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EX-32 - EXHIBIT 32 - CEO CERTIFICATION - TOR MINERALS INTERNATIONAL INCceo32-1.htm
EX-31 - EXHIBIT 31 - CFO CERTIFICATION - TOR MINERALS INTERNATIONAL INCcfo31-2.htm
EX-32 - EXHIBIT 32 - CFO CERTIFICATION - TOR MINERALS INTERNATIONAL INCcfo32-2.htm
EX-31 - EXHIBIT 31 - CEO CERTIFICATION - TOR MINERALS INTERNATIONAL INCceo31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - TOR MINERALS INTERNATIONAL INCFinancial_Report.xls

                                                                                                                                                              

 United States
Securities and Exchange Commission

Washington, D. C.  20549

____________________________

FORM 10-Q
____________________________

(Mark One)

ý

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


For the quarterly period ended March 31, 2012

OR

o

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 ý

No o


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 ý

No o

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 o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company ý

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

Yes o

No ý

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, $1.25 par value

Shares Outstanding as of May 3, 2012
2,956,915

                                                                                                                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, 2012 and 2011

3

 Condensed Consolidated Statements of Comprehensive Income --
Three months ended March 31, 2012 and 2011

4

 Condensed Consolidated Balance Sheets --
March 31, 2012 and December 31, 2011

5

 Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 2012 and 2011

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

26

 Part II - Other Information

 Item 4.

 Mine Safety Disclosure

27

 Item 6.

 Exhibits

27

 Signatures

27

Forward Looking Information

Certain portions of this report contain forward-looking statements about the business, financial condition and prospects of TOR Minerals International, Inc. (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,

 

 

2012

 

2011

 NET SALES

 $

12,808 

 $

9,585 

 Cost of sales

9,618 

7,494 

 GROSS MARGIN

 

3,190 

 

2,091 

 Technical services and research and development

82 

66 

 Selling, general and administrative expenses

1,224 

1,159 

 OPERATING INCOME

 

1,884 

 

866 

 OTHER EXPENSE:

 Interest expense

(142)

(96)

 Gain (loss) on foreign currency exchange rate

23 

(48)

 INCOME BEFORE INCOME TAX

 

1,765 

 

722 

 Income tax expense

369 

47 

 NET INCOME 

 $

1,396 

 $

675 

 Less:  Preferred Stock Dividends

15 

 Basic Income Available to Common Shareholders

 $

1,396 

 $

660 

 Plus:  6% Convertible Debenture Interest Expense

22 

22 

 Plus:  Preferred Stock Dividends

15 

 Diluted Income Available to Common Shareholders

 $

1,418 

 $

697 

 

 

 

 

 

 Income per common share:

 Basic

 $

0.58 

 $

0.34 

 Diluted

 $

0.41 

 $

0.22 

 Weighted average common shares outstanding:

 Basic

2,402 

1,941 

 Diluted

3,439 

3,149 

 See accompanying notes.

                                                                                                                3



                                                                                                                                                              

 TOR Minerals International, Inc. and Subsidiaries

 Condensed Consolidated Statements of Comprehensive Income

 (Unaudited)

 (In thousands)

 

 

 Three Months
Ended March 31,

 

 

2012

 

2011

 NET INCOME 

 $

1,396 

 $

675 

 OTHER COMPREHENSIVE INCOME, net of tax

 Currency translation adjustment, net of tax:

 Net foreign currency translation adjustment gain

708 

605 

 Other comprehensive income, net of tax

708 

605 

 COMPREHENSIVE INCOME

 $

2,104 

 $

1,280 

 See accompanying notes.

                                                                                                                4



                                                                                                                                                              

 TOR Minerals International, Inc. and Subsidiaries

 Condensed Consolidated Balance Sheets

 (In thousands, except per share amounts)

 

 March 31,
2012

 

 December 31,
2011

 

 

 (Unaudited)

 

 

 ASSETS

 CURRENT ASSETS:

 Cash and cash equivalents

$

2,886 

$

3,381 

 Trade accounts receivable, net

6,030 

4,921 

 Inventories 

20,697 

18,673 

 Other current assets

992 

832 

 Total current assets

30,605 

27,807 

 PROPERTY, PLANT AND EQUIPMENT, net 

21,403 

20,138 

 OTHER ASSETS

23 

22 

 Total Assets

$

52,031 

$

47,967 

 

 

 

 

 

 LIABILITIES AND SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES:

