Table
of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31,
2009
OR
o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
.
Commission file number 001-14775
DYNAMIC
MATERIALS CORPORATION
(Exact
name of Registrant as Specified in its Charter)
Delaware
|
|
84-0608431
|
(State of Incorporation or Organization)
|
|
(I.R.S. Employer Identification No.)
|
5405 Spine Road, Boulder, Colorado 80301
(Address
of principal executive offices, including zip code)
(303) 665-5700
(Registrants
telephone number, including area code)
Indicate
by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the
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
x
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
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act. Large accelerated filer
o
Accelerated
filer
x
Non-accelerated
filer
o
(Do
not check if smaller reporting company) Smaller reporting
company
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
under the Act). Yes
o
No
x
The
number of shares of Common Stock outstanding was 12,851,377 as of April 30,
2009.
Table of Contents
CAUTIONARY NOTE ABOUT FORWARD-LOOKING
STATEMENTS
This
quarterly report on Form 10-Q contains forward-looking statements within
the meaning of section 27A of the Securities Act of 1933 and section 21E of the
Securities Exchange Act of 1934. In particular, we direct your attention to Part I,
Item 1- Condensed Consolidated Financial Statements; Item 2 - Managements
Discussion and Analysis of Financial Condition and Results of Operations; Item
3 - Quantitative and Qualitative Disclosures About Market Risk; and Part II,
Item 1A Risk Factors. We intend the forward-looking statements throughout
this quarterly report on Form 10-Q and the information incorporated by
reference herein to be covered by the safe harbor provisions for
forward-looking statements. Statements contained in this report which are not
historical facts are forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. All projections, guidance and other statements regarding our
expected financial position and operating results, our business strategy, our
financing plans and the outcome of any contingencies are forward-looking
statements. These statements can sometimes be identified by our use of
forward-looking words such as may, believe, plan, anticipate, estimate,
expect, intend, and other phrases of similar meaning. The forward-looking
information is based on information available as of the date of this quarterly
report and on numerous assumptions and developments that are not within our
control. Although we believe that our expectations as expressed in these
forward-looking statements are reasonable, we cannot assure you that our
expectations will turn out to be correct. Factors that could cause actual
results to differ materially include, but are not limited to, the following:
the ability to obtain new contracts at attractive prices; the size and timing
of customer orders and shipment; our ability to realize sales from our backlog;
fluctuations in customer demand; fluctuations in foreign currencies;
competitive factors; the timely completion of contracts; the timing and size of
expenditures; the timely receipt of government approvals and permits; the price
and availability of metal and other raw material; the adequacy of local labor
supplies at our facilities; current or future limits on manufacturing capacity
at our various operations; the availability and cost of funds; and general
economic conditions, both domestic and foreign, impacting our business and the
business of the end-market users we serve. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect managements
analysis only as of the date hereof. We undertake no obligation to publicly
release the results of any revision to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
2
Table of Contents
Part I
- FINANCIAL INFORMATION
ITEM 1.
Condensed Consolidated Financial Statements
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(Dollars in Thousands)
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
16,278
|
|
$
|
14,360
|
|
Accounts receivable, net of allowance for
doubtful accounts of $493 and $614, respectively
|
|
36,545
|
|
34,719
|
|
Inventories
|
|
36,497
|
|
35,300
|
|
Prepaid expenses and other
|
|
2,289
|
|
2,956
|
|
Related party receivable and loan
|
|
2,370
|
|
2,611
|
|
Current deferred tax assets
|
|
1,012
|
|
1,103
|
|
|
|
|
|
|
|
Total current assets
|
|
94,991
|
|
91,049
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
58,194
|
|
58,454
|
|
Less - Accumulated depreciation
|
|
(18,938
|
)
|
(17,997
|
)
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
39,256
|
|
40,457
|
|
|
|
|
|
|
|
GOODWILL, net
|
|
40,176
|
|
43,066
|
|
|
|
|
|
|
|
PURCHASED INTANGIBLE ASSETS, net
|
|
47,773
|
|
52,264
|
|
|
|
|
|
|
|
DEFERRED TAX ASSETS
|
|
535
|
|
331
|
|
|
|
|
|
|
|
OTHER ASSETS, net
|
|
1,372
|
|
1,449
|
|
|
|
|
|
|
|
INVESTMENT IN JOINT VENTURES
|
|
744
|
|
970
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
224,847
|
|
$
|
229,586
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
4
Table of Contents
DYNAMIC
MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Dollars
in Thousands, Except Share Data)
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
Accounts payable
|
|
$
|
16,863
|
|
$
|
15,402
|
|
Accrued expenses
|
|
4,884
|
|
6,605
|
|
Accrued income taxes
|
|
2,026
|
|
846
|
|
Accrued employee compensation and benefits
|
|
3,866
|
|
5,579
|
|
Customer advances
|
|
1,620
|
|
2,685
|
|
Related party accounts payable
|
|
21
|
|
17
|
|
Lines of credit - current
|
|
1,429
|
|
|
|
Current maturities on long-term debt
|
|
10,316
|
|
14,450
|
|
Current portion of capital lease
obligations
|
|
81
|
|
163
|
|
|
|
|
|
|
|
Total current liabilities
|
|
41,106
|
|
45,747
|
|
|
|
|
|
|
|
LINES OF CREDIT
|
|
2,800
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT
|
|
44,935
|
|
46,178
|
|
|
|
|
|
|
|
CAPITAL LEASE OBLIGATIONS
|
|
315
|
|
336
|
|
|
|
|
|
|
|
DEFERRED TAX LIABILITIES
|
|
15,292
|
|
16,833
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES - RELATED PARTY
|
|
318
|
|
303
|
|
|
|
|
|
|
|
OTHER LONG-TERM LIABILITIES
|
|
1,452
|
|
1,687
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
106,218
|
|
111,084
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
Preferred stock, $.05 par value; 4,000,000
shares authorized; no issued and outstanding shares
|
|
|
|
|
|
Common stock, $.05 par value; 25,000,000
shares authorized; 12,851,377 and 12,780,877 shares issued and outstanding,
respectively
|
|
643
|
|
639
|
|
Additional paid-in capital
|
|
43,137
|
|
42,050
|
|
Retained earnings
|
|
82,958
|
|
78,042
|
|
Other cumulative comprehensive income
(loss)
|
|
(8,109
|
)
|
(2,229
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
118,629
|
|
118,502
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
224,847
|
|
$
|
229,586
|
|
The accompanying notes are an integral part
of these Condensed Consolidated Financial Statements.
5
Table
of Contents
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Dollars in Thousands, Except Share Data)
(unaudited)
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
NET SALES
|
|
$
|
49,759
|
|
$
|
58,393
|
|
|
|
|
|
|
|
COST OF PRODUCTS SOLD
|
|
34,431
|
|
40,682
|
|
|
|
|
|
|
|
Gross profit
|
|
15,328
|
|
17,711
|
|
|
|
|
|
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
General and administrative expenses
|
|
3,526
|
|
3,119
|
|
Selling expenses
|
|
2,324
|
|
2,841
|
|
Amortization expense of purchased
intangible assets
|
|
1,183
|
|
2,361
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
7,033
|
|
8,321
|
|
|
|
|
|
|
|
INCOME FROM OPERATIONS
|
|
8,295
|
|
9,390
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE):
|
|
|
|
|
|
Other expense
|
|
(117
|
)
|
(149
|
)
|
Interest expense
|
|
(902
|
)
|
(1,279
|
)
|
Interest income
|
|
65
|
|
239
|
|
Equity in earnings (losses) of joint
ventures
|
|
(49
|
)
|
16
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
7,292
|
|
8,217
|
|
|
|
|
|
|
|
INCOME TAX PROVISION
|
|
2,376
|
|
2,972
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
4,916
|
|
$
|
5,245
|
|
|
|
|
|
|
|
INCOME PER SHARE:
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
$
|
0.42
|
|
Diluted
|
|
$
|
0.38
|
|
$
|
0.41
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
-
|
|
|
|
|
|
Basic
|
|
12,527,452
|
|
12,377,019
|
|
Diluted
|
|
12,569,879
|
|
12,521,736
|
|
The accompanying notes are in integral part of these Condensed
Consolidated Financial Statements.
