United States |
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(Mark One) |
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ý |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Delaware |
74-2081929 |
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722 Burleson Street, Corpus Christi, Texas 78402 |
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(361) 883-5591 |
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Yes ý |
No o |
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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). |
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Yes ý |
No o |
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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. |
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Large accelerated filer o |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company ý |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
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Yes o |
No ý |
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Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. |
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Class |
Shares Outstanding as of July 31, 2011 |
Table of Contents |
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Part I - Financial Information |
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Page No. |
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Item 1. |
Condensed Consolidated Financial Statements |
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Condensed Consolidated
Statements of Income -- |
3 |
||
Condensed Consolidated
Statements of Comprehensive Income -- |
4 |
||
Condensed Consolidated
Balance Sheets -- |
5 |
||
Condensed Consolidated
Statements of Cash Flows -- |
6 |
||
Notes to the Condensed Consolidated Financial Statements |
7 |
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Item 2. |
Management's Discussion and
Analysis of Financial Condition |
16 |
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Item 4. |
Controls and Procedures |
24 |
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Part II - Other Information |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
25 |
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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 Titanium dioxide 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.
TOR Minerals International, Inc. and Subsidiaries |
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Condensed Consolidated Statements of Income |
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(Unaudited) |
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(In thousands, except per share amounts) |
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|
|
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|
Three Months |
|
Six Months |
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|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
NET SALES |
$ |
10,489 |
$ |
7,928 |
$ |
20,074 |
$ |
14,784 |
Cost of sales |
8,183 |
6,325 |
15,677 |
11,531 |
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GROSS MARGIN |
|
2,306 |
|
1,603 |
|
4,397 |
|
3,253 |
Technical services and research and development |
66 |
61 |
132 |
118 |
||||
Selling, general and administrative expenses |
1,065 |
971 |
2,224 |
1,820 |
||||
OPERATING INCOME |
|
1,175 |
|
571 |
|
2,041 |
|
1,315 |
OTHER EXPENSE: |
||||||||
Interest expense |
(101) |
(112) |
(197) |
(233) |
||||
(Loss) gain on foreign currency exchange rate |
(9) |
34 |
(57) |
6 |
||||
Other, net |
7 |
- |
7 |
- |
||||
INCOME BEFORE INCOME TAX |
|
1,072 |
|
493 |
|
1,794 |
|
1,088 |
Income tax expense |
91 |
23 |
138 |
34 |
||||
NET INCOME |
$ |
981 |
$ |
470 |
$ |
1,656 |
$ |
1,054 |
Less: Preferred Stock Dividends |
- |
15 |
15 |
30 |
||||
Basic Income Available to Common Shareholders |
$ |
981 |
$ |
455 |
$ |
1,641 |
$ |
1,024 |
Plus: 6% Convertible Debenture Interest Expense |
22 |
23 |
44 |
45 |
||||
Plus: Preferred Stock Dividends |
- |
- |
15 |
- |
||||
Diluted Income Available to Common Shareholders |
$ |
1,003 |
$ |
478 |
$ |
1,700 |
$ |
1,069 |
|
|
|
|
|
|
|
|
|
Income per common share: |
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Basic |
$ |
0.47 |
$ |
0.24 |
$ |
0.81 |
$ |
0.54 |
Diluted |
$ |
0.30 |
$ |
0.17 |
$ |
0.53 |
$ |
0.39 |
Weighted average common shares outstanding: |
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Basic |
2,091 |
1,897 |
2,017 |
1,894 |
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Diluted |
3,293 |
2,813 |
3,216 |
2,712 |
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See accompanying notes. |
TOR Minerals International, Inc. and Subsidiaries |
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Condensed Consolidated Statements of Comprehensive Income |
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(Unaudited) |
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(In thousands) |
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|
|
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|
Three Months |
|
Six Months |
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|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
NET INCOME |
$ |
981 |
$ |
470 |
$ |
1,656 |
$ |
1,054 |
OTHER COMPREHENSIVE INCOME, net of tax |
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Currency translation adjustment, net of tax: |
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Net foreign currency translation adjustment gain (loss) |
154 |
(325) |
759 |
90 |
||||
Other comprehensive income (loss), net of tax |
154 |
(325) |
759 |
90 |
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COMPREHENSIVE INCOME |
$ |
1,135 |
$ |
145 |
$ |
2,415 |
$ |
1,144 |
See accompanying notes. |
TOR Minerals
International, Inc. and Subsidiaries |
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|
June 30, |
|
December 31, |
|
|
|
(Unaudited) |
|
|
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ |
2,294 |
$ |
2,559 |
Trade accounts receivable, net |
5,430 |
3,888 |
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Inventories |
15,230 |
11,021 |
||
Other current assets |
867 |
728 |
||
Total current assets |
23,821 |
18,196 |
||
PROPERTY, PLANT AND EQUIPMENT, net |
20,484 |
18,952 |
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OTHER ASSETS |
24 |
23 |
||
Total Assets |
$ |
44,329 |
$ |
37,171 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
$ |
4,409 |
$ |
2,544 |
Accrued expenses |
2,948 |
1,436 |
||
Notes payable under lines of credit |
1,257 |
783 |
||
