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, 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 filero |
Smaller reporting company o |
(Do not check if smaller reporting company) |
|
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 12,877,306 as of July 31, 2009.
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
3
Part I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
|
|
June 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
|
|
(unaudited) |
|
|
|
||
ASSETS |
|
|
|
|
|
||
|
|
|
|
|
|
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CURRENT ASSETS: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
20,794 |
|
$ |
14,360 |
|
Accounts receivable, net of allowance for doubtful accounts of $635 and $614, respectively |
|
29,197 |
|
34,719 |
|
||
Inventories |
|
32,548 |
|
35,300 |
|
||
Prepaid expenses and other |
|
2,867 |
|
2,956 |
|
||
Related party receivable and loan |
|
2,253 |
|
2,611 |
|
||
Current deferred tax assets |
|
895 |
|
1,103 |
|
||
|
|
|
|
|
|
||
Total current assets |
|
88,554 |
|
91,049 |
|
||
|
|
|
|
|
|
||
PROPERTY, PLANT AND EQUIPMENT |
|
60,374 |
|
58,454 |
|
||
Less - Accumulated depreciation |
|
(20,140 |
) |
(17,997 |
) |
||
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
40,234 |
|
40,457 |
|
||
|
|
|
|
|
|
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GOODWILL, net |
|
42,434 |
|
43,066 |
|
||
|
|
|
|
|
|
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PURCHASED INTANGIBLE ASSETS, net |
|
49,540 |
|
52,264 |
|
||
|
|
|
|
|
|
||
DEFERRED TAX ASSETS |
|
722 |
|
331 |
|
||
|
|
|
|
|
|
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OTHER ASSETS, net |
|
1,301 |
|
1,449 |
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||
|
|
|
|
|
|
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INVESTMENT IN JOINT VENTURES |
|
1,065 |
|
970 |
|
||
|
|
|
|
|
|
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TOTAL ASSETS |
|
$ |
223,850 |
|
$ |
229,586 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share Data)
|
|
June 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
|
|
(unaudited) |
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
|
|
|
|
|
|
||
CURRENT LIABILITIES: |
|
|
|
|
|
||
Accounts payable |
|
$ |
10,613 |
|
$ |
15,402 |
|
Accrued expenses |
|
4,083 |
|
6,605 |
|
||
Dividend payable |
|
513 |
|
|
|
||
Accrued income taxes |
|
261 |
|
846 |
|
||
Accrued employee compensation and benefits |
|
4,022 |
|
5,579 |
|
||
Customer advances |
|
3,782 |
|
2,685 |
|
||
Related party accounts payable |
|
24 |
|
17 |
|
||
Lines of credit - current |
|
151 |
|
|
|
||
Current maturities on long-term debt |
|
10,543 |
|
14,450 |
|
||
Current portion of capital lease obligations |
|
92 |
|
163 |
|
||
|
|
|
|
|
|
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Total current liabilities |
|
34,084 |
|
45,747 |
|
||
|
|
|
|
|
|
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LONG-TERM DEBT |
|
45,610 |
|
46,178 |
|
||
|
|
|
|
|
|
||
CAPITAL LEASE OBLIGATIONS |
|
298 |
|
336 |
|
||
|
|
|
|
|
|
||
DEFERRED TAX LIABILITIES |
|
15,566 |
|
16,833 |
|
||
|
|
|
|
|
|
||
OTHER LONG-TERM LIABILITIES - RELATED PARTY |
