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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 September 30, 2012
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
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer
o
|
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Act). Yes o No x
The number of shares of Common Stock outstanding was 13,511,464 as of October 30, 2012.
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 - Management’s 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: changes in global economic conditions; 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; our ability to successfully integrate acquired businesses; 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 management’s 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.
Part I - FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
DYNAMIC MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
|
|
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September 30, |
|
|
|
||
|
|
|
2012 |
|
December 31, |
|
||
|
|
|
(unaudited) |
|
2011 |
|
||
|
ASSETS |
|
|
|
|
|
||
|
CURRENT ASSETS: |
|
|
|
|
|
||
|
Cash and cash equivalents |
|
$ |
11,381 |
|
$ |
5,276 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $421 and $424, respectively |
|
37,719 |
|
36,368 |
|
||
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Inventories |
|
49,961 |
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43,218 |
|
||
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Prepaid expenses and other |
|
4,239 |
|
4,858 |
|
||
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Current deferred tax assets |
|
1,615 |
|
1,469 |
|
||
|
|
|
|
|
|
|
||
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Total current assets |
|
104,915 |
|
91,189 |
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||
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|
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|
|
|
|
||
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PROPERTY, PLANT AND EQUIPMENT |
|
85,198 |
|
72,914 |
|
||
|
Less - accumulated depreciation |
|
(35,205 |
) |
(31,512 |
) |
||
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Property, plant and equipment, net |
|
49,993 |
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41,402 |
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GOODWILL, net |
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36,637 |
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37,507 |
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PURCHASED INTANGIBLE ASSETS, net |
|
42,701 |
|
42,054 |
|
||
|
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|
|
|
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||
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DEFERRED TAX ASSETS |
|
977 |
|
485 |
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||
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||
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OTHER ASSETS, net |
|
610 |
|
789 |
|
||
|
|
|
|
|
|
|
||
|
TOTAL ASSETS |
|
$ |
235,833 |
|
$ |
213,426 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DYNAMIC MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
|
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September 30, |
|
|
|
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|
|
2012 |
|
December 31, |
|
||
|
|
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(unaudited) |
|
2011 |
|
||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
|
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||
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Accounts payable |
|
$ |
12,281 |
|
$ |
14,753 |
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Accrued expenses |
|
5,373 |
|
5,358 |
|
||
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Dividend payable |
|
540 |
|
535 |
|
||
|
Accrued income taxes |
|
557 |
|
780 |
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||
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Accrued employee compensation and benefits |
|
5,232 |
|
4,666 |
|
||
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Customer advances |
|
1,355 |
|
1,918 |
|
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Current debt obligations |
|
67 |
|
1,166 |
|
||
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Current portion of capital lease obligations |
|
44 |
|
66 |
|
||
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Current deferred tax liabilities |
|
107 |
|
68 |
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||
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Total current liabilities |
|
25,556 |
|
29,310 |
|
||
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LINES OF CREDIT |
|
43,552 |
|
26,462 |
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||
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LONG-TERM DEBT |
|
72 |
|
118 |
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||
|
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|
CAPITAL LEASE OBLIGATIONS |
|
37 |
|
70 |
|
||
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||
|
DEFERRED TAX LIABILITIES |
|
9,410 |
|
10,185 |
|
||
|
|
|
|
|
|
|
||
|
OTHER LONG-TERM LIABILITIES |
|
1,212 |
|
1,238 |
|
||
|
|
|
|
|
|
|
||
|
Total liabilities |
|
79,839 |
|
67,383 |
|
||
|
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|
|
|
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||
|
COMMITMENTS AND CONTINGENT LIABILITIES |
|
|
|
|
|
||
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|
STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
||
|
Preferred stock, $0.05 par value; 4,000,000 shares authorized; no issued and outstanding shares |
|
— |
|
— |
|
||
|
Common stock, $0.05 par value; 25,000,000 shares authorized; 13,511,464 and 13,367,169 shares issued and outstanding, respectively |
|
675 |
|
668 |
|
||
|
Additional paid-in capital |
|
58,907 |
|
55,983 |
|
||
|
Retained earnings |
|
105,779 |
|
98,565 |
|
||
|
Other cumulative comprehensive loss |
|
(9,463 |
) |
(9,256 |
) |
||
|
|
|
|
|
|
|
||
|
Total Dynamic Materials Corporation’s stockholders’ equity |
|
155,898 |
|
145,960 |
|
||
|
Non-controlling interest |
|
96 |
|
83 |
|
||
|
|
|
|
|
|
|
||
|
Total stockholders’ equity |
|
155,994 |
|
146,043 |
|
||
|
|
|
|
|
|
|
||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
235,833 |
|
$ |
213,426 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DYNAMIC MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(Dollars in Thousands, Except Share and Per Share Data)
(unaudited)
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
||||
|
NET SALES |
|
$ |
50,149 |
|
$ |
54,890 |
|
$ |
149,048 |
|
$ |
154,630 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
COST OF PRODUCTS SOLD |
|
34,800 |
|
40,058 |
|
105,383 |
|
114,023 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Gross profit |
|
15,349 |
|
14,832 |
|
43,665 |
|
40,607 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
COSTS AND EXPENSES: |
|
|
|
|
|
|
|
|
|
||||
|
General and administrative expenses |
|
4,668 |
|
4,359 |
|
13,815 |
|
12,227 |
|
||||
|
Selling and distribution expenses |
|
4,011 |
|
3,359 |
|
12,330 |
|
10,997 |
|
||||
|
Amortization of purchased intangible assets |
|
1,520 |
|
1,448 |
|
4,584 |
|
4,324 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total costs and expenses |
|
10,199 |
|
9,166 |
|
30,729 |
|
27,548 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
INCOME FROM OPERATIONS |
|
5,150 |
|
5,666 |
|
12,936 |
|
13,059 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
||||
|
Other income (expense), net |
|
180 |
|
(9 |
) |
390 |
|
(348 |
) |
||||
|
Interest expense |
|
(216 |
) |
(326 |
) |
(622 |
) |
(1,222 |
) |
||||
|
Interest income |
|
16 |
|
1 |
|
25 |
|
4 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
INCOME BEFORE INCOME TAXES |
|
5,130 |
|
5,332 |
|
12,729 |
|
11,493 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
INCOME TAX PROVISION |
|
1,373 |
|
1,072 |
|
3,882 |
|
2,637 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
NET INCOME |
|
3,757 |
|
4,260 |
|
8,847 |
|
8,856 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Less: Net income (loss) attributable to non-controlling interest |
|
3 |
|
(13 |
) |
13 |
|
(36 |
) |
||||
|
|
|
|
|
|
|
|
|
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|
||||
|
NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION |
|
$ |
3,754 |
|
$ |
4,273 |
|
$ |
8,834 |
|
$ |
8,892 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
INCOME PER SHARE: |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
$ |
0.28 |
|
$ |
0.32 |
|
$ |
0.65 |
|
$ |
0.67 |
|
|
Diluted |
|
$ |
0.28 |
|
$ |
0.32 |
|
$ |
0.65 |
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: |
|
|
|
|
|
|
|
|
|
||||
|
Basic |
|
13,212,246 |
|
13,065,397 |
|
13,204,086 |
|
13,060,009 |
|
||||
|
Diluted |
|
13,216,229 |
|
13,072,076 |
|
13,208,259 |
|
13,069,765 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