 Accounts payable

$

3,930 

$

3,222 

 Accrued expenses

3,215 

1,754 

 Notes payable under lines of credit

1,439 

2,886 

 Export credit refinancing facility

2,457 

1,254 

 Current deferred tax liability

50 

46 

 Current maturities - capital leases

93 

28 

 Current maturities of long-term debt – financial institutions

832 

813 

 Current maturities of long-term debt – convertible debentures

91 

91 

 Total current liabilities

12,107 

10,094 

 LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 

 Capital leases

27 

34 

 Long-term debt – financial institutions

2,497 

2,668 

 Long-term debt – convertible debentures, net

1,144 

1,127 

 DEFERRED TAX LIABILITY

637 

619 

 Total liabilities

16,412 

14,542 

 COMMITMENTS AND CONTINGENCIES 

 SHAREHOLDERS' EQUITY: 

Common stock $1.25 par value:  authorized, 6,000 shares;
2,407 and 2,400 shares issued and outstanding
at 3/31/2012 and 12/31/2011, respectively

3,009 

2,999 

 Additional paid-in capital

28,302 

28,222 

 Accumulated deficit

(363)

(1,759)

 Accumulated other comprehensive income:

 Cumulative translation adjustment

4,671 

3,963 

 Total shareholders' equity

35,619 

33,425 

 Total Liabilities and Shareholders' Equity

$

52,031 

$

47,967 

 See accompanying notes.

                                                                                                                5



                                                                                                                                                              

 TOR Minerals International, Inc. and Subsidiaries

 Condensed Consolidated Statements of Cash Flows

 (Unaudited)

 (In thousands)

 

 Three Months Ended March 31,

2012

 

2011

 CASH FLOWS FROM OPERATING ACTIVITIES:

 

 Net Income

 $

1,396 

 $

675 

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

 Depreciation

540 

499 

 Share-based compensation

 Warrant interest expense

17 

17 

 Deferred income taxes

41 

 Changes in working capital:

 Trade accounts receivables

(1,031)

(897)

 Inventories

(1,588)

(290)

 Other current assets

(142)

(186)

 Accounts payable and accrued expenses

2,043 

603 

 Net cash provided by operating activities

1,246 

464 

 CASH FLOWS FROM INVESTING ACTIVITIES:

 

 Additions to property, plant and equipment

(1,315)

(513)

 Net cash used in investing activities

(1,315)

(513)

 CASH FLOWS FROM FINANCING ACTIVITIES:

 

 Payments on lines of credit

(1,543)

(317)

 Net proceeds from (payments on) export credit refinancing facility

1,159 

(235)

 Net proceeds from (payments on) capital leases

57 

(25)

 Payments on long-term bank debt

(204)

(122)

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

83 

534 

 Preferred stock dividends paid

(15)

 Net cash used in financing activities

(448)

(180)

 Effect of exchange rate fluctuations on cash and cash equivalents

22 

66 

 Net decrease in cash and cash equivalents

(495)

(163)

 Cash and cash equivalents at beginning of year

3,381 

2,559 

 Cash and cash equivalents at end of period

 $

2,886 

 $

2,396 

 Supplemental cash flow disclosures:

 

 Interest paid

 $

140 

 $

96 

 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. (“TOR”, “we”, “us”, “our” or the “Company”) 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 consolidated 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, 2011, in our Annual Report on Form 10-K filed with the SEC on March 12, 2012.  Operating results for the three-month period ended March 31, 2012, are not necessarily indicative of the results for the year ending December 31, 2012.

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 $296,000 and $2,000, respectively, and foreign deferred tax expense of approximately $71,000 for the three month period ended March 31, 2012, compared to 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 same three month period in 2011.  Taxes are based on an estimated annualized consolidated effective rate of 20.9% for the year ended December 31, 2012.

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, 2008 through December 31, 2011.  Our state returns, which are filed in Texas and Ohio, are subject to examination for the tax years ended December 31, 2008 through December 31, 2011.  Our tax returns in various non-U.S. jurisdictions are subject to examination for various tax years ended December 31, 2006 through December 31, 2011.

As of January 1, 2012, we did not have any unrecognized tax benefits and there was no change during the three month period ended March 31, 2012.  In addition, we did not recognize any interest and penalties in our consolidated financial statements during the three month period ended March 31, 2012.  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 – Financial Institutions

Following is a summary of our long-term debt to financial institutions:

 (Unaudited)

 (In thousands)

 March 31,

 December 31,

2012

2011

 Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at March 31, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.

 $

1,589 

 $

1,680 

 Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at March 31, 2012, due April 1, 2013, secured by a Caterpillar front-end loader.