Export credit refinancing facility |
543 |
264 |
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Current deferred tax liability |
60 |
64 |
||
Current maturities - capital leases |
12 |
46 |
||
Current maturities of long-term debt – financial institutions |
506 |
533 |
||
Total current liabilities |
9,735 |
5,670 |
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LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES |
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Capital leases |
11 |
18 |
||
Long-term debt – financial institutions |
2,722 |
2,847 |
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Long-term debt – convertible debentures, net |
1,184 |
1,176 |
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DEFERRED TAX LIABILITY |
721 |
582 |
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Total liabilities |
14,373 |
10,293 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' EQUITY: |
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Series
A 6% convertible preferred stock $.01 par value: |
- |
2 |
||
Common
stock $1.25 par value: authorized, 6,000 shares; |
2,652 |
2,416 |
||
Additional paid-in capital |
25,807 |
25,363 |
||
Accumulated deficit |
(3,938) |
(5,579) |
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Accumulated other comprehensive income: |
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Cumulative translation adjustment |
5,435 |
4,676 |
||
Total shareholders' equity |
29,956 |
26,878 |
||
Total Liabilities and Shareholders' Equity |
$ |
44,329 |
$ |
37,171 |
|
TOR Minerals International, Inc. and Subsidiaries |
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Six Months Ended June 30, |
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2011 |
|
2010 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|||
Net Income |
$ |
1,656 |
$ |
1,054 |
Adjustments to reconcile net income to net cash |
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Depreciation |
1,015 |
937 |
||
Share-based compensation |
46 |
91 |
||
Warrant interest expense |
34 |
33 |
||
Deferred income taxes |
126 |
24 |
||
Changes in working capital: |
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Trade accounts receivables |
(1,427) |
(886) |
||
Inventories |
(4,028) |
(1,604) |
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Other current assets |
(112) |
(165) |
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Accounts payable and accrued expenses |
3,254 |
1,883 |
||
Net cash provided by operating activities |
564 |
1,367 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|||
Additions to property, plant and equipment |
(1,874) |
(420) |
||
Proceeds from sales of property, plant and equipment |
- |
17 |
||
Net cash used in investing activities |
(1,874) |
(403) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
|
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Net proceeds from (payments on) lines of credit |
407 |
(1,675) |
||
Net proceeds from export credit refinancing facility |
274 |
1,031 |
||
Payments on capital lease |
(43) |
(75) |
||
Payments on long-term bank debt |
(262) |
(292) |
||
Proceeds from the issuance of common stock, |
606 |
48 |
||
Preferred stock dividends paid |
(30) |
(30) |
||
Net cash provided by (used in) financing activities |
952 |
(993) |
||
Effect of exchange rate fluctuations on cash and cash equivalents |
93 |
11 |
||
Net decrease in cash and cash equivalents |
(265) |
(18) |
||
Cash and cash equivalents at beginning of year |
2,559 |
1,002 |
||
Cash and cash equivalents at end of period |
$ |
2,294 |
$ |
984 |
Supplemental cash flow disclosures: |
|
|||
Interest paid |
$ |
197 |
$ |
233 |
Income taxes paid |
$ |
- |
$ |
10 |
Non-cash financing activities: |
|
|||
Conversion of debentures |
$ |
25 |
$ |
- |
See accompanying notes. |
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 and six month periods ended June 30, 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.
For the three and six month periods ended June 30, 2011, income tax expense consisted of federal income tax expense of $6,000 and $11,000, respectively; state income tax expense of $2,000 and $3,000, respectively; and foreign deferred tax expense of $83,000 and $124,000, respectively. For the three and six month periods ended June 30, 2010, income tax expense consisted of federal income tax expense of $12,000; state income tax expense of $4,000 and $5,000, respectively; and foreign deferred tax expense of $7,000 and $17,000, respectively. Taxes are based on an estimated annualized consolidated effective rate of 7.7% 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, 2006 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 six month period ended June 30, 2011. In addition, we did not recognize any interest and penalties in our consolidated financial statements during the six month period ended June 30, 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.
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) |
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(In thousands) |
June 30, |
December 31, |
||
2011 |
2010 |
|||
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at June 30, 2011, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our US operation. |
$ |
1,856 |
$ |
2,000 |
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at June 30, 2011, due April 1, 2013, secured by a Caterpillar front-end loader. |
48 |
60 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at June 30, 2011, due July 1, 2029, secured by TPT's land and office building purchased July 2004. (€352) |
512 |
485 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at June 30, 2011, due January 31, 2030, secured by TPT's land and building purchased January 2005. (€351) |
510 |
482 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at June 30, 2011, due July 31, 2015, secured by TPT's assets. (€208) |
302 |
312 |
||
U.S. Dollar term note payable to a Malaysian bank which matured May 30, 2011. |
- |
41 |
||
Total |
3,228 |
3,380 |
||
Less current maturities |
506 |
533 |
||
Total long-term debt and notes payable - financial institutions |
$ |
2,722 |
$ |
2,847 |
On July 5, 2011, TOR Processing and Trade, B.V. (“TPT”), entered into a three year term loan in the amount of €700,000 ($1,016,000) with a fixed interest rate of 4.25%. The loan proceeds will be used to fund the plant expansion and is secured by TPT’s assets. Monthly principal and interest payments will begin on August 5, 2011 and continue through July 5, 2014. As this transaction was a subsequent event, it is excluded from the above table.
