United States |
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(Mark One) |
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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, 2012 |
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 |
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Condensed Consolidated
Statements of Comprehensive Income -- |
4 |
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Condensed Consolidated
Balance Sheets -- |
5 |
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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 |
17 |
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Item 4. |
Controls and Procedures |
28 |
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Part II - Other Information |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
29 |
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Item 6. |
Exhibits |
29 |
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Signatures |
29 |
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 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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|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
NET SALES |
$ |
14,108 |
$ |
10,489 |
$ |
26,916 |
$ |
20,074 |
Cost of sales |
10,441 |
8,183 |
20,059 |
15,677 |
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GROSS MARGIN |
|
3,667 |
|
2,306 |
|
6,857 |
|
4,397 |
Technical services and research and development |
101 |
66 |
183 |
132 |
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Selling, general and administrative expenses |
1,359 |
1,065 |
2,583 |
2,224 |
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OPERATING INCOME |
|
2,207 |
|
1,175 |
|
4,091 |
|
2,041 |
OTHER EXPENSE: |
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Interest expense |
(112) |
(101) |
(254) |
(197) |
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Gain (loss) on foreign currency exchange rate |
(20) |
(9) |
3 |
(57) |
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Other, net |
1 |
7 |
1 |
7 |
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INCOME BEFORE INCOME TAX |
|
2,076 |
|
1,072 |
|
3,841 |
|
1,794 |
Income tax expense |
517 |
91 |
886 |
138 |
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NET INCOME |
$ |
1,559 |
$ |
981 |
$ |
2,955 |
$ |
1,656 |
Less: Preferred Stock Dividends |
- |
- |
- |
15 |
||||
Basic Income Available to Common Shareholders |
$ |
1,559 |
$ |
981 |
$ |
2,955 |
$ |
1,641 |
Plus: 6% Convertible Debenture Interest Expense |
14 |
22 |
36 |
44 |
||||
Plus: Preferred Stock Dividends |
- |
- |
- |
15 |
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Diluted Income Available to Common Shareholders |
$ |
1,573 |
$ |
1,003 |
$ |
2,991 |
$ |
1,700 |
|
|
|
|
|
|
|
|
|
Income per common share: |
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Basic |
$ |
0.56 |
$ |
0.47 |
$ |
1.14 |
$ |
0.81 |
Diluted |
$ |
0.45 |
$ |
0.30 |
$ |
0.87 |
$ |
0.53 |
Weighted average common shares outstanding: |
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Basic |
2,769 |
2,091 |
2,585 |
2,017 |
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Diluted |
3,462 |
3,293 |
3,451 |
3,216 |
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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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|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
NET INCOME |
$ |
1,559 |
$ |
981 |
$ |
2,955 |
$ |
1,656 |
OTHER COMPREHENSIVE INCOME (LOSS), net of tax |
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Currency translation adjustment, net of tax: |
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Net foreign currency translation adjustment gain (loss) |
(926) |
154 |
(218) |
759 |
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Other comprehensive income (loss), net of tax |
(926) |
154 |
(218) |
759 |
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COMPREHENSIVE INCOME |
$ |
633 |
$ |
1,135 |
$ |
2,737 |
$ |
2,415 |
See accompanying notes.
TOR Minerals International, Inc. and Subsidiaries |
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Condensed Consolidated Balance Sheets |
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(In thousands, except per share amounts) |
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|
June 30, |
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December 31, |
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|
|
(Unaudited) |
|
|
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
$ |
2,064 |
$ |
3,381 |
Trade accounts receivable, net |
7,489 |
4,921 |
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Inventories |
24,000 |
18,673 |
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Other current assets |
1,451 |
832 |
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Total current assets |
35,004 |
27,807 |
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PROPERTY, PLANT AND EQUIPMENT, net |
20,812 |
20,138 |
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OTHER ASSETS |
23 |
22 |
||
Total Assets |
$ |
55,839 |
$ |
47,967 |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
$ |
4,649 |
$ |
3,222 |
Accrued expenses |
1,824 |
1,754 |
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Notes payable under lines of credit |
3,687 |
2,886 |
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Export credit refinancing facility |
3,554 |
1,254 |
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Current deferred tax liability |
50 |
46 |
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Current maturities - capital leases |
72 |
28 |
||
Current maturities of long-term debt – financial institutions |
813 |
813 |
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Current maturities of long-term debt – convertible debentures |
- |
91 |
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Total current liabilities |
14,649 |
10,094 |
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LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES |
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Capital leases |
21 |
34 |
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Long-term debt – financial institutions |
2,764 |
2,668 |
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Long-term debt – convertible debentures, net |
- |
1,127 |
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DEFERRED TAX LIABILITY |
829 |
619 |
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Total liabilities |
18,263 |
14,542 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' EQUITY: |
