Attached files

file filename
EX-31 - EXHIBIT 31.2 - CFO CERTIFICATION - TOR MINERALS INTERNATIONAL INCcfo31-2.htm
EX-32 - EXHIBIT 32.1 - CEO CERTIFICATION - TOR MINERALS INTERNATIONAL INCceo32-1.htm
EX-32 - EXHIBIT 32.2 - CFO CERTIFICATION - TOR MINERALS INTERNATIONAL INCcfo32-2.htm
EX-31 - EXHIBIT 31.1 - CEO CERTIFICATION - TOR MINERALS INTERNATIONAL INCceo31-1.htm

United States
Securities and Exchange Commission

Washington, D. C.  20549

____________________________

FORM 10-Q
____________________________

(Mark One)

[X]

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


For the quarterly period ended March 31, 2011

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 0-17321

TOR MINERALS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

74-2081929
(I.R.S. Employer Identification No.)

722 Burleson Street, Corpus Christi, Texas  78402
(Address of principal executive offices)

(361) 883-5591
(Issuer’s telephone number)
____________________________


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [__]

No [__]


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

Large accelerated filer [__]

Accelerated filer [__]

Non-accelerated filer [__]

Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [__]

No [X]

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

Class
Common Stock, $0.25 par value

Shares Outstanding as of May 9, 2011
2,121,373


1



Table of Contents

 

Part I - Financial Information

Page No.

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Income --
Three months ended March 31, 2011 and 2010

3

Condensed Consolidated Statements of Comprehensive Income  --
Three months ended March 31, 2011 and 2010

4

Condensed Consolidated Balance Sheets --
March 31, 2011 and December 31, 2010

5

Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 2011 and 2010

6

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

Management's Discussion and Analysis of Financial Condition
and Results of Operations

16

Item 4.

Controls and Procedures

24

Part II - Other Information

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 6.

Exhibits

26

Signatures

26

Forward Looking Information

Certain portions of this report contain forward-looking statements about the business, financial condition and prospects of the Company.  The actual results of the Company could differ materially from those indicated by the forward-looking statements because of various risks and uncertainties including, without limitation, changes in demand for the Company’s products, changes in competition, economic conditions, fluctuations in market price for TiO2 pigments, changes in foreign currency exchange rates, increases in the price of energy and raw materials, such as ilmenite, interest rate fluctuations, changes in the capital markets, changes in tax and other laws and governmental rules and regulations applicable to the Company’s business, and other risks indicated in the Company’s filings with the Securities and Exchange Commission.  These risks and uncertainties are beyond the ability of the Company to control, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements.  The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.  When used in this report, the words “believes,” “estimates,” “plans,” “expects,” “anticipates” and similar expressions as they relate to the Company or its management are intended to identify forward-looking statements.


2



TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

 

Three Months
Ended March 31,

 

 

2011

 

2010

NET SALES

 $

9,585 

 $

6,856 

Cost of sales

7,494 

5,206 

GROSS MARGIN

 

2,091 

 

1,650 

Technical services and research and development

66 

57 

Selling, general and administrative expenses

1,159 

849 

OPERATING INCOME

 

866 

 

744 

OTHER EXPENSE:

Interest expense

(96)

(121)

Loss on foreign currency exchange rate

(48)

(28)

INCOME BEFORE INCOME TAX

 

722 

 

595 

Income tax expense

47 

11 

NET INCOME

 $

675 

 $

584 

Less:  Preferred Stock Dividends

15 

15 

Basic Income Available to Common Shareholders

 $

660 

 $

569 

Plus:  6% Convertible Debenture Interest Expense

22 

Plus:  Preferred Stock Dividends

15 

Diluted Income Available to Common Shareholders

 $

697 

 $

569 

 

 

 

 

 

Income per common share:

Basic

 $

0.34 

 $

0.30 

Diluted

 $

0.22 

 $

0.26 

Weighted average common shares outstanding:

Basic

1,941 

1,891 

Diluted

3,149 

2,193 

See accompanying notes.


3



TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(In thousands)

 

Three Months
Ended March 31,

 

 

2011

 

2010

NET INCOME

$

675 

 $

584 

OTHER COMPREHENSIVE INCOME, net of tax

Currency translation adjustment, net of tax:

Net foreign currency translation adjustment gain

605 

415 

Other comprehensive income, net of tax

605 

415 

COMPREHENSIVE INCOME

$

1,280 

 $

999 

See accompanying notes.