29 

35 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at March 31, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€314)

418 

413 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at March 31, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€313)

418 

412 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at March 31, 2012, due July 31, 2015, secured by TPT's assets.  (€146)

195 

205 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at March 31, 2012, due July 5, 2014, secured by TPT's assets.  (€509)

680 

736 

 Total

3,329 

3,481 

 Less current maturities

832 

813 

 Total long-term debt and notes payable - financial institutions

 $

2,497 

 $

2,668 

Six-percent Convertible Subordinated Debentures

As reported in the Company’s Forms 8-K filed with the SEC on May 6, 2009 and August 10, 2009, the Company’s Board of Directors authorized the issuance of its six-percent (6%) convertible subordinated debentures with detachable warrants (the “Debentures”) for the purpose of refinancing, in whole or in part, its debt to the bank and for general corporate purposes.  Under the current authorization, the Company received, $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of which are directors of the Company and another of which is a greater than 5% shareholder.  At March 31, 2012, a balance of $1,450,000 remained outstanding on the Debentures.

On May 3, 2012, the five remaining holders, four of which are directors of the Company and another which is a greater than 5% shareholder, of our six percent (6%) Convertible Subordinated Debentures due May 4, 2016 converted their Debentures, and the Company issued 547,172 shares of Common Stock upon conversion of the Debenture.

                                                                                                                8



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

 

Short-term Debt

US Operations

On December 31, 2010, the Company entered into a U.S. credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”) which matures July 1, 2012.  On March 1, 2012, the Company entered into the first amendment to the Agreement with the Lender which increased the Line from $1,000,000 to $2,000,000 and extended the maturity date from July 1, 2012 to October 15, 2013.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a borrowing base, which is based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the line 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, 2012, 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, 2012, the ratio of cash flow to debt service was 7.05 to 1.0.

Netherlands Operations

On March 20, 2007, our subsidiary, TOR Processing and Trade, B.V. (“TPT”), entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 3.769%), is secured by TPT’s accounts receivable and inventory.  At March 31, 2012, TPT had utilized €944,000 ($1,260,000) 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 June 27, 2011, our subsidiary, TOR Minerals Malaysia, Sdn. Bhd. (“TMM”), amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2011 to April 30, 2012.  TMM is currently negotiating an extension to the maturity date with HSBC.  The HSBC facility includes the following in Malaysian Ringgits (“RM”):  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($163,000, $2,110,000 and $1,633,000, respectively).

On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 30, 2012.  TMM is currently negotiating an extension to the maturity date with RHB.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($326,000, $3,037,000, $392,000 and $8,164,000, respectively).  At March 31, 2012, the outstanding balance on the line of credit was RM 550,000 ($179,000) at a current interest rate of 4.24%

                                                                                                                9



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

 

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, 2012, the outstanding balance on the ECR facilities was RM 7,525,000 ($2,457,000) at a current interest rate of 4.98%.

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.

Note 3.

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, 2012 and 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, 2012 or March 31, 2011.

 

 March 31, 2012

 (In thousands)

 Balance at
March 31, 2012

 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)

 $

 $

 $

 $

 

 

 

 

 

 

 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)

 $

 $

 $

 $

                                                                                                                10



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

 

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, 2012

 

December 31, 2011

 (In thousands)

 

 Carrying
Value

 

 Fair
Value

 

 Carrying
Value

 

 Fair
Value

 Long-term debt, including current portion

$

3,329 

$

3,246 

$

3,481 

 $

3,391 

 Long-term debt – convertible debentures

1,450 

1,446 

1,450 

1,436 

$

4,779 

$

4,692 

$

4,931 

 $

4,827 

The carrying amounts reported in the consolidated 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.

Note 4.

Capital Leases

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 consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at March 31, 2012 was approximately $17,000.  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, 2012 was $5,000.

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, 2012 was approximately $13,000.  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, 2012 was $9,000.

On September 4, 2011, TPT entered into a financial lease agreement with Diependael Leasing, BV for equipment related to the production of ALUPREM.  The cost of the equipment under the capital lease, in the amount of €38,360, is included in the consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at March 31, 2012 was approximately €6,000.  The capital lease is in the amount of €41,256 including interest of €2,896 (implicit interest rate 4.786%).  The lease term is 36 months with equal monthly installments of €1,146 ($1,529).  The net present value of the lease at March 31, 2012 was €31,325 ($42,000).

