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TOR MINERALS INTERNATIONAL 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31
  3. Ex-31
  4. Ex-32
  5. Ex-32
  6. Ex-32
Form 10Q - Third Quarter 2010

                                                                                     

 United States
Securities and Exchange Commission

Washington, D. C.  20549

____________________________

FORM 10-Q
____________________________

(Mark One)

[X]

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


For the quarterly period ended September 30, 2010

OR

[__]

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

For the transition period from __________ to __________

Delaware
(State or other jurisdiction of incorporation or organization)

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

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

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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]
 

No [__]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [__]
 

No [__]

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

Large accelerated filer [__]

Accelerated filer [__]

Non-accelerated filer [__]

Smaller reporting company [X]

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

Yes [__]

No [X]

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

Class
Common Stock, $0.25 par value

Shares Outstanding as of October 31, 2010
1,909,188

                                                                                                                1



                                                                                     

Table of Contents

 

Part I - Financial Information

Page No.

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Operations --
Three and nine months ended September 30, 2010 and 2009

3

Condensed Consolidated Statements of Comprehensive Income (Loss) --
Three and nine months ended September 30, 2010 and 2009

4

Condensed Consolidated Balance Sheets --
September 30, 2010 and December 31, 2009

5

Condensed Consolidated Statements of Cash Flows --
Nine months ended September 30, 2010 and 2009

6

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

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

19

Item 4.

Controls and Procedures

30

Part II - Other Information

Item 6.

Exhibits

31

Signatures

31

Forward Looking Information

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

                                                                                                                2



                                                                                     

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

 

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

 

2010

 

2009

 

2010

 

2009

NET SALES

$

7,543 

$

6,441 

$

22,327 

$

17,798 

Cost of sales

6,234 

5,492 

17,765 

15,170 

GROSS MARGIN

 

1,309 

 

949 

 

4,562 

 

2,628 

Technical services and research and development

66 

54 

184 

146 

Selling, general and administrative expenses

846 

687 

2,666 

2,423 

OPERATING INCOME

 

397 

 

208 

 

1,712 

 

59 

OTHER INCOME (EXPENSE):

Interest income

Interest expense

(110)

(159)

(343)

(407)

Gain (loss) on foreign currency exchange rate

(53)

(5)

(47)

37 

Other, net

INCOME (LOSS) BEFORE INCOME TAX

 

234 

 

44 

 

1,322 

 

(305)

Income tax expense (benefit)

(2)

61 

32 

(11)

NET INCOME (LOSS)

$

236 

$

(17)

$

1,290 

$

(294)

Less:  Preferred Stock Dividends

15 

15 

45 

45 

Income (Loss) Available to Common Shareholders

$

221 

$

(32)

$

1,245 

$

(339)

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

Basic

$

0.12 

$

(0.02)

$

0.66 

$

(0.18)

Diluted

$

0.09 

$

(0.02)

$

0.51 

$

(0.18)

Weighted average common shares outstanding:

Basic

1,908 

1,891 

1,899 

1,891 

Diluted

2,586 

1,891 

2,455 

1,891 

See accompanying notes.

                                                                                                                3



                                                                                     

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

 

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

 

2010

 

2009

 

2010

 

2009

NET INCOME (LOSS)

$

236 

 $

(17)

$

1,290 

 $

(294)

OTHER COMPREHENSIVE INCOME, net of tax

Currency translation adjustment, net of tax:

Net foreign currency translation adjustment gain (loss)

1,162 

362 

1,252 

162 

Other comprehensive income, net of tax

1,162 

362 

1,252 

162 

COMPREHENSIVE INCOME (LOSS)

$

1,398 

 $

345 

$

2,542 

 $

(132)

See accompanying notes.

                                                                                                                4



                                                                                     

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

 

 

September 30,
2010

 

December 31,
2009

 

 

(Unaudited)

 

 

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

 $

564 

 $

1,002 

Trade accounts receivable, net

4,016 

3,380 

Inventories

10,403 

9,101 

Other current assets

888 

540 

Total current assets

15,871 

14,023 

PROPERTY, PLANT AND EQUIPMENT, net

18,901 

18,800 

OTHER ASSETS

45 

53 

Total Assets

 $

34,817 

 $

32,876 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

 $

2,075 

 $

1,452 

Accrued expenses

1,443 

1,036 

Notes payable under lines of credit

1,529 

3,313 

Export credit refinancing facility

477 

Current deferred tax liability

50 

60 

Current maturities - capital leases

68 

140 

Current maturities of long-term debt – financial institutions

211 

435 

Total current liabilities

5,853 

6,436 

LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES

Capital leases

20 

49 

Long-term debt – financial institutions

1,254 

1,477 

Long-term debt – convertible debentures, net

1,197 

1,122 

DEFERRED TAX LIABILITY

664 

577 

Total liabilities

8,988 

9,661 

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Series A 6% convertible preferred stock $.01 par value:
authorized, 5,000 shares; 200 shares issued and
outstanding at 9/30/2010 and 12/31/2009

Common stock $1.25 par value:  authorized, 6,000 shares;
1,909 and 1,891 shares issued and outstanding
at 9/30/2010 and 12/31/2009, respectively

2,386 

2,363 

Additional paid-in capital

25,308 

25,214 

Accumulated deficit

(6,562)

(7,807)

Accumulated other comprehensive income:

Cumulative translation adjustment

4,695 

3,443 

Total shareholders' equity

25,829 

23,215 

Total Liabilities and Shareholders' Equity

 $

34,817 

 $

32,876 

See accompanying notes.

                                                                                                                5



                                                                                     

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

Nine Months Ended September 30,

2010

 

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net Income (Loss)

$

1,290 

$

(294)

Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:

Depreciation

1,421 

1,340 

Share-based compensation

91 

78 

Warrant interest expense

50 

27 

Deferred income taxes

32 

(17)

Provision for bad debts

(61)

Changes in working capital:

Trade accounts receivables

(640)

(384)

Inventories

(827)

2,056 

Other current assets

(339)

(324)

Accounts payable and accrued expenses

972 

(1,436)

Net cash provided by operating activities

2,050 

985 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

Additions to property, plant and equipment

(1,026)

(807)

Proceeds from sales of property, plant and equipment

17 

Net cash used in investing activities

(1,009)

(807)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

Net (payments on) proceeds from lines of credit

(1,725)

926 

Net proceeds from (payments on) export credit refinancing facility

477 

(432)

Payments on capital lease

(96)

(4)

Payments on long-term bank debt

(399)

(1,208)

Proceeds from convertible debentures

1,500 

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

51 

Preferred stock dividends paid

(45)

(45)

Net cash (used in) provided by financing activities

(1,737)

737 

Effect of exchange rate fluctuations on cash and cash equivalents

258 

(213)

Net (decrease) increase in cash and cash equivalents

(438)

702 

Cash and cash equivalents at beginning of year

1,002 

191 

Cash and cash equivalents at end of period

$

564 

$

893 

Supplemental cash flow disclosures:

 

Interest paid

$

343 

$

377 

See accompanying notes.

                                                                                                                6



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

 

Note 1.

