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 June 30, 2008
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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
Accelerated filer x |
Non-accelerated filer o |
Smaller reporting company o |
|
|
(Do not check if a smaller |
|
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 12,640,027 as of July 31, 2008.
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- Financial Statements, Item 2 - Managements Discussion and Analysis of Financial Condition and Results of Operations and 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 and 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; 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
INDEX
3
Part I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
|
|
June 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
(unaudited) |
|
|
|
||
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
||
CURRENT ASSETS: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
28,384 |
|
$ |
9,045 |
|
Restricted cash |
|
|
|
371 |
|
||
Accounts receivable, net of allowance for doubtful accounts of $662 and $534, respectively |
|
38,634 |
|
39,833 |
|
||
Inventories |
|
38,864 |
|
41,628 |
|
||
Prepaid expenses and other |
|
2,973 |
|
2,022 |
|
||
Related party receivable and loan |
|
882 |
|
1,103 |
|
||
Current deferred tax assets |
|
1,103 |
|
728 |
|
||
|
|
|
|
|
|
||
Total current assets |
|
110,840 |
|
94,730 |
|
||
|
|
|
|
|
|
||
PROPERTY, PLANT AND EQUIPMENT |
|
55,130 |
|
49,590 |
|
||
Less - Accumulated depreciation |
|
(16,799 |
) |
(14,144 |
) |
||
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
38,331 |
|
35,446 |
|
||
|
|
|
|
|
|
||
GOODWILL, net |
|
49,092 |
|
45,862 |
|
||
|
|
|
|
|
|
||
PURCHASED INTANGIBLE ASSETS, net |
|
61,431 |
|
61,914 |
|
||
|
|
|
|
|
|
||
DEFERRED TAX ASSETS |
|
182 |
|
42 |
|
||
|
|
|
|
|
|
||
OTHER ASSETS, net |
|
1,563 |
|
1,544 |
|
||
|
|
|
|
|
|
||
INVESTMENT IN JOINT VENTURES |
|
1,645 |
|
1,361 |
|
||
|
|
|
|
|
|
||
TOTAL ASSETS |
|
$ |
263,084 |
|
$ |
240,899 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
(Dollars in Thousands, Except Share Data)
|
|
June 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
(unaudited) |
|
|
|
||
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
CURRENT LIABILITIES: |
|
|
|
|
|
||
Accounts payable |
|
$ |
18,352 |
|
$ |
22,590 |
|
Accrued expenses |
|
3,851 |
|
8,566 |
|
||
Dividend payable |
|
1,894 |
|
|
|
||
Accrued income taxes |
|
4,019 |
|
1,212 |
|
||
Accrued employee compensation and benefits |
|
4,381 |
|
5,521 |
|
||
Customer advances |
|
1,836 |
|
4,593 |
|
||
Related party accounts payable and loans |
|
529 |
|
325 |
|
||
Lines of credit - current |
|
8,602 |
|
7,587 |
|
||
Current maturities on long-term debt |
|
7,792 |
|
8,035 |
|
||
Current portion of capital lease obligations |
|
417 |
|
389 |
|
||
|
|
|
|
|
|
||
Total current liabilities |
|
51,673 |
|
58,818 |
|
||
|
|
|
|
|
|
||
LINES OF CREDIT |
|
10,427 |
|
|
|
||
|
|
|
|
|
|
||
LONG-TERM DEBT |
|
62,540 |
|
61,530 |
|
||
|
|
|
|
|
|
||
CAPITAL LEASE OBLIGATIONS |
|
336 |
|
521 |
|
||
|
|
|
|
|
|
||
DEFERRED TAX LIABILITIES |
|
20,075 |
|
20,604 |
|
||
|
|
|
|
|
|
||
OTHER LONG-TERM LIABILITIES |
|
1,256 |
|
1,147 |
|
||
|
|
|
|
|
|
||
COMMITMENTS AND CONTINGENT LIABILITIES |
|
|
|
|
|
||
|
|
|
|
|
|
||
Total liabilities |
|
146,307 |
|
142,620 |
|
||
|
|
|
|
|
|
||
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;12,640,027 and 12,433,768 shares issued and outstanding, respectively |
|
632 |
|
622 |
|
||
Additional paid-in capital |
|
40,151 |
|
38,246 |
|
||
Retained earnings |
|
65,432 |
|
55,868 |
|
||
Other cumulative comprehensive income |
|
10,562 |
|
3,543 |
|
||
|
|
|
|
|
|
||
Total stockholders equity |
|
116,777 |
|
98,279 |
|
||
|
|
|
|
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
263,084 |
|
$ |
240,899 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Dollars in Thousands, Except Share Data)
(unaudited)
|
|
Three months ended |
|
Six months ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
NET SALES |
|
$ |
63,183 |
|
$ |
34,454 |
|
$ |
121,576 |
|
$ |
67,548 |
|
|
|
|
|
|
|
|
|
|
|
||||
COST OF PRODUCTS SOLD |
|
44,134 |
|
22,375 |
|
84,816 |
|
44,618 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
19,049 |
|
12,079 |
|
36,760 |
|
22,930 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
3,815 |
|
1,854 |
|
6,933 |
|
3,516 |
|
||||
Selling expenses |
|
2,633 |
|
1,455 |
|
5,474 |
|
3,101 |
|
||||
Amortization expense of purchased intangible assets |
|
2,464 |
|
|
|
4,825 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total costs and expenses |
|
8,912 |
|
3,309 |