On February 5, 2012, TPT entered into a financial lease agreement with Sympatec GmbH for lab equipment.  The cost of the equipment under the capital lease, in the amount of €52,128, is included in the consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at March 31, 2012 was not significant.  The capital lease is in the amount of €56,988 including interest of €4,860 (implicit interest rate 16.785%).  The lease term is 12 months with equal monthly installments of €4,749 ($6,377).  The net present value of the lease at March 31, 2012 was €48,108 ($64,000).

                                                                                                                11



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

 

Note 5.

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,

2012

 

2011

 Numerator:

 Net Income

 $

1,396 

 $

675 

 Preferred Stock Dividends

(15)

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

1,396 

660 

 Effect of dilutive securities:

 6% Convertible Debenture Interest Expense

22 

22 

 Preferred Stock Dividends

15 

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

 $

1,418 

 $

697 

 Denominator:

 Denominator for basic income per share -
weighted-average shares

2,402 

1,941 

 Effect of dilutive securities:

 Employee stock options

36 

46 

 Detachable warrants

454 

495 

 6% Convertible Debenture

547 

556 

 Preferred Stock

111 

 Dilutive potential common shares

1,037 

1,208 

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

3,439 

3,149 

 Basic income per common share

 $

0.58 

 $

0.34 

 Diluted income per common share

 $

0.41 

 $

0.22 

For the three month periods ended March 31, 2012 and 2011, approximately 24,000 and 53,000, 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 6.

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, 2012

 Net Sales:

 Customer sales

 $

8,539 

 $

2,187 

 $

2,082 

 $

 $

12,808 

 Intercompany sales

41 

1,604 

4,263 

(5,908)

 Total Net Sales

 $

8,580 

 $

3,791 

 $

6,345 

 $

(5,908)

 $

12,808 

 Location profit

 $

885 

 $

257 

 $

387 

 $

(133)

 $

1,396 

 Location assets

 $

19,729 

 $

10,811 

 $

21,491 

 $

 $

52,031 

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 

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 a subsidiary to the U.S. 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 7.

Stock Options and Equity Compensation Plan

For the three month periods ended March 31, 2012 and 2011, the Company recorded stock-based employee compensation expense of approximately $6,000 and $2,000, respectively.  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, 2012.

As of March 31, 2012, there was approximately $146,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 3.83 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 8.

Inventories

A summary of inventory follows:

 (In thousands)

 

 

 

 March 31,

 

 December 31,

 

 

 

2012

 

2011

 Raw materials

 $

13,321 

 $

13,170 

 Work in progress

2,990 

1,709 

 Finished goods

3,856 

3,254 

 Supplies

824 

804 

 Total Inventories

20,991 

18,937 

 Inventory reserve

(294)

(264)

 Net Inventories

 $

20,697 

 $

18,673 



Note 9.



Derivatives and Other Financial Instruments

 

We have exposure to certain risks relating to our 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.  hawse have 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, 2012, we marked these contracts to market, recording a net expense of approximately $7,000, as a component of our year to date net income and as a current liability on the consolidated balance sheet.  At March 31, 2011, we marked these contracts to market, recording an 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. 

                                                                                                                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

 

2012

 

2011

 Foreign Currency Exchange Contracts

 Other Current Assets

 $

 $

16 

 

 

 

 $

 $

16 

 

 

 

 

 

 

 

 Liability Derivatives

 

 

 March 31,

 

 December 31,

 Derivative Instrument

 

 Location

 

2012

 

2011

 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, 2012 and 2011:


 

 

 

 Amount of (Loss) Gain Recognized in Income
(In thousands)

 

 Location of (Loss)

 

 Three Months Ended

 Derivative

 

 Gain on Derivative

 

 March 31,

 Instrument

 

 Instrument

 

2012

 

2011

 Foreign Currency
   Exchange Contracts

 Other Expense:  Loss on foreign currency exchange rate 

$

(7)

$

(3)

                                                                                                                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 United States, Asia and Europe.

Our U.S. 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 U.S. 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, 2012 and 2011.

