere with the operations of AMAK whose corporate offices and  mining assets are located in Najran province of Saudi Arabia.

ITEM 6. 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 May 22, 2014 (incorporated by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (file No. 001-33926))
 
3(b)
- Restated Bylaws of the Company dated August 1, 2014 (incorporated by reference to Exhibit 3(b) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 (file No. 001-33926))
 
10(a)*
- Retirement Awards Program dated January 15, 2008 between Arabian American Development Company and Hatem El Khalidi (incorporated by reference to Exhibit 10(h) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 (file No. 001-33926))
 
Exhibit
Number
Description
10(b)*
- Arabian American Development Company Stock and Incentive Plan adopted April 3, 2012 (incorporated by reference to Exhibit A to the Company’s Form DEF 14A filed April 25, 2012 (file No. 001-33926))
 
10(c)
- Articles of Association of Al Masane Al Kobra Mining Company, dated July 10, 2006 (incorporated by reference to Exhibit 10(m) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (file No. 001-33926))
 
10(d)
- Bylaws of Al Masane Al Kobra Mining Company (incorporated by reference to Exhibit 10(n) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 (file No. 001-33926))
 
10(e)
- Letter Agreement dated August 5, 2009, between Arabian American Development Company and the other Al Masane Al Kobra Company shareholders named therein (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 27, 2009 (file No. 001-33926))
 
10(f)
- Limited Guarantee dated October 24, 2010, between Arabian American Development Company and the Saudi Industrial Development Fund (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on October 27, 2010 (file No. 001-33926))
 
Exhibit
Number
Description
10(g)
- Fourteenth Amendment toAmended and Restated Credit Agreement dated July 10,October 1, 2014, between South Hampton Resources,Texas Oil & Chemical Co. II, Inc. and certain subsidiaries and Bank of America, N.A. as administrative agent (incorporated by reference to Exhibit 99.110.2 to the Company’s Form 8-K filed on July 16,October 3, 2014 (file No. 001-33926))
10(h)
-Stock Purchase Agreement dated September 19, 2014, between Trecora Resources, Texas Oil & Chemical Co. II, Inc., SSI Chusei, Inc. and Schumann/Steier Holdings, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on September 25, 2014 (file No. 001-33926))
 
31.1
- Certification of Chief Executive Officer pursuant to Rule 13A-14(A) of the  Securities Exchange Act of 1934
 
31.2
- Certification of Chief Financial Officer pursuant to Rule 13A-14(A) of the  Securities Exchange Act of 1934
 
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
 
101.INS
- XBRL Instance Document
 
101.SCH
- XBRL Taxonomy Schema Document
 
101.CAL
- XBRL Taxonomy Calculation Linkbase  Document
 
101.LAB
- XBRL Taxonomy Label Linkbase Document
 
101.PRE
- XBRL Taxonomy Extension Presentation Linkbase Document
 
101.DEF
- XBRL Taxonomy Extension Definition Linkbase Document
 



 
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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:  August 6, 20147, 2015   TRECORA RESOURCES
                                                (Registrant)


                                     By: /s/Connie Cook
                                     Connie Cook
                                     Chief Financial Officer




 
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