4



TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)

 

March 31,
2011

 

December 31,
2010

 

 

(Unaudited)

 

 

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

2,396 

 $

2,559 

Trade accounts receivable, net

4,873 

3,888 

Inventories

11,467 

11,021 

Other current assets

935 

728 

Total current assets

19,671 

18,196 

PROPERTY, PLANT AND EQUIPMENT, net

19,489 

18,952 

OTHER ASSETS

24 

23 

Total Assets

$

39,184 

 $

37,171 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

2,299 

 $

2,544 

Accrued expenses

2,390 

1,436 

Notes payable under lines of credit

515 

783 

Export credit refinancing facility

33 

264 

Current deferred tax liability

60 

64 

Current maturities - capital leases

27 

46 

Current maturities of long-term debt – financial institutions

519 

533 

Total current liabilities

5,843 

5,670 

LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES

Capital leases

14 

18 

Long-term debt – financial institutions

2,819 

2,847 

Long-term debt – convertible debentures, net

1,167 

1,176 

DEFERRED TAX LIABILITY

636 

582 

Total liabilities

10,479 

10,293 

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Series A 6% convertible preferred stock $.01 par value:
authorized, 5,000 shares; 160 and 200 shares issued and
outstanding at 3/31/2011 and 12/31/2010, respectively

Common stock $1.25 par value:  authorized, 6,000 shares;
2,029 and 1,934 shares issued and outstanding
at 3/31/2011 and 12/31/2010, respectively

2,536 

2,416 

Additional paid-in capital

25,805 

25,363 

Accumulated deficit

(4,919)

(5,579)

Accumulated other comprehensive income:

Cumulative translation adjustment

5,281 

4,676 

Total shareholders' equity

28,705 

26,878 

Total Liabilities and Shareholders' Equity

$

39,184 

 $

37,171 

See accompanying notes.


5



TOR Minerals International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

Three Months Ended March 31,

2011

 

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net Income

$

675 

$

584 

Adjustments to reconcile net income to net cash
provided by operating activities:

Depreciation

499 

469 

Share-based compensation

Warrant interest expense

17 

17 

Deferred income taxes

41 

10 

Changes in working capital:

Trade accounts receivables

(897)

(489)

Inventories

(290)

(225)

Other current assets

(186)

(200)

Accounts payable and accrued expenses

603 

870 

Net cash provided by operating activities

464 

1,036 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

Additions to property, plant and equipment

(513)

(102)

Net cash used in investing activities

(513)

(102)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

Net payments on lines of credit

(317)

(732)

Net payments on export credit refinancing facility

(235)

Payments on capital lease

(25)

(39)

Payments on long-term bank debt

(122)

(158)

Proceeds from the issuance of common stock,
     and exercise of common stock options

534 

Preferred stock dividends paid

(15)

(15)

Net cash used in financing activities

(180)

(942)

Effect of exchange rate fluctuations on cash and cash equivalents

66 

73 

Net (decrease) increase in cash and cash equivalents

(163)

65 

Cash and cash equivalents at beginning of year

2,559 

1,002 

Cash and cash equivalents at end of period

$

2,396 

$

1,067 

Supplemental cash flow disclosures:

 

Interest paid

$

96 

$

104 

Non-cash financing activities:

 

Conversion of debentures

$

25 

$

See accompanying notes.


6



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Note 1.

Accounting Policies

Basis of Presentation and Use of Estimates:  The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  The interim condensed consolidated financial statements include the consolidated accounts of TOR Minerals International, Inc. and its wholly-owned subsidiaries with all significant intercompany transactions eliminated.  In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the consolidated financial position, results of operations and cash flows for the interim periods presented have been made.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010, in our Annual Report on Form 10-K filed with the SEC on March 24, 2011.  Operating results for the three-month period ended March 31, 2011, are not necessarily indicative of the results for the year ending December 31, 2011.

Income Taxes:  The Company records income taxes using the liability method.  Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Income taxes consisted of federal and state income tax expense of approximately $5,000 and $1,000, respectively, and foreign deferred tax expense of approximately $41,000 for the three month period ended March 31, 2011, compared to state income tax expense of approximately $1,000 and foreign deferred tax expense of approximately $10,000 for the same three month period in 2010.  Taxes are based on an estimated annualized consolidated effective rate of 6.6% for the year ended December 31, 2011.

When accounting for uncertainties in income taxes, we evaluate all tax years still subject to potential audit under the applicable state, federal and foreign income tax laws.  We are subject to taxation in the United States, Malaysia and The Netherlands.  Our federal income tax returns in the United States are subject to examination for the tax years ended December 31, 2007 through December 31, 2010.  Our state returns, which are filed in Texas and Ohio, are subject to examination for the tax years ended December 31, 2007 through December 31, 2010.  Our tax returns in various non-US jurisdictions are subject to examination for various tax years ended December 31, 2005 through December 31, 2010.

As of January 1, 2011, we did not have any unrecognized tax benefits and there was no change during the three month period ended March 31, 2011.  In addition, we did not recognize any interest and penalties in our consolidated financial statements during the three month period ended March 31, 2011.  If any interest or penalties related to any income tax liabilities are imposed in future reporting periods, we expect to record both of these items as components of income tax expense.

Recently Adopted and Recently Issued Accounting Standards:  The Company reviewed significant newly issued accounting pronouncements and concluded that they are either not applicable to the Company’s business or that no material effect is expected on the consolidated financial statements as a result of future adoption.


7



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Note 2.

Debt

Long-term Debt

A summary of long-term debt follows:

(Unaudited)

(In thousands)

March 31,

December 31,

2011

2010

Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at March 31, 2011, due April 1, 2013, secured by a Caterpillar front-end loader.

$

54 

$

60 

Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at March 31, 2011, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our US operation.