6
Table of Contents
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2009
(Amounts in Thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Cumulative
|
|
|
|
Comprehensive
|
|
|
|
Common Stock
|
|
Paid-In
|
|
Retained
|
|
Comprehensive
|
|
|
|
Loss
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Earnings
|
|
Loss
|
|
Total
|
|
for the Period
|
|
Balances, December 31, 2008
|
|
12,781
|
|
$
|
639
|
|
$
|
42,050
|
|
$
|
78,042
|
|
$
|
(2,229
|
)
|
$
|
118,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for stock option
exercises
|
|
70
|
|
4
|
|
232
|
|
|
|
|
|
236
|
|
|
|
Excess tax benefit related to stock options
|
|
|
|
|
|
57
|
|
|
|
|
|
57
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
798
|
|
|
|
|
|
798
|
|
|
|
Net income
|
|
|
|
|
|
|
|
4,916
|
|
|
|
4,916
|
|
4,916
|
|
Derivative valuation adjustment, net of tax of $22
|
|
|
|
|
|
|
|
|
|
38
|
|
38
|
|
38
|
|
Change in cumulative foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
(5,918
|
)
|
(5,918
|
)
|
(5,918
|
)
|
Balances, March 31, 2009
|
|
12,851
|
|
$
|
643
|
|
$
|
43,137
|
|
$
|
82,958
|
|
$
|
(8,109
|
)
|
$
|
118,629
|
|
$
|
(964
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
7
Table of Contents
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Dollars in Thousands)
(unaudited)
|
|
2009
|
|
2008
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
4,916
|
|
$
|
5,245
|
|
Adjustments to reconcile net income to net
cash provided by operating activities -
|
|
|
|
|
|
Depreciation (including capital lease
amortization)
|
|
1,267
|
|
1,113
|
|
Amortization of purchased intangible assets
|
|
1,183
|
|
2,361
|
|
Amortization of capitalized debt issuance
costs
|
|
69
|
|
60
|
|
Stock-based compensation
|
|
798
|
|
664
|
|
Deferred income tax benefit
|
|
(605
|
)
|
(1,174
|
)
|
Equity in (earnings) losses of joint
ventures
|
|
49
|
|
(16
|
)
|
Change in -
|
|
|
|
|
|
Restricted cash
|
|
|
|
377
|
|
Accounts receivable, net
|
|
(2,702
|
)
|
5,968
|
|
Inventories
|
|
(2,721
|
)
|
(670
|
)
|
Prepaid expenses and other
|
|
460
|
|
(580
|
)
|
Accounts payable
|
|
2,388
|
|
(3,837
|
)
|
Customer advances
|
|
(961
|
)
|
(2,144
|
)
|
Accrued expenses and other liabilities
|
|
(904
|
)
|
(118
|
)
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
3,237
|
|
7,249
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Acquisition of property, plant and
equipment
|
|
(1,170
|
)
|
(2,361
|
)
|
Change in other non-current assets
|
|
8
|
|
15
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(1,162
|
)
|
(2,346
|
)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
8
Table of Contents
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(Dollars in Thousands)
|
|
2009
|
|
2008
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Payment on syndicated term loans
|
|
(3,862
|
)
|
|
|
Payment on Nord LB term loans
|
|
(233
|
)
|
(265
|
)
|
Borrowings on bank lines of credit, net
|
|
4,215
|
|
3,665
|
|
Payment of capital lease obligations
|
|
(71
|
)
|
(105
|
)
|
Payment of deferred debt issuance costs
|
|
(19
|
)
|
(125
|
)
|
Change in other long-tem liabilities
|
|
|
|
16
|
|
Net proceeds from issuance of common stock
to employees and directors
|
|
236
|
|
93
|
|
Excess tax benefit related to exercise of
stock options
|
|
57
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
323
|
|
3,279
|
|
|
|
|
|
|
|
EFFECTS OF EXCHANGE RATES ON CASH
|
|
(480
|
)
|
383
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
1,918
|
|
8,565
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, beginning of the
period
|
|
14,360
|
|
9,045
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, end of the period
|
|
$
|
16,278
|
|
$
|
17,610
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these Condensed
Consolidated Financial Statements.
9
Table of Contents
DYNAMIC MATERIALS
CORPORATION & SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share and Per
Share Data)
(unaudited)
1. BASIS OF PRESENTATION
The information included in the Condensed Consolidated Financial
Statements is unaudited but includes all normal and recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the interim periods presented. These Condensed Consolidated Financial
Statements should be read in conjunction with the financial statements that are
included in the Companys Annual Report filed on Form 10-K for the year
ended December 31, 2008. Certain
prior year balances in the consolidated financial statements and notes have
been reclassified to conform to the 2009 presentation.
2. SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation
The Consolidated Financial Statements include the accounts
of the Company and its controlled subsidiaries.
Only subsidiaries in which controlling interests are maintained are
consolidated. The equity method is used
to account for our ownership in entities where we do not have a controlling
interest. All significant intercompany
accounts, profits, and transactions have been eliminated in consolidation.
Foreign Operations and Foreign Exchange Rate Risk
The functional currency for the Companys foreign
operations is the applicable local currency for each affiliate company. Assets
and liabilities of foreign subsidiaries are translated at exchange rates in
effect at period-end, and the statements of operations are translated at the
average exchange rates during the period.
Exchange rate fluctuations on translating foreign currency financial
statements into U.S. dollars that result in unrealized gains or losses are
referred to as translation adjustments. Cumulative translation adjustments are
recorded as a separate component of stockholders equity and are included in
other cumulative comprehensive income (loss). Transactions denominated in
currencies other than the local currency are recorded based on exchange rates
at the time such transactions arise. Subsequent changes in exchange rates
result in transaction gains and losses which are reflected in income as
unrealized (based on period-end translations) or realized upon settlement of
the transactions. Cash flows from the Companys operations in foreign countries
are translated at actual exchange rates when known, or at the average rate for
the period. As a result, amounts related to assets and liabilities reported in
the consolidated statements of cash flows will not agree to changes in the
corresponding balances in the consolidated balance sheets. The effects of
exchange rate changes on cash balances held in foreign currencies are reported
as a separate line item below cash flows from financing activities.
10
Table of Contents
Revenue Recognition
Sales of clad metal products and
welding services are generally based upon customer specifications set forth in
customer purchase orders and require the Company to provide certifications
relative to metals used, services performed, and the results of any
non-destructive testing that the customer has requested be performed. All issues of conformity of the product to
specifications are resolved before the product is shipped and billed. Products related to the oilfield products
segment, which include detonating cords, detonators, bi-directional boosters,
and shaped charges, as well as, seismic related explosives and accessories, are
standard in nature. In all cases, revenue
is recognized only when all four of the following criteria have been satisfied:
persuasive evidence of an arrangement exists; the price is fixed or
determinable; delivery has occurred; and collection is reasonably assured. For contracts that require multiple
shipments, revenue is recorded only for the units included in each individual
shipment. If, as a contract proceeds
toward completion, projected total cost on an individual contract indicates a
probable loss, the Company will account for such anticipated loss.
Fair Value of Financial Instruments
In September 2006, the Financial Accounting
Standards Boards (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157,
Fair Value Measurements
(SFAS
157). Although this statement does not require any new fair value measurements,
in certain cases its application has changed previous practice in determining
fair value. SFAS 157 became effective for the Company beginning January 1,
2008 as it relates to fair value measurements of financial assets and
liabilities and non-financial assets and liabilities that are recognized at
fair value in its financial statements on a recurring basis (at least
annually).
On January 1, 2009, the Company adopted the
deferred provisions of SFAS 157 as defined by FASB Staff Position (FSP) No. 157-2,
Effective Date of FASB Statement No. 157,
(FSP No. 157-2). FSP No. 157-2 deferred the adoption date for
certain non-financial assets and liabilities that are recognized or disclosed
at fair value on a non-recurring basis. The adoption in 2009 of SFAS 157
for certain non-financial assets and liabilities did not have any impact on the
Companys results of operations or financial position.
SFAS 157 defines fair value as the
price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date.
It establishes a hierarchy for fair value measurements based upon the inputs to
the valuation and the degree to which they are observable or not observable in
the market. The three levels in the hierarchy are as follows:
·
Level 1 Inputs to the valuation based upon quoted prices
(unadjusted) for identical assets or liabilities in active markets that are
accessible as of the measurement date.
·
Level 2 Inputs to the valuation include quoted prices in
either markets that are not active, or in active markets for similar assets or
liabilities, inputs other than quoted prices that are observable, and inputs
that are derived principally from or corroborated by observable market data.