 (Unaudited)

 (In thousands, except per share amounts)

 

 Three Months
Ended March 31,

 

 

2012

 

2011

 NET SALES

$

12,808 

$

9,585 

 Cost of sales

9,618 

7,494 

 GROSS MARGIN

 

3,190 

 

2,091 

 Technical services and research and development

82 

66 

 Selling, general and administrative expenses

1,224 

1,159 

 OPERATING INCOME

 

1,884 

 

866 

 OTHER EXPENSE:

 Interest expense

(142)

(96)

 Gain (loss) on foreign currency exchange rate

23 

(48)

 INCOME BEFORE INCOME TAX

 

1,765 

 

722 

 Income tax expense

369 

47 

 NET INCOME 

$

1,396 

$

675 

 

 

 

 

 

 Income per common share:

 Basic

$

0.58 

$

0.34 

 Diluted

$

0.41 

$

0.22 

                                                                                                                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, 2012 increased approximately $3,223,000 or 34% as compared to the first quarter 2011.  The quarterly increase consists of an increase in volume and selling price of 13% and 21%, respectively.  This compares to an increase of approximately $2,729,000 or 40% during the first quarter 2011 consisting of an increase in volume and selling price of 35% and 5%, respectively.

Following is a summary of our consolidated products sales for the three month periods ended March 31, 2012 and 2011 (in thousands).  All inter-company sales have been eliminated.

 (Unaudited)

 Three Months Ended March 31,

 Product

2012

2011

Variance

 HITOX

 $

5,368 

42%

 $

4,050 

42%

 $

1,318 

33%

 ALUPREM

4,168 

33%

3,379 

36%

789 

23%

 BARTEX

1,439 

11%

894 

9%

545 

61%

 HALTEX

878 

7%

763 

8%

115 

15%

 TIOPREM

336 

3%

404 

4%

(68)

-17%

 SYNTHETIC RUTILE

431 

3%

0%

431 

   -

 OTHER

188 

1%

95 

1%

93 

98%

 Total

 $

12,808 

100%

 $

9,585 

100%

 $

3,223 

34%

HITOX sales increased 33% for the three month period ended March 31, 2012 primarily related to a global increase in the average selling price of approximately 43%.  Increased selling prices were partially offset by a reduction in volume of approximately 10% primarily related to a reduction in Asia.  This compares to an increase in HITOX sales of 40% during the three month period ended March 31, 2011, which was primarily due to an increase in global volume related to the stabilization and recovery in the paint and plastics end markets, as well as a tight supply of commodity titanium dioxide (“TiO2”) resulting in an increase in volume and average selling price of 28% and 12%, respectively.

ALUPREM sales increased 23% during the first quarter of 2012 primarily due to an increase in volume of a significant U.S. customer, which was partially offset by a decrease in volume in European sales as this business is being affected by the slowdown in the European economy.  This compares to an increase of 42% during the first three months of 2011 which was primarily due to a change in the order pattern of a significant U.S. customer, as well as a 29% increase in European sales during first quarter 2011.

BARTEX sales increased approximately 61% during the first three months of 2012 primarily due to an increase in volume and selling price of approximately 52% and 9%, respectively.  During the first quarter of 2011, BARTEX sales increased 6%, of which approximately 3% represented an increase in volume and 3% an increase in selling price.

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 2012 and 2011, HALTEX sales increased 15% and 47%, respectively.

TIOPREM sales decreased 17% during the three month period ended March 31, 2012 primarily due to a decrease in volume which was partially offset by an increase in selling price.  This compares to an increase during the first quarter 2011 of 425% as the product began to gain greater acceptance in the marketplace.

Synthetic Rutile (“SR”) sales represented 3% of the overall sales for the three month period ended March 31, 2012.  With the strong market demand, we are optimistic that the sale of available SR to third parties will continue in the future.

 

                                                                                                                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, 2012 and 2011 (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

2012

2011

Variance

 HITOX

 $

3,396 

40%

 $

2,254 

42%

 $

1,142 

51%

 ALUPREM

2,431 

29%

1,190 

22%

1,241 

104%

 BARTEX

1,439 

17%

894 

17%

545 

61%

 HALTEX

878 

10%

763 

14%

115 

15%

 TIOPREM

211 

2%

186 

4%

25 

13%

 OTHER

184 

2%

81 

1%

103 

127%

 Total

 $

8,539 

100%

 $

5,368 

100%

 $

3,171 

59%

  • HITOX sales in increased 51% for the three month period ended March 31, 2012 primarily due to an increase in selling price and volume of 48% and 3%, respectively.  Sales in the U.S., Canada and Mexico increased 46%, 132%, 220%, respectively, and South America sales were down 38% as compared to the same period of 2011.  During the first quarter 2011, HITOX sales in the U.S. trailed the first quarter of 2010 year by 4%; however, sales in Canada, Mexico and South America increased 43%, 115% and 99%, respectively, resulting in a net increase of 12% for the quarter of which approximately 9% represented an increase in selling price and 3% an increase in volume.
  • ALUPREM sales during the first quarter 2012 increased 104% as compared to an increase of 73% for the same three month period of 2011.  The year over year increases are primarily due to an increase in volume of a significant customer.
  • TIOPREM sales during the first quarter 2012 increased 13% as compared to an increase of 100% for the same three month period of 2011.  The current period increase consisted of an increase in selling price of 34% which was offset by a decrease in volume of 21%, whereas, the increase in the first quarter 2011 was related solely to an increase in volume.