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Common
stock $1.25 par value: authorized, 6,000 shares; |
3,704 |
2,999 |
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Additional paid-in capital |
28,931 |
28,222 |
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Retained earnings (Accumulated deficit) |
1,196 |
(1,759) |
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Accumulated other comprehensive income: |
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Cumulative foreign currency translation adjustment |
3,745 |
3,963 |
||
Total shareholders' equity |
37,576 |
33,425 |
||
Total Liabilities and Shareholders' Equity |
$ |
55,839 |
$ |
47,967 |
See accompanying notes. |
TOR Minerals International, Inc. and Subsidiaries |
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Condensed Consolidated Statements of Cash Flows |
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(Unaudited) |
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(In thousands) |
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|
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Six Months Ended June 30, |
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2012 |
|
2011 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
|
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Net Income |
$ |
2,955 |
$ |
1,656 |
Adjustments to reconcile net income to net cash |
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Depreciation |
1,179 |
1,015 |
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Share-based compensation |
58 |
46 |
||
Convertible debenture interest expense |
22 |
34 |
||
Deferred income taxes |
215 |
126 |
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Changes in working capital: |
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Trade accounts receivables |
(2,591) |
(1,427) |
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Inventories |
(5,372) |
(4,028) |
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Other current assets |
(625) |
(112) |
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Accounts payable and accrued expenses |
1,542 |
3,254 |
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Net cash (used in) provided by operating activities |
(2,617) |
564 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
|
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Additions to property, plant and equipment |
(2,031) |
(1,874) |
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Net cash used in investing activities |
(2,031) |
(1,874) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
|
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Net proceeds from lines of credit |
823 |
407 |
||
Net proceeds from export credit refinancing facility |
2,303 |
274 |
||
Net proceeds from (payments on) capital leases |
31 |
(43) |
||
Proceeds from long-term bank debt |
536 |
- |
||
Payments on long-term bank debt |
(399) |
(262) |
||
Proceeds from the issuance of common stock, |
115 |
606 |
||
Preferred stock dividends paid |
- |
(30) |
||
Net cash provided by financing activities |
3,409 |
952 |
||
Effect of foreign currency exchange rate fluctuations on cash and cash equivalents |
(78) |
93 |
||
Net decrease in cash and cash equivalents |
(1,317) |
(265) |
||
Cash and cash equivalents at beginning of year |
3,381 |
2,559 |
||
Cash and cash equivalents at end of period |
$ |
2,064 |
$ |
2,294 |
Supplemental cash flow disclosures: |
|
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Interest paid |
$ |
254 |
$ |
197 |
Non-cash financing activities: |
|
|||
Conversion of debentures |
$ |
1,240 |
$ |
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. (“TOR”, “we”, “us”, “our” or the “Company”) and its wholly-owned subsidiaries, TOR Processing and Trade, B.V. (“TPT”) and TOR Minerals Malaysia, Sdn. Bhd. (“TMM”), 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 and six month periods ended June 30, 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.
For the three and six month periods ended June 30, 2012, income tax expense consisted of federal income tax expense of approximately $287,000 and $583,000, respectively; state income tax expense of approximately $3,000 and $5,000, respectively; and foreign deferred tax expense of approximately $227,000 and $298,000, respectively. For the three and six month periods ended June 30, 2011, income tax expense consisted of federal income tax expense of approximately $6,000 and $11,000, respectively; state income tax expense of approximately $2,000 and $3,000, respectively; and foreign deferred tax expense of approximately $83,000 and $124,000, respectively. Taxes are based on an estimated annualized consolidated effective tax rate of 23.1% 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 six month period ended June 30, 2012. In addition, we did not recognize any interest and penalties in our consolidated financial statements during the six month period ended June 30, 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.
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, |
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2012 |
2011 |
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Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at June 30, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation. |
$ |
1,497 |
$ |
1,680 |
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at June 30, 2012, due April 1, 2013, secured by a Caterpillar front-end loader. |
22 |
35 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at June 30, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004. (€309) |
391 |
413 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at June 30, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005. (€309) |
391 |
412 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at June 30, 2012, due July 31, 2015, secured by TPT's assets. (€133) |
169 |
205 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at June 30, 2012, due July 5, 2014, secured by TPT's assets. (€451) |
571 |
736 |
||
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at June 30, 2012, due March 1, 2015, secured by TMM's property, plant and equipment. (RM 1,702) |
536 |
- |
||
Total |
3,577 |
3,481 |
||
Less current maturities |
813 |
813 |
||
Total long-term debt and notes payable - financial institutions |
$ |
2,764 |
$ |
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. The Company received $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of whom are directors of the Company and another of whom is a greater than 5% shareholder.