Going Concern

The condensed consolidated financial statements included in this report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As discussed in our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2010, the Company was not in compliance with the Consolidated Fixed Charge Ratio and the Consolidated Funded Debt to EBITDA Ratio covenants under our US Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. (the “Bank”) as of December 31, 2008 and March 31, 2009.  As a result, the Bank notified the Company of its decision to terminate the Credit Agreement.

As reported in the Company’s Form 8-K filed with the SEC on October 4, 2010, the Bank extended the maturity date on our Line of Credit (the “Line”) from August 15, 2010 to February 15, 2011.  As a result, all of the Company’s debt owed to the Bank matures on February 15, 2011.  The Company repaid the outstanding balance on its two Term Loans with the Bank in 2009, and at September 30, 2010, the Company had $500,000 drawn on the Line.  In addition, the Company was in compliance with the revised financial covenants for each quarter ended from June 30, 2009 through September 30, 2010.

The Company is working diligently to establish a corporate lending relationship with a new financial institution for the Company’s US operations prior to February 15, 2011, the revised maturity date under the Credit Agreement, to refinance outstanding debt with the Bank prior to its revised maturity.  However, there can be no assurance that the Company will be able to successfully refinance the debt due to the Bank.  If the Company is unable to refinance the debt due to the Bank prior to its revised maturity or if the Company defaults under the terms of the Credit Agreement prior to its revised maturity and the Bank were to accelerate the maturity of such indebtedness, the Company does not have sufficient liquidity to pay off the indebtedness owed to the Bank, and the Bank would be entitled to exercise all of its rights and remedies as a secured lender under the Credit Agreement.

The Company’s two subsidiaries, TOR Minerals Malaysia, Sdn. Bhd. (“TMM”) and TOR Processing and Trade, BV (“TPT”) have short-term credit facilities and term loans at banks in Malaysia and the Netherlands, respectively.  At September 30, 2010, TMM’s borrowings under the credit facilities and term loans with HSBC Bank Malaysia, Bhd. (“HSBC”) and RHB Bank, Bhd. (“RHB”) totaled $543,000 and TPT’s borrowings under the credit facility and term loans with Rabobank totaled $2,362,000.  TMM’s credit facilities with HSBC matured on October 31, 2010 and TPT’s credit facility with Rabobank, which was renewed on January 1, 2010, has no stated maturity date.

Additionally, the credit facilities with HSBC, RHB and Rabobank are subject to demand provisions and are subject to certain subjective acceleration covenants based on the judgment of the banks.  While the banks have made no indication that they will demand payment of the debt in Malaysia or in the Netherlands, in light of the Company’s liquidity difficulties, there can be no assurances that this debt will not be called for payment or that any stated maturity date in a renewal or amendment to these credit facilities will be extended for a sufficient amount of time to allow the Company to meet its commitments under the facilities or find alternate financing arrangements.

The events described above raise doubt about the Company’s ability to continue as a going concern.  Our ability to continue to operate as a going concern is dependent on our ability to successfully establish a corporate lending relationship with a new financial institution for the US operation, and/or raise sufficient new capital and improve our operating cash flows to a sufficient level.

                                                                                                                7



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

 

Note 2.

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, 2009, in our Annual Report on Form 10-K filed with the SEC on March 24, 2010.  Operating results for the three month and nine month periods ended September 30, 2010, are not necessarily indicative of the results for the year ending December 31, 2010.

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

Income taxes consisted of federal tax benefit of $12,000 and state income tax expense of $3,000, respectively, and foreign deferred tax expense of approximately $7,000 for the three month period ended September 30, 2010, compared to a foreign deferred tax expense of approximately $61,000 for the same three month period in 2009.  For the nine month period ended September 30, 2010, we recorded state tax expense of $8,000 and foreign deferred tax expense of $24,000, compared to a foreign deferred tax benefit of $13,000 and state income tax expense of $2,000 during the same period of 2009.  Taxes are based on an estimated annualized consolidated effective rate of 2.4% for the year ending December 31, 2010.

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, 2006 through December 31, 2009.  Our state returns, which are filed in Texas, Ohio and Michigan, are subject to examination for the tax years ended December 31, 2005 through December 31, 2009.  Our tax returns in various non-US jurisdictions are subject to examination for various tax years ended December 31, 2004 through December 31, 2009.

As of January 1, 2010, we did not have any unrecognized tax benefits and there was no change during the nine month period ended September 30, 2010.  In addition, we did not recognize any interest and penalties in our consolidated financial statements during the three and nine month periods ended September 30, 2010.  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.

                                                                                                                8



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

 

Recently Adopted and Recently Issued Accounting Standards

Transfers and Servicing, Accounting for Transfers of Financial Assets

In December 2009, the Financial Accounting Standards Board (the “FASB”) issued guidance addressing the accounting for transfers of financial assets. This guidance became effective for the Company on January 1, 2010. The guidance changes how companies account for transfers of financial assets and eliminates the concept of qualifying special-purpose entities. Adoption of the guidance did not have an impact on the Company’s results of operations, financial position or liquidity.

Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities

In December 2009, the FASB issued guidance relating to improvements to financial reporting by enterprises involved with variable interest entities. This guidance became effective for the Company on January 1, 2010 and requires the enterprise to qualitatively assess if it is the primary beneficiary of a variable-interest entity (VIE), and, if so, the VIE must be consolidated. Adoption of the standard did not have a material impact on the Company’s results of operations, financial position or liquidity.

The Company reviewed all other 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.

Note 3.

Long-Term Debt

A summary of long-term debt to financial institutions follows:

(Unaudited)

(In thousands)

September 30,

December 31,

2010

2009

Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2010, due April 1, 2013, secured by a Caterpillar front-end loader.

$

66 

$

84 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2010, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (367 Euro)

500 

547 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at September 30, 2010, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (365 Euro)

498 

543 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at September 30, 2010, due July 31, 2015, secured by TPT's assets.  (246 Euro)

335 

406 

U.S. Dollar term note payable to a Malaysian bank, secured by TMM's property, plant and equipment, matured June 30, 2010.

191 

U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 1.625% at September 30, 2010, due May 30, 2011, secured by TMM's property, plant and equipment.

66 

141 

Total

1,465 

1,912 

Less current maturities

211 

435 

Total long-term debt and notes payable - financial institutions

$

1,254 

$

1,477 

                                                                                                                9



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

 

US Bank Credit Facility and Term Loans

Bank of America Credit Facility and Term Loans

On April 30, 2009, we and the Bank amended the Credit Agreement.  Under the terms of the amended credit agreement, subject to our compliance with the terms and conditions contained in the amendment, including revised financial covenants, the Bank agreed not to exercise any of its rights or remedies relating to the existing events of default under the Credit Agreement.  We also agreed that we will use all proceeds in excess of $1 million that we received after May 1, 2009 from the issuance of any of our capital stock, from capital contributions in respect to our capital stock, from the issuance of debentures or the incurrence of permitted subordinated indebtedness (as defined in the Credit Agreement) to prepay the loans and other obligations under the Credit Agreement.  As a result, the Company applied $500,000 received from the sale of Debentures to its outstanding real estate loan with the Bank in August 2009.

