UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2011
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-17321
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TOR Minerals International, Inc.
(Exact name of registrant as specified
in its charter)
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Delaware
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74-2081929
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722 Burleson Street |
Corpus Christi
, Texas
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78402 |
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Securities registered under section 12(b) of the Act:
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Title of each class
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Name of exchange on which registered
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Securities registered pursuant to section 12(g) of the Act: None .
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Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
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No
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 þ 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 þ No o
Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in, definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. 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
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Accelerated
filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
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No
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The aggregate market value of the common stock, the Registrant's only common equity, held by non-affiliates of the registrant (based upon the closing sale price of the registrant's Common Stock on the NASDAQ Capital Market tier of the NASDAQ Stock Market on June 30, 2011) was approximately $17,590,000. Shares of common stock held by each executive officer and director and by each entity that owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 12, 2012, there were 2,400,151 shares of the registrant's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission relative to the Company's 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this Report.
TOR MINERALS INTERNATIONAL, INC.
Annual Report on Form 10-K
Table of Contents
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PART I |
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Item 1. |
Business |
3 |
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Item 1 A. |
Risk Factors |
10 |
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Item 1 B. |
Unresolved Staff Comments |
13 |
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Item 2. |
Properties |
13 |
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Item 4. |
Mine Safety Disclosures |
14 |
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PART II |
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Item 5. |
Market
for Registrant's Common Equity, Related Stockholder
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Item 6. |
Selected Financial Data |
16 |
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Item 7. |
Management's
Discussion and Analysis of Financial Condition
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Item 8. |
Financial Statements and Supplementary Data |
38 |
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Item 9. |
Changes
In and Disagreements with Accountants on Accounting
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Item 9 A. |
Controls and Procedures |
38 |
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Item 9 B. |
Other Information |
39 |
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PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
40 |
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Item 11. |
Executive Compensation |
40 |
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Item 12. |
Security
Ownership of Certain Beneficial Owners and Management
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Item 13. |
Certain Relationships and Related Transaction, and Director Independence |
43 |
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Item 14. |
Principal Accountant Fees and Services |
43 |
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PART IV |
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Item 15. |
Exhibits and Financial Statement Schedules |
44 |
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SIGNATURES |
46 |
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Forward-Looking Statement
This Annual Report on Form 10-K (the "Report"), including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7, contains 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 exchange rates, changes in the cost of energy, fluctuations in market price for TiO 2 pigments, 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 filing with the Security and Exchange Commission, including those set forth in this report under Item 1A. Risk Factors - Risks Related to Our Business. 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. 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.
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PART I
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Item 1. |
Business |
General
TOR Minerals International, Inc. ("TOR", "we", "us", "our" or the "Company") is a global specialty chemical company engaged in the business of manufacturing and marketing mineral products for use as pigments, pigment extenders, functional fillers and flame retardants used in the manufacture of paints, coatings, plastics and catalysts.
We were organized by Benilite Corporation of America ("Benilite") in 1973. Benilite, which was incorporated in Delaware in 1969, developed the then patented "Benilite process" for producing synthetic rutile ("SR"), the principal ingredient used in the manufacture of HITOX® ( hi gh-grade t itanium di ox ide), from ilmenite ore. Benilite licensed and helped design several synthetic rutile plants located throughout the world which utilize this process (including the plant located in Ipoh, Malaysia, owned by the Company, as discussed below). Benilite concluded that synthetic rutile produced by the Benilite process could be further processed into a buff-colored titanium dioxide pigment having many of the characteristics of standard white titanium dioxide at a significant cost savings. These efforts by Benilite were the beginning of the Company's business. In 1980, the subsidiary of Benilite engaged in the development of HITOX was spun off by Benilite to its shareholders. In December 1988, the Company became a publicly owned company after completing a public offering of 1.38 million shares of its common stock. Our stock symbol is TORM.
Global Headquarters : We are headquartered in Corpus Christi, Texas, USA. This location houses senior management, customer service, logistics, and corporate research and development/technical service laboratories. Our financial and accounting functions also operate from this location. Our principal offices in Corpus Christi are located at 722 Burleson Street, Corpus Christi, Texas 78402, and our telephone number is (361) 883-5591. Our website is located at www.torminerals.com. Information contained in our website or links contained on our website is not part of this Annual Report on Form 10-K.
U.S. Operation : Our U.S. manufacturing plant, located in Corpus Christi, Texas, is situated on the north side of the Corpus Christi Ship Channel and has its own dock frontage at the plant. We also utilize the Bulk Terminal, operated by the Port of Corpus Christi Authority, to discharge bulk shipments of SR and Barite from cargo vessels directly into trucks for delivery to our plant. The site has its own railhead and easy access to major highways linking it to the rest of the U.S. and to Mexico. HITOX®, BARTEX®, HALTEX®, OPTILOAD® and TIOPREM® are all produced at this location.
Asian Operation : We acquired our Asian operation, TOR Minerals Malaysia, Sdn. Bhd. ("TMM"), in 2000. Located in Ipoh, Perak, Malaysia, close to the port of Lumut, TMM is a processor of local ilmenite, upgrading it to SR. This material is the basic building block for HITOX and TIOPREM, but is also used as feed stock for white TiO 2 and used as a component in welding rod flux. The site has its own processing lines to manufacture HITOX and TIOPREM. The sales team and the quality assurance laboratory for Asia are located at the offices in Ipoh.
European Operation : In 2001, we acquired our European operation, TOR Processing and Trade, B.V. ("TPT"). Situated within reach of the major shipping port of Rotterdam, TPT, located in Hattem, Netherlands, specializes in the manufacturing of premium alumina products ("ALUPREM®") for use worldwide. Customer applications, quality assurance laboratory and support facilities for Europe are located in Hattem. TOR Minerals' global headquarters in Texas provides customer service and shipping logistics for TPT's North American customers.
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Our Products
TOR and our subsidiaries operate in the business of mineral product manufacturing 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. Our products are currently marketed in the United States and in more than 60 other countries. We sell our products through a network of direct sales representatives employed by the Company and independent stocking distributors in the United States, as well as distributors and agents overseas. Our sales representatives sell directly to end-users and provide technical support and market guidance for our independent distribution network.
HITOX : Our principal product, HITOX, a light buff-colored titanium dioxide pigment, is made from SR. Titanium dioxide is the most widely used primary pigment in paints, coatings, plastics, paper and many other types of products. Titanium dioxide, or TiO 2 , gives opacity and color to end products. Most TiO 2 is white; however, HITOX is a unique color pigment that is beige. HITOX occupies a special marketing niche as a high quality, color pigment that can replace some of the other more costly color pigments and some of the white TiO 2 . HITOX pigments are used by major international paint and plastics manufacturers. Uses include architectural & industrial paints, primers, metal finishes and coatings, caulks and sealants, floor tiles and plastic profiles, sheets and film.
HITOX, manufactured at plants located in both the U.S. and Malaysia, utilizes SR manufactured at TMM as its primary raw material. The manufacturing process for producing HITOX is not simple and the details of the process and the operating parameters of the systems are not widely known. The HITOX manufacturing process is not patented.
ALUPREM : Our alumina trihydrate ("ATH") products were expanded in 2001 with the introduction of ALUPREM, which is manufactured at our European operation, TPT, in The Netherlands. ALUPREM, which stands for premium alumina, was developed by TOR's President and Chief Executive Officer, Dr. Olaf Karasch. The details of the manufacturing process and the operating parameters of the systems are not widely known. The ALUPREM manufacturing process is not patented.
ALUPREM products are used for color critical applications as fillers and flame retardants and performance driven uses such as specialty wire and cable insulation, catalysts, high-tech polishing, pigments and specialty papers.
BARTEX / BARYPREM : BARTEX is manufactured at our U.S. operation from high grade barites (barium sulfate) utilizing a milling process. Barium Sulfate's high density is one of the primary reasons it is used in coatings. As an inert extender pigment, BARTEX gives weight and body to products ranging from powder coatings used in automotive, appliance and office furniture finishes to rubber products such as carpet and curtain backings and plastics including billiard balls and poker chips. BARTEX is an extender for more expensive prime white pigments, such as white TiO 2 . BARTEX is manufactured in several different grades differentiated by narrow particle sizing ranging from standard coarse to specialty ultra-fine with high brightness and whiteness.
BARYPREM is manufactured in our Netherlands (TPT) location and is available in powder or slurry form. BARYPREM offers exceptional quality and high whiteness for color critical applications.
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HALTEX / OPTILOAD : HALTEX, manufactured at our U.S. operation, is produced from Bayer grade alumina trihydrate (ATH) using some of the same production technologies as our other products. It is an environmentally-friendly flame retardant, smoke suppressant filler used in plastic and rubber products.
HALTEX features high purity and engineered particle sizing for optimum physical properties. The quality of our HALTEX is suitable for a broad range of technical applications including a wide variety of thermoset composites, SMC (sheet molding compounds) /BMC (bulk molding compounds), thermoplastic profiles, electrical wire & cable insulation, mining conveyor belts, specialty coatings as well as adhesives and sealants.
In 2008 we introduced and began commercial sales of a new line of low viscosity ATH products under the name OPTILOAD. The new line allows for increased ATH loadings (compared to standard products) into SMC and other thermoset compounds to meet higher levels of flame retardant and smoke suppressant behavior. TOR Minerals foresees a growing demand for OPTILOAD products in line with more stringent flame retardant/smoke suppressant legislative regulations as well as for substitution of halogenated flame retardants like bromine, which are undergoing increasing legislative scrutiny due to concerns with toxicity and high smoke in flame conditions.
TIOPREM : TIOPREM, manufactured at our U.S. and Malaysian operations, is produced from a proprietary process based on modified SR feedstock made at TOR Minerals' Malaysian plant. Introduced in 2008, TIOPREM is a series of high performance, heat stable colored TiO2 hybrid pigments offering cost savings through the partial replacement of expensive color pigments and white TiO2 in plastics and specialty paints & coatings. End use applications include engineered plastics, laminates, window profiles, plastic lumber, roofing granules and ceramic coatings.
SYNTHETIC RUTILE : SR, the basic building block for HITOX and TIOPREM, is manufactured at our Asian operation using the Benilite process for producing SR. Ilmenite, the raw material used in the manufacturing process, is first treated in a reduction kiln and then subjected to leaching in hydrochloric acid where soluble iron and other impurities are removed. SR is also used as feed stock for white TiO 2 and as a component in welding rod flux.
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Raw Materials and Energy
We utilize a variety of raw materials in the manufacture of our products. Outlined below are the principal raw materials for TOR's products.
SR: Titanium dioxide pigment can be produced using ilmenite, natural rutile, SR or titanium slag. SR is produced from ilmenite and typically has a titanium dioxide content ranging from 92% to 95%. Ilmenite is a black material found in natural mineral deposits and typically has a titanium dioxide content ranging from 44% to 60%. Ilmenite is found throughout the world, including China, India, Australia and North America. In Malaysia, ilmenite historically has been recovered incidental to tin mining, but as tin mining has decreased in Malaysia, the source and quality of ilmenite has been declining.
Historically, we have purchased our ilmenite ore in Malaysia. However, as the remaining stockpiles around Malaysia have started depleting, we have started purchasing ilmenite from various other suppliers throughout the world. As a result, the average price for the ilmenite has been going up and increased approximately 118% during 2011 and 22% in 2010.
HITOX / TIOPREM: TMM is the Company's sole supplier of SR, the raw material for HITOX and TIOPREM. The cost of SR increased approximately 56% in 2011 and approximately 14% in 2010, primarily due to an increase in the cost of ilmenite and energy. Other than TMM, there is only one other available source for the quality of SR required for the production of HITOX. If supplies of SR from TMM are interrupted and we are unable to arrange for SR from this alternative source, our ability to produce HITOX would likely suffer, which would adversely affect our business.
ALUPREM: Alumina trihydrate, the chief raw material for ALUPREM, is manufactured throughout the world including Europe and North America. The ATH material used for chemicals, fillers and flame-retardants is produced by the Bayer alumina process. This grade of ATH accounts for approximately 95% of the total ATH produced worldwide. The Company purchases ATH from various suppliers in Europe. The average prices for ATH remained stable in both 2011 and 2010.
BARTEX / BARYPREM: High grade barites (barium sulfate) are mined in China, India, Turkey and Mexico and are the raw materials used to produce BARTEX and BARYPREM. The average price for this grade of barites remained stable in 2011 and barites increased approximately 5% in 2010.
HALTEX / OPTILOAD: Bayer grade aluminum hydroxide, used to produce HALTEX, is purchased from one of four suppliers located in the U.S. The average price for the Bayer grade aluminum remained stable in both 2011 and 2010.
ENERGY: We are highly dependent on energy in our manufacturing processes. Electricity is the predominate source of energy at each of our three operations. In addition, natural gas is used as a source of energy in Corpus Christi and fuel oil is used at TMM in the production of SR. In Corpus Christi, the average price of electricity decreased 21% and 19% in 2011 and 2010, respectively; and, the average price of natural gas decreased approximately 6% in 2011 following an increase of 15% in 2010. Average energy prices at TMM for electricity remained stable in both 2011 and 2010; and the average price of fuel oil increased approximately 38% in 2011 and was flat in 2010. Energy prices at TPT, primarily electricity, remained stable in both 2011 and 2010.
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Research and Development / Technical Services
Our expenditures for research and development and technical services remained relatively flat in both 2011 and 2010. We conduct our research and technical service primarily at our facilities in Corpus Christi and our efforts are principally focused on process technology, product development and technical service to our customers. There are no research and development costs borne directly by our customers.
Marketing and Customers
Sales and Marketing Department Organization : TOR's sales efforts are managed out of Corpus Christi, Texas, by the Executive Vice President. We have sales offices at our U.S., Asian and European operations. Area and product managers report to the Executive Vice President and assist with customer, agent and distributor relations.
Independent Distributors and Agents : We utilize a network of both domestic and foreign independent distributors and agents. Within North America there are multiple agents serving us on either a regional or a product basis. In most other countries there is one stocking distributor who purchases directly from TOR and resells in their territory. In certain large countries there may be multiple distributors. In this way we get the benefit of sales specialists with specific trade knowledge in each country.
Customers : Our end use customers include companies in the paints, coatings, plastics and catalyst industries. For the years ended December 31, 2011, 2010 and 2009, BASF Corporation represented 14.0%, 13.3%, and 18.2%, respectively, of our total consolidated sales.
Geographic Distribution : We sell our products globally and market them in North, Central and South America, Asia and Europe to customers located in more than 60 countries. No individual foreign country accounted for 10% or more of our foreign sales in 2011, 2010, or 2009. Sales to external customers are attributed to geographic area based on country of distribution.
A summary of the Company's sales by geographic area is presented below:
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(In thousands) |
2011 |
2010 |
2009 |
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Summary by Geographic Area |
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Sales
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% of
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Sales
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% of
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Sales
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% of
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United States |
$ |
20,241 |
49% |
$ |
15,982 |
52% |
$ |
14,391 |
59% |
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Canada, Mexico & South/Central America |
4,187 |
10% |
3,401 |
11% |
2,115 |
9% |
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Pacific Rim |
6,321 |
16% |
3,177 |
10% |
1,933 |
8% |
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Europe, Africa & Middle East |
10,272 |
25% |
8,456 |
27% |
5,754 |
24% |
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Total Sales |
$ |
41,021 |
100% |
$ |
31,016 |
100% |
$ |
24,193 |
100% |
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Competition : We experience competition with respect to each of our products. In order to maintain and grow sales volumes, we must rely on our ability to both innovate to add value as well as to manufacture and distribute products at competitive prices. We believe that quality, delivery on schedule and price are the principal competitive factors. However, due to the nature of our main product, HITOX, and the size of our company as compared to others in the industry, we are not price leaders, but are price followers and while we generally attempt to increase prices to offset cost increases, these actions tend to lag the cost increases.
Our competitors range from large corporations with a full line of production capabilities and products to small local firms specializing in one or two products. A number of these competitors are owned and operated by large diversified corporations. Many of these competitors, such as E.I. DuPont de Nemours & Co., Inc., Millennium Chemicals, Kronos Inc. and J.M. Huber, have substantially greater financial and other resources, and their share of industry sales is substantially larger than TOR's.
Environmental Regulations and Product Safety
Our plant in Corpus Christi is subject to regulations promulgated by the Federal Environmental Protection Agency ("EPA") and state and local authorities with respect to the discharge of substances into the environment. We believe that the Corpus Christi plant is in compliance with all applicable federal, state and local laws and regulations relating to the discharge of substances into the environment, and we do not expect that any material capital expenditures for environmental control facilities will be necessary in order to continue such compliance.
TMM's SR plant is required to be licensed by the Malaysian Atomic Energy Licensing Board ("AELB") because the ilmenite used by the plant is derived from tin tailings, which are a source of small amounts of monazite and hafnium which are radioactive rare earth compounds. As part of the licensing requirements, TMM is required to maintain a monitoring program for various emissions from the plant. The monitoring is done in-house by TMM personnel and results are reported to the AELB as required. The plant is subject to various other licensing and permitting requirements, all of which TMM is currently in compliance.
TPT operates an alumina processing plant in Hattem, The Netherlands, and is governed by rules promulgated by both The Netherlands and the European Community. We believe that the Hattem plant is in compliance with all environmental and safety regulations.
HITOX and the ingredient from which it is produced, SR, are non-toxic and non-hazardous. HITOX complies with all applicable laws and regulations enforced by the United States Food and Drug Administration (the "FDA") and is an acceptable component of packaging materials used in direct contact with meat, poultry and other food products; of paints used in incidental contact with such products; and of other packaging materials, such as paper and paperboard. HITOX also complies with current color additive regulations promulgated by the FDA. In addition, HITOX has been tested for compliance with the applicable standards promulgated by the National Sanitation Foundation (the "NSF"), and we are authorized to use applicable NSF seals and/or logos in connection with the marketing of HITOX. This authorization is significant in that end users of titanium dioxide pigments who wish their products to be NSF approved must use component materials that also meet NSF standards.
Backlog
We normally manufacture our pigment products in anticipation of, and not in response to, customer orders and generally fill orders within a short time after receipt. Consequently, we seek to maintain adequate inventories of our pigment products in order to permit us to fill orders promptly after receipt. As of March 12, 2012, we did not have a significant backlog of customer orders.
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Seasonality
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.
Patents and Trademarks
We currently hold no patents on the processes for manufacturing any of our products. Eight of TOR's products, HITOX (4/30/2015), ALUPREM (7/29/2013), HALTEX (7/28/2012), BARTEX (2/24/2017), TIOPREM (8/5/2014), OPTILOAD (10/27/2015), BARYPREM® (8/30/2016) and TITOX® (5/26/2012), are marketed under names which have been registered with the United States Patent and Trademark Office. Trademarks are also registered in certain foreign countries.
Employees
As of December 31, 2011, our U.S. operation had 31 full-time employees, our European operation employed 30, and our Asian operation had 95 employees, of which 51 are covered by a collective bargaining agreement with an in-house union. We have not experienced any work stoppages and believe that our relations with all our employees are good.
Available Information
TOR's internet website address is www.torminerals.com . Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 are available through our internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.
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Item 1 A. |
Risk Factors |
In addition to the factors discussed in the Forward-Looking Statement section provided at the beginning of this Annual Report on Form 10-K, the following are important factors that could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of the Company. In addition, you should know that the risks and uncertainties described below are not the only ones we face. Unforeseen risks could arise and problems or issues that we now view as minor could become more significant. If we were unable to adequately respond to any risks, our business, financial condition and results of operations could be materially adversely affected. Additionally, we cannot be certain or give any assurances that any actions taken to reduce known risks or uncertainties will work.
• Our foreign debt is subject to subjective acceleration provisions and demand provisions that allow our lending institutions to accelerate payment at any time. If our foreign debt were accelerated under the demand provisions, our working capital and financial condition would be severely impacted.
Our subsidiaries have loan agreements with banks in Malaysia and The Netherlands that provide short-term credit facilities and term loans. These borrowings are subject to certain subjective acceleration provisions based on the judgment of the banks and demand provisions that provide that the banks may demand repayment at any time. We believe such a demand provision is customary in Malaysia and The Netherlands for such facilities. At December 31, 2011, our foreign debt consisted of $4,140,000 under the short-term credit facilities and $1,811,000 under the term loans and financial lease agreements.
If demand is made by the banks, we may require additional debt or equity financing to meet our working capital and operational requirements or, if required, to refinance our maturing or demanded indebtedness. Should we find it necessary to raise additional funds, we may find that such funds are either not available or available only on terms that are unattractive in terms of shareholders' interest, or both, and if this debt could not be repaid or refinanced, the banks could foreclose and sell our foreign operations or hold same as collateral security for these loans, and pursue collection against our guarantees of such loans which would adversely affect our financial condition and liquidity.
• Our business is affected by global economic factors including risks associated with declining economic conditions.
Our financial results are substantially dependent upon overall economic conditions in the United States, the European Union and Asia. Declining economic conditions in any or all of these locations - or negative perceptions about economic conditions - could result in a substantial decrease in demand for our products and could adversely affect our business.
Uncertain economic conditions and market instability make it difficult for us, our customers and our suppliers to forecast demand trends. Declines in demand would place additional pressure on our results of operations. The timing and extent of any changes to currently prevailing market conditions is uncertain and supply and demand may be unbalanced at any time. As a consequence, at present, we are unable to accurately predict future economic conditions or the effect of such conditions on our financial conditions or results of operations, and we can give no assurances as to the timing, extent or duration of the current or future economic cycles impacting our industry.
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• Costs of raw materials and energy have resulted, and may continue to result, in increased operating expenses and reduced results of operations.
We purchase large amounts of raw materials and energy for our manufacturing operations. The cost of these raw materials and energy, in the aggregate, represent a substantial portion of our operating expenses. The costs of raw materials and energy generally follow price trends of, and vary with the market conditions for crude oil and natural gas, which may be highly volatile and cyclical. Many raw material and energy costs have recently experienced significant fluctuations, reaching historically record high levels. Moreover, the fluctuation of the U.S. Dollar to other currencies adds to the volatility in raw material costs. There have been, and will likely continue to be, periods of time when we are unable to pass raw material and energy cost increases on to our customers quickly enough to avoid adverse impacts on our results of operations. Our results of operations have been in the past, and could be in the future, significantly affected by increases and volatility in these costs. Cost increases also may increase working capital needs, which could reduce our liquidity and cash flow. In addition, when raw material and energy costs increase rapidly and are passed along to customers as product price increases, the credit risks associated with certain customers can be compounded. To the extent we increase our product sales prices to reflect rising raw material and energy costs, demand for products may decrease as customers reduce their consumption and use substitute products, which may have an adverse impact on our results of operations.
• Climate change poses both regulatory and physical risks that could adversely impact our results of operations.
In addition to the possible direct economic impact that climate change could have on us, climate change regulation could significantly increase our costs. Energy costs are a significant component of our overall costs, and climate change regulation may result in significant increases in the cost of energy.
• We have one primary source for SR and, if that source was not available, we could not produce HITOX or TIOPREM.
TMM is our primary source for SR. There is only one other available source for the quality of SR required for the production of HITOX and TIOPREM. If supplies of SR from TMM are interrupted and we are unable to arrange for this alternative source, this could result in our inability to produce these products which accounted for approximately 47% of our sales for the year ended December 31, 2011.
• We are dependent on a limited number of customers and could experience significant revenue reductions if they use alternative sources.