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 June 30, 2011, a balance of $1,450,000 remained outstanding on the Debentures.
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 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 June 30, 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 June 30, 2011, the ratio of cash flow to debt service was 2.97 to 1.0.
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 4.328%), is secured by TPT’s accounts receivable and inventory. At June 30, 2011, TPT had utilized €866,000 ($1,257,000) 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, the Company’s 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. 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 ($165,000, $2,137,000 and $1,654,000, respectively).
On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 4, 2012. 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 ($330,000, $3,077,000, $397,000 and $8,272,000, 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 June 30, 2011, the outstanding balance on the ECR facilities was RM 1,642,000 ($543,000) 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.
TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Note 3. |
Series A Convertible Preferred Stock Dividend |
On June 6, 2011, the Company declared a dividend, in the amount of $375 or $0.075 per share, for the quarterly period ended June 30, 2010, payable on July 1, 2011, to the holders of record of the Series A Convertible Preferred Stock as of the close of business on June 5, 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 June 30, 2011. The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at June 30, 2011.
|
June 30, 2011 |
|||||||
(In thousands) |
Balance at |
Quoted Prices in Active |
Significant Other Observable Inputs |
Significant |
||||
Liability for foreign
currency |
$ |
12 |
$ |
- |
$ |
12 |
$ |
- |
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:
|
June 30, 2011 |
|
December 31, 2010 |
|||||
(In thousands) |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
Long-term debt, including current portion |
$ |
3,228 |
$ |
3,136 |
$ |
3,380 |
$ |
3,286 |
Long-term debt – convertible debentures |
1,450 |
1,417 |
1,475 |
1,424 |
||||
$ |
4,678 |
$ |
4,553 |
$ |
4,855 |
$ |
4,710 |
The carrying amounts reported in the balance sheet for cash and cash equivalents, trade receivables, payables and accrued liabilities 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.
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 June 30, 2011 was approximately €168,000 ($244,000). Amortization of assets under capital leases is included in depreciation expense. The capital lease matured May 27, 2011.
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 June 30, 2011 was approximately $14,000. 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 June 30, 2011 was approximately $10,000.
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 June 30, 2011 was approximately $7,000. 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 June 30, 2011 was approximately $14,000.
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 |
Six Months |
||||||
2011 |
|
2010 |
2011 |
|
2010 |
|||
Numerator: |
||||||||
Net Income |
$ |
981 |
$ |
470 |
$ |
1,656 |
$ |
1,054 |
Preferred Stock Dividends |
- |
(15) |
(15) |
(30) |
||||
Numerator for basic earnings per share - |
981 |
455 |
1,641 |
1,024 |
||||
Effect of dilutive securities: |
||||||||
6% Convertible Debenture Interest Expense |
22 |
23 |
44 |
45 |
||||
Preferred Stock Dividends |
- |
- |
15 |
- |
||||
Numerator for
diluted income per share - |
$ |
1,003 |
$ |
478 |
$ |
1,700 |
$ |
1,069 |
Denominator: |
||||||||
Denominator for basic income per share - |
2,091 |
1,897 |
2,017 |
1,894 |
||||
Effect of dilutive securities: |
||||||||
Employee stock options |
46 |
14 |
40 |
10 |
||||
Detachable warrants |
577 |
336 |
536 |
242 |
||||
6% Convertible Debenture |
547 |
566 |
552 |
566 |
||||
Preferred Stock Dividends |
32 |
- |
71 |
- |
||||
Dilutive potential common shares |
1,202 |
916 |
1,199 |
818 |
||||
Denominator for diluted income per share - |
3,293 |
2,813 |
3,216 |
2,712 |
||||
Basic income per common share |
$ |
0.47 |
$ |
0.24 |
$ |
0.81 |
$ |
0.54 |
Diluted income per common share |
$ |
0.30 |
$ |
0.17 |
$ |
0.53 |
$ |
0.39 |
For the three and six month periods ended June 30, 2010, approximately 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 and six month periods ended June 30, 2010, approximately 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 and six month periods ended June 30, 2010, approximately 315,000 shares of common stock issuable upon exercise of warrants were excluded from the computation of diluted earnings per share as the effect would be antidilutive.
For the three and six month periods ended June 30, 2011 and 2010, approximately 21,000 and 153,000, respectively, of shares issuable upon exercise of employee stock options were excluded from the computation of diluted earnings per share because the effect would be antidilutive.