1,942 

2,000 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at March 31, 2011, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€357)

507 

485 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at March 31, 2011, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€356)

505 

482 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at March 31, 2011, due July 31, 2015, secured by TPT's assets.  (€221)

314 

312 

U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 1.475% at March 31, 2011, due May 30, 2011, secured by TMM's property, plant and equipment.

16 

41 

Total

3,338 

3,380 

Less current maturities

519 

533 

Total long-term debt and notes payable - financial institutions

$

2,819 

$

2,847 

Short-term Debt

US Operations

On December 31, 2010, the Company entered into a new U.S. credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1 million line of credit (the “Line”) which matures July 1, 2012.  The amount which the Company is entitled to borrow from time to time under the line of credit is subject to a borrowing base based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the line of credit bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50%.  At March 31, 2011, the Company had no outstanding funds borrowed on the Line.

Under the terms of the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis.  At March 31, 2011, the ratio of cash flow to debt service was 1.33 to 1.0.


8



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Netherlands Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 4.062%), is secured by TPT’s accounts receivable and inventory.  At March 31, 2011, TPT had utilized €362,000 ($515,000) of its short-term credit facility.

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

Malaysian Operations

On November 15, 2010, the Company’s subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from October 1, 2010 to April 30, 2011.  The Company is currently negotiating with HSBC to extend the maturity date of the banking facility.  The HSBC facility includes the following in Malaysian Ringgits (“RM”):  (1) overdraft of RM 500,000; (2) an export line (“ECR”) of RM 2,500,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($165,000, $826,000 and $1,652,000, respectively).

The RHB Bank Berhad (“RHB”) facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; and (3) a foreign exchange contract limit of RM 25,000,000 ($330,000, $3,073,000 and $8,261,000, respectively).

The banking facilities with both HSBC and RHB bear an interest rate on the overdraft facilities at 1.25% over bank prime and the ECR facilities bear interest at 1.0% above the funding rate stipulated by the Export-Import Bank of Malaysia Berhad.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At March 31, 2011, the outstanding balance on the ECR facilities was RM 102,000 ($33,000) at a current interest rate of 4.0%.

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


9



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Note 3.

Series A Convertible Preferred Stock Dividend

On March 4, 2011, the Company declared a dividend, in the amount of $15,000, or $0.075 per share, for the quarterly period ended March 31, 2011, payable on April 1, 2011, to the holders of record of the Series A Convertible Preferred Stock as of the close of business on March 4, 2011.

 

Note 4.

Fair Value Measurements

The following table presents the Company’s financial assets and financial liabilities that are measured and recognized at fair value on a recurring basis, classified under the appropriate level of fair value hierarchy, as of March 31, 2011.  The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at March 31, 2011.

 

March 31, 2011

(In thousands)

Balance at
March 31, 2011

Quoted Prices in Active
Markets for Identical Items
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

Liability for foreign currency
derivative financial instruments
(including forward contracts)

 $

 $

 $

 $

Our foreign currency derivative financial instruments mitigate foreign exchange risks and include forward contracts.

The fair value of the Company’s debt is based on estimates using standard pricing models that take into account the present value of future cash flows as of the balance sheet date.  The computation of the fair value of these instruments is generally performed by the Company.  The carrying amounts and estimated fair values of the Company’s long-term debt, including current maturities, are summarized below:

 

March 31, 2011

 

December 31, 2010

(In thousands)

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

Long-term debt, including current portion

$

3,338 

$

3,244 

$

3,380 

$

3,286 

Long-term debt – convertible debentures

1,450 

1,408 

1,475 

1,424 

$

4,788 

$

4,652 

$

4,855 

$

4,710 

The carrying amounts reported in the balance sheet for cash and cash equivalents, trade receivables, payables and accrued liabilities, accrued income taxes and short-term borrowings approximate fair value due to the short term nature of these instruments.  Accordingly, these items have been excluded from the above table.


10



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Note 5.

Capital Leases

On June 27, 2005, TPT entered into a financial lease agreement with De Lage Landen Financial Services, BV for equipment related to the production of ALUPREM.  The cost of the equipment under the capital lease is included in the balance sheets as property, plant and equipment and was $381,181.  Accumulated amortization of the leased equipment at March 31, 2011 was approximately €161,000 ($229,000).  Amortization of assets under capital leases is included in depreciation expense.  The capital lease is in the amount of €377,351 including interest of €62,113 (implicit interest rate 6.3%) and €238 in executory costs.  The lease term is 72 months with equal monthly installments of €5,241 ($7,441).  The net present value of the lease at March 31, 2011 was €10,000 ($15,000).

On March 13, 2008, the Company entered into a financial lease agreement with Toyota Financial Services for a forklift.  The cost of the equipment under the capital lease, in the amount of $26,527, is included in the balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at March 31, 2011 was approximately $13,000.  Amortization of assets under capital leases is included in depreciation expense.  The capital lease is in the amount of $31,164 including interest of $4,637 (implicit interest rate 6.53%).  The lease term is 60 months with equal monthly installments of $519.  The net present value of the lease at March 31, 2011 was $11,000.