|
344 |
|
303 |
|
||
|
|
|
|
|
|
||
OTHER LONG-TERM LIABILITIES |
|
1,300 |
|
1,687 |
|
||
|
|
|
|
|
|
||
COMMITMENTS AND CONTINGENT LIABILITIES |
|
|
|
|
|
||
|
|
|
|
|
|
||
Total liabilities |
|
97,202 |
|
111,084 |
|
||
|
|
|
|
|
|
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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; 12,877,306 and 12,780,877 shares issued and outstanding, respectively |
|
644 |
|
639 |
|
||
Additional paid-in capital |
|
44,271 |
|
42,050 |
|
||
Retained earnings |
|
83,961 |
|
78,042 |
|
||
Other cumulative comprehensive loss |
|
(2,228 |
) |
(2,229 |
) |
||
|
|
|
|
|
|
||
Total stockholders equity |
|
126,648 |
|
118,502 |
|
||
|
|
|
|
|
|
||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
223,850 |
|
$ |
229,586 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Dollars in Thousands, Except Share Data)
(unaudited)
|
|
Three months ended |
|
Six months ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
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2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
NET SALES |
|
$ |
37,819 |
|
$ |
63,183 |
|
$ |
87,578 |
|
$ |
121,576 |
|
|
|
|
|
|
|
|
|
|
|
||||
COST OF PRODUCTS SOLD |
|
28,665 |
|
44,134 |
|
63,096 |
|
84,816 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
9,154 |
|
19,049 |
|
24,482 |
|
36,760 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses |
|
3,043 |
|
3,815 |
|
6,569 |
|
6,933 |
|
||||
Selling expenses |
|
1,840 |
|
2,633 |
|
4,164 |
|
5,474 |
|
||||
Amortization expense of purchased intangible assets |
|
1,232 |
|
2,464 |
|
2,416 |
|
4,825 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total costs and expenses |
|
6,115 |
|
8,912 |
|
13,149 |
|
17,232 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
INCOME FROM OPERATIONS |
|
3,039 |
|
10,137 |
|
11,333 |
|
19,528 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
||||
Other income |
|
191 |
|
189 |
|
74 |
|
41 |
|
||||
Interest expense |
|
(867 |
) |
(1,471 |
) |
(1,769 |
) |
(2,734 |
) |
||||
Interest income |
|
38 |
|
99 |
|
104 |
|
323 |
|
||||
Equity in earnings of joint ventures |
|
127 |
|
273 |
|
79 |
|
289 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
INCOME BEFORE INCOME TAXES |
|
2,528 |
|
9,227 |
|
9,821 |
|
17,447 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
INCOME TAX PROVISION |
|
1,013 |
|
3,017 |
|
3,389 |
|
5,989 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
NET INCOME |
|
$ |
1,515 |
|
$ |
6,210 |
|
$ |
6,432 |
|
$ |
11,458 |
|
|
|
|
|
|
|
|
|
|
|
||||
INCOME PER SHARE: |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.12 |
|
$ |
0.49 |
|
$ |
0.50 |
|
$ |
0.91 |
|
Diluted |
|
$ |
0.12 |
|
$ |
0.49 |
|
$ |
0.50 |
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - |
|
|
|
|
|
|
|
|
|
||||
Basic |
|
12,595,551 |
|
12,416,900 |
|
12,570,640 |
|
12,406,210 |
|
||||
Diluted |
|
12,611,430 |
|
12,538,362 |
|
12,601,160 |
|
12,539,580 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.04 |
|
$ |
0.15 |
|
$ |
0.04 |
|
$ |
0.15 |
|
The accompanying notes are in integral part of these Condensed Consolidated Financial Statements.