On May 3, 2012, the five remaining holders, four of whom are directors of the Company and another whom is a greater than 5% shareholder, of our Debentures converted their Debentures, and the Company issued 547,172 shares of common stock upon conversion of such Debentures.
TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Short-term Debt
U.S. 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 June 30, 2012, the Company had $1,000,000 borrowed on the Line at a rate of 5.50%.
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, 2012, the ratio of cash flow to debt service was 7.6 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 3.694%), is secured by TPT’s accounts receivable and inventory. At June 30, 2012, TPT had utilized €807,000 ($1,022,000) 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 banks could foreclose on the assets of TPT.
TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Malaysian Operations
On May 21, 2012, our subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2012 to April 30, 2013. 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; (3) a foreign exchange contract limit of RM 5,000,000 ($157,000, $2,033,000 and $1,574,000, respectively); and a term loan of RM 3,500,000 of which RM 1,702,000 had been drawn as of June 30, 2012 ($1,102,000 and $536,000, 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 ($315,000, $2,927,000, $378,000 and $7,870,000, respectively). At June 30, 2012, the outstanding balance on the line of credit was RM 700,000 ($220,000) at a current interest rate of 4.24% and RM 4,589,000 ($1,445,000) was outstanding on the foreign exchange contract at a current interest rate of 3%.
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, 2012, the outstanding balance on the ECR facilities was RM 11,293,000 ($3,554,000) at a current interest rate of 5.0%.
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. |
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, 2012. The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at June 30, 2012 or June 30, 2011.
|
June 30, 2012 |
|||||||
(In thousands) |
Balance at |
Quoted Prices in Active |
Significant Other Observable Inputs |
Significant |
||||
Liability for foreign
currency |
$ |
6 |
$ |
- |
$ |
6 |
$ |
- |
|
|
|
|
|
||||
|
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 currency 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 consolidated and condensed 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, 2012 |
|
December 31, 2011 |
|||||
(In thousands) |
|
Carrying |
|
Fair |
|
Carrying |
|
Fair |
Long-term debt, including current portion |
$ |
3,577 |
$ |
3,505 |
$ |
3,481 |
$ |
3,391 |
Long-term debt – convertible debentures |
- |
- |
1,450 |
1,436 |
||||
$ |
3,577 |
$ |
3,505 |
$ |
4,931 |
$ |
4,827 |
The carrying amounts reported in the consolidated and condensed 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 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 June 30, 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 June 30, 2012 was $4,000.
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, 2012 was approximately $14,000. 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 June 30, 2012 was $7,000.
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 June 30, 2012 was approximately €8,000. 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. The net present value of the lease at June 30, 2012 was €28,250 ($36,000).
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 and condensed balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at June 30, 2012 was approximately €2,000. 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. The net present value of the lease at June 30, 2012 was €35,708 ($45,000).
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 |
Six Months |
||||||
2012 |
|
2011 |
2012 |
|
2011 |
|||
Numerator: |
||||||||
Net Income |
$ |
1,559 |
$ |
981 |
$ |
2,955 |
$ |
1,656 |
Preferred Stock Dividends |
- |
- |
- |
(15) |
||||
Numerator for basic earnings per share - |
1,559 |
981 |
2,955 |
1,641 |
||||
Effect of dilutive securities: |
||||||||
6% Convertible Debenture Interest Expense |
14 |
22 |
36 |
44 |
||||
Preferred Stock Dividends |
- |
- |
- |
15 |
||||
Numerator
for diluted income per share - |
$ |
1,573 |
$ |
1,003 |
$ |
2,991 |
$ |
1,700 |
Denominator: |
||||||||
Denominator for basic income per share - |
2,769 |
2,091 |
2,585 |
2,017 |
||||
Effect of dilutive securities: |
||||||||
Employee stock options |
40 |
46 |
39 |
40 |
||||
Detachable warrants |
461 |
577 |
457 |
536 |
||||
6% Convertible Debenture |
192 |
547 |
370 |
552 |
||||
Preferred Stock |
- |
32 |
- |
71 |
||||
Dilutive potential common shares |
693 |
1,202 |
866 |
1,199 |
||||
Denominator for diluted income per share - |
3,462 |
3,293 |
3,451 |
3,216 |
||||
Basic income per common share |
$ |
0.56 |
$ |
0.47 |
$ |
1.14 |
$ |
0.81 |
Diluted income per common share |
$ |
0.45 |
$ |
0.30 |
$ |
0.87 |
$ |
0.53 |
For the three and six month periods ended June 30, 2012 and 2011, approximately 42,000 and 21,000, 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.