On August 1, 2010, the Company entered into a financial lease agreement with Dell Financial Services for new computer servers.  The cost of the equipment under the capital lease, in the amount of $19,093, is included in the consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at March 31, 2011 was approximately $6,000.  Amortization of assets under capital leases is included in depreciation expense.  The capital lease is in the amount of $20,698 including interest of $1,605 (implicit interest rate 5.3%).  The lease term is 36 months with equal monthly installments of $575.  The net present value of the lease at March 31, 2011 was $15,000.


11



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Note 6.

Calculation of Basic and Diluted Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share:

(in thousands, except per share amounts)

Three Months
Ended March 31,

2011

 

2010

Numerator:

Net Income

$

675 

$

584 

Preferred Stock Dividends

(15)

(15)

Numerator for basic earnings per share -
income available to common shareholders

660 

569 

Effect of dilutive securities:

6% Convertible Debenture Interest Expense

22 

Preferred Stock Dividends

15 

Numerator for diluted income per share -
loss available to common shareholders
after assumed conversions

$

697 

$

569 

Denominator:

Denominator for basic income per share -
weighted-average shares

1,941 

1,891 

Effect of dilutive securities:

Employee stock options

46 

Detachable warrants

495 

295 

6% Convertible Debenture

556 

Preferred Stock Dividends

111 

Dilutive potential common shares

1,208 

302 

Denominator for diluted income per share -
weighted-average shares and assumed conversions

3,149 

2,193 

Basic income per common share

$

0.34 

$

0.30 

Diluted income per common share

$

0.22 

$

0.26 

For the three month period ended March 31, 2010, a total of 111,000 common shares issuable upon conversion of the 200,000 convertible preferred shares were excluded from the calculation of diluted earnings per share as the conversion price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

For the three month period ended March 31, 2010, a total of 566,000 shares issuable upon conversion of convertible debentures were excluded from the calculation of diluted earnings per share as the conversion price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

For the three month period ended March 31, 2010, approximately 315,000 shares issuable upon exercise of warrants were excluded from the calculation of diluted earnings per share as the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

For the three month periods ended March 31, 2011 and 2010, approximately 53,000 and 144,000, respectively, of shares issuable upon exercise of employee stock options were excluded from the calculation of diluted earnings per share as the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.


12



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Note 7.

Segment Information

The Company and its subsidiaries operate in the business of pigment manufacturing and related products in three geographic segments.  All United States manufacturing is done at the facility located in Corpus Christi, Texas.  Foreign manufacturing is done by the Company’s wholly-owned subsidiaries, TMM, located in Malaysia, and TPT, located in the Netherlands.  A summary of the Company’s manufacturing operations by geographic area is presented below:

(In thousands)

United States
(Corpus Christi)

Europe
(TPT)

Asia
(TMM)

Inter-Company
Eliminations

Consolidated

As of and for the three months ended:

March 31, 2011

Net Sales:

Customer sales

$

5,368 

$

2,617 

$

1,600 

$

$

9,585 

Intercompany sales

863 

1,909 

(2,772)

Total Net Sales

$

5,368 

$

3,480 

$

3,509 

$

(2,772)

$

9,585 

Location profit

$

278 

$

262 

$

155 

$

(20)

$

675 

Location assets

$

14,535 

$

8,941 

$

15,708 

$

$

39,184 

March 31, 2010

Net Sales:

Customer sales

$

4,264 

$

1,917 

$

675 

$

$

6,856 

Intercompany sales

24 

482 

1,123 

(1,629)

Total Net Sales

$

4,288 

$

2,399 

$

1,798 

$

(1,629)

$

6,856 

Location profit

$

265 

$

178 

$

90 

$

51 

$

584 

Location assets

$

10,751 

$

7,846 

$

15,102 

$

$

33,699 

Product sales of inventory between Corpus Christi, TPT and TMM are based on inter-company pricing, which includes an inter-company profit margin.  In the geographic information, the location loss from all locations is reflective of these inter-company prices, as is inventory at the Corpus Christi location prior to elimination adjustments.  Such presentation is consistent with the internal reporting reviewed by the Company’s chief operating decision maker.  The elimination entries include an adjustment to the cost of sales resulting from the adjustment to ending inventory to eliminate inter-company profit, and the reversal of a similar adjustment from a prior period.  To the extent there are net increases/declines period over period in Corpus Christi inventories that include an inter-company component, the net effect of these adjustments can decrease/increase location profit.

Sales from the subsidiary to the US parent company and between subsidiaries are based upon profit margins which represent competitive pricing of similar products.  Intercompany sales consisted of SR, HITOX, ALUPREM and TIOPREM.


13



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

Note 8.

Stock Options and Equity Compensation Plan

For the three month period ended March 31, 2011, the Company recorded an expense of approximately $2,000, in stock-based employee compensation expense.  This compensation expense is included in the selling, general and administrative expenses in the accompanying consolidated statements of operations.

The Company granted 20,000 incentive stock options during the three month period ended March 31, 2011.  No options were granted during the three month period ended March 31, 2010.

As of March 31, 2011, there was approximately $171,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 6.83 years.

As options issued under the Plan are Incentive Stock Options, the Company does not normally receive significant excess tax benefits relating to the compensation expense recognized on vested options.