 

                                                                                                                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 U.S. 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, 2012 and 2011 to third party customers.  All inter-company sales have been eliminated.

 (Unaudited)

 Three Months Ended March 31,

 Product

2012

2011

Variance

 ALUPREM

 $

1,737 

79%

 $

2,189 

84%

 $

(452)

-21%

 HITOX

437 

20%

363 

14%

74 

20%

 TIOPREM

13 

1%

65 

2%

(52)

-80%

 Total

 $

2,187 

100%

 $

2,617 

100%

 $

(430)

-16%

  • ALUPREM sales in Europe decreased 21% during the first three months of 2012 primarily due to a reduction in volume of approximately 24% which was partially offset by an increase in selling price of approximately 2% and the positive impact of the foreign currency exchange fluctuations of 1%.  This compares to an increase of 29% during the first quarter of 2011 which was related to an increase in volume and selling price of 21% and 9%, respectively, and the negative impact of the foreign currency exchange fluctuations of 1%.
  • HITOX sales in Europe increased approximately 20% during the three month period ended March 31, 2012, of which approximately 33% related to an increase in the selling price offset by a decrease in volume of 13%.  This compares to an increase of 68% during the first three months of 2011 which consist of an increase in volume and selling price of 40% and 29%, respectively, and the negative impact of the foreign currency exchange rate fluctuations of 1%.
  • TIOPREM sales during the first quarter 2012 increased 80% as compared to an increase of 100% for the same three month period of 2011 primarily due to a slow-down in the European market.

                                                                                                                19



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

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, 2012 and 2011 to third party customers.  All inter-company sales have been eliminated.

 (Unaudited)

 Three Months Ended March 31,

 Product

2012

2011

Variance

 HITOX

 $

1,535 

74%

 $

1,433 

90%

 $

102 

7%

 TIOPREM

112 

5%

153 

9%

(41)

-27%

 SYNTHETIC RUTILE

431 

21%

0%

431 

   -

 OTHER

<1%

14 

1%

(10)

-71%

 Total

 $

2,082 

100%

 $

1,600 

100%

 $

482 

30%

  • HITOX sales in Asia increased 7% during the three month period ended March 31, 2012 primarily related to an increase in selling price of 38% which was partially offset by a decrease in volume of 31%.  For the first three months of 2011, respectively, HITOX sales increased 114%, of which volume and selling price represented an increase of 113% and 1%.
  • TIOPREM sales during the first quarter 2012 decreased 27% as compared to an increase of 100% for the same three month period of 2011.  The current period decrease consisted of an decrease in volume of 42% which was offset by a increase in selling price of 15%, whereas, the increase in the first quarter 2011 was related solely to an increase in volume.
  • SR sales represented 21% of TMM’s sales for the three month period ended March 31, 2012.  With the strong market demand, we are optimistic that the sale of available SR to third parties will continue in the future.

 

                                                                                                                20



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

Other Consolidated Results

Gross Margin:  The following table represents our net sales, cost of sales and gross margin for the three month periods ended March 31, 2012 and 2011.

 (Unaudited)

 (In thousands)

 

 Three Months
Ended March 31,

 

 

2012

 

2011

 NET SALES

 $

12,808 

 $

9,585 

 Cost of sales

9,618 

7,494 

 GROSS MARGIN

 

3,190 

 

2,091 

 GROSS MARGIN %

24.9 %

21.8 %

For the three month period ended March 31, 2012, gross margin increased 3.1% from 21.8% in 2011 to 24.9% in 2012.  The primary factors affecting the first quarter 2012 gross margin include an increase in selling price of 15.7% which was partially offset by an increase in raw material and energy costs of 6.4% and maintenance/production costs of 4.9%.

Selling, General, Administrative and Expenses (“SG&A”):  For the three month period ended March 31, 2012, SG&A expenses increased 6.6% as compared to the same quarter in 2011 primarily due to an increase in selling expenses of 39.3% and professional fees and services of 51.4% which were partially offset by a decrease in salaries of 7.4%.