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 |
Europe |
Asia |
Inter-Company |
Consolidated |
|||||
As of and for the three months ended: |
||||||||||
June 30, 2012 |
||||||||||
Net Sales: |
||||||||||
Customer sales |
$ |
8,899 |
$ |
1,986 |
$ |
3,223 |
$ |
- |
$ |
14,108 |
Intercompany sales |
- |
1,221 |
1,677 |
(2,898) |
- |
|||||
Total Net Sales |
$ |
8,899 |
$ |
3,207 |
$ |
4,900 |
$ |
(2,898) |
$ |
14,108 |
Location profit (loss) |
$ |
703 |
$ |
35 |
$ |
740 |
$ |
81 |
$ |
1,559 |
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 |
$ |
378 |
$ |
379 |
$ |
194 |
$ |
30 |
$ |
981 |
As of and for the six months ended: |
||||||||||
June 30, 2012 |
||||||||||
Net Sales: |
||||||||||
Customer sales |
$ |
17,438 |
$ |
4,173 |
$ |
5,305 |
$ |
- |
$ |
26,916 |
Intercompany sales |
41 |
2,825 |
5,940 |
(8,806) |
- |
|||||
Total Net Sales |
$ |
17,479 |
$ |
6,998 |
$ |
11,245 |
$ |
(8,806) |
$ |
26,916 |
Location profit |
$ |
1,588 |
$ |
292 |
$ |
1,127 |
$ |
(52) |
$ |
2,955 |
Location assets |
$ |
20,171 |
$ |
10,093 |
$ |
25,575 |
$ |
- |
$ |
55,839 |
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 |
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 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.
Note 7. |
Stock Options and Equity Compensation Plan |
The Company granted 21,000 and 23,500 options during the six month periods ended June 30, 2012 and 2011, respectively.
As of June 30, 2012, there was approximately $326,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 4.15 years.
As most options issued under the 2000 Incentive 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) |
|
|
|
June 30, |
|
December 31, |
||
|
|
|
2012 |
|
2011 |
|||
Raw materials |
$ |
17,686 |
$ |
13,170 |
||||
Work in progress |
2,604 |
1,709 |
||||||
Finished goods |
3,154 |
3,254 |
||||||
Supplies |
852 |
804 |
||||||
Total Inventories |
24,296 |
18,937 |
||||||
Inventory reserve |
(296) |
(264) |
||||||
Net Inventories |
$ |
24,000 |
$ |
18,673 |
Note 9. |
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.
TOR Minerals International, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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 and condensed balance sheets and changes in the fair value are recognized in earnings in the period of the change.
At June 30, 2012, we marked these contracts to market, recording $6,000 as a current liability on the consolidated and condensed balance sheet. For the three and six month periods ended June 30, 2012, we recorded a net loss on these contracts of $6,000 and $13,000, respectively, as a component of our net income. For the three and six month periods ended June 30, 2011, we recorded a net loss of $12,000 and $15,000, respectively, as a component of our net income.
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 |
|
2012 |
|
2011 |
Foreign Currency Exchange Contracts |
Other Current Assets |
$ |
- |
$ |
16 |
|
|
|
|
$ |
- |
$ |
16 |
|
|
|
|
|
|
|
Liability Derivatives |
||||||
|
|
June 30, |
|
December 31, |
||
Derivative Instrument |
|
Location |
|
2012 |
|
2011 |
Foreign Currency Exchange Contracts |
Accrued Expenses |
6 |
- |
|||
|
|
|
$ |
6 |
$ |
- |
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, 2012 and 2011:
|
|
|
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 |
|
2012 |
|
2011 |
|
2012 |
|
2011 |
Foreign Currency |
Other Expense: Loss on foreign currency exchange rate |
$ |
(6) |
$ |
(12) |
$ |
(13) |
$ |
(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 U.S., 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 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 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 and six month periods ended June 30, 2012 and 2011.