Note 9.

Inventories

A summary of inventory follows:

(In thousands)

 

 

 

March 31,

 

December 31,

 

 

 

2011

 

2010

Raw materials

$

5,939 

$

6,337 

Work in progress

1,860 

1,343 

Finished goods

3,165 

2,895 

Supplies

829 

794 

Total Inventories

11,793 

11,369 

Inventory reserve

(326)

(348)

Net Inventories

$

11,467 

$

11,021 



Note 10.



Derivatives and Other Financial Instruments

The Company has exposure to certain risks relating to its ongoing business operations, including financial, market, political and economic risks.  The following discussion provides information regarding our exposure to the risks of changes in foreign currency exchange rates.  The Company has not entered into these contracts for trading or speculative purposes in the past, nor do we currently anticipate entering into such contracts for trading or speculative purposes in the future.  The foreign exchange contracts are used to mitigate uncertainty and volatility, and to cover underlying exposures.

Foreign Currency Forward Contracts

We manage the risk of changes in foreign currency exchange rates, primarily at our Malaysian operation, through the use of foreign currency contracts.  Foreign exchange contracts are used to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies, including sales and purchases transacted in a currency other than the functional currency, will be adversely affected by changes in exchange rates.  We report the fair value of the derivatives on our consolidated balance sheet and changes in the fair value are recognized in earnings in the period of the change.

 

At March 31, 2011, we marked these contracts to market, recording a net expense of approximately $3,000, as a component of our year to date net income and as a current liability on the consolidated balance sheet.  At March 31, 2010, we marked these contracts to market, recording income of approximately $56,000 as a component of our year to date net income and as a current asset on the balance sheet. 


14



TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

 

The following table summarizes the gross fair market value of all derivative instruments, which are not designated as hedging instruments and their location in our condensed consolidated balance sheet:

(In thousands)

Asset Derivatives

 

 

March 31,

 

December 31,

Derivative Instrument

 

Location

 

2011

 

2010

Foreign Currency Exchange Contracts

Other Current Assets

$

$

11 

 

 

 

$

$

11 

 

 

 

 

 

 

 

Liability Derivatives

 

 

March 31,

 

December 31,

Derivative Instrument

 

Location

 

2011

 

2010

Foreign Currency Exchange Contracts

Accrued Expenses

$

$

 

 

 

$

$



The following table summarizes the impact of the Company’s derivatives on the condensed consolidated financial statements of income for the quarters ended March 31, 2011 and 2010:


(In thousands) 

 

 

 

Amount of (Loss) Gain
Recognized in Income

 

Location of (Loss)

 

Three Months Ended

Derivative

 

Gain on Derivative

 

March 31,

Instrument

 

Instrument

 

2011

 

2010

Foreign Currency
   Exchange Contracts

Other (Expense) Income

$

(3)

$

56 



15



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Company Overview

We are a global specialty chemical company engaged in the business of manufacturing and marketing mineral products for use as pigments, pigment extenders, engineered fillers and flame retardants used in the manufacture of paints, industrial coatings, plastics, and catalysts applications.  We have operations in the US, Asia and Europe.

Our US Operation, located in Corpus Christi, Texas, manufactures HITOX, BARTEX, HALTEX/OPTILOAD and TIOPREM.  The facility is also the Global Headquarters for the Company.  The Asian Operation, located in Ipoh, Malaysia, manufactures SR, HITOX and TIOPREM and our European Operation, located in Hattem, Netherlands, manufactures Alumina based products.

Operating expenses in the foreign locations are primarily in local currencies.  Accordingly, we have exposure to fluctuation in foreign currency exchange rates.  These fluctuations impact the translation of sales, earnings, assets and liabilities from local currency to the US Dollar.

Our business is closely correlated with the construction industry and its demand for materials that use pigments, such as paints and plastics.  This has generally led to higher sales in our second and third quarters due to increases in construction and maintenance during warmer weather.  Also, pigment consumption is closely correlated with general economic conditions.  When the economy is in an expansionary state, there is typically an increase in pigment consumption while a slow down typically results in decreased pigment consumption.  When the construction industry or the economy is in a period of decline, TOR's sales and profit are likely to be adversely affected.

Following are our results for the three month periods ended March 31, 2011 and 2010.

(Unaudited)

(In thousands, except per share amounts)

 

Three Months
Ended March 31,

 

 

2011

 

2010

NET SALES

$

9,585 

$

6,856 

Cost of sales

7,494 

5,206 

GROSS MARGIN

 

2,091 

 

1,650 

Technical services and research and development

66 

57 

Selling, general and administrative expenses

1,159 

849 

OPERATING INCOME

 

866 

 

744 

OTHER EXPENSE:

Interest expense

(96)

(121)

Loss on foreign currency exchange rate

(48)

(28)

INCOME BEFORE INCOME TAX

 

722 

 

595 

Income tax expense

47 

11 

NET INCOME

$

675 

$

584 

 

 

 

 

 

Income per common share:

Basic

$

0.34 

$

0.30 

Diluted

$

0.22 

$

0.26 


16



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Net Sales:  Consolidated net sales for the quarter ended March 31, 2011 increased approximately $2,729,000 or 40% compared to the first quarter 2010 primarily due to an increase in sales across all our product lines.