DIVIDENDS DECLARED PER COMMON SHARE |
|
$ |
0.04 |
|
$ |
0.04 |
|
$ |
0.12 |
|
$ |
0.12 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DYNAMIC MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(Dollars in Thousands)
(unaudited)
|
|
|
Three months ended |
|
Nine months ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
||||
|
Net income including non-controlling interest |
|
$ |
3,757 |
|
$ |
4,260 |
|
$ |
8,847 |
|
$ |
8,856 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Change in cumulative foreign currency translation adjustment |
|
3,049 |
|
(7,241 |
) |
(207 |
) |
2,120 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Total comprehensive income (loss) |
|
6,806 |
|
(2,981 |
) |
8,640 |
|
10,976 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Comprehensive income (loss) attributable to non-controlling interest |
|
6 |
|
(10 |
) |
13 |
|
(102 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Comprehensive income (loss) attributable to Dynamic Materials Corporation |
|
$ |
6,800 |
|
$ |
(2,971 |
) |
$ |
8,627 |
|
$ |
11,078 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DYNAMIC MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012
(Amounts in Thousands)
(unaudited)
|
|
|
Dynamic Materials Corporation Stockholders |
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
Additional |
|
|
|
Cumulative |
|
Non- |
|
|
|
||||||
|
|
|
Common Stock |
|
Paid-In |
|
Retained |
|
Comprehensive |
|
Controlling |
|
|
|
||||||||
|
|
|
Shares |
|
Amount |
|
Capital |
|
Earnings |
|
Loss |
|
Interest |
|
Total |
|
||||||
|
Balances, December 31, 2011 |
|
13,367 |
|
$ |
668 |
|
$ |
55,983 |
|
$ |
98,565 |
|
$ |
(9,256 |
) |
$ |
83 |
|
$ |
146,043 |
|
|
Net income |
|
— |
|
— |
|
— |
|
8,834 |
|
— |
|
13 |
|
8,847 |
|
||||||
|
Change in cumulative foreign currency translation adjustment |
|
— |
|
— |
|
— |
|
— |
|
(207 |
) |
— |
|
(207 |
) |
||||||
|
Shares issued in connection with stock compensation plans |
|
144 |
|
7 |
|
91 |
|
— |
|
— |
|
— |
|
98 |
|
||||||
|
Tax impact of stock-based compensation |
|
— |
|
— |
|
(5 |
) |
— |
|
— |
|
— |
|
(5 |
) |
||||||
|
Stock-based compensation |
|
— |
|
— |
|
2,838 |
|
— |
|
— |
|
— |
|
2,838 |
|
||||||
|
Dividends declared |
|
— |
|
— |
|
— |
|
(1,620 |
) |
— |
|
— |
|
(1,620 |
) |
||||||
|
Balances, September 30, 2012 |
|
13,511 |
|
$ |
675 |
|
$ |
58,907 |
|
$ |
105,779 |
|
$ |
(9,463 |
) |
$ |
96 |
|
$ |
155,994 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DYNAMIC MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
(Dollars in Thousands)
(unaudited)
|
|
|
2012 |
|
2011 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
||
|
Net income |
|
$ |
8,847 |
|
$ |
8,856 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
||
|
Depreciation (including capital lease amortization) |
|
4,121 |
|
4,183 |
|
||
|
Amortization of purchased intangible assets |
|
4,584 |
|
4,324 |
|
||
|
Amortization of deferred debt issuance costs |
|
96 |
|
261 |
|
||
|
Stock-based compensation |
|
2,838 |
|
2,535 |
|
||
|
Deferred income tax benefit |
|
(763 |
) |
(1,904 |
) |
||
|
(Gain) loss on disposal of property, plant and equipment |
|
(32 |
) |
69 |
|
||
|
Change in: |
|
|
|
|
|
||
|
Accounts receivable, net |
|
(588 |
) |
(7,311 |
) |
||
|
Inventories |
|
(4,565 |
) |
(11,267 |
) |
||
|
Prepaid expenses and other |
|
635 |
|
(1,210 |
) |
||
|
Accounts payable |
|
(2,458 |
) |
680 |
|
||
|
Customer advances |
|
(554 |
) |
1,278 |
|
||
|
Accrued expenses and other liabilities |
|
316 |
|
1,764 |
|
||
|
|
|
|
|
|
|
||
|
Net cash provided by operating activities |
|
12,477 |
|
2,258 |
|
||
|
|
|
|
|
|
|
||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
||
|
Acquisition of property, plant and equipment |
|
(10,526 |
) |
(4,364 |
) |
||
|
Acquisition of TRX Industries |
|
(10,294 |
) |
— |
|
||
|
Change in other non-current assets |
|
152 |
|
20 |
|
||
|
|
|
|
|
|
|
||
|
Net cash used in investing activities |
|
(20,668 |
) |
(4,344 |
) |
||
|
|
|
|
|
|
|
||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
||
|
Borrowings on bank lines of credit, net |
|
17,087 |
|
3,999 |
|
||
|
Payment on loans with former owners of LRI |
|
(1,157 |
) |
— |
|
||
|
Payment on Nord LB term loans |
|
— |
|
(633 |
) |
||
|
Payment on capital lease obligations |
|
(53 |
) |
(233 |
) |
||
|
Payment of dividends |
|
(1,614 |
) |
(1,596 |
) |
||
|
Contribution from non-controlling stockholder |
|
— |
|
42 |
|
||
|
Net proceeds from issuance of common stock to employees and directors |
|
98 |
|
99 |
|
||
|
Tax impact of stock-based compensation |
|
(5 |
) |
(109 |
) |
||
|
|
|
|
|
|
|
||
|
Net cash provided by financing activities |
|
14,356 |
|
1,569 |
|
||
|
|
|
|
|
|
|
||
|
EFFECTS OF EXCHANGE RATES ON CASH |
|
(60 |
) |
61 |
|
||
|
|
|
|
|
|
|
||
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
6,105 |
|
(456 |
) |
||
|
|
|
|
|
|
|
||
|
CASH AND CASH EQUIVALENTS, beginning of the period |
|
5,276 |
|
4,572 |
|
||
|
|
|
|
|
|
|
||
|
CASH AND CASH EQUIVALENTS, end of the period |
|
$ |
11,381 |
|
$ |
4,116 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
DYNAMIC MATERIALS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Currency Amounts 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 our Annual Report filed on Form 10-K for the year ended December 31, 2011.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Dynamic Materials Corporation (“DMC”) and its controlled subsidiaries. Only subsidiaries in which controlling interests are maintained are consolidated. All significant intercompany accounts, profits, and transactions have been eliminated in consolidation.
2. SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
The effective tax rate for each of the periods reported differs from the U.S. statutory rate due primarily to favorable foreign permanent differences, variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods and differences between the U.S. and foreign tax rates (which range from 19% to 33%) on earnings that have been permanently reinvested.
Earnings Per Share
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”) and require the use of the two class method for calculating EPS. Under this method, 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.
Computation and reconciliation of earnings per common share are as follows:
|
|
|
For the Three Months Ended |
|
For the Three Months Ended |
|
||||||||||||
|
|
|
September 30, 2012 |
|
September 30, 2011 |
|
||||||||||||
|
|
|
Income |
|
Shares |
|
EPS |
|
Income |
|
Shares |
|
EPS |
|
||||
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income attributable to DMC |
|
$ |
3,754 |
|
|
|
|
|
$ |
4,273 |
|
|
|
|
|
||
|
Less income allocated to RSAs |
|
(83 |
) |
|
|
|
|
(92 |
) |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income allocated to common stock for EPS calculation |
|
$ |
3,671 |
|
13,212,246 |
|
$ |
0.28 |
|
$ |
4,181 |
|
13,065,397 |
|
$ |
0.32 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Adjust shares for dilutives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Stock-based compensation plans |
|
|
|
3,983 |
|
|
|
|
|
6,679 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income attributable to DMC |
|
$ |
3,754 |
|
|
|
|
|
$ |
4,273 |
|
|
|
|
|
||
|
Less income allocated to RSAs |
|
(83 |
) |
|
|
|
|
(92 |
) |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income allocated to common stock for EPS calculation |
|
$ |
3,671 |
|
13,216,229 |
|
$ |
0.28 |
|
$ |
4,181 |
|
13,072,076 |
|
$ |
0.32 |
|
|
|
|
For the Nine Months Ended |
|
For the Nine Months Ended |
|
||||||||||||
|
|
|
September 30, 2012 |
|
September 30, 2011 |
|
||||||||||||
|
|
|
Income |
|
Shares |
|
EPS |
|
Income |
|
Shares |
|
EPS |
|
||||
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income attributable to DMC |
|
$ |
8,834 |
|
|
|
|
|
$ |
8,892 |
|
|
|
|
|
||
|
Less income allocated to RSAs |
|
(196 |
) |
|
|
|
|
(192 |
) |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income allocated to common stock for EPS calculation |
|
$ |
8,638 |
|
13,204,086 |
|
$ |
0.65 |
|
$ |
8,700 |
|
13,060,009 |
|
$ |
0.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Adjust shares for dilutives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Stock-based compensation plans |
|
|
|
4,173 |
|
|
|
|
|
9,756 |
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income attributable to DMC |
|
$ |
8,834 |
|
|
|
|
|
$ |
8,892 |
|
|
|
|
|
||
|
Less income allocated to RSAs |
|
(196 |
) |
|
|
|
|
(192 |
) |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Net income allocated to common stock for EPS calculation |
|
$ |
8,638 |
|
13,208,259 |
|
$ |
0.65 |
|
$ |
8,700 |
|
13,069,765 |
|
$ |
0.67 |
|
Recent Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendment is to be applied retrospectively and is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2011. Other than revised disclosures, this update did not have a material impact on our financial statements.