(Unaudited) |
||||||||
(In thousands, except per share amounts) |
|
Three Months |
|
Six Months |
||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
NET SALES |
$ |
14,108 |
$ |
10,489 |
$ |
26,916 |
$ |
20,074 |
Cost of sales |
10,441 |
8,183 |
20,059 |
15,677 |
||||
GROSS MARGIN |
|
3,667 |
|
2,306 |
|
6,857 |
|
4,397 |
Technical services and research and development |
101 |
66 |
183 |
132 |
||||
Selling, general and administrative expenses |
1,359 |
1,065 |
2,583 |
2,224 |
||||
OPERATING INCOME |
|
2,207 |
|
1,175 |
|
4,091 |
|
2,041 |
OTHER EXPENSE: |
||||||||
Interest expense |
(112) |
(101) |
(254) |
(197) |
||||
Gain (loss) on foreign currency exchange rate |
(20) |
(9) |
3 |
(57) |
||||
Other, net |
1 |
7 |
1 |
7 |
||||
INCOME BEFORE INCOME TAX |
|
2,076 |
|
1,072 |
|
3,841 |
|
1,794 |
Income tax expense |
517 |
91 |
886 |
138 |
||||
NET INCOME |
$ |
1,559 |
$ |
981 |
$ |
2,955 |
$ |
1,656 |
|
|
|
|
|
|
|
|
|
Income per common share: |
||||||||
Basic |
$ |
0.56 |
$ |
0.47 |
$ |
1.14 |
$ |
0.81 |
Diluted |
$ |
0.45 |
$ |
0.30 |
$ |
0.87 |
$ |
0.53 |
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, 2012 increased approximately $3,619,000 or 35% and $6,842,000 or 34%, respectively, as compared to the same three and six month periods of 2011 when we experienced increases in our consolidated net sales of $2,561,000 or 32% and $5,290,000 or 36%, respectively.
Following is a summary of our consolidated products sales for the three and six month periods ended June 30, 2012 and 2011 (in thousands). All inter-company sales have been eliminated.
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2012 |
2011 |
Variance |
|
2012 |
2011 |
Variance |
||||||||||||
HITOX |
$ |
5,950 |
42% |
$ |
4,670 |
45% |
$ |
1,280 |
27% |
$ |
11,318 |
42% |
$ |
8,720 |
44% |
$ |
2,598 |
30% |
|
ALUPREM |
3,894 |
28% |
3,586 |
34% |
308 |
9% |
8,062 |
30% |
6,965 |
35% |
1,097 |
16% |
|||||||
BARTEX |
1,485 |
11% |
918 |
9% |
567 |
62% |
2,924 |
11% |
1,812 |
9% |
1,112 |
61% |
|||||||
HALTEX |
1,024 |
7% |
863 |
8% |
161 |
19% |
1,902 |
7% |
1,626 |
8% |
276 |
17% |
|||||||
TIOPREM |
418 |
3% |
373 |
3% |
45 |
12% |
754 |
3% |
777 |
3% |
(23) |
-3% |
|||||||
SYNTHETIC |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
OTHER |
220 |
1% |
79 |
1% |
141 |
178% |
408 |
1% |
174 |
1% |
234 |
134% |
|||||||
Total |
$ |
14,108 |
100% |
$ |
10,489 |
100% |
$ |
3,619 |
35% |
$ |
26,916 |
100% |
$ |
20,074 |
100% |
$ |
6,842 |
34% |
HITOX sales increased 27% and 30% for the three and six month periods ended June 30, 2012, respectively, primarily related to a global increase in the average selling price of approximately 41% and 42%, respectively. This compares to an increase of 51% and 45% for the three and six month periods ended June 30, 2011, respectively, primarily due to the stabilization and recovery in the paint and plastics end markets, as well as a tight supply of commodity titanium dioxide (“TiO2”) which resulted in an increase in volume and average selling price of 18% and 42%, respectively.
ALUPREM sales increased 9% during the second quarter of 2012 and 16% for the six month period ended June 30, 2012, as compared to the same periods of 2011 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 22% and 31% during the same three and six month periods of 2011, respectively.
BARTEX sales increased 62% and 61% during the three and six month periods ended June 30, 2012. For the three and six month period, an increase in volume represented approximately 51% of the overall sales increase. This follows a decrease of approximately 6% during the second quarter of 2011 of which approximately 12% represented a decrease in volume. Sales remained flat during the six month period ended June 30, 2011 as compared to the same period of 2010.
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 three and six month periods ended June 30, 2012, sales increased 19% and 17%, respectively. This compares to an increase of 3% and 20% for the same three and six month periods of 2011, respectively.
TIOPREM sales increased 12% for the three month period ended June 30, 2012, of which approximately 24% related to an increase in selling price which was partially offset by a decrease in volume of 12%. Year to date, sales declined approximately 3%. For the same three and six month periods of 2011, sales increased significantly over the 2010 levels as the product gained greater acceptance in the global marketplace.
Synthetic Rutile (“SR”) sales represented 8% and 6% of the overall sales for the three and six month periods ended June 30, 2012, respectively. We are optimistic that the sale of available SR to third parties will continue in the future; however, we have experienced a decrease in one order received earlier this year.
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, 2012 and 2011 (in thousands), as well as a summary of the material changes. All inter-company sales have been eliminated.