Following is a summary of our consolidated products sales for the three month periods ended March 31, 2011 and 2010 (in thousands).  All inter-company sales have been eliminated.

(Unaudited)

Three Months Ended March 31,

Product

2011

2010

Variance

HITOX

$

4,050 

42%

$

2,903 

42%

$

1,147 

40%

ALUPREM

3,379 

36%

2,383 

35%

996 

42%

BARTEX

894 

9%

842 

12%

52 

6%

HALTEX

763 

8%

518 

8%

245 

47%

TIOPREM

404 

4%

77 

1%

327 

425%

OTHER

95 

1%

133 

2%

(38)

-29%

Total

$

9,585 

100%

$

6,856 

100%

$

2,729 

40%

HITOX sales increased 40% for the three month period ended March 31, 2011 as compared to the same period in 2010 primarily due to the stabilization and recovery in the paint and plastics end markets, as well as a tight supply of commodity titanium dioxide (“TiO2”), which have led to the addition of many new global customers.  This compares to an increase of 49% during the same three month period a year ago.

ALUPREM sales increased 42% during the first quarter of 2011, primarily due to a change in the order pattern of a significant US customer, as well as a 29% increase in European sales during first quarter.  This compares to a decrease of 13% during the first quarter of 2010.

BARTEX sales increased primarily due to an increase in volume and our customer base.  For the first three months of 2011 and 2010, BARTEX sales increased 6% and 44%, respectively.

HALTEX sales increased primarily due to new business for our standard HALTEX and newer OPTILOAD specialty products which are gaining acceptance in the marketplace.  For the first three months of 2011 and 2010, HALTEX sales increased 47% and 64%, respectively.

TIOPREM sales increased significantly during the first quarter 2011 as compared to the same period of 2010 primarily due to the product gaining greater acceptance in the global marketplace.


17



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Corpus Christi Operation

Our Corpus Christi operation manufactures and sells HITOX, BARTEX, HALTEX/OPTILOAD and TIOPREM to third party customers.  In addition, we purchase ALUPREM and HITOX from our subsidiaries, TPT and TMM, for distribution in the Americas.  Following is a summary of net sales for our Corpus Christi operation for the three month periods ended March 31, 2011 and 2010 (in thousands), as well as a summary of the material changes.  All inter-company sales have been eliminated.

(Unaudited)

Three Months Ended March 31,

Product

2011

2010

Variance

HITOX

$

2,254 

42%

$

2,018 

47%

$

236 

12%

ALUPREM

1,190 

22%

687 

16%

503 

73%

BARTEX

894 

17%

842 

20%

52 

6%

HALTEX

763 

14%

518 

12%

245 

47%

TIOPREM

186 

4%

72 

2%

114 

100%

OTHER

81 

1%

127 

3%

(46)

-36%

Total

$

5,368 

100%

$

4,264 

100%

$

1,104 

26%

 

  • HITOX sales in the US trailed the first quarter of last year by 4%; however, HITOX sales in Canada, Mexico and South America increased 43%, 115% and 99%, respectively, resulting in a net increase of 12% for the quarter as compared to the same period in 2010.  This compares to a net increase in the first quarter of 2010 of 35%.
  • ALUPREM sales during the first quarter 2011 increased 73% as compared to the same three month period of 2010.  ALUPREM sales during the first quarter 2010 were down 53% as compared to the same period of 2009.  The year over year variances are primarily due to changes in the order pattern of a significant customer.


18



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Netherlands Operation

Our subsidiary in the Netherlands, TPT, manufactures and sells ALUPREM to third party customers, as well as to our Corpus Christi operation for distribution to our US customers.  In addition, TPT purchases HITOX from TMM for distribution in Europe.  The following table represents TPT’s ALUPREM and HITOX sales (in thousands) for the three month periods ended March 31, 2011 and 2010 to third party customers.  All inter-company sales have been eliminated.

(Unaudited)

Three Months Ended March 31,

Product

2011

2010

Variance

ALUPREM

$

2,189 

84%

$

1,696 

89%

$

493 

29%

HITOX

363 

14%

216 

11%

147 

68%

TIOPREM

65 

2%

< 1%

60 

< 1%

Total

$

2,617 

100%

$

1,917 

100%

$

700 

37%

 

  • ALUPREM sales in Europe increased primarily due to an increase in volume and product mix.  For the first three months of 2011 and 2010, ALUPREM sales increased 29% and 33%, respectively.
  • HITOX sales in Europe increased primarily associated with the gradual improvement in the construction industry.  For the first three months of 2011 and 2010, HITOX sales increased 68% and 89%, respectively.

 

Malaysian Operation

Our subsidiary in Malaysia, TMM, manufactures and sells HITOX and SR to third party customers, as well as to our Corpus Christi operation and TPT.  The following table represents TMM’s sales (in thousands) for the three month periods ended March 31, 2011 and 2010 to third party customers.  All inter-company sales have been eliminated.