3. ACQUISITIONS
TRX Industries
On January 3, 2012, we acquired the assets and operating business of Texas-based TRX Industries, Inc. (“TRX”), a manufacturer of perforating guns, for a purchase price of $10,294. TRX, which now operates as a division of DYNAenergetics US, has been a long-term supplier to DYNAenergetics US and, in recent years, accounted for a rapidly growing percentage of its perforating gun purchases.
The acquisition of TRX was structured as an asset purchase in an all-cash transaction. The purchase price was allocated to tangible and identifiable intangible assets based on their fair values as determined by appraisals performed as of the acquisition date. The allocation of the preliminary purchase price to the assets of TRX was as follows:
|
Current assets |
|
$ |
2,702 |
|
|
Property, plant and equipment |
|
2,227 |
|
|
|
Intangible assets |
|
5,365 |
|
|
|
Deferred tax assets |
|
40 |
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
10,334 |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
40 |
|
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
40 |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
10,294 |
|
We acquired identifiable finite-lived intangible assets as a result of the acquisition of TRX. The finite-lived intangible assets acquired were classified as customer relationships, totaling $5,365, and are being amortized over 6 years. These amounts are included in Purchased Intangible Assets and are further discussed in Note 6.
4. INVENTORY
The components of inventory are as follows at September 30, 2012 and December 31, 2011:
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
2012 |
|
2011 |
|
||
|
Raw materials |
|
$ |
15,152 |
|
$ |
15,526 |
|
|
Work-in-process |
|
14,811 |
|
10,511 |
|
||
|
Finished goods |
|
18,627 |
|
15,947 |
|
||
|
Supplies |
|
1,371 |
|
1,234 |
|
||
|
|
|
$ |
49,961 |
|
$ |
43,218 |
|
5. GOODWILL
The changes to the carrying amount of goodwill during the period are summarized below:
|
|
|
Explosive |
|
Oilfield |
|
|
|
|||
|
|
|
Metalworking |
|
Products |
|
Total |
|
|||
|
Goodwill balance at December 31, 2011 |
|
$ |
21,637 |
|
$ |
15,870 |
|
$ |
37,507 |
|
|
Adjustment due to recognition of tax benefit of tax amortization of certain goodwill |
|
(240 |
) |
(362 |
) |
(602 |
) |
|||
|
Adjustment due to exchange rate differences |
|
(151 |
) |
(117 |
) |
(268 |
) |
|||
|
|
|
|
|
|
|
|
|
|||
|
Goodwill balance at September 30, 2012 |
|
$ |
21,246 |
|
$ |
15,391 |
|
$ |
36,637 |
|
6. PURCHASED INTANGIBLE ASSETS
The following table presents details of our purchased intangible assets, other than goodwill, as of September 30, 2012:
|
|
|
|
|
Accumulated |
|
|
|
|||
|
|
|
Gross |
|
Amortization |
|
Net |
|
|||
|
Core technology |
|
$ |
21,897 |
|
$ |
(5,321 |
) |
$ |
16,576 |
|
|
Customer relationships |
|
43,450 |
|
(18,271 |
) |
25,179 |
|
|||
|
Trademarks / Trade names |
|
2,343 |
|
(1,397 |
) |
946 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Total intangible assets |
|
$ |
67,690 |
|
$ |
(24,989 |
) |
$ |
42,701 |
|
The following table presents details of our purchased intangible assets, other than goodwill, as of December 31, 2011:
|
|
|
|
|
Accumulated |
|
|
|
|||
|
|
|
Gross |
|
Amortization |
|
Net |
|
|||
|
Core technology |
|
$ |
22,041 |
|
$ |
(4,525 |
) |
$ |
17,516 |
|
|
Customer relationships |
|
38,165 |
|
(14,720 |
) |
23,445 |
|
|||
|
Trademarks / Trade names |
|
2,361 |
|
(1,268 |
) |
1,093 |
|
|||
|
|
|
|
|
|
|
|
|
|||
|
Total intangible assets |
|
$ |
62,567 |
|
$ |
(20,513 |
) |
$ |
42,054 |
|
The change in the gross value of our purchased intangible assets from December 31, 2011 to September 30, 2012 reflects the additional intangible assets associated with the acquisition of TRX and the impact of foreign currency translation adjustments.
7. CUSTOMER ADVANCES
On occasion, we require customers to make advance payments prior to the shipment of their orders in order to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels. As of September 30, 2012 and December 31, 2011, customer advances totaled $1,355 and $1,918, respectively, and originated from several customers.
Lines of credit consisted of the following at September 30, 2012 and December 31, 2011:
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
2012 |
|
2011 |
|
||
|
Syndicated credit agreement: |
|
|
|
|
|
||
|
U.S. Dollar revolving loan |
|
$ |
32,900 |
|
$ |
20,247 |
|
|
Euro revolving loan |
|
9,127 |
|
6,215 |
|
||
|
Canadian Dollar revolving loan |
|
1,525 |
|
— |
|
||
|
Commerzbank line of credit |
|
2 |
|
— |
|
||
|
Nord LB line of credit |
|
— |
|
13 |
|
||
|
|
|
|
|
|
|
||
|
|
|
43,554 |
|
26,475 |
|
||
|
Less current portion |
|
(2 |
) |
(13 |
) |
||
|
|
|
|
|
|
|
||
|
Long-term lines of credit |
|
$ |
43,552 |
|
$ |
26,462 |
|
Long-term debt consisted of the following at September 30, 2012 and December 31, 2011:
|
|
|
September 30, |
|
December 31, |
|
||
|
|
|
2012 |
|
2011 |
|
||
|
Loans with former owners of LRI |
|
$ |
137 |
|
$ |
1,271 |
|
|
Less current maturities |
|
(65 |
) |
(1,153 |
) |
||
|
|
|
|
|
|
|
||
|
Long-term debt |
|
$ |
72 |
|
$ |
118 |
|
Loan Covenants and Restrictions
Our existing loan agreements include various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurrence of additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified financial ratios. As of September 30, 2012, we were in compliance with all financial covenants and other provisions of our debt agreements.
9. BUSINESS SEGMENTS
Our business 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 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 included herein and in our Annual Report on Form 10-K for the year ended December 31, 2011. Our reportable segments are separately managed strategic business units that offer different products and services. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.