·
Level 3 Inputs to the valuation that are unobservable
inputs for the asset or liability.
11
Table of Contents
SFAS 157 assigns the highest priority to
Level 1 inputs and the lowest priority to Level 3 inputs.
As discussed in Note 6, the Company uses an interest rate swap
agreement to mitigate interest rate risk on portions of its variable rate term
loan debt. The swap agreement is not
exchange listed and is therefore valued with models that use Level 2
inputs. The degree to which the Companys
credit worthiness impacts the value does require some management judgment but
as of March 31, 2009 and December 31, 2008, the impact of this
assessment on the overall value of the outstanding interest rate swap was not
significant and the Companys valuation of the agreement is classified within
Level 2 of the hierarchy.
Related Party Transactions
The Company has related party transactions with its
unconsolidated joint ventures, as well as with the minority shareholder of one
of its consolidated joint ventures. A
summary of related party balances as of March 31, 2009 and December 31,
2008 is summarized below:
|
|
As of March 31, 2009
|
|
As of December 31, 2008
|
|
|
|
Accounts
|
|
Accounts
|
|
Other
|
|
Accounts
|
|
Accounts
|
|
Other
|
|
|
|
receivable from
|
|
payable to
|
|
long-term
|
|
receivable from
|
|
payable to
|
|
long-term
|
|
|
|
and loan to
|
|
and loan from
|
|
loan from
|
|
and loan to
|
|
and loan from
|
|
loan from
|
|
Perfoline
|
|
$
|
461
|
|
$
|
16
|
|
$
|
|
|
$
|
449
|
|
$
|
17
|
|
$
|
|
|
DYNAenergetics RUS
|
|
1,419
|
|
|
|
|
|
1,582
|
|
|
|
|
|
Minority Interest Partner
|
|
490
|
|
5
|
|
318
|
|
580
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,370
|
|
$
|
21
|
|
$
|
318
|
|
$
|
2,611
|
|
$
|
17
|
|
$
|
303
|
|
A summary of those transactions for the three months
ended March 31, 2009 and 2008 is summarized below:
|
|
3 months ended
|
|
3 months ended
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
|
|
|
|
Interest
|
|
|
|
Interest
|
|
|
|
Sales to
|
|
income from
|
|
Sales to
|
|
income from
|
|
Perfoline
|
|
$
|
40
|
|
$
|
10
|
|
$
|
33
|
|
$
|
13
|
|
DYNAenergetics RUS
|
|
42
|
|
|
|
|
|
|
|
Minority Interest Partner
|
|
298
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
380
|
|
$
|
10
|
|
$
|
557
|
|
$
|
13
|
|
12
Table of Contents
Earnings Per Share
In 2008, the FASB issued FSP EITF
03-6-1,
Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities,
and
it became effective for the Company beginning January 1, 2009. Under this standard, unvested awards of
share-based payments with rights to receive dividends or dividend equivalents,
such as our restricted stock awards (RSAs), are considered participating
securities for purposes of calculating earnings per share (EPS). Under the two-class method required by EITF
03-6-1, a portion of net income is allocated to these participating securities
and therefore is excluded from the calculation of EPS allocated to common
stock, as shown in the table below. This
FSP requires retrospective applications for periods prior to the effective date
and as a result, all prior period earnings per share data presented herein have
been adjusted to conform to these provisions.
The Companys adoption of this FSP resulted in a $.01 per share
reduction to the previously reported basic EPS and diluted EPS for the three
months ended March 31, 2008.
Computation and reconciliation of
earnings per common share are as follows:
|
|
For the Three Months Ended
|
|
For the Three Months Ended
|
|
|
|
March 31, 2009
|
|
March 31, 2008
|
|
|
|
Income
|
|
Shares
|
|
EPS
|
|
Income
|
|
Shares
|
|
EPS
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,916
|
|
|
|
|
|
$
|
5,245
|
|
|
|
|
|
Less income allocated to RSAs
|
|
103
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stock for
EPS calculation
|
|
$
|
4,813
|
|
12,527,452
|
|
$
|
0.38
|
|
$
|
5,156
|
|
12,377,019
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjust shares for Dilutives:
Stock-based compensation plans
|
|
|
|
42,427
|
|
|
|
|
|
144,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,916
|
|
|
|
|
|
$
|
5,245
|
|
|
|
|
|
Less income allocated to RSAs
|
|
103
|
|
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocated to common stock for
EPS calculation
|
|
$
|
4,813
|
|
12,569,879
|
|
$
|
0.38
|
|
$
|
5,157
|
|
12,521,736
|
|
$
|
0.41
|
|
Recent Accounting Pronouncements
In December 2007,
the FASB issued SFAS No. 141(R),
Business Combinations
and SFAS No. 160,
Accounting and Reporting
of Noncontrolling Interest in Consolidated Financial Statements
, an
amendment of ARB No. 51. These new standards will significantly change the
accounting for and reporting of business combination transactions and
noncontrolling (minority) interests in consolidated financial statements. SFAS
Nos. 141(R) and 160 are required to be adopted simultaneously and are
effective for the first annual reporting period beginning on or after December 15,
2008. The adoption of these standards in
2009 did not have any impact on the Companys results of operations or
financial position.
In March 2008,
the FASB issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities
. SFAS 161
requires additional disclosures related to the use of derivative instruments,
the accounting for derivatives and how derivatives impact financial statements.
SFAS No. 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The
13
Table of Contents
adoption of SFAS No. 161 in the first quarter
of 2009 did not have any impact on the Companys results of operations or
financial position.
3. INVESTMENT IN JOINT
VENTURES
Operating results include the Companys
proportionate share of income from unconsolidated joint ventures, which are
accounted for under the equity method.
These investments (all of which resulted from the acquisition of
DYNAenergetics and pertain to the Companys Oilfield Products business segment)
include the following: (1) 65.19% interest in Perfoline, which is a
Russian manufacturer of perforating gun systems and (2) 55% interest in
DYNAenergetics RUS which is a Russian trading company that sells the Companys
oilfield products. Due to certain
minority interest veto rights that allow the minority interest shareholders to
participate in ordinary course of business decisions, these joint ventures have
been accounted for under the equity method instead of being consolidated in
these financial statements. Investments
in these joint ventures totaled $744 and $970 as of March 31, 2009 and December 31,
2008, respectively.
Summarized unaudited financial information
for the joint ventures accounted for under the equity method as of March 31,
2009 and December 31, 2008 and for the three months ended March 31,
2009 and 2008 is as follows:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Current assets
|
|
$
|
3,756
|
|
$
|
4,667
|
|
Noncurrent assets
|
|
622
|
|
714
|
|
Total assets
|
|
$
|
4,378
|
|
$
|
5,381
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,730
|
|
$
|
2,064
|
|
Noncurrent liabilities
|
|
748
|
|
830
|
|
Equity
|
|
1,900
|
|
2,487
|
|
Total liabilities and equity
|
|
$
|
4,378
|
|
$
|
5,381
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
Net sales
|
|
$
|
1,106
|
|
$
|
2,203
|
|
Operating income
|
|
$
|
79
|
|
$
|
171
|
|
Net loss
|
|
$
|
(90
|
)
|
$
|
(14
|
)
|
Equity in earnings (losses) of joint
ventures
|
|
$
|
(49
|
)
|
$
|
16
|
|
14
Table of Contents
4. INVENTORY
The components of inventory are
as follows at March 31, 2009 and December 31, 2008:
|
|
March 31,
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
2008
|
|
|
|
|
Raw materials
|
|
$
|
12,862
|
|
$
|
11,610
|
|
|
|
|
Work-in-process
|
|
18,536
|
|
18,950
|
|
|
|
|
Finished goods
|
|
4,372
|
|
3,903
|
|
|
|
|
Supplies
|
|
727
|
|
837
|
|
|
|
|
|
|
$
|
36,497
|
|
$
|
35,300
|
|
|
|
|
5. PURCHASED INTANGIBLE
ASSETS
The
following table presents details of our purchased intangible assets, other than
goodwill, as of March 31, 2009:
|
|
|
|
Accumulated
|
|
|
|
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Core technology
|
|
$
|
22,108
|
|
$
|
(1,520
|
)
|
$
|
20,588
|
|
Customer relationships
|
|
29,830
|
|
(4,558
|
)
|
25,272
|
|
Trademarks / Trade names
|
|
2,408
|
|
(495
|
)
|
1,913
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
54,346
|
|
$
|
(6,573
|
)
|
$
|
47,773
|
|
The
following table presents details of our purchased intangible assets, other than
goodwill, as of December 31, 2008:
|
|
|
|
Accumulated
|
|
|
|
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Core technology
|
|
$
|
23,596
|
|
$
|
(1,327
|
)
|
$
|
22,269
|
|
Customer relationships
|
|
31,837
|
|
(3,980
|
)
|
27,857
|
|
Trademarks / Trade names
|
|
2,570
|
|
(432
|
)
|
2,138
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
58,003
|
|
$
|
(5,739
|
)
|
$
|
52,264
|
|
The decrease in the gross value of our purchased intangible assets from
December 31, 2008 to March 31, 2009 is due to the impact of foreign
currency translation. The decrease in
goodwill from $43,066 at December 31, 2008 to $40,176 at March 31,
2009 is also due to the impact of foreign currency translation.