(Unaudited)

Three Months Ended March 31,

Product

2011

2010

Variance

HITOX

$

1,433 

90%

$

669 

99%

$

764 

114%

TIOPREM

153 

9%

0%

153 

100%

OTHER

14 

1%

1%

133%

Total

$

1,600 

100%

$

675 

100%

$

925 

137%

 

  • HITOX sales in Asia increased significantly due to both an increase in volume related to the continuing improvement in the Asian economy and new customers.  For the first three months of 2011 and 2010, HITOX sales increased 114% and 102%, respectively.


19



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other Consolidated Results

Gross Margin:  For the three month period ended March 31, 2011, gross margin percent decreased approximately 2.3% percent, from 21.8% in 2010 to 24.1% in 2011.  Primary factors impacting our gross margin include an increase in raw material and energy costs, as well as a reduction in SR production at TMM as compared to the same period in 2010.  Partially offsetting these negative factors were the mix of products sold during the quarter as well as an increase in the selling price of various products.

Technical Services and Selling, General, Administrative and Expenses (“SG&A”):  Total SG&A expenses increased approximately 35.2% during the three month period ended March 31, 2011 as compared to the same period in 2010 primarily due to an increase in salary expense, which included a bonus for executive management of $170,000, as well as increases relating to sales commissions and business travel.

Interest Expense:  Net interest expense for the quarter decreased approximately $25,000 as compared to the same period in 2010, primarily due to a decrease in both short-term and long-term debt.

Income Taxes:  Income taxes consisted of federal and state income tax expense of approximately $5,000 and $1,000, respectively, and foreign deferred tax expense of approximately $41,000 for the three month period ended March 31, 2011, compared to state income tax expense of approximately $1,000 and foreign deferred tax expense of approximately $10,000 for the same three month period in 2010.  Taxes are based on an estimated annualized consolidated effective rate of 6.6% for the year ended December 31, 2011.


20



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity, Capital Resources and Other Financial Information

Long-term Debt

Following is a schedule of our long-term debt.

(Unaudited)

(In thousands)

March 31,

December 31,

2011

2010

Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at March 31, 2011, due April 1, 2013, secured by a Caterpillar front-end loader.

$

54 

$

60 

Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at March 31, 2011, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our US operation.

1,942 

2,000 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at March 31, 2011, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€357)

507 

485 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at March 31, 2011, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€356)

505 

482 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at March 31, 2011, due July 31, 2015, secured by TPT's assets.  (€221)

314 

312 

U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 1.475% at March 31, 2011, due May 30, 2011, secured by TMM's property, plant and equipment.

16 

41 

Total

3,338 

3,380 

Less current maturities

519 

533 

Total long-term debt and notes payable - financial institutions

$

2,819 

$

2,847 

Short-term Debt

US Operations

On December 31, 2010, the Company entered into a new U.S. credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1 million line of credit (the “Line”) which matures July 1, 2012.  The amount which the Company is entitled to borrow from time to time under the line of credit is subject to a borrowing base based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the line of credit bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50%.  At March 31, 2011, the Company had no outstanding funds borrowed on the Line.

Under the terms of the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis.  At March 31, 2011, the ratio of cash flow to debt service was 1.33 to 1.0.


21



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Netherlands Operation

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 4.062%), is secured by TPT’s accounts receivable and inventory.  At March 31, 2011, TPT had utilized €362,000 ($515,000) of its short-term credit facility.

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

Malaysian Operation

On November 15, 2010, the Company’s subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from October 1, 2010 to April 30, 2011.  The Company is currently negotiating with HSBC to extend the maturity date of the banking facility.  The HSBC facility includes the following in Malaysian Ringgits (“RM”):  (1) overdraft of RM 500,000; (2) an export line (“ECR”) of RM 2,500,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($165,000, $826,000 and $1,652,000, respectively).

The RHB Bank Berhad (“RHB”) facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; and (3) a foreign exchange contract limit of RM 25,000,000 ($330,000, $3,073,000 and $8,261,000, respectively).

The banking facilities with both HSBC and RHB bear an interest rate on the overdraft facilities at 1.25% over bank prime and the ECR facilities bear interest at 1.0% above the funding rate stipulated by the Export-Import Bank of Malaysia Berhad.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At March 31, 2011, the outstanding balance on the ECR facilities was RM 102,000 ($33,000) at a current interest rate of 4.0%.

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


22



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cash and Cash Equivalents

As noted on the following table, cash and cash equivalents decreased $163,000 from December 31, 2010 to March 31, 2011 as compared to an increase of $65,000 from December 31, 2009 to March 31, 2010.