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 |
Europe |
Asia |
Inter-Company |
Consolidated |
|||||
As of and for the three months ended: |
||||||||||
June 30, 2011 |
||||||||||
Net Sales: |
||||||||||
Customer sales |
$ |
5,882 |
$ |
3,007 |
$ |
1,600 |
$ |
- |
$ |
10,489 |
Intercompany sales |
- |
764 |
2,578 |
(3,342) |
- |
|||||
Total Net Sales |
$ |
5,882 |
$ |
3,771 |
$ |
4,178 |
$ |
(3,342) |
$ |
10,489 |
Location profit (loss) |
$ |
378 |
$ |
379 |
$ |
194 |
$ |
30 |
$ |
981 |
June 30, 2010 |
||||||||||
Net Sales: |
||||||||||
Customer sales |
$ |
4,934 |
$ |
2,252 |
$ |
742 |
$ |
- |
$ |
7,928 |
Intercompany sales |
- |
475 |
1,519 |
(1,994) |
- |
|||||
Total Net Sales |
$ |
4,934 |
$ |
2,727 |
$ |
2,261 |
$ |
(1,994) |
$ |
7,928 |
Location profit |
$ |
228 |
$ |
179 |
$ |
8 |
$ |
55 |
$ |
470 |
As of and for the six months ended: |
||||||||||
June 30, 2011 |
||||||||||
Net Sales: |
||||||||||
Customer sales |
$ |
11,250 |
$ |
5,624 |
$ |
3,200 |
$ |
- |
$ |
20,074 |
Intercompany sales |
- |
1,627 |
4,488 |
(6,115) |
- |
|||||
Total Net Sales |
$ |
11,250 |
$ |
7,251 |
$ |
7,688 |
$ |
(6,115) |
$ |
20,074 |
Location profit |
$ |
656 |
$ |
641 |
$ |
349 |
$ |
10 |
$ |
1,656 |
Location assets |
$ |
15,520 |
$ |
10,742 |
$ |
18,067 |
$ |
- |
$ |
44,329 |
June 30, 2010 |
||||||||||
Net Sales: |
||||||||||
Customer sales |
$ |
9,198 |
$ |
4,169 |
$ |
1,417 |
$ |
- |
$ |
14,784 |
Intercompany sales |
24 |
957 |
2,642 |
(3,623) |
- |
|||||
Total Net Sales |
$ |
9,222 |
$ |
5,126 |
$ |
4,059 |
$ |
(3,623) |
$ |
14,784 |
Location profit |
$ |
493 |
$ |
357 |
$ |
98 |
$ |
106 |
$ |
1,054 |
Location assets |
$ |
12,081 |
$ |
7,182 |
$ |
15,335 |
$ |
- |
$ |
34,598 |
TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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.
Note 8. |
Stock Options and Equity Compensation Plan |
For the three and six month periods ended June 30, 2011, the Company recorded stock-based employee compensation expense of $44,000 and $46,000, respectively. For the three month period ended June 30, 2010, all options were fully vested, therefore, the Company did not recognize any option compensation expense. For the six month period ended June 30, 2010, the Company recorded stock-based employee compensation expense of $91,000. This compensation expense is included in the selling, general and administrative expenses in the accompanying consolidated statements of income.
The Company granted 23,500 and 23,404 options during the six month periods ended June 30, 2011 and 2010.
As of June 30, 2011, there was approximately $165,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 4.58 years.
As all 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) |
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2011 |
|
2010 |
|||
Raw materials |
$ |
9,098 |
$ |
6,337 |
||||
Work in progress |
2,542 |
1,343 |
||||||
Finished goods |
3,094 |
2,895 |
||||||
Supplies |
833 |
794 |
||||||
Total Inventories |
15,567 |
11,369 |
||||||
Inventory reserve |
(337) |
(348) |
||||||
Net Inventories |
$ |
15,230 |
$ |
11,021 |
TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 changing energy prices and 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 natural gas and 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 balance sheet and changes in the fair value are recognized in earnings in the period of the change.
At June 30, 2011, we marked these contracts to market, recording $12,000 as a current liability on the balance sheet. For the three and six month periods ended June 30, 2011, we recorded a net loss on these contracts of $12,000 and $15,000, respectively, as a component of our net income. For the three and six month periods ended June 30, 2010, we recorded a net gain of $57,000 and $113,000, respectively, as a component of our net loss.
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 |
||||||
|
|
June 30, |
|
December 31, |
||
Derivative Instrument |
|
Location |
|
2011 |
|
2010 |
Foreign Currency Exchange Contracts |
Other Current Assets |
$ |
- |
$ |
11 |
|
|
|
|
$ |
- |
$ |
11 |
|
|
|
|
|
|
|
Liability Derivatives |
||||||
|
|
June 30, |
|
December 31, |
||
Derivative Instrument |
|
Location |
|
2011 |
|
2010 |
Foreign Currency Exchange Contracts |
Accrued Expenses |
12 |
- |
|||
|
|
|
$ |
12 |
$ |
- |
The following table summarizes the impact of the Company’s derivatives on the condensed consolidated financial statements of operations for the three and six month periods ended June 30, 2011 and 2010:
|
|
|
Amount of (Loss) Gain Recognized in Income |
|||||||
|
Location of (Loss) |
|
Three Months Ended |
|
Six Months Ended |
|||||
Derivative |
|
Gain on Derivative |
|
June 30, |
|
June 30, |
||||
Instrument |
|
Instrument |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
Foreign Currency |
Other (Expense) Income |
$ |
(12) |
$ |
57 |
$ |
(15) |
$ |
113 |
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 ALUPREM.