Interest Expense:  Net interest expense increased approximately $46,000 for the first quarter 2012 as compared to the same period of 2011 primarily due to an increase in short-term financing.  This follows a decrease in interest expense during the first quarter of 2011 of approximately $25,000 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 $296,000 and $2,000, respectively, and foreign deferred tax expense of approximately $71,000 for the three month period ended March 31, 2012, compared to 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 same three month period in 2011.  Taxes are based on an estimated annualized consolidated effective rate of 20.9% for the year ended December 31, 2012.

                                                                                                                21



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 – Financial Institutions

Following is a summary of our long-term debt to financial institutions:

 (Unaudited)

 (In thousands)

 March 31,

 December 31,

2012

2011

 Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at March 31, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.

 $

1,589 

 $

1,680 

 Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at March 31, 2012, due April 1, 2013, secured by a Caterpillar front-end loader.

29 

35 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at March 31, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€314)

418 

413 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at March 31, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€313)

418 

412 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at March 31, 2012, due July 31, 2015, secured by TPT's assets.  (€146)

195 

205 

 Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at March 31, 2012, due July 5, 2014, secured by TPT's assets.  (€509)

680 

736 

 Total

3,329 

3,481 

 Less current maturities

832 

813 

 Total long-term debt and notes payable - financial institutions

 $

2,497 

 $

2,668 

Six-percent Convertible Subordinated Debentures

As reported in the Company’s Forms 8-K filed with the SEC on May 6, 2009 and August 10, 2009, the Company’s Board of Directors authorized the issuance of its six-percent (6%) convertible subordinated debentures with detachable warrants (the “Debentures”) for the purpose of refinancing, in whole or in part, its debt to the bank and for general corporate purposes.  Under the current authorization, the Company received, $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of which are directors of the Company and another of which is a greater than 5% shareholder.  At March 31, 2012, a balance of $1,450,000 remained outstanding on the Debentures.

On May 3, 2012, the five remaining holders, four of which are directors of the Company and another which is a greater than 5% shareholder, of our six percent (6%) Convertible Subordinated Debentures due May 4, 2016 converted their Debentures, and the Company issued 547,172 shares of Common Stock upon conversion of the Debenture.

                                                                                                                22



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

Short-term Debt

US Operations

On December 31, 2010, the Company entered into a U.S. credit agreement (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”) which matures July 1, 2012.  On March 1, 2012, the Company entered into the first amendment to the Agreement the Lender which increased the Line from $1,000,000 to $2,000,000 and extended the maturity date from July 1, 2012 to October 15, 2013.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a borrowing base, which is based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company.  Amounts advanced under the line 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, 2012, 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, 2012, the ratio of cash flow to debt service was 7.05 to 1.0.

Netherlands Operations

On March 20, 2007, our subsidiary, TOR Processing and Trade, B.V. (“TPT”), entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 3.769%), is secured by TPT’s accounts receivable and inventory.  At March 31, 2012, TPT had utilized €944,000 ($1,260,000) 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 June 27, 2011, our subsidiary, TOR Minerals Malaysia, Sdn. Bhd (“TMM”), amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2011 to April 30, 2012.  TMM is currently negotiating an extenstion to the maturity date with HSBC.  The HSBC facility includes the following in Malaysian Ringgits (“RM”):  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($163,000, $2,110,000 and $1,633,000, respectively).

On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 30, 2012.  TMM is currently negotiating an extension to the maturity date with RHB.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($326,000, $3,037,000, $392,000 and $8,164,000, respectively).  At March 31, 2012, the outstanding balance on the line of credit was RM 550,000 ($179,000) at a current interest rate of 4.24%

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, 2012, the outstanding balance on the ECR facilities was RM 7,525,000 ($2,457,000) at a current interest rate of 4.98%.

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

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.

Cash and Cash Equivalents

As noted on the following table, cash and cash equivalents decreased $495,000 from December 31, 2011 to March 31, 2012 as compared to a decrease of $163,000 from December 31, 2010 to March 31, 2011.