Segment information is presented for the three and nine months ended September 30, 2012 and 2011 as follows:
|
|
|
Explosive |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
|
Metalworking |
|
Products |
|
Welding |
|
Total |
|
||||
|
For the three months ended September 30, 2012: |
|
|
|
|
|
|
|
|
|
||||
|
Net sales |
|
$ |
29,771 |
|
$ |
18,044 |
|
$ |
2,334 |
|
$ |
50,149 |
|
|
Depreciation and amortization |
|
$ |
1,357 |
|
$ |
1,417 |
|
$ |
138 |
|
$ |
2,912 |
|
|
Income from operations |
|
$ |
5,451 |
|
$ |
1,139 |
|
$ |
386 |
|
$ |
6,976 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
|
Corporate expenses |
|
|
|
|
|
|
|
(923 |
) |
||||
|
Stock-based compensation |
|
|
|
|
|
|
|
(903 |
) |
||||
|
Other income |
|
|
|
|
|
|
|
180 |
|
||||
|
Interest expense |
|
|
|
|
|
|
|
(216 |
) |
||||
|
Interest income |
|
|
|
|
|
|
|
16 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
5,130 |
|
|||
|
|
|
Explosive |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
|
Metalworking |
|
Products |
|
Welding |
|
Total |
|
||||
|
For the three months ended September 30, 2011: |
|
|
|
|
|
|
|
|
|
||||
|
Net sales |
|
$ |
33,396 |
|
$ |
18,790 |
|
$ |
2,704 |
|
$ |
54,890 |
|
|
Depreciation and amortization |
|
$ |
1,466 |
|
$ |
1,399 |
|
$ |
138 |
|
$ |
3,003 |
|
|
Income from operations |
|
$ |
4,599 |
|
$ |
1,881 |
|
$ |
572 |
|
$ |
7,052 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
|
Corporate expenses |
|
|
|
|
|
|
|
(514 |
) |
||||
|
Stock-based compensation |
|
|
|
|
|
|
|
(872 |
) |
||||
|
Other expense |
|
|
|
|
|
|
|
(9 |
) |
||||
|
Interest expense |
|
|
|
|
|
|
|
(326 |
) |
||||
|
Interest income |
|
|
|
|
|
|
|
1 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
5,332 |
|
|||
|
|
|
Explosive |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
|
Metalworking |
|
Products |
|
Welding |
|
Total |
|
||||
|
For the nine months ended September 30, 2012: |
|
|
|
|
|
|
|
|
|
||||
|
Net sales |
|
$ |
84,680 |
|
$ |
57,941 |
|
$ |
6,427 |
|
$ |
149,048 |
|
|
Depreciation and amortization |
|
$ |
4,137 |
|
$ |
4,181 |
|
$ |
387 |
|
$ |
8,705 |
|
|
Income from operations |
|
$ |
13,138 |
|
$ |
4,886 |
|
$ |
463 |
|
$ |
18,487 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
|
Corporate expenses |
|
|
|
|
|
|
|
(2,713 |
) |
||||
|
Stock-based compensation |
|
|
|
|
|
|
|
(2,838 |
) |
||||
|
Other income |
|
|
|
|
|
|
|
390 |
|
||||
|
Interest expense |
|
|
|
|
|
|
|
(622 |
) |
||||
|
Interest income |
|
|
|
|
|
|
|
25 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
12,729 |
|
|||
|
|
|
Explosive |
|
Oilfield |
|
AMK |
|
|
|
||||
|
|
|
Metalworking |
|
Products |
|
Welding |
|
Total |
|
||||
|
For the nine months ended September 30, 2011: |
|
|
|
|
|
|
|
|
|
||||
|
Net sales |
|
$ |
95,221 |
|
$ |
51,563 |
|
$ |
7,846 |
|
$ |
154,630 |
|
|
Depreciation and amortization |
|
$ |
4,419 |
|
$ |
3,709 |
|
$ |
379 |
|
$ |
8,507 |
|
|
Income from operations |
|
$ |
11,758 |
|
$ |
3,964 |
|
$ |
1,742 |
|
$ |
17,464 |
|
|
Unallocated amounts: |
|
|
|
|
|
|
|
|
|
||||
|
Corporate expenses |
|
|
|
|
|
|
|
(1,870 |
) |
||||
|
Stock-based compensation |
|
|
|
|
|
|
|
(2,535 |
) |
||||
|
Other expense |
|
|
|
|
|
|
|
(348 |
) |
||||
|
Interest expense |
|
|
|
|
|
|
|
(1,222 |
) |
||||
|
Interest income |
|
|
|
|
|
|
|
4 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Consolidated income before income taxes |
|
|
|
|
|
|
|
$ |
11,493 |
|
|||
During the three and nine months ended September 30, 2012, no one customer accounted for more than 10% of total net sales. During the three and nine months ended September 30, 2011, no one customer accounted for more than 10% of total net sales.
10. SUBSEQUENT EVENT
On October 8, 2012, the Board of Directors appointed Kevin T. Longe as President and Chief Executive Officer of DMC effective March 1, 2013. Mr. Longe will succeed Yvon Cariou, who will retire after serving as DMC’s President and Chief Executive Officer since 2000. As result of Mr. Cariou’s planned retirement on March 1, 2013 and in accordance with the terms of underlying restricted stock award agreements, vesting will be accelerated to his retirement date on 33,666 shares of restricted stock awards granted in 2011 and 2012 that were scheduled to vest between January 2014 and January 2016. This accelerated vesting will result in the accelerated recognition of $618 in stock-based compensation expense over the next five months, with $364 and $254 of this expense being recognized in the fourth quarter of 2012 and first quarter of 2013, respectively.
ITEM 2. Management’s 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 our Annual Report filed on Form 10-K for the year ended December 31, 2011.
Unless stated otherwise, all currency amounts in this discussion are presented in thousands (000’s).
Executive Overview
Our business is organized into three segments: Explosive Metalworking (which we also refer to as DMC Nobelclad), Oilfield Products and AMK Welding. For the nine months ended September 30, 2012, Explosive Metalworking accounted for 57% of our net sales and 71% of our income from operations before consideration of unallocated corporate expenses and stock-based compensation expense, which are not allocated to our business segments. Our Oilfield Products segment accounted for 39% and of 26% of our year-to-date 2012 net sales and income from operations, respectively, while the AMK Welding segment accounted for 4% of net sales and 3% of our income from operations for year-to-date 2012.
Our consolidated net sales for the nine months ended September 30, 2012 decreased by $5,582, or 3.6%, compared to the same period of 2011. The year-to-year consolidated net sales decrease reflects sales decreases of $10,541 (11.1%) for our Explosive Metalworking segment and $1,419 (18.1%) for our AMK Welding segment, which were partially offset by a sales increase in our Oilfield Products segment of $6,378 (12.4%). As a result of an improvement in our consolidated gross margin rate to 29.3% in 2012 from 26.3% in 2011, our year-to-date consolidated gross profit increased by $3,058, or 7.5%, despite the 3.6% drop in our consolidated net sales. This increase in gross profit was offset by a $3,181, or 11.6%, increase in our total operating expenses, resulting in a slight decrease in our consolidated income from operations to $12,936 for the nine months ended September 30, 2012 from $13,059 in the same period of 2011. This $123 decrease reflects increases of $1,380 and $922 in the operating income reported by our Explosive Metalworking and Oilfield Products segments, respectively, which were partially offset by a decrease in AMK Welding’s operating income of $1,279 and a net increase in aggregate unallocated corporate expenses and stock-based compensation expense of $1,146. Reported consolidated operating income for the nine month periods ended September 30, 2012 and 2011 includes amortization expense of $4,584 and $4,324, respectively, relating to purchased intangible assets associated with several acquisitions executed between November of 2007 and January of 2012. We reported net income of $8,834 for year-to-date 2012 compared to $8,892 for the same period of 2011.