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 and six month periods ended June 30, 2011 and 2010.
(Unaudited) |
||||||||
(In thousands, except per share amounts) |
|
Three Months |
|
Six Months |
||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
NET SALES |
$ |
10,489 |
$ |
7,928 |
$ |
20,074 |
$ |
14,784 |
Cost of sales |
8,183 |
6,325 |
15,677 |
11,531 |
||||
GROSS MARGIN |
|
2,306 |
|
1,603 |
|
4,397 |
|
3,253 |
Technical services and research and development |
66 |
61 |
132 |
118 |
||||
Selling, general and administrative expenses |
1,065 |
971 |
2,224 |
1,820 |
||||
OPERATING INCOME |
|
1,175 |
|
571 |
|
2,041 |
|
1,315 |
OTHER EXPENSE: |
||||||||
Interest expense |
(101) |
(112) |
(197) |
(233) |
||||
(Loss) gain on foreign currency exchange rate |
(9) |
34 |
(57) |
6 |
||||
Other, net |
7 |
- |
7 |
- |
||||
INCOME BEFORE INCOME TAX |
|
1,072 |
|
493 |
|
1,794 |
|
1,088 |
Income tax expense |
91 |
23 |
138 |
34 |
||||
NET INCOME |
$ |
981 |
$ |
470 |
$ |
1,656 |
$ |
1,054 |
|
|
|
|
|
|
|
|
|
Income per common share: |
||||||||
Basic |
$ |
0.47 |
$ |
0.24 |
$ |
0.81 |
$ |
0.54 |
Diluted |
$ |
0.30 |
$ |
0.17 |
$ |
0.53 |
$ |
0.39 |
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 three and six month periods ended June 30, 2011 increased approximately $2,561,000 or 32% and $5,290,000 or 36%, respectively, as compared to the same three and six month periods of 2010 when we experienced increases in our consolidated net sales of $2,274,000 or 40% and $3,427,000 or 30%, respectively.
Following is a summary of our consolidated products sales for the three and six month periods ended June 30, 2011 and 2010 (in thousands). All inter-company sales have been eliminated.
(Unaudited) |
|||||||||||||||||||
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2011 |
2010 |
Variance |
|
2011 |
2010 |
Variance |
||||||||||||
HITOX |
$ |
4,670 |
45% |
$ |
3,095 |
39% |
$ |
1,575 |
51% |
$ |
8,720 |
44% |
$ |
5,998 |
41% |
$ |
2,722 |
45% |
|
ALUPREM |
3,586 |
34% |
2,936 |
37% |
650 |
22% |
6,965 |
35% |
5,319 |
36% |
1,646 |
31% |
|||||||
BARTEX |
918 |
9% |
977 |
12% |
(59) |
-6% |
1,812 |
9% |
1,819 |
12% |
(7) |
0% |
|||||||
HALTEX |
863 |
8% |
841 |
11% |
22 |
3% |
1,626 |
8% |
1,359 |
9% |
267 |
20% |
|||||||
TIOPREM |
373 |
3% |
9 |
<1% |
364 |
4044% |
777 |
3% |
86 |
<1% |
691 |
803% |
|||||||
OTHER |
79 |
1% |
70 |
1% |
9 |
13% |
174 |
1% |
203 |
2% |
(29) |
-14% |
|||||||
Total |
$ |
10,489 |
100% |
$ |
7,928 |
100% |
$ |
2,561 |
32% |
$ |
20,074 |
100% |
$ |
14,784 |
100% |
$ |
5,290 |
36% |
HITOX sales increased 51% and 45% for the three and six month periods ended June 30, 2011, respectively, as compared to the same periods 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, which have led to the addition of many new global customers. This compares to an increase of 9% and 25% for the three and six month periods ended June 30, 2010, respectively, as compared to the same periods in 2009 primarily due to an increase in world-wide demand.
ALUPREM sales increased 22% during the second quarter of 2011 and 31% for the six month period ended June 30, 2011, as compared to the same periods of 2010 primarily due to an increase in sales in both the US and Europe. This compares to an increase of 65% and 18% during the same three and six month periods of 2010, respectively.
BARTEX sales decreased 6% during the second quarter of 2011 and remained level for the six month period ended June 30, 2011. This follows an increase of approximately 58% and 51% during the same three and six month periods of 2010, respectively, primarily due to an increase in volume and our customer base.
HALTEX sales increased 3% and 20% for the three and six month periods ended June 30, 2011, respectively. This compares to an increase of 153% and 109% for the same three and six month periods of 2010, respectively. The year over year increase is related to new business for our OPTILOAD specialty products which are gaining acceptance in the marketplace.