|
17,232 |
|
6,617 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
INCOME FROM OPERATIONS |
|
10,137 |
|
8,770 |
|
19,528 |
|
16,313 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
||||
Other income (expense) |
|
189 |
|
(13 |
) |
41 |
|
(20 |
) |
||||
Interest expense |
|
(1,471 |
) |
|
|
(2,734 |
) |
|
|
||||
Interest income |
|
99 |
|
177 |
|
323 |
|
365 |
|
||||
Equity in earnings of joint ventures |
|
273 |
|
|
|
289 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
INCOME BEFORE INCOME TAXES |
|
9,227 |
|
8,934 |
|
17,447 |
|
16,658 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
INCOME TAX PROVISION |
|
3,017 |
|
3,275 |
|
5,989 |
|
6,116 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
NET INCOME |
|
$ |
6,210 |
|
$ |
5,659 |
|
$ |
11,458 |
|
$ |
10,542 |
|
|
|
|
|
|
|
|
|
|
|
||||
INCOME PER SHARE: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.50 |
|
$ |
0.47 |
|
$ |
0.92 |
|
$ |
0.88 |
|
Diluted |
|
$ |
0.49 |
|
$ |
0.46 |
|
$ |
0.91 |
|
$ |
0.86 |
|
|
|
|
|
|
|
|
|
|
|
||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
12,416,900 |
|
12,048,969 |
|
12,406,210 |
|
12,029,382 |
|
||||
Diluted |
|
12,566,726 |
|
12,239,256 |
|
12,569,983 |
|
12,232,569 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
ANNUAL DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.15 |
|
$ |
0.15 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2008
(Amounts in Thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
||||||
|
|
|
|
|
|
Additional |
|
|
|
Cumulative |
|
|
|
Comprehensive |
|
||||||
|
|
Common Stock |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
|
|
Income |
|
||||||||
|
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Income |
|
Total |
|
for the Period |
|
||||||
Balances, December 31, 2007 |
|
12,434 |
|
$ |
622 |
|
$ |
38,246 |
|
$ |
55,868 |
|
$ |
3,543 |
|
$ |
98,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Shares issued for stock option exercises |
|
49 |
|
2 |
|
133 |
|
|
|
|
|
135 |
|
|
|
||||||
Restricted stock awards |
|
153 |
|
8 |
|
(8 |
) |
|
|
|
|
|
|
|
|
||||||
Shares issued in connection with the employee stock purchase plan |
|
4 |
|
|
|
105 |
|
|
|
|
|
105 |
|
|
|
||||||
Excess tax benefit related to stock options |
|
|
|
|
|
132 |
|
|
|
|
|
132 |
|
|
|
||||||
Stock-based compensation |
|
|
|
|
|
1,543 |
|
|
|
|
|
1,543 |
|
|
|
||||||
Dividends declared |
|
|
|
|
|
|
|
(1,894 |
) |
|
|
(1,894 |
) |
|
|
||||||
Net income |
|
|
|
|
|
|
|
11,458 |
|
|
|
11,458 |
|
11,458 |
|
||||||
Derivative valuation, net of tax of $55 |
|
|
|
|
|
|
|
|
|
(90 |
) |
(90 |
) |
(90 |
) |
||||||
Change in cumulative foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
7,109 |
|
7,109 |
|
7,109 |
|
||||||
Balances, June 30, 2008 |
|
12,640 |
|
$ |
632 |
|
$ |
40,151 |
|
$ |
65,432 |
|
$ |
10,562 |
|
$ |
116,777 |
|
$ |
18,477 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Dollars in Thousands)
(unaudited)
|
|
2008 |
|
2007 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
Net income |
|
$ |
11,458 |
|
$ |
10,542 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities - |
|
|
|
|
|
||
Depreciation (including capital lease amortization) |
|
2,354 |
|
910 |
|
||
Amortization of purchased intangible assets |
|
4,825 |
|
|
|
||
Amortization of capitalized debt issuance costs |
|
114 |
|
|
|
||
Stock-based compensation |
|
1,543 |
|
519 |
|
||
Deferred income tax benefit |
|
(2,410 |
) |
(80 |
) |
||
Equity in earnings of joint ventures |
|
(289 |
) |
|
|
||
Change in - |
|
|
|
|
|
||
Restricted cash |
|
386 |
|
3,059 |
|
||
Accounts receivable, net |
|
1,237 |
|
(4,337 |
) |
||
Inventories |
|
4,731 |
|
(10,943 |
) |
||
Prepaid expenses and other |
|
(844 |
) |
(636 |
) |
||
Accounts payable |
|
(5,086 |
) |
1,276 |
|
||
Customer advances |
|
(2,859 |
) |
327 |
|
||
Accrued expenses and other liabilities |
|
(3,347 |
) |
(3,249 |
) |
||
|
|
|
|
|
|
||
Net cash provided by (used in) operating activities |
|
11,813 |
|
(2,612 |
) |
||
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
||
Acquisition of property, plant and equipment |
|
(4,203 |
) |
(4,977 |
) |
||
Change in other non-current assets |
|
31 |
|
(13 |
) |
||
|
|
|
|
|
|
||
Net cash used in investing activities |
|
(4,172 |
) |
(4,990 |
) |
||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Dollars in Thousands)
(unaudited)
|
|
2008 |
|
2007 |
|
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
||
Borrowings on bank lines of credit, net |
|
12,081 |
|
|
|
||
Payment on term loan with French bank |
|
(443 |
) |
(385 |
) |
||
Payment on Nord LB term loans |
|
(542 |
) |
|
|
||
Payment of capital lease obligations |
|
(216 |
) |
|
|
||