Impact of Current Economic Situation on the Company
We were only minimally impacted in 2008 by the global economic slowdown. However, during 2009 and 2010, we experienced a significant slowdown in Explosive Metalworking sales to some of the markets we serve. The explosion-welded clad plate market is dependent upon sales of products for use by customers in a number of heavy industries, including oil and gas, chemicals and petrochemicals, aluminum production, power generation, shipbuilding, industrial refrigeration, alternative energy and hydrometallurgy. These industries tend to be cyclical in nature and the current worldwide economic downturn has affected many of these markets. While certain sectors continue to be slow, including alternative energy, hydrometallurgy and power generation, quoting
activity in other end markets remains healthy, and we continue to track an extensive list of projects. While timing of new order inflow remains difficult to predict, our Explosive Metalworking segment benefited from the modest improvement in 2011 and early 2012 of some of the industries it supplies and we believe that it is well-positioned to further benefit as global economic conditions improve.
As a result of acquisitions made during 2009 and 2010 and strong organic sales growth beginning in the third quarter of 2010, our Oilfield Products segment has grown into a second core business for us, generating 35% of our consolidated net sales in 2011 and 39% of our year-to-date 2012 consolidated net sales as compared to only 13% of our consolidated net sales in 2009.
Our Explosive Metalworking backlog increased from $44,564 at December 31, 2011 to $56,625 at June 30, 2012 and then decreased to $48,360 at September 30, 2012. While third quarter 2012 Explosive Metalworking sales met our expectations, we had anticipated somewhat stronger third quarter bookings than we realized. As a result, we now expect full year 2012 Explosive Metalworking sales to be down by 9% to 10% from the $126,199 in net sales that this segment reported in 2011. We also experienced a slowdown in Oilfield Products sales during the third quarter of 2012, particularly in North America where the near-term outlook remains uncertain. Based upon the September 30, 2012 Explosive Metalworking backlog and lower than previously expected third quarter 2012 and fourth quarter 2012 projected sales for our Oilfield Products business segment, we currently expect that our 2012 consolidated net sales will be 3% to 4% lower than the $208,891 in consolidated net sales that we reported in 2011.
Net sales
Explosive Metalworking’s 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, and bidirectional 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 Welding’s revenues are generated from welding, heat treatment, and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.
A significant portion of our revenue is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing aggressively on the basis of price.
Gross profit and cost of products sold
Cost of products sold for Explosive Metalworking includes 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 includes 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 Welding’s 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.
Backlog
We use backlog as a primary means of measuring the immediate outlook for our Explosive Metalworking 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 increased to $48,360 at September 30, 2012 from $44,564 at December 31, 2011. Our September 30, 2011 backlog was $47,123.
Three and Nine Months Ended September 30, 2012 Compared to the Three and Nine Months Ended September 30, 2011
Net sales
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Net sales |
|
$ |
50,149 |
|
$ |
54,890 |
|
$ |
(4,741 |
) |
(8.6 |
)% |
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Net sales |
|
$ |
149,048 |
|
$ |
154,630 |
|
$ |
(5,582 |
) |
(3.6 |
)% |
Net sales for the third quarter of 2012 decreased 8.6% to $50,149 from $54,890 for the third quarter of 2011. Explosive Metalworking sales decreased 10.9% to $29,771 for the three months ended September 30, 2012 (59% of total sales) from $33,396 for the same period of 2011 (61% of total sales). Since our Explosive Metalworking backlog of $56,625 as of June 30, 2012 was slightly higher than the June 30, 2011 backlog of $54,026, the $3,625 decrease in third quarter 2012 sales relates principally to timing differences with respect to when orders enter our backlog and the subsequent shipment of these orders.
Oilfield Products contributed $18,044 to third quarter 2012 sales (36% of total sales), which represents a 4.0% decline from sales of $18,790 for the third quarter of 2011 (34% of total sales).
After adjusting for incremental sales of $1,007 from the January 3, 2012 acquisition of TRX Industries, third quarter sales decreased by $1,753 or 9.3%. This decrease is principally attributable to a decline in rig count in both the United States and Canada since the end of the second quarter which negatively affected our North American sales.
AMK Welding contributed $2,334 to third quarter 2012 sales (5% of total sales), compared to sales of $2,704 for the third quarter of 2011 (5% of total sales), a sales decrease of $370 or 13.7%. This decrease reflects a $457, or 24.2%, decline in ground power sales that is attributable to a customer’s decision to discontinue new production work on a ground turbine platform that has accounted for a major portion of AMK’s historical ground power revenues. We believe that AMK can replace this lost revenue stream over time by developing new business opportunities with both existing and new customers in the aircraft engine, ground turbine, and oil and gas industries.
Net sales for the nine months ended September 30, 2012 decreased to $149,048 compared to $154,630 for the same period of 2011. Explosive Metalworking sales decreased 11.1% to $84,680 for the nine months ended September 30, 2012 (57% of total sales) from $95,221 for the same period of 2011 (62% of total sales). Our beginning of the year Explosive Metalworking backlog decreased to $44,564 at the beginning of 2012 from $56,539 at the beginning of 2011. The $10,541 decrease in year-to-date 2012 sales follows this $11,975 decrease in beginning of the year backlogs.
Oilfield Products contributed $57,941 to year-to-date 2012 sales (39% of total sales), which represents a 12.4% increase from sales of $51,563 for year-to-date 2011 (33% of total sales). This sales increase reflects incremental sales of $4,763 from the January 3, 2012 acquisition of TRX Industries and generally strong demand for our perforating products, particularly in the United States during the first six months of 2012, before North American demand weakened in the third quarter as further described above.
AMK Welding contributed $6,427 to year-to-date 2012 sales (4% of total sales), compared to sales of $7,846 for the same period of 2011 (5% of total sales), a sales decrease of $1,419 or 18.1%. This decrease reflects a $1,783, or 30.6%, decline in ground power sales that is attributable to a customer’s decision to discontinue new production work on a ground turbine platform as discussed above.
Gross profit
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Gross profit |
|
$ |
15,349 |
|
$ |
14,832 |
|
$ |
517 |
|
3.5 |
% |
|
Consolidated gross profit margin rate |
|
30.6 |
% |
27.0 |
% |
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Gross profit |
|
$ |
43,665 |
|
$ |
40,607 |
|
$ |
3,058 |
|
7.5 |
% |
|
Consolidated gross profit margin rate |
|
29.3 |
% |
26.3 |
% |
|
|
|
|
|||
Despite the 8.6% decrease in third quarter 2012 sales as discussed above, our third quarter 2012 gross profit increased by 3.5% to $15,349 from $14,832 for the three months ended September 30, 2011. Our third quarter 2012 consolidated gross profit margin rate increased by 13.3% to 30.6% from 27.0% for the third quarter of 2011. For the nine months ended September 30, 2012, gross profit increased by 7.5% to $43,665 from $40,607 for the same period of 2011.
Our year-to-date consolidated gross profit margin rate increased by 11.4% to 29.3% in 2012 from 26.3% for the nine months ended September 30, 2011.
The gross profit margin for Explosive Metalworking increased from 22.6% in the third quarter of 2011 to 29.7% in the third quarter of 2012, an increase of 31.5%. For the nine-month period, our gross profit margin for this segment increased by 23.2% to 27.2% in 2012 from 22.1% in 2011. The significant improvement in our year-to-date 2012 gross profit margin rate relates to favorable changes in product mix as compared to the first nine months of 2011 combined with an improved pricing environment. As has been the case historically, we expect to see continued fluctuations in Explosive Metalworking’s quarterly gross margin rates in the future that result from fluctuations in quarterly sales volume and changes in product mix.
Oilfield Products gross profit margin decreased slightly to 33.0% in the third quarter of 2012 from 34.5% in the third quarter of 2011. Oilfield Products reported a gross profit margin of 33.9% for the nine months ended September 30, 2012 compared to a gross profit margin of 33.4% for the same period of 2011. The decline in the third quarter gross margin rate reflects a combination of unfavorable changes in product/customer mix and a more competitive pricing environment in North America associated with the declining in drilling activity discussed above. The modest increase in Oilfield Products’ gross margin for the nine-month period of 2012 relates principally to favorable changes in product/customer mix.