On September 28, 2009 we amended the Credit Agreement with the Bank to extend the maturity date on the Line and Term Loan from October 1, 2009 to February 15, 2010.  Under the terms of the amendment, the interest rate on the Line and the Term Loan was increased from prime plus two and one-half percent to prime plus three percent.  In addition, the Line was reduced from $2,500,000 to $2,250,000.  On February 12, 2010, we amended the Credit Agreement with the Bank to extend the maturity date on the Line from February 15, 2010 to August 15, 2010.

On September 30, 2010, we amended the Credit Agreement with the Bank to extend the maturity date on the Line from August 15, 2010 to February 15, 2011.  Under the terms of the amendment, the Line was reduced from $2,250,000 to $1,500,000 (subject to a defined borrowing base) and the interest rate remained at Prime plus three percent.  The loan covenant regarding the current ratio remained unchanged at 1.0 to 1.0 and the fixed charge coverage increased from 0.85 to 1.0 to 1.10 to 1.0.  As a result of this amendment, all of our debt owed to the Bank will mature on February 15, 2011, provided, if we default on obligations contained in the amendment, the Bank will have the rights and remedies available to it under the Credit Agreement and applicable law.  The Line is secured by the accounts receivable and inventory of the US Operation.

At September 30, 2010, the financial covenants were as follows:

  • Covenants to be based solely on the results of the US operation

  • Current Ratio – Maintain a ratio of current assets to current liabilities of at least 1.0 to 1.0 (1.65 to 1.0 as of the quarter ended September 30, 2010)

  • Fixed Charge Coverage Ratio – Maintain a fixed charge coverage ratio of at least 1.1 to 1.0 (6.65 to 1.0 for the quarter ended September 30, 2010)

At September 30, 2010, the outstanding balance on the Credit Agreement consisted of $500,000 on the Line and we had $1,000,000 available on that date based on eligible accounts receivable and inventory borrowing limitations.  The interest rate on the Line was 6.25% at September 30, 2010.

Six-percent Convertible Subordinated Debentures

As reported in the Company’s Form 8-K filed with the SEC on May 6, 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, on May 4, 2009, $1 million from the sale of Debentures due May 4, 2016, from three of the Company’s directors.

As reported in the Company’s Form 10-Q filed with the SEC on August 10, 2009, the Company received proceeds of $500,000 from the sale of additional Debentures to six additional accredited investors, one of which is a director and another of which is a greater than 5% shareholder.  As noted above, under the terms of the Credit Agreement, the Company applied the $500,000 received from the sale of Debentures to its outstanding real estate loan with the Bank in August 2009.

                                                                                                                10



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

Other Term Loans

On March 31, 2008, we entered into a term loan with Holt Financing in the amount of $120,000.  The proceeds of the loan were used to purchase a new Caterpillar front-end loader.  The loan provides for amortization over five years with interest fixed at a rate of 5.24%.  Monthly principal and interest payments commenced on May 1, 2008, and will continue through April 1, 2013.  The monthly principal and interest payment is $2,275.  The loan balance at September 30, 2010 was $66,000.

Netherlands Bank Credit Facility, Mortgage and Term Loan

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 Euro 650,000 to Euro 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 7.3%), is secured by TPT’s accounts receivable and inventory.  At September 30, 2010, TPT had utilized Euro 755,000 ($1,029,000) 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 Bank Credit Facility and Term Loan

The Company’s subsidiary, TMM, is negotiating with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date of its banking facility which matured on October 31, 2010.  The facility with HSBC includes the following in Malaysian Ringgits (“RM”):  (1) a banker’s acceptance (“BA”) of RM 500,000; (2) an export line (“ECR”) of RM 2,500,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($162,000, $809,000 and $1,619,000, respectively).

TMM is currently in the process of renewing its banking facility with RHB Bank Berhad (“RHB”) which matured on October 31, 2009.  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; and (3) a foreign exchange contract limit of RM 25,000,000 ($324,000, $3,011,000 and $8,094,000, 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 September 30, 2010, TMM had utilized RM 1,472,000 ($477,000) of the ECR facilities.

TMM is currently negotiating with both HSBC and RHB to renew or amend the credit facilities to provide for, among other things, an extended stated maturity date of both bank facilities.  The Company is confident that the bank facilities will be renewed; however, there can be no assurance that the facilities will be renewed, amended or extended or as to the terms and conditions of the extension of the facility.  If these lenders are unwilling to extend the maturity dates of these facilities, TMM may not have sufficient liquidity to pay off this indebtedness.

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.

                                                                                                                11



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

 

Note 4.

Series A Convertible Preferred Stock Dividend

On September 5, 2010, the Company declared a dividend, in the amount of $15,000, or $0.075 per share, for the quarterly period ended September 30, 2010, payable on October 1, 2010, to the holders of record of the Series A Convertible Preferred Stock as of the close of business on September 5, 2010.

Note 5.

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 September 30, 2010.  The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at September 30, 2010.

 

September 30, 2010

(In thousands)

Balance at
September 30, 2010

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

Significant Other Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)

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

 $

30 

 $

 $

30 

 $

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:

 

September 30, 2010

 

December 31, 2009

(In thousands)

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

Long-term debt, including current portion

 $

1,465 

 $

1,198 

 $

1,912 

 $

1,603 

Long-term debt – convertible debentures

1,500 

720 

1,500 

569 

 $

2,965 

 $

1,918 

 $

3,412 

 $

2,172 

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

                                                                                                                12



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

 

Note 6.

Capital Lease

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 September 30, 2010 was approximately Euro 148,000 ($202,000).  Amortization of assets under capital leases is included in depreciation expense.  The capital lease is in the amount of Euro 377,351 including interest of Euro 62,113 (implicit interest rate 6.3%) and Euro 238 in executory costs.  The lease term is 72 months with equal monthly installments of Euro 5,241 ($7,144).  The net present value of the lease at September 30, 2010 was Euro 41,000 ($56,000).

On October 30, 2007, the Company entered into a financial lease agreement with Dell Financial Services for two computer servers.  The cost of the equipment under the capital lease, in the amount of $12,420, is included in the balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2010 was approximately $13,000.  The capital lease is in the amount of $13,217 including interest of $800 (implicit interest rate 4.1%).  The lease matured September 30, 2010.

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 September 30, 2010 was approximately $11,000.  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 September 30, 2010 was $14,000.

On September 24, 2009, the Company entered into a financial lease agreement with Sympatec for a particle analyzer.  The cost of the equipment under the capital lease, in the amount of $68,722, is included in the balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2010 was approximately $8,000.  The capital lease is in the amount of $74,220 including interest of $5,498 (implicit interest rate 14.45%).  The lease matured August 24, 2010.

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 balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at September 30, 2010 was not significant.  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 September 30, 2010 was $18,000.

                                                                                                                13



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

 

Note 7.