Payment of deferred debt issuance costs |
|
(140 |
) |
|
|
||
Change in other long-tem liabilities |
|
33 |
|
10 |
|
||
Net proceeds from issuance of common stock to employees and directors |
|
240 |
|
382 |
|
||
Excess tax benefit related to exercise of stock options |
|
132 |
|
|
|
||
|
|
|
|
|
|
||
Net cash provided by financing activities |
|
11,145 |
|
7 |
|
||
|
|
|
|
|
|
||
EFFECTS OF EXCHANGE RATES ON CASH |
|
553 |
|
83 |
|
||
|
|
|
|
|
|
||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
19,339 |
|
(7,512 |
) |
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, beginning of the period |
|
9,045 |
|
17,886 |
|
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, end of the period |
|
$ |
28,384 |
|
$ |
10,374 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
9
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, 2007.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. Only subsidiaries in which controlling interests are maintained are consolidated. The equity method is used to account for our ownership in subsidiaries where we do not have 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 for which the functional currency is the local currency 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. 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 conform with 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
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 potential loss, the Company will account for such anticipated loss.
Related Party Transactions
The Company has related party transactions with its unconsolidated joint ventures, as well as with the minority partner of one of its consolidated joint ventures. A summary of those transactions for the three and six months ended June 30, 2008 is presented below:
|
|
3 months ended |
|
6 months ended |
|
||||||||
|
|
June 30, 2008 |
|
June 30, 2008 |
|
||||||||
|
|
|
|
Interest |
|
|
|
Interest |
|
||||
|
|
Sales to |
|
income from |
|
Sales to |
|
income from |
|
||||
Perfoline |
|
$ |
14 |
|
$ |
13 |
|
$ |
47 |
|
$ |
26 |
|
DYNAenergetics RUS |
|
1,137 |
|
|
|
1,137 |
|
|
|
||||
Minority Interest Partner |
|
460 |
|
|
|
984 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
1,612 |
|
$ |
13 |
|
$ |
2,169 |
|
$ |
26 |
|
A summary of related party balances as of June 30, 2008 and December 31, 2007 is presented below:
|
|
As of June 30, 2008 |
|
As of December 31, 2007 |
|
||||||||
|
|
Accounts |
|
Accounts |
|
Accounts |
|
Accounts |
|
||||
|
|
receivable |
|
payable |
|
receivable |
|
payable |
|
||||
|
|
and loan to |
|
and loan from |
|
and loan to |
|
and loan from |
|
||||
Perfoline |
|
$ |
474 |
|
$ |
130 |
|
$ |
523 |
|
$ |
120 |
|
DYNAenergetics RUS |
|
147 |
|
|
|
449 |
|
|
|
||||
KazDYNAenergetics |
|
|
|
|
|
131 |
|
|
|
||||
Minority Interest Partner |
|
261 |
|
399 |
|
|
|
205 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
882 |
|
$ |
529 |
|
$ |
1,103 |
|
$ |
325 |
|
11
Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS recognizes the potential dilutive effects of dilutive securities. The following represents a reconciliation of the numerator and denominator used in the calculation of basic and diluted EPS:
|
|
For the three months ended June 30, 2008 |
|
||||||
|
|
|
|
|
|
Per share |
|
||
|
|
Income |
|
Shares |
|
Amount |
|
||
Basic earnings per share: |
|
|
|
|
|
|
|
||
Net income |
|
$ |
6,210 |
|
12,416,900 |
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
||
Dilutive effect of options to purchase common stock |
|
|
|
121,462 |
|
|
|
||
Dilutive effect of restricted stock awards |
|
|
|
28,364 |
|
|
|
||
|
|
|
|
|
|
|
|
||
Diluted earnings per share: |
|
|
|
|
|
|
|
||
Net income |
|
$ |
6,210 |
|
12,566,726 |
|
$ |
0.49 |
|
|
|
For the three months ended June 30, 2007 |
|
||||||
|
|
|
|
|
|
Per share |
|
||
|
|
Income |
|
Shares |
|
Amount |
|
||
Basic earnings per share: |
|
|
|
|
|
|
|
||
Net income |
|
$ |
5,659 |
|
12,048,969 |
|
$ |
0.47 |
|
|
|
|
|
|
|
|
|
||
Dilutive effect of options to purchase common stock |
|
|
|
177,934 |
|
|
|
||
Dilutive effect of restricted stock awards |
|
|
|
12,353 |
|
|
|
||
|
|
|
|
|
|
|
|
||
Diluted earnings per share: |
|
|
|
|
|
|
|
||
Net income |
|
$ |
5,659 |
|
12,239,256 |
|
$ |
0.46 |
|
|
|
For the six months ended June 30, 2008 |
|
|||||||
|
|
|
|
|
|
Per share |
|
|||
|
|
Income |
|
Shares |
|
Amount |
|
|||
Basic earnings per share: |
|
|
|
|
|
|
|
|||
Net income |
|
$ |
11,458 |
|
12,406,210 |
|
$ |
0.92 |
|
|
|
|
|
|
|
|
|
|
|||
Dilutive effect of options to purchase common stock |
|
|
|
133,370 |
|
|
|
|||
Dilutive effect of restricted stock awards |
|
|
|
30,403 |
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Diluted earnings per share: |