We derive a significant portion of our revenue each quarter from a limited number of customers. Our top 10 customers accounted for approximately 40% of our consolidated sales revenues in 2011 and 42% of our consolidated sales revenues in both 2010 and 2009. As a result, a decrease in sales volume of any one of our top 10 customers could have a material impact on our business, operating results, and financial condition. For the year ended December 31, 2011, BASF Corporation represented 14% of our total consolidated sales, and the loss of this customer could have a material impact on our business, operating results and financial condition.
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- 11 - |
• Foreign currency fluctuations could adversely impact our financial condition.
Because we own assets located outside the United States and have revenues and expenses in currencies other than the U.S. Dollar, we may incur currency transaction and translation losses due to changes in the values of foreign currencies and in the value of the U.S. Dollar. Foreign currency exposure from transactions and commitments denominated in currencies other than the functional currency are managed by selectively entering into derivative transactions. Translation exposure associated with translating the functional currency financial statements of our foreign subsidiaries into U.S. Dollars is generally not hedged. Upon translation to the U.S. Dollar, operating results could be significantly affected by foreign currency exchange rate fluctuations. We cannot predict the effect of changes in exchange rate fluctuations upon future operating results. (See "Foreign Operations - Impact of Exchange Rate" on page 36).
• We borrow funds from time to time from members of our board of directors for working capital purposes.
In the past, we have had to borrow funds from members of our board of directors for working capital purposes. We most likely will require additional working capital loans in the future, but it is also possible that such loans from our board members would not be available because they have made no commitment to provide additional loans.
• We are required to make estimates and assumptions that may differ from actual results.
In preparing our consolidated financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results may differ from previously estimated amounts under different conditions and assumptions.
• Our competitors are established companies that have greater experience than us in a number of crucial areas, including manufacturing and distribution.
There is intense competition with respect to each of our products. In order to maintain sales volume, we must consistently deliver high quality products on schedule at competitive prices. Our competitors range from large corporations with full lines of production capabilities and products, such as E. I. DuPont de Nemours & Co., Inc., Millenium Chemicals, Kronos, Inc., and J. M. Huber, to small local firms specializing in one or two products. The established companies have significantly greater experience than us in manufacturing and distributing products and have considerably more resources and market share. We may have difficulty in competing with these companies.
• Our U.S. operation is located on the Gulf of Mexico coastline and could be adversely affected by hurricanes.
We may be subject to work stoppages for hurricanes, particularly during the period ranging from June to November. If a hurricane is severe and our Corpus Christi plant incurs heavy damage and prolonged downtime, which may not be fully covered by insurance, our financial results would be adversely affected.
|
- 12 - |
• Doing business in foreign countries carries certain risks that are not found in doing business in the U.S.
We currently derive a portion of our revenues from operations in Malaysia and The Netherlands and we source our SR from Malaysia, which is the critical raw material we require for the production of our primary product, HITOX. We believe that currently the risks of doing business in Malaysia and The Netherlands are not significant, however, future risks of doing business in these countries which could result in losses against which we are not insured include, but are not limited to, the following:
• Potential adverse changes in diplomatic relations of foreign countries with the United States of America
• Terrorism
• Disruptions caused by possible foreign conflicts
• Hostility from local populations
• Adverse effect of currency exchange controls
• Restrictions on the withdrawal of foreign investment and earnings
• Government policies against businesses owned by foreigners
• Foreign exchange restrictions
• Changes in taxation structure
|
Item 1 B. |
Unresolved Staff Comments |
As of the date of this report, we did not have any unresolved staff comments.
|
Item 2. |
Properties |
We believe that all of the facilities and equipment of the Company are adequately insured, in generally good condition, well maintained, and generally suitable and adequate to carry on our business.
United States Operation
We operate a plant in Corpus Christi, Texas, that manufactures HITOX, BARTEX, HALTEX, OPTILOAD and TIOPREM. During 2011, the Corpus Christi plant operated at approximately 70% of capacity. The facility is located in the Rincon Industrial Park on approximately 15 acres of land, with 13 acres leased from the Port of Corpus Christi Authority (the "Port") and approximately two acres which we own. The lease payment is subject to adjustment every five years for what the Port calls the "equalization valuation". This is used as a means of equalizing rentals on various Port lands and is determined solely at the discretion of the Port. We executed an amended lease agreement with the Port on July 11, 2000, which extended the expiration date of the lease to June 30, 2027.
We own the improvements on the plant site, including a 3,400 square-foot office, a 5,000 square-foot laboratory building, a maintenance shop and several manufacturing and warehousing buildings containing a total of approximately 90,000 square feet of space. The leased premises include approximately 350 lineal feet of bulkheaded industrial canal frontage, which provides access to the Gulf of Mexico intercoastal waterway system through the Corpus Christi ship channel. This property is also serviced by a Company owned railroad spur that runs through our property to the canal.
The Corpus Christi plant and improvements are encumbered by a lien held by American Bank. (See "Liquidity - U.S. Operation" on page 30).
|
- 13 - |
European Operation
Our European Operation, TPT, is located in Hattem, The Netherlands, near the major shipping port of Rotterdam. TPT, which completed an expansion of their ALUPREM production capacity in late 2011, operated at approximately 95% of capacity in 2011. The factory site, which the Company owns, was expanded in 2004 from approximately one acre to two acres and consists of a 20,000 square foot steel frame metal building, a 2,000 square foot office building which was purchased in July 2004, and a 10,000 square foot warehouse with a loading dock which was purchased in January 2005.
The Netherlands plant and improvements are encumbered by a mortgage held by Rabobank. (See "Liquidity - European Operation" on page 32).
Asian Operation
Our Asian Operations, TMM, operates the SR manufacturing plant in Ipoh, Malaysia, and is close in proximity to the present source of their major raw material - ilmenite. The plant site has 38 acres of land that TMM has a commitment to use through 2074. The TMM plant operated at approximately 60% of capacity in 2011.
TMM owns the improvements on the plant site, including a 3,960 square-foot office, a 1,980 square-foot laboratory, a spare parts storage warehouse, an employee cafeteria, and several manufacturing and warehousing buildings containing a total of approximately 106,500 square feet of space.
The Malaysian plant and improvements are encumbered by liens held by HSBC Bank and RHB Bank. (See "Liquidity - Asian Operation" on page 33).
|
Item 4. |
Mine Safety Disclosures |
As we are not the operator of a coal mine or other mine, Item 4 is not applicable.
|
- 14 - |
PART II
|
Item 5. |
Market for Registrant's Common
Equity, Related Stockholder Matters
|
Market for Common Equity
Our Common Stock trades on the NASDAQ Capital Market under the symbol: "TORM". The table below sets forth the high and low sales prices for our Common Stock for the periods indicated, according to NASDAQ. Amounts shown in this table for 2009 have been adjusted to reflect the one-for-five reverse stock split effected on February 19, 2010. On March 1, 2012, the closing trading price of our Common Stock was $15.44 and 10,136 shares were traded.
|
Quarter Ended |
|
Mar 31 |
|
Jun 30 |
|
Sep 30 |
|
Dec 31 |
|||||
|
2011 |
High |
$ |
21.690 |
$ |
20.250 |
$ |
18.730 |
$ |
15.660 |
||||
|
Low |
8.480 |
14.580 |
11.780 |
10.830 |
|||||||||
|
2010 |
High |
$ |
5.100 |
$ |
8.440 |
$ |
8.620 |
$ |
13.040 |
||||
|
Low |
2.550 |
4.500 |
5.380 |
5.930 |
|||||||||
|
2009 |
High |
$ |
4.200 |
$ |
2.300 |
$ |
3.150 |
$ |
2.900 |
||||
|
Low |
1.200 |
1.200 |
1.800 |
2.300 |
|||||||||
No cash dividends have ever been paid on our Common Stock. Except and as otherwise required by the terms of our Series A Convertible Preferred Stock, we currently intend to retain future earnings, if any, for use in our business, and therefore, we do not currently anticipate declaring or paying any dividends on our Common Stock in the foreseeable future.
The approximate number of holders of record of TOR's Common Stock as of March 12, 2012 was 190.
One-for-Five Reverse Stock Split
As noted in the Company's Form 8-K filed with the Securities and Exchange Commission on February 18, 2010, the shareholders approved a one-for-five reverse stock split, which the Company effected on February 19, 2010.
Series A 6% Convertible Preferred Stock Dividends
On December 6, 2011, we declared a dividend, in the amount of $375, for the quarterly period ending December 31, 2011, payable on January 1, 2012, to the holders of record of the Series A Convertible Preferred Stock as of the close of business on December 6, 2011. Dividends declared on the Series A Convertible Preferred Stock totaled $16,000 and $60,000, respectively, in 2011 and 2010. At December 31, 2011, all holders of the Company's Series A Convertible Preferred Stock had converted their stock to shares of the Company's Common Stock.
Indemnification of Directors and Officers
The Company maintains a "Directors and Officers" insurance policy under which the Directors and Officers of the Company are indemnified against liability, which he/she may incur in his/her capacity as such.
Issuer Purchases of Equity Securities
The Company has no reportable purchases of equity securities.
Unregistered Sales of Equity Securities and Use of Proceeds
In December 2011, the remaining eight holders of warrants issued in December 2008, exercised their warrants. Upon exercise and receipt of the aggregate exercise price of $2,750,000, the Company issued 275,000 shares of common stock to the accredited investors. The Company used the proceeds for working capital.
No underwriters were involved in the foregoing offers and sales of securities. These offers and sales were made in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended (the "Securities Act"), set forth in Section 4(2) under the Securities Act. The offers and sales were made only to "accredited investors" as such term is defined in Regulation D under the Securities Act with whom we had previous relationships and we did not partake in any general solicitation or advertisement.
|
- 15 - |
|
Item 6. |
Selected Financial Data |
|
Year Ended December 31, |
||||||||||
|
|
|
2011 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
|
|
(in thousands, except per share data) |
|
|||||||
|
Consolidated Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
NET SALES |
$ |
41,021 |
$ |
31,016 |
$ |
24,193 |
$ |
25,304 |
$ |
27,961 |
|
Cost of sales |
31,727 |
24,258 |
20,382 |
22,032 |
22,768 |
|||||
|
GROSS MARGIN |
|
9,294 |
|
6,758 |
|
3,811 |
|
3,272 |
|
5,193 |
|
Technical services and research and development |
287 |
254 |
200 |
244 |
245 |
|||||
|
Selling, general and administrative expenses |
4,639 |
3,701 |
3,215 |
4,673 |
4,290 |
|||||
|
Goodwill impairment |
- |
- |
- |
1,976 |
||||||
|
Loss on assets held for sale |
- |
- |
- |
679 |
||||||
|
Loss (gain) on disposal of assets |
(1) |
- |
35 |
98 |
(12) |
|||||
|
OPERATING INCOME (LOSS) |
|
4,369 |
|
2,803 |
|
361 |
|
(4,398) |
|
670 |
|
OTHER INCOME (EXPENSE): |
||||||||||
|
Interest income |
- |
- |
- |
2 |
18 |
|||||
|
Interest expense |
(471) |
(439) |
(556) |
(524) |
(684) |
|||||
|
Gain (loss) on foreign currency exchange rate |
(23) |
(60) |
59 |
(38) |
25 |
|||||
|
Other, net |
9 |
- |
4 |
15 |
- |
|||||
|
INCOME (LOSS) BEFORE INCOME TAX |
|
3,884 |
|
2,304 |
|
(132) |
|
(4,943) |
|
29 |
|
Income tax expense (benefit) |
48 |
16 |
4 |
19 |
(42) |
|||||
|
NET INCOME (LOSS) |
$ |
3,836 |
$ |
2,288 |
$ |
(136) |
$ |
(4,962) |
$ |
71 |
|
Less: Preferred Stock Dividends |
16 |
60 |
60 |
60 |
60 |
|||||
|
Basic Income (Loss) Available to Common Shareholders |
$ |
3,820 |
$ |
2,228 |
$ |
(196) |
$ |
(5,022) |
$ |
11 |
|
Plus: 6% Convertible Debenture Interest Expense |
87 |
90 |
- |
- |
- |
|||||
|
Plus: Preferred Stock Dividends |
16 |
- |
- |
- |
- |
|||||
|
Diluted Income (Loss) Available to Common Shareholders |
$ |
3,923 |
$ |
2,318 |
$ |
(196) |
$ |
(5,022) |
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common shareholder: |
||||||||||
|
Basic |
$ |
1.84 |
$ |
1.17 |
$ |
(0.10) |
$ |
(3.19) |
$ |
0.00 |
|
Diluted |
$ |
1.21 |
$ |
0.83 |
$ |
(0.10) |
$ |
(3.19) |
$ |
0.00 |
|
Weighted average common shares outstanding: |
||||||||||
|
Basic |
2,079 |
1,904 |
1,891 |
1,576 |
1,570 |
|||||
|
Diluted |
3,235 |
2,785 |
1,891 |
1,576 |
1,577 |
|||||
|
|
|
Item 6. |
Selected Financial Data
(continued)
|
|
December 31, |
||||||||||
|
|
|
2011 |
|
2010 |
|
2009 |
|
2008 |
|
2007 |
|
|
|
(in thousands) |
||||||||
|
Consolidated Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
3,381 |
$ |
2,559 |
$ |
1,002 |
$ |
191 |
$ |
376 |
|
Working capital |
17,713 |
12,526 |
7,587 |
5,559 |
7,300 |
|||||
|
Total assets |
|
47,967 |
|
37,171 |
|
32,876 |
34,337 |
|
38,736 |
|
|
Total long-term debt and capital leases |
|
4,761 |
|
4,620 |
|
3,223 |
3,693 |
|
7,178 |
|
|
Shareholders' equity |
|
33,425 |
|
26,878 |
|
23,215 |
22,515 |
|
26,405 |
|
* The income (loss) per common 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.
|
- 17 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
|
Item 7. |
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. (See "Our Products" on page 4).
Approximately 51% of the 2011 sales are outside of the United States. Of these sales, approximately 50% are in currencies other than the U.S. Dollar, primarily Euro based.
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. (See "Foreign Operations - Impact of Exchange Rate" on page 36).
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.
|
- 18 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Following are our results for the years ended December 31, 2011, 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.
|
(In thousands, except per share amounts) |
|
Year Ended December 31, |
||||
|
|
|
2011 |
|
2010 |
|
2009 |
|
NET SALES |
$ |
41,021 |
$ |
31,016 |
$ |
24,193 |
|
Cost of sales |
31,727 |
24,258 |
20,382 |
|||
|
GROSS MARGIN |
|
9,294 |
|
6,758 |
|
3,811 |
|
Technical services and research and development |
287 |
254 |
200 |
|||
|
Selling, general and administrative expenses |
4,639 |
3,701 |
3,215 |
|||
|
(Gain) loss on disposal of assets |
(1) |
- |
35 |
|||
|
OPERATING INCOME |
|
4,369 |
|
2,803 |
|
361 |
|
OTHER INCOME (EXPENSES): |
||||||
|
Interest expense |
(471) |
(439) |
(556) |
|||
|
Gain (loss) on foreign currency exchange rate |
(23) |
(60) |
59 |
|||
|
Other, net |
9 |
- |
4 |
|||
|
INCOME (LOSS) BEFORE INCOME TAX |
|
3,884 |
|
2,304 |
|
(132) |
|
Income tax expense |
48 |
16 |
4 |
|||
|
NET INCOME (LOSS) |
$ |
3,836 |
$ |
2,288 |
$ |
(136) |
|
Less: Preferred Stock Dividends |
16 |
60 |
60 |
|||
|
Basic Income (Loss) Available to Common Shareholders |
$ |
3,820 |
$ |
2,228 |
$ |
(196) |
|
Plus: 6% Convertible Debenture Interest Expense |
87 |
90 |
- |
|||
|
Plus: Preferred Stock Dividends |
16 |
- |
- |
|||
|
Diluted Income (Loss) Available to Common Shareholders |
$ |
3,923 |
$ |
2,318 |
$ |
(196) |
|
Income (loss) per common share: |
||||||
|
Basic |
$ |
1.84 |
$ |
1.17 |
$ |
(0.10) |
|
Diluted |
$ |
1.21 |
$ |
0.83 |
$ |
(0.10) |
|
|
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Management Outlook for the Future:
We are a niche specialty mineral company. Our strategy is to continue to bring new, high-value added products to market while improving efficiencies and lowering our costs. If we are successful in these strategies, our revenues and earnings will continue to grow.
Going forward, our focus will continue to be on development of new products that are capable of being marketed as premium products with enhanced performance characteristics at competitive prices. The high-value added characteristics of these products typically generate a higher margin than many commodity products.
In the past several years, we have successfully become a leading provider of fire retardant minerals all across Europe. In addition, we have successfully introduced new specialty aluminas for applications outside of the plastics markets and have recently completed a plant expansion that doubled our capacity to meet increasing demand. This is a product group that showed year-over-year growth of 19% during 2011.
Our relatively new specialty alumina products, OPTILOAD, is used in high performance flame retardant plastic applications, and we report it as part of the HALTEX revenue group. OPTILOAD often allows customers to reduce the overall cost of their formulations. In addition to its suitability for current formulations, OPTILOAD offers a solution for new emerging plastics markets for high performance flame retardant halogen-free plastic applications, potentially offering new market opportunities for OPTILOAD.
TIOPREM is one of our newer titanium dioxide ("TiO 2 ") based pigment products. It replaces a portion of the high cost ingredients in plastics and specialty coatings formulations, meets or exceeds performance standards, and typically can save customers 10% to 20% versus current standard formulations. TIOPREM sales increased to approximately $1.5 million during 2011, representing a threefold increase from 2010. We continue to work on our next generation of TIOPREM to increase the size of its addressable market. TIOPREM is a premium product sold at a premium price and with higher margins relative to our standard HITOX product.
While our introduction of new products was a significant contributor to our revenue growth in 2011, improving market trends also contributed to year over year improvement, particularly in our TiO 2 based products, HITOX and TIOPREM. In 2011, we saw a significant increase in TiO 2 prices due to constrained sources of supply resulting from industry under investment in ilmenite ore mining capacity and TiO 2 processing capacity, and we expect these conditions will persist for some time. As a result of these factors, we expect a favorable pricing environment for TiO 2 in 2012 and possibly into 2013.
Our titanium dioxide-based color pigments, which include HITOX and TIOPREM, are considered partial substitutes for commodity TiO 2 as well as typically more expensive color pigments. Historically, when TiO 2 prices rise or when TiO 2 is in shortage, the substitute affect drives demand for our specialty TiO 2 based products.
Costs for ilmenite ore, the raw material used in our TiO 2 based products, have increased substantially. However, the increases in our raw material costs in 2011 were offset by price increases for our TiO 2 based products. In addition, we are investing in our SR plant in Malaysia in an effort to increase the efficiency of that operation and lower production costs. The upgrade to this facility should be completed in late 2012.
As expected, we saw increasing competitive pricing pressure from Chinese-based commodity TiO 2 producers. This pricing pressure is counter to the pricing trends we have seen from all other commodity TiO 2 producers. Nevertheless, increased pricing pressure from these producers is affecting volume growth and the price of HITOX and TIOPREM in both Asia and South America. At the same time, we expect recent price increases and continued volume growth in the United States and Europe to offset pricing pressure in our Asian markets.
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 will impact our earnings going forward.
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
December 31, 2011, 2010 and 2009
Results of Operations
Net Sales : Consolidated net sales for 2011 increased approximately 32% compared with 2010. The increase in net sales is primarily due to the tightened supply of titanium Dioxide ("TiO 2 ") as global customer demand exceeds supply, the stabilization and recovery of the paint and plastic end markets and successful introduction of new products, all of which have led to an increase in volume and a growth in our global customer base. Overall, the increase in volume, selling price and impact of foreign currency exchange fluctuations represented approximately 62%, 33% and 5%, respectively, in the growth of consolidated sales.
Consolidated net sales for 2010 increased 28% compared with 2009. The increase in net sales is primarily due to the stabilization and recovery of the paint and plastic end markets and successful introduction of new products, both of which have led to an increase in volume and a growth in our global customer base. The consolidated increase in volume, selling price and impact of foreign currency exchange fluctuations represented approximately 71%, 28% and 1%, respectively, in the growth of consolidated sales.
Following is a summary of our consolidated products sales for 2011, 2010 and 2009 (in thousands), excluding inter-company sales:
|
Product |
2011 |
2010 |
2009 |
||||||
|
HITOX |
$ |
17,538 |
43% |
$ |
12,080 |
39% |
$ |
10,111 |
42% |
|
ALUPREM |
14,368 |
35% |
11,608 |
37% |
9,450 |
39% |
|||
|
BARTEX |
4,092 |
10% |
3,761 |
12% |
2,601 |
11% |
|||
|
HALTEX / OPTILOAD |
3,093 |
7% |
2,634 |
9% |
1,646 |
7% |
|||
|
TIOPREM |
1,460 |
4% |
515 |
2% |
12 |
<1% |
|||
|
OTHER |
470 |
1% |
418 |
1% |
373 |
1% |
|||
|
Total |
$ |
41,021 |
100% |
$ |
31,016 |
100% |
$ |
24,193 |
100% |
HITOX sales increased approximately 45% worldwide in 2011 primarily due to as a tight supply of commodity TiO 2 as global customer demand as the result of a stabilization and recovery in the paint and plastics end markets. Geographically, our HITOX sales increased at each of our three operations. Sales at the U.S. operation increased 28%, the European operation increased 67% and the Asian operation increased 86% as compared to sales in 2010. The consolidated increase in volume, selling price and impact of foreign currency exchange fluctuations represented approximately 49%, 44% and 7%, respectively, in the growth of consolidated HITOX sales.
In 2010, HITOX sales increased approximately 19% worldwide primarily due to the stabilization and recovery in the paint and plastics end markets, as well as a tight supply of commodity titanium dioxide ("TiO 2 "), which have led to the addition of many new global customers. Geographically, our HITOX sales increased at each of our three operations. Sales at the U.S. operation increased 9%, the European operation increased 36% and the Asian operation increased 53% as compared to sales in 2009. The consolidated increase in volume, selling price and impact of foreign currency exchange fluctuations represented approximately 74%, 11% and 15%, respectively, in the growth of consolidated HITOX sales.
|
- 21 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
In 2010, ALUPREM sales increased approximately 23% worldwide primarily due to an increase in the sales volume of our specialty grade ALUPREM in the European market of which was partially offset by a decrease in U.S. sales. ALUPREM sales in Europe increased approximately 49% while U.S. sales decreased approximately 6%.
|
- 22 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
United States Operation
Following is a summary of net sales for our U.S. operation for 2011, 2010 and 2009 (in thousands). All inter-company sales have been eliminated.
|
Product |
2011 |
2010 |
2009 |
||||||
|
HITOX |
$ |
10,546 |
43% |
$ |
8,237 |
42% |
$ |
7,528 |
45% |
|
ALUPREM |
5,740 |
23% |
4,134 |
21% |
4,419 |
27% |
|||
|
BARTEX |
4,092 |
17% |
3,761 |
19% |
2,601 |
16% |
|||
|
HALTEX / OPTILOAD |
3,093 |
13% |
2,634 |
14% |
1,646 |
10% |
|||
|
TIOPREM |
748 |
3% |
420 |
2% |
7 |
<1% |
|||
|
OTHER |
340 |
1% |
394 |
2% |
317 |
2% |
|||
|
Total |
$ |
24,559 |
100% |
$ |
19,580 |
100% |
$ |
16,518 |
100% |
HITOX sales increased approximately 28% in 2011 of which approximately 87% relates to selling price and 13% to an increase in volume. Geographically, sales in the United States, Canada, Mexico and South America increased approximately 20%, 30%, 175% and 61%, respectively. The increase in HITOX selling price and volume is primarily due to the tightened supply of TiO 2 as global customer demand exceeds supply.