6
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2009
(Amounts in Thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
||||||
|
|
|
|
|
|
Additional |
|
|
|
Cumulative |
|
|
|
Comprehensive |
|
||||||
|
|
Common Stock |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
|
|
Income |
|
||||||||
|
|
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 |
|
78 |
|
4 |
|
260 |
|
|
|
|
|
264 |
|
|
|
||||||
Restricted stock awards |
|
12 |
|
1 |
|
(1 |
) |
|
|
|
|
|
|
|
|
||||||
Shares issued in connection with the employee stock purchase plan |
|
6 |
|
|
|
109 |
|
|
|
|
|
109 |
|
|
|
||||||
Excess tax benefit related to stock options |
|
|
|
|
|
93 |
|
|
|
|
|
93 |
|
|
|
||||||
Stock-based compensation |
|
|
|
|
|
1,760 |
|
|
|
|
|
1,760 |
|
|
|
||||||
Dividends declared |
|
|
|
|
|
|
|
(513 |
) |
|
|
(513 |
) |
|
|
||||||
Net income |
|
|
|
|
|
|
|
6,432 |
|
|
|
6,432 |
|
6,432 |
|
||||||
Derivative valuation adjustment, net of tax of $106 |
|
|
|
|
|
|
|
|
|
197 |
|
197 |
|
197 |
|
||||||
Change in cumulative foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
(196 |
) |
(196 |
) |
(196 |
) |
||||||
Balances, June 30, 2009 |
|
12,877 |
|
$ |
644 |
|
$ |
44,271 |
|
$ |
83,961 |
|
$ |
(2,228 |
) |
$ |
126,648 |
|
$ |
6,433 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
7
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Dollars in Thousands)
(unaudited)
|
|
2009 |
|
2008 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
Net income |
|
$ |
6,432 |
|
$ |
11,458 |
|
Adjustments to reconcile net income to net cash provided by operating activities - |
|
|
|
|
|
||
Depreciation (including capital lease amortization) |
|
2,441 |
|
2,354 |
|
||
Amortization of purchased intangible assets |
|
2,416 |
|
4,825 |
|
||
Amortization of capitalized debt issuance costs |
|
141 |
|
114 |
|
||
Stock-based compensation |
|
1,760 |
|
1,543 |
|
||
Deferred income tax benefit |
|
(954 |
) |
(2,410 |
) |
||
Equity in earnings of joint ventures |
|
(79 |
) |
(289 |
) |
||
Change in - |
|
|
|
|
|
||
Restricted cash |
|
|
|
386 |
|
||
Accounts receivable, net |
|
4,374 |
|
1,237 |
|
||
Inventories |
|
2,475 |
|
4,731 |
|
||
Prepaid expenses and other |
|
1,540 |
|
(844 |
) |
||
Accounts payable |
|
(4,407 |
) |
(5,086 |
) |
||
Customer advances |
|
1,029 |
|
(2,859 |
) |
||
Accrued expenses and other liabilities |
|
(4,797 |
) |
(3,347 |
) |
||
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
12,371 |
|
11,813 |
|
||
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
||
Acquisition of property, plant and equipment |
|
(2,231 |
) |
(4,203 |
) |
||
Change in other non-current assets |
|
23 |
|
31 |
|
||
|
|
|
|
|
|
||
Net cash used in investing activities |
|
(2,208 |
) |
(4,172 |
) |
||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
8
DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
(Dollars in Thousands)
|
|
2009 |
|
2008 |
|
||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
||
Payment on syndicated term loans |
|
(3,885 |
) |
|
|
||
Payment on term loan with French bank |
|
|
|
(443 |
) |
||
Payment on Nord LB term loans |
|
(438 |
) |
(542 |
) |
||
Borrowings on bank lines of credit, net |
|
143 |
|
12,081 |
|
||
Payment of capital lease obligations |
|
(102 |
) |
(216 |
) |
||
Payment of deferred debt issuance costs |
|
(19 |
) |
(140 |
) |
||
Change in other long-tem liabilities |
|
|
|
33 |
|
||
Net proceeds from issuance of common stock to employees and directors |
|
373 |
|
240 |
|
||
Excess tax benefit related to exercise of stock options |
|
93 |
|
132 |
|
||
|
|
|
|
|
|
||
Net cash provided by (used in) financing activities |
|
(3,835 |
) |
11,145 |
|
||
|
|
|
|
|
|
||
EFFECTS OF EXCHANGE RATES ON CASH |
|
106 |
|
553 |
|
||
|
|
|
|
|
|
||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
6,434 |
|
19,339 |
|
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, beginning of the period |
|
14,360 |
|
9,045 |
|
||
|
|
|
|
|
|
||
CASH AND CASH EQUIVALENTS, end of the period |
|
$ |
20,794 |
|
$ |
28,384 |
|
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, 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 Condensed 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
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
The carrying values of cash and cash equivalents, trade accounts receivable and payable, accrued expenses, and notes receivable are considered to approximate fair value due to the short-term nature of these instruments. We estimate that a hypothetical 200 basis point increase in our LIBOR/EURIBOR basis borrowing spread would decrease the fair value of our long-term debt by approximately 5%. The majority of the Companys debt was incurred in connection with the acquisition of DYNAenergetics.