The gross profit margin for AMK Welding decreased to 26.5% in the third quarter of 2012 from 31.5% in the third quarter of 2011. The gross profit margin for AMK Welding decreased to 18.9% for the nine-month period of 2012 from 31.9% for the same period of 2011. Since the majority of AMK’s manufacturing costs are fixed in nature, the decreases in AMK’s third quarter and year-to-date sales had a significant, depressing effect on 2012 gross margin performance.
Based upon the expected contribution to 2012 consolidated net sales by each of our three business segments, we expect our consolidated full year 2012 gross margin to be in a range of 29% to 30%.
General and administrative expenses
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
General and administrative expenses |
|
$ |
4,668 |
|
$ |
4,359 |
|
$ |
309 |
|
7.1 |
% |
|
Percentage of net sales |
|
9.3 |
% |
7.9 |
% |
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
General and administrative expenses |
|
$ |
13,815 |
|
$ |
12,227 |
|
$ |
1,588 |
|
13.0 |
% |
|
Percentage of net sales |
|
9.3 |
% |
7.9 |
% |
|
|
|
|
|||
General and administrative expenses increased by $309, or 7.1%, to $4,668 for the three months ended September 30, 2012 from $4,359 for the same period of 2011. This increase includes increases of $178 in salaries and accrued incentive compensation and a net increase of $131 in all other expense categories. As a percentage of net sales, general and administrative expenses increased to 9.3% in the third quarter of 2012 from 7.9% in the third quarter of 2011.
General and administrative expenses increased by $1,588, or 13.0%, to $13,815 for the nine months ended September 30, 2012 from $12,227 for the same period of 2011. This increase includes increases of $921 in salaries and accrued incentive compensation, an increase in outside
professional service fees of $119, an increase of $215 in stock-based compensation, and a net increase of $333 in all other expense categories. As a percentage of net sales, general and administrative expenses increased to 9.3% for the nine months ended September 30, 2012 from 7.9% in the same period of 2011.
Selling and distribution expenses
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Selling and distribution expenses |
|
$ |
4,011 |
|
$ |
3,359 |
|
$ |
652 |
|
19.4 |
% |
|
Percentage of net sales |
|
8.0 |
% |
6.1 |
% |
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Selling and distribution expenses |
|
$ |
12,330 |
|
$ |
10,997 |
|
$ |
1,333 |
|
12.1 |
% |
|
Percentage of net sales |
|
8.3 |
% |
7.1 |
% |
|
|
|
|
|||
Our selling and distribution expenses, which include sales commissions of $281 in the third quarter of 2012 and $222 in the third quarter of 2011, increased by 19.4% to $4,011 in the third quarter of 2012 from $3,359 in the third quarter of 2011. The increase in our selling and distribution expenses includes increased selling and distribution expenses of $422 and $230 at our U.S. divisions and foreign divisions, respectively.
The $422 increase in our U.S. selling and distribution expenses reflects an aggregate increase of $148 in salaries, accrued incentive compensation and commission expense and a net increase of $274 in all other expense categories. The $230 increase in our foreign divisions’ selling and distribution expenses reflects an increase of $80 in salary and commission expense and a net increase of $150 in all other spending categories. As a percentage of net sales, selling and distribution expenses increased to 8.0% in the third quarter of 2012 from 6.1% in the third quarter of 2011.
Our selling and distribution expenses, which include sales commissions of $1,151 and $1,343 for the nine months ended September 30, 2012 and 2011, respectively increased by 12.1% to $12,330 for the first nine months of 2012 from $10,997 in the same period of 2011. The increase in our selling and distribution expenses includes increased selling and distribution expenses of $459 at our U.S. divisions and $874 at our foreign divisions.
The $459 increase in our U.S. selling and distribution expenses reflects a decrease in commission expense of $348 that was offset by an increase in salaries and accrued incentive compensation of $255 and a net increase in all other spending categories of $552. The $874 increase in our foreign divisions’ selling and distribution expenses reflects increases of $402 in salary expense and $155 in commission expense along with a net increase of $317 in all other spending categories. As a percentage of net sales, selling and distribution expenses increased to 8.3% for the nine months ended September 30, 2012 from 7.1% for the nine months ended September 30, 2011.
Our consolidated selling and distribution expenses for the three months ended September 30, 2012 include $1,736 and $2,078, respectively, for our Explosive Metalworking and Oilfield Products business segments. For the nine months ended September 30, 2012 our consolidated selling and distribution expenses include $4,972 and $6,772, respectively, for our Explosive Metalworking and Oilfield Products business segments. The higher level of selling and distribution expenses for our Oilfield Products segment relative to its contribution to our
consolidated net sales reflects the need, particularly in North America, to maintain a number of strategically located distribution centers that are in close proximity to areas which contain a large concentration of oilfields and enjoy a high volume of related oil and gas drilling activities.
Amortization expense
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Amortization of purchased intangible assets |
|
$ |
1,520 |
|
$ |
1,448 |
|
$ |
72 |
|
5.0 |
% |
|
Percentage of net sales |
|
3.0 |
% |
2.6 |
% |
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Amortization of purchased intangible assets |
|
$ |
4,584 |
|
$ |
4,324 |
|
$ |
260 |
|
6.0 |
% |
|
Percentage of net sales |
|
3.1 |
% |
2.8 |
% |
|
|
|
|
|||
Amortization expense relates to the amortization of values assigned to intangible assets in connection with our prior year acquisitions of DYNAenergetics, LRI, the two Russian joint ventures, Austin Explosives and our January 3, 2012 acquisition of TRX Industries. The $72 increase in third quarter 2012 amortization expenses reflects $224 in new amortization expense associated with the TRX acquisition that was partially offset by favorable foreign currency translation effects. Amortization expense for the three months ended September 30, 2012 includes $1,207, $268, and $45 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively. Amortization expense for the three months ended September 30, 2011 includes $1,094, $303 and $51 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively.
Amortization expense for the nine months ended September 30, 2012 includes $3,623, $823, and $138 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively. Amortization expense for the nine months ended September 30, 2011 includes $3,270, $902 and $152 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively.
Amortization expense (as measured in Euros) associated with the DYNAenergetics acquisition and the acquisition of the two Russian joint ventures is expected to approximate €3,490 and €232, respectively, in 2012. Our 2012 amortization expense associated with the June 2010 Austin Explosives acquisition and the January 2012 acquisition of TRX Industries is expected to approximate $435 and $895, respectively, and our 2012 amortization expense (as measured in Canadian dollars) associated with the LRI acquisition is expected to approximate 80 CAD.
Operating income
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Operating income |
|
$ |
5,150 |
|
$ |
5,666 |
|
$ |
(516 |
) |
(9.1 |
)% |
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Operating income |
|
$ |
12,936 |
|
$ |
13,059 |
|
$ |
(123 |
) |
(0.9 |
)% |
Income from operations (“operating income”) decreased by 9.1% to $5,150 in the third quarter of 2012 from $5,666 in the third quarter of 2011. For the nine months ended September 30, 2012, operating income decreased by 0.9% to $12,936 from $13,059 for the same period of 2011.
Explosive Metalworking reported operating income of $5,451 in the third quarter of 2012 compared to $4,599 in the third quarter of 2011. This 18.5% increase is largely attributable to the 31.5% increase in the gross margin rate discussed above. Operating results of Explosive Metalworking for the three months ended September 30, 2012 and 2011 include $500 and $565, respectively, of amortization expense of purchased intangible assets. Explosive Metalworking reported operating income of $13,138 for the nine months ended September 30, 2012 as compared to $11,758 for the nine months ended September 30, 2011. This 11.7% increase is largely attributable to the 23.2% increase in the gross margin rate as discussed above. Operating results of Explosive Metalworking for the nine months ended September 30, 2012 and 2011 include $1,536 and $1,685, respectively, of amortization expense of purchased intangible assets.