TIOPREM sales increased significantly during the three and six month periods ended June 30, 2011 as compared to the same periods of 2010 primarily due to the product gaining greater acceptance in the global marketplace.
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 and six month periods ended June 30, 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 June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2011 |
2010 |
Variance |
|
2011 |
2010 |
Variance |
||||||||||||
HITOX |
$ |
2,621 |
44% |
$ |
2,164 |
44% |
$ |
457 |
21% |
$ |
4,875 |
43% |
$ |
4,182 |
45% |
$ |
693 |
17% |
|
ALUPREM |
1,179 |
20% |
883 |
18% |
296 |
34% |
2,369 |
21% |
1,570 |
17% |
799 |
51% |
|||||||
BARTEX |
918 |
16% |
977 |
20% |
(59) |
-6% |
1,812 |
16% |
1,819 |
20% |
(7) |
0% |
|||||||
HALTEX |
863 |
15% |
841 |
17% |
22 |
3% |
1,626 |
15% |
1,359 |
15% |
267 |
20% |
|||||||
TIOPREM |
237 |
4% |
3 |
<1% |
234 |
7800% |
423 |
4% |
75 |
1% |
348 |
464% |
|||||||
OTHER |
64 |
1% |
66 |
1% |
(2) |
-3% |
145 |
1% |
193 |
2% |
(48) |
-25% |
|||||||
Total |
$ |
5,882 |
100% |
$ |
4,934 |
100% |
$ |
948 |
19% |
$ |
11,250 |
100% |
$ |
9,198 |
100% |
$ |
2,052 |
22% |
HITOX sales during the second quarter increased 13%, 20% and 89% in the US, Canada and South America, respectively, as compared to the same period in 2010 resulting in a net increase for the quarter of 21%. This compares to an increase in the second quarter of 2010 of 3%. Year to date, the increase in HITOX sales of 17% is primarily related to a tight supply of commodity titanium dioxide, which has led to an increase in demand from existing customers, as well as new customers. This compares to an increase of 16% during the same six month period of 2010.
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 and six month periods ended June 30, 2011 and 2010 to third party customers. All inter-company sales have been eliminated.
(Unaudited) |
|||||||||||||||||||
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2011 |
2010 |
Variance |
|
2011 |
2010 |
Variance |
||||||||||||
ALUPREM |
$ |
2,407 |
80% |
$ |
2,053 |
91% |
$ |
354 |
17% |
$ |
4,596 |
82% |
$ |
3,749 |
90% |
$ |
847 |
23% |
|
HITOX |
510 |
17% |
193 |
9% |
317 |
164% |
873 |
15% |
409 |
10% |
464 |
113% |
|||||||
TIOPREM |
90 |
3% |
6 |
<1% |
84 |
1400% |
155 |
3% |
11 |
<1% |
144 |
1309% |
|||||||
Total |
$ |
3,007 |
100% |
$ |
2,252 |
100% |
$ |
755 |
34% |
$ |
5,624 |
100% |
$ |
4,169 |
100% |
$ |
1,455 |
35% |
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 and six month periods ended June 30, 2011 and 2010 to third party customers. All inter-company sales have been eliminated.
(Unaudited) |
|||||||||||||||||||
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2011 |
2010 |
Variance |
|
2011 |
2010 |
Variance |
||||||||||||
HITOX |
$ |
1,539 |
96% |
$ |
738 |
99% |
$ |
801 |
109% |
$ |
2,972 |
93% |
$ |
1,407 |
99% |
$ |
1,565 |
111% |
|
TIOPREM |
46 |
3% |
- |
0% |
46 |
100% |
199 |
6% |
- |
0% |
199 |
100% |
|||||||
OTHER |
15 |
1% |
4 |
1% |
11 |
275% |
29 |
1% |
10 |
1% |
19 |
190% |
|||||||
Total |
$ |
1,600 |
100% |
$ |
742 |
100% |
$ |
858 |
116% |
$ |
3,200 |
100% |
$ |
1,417 |
100% |
$ |
1,783 |
126% |
Consolidated Results
Gross Margin: For the three and six month periods ended June 30, 2011, gross margin remained relatively flat at 22.0% and 21.9%, respectively, as compared to 20.2% and 22.0% for the three and six month periods ended June 30, 2010, respectively. Positive factors affecting our gross margin include the mix of products sold during the three and six month periods compared to the same periods of 2010, as well a reduction in idle plant time at each of our three operations. These positive factors have been partially offset by an increase in the cost of raw materials.
Technical Services and Selling, General, Administrative and Expenses (“SG&A”): Total SG&A expense increased approximately 9.6% during the three month period ended June 30, 2011 as compared to the same period of 2010 primarily due to an increase in salaries, business travel and sales commissions which were partially offset by a decrease in accounting fees and legal expenses. For the six month period ended June 30, 2011, SG&A expenses increased approximately 21.6% primarily due to an increase in salary expense, which included a bonus for executive management of $170,000, as well as increases relating to business travel and sales commissions.
Interest Expense: Net interest expense for the three and six month periods ended June 30, 2011 decreased approximately $11,000 and $36,000, respectively, as compared to the same periods of 2010, primarily due to a decrease in our long-term debt.