(Unaudited)

 (In thousands)

Three Months Ended March 31,

 

2011

 

2010

Net cash provided by (used in)

Operating activities

$

464 

$

1,036 

Investing activities

(513)

(102)

Financing activities

(180)

(942)

Effect of exchange rate fluctuations

66 

73 

Net change in cash and cash equivalents

$

(163)

$

65 

Operating Activities

Operating activities provided $464,000 during the first three months of 2011.  Following are the major changes in working capital affecting cash provided by operating activities for the three month period ended March 31, 2011:

  • Accounts Receivable:  Accounts receivable increased $897,000 as compared to an increase of $489,000 for the same period in 2010.  The increase in accounts receivable is primarily due to stronger sales in the first quarter 2011 at each of the Company’s.  Accounts receivable increased $148,000 at the Corpus Christi operation and $187,000 and $562,000 at TPT and TMM, respectively.
  • Inventories: Inventories increased $290,000 as compared to an increase of $225,000 for the same period in 2010.  Inventories at the Corpus Christi operation increased $617,000 primarily related to an increase in finished goods.  TPT’s decreased $187,000 and TMM’s decreased $140,000 both primarily related to a reduction in finished goods.
  • Other Current Assets:  Other current assets increased $186,000 as compared to an increase of $200,000 for the same period in 2010.  At the Corpus Christi operation, prepaid expenses increased $78,000 primarily due to prepayment of raw materials; at TPT $65,000 related to prepaid insurance and pension expense; and at TMM $43,000 primarily related to equipment deposits.
  • Accounts Payable and Accrued Expenses:  Trade accounts payable and accrued expenses increased $603,000 as compared to an increase of $870,000 for the same period in 2010.  Accounts payable and accrued expenses at the Corpus Christi operation decreased $10,000; TPT’s increased $185,000 and TMM’s increased $428,000 primarily relating to raw materials for the production of SR.

Investing Activities

We used cash of $513,000 in investing activities during the first three months of 2011 primarily for the purchase of fixed assets as compared to $102,000 during the same period 2010.  Net investments for each of our three locations are as follows:

  • Corpus Christi Operation:  We invested approximately $98,000 primarily related to capital maintenance and computer equipment, as compared to $71,000 for the same period in 2010.
  • Netherlands Operation:  We invested approximately $408,000 at TPT for new production equipment, as compared to $28,000 for the same period in 2010.
  • Malaysian Operation:  We invested approximately $7,000 at TMM for new equipment, as compared to $3,000 for the same period in 2010.


23



TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financing Activities

We used $180,000 in financing activities during the three month period ended March 31, 2011 as compared to $942,000 for the same period 2010.  Significant factors relating to financing activities include the following:

  • Lines of Credit:  We did not utilize our domestic line of credit during the three month period ended March 31, 2011 as compared to a decreased of $700,000 for the same period 2010.  Borrowings on TPT’s line of credit decreased $317,000 as compared to a decrease of $32,000 for the same period in 2010.
  • Export Credit Refinancing Facility (ECR):  TMM’s borrowings on the ECR decreased $235,000 during the three month period ended March 31, 2011.  TMM had no borrowings on the ECR during the same period in 2010.
  • Capital Leases:  Capital leases decreased approximately $25,000 related to lease payments at both the Corpus Christi operation and at TPT during the first quarter 2011 as compared to a decrease of approximately $39,000 for the same period in 2010.
  • Long-term Debt – Financial Institutions:  Long-term debt decreased approximately $122,000 during the three month period ended March 31, 2011.  At the Corpus Christi operation, long-term debt decreased $65,000; at TPT $31,000 and at TMM $26,000.  This compares to a decrease in long-term debt of approximately $158,000 for the same period in 2010.
  • Proceeds from the Issuance of Common Stock:  We received $534,000 from the issuance of common stock during the first three months of 2011 of which $350,000 related to the exercise of warrants and $184,000 to the exercise of stock options.
  • Preferred Stock Dividends:  We paid dividends of $15,000 on its Series A convertible preferred stock for the three month periods ended March 31, 2011 and 2010.

 

Off-Balance Sheet Arrangements and Contractual Obligations

No material changes have been made to the “Off-Balance Sheet Arrangements and Contractual Obligations” noted in the Company’s 2010 Annual Report on Form 10-K except as noted above.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, management of the Company has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

During the last fiscal quarter, there were no changes in the Company's internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting. 


24



Part II  -  Other Information

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

In March 2011, three of the holders of warrants issued in December 2008, exercised their warrants.  Upon exercise and receipt of the aggregate exercise price of $350,000, the Company issued 35,000 shares of common stock to the accredited investors.  The Company used the proceeds for working capital.

Also in March 2011, one of the holders of our six-percent (6%) Convertible Subordinated Debentures due May 4, 2016 (the “Debentures”) converted his Debenture, and the Company issued him 9,434 shares of Common Stock upon conversion of the Debenture.

No underwriters were involved in the foregoing sale of securities.  The sale was made in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended (the “Securities Act”), set forth in Section 4(2) under the Securities Act.  The sale was made to an “accredited investor” as such term is defined in Regulation D under the Securities Act with whom we had a previous relationship and we did not partake in any general solicitation or advertisement.  All of the foregoing securities sold as a result of the exercise of warrants are deemed restricted securities for purposes of the Security Act.

 


25



Part II  -  Other Information

Item 6.

Exhibits

(a)

Exhibits

Exhibit 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1

Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.2

Certification of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


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.

 

TOR Minerals International, Inc.

 

____________

(Registrant)

Date:

May 10, 2011

OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer

Date:

May 10, 2011

BARBARA RUSSELL
Barbara Russell
Chief Financial Officer


26