|
|
|
|
|
|
|
|||
Net income |
|
$ |
11,458 |
|
12,569,983 |
|
$ |
0.91 |
|
|
12
|
|
For the six months ended June 30, 2007 |
|
||||||
|
|
|
|
|
|
Per share |
|
||
|
|
Income |
|
Shares |
|
Amount |
|
||
Basic earnings per share: |
|
|
|
|
|
|
|
||
Net income |
|
$ |
10,542 |
|
12,029,382 |
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
||
Dilutive effect of options to purchase common stock |
|
|
|
194,728 |
|
|
|
||
Dilutive effect of restricted stock awards |
|
|
|
8,459 |
|
|
|
||
|
|
|
|
|
|
|
|
||
Diluted earnings per share: |
|
|
|
|
|
|
|
||
Net income |
|
$ |
10,542 |
|
12,232,569 |
|
$ |
0.86 |
|
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. SFAS No. 157 was initially effective for financial statements issued for fiscal years beginning after November 15, 2007. The FASB issued a staff position statement (FSP) in February 2008 that deferred the required implementation date of SFAS 157 for certain assets and liabilities. The adoption of SFAS 157 in the six months ended June 30, 2008 did not have a material impact on the Companys results of operations or financial position.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115. This Statement permits entities to measure many financial instruments and certain other items at fair value. This election is made on an instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This statement is effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option for any of its existing financial assets and liabilities during the six months ended June 30, 2008.
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. Thus, we are required to adopt these Standards on January 1, 2009. Earlier adoption is prohibited. The Company is in the process of determining the effect, if any, the adoption of SFAS Nos. 141(R) and 160 will have on its 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. We are currently evaluating the impact of adopting SFAS No. 161 on our consolidated financial statements.
13
3. ACQUISITION
On November 15, 2007, the Company and a newly-formed subsidiary, DYNAenergetics Holding GmbH (the Purchaser), entered into a Purchase, Sale and Assignment Agreement (the Purchase Agreement) with Rolf Rospek, Patrick Xylander, Uwe Gessel, and Oag Beteiligungs-GmbH, a German limited liability company (collectively the Sellers). Pursuant to the terms of the Purchase Agreement, on November 15, 2007 the Purchaser acquired 100% of the issued and outstanding shares of DYNAenergetics Beteiligungs-GmbH and all of the interests in DYNAenergetics GmbH and Co. KG (collectively, DYNAenergetics) from the Sellers.
DYNAenergetics manufactures clad metal plates and various explosives-related oilfield products and operates under two business segments: Explosive Metalworking and Oilfield Products. The acquisition enhances the Companys ability to address growing worldwide demand for clad metal plates and expands the Companys position in the global explosion welding market. The addition of the Oilfield Products business segment will augment the Companys involvement in specialized explosive manufacturing processes and position the Company within the growing international oil and gas services industry.
As part of the Oilfield Products business segment, the Company has several joint ventures, some of which are unconsolidated and accounted for under the equity method (see Note 4).
The acquisition was valued at $112,635 and was financed by (i) the payment of $81,715 in cash, net of cash acquired of $1,870 and transaction related taxes of $3,708 (2,530 Euros) due from one of the sellers and withheld by the Purchaser, (ii) the issuance of 251,041 shares of common stock of the Company (valued at $13,509), and (iii) the assumption of approximately $11,833 (8,074 Euros) of DYNAenergetics debt. The cash portion of the purchase price was financed using proceeds from the new syndicated credit agreement and existing available cash.
The purchase price of the acquisition was allocated to the Companys tangible and identifiable intangible assets based on their estimated fair values as set forth below. Property, plant and equipment were recorded at fair values based on appraisals performed as of the acquisition date. The preliminary allocation to identifiable intangible assets was based on preliminary valuation data and the estimates and assumptions are subject to change. The excess of the purchase price over the tangible and identifiable intangible assets was recorded as goodwill. The Company is still in the process of analyzing other potential purchase accounting adjustments including compiling remaining acquisition related expenses.