Income Taxes: For the three and six month periods ended June 30, 2011, income tax expense consisted of federal income tax expense of $6,000 and $11,000, respectively; state income tax expense of $2,000 and $3,000, respectively; and foreign deferred tax expense of $83,000 and $124,000, respectively. For the three and six month periods ended June 30, 2010, income tax expense consisted of federal income tax expense of $12,000; state income tax expense of $4,000 and $5,000, respectively; and foreign deferred tax expense of $7,000 and $17,000, respectively. Taxes are based on an estimated annualized consolidated effective rate of 7.7% for the year ended December 31, 2011.
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) |
June 30, |
December 31, |
||
2011 |
2010 |
|||
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at June 30, 2011, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our US operation. |
$ |
1,856 |
$ |
2,000 |
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at June 30, 2011, due April 1, 2013, secured by a Caterpillar front-end loader. |
48 |
60 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at June 30, 2011, due July 1, 2029, secured by TPT's land and office building purchased July 2004. (€352) |
512 |
485 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at June 30, 2011, due January 31, 2030, secured by TPT's land and building purchased January 2005. (€351) |
510 |
482 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at June 30, 2011, due July 31, 2015, secured by TPT's assets. (€208) |
302 |
312 |
||
U.S. Dollar term note payable to a Malaysian bank which matured May 30, 2011. |
- |
41 |
||
Total |
3,228 |
3,380 |
||
Less current maturities |
506 |
533 |
||
Total long-term debt and notes payable - financial institutions |
$ |
2,722 |
$ |
2,847 |
On July 5, 2011, TOR Processing and Trade, B.V. (“TPT”), entered into a three year term loan in the amount of €700,000 ($1,016,000) with a fixed interest rate of 4.25%. The loan proceeds will be used to fund the plant expansion and is secured by TPT’s assets. Monthly principal and interest payments will begin on August 5, 2011 and continue through July 5, 2014. As this transaction was a subsequent event, it is excluded from the above table.
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 June 30, 2011, a balance of $1,450,000 remained outstanding on the Debentures.
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 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 June 30, 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 June 30, 2011, the ratio of cash flow to debt service was 2.97 to 1.0.
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 4.328%), is secured by TPT’s accounts receivable and inventory. At June 30, 2011, TPT had utilized €866,000 ($1,257,000) 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, the Company’s 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. 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 ($165,000, $2,137,000 and $1,654,000, respectively).
On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 4, 2012. 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 ($330,000, $3,077,000, $397,000 and $8,272,000, 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 June 30, 2011, the outstanding balance on the ECR facilities was RM 1,642,000 ($543,000) 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.
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 $265,000 for the six months ended June 30, 2011 as compared to a decrease of $18,000 for the six months ended June 30, 2010.
(Unaudited) |
||||
Six Months Ended June 30, |
||||
(In thousands) |
|
2011 |
|
2010 |
Net cash provided by (used in) |
||||
Operating activities |
$ |
564 |
$ |
1,367 |
Investing activities |
(1,874) |
(403) |
||
Financing activities |
952 |
(993) |
||
Effect of exchange rate fluctuations |
93 |
11 |
||
Net change in cash and cash equivalents |
$ |
(265) |
$ |
(18) |
Operating Activities
Operating activities provided $564,000 during the first six months of 2011. Following are the major changes in working capital affecting cash provided by operating activities for the six month period ended June 30, 2011:
Investing Activities
We used cash of $1,874,000 in investing activities during the first six months of 2011 primarily for the purchase of fixed assets as compared to $403,000 during the same period 2010. Net investments for each of our three locations are as follows:
TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Financing Activities
Financing activities provided $952,000 during the six month period ended June 30, 2011 as compared to cash used of $993,000 for the same period 2010. Significant factors relating to financing activities include the following:
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.
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 April 2011, one of the holders of warrants issued in December 2008, exercised their warrants. Upon exercise and receipt of the aggregate exercise price of $50,000, the Company issued 5,000 shares of common stock to the accredited investor. The Company used the proceeds for working capital.
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.