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2012 |
2011 |
Variance |
|
2012 |
2011 |
Variance |
||||||||||||
HITOX |
$ |
3,606 |
40% |
$ |
2,621 |
44% |
$ |
985 |
38% |
$ |
7,002 |
40% |
$ |
4,875 |
43% |
$ |
2,127 |
44% |
|
ALUPREM |
2,326 |
26% |
1,179 |
20% |
1,147 |
97% |
4,757 |
27% |
2,369 |
21% |
2,388 |
101% |
|||||||
BARTEX |
1,485 |
17% |
918 |
16% |
567 |
62% |
2,924 |
17% |
1,812 |
16% |
1,112 |
61% |
|||||||
HALTEX |
1,024 |
12% |
863 |
15% |
161 |
19% |
1,902 |
11% |
1,626 |
15% |
276 |
17% |
|||||||
TIOPREM |
272 |
3% |
237 |
4% |
35 |
15% |
483 |
3% |
423 |
4% |
60 |
14% |
|||||||
OTHER |
186 |
2% |
64 |
1% |
122 |
191% |
370 |
2% |
145 |
1% |
225 |
155% |
|||||||
Total |
$ |
8,899 |
100% |
$ |
5,882 |
100% |
$ |
3,017 |
51% |
$ |
17,438 |
100% |
$ |
11,250 |
100% |
$ |
6,188 |
55% |
HITOX sales increased 38% for the three month period ended June 30, 2012, primarily due to an increase in selling price of 39% which was partially offset by a small decrease in volume. Sales in the U.S., Canada and Mexico increased 43%, 88% and 135%, respectively, and sales in South America decreased approximately 41%, as compared to the same period in 2011. This compares to an increase in the second quarter of 2011 of 21% of which volume and selling price represented 6% and15%, respectively. Year to date, the increase in HITOX sales of 44% is primarily related to a tight supply of commodity titanium dioxide resulting in an increase in selling price which represents 43% of the year to date increase. During the same six month period of 2011, sales increased 17% of which volume and selling price presented 5% and 12%, respectively.
ALUPREM sales during the second quarter increased 97% as compared to an increase of 34% during the second quarter of 2011. Year to date, U.S. ALUPREM sales increased 101% as compared to an increase of 51% during the same six month period of 2011. The year over year increases are primarily due to an increase in volume of a significant customer.
· 19
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 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 and six month periods ended June 30, 2012 and 2011 to third party customers. All inter-company sales have been eliminated.
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2012 |
2011 |
Variance |
|
2012 |
2011 |
Variance |
||||||||||||
ALUPREM |
$ |
1,568 |
79% |
$ |
2,407 |
80% |
$ |
(839) |
-35% |
$ |
3,305 |
79% |
$ |
4,596 |
82% |
$ |
(1,291) |
-28% |
|
HITOX |
388 |
20% |
510 |
17% |
(122) |
-24% |
825 |
20% |
873 |
15% |
(48) |
-5% |
|||||||
TIOPREM |
30 |
1% |
90 |
3% |
(60) |
-67% |
43 |
1% |
155 |
3% |
(112) |
-72% |
|||||||
Total |
$ |
1,986 |
100% |
$ |
3,007 |
100% |
$ |
(1,021) |
-34% |
$ |
4,173 |
100% |
$ |
5,624 |
100% |
$ |
(1,451) |
-26% |
ALUPREM sales in Europe decreased 35% and 28% for the three and six month periods ended June 30, 2012, respectively, primarily due to a decrease in volume of 30% for the quarter and 26% year to date. The decrease in volume is primarily the result of the current European economy. This compares to an increase of 17% and 23% for the same three and six month periods of 2011, respectively.
HITOX sales in Europe decreased 24% and 5% for the three and six month periods ended June 30, 2012, respectively, primarily due to a weak European economy. For the three and six month periods ended June 30, 2012, volume decreased 29% and 22%, respectively. This compares to an increase in sales of 164% and 113% for the same three and six month periods of 2011, respectively. For the three and six month periods ended June 30, 2011, volume increased 43% and 42%, respectively, and selling price increased period sales 78% and 52%, respectively.
· 20
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, 2012 and 2011 to third party customers. All inter-company sales have been eliminated.