14
The preliminary allocation of the purchase price to the assets and liabilities of DYNAenergetics is as follows:
Current assets |
|
$ |
30,222 |
|
Property, plant and equipment |
|
7,845 |
|
|
Intangible assets |
|
62,794 |
|
|
Goodwill |
|
45,919 |
|
|
Investment in joint ventures |
|
1,324 |
|
|
Other assets |
|
11 |
|
|
|
|
|
|
|
Total assets acquired |
|
148,115 |
|
|
|
|
|
|
|
Current liabilities |
|
14,524 |
|
|
Long term debt |
|
11,833 |
|
|
Deferred tax liabilities |
|
19,850 |
|
|
Other long term liabilities |
|
1,096 |
|
|
Minority interest |
|
10 |
|
|
|
|
|
|
|
Total liabilities acquired |
|
47,313 |
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
100,802 |
|
The Company acquired identifiable finite-lived intangible assets as a result of the acquisition of DYNAenergetics. The finite-lived intangible assets acquired are preliminarily classified and valued as follows:
The Company acquired Goodwill in the amount of $45,919 as a result of the acquisition of DYNAenergetics. The amount of goodwill assigned to each reportable segment is as follows:
|
|
Value |
|
|
Explosive Metalworking |
|
$ |
25,222 |
|
Oilfield Products |
|
20,697 |
|
|
|
|
|
|
|
Total goodwill |
|
$ |
45,919 |
|
Goodwill as of June 30, 2008 amounts to $49,092 and the change from December 31, 2007 reflects the impact of foreign currency translation and subsequent purchase price adjustments resulting from the compilation of additional acquisition related expenses.
15
The following table presents the unaudited, pro-forma combined results of operations for the three and six months ended June 30, 2007 assuming (i) the acquisition had occurred on January 1, 2007; (ii) pro-forma amortization expense of the purchased intangible assets and (iii) pro-forma interest expense assuming the Company utilized its syndicated credit agreement to finance the acquisition:
|
|
Three months |
|
Six months |
|
||
|
|
ended |
|
ended |
|
||
|
|
June 30, |
|
June 30, |
|
||
|
|
2007 |
|
2007 |
|
||
Net sales |
|
$ |
47,634 |
|
$ |
93,698 |
|
Income from operations |
|
$ |
8,781 |
|
$ |
15,832 |
|
Net income |
|
$ |
4,756 |
|
$ |
8,446 |
|
|
|
|
|
|
|
||
Net income per share: |
|
|
|
|
|
||
Basic |
|
$ |
0.39 |
|
$ |
0.69 |
|
Diluted |
|
$ |
0.38 |
|
$ |
0.68 |
|
The pro-forma results above are not necessarily indicative of the operating results that would have actually occurred if the acquisition had been in effect on the dates indicated, nor are they necessarily indicative of future results of the combined companies.
4. INVESTMENT IN JOINT VENTURES
Operating results include the Companys proportionate share of income from joint ventures, which consist of unconsolidated joint ventures 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) 53.5% 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 effectively require 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 $1,645 and $1,361 as of June 30, 2008 and December 31, 2007, respectively.
16
Summarized unaudited financial information for the joint ventures accounted for under the equity method as of June 30, 2008 and December 31, 2007 and for the three and six months ended June 30, 2008 is as follows:
|
|
June 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
Current assets |
|
$ |
3,828 |
|
$ |
4,148 |
|
Noncurrent assets |
|
923 |
|
666 |
|
||
Total assets |
|
$ |
4,751 |
|
$ |
4,814 |
|
|
|
|
|
|
|
||
Current liabilities |
|
$ |
673 |
|
$ |
1,400 |
|
Noncurrent liabilities |
|
1,051 |
|
1,048 |
|
||
Equity |
|
3,027 |
|
2,366 |
|
||
Total liabilities and equity |
|
$ |
4,751 |
|
$ |
4,814 |
|
|
|
Three months |
|
Six months |
|
||
|
|
ended |
|
ended |
|
||
|
|
June 30, |
|
June 30, |
|
||
|
|
2008 |
|
2008 |
|
||
Net sales |
|
$ |
2,522 |
|
$ |
4,725 |
|
Gross profit |
|
$ |
820 |
|
$ |
1,233 |
|
Operating income |
|
$ |
617 |
|
$ |
788 |
|
Net income |
|
$ |
549 |
|
$ |
535 |
|
Equity in earnings of joint ventures |
|
$ |
273 |
|
$ |
289 |
|
5. INVENTORY
The components of inventory are as follows at June 30, 2008 and December 31, 2007:
|
|
June 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
(unaudited) |
|
|
|
||
Raw materials |
|
$ |
13,117 |
|
$ |
13,744 |
|
Work-in-process |
|
20,763 |
|
23,699 |
|
||
Finished goods |
|
4,406 |
|
3,564 |
|
||
Supplies |
|
578 |
|
621 |
|
||
|
|
|
|
|
|
||
|
|
$ |
38,864 |
|
$ |
41,628 |
|
17
6. PURCHASED INTANGIBLE ASSETS
The following table presents details of our purchased intangible assets, other than goodwill, as of June 30, 2008:
|
|
|
|
Accumulated |
|
|
|
|||
|
|
Gross |
|
Amortization |
|
Net |
|
|||
Core technology |
|
$ |
26,444 |
|
$ |
(826) |
|
$ |
25,618 |
|
Customer relationships |
|
35,680 |
|
(2,478 |
) |
33,202 |
|
|||
Trademarks / Trade names |
|
2,880 |
|
(269 |
) |
2,611 |
|
|||
Order backlog DYNAplat |
|
2,686 |
|
(2,686 |
) |
|
|
|||
|
|
|
|
|
|
|
|
|||
Total intangible assets |
|
$ |
67,690 |
|
$ |
(6,259 |
) |
$ |
61,431 |
|
The following table presents details of our purchased intangible assets, other than goodwill, as of December 31, 2007:
|
|
|
|
Accumulated |
|
|
|
|||
|
|
Gross |
|
Amortization |
|
Net |
|
|||
Core technology |
|
$ |
24,653 |
|
$ |
(154 |
) |
$ |
24,499 |
|
Customer relationships |
|
33,263 |
|
(461 |
) |
32,802 |
|
|||
Trademarks / Trade names |
|
2,685 |
|
(50 |
) |
2,635 |
|
|||
Order backlog DYNAplat |
|
2,504 |
|
(526 |
) |
1,978 |
|
|||
|
|
|
|
|
|
|
|
|||
Total intangible assets |
|
$ |
63,105 |
|
$ |
(1,191 |
) |
$ |
61,914 |
|
The increase in the gross value of our purchased intangible assets from December 31, 2007 to June 30, 2008 is due to the impact of foreign currency translation.