 (Unaudited)

 Three Months Ended March 31,

 (In thousands)

 

2012

 

2011

 Net cash provided by (used in)

 Operating activities

 $

1,246 

 $

464 

 Investing activities

(1,315)

(513)

 Financing activities

(448)

(180)

 Effect of exchange rate fluctuations

22 

66 

 Net decrease in cash and cash equivalents

 $

(495)

 $

(163)

Operating Activities

Operating activities provided $1,246,000 and $464,000 during the first three months of 2012 and 2011, respectively.  Following are the major changes in working capital affecting cash provided by operating activities for the three month periods ended March 31, 2012 and 2011:

  • Accounts Receivable:  Accounts receivable increased $1,031,000 during the first three months of 2012.  The increase is primarily due to stronger sales in the first quarter 2012 as compared to the fourth quarter of 2011.  Accounts receivable increased $837,000 and $376,000 at the Corpus Christi operation and at TMM, respectively; and decreased $182,000 at TPT.  During the first quarter of 2011, accounts receivable increased $897,000 primarily due to stronger sales in the first quarter 2011 at each of the Company’s three operations.  Accounts receivable increased $148,000 at the Corpus Christi operation and $187,000 and $562,000 at TPT and TMM, respectively.
  • Inventories: Inventories increased $1,588,000 during the three month period ended March 31, 2012 primarily due to an increase in raw materials and finished goods at the Corpus Christi operation of approximately $1,824,000.  Inventory at TPT increased $226,000 and decreased $462,000 at TMM.  For the same three month period of 2011, inventories increased $290,000 primarily due to an increase in finished goods at the Corpus Christi operation of approximately $617,000.  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 $142,000 during the first quarter 2012 primarily due to a raw material deposit paid by TMM of $112,000.  TPT’s increased approximately $69,000 and the other current assets at the Corpus Christi operation decreased $39,000.  Other current assets increased $186,000 during the same three month period of 2011.  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.

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

  • Accounts Payable and Accrued Expenses:  Trade accounts receivable and accrued expenses increased $2,043,000 during the first three months of 2012 primarily relate to purchases of ilmenite and fuel oil at TMM which account for approximately $1,083,000 of the three month increase.  Accounts payable and accrued expenses at the Corpus Christi operation increased $475,000 and TPT’s increased $485,000.  Trade accounts payable and accrued expenses increased $603,000 during the first quarter of 2011.  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 $1,315,000 in investing activities during the first three months of 2012 primarily for the purchase of fixed assets as compared to $513,000 during the same period 2011.  Net investments for each of our three locations are as follows:

  • Corpus Christi Operation:  We invested approximately $483,000 primarily related to production equipment, as compared to $98,000 for the same period in 2011 related to capital maintenance and computer equipment
  • Netherlands Operation:  We invested approximately $517,000 at TPT for production equipment, as compared to $408,000 for production equipment during the same period in 2011.
  • Malaysian Operation:  We invested approximately $315,000 at TMM for new equipment related to the production of SR, as compared to $7,000 for the same period in 2011.

Financing Activities

We used $448,000 in financing activities during the three month period ended March 31, 2012 as compared to $180,000 for the same period 2011.  Significant factors relating to financing activities include the following:

  • Lines of Credit:  We did not utilize the Line during either of the three month periods ended March 31, 2012 or 2011.  Borrowings on TPT’s line of credit increased $534,000 as compared to a decrease of $317,000 for the same period in 2011.  TMM’s line of credit decreased $2,077,000 during the three month period ended March 31, 2012 and was not utilized during the first three months of 2011.
  • Export Credit Refinancing Facility (ECR):  TMM’s borrowings on the ECR increased $1,159,000 during the three month period ended March 31, 2012 and decreased $235,000 during the same three month period of 2011.
  • Capital Leases:  Capital leases increased $57,000 during the first quarter of 2012 primarily related to a new leases at TPT resulting in an increase at TPT of $60,000.  Capital leases decreased $3,000 at the Corpus Christi operation.  During the first quarter of 2011, Capital leases decreased approximately $25,000 related to lease payments at both the Corpus Christi operation and at TPT.
  • Long-term Debt – Financial Institutions:  Long-term debt decreased $204,000 for the three month period ended March 31, 2012.  At the Corpus Christi operation, long-term debt decreased $97,000 and $107,000 at TPT.  Long-term debt decreased $122,000 for the same three month period of 2011.  At the Corpus Christi operation, long-term debt decreased $65,000; at TPT $31,000 and at TMM $26,000.
  • Proceeds from the Issuance of Common Stock:  During the first quarter of 2012, we received $83,000 related to the exercise of stock options.  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; however, no dividends were paid during the first quarter of 2012 as the outstand Series A convertible preferred stock was converted to common stock during 2011.

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

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 2011 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 have materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

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Part II  -  Other Information

Item 4.

Mine Safety Disclosures

As we are not the operator of a coal mine or other mine, Item 4, Mine Safety Disclosure, is not applicable.

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 3, 2012

OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer

Date:

May 3, 2012

BARBARA RUSSELL
Barbara Russell
Chief Financial Officer

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