Oilfield Products reported operating income of $1,139 in the third quarter of 2012 compared to $1,881 in the third quarter of 2011. The decrease in third quarter operating income reflects a $533 decrease in gross profit, which is attributable to a 4.0% sales decline and a 4.4% decrease in gross margin rate, and a $209, or 4.5%, increase in total operating expenses. For the nine-month period of 2012, Oilfield Products reported operating income of $4,886 compared to $3,964 for the same period of 2011. The increase in year-to-date operating income for our Oilfield Products segment is principally attributable to the sales increase of $6,378, or 12.4%, as discussed above and a corresponding $2,374 increase in gross profit. This gross profit increase was partially offset by an increase of $1,452, or 10.9%, in total operating expenses. Operating results of Oilfield Products for the three months ended September 30, 2012 and 2011 include $1,020 and $883, respectively, of amortization expense of purchased intangible assets. Operating results of Oilfield Products for the nine months ended September 30, 2012 and 2011 include $3,048 and $2,639, respectively, of amortization expense of purchased intangible assets.
AMK Welding reported operating income of $386 in the third quarter of 2012, a decrease of $186 from the $572 of operating income that it reported in the third quarter of 2011. AMK Welding reported operating income of $463 for the nine months ended September 30, 2012 compared to $1,742 for the same period of 2011. The decline in AMK’s operating income for the three and nine months ended September 30, 2012 is principally attributable to the $370 and $1,419 sales decline and resultant decrease in gross profit as discussed above.
Our consolidated operating income for the three months ended September 30, 2012 and 2011 includes $923 and $514, respectively, of unallocated corporate expenses and $903 and $872, respectively, of stock-based compensation expense. For the nine months ended September 30, 2012 and 2011, consolidated operating income includes $2,713 and $1,870, respectively, of unallocated corporate expenses and $2,838 and $2,535, respectively, of stock-based compensation expense. These expenses are not allocated to our business segments and thus are not included in the above third quarter and year-to-date operating income totals for our Explosive Metalworking, Oilfield Products, and AMK Welding business segments.
Other income (expense), net
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Other income (expense), net |
|
$ |
180 |
|
$ |
(9 |
) |
$ |
189 |
|
(2100.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Other income (expense), net |
|
$ |
390 |
|
$ |
(348 |
) |
$ |
738 |
|
(212.1 |
)% |
We reported net other income of $180 in the third quarter of 2012 compared to net other expense of $9 in the third quarter of 2011. Our reported third quarter 2012 net other income of $180 includes net realized and unrealized foreign exchange gains of $144. Our third quarter 2011 net other expense of $9 includes net realized and unrealized foreign exchange losses of $55 and net other income items aggregating $46.
We reported net other income of $390 for the nine months ended September 30, 2012 compared to net other expense of $348 for the same period of 2011. Our reported year-to-date 2012 net other income of $390 includes net realized and unrealized foreign exchanges gains of $346. Our year-to-date 2011 net other expense of $348 includes net realized and unrealized foreign exchange losses of $520, offset by a gain of $87 on our currency swap agreement and net other income items aggregating $85.
Interest income (expense), net
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Interest income (expense), net |
|
$ |
(200 |
) |
$ |
(325 |
) |
$ |
125 |
|
(38.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Interest income (expense), net |
|
$ |
(597 |
) |
$ |
(1,218 |
) |
$ |
621 |
|
(51.0 |
)% |
We recorded net interest expense of $200 in the third quarter of 2012 compared to net interest expense of $325 in the third quarter of 2011. We recorded net interest expense of $597 for the nine month period ended September 30, 2012 compared to net interest expense of $1,218 for the same period of 2011. Since our average borrowings were approximately $9,300 higher during the nine months ended September 30, 2012 than during the nine months ended September 30, 2011, the significant decrease in 2012 interest expense is entirely attributable to lower average interest rates on our 2012 outstanding borrowings, including a 150 basis point interest rate reduction on revolving credit borrowings under our new five-year credit facility that we entered into on December 21, 2011.
Income tax provision
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Income tax provision |
|
$ |
1,373 |
|
$ |
1,072 |
|
$ |
301 |
|
28.1 |
% |
|
Effective tax rate |
|
26.8 |
% |
20.1 |
% |
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Income tax provision |
|
$ |
3,882 |
|
$ |
2,637 |
|
$ |
1,245 |
|
47.2 |
% |
|
Effective tax rate |
|
30.5 |
% |
22.9 |
% |
|
|
|
|
|||
We recorded an income tax provision of $1,373 in the third quarter of 2012 compared to $1,072 in the third quarter of 2011. The effective tax rate increased to 26.8% in the third quarter of 2012 from 20.1% in the third quarter of 2011 and 26.0% for the full year 2011. Our consolidated income tax provision for the three months ended September 30, 2012 and 2011 included $1,106 and $1,142, respectively, related to U.S. taxes, with the remainder relating to a net foreign tax provision of $267 in 2012 and a net foreign tax benefit of $70 in 2011 associated with our foreign operations and holding companies.
For the nine months ended September 30, 2012, we recorded an income tax provision of $3,882 compared to $2,637 in the same period of 2011. The effective tax rate increased to 30.5% for the nine-month period ended September 30, 2012 from 22.9% for the same period of 2011. Our consolidated income tax provision for the nine months ended September 30, 2012 and 2011 included $2,678 and $3,433, respectively, related to U.S. taxes, with the remainder relating to a net foreign tax provision of $1,204 in 2012 and a net foreign tax benefits of $796 in 2011 associated with our foreign operations and holding companies.
Our statutory income tax rates range from 19% to 35% for our various U.S. and foreign operating subsidiaries and holding companies. The fluctuations in our consolidated effective tax rates for the three and nine month periods ended September 30, 2012 and 2011 relate principally to the different tax rates in our U.S. and foreign tax jurisdictions and the variation in expected contribution to consolidated pre-tax income from each jurisdiction for the respective full year periods of 2011 and 2012 and also reflect the impact of favorable permanent differences in our foreign taxes. Our third quarter 2012 effective tax rate of 26.8% was much lower than our year-to-date 2012 effective tax rate of 30.5% due to the high effective tax rate of 33.0% that we reported for the first half of 2012 which resulted from (a) a local tax increase for a key German subsidiary which required us to increase our deferred tax liabilities by $256 and record a corresponding increase in our first quarter tax provision and (b) an increase of approximately $301 to our second quarter income tax provision to account for the expiration of certain U.S. tax laws at the beginning of 2012 related to current earnings of certain foreign subsidiaries. There is a possibility that these U.S. tax laws relating to certain foreign earnings will be extended without substantial modifications. If this were to occur, the additional tax expense that we recorded in the second quarter of 2012 would likely be reversed in a future period. We currently expect our blended effective tax rate for 2012 to range from 30% to 32% based on projected full year 2012 pre-tax income.
Adjusted EBITDA
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Adjusted EBITDA |
|
$ |
8,962 |
|
$ |
9,554 |
|
$ |
(592 |
) |
(6.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
Percentage |
|
|||||
|
|
|
2012 |
|
2011 |
|
Change |
|
Change |
|
|||
|
Adjusted EBITDA |
|
$ |
24,466 |
|
$ |
24,137 |
|
$ |
329 |
|
1.4 |
% |
Adjusted EBITDA is a non-GAAP measure that we believe provides an important indicator of our ongoing operating performance. Our aggregate non-cash depreciation, amortization of purchased intangible assets and stock-based compensation expense for the three months ended September 30, 2012 and 2011 was $3,815 and $3,875, respectively, and for the nine months ended September 30, 2012 and 2011 was $11,543 and $11,042, respectively. These aggregate non-cash charges represent a significant percentage of the consolidated operating income that we reported for these periods. We use non-GAAP EBITDA and Adjusted EBITDA in our operational and financial decision-making and believe that these non-GAAP measures are a reliable indicator of our ability to generate cash flow from operations and facilitate a more meaningful comparison of the operating performance of our three business segments than do certain GAAP measures. Research analysts, investment bankers and lenders also use EBITDA and Adjusted EBITDA to assess operating performance. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBIDTA.