7. DEBT
Lines of credit consist of the following at June 30, 2008 and December 31, 2007:
|
|
June 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
(unaudited) |
|
|
|
||
Syndicated credit agreement revolving loan |
|
$ |
10,427 |
|
$ |
|
|
Commerzbank revolving line of credit |
|
397 |
|
3,225 |
|
||
Commerzbank line of credit |
|
3,950 |
|
1,473 |
|
||
Deutsche Bank revolving line of credit |
|
784 |
|
680 |
|
||
Nord LB line of credit |
|
3,471 |
|
2,209 |
|
||
|
|
|
|
|
|
||
|
|
19,029 |
|
7,587 |
|
||
Less current portion |
|
(8,602 |
) |
(7,587 |
) |
||
|
|
|
|
|
|
||
Long-term lines of credit |
|
$ |
10,427 |
|
$ |
|
|
18
Long-term debt consists of the following at June 30, 2008 and December 31, 2007:
|
|
June 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
(unaudited) |
|
|
|
||
Syndicated credit agreement term loan |
|
$ |
45,000 |
|
$ |
45,000 |
|
Syndicated credit agreement Euro term loan |
|
22,119 |
|
20,621 |
|
||
Euro term loan - French bank |
|
|
|
427 |
|
||
Nord LB 3,000 Euro term loan |
|
3,081 |
|
3,314 |
|
||
Nord LB 500 Euro term loan |
|
132 |
|
203 |
|
||
|
|
|
|
|
|
||
|
|
70,332 |
|
69,565 |
|
||
Less current maturities |
|
(7,792 |
) |
(8,035 |
) |
||
|
|
|
|
|
|
||
Long-term debt |
|
$ |
62,540 |
|
$ |
61,530 |
|
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 June 30, 2008, the Company was in compliance with all financial covenants and other provisions of its debt agreements.
Swap Agreement
On November 15, 2007, the Company entered into an interest swap agreement that effectively converted the LIBOR based variable rate borrowings under the $45,000 term loan to a fixed rate of 6.34%. 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 asset or liability. As of June 30, 2008, the fair value of the swap agreement was a liability of $382. The swap agreement expires on November 16, 2008.
8. 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 product of this group is clad metal which is used in the fabrication of pressure vessels, heat exchangers and transition joints for various industries, including upstream oil and gas, oil refinery, petrochemicals, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and similar 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 engines 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
19
marketed to different customer types and requires different manufacturing processes and technologies. Segment information is presented for the three and six months ended June 30, 2008 and 2007 as follows:
|
|
Explosive |
|
|
|
|
|
|
|
||||
|
|
Metalworking |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
Group |
|
Products |
|
Welding |
|
Total |
|
||||
For the three months ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
52,996 |
|
$ |
7,922 |
|
$ |
2,265 |
|
$ |
63,183 |
|
Depreciation and amortization |
|
$ |
2,660 |
|
$ |
937 |
|
$ |
108 |
|
$ |
3,705 |
|
Income from operations |
|
$ |
9,815 |
|
$ |
616 |
|
$ |
585 |
|
$ |
11,016 |
|
Equity in earnings of joint ventures |
|
$ |
|
|
$ |
273 |
|
$ |
|
|
273 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
(879 |
) |
||||
Other income |
|
|
|
|
|
|
|
189 |
|
||||
Interest expense |
|
|
|
|
|
|
|
(1,471 |
) |
||||
Interest income |
|
|
|
|
|
|
|
99 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
9,227 |
|
|
|
Explosive |
|
|
|
|
|
|||
|
|
Metalworking |
|
AMK |
|
|
|
|||
|
|
Group |
|
Welding |
|
Total |
|
|||
For the three months ended June 30, 2007: |
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
33,119 |
|
$ |
1,335 |
|
$ |
34,454 |
|
Depreciation |
|
$ |
452 |
|
$ |
63 |
|
$ |
515 |
|
Income from operations |
|
$ |
9,047 |
|
$ |
18 |
|
$ |
9,065 |
|
Unallocated amounts: |
|
|
|
|
|
|
|
|||
Stock-based compensation |
|
|
|
|
|
(295 |
) |
|||
Other expense |
|
|
|
|
|
(13 |
) |
|||
Interest income |
|
|
|
|
|
177 |
|
|||
|
|
|
|
|
|
|
|
|||
Consolidated income before income taxes |
|
|
|
|
|
$ |
8,934 |
|
|
|
Explosive |
|
|
|
|
|
|
|
||||
|
|
Metalworking |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
Group |
|
Products |
|
Welding |
|
Total |
|
||||
For the six months ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
104,638 |
|
$ |
12,373 |
|
$ |
4,565 |
|
$ |
121,576 |
|
Depreciation and amortization |
|
$ |
5,044 |
|
$ |
1,919 |
|
$ |
216 |
|
$ |
7,179 |
|
Income from operations |
|
$ |
19,799 |
|
$ |
50 |
|
$ |
1,222 |
|
$ |
21,071 |
|
Equity in earnings of joint ventures |
|
$ |
|
|
$ |
289 |
|
$ |
|
|
289 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
(1,543 |
) |
||||
Other income |
|
|
|
|
|
|
|
41 |
|
||||
Interest expense |
|
|
|
|
|
|
|
(2,734 |
) |
||||
Interest income |
|
|
|
|
|
|
|
323 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
17,447 |
|
20
|
|
Explosive |
|
|
|
|
|
|||
|
|
Metalworking |
|
AMK |
|
|
|
|||
|
|
Group |
|
Welding |
|
Total |
|
|||
For the six months ended June 30, 2007: |
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
64,614 |
|
$ |
2,934 |
|
$ |
67,548 |
|
Depreciation |
|
$ |
787 |
|
$ |
123 |
|
$ |
910 |
|
Income from operations |
|
$ |
16,550 |
|
$ |
282 |
|
$ |
16,832 |
|
Unallocated amounts: |
|
|
|
|
|
|
|
|||
Stock-based compensation |
|
|
|
|
|
(519 |
) |
|||
Other expense |
|
|
|
|
|
(20 |
) |
|||
Interest income |
|
|
|
|
|
365 |
|
|||
|
|
|
|
|
|
|
|
|||
Consolidated income before income taxes |
|
|
|
|
|
$ |
16,658 |
|
During the three and six months ended June 30, 2008 and 2007, no sales to any one customer accounted for more than 10% of total net sales.
9. COMPREHENSIVE INCOME
The Companys comprehensive income for the three and six months ended June 30, 2008 and 2007 was as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
Net income for the period |
|
$ |
6,210 |
|
$ |
5,659 |
|
$ |
11,458 |
|
$ |
10,542 |
|
Interest rate swap valuation adjustment, net of tax |
|
195 |
|
|
|
(90 |
) |
|
|
||||
Foreign currency translation adjustment |
|
(148 |
) |
200 |
|
7,109 |
|
260 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income |
|
$ |
6,257 |
|
$ |
5,859 |
|
$ |
18,477 |
|
$ |
10,802 |
|
Accumulated other cumulative comprehensive income as of June 30, 2008 and December 31, 2007 consisted of the following:
|
|
June 30, |
|
December 31, |
|
||
|
|
2008 |
|
2007 |
|
||
|
|
(unaudited) |
|
|
|
||
Currency translation adjustment |
|
$ |
10,799 |
|
$ |
3,690 |
|
Interest rate swap valuation adjustment, net of tax of $145 and $90, respectively |
|
(237 |
) |
(147 |
) |
||
|
|
|
|
|
|
||
|
|
$ |
10,562 |
|
$ |
3,543 |
|
21
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, 2007.
Unless stated otherwise, all dollar figures in this discussion are presented in thousands (000s).
Executive Overview
Historically, our business has been organized into two segments: Explosive Metalworking (which we also refer to as DMC Clad) and AMK Welding. On November 15, 2007, we acquired 100% ownership of a German company, DYNAenergetics. DYNAenergetics operates two distinct businesses which have historically been known as DYNAplat and DYNAwell. DYNAplat is a manufacturer of explosion clad products similar to those manufactured by DMC Clad and its operating results from the date of acquisition are included in our Explosive Metalworking segment. DYNAwell manufactures a number of products for the perforation of oil and gas wells and also distributes a line of seismic products for oil and gas exploration activities. DYNAwells operating results from the date of acquisition are reported under a new segment that we have named Oilfield Products.
For the six months ended June 30, 2008, Explosive Metalworking accounted for 86% of our net sales and 94% of our income from operations before consideration of stock-based compensation expense, which is not allocated to our business segments. Our AMK Welding and Oilfield Products segments accounted for 4% and 10%, respectively, of our first half 2008 net sales.