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 |
11
|
|
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. |
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 requires management judgment but as of June 30, 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 June 30, 2009 and December 31, 2008 is summarized below:
|
|
As of June 30, 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 |
|
$ |
505 |
|
$ |
17 |
|
$ |
|
|
$ |
449 |
|
$ |
17 |
|
$ |
|
|
DYNAenergetics RUS |
|
1,228 |
|
|
|
|
|
1,582 |
|
|
|
|
|
||||||
Noncontrolling Interest Partner |
|
520 |
|
7 |
|
344 |
|
580 |
|
|
|
303 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total |
|
$ |
2,253 |
|
$ |
24 |
|
$ |
344 |
|
$ |
2,611 |
|
$ |
17 |
|
$ |
303 |
|
12
A summary of related party transactions for the three and six months ended June 30, 2009 and 2008 is summarized below:
|
|
Three months ended |
|
Three months ended |
|
||||||||
|
|
June 30, 2009 |
|
June 30, 2008 |
|
||||||||
|
|
|
|
Interest |
|
|
|
Interest |
|
||||
|
|
Sales to |
|
income from |
|
Sales to |
|
income from |
|
||||
Perfoline |
|
$ |
17 |
|
$ |
10 |
|
$ |
14 |
|
$ |
13 |
|
DYNAenergetics RUS |
|
692 |
|
|
|
1,137 |
|
|
|
||||
Noncontrolling Interest Partner |
|
146 |
|
|
|
460 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
855 |
|
$ |
10 |
|
$ |
1,611 |
|
$ |
13 |
|
|
|
Six months ended |
|
Six months ended |
|
||||||||
|
|
June 30, 2009 |
|
June 30, 2008 |
|
||||||||
|
|
|
|
Interest |
|
|
|
Interest |
|
||||
|
|
Sales to |
|
income from |
|
Sales to |
|
income from |
|
||||
Perfoline |
|
$ |
57 |
|
$ |
20 |
|
$ |
47 |
|
$ |
26 |
|
DYNAenergetics RUS |
|
734 |
|
|
|
1,137 |
|
|
|
||||
Noncontrolling Interest Partner |
|
444 |
|
|
|
984 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
1,235 |
|
$ |
20 |
|
$ |
2,168 |
|
$ |
26 |
|
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 no change to the diluted EPS for the three months ended June 30, 2008. The adoption of this FSP resulted in a $.01 per share reduction to the previously reported basic EPS and diluted EPS for the six months ended June 30, 2008.