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
|
September 30, |
|
September 30, |
|
||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
||||
|
Net income attributable to DMC |
|
$ |
3,754 |
|
$ |
4,273 |
|
$ |
8,834 |
|
$ |
8,892 |
|
|
Interest expense |
|
216 |
|
326 |
|
622 |
|
1,222 |
|
||||
|
Interest income |
|
(16 |
) |
(1 |
) |
(25 |
) |
(4 |
) |
||||
|
Provision for income taxes |
|
1,373 |
|
1,072 |
|
3,882 |
|
2,637 |
|
||||
|
Depreciation |
|
1,392 |
|
1,555 |
|
4,121 |
|
4,183 |
|
||||
|
Amortization of purchased intangible assets |
|
1,520 |
|
1,448 |
|
4,584 |
|
4,324 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
EBITDA |
|
8,239 |
|
8,673 |
|
22,018 |
|
21,254 |
|
||||
|
Stock-based compensation |
|
903 |
|
872 |
|
2,838 |
|
2,535 |
|
||||
|
Other (income) expense, net |
|
(180 |
) |
9 |
|
(390 |
) |
348 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
||||
|
Adjusted EBITDA |
|
$ |
8,962 |
|
$ |
9,554 |
|
$ |
24,466 |
|
$ |
24,137 |
|
Adjusted EBITDA decreased by 6.2% to $8,962 in the third quarter of 2012 from $9,554 in the third quarter of 2011 primarily due to the $516 decrease in third quarter 2012 operating income. Adjusted EBITDA increased 1.4% to $24,466 for the nine months ended September 30, 2012 from $24,137 for the nine months ended September 30, 2011 primarily due to a $501 increase in year-to-date 2012 aggregate increase in non-cash depreciation, amortization of purchased intangible assets and stock-based compensation expense.
Liquidity and Capital Resources
We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, various long-term debt arrangements, and the issuance of common stock. We believe that cash flow from operations and funds available under our current credit facilities and any future replacement thereof will be sufficient to fund the working capital, debt service, and capital expenditure requirements of our current business operations for the foreseeable future. Nevertheless, our ability to generate sufficient cash flows from operations will depend upon our success in executing our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure new customer orders at attractive prices; and (iii) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted. Furthermore, any restriction on the availability of borrowings under our credit facilities could negatively affect our ability to meet future cash requirements.
Debt facilities
On December 21, 2011, we entered into a five-year syndicated credit agreement, which provides revolving loan availability of $36,000, 16,000 Euros and 1,500 Canadian Dollars through a syndicate of four banks, and amends and restates in its entirety our prior syndicated credit agreement entered into on November 16, 2007. Our prior syndicated credit agreement provided for revolving loan availability of $25,000 and 7,000 Euros, and also had a remaining balance of $13,247 outstanding under a $45,000 term loan. On the closing date of our amended and restated new credit agreement, the remaining outstanding balance on our term loan was converted to a revolving credit loan.
There are two significant financial covenants under our syndicated credit agreement, the leverage ratio and fixed charge coverage ratio requirements. The leverage ratio is defined in the credit agreement as Consolidated Funded Indebtedness at the balance sheet date as compared to Consolidated EBITDA, which is defined as earnings before provisions for income taxes, interest expense, depreciation and amortization, extraordinary, non-recurring charges and other non-cash charges, for the previous twelve months. For the nine months ended September 30, 2012 and the year ended December 31, 2011, Consolidated EBITDA approximated the “Adjusted EBITDA” that we reported for the respective periods. As of September 30, 2012, the maximum leverage ratio permitted by our credit facility was 2.25 to 1.0. The actual leverage ratio as of September 30, 2012 was 1.23 to 1.0. The maximum leverage ratio permitted as of December 31, 2012 is also 2.25 to 1.0.
The fixed charge ratio, as defined in the credit agreement, means, for any period, the ratio of Consolidated EBITDA to Fixed Charges. Consolidated EBITDA is defined above and Fixed Charges equals the sum of cash interest expense, cash dividends, cash income taxes and an amount equal to 75% of depreciation expense. As of September 30, 2012, the minimum fixed charge ratio permitted by our credit facility was 2.0 to 1.0. The actual fixed charge ratio as of September 30, 2012 was 2.46 to 1.0. The minimum fixed charge coverage ratio permitted for the twelve month periods ending December 31, 2012 is 2.0 to 1.0.
As of September 30, 2012, U.S. dollar revolving loans of $32,900, Euro revolving loans of $9,127 and Canadian Dollar revolving loans of $1,525 were outstanding under our syndicated credit agreement, $2 was outstanding under our separate DYNAenergetics’ line of credit agreements, and $137 was outstanding under loan agreements with the former owners of LRI. While we had approximately $22,252 of unutilized revolving credit loan capacity as of September 30, 2012 under our various credit facilities, future borrowings are subject to compliance with financial covenants that could significantly limit availability.
Debt and other contractual obligations and commitments
Our existing loan agreements include various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders, redemption of capital stock, incurrence of additional indebtedness, mortgaging, pledging or disposition of major assets, and maintenance of specified financial ratios. As of September 30, 2012, we were in compliance with all financial covenants and other provisions of our debt agreements.
Our principal cash flows related to debt obligations and other contractual obligations and commitments have not materially changed since December 31, 2011.
Cash flows from operating activities
Net cash flows provided by operating activities for the nine months ended September 30, 2012 totaled $12,477. Significant sources of operating cash flow included net income of $8,847, non-cash depreciation and amortization expense of $8,801 and stock-based compensation of $2,838. Operating cash flow for year-to-date 2012 was reduced by a deferred income tax benefit of $763 and net negative changes in working capital of $7,214. Negative cash flows from changes in working capital included increases in inventory and accounts receivable of $4,565 and $588, respectively and decreases in accounts payable and customer advances of $2,458 and $554, respectively. These were partially offset by a decrease in prepaid expenses of $635 and an increase in accrued expenses and other liabilities of $316. All of foregoing changes in working capital relate to typical fluctuations in our business flow and the related timing of cash payments and receipts.
Net cash flows provided by operating activities for the nine months ended September 30, 2011 totaled $2,258. Significant sources of operating cash flow included net income of $8,856 and the benefit of certain non-cash charges, including depreciation and amortization expense of $8,768 and stock-based compensation of $2,535. Operating cash flow for year-to-date 2011 was reduced by a deferred income tax benefit of $1,904 and net negative changes in working capital of $16,066. Negative cash flows from changes in working capital included increases in accounts receivable, inventories and prepaid expenses of $7,311, $11,267, and $1,210, respectively. These were partly offset by increases in accounts payable, customer advances and accrued expenses and other liabilities of $680, $1,278 and $1,764, respectively. The sizeable increase in accounts receivables relates principally to a large increase in third quarter Explosive Metalworking shipments compared to the fourth quarter of 2010. The significant increase in inventories is split somewhat evenly between our Explosive Metalworking and Oilfield Products segments, with the Explosive Metalworking increase relating to an increase in work-in-process inventories to meet fourth quarter shipment requirements on orders included in our September 30, 2011 backlog and the Oilfield Products increase relating to an increase in finished goods inventories in our Oilfield Products segment required by the increase in business activity this segment has experienced in recent months.
Cash flows from investing activities
Net cash flows used in investing activities for the nine months ended September 30, 2012 totaled $20,668 which included our $10,294 cash investment in TRX Industries and $10,526 in capital expenditures.
Net cash flows used by investing activities for the nine months ended September 30, 2011 totaled $4,344 and consisted almost entirely of capital expenditures.
Cash flows from financing activities
Net cash flows provided by financing activities for the nine months ended September 30, 2012 totaled $14,356, which included net borrowings on bank lