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EXCEL - IDEA: XBRL DOCUMENT - TOR MINERALS INTERNATIONAL INCFinancial_Report.xls
EX-32 - EXHIBIT 32.2, CFO CERTIFICATION - TOR MINERALS INTERNATIONAL INCcfo32-2.htm
EX-31 - EXHIBIT 31.1, CEO CERTIFICATION - TOR MINERALS INTERNATIONAL INCceo31-1.htm
EX-31 - EXHIBIT 31.2, CFO CERTIFICATION - TOR MINERALS INTERNATIONAL INCcfo31-2.htm
EX-32 - EXHIBIT 32.1, CEO CERTIFICATION - TOR MINERALS INTERNATIONAL INCceo32-1.htm

                                                                                                                            

 United States Securities and Exchange Commission
Washington, D. C.  20549
____________________________

FORM 10-Q
____________________________

(Mark One)

ý

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


For the quarterly period ended March 31, 2014

OR

o

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

For the transition period from __________ to __________


Commission file number 0-17321

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

Delaware
(State or other jurisdiction of incorporation or organization)

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

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

(361) 883-5591
(Registrant’s telephone number, including area code)
____________________________


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

Yes ý

No o


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

Yes ý

No o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company ý

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

Yes o

No ý

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

Class
Common Stock, $1.25 par value

Shares Outstanding as of May 2, 2014
3,014,022

1



                                                                                                                            

Table of Contents

 

Part I - Financial Information

Page No.

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Operations  --
Three months ended March 31, 2014 and 2013

3

Condensed Consolidated Statements of Comprehensive Income (Loss) --
Three months ended March 31, 2014 and 2013

4

Condensed Consolidated Balance Sheets --
March 31, 2014 and December 31, 2013

5

Condensed Consolidated Statements of Cash Flows --
Three months ended March 31, 2014 and 2013

6

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

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

15

Item 4.

Controls and Procedures

25

Part II - Other Information

Item 6.

Exhibits

26

Signatures

26

Forward Looking Information

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

2



Part I – Financial Information

Item 1.

Condensed Consolidated Financial Statements

 

TOR Minerals International, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

 

 Three Months
Ended March 31,

 

 

2014

 

2013

NET SALES

 $

13,132 

 $

11,427 

Cost of sales

10,980 

9,933 

GROSS MARGIN

 

2,152 

 

1,494 

Technical services and research and development

46 

153 

Selling, general and administrative expenses

1,113 

1,278 

Loss on disposal of assets

10 

OPERATING INCOME

 

993 

 

53 

OTHER INCOME (EXPENSE):

Interest expense, net

(95)

(84)

Loss on foreign currency exchange rate

(4)

(87)

Other, net

12 

Total Other Expense

(94)

(159)

INCOME (LOSS) BEFORE INCOME TAX

 

899 

 

(106)

Income tax expense (benefit)

192 

(31)

NET INCOME (LOSS)

 $

707 

 $

(75)

 

 

 

 

 

Earnings per common share:

Basic

 $

0.23 

 $

(0.03)

Diluted

 $

0.21 

 $

(0.03)

Weighted average common shares outstanding:

Basic

3,014 

2,987 

Diluted

3,413 

2,987 

See accompanying notes.
 

3



TOR Minerals International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands)

 

 

 Three Months
Ended March 31,

 

 

2014

 

2013

NET INCOME (LOSS)

 $

707 

 $

(75)

OTHER COMPREHENSIVE INCOME (LOSS), net of tax

Currency translation adjustment, net of tax:

Net foreign currency translation adjustment gains (losses)

85 

(409)

Other comprehensive gain (loss), net of tax

85 

(409)

COMPREHENSIVE INCOME (LOSS)

 $

792 

 $

(484)

See accompanying notes.
 

4



TOR Minerals International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

 

March 31,
2014

 

December 31,
2013

 

 

(Unaudited)

 

 

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

 $

2,581 

 $

2,920 

Trade accounts receivable, net

5,880 

4,526 

Inventories, net

20,403 

20,753 

Other current assets

1,106 

596 

Total current assets

29,970 

28,795 

PROPERTY, PLANT AND EQUIPMENT, net

23,450 

23,799 

OTHER ASSETS

23 

23 

Total Assets

 $

53,443 

 $

52,617 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

 $

4,553 

 $

3,279 

Accrued expenses

1,505 

1,397 

Notes payable under lines of credit

1,429 

1,477 

Export credit refinancing facility

2,110 

3,866 

Current deferred tax liability

17 

66 

Current maturities - capital leases

12 

Current maturities of long-term debt – financial institutions

956 

1,040 

Total current liabilities

10,578 

11,137 

LONG-TERM DEBT - FINANCIAL INSTITUTIONS

2,944 

2,918 

DEFERRED TAX LIABILITY

551 

18 

Total liabilities

14,073 

14,073 

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Common stock $1.25 par value: authorized, 6,000 shares;
3,014 shares issued and outstanding at March 31, 2014 and
3,012 shares issued and outstanding at December 31, 2013

3,767 

3,765 

Additional paid-in capital

29,397 

29,365 

Retained earnings

2,360 

1,653 

Accumulated other comprehensive income:

Cumulative translation adjustment

3,846 

3,761 

Total shareholders' equity

39,370 

38,544 

Total Liabilities and Shareholders' Equity

 $

53,443 

 $

52,617 

See accompanying notes.
 

5



TOR Minerals International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

Three Months Ended March 31,

2014

 

2013

CASH FLOWS FROM OPERATING ACTIVITIES:

 

Net Income (Loss)

 $

707 

 $

(75)

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

Depreciation

847 

741 

Loss on disposal of assets

10 

Share-based compensation

23 

16 

Deferred income tax expense (benefit)

483 

(145)

Change in inventory reserve

(12)

Provision for bad debts

(7)

Changes in working capital:

Trade accounts receivables

(1,346)

(1,390)

Inventories

403 

(266)

Other current assets

(509)

392 

Accounts payable and accrued expenses

1,373 

(1,226)

Net cash provided by (used in) operating activities

1,974 

(1,955)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

Additions to property, plant and equipment

(449)

(1,224)

Proceeds from sales of property, plant and equipment

Net cash used in investing activities

(449)

(1,222)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

Net (payments on) proceeds from lines of credit

(52)

2,095 

Net (payments on) proceeds from export credit refinancing facility

(1,771)

557 

Payments on capital leases

(5)

(18)

Proceeds from long-term bank debt

236 

276 

Payments on long-term bank debt

(304)

(200)

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

11 

Net cash provided by (used in) financing activities

(1,885)

2,710 

Effect of foreign currency exchange rate fluctuations on cash and cash equivalents

21 

(74)

Net decrease in cash and cash equivalents

(339)

(541)

Cash and cash equivalents at beginning of year

2,920 

2,799 

Cash and cash equivalents at end of period

 $

2,581 

 $

2,258 

Supplemental cash flow disclosures:

 

Interest paid

 $

95 

 $

84 

Income taxes paid

 $

37 

 $

240 

See accompanying notes.
 

6



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

Note 1.

Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”).  The interim condensed consolidated financial statements include the consolidated accounts of TOR Minerals International, Inc. (“TOR”, “we”, “us”, “our” or the “Company”) and its wholly-owned subsidiaries, TOR Minerals Malaysia, Sdn. Bhd. (“TMM”) and TOR Processing and Trade, BV (“TPT”) with all significant intercompany transactions eliminated.  In our opinion, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the consolidated financial position, results of operations and cash flows for the interim periods presented have been made.  Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such SEC rules and regulations.  These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2013, in our Annual Report on Form 10-K filed with the SEC on March 10, 2014.  Operating results for the three-month period ended March 31, 2014, are not necessarily indicative of the results for the year ending December 31, 2014.

Income Taxes

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

Income taxes consisted of federal and state income tax expense of approximately $47,000 and $2,000, respectively, and foreign tax expense of approximately $143,000 for the three month period ended March 31, 2014, compared to federal and state income tax expense of approximately $40,000 and $2,000, respectively, and foreign tax benefit of approximately $73,000 for the same three month period in 2013.  Taxes are based on an estimated annualized consolidated effective rate of 21.4% for the year ended December 31, 2014.

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, 2010 through December 31, 2013.  Our state return, which is filed in Texas, is subject to examination for the tax years ended December 31, 2009 through December 31, 2013.  Our tax returns in various non-U.S. jurisdictions are subject to examination for various tax years dating back to December 31, 2008.

As of January 1, 2014, we did not have any unrecognized tax benefits and there was no change during the three month period ended March 31, 2014.  In addition, we did not recognize any interest and penalties in our condensed consolidated financial statements during the three month period ended March 31, 2014.  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.

7



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

Note 2.

Debt and Notes Payable

Long-term Debt – Financial Institutions

Following is a summary of our long-term debt to financial institutions as of March 31, 2014 and December 31, 2013, in thousands:

 March 31,

2014

 December 31,

 (Unaudited)

2013

Fixed Rate term note payable to a U.S. bank, with an interest rate of 5.5% at March 31, 2014, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.

 $

806 

 $

911 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.85% at March 31, 2014, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€251)

345 

351 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.3% at March 31, 2014, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€276)

380 

386 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at March 31, 2014, due July 31, 2015, secured by TPT's assets.  (€46)

63 

80 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at March 31, 2014, due July 5, 2014, secured by TPT's assets.  (€43)

59 

139 

Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at March 31, 2014, due March 1, 2015, secured by TMM's property, plant and equipment. (RM 2,333)

715 

801 

Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at March 31, 2014, due October 25, 2018, secured by TMM's property, plant and equipment. (RM 5,000)

1,532 

1,290 

Total

3,900 

3,958 

Less current maturities

956 

1,040 

Total long-term debt - financial institutions

 $

2,944 

 $

2,918 

 

8



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

Short-term Debt

U.S. Operations

On December 31, 2010, the Company entered into a credit agreement, as amended, (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”), and on March 1, 2012, the Line was increased from $1,000,000 to $2,000,000.  On May 15, 2013, the Company and the Lender entered into the second amendment which extended the maturity date from October 15, 2013 to October 15, 2014 and reduced the minimum interest rate floor from 5.5% to 4.5%.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a defined borrowing base, which is based on the Company’s eligible accounts receivable and inventory.  Amounts advanced under the Line bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 4.5%.  At March 31, 2014, no funds were outstanding on the Line.

 

On January 14, 2014, the Company entered into the third amendment (the "Amendment") with the Lender.  Under the terms of the amendment, the Company is required ratio of cash flow to debt service of 1.0 to 1.0 for the four month period ending April 30, 2014, six month period ending June 30, 2014, nine month period ending September 30, 2014, and twelve month period ending December 31, 2014. Thereafter, the required ratio of cash flow to debt service shall be 1.25 to 1.0 measured on a rolling four quarter basis as originally detailed in the loan agreement.  Therefore, compliance was not evaluated at the end of the quarter ended March 31, 2014.

 

European Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of bank prime plus 2.8% (currently at 3.531%), is secured by TPT’s accounts receivable and inventory.  At March 31, 2014, TPT had utilized €633,000 ($872,000) of its short-term credit facility.

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

Asian Operations

On May 21, 2013, our subsidiary, TMM amended its banking facility with HSBC Bank of Malaysia Berhad (“HSBC”) to extend the maturity date from April 30, 2013 to April 30, 2014.  TMM is currently negotiating an extension to the banking facility with HSBC.  The HSBC facility includes the following in RM:  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($153,000, $1,979,000 and $1,531,000, respectively).

On April 17, 2013, TMM amended its banking facility with RHB Bank Berhad (“RHB”) to extend the maturity date from March 5, 2013 to March 24, 2014.  TMM is currently negotiating an extension to the banking facility with RHB.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($306,000, $2,848,000, $367,000 and $7,657,000, respectively).  At March 31, 2014, the outstanding balance on the foreign exchange contract was RM 1,818,000 ($557,000) at a current interest rate of 2.20%.

The banking facilities with both HSBC and RHB bear an interest rate on the overdraft facilities at 1.25% over bank prime and the ECR facilities bear interest at 1.0% above the funding rate stipulated by the Export-Import Bank of Malaysia Berhad.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At March 31, 2014, the outstanding balance on the ECR facilities was RM 6,889,000 ($2,110,000) at a current interest rate of 4.9%.

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

9



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

 

Note 3.

Fair Value Measurements

The following table summarizes the valuation of our financial instruments recorded on a fair value basis as of March 31, 2014 and December 31, 2013, in thousands.  The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at March 31, 2014 or 2013.

 

 

Fair Value Measurements

Total

 

Quoted Prices
in Active
Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

Asset

 

 

 

 

 

 

 

 

March 31, 2014

 

 

 

 

 

 

 

 

Currency forward contracts

 $

 $

 $

 $

Liability

 

 

 

 

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

Currency forward contracts

 $

(14)

 $

 $

(14)

 $


Our foreign currency derivative financial instruments mitigate foreign currency exchange risks and include forward contracts.  The forward contracts are marked-to-market at each balance sheet date with any resulting gain or loss recognized in income as part of the gain or loss on foreign currency exchange rate included under “Other Expense” on the Company’s condensed consolidated income statements.  The fair value of the currency forward contracts is determined using Level 2 inputs based on the currency rate in effect at the end of the reporting period.

The fair value of the Company’s debt is based on estimates using standard pricing models and Level 2 inputs, including the Company’s estimated borrowing rate, that take into account the present value of future cash flows as of the condensed consolidated balance sheet date.  The computation of the fair value of these instruments is performed by the Company.  The carrying amounts and estimated fair values of the Company’s long-term debt, including current maturities, are summarized below, in thousands:




 

March 31, 2014

 

December 31, 2013

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

 Long-term debt, including
current portion

 $

3,900 

 $

3,673 

 $

3,958 

 $

3,697 


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

10



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

 

Note 4.

Capital Leases

On September 4, 2011, TPT entered into a financial lease agreement with Diependael Leasing, BV for equipment related to the production of ALUPREM.  The cost of the equipment under the capital lease, in the amount of €38,360 ($52,852), is included in the condensed consolidated balance sheets as property, plant and equipment.  Accumulated amortization of the leased equipment at March 31, 2014 was approximately €31,966 ($44,000).  The capital lease is in the amount of €41,256 ($56,800) including interest of €2,896 ($4,000) (implicit interest rate 4.786%).  The lease term is 36 months with equal monthly installments of €1,146 ($1,580).  The net present value of the lease at March 31, 2014 was €5,662 ($8,000).

Note 5.

Calculation of Basic and Diluted Earnings per Share

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

(in thousands, except per share amounts)

Three Months
Ended March 31,

2014

 

2013

Numerator:

Net Income (Loss)

 $

707 

 $

(75)

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

707 

(75)

Effect of dilutive securities:

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

 $

707 

 $

(75)

Denominator:

Denominator for basic earnings per share -
weighted-average shares

3,014 

2,987 

Effect of dilutive securities:

Employee stock options

Warrants

394 

Dilutive potential common shares

399 

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

3,413 

2,987 

Basic earnings per common share

 $

0.23 

 $

(0.03)

Diluted earnings per common share

 $

0.21 

 $

(0.03)

For the three month period ended March 31, 2014, approximately 105,000 stock options were excluded from the calculation of diluted earnings per share as the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.

For the three month period ended March 31, 2013, approximately 174,000 stock options and 528,000 warrants were excluded from the calculation of diluted earnings per share as the effect would be antidilutive.

11



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

 

Note 6.

Segment Information

The Company and its subsidiaries operate in the business of pigment manufacturing and related products in three geographic segments.  All U.S. manufacturing is done at the facility located in Corpus Christi, Texas.  Foreign manufacturing is done by the Company’s wholly-owned foreign operations, TMM, located in Malaysia and TPT, located in The Netherlands.

Product sales of inventory between the U.S., Asian and European operations are based on inter-company pricing, which includes an inter-company profit margin.  In the geographic information, the location profit (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 parent company are based upon profit margins which represent competitive pricing of similar products.  Intercompany sales consisted of SR, HITOX, ALUPREM and TIOPREM.

A summary of the Company’s manufacturing operations by geographic segment is presented below in thousands:

United States
(Corpus Christi)

Europe
(TPT)

Asia
(TMM)

Inter-Company
Eliminations

Consolidated

As of and for the three months ended:

March 31, 2014

Net Sales:

Customer sales

 $

7,946 

 $

2,715 

 $

2,471 

 $

 $

13,132 

Intercompany sales

57 

1,835 

643 

(2,535)

Total Net Sales

 $

8,003 

 $

4,550 

 $

3,114 

 $

(2,535)

 $

13,132 

Location income

 $

55 

 $

544 

 $

44 

 $

64 

 $

707 

Location assets

 $

18,337 

 $

11,608 

 $

23,498 

 $

 $

53,443 

March 31, 2013

Net Sales:

Customer sales

 $

7,712 

 $

2,478 

 $

1,237 

 $

 $

11,427 

Intercompany sales

56 

1,675 

2,333 

(4,064)

Total Net Sales

 $

7,768 

 $

4,153 

 $

3,570 

 $

(4,064)

 $

11,427 

Location income (loss)

 $

47 

 $

219 

 $

(398)

 $

57 

 $

(75)

Location assets

 $

20,690 

 $

10,870 

 $

23,568 

 $

 $

55,128 

 

 

12



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

 

Note 7.

Stock Options and Equity Compensation Plan

For the three month periods ended March 31, 2014 and 2013, the Company recorded stock-based employee compensation expense of approximately $23,000 and $16,000, respectively.  This compensation expense is included in the selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

No options were granted during the three month periods ended March 31, 2014 and 2013.

As of March 31, 2014, there was approximately $343,000 of stock-based employee compensation expense related to non-vested awards which is expected to be recognized over a weighted average period of 2.9 years.

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


Note 8.

Inventories

A summary of inventories is as follows:

 

(In thousands)

 

 

 

 March 31,

 

 December 31,

 

 

 

2014

 

2013

Raw materials

 $

14,020 

 $

12,852 

Work in progress

1,917 

1,866 

Finished goods

3,720 

5,306 

Supplies

1,032 

1,034 

Total Inventories

20,689 

21,058 

Inventory reserve

(286)

(305)

Net Inventories

 $

20,403 

 $

20,753 

13



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

Note 9.

Derivatives and Other Financial Instruments

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

Foreign Currency Forward Contracts

We manage the risk of changes in foreign currency exchange rates, primarily at our Asian 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 condensed consolidated balance sheets and changes in the fair value are recognized in earnings in the period of the change.

 

At March 31, 2014 and 2013, we marked these contracts to market, recording a net gain of approximately $9,000 and $21,000, respectively, as a component of our year to date net income (loss) and as a current asset on the condensed consolidated balance sheets.

 

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 sheets at March 31, 2014 and December 31, 2013, in thousands:

 

Asset Derivatives

Derivative Instrument

 

Location

 

March 31, 2014

 

December 31, 2013

Foreign Currency
   Exchange Contracts

Other Current Assets

 $

 $

Liability Derivatives

Derivative Instrument

 

Location

 

March 31, 2014

 

December 31, 2013

Foreign Currency
   Exchange Contracts

Accrued Expenses

 $

 $

14 

 

 

The following table summarizes, in thousands, the impact of the Company’s derivatives on the condensed consolidated financial statements of operations for the quarters ended March 31, 2014 and 2013:

 

 

Location of Gain

 

Amount of Gain Recognized in Operations

Derivative

 

on Derivative

 

 Three Months Ended March 31,

Instrument

 

Instrument

2014

 

2013

Foreign Currency
   Exchange Contracts

Gain on foreign currency
  exchange rate

 $

 $

21 


14



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

Item 2.

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

Company Overview

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

Our U.S. operation, located in Corpus Christi, Texas, manufactures HITOX, BARTEX, HALTEX/OPTILOAD and TIOPREM.  The facility is also the global headquarters for the Company.  The Asian operation, located in Ipoh, Malaysia, manufactures SR, HITOX and TIOPREM and our European operation, located in Hattem, Netherlands, manufactures Alumina based products and BARYPREM.

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

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

Following are our results for the three month periods ended March 31, 2014 and 2013.

(Unaudited)

(In thousands, except per share amounts)

 

Three Months
Ended March 31,

 

 

2014

 

2013

NET SALES

 $

13,132 

 $

11,427 

Cost of sales

10,980 

9,933 

GROSS MARGIN

 

2,152 

 

1,494 

Technical services and research and development

46 

153 

Selling, general and administrative expenses

1,113 

1,278 

Loss on disposal of assets

10 

OPERATING INCOME

 

993 

 

53 

OTHER INCOME (EXPENSE):

Interest expense, net

(95)

(84)

Loss on foreign currency exchange rate

(4)

(87)

Other, net

12 

INCOME (LOSS) BEFORE INCOME TAX

 

899 

 

(106)

Income tax expense/(benefit)

192 

(31)

NET INCOME (LOSS)

 $

707 

 $

(75)

 

 

 

 

 

Earnings per common share:

Basic

 $

0.23 

 $

(0.03)

Diluted

 $

0.21 

 $

(0.03)

15



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

Results of Operations

Net Sales:  Consolidated net sales for the quarter ended March 31, 2014 increased approximately $1,705,000 or 15% as compared to the first quarter 2013 primarily due to an increase in volume.  This compares to a decrease of approximately $1,381,000 or 11% during the first quarter 2013 consisting of a decrease in volume and selling price of 10% and 1%, respectively.

Following is a summary of our consolidated products sales for the three month periods ended March 31, 2014 and 2013 (in thousands).

(Unaudited)

Three Months Ended March 31,

Product

2014

2013

Variance

ALUPREM

 $

4,376 

33%

 $

3,887 

34%

 $

489 

13%

HITOX

3,696 

28%

4,039 

35%

(343)

-8%

BARTEX/BARYPREM

2,263 

17%

1,885 

17%

378 

20%

HALTEX/OPTILOAD

883 

7%

847 

7%

36 

4%

TIOPREM

351 

3%

580 

5%

(229)

-39%

SYNTHETIC RUTILE

1,365 

10%

0%

1,365 

100%

OTHER

198 

2%

189 

2%

5%

Total

 $

13,132 

100%

 $

11,427 

100%

 $

1,705 

15%

 

ALUPREM sales increased 13% during the first quarter of 2014 primarily due to an increase in volume, selling price and the positive impact of the foreign currency fluctuations of approximately 9%, 2% and 2%, respectively.  This compares to an increase of 1% during the first three months of 2013, which was primarily due to an increase in volume for European sales, which was partially offset by a decrease in European selling price and a decrease in volume of U.S. ALUPREM sales resulting in an overall increase in volume of 10% and a decrease in selling price of 9%.

HITOX sales decreased 8% for the three month period ended March 31, 2014, primarily related to a decrease in selling price of approximately 10%, which was partially offset by an increase in volume of 2%.  This compares to a decrease in HITOX sales of 25% during the three month period ended March 31, 2013, which was primarily related to a worldwide decrease in volume.

BARTEX/BARYPREM sales increased approximately 20% during the first three months of 2014 primarily due to an increase in volume and the positive impact of the foreign currency fluctuations of approximately 20% and 1%, respectively, which was partially offset by a decrease in selling price of 1%.  During the first quarter of 2013, BARTEX/BARYPREM sales increased approximately 8%, primarily due to an increase in selling price of 9% which was partially offset by a decrease in volume of 1%.

HALTEX/OPTILOAD sales increased 4% during the first three months of 2014, primarily due to an increase in volume of approximately 7%, which was partially offset by the mix of products sold resulting in a lower selling price of 3%.  For the first three months of 2013, HALTEX and OPTILOAD sales decreased approximately 4%, primarily due to the mix of products sold resulting in a lower selling price of 4%.

TIOPREM sales decreased 39% during the three month period ended March 31, 2014, primarily due to a decrease in volume, selling price and the negative impact of the foreign currency fluctuations of approximately 33%, 5% and 1%, respectively.  For the quarter ended March 31, 2013, TIOPREM sales increased 73% primarily due to an increase in volume and selling price of 61% and 12%, respectively.

Synthetic Rutile (“SR”) sales represented 10% of the overall sales for the three month period ended March 31, 2014; whereas, during the first quarter of 2013, we did not sell any SR to third parties as a result of weak market conditions.

16



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

U.S. Operations

Our U.S. 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 U.S. operation for the three month periods ended March 31, 2014 and 2013 (in thousands), as well as a summary of the material changes.  All inter-company sales have been eliminated.

(Unaudited)

Three Months Ended March 31,

Product

2014

2013

Variance

ALUPREM

 $

2,467 

31%

 $

2,189 

28%

 $

278 

13%

HITOX

2,304 

29%

2,600 

34%

(296)

-11%

BARTEX

1,776 

23%

1,479 

19%

297 

20%

HALTEX / OPTILOAD

883 

11%

847 

11%

36 

4%

TIOPREM

326 

4%

439 

6%

(113)

-26%

OTHER

190 

2%

158 

2%

32 

20%

Total

 $

7,946 

100%

 $

7,712 

100%

 $

234 

3%

 

ALUPREM sales volume increased 13% during the first quarter 2014, as compared to a decrease in volume of 10% for the same three month period of 2013.  The year to year variance is primarily due to the purchasing pattern of a significant customer.

HITOX sales decreased 11% for the three month period ended March 31, 2014, primarily due to a decrease in volume and selling price of 6% and 5%, respectively.  HITOX sales volume continues to be affected by a weakness in the broader market for TiO2 products as both producers and consumers take corrective action to align production and inventory levels to meet the current demand for TiO2 products.  It is estimated that this decline in volume will continue at least into the second quarter of 2015.  During the first quarter 2013, HITOX sales decreased 23%, primarily due to a decrease in volume and selling price of 22% and 1%, respectively.

BARTEX sales increased 20% for the three month period ended March 31, 2014, primarily due to an increase in volume of 22%, which was partially offset by a decrease in selling price of 2%.  During the first quarter of 2013, sales increased approximately 3%, primarily due to an increase in selling price of 10%, which was partially offset by a decrease in volume of 7%.

TIOPREM sales decreased 26% during the first quarter of 2014 primarily due to a decrease in volume and selling price of 19% and 7%, respectively.  During the first quarter of 2013, TIOPREM sales increased approximately 108% primarily due to an increase in volume and selling price of 93% and 15%, respectively.

17



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

European Operations

Our subsidiary in the Netherlands, TPT, manufactures and sells ALUPREM to third party customers, as well as to our U.S. operation for distribution to our U.S. customers.  In addition, TPT purchases HITOX from TMM for distribution in Europe.  The following table represents TPT’s ALUPREM and HITOX sales (in thousands) for the three month periods ended March 31, 2014 and 2013 to third party customers.  All inter-company sales have been eliminated.

(Unaudited)

Three Months Ended March 31,

Product

2014

2013

Variance

ALUPREM

 $

1,909 

70%

 $

1,698 

69%

 $

211 

12%

BARYPREM

487 

18%

406 

16%

81 

20%

HITOX

299 

11%

350 

14%

(51)

-15%

TIOPREM

20 

1%

24 

1%

(4)

-17%

Total

 $

2,715 

100%

 $

2,478 

100%

 $

237 

10%

ALUPREM sales in Europe increased 12% during the first three months of 2014, primarily due to an increase in volume, selling price and the positive impact of the foreign currency fluctuations of approximately 7%, 2% and 3%, respectively.  This compares to an increase of 18% during the first three months of 2013 primarily due to an increase in volume of approximately 43% as market conditions appear to have stabilized.  This increase in volume was partially offset by a decrease in selling price of approximately 26% and the positive impact of the foreign currency fluctuations of 1%.

BARYPREM sales in Europe increased approximately 20% during the three month period ended March 31, 2014, primarily due to an increase in volume, selling price and the positive impact of the foreign currency fluctuations of approximately 11%, 5% and 4%, respectively.  This compares to an increase of approximately 34% during the three month period ended March 31, 2013, primarily related to the product gaining greater market acceptance with new and existing customers resulting in an increase in volume of 30% and an increase in selling price of 4%.

HITOX sales in Europe decreased approximately 15% during the three month period ended March 31, 2014, primarily related to a decrease in volume and selling price of 9% and 10% respectively, which was partially offset by the positive impact of the foreign currency fluctuations of 4%.  During the first quarter of 2013, HITOX sales decreased approximately 20% primarily related to a decrease in volume of 24% which was partially offset by an increase in the selling price of 4%.

TIOPREM sales decreased approximately 17% during the first quarter of 2014, primarily due to a decrease in volume of 20%, which was partially offset by the positive impact of the foreign currency fluctuations of approximately 3%.  This compares to an increase of 85% for the same three month period of 2013 primarily due to an increase in volume of 64% and an increase in selling price of 21%

18



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

Asian Operations

Our subsidiary in Malaysia, TMM, manufactures and sells HITOX and SR to third party customers, as well as to our U.S. operation and TPT.  The following table represents TMM’s sales (in thousands) for the three month periods ended March 31, 2014 and 2013 to third party customers.  All inter-company sales have been eliminated.

(Unaudited)

Three Months Ended March 31,

Product

2014

2013

Variance

HITOX

 $

1,093 

45%

 $

1,089 

88%

 $

0%

TIOPREM

<1%

117 

10%

(112)

-96%

SYNTHETIC RUTILE

1,365 

55%

0%

1,365 

100%

OTHER

<1%

31 

2%

(23)

-74%

Total

 $

2,471 

100%

 $

1,237 

100%

 $

1,234 

100%

HITOX sales in Asia remained flat during the three month period ended March 31, 2014, primarily due to the increase in volume of approximately 20% being offset by a decrease in selling price of approximately 13% and the negative impact of the foreign currency fluctuations of approximately 7%.  For the first three months of 2013, sales in Asia decreased 29% primarily due to a decrease in volume.

TIOPREM sales during the first quarter of 2014 decreased 96% of which approximately 89% in volume and approximately 7% resulting from the negative impact of the foreign currency fluctuations.  During the first quarter of 2013, TIOPREM sales increased 4% primarily related to an increase in selling price.

SR sales represented 55% of TMM’s sales for the three month period ended March 31, 2014; whereas, during the first quarter of 2013, TMM did not sell any SR to third parties as a result of weak market conditions.

19



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

Other Consolidated Results

Gross Margin:  The following table represents our net sales, cost of sales and gross margin for the three month periods ended March 31, 2014 and 2013, in thousands.

(Unaudited)

 

 

Three Months
Ended March 31,

 

 

2014

 

2013

NET SALES

 $

13,132 

 $

11,427 

Cost of sales

10,980 

9,933 

GROSS MARGIN

 $

2,152 

 $

1,494 

GROSS MARGIN %

16%

13%


For the three month period ended March 31, 2014, gross margin increased approximately 3% from 13% in 2013 to 16% in 2014 primarily due to the timing of the plant shutdown at TMM which reduced the first quarter of 2013 gross margin by approximately 5%.  This compares to a decrease in the gross margin of approximately 12% for the first quarter of 2013 primarily due to the timing of the plant shutdown at TMM.  TMM’s SR plant was idle for the entire first quarter of 2013 to perform necessary maintenance and plant upgrades.  The unabsorbed costs associated with the plant shutdown reduced the gross margin by approximately 5%.  Further impacting the gross margin for the first quarter of 2013 was an increase in the cost raw materials of approximately 6%.

Selling, General, Administrative and Expenses (“SG&A”):  SG&A expenses decreased approximately 13% for the three month period ended March 31, 2014 primarily due to a decrease in staff and salaries of approximately 15%; as compared to an increase of approximately 10% during the same quarter of 2013 primarily due to an increase in salaries.

Interest Expense:  Net interest expense increased $11,000 in the first quarter of 2014, primarily due to an increase in long-term debt related to improvements to the SR production facility at TMM.  This follows a decrease of approximately $58,000 during the same three month period of 2013, which was primarily due to a decrease in long-term debt.

Income Taxes:  Income taxes consisted of federal and state income tax expense of approximately $47,000 and $2,000, respectively, and foreign tax expense of approximately $143,000 for the three month period ended March 31, 2014, compared to federal and state income tax expense of approximately $40,000 and $2,000, respectively, and foreign tax benefit of approximately $73,000 for the same three month period in 2013.  Taxes are based on an estimated annualized consolidated effective rate of 21.4% for the year ended December 31, 2014.

20



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

Liquidity, Capital Resources and Other Financial Information

Long-term Debt – Financial Institutions

Following is a summary of our long-term debt to financial institutions as of March 31, 2014 and December 31, 2013, in thousands:

 March 31,

2014

 December 31,

 (Unaudited)

2013

Fixed Rate term note payable to a U.S. bank, with an interest rate of 5.5% at March 31, 2014, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation.

 $

806 

 $

911 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.85% at March 31, 2014, due July 1, 2029, secured by TPT's land and office building purchased July 2004.  (€251)

345 

351 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 3.3% at March 31, 2014, due January 31, 2030, secured by TPT's land and building purchased January 2005.  (€276)

380 

386 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at March 31, 2014, due July 31, 2015, secured by TPT's assets.  (€46)

63 

80 

Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at March 31, 2014, due July 5, 2014, secured by TPT's assets.  (€43)

59 

139 

Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at March 31, 2014, due March 1, 2015, secured by TMM's property, plant and equipment. (RM 2,333)

715 

801 

Malaysian Ringgit term note payable to a Malaysian bank, with an interest rate of 5.2% at March 31, 2014, due October 25, 2018, secured by TMM's property, plant and equipment. (RM 5,000)

1,532 

1,290 

Total

3,900 

3,958 

Less current maturities

956 

1,040 

Total long-term debt - financial institutions

 $

2,944 

 $

2,918 

21



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

Short-term Debt

U.S. Operations

On December 31, 2010, the Company entered into a credit agreement, as amended, (the “Agreement”) with American Bank, N.A. (the “Lender”) which established a $1,000,000 line of credit (the “Line”), and on March 1, 2012, the Line was increased from $1,000,000 to $2,000,000.  On May 15, 2013, the Company and the Lender entered into the second amendment which extended the maturity date from October 15, 2013 to October 15, 2014 and reduced the minimum interest rate floor from 5.5% to 4.5%.  Under the terms of the Agreement, the amount the Company is entitled to borrow under the Line is subject to a defined borrowing base, which is based on the Company’s eligible accounts receivable and inventory.  Amounts advanced under the Line bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Prime Rate as such prime rate changes from time to time, with a minimum floor rate of 4.5%.  At March 31, 2014, no funds were outstanding on the Line.

 

On January 14, 2014, the Company entered into the third amendment (the "Amendment") with the Lender.  Under the terms of the amendment, the Company is required ratio of cash flow to debt service of 1.0 to 1.0 for the four month period ending April 30, 2014, six month period ending June 30, 2014, nine month period ending September 30, 2014, and twelve month period ending December 31, 2014. Thereafter, the required ratio of cash flow to debt service shall be 1.25 to 1.0 measured on a rolling four quarter basis as originally detailed in the loan agreement.  Therefore, compliance was not evaluated at the end of the quarter ended March 31, 2014.

 

European Operations

On March 20, 2007, our subsidiary, TPT, entered into a short-term credit facility (the “Credit Facility”) with Rabobank which increased TPT’s line of credit from €650,000 to €1,100,000.  The Credit Facility was renewed on January 1, 2010 and has no stated maturity date.  The Credit Facility, which has a variable interest rate of bank prime plus 2.8% (currently at 3.531%), is secured by TPT’s accounts receivable and inventory.  At March 31, 2014, TPT had utilized €633,000 ($872,000) of its short-term credit facility.

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

Asian Operations

On May 21, 2013, TMM amended its banking facility with HSBC to extend the maturity date from April 30, 2013 to April 30, 2014.  TMM is currently negotiating an extension to the banking facility with HSBC.  The HSBC facility includes the following in RM:  (1) overdraft of RM 500,000; (2) an import/export line (“ECR”) of RM 6,460,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($153,000, $1,979,000 and $1,531,000, respectively).

On April 17, 2013, TMM amended its banking facility with RHB to extend the maturity date from March 5, 2013 to March 24, 2014.  TMM is currently negotiating an extension to the banking facility with RHB.  The RHB facility includes the following:  (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($306,000, $2,848,000, $367,000 and $7,657,000, respectively).  At March 31, 2014, the outstanding balance on the foreign exchange contract was RM 1,818,000 ($557,000) at a current interest rate of 2.20%.

The banking facilities with both HSBC and RHB bear an interest rate on the overdraft facilities at 1.25% over bank prime and the ECR facilities bear interest at 1.0% above the funding rate stipulated by the Export-Import Bank of Malaysia Berhad.  The ECR, a government supported financing arrangement specifically for exporters, is used by TMM for short-term financing of up to 180 days against customers’ and inter-company shipments.  At March 31, 2014, the outstanding balance on the ECR facilities was RM 6,889,000 ($2,110,000) at a current interest rate of 4.9%.

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

22



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

Cash and Cash Equivalents

As noted in the following table, cash and cash equivalents decreased $339,000 from December 31, 2013 to March 31, 2014 as compared to a decrease of $541,000 from December 31, 2012 to March 31, 2013, in thousands.

(Unaudited)

Three Months Ended March 31,

 

2014

 

2013

Net cash provided by (used in)

Operating activities

 $

1,974 

 $

(1,955)

Investing activities

(449)

(1,222)

Financing activities

(1,885)

2,710 

Effect of exchange rate fluctuations

21 

(74)

Net decrease in cash and cash equivalents

 $

(339)

 $

(541)

Operating Activities

Operating activities provided cash of $1,974,000 during the first three months of 2014 as compared to cash used by operating activities of $1,955,000 during the first three months of 2013.  Following are the major changes in working capital affecting cash provided by operating activities for the three month periods ended March 31, 2014 and 2013:

  • Accounts Receivable:  Accounts receivable increased $1,346,000 during the first three months of 2014.  The increase is primarily due to stronger sales in the first quarter of 2014 as compared to the fourth quarter of 2013.  Accounts receivable increased $1,580,000 and $428,000 at the U.S. operation and TPT, respectively, and decreased $662,000 at TMM.  During the first quarter of 2013, accounts receivable increased $1,390,000 during the first three months of 2013.  The increase is primarily due to stronger sales in the first quarter of 2013 as compared to the fourth quarter of 2012.  Accounts receivable increased $659,000, $384,000 and $347,000 at the U.S. operation, TPT and TMM, respectively.
  • Inventories: Inventories decreased $403,000 during the three month period ended March 31, 2014 primarily due to a decrease in finished goods.  The reduction in the U.S. operation’s finished goods and work in progress was partially offset by an increase in raw materials resulting in an overall decrease of $517,000.  Inventory at TPT decreased $121,000.  The increase in TMM’s raw materials and work in progress was partially offset by a decrease in finished goods resulting in a net increase of $235,000.  For the same three month period of 2013, inventories increased $278,000 during the three month period ended March 31, 2013 primarily due to an increase in raw materials at TMM.  Inventory at TMM increased $737,000.  A decrease in the raw materials and work in progress inventory at the U.S. operation was partially offset by an increase in finished goods resulting in net decrease of $303,000.  Inventory at TPT decreased $156,000.
  • Other Current Assets:  Other current assets increased $509,000 during the first quarter 2014, primarily due to an increase at TPT of $388,000 related to the timing of various prepaid employer tax payments.  TMM’s increased $147,000, primarily due to the timing of insurance and an increase in deposits on equipment.  The U.S. operation’s other assets decreased $26,000.  Other current assets decreased $392,000 during the first quarter of 2013 primarily due to a decrease in deposits paid by TMM resulting in a decrease of $653,000 and a decrease at the U.S. operation of $67,000.  TPT’s other current assets increased approximately $328,000 primarily relating to insurance.
  • Accounts Payable and Accrued Expenses:  Trade accounts payable and accrued expenses increased $1,373,000 during the first three months of 2014 primarily related to the timing of payments.  Accounts payable and accrued expenses increased $975,000 at TMM, primarily related to the costs associated with the SR production.  Accounts payable and accrued expenses increased $253,000 at TPT and $145,000 at the U.S. operation.  Trade accounts payable and accrued expenses decreased $1,226,000 during the first three months of 2013 primarily related to the timing of payments.  Accounts payable and accrued expenses decreased $784,000 at the U.S. operation and $847,000 at TMM.  Accounts payable and accrued expenses increased $405,000 at TPT.

23



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

 

Investing Activities

We used cash of $449,000 in investing activities during the first three months of 2014 primarily for the purchase of fixed assets as compared to $1,222,000 during the same period 2013.  Net investments for the three month periods ended March 31, 2014 and 2013 are as follows:

  • U.S. Operations:  We invested approximately $93,000 and $374,000 in 2014 and 2013, respectively, primarily related to production equipment.
  • European Operations:  We invested approximately $234,000 and $207,000 in 2014 and 2013, respectively, for new equipment to increase the production capacity of ALUPREM.
  • Asian Operations:  We invested approximately $122,000 and $641,000 in 2014 and 2013, respectively, for new equipment primarily related to improved efficiency and yield of SR production.

Financing Activities

Financing activities used cash of $1,885,000 during the three month period ended March 31, 2014 as compared to cash provided by financing activities of $2,710,000 during the three month period ended March 31, 2013.  Significant factors relating to financing activities for the three month periods ended March 31, 2014 and 2013 are as follows:

  • Lines of Credit:

·       U.S. Operations:  Borrowings on our U.S. line of credit were not utilized by the Company during either of the three month periods ended March 31, 2014 or 2013.  

·       European Operations:  Borrowings on TPT’s line of credit decreased approximately $207,000 and $1,000 for the three month periods ended March 31, 2014 and 2013, respectively.

·       Asian Operations:  Borrowings on TMM’s line of credit increased $155,000 and $2,096,000 for the three month periods ended March 31, 2014 and 2013, respectively.

  • Export Credit Refinancing Facility (“ECR”):  TMM’s borrowings on the ECR decreased $1,771,000 for the three month period ended March 31, 2014 as compared to an increase of $557,000 for the three month period ended March 31, 2013.
  • Capital Leases:  Capital leases for TPT decreased $5,000 and $16,000 during the three month periods ended March 31, 2014 and 2013, respectively.  The U.S. operation’s capital leases decreased $2,000 during the three month period ended March 31, 2013.
  • Long-term Debt:

·       U.S. Operations:  Our U.S. long-term debt decreased $104,000 and $97,000 for the three month periods ended March 31, 2014 and 2013, respectively.

·       European Operations:  TPT’s long-term debt decreased $111,000 and $103,000 for the three month periods ended March 31, 2014 and 2013, respectively.

·       Asian Operations:  TMM’s long-term debt increased $147,000 and $276,000 for the three month periods ended March 31, 2014 and 2013, respectively.

  • Proceeds from the Issuance of Common Stock:  During the first quarter of 2014, we received $11,000 related to the exercise of stock options.  No proceeds were received from the issuance of common stock during the first three months of 2013.

24



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

Off-Balance Sheet Arrangements and Contractual Obligations

No material changes have been made to the “Off-Balance Sheet Arrangements and Contractual Obligations” noted in the Company’s 2013 Annual Report on Form 10-K except as noted above.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Changes in Internal Controls

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

 

25



Part II  -  Other Information

Item 6.

Exhibits

(a)

Exhibits

Exhibit 10.1

Amendment to Loan Agreement with RHB Bank,
executed April 17, 2013

Exhibit 31.1

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

Exhibit 31.2

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

Exhibit 32.1

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

Exhibit 32.2

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


Signatures:

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

 

TOR Minerals International, Inc.

 

____________

(Registrant)

Date:

May 5, 2014

OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer

Date:

May 5, 2014

BARBARA RUSSELL
Barbara Russell
Chief Financial Officer

26