Calculation of Basic and Diluted Earnings per Share

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

(in thousands, except per share amounts)

Three Months
Ended September 30,

Nine Months
Ended September 30,

2010

 

2009

2010

 

2009

Numerator:

Net Income (Loss)

$

236 

$

(17)

$

1,290 

$

(294)

Preferred Stock Dividends

(15)

(15)

(45)

(45)

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

221 

(32)

1,245 

(339)

Effect of dilutive securities:

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

$

221 

$

(32)

$

1,245 

$

(339)

Denominator:

Denominator for basic income (loss) per share -
   weighted-average shares

1,908 

1,891 

1,899 

1,891 

Effect of dilutive securities:

Employee stock options

12 

11 

Detachable warrants

666 

545 

Dilutive potential common shares

678 

556 

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

2,586 

1,891 

2,455 

1,891 

Basic income (loss) per common share

$

0.12 

$

(0.02)

$

0.66 

$

(0.18)

Diluted income (loss) per common share

$

0.09 

$

(0.02)

$

0.51 

$

(0.18)

Excluded from the computation of diluted earnings per share were a total of 111,000 common shares related to the 200,000 convertible preferred shares at September 30, 2010 and 2009.  The convertible preferred shares were not included in the computation of diluted earnings per share as the effect would be antidilutive.

Approximately 153,000 and 155,000 employee stock options were excluded from the computation of diluted earnings per share for the three and nine month periods ended September 30, 2010, respectively; and approximately 175,000 were excluded for the same three and nine month periods of 2009.  The employee stock options were excluded as the effect would be antidilutive.

For the three and nine month periods ended September 30, 2010 and 2009, approximately 315,000 and 881,000 of shares of common stock, respectively, exercisable under the warrants were excluded from the computation of diluted earnings per share as the effect would be antidilutive.

For the three and nine month periods ended September 30, 2009, approximately 566,000 shares of common stock convertible under debentures were excluded from the computation of diluted earnings per share as the effect would be antidilutive.

                                                                                                                14



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

 

Note 8.

Segment Information

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

(In thousands)

United States
(Corpus Christi)

Europe
(TPT)

Asia
(TMM)

Inter-Company
Eliminations

Consolidated

As of and for the three months ended:

September 30, 2010

Net Sales:

Customer sales

$

4,753 

$

1,953 

$

837 

$

$

7,543 

Intercompany sales

575 

1,254 

(1,829)

Total Net Sales

$

4,753 

$

2,528 

$

2,091 

$

(1,829)

$

7,543 

Location profit (loss)

$

94 

$

308 

$

(125)

$

(41)

$

236 

September 30, 2009

Net Sales:

Customer sales

$

4,243 

$

1,577 

$

621 

$

$

6,441 

Intercompany sales

290 

909 

(1,205)

Total Net Sales

$

4,249 

$

1,867 

$

1,530 

$

(1,205)

$

6,441 

Location profit (loss)

$

(17)

$

51 

$

21 

$

(72)

$

(17)

As of and for the nine months ended:

September 30, 2010

Net Sales:

Customer sales

$

13,951 

$

6,122 

$

2,254 

$

$

22,327 

Intercompany sales

24 

1,532 

3,896 

(5,452)

Total Net Sales

$

13,975 

$

7,654 

$

6,150 

$

(5,452)

$

22,327 

Location profit (loss)

$

587 

$

665 

$

(27)

$

65 

$

1,290 

Location assets

$

11,811 

$

7,733 

$

15,273 

$

$

34,817 

September 30, 2009

Net Sales:

Customer sales

$

12,049 

$

4,194 

$

1,555 

$

$

17,798 

Intercompany sales

1,633 

2,333 

(3,972)

Total Net Sales

$

12,055 

$

5,827 

$

3,888 

$

(3,972)

$

17,798 

Location profit (loss)

$

(159)

$

(128)

$

(66)

$

59 

$

(294)

Location assets

$

11,935 

$

8,338 

$

13,545 

$

$

33,818 

                                                                                                                15



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 synthetic rutile (“SR”), HITOX and ALUPREM.

Note 9.

Stock Options and Equity Compensation Plan

For the three month period ended September 30, 2009, the Company recorded stock-based employee compensation expense of $28,000.  For the nine month period ended September 30, 2010 and 2009, the Company recorded stock-based employee compensation expense of $91,000 and $78,000, respectively.  This compensation expense is included in the selling, general and administrative expenses in the accompanying consolidated statements of operations.

The Company granted 23,404 and 137,500 options during the nine month periods ended September 30, 2010 and 2009.

As of September 30, 2010, all outstanding options were fully vested, therefore, there is no unrecognized option compensation expense related to non-vested awards.

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 10.

Inventories

A summary of inventory follows:

(In thousands)

September 30,

 

December 31,

2010

 

2009

Raw materials

$

5,440 

$

4,178 

Work in progress

1,376 

1,173 

Finished goods

2,952 

3,311 

Supplies

779 

710 

Total Inventories

10,547 

9,372 

Inventory reserve

(144)

(271)

Net Inventories

$

10,403 

$

9,101 

                                                                                                                16



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

 

Note 11.

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.

Natural Gas Contracts

We manage the risk of changes in natural gas supply prices at our Corpus Christi operation using derivative financial instruments.  Natural gas market prices are volatile and we effectively fix prices for a portion of our natural gas production requirements through the use of swaps.  A swap is a contract between us and a third party to exchange cash based on a designated natural gas price.  Swap contracts require payment to or from us for the amount, if any, that the monthly published gas prices from the source specified in the contract differ from the prices of the New York Mercantile Exchange (NYMEX) natural gas futures during a specified period.  There are no initial cash requirements related to the swap.  The contracts are traded in months forward and settlement dates are scheduled to coincide with gas purchases during that future period.  We report the fair value of the derivatives on our balance sheet and changes in fair value are recognized in cost of sales in the period of the change.

On November 18, 2008, the Company entered into a natural gas contract with Bank of America, N.A. for 40,000 MM/Btu’s of natural gas.  The contract settled on March 1, 2009 at which time we recorded a net expense of approximately $27,000 as a component of our cost of sales.  At September 30, 2010, there were no natural gas contracts outstanding.

                                                                                                                17



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 balance sheet and changes in the fair value are recognized in earnings in the period of the change.

 

At September 30, 2010, we marked these contracts to market, recording $30,000 as a current asset on the balance sheet.  For the three and nine month periods ended September 30, 2010, we recorded $30,000 and $143,000, respectively, as a component of our net income.  For the three and nine month periods ended September 30, 2009, we recorded $22,000 and $31,000, 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

 

 

September 30,

 

December 31,

Derivative Instrument

 

Location

 

2010

 

2009

Foreign Currency Exchange Contracts

Other Current Assets

$

30 

$

 

 

 

$

30 

$

 

The following table summarizes the impact of the Company’s derivatives on the condensed consolidated financial statements of operations for the three and nine month periods ended September 30, 2010 and 2009:

 

 

 

 

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

 

Location of Gain

 

Three Months Ended

 

Nine Months Ended

Derivative

 

(Loss) on Derivative

 

September 30,

 

September 30,

Instrument

 

Instrument

 

2010

 

2009

 

2010

 

2009

Natural Gas
   Swap Contract

Cost of Sales

 $

 $

 $

 $

(27)

Foreign Currency
   Exchange Contracts

Other Income
 (Expense)

30 

22 

143 

31 

 

 

 

 $

30 

 $

22 

 $

143 

 $

                                                                                                                18



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, and flame retardants and other uses in the manufacture of paints, industrial coatings, plastics, and catalysts applications.  We have operations in the US, Asia and Europe.

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

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

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

Following are our results for the three and nine month periods ended September 30, 2010 and 2009.  The income (loss) per common share and the weighted average common shares outstanding have been adjusted to reflect the one-for-five reverse stock split which was effective February 19, 2010.

(Unaudited)

(In thousands, except per share amounts)

 

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 

 

2010

 

2009

 

2010

 

2009

NET SALES

 $

7,543 

 $

6,441 

 $

22,327 

 $

17,798 

Cost of sales

6,234 

5,492 

17,765 

15,170 

GROSS MARGIN

 

1,309 

 

949 

 

4,562 

 

2,628 

Technical services and research and development

66 

54 

184 

146 

Selling, general and administrative expenses

846 

687 

2,666 

2,423 

OPERATING INCOME

 

397 

 

208 

 

1,712 

 

59 

OTHER INCOME (EXPENSE):

Interest income

Interest expense

(110)

(159)

(343)

(407)

Gain (loss) on foreign currency exchange rate

(53)

(5)

(47)

37 

Other, net

INCOME (LOSS) BEFORE INCOME TAX

 

234 

 

44 

 

1,322 

 

(305)

Income tax expense (benefit)

(2)

61 

32 

(11)

NET INCOME (LOSS)

 $

236 

 $

(17)

 $

1,290 

 $

(294)

 

 

 

 

 

 

 

 

 

Income (loss) per common share:

Basic

 $

0.12 

 $

(0.02)

 $

0.66 

 $

(0.18)

Diluted

 $

0.09 

 $

(0.02)

 $

0.51 

 $

(0.18)

                                                                                                                19



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

2010 Outlook

For the duration of 2010, we anticipate market conditions for our products in certain end markets to continue to improve.  Based on our conversations with customers, economic data and information from other market participants, it appears that the worldwide demand in the paint and plastics markets has started to stabilize.  We saw significant improvement in our more mature HITOX sales during the last quarter of 2009, which has continued during the first nine months of 2010.  In Asia, HITOX sales for in-country use have increased and we are now starting to see production rates for HITOX used in export products increase.  In addition to improving market conditions in the US and Asia, HITOX sales are beginning to benefit from further market penetration in niche markets, which we are hopeful will generate additional incremental revenue for HITOX gong forward.

We introduced TIOPREM, a titanium dioxide colored pigment, into the market in 2008.  While the rate of adoption has been slower than we had originally anticipated, customer activity has picked up over the past several months and we are now shipping this product to customers in both the US and Europe.

The second product we recently introduced, OPTILOAD, is a specialty alumina used in high performance flame retardant applications.  Our new alumina product offers a high performance, cost effective and environmentally friendly solution for meeting the most stringent flame retardant and smoke suppression standards that are being implemented in the US.  This is an emerging market with large growth opportunity in the US during 2010 and beyond.

From the cost side, increases in energy and raw material prices, as well as the continued currency movements, are expected to be a challenge; and while we do not plan to fill the positions eliminated in 2008 and 2009, we have reinstated our employees’ salaries back to the 2008 level.  We are committed to securing and improving on the savings realized in 2009 from procurement, overhead and working capital programs and continuing to strengthen the balance sheet using operating cash flows to further reduce debt levels.

Looking to the future

Our strategy focuses on pursuing niche markets for paints, plastics, papers and catalysts applications with high value-added products that produce attractive profit margins and have high barriers to entry by competitors.  Our focus is on products that will provide a solid value proposition with our customers and therefore sell at a higher average price and produce more attractive gross margins for us.  In addition, the high value-added nature of these products will allow us to create close partnerships with our customers and develop long-term relationships with recurring and predictable revenue streams.

As we look at our HITOX business going forward, we expect our traditional HITOX business to remain tied to the strength of the US and global economy.  Our key growth strategy is to introduce newly developed colored pigments that will expand our addressable market and increase our sales potential.  We are applying technologies developed in our Netherlands operation to create new high performance fillers and pigments.  Unlike our traditional HITOX products, our new products have higher performance characteristics, much broader end market applications and provide for value-added premium pricing.

Actual results could differ materially from those indicated by these forward looking statements because of various risks and uncertainties.  See the information under the caption “Forward Looking Information” appearing below the Table of Contents of this report.

                                                                                                                20



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 nine month periods ended September 30, 2010 increased approximately $1,102,000 or 17% and $4,529,000 or 25%, respectively, as compared to the same three and nine month periods of 2009 when we experienced declines in our consolidated net sales of $1,062,000 or 14% and $3,367,000 or 16%, respectively.

Following is a summary of our consolidated products sales for the three and nine month periods ended September 30, 2010 and 2009 (in thousands).  All inter-company sales have been eliminated.

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

Product

2010

2009

Variance

 

2010

2009

Variance

HITOX

$

2,941 

39%

$

2,890 

45%

$

51 

2%

$

8,939 

40%

$

7,673 

43%

$

1,266 

16%

ALUPREM

2,719 

36%

2,266 

35%

453 

20%

8,038 

36%

6,791 

38%

1,247 

18%

BARTEX

985 

13%

705 

11%

280 

40%

2,804 

13%

1,908 

11%

896 

47%

HALTEX

618 

8%

475 

7%

143 

30%

1,977 

9%

1,124 

6%

853 

76%

TIOPREM

180 

3%

<1%

178 

8900%

266 

1%

<1%

261 

5220%

OTHER

100 

1%

103 

2%

(3)

-3%

303 

1%

297 

2%

2%

Total

$

7,543 

100%

$

6,441 

100%

$

1,102 

17%

$

22,327 

100%

$

17,798 

100%

$

4,529 

25%

HITOX sales increased 2% and 16% for the three and nine month periods ended September 30, 2010, respectively, as compared to the same periods in 2009 primarily due to an increase in world-wide demand.  This compares to a decline of 28% and 32% during the same three and nine month periods ended September 30, 2009, respectively, as a result of the weak North American market and the impact of the global economy.

ALUPREM sales increased 20% during the third quarter of 2010 and 18% for the nine month period ended September 30, 2010, as compared to the same periods of 2009 primarily due to an increase in sales in Europe.  This compares to a decrease of 1% and an increase of 9% during the same three and nine month periods of 2009, respectively.

BARTEX sales increased 40% during the third quarter of 2010 and 47% for the nine month period ended September 30, 2010 primarily due to an increase in volume and our customer base.  This follows a decline of approximately 5% and 23% during the same three and nine month periods of 2009, respectively, primarily as a result of the downturn in the US economy.

HALTEX sales increased 30% and 76% for the three and nine month periods ended September 30, 2010, respectively.  This compares to an increase of 45% and 26% for the same three and nine month periods of 2009, respectively.  The year over year increase is related to new business for our standard HALTEX and newer OPTILOAD specialty products which are gaining acceptance in the marketplace.

                                                                                                                21



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 nine month periods ended September 30, 2010 and 2009 (in thousands).  All inter-company sales have been eliminated.

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

Product

2010

2009

Variance

 

2010

2009

Variance

HITOX

$

1,954 

41%

$

2,071 

49%

$

(117)

-6%

$

6,136 

44%

$

5,669 

47%

$

467 

8%

ALUPREM

974 

20%

896 

21%

78 

9%

2,544 

18%

3,094 

26%

(550)

-18%

BARTEX

985 

21%

705 

17%

280 

40%

2,804 

20%

1,908 

16%

896 

47%

HALTEX

618 

13%

475 

11%

143 

30%

1,977 

14%

1,124 

9%

853 

76%

TIOPREM

130 

3%

0%

130 

100%

205 

2%

<1%

202 

< 1%

OTHER

92 

2%

96 

2%

(4)

-4%

285 

2%

251 

2%

34 

14%

Total

$

4,753 

100%

$

4,243 

100%

$

510 

12%

$

13,951 

100%

$

12,049 

100%

$

1,902 

16%

  • HITOX Sales in the US, Mexico and South America trailed the third quarter last year 10%, 60% and 13%, respectively, however, HITOX sales in Canada increased 51% resulting in a net decrease of 6% for the quarter as compared to the same period in 2009.  This compares to a net decrease in the third quarter of 2009 of 22%.  Year to date, HITOX sales increased 8% primarily related to the gradual improvement in the construction industry, as compared to a net decrease of 28% during the same nine month period of 2009.  Sales in the US, Canada, Mexico and South America increased 3%, 40%, 18% and 11%, respectively.

  • ALUPREM – US Sales during the third quarter increased 9% as compared to the same three month period in 2009; and, year to date, ALUPREM sales decreased 18% due to lower sales in the first quarter of 2010 as compared to the same period of 2009.  The net change in US sales of ALUPREM was due to a change in the order pattern of a significant customer.
  • BARTEX – Increase in US sales of BARTEX primarily related to an increase in demand from existing customers, as well as new customers.
  • HALTEX – Increase in US sales of HALTEX primarily related to new business, an increase in demand and the acceptance of our new product, OPTILOAD, in the market place.

                                                                                                                22



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 nine month periods ended September 30, 2010 and 2009 to third party customers.  All inter-company sales have been eliminated.

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

Product

2010

2009

Variance

 

2010

2009

Variance

ALUPREM

$

1,745 

89%

$

1,370 

87%

$

375 

27%

$

5,494 

90%

$

3,697 

88%

$

1,797 

49%

HITOX

187 

10%

205 

13%

(18)

-9%

596 

10%

495 

12%

101 

20%

TIOPREM

21 

1%

<1%

19 

< 1%

32 

<1%

<1%

30 

< 1%

Total

$

1,953 

100%

$

1,577 

100%

$

376 

24%

$

6,122 

100%

$

4,194 

100%

$

1,928 

46%

  • ALUPREM –European sales increased 27% and 49% for the three and nine month periods ended September 30, 2010, respectively, primarily due to an increase in volume, customer base and product mix, offset by the negative impact of foreign currency rate fluctuations as the Euro weakened against the USD.  During the same three and nine month periods of 2009, European ALUPREM sales decreased 11% and 27%, respectively.

  • HITOX –European sales decreased 9% during the three month period ended September 30, 2010, as compared to the same period of 2009 primarily due to the negative impact of the foreign currency fluctuations which were partially offset by an increase in volume.  For the nine month period ended September 30, 2010, European HITOX sales increased 20% primarily related to gradual improvement in the construction industry, offset by the negative impact of foreign currency fluctuations.  This compares to an increase of 16% and a decrease of 30% for the same three and nine month periods of 2009, respectively.

Malaysian Operation

Our subsidiary in Malaysia, TMM, manufactures and sells HITOX and SR to third party customers, as well as to our Corpus Christi operation and TPT.  The following table represents TMM’s sales (in thousands) for the three and nine month periods ended September 30, 2010 and 2009 to third party customers.  All inter-company sales have been eliminated.

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

Product

2010

2009

Variance

 

2010

2009

Variance

HITOX

$

800 

96%

$

614 

99%

$

186 

30%

$

2,207 

98%

$

1,509 

97%

$

698 

46%

TIOPREM

29 

3%

0%

29 

100%

29 

1%

0%

29 

100%

OTHER

1%

1%

14%

18 

1%

46 

3%

(28)

-61%

Total

$

837 

100%

$

621 

100%

$

216 

35%

$

2,254 

100%

$

1,555 

100%

$

699 

45%

  • HITOX – Asian HITOX sales increased 30% and 46% for the three and nine month periods ended September 30, 2010, respectively, primarily due to an increase in volume related to the continuing improvement in the economy and the construction industry in Asia, as well as the positive effect of the foreign currency fluctuations between the Malaysian Ringgit and the USD as the Ringgit has gained in strength against the USD.  During the same three and nine month periods of 2009, HITOX sale in Asia decreased 49% and 46%, respectively.

                                                                                                                23



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

Other Consolidated Results

Gross Margin:  For the three and nine month periods ended September 30, 2010, gross margin increased approximately 2.7% and 5.6%, respectively.  Primary positive factors affecting our gross margin include the mix of products sold during the three and nine month periods compared to the same periods of 2009, as well our efforts to maintain and/or reduce costs and maximize efficiency.  Negative factors impacting our gross margin include an increase in the cost of energy and raw materials, as well as the foreign currency fluctuations.  However, we are partially offsetting these negative factors by reducing idle plant time resulting from the timing of our SR production at TMM, as well as increasing production at our US operation.

Technical Services and Selling, General, Administrative and Expenses (“SG&A”):  Total SG&A expenses increased approximately 23.1% during the three month period ended September 30, 2010 as compared to the same period in 2009 primarily due to an increase in compensation expense and sales expense.  For the nine month period ended September 30, 2010, SG&A expenses increased approximately 10.9% primarily related to an increase in sales expense.  In February 2009, the Company implemented a 20% salary reduction for management and staff; however, effective January 1, 2010, the Company reinstated these salaries to their previous level.

Interest Expense:  Net interest expense for the three and nine month periods ended September 30, 2010 decreased approximately $49,000 and $64,000, respectively, as compared to the same periods of 2009, primarily due to a decrease in long-term debt and our lines of credit, offset by interest on the debentures and warrants issued in 2009.

Income Taxes:  Income taxes consisted of federal tax benefit of $12,000 and state income tax expense of $3,000, respectively, and foreign deferred tax expense of approximately $7,000 for the three month period ended September 30, 2010, compared to a foreign deferred tax expense of approximately $61,000 for the same three month period in 2009.  For the nine month period ended September 30, 2010, we recorded state tax expense of $8,000 and foreign deferred tax expense of $24,000, compared to a foreign deferred tax benefit of $13,000 and state income tax expense of $2,000 during the same period of 2009.  Taxes are based on an estimated annualized consolidated effective rate of 2.4% for the year ending December 31, 2010.

                                                                                                                24



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

Going Concern

The condensed consolidated financial statements included in this report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As discussed in our Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2010, the Company was not in compliance with the Consolidated Fixed Charge Ratio and the Consolidated Funded Debt to EBITDA Ratio covenants under our US Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. (the “Bank”) as of December 31, 2008 and March 31, 2009.  As a result, the Bank notified the Company of its decision to terminate the Credit Agreement.

As reported in the Company’s Form 8-K filed with the SEC on October 4, 2010, the Bank extended the maturity date on our Line of Credit (the “Line”) from August 15, 2010 to February 15, 2011.  As a result, all of the Company’s debt owed to the Bank matures on February 15, 2011.  The Company repaid the outstanding balance on its two Term Loans with the Bank in 2009, and at September 30, 2010, the Company had $500,000 drawn on the Line.  In addition, the Company was in compliance with the revised financial covenants for each quarter ended from June 30, 2009 through September 30, 2010.

The Company is working diligently to establish a corporate lending relationship with a new financial institution for the Company’s US operations prior to February 15, 2011, the revised maturity date under the Credit Agreement, to refinance outstanding debt with the Bank prior to its revised maturity.  However, there can be no assurance that the Company will be able to successfully refinance the debt due to the Bank.  If the Company is unable to refinance the debt due to the Bank prior to its revised maturity or if the Company defaults under the terms of the Credit Agreement prior to its revised maturity and the Bank were to accelerate the maturity of such indebtedness, the Company does not have sufficient liquidity to pay off the indebtedness owed to the Bank, and the Bank would be entitled to exercise all of its rights and remedies as a secured lender under the Credit Agreement.

The Company’s two subsidiaries, TOR Minerals Malaysia, Sdn. Bhd. (“TMM”) and TOR Processing and Trade, BV (“TPT”) have short-term credit facilities and term loans at banks in Malaysia and the Netherlands, respectively.  At September 30, 2010, TMM’s borrowings under the credit facilities and term loans with HSBC Bank Malaysia, Bhd. (“HSBC”) and RHB Bank, Bhd. (“RHB”) totaled $543,000 and TPT’s borrowings under the credit facility and term loans with Rabobank totaled $2,362,000.  TMM’s credit facilities with HSBC matured on October 31, 2010 and TPT’s credit facility with Rabobank, which was renewed on January 1, 2010, has no stated maturity date.

Additionally, the credit facilities with HSBC, RHB and Rabobank are subject to demand provisions and are subject to certain subjective acceleration covenants based on the judgment of the banks.  While the banks have made no indication that they will demand payment of the debt in Malaysia or in the Netherlands, in light of the Company’s liquidity difficulties, there can be no assurances that this debt will not be called for payment or that any stated maturity date in a renewal or amendment to these credit facilities will be extended for a sufficient amount of time to allow the Company to meet its commitments under the facilities or find alternate financing arrangements.

The events described above raise doubt about the Company’s ability to continue as a going concern.  Our ability to continue to operate as a going concern is dependent on our ability to successfully establish a corporate lending relationship with a new financial institution for the US operation, and/or raise sufficient new capital and improve our operating cash flows to a sufficient level.

                                                                                                                25



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

Long-term Debt

Following is a schedule of our long-term to financial institutions debt.

(Unaudited)

(In thousands)

September 30,

December 31,

2010

2009

Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at September 30, 2010, due April 1, 2013, secured by a Caterpillar front-end loader.

$

66 

$

84 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at September 30, 2010, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (367 Euro)

500 

547 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at September 30, 2010, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (365 Euro)

498 

543 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at September 30, 2010, due July 31, 2015, secured by TPT's assets.  (246 Euro)

335 

406 

U.S. Dollar term note payable to a Malaysian bank, secured by TMM's property, plant and equipment, matured June 30, 2010.

191 

U.S. Dollar term note payable to a Malaysian bank, with an interest rate of 1.625% at September 30, 2010, due May 30, 2011, secured by TMM's property, plant and equipment.

66 

141 

Total

1,465 

1,912 

Less current maturities

211 

435 

Total long-term debt and notes payable - financial institutions

$

1,254 

$

1,477 

US Operations

Bank of America Credit Facility and Term Loans

On April 30, 2009, we and the Bank amended the Credit Agreement.  Under the terms of the amended credit agreement, subject to our compliance with the terms and conditions contained in the amendment, including revised financial covenants, the Bank agreed not to exercise any of its rights or remedies relating to the existing events of default under the Credit Agreement.  We also agreed that we will use all proceeds in excess of $1 million that we received after May 1, 2009 from the issuance of any of our capital stock, from capital contributions in respect to our capital stock, from the issuance of debentures or the incurrence of permitted subordinated indebtedness (as defined in the Credit Agreement) to prepay the loans and other obligations under the Credit Agreement.  As a result, the Company applied $500,000 received from the sale of Debentures to its outstanding real estate loan with the Bank in August 2009.

On September 28, 2009 we amended the Credit Agreement with the Bank to extend the maturity date on the Line and Term Loan from October 1, 2009 to February 15, 2010.  Under the terms of the amendment, the interest rate on the Line and the Term Loan was increased from prime plus two and one-half percent to prime plus three percent.  In addition, the Line was reduced from $2,500,000 to $2,250,000.  On February 12, 2010, we amended the Credit Agreement with the Bank to extend the maturity date on the Line from February 15, 2010 to August 15, 2010.

                                                                                                                26



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

On September 30, 2010, we amended the Credit Agreement with the Bank to extend the maturity date on the Line from August 15, 2010 to February 15, 2011.  Under the terms of the amendment, the Line was reduced from $2,250,000 to $1,500,000 (subject to a defined borrowing base) and the interest rate remained at Prime plus three percent.  The loan covenant regarding the current ratio remained unchanged at 1.0 to 1.0 and the fixed charge coverage increased from 0.85 to 1.0 to 1.10 to 1.0.  As a result of this amendment, all of our debt owed to the Bank will mature on February 15, 2011, provided, if we default on obligations contained in the amendment, the Bank will have the rights and remedies available to it under the Credit Agreement and applicable law.  The Line is secured by the accounts receivable and inventory of the US Operation.

At September 30, 2010, the financial covenants were as follows:

  • Covenants to be based solely on the results of the US operation

  • Current Ratio – Maintain a ratio of current assets to current liabilities of at least 1.0 to 1.0 (1.65 to 1.0 as of the quarter ended September 30, 2010)

  • Fixed Charge Coverage Ratio – Maintain a fixed charge coverage ratio of at least 1.1 to 1.0 (6.65 to 1.0 for the quarter ended September 30, 2010)

At September 30, 2010, the outstanding balance on the Credit Agreement consisted of $500,000 on the Line and we had $1,000,000 available on that date based on eligible accounts receivable and inventory borrowing limitations.  The interest rate on the Line was 6.25% at September 30, 2010.

Six-percent Convertible Subordinated Debentures

As reported in the Company’s Form 8-K filed with the SEC on May 6, 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, on May 4, 2009, $1 million from the sale of Debentures due May 4, 2016, from three of the Company’s directors.

As reported in the Company’s Form 10-Q filed with the SEC on August 10, 2009, the Company received proceeds of $500,000 from the sale of additional Debentures to six additional accredited investors, one of which is a director and another of which is a greater than 5% shareholder.  As noted above, under the terms of the Credit Agreement, the Company applied the $500,000 received from the sale of Debentures to its outstanding real estate loan with the Bank in August 2009.

Other Term Loans

On March 31, 2008, we entered into a term loan with Holt Financing in the amount of $120,000.  The proceeds of the loan were used to purchase a new Caterpillar front-end loader.  The loan provides for amortization over five years with interest fixed at a rate of 5.24%.  Monthly principal and interest payments commenced on May 1, 2008, and will continue through April 1, 2013.  The monthly principal and interest payment is $2,275.  The loan balance at September 30, 2010 was $66,000.

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 Euro 650,000 to Euro 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 7.3%), is secured by TPT’s accounts receivable and inventory.  At September 30, 2010, TPT had utilized Euro 755,000 ($1,029,000) 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.

                                                                                                                27



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

Malaysian Operation

The Company’s subsidiary, TMM, is negotiating with HSBC Bank Malaysia Berhad (“HSBC”) to extend the maturity date of its banking facility which matured on October 31, 2010.  The facility with HSBC includes the following in Malaysian Ringgits (“RM”):  (1) a banker’s acceptance (“BA”) of RM 500,000; (2) an export line (“ECR”) of RM 2,500,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($162,000, $809,000 and $1,619,000, respectively).

TMM is currently in the process of renewing its banking facility with RHB Bank Berhad (“RHB”) which matured on October 31, 2009.  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; and (3) a foreign exchange contract limit of RM 25,000,000 ($324,000, $3,011,000 and $8,094,000, 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 September 30, 2010, TMM had utilized RM 1,472,000 ($477,000) of the ECR facilities.

TMM is currently negotiating with both HSBC and RHB to renew or amend the credit facilities to provide for, among other things, an extended stated maturity date of both bank facilities.  The Company is confident that the bank facilities will be renewed; however, there can be no assurance that the facilities will be renewed, amended or extended or as to the terms and conditions of the extension of the facility.  If these lenders are unwilling to extend the maturity dates of these facilities, TMM may not have sufficient liquidity to pay off this indebtedness.

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

Cash and Cash Equivalents

As noted on the following table, cash and cash equivalents decreased $438,000 for the nine months ended September 30, 2010 as compared to an increase of $702,000 for the nine months ended September 30, 2009.

(Unaudited)

Nine Months Ended September 30,

(In thousands)

 

2010

 

2009

Net cash provided by (used in)

Operating activities

$

2,050 

$

985 

Investing activities

(1,009)

(807)

Financing activities

(1,737)

737 

Effect of exchange rate fluctuations

258 

(213)

Net change in cash and cash equivalents

$

(438)

$

702 

                                                                                                                28



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

 Operating Activities

Operating activities provided $2,050,000 during the first nine months of 2010 as compared to $985,000 during the same period 2009.  Following are the major changes in working capital affecting cash provided by operating activities for the nine month period ended September 30, 2010:

  • Accounts Receivable:  Accounts receivable increased $640,000 as compared to an increase of $384,000 for the same period in 2009.  The increase in accounts receivable is primarily due to stronger sales in the third quarter 2010 at each of the Company’s three operations as compared to the fourth quarter 2009.  Accounts receivable increased $106,000 at the Corpus Christi operation and $242,000 and $292,000 at TPT and TMM, respectively.
  • Inventories: Inventories increased $827,000 as compared to a decrease of $2,056,000 for the same period in 2009.  Inventories at the Corpus Christi operation increased $101,000 primarily related to an increase in raw materials which was partially offset by a decrease in finished goods.  TMM’s increased approximately $846,000 primarily due to the timing of SR production and TPT’s decreased approximately $120,000 primarily due to a decrease in finished goods
  • Other Current Assets:  Other current assets increased $339,000 as compared to an increase of $324,000 for the same period in 2009.  At the Corpus Christi operation, prepaid expenses increased $80,000 primarily due to insurance, TPT’s increased $58,000 related to prepaid insurance and pension expense and TMM’s increased $201,000 primarily related to freight.
  • Accounts Payable and Accrued Expenses:  Trade accounts payable and accrued expenses increased $972,000 as compared to a decrease of $1,436,000 for the same period in 2009.  Accounts payable and accrued expenses at the Corpus Christi operation increased $431,000 primarily related to the timing of raw material purchases; TPT’s increased $212,000 and TMM’s increased $329,000 primarily relating to raw materials for the production of SR.

Investing Activities

We used cash of $1,009,000 in investing activities during the first nine months of 2010 primarily for the purchase of fixed assets as compared to $807,000 during the same period 2009.  Net investments for each of our three locations are as follows:

  • Corpus Christi Operation:  We invested approximately $530,000 primarily related to capital maintenance, production equipment and computer equipment, as compared to $757,000 for the same period in 2009 for equipment related to new process technologies to convert a majority of our production from natural gas to electricity.
  • Netherlands Operation:  We invested approximately $470,000 at TPT for new production equipment, as compared to $45,000 for the same period in 2009.
  • Malaysian Operation:  We invested approximately $9,000 at TMM for new equipment, as compared to $5,000 for the same period in 2009.

                                                                                                                29



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

Financing Activities

We used $1,737,000 in financing activities during the nine month period ended September 30, 2010 as compared to cash provided by financing activities of $737,000 for the same period 2009.  Significant factors relating to financing activities include the following:

  • Lines of Credit:  Our borrowings on the domestic line of credit decreased $1,600,000 as compared to an increase of $1,100,000 for the same period 2009 which was primarily used for working capital.  Borrowings at TPT decreased approximately $125,000 as compared to a decrease of $174,000 for the same period in 2009.
  • Export Credit Refinancing Facility (ECR):  TMM’s borrowing on the ECR increased $477,000 during the nine month period ended September 30, 2010 for working capital related to the production of SR as compared to a decrease of $432,000 for the same period in 2009.
  • Capital Leases:  Capital leases decreased approximately $96,000 related to lease payments at both the Corpus Christi operation and at TPT during the first nine months of 2010 as compared to a decrease of approximately $4,000 for the same period in 2009.
  • Long-term Debt – Financial Institutions:  Long-term debt decreased approximately $399,000 during the nine month period ended September 30, 2010.  Long-term debt decreased $7,000, $90,000 and $302,000 at the Corpus Christi operation, TPT and TMM, respectively.  This compares to a decrease in long-term debt of approximately $1,208,000 for the same period in 2009.
  • 6% Convertible Subordinated Debentures:  During the first nine months of 2009, we received $1,500,000 related to the sale of our six percent convertible subordinated debentures, of which $500,000 was used to reduce our debt with Bank of America.
  • Proceeds from Issuance of Common Stock:  We received $51,000 from the issuance of common stock during the first nine months of 2010 of which $25,000 related to the exercise of warrants and $26,000 to the exercise of stock options.
  • Preferred Stock Dividends:  We paid dividends of $45,000 on our Series A convertible preferred stock for both the nine month periods ended September 30, 2010 and 2009.

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 2009 Annual Report on Form 10-K except as noted above.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

 

                                                                                                                30



Part II  -  Other Information

Item 6.

Exhibits

(a)

Exhibits

Exhibit 31.1

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

Exhibit 31.2

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

Exhibit 32.1

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

Exhibit 32.2

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


 

Signatures:

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

TOR Minerals International, Inc.

 

____________

(Registrant)

Date:

November 15, 2010

OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer

Date:

November 15, 2010

BARBARA RUSSELL
Barbara Russell
Chief Financial Officer

                                                                                                                31


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