Part II - Other Information
Item 6. |
Exhibits |
(a) |
Exhibits |
|
Exhibit 31.1 |
Certification of Chief
Executive Officer |
|
Exhibit 31.2 |
Certification of Chief
Financial Officer |
|
Exhibit 32.1 |
Certification of Chief
Executive Officer |
|
Exhibit 32.2 |
Certification of Chief
Financial Officer |
|
|
|
|
|||
____________ |
||||
(Registrant) |
||||
Date: |
August 4, 2011 |
OLAF KARASCH |
||
Date: |
August 4, 2011 |
BARBARA RUSSELL |
Exhibit 31.1
CERTIFICATIONS
I, Olaf Karasch, certify that:
1. I have reviewed this Form 10-Q of TOR Minerals International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 4, 2011
/s/ Olaf Karasch
Olaf Karasch
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Barbara Russell, certify that:
1. I have reviewed this Form 10-Q of TOR Minerals International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 4, 2011
/s/ Barbara Russell
Barbara Russell
Chief Financial Officer
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of TOR Minerals, Inc. ("Registrant") for the quarter ended June 30, 2011 (the "Report") as filed with the Securities and Exchange Commission, the undersigned Chief Executive Officer of the Registrant hereby certifies, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer
(Principal Executive Officer)
August 4, 2011
Exhibit 32.2
Certification of Acting Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of TOR Minerals, Inc. ("Registrant") for the quarter ended June 30, 2011 (the "Report") as filed with the Securities and Exchange Commission, the undersigned Chief Financial Officer of the Registrant hereby certifies, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
/s/ BARBARA RUSSELL
Barbara Russell
Chief Financial Officer
(Principal Financial Officer)
August 4, 2011
Consolidated Statements of Comprehensive Income (Loss) (USD $)
In Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
NET INCOME | $ 981 | $ 470 | $ 1,656 | $ 1,054 |
Other comprehensive income, net of tax | Â | Â | Â | Â |
Net foreign currency translation adjustment gain (loss) | 154 | (325) | 759 | 90 |
Other comprehensive income (loss), net of tax | 154 | (325) | 759 | 90 |
COMPREHENSIVE INCOME | $ 1,135 | $ 145 | $ 2,415 | $ 1,144 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 04, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | TOR MINERALS INTERNATIONAL INC | Â |
Entity Central Index Key | 0000842295 | Â |
Trading Symbol | torm | Â |
Entity Current Reporting Status | Yes | Â |
Entity Voluntary Filers | No | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Common Stock, Shares Outstanding | Â | 2,122,373 |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Amendment Flag | false | Â |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
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Calculation of Basic and Diluted Earnings per Share
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Earnings Per Share [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Calculation of Basic and Diluted Earnings per Share |
Note 6. Calculation of Basic and Diluted Earnings per Share The following table sets forth the computation of basic and diluted earnings per share:
For the three and six month periods ended June 30, 2010, approximately 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 and six month periods ended June 30, 2010, approximately 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 and six month periods ended June 30, 2010, approximately 315,000 shares of common stock issuable upon exercise of warrants were excluded from the computation of diluted earnings per share as the effect would be antidilutive.
For the three and six month periods ended June 30, 2011 and 2010, approximately 21,000 and 153,000, respectively, of shares issuable upon exercise of employee stock options were excluded from the computation of diluted earnings per share because the effect would be antidilutive. |
Debt
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Debt Disclosure [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt |
Note 2. Debt
Long-term Debt – Financial Institutions Following is a summary of our long-term debt to financial institutions:
On July 5, 2011, TOR Processing and Trade, B.V. (“TPT”), entered into a three year term loan in the amount of €700,000 ($1,016,000) with a fixed interest rate of 4.25%. The loan proceeds will be used to fund the plant expansion and is secured by TPT’s assets. Monthly principal and interest payments will begin on August 5, 2011 and continue through July 5, 2014. As this transaction was a subsequent event, it is excluded from the above table.
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 June 30, 2011, a balance of $1,450,000 remained outstanding on the Debentures.
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 June 30, 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 June 30, 2011, the ratio of cash flow to debt service was 2.97 to 1.0.
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 4.328%), is secured by TPT’s accounts receivable and inventory. At June 30, 2011, TPT had utilized €866,000 ($1,257,000) 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, the Company’s 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. 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 ($165,000, $2,137,000 and $1,654,000, respectively).
On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date to April 4, 2012. 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 ($330,000, $3,077,000, $397,000 and $8,272,000, 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 June 30, 2011, the outstanding balance on the ECR facilities was RM 1,642,000 ($543,000) 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. |
Stock Options and Equity Compensation Plan
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6 Months Ended |
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Jun. 30, 2011
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | Â |
Stock Options and Equity Compensation Plan |
Note 8. Stock Options and Equity Compensation Plan
The Company granted 23,500 and 23,404 options during the six month periods ended June 30, 2011 and 2010.
As of June 30, 2011, there was approximately $165,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 4.58 years.
As all 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. |
Inventories
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Jun. 30, 2011
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Inventory Disclosure [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
Note 9. Inventories A summary of inventory follows:
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Segment Information
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Jun. 30, 2011
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Segment Reporting [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
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:
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. |
Series A Convertible Preferred Stock Dividend
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6 Months Ended |
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Jun. 30, 2011
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Series A Convertible Preferred Stock Dividend [Abstract] | Â |
Series A Convertible Preferred Stock Dividend |
Note 3. Series A Convertible Preferred Stock Dividend On June 6, 2011, the Company declared a dividend, in the amount of $375 or $0.075 per share, for the quarterly period ended June 30, 2010, payable on July 1, 2011, to the holders of record of the Series A Convertible Preferred Stock as of the close of business on June 5, 2011. |
Fair Value Measurements
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Jun. 30, 2011
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Fair Value Disclosure [Abstact] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
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 June 30, 2011. The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at June 30, 2011.
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:
The carrying amounts reported in the balance sheet for cash and cash equivalents, trade receivables, payables and accrued liabilities 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. |
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