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|||||||||||||||||
Product |
2012 |
2011 |
Variance |
|
2012 |
2011 |
Variance |
||||||||||||
HITOX |
$ |
1,956 |
61% |
$ |
1,539 |
96% |
$ |
417 |
27% |
$ |
3,491 |
66% |
$ |
2,972 |
93% |
$ |
519 |
17% |
|
TIOPREM |
116 |
3% |
46 |
3% |
70 |
152% |
228 |
4% |
199 |
6% |
29 |
1031% |
|||||||
SYNTHETIC |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
OTHER |
34 |
1% |
15 |
1% |
19 |
127% |
38 |
1% |
29 |
1% |
9 |
31% |
|||||||
Total |
$ |
3,223 |
100% |
$ |
1,600 |
100% |
$ |
1,623 |
101% |
$ |
5,305 |
100% |
$ |
3,200 |
100% |
$ |
2,105 |
66% |
HITOX sales in Asia increased 27% and 17% for the three and six month periods ended June 30, 2012, respectively. For the quarter, selling price represented 49% of the increase which was partially offset by a decrease in volume of 22%. Year to date, sales increased 43% due to an increase in selling price and volume decreased 26%. This compares to an increase of 109% and 111% for the same three and six month periods of 2011, respectively, primarily related to an increase in volume 90% and 96%, respectively, and selling price of 19% and 15%.
TIOPREM sales in Asia increased 152% and 1031% during the three and six month periods ended June 30, 2012. The year of year increase is 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
Other Consolidated Results
Gross Margin: The following table represents our net sales, cost of sales and gross margin for the three month periods ended June 30, 2012 and 2011.
(Unaudited) |
||||||||
(In thousands) |
|
Three Months |
|
Six Months |
||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
NET SALES |
$ |
14,108 |
$ |
10,489 |
$ |
26,916 |
$ |
20,074 |
Cost of sales |
10,441 |
8,183 |
20,059 |
15,677 |
||||
GROSS MARGIN |
$ |
3,667 |
$ |
2,306 |
$ |
6,857 |
$ |
4,397 |
GROSS MARGIN % |
26.0 % |
22.0 % |
25.5 % |
21.9 % |
For the three month and six month periods ended June 30, 2012, gross margin increased approximately 4%. For both the quarter and year to date periods, gross margin increased primarily due to an increase in the selling price of approximately 15%. Increases in raw materials and energy costs reduced the gross margin approximately 7%, and a reduction in operating efficiencies resulted in a decrease of approximately 4%.
Selling, General, Administrative and Expenses (“SG&A”): SG&A expense increased approximately 29% during the three month period ended June 30, 2012 primarily due to an increase in selling expenses of approximately 120% and professional fees and services of approximately 194%. For the six month period ended June 30, 2012, SG&A expenses increased approximately 17% primarily due to an increase in selling expenses, professional fees and services which increased approximately 78% and 101%, respectively. The increase in selling expenses for both periods is primarily related to sales at TMM.
Interest Expense: Net interest expense for the three and six month periods ended June 30, 2012 increased approximately $11,000 and $57,000, respectively, as compared to the same periods of 2011, primarily due to an increase in our long and short-term financing.
Income Taxes: For the three and six month periods ended June 30, 2012, income tax expense consisted of federal income tax expense of approximately $287,000 and $583,000, respectively; state income tax expense of approximately $3,000 and $5,000, respectively; and foreign deferred tax expense of approximately $227,000 and $298,000, respectively. For the three and six month periods ended June 30, 2011, income tax expense consisted of federal income tax expense of approximately $6,000 and $11,000, respectively; state income tax expense of approximately $2,000 and $3,000, respectively; and foreign deferred tax expense of approximately $83,000 and $124,000, respectively. Taxes are based on an estimated annualized consolidated effective tax rate of 23.1% for the year ended December 31, 2012.
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, |
||
2012 |
2011 |
|||
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at June 30, 2012, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation. |
$ |
1,497 |
$ |
1,680 |
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at June 30, 2012, due April 1, 2013, secured by a Caterpillar front-end loader. |
22 |
35 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at June 30, 2012, due July 1, 2029, secured by TPT's land and office building purchased July 2004. (€309) |
391 |
413 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at June 30, 2012, due January 31, 2030, secured by TPT's land and building purchased January 2005. (€309) |
391 |
412 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at June 30, 2012, due July 31, 2015, secured by TPT's assets. (€133) |
169 |
205 |
||
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at June 30, 2012, due July 5, 2014, secured by TPT's assets. (€451) |
571 |
736 |
||
Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at June 30, 2012, due March 1, 2015, secured by TMM's property, plant and equipment. (RM 1,702) |
536 |
- |
||
Total |
3,577 |
3,481 |
||
Less current maturities |
813 |
813 |
||
Total long-term debt and notes payable - financial institutions |
$ |
2,764 |
$ |
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. The Company received $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of whom are directors of the Company and another of whom is a greater than 5% shareholder.
On May 3, 2012, the five remaining holders, four of whom are directors of the Company and another whom is a greater than 5% shareholder, of our Debentures converted their Debentures, and the Company issued 547,172 shares of common stock upon conversion of such Debentures.
TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Short-term Debt
U.S. 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 June 30, 2012, the Company had $1,000,000 borrowed on the Line at a rate of 5.50%.
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, 2012, the ratio of cash flow to debt service was 7.6 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 3.694%), is secured by TPT’s accounts receivable and inventory. At June 30, 2012, TPT had utilized €807,000 ($1,022,000) 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 bank could foreclose on the assets of TPT.
TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Malaysian Operations
On May 21, 2012, our subsidiary, TMM, amended its banking facility with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2012 to April 30, 2013. 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; (3) a foreign exchange contract limit of RM 5,000,000 ($157,000, $2,033,000 and $1,574,000, respectively); and a term loan of RM 3,500,000 of which RM 1,702,000 had been drawn as of June 30, 2012 ($1,102,000 and $536,000, 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 ($315,000, $2,927,000, $378,000 and $7,870,000, respectively). At June 30, 2012, the outstanding balance on the line of credit was RM 700,000 ($220,000) at a current interest rate of 4.24% and RM 4,589,000 ($1,445,000) was outstanding on the foreign exchange contract at a current interest rate of 3%.
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, 2012, the outstanding balance on the ECR facilities was RM 11,293,000 ($3,554,000) at a current interest rate of 5.0%.
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 $1,317,000 for the six months ended June 30, 2012 as compared to a decrease of $265,000 for the six months ended June 30, 2011.
(Unaudited) |
||||
Six Months Ended June 30, |
||||
(In thousands) |
|
2012 |
|
2011 |
Net cash provided by (used in) |
||||
Operating activities |
$ |
(2,617) |
$ |
564 |
Investing activities |
(2,031) |
(1,874) |
||
Financing activities |
3,409 |
952 |
||
Effect of exchange rate fluctuations |
(78) |
93 |
||
Net decrease in cash and cash equivalents |
$ |
(1,317) |
$ |
(265) |
Operating Activities
Operating activities used $2,617,000 in cash during the first six months of 2012 as compared to providing cash of $564,000 during the same period of 2011. Following are the major changes in working capital affecting cash used by operating activities for the six month period ended June 30, 2012:
TOR Minerals International, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results
of Operations
Investing Activities
We used cash of $2,031,000 in investing activities during the first six months of 2012 primarily for the purchase of fixed assets as compared to $1,874,000 during the same period 2011. Net investments for each of our three locations are as follows:
Financing Activities
Financing activities provided $3,409,000 during the six month period ended June 30, 2012 as compared to $952,000 for the same period 2011. Significant factors relating to financing activities include the following:
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.
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.
Part II - Other Information
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
On May 3, 2012, the five remaining holders, four of whom are directors of the Company and another whom is a greater than 5% shareholder, of our Debentures converted their Debentures, and the Company issued 547,172 shares of common stock upon conversion of such Debentures.
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.
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 |
|
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. |
|
|
|||
____________ |
||||
(Registrant) |
||||
Date: |
August 10, 2012 |
OLAF KARASCH |
||
Date: |
August 10, 2012 |
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 10, 2012
/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 10, 2012
/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, 2012 (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 10, 2012
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, 2012 (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 10, 2012
Inventories (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2012
|
Dec. 31, 2011
|
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 17,686 | $ 13,170 |
Work in progress | 2,604 | 1,709 |
Finished goods | 3,154 | 3,254 |
Supplies | 852 | 804 |
Total Inventories | 24,296 | 18,937 |
Inventory reserve | (296) | (264) |
Net Inventories | $ 24,000 | $ 18,673 |
Debt (Detail Textuals)
|
Jun. 30, 2012
|
---|---|
Fixed term note payable 6.65% due January 1, 2016
|
|
Debt Instrument [Line Items] | |
Interest rate on note payable | 6.65% |
Fixed term note payable 5.24% due April 1, 2013
|
|
Debt Instrument [Line Items] | |
Interest rate on note payable | 5.24% |
Fixed term note payable 7.8% due July 1, 2029
|
|
Debt Instrument [Line Items] | |
Interest rate on note payable | 7.80% |
Fixed term note payable 4.6% due January 31, 2030
|
|
Debt Instrument [Line Items] | |
Interest rate on note payable | 4.60% |
Fixed term note payable 4.05% due July 31, 2015
|
|
Debt Instrument [Line Items] | |
Interest rate on note payable | 4.05% |
Fixed term note payable 4.25% due July 5, 2014
|
|
Debt Instrument [Line Items] | |
Interest rate on note payable | 4.25% |
Fixed term note payable 5.2% due March 1, 2015
|
|
Debt Instrument [Line Items] | |
Interest rate on note payable | 5.20% |
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