13
Computation and reconciliation of earnings per common share are as follows:
|
|
For the Three Months Ended |
|
For the Three Months Ended |
|
||||||||||||
|
|
June 30, 2009 |
|
June 30, 2008 |
|
||||||||||||
|
|
Income |
|
Shares |
|
EPS |
|
Income |
|
Shares |
|
EPS |
|
||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
1,515 |
|
|
|
|
|
$ |
6,210 |
|
|
|
|
|
||
Less income allocated to RSAs |
|
31 |
|
|
|
|
|
97 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income allocated to common stock for basic EPS calculation |
|
$ |
1,484 |
|
12,595,551 |
|
$ |
0.12 |
|
$ |
6,113 |
|
12,416,900 |
|
$ |
0.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjust shares for Dilutives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation plans |
|
|
|
15,879 |
|
|
|
|
|
121,462 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
1,515 |
|
|
|
|
|
$ |
6,210 |
|
|
|
|
|
||
Less income allocated to RSAs |
|
31 |
|
|
|
|
|
96 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income allocated to common stock for dilutive EPS calculation |
|
$ |
1,484 |
|
12,611,430 |
|
$ |
0.12 |
|
$ |
6,114 |
|
12,538,362 |
|
$ |
0.49 |
|
|
|
For the Six Months Ended |
|
For the Six Months Ended |
|
||||||||||||
|
|
June 30, 2009 |
|
June 30, 2008 |
|
||||||||||||
|
|
Income |
|
Shares |
|
EPS |
|
Income |
|
Shares |
|
EPS |
|
||||
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
6,432 |
|
|
|
|
|
$ |
11,458 |
|
|
|
|
|
||
Less income allocated to RSAs |
|
132 |
|
|
|
|
|
183 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income allocated to common stock for basic EPS calculation |
|
$ |
6,300 |
|
12,570,640 |
|
$ |
0.50 |
|
$ |
11,275 |
|
12,406,210 |
|
$ |
0.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Adjust shares for Dilutives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation plans |
|
|
|
30,520 |
|
|
|
|
|
133,370 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
6,432 |
|
|
|
|
|
$ |
11,458 |
|
|
|
|
|
||
Less income allocated to RSAs |
|
132 |
|
|
|
|
|
182 |
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income allocated to common stock for dilutive EPS calculation |
|
$ |
6,300 |
|
12,601,160 |
|
$ |
0.50 |
|
$ |
11,276 |
|
12,539,580 |
|
$ |
0.90 |
|
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 significantly changed the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements on January 1, 2009 and were required to be adopted simultaneously. The adoption of these standards in 2009 did not have any impact on the Companys results of operations or financial position.
14
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 on January 1, 2009. The adoption of SFAS No. 161 in 2009 did not have any impact on the Companys results of operations or financial position.
In April 2009, the FASB issued FASB Staff Position (FSP) FAS 107-1 and Accounting Principles Board Opinion (APB) 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1). The FSP amends FAS 107, Disclosures about Fair Value of Financial Instruments, and APB 28, Interim Financial Reporting, to require disclosures about fair value of financial instruments for interim financial statements of publicly traded companies. FSP FAS 107-1 is effective for interim reporting periods ending after June 15, 2009. The adoption of FSP FAS 107-1 in the second quarter of 2009 did not have any impact on the Companys results of operations or financial position.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS 165 is intended to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for financial statements issued for fiscal years and interim periods beginning after June 15, 2009 and will be applied prospectively. The Company has adopted SFAS 165 in the periods ended June 30, 2009 and has evaluated for subsequent events through July 31, 2009, the issuance date of the Companys consolidated financial statements. No recognized or non-recognized subsequent events were noted.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. SFAS 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), superseding existing FASB, American Institute of Certified Public Accountants (AICPA), Emerging Issues Task Force (EITF), and related accounting literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. This will have an impact on the notes to the Companys financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS 168.
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 noncontrolling interest veto rights that allow the noncontrolling interest shareholders to participate in ordinary course of business decisions, these joint ventures have been accounted for under the equity method
15
instead of being consolidated in these financial statements. Investments in these joint ventures totaled $1,065 and $970 as of June 30, 2009 and December 31, 2008, respectively.
Summarized unaudited financial information for the joint ventures accounted for under the equity method as of June 30, 2009 and December 31, 2008 and for the three and six months ended June 30, 2009 and 2008 is as follows:
|
|
June 30, |
|
December 31, |
|
|
|
|
|
||
|
|
2009 |
|
2008 |
|
|
|
|
|
||
Current assets |
|
$ |
3,825 |
|
$ |
4,667 |
|
|
|
|
|
Noncurrent assets |
|
671 |
|
714 |
|
|
|
|
|
||
Total assets |
|
$ |
4,496 |
|
$ |
5,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Current liabilities |
|
$ |
1,530 |
|
$ |
2,064 |
|
|
|
|
|
Noncurrent liabilities |
|
657 |
|
830 |
|
|
|
|
|
||
Equity |
|
2,309 |
|
2,487 |
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
4,496 |
|
$ |
5,381 |
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Net sales |
|
$ |
1,676 |
|
$ |
2,522 |
|
$ |
2,782 |
|
$ |
4,725 |
|
Operating income |
|
$ |
284 |
|
$ |
617 |
|
$ |
363 |
|
$ |
788 |
|
Net income |
|
$ |
232 |
|
$ |
549 |
|
$ |
142 |
|
$ |
535 |
|
Equity in earnings of joint ventures |
|
$ |
127 |
|
$ |
273 |
|
$ |
79 |
|
$ |
289 |
|
4. INVENTORY
The components of inventory are as follows at June 30, 2009 and December 31, 2008:
|
|
June 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
Raw materials |
|
$ |
11,180 |
|
$ |
11,610 |
|
Work-in-process |
|
16,232 |
|
18,950 |
|
||
Finished goods |
|
4,454 |
|
3,903 |
|
||
Supplies |
|
682 |
|
837 |
|
||
|
|
|
|
|
|
||
|
|
$ |
32,548 |
|
$ |
35,300 |
|
16
5. PURCHASED INTANGIBLE ASSETS
The following table presents details of our purchased intangible assets, other than goodwill, as of June 30, 2009:
|
|
|
|
Accumulated |
|
|
|
|||
|
|
Gross |
|
Amortization |
|
Net |
|
|||
Core technology |
|
$ |
23,514 |
|
$ |
(1,910 |
) |
$ |
21,604 |
|
Customer relationships |
|
31,726 |
|
(5,729 |
) |
25,997 |
|
|||
Trademarks / Trade names |
|
2,561 |
|
(622 |
) |
1,939 |
|
|||
|
|
|
|
|
|
|
|
|||
Total intangible assets |
|
$ |
57,801 |
|
$ |
(8,261 |
) |
$ |
49,540 |
|
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 June 30, 2009 is due to the impact of foreign currency translation. The decrease in goodwill from $43,066 at December 31, 2008 to $42,434 at June 30, 2009 is also due to the impact of foreign currency translation.
17
6. DEBT
Lines of credit consist of the following at June 30, 2009 and December 31, 2008:
|
|
June 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
Nord LB line of credit |
|
$ |
151 |
|
$ |
|
|
Long-term debt consists of the following at June 30, 2009 and December 31, 2008:
|
|
June 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
Syndicated credit agreement term loan |
|
$ |
37,756 |
|
$ |
40,500 |
|
Syndicated credit agreement Euro term loan |
|
16,501 |
|
17,763 |
|
||
Nord LB 3,000 Euro term loan |
|
1,896 |
|
2,326 |
|
||
Nord LB 500 Euro term loan |
|
|
|
39 |
|
||
|
|
|
|
|
|
||
|
|
56,153 |
|
60,628 |
|
||
Less current maturities |
|
(10,543 |
) |
(14,450 |
) |
||
|
|
|
|
|
|
||
Long-term debt |
|
$ |
45,610 |
|
$ |
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 June 30, 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 with an initial notional amount of $40,500 (decreasing to $33,750 in November 2009) that effectively converted the LIBOR based variable rate US borrowings under the syndicated credit agreement to a fixed rate of 4.87% (4.62% effective April 1, 2009 due to an improvement in the Companys leverage ratio). The Company had designated the swap agreement as an effective cash flow hedge with matched terms and, as a result, changes in the fair value of the swap agreement were recorded in other comprehensive income with the offset as a swap agreement asset or liability. During the quarter ended June 30, 2009, the Company made an unanticipated repayment of $2,744 on its variable rate US borrowings and elected to de-designate this portion of the cash flow hedge. Due to the resulting ineffectiveness of this portion of the cash flow hedge, the Company recorded an immaterial loss of less than $100 during the quarter ended June 30, 2009. Future settlements and changes in the fair value related to the de-designated portion of the cash flow hedge will be recorded as realized and unrealized gains/losses on swap agreement within other income in the Companys statement of operations.
18
The Company has recorded the fair value of its interest rate swap agreement as follows:
|
|
June 30, 2009 |
|
December 31, 2008 |
|
||||||
Interest rate swap liability |
|
Balance sheet location |
|
Fair value |
|
Balance sheet location |
|
Fair value |
|
||
|
|
|
|
|
|
|
|
|
|
||
Current portion |
|
Accrued expenses |
|
$ |
839 |
|
Accrued expenses |
|
$ |
759 |
|
Long-term portion |
|
Other long-term liabilities |
|
299 |
|
Other long-term liabilities |
|
647 |
|
||
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
$ |
1,138 |
|
|
|
$ |
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 and six months ended June 30, 2009 and 2008 as follows:
|
|
Explosive |
|
|
|
|
|
|
|
||||
|
|
Metalworking |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
Group |
|
Products |
|
Welding |
|
Total |
|
||||
For the three months ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
31,604 |
|
$ |
4,014 |
|
$ |
2,201 |
|
$ |
37,819 |
|
Depreciation and amortization |
|
$ |
1,435 |
|
$ |
857 |
|
$ |
115 |
|
$ |
2,407 |
|
Income from operations |
|
$ |
4,601 |
|
$ |
(906 |
) |
$ |
306 |
|
$ |
4,001 |
|
Equity in earnings of joint ventures |
|
$ |
|
|
$ |
127 |
|
$ |
|
|
127 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
(962 |
) |
||||
Other income |
|
|
|
|
|
|
|
191 |
|
||||
Interest expense |
|
|
|
|
|
|
|
(867 |
) |
||||
Interest income |
|
|
|
|
|
|
|
38 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
2,528 |
|
19
|
|
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 |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
Group |
|
Products |
|
Welding |
|
Total |
|
||||
For the six months ended June 30, 2009: |
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
75,076 |
|
$ |
8,048 |
|
$ |
4,454 |
|
$ |
87,578 |
|
Depreciation and amortization |
|
$ |
2,925 |
|
$ |
1,704 |
|
$ |
228 |
|
$ |
4,857 |
|
Income from operations |
|
$ |
14,012 |
|
$ |
(1,600 |
) |
$ |
681 |
|
$ |
13,093 |
|
Equity in earnings of joint ventures |
|
$ |
|
|
$ |
79 |
|
$ |
|
|
79 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
Stock-based compensation |
|
|
|
|
|
|
|
(1,760 |
) |
||||
Other income |
|
|
|
|
|
|
|
74 |
|
||||
Interest expense |
|
|
|
|
|
|
|
(1,769 |
) |
||||
Interest income |
|
|
|
|
|
|
|
104 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
9,821 |
|
|
|
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 |
|
During the three months ended June 30, 2009, sales to one customer represented approximately $3,912 (10.3%) of total net sales. During the six months ended June 30, 2009, no sales to any one customer accounted for more than 10% of total sales. During the three and six months ended June 30, 2008, no sales to any one customer accounted for more than 10% of total net sales.
20
8. COMPREHENSIVE INCOME
The Companys comprehensive income for the three and six months ended June 30, 2009 and 2008 was as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
June 30, |
|
June 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Net income for the period |
|
$ |
1,515 |
|
$ |
6,210 |
|
$ |
6,432 |
|
$ |
11,458 |
|
Interest rate swap valuation adjustment, net of tax |
|
160 |
|
195 |
|
197 |
|
(90 |
) |
||||
Foreign currency translation adjustment |
|
5,722 |
|
(148 |
) |
(196 |
) |
7,109 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income |
|
$ |
7,397 |
|
$ |
6,257 |
|
$ |
6,433 |
|
$ |
18,477 |
|
Other cumulative comprehensive loss as of June 30, 2009 and December 31, 2008 consisted of the following:
|
|
June 30, |
|
December 31, |
|
||
|
|
2009 |
|
2008 |
|
||
Currency translation adjustment |
|
$ |
(1,539 |
) |
$ |
(1,343 |
) |
Interest rate swap valuation adjustment, net of tax of $398 and $520, respectively |
|
(689 |
) |
(886 |
) |
||
|
|
|
|
|
|
||
|
|
$ |
(2,228 |
) |
$ |
(2,229 |
) |
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, 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 six months ended June 30, 2009, Explosive Metalworking accounted for 86% of our net sales and 107% 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 9% and 5%, respectively, of our first half 2009 net sales.
Our net sales for the six months ended June 30, 2009 decreased by $33,998 (28.0%) compared to the first six months of 2008, reflecting year-to-year net sales decreases of $29,562 (28.3%), $4,325 (35.0%), and $111 (2.4%) for our Explosive Metalworking, Oilfield Products, and AMK Welding segments, respectively. The sales decrease of approximately $34 million includes a sales volume decrease of approximately $26.4 million and an unfavorable foreign exchange translation adjustment of approximately $7.6 million on our European sales relating to the increased value of the U.S. dollar against the Euro. Income from operations decreased 42% to $11,333 in the first six months of 2009 from $19,528 in the first six months of 2008. This $8,195 decrease reflects declines in Explosive Metalworkings, Oilfield Products, and AMK Weldings operating income of $5,787, $1,650, and $541, respectively, and a $217 increase in stock-based compensation expense. Our net income decreased by 43.9% to $6,432 for the six months ended June 30, 2009 from $11,458 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 slowdown. However, during the first half of 2009, we have seen a significant slowdown in Explosive Metalworking sales to some of the markets we serve. The explosion-weld clad plate 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. Despite the slowdown we have already seen in certain sectors, including chemical, petrochemical and hydrometallurgy, quoting activity in other end markets remains healthy and we continue to track an extensive list of large infrastructure projects. While timing of new order inflow remains difficult to predict, we believe that our Explosive Metalworking segment is well-positioned to benefit as global economic conditions improve.
As a result of the 28% decline in our net sales during the first half of 2009 and the decrease in our Explosive Metalworking backlog from $97,247 at December 31, 2008 to $57,090 at June 30, 2009, we now expect our consolidated net sales in 2009 to decrease approximately 28% to 32% (previous guidance was for a decrease of 17% to 23%) from the amount we achieved in 2008.
22
In light of the slowdown 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 $12,371 during the first half of 2009 and expect to generate positive cash flow from operations during the second half of 2009.
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 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, bi-directional 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 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.
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 increased slightly to 34.5% for the first half of 2009 from 34.3% for the same period of 2008. 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 34% and 35%.
23
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 $57,090 at June 30, 2009 from $97,247 at December 31, 2008 and $74,174 at March 31, 2009. As a result of the lower sales that we reported during the first half of the 2009 and this significant decline in backlog that reflects a slow down in new order inflow during the first half of year, we are now forecasting that our consolidated net sales for fiscal 2009 will decline approximately 28% to 32% from those reported in fiscal 2008. We anticipate this sales decline because of uncertainty associated with current global economic conditions, the slowdown 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 and Six Months Ended June 30, 2009 Compared to Three and Six Months Ended June 30, 2008
Net sales
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
Percentage |
|
|||||
|
|
2009 |
|
2008 |
|
Change |
|
Change |
|
|||
Net sales |
|
$ |
37,819 |
|
$ |
63,183 |
|
$ |
(25,364 |
) |
(40.1 |
)% |
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|