15
Table of Contents
6. DEBT
Lines of credit consist of the
following at March 31, 2009 and December 31, 2008:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Syndicated credit agreement revolving loan
|
|
$
|
2,800
|
|
$
|
|
|
Commerzbank line of credit
|
|
428
|
|
|
|
Nord LB line of credit
|
|
1,001
|
|
|
|
|
|
|
|
|
|
|
|
4,229
|
|
|
|
Less current portion
|
|
(1,429
|
)
|
|
|
|
|
|
|
|
|
Long-term lines of credit
|
|
$
|
2,800
|
|
$
|
|
|
Long-term debt consists of the
following at March 31, 2009 and December 31, 2008:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Syndicated credit agreement term loan
|
|
$
|
37,756
|
|
$
|
40,500
|
|
Syndicated credit agreement Euro term loan
|
|
15,514
|
|
17,763
|
|
Nord LB 3,000 Euro term loan
|
|
1,981
|
|
2,326
|
|
Nord LB 500 Euro term loan
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
55,251
|
|
60,628
|
|
Less current maturities
|
|
(10,316
|
)
|
(14,450
|
)
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
44,935
|
|
$
|
46,178
|
|
Loan Covenants and Restrictions
The Companys existing loan agreements
include various covenants and restrictions, certain of which relate to the
incurrence of additional indebtedness; mortgaging, pledging or disposition of
major assets; limits on capital expenditures; and maintenance of specified
financial ratios. As of March 31,
2009, the Company was in compliance with all financial covenants and other
provisions of its debt agreements.
Swap Agreement
On November 17, 2008, the
Company entered into a two-year interest rate swap agreement that effectively
converted the LIBOR based variable rate US borrowings under the $45,000 term
loan to a fixed rate of 4.87% (4.62% effective April 1, 2009 due to an
improvement in the Companys leverage ratio).
The Company has designated the swap agreement as an effective cash flow
hedge with matched terms in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities,
and as a result, changes in the fair value of the swap agreement are recorded
in other comprehensive income with the offset as a swap agreement asset or
liability.
16
Table of Contents
The Company has recorded the fair value of
its interest rate swap agreement as follows:
|
|
March 31, 2009
|
|
December 31, 2008
|
|
Interest rate swap liability
|
|
Balance sheet location
|
|
Fair value
|
|
Balance sheet location
|
|
Fair value
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
Accrued
expenses
|
|
$
|
874
|
|
Accrued
expenses
|
|
$
|
759
|
|
Long-term portion
|
|
Other
long-term liabilities
|
|
472
|
|
Other
long-term liabilities
|
|
647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,346
|
|
|
|
$
|
1,406
|
|
7. BUSINESS SEGMENTS
The Company is organized in the following three segments: Explosive Metalworking, Oilfield Products,
and AMK Welding. The Explosive Metalworking segment uses explosives to perform
metal cladding and shock synthesis of industrial diamonds. The most significant
products of this group are clad metal plates which are used by customers in the
fabrication of pressure vessels, heat exchangers and other equipment for
various industries, including upstream oil and gas, oil refinery,
petrochemicals, alternative energy, hydrometallurgy, power generation,
industrial refrigeration, and similar industries and internally to produce
transition joints for use in the aluminum production and shipbuilding industries. The Oilfield Products segment manufactures,
markets and sells oilfield perforating equipment and explosives, including
detonating cords, detonators, bi-directional boosters and shaped charges, and
seismic related explosives and accessories.
AMK Welding utilizes a number of welding technologies to weld components
for manufacturers of jet engine and ground-based turbines.
The accounting policies of all the segments
are the same as those described in the summary of significant accounting
policies. The Companys reportable
segments are separately managed strategic business units that offer different
products and services. Each segments products are marketed to different
customer types and require different manufacturing processes and technologies.
Segment information is
presented for the three months ended March 31, 2009 and 2008 as follows:
|
|
Explosive
|
|
|
|
|
|
|
|
|
|
Metalworking
|
|
Oilfield
|
|
AMK
|
|
|
|
|
|
Group
|
|
Products
|
|
Welding
|
|
Total
|
|
For the three months ended March 31,
2009:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
43,472
|
|
$
|
4,034
|
|
$
|
2,253
|
|
$
|
49,759
|
|
Depreciation and amortization
|
|
$
|
1,488
|
|
$
|
848
|
|
$
|
114
|
|
$
|
2,450
|
|
Income from operations
|
|
$
|
9,412
|
|
$
|
(694
|
)
|
$
|
375
|
|
$
|
9,093
|
|
Equity in losses of joint ventures
|
|
$
|
|
|
$
|
(49
|
)
|
$
|
|
|
(49
|
)
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
(798
|
)
|
Other expense
|
|
|
|
|
|
|
|
(117
|
)
|
Interest expense
|
|
|
|
|
|
|
|
(902
|
)
|
Interest income
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
|
|
|
|
|
|
$
|
7,292
|
|
17
Table of Contents
|
|
Explosive
|
|
|
|
|
|
|
|
|
|
Metalworking
|
|
Oilfield
|
|
AMK
|
|
|
|
|
|
Group
|
|
Products
|
|
Welding
|
|
Total
|
|
For the three months ended March 31,
2008:
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
51,644
|
|
$
|
4,450
|
|
$
|
2,299
|
|
$
|
58,393
|
|
Depreciation and amortization
|
|
$
|
2,384
|
|
$
|
982
|
|
$
|
108
|
|
$
|
3,474
|
|
Income from operations
|
|
$
|
9,982
|
|
$
|
(565
|
)
|
$
|
637
|
|
$
|
10,054
|
|
Equity in earnings of joint ventures
|
|
$
|
|
|
$
|
16
|
|
$
|
|
|
16
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
(664
|
)
|
Other expense
|
|
|
|
|
|
|
|
(149
|
)
|
Interest expense
|
|
|
|
|
|
|
|
(1,279
|
)
|
Interest income
|
|
|
|
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
|
|
|
|
|
|
$
|
8,217
|
|
During the three months ended March 31,
2009, no sales to any one customer accounted for more than 10% of total net
sales. During the three months ended March 31,
2008, sales to one customer represented $5,974 (10.2%) of total net sales.
8. COMPREHENSIVE
INCOME
The Company
s
comprehensive income for the three months ended March 31, 2009 and 2008
was as follows:
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
2008
|
|
Net income for the period
|
|
$4,916
|
|
$5,245
|
|
Interest rate swap valuation adjustment, net
of tax
|
|
38
|
|
(285
|
)
|
Foreign currency translation adjustment
|
|
(5,918
|
)
|
7,260
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$(964
|
)
|
$12,220
|
|
Accumulated
other cumulative comprehensive (loss) as of March 31, 2009 and December 31,
2008 consisted of the following:
|
|
March 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Currency translation adjustment
|
|
$
|
(7,261
|
)
|
$
|
(1,343
|
)
|
Interest rate swap valuation adjustment, net
of tax of $498 and $520, respectively
|
|
(848
|
)
|
(886
|
)
|
|
|
|
|
|
|
|
|
$
|
(8,109
|
)
|
$
|
(2,229
|
)
|
18
Table of Contents
ITEM 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our historical
consolidated financial statements and notes, as well as the selected historical
consolidated financial data that are included in the Companys Annual Report
filed on Form 10-K for the year ended December 31, 2008.
Unless stated
otherwise, all dollar figures in this discussion are presented in thousands
(000s).
Executive Overview
Our business is
organized into three segments: Explosive
Metalworking, Oilfield Products, and AMK Welding. For the three months ended March 31,
2009, Explosive Metalworking accounted for 87% of our net sales and 104% of our
income from continuing operations before consideration of stock-based
compensation expense, which is not allocated to our business segments. Our Oilfield Products and AMK Welding
segments accounted for 8% and 5%, respectively, of our first quarter 2009 net
sales.
Our net sales for the
three months ended March 31, 2009 decreased by $8,634 (14.8%) compared to
the first three months of 2008, reflecting year-to-year net sales decreases of
$8,172 (15.8%), $416 (9.3%), and $46 (2.0%) for our Explosive Metalworking,
Oilfield Products, and AMK Welding segments, respectively. The sales decrease of approximately $8.6
million includes a sales volume decrease of approximately $5.0 million and an
unfavorable foreign exchange translation adjustment of approximately $3.6
million on our European sales relating to the increased value of the U.S.
dollar against the Euro. Income from
operations decreased by 11.7% to $8,295 in the first three months of 2009 from
$9,390 in the first three months of 2008, reflecting declines in Explosive
Metalworkings, Oilfield Products, and AMK Weldings operating income of $570,
$129, and $262, respectively, and a $134 increase in stock-based compensation
expense. Our net income decreased by
6.3% to $4,916 for the three months ended March 31, 2009 from $5,245 in
the same period of 2008.
Impact of Current Economic
Situation on the Company
The
Company was only minimally impacted in 2008 by the global economic slow
down. During the Fourth Quarter of 2008,
our sales decreased slightly from historic levels. As a result of the decline in our Explosive
Metalworking backlog from $97,247 at December 31, 2008 to $74,174 at March 31,
2009, we now expect our net consolidated sales in 2009 to decrease
approximately 17% to 23% (previous guidance was for a decrease of 12% to 20%)
from the amount we achieved in 2008. In
light of the slow down in order inflow that we are experiencing, we have
deferred some of our previous planned capital expenditures and are continuing
to carefully manage expenses. We
generated cash flow from operations of $3,237 during the first quarter of 2009
and expect to generate positive cash flow from operations during the remaining
three quarters of 2009. As of March 31,
2009, we had over $16,000 in cash and cash equivalents as well as approximately
$38,000 of borrowing capacity available under our existing credit facilities.
Net sales
Explosive
Metalworkings revenues are generated principally from sales of clad metal plates
and sales of transition joints, which are made from clad plates, to customers
that fabricate industrial equipment for various industries, including oil and
gas, petrochemicals, alternative
19
Table of Contents
energy, hydrometallurgy,
aluminum production, shipbuilding, power generation, industrial refrigeration,
and similar industries. While a large
portion of the demand for our clad metal products is driven by new plant
construction and large plant expansion projects, maintenance and retrofit
projects at existing chemical processing, petrochemical processing, oil
refining, and aluminum smelting facilities also account for a significant
portion of total demand.
Oilfield
Products revenues are generated principally from sales of shaped charges,
detonators and detonating cord, and bidirectional booster sand perforating guns
to customers who perform the perforation of oil and gas wells and from sales of
seismic products to customers involved in oil and gas exploration activities.
AMK
Weldings revenues are generated from welding, heat treatment, and inspection
services that are provided with respect to customer-supplied parts for
customers primarily involved in the power generation industry and aircraft
engine markets.
A
significant portion of our revenue is derived from a relatively small number of
customers; therefore, the failure to complete existing contracts on a timely basis,
to receive payment for such services in a timely manner, or to enter into
future contracts at projected volumes and profitability levels could adversely
affect our ability to meet cash requirements exclusively through operating
activities. We attempt to minimize the risk of losing customers or specific
contracts by continually improving product quality, delivering products on
time, and competing aggressively on the basis of price.
Gross profit and cost of products
sold
Cost
of products sold for Explosive Metalworking include the cost of metals and
alloys used to manufacture clad metal plates, the cost of explosives, employee
compensation and benefits, freight, outside processing costs, depreciation of
manufacturing facilities and equipment, manufacturing supplies, and other
manufacturing overhead expenses.
Cost
of products sold for Oilfield Products include the cost of metals, explosives
and other raw materials used to manufacture shaped charges, detonating
products, and perforating guns as well as employee compensation and benefits,
depreciation of manufacturing facilities and equipment, manufacturing supplies,
and other manufacturing overhead expenses.
AMK
Weldings cost of products sold consists principally of employee compensation
and benefits, welding supplies (wire and gas), depreciation of manufacturing
facilities and equipment, outside services, and other manufacturing overhead
expenses.
Income taxes
Our effective income tax rate decreased to 32.6% for the first three
months of 2009 from 36.2% for the same period of 2008. Income tax provisions on the earnings of
Nobelclad, Nitro Metall, DYNAenergetics and our German and Luxembourg holding
companies have been provided based upon the respective French, Swedish, German
and Luxembourg statutory tax rates.
Going forward, based upon existing tax regulations and current federal,
state and foreign statutory tax rates, we expect our full year 2009 effective
tax rate on our projected consolidated pre-tax income to range between 30% and
32%.
20
Table of Contents
Backlog
We
use backlog as a primary means of measuring the immediate outlook for our
business. We define backlog at any
given point in time as consisting of all firm, unfulfilled purchase orders and
commitments at that time. Generally
speaking, we expect to fill most backlog orders within the following 12 months. From experience, most firm purchase orders
and commitments are realized.
Our
backlog with respect to the Explosive Metalworking segment decreased to $74,174
at March 31, 2009 from $97,247 at December 31, 2007. As a result of this significant decline in
backlog that reflects a slow down in new order inflow during the first quarter
of 2009, we are now forecasting that our consolidated net sales for fiscal 2009
will decline between 17% and 23% from those reported in fiscal 2008. This anticipated sales decline is attributable
to uncertainty associated with current global economic conditions, the slow
down we have already seen in the chemical, petrochemical, and hydrometallurgy
sectors, and the difficulty in predicting the timing of large orders that we
continue to quote.
Three Months Ended March 31, 2009 Compared to
Three Months Ended March 31, 2008
Net sales
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
Net sales
|
|
$
|
49,759
|
|
$
|
58,393
|
|
$
|
(8,634
|
)
|
(14.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales for the first
quarter of 2009 decreased 14.8% to $49,759 from $58,393 in the first quarter of
2008. Explosive Metalworking sales
decreased 15.8% to $43,472 in the three months ended March 31, 2009 (87%
of total sales) from $51,644 in the same period of 2008 (88% of total
sales). The decrease in Explosive Metalworking
sales reflects a business slowdown in several of the industries that this
business segment serves and includes approximately $3.0 million of unfavorable
foreign exchange translation adjustments.
Oilfield Products
contributed $4,034 to first quarter 2009 sales (8% of total sales), which
represents a 9.3% decrease from sales of $4,450 in the first quarter of 2008
(8% of total sales). The $416 decline in
sales reflects a modest volume increase offset by $564 in unfavorable foreign
exchange adjustments.
AMK Welding contributed $2,253 to first quarter 2009 sales (5% of total
sales), which represents a 2.0% decrease from sales of $2,299 in the first
quarter of 2008 (4% of total sales).
Gross profit
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
Gross profit
|
|
$
|
15,328
|
|
$
|
17,711
|
|
$
|
(2,383
|
)
|
(13.5
|
)%
|
Consolidated gross profit margin rate
|
|
30.8
|
%
|
30.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit decreased by 13.5% to $15,328 for the three months ended March 31,
2009 from $17,711 for the three months ended March 31, 2008. Our first
quarter 2009 consolidated gross profit margin rate slightly increased to 30.8%
from 30.3% in the first quarter of 2008. The gross profit margin rate for
Explosive Metalworking increased from 30.6% in the first quarter of
21
Table of Contents
2008 to 31.8% in the first
quarter of 2009. The increased first
quarter 2009 gross profit margin rate for Explosive Metalworking relates
primarily to higher proportionate first quarter 2009 sales by our U.S. division
than was the case in 2008. Historically,
gross margins for our European explosion welding divisions have generally been
lower than those reported by our U.S. division due to less efficient fixed
manufacturing cost structures associated with our smaller European
facilities. As has been the case
historically, we expect to see continued fluctuations in Explosive Metalworkings
quarterly gross margin rates during 2009 that result from anticipated
fluctuations in quarterly sales volume and changes in product mix. Due largely
to the expected decline in 2009 sales and resultant less favorable absorption
of fixed manufacturing overhead expenses, we currently expect second quarter
and full year 2009 gross margins for Explosive Metalworking to be in a range of
27% to 29%.
Oilfield
Products reported a gross profit margin rate of 24.7% for the first quarter
2009 compared to a gross profit margin rate of 25.3% for the first quarter of
2008. For the full year 2009, we expect Oilfield Products gross margin to be
comparable to the 31.9% gross margin that it reported in 2008.
The
gross profit margin rate for AMK Welding decreased to 26.1% in the first quarter
of 2009 from 36.4% in the first quarter of 2008. The decrease in AMK Welding gross margin
relates principally to an increase in manufacturing overhead associated with
internal and external engineering and product development expenses as AMK seeks
to expand both its service offerings and customer base. We expect AMK Weldings full year 2009 gross
margin to meet or exceed the 32.9% gross margin that it reported in 2008.
General
and administrative expenses
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
General & administrative expenses
|
|
$
|
3,526
|
|
$
|
3,119
|
|
$
|
407
|
|
13.0
|
%
|
Percentage of net sales
|
|
7.1
|
%
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative expenses increased by $407, or 13.0%, to $3,526 in the first
quarter of 2009 from $3,119 in the first quarter of 2008. This increase includes $348 from annual
salary adjustments and staffing changes, an $80 increase in stock-based
compensation, an increase of $56 for incentive compensation and net increases
of $85 in other spending categories. The
foregoing increases were partially offset by a favorable foreign exchange
translation adjustment of $162. As a
percentage of net sales, general and administrative expenses increased to 7.1%
in the first quarter of 2009 from 5.3% in the first quarter of 2008.
Selling
expenses
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
Selling expenses
|
|
$
|
2,324
|
|
$
|
2,841
|
|
$
|
(517
|
)
|
(18.2
|
)%
|
Percentage of net sales
|
|
4.7
|
%
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses, which include sales commissions of $383 in 2009 and $454 in 2008,
decreased by 18.2% to $2,324 in the first quarter of 2009 from $2,841 in the
first quarter of 2008.
22
Table of Contents
The $517 decrease in our
consolidated selling expenses includes decreased selling expenses of $674 at
our European divisions offset by increased selling expenses of $157 in our U.S.
divisions. The large decrease in European selling expenses relates principally
to staff reductions within our European explosion welding divisions and
non-recurring expenses in the first quarter of 2008 relating to the termination
of contracts with former sales agents, but it also includes $222 of favorable
foreign exchange translation adjustments.
The $157 increase in our U.S. selling expenses includes increased
commissions of $107, an impact of $75 from annual salary adjustments and a $35
increase in stock-based compensation that were offset by net reductions of $60
in other spending categories. As a
percentage of net sales, selling expenses decreased to 4.7% in the first
quarter of 2008 from 4.9% in the first quarter of 2008.
Amortization expenses
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
Amortization expense of purchased intangible
assets
|
|
$
|
1,183
|
|
$
|
2,361
|
|
$
|
(1,178
|
)
|
(49.9
|
)%
|
Percentage of net sales
|
|
2.4
|
%
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense relates entirely to the amortization of values assigned
to intangible assets in connection with the November 15, 2007 acquisition
of DYNAenergetics. Amortization expense
for the three months ended March 31, 2009 includes $821, $274 and $89
relating to values assigned to customer relationships, core technology and
trademarks/trade names, respectively.
Amortization expense for the three months ended March 31, 2008
includes $1,006, $940, $313 and $102 relating to values assigned to order
backlog, customer relationships, core technology and trademarks/trade names,
respectively. Amortization expense for
2009 (as measured in Euros) is expected to approximate 3,620, a reduction from
the 2008 amount of 4,962 due to the full amortization in 2008 of the value
assigned to acquired order backlog.
Operating income
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
Operating income
|
|
$
|
8,295
|
|
$
|
9,390
|
|
$
|
(1,095
|
)
|
(11.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations (operating
income) decreased by 11.7% to $8,295 in the first quarter of 2009 from $9,390
in the first quarter of 2008. Explosive
Metalworking reported operating income of $9,412 in the first quarter of 2009
as compared to $9,982 in the first quarter of 2008. This 5.7% decrease in Explosive Metalworking
operating income is largely attributable to the 15.8% decrease in net sales
discussed above.
Oilfield Products
reported an operating loss of $694 for the first quarter of 2009 as compared to
a loss from operations of $565 for the first three months of 2008.
AMK Welding reported
operating income of $375 for the three months ended March 31, 2009 as
compared to $637 for the same period of 2008.
Operating income for the
three months ended March 31, 2009 and 2008 includes $798 and $664,
respectively, of stock-based compensation.
This expense is not allocated to our business
23
Table of Contents
segments and thus is not
included in the above first quarter operating income or loss totals for
Explosive Metalworking, Oilfield Products and AMK Welding.
Interest income (expense), net
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
Interest income (expense), net
|
|
$
|
(837
|
)
|
$
|
(1,040
|
)
|
$
|
203
|
|
(19.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded
net interest expense of $837 in the three months ended March 31, 2009
compared to net interest expense of $1,040 in the same time period of
2008. This decrease in net interest
expense reflects term debt reductions and lower interest rates.
Income tax provision
|
|
Three Months Ended
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
Percentage
|
|
|
|
2009
|
|
2008
|
|
Change
|
|
Change
|
|
Income tax provision
|
|
$
|
2,376
|
|
$
|
2,972
|
|
$
|
(596
|
)
|
(20.1
|
)%
|
Effective tax rate
|
|
32.6
|
%
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded an income tax provision of $2,376 in the first quarter of
2009 compared to $2,972 in the first quarter of 2008. The effective tax rate decreased to 32.6% in
the first quarter of 2009 from 36.2% in the first quarter of 2008. The income tax provisions for the three
months ended March 31, 2009 and 2008 include $2,122 and $2,951,
respectively, related to U.S. taxes, with the remainder relating to foreign
taxes and foreign tax benefits associated with the operations of Nobelclad and
its Swedish subsidiary, Nitro Metall, as well as the DYNAenergetics division
and related holding companies in Germany and Luxembourg. Our blended effective tax rate for 2009 is
expected to range from 30% to 32% based on projected pre-tax income.
Liquidity and Capital Resources
We have
historically financed our operations from a combination of internally generated
cash flow, revolving credit borrowings, various long-term debt arrangements,
and the issuance of common stock. In
connection with the acquisition of DYNAenergetics, we entered into a five-year
syndicated credit agreement. The credit
agreement, which provides for term loans of $45,000 and 14,000 Euros and
revolving loans of $25,000 and 7,000 Euros, is through a syndicate of seven
banks. The credit facility in the
approximate amount of $100,000 expires on November 16, 2012. As of March 31, 2009, term loans of
$37,756 and 11,746 Euros ($15,514) were outstanding under the credit facility
and $1,981 was outstanding under term loan obligations of DYNAenergetics. We also had $2,800 in outstanding borrowings
under our revolving credit agreement and $1,429 outstanding under our line of
credit agreements for DYNAenergetics as of March 31, 2009. We have approximately $38,000 available for
borrowing under these facilities.
We
believe that cash flow from operations and funds available under our current
credit facilities and any future replacement thereof will be sufficient to fund
the working capital, debt service, and capital expenditure requirements of our
current business operations for the foreseeable future. Nevertheless, our ability to generate
sufficient cash flows from operations will depend
24
Table of Contents
upon our success in executing
our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure
new customer orders at attractive prices; and (iii) continue to implement
cost-effective internal processes, our ability to meet cash requirements
through operating activities could be impacted.
Furthermore, any restriction on the availability of borrowings under our
credit facilities could negatively affect our ability to meet future cash
requirements.
Debt
and other contractual obligations and commitments
Our existing
loan agreements include various covenants and restrictions, certain of which
relate to the payment of dividends or other distributions to stockholders,
redemption of capital stock, incurrence of additional indebtedness, mortgaging,
pledging or disposition of major assets, use of cash for acquisitions, and
maintenance of specified financial ratios.
As of March 31, 2009, we were in compliance with all financial
covenants and other provisions of our debt agreements.
The Companys principal cash flows related to debt obligations and other
contractual obligations and commitments have not materially changed since December 31,
2008.
Cash flows
from operating activities
Net cash flows provided
by operating activities for the first quarter of 2009 totaled $3,237. Significant sources of operating cash flow
included net income of $4,916, non-cash depreciation and amortization expense
of $2,519 and stock-based compensation of $798.
These sources of operating cash flow were partially offset by a deferred
income tax benefit of $605 and net negative changes in various components of
working capital in the amount of $4,440.
Net negative changes in working capital included increases in accounts
receivable and inventories of $2,702 and $2,721, respectively, and decreases in
customer advances and accrued expenses of $961 and $904, respectively. These negative changes in working capital
were partially offset by decreases in prepaid expenses of $460 and an increase
in accounts payable of $2,388.
Net cash flows provided
by operating activities for the first quarter of 2008 totaled $7,249. Significant sources of operating cash flow
included net income of $5,245, non-cash depreciation and amortization expense
of $3,534 and stock-based compensation of $664.
These sources of operating cash flow were partially offset by a deferred
income tax benefit of $1,174 and net negative changes in various components of
working capital in the amount of $1,004.
Net negative changes in working capital included increases in
inventories and prepaid expenses of $670 and $580, respectively, and decreases
in accounts payable and customer advances of $3,837 and $2,144,
respectively. These negative changes in
working capital were partially offset by decreases in restricted cash and
accounts receivable of $377 and $5,968, respectively.
Cash
flows from investing activities
Net cash flows used by
investing activities for the first quarter of 2009 totaled $1,162 and consisted
almost entirely of capital expenditures.
Net cash flows used by
investing activities for the first quarter of 2008 totaled $2,346 and consisted
almost entirely of capital expenditures.
Cash flows from financing
activities
Net cash flows provided
by financing activities for the first quarter of 2009 were $323, which
consisted primarily of net borrowings on bank lines of credit of $4,215 and
$236 in net proceeds from the issuance of common stock relating to the exercise
of stock options. These sources of cash
flow were almost entirely offset by $3,862 in required prepayments of term
loans
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under our syndicated credit
agreement from excess cash flow that we generated in fiscal year 2008, $233 in
principal payments on Nord LB term loans, payments of deferred debt issuance costs
of $19 and payment on capital lease obligations of $71.
Net cash flows provided
by financing activities for the first quarter of 2008 were $3,279, which
consisted primarily of net borrowings on bank lines of credit of $3,665 and $93
in net proceeds from the issuance of common stock relating to the exercise of
stock options. These sources of cash
flow were partially offset by a $265 principal payment on a Nord LB term loan,
payments of deferred debt issuance costs of $125 and payment on capital lease obligations
of $105.
Payment of Dividends
We paid annual dividends
in 2008 and may continue to pay annual dividends in the future subject to
capital availability and periodic determinations that cash dividends are in
compliance with our debt covenants and are in the best interests of our
stockholders, but we cannot assure you that such payments will continue. Future dividends may be affected by, among
other items, our views on potential future capital requirements, future
business prospects, debt covenant compliance, changes in federal income tax
laws, or any other factors that our board of directors deems relevant. Any decision to pay cash dividends is and
will continue to be at the discretion of board of directors.
Critical Accounting Policies
Our
historical consolidated financial statements and notes to our historical
consolidated financial statements contain information that is pertinent to our
managements discussion and analysis of financial condition and results of
operations. Preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires that our management make estimates, judgments and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingent assets and liabilities. However, the accounting principles used by us
generally do not change our reported cash flows or liquidity. Interpretation of the existing rules must
be done and judgments made on how the specifics of a given rule apply to
us.
In
managements opinion, the more significant reporting areas impacted by
managements judgments and estimates are revenue recognition, asset
impairments, inventory valuation and impact of foreign currency exchange rate
risks. Managements judgments and
estimates in these areas are based on information available from both internal
and external sources, and actual results could differ from the estimates, as
additional information becomes known.
We believe the following to be our most critical accounting policies.
Revenue
recognition
Sales of clad metal products and
welding services are generally based upon customer specifications set forth in
customer purchase orders and require us to provide certifications relative to
metals used, services performed and the results of any non-destructive testing
that the customer has requested be performed.
All issues of conformity of the product to specifications are resolved
before the product is shipped and billed.
Products related to the oilfield products segment, which include
detonating cords, detonators, bi-directional boosters and shaped charges, as
well as, seismic related explosives and accessories, are standard in
nature. In all cases, revenue is
recognized only when all four of the following criteria have been satisfied:
persuasive evidence of an arrangement exists; the price is fixed or
determinable; delivery has occurred; and collection is reasonably assured. For contracts that require multiple
shipments, revenue is recorded only for the
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units included in each
individual shipment. If, as a contract
proceeds toward completion, projected total cost on an individual contract
indicates a probable loss, the Company will account for such anticipated loss.
Asset
impairments
We
review our long-lived assets to be held and used by us for impairment whenever
events or changes in circumstances indicate their carrying amount may not be
recoverable. In so doing, we estimate the future net cash flows expected to
result from the use of these assets and their eventual disposition. If the sum
of the expected future net cash flows (undiscounted and without interest
charges) is less than the carrying amount of these assets, an impairment loss
is recognized to reduce the asset to its estimated fair value. Otherwise, an
impairment loss is not recognized.
Long-lived assets to be disposed of, if any, are reported at the lower
of carrying amount or fair value less costs to sell.
Business
Combinations
We accounted for our business acquisition in accordance with the
provisions of SFAS No. 141,
Business Combinations
,
using the purchase method of accounting. We allocated the total cost of the
acquisition to the underlying net assets based on their respective estimated
fair values. As part of this allocation process, we identified and attributed
values and estimated lives to the intangible assets acquired. These determinations
involved significant estimates and assumptions regarding multiple, highly
subjective variables, including those with respect to future cash flows,
discount rates, asset lives, and the use of different valuation models and
therefore required considerable judgment. Our estimates and assumptions were
based, in part, on the availability of listed market prices or other
transparent market data. These determinations affect the amount of amortization
expense recognized in future periods. We based our fair value estimates on
assumptions we believe to be reasonable but are inherently uncertain.
Goodwill
and Other Intangible Assets
We review the carrying value of goodwill at least annually to assess
impairment because it is not amortized.
Additionally, we review the carrying value of any intangible asset or
goodwill whenever events or changes in circumstances indicate that its carrying
amount may not be recoverable. Examples of such events or changes in
circumstances, many of which are subjective in nature, include significant
negative industry or economic trends, significant changes in the manner of our
use of the acquired assets or our strategy, a significant decrease in the
market value of the asset, and a significant change in legal factors or in the
business climate that could affect the value of the asset. We assess impairment
by comparing the fair value of an identifiable intangible asset or goodwill
with its carrying value. The determination of fair value involves significant
management judgment as described further below. Impairments are expensed when
incurred. Specifically, we test for impairment as follows:
Goodwill
In accordance with Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS
142), we test goodwill for impairment on a reporting unit level as defined
by reference to SFAS No. 131,
Disclosures about Segments
of an Enterprise and Related Information
, on at least an annual
basis. A reporting unit is a group of businesses (i) for which discrete financial
information is available and (ii) that have similar economic
characteristics. We test goodwill for impairment using the following two-step
approach:
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The first step is a comparison of each reporting units fair value to
its carrying value. We estimate fair value using the best information
available, including market information and discounted cash flow projections,
also referred to as the income approach. The income approach uses a reporting
units projection of estimated operating results and cash flows that is
discounted using a weighted-average cost of capital that reflects current
market conditions. The projections incorporate our best estimates of economic
and market conditions over the projected period including growth rates in sales
and estimates of future expected changes in operating margins and cash
expenditures. Other significant estimates and assumptions include terminal
value growth rates, future estimates of capital expenditures and changes in
future working capital requirements. We
validate our estimates of fair value under the income approach by comparing the
values to fair value estimates using a market approach.
If the carrying value of the reporting unit is higher than its fair
value, there is an indication that impairment may exist, and the second step
must be performed to measure the amount of impairment loss. In the second step, we allocate the fair
value of the reporting unit to the assets and liabilities of the reporting unit
as if it had just been acquired in a business combination and as if the
purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting
unit over the amounts assigned to its assets and liabilities is referred to as
the implied fair value of goodwill. We then compare that implied fair value of
the reporting units goodwill to the carrying value of that goodwill. If the
implied fair value is less than the carrying value, we recognize an impairment
loss for the excess.
Our impairment testing in the fourth quarter of 2008 had not resulted
in a determination that any of our goodwill is impaired; however, the passing
margin of the first step of our goodwill impairment testing relative to the
Oilfield Products business segment as of December 31, 2008 was minimal
(estimated fair value was less than 10% greater than the carrying value). Future impairment is possible and will occur
if (i) the units operating results underperform what we have estimated or
(ii) additional volatility of the capital markets cause us to raise the 16
percent discount rate utilized in our discounted cash flow analysis or decrease
the multiples utilized in our market-based analysis. We did not observe any indicators in the
quarter ended March 31, 2009 that would necessitate interim impairment
testing of goodwill.
The use of different estimates or assumptions within our discounted
cash flow model when determining the fair value of our reporting units or using
methodologies other than as described above could result in different values
for reporting units and could result in an impairment charge.
Intangible assets subject to amortization
An intangible asset that is subject to amortization is reviewed when
impairment indicators are present in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets
.
We compare the expected undiscounted future operating cash flows associated
with finite-lived assets to their respective carrying values to determine if
the asset is fully recoverable. If the expected future operating cash flows are
not sufficient to recover the carrying value, we estimate the fair value of the
asset. Impairment is recognized when the carrying amount of the asset is not
recoverable and when the carrying value exceeds fair value. The projected cash
flows require several assumptions related to, among other things, relevant
market factors, revenue growth, if any, and operating margins. While we believe
our assumptions are reasonable, changes in these assumptions may have a
material impact on our financial results.
Impact
of foreign currency exchange rate risks
The
functional currency for our foreign operations is the applicable local currency
for each affiliate company. Assets and liabilities of foreign subsidiaries for
which the functional currency is the local currency are translated at exchange
rates in effect at period-end, and the statements of
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operations are translated at
the average exchange rates during the period.
Exchange rate fluctuations on translating foreign currency financial
statements into U.S. dollars that result in unrealized gains or losses are
referred to as translation adjustments. Cumulative translation adjustments are
recorded as a separate component of stockholders equity and are included in
other cumulative comprehensive income (loss). Transactions denominated in
currencies other than the local currency are recorded based on exchange rates
at the time such transactions arise. Subsequent changes in exchange rates
result in transaction gains and losses, which are reflected in income as
unrealized (based on period-end translations) or realized upon settlement of
the transactions. Cash flows from our operations in foreign countries are
translated at actual exchange rates when known, or at the average rate for the
period. As a result, amounts related to assets and liabilities reported in the
consolidated statements of cash flows will not agree to changes in the
corresponding balances in the consolidated balance sheets. The effects of
exchange rate changes on cash balances held in foreign currencies are reported
as a separate line item below cash flows from financing activities.
Income
taxes
We
account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109,
Accounting for Income
Taxes
(SFAS 109), which requires the recognition of deferred tax
assets and deferred tax liabilities for the expected future income tax
consequences of transactions that have been included in our financial
statements but not our tax returns.
Deferred tax assets and liabilities are determined based on income tax
credits and on the temporary differences between the Consolidated Financial
Statement basis and the tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse. We routinely evaluate deferred
tax assets to determine if they will, more likely than not, be recovered from
future projected taxable income; if not, we record an appropriate valuation
allowance.
Stock-Based Compensation Expense
We
account for stock-based compensation in accordance with the provisions of
Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment
(SFAS 123R). Under the fair value recognition provisions
of SFAS 123R, stock-based compensation cost is estimated at the grant date
based on the value of the award and is recognized as expense ratably over the
requisite service period of the award.
The fair value of restricted stock awards is based on the fair value of
the Companys stock on the date of grant.
Determining the appropriate fair value model and calculating the fair
value of stock options at the grant date requires judgment, including
estimating stock price volatility, forfeiture rates, and expected option life.
Recent Accounting Pronouncements
In December 2007,
the FASB issued SFAS No. 141(R),
Business Combinations
and SFAS No. 160,
Accounting and Reporting
of Noncontrolling Interest in Consolidated Financial Statements
, an
amendment of ARB No. 51. These new standards will significantly change the
accounting for and reporting of business combination transactions and
noncontrolling (minority) interests in consolidated financial statements. SFAS
Nos. 141(R) and 160 are required to be adopted simultaneously and are
effective for the first annual reporting period beginning on or after December 15,
2008. The adoption of these standards in
2009 did not have any impact on the Companys results of operations or
financial position.
In March 2008,
the FASB issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities
. SFAS 161
requires additional disclosures related to the use of derivative
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Table of Contents
instruments, the
accounting for derivatives and how derivatives impact financial statements.
SFAS No. 161 is effective for fiscal years and interim periods
beginning after November 15, 2008. The adoption of SFAS No. 161
in the first quarter of 2009 did not have any impact on the Companys results
of operations or financial position.
ITEM 3. Quantitative and Qualitative Disclosure
about Market Risk
There have been no events that materially affect our quantitative and
qualitative disclosure about market risk from that reported in our Annual
Report on Form 10-K for the year ended December 31, 2008.
ITEM 4.
Controls and Procedures
The Company maintains disclosure controls and
procedures that are designed to ensure that information required to be
disclosed in the Companys Exchange Act reports is accurately recorded,
processed, summarized and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and communicated
to the Companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating
the disclosure controls and procedures, management recognized that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and
management necessarily applied its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As of March 31, 2009, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on that evaluation, the Companys Chief
Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective. There have been no changes in the Companys
internal controls during the quarter ended March 31, 2009 or in other
factors that could materially affect the Companys internal controls over
financial reporting.
The Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer, does not expect that the
Companys disclosure controls or its internal controls will prevent all errors
and all fraud. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple errors or mistakes. As a result of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected. Accordingly, the
Companys disclosure controls and procedures are designed to provide
reasonable, not absolute, assurance that the disclosure controls and procedures
are met.
30
Table of Contents
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk
Factors
Our 2008 Annual Report on Form 10-K
includes a detailed discussion of our risk factors. The information presented below updates and
should be read in conjunction with the risk factors and information disclosed
in our Form 10-K.
We
have seen a recent slowdown in some of our markets and anticipate sales will
decline during 2009.
During the
fourth quarter of 2008 and first quarter of 2009, we have seen a slowdown in
DMC Clad sales to some of the markets we serve and anticipate our sales to
decrease by approximately 17% - 23% for the full year in 2009 from the amount
we achieved in 2008. The explosion-weld
cladding market is dependent upon sales of products for use by customers in a
limited number of heavy industries, including oil and gas, alternative energy,
chemicals and petrochemicals, hydrometallurgy, aluminum production, shipbuilding,
power generation, and industrial refrigeration.
These industries tend to be cyclical in nature and the current worldwide
economic downturn has affected many of these markets. Indeed, we have already seen a slowdown in
the chemical, petrochemical and hydrometallurgy sectors. An economic slowdown in one or all of these
industrieswhether due to traditional cyclicality, general economic conditions
or other factorscould impact capital expenditures within the industry. If demand from such industries were to
decline or to experience reduced growth rates, our sales would be expected to
be affected proportionately, which may have a material adverse effect on our
business, financial condition, and results of operations.
Our backlog figures may not accurately predict future sales.
We define backlog at any given
point in time to consist of all firm, unfulfilled purchase orders and
commitments at that time. Generally
speaking, we expect to fill most items of backlog within the following 12
months. However, since orders may be
rescheduled or canceled, and a significant portion of our net sales is derived
from a small number of customers, backlog is not necessarily indicative of
future sales levels. Moreover, we cannot
be sure of when during the future 12-month period we will be able to recognize
revenue corresponding to our backlog; nor can we be certain that revenues
corresponding to our backlog will not fall into periods beyond the 12-month
horizon.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of
Security Holders
None.
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Table of Contents
Item 5. Other Information
None.
Item 6.
Exhibits
31.1
Certification
of the President and Chief Executive Officer pursuant to 17 CFR 240.13a-14(a) or
17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2
Certification
of the Vice President and Chief Financial Officer pursuant to 17 CFR 240.13a-14(a) or
17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1
Certification
of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification
of the Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Table of Contents
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
DYNAMIC MATERIALS CORPORATION
|
|
(Registrant)
|
|
|
|
|
Date: May 1, 2009
|
/s/ Richard A. Santa
|
|
Richard A. Santa, Senior Vice President and Chief
Financial Officer (Duly Authorized Officer and Principal Financial and
Accounting Officer)
|
33
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