Our net sales for the six months ended June 30, 2008, which include $31,722 of sales from our recently acquired DYNAenergetics businesses, increased by $54,028 (80.0%) compared to the first six months of 2007, reflecting year-to-year net sales increases of $40,024 (61.9%) and $1,631 (55.6%) for our Explosive Metalworking and AMK Welding segments, respectively, and a sales contribution of $12,373 from our new Oilfield Products segment. Income from operations increased by 19.7% to $19,528 in the first six months of 2008 from $16,313 in the first six months of 2007, reflecting improvements in Explosive Metalworkings and AMK Weldings operating income of $3,249 and $940, respectively, that were partially offset by a $1,024 increase in stock-based compensation expense. Our Oilfield Products segment reported operating income of $50. Our net income increased by 8.7% to $11,458 for the six months ended June 30, 2008 from $10,542 in the same period of 2007.
Net sales
Explosive Metalworkings net sales 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 energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and similar industries. While demand for our clad metal products in the United States is largely driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing and oil refining facilities also account for a significant portion of total demand. In contrast to the U.S. market,
22
demand for our clad products in Europe and Asia is more dependent on new construction projects, such as the building of new Purified Terephthalic Acid (PTA) plants in different parts of the world, including China, and on sales of electrical transition joints that are used in the aluminum production industry.
Oilfield Products net sales are generated principally from sales of shaped charges, detonators and detonating cord, boosters and 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 net sales 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 net sales is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, and 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 product on time and competing favorably on the basis of price.
DMC Clads business is cyclical since it is linked to its customers end-market activity. For example, the construction cycle for new manufacturing capacity in the chemical industry has historically been one characterized by significant amplitude. It is driven both by global economic demand growth and capacity utilization. As capacity starts to become tight for various chemicals and prices begin to rise, new manufacturing capacity is added in relatively large incremental amounts.
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 34.3% for the first half of 2008 from 36.7% for the first half of 2007. 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. Based upon existing tax regulations and current federal, state and foreign statutory tax rates, we expect our full
23
year 2008 blended effective tax rate on our consolidated pre-tax income to range between 32% to 33%.
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 to consist 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. 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 sure that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon.
Our backlog with respect to the Explosive Metalworking segment increased to approximately $104,871 at June 30, 2008 from approximately $102,106 at March 31, 2008 and approximately $100,000 at December 31, 2007.
Three and Six Months Ended June 30, 2008 Compared to Three and Six Months Ended June 30, 2007
Net sales
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
Percentage |
|
|||||
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|||
Net sales |
|
$ |
63,183 |
|
$ |
34,454 |
|
$ |
28,729 |
|
83.4 |
% |
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
Percentage |
|
|||||
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|||
Net sales |
|
$ |
121,576 |
|
$ |
67,548 |
|
$ |
54,028 |
|
80.0 |
% |
Net sales for the second quarter of 2008 increased 83.4% to $63,183 from $34,454 in the second quarter of 2007. Explosive Metalworking sales increased 60.0% to $52,996 in the three months ended June 30, 2008 (84% of total sales) from $33,119 in the same period of 2007 (96% of total sales). The significant increase in Explosive Metalworking sales reflects a sales contribution of $8,605 from the DYNAplat division of DYNAenergetics and increased sales of $11,272 from our other DMC Clad divisions which reflect the continued strong economic condition of the industries this business segment serves.
Oilfield Products contributed $7,922 to second quarter 2008 sales (12% of total sales).
AMK Welding contributed $2,265 to second quarter 2008 sales (4% of total sales), which represents a 69.7% increase from sales of $1,335 in the second quarter of 2007 (4% of total sales). The increases in AMKs sales relates principally to increased revenues from ground-based gas turbine work.
Net sales for the first half of 2008 increased 80.0% to $121,576 from $67,548 in the first half of 2007. Explosive Metalworking sales increased 61.9% to $104,638 in the six months ended June 30, 2008 (86% of total sales) from $64,614 in the same period of 2007 (96% of total sales).
24
The significant increase in Explosive Metalworking sales reflects a sales contribution of $19,349 from the DYNAplat division of DYNAenergetics and increased sales of $20,675 from our other DMC Clad divisions which reflect the continued strong economic condition of the industries this business segment serves. Due to longer lead times on carbon steel supply in the United States, sales for the second half of 2008 are expected to be up to 8% lower than those reported for the first half of the year, with third quarter 2008 sales expected to be up to 20% less than the $52,996 in sales that we reported in the second quarter.
Oilfield Products contributed $12,373 to first half 2008 sales (10% of total sales). Sales during the second half of 2008 are expected to be 20% to 30% higher than those of the first half with most of this increase coming in the fourth quarter.
AMK Welding contributed $4,565 to first half 2008 sales (4% of total sales), which represented a 55.6% increase from sales of $2,934 in the first half of 2007 (4% of total sales). The increases in AMKs sales relates principally to increased revenues from ground-based gas turbine work. Second half 2008 sales at AMK Welding are expected to be comparable to or slightly higher than those for the first half of the year.
Gross profit
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
Percentage |
|
|||||
|
|
2008 |
|
2007 |
|
Change |
|
Change |
|
|||
Gross profit |
|
$ |
19,049 |
|
$ |
12,079 |
|
$ |
6,970 |
|
57.7 |
% |
Consolidated gross profit margin rate |
|
30.1 |
% |
35.1 |
% |
|
|
|
|
|||
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|