In 2010, HITOX sales increased approximately 9%, of which 92% related to volume and 8% to selling price. Geographically, sales in the United States, Canada, Mexico and South America increased approximately 4%, 41%, 53% and 15%, respectively. The increase is primarily due to the gradual improvement in the construction industry and tightened supply of TiO 2 , as well as new customers .
In 2010, ALUPREM sales decreased approximately 6% primarily due to a change in the order pattern of a significant U.S. customer.
|
- 23 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
European Operation
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 North American customers. TPT purchases HITOX from our Asian operation for distribution in Europe. The following table represents TPT's sales (in thousands) for 2011, 2010 and 2009 to third party customers. All inter-company sales have been eliminated.
|
Product |
2011 |
2010 |
2009 |
||||||
|
ALUPREM |
$ |
8,628 |
84% |
$ |
7,474 |
90% |
$ |
5,031 |
89% |
|
HITOX |
1,391 |
13% |
834 |
10% |
612 |
11% |
|||
|
TIOPREM |
329 |
3% |
43 |
<1% |
3 |
<1% |
|||
|
Total |
$ |
10,348 |
100% |
$ |
8,351 |
100% |
$ |
5,646 |
100% |
ALUPREM sales increased approximately 15% in 2011 of which approximately 61% relates to an increase in selling price, 30% to an increase in volume and approximately 9% due to the positive impact of the foreign currency exchange fluctuations as the Euro gained strength against the U.S. Dollar as compared to 2010.
In 2010, ALUPREM sales increased approximately 49% primarily due to an increase in selling price and volume of 73% and 34%, respectively, which was partially offset by the negative impact of foreign currency rate fluctuations of approximately 7% as the Euro weakened against the U.S. Dollar as compared to 2009.
In 2010, HITOX sales increased approximately 36%, of which approximately 62% related to volume and 40% to an increase in selling price, which was partially offset by the negative impact of foreign currency rate fluctuations of approximately 2% as the Euro weakened against the U.S. Dollar as compared to 2009.
|
- 24 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Asian Operation
Our subsidiary in Malaysia, TMM, manufactures and sells SR and HITOX to third party customers, as well as to our U.S. and European operations. The following table represents TMM's sales (in thousands) for 2011, 2010 and 2009 to third party customers. All inter-company sales have been eliminated.
|
Product |
2011 |
2010 |
2009 |
||||||
|
HITOX |
$ |
5,601 |
92% |
$ |
3,009 |
97% |
$ |
1,971 |
97% |
|
TIOPREM |
383 |
6% |
52 |
2% |
2 |
<1% |
|||
|
OTHER |
130 |
2% |
24 |
1% |
56 |
3% |
|||
|
Total |
$ |
6,114 |
100% |
$ |
3,085 |
100% |
$ |
2,029 |
100% |
HITOX sales increased approximately 86% in 2011 primarily due to an increase in volume of approximately 90% 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 U.S. Dollar of approximately 10% as the Ringgit has gained in strength against the U.S. Dollar.
In 2010, HITOX sales increased approximately 53% primarily due to an increase in volume of approximately 87% 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 U.S. Dollar of approximately 13% as the Ringgit has gained in strength against the U.S. Dollar.
|
- 25 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Gross Margin : The following table represents our net sales, cost of sales and gross margin (in thousands) for the years ended December 31, 2011, 2010 and 2009.
|
|
Year Ended December 31, |
|||||
|
|
|
2011 |
|
2010 |
|
2009 |
|
NET SALES |
$ |
41,021 |
$ |
31,016 |
$ |
24,193 |
|
Cost of sales |
31,727 |
24,258 |
20,382 |
|||
|
GROSS MARGIN |
$ |
9,294 |
$ |
6,758 |
$ |
3,811 |
|
GROSS MARGIN % |
22.7 % |
21.8 % |
15.8 % |
|||
Gross margin increased 0.9% from 21.8% in 2010 to 22.7% in 2011. The primary factors affecting the 2011 gross margin include the following:
Gross margin increased 6.0% from 15.8% in 2009 to 21.8% in 2010. The primary factors affecting the 2010 gross margin include the following:
Selling, General and Administrative Expenses : Selling, general and administrative expenses ("SG&A") in 2011 increased approximately $938,000 from 2010. Primary factors contributing to the increase in SG&A include the following:
Offsetting the above increases, include the following reductions in SG&A:
In 2010, SG&A increased approximately $486,000 from 2009. Primary factors contributing to the increase in SG&A include the following:
Offsetting the above increases was a reduction in option compensation expense of approximately 66%.
|
- 26 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Interest Expense : Interest expense increased approximately $32,000 in 2011 and decreased approximately $117,000 in 2010. In 2011, interest expense at the U.S. operation increased approximately $33,000 primarily due to an increase in long term debt; and in 2010, interest expense at the U.S. operation decreased approximately $20,000 primarily due to a lower average outstanding balance on our line of credit and long term debt. TPT's interest expense decreased approximately $33,000 and $51,000 in 2011 and 2010, respectively, primarily due to a reduction in average long-term debt and a lower outstanding balance on its line of credit. TMM's interest expense increased $32,000 in 2011 primarily due to a increase in its short term financing of raw materials and greater utilization of its line of credit and ECR financing, whereas in 2010, TMM's interest expense decreased $48,000 primarily due to a decrease in its long term debt and lower utilization of its line of credit and ECR financing.
Income Taxes : We recorded an income tax expense of approximately $48,000, $16,000 and $4,000 in 2011, 2010 and 2009, respectively. The following table represents the components of our income tax expense:
|
Components of Income Tax Expense |
||||||||||||||||||
|
|
Year Ended December 31, |
|||||||||||||||||
|
2011 |
|
2010 |
|
2009 |
||||||||||||||
|
(In thousands) |
Current |
Deferred |
Total |
Current |
Deferred |
Total |
Current |
Deferred |
Total |
|||||||||
|
Federal |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
|
State |
8 |
- |
8 |
7 |
- |
7 |
3 |
- |
3 |
|||||||||
|
Foreign |
21 |
19 |
40 |
- |
9 |
9 |
- |
1 |
1 |
|||||||||
|
Total Income Tax Expense |
$ |
29 |
$ |
19 |
$ |
48 |
$ |
7 |
$ |
9 |
$ |
16 |
$ |
3 |
$ |
1 |
$ |
4 |
Liquidity, Capital Resources and Other Financial Information
Cash and Cash Equivalents
As noted in the following table, cash and cash equivalents increased $822,000 from the end of 2010 to the end of 2011. We used $1,918,000 in operating activities and $3,533,000 relating to investing activities. Financing activities provided $6,591,000. The effect of the exchange rate fluctuations accounted for a decrease in cash of $318,000.
|
Year Ended December 31, |
||||||
|
(In thousands) |
|
2011 |
2010 |
2009 |
||
|
Net cash provided by (used in) |
||||||
|
Operating activities |
$ |
(1,918) |
$ |
3,668 |
$ |
2,490 |
|
Investing activities |
(3,533) |
(1,627) |
(922) |
|||
|
Financing activities |
6,591 |
(704) |
(572) |
|||
|
Effect of exchange rate fluctuations |
(318) |
220 |
(185) |
|||
|
Net change in cash and cash equivalents |
$ |
822 |
$ |
1,557 |
$ |
811 |
|
|
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Operating Activities
During the twelve-month period ended December 31, 2011, operating activities used cash of $1,918,000. During the same twelve month period of 2010, operating activities provided cash of $3,668,000. Following are the major changes in working capital affecting cash (used in) provided by operating activities during the twelve month periods ended December 31, 2011 and 2010.
Accounts receivable increased approximately $545,000 from the end of 2009 to the end of 2010. Accounts receivable increased $408,000 and $310,000 at the European operation and the Asian operation, respectively, primarily due to an increase in sales in the fourth quarter of 2010 as compared to the same period 2009. Accounts receivable decreased at the U.S. operation $173,000.
Inventories increased approximately $1,449,000 from the end of 2009 to the end of 2010. Inventories at the U.S. and Asian operations increased $540,000 and $1,028,000, respectively, and decreased $119,000 at the European operation. The increase in U.S. inventories was primarily the result of an increase in raw materials which was partially offset by decrease in finished goods. The increase in inventory at the Asian operation was due to the timing of SR production and the decrease in European inventories primarily related to raw materials.
Trade accounts payable and accrued expenses increased approximately $1,456,000 from the end of 2009 to the end of 2010 due to an increase in at each of the three operations primarily related to the timing of purchases.
Investing Activities
Investing activities used cash of approximately $3,533,000 and $1,627,000 during the twelve-month periods ended December 31, 2011 and 2010, respectively. Net investments for each of the Company's three operations are as follows:
|
- 28 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Financing Activities
Financing activities provided cash of approximately $6,591,000 for the twelve-month period ended December 31, 2011. In 2010, financing activities used cash of approximately $704,000. Significant factors relating to financing activities include the following:
|
- 29 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Liquidity
Long-term Debt - Financial Institutions
Following is a summary of our long-term debt to financial institutions:
|
(In thousands) |
December 31, |
|||
|
2011 |
2010 |
|||
|
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at December 31, 2011, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation. |
$ |
1,680 |
$ |
2,000 |
|
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at December 31, 2011, due April 1, 2013, secured by a Caterpillar front-end loader. |
35 |
60 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at December 31, 2011, due July 1, 2029, secured by TPT's land and office building purchased July 2004. (€318) |
413 |
485 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at December 31, 2011, due January 31, 2030, secured by TPT's land and building purchased January 2005. (€318) |
412 |
482 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at December 31, 2011, due July 31, 2015, secured by TPT's assets. (€158) |
205 |
312 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at December 31, 2011, due July 5, 2014, secured by TPT's assets. (€568) |
736 |
- |
||
|
U.S. Dollar term note payable to a Malaysian bank which matured May 30, 2011. |
- |
41 |
||
|
Total |
3,481 |
3,380 |
||
|
Less current maturities |
813 |
533 |
||
|
Total long-term debt and notes payable - financial institutions |
$ |
2,668 |
$ |
2,847 |
United States Operation
U.S. Credit Agreement and Term Loan
On December 31, 2010, the Company entered into a new U.S. credit agreement (the "Agreement") with American Bank, N.A. (the" Lender"). The Agreement consists of the following:
• a $1 million line of credit (the "Line"), which matures July 1, 2012. The amount which the Company is entitled to borrow from time to time under the Line is subject to a borrowing base based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company. Amounts advanced under the Line bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Price Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50%. At December 31, 2011, the Company had no outstanding funds borrowed on the Line; and
• a $2 million term loan, which matures December 31, 2015. The term loan bears interest at a fixed rate of 6.65% per annum. Monthly principal and interest payments commenced on February 1, 2011. The monthly principal and interest payment are $39,272.97. At December 31, 2011, the balance on the term loan was $1,680,000.
|
- 30 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
On March 1, 2012, the Company entered into the first amendment to the Agreement with the Lender. Under the terms of the amendment, the Line was extended from July 1, 2012 to October 15, 2013. In addition, the Line was increased from $1,000,000 to $2,000,000.
The Agreement is secured by certain assets of the Company which are located in the United States or which arise from the Company's operations in the United States. Collateral under the Agreement does not include the Company's ownership or other interests in TMM and TPT, any assets or operations of either TMM or TPT or any proceeds thereof.
The Agreement includes various customary covenants, limitations and events of default. Under the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis. At December 31, 2011, the ratio of cash flow to debt service was 5.80 to 1.0.
The Agreement also includes certain additional affirmative and negative covenants, including limitations on incurring additional indebtedness, becoming a guarantor or surety, making loans or advances to other parties, except trade credit extended in the normal course of business, or changing the President or Board of Directors of the Company without the Lender's written consent.
Borrowing under the Agreement may be used to support working capital requirements and for general corporate purposes.
Six-percent Convertible Subordinated Debentures
As reported in the Company's Forms 8-K filed with the SEC on May 6, 2009 and August 10, 2009, the Company's Board of Directors authorized the issuance of its six-percent (6%) convertible subordinated debentures with detachable warrants (the "Debentures") for the purpose of refinancing, in whole or in part, its debt to the Bank and for general corporate purposes. Under the current authorization, the Company received, $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of which are directors of the Company and another of which is a greater than 5% shareholder. At December 31, 2011, a balance of $1,450,000 remained outstanding on the Debentures.
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 December 31, 2011 was $35,000.
|
- 31 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
European Operation
On July 5, 2011, TPT entered into a three year term loan in the amount of €700,000 with a fixed interest rate of 4.25%. The loan proceeds will be used to fund the plant expansion and is secured by TPT's assets. Monthly principal and interest payments began on August 5, 2011 and continue through July 5, 2014. The monthly principal payment is €19,444 ($25,195) and the loan balance at December 31, 2011 was €568,000 ($736,000). The loan is secured by TPT's production equipment.
On March 20, 2007, TPT entered into a short-term credit facility (the "Credit Facility") with Rabobank which increased TPT's line of credit from €650,000 to €1,100,000. The Credit Facility was renewed on January 1, 2010 and has no stated maturity date. The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 4.191%), is secured by TPT's accounts receivable and inventory. At December 31, 2011, TPT had utilized €544,000 ($705,000) of its short-term credit facility.
On July 7, 2004, TPT entered into a mortgage loan (the "First Mortgage") with Rabobank. The First Mortgage, in the amount of €485,000, will be repaid over 25 years with interest fixed at 5.2% per year for the first four years. Under the terms of the agreement, the interest was adjusted to a fixed rate of 7.8%, effective August 1, 2008, for a period of five years. Thereafter, the rate will change to Rabobank prime plus 1.75%. TPT utilized €325,000 of the loan to finance the July 14, 2004, purchase of land and an office building, as well as to remodel the office building. The balance of the loan proceeds, €160,000, was used for the expansion of TPT's existing building. Monthly principal and interest payments commenced on September 1, 2004, and will continue through July 1, 2029. The monthly principal payment is €1,616. The loan balance at December 31, 2011 and 2010 was €319,000 and €362,000, respectively ($413,000 and $485,000, respectively). The mortgage loan is secured by the land and office building purchased on July 7, 2004.
On January 3, 2005, TPT entered into a second mortgage loan (the "Second Mortgage") with Rabobank to fund the acquisition of a 10,000 square foot warehouse with a loading dock that is located adjacent to TPT's existing production facility. The Second Mortgage, in the amount of €470,000, will be repaid over 25 years with interest fixed at 4.672% per year for the first five years. Under the terms of the agreement, the interest was adjusted to a fixed rate of 4.6%, effective January 3, 2010, for a period of three years. Thereafter, the rate will change to Rabobank prime plus 1.75%. Monthly principal and interest payments commenced on February 28, 2005 and will continue through January 31, 2030. The monthly principal payment is €1,566. The mortgage is secured by the land and building purchased by TPT on January 3, 2005. The loan balance at December 31, 2011 and 2010 was €318,000 and €360,000, respectively ($412,000 and $482,000, respectively).
On July 19, 2005, TPT entered into a new term loan with Rabobank to fund the completion of its building expansion. The loan, in the amount of €500,000, will be repaid over 10 years with interest fixed at 6.1% per year for the first five years. Under the terms of the agreement, the interest was adjusted to a fixed rate of 4.05%, effective July 19, 2010, for a period of five years. Thereafter, the rate will change to Rabobank prime plus 1.75%. Monthly principal and interest payments commenced on August 31, 2005 and will continue through July 31, 2015. The monthly principal payment is €4,167. The loan is secured by TPT's assets. The loan balance at December 31, 2011 and 2010 was €158,000 and €233,000, respectively ($205,000 and $312,000, respectively).
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.
|
- 32 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Asian Operation
On June 27, 2011, the TMM amended its banking facility with HSBC Bank Malaysia Berhad ("HSBC") to extend the maturity date from April 30, 2011 to April 30, 2012. The HSBC facility includes the following in Malaysian Ringgits ("RM"): (1) overdraft of RM 500,000; (2) an import/export line ("ECR") of RM 6,460,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($158,000, $2,038,000 and $1,578,000, respectively).
On March 2, 2012, TMM amended their banking facility with HSBC to include a new Term Loan in the amount of RM 3,500,000 ($1,125,000) for the purpose of upgrading the operation's synthetic rutile production process. Under the terms of the facility, the loan will be paid in 35 equal monthly installments of RM 97,223 (excluding interest) and a final installment of RM 97,195 or approximately $31,261 and $31,252, respectively, commencing one month after full drawdown or 18 months after initial drawdown, whichever is earlier. The interest rate will be 2.00% above prime and will be payable monthly.
On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad ("RHB") to extend the maturity date to April 30, 2012. The RHB facility includes the following: (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($316,000, $2,935,000, $379,000 and $7,889,000, respectively). At December 31, 2011, TMM had an outstanding balance of RM 6,911,000 ($2,181,000) outstanding on the foreign exchange contract line of credit at an interest rate of 2.8%. The balance matures on April 30, 2012.
On May 30, 2008, TMM entered into a U.S. Dollar term loan with RHB to fund the completion of its new powder processing facility. The loan, in the amount of $292,000, will be repaid over a period of 36 months with an interest rate of 0.75% above the RHB prime. The loan matured on May 30, 2011..
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 December 31, 2011, the outstanding balance on the ECR facilities was RM 3,975,000 ($1,254,000) at a current interest rate of 4.25%.
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.
|
- 33 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Critical Accounting Policies
General - TOR's discussion and analysis of its financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debt, inventories, investments, intangible assets, income taxes, financing operations, and contingencies and litigation. TOR bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Depreciation - All property, plant and equipment is depreciated using the straight-line method over the estimated useful lives of depreciable assets which range from 3 to 39 years. Maintenance and repair costs are charged to operations as incurred and major improvements extending asset lives are capitalized.
Bad Debts - We perform ongoing credit evaluations of our customers' financial condition and, generally, require no collateral from our customers. The allowance for doubtful accounts is based upon the expected collectability of all accounts receivable including review of agings and current economic conditions. At December 31, 2011 and 2010, we maintained a reserve for doubtful accounts of approximately $87,000 and $97,000, respectively. Accounts are written off when all reasonable internal and external collection efforts have been performed. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Income Taxes - Our effective tax rate is based on our level of pre-tax income, statutory rates and tax planning strategies. Significant management judgment is required in determining the effective rate and in evaluating our tax position. We have domestic and foreign net deferred tax assets resulting primarily from net operating loss carryforwards. At December 31, 2011 we had federal net operating loss carryforward of approximately $1,738,000 at our U.S. operation and maintained a valuation allowance of approximately 43% due to uncertainties as to the Company's ability to utilize this deferred tax asset. In addition, we had net operating carryforwards at our Asian operation, TMM, of approximately $3,661,000. Because this foreign NOL carryforward has an indefinite carryforward period, we have determined that it is not necessary to provide a valuation allowance for TMM's NOL carryforward.
Inventory - We write down our inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. At December 31, 2011 and 2010, we maintained a reserve for obsolescence and unmarketable inventory of approximately $264,000 and $348,000, respectively. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Overhead is charged to inventory based on normal capacity and we expense abnormal amounts of idle facility expense, freight and handling costs in the period incurred. For the years ended December 31, 2011 and 2010, the Company recorded approximately $331,000 and $671,000, respectively, related to idle facility expense primarily at the Malaysian operations.
|
- 34 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Valuation of Long-Lived Assets - The impairment of tangible and intangible assets is assessed when changes in circumstances (such as, but not limited to, a decrease in market value of an asset, current and historical operating losses or a change in business strategy) indicate that their carrying value may not be recoverable. This assessment is based on management's estimates of future undiscounted cash flows, salvage values or net sales proceeds. These estimates take into account management's expectations and judgments regarding future business and economic conditions, future market values and disposal costs. Actual results and events could differ significantly from management's estimates. Based upon our most recent analysis, we believe that no impairment exists at December 31, 2011. There can be no assurance that future impairment tests will not result in a charge to net earnings (loss).
Share Based Compensation - We calculate share based compensation using the Black-Scholes-Merton ("Black-Scholes") option-pricing model, which requires the input of highly subjective assumptions including the expected stock price volatility. For the twelve-month periods ended December 31, 2011, 2010 and 2009, we recorded $59,000, $91,000 and $266,000, respectively, in share-based employee compensation. This compensation cost is included in the general and administrative expenses and cost of sales in the accompanying consolidated statements of operations.
Off-Balance Sheet Arrangements and Contractual Obligations
Operating Leases - As of December 31, 2011, we lease 13 acres of the land at the facility located in Corpus Christi, Texas, from the Port of Corpus Christi Authority. The minimum future rental payments under this and other non-cancelable operating leases as of December 31, 2011 for the years ending December 31 and in total thereafter are as follows:
|
Years Ending December 31, |
|||
|
(In thousands) |
|||
|
2012 |
$ |
63 |
|
|
2013 |
63 |
||
|
2014 |
61 |
||
|
2015 |
54 |
||
|
2016 |
54 |
||
|
Thereafter |
623 |
||
|
Total minimum lease payments |
$ |
918 |
|
Except as noted above, we did not have any off-balance sheet arrangements that have, or are likely to have, a material current or future effect on our consolidated financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
|
- 35 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Contractual Obligations - The following is a summary of all significant contractual obligations, both on and off consolidated balance sheet, as of December 31, 2011, that will impact our liquidity.
|
(In thousands) |
Payments due by period |
|||||||||||||
|
Contractual Obligations |
|
Total |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 + |
|
Long-term Debt |
$ |
3,481 |
$ |
813 |
$ |
821 |
$ |
669 |
$ |
512 |
$ |
87 |
$ |
578 |
|
Lines of Credit |
2,886 |
2,886 |
- |
- |
- |
- |
- |
|||||||
|
Export Credit Refinancing |
1,254 |
1,254 |
- |
- |
- |
- |
- |
|||||||
|
Capital Leases |
62 |
28 |
22 |
12 |
- |
0 |
- |
|||||||
|
Operating Leases |
918 |
63 |
63 |
61 |
54 |
54 |
623 |
|||||||
|
Convertible Debentures |
1,450 |
91 |
91 |
91 |
91 |
1,086 |
- |
|||||||
|
Total |
$ |
10,051 |
$ |
5,135 |
$ |
997 |
$ |
833 |
$ |
657 |
$ |
1,228 |
$ |
1,201 |
Other matters
Anticipated Capital Expenditures
During the coming twelve month period, we plan to invest in capital upgrades at both our U.S. and Asian operations. The planned improvements will increase the efficiency and reduce costs. The estimated expenditure is approximately $500,000 in the U.S. and $1,500,000 in Malaysia.
Inflation
Other than the increases in energy prices and transportation costs as described in Item 1 under "Raw Materials and Energy", general inflation has not had a significant impact on our business, and it is not expected to have a major impact in the foreseeable future. Increases in energy pricing adversely affect our results of operations and are expected to continue to do so.
Foreign Operations - Impact of Exchange Rate
We have two foreign operations, TMM in Malaysia and TPT in The Netherlands. TMM measures and records its transactions in terms of the local Malaysian currency, the Ringgit, which is also the functional currency. As a result, gains and losses resulting from translating the Balance Sheet from Ringgits to U.S. Dollars are recorded as cumulative translation adjustments (which are included in accumulated other comprehensive income, a separate component of shareholders' equity) on the Consolidated Balance Sheet. As of December 31, 2011 and 2010, the cumulative translation adjustment related to the change in functional currency to the U.S. Dollar totaled $2,367,000 and $2,822,000, respectively. From the beginning of 2011 to the end of 2011, the U.S. Dollar weakened against the Malaysian Ringgit, as a result, net income increased approximately $28,000.
TPT's functional currency is the Euro. As a result, gains and losses resulting from translating the Balance Sheet from Euros to U.S. Dollars are recorded as cumulative translation adjustments on the Consolidated Balance Sheet. As of December 31, 2011 and 2010, the cumulative translation adjustment related to the change in functional currency to the U.S. Dollar totaled $1,596,000 and $1,860,000, respectively. From the beginning of 2011 to the end of 2011, the U.S. Dollar weakened against the Euro, as a result, net income increased approximately $56,000.
|
- 36 - |
TOR Minerals
International, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations
December 31, 2011, 2010 and 2009
Foreign Currency Forward Contracts
We manage the risk of changes in foreign currency exchange rates, primarily at our Malaysian operation, through the use of foreign currency contracts. Foreign exchange contracts are used to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies, including sales and purchases transacted in a currency other than the functional currency, will be adversely affected by changes in exchange rates. We report the fair value of the derivatives on our consolidated balance sheet and changes in the fair value are recognized in earnings in the period of the change.
At December 31, 2011, we had foreign currency contracts not designated as hedges. We marked these contracts to market, recording a net gain of approximately $16,000 as a component of our 2011 net income and as a current asset on the consolidated balance sheet at December 31, 2011.
|
- 37 - |
|
Item 8. |
Financial Statements and Supplementary Data |
The Financial Statements are set out in this annual report on Form 10-K commencing on page F-1.
|
Item 9. |
Changes in and
Disagreements with Accountants
|
None.
|
Item 9 A. |
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 design and operation 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 of the end of the period covered by the report ("Evaluation Date"). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective (i) to ensure that information required to be disclosed by us in reports that the Company 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 the information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including the Company's Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Management's Annual Report on Internal Control over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that:
1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
|
- 38 - |
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on management's assessment and those criteria, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2011.
This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Controls
During the quarter ended December 31, 2011, 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 occurred during the quarter ended December 31, 2011, that have materially affected or are reasonably likely to materially affect the Company's internal controls over financial reporting.
|
Item 9 B. |
Other Information |
The Company has previously disclosed all items required to be reported on a Form 8-K for the quarter ended December 31, 2011.
|
- 39 - |
PART III
|
Item 10. |
Directors, Executive Officers and Corporate Governance |
Directors, Executive Officers, Promoters and Control Persons
Information which will be contained under the caption "Election of Directors" and "Principal Stockholders" in the Company's Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders is incorporated by reference in response to this Item 10.
Section 16(a) Beneficial Ownership Reporting Compliance
Information under the caption "Election of Directors - Section 16(a) Beneficial Ownership Reporting Compliance" which will be contained in the Company's Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders, is incorporated herein by reference.
Code of Ethics
The Company had adopted a Code of Ethics that applies to all of its directors, officers (including its chief executive officer, chief financial officer, controller and any person performing similar functions) and employees. The Code of Ethics can be viewed on the Company's web site at www.torminerals.com . The Company intends to post amendments to, or waivers from, its Code of Ethics that apply to its Chief Executive Officer, Chief Financial Officer, Controller and any other person performing similar functions, on its website.
The Company will provide to any person, without charge, upon written request, a copy of the Code of Ethics. Such requests should be sent to the Company's Corporate Secretary, Barbara Russell, at 722 Burleson Street, Corpus Christi, Texas 78402.
Corporate Governance
Information under the caption "Executive Compensation - Nomination of Directors", and "Election of Directors - Audit Committee" which will be contained in the Company's Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders, is incorporated herein by reference.
|
Item 11. |
Executive Compensation |
Information under the caption "Executive Compensation", which will be contained in the Company's Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders, is incorporated herein by reference.
|
- 40 - |
|
Item 12. |
Security Ownership of
Certain Beneficial Owners and Management
|
Information under the captions "Principal Stockholders" and "Executive Compensation - Security Ownership of Management", which will be contained in the Company's Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders, is incorporated herein by reference.
Equity Compensation Plan
The following table provides information as of December 31, 2011, about our Common Stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans (including individual arrangements).
|
Plan Category |
Number of securities to be issued upon exercise of outstanding
options, warrants and rights
|
Weighted-average exercise price of outstanding
options, warrants and rights
|
Number of securities remaining available for future
issuance under equity compensation plans (excluding securities reflected in
column (a))
|
|||
|
Equity compensation plans approved by security holders |
167,983 |
$12.530 |
9,658 |
|||
|
Equity compensation plans not approved by security holders |
-- |
-- |
||||
|
Total |
167,983 |
$12.530 |
9,658 |
On February 21, 2000, the Company's Board of Directors approved the adoption of the 2000 Incentive Stock Option Plan (the "Plan") for TOR Minerals International, Inc. The Plan provides for the award of a variety of incentive compensation arrangements, including restricted stock awards, performance units or other non-option awards, to such employees and directors as may be determined by a Committee of the Board. At the Annual Shareholders' meeting on May 23, 2008, the maximum number of shares of the Company's common stock that may be sold or issued under the Plan was increased to 250,000 shares subject to certain adjustments upon recapitalization, stock splits and combinations, merger, stock dividend and similar events; in addition the plan was extended to May 23, 2018. At December 31, 2011, there were 167,983 options outstanding, 72,359 exercised and 9,658 available for future issuance under the Plan.
For the twelve-month periods ended December 31, 2011, 2010 and 2009, the Company recorded $59,000, $91,000 and $266,000, respectively, in stock-based employee compensation. This compensation cost is included in the general and administrative expenses and cost of sales in the accompanying consolidated statements of operations.
|
- 41 - |
The Company granted options to purchase 23,500, 23,404 and 27,500 shares of common stock during the twelve-month periods ended December 31, 2011, 2010 and 2009, respectively. The weighted average fair value per option at the date of grant for options granted in the twelve-month periods ended December 31, 2011, 2010 and 2009 was $8.98, $3.89 and $2.70, respectively, as valued using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
Twelve Months Ended December 31, |
|||||
|
|
|
2011 |
|
2010 |
|
2009 |
|
Risk-free interest rate |
2.78 % |
1.20 % |
3.17 % |
|||
|
Expected dividend yield |
0.00 % |
0.00 % |
0.00 % |
|||
|
Expected volatility |
0.68 |
0.79 |
0.73 |
|||
|
Expected term (in years) |
5.00 |
3.00 |
7.00 |
|||
The risk free interest rate is based on the Treasury Constant Maturity Rate as quoted by the Federal Reserve at the time of the grant for a term equivalent to the expected term of the grant. The estimated volatility is based on the historical volatility of our stock and other factors. The expected term of options represents the period of time the options are expected to be outstanding from grant date.
The number of shares of common stock underlying options exercisable at December 31, 2011, 2010 and 2009 was 147,983, 175,485 and 174,220, respectively. The weighted-average remaining contractual life of those options is 4.5 years. Exercise prices on options outstanding at December 31, 2011, ranged from $1.75 to $30.55 per share as noted in the following table.
|
Options Outstanding |
||||||
|
2011 |
2010 |
2009 |
|
Range of Exercise Prices |
||
|
22,861 |
46,245 |
39,480 |
$ 1.75 - $ 9.99 |
|||
|
120,802 |
108,180 |
113,680 |
$ 10.00 - $ 14.99 |
|||
|
3,620 |
120 |
120 |
$ 15.00 - $ 19.99 |
|||
|
12,800 |
12,800 |
12,800 |
$ 20.00 - $ 24.99 |
|||
|
2,500 |
2,740 |
2,740 |
$ 25.00 - $ 29.99 |
|||
|
5,400 |
5,400 |
5,400 |
$ 30.00 - $ 30.55 |
|||
|
167,983 |
175,485 |
174,220 |
||||
As of December 31, 2011, there was approximately $152,000 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 4.07 years.
As most options issued under the Plan are Incentive Stock Options, the Company does not receive any excess tax benefits relating to the compensation expense recognized on vested options.
|
- 42 - |
|
Item 13. |
Certain Relationships, Related Transactions and Director Independence |
Information under the captions "Certain Transactions" and "Election of Directors - Attendance and Independence", which will be contained in the Company's Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders, is incorporated herein by reference.
|
Item 14. |
Principal Accountant Fees and Services |
Information under the caption "Principal Accountant Fees and Services", which will be contained in the Company's Definitive Proxy Statement for its 2012 Annual Meeting of Shareholders, is incorporated herein by reference.
|
- 43 - |
PART IV
|
Item 15. |
Exhibits |
|
(a) |
The following documents are being filed as part of this annual report on Form 10-K: |
|
||
|
1. |
The Financial Statements are set out in this annual report on Form 10-K commencing on page F-1. |
|||
|
Exhibit No. |
Description |
|
3.1 |
Certificate of Incorporation of the Company as amended through February 28, 2010 |
|
3.2 |
By-laws of the Company, as amended through February 28, 2010 |
|
4.1(1) |
Form of Common Stock Certificate |
|
10.1(1) |
Lease from Port of Corpus Christi Authority, dated April 14, 1987 |
|
10.2(1) |
Lease from Port of Corpus
Christi Authority, dated January 12, 1988, as
|
|
10.3(1) ** |
Summary Plan Description for the 1990 HITOX Profit Sharing Plan & Trust |
|
10.4(2) ** |
Summary Plan Description for the 2000 Incentive Plan for TOR Minerals International, Inc. |
|
10.5(3) |
Amendment of Leases from Port of Corpus Christi Authority, dated July 11, 2000 |
|
10.6(4) |
Form of Series A
Convertible Preferred Stock Purchase Agreement,
|
|
10.7(5) |
Loan Agreement with HSBC Bank, dated November 23, 2004 |
|
10.8(5) |
Loan Agreement with RHB Bank, dated November 23, 2004 |
|
10.9(5) ** |
Form of Incentive Stock Option Agreement for Officers A |
|
10.10(5) ** |
Form of Incentive Stock Option Agreement for Officers B |
|
10.11(5) ** |
Form of Nonqualified Option Agreement for Directors |
|
10.12(6) |
Loan Agreement with Rabobank, dated March 1, 2004 |
|
10.13(6) |
Loan Agreement with Rabobank, dated July 6, 2004 |
|
10.14(7) |
Capital Lease Agreement with De Lage Landen Financial Services, B.V., dated June 27, 2005 |
|
10.15(8) |
Loan Agreement with Rabobank, dated July 19, 2005 |
|
10.16(9) |
Amendment to Loan Agreement with HSBC Bank, dated September 14, 2005 |
|
10.17(10) |
Amendment to Loan Agreement with HSBC Bank, dated December 22, 2005 |
|
10.18(10) |
Amendment to Loan Agreement with RHB Bank, dated December 22, 2005 |
|
10.19(11) |
Loan Agreement with Rabobank, dated March 20, 2007 |
|
10.20(12) |
Service Agreement between
Dr. Olaf Karasch and TOR Process and Trade, BV, (TPT)
|
|
10.21(13) |
Form of Subscription Agreement with respect to the Company's September - October 2008 Private Placement |
|
10.22(13) |
Form of Warrant with respect to the Company's September - October 2008 Private Placement |
|
10.23(14) |
Form of Subscription Agreement with respect to the Company's May - August 2009 issuance of 6% Convertible Subordinated Debentures |
|
10.24(14) |
Form of 6% Convertible Subordinated Debenture with respect to the Company's May - August 2009 issuance of 6% Convertible Subordinated Debentures |
|
10.25(14) |
Form of Warrant with respect to the Company's May - August 2009 issuance of 6% Convertible Subordinated Debentures |
|
10.26(15) |
Loan Agreement with American Bank., dated December 31, 2010 |
|
10.27(16) |
Amendment to Loan Agreement with HSBC Bank, dated November 15, 2010 |
|
10.28(16) |
Amendment to Loan Agreement with HSBC Bank, dated June 27, 2011 |
|
10.27(16) |
Amendment to Loan Agreement with RHB Bank, dated June 1, 2011 |
|
10.30(16) |
Loan Agreement with Rabobank, dated June 28, 2011 |
|
10.31(17) |
Amendment to Loan Agreement with American Bank, dated March 1, 2012 |
|
10.32(17) |
Amendment to Loan Agreement with HSBC Bank, dated March 2, 2012 |
|
- 44 - |
|
- 45 - |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
TOR MINERALS INTERNATIONAL, INC.
|
||
|
Date: March 12, 2012 |
By: |
OLAF KARASCH
|
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
|
Signatures |
Capacity with the Company |
Date |
|
OLAF KARASCH
|
President and Chief Executive Officer |
March 12, 2012 |
|
BERNARD A. PAULSON
|
Chairman of the Board |
March 12, 2012 |
|
BARBARA RUSSELL
|
Treasurer and Chief Financial Officer
|
March 12, 2012 |
|
JULIE BUCKLEY
|
Director |
March 12, 2012 |
|
DAVID HARTMAN
|
Director |
March 12, 2012 |
|
DOUG HARTMAN
|
Director |
March 12, 2012 |
|
THOMAS W. PAUKEN
|
Director |
March 12, 2012 |
|
STEVEN PAULSON
|
Director |
March 12, 2012 |
|
CHIN YONG TAN
|
Director |
March 12, 2012 |
|
- 46 - |
||
TOR MINERALS INTERNATIONAL,
INC. AND SUBSIDIARIES
Annual Report on Form
10-K
Item 8. Financial Statements and Supplementary Data
|
TOR Minerals International, Inc. |
Page |
|
Report of Independent Registered Public Accounting Firm |
F - 2 |
|
Consolidated Statements of Operations
-
|
|
|
Consolidated Statements of
Comprehensive Income -
|
|
|
Consolidated Balance Sheets -
|
|
|
Consolidated Statements of
Shareholders' Equity -
|
|
|
Consolidated Statements of Cash Flows
-
|
|
|
Notes to the Consolidated Financial Statements |
F - 8 |
|
F - 1 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
TOR Minerals International, Inc.
We have audited the accompanying consolidated balance sheets of TOR Minerals International, Inc. and Subsidiaries (collectively, the "Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
We were not engaged to examine management's assertion about the effectiveness of the Company's internal control over financial reporting as of December 31, 2011 included in the accompanying Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TOR Minerals International, Inc. and Subsidiaries as of December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.
s/s UHY LLP
UHY LLP
Houston, Texas
March 12, 2012
|
F - 2 |
|
|
|
|
|
|
|
|
TOR Minerals
International, Inc. and Subsidiaries
December 31, 2011, 2010 and 2009
|
1. |
Summary of Significant Accounting Policies |
Business Description
TOR Minerals International, Inc. and Subsidiaries (the "Company"), a Delaware Corporation, is engaged in a single industry, the manufacture and sale of mineral products for use as pigments and extenders, primarily in the manufacture of paints, industrial coatings plastics, catalysts and solid surface applications. The Company's global headquarters and U.S. manufacturing plant are located in Corpus Christi, Texas ("TOR U.S." or "U.S. Operation"). The Asian Operation, TOR Minerals Malaysia, Sdn. Bhd. ("TMM"), is located in Ipoh, Malaysia, and the European Operation, TOR Processing and Trade, BV ("TPT"), is located in Hattem, The Netherlands.
Basis of Presentation and Use of Estimates
The consolidated financial statements include accounts of TOR Minerals International, Inc. and its wholly-owned subsidiaries, TMM and TPT. All significant intercompany transactions and balances are eliminated in the consolidation process.
TMM measures and records its transactions in terms of the local Malaysian currency, the Ringgit, which is also the functional currency. As a result, gains and losses resulting from translating the Balance Sheet from Ringgits to U.S. Dollars are recorded as cumulative translation adjustments (which are included in accumulated other comprehensive income, a separate component of shareholders' equity) on the Consolidated Balance Sheets. As of December 31, 2011 and 2010, the cumulative translation adjustment included on the Consolidated Balance Sheets totaled $2,367,000 and $2,816,000, respectively.
TPT's functional currency is the Euro. As a result, gains and losses resulting from translating the Balance Sheet from Euros to U.S. Dollars are recorded as cumulative translation adjustments on the Consolidated Balance Sheet. As of December 31, 2011 and 2010, the cumulative translation adjustment included on the Consolidated Balance Sheets totaled $1,596,000 and $1,860,000, respectively.
In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amount of consolidated assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reporting period. Actual results could differ from these estimates.
|
F - 8 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Cash and Cash Equivalents: The Company considers all highly liquid investments readily convertible to known cash amounts and with a maturity of three months or less at the date of purchase to be cash equivalents.
Accounts Receivable: The Company performs ongoing credit evaluations of its customers' financial condition and, generally, requires no collateral from its customers. The allowance for non-collection of accounts receivable is based upon the expected collectability of all accounts receivable including review of agings and current economic conditions. Accounts are written off when all reasonable internal and external collection efforts have been performed. At December 31, 2011 and 2010, we maintained a reserve for doubtful accounts of approximately $87,000 and $97,000, respectively. The increase in the allowance for doubtful accounts was primarily related to the global economic conditions and its effects on the collectability of customer balances.
Foreign Currency: Results of operations for the Company's foreign operations, TMM and TPT, are translated from the designated functional currency to the U.S. Dollar using average exchange rates during the period, while assets and liabilities are translated at the exchange rate in effect at the reporting date. Resulting gains or losses from translating foreign currency financial statements are reported as other comprehensive income (loss), net of income tax. The effect of changes in exchange rates between the designated functional currency and the currency in which a transaction is denominated are recorded as foreign currency transaction gains (losses) in earnings.
Inventories: Inventories are stated at the lower of cost or market with cost being determined principally by use of the average-cost method. The Company writes down inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. At December 31, 2011 and 2010, we maintained a reserve for obsolescence and unmarketable inventory of approximately $264,000 and $348,000, respectively.
Overhead is charged to inventory based on normal capacity and we expense abnormal amounts of idle facility expense, freight and handling costs in the period incurred. For the years ended December 31, 2011 and 2010, the Company recorded approximately $103,000 and $671,000, respectively, related to idle facility expense primarily at the Malaysian operations.
TMM is our primary source for SR. There is only one other available source for the quality of SR required for the production of HITOX. If supplies of SR from TMM are interrupted and we are unable to arrange for an alternative source, this could result in our inability to produce HITOX, which accounted for approximately 43%, 39% and 42% of our sales for the years ended December 31, 2011, 2010 and 2009, respectively.
Property, Plant and Equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of depreciable assets which range from 3 to 39 years. Maintenance and repair costs are charged to operations as incurred and major improvements extending asset lives are capitalized.
|
F - 9 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Valuation of Long-Lived Assets: The impairment of tangible and intangible assets is assessed when changes in circumstances (such as, but not limited to, a decrease in market value of an asset, current and historical operating losses or a change in business strategy) indicate that their carrying value may not be recoverable. This assessment is based on management's estimates of future undiscounted cash flows, salvage values or net sales proceeds. These estimates take into account management's expectations and judgments regarding future business and economic conditions, future market values and disposal costs. Actual results and events could differ significantly from management's estimates. Based upon our most recent analysis, we believe that no impairment exists at December 31, 2011. There can be no assurance that future impairment tests will not result in a charge to net earnings (loss).
Revenue Recognition: The Company recognizes revenue when each of the following four criteria are met: 1) a contract or sales arrangement exists; 2) title and risk of loss transfers to the customer upon shipment for FOB shipping point sales and when the Company receives confirmation of receipt and acceptance by the customer for FOB destination sales; 3) the price of the products is fixed or determinable; 4) collectability is reasonably assured.
Shipping and Handling: The Company records shipping and handling costs, associated with the outbound freight on products shipped to customers, as a component of cost of goods sold.
Earnings Per Share: Basic earnings per share are based on the weighted average number of shares outstanding and exclude any dilutive effects of options, warrants, debentures and/or convertible preferred stock. Diluted earnings per share reflect the effect of all dilutive items.
Income Taxes: The Company records income taxes using the liability method. Under this method, deferred income 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.
When accounting for uncertainties in income taxes, we evaluate all tax years still subject to potential audit under the applicable state, federal and foreign income tax laws. We are subject to taxation in the United States, Malaysia and The Netherlands. Our federal income tax returns in the United States are subject to examination for the tax years ended December 31, 2008 through December 31, 2011. Our state returns, which are filed in Texas and Ohio, are subject to examination for the tax years ended December 31, 2008 through December 31, 2011. Our tax returns in various non-U.S. jurisdictions are subject to examination for various tax years ended December 31, 2006 through December 31, 2011.
As of January 1, 2011, we did not have any unrecognized tax benefits and there was no change during the twelve month period ended December 31, 2011. In addition, we did not recognize any interest and penalties in our consolidated financial statements during the twelve month period ended December 31, 2011. If any interest or penalties related to any income tax liabilities are imposed in future reporting periods, we expect to record both of these items as components of income tax expense.
|
F - 10 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Derivatives and Hedging Activities : The Company records the fair value of all outstanding derivative instruments on the Consolidated Balance Sheets in other current assets and current liabilities. Derivatives are held as part of a formally documented risk management (hedging) program. All derivatives are straightforward and are held for purposes other than trading. The Company measures hedge effectiveness by formally assessing, at least quarterly, the historical and probable future high correlation of changes in the fair value or expected future cash flows of the hedged item. The ineffective portions, if any, are recorded in current earnings in the current period. If the hedging relationship ceases to be highly effective or if it becomes probable that an expected transaction will no longer occur, gains or losses on the derivative are recorded in current earnings. Changes in the fair value of derivatives are recorded in current earnings along with the change in fair value of the underlying hedged item if the derivative is designated as a fair value hedge or in other comprehensive income (loss) if the derivative is designated as a cash flow hedge. If no hedging relationship is designated, the derivative is marked to market through current earnings. The Company has utilized natural gas forward contracts to hedge a portion of its U.S. Operation's natural gas needs and has utilized foreign currency forward contracts at both the U.S. and Asian Operations to hedge a portion of its foreign currency risk. (See Note 14, Derivatives and Other Financial Instruments).
On January 1, 2009, we adopted changes issued by the Financial Accounting Standards Board (the "FASB") to disclosures about derivative instruments and hedging activities. These changes require enhanced disclosures about an entity's derivative and hedging activities, including (1) how and why an entity uses derivative instruments, (2) how derivative instruments and related hedged items are accounted for, and (3) how derivative instruments and related hedged items affect an entity's financial position, financial performance and cash flows. Other than the required disclosures (see Note 14, Derivatives and Other Financial Instruments), the adoption of these changes had no impact on the condensed consolidated financial statements.
Share Based Compensation: The Company calculates share based compensation using the Black-Scholes-Merton ("Black-Scholes") option-pricing model, which requires the input of highly subjective assumptions including the expected stock price volatility. For the twelve-month periods ended December 31, 2011, 2010 and 2009, we recorded $59,000, $91,000 and $266,000, respectively, in share-based employee compensation. This compensation cost is included in the general and administrative expenses and cost of sales in the accompanying consolidated statements of operations.
Subsequent Events : The Company evaluated all activity of TOR through the issue date of the consolidated financial statements, and concluded that all subsequent events that would require recognition in the consolidated financial statements or disclosure in the notes to the consolidated financial statements have been incorporated into this Annual Report on Form 10-K.
|
F - 11 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
2. |
Debt and Notes Payable |
Long-term Debt - Financial Institutions
Following is a summary of our long-term debt to financial institutions:
|
(In thousands) |
December 31, |
|||
|
2011 |
2010 |
|||
|
Fixed Rate term note payable to a U.S. bank, with an interest rate of 6.65% at December 31, 2011, due January 1, 2016, secured by real estate, leasehold improvements, property, plant and equipment, inventory and accounts receivable of our U.S. operation. |
$ |
1,680 |
$ |
2,000 |
|
Term note payable to a U.S. equipment financing company, with an interest rate of 5.24% at December 31, 2011, due April 1, 2013, secured by a Caterpillar front-end loader. |
35 |
60 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 7.8% at December 31, 2011, due July 1, 2029, secured by TPT's land and office building purchased July 2004. (€318) |
413 |
485 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.6% at December 31, 2011, due January 31, 2030, secured by TPT's land and building purchased January 2005. (€318) |
412 |
482 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.05% at December 31, 2011, due July 31, 2015, secured by TPT's assets. (€158) |
205 |
312 |
||
|
Fixed rate Euro term note payable to a Netherlands bank, with an interest rate of 4.25% at December 31, 2011, due July 5, 2014, secured by TPT's assets. (€568) |
736 |
- |
||
|
U.S. Dollar term note payable to a Malaysian bank which matured May 30, 2011. |
- |
41 |
||
|
Total |
3,481 |
3,380 |
||
|
Less current maturities |
813 |
533 |
||
|
Total long-term debt and notes payable - financial institutions |
$ |
2,668 |
$ |
2,847 |
United States Operation
U.S. Credit Agreement and Term Loan
On December 31, 2010, the Company entered into a new U.S. Credit Agreement (the "Agreement") with American Bank, N.A. (the "Lender"). The Agreement consists of the following:
• a $1 million line of credit (the "Line"), which matures July 1, 2012. The amount which the Company is entitled to borrow from time to time under the Line is subject to a borrowing base based on the loan value of the collateral pledged to the Lender to secure the indebtedness owing to the Lender by the Company. Amounts advanced under the Line bear interest at a variable rate equal to one percent per annum point above the Wall Street Journal Price Rate as such prime rate changes from time to time, with a minimum floor rate of 5.50%. At December 31, 2011, the Company had no outstanding funds borrowed on the Line; and
• a $2 million term loan, which matures December 31, 2015. The term loan bears interest at a fixed rate of 6.65% per annum. Monthly principal and interest payments commenced on February 1, 2011. The monthly principal and interest payment are $39,272.97. At December 31, 2011, the balance on the term loan was $1,680,000.
|
F - 12 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
On March 1, 2012, the Company entered into the first amendment to the Agreement with the Lender. Under the terms of the amendment, the Line was extended from July 1, 2012 to October 15, 2013. In addition, the Line was increased from $1,000,000 to $2,000,000.
The Agreement is secured by certain assets of the Company which are located in the United States or which arise from the Company's operations in the United States. Collateral under the Agreement does not include the Company's ownership or other interests in TMM and TPT, any assets or operations of either TMM or TPT or any proceeds thereof.
The Agreement includes various customary covenants, limitations and events of default. Under the Agreement, the Company must maintain a ratio of cash flow to debt service of at least 1.25 to 1.0 measured on a rolling four quarter basis. At December 31, 2011, the ratio of cash flow to debt service was 5.80 to 1.0.
The Agreement also includes certain additional affirmative and negative covenants, including limitations on incurring additional indebtedness, becoming a guarantor or surety, making loans or advances to other parties, except trade credit extended in the normal course of business, or changing the President or Board of Directors of the Company without the Lender's written consent.
Borrowing under the Agreement may be used to support working capital requirements and for general corporate purposes.
Six-percent Convertible Subordinated Debentures
As reported in the Company's Forms 8-K filed with the SEC on May 6, 2009 and August 10, 2009, the Company's Board of Directors authorized the issuance of its six-percent (6%) convertible subordinated debentures with detachable warrants (the "Debentures") for the purpose of refinancing, in whole or in part, its debt to the Bank and for general corporate purposes. Under the current authorization, the Company received, $1,500,000 from the sale of Debentures, due May 4, 2016, from nine accredited investors, four of which are directors of the Company and another of which is a greater than 5% shareholder. At December 31, 2011, a balance of $1,450,000 remained outstanding on the Debentures.
Other Term Loans
On March 31, 2008, the Company 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 December 31, 2011 was $35,000.
|
F - 13 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
European Operation
On July 5, 2011, TPT entered into a three year term loan in the amount of €700,000 with a fixed interest rate of 4.25%. The loan proceeds will be used to fund the plant expansion and is secured by TPT's assets. Monthly principal and interest payments began on August 5, 2011 and continue through July 5, 2014. The monthly principal payment is €19,444 ($25,195) and the loan balance at December 31, 2011 was €568,000 ($736,000). The loan is secured by TPT's production equipment.
On March 20, 2007, TPT entered into a short-term credit facility (the "Credit Facility") with Rabobank which increased TPT's line of credit from €650,000 to €1,100,000. The Credit Facility was renewed on January 1, 2010 and has no stated maturity date. The Credit Facility, which has a variable interest rate of Bank prime plus 2.8% (currently at 4.191%), is secured by TPT's accounts receivable and inventory. At December 31, 2011, TPT had utilized €544,000 ($705,000) of its short-term credit facility.
On July 7, 2004, TPT entered into a mortgage loan (the "First Mortgage") with Rabobank. The First Mortgage, in the amount of €485,000, will be repaid over 25 years with interest fixed at 5.2% per year for the first four years. Under the terms of the agreement, the interest was adjusted to a fixed rate of 7.8%, effective August 1, 2008, for a period of five years. Thereafter, the rate will change to Rabobank prime plus 1.75%. TPT utilized €325,000 of the loan to finance the July 14, 2004, purchase of land and an office building, as well as to remodel the office building. The balance of the loan proceeds, €160,000, was used for the expansion of TPT's existing building. Monthly principal and interest payments commenced on September 1, 2004, and will continue through July 1, 2029. The monthly principal payment is €1,616. The loan balance at December 31, 2011 and 2010 was €319,000 and €362,000, respectively ($413,000 and $485,000, respectively). The mortgage loan is secured by the land and office building purchased on July 7, 2004.
On January 3, 2005, TPT entered into a second mortgage loan (the "Second Mortgage") with Rabobank to fund the acquisition of a 10,000 square foot warehouse with a loading dock that is located adjacent to TPT's existing production facility. The Second Mortgage, in the amount of €470,000, will be repaid over 25 years with interest fixed at 4.6% per year for the first five years. Under the terms of the agreement, the interest was adjusted to a fixed rate of 4.6%, effective January 3, 2010, for a period of three years. Thereafter, the rate will change to Rabobank prime plus 1.75%. Monthly principal and interest payments commenced on February 28, 2005 and will continue through January 31, 2030. The monthly principal payment is €1,566. The mortgage is secured by the land and building purchased by TPT on January 3, 2005. The loan balance at December 31, 2011 and 2010 was €318,000 and €360,000, respectively ($412,000 and $482,000, respectively).
On July 19, 2005, TPT entered into a new term loan with Rabobank to fund the completion of its building expansion. The loan, in the amount of €500,000, will be repaid over 10 years with interest fixed at 6.1% per year for the first five years. Under the terms of the agreement, the interest was adjusted to a fixed rate of 4.05%, effective July 19, 2010, for a period of five years. Thereafter, the rate will change to Rabobank prime plus 1.75%. Monthly principal and interest payments commenced on August 31, 2005 and will continue through July 31, 2015. The monthly principal payment is €4,167. The loan is secured by TPT's assets. The loan balance at December 31, 2011 and 2010 was €158,000 and €233,000, respectively ($205,000 and $312,000, respectively).
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.
|
F - 14 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Asian Operation
On June 27, 2011, TMM amended its banking facility with HSBC Bank Malaysia Berhad ("HSBC") to extend the maturity date from April 30, 2011 to April 30, 2012. The HSBC facility includes the following in Malaysian Ringgits ("RM"): (1) overdraft of RM 500,000; (2) an import/export line ("ECR") of RM 6,460,000; and (3) a foreign exchange contract limit of RM 5,000,000 ($158,000, $2,038,000 and $1,578,000, respectively).
On March 2, 2012, TMM amended their banking facility with HSBC to include a new Term Loan in the amount of RM 3,500,000 ($1,125,000) for the purpose of upgrading the operation's synthetic rutile production process. Under the terms of the facility, the loan will be paid in 35 equal monthly installments of RM 97,223 (excluding interest) and a final installment of RM 97,195 or approximately $31,261 and $31,252, respectively, commencing one month after full drawdown or 18 months after initial drawdown, whichever is earlier. The interest rate will be 2.00% above prime and will be payable monthly.
On June 1, 2011, TMM amended its banking facility with RHB Bank Berhad ("RHB") to extend the maturity date to April 30, 2012. The RHB facility includes the following: (1) an overdraft line of credit up to RM 1,000,000; (2) an ECR of RM 9,300,000; (3) a bank guarantee of RM 1,200,000; and (4) a foreign exchange contract limit of RM 25,000,000 ($316,000, $2,935,000, $379,000 and $7,889,000, respectively). At December 31, 2011, TMM had an outstanding balance of RM 6,911,000 ($2,181,000) outstanding on the foreign exchange contract line of credit at an interest rate of 2.8%. The balance matures on April 30, 2012.
On May 30, 2008, TMM entered into a U.S. Dollar term loan with RHB to fund the completion of its new powder processing facility. The loan, in the amount of $292,000, will be repaid over a period of 36 months with an interest rate of 0.75% above the RHB prime. The loan matured on May 30, 2011.
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 December 31, 2011, the outstanding balance on the ECR facilities was RM 3,975,000 ($1,254,000) at a current interest rate of 4.25%.
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.
|
F - 15 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
Liquidity
Management believes that it has adequate liquidity for fiscal year 2012 and expects to maintain compliance with all financial covenants throughout 2012.
The following is a summary of maturities of long-term debt to financial institutions as of December 31, 2011:
|
Years Ending December 31, |
|||
|
(In thousands) |
|||
|
2012 |
$ |
813 |
|
|
2013 |
821 |
||
|
2014 |
669 |
||
|
2015 |
512 |
||
|
2016 |
87 |
||
|
Thereafter |
578 |
||
|
Total |
$ |
3,481 |
|
|
3. |
Fair Value Measurements |
The following table presents the Company's financial assets and financial liabilities that are measured and recognized at fair value on a recurring basis, classified under the appropriate level of fair value hierarchy, as of December 31, 2011. The Company did not hold any non-financial assets and/or non-financial liabilities subject to fair value measurements at December 31, 2011.
|
|
Balance at December 31, 2011 |
|||||
|
(In thousands) |
Quoted Prices in Active Markets for Identical Items
|
Significant Other Observable Inputs
|
Significant Unobservable Inputs
|
|||
|
Asset for foreign currency derivative financial instruments (including forward contracts) |
$ |
- |
$ |
16 |
$ |
- |
|
|
|
|||||
|
Level 1 |
Level 2 |
Level 3 |
||||
|
Asset for foreign currency derivative financial instruments (including forward contracts) |
$ |
- |
$ |
11 |
$ |
- |
Our foreign currency derivative financial instruments mitigate foreign exchange risks and include forward contracts.
|
F - 16 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
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:
|
|
December 31, 2011 |
|
December 31, 2010 |
|||||
|
(In thousands) |
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Long-term debt, including current portion |
$ |
3,481 |
$ |
3,391 |
$ |
3,380 |
$ |
3,286 |
|
Long-term debt - convertible debentures |
1,450 |
1,436 |
1,475 |
1,424 |
||||
|
$ |
4,931 |
$ |
4,827 |
$ |
4,855 |
$ |
4,710 |
|
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.
|
4. |
Series A 6% Convertible Preferred Stock Dividend |
On December 6, 2011, we declared a dividend, in the amount of $375, for the quarterly period ending December 31, 2011, payable on January 1, 2012, to the holders of record of the Series A Convertible Preferred Stock as of the close of business on December 6, 2011. Dividends declared on the Series A Convertible Preferred Stock totaled $16,000 and $60,000, respectively, in 2011 and 2010. At December 31, 2011, all holders of the Company's Series A Convertible Preferred Stock had converted their preferred stock to shares of the Company's Common Stock.
|
5. |
Capital Leases |
On March 13, 2008, the Company entered into a financial lease agreement with Toyota Financial Services for a forklift. The cost of the equipment under the capital lease, in the amount of $26,527, is included in the consolidated balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at December 31, 2011 was approximately $16,000. 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 December 31, 2011 was $7,000.
On August 1, 2010, the Company entered into a financial lease agreement with Dell Financial Services for new computer servers. The cost of the equipment under the capital lease, in the amount of $19,093, is included in the consolidated balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at December 31, 2011 was approximately $11,000. The capital lease is in the amount of $20,698 including interest of $1,605 (implicit interest rate 5.3%). The lease term is 36 months with equal monthly installments of $575. The net present value of the lease at December 31, 2011 was $10,000.
On September 4, 2011, TPT entered into a financial lease agreement with Diependael Leasing, BV for equipment related to the production of ALUPREM. The cost of the equipment under the capital lease, in the amount of €38,360, is included in the consolidated balance sheets as property, plant and equipment. Accumulated amortization of the leased equipment at December 31, 2011 was not significant. The capital lease is in the amount of €41,256 including interest of €2,896 (implicit interest rate 4.786%). The lease term is 36 months with equal monthly installments of €1,146 ($1,485). The net present value of the lease at December 31, 2011 was €34,570 ($45,000).
|
F - 17 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table sets forth the minimum future lease payments (in thousands) under these leases as of December 31, 2011 until maturity:
|
Year Ending December 31, |
|
Amount |
|
|
2012 |
$ |
28 |
|
|
2013 |
23 |
||
|
2014 |
15 |
||
|
Total minimum lease payments |
66 |
||
|
Less: Amount representing executory costs |
- |
||
|
Net minimum lease payments |
66 |
||
|
Less: Amount representing interest |
(4) |
||
|
Present value of net minimum lease payments |
62 |
||
|
Less: Current maturities of capital lease obligations |
(28) |
||
|
Long-term capital lease obligations |
$ |
34 |
|
|
6. |
Inventories |
A summary of inventories follows:
|
(In thousands) |
December 31, |
|||||
|
2011 |
2010 |
|||||
|
Raw materials |
$ |
13,170 |
$ |
6,337 |
||
|
Work in progress |
|
1,709 |
|
1,343 |
||
|
Finished goods |
3,254 |
2,895 |
||||
|
Supplies |
804 |
794 |
||||
|
Total Inventories |
18,937 |
11,369 |
||||
|
Inventory reserve |
(264) |
(348) |
||||
|
Net Inventories |
$ |
18,673 |
$ |
11,021 |
||
Inventory is stated at the lower of cost or market, including adjustments for inventory expected to be sold below cost as a result of damage, deterioration, obsolescence or pricing factors. At December 31, 2011 and 2010, we maintained a reserve for obsolescence and unmarketable inventory of approximately $264,000 and $348,000, respectively.
Overhead is charged to inventory based on normal capacity and we expense abnormal amounts of idle facility expense, freight and handling costs in the period incurred. For the years ended December 31, 2011 and 2010, the Company recorded approximately $103,000 and $671,000, respectively, related to idle facility expense primarily at the U.S. and Malaysian operations.
|
F - 18 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
7. |
Property, Plant and Equipment |
Major classifications and expected lives of property, plant and equipment are summarized below:
|
(In thousands) |
December 31, |
|||||||
|
Expected Life |
2011 |
2010 |
||||||
|
Land and office buildings |
39 years |
$ |
3,282 |
$ |
3,309 |
|||
|
Production facilities |
10 - 20 years |
8,185 |
8,018 |
|||||
|
Machinery and equipment |
3 - 15 years |
27,672 |
27,735 |
|||||
|
Furniture and fixtures |
3 - 20 years |
1,274 |
1,185 |
|||||
|
Total |
40,413 |
40,247 |
||||||
|
Less accumulated depreciation |
(23,698) |
(22,085) |
||||||
|
Property, plant and equipment, net |
16,715 |
18,162 |
||||||
|
Construction in progress |
3,423 |
790 |
||||||
|
$ |
20,138 |
$ |
18,952 |
|||||
The amounts of depreciation expense calculated on the Company's property, plant and equipment for the years ended December 31, 2011, 2010 and 2009 were $2,078,000, $1,903,000 and $1,812,000, respectively.
|
F - 19 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
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 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.
For the twelve-month period ended December 31, 2011, the U.S. operation received approximately 23% of its total third party sales revenue from a single customer. The European operation received approximately 30% of its total third party sales revenue from two customers (11% and 11%); and, the Asian operation received approximately 21% of its total third party sales revenue from a single customer. One customer, BASF Corporation, represented 14% of the 2011 total consolidated sales.
For the twelve-month period ended December 31, 2010, the U.S. operation received approximately 21% of its total third party sales revenue from a single customer. The European operation received approximately 36% of its total third party sales revenue from two customers (21% and 15%); and, the Asian operation received approximately 13% of its total third party sales revenue from a single customer. One customer, BASF Corporation, represented 13% of the 2010 total consolidated sales.
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.
The Company's principal product, HITOX, accounted for approximately 43%, 39% and 42% of net consolidated sales in 2011 , 2010 and 2009, respectively.
The Company sells its products to customers located in more than 60 countries. Sales to external customers are attributed to geographic area based on country of distribution. Sales to customers located in the U.S. represented 49%, 52% and 59% for the years ended December 31, 2011, 2010 and 2009, respectively.
No individual foreign country accounted for 10% or more of foreign sales in 2011, 2010 or 2009.
Approximately 32% of the Company's employees are represented by an in-house collective bargaining agreement.
|
F - 20 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
A summary of the Company's manufacturing operations by geographic area is presented below:
|
(In thousands) |
United States
|
Netherlands
|
Malaysia
|
Inter-Company
|
Consolidated |
|||||
|
As of and for the years ended: |
||||||||||
|
December 31, 2011 |
||||||||||
|
Net Sales: |
||||||||||
|
Customer sales |
$ |
24,560 |
$ |
10,347 |
$ |
6,114 |
$ |
- |
$ |
41,021 |
|
Intercompany sales |
463 |
3,385 |
8,487 |
(12,335) |
- |
|||||
|
Total Net Sales |
$ |
25,023 |
$ |
13,732 |
$ |
14,601 |
$ |
(12,335) |
$ |
41,021 |
|
Share based compensation |
$ |
59 |
$ |
$ |
$ |
- |
$ |
59 |
||
|
Depreciation |
$ |
740 |
$ |
571 |
$ |
767 |
$ |
- |
$ |
2,078 |
|
Interest expense |
$ |
280 |
$ |
144 |
$ |
47 |
$ |
- |
$ |
471 |
|
Income tax expense (benefit) |
$ |
8 |
$ |
24 |
$ |
21 |
$ |
(5) |
$ |
48 |
|
Location profit (loss) |
$ |
1,910 |
$ |
1,064 |
$ |
882 |
$ |
(20) |
$ |
3,836 |
|
Capital expenditures |
$ |
591 |
$ |
2,445 |
$ |
499 |
$ |
- |
$ |
3,535 |
|
Location long-lived assets |
$ |
4,875 |
$ |
7,819 |
$ |
7,444 |
$ |
- |
$ |
20,138 |
|
Location assets |
$ |
17,050 |
$ |
10,026 |
$ |
20,891 |
$ |
- |
$ |
47,967 |
|
December 31, 2010 |
||||||||||
|
Net Sales: |
||||||||||
|
Customer sales |
$ |
19,580 |
$ |
8,351 |
$ |
3,085 |
$ |
- |
$ |
31,016 |
|
Intercompany sales |
98 |
2,424 |
5,628 |
(8,150) |
- |
|||||
|
Total Net Sales |
$ |
19,678 |
$ |
10,775 |
$ |
8,713 |
$ |
(8,150) |
$ |
31,016 |
|
Share based compensation |
$ |
91 |
$ |
$ |
$ |
- |
$ |
91 |
||
|
Depreciation |
$ |
685 |
$ |
511 |
$ |
707 |
$ |
- |
$ |
1,903 |
|
Interest expense |
$ |
247 |
$ |
177 |
$ |
15 |
$ |
- |
$ |
439 |
|
Income tax expense |
$ |
7 |
$ |
- |
$ |
9 |
$ |
- |
$ |
16 |
|
Location profit (loss) |
$ |
1,222 |
$ |
1,032 |
$ |
(55) |
$ |
89 |
$ |
2,288 |
|
Capital expenditures |
$ |
800 |
$ |
827 |
$ |
18 |
$ |
- |
$ |
1,645 |
|
Location long-lived assets |
$ |
5,024 |
$ |
6,087 |
$ |
7,841 |
$ |
- |
$ |
18,952 |
|
Location assets |
$ |
13,600 |
$ |
8,096 |
$ |
15,475 |
$ |
- |
$ |
37,171 |
|
December 31, 2009 |
||||||||||
|
Net Sales: |
||||||||||
|
Customer sales |
$ |
16,518 |
$ |
5,646 |
$ |
2,029 |
$ |
- |
$ |
24,193 |
|
Intercompany sales |
6 |
2,432 |
2,984 |
(5,422) |
- |
|||||
|
Total Net Sales |
$ |
16,524 |
$ |
8,078 |
$ |
5,013 |
$ |
(5,422) |
$ |
24,193 |
|
Share based compensation |
$ |
266 |
$ |
- |
$ |
- |
$ |
- |
$ |
266 |
|
Depreciation |
$ |
584 |
$ |
531 |
$ |
697 |
$ |
- |
$ |
1,812 |
|
Interest expense |
$ |
267 |
$ |
228 |
$ |
61 |
$ |
- |
$ |
556 |
|
Income tax expense |
$ |
3 |
$ |
- |
$ |
1 |
$ |
- |
$ |
4 |
|
Location (loss) profit |
$ |
(219) |
$ |
94 |
$ |
(72) |
$ |
61 |
$ |
(136) |
|
Capital expenditures |
$ |
815 |
$ |
44 |
$ |
63 |
$ |
- |
$ |
922 |
|
Location long-lived assets |
$ |
4,908 |
$ |
6,186 |
$ |
7,706 |
$ |
- |
$ |
18,800 |
|
Location assets |
$ |
11,323 |
$ |
7,852 |
$ |
13,701 |
$ |
- |
$ |
32,876 |
|
F - 21 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
9. |
Quarterly Data (Unaudited) |
|
TOR Minerals International, Inc. and Subsidiaries |
||||||||||
|
Consolidated Statements of Operations |
||||||||||
|
(In thousands, except per share amounts) |
||||||||||
|
|
|
|
||||||||
|
|
|
2011 |
||||||||
|
(In thousands, except per share amounts) |
|
1st Qtr |
|
2nd Qtr |
|
3rd Qtr |
|
4th Qtr |
|
Total |
|
NET SALES |
$ |
9,585 |
$ |
10,489 |
$ |
11,401 |
$ |
9,546 |
$ |
41,021 |
|
Cost of sales |
7,494 |
8,183 |
9,026 |
7,024 |
31,727 |
|||||
|
GROSS MARGIN |
|
2,091 |
|
2,306 |
|
2,375 |
|
2,522 |
|
9,294 |
|
Technical services and research and development |
66 |
66 |
74 |
81 |
287 |
|||||
|
Selling, general and administrative expenses |
1,159 |
1,065 |
1,098 |
1,317 |
4,639 |
|||||
|
Gain on disposal of assets |
- |
- |
- |
(1) |
(1) |
|||||
|
OPERATING INCOME |
|
866 |
|
1,175 |
|
1,203 |
|
1,125 |
|
4,369 |
|
OTHER INCOME (EXPENSES): |
||||||||||
|
Interest expense |
(96) |
(101) |
(139) |
(135) |
(471) |
|||||
|
(Loss) gain on foreign currency exchange rate |
(48) |
(9) |
63 |
(29) |
(23) |
|||||
|
Other, net |
- |
7 |
- |
2 |
9 |
|||||
|
INCOME BEFORE INCOME TAX |
|
722 |
|
1,072 |
|
1,127 |
|
963 |
|
3,884 |
|
Income tax expense (benefit) |
47 |
91 |
60 |
(150) |
48 |
|||||
|
NET INCOME |
$ |
675 |
$ |
981 |
$ |
1,067 |
$ |
1,113 |
$ |
3,836 |
|
Less: Preferred Stock Dividends |
15 |
- |
- |
1 |
16 |
|||||
|
Basic Income Available to Common Shareholders |
$ |
660 |
$ |
981 |
$ |
1,067 |
$ |
1,112 |
$ |
3,820 |
|
Plus: 6% Convertible Debenture Interest Expense |
22 |
22 |
22 |
21 |
87 |
|||||
|
Plus: Preferred Stock Dividends |
15 |
- |
- |
1 |
16 |
|||||
|
Diluted Income Available to Common Shareholders |
$ |
697 |
$ |
1,003 |
$ |
1,089 |
$ |
1,134 |
$ |
3,923 |
|
Income per common share: |
||||||||||
|
Basic |
$ |
0.34 |
$ |
0.47 |
$ |
0.50 |
$ |
0.51 |
$ |
1.84 |
|
Diluted |
$ |
0.22 |
$ |
0.30 |
$ |
0.33 |
$ |
0.35 |
$ |
1.21 |
|
Weighted average common shares outstanding: |
||||||||||
|
Basic |
1,941 |
2,091 |
2,122 |
2,160 |
2,079 |
|||||
|
Diluted |
3,149 |
3,293 |
3,264 |
3,239 |
3,235 |
|||||
|
F - 22 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
9. |
Quarterly Data (Unaudited) - Continued |
|
TOR Minerals International, Inc. and Subsidiaries |
||||||||||
|
Consolidated Statements of Operations |
||||||||||
|
(In thousands, except per share amounts) |
||||||||||
|
|
|
|
||||||||
|
|
|
2010 |
||||||||
|
(In thousands, except per share amounts) |
|
1st Qtr |
|
2nd Qtr |
|
3rd Qtr |
|
4th Qtr |
|
Total |
|
NET SALES |
$ |
6,856 |
$ |
7,928 |
$ |
7,543 |
$ |
8,689 |
$ |
31,016 |
|
Cost of sales |
5,206 |
6,325 |
6,234 |
6,493 |
24,258 |
|||||
|
GROSS MARGIN |
|
1,650 |
|
1,603 |
|
1,309 |
|
2,196 |
|
6,758 |
|
Technical services and research and development |
57 |
61 |
66 |
70 |
254 |
|||||
|
Selling, general and administrative expenses |
849 |
971 |
846 |
1,035 |
3,701 |
|||||
|
OPERATING INCOME |
|
744 |
|
571 |
|
397 |
|
1,091 |
|
2,803 |
|
OTHER INCOME (EXPENSES): |
||||||||||
|
Interest expense |
(121) |
(112) |
(110) |
(96) |
(439) |
|||||
|
(Loss) gain on foreign currency exchange rate |
(28) |
34 |
(53) |
(13) |
(60) |
|||||
|
INCOME BEFORE INCOME TAX |
|
595 |
|
493 |
|
234 |
|
982 |
|
2,304 |
|
Income tax expense (benefit) |
11 |
23 |
(2) |
(16) |
16 |
|||||
|
NET INCOME |
$ |
584 |
$ |
470 |
$ |
236 |
$ |
998 |
$ |
2,288 |
|
Less: Preferred Stock Dividends |
15 |
15 |
15 |
15 |
60 |
|||||
|
Basic Income Available to Common Shareholders |
$ |
569 |
$ |
455 |
$ |
221 |
$ |
983 |
$ |
2,228 |
|
Plus: 6% Convertible Debenture Interest Expense |
22 |
23 |
22 |
23 |
90 |
|||||
|
Diluted Income Available to Common Shareholders |
$ |
591 |
$ |
478 |
$ |
243 |
$ |
1,006 |
$ |
2,318 |
|
Income per common share: |
||||||||||
|
Basic |
$ |
0.30 |
$ |
0.24 |
$ |
0.12 |
$ |
0.51 |
$ |
1.17 |
|
Diluted |
$ |
0.23 |
$ |
0.17 |
$ |
0.09 |
$ |
0.35 |
$ |
0.83 |
|
Weighted average common shares outstanding: |
||||||||||
|
Basic |
1,891 |
1,897 |
1,908 |
1,921 |
1,904 |
|||||
|
Diluted |
2,611 |
2,813 |
2,822 |
2,892 |
2,785 |
|||||
|
F - 23 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
10. |
Calculation of Basic and Diluted Earnings per Share |
|
(in thousands, except per share amounts) |
Year Ended December 31, |
|||||
|
2011 |
2010 |
|
2009 |
|||
|
Numerator : |
||||||
|
Net Income (Loss) |
$ |
3,836 |
$ |
2,288 |
$ |
(136) |
|
Preferred stock dividends |
(16) |
(60) |
(60) |
|||
|
Numerator for basic earnings per share - income (loss) available to common shareholders |
3,820 |
2,228 |
(196) |
|||
|
Effect of dilutive securities: |
87 |
90 |
- |
|||
|
Numerator for diluted earnings per share - income (loss) available to common shareholders after assumed conversions |
$ |
3,907 |
$ |
2,318 |
$ |
(196) |
|
Denominator : |
||||||
|
Denominator for basic earnings per share - weighted-average shares |
2,079 |
1,904 |
1,891 |
|||
|
Effect of dilutive securities |
||||||
|
Employee stock options |
35 |
13 |
- |
|||
|
Warrants |
533 |
302 |
- |
|||
|
6% Convertible Debentures |
551 |
566 |
- |
|||
|
Preferred stock |
37 |
- |
- |
|||
|
Dilutive potential common shares |
1,119 |
881 |
- |
|||
|
Denominator for diluted earnings per share - weighted-average shares and assumed conversions |
3,235 |
2,785 |
1,891 |
|||
|
|
||||||
|
Basic earnings per common share : |
||||||
|
Net Income (Loss) |
$ |
1.84 |
$ |
1.17 |
$ |
(0.10) |
|
|
||||||
|
Diluted earnings per common share : |
||||||
|
Net Income (Loss) |
$ |
1.21 |
$ |
0.83 |
$ |
(0.10) |
Excluded from the calculation of diluted earnings per share were a total of 111,111 common shares issuable upon conversion of the 200,000 convertible preferred shares for the years ended December 31, 2010 and 2009. The convertible preferred shares were not included in the computation of diluted earnings per share as the conversion price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. . For the year ended December 31, 2011, there were no convertible preferred shares excluded from the calculation of diluted earnings per share as all were converted to common stock during 2011.
For the year ended December 31, 2009, a total of 566,040 convertible debentures 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 years ended December 31, 2011 and 2010, there were no convertible debentures excluded from the calculation of diluted earnings per share.
A total of 881,040 warrants were excluded from the calculation of diluted earnings per share for the years ended December 31, 2009 as the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive. For the years ended December 31, 2011 and 2010, there were no warrants excluded from the calculation of diluted earnings per share.
|
F - 24 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
For the years ended December 31, 2011, 2010 and 2009, stock options excluded from diluted earnings per share were 24,320, 151,985 and 224,782, respectively. The options were excluded from the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares and, therefore, the effect would be antidilutive.
|
11. |
Income Taxes |
The Company provides for deferred taxes on temporary differences between the financial statements and tax bases of assets using the enacted tax rates that are expected to apply to taxable income when the temporary differences are expected to reverse.
Our U.S. operation had deferred tax assets related to NOL carryforwards of $591,000 and at December 31, 2011, we maintained a valuation allowance of approximately 43% due to uncertainties as to the Company's ability to utilize this deferred tax asset.
At December 31, 2011, 2010 and 2009, we had federal net operating loss ("NOL") carryforwards of approximately $1,738,000, $3,680,000, and $4,200,000, respectively. The U.S. NOL carryforward will expire from 2018 to 2029.
TPT, our European operation, had NOL carryforwards at December 31, 2010 and 2009 of approximately $867,000 and $1,913,000, respectively. The remaining balance of TPT's NOL was fully utilized during the twelve month period ended December 31, 2011.
Our Asian operation, TMM, had NOL carryforwards of approximately $3,661,000, $4,530,000 and $3,842,000, at December 31, 2011, 2010 and 2009, respectively. Because these foreign NOL carryforwards have an indefinite carry forward period, we have determined that it is not necessary to provide a valuation allowance for this NOL carryforward.
The undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been provided on approximately $6,000,000 of such cumulative undistributed earnings. Determination of the potential amount of unrecognized deferred U.S. income tax liability and foreign withholding taxes is not practicable because of the complexities associated with its hypothetical calculation.
|
Components of Pretax Income (Loss) |
Year Ended December 31, |
||||||||||||||||||||||
|
(In thousands) |
2011 |
2010 |
2009 |
||||||||||||||||||||
|
Domestic |
$ |
1,918 |
$ |
1,228 |
$ |
(217) |
|||||||||||||||||
|
Foreign |
1,966 |
1,075 |
85 |
||||||||||||||||||||
|
Pretax income (loss) |
$ |
3,884 |
$ |
2,303 |
$ |
(132) |
|||||||||||||||||
|
|
Components of Income Tax Expense |
||||||||||||||||||||||
|
|
Year Ended December 31, |
||||||||||||||||||||||
|
2011 |
|
2010 |
|
2009 |
|||||||||||||||||||
|
(In thousands) |
Current |
Deferred |
Total |
Current |
Deferred |
Total |
Current |
Deferred |
Total |
||||||||||||||
|
Federal |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
|||||
|
State |
8 |
- |
8 |
7 |
- |
7 |
3 |
- |
3 |
||||||||||||||
|
Foreign |
21 |
19 |
40 |
- |
9 |
9 |
- |
1 |
1 |
||||||||||||||
|
Total Income Tax Expense |
$ |
29 |
$ |
19 |
$ |
48 |
$ |
7 |
$ |
9 |
$ |
16 |
$ |
3 |
$ |
1 |
$ |
4 |
|||||
|
F - 25 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table accounts for the difference between the actual tax provision and the amounts obtained by applying the statutory U.S. federal income tax rate of 34% to income before taxes.
|
Effective Tax Rate Reconciliation |
Year Ended December 31, |
|||||
|
(In thousands) |
2011 |
2010 |
2009 |
|||
|
Expense (benefit) computed at statutory rate |
$ |
1,321 |
$ |
783 |
$ |
(44) |
|
Change in valuation allowance - Domestic |
(684) |
(451) |
(21) |
|||
|
Change in valuation allowance - Foreign |
(200) |
(267) |
(24) |
|||
|
Effect of items deductible for book not tax, net |
||||||
|
Option compensation |
20 |
31 |
90 |
|||
|
Other |
(171) |
(42) |
8 |
|||
|
Effect of foreign tax rate differential |
(243) |
(43) |
(7) |
|||
|
State income taxes, net of Federal benefit |
5 |
5 |
2 |
|||
|
$ |
48 |
$ |
16 |
$ |
4 |
|
|
Significant Components of Deferred Taxes |
Year Ended December 31, |
|||||
|
(In thousands) |
2011 |
2010 |
||||
|
Deferred Tax Assets : |
|
|
||||
|
Net operating loss carryforwards - Domestic |
$ |
591 |
$ |
1,250 |
||
|
Net operating loss carryforwards - Foreign |
915 |
1,340 |
||||
|
PP&E - Foreign |
10 |
10 |
||||
|
Intercompany profit |
17 |
12 |
||||
|
Alternative minimum tax credit carryforwards |
65 |
65 |
||||
|
Domestic reserves |
17 |
17 |
||||
|
Unrealized foreign currency losses - Domestic |
19 |
14 |
||||
|
Other deferred assets |
20 |
20 |
||||
|
1,654 |
2,728 |
|||||
|
Valuation allowance |
(259) |
(1,150) |
||||
|
Total deferred tax assets |
$ |
1,395 |
$ |
1,578 |
||
|
Deferred Tax Liabilities : |
|
|
||||
|
PP&E - Domestic |
628 |
598 |
||||
|
PP&E - Foreign |
1,405 |
1,598 |
||||
|
Unrealized gain on derivatives |
22 |
23 |
||||
|
Other |
5 |
5 |
||||
|
Total deferred tax liabilities |
2,060 |
2,224 |
||||
|
Net deferred tax liability |
$ |
(665) |
$ |
(646) |
||
|
F - 26 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
12. |
Stock Options |
On February 21, 2000, the Company's Board of Directors approved the adoption of the 2000 Incentive Stock Option Plan (the "Plan") for TOR Minerals International, Inc. The Plan provides for the award of a variety of incentive compensation arrangements, including restricted stock awards, performance units or other non-option awards, to such employees and directors as may be determined by a Committee of the Board. At the Annual Shareholders' meeting on May 23, 2008, the maximum number of shares of the Company's common stock that may be sold or issued under the Plan was increased to 250,000 shares subject to certain adjustments upon recapitalization, stock splits and combinations, merger, stock dividend and similar events; in addition the plan was extended to May 23, 2018. At December 31, 2011, there were 167,983 options outstanding, 72,359 exercised and 9,658 available for future issuance under the Plan.
For the twelve-month periods ended December 31, 2011, 2010 and 2009, the Company recorded $59,000, $91,000 and $266,000, respectively, in stock-based employee compensation. This compensation cost is included in the general and administrative expenses and cost of sales in the accompanying consolidated statements of operations.
The Company granted options to purchase 23,500, 23,404 and 27,500 shares of common stock during the twelve-month periods ended December 31, 2011, 2010 and 2009, respectively. The weighted average fair value per option at the date of grant for options granted in the twelve-month periods ended December 31, 2011, 2010 and 2009 was $8.98, $3.89 and $2.70, respectively, as valued using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
Twelve Months Ended December 31, |
|||||
|
|
|
2011 |
|
2010 |
|
2009 |
|
Risk-free interest rate |
2.78 % |
1.20 % |
3.17 % |
|||
|
Expected dividend yield |
0.00 % |
0.00 % |
0.00 % |
|||
|
Expected volatility |
0.68 |
0.79 |
0.73 |
|||
|
Expected term (in years) |
5.00 |
3.00 |
7.00 |
|||
The risk free interest rate is based on the Treasury Constant Maturity Rate as quoted by the Federal Reserve at the time of the grant for a term equivalent to the expected term of the grant. The estimated volatility is based on the historical volatility of our stock and other factors. The expected term of options represents the period of time the options are expected to be outstanding from grant date.
|
F - 27 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table summarizes certain information regarding stock option activity:
|
Options |
|
||||||||||||
|
Total Reserved |
Outstanding |
Weighted Avg Exercise Price |
Range of Exercise Prices |
||||||||||
|
Balances at December 31, 2008 |
225,782 |
148,720 |
$13.00 |
$ |
4.60 |
- |
$ |
30.55 |
|||||
|
Granted |
27,500 |
$2.70 |
$ |
1.75 |
- |
$ |
2.90 |
||||||
|
Forfeited or expired |
(1,000) |
(2,000) |
$8.70 |
$ |
2.90 |
- |
$ |
14.60 |
|||||
|
Balances at December 31, 2009 |
224,782 |
174,220 |
$11.20 |
$ |
4.60 |
- |
$ |
30.55 |
|||||
|
Granted |
23,404 |
$7.52 |
$ |
7.50 |
- |
$ |
7.63 |
||||||
|
Exercised |
(14,539) |
(14,539) |
$3.17 |
$ |
2.70 |
- |
$ |
7.50 |
|||||
|
Forfeited or expired |
(1,600) |
(7,600) |
$10.31 |
$ |
2.90 |
- |
$ |
11.25 |
|||||
|
Balances at December 31, 2010 |
208,643 |
175,485 |
$11.39 |
$ |
1.75 |
- |
$ |
30.55 |
|||||
|
Granted |
23,500 |
$13.46 |
$ |
12.96 |
- |
$ |
16.33 |
||||||
|
Exercised |
(31,002) |
(31,002) |
$6.65 |
$ |
1.75 |
- |
$ |
13.80 |
|||||
|
Balances at December 31, 2011 |
177,641 |
167,983 |
$12.53 |
$ |
1.75 |
- |
$ |
30.55 |
|||||
The number of shares of common stock underlying options exercisable at December
31, 2011, 2010 and 2009 was 147,983, 175,485and 174,220, respectively. The
weighted-average remaining contractual life of those options is 4.5 years.
Exercise prices on options outstanding at December 31, 2011, ranged from $1.75
to $30.55 per share as noted in the following table.
|
Options Outstanding |
||||||
|
2011 |
2010 |
2009 |
|
Range of Exercise Prices |
||
|
22,861 |
46,245 |
39,480 |
$ 1.75 - $ 9.99 |
|||
|
120,802 |
108,180 |
113,680 |
$ 10.00 - $ 14.99 |
|||
|
3,620 |
120 |
120 |
$ 15.00 - $ 19.99 |
|||
|
12,800 |
12,800 |
12,800 |
$ 20.00 - $ 24.99 |
|||
|
2,500 |
2,740 |
2,740 |
$ 25.00 - $ 29.99 |
|||
|
5,400 |
5,400 |
5,400 |
$ 30.00 - $ 30.55 |
|||
|
167,983 |
175,485 |
174,220 |
||||
As of December 31, 2011, there was approximately $152,000 of compensation expense related to non-vested awards. This expense is expected to be recognized over a weighted average period of 4.07 years.
As most options issued under the Plan are Incentive Stock Options, the Company does not receive any excess tax benefits relating to the compensation expense recognized on vested options.
|
F - 28 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
13. |
Profit Sharing Plan |
The Company has a profit sharing plan that covers the U.S. employees. Contributions to the plan are at the option of and determined by the Board of Directors and are limited to the maximum amount deductible by the Company for Federal income tax purposes. For the years ended December 31, 2011, 2010 and 2009, there were no contributions to the plan.
The Company also offers U.S. employees a 401(k) savings plan administered by an investment services company. Employees are eligible to participate in the plan after completing six months of service with the Company. The Company matches contributions up to 4% of the employee's eligible earnings. Total Company contributions to the 401(k) plan for the years ended December 31, 2011, 2010 and 2009 were approximately $57,000, $42,000 and $35,000, respectively.
|
14. |
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 Malaysian operation, through the use of foreign currency contracts. Foreign exchange contracts are used to protect the Company from the risk that the eventual cash flows resulting from transactions in foreign currencies, including sales and purchases transacted in a currency other than the functional currency, will be adversely affected by changes in exchange rates. We report the fair value of the derivatives on our consolidated balance sheet and changes in the fair value are recognized in earnings in the period of the change.
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 consolidated balance sheet:
|
(In thousands) |
||||||
|
Asset Derivatives |
||||||
|
Derivative Instrument |
|
Location |
|
December 31, 2011 |
|
December 31, 2010 |
|
Foreign Currency Exchange Contracts |
Other Current Assets |
$ |
16 |
$ |
11 |
|
|
|
|
|
$ |
16 |
$ |
11 |
|
F - 29 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
The following table summarizes the impact of the Company's derivatives on the consolidated financial statements of operations for the three and twelve month periods ended December 31, 2011 and 2010:
|
(In thousands) |
|
|
|
Amount of Gain (Loss) Recognized in Operations |
||||||
|
|
Location of Gain |
|
Three Months Ended |
|
Twelve Months Ended |
|||||
|
Derivative |
|
(Loss) on Derivative |
|
December 31, |
|
December 31, |
||||
|
Instrument |
|
Instrument |
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
Foreign Currency Exchange Contracts |
Other Income (Expense): (Gain) loss on foreign currency exchange rate |
$ |
16 |
$ |
11 |
$ |
(69) |
$ |
154 |
|
|
|
|
|
$ |
16 |
$ |
11 |
$ |
(69) |
$ |
154 |
|
15. |
Commitments and Contingencies |
Land Lease
The Company operates a plant in Corpus Christi, Texas. The facility is located in the Rincon Industrial Park on approximately 15 acres of land, with 13 acres leased from the Port of Corpus Christi Authority (the "Port") and approximately two acres owned by the Company. The lease payment is subject to an adjustment every 5 years for what the Port calls the "equalization valuation". This is used as a means of equalizing rentals on various Port lands and is determined solely at the discretion of the Port. The Company and the Port executed an amended lease agreement on July 11, 2000, which extended the expiration date of the lease to June 30, 2027.
Minimum future rental payments under this and other immaterial leases as of December 31, 2011 for the next five years ending December 31 and in total thereafter are as follows:
|
Years Ending December 31, |
|||
|
(In thousands) |
|||
|
2012 |
$ |
63 |
|
|
2013 |
63 |
||
|
2014 |
61 |
||
|
2015 |
54 |
||
|
2016 |
54 |
||
|
Thereafter |
623 |
||
|
Total minimum lease payments |
$ |
918 |
|
Rent expense under these leases was approximately $63,000, $276,000 and $321,000 for the years ended 2011, 2010 and 2009, respectively.
Contingencies
There are claims arising in the normal course of business that are pending against the Company. While it is not feasible to predict or determine the outcome of any case, it is the opinion of management that the ultimate dispositions will have no material effect on the consolidated financial statements of the Company.
The Company believes that it is in compliance with all applicable federal, state and local laws and regulations relating to the discharge of substances into the environment, and it does not expect that any material expenditure for environmental control facilities will be necessary in order to continue such compliance.
|
F - 30 |
TOR Minerals
International, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
December 31, 2011, 2010 and 2009
|
16. |
Significant Customers |
For the years ended December 31, 2011, 2010 and 2009, one customer, BASF, accounted for approximately 14.0%, 13.3% and 18.2%, respectively, of our total consolidated sales revenue.
|
17. |
Foreign Customer Sales |
Revenues from sales to customers located outside the U.S. for the years ended December 31, 2011, 2010 and 2009 are as follows:
|
|
Year Ended December 31, |
|
||||
|
(In thousands) |
|
2011 |
|
2010 |
|
2009 |
|
Canada, Mexico & South/Central America |
$ |
4,187 |
$ |
3,401 |
$ |
2,115 |
|
Pacific Rim |
6,321 |
3,177 |
1,933 |
|||
|
Europe, Africa & Middle East |
10,272 |
8,456 |
5,754 |
|||
|
Total Sales |
$ |
20,780 |
$ |
15,034 |
$ |
9,802 |
|
18. |
Sales by Product |
Revenues from sales by product for the years ended December 31, 2011, 2010 and 2009 are as follows (in thousands):
|
|
Product |
2011 |
2010 |
2009 |
|
||||||
|
|
HITOX |
$ |
17,538 |
43% |
$ |
12,080 |
39% |
$ |
10,111 |
42% |
|
|
|
ALUPREM |
14,368 |
35% |
11,608 |
37% |
9,450 |
39% |
|
|||
|
|
BARTEX |
4,092 |
10% |
3,761 |
12% |
2,601 |
11% |
|
|||
|
|
HALTEX / OPTILOAD |
3,093 |
7% |
2,634 |
9% |
1,646 |
7% |
|
|||
|
|
TIOPREM |
1,460 |
4% |
515 |
2% |
12 |
<1% |
|
|||
|
|
OTHER |
470 |
1% |
418 |
1% |
373 |
1% |
|
|||
|
|
Total |
$ |
41,021 |
100% |
$ |
31,016 |
100% |
$ |
24,193 |
100% |
|
|
F - 31 |
|||||||||||
Exhibit 21
Subsidiary of Registrant
|
Name of Subsidiary |
TP&T (TOR Processing & Trade) B.V. |
|
Jurisdiction of formation |
The Netherlands |
|
Subsidiary DBA |
TP&T (TOR Processing & Trade) B.V. ("TP&T") |
|
Name of Subsidiary |
TOR Minerals Malaysia, Sdn. Bhd. |
|
Jurisdiction of formation |
Malaysia |
|
Subsidiary DBA |
TOR Minerals (M), Sdn. Bhd. ("TMM") |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 33-61645, 333-37878); and on Form S-3 (Registration No. 333-114483) of TOR Minerals International, Inc. of our report dated March 12, 2012, with respect to the consolidated financial statements of TOR Minerals International, Inc. and Subsidiaries as of December 31, 2011 and 2010 and for each of the three years ended December 31, 2011 included in this Annual Report on Form 10-K for the year ended December 31, 2011.
/s/
UHY LLP
UHY LLP
Houston, Texas
March 12, 2012
Exhibit 31.1
CERTIFICATIONS
I, Olaf Karasch, certify that:
1. I have reviewed this Form 10-K of TOR Minerals International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2012
/s/ Olaf Karasch
Olaf Karasch
President and CEO
Exhibit 31.2
CERTIFICATIONS
I, Barbara Russell, certify that:
1. I have reviewed this Form 10-K of TOR Minerals International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 12, 2012
/s/ Barbara Russell
Barbara Russell
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of TOR Minerals International, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Olaf Karasch, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2011.
/s/ OLAF KARASCH
Olaf Karasch
President and Chief Executive Officer
March 12, 2012
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of TOR Minerals International, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Barbara Russell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the year ended December 31, 2011.
/s/BARBARA RUSSELL
Barbara Russell
Chief Financial Officer
March 12, 2012
EXHIBIT 10.31
FIRST
AMENDMENT TO LOAN AGREEMENT
This First Amendment to Loan Agreement is effective the 1st day of March, 2012, between American Bank, N.A. ("Lender"), and TOR Minerals International, Inc., ("Borrower") and amends that prior Loan Agreement between the parties dated December 30, 2010 (the "Agreement").
The first two paragraphs of Section One are amended to hereafter read as follows:
SECTION ONE: LINE OF CREDIT
1.01 Line of Credit . Subject to the further terms and provisions hereof, Lender agrees to and does hereby grant to and establish in favor of Borrower a revolving line of credit in the amount of $2,000,000.00 under which Lender shall be committed to make loans or advances to Borrower from time to time; provided, Lender shall never be required to make any advance under such line of credit when such advance together with the principal amount then unpaid and owing under the line of credit by reason of previous advances would exceed the amount which Lender is then committed to loan based on the loan value (also known as "Borrowing Base") of collateral pledged to Lender as set forth in SECTION THREE hereof. Further provided, in no event shall the Lender ever be required to make any advance to Borrower under the line of credit when such advance, together with the principal amount then unpaid and owing under the line of credit by reason of previous advances, would exceed said $2,000,000.00 amount. Said line of credit is sometimes hereafter referred to as the "line of credit". Further, the line of credit shall terminate on October 15, 2013, and on and after such date the Lender shall not be obligated to make any additional advances on the line of credit.
1.02 Repayment of the Line of Credit . Principal advanced and owing under the line of credit shall be repayable in accordance with the terms hereof, but in any event on October 15, 2013. Interest accrued and owing on advanced and unpaid principal shall be due and payable monthly on the first day of each month and at maturity. In order to evidence the obligation to repay Lender all advances, together with interest thereon, made by Lender pursuant to the said line of credit, Borrower shall execute and deliver to Lender a Revolving Credit Promissory Note.
The first paragraph of Section Three is amended to hereafter read as follows:
3.01 Borrowing Base . The amount which Borrower is entitled to borrow from time to time under the line of credit shall be the then current loan value of collateral (the "Borrowing Base") pledged to Lender to secure indebtedness owing to Lender by Borrower, provided that in no event is Lender to be required to make any advance which would cause the outstanding principal balance owing by Borrower at any one time to be in excess of $2,000,000.00. The Borrowing Base shall be redetermined monthly and shall be seventy-five percent (75%) of eligible accounts receivable arising out of Borrower's United States operations pledged to the Lender. The term "eligible accounts receivable" shall mean all billed gross trade accounts receivable, less: (a) balances due sixty (60) days or more after the date of the original invoice therefor; (b) accounts owed by companies related to or affiliated with Borrower or the Guarantors or owed by its employees or by Borrower's employees; (c) except for receivables from BASF SE, accounts owing by any one debtor which exceeds twenty percent (20%) of the total billed gross accounts receivable; (d) all accounts owing by any particular debtor if 10% or more of such particular debtor's accounts are ninety (90) days or more past due; and (e) accounts receivable which are disputed by the account debtor.
The following two paragraphs are added to Section Seven of the Agreement:
7.11 Consent to Legal Representation . The law firm of Wood, Boykin & Wolter, a Professional Corporation, has represented Lender, and not Borrower, in connection with the negotiation and preparation of this Agreement, the Note and security documents. Wood, Boykin & Wolter has represented Lender, and may continue to represent Lender in various matters, including but not limited to the enforcement of Lender's rights arising under this Loan Agreement, the Note and security documents and the defense of all claims asserted by Borrower against Lender, its officers, directors, agents and employees. Borrower consents to such representation of Lender, its directors, officers, agents and employees by Wood, Boykin & Wolter and to the giving of testimony by any employee of Wood, Boykin & Wolter in any such proceeding. Wood, Boykin & Wolter has also represented Borrower from time to time in various matters, other than this loan transaction, and Lender consents to such representation of Borrower by Wood, Boykin & Wolter. Lender and Borrower each represent that they have not disclosed any confidences to Wood, Boykin & Wolter that would adversely affect that firm's independent judgment and loyalty with respect to legal matters which it is now or will in the future be performing on behalf of each party, and that no party has or will reveal to such firm any confidences which that firm is not authorized to reveal to any other party hereunto.
2
7.12 Commitment Fee . A commitment fee of $500.00 shall be payable in connection with the extension of credit provided by this Amendment.
Except as amended hereby, all other provisions of the Loan Agreement shall remain in full force and effect and are hereby ratified and confirmed.
EXECUTED in multiple originals the date first set forth above.
THIS WRITTEN LOAN AGREEMENT AND THE PROMISSORY NOTES, SECURITY AGREEMENTS, GUARANTY AGREEMENTS AND OTHER LOAN DOCUMENTS EXECUTED BY THE PARTIES REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER: LENDER:
TOR MINERALS INTERNATIONAL, INC. AMERICAN BANK, N.A.
By: By:
Barbara Russell Phillip J.
Ritley
Chief
Financial Officer Senior
Lending Officer
3
EXHIBIT 10.32
PRIVATE AND CONFIDENTIAL
Our Ref :
CDA/MME/IPH/GWISCOP12018-103230025C/juma
CARM : 111202
TOR MINERALS (M) SDN BHD
No 4 1/2 Miles Lahat Road,
30200 Ipoh,
Perak.
Dear Sirs,
Banking Facility(ies) ("Facilities")
Customer No. 383-136280
We have reviewed your Facilities and agree to continue providing you the Facilities as revised below for a further period.
The Facilities are subject to review at any time, in any event by April 2012.
The Facilities are subject always to the Bank's customary overriding right of suspension, withdrawal and repayment on demand. Other terms herein also apply which may allow the Bank to cease providing the Facilities to you.
Please send us two signed/certified copies of your next set of audited account or where they are out of date (more than 6 months), updated management accounts are to be submitted before the review date mentioned above.
# This Combined Limit applies to each facility within this Line subject to total utilisation of this Line not exceeding the Combined Limit at any one time.
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Purpose :
Overdraft Working capital requirements. Term Loan To finance upgrading of existing production line and capex. Bank Guarantees For issuance of security deposit-/tender-/performance- bonds and other guarantee requirements related to your business.
Import Line To finance your imports and domestic purchases. Export Line To finance your exports and domestic sales. Export Credit Refinancing Scheme (Pre/Post Shipment) Pre-shipment ECR - as working capital for production of eligible goods for export. Post-shipment ECR - to finance export sales of eligible goods on credit terms upon shipment. Total Gross Foreign Exchange Contract Limit ( inclusive of marked-to-market losses incurred from time to time ) Spot and forward foreign exchange contracts and currency option transactions to hedge against fluctuations in foreign exchange rates for your trade-related and other permitted transactions as we may agree to.
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The Bank shall have no obligation to monitor or ensure the usage of the Facilities for their stated purpose(s). It shall have the right to recall the Facilities if not used for the purpose(s) stated.
The Facilities are also granted subject to satisfactory conduct of your current accounts in accordance with guidelines issued by Bank Negara Malaysia and/or policies of the Bank or other financial institutions you have current accounts with from time to time. If there is any breach which may subject any of your current accounts (be it with the Bank or other financial institution) to closure, the Bank shall have the right to recall the Facilities. This is notwithstanding that your current account(s) with the Bank whether held solely or jointly with others are conducted satisfactorily.
The Bank may rely on information furnished by the Credit Bureau established by Bank Negara Malaysia for information whether any of your current accounts have become liable to closure. Reliance by the Bank on such information shall not subject it to any liability to you or other parties should there be inaccuracy in such information unknown to the Bank.
Please arrange for your authorised signatories, in accordance with your company's Board Resolution (or similar corporate authorisation) given or to be given to the Bank, to sign this letter. Please return it together with the required documents before 2 March 2012 after which this offer will lapse, unless the Bank in its discretion agrees to any extension thereof.
We are pleased to be of assistance to you and look forward to the development of a mutually beneficial and lasting banking relationship including your opening and/or maintaining your main working capital / operating account with us. Should you have any query, please do not hesitate to contact our Lim Jit Foo at telephone no. 05-5226332.
Yours faithfully,
HSBC Bank Malaysia Berhad
Relationship Manager
Terms and Conditions
(Annexure to Letter of Offer
- to be read as an integral part thereof)
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Attestation
Our solicitors will contact you to arrange for attestation. |
Representations
and warranties:
1. You and companies within your Group are in compliance with all applicable environmental laws, regulations and guidelines ('environmental laws') in force from time to time in the place(s) where the business of your company and companies within your Group is/are conducted.
2. Where the Facilities include an Import/Export Line, you are in compliance with the Strategic Trade Act 2010 and undertake to obtain and/or ensure the continuing validity of the relevant permit(s) and/or broker registration certificate where required under the said Act prior to each utilization of the Import/Export Line.
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Covenants : You shall during the tenor of the facility: 1. inform the Bank regarding any management structure change/change in the composition of the Board/major shareholders in your business. 2. submit audited accounts on your business whenever requested by the Bank to do so. 3. inform the Bank of any significant internal or external business developments which may affect the financial position of your business. 4. ensure that audited financial statements submitted to the Bank shall be by external audit firms/partners acceptable to the Bank. The Bank shall have the right to require engagement of alternative external audit firms/partners if otherwise not acceptable, without assigning reason therefore. 5. Ensure that the ratio of Total Bank Borrowings to Tangible Networth (hereinafter known as "Gearing Ratio") calculated annually in accordance with the formula below, does not exceed 150% at all times. Formula: Gearing Ratio = Total Bank Borrowings Tangible Net Worth Tangible Networth is defined as aggregate of paid up share capital, profit and loss account and other reserves LESS Intangibles (such as goodwill). 6. Ensure that trade debts due from the holding company/any related company must not exceed 25% of total annual turnover or RM10,000,000.00 whichever is lower at the close of every financial year. 7. ensure not to declare or pay any dividend without the Bank's prior consent. 8. ensure no inter-company lending to holding company. 9. ensure a facility utilization ratio is to be maintained at not lesser than 70%. |
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Documents Required: 1) A suitable Board Resolution (or similar corporate authorisation) authorising:- a) the negotiation and acceptance of the Facilities; b) the provision of a cash cover/cash margin, on demand by the Bank, in respect of the Bank's contingent liabilities under the documentary credits/bank guarantees issued/to be issued by the Bank; c) the relevant named persons on your behalf to fix or extend foreign exchange transactions and as well as those confirming and/or authorising settlement thereof; -Foreign Exchange Contract Limit d) and the mode of execution on all relevant security documents in accordance with your Memorandum and Articles of Association. 2) To submit your next set of audited account or where they are out of date (more than 6 months), updated management accounts are to be submitted before the review date mentioned above. If at any time the Bank shall consider security for the Facilities to be insufficient or is required you shall within 14 days from the date of a notice from the Bank provide such security or further security as the Bank shall require, whether in cash or otherwise, of such value and for such tenure as the Bank shall specify. |
Conditions precedent
The Facilities shall only be available for drawing or utilisation if:
• no misrepresentation or breach of warranty made to the Bank express or implied has occurred;
• all fees, costs and expenses due and payable under the Facilities or under any of the Security Documents shall have been fully paid and settled;
• no Event of Default and no event which with the giving of notice or lapse of time would constitute an Event of Default shall have occurred or is continuing;
• the Bank shall have received all documents, opinions, certificates, or evidence of authorisations as it shall require;
Drawdown term and condition
The Term Loan will only made available subject to the following :-
i. Each disbursement is to be accordance with claim schedule and subject to production of original or
certified invoices or other documentary evidences and only 70% of the invoices are allowed.
ii. The Bank shall have received an executed copy of the Purchase/Contract Agreement.
The conditions precedent are for the sole benefit of the Bank, who may waive their compliance without prejudice to its rights herein or in any Security Document.
Waiver shall not preclude us from demanding that any waived provision be complied with or remedied subsequently. Waiver of a condition precedent shall not mean waiver of any other condition precedent or term.
Overdraft
Interest
• Interest is charged at 1.25% per annum at daily rests above the Bank's Base Lending Rate (presently at 6.60% per annum). The effective rate is therefore presently 7.85% per annum subject to fluctuations at our absolute discretion.
• Interest will be payable monthly, to the debit of your current account on every 26th day of the month, or as otherwise stipulated by the Bank.
• In the event the approved limit is exceeded, or if the Bank has demanded repayment of the overdraft, additional interest will be charged at one percentum (1%) per annum, or such other higher rate determined by the Bank from time to time, above the applicable rate of interest of the overdraft on the excess amount, or the amount outstanding and unpaid after demand for repayment, as the case may be.
• The additional interest shall accrue from day to day and may be debited to your current account but this shall not oblige the Bank to allow or continue to allow any excesses on your overdraft or shall be without prejudice to any right or remedy of the Bank arising upon demand for repayment, as the case may be.
• Interest due shall be capitalised and added for all purposes to the principal sum, and bear interest at the relevant applicable rate, notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship.
Commitment Fee
A commitment fee of 1.0% per annum will be charged on the unutilised portion of the overdraft facility as permitted under the Rules of the Association of Banks in Malaysia.
Repayment
The overdraft, in accordance with banking practice, is subject to the Bank's customary overriding right of repayment on demand. This shall be notwithstanding anything to the contrary herein contained and whether it is prior to the time for annual review.
Where the overdraft is recalled, it shall be your sole responsibility to immediately fund your account without any further notice to you from the Bank to meet any un-presented cheques in circulation to avoid such cheques being returned for lack or insufficiency of funds. In the event you fail to do so, the Bank shall be entitled to refuse to honour any such cheques still in circulation and shall not incur any liability to you whatsoever.
Term Loan
Interest
Interest is charged at 2.00% per annum at monthly rests above the Cost of Funds. (Quotations are obtainable on request). Interest will be payable monthly to the debit of your current account on the 26 th day of the month or on such other date as may be notified by the Bank from time to time to the debit of your current account or to another account(s) to be opened by the Bank for the purpose.
Late payment Interest
In the event of late payment of principal and/or interest, additional interest on the amount overdue will be charged at an additional 1.0% per annum over the above interest rate, from the due date until the date of payment.
Repayment
By 35 equal monthly instalments of RM97,223.00 (excluding interest) and a final instalment of RM97,195.00 commencing one month after full drawdown or 18 months after initial drawdown, whichever is the earlier.
Prepayment of Loan
You may prepay the loan or part thereof by giving the Bank three ( 3 ) months prior written notice of your intention to prepay or by paying three ( 3 ) months interest in lieu of notice.
Term Loan commitment fee
A commitment fee of 1% on the undrawn amounts under the Term Loan shall be chargeable where the Term Loan Schedule is not adhered to.
Utilisation
This loan must be drawn down by 6 months days from date of this letter and any portion not drawn down by such date shall be automatically cancelled and will not be further made available.
Documentary Credit
DC Opening Charges
At the prevailing rates prescribed by the Association of Banks in Malaysia, currently at 0.1% for each month or part thereof (minimum RM200-00).
Where a bill under a Documentary Credit is drawn at usance, in addition to the above, an opening charge on usance period of 0.1% is levied on the amount of the Documentary Credit for each month or part thereof.
The facility is subject to our right to call for cash cover/cash margin on demand for prospective and contingent liabilities under the documentary credits issued/to be issued by us.
Bankers Acceptance
Availability
We may, at our sole and absolute discretion, refuse to allow drawings under this Bankers Acceptance facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Bankers Acceptance facility.
Commission
Bankers Acceptance ( BA ) commission is charged at 1.25% per annum subject to fluctuations at the Bank's discretion.
Interest
Interest will be charged at a rate quoted by the Bank for the respective tenor at the time of discounting. Quotations are obtainable on request.
Sales proceeds of all BAs financed must be credited to your current account to meet payments on maturing BAs. Notwithstanding this , all BAs drawn must be paid on their respective maturity dates and if there is default in such payment, the matured BAs will be charged at:-
i) the maximum interest margin plus penalty (if any) prescribed by Bank Negara Malaysia from time to time; or
ii) the original discount rate plus a late payment fee of 1.0%; or
iii) the prevailing BA discounting rate plus a late payment fee of 1.0% effective on the day the BA goes into past due; or
iv) 3.5% per annum over our then prevailing Base Lending Rate, plus a late payment fee of RM150.00
whichever is the highest, for the period overdue.
Procedures for accepting or discounting BAs will be subject to the conditions and guidelines laid down from time to time by Bank Negara Malaysia or other statutory bodies.
Loans Against Imports
Availability
We may, at our sole and absolute discretion, refuse to allow drawings under this Loans Against Imports facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Loans Against Imports facility.
Interest is charged at 1.25% per annum at daily rests above our Base Lending Rate (presently at 6.60 % per annum). The effective rate is therefore presently at 7.85 % per annum subject to fluctuations at our absolute discretion and payable upon maturity of any bills drawn by us and accepted by you on all goods covered by the Loan Against Imports by debiting your account with all sums due to the Bank.
• In the event of late payment of bills, additional interest on the amount overdue will be charged at an additional 1.0% per annum over the prescribed interest rate, levied from due date until the date of payment.
• All interest due shall be capitalised and added for all purposes to the principal sum and bear interest at the relevant applicable rate notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship for whatever reason.
Foreign Currency Loans Against Imports (FCY LAI)
Availability
We may, at our sole and absolute discretion, refuse to allow drawings under this Foreign Currency Loans Against Imports facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Foreign Currency Loans Against Imports facility.
Interest and repayment
Interest on FCY LAI will be charged at 1.75 % per annum above the Bank's funding cost of the relevant currency, and payable upon maturity of all bills drawn by us and accepted by you on all goods covered under a Trust Receipt by debiting your foreign currency account or your Ringgit current account (at the prevailing foreign exchange rates) with all sums due to the Bank. Interest is calculated on a 360 or 365 day year as per the norm for the relevant particular currency.
In the event of late payment, additional interest on the amount overdue will be charged at an additional 1.0% per annum over the applicable interest rate, levied from due date until the date of payment.
Commission in lieu of Exchange
• Commission in lieu of Exchange of 0.1% (maximum of MYR500) will be levied for same currency settlement at the point of financing under a FCY LAI and/or at the point of payment of a FCY LAI using your FCY deposits.
• The FCY LAI financing is made available to you at your request and you will be responsible to bear the exchange risk for the life of the FCY LAI .
Early settlement
Premature settlement of the FCY LAI is normally not permitted. If an early retirement of FCY LAI is allowed, an appropriate compensation charge (conclusively calculated by the Bank) will be levied for exchange differences/costs.
We reserve our overriding right to demand for cash cover to cover any shortfall in view of exchange rate factors/variations.
In the event of prepayment, an amount equivalent to the funding loss shall be imposed. If the making of a repayment leaves a residual balance which is not in our opinion a marketable amount, the Bank may by notice in writing to you demand immediate repayment of such residue.
Export Credit Refinancing Scheme (Pre/Post Shipment)
Availability
We may, at our sole and absolute discretion, refuse to allow drawings under this Export Credit Refinancing Scheme (Pre/Post Shipment) facility if the drawee is considered by us to be unacceptable and/or if the transaction in question does not meet our operational requirements in respect of this Export Credit Refinancing Scheme (Pre/Post Shipment) facility.
Interest
Interest is charged at 1.00% above Export Import Bank of Malaysia Berhad's (Exim Bank) funding rate, currently at 3.25% per annum. The effective rate is therefore 4.25% per annum, subject to fluctuations at Exim Bank's discretion.
Procedures of the ECR Scheme are subject to conditions and guidelines laid down from time to time by Exim Bank.
Commission
Commission of not less than 0.10% per month (or part thereof) subject to a minimum of RM200.00 shall be charged for the full liability period (inclusive of any claims period) of Guarantees issued.
Where a Guarantee does not have a claims period, additional commission of not less than 0.10% per month shall be charged from the date of expiry to the date of return of the Guarantee or on receipt of notification from the beneficiary that the Bank is no longer liable under the Guarantee.
Content of Guarantees
• All Guarantees issued by us must bear an expiry date.
• We are at liberty to refuse to issue any particular guarantee which wording and effect is not acceptable to us.
• Amendments made to any Guarantee are for the Bank's own requirements only. In no case shall the Bank be obliged to advise or assess if any provisions therein are appropriate for you for the underlying transaction guaranteed.
Other Conditions
• Guarantees issued to or on behalf of non-residents are subject to exchange control regulations prevailing from time to time; it shall be your responsibility to ensure that any notification/registration requirements are complied with, unless the Bank expressly agrees to notify/register the same on your behalf.
• Financial Guarantees to be issued favouring non-residents shall be subject to your confirmation (which you deemed to give when applying for such Guarantees) that the underlying facility secured is obtained in compliance with the prevailing foreign exchange administration rules.
• Where the Bank agrees to transmit any Guarantee to the beneficiary, it shall be at the applicant's cost and the Bank shall not be liable for any failure or delay or loss in transit.
• Should a Guarantee issued be demanded on or become payable, we may immediately debit your account with the amount payable. You shall arrange to have funds available therefor.
The facility remains subject to our immediate right to settlement/cash cover on demand, as stated in the terms of your Counter Indemnity in the event of any claims being made under any Guarantee issued.
Nothing herein shall require payment demanded on a Guarantee to have been made by the Bank from its own funds before it is entitled to rely on any of its rights.
( inclusive of marked-to-market losses incurred from time to time )
Utilisation and determination of limit
The Bank reserves the right at its discretion to decide:
• whether or not any utilisation of the facility may be made; and
• to specify further conditions on which utilisation may be made.
The amount of any and each utilisation of the facility or the aggregate amount and value thereof for determining the available limit or if a call for cash cover is required shall be calculated by the Bank, whose calculation shall be conclusive.
Cash cover
• The Bank shall have an overriding right to call for cash cover on demand if in its view a negative foreign exchange position requires such cover, and/ or to close out any or all contracts outstanding at any time, without further reference to you and to demand settlement of the balance due.
• The right to call for cash cover is in addition to and without prejudice to any relevant rights contained in the English Law IFEMA / in any Master Agreement governing FX Transactions between you and the Bank.
Contract forms
FEX transactions are governed by the conditions appearing in and on the reverse of the standard contract form. You agree to check the same upon receipt, and sign the copy and return it to the Bank forthwith.
FEX transactions are subject to applicable Exchange Control Regulations as amended from time to time.
The determination whether the tenure or amount of any FEX transaction is permitted under the Exchange Control Regulations shall be made by the Bank in good faith, and shall be binding on you. The Bank shall have no liability to you as a result of any determination so made.
Where an FEX transaction is required to be registered with the Controller of Foreign Exchange, you shall be responsible to register the same (and provide evidence thereof as the Bank may require), unless the Bank had expressly agreed to submit the registration on your behalf.
If prior registration/permission is required before entering into a FEX transaction, the Bank may decline to enter into any such FEX transaction if you are unable to furnish such Controller registration/permission to the Bank.
All FEX transactions entered into between the parties shall be to hedge underlying trade transactions and other permitted purposes, and not for speculative purposes.
Either party may electronically record all telephonic conversations and any such tape recordings may be submitted in evidence in any proceedings for any purpose relating to an FEX transaction. Neither party shall be obliged to maintain such recordings for the availability of the other.
Upon request, you shall provide the Bank with documentary evidence of underlying commitments to support the FEX transactions.
This may be required before transacting or at any time prior to the maturity of the FEX transaction, whether the FEX transaction is based on a firm commitment or on anticipatory basis. Satisfactory documentary evidence may also be required where you seek to cancel or extend any FEX transaction.
The Bank shall have the right to unwind or cancel any FEX transactions immediately if the underlying contract therefore does not materialise, or if satisfactory documentary evidence is not furnished when requested.
Without prejudice to anything herein contained, the Bank reserves the right (and without need for reference to you) to:
• reduce the amount of a FEX transaction where the amount of receipts/payments on the underlying transaction for firm hedges is reduced to less than the amount of the FEX transaction;
• adjust the maturity date of a FEX transaction where the Bank is satisfied that the due or expected date of payment/receipt of the underlying transaction for firm hedges has changed, provided always that the new maturity date does not exceed the period permitted under exchange control and other relevant rules/laws;
and any differences arising therefrom shall be payable by you and may be debited to your current or other accounts notwithstanding that the day originally stipulated for settlement may not have arrived.
The Bank is obliged to report any cancellation of FEX transactions or if it is of the view that the proceeds thereof are not used for the intended purpose or where otherwise required by the Controller under prevailing Exchange Control Regulations.
Master Agreement
In the absence of an executed agreement governing the FEX transactions, the latest published English Law IFEMA terms shall apply. Each utilisation of the Foreign Exchange Contract Limit (whether or not the relevant IFEMA Document has been signed) shall be deemed to be subject to and shall be subject to the English Law IFEMA terms unless the relevant Confirmation/contract specifies to the contrary.
In the event of any conflict between the terms of this facility letter, those of the English Law IFEMA and the standard contracts terms, the terms shall prevail in the following order:-
(a) the terms of the latest published English law IFEMA (a copy is available on request)
(b) the terms of this facility letter; and lastly
(c) the standard contract terms.
The Bank shall have the right to set-off from or debit any amount due from any of your accounts with the Bank and/or the HSBC Group.
The Bank may charge a facilities management fee annually (for assessing and tailoring facilities to suit changing requirements of customers) or upon amendment of existing facilities, which charges shall be paid before any of the facilities are utilised and if remaining unpaid shall be debited without further notice to your current/disbursement/other account opened by the Bank for the purpose. Notwithstanding these charges, the Bank reserves the absolute discretion to exercise its remedies provided hereunder and/or whether to grant, vary, restructure, adjust or otherwise modify any facility or its terms, and/or temporary excess or temporary drawing against uncleared effects.
Notwithstanding anything to the contrary, the Bank may in its absolute discretion without discharging any of your liabilities herein and/or under the security documents vary or add to the terms herein.
Variations include, but are not limited to
Except for fluctuations to the Base Lending Rate or otherwise expressly provided, variations or additions shall take effect upon notice to you.
Without prejudice to our customary overriding right of repayment on demand, the Facilities may be immediately suspended or terminated and all sums (including contingent sums) payable on demand in the event:‑
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a) you default in the payment of any sum due under the Facilities (whether instalments, interest or otherwise); or b) you have given incomplete, misleading or incorrect material information to the Bank in relation to procuring the provision or continued provision of the Facilities, or your account is conducted in an unsatisfactory manner; or c) you fail to observe or perform any of your covenants or obligations to the Bank; or d) a petition is presented and not withdrawn or stayed by an order of Court within a period of thirty (30) days of its presentment or an order is made or resolution passed for your winding-up, dissolution or liquidation; or e) you commence a meeting for the purpose of making or proposing and/or entering into any arrangement with or for the benefit of your creditors; or f) a receiver or other similar officer is appointed over the whole or any part of your assets or undertaking; or g) you cease or threaten to cease to carry on business or are unable to pay your debts, or dispose or threaten to dispose of the whole or a substantial part of your undertaking or assets; or h) for any reason any guarantee or security given for the repayment of the Facilities shall be challenged, terminated or lapse for any reason whatsoever or if the guarantor or security provider shall be in default under the terms of such guarantee or security or dies or becomes of unsound mind or is wound up or commits any act of bankruptcy or similar; or i) you allege that all or a material part of these terms or any security document have ceased to be of full force or effect; or j) any of your other indebtedness to us or any third party or parties becomes capable in accordance with the relevant terms thereof of being accelerated in repayment or declared due prematurely by reason of your default or your failure to make any payment in respect thereof on the due date for each payment or if due on demand when demanded or any security for such indebtedness becomes enforceable; or k) where the purpose of the facility is to finance acquisition of property, you or any other party to the sale and purchase agreement commits or threatens to commit a breach of any term, stipulation, covenant or undertaking contained in such agreement, or if a petition is presented for the winding-up of the developer of the property (where applicable) being financed; or l) if your company, any security provider or a Related Corporation (as defined in the Companies Acts 1965) is under investigation under the provisions of Part IX of the Companies Act 1965 or any securities legislation and regulations in force from time to time; or m) in the Bank's opinion, there is any change or threatened change in circumstances which would materially and adversely affect your company's business or financial condition or the ability to perform your obligations under this letter or any other agreement with the Bank, including, if your company is not a listed entity, any change or threatened change in your shareholders or directors, or if your company is a listed entity, any change or threatened change in your single largest shareholder or directors; or n) in the Bank's opinion, there is any change or threatened change in circumstances which materially and adversely affect the ability of any guarantor or security provider to perform its obligations under any security given to the Bank; or o) any applicable law or regulations or their interpretation or application is amended or changes, making it unlawful for the Bank to comply with its obligations herein or to allow the Facilities to continue to be outstanding. |
The events of default are more comprehensively dealt within the security documentation.
If there are circumstances likely to lead to events of default among other things due to irregularities in your financial affairs or your inability to meet your indebtedness to us it is proposed that you contact us for an early appraisal of your commitment.
Other Terms and Conditions
a) Payment of outgoings for property charged as security (where applicable)
You undertake to forward us on a regular basis for our records, the receipts you receive for payments of quarterly Municipal Assessment and Annual Quit Rent in respect of the property charged.
b) Availability
Availability of the Facilities is subject to legal documentation having been completed to the satisfaction of the Bank. If security documentation cannot be perfected for any reason within 3 months of the acceptance date of this Letter, the Bank reserves the right to withdraw the Facilities offered without further reference to you. In any event, any part of the Facilities not drawn down within 12 months from the date hereof shall be automatically cancelled.
c) Fees and charges
The Bank shall charge at its absolute discretion, where applicable, fees as follows:
• Facility Arrangement Fee; and/or
• Facility Management Fee;
which charges shall be paid before any Facilities is utilised and if remaining unpaid shall be debited without further notice to your current/disbursement/other account whether or not opened by the Bank for the purpose. Please refer to the Bank's standard Tariff and Charges (available for download at www.hsbc.com.my) subject to variation from time to time. If there is any conflict between the said Tariff and Charges and any fees and charges specifically stated herein, the fees and charges specifically stated herein shall prevail. (If you are a "small and medium enterprise" within the National SME Development Council's definition, such fees and charges shall not apply to you.)
Notwithstanding these charges, the Bank reserves the absolute discretion whether to grant or otherwise any facility, restructuring / adjustment of facility and/or temporary excess or temporary drawing against uncleared effects.
d) Legal expenses and other charges
All stamp duty and solicitors' fees that is payable (assessed on a 'solicitor and client' basis) incurred by the Bank:
i) in connection with or incidental to the provision of the Facilities; and/or
ii) in its enforcement of its rights under any of the Facilities or any security provided;
shall be payable by you.
Such amounts may be debited without prior notice to your current or other account(s) or a disbursement/suspense account opened by the Bank for the purpose.
e) Insurance of property charged as security (where applicable)
The insurable risks of your business and the properties charged or secured to the Bank are to be arranged by the Bank and insured with HSBC Amanah Takaful (Malaysia) Sdn Bhd or the Bank's other panel insurers. If you and/or the chargor are not agreeable to such insurance with HSBC Amanah Takaful (Malaysia) Sdn Bhd, kindly advise your Relationship Manager or the Bank's Corporate Credit Administration Department.
If you, or the proprietor, as the case may be, fails to insure or fails to continue to insure the properties, the Bank may but shall not be under any duty to, take up or pay the premium for such insurance and any moneys expended thereto may be debited to any of your accounts with the Bank.
f) Inspection and valuation of property charged as security (where applicable)
Inspection and valuation of any property charged or forming security shall be at least once in every two years by us or by a firm on the Bank's panel of valuers, the cost in connection therewith being for your account.
g) Security denominated in foreign currency (where applicable)
In the case of foreign currency denominated security, the rate of exchange to be applied for the conversion of such currency shall be our spot rate of exchange (as conclusively determined by us) for purchasing such currency on the date of settlement and in the event of a shortfall you will promptly pay to us such additional amount as makes the net amount received by us equal to the full amount payable by you or the security provider, as the case may be.
h) Withholding or deduction
All payments by you under the Facilities are to be made in immediately available funds free and clear of and without any withholding or deduction for any and all present or future taxes, duties or other such levies.
If you are compelled by law to make any such withholding or deductions you will pay to us such additional amounts required to enable us to receive the amount which would be payable if no such withholding or deduction had been required.
You shall provide us with evidence that such taxes, duties or other such levies have been paid by forwarding us official receipts within 30 days of payment.
i) Maintenance of shareholding (applicable if third party security, guarantee and/or letter of awareness is provided by the borrower's related company)
The relevant related company of the Borrower within the same group of companies shall undertake not to divest its shareholding or any part thereof in the Borrower or the security provider or guarantor (as applicable) without first obtaining the Bank's consent.
j) Increased costs
If the effect of any, or a change in any, law or regulation is to increase the cost to us of advancing, maintaining or funding this Facilities or to reduce effective return to us, we reserve the right to require payment on demand of such amounts as we consider necessary to compensate us therefore.
k) Non- contravention of legislation prohibiting connected party lending
Please note that applicable banking legislation has imposed certain prohibitions on our providing banking facilities to persons related to our officers, directors or employees, and that of our holding company, The Hong Kong and Shanghai Banking Corporation Limited (incorporated in Hong Kong SAR). These are section 62 of the Banking and Financial Institutions Act 1989 ("BAFIA") read with the Guidelines on Credit Transactions and Exposures with Connected Parties issued by Bank Negara Malaysia, and also Section 83 of the Banking Ordinance of Hong Kong SAR (collectively, the "Prohibitions").
In acknowledging/accepting this Letter you are to advise us whether you are in any way connected to any of our officers, directors or employees, and/or the directors or employees of The Hong Kong and Shanghai Banking Corporation Limited within the meaning of the Prohibitions, and in the absence thereof, you represent you are not so connected.
You are required to immediately advise the Bank in writing should such relationships creating a prohibited lending under the aforesaid Prohibitions be established subsequent to the acceptance of the Facilities.
(Please note that for the purposes of the BAFIA, "officer" encompasses "any employee of the financial institution" and that "director" and "officer" also includes a spouse, child or parent of a director or officer. The texts and summary clarifications of these Prohibitions will be made available upon request.)
l) Terms and conditions in other documentation
• Other terms and conditions as contained in the Bank's legal or security documentation executed or to be executed by you shall apply.
• For avoidance of doubt, additional, modified, or other terms and conditions to those stated herein may be advised by our solicitors and may be contained in those other documents when formalising such documentation on our behalf.
• You are to carefully read and understand all terms and should obtain independent legal advice thereto before signing.
m) Default/Late Payment Interest not otherwise provided for
Where a specific default, excess or late payment interest rate is not otherwise provided for under the terms of any specific facility, the Bank may charge the following for any payments that are overdue, or if payable on demand, from the date the amount is stated to be due pursuant to such demand:
• For Ringgit-denominated facilities or amounts, or after any amounts due in other currencies are converted to Ringgit
1% per annum above the interest rate applicable for the particular facility, or if none, 3.5 % above the Bank's prevailing Base Lending Rate or such other rate as may be determined by the Bank from time to time.
• For non-Ringgit-denominated facilities or amounts, before the amounts due are converted to Ringgit
1% per annum above the interest rate applicable for the particular facility, or if none, 3.5% above the Bank's prevailing Cost of Funds (for such tenor as selected by the Bank) or such other rate as may be determined by the Bank from time to time.
Such interest shall be capitalised and added for all purposes to the principal or overdue sum, as the case may be for that facility, and shall bear interest at the relevant applicable rate notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship for whatever reason and before as well as after judgment.
n) Priorities
Subject to the provision of the security documents (where applicable), if any amount received or recovered in respect of your liabilities hereunder or any part thereof is less than the amount then due, the Bank shall apply that amount to interest, profit, principal or any other amount then due and payable in such proportions and order of priority and generally in such manner as the Bank may determine.
o) Repayments generally and ascertaining of limits
Unless otherwise provided, interest due shall be capitalised and added for all purposes to the principal sum and shall bear interest at the relevant applicable rate notwithstanding any demand by the Bank and/or cessation of the banker and customer relationship for whatever reason and before as well as after judgment.
Any amounts of interest or other non-principal sums debited to your accounts which is capitalised shall be not affect the determining whether the principal limit under any security given for the Facilities has been exceeded or not.
p) Bankers common law rights applicable
We may combine, consolidate or merge all or any of your accounts and may set off or transfer any sum outstanding to the credit of any such accounts with our Bank in or towards the satisfaction of any of your liabilities under the Facilities.
The Bank may also debit any of your accounts in respect of amounts payable under any security documents or security for the Facilities if the security party fails to make any required payments thereunder.
q) Conclusive evidence
A certificate signed by an officer of the Bank as to any amount(s) payable hereunder shall be conclusive evidence save for manifest error.
r) Disclosure and use of information
You consent to the Bank disclosing information relating to you, the Facilities, your accounts and other facilities presently held, or which may subsequently be opened or obtained ("Information") to:
i) any person it considers necessary:
A) in providing the Facilities or other services;
B) as part of its operating procedures (including its accounting, client relationship and risk management functions),
including to members of the HSBC Group (in or outside Malaysia), any service provider (including debt collection agencies) or other third party;
ii) any bureaus or agencies established by Bank Negara Malaysia or by other regulatory authorities, including the Central Credit Reference Information System - "CCRIS" and the Credit Bureau Malaysia;
iii) the Controller of Foreign Exchange;
iv) any authority, central depository or depository agent in relation to the securities industry, where relevant
v) the Association of Banks in Malaysia;
vi) the Bank's potential assignees;
vii) any of your present or prospective guarantors or security providers;
viii) any person the Bank believes in good faith to be tendering payment of monies on your behalf.
Information may be used, stored, transferred, compiled, matched or exchanged by or with any of the parties mentioned above ('Users').
Information shall be kept confidential by the Users, unless disclosure is required under any laws or regulations which apply to a User.
When the Bank provides or obtains any Information, it takes utmost care in compiling, collating or processing the Information. The Customer agrees that as long as the Bank acts in good faith, it and its officers shall not be liable for any loss or damage (whether indirect, consequential or punitive) or any monetary loss to you or any other person for any inaccuracy, incompleteness or authenticity of the Information the Bank provides or relies on and whether caused by any technical, hardware or software failure of any kind, interruption, error, omission, delay, viruses, act of God, act of war or terrorism, strikes, industrial action or otherwise.
The Bank, as part of its procedures in granting or continuing to grant banking and/or credit facilities and services to its customers may conduct credit and other financial checks and verify customer and/or security party information from time to time from various selected sources. You consent to such checks being conducted.
The consents given shall be irrevocable.
s) Credit Reporting Agency
You consent to:
(i) the Bank to carrying out credit checks and obtaining credit reports and information on your business and/or your company including on all partners, directors, shareholders, guarantors and security providers (as applicable) (collectively, " Data Subjects ") from the Credit Bureau Malaysia and any other registered credit reporting agency; and
(ii) the Credit Bureau Malaysia sourcing and retaining information on your business and/or your company and all Data Subjects from any available data source, and disclosing to the Bank any such information as may be requested by the Bank.
You warrant that you have been irrevocably authorised by the Data Subjects to give this consent on their behalf.
t) Notices
• Any notice demand or request may be given by ordinary or registered post (not being AR registered post) sent to you at its address herein stated or to your last known address and such notice shall be deemed to have been duly served three (3) days after it is posted notwithstanding that it is returned by the postal authorities undelivered.
• Notice as to fluctuation of the Base Lending Rate, variation of interest, commission, fees and all other bank charges may also be effected by a notification of the variation in the periodic statements furnished to you from time to time or by way of an unsigned notice or letter produced by the Bank's computer or by way of advertisement in any newspaper or by notification at any of the Bank's premises or in such manner we deem fit and such variation shall take effect from the date stipulated therein.
u) Payments received to be in gross
All monies received for the purpose of being applied in reduction of any monies owing to the Bank (whether from payments received or from the realisation of any security or otherwise) shall be treated as payments in gross and not as appropriated or attributed to any specific part or item of the monies owing to the Bank, even if appropriated thereto by any person otherwise purportedly entitled to so appropriate.
v) Suspense account
In the advent of any liquidation or analogous thereto, any monies received by the Bank in respect of the Facilities or any security granted may be kept to the credit of a non-interest bearing suspense account for such terms as the Bank deems fit without any obligation in the meantime to apply the same or any part thereof towards settlement of any liabilities due, and the Bank may prove for and agree to accept any distributions in respect of the whole or any part of such money and liabilities in the same manner as if no security had been created.
w) Remedies concurrent
The Bank shall have the right to exercise any rights or remedies available to it under this letter, any security or otherwise (including pursuing any right of sale or possession) against you or any party providing security for the Facilities concurrently or successively as it may consider appropriate.
x) Severability
If any provision herein is or becomes prohibited or unenforceable by law or any applicable regulations, the remaining Terms shall remain valid and enforceable and/or continue to be valid and enforceable in any other jurisdiction where the law provides that it is valid.
y) Exercise of remedies
The Bank may exercise any right, power or remedy it may have, whether it is stated here or conferred upon it by law even after a delay.
All rights and powers of the Bank in law or equity are exercisable even if they overlap with any rights and powers in these Terms.
If the Bank does not act when it is entitled to, that does not mean it:
i) has agreed to your breach; or
ii) has given up its right; or
iii) is prevented from acting later.
Where the Bank has expressly waived a default by you, this shall not impair any right, power or remedy of the Bank for any of your other defaults, whether occurring prior or subsequent to the waiver.
aa) Interpretation
Unless the context otherwise requires:
• words importing the singular number include the plural and vice versa and reference to any gender includes all genders;
• reference to 'facility' shall mean a facility comprised within the Facilities
• references to "the Bank", "we", or "our" in this letter shall be understood to refer to HSBC Bank Malaysia Berhad.
The headings herein are for convenience and shall not affect construction of the terms of this letter.
Where there are two (2) or more persons comprising the borrower, whether in partnership or otherwise, all covenants and terms shall be made by and be binding upon them jointly and severally.
bb) Governing law
Except where expressly provided otherwise for any facility, the terms herein shall be governed by and interpreted in accordance with the laws of Malaysia and the parties agree that the Malaysian courts shall have non-exclusive jurisdiction. The parties irrevocably waive any assertion of forum non conveniens to resolution of dispute in the Malaysian courts.
cc) Successors and assigns
This letter shall be binding upon your heirs estate personal representatives and successors in title and on the successors in title and assigns of the Bank. You shall not assign any of your rights or obligations hereunder. Unless expressly agreed otherwise by us, we may assign or transfer all or any part of our rights, benefits and/or obligations under this facility letter or in respect of any of the facilities, and any security provided thereto, to any person by delivering to you a notice in writing, or where required, by entry into more formal agreements (which you hereby agree to execute if so requested by the Bank). Such transfer shall take effect as from the effective date specified in the notice or agreement and we shall thereafter be released from such rights, benefits and/or obligations.
*** END OF ANNEXURE ***
We have viewed the foregoing terms of this Letter including the Annexure(s) and agree to the terms thereto.
We acknowledge that notwithstanding anything to the contrary herein contained and whether it is prior to the time for annual review the Facilities may be reviewed at any time and are subject to the Bank's overriding right of suspension, withdrawal and repayment on demand, as well as the right to call for cash cover or other acceptable security on demand (which shall be in addition, and not subject to, any similar right stipulated for any of the Facilities). Nothing contained in this Letter shall be deemed to impose on the Bank any obligation to make or to continue to make available the Facilities or any advances thereunder to us. We also acknowledge that in the event of a recall of an overdraft facility, we shall be obliged to immediately fund our overdraft account with sufficient funds to meet any un-presented cheques still in circulation and that the Bank is under no obligation whatsoever to issue any notices or requests to us to do so. Any failure on our part to do so will entitle the Bank to refuse payment on such cheques, for which the Bank shall not be liable to us in any way whatsoever.
We confirm our acceptance of the Facilities and that the Bank's agreement to provide us with the Facilities will not contravene a) the provisions of Section 62 of the Banking and Financial Institutions Act 1989 read with BNM's Guidelines on Credit Transactions and Exposures with Connected Parties, and b) Section 83 of the Banking Ordinance of the Hong Kong Special Administrative Region ('Prohibitions').
We acknowledge the Bank's right to recall the Facilities in the event of any contravention of the said Prohibitions.
We further agree that your Letter embodies in writing all the terms for the Facilities to be granted to us and hereby confirm that any warranties, promises, representations or collateral agreements that may have been made to us, orally or otherwise by you in the course of the pre-contractual negotiations which have not now been included in this Letter shall hereafter be deemed to have lapsed and not legally binding upon you nor shall it be raised as a defence or to support any claim by us in any legal proceedings.
We are responsible for assessing the terms in this Letter and the Facilities and shall seek our own independent legal advice on them.
We acknowledge that we will be opening and/or maintaining my/our main working capital / operating account with you.
It shall be our sole responsibility to register any foreign currency facility granted where it is required to be registered with the Controller of Foreign Exchange before drawdown, in accordance with the Exchange Control Notices. Where we propose to make any prepayments for any foreign currency facility before its due date, it shall be our sole responsibility to register such prepayments with the Controller of Foreign Exchange where required by the Exchange Control Notices.
We undertake that all our FEX transactions shall be to hedge underlying trade transactions and other permitted purposes, and not for speculative purposes. Our FEX transactions shall be in compliance with Malaysian Exchange Control Regulations and supported by appropriate documentation which may be required by the Bank. We acknowledge that where we enter into any FEX transaction, we shall do so in reliance only upon our own judgment and assessment and obtain our own independent advice and not in reliance on any advice of the Bank or its personnel in accordance with Section 7 of IFEMA terms.
.s/s Olaf Karasch
OLAF KARASCH.
Authorised signatories and Company's Chop
Date: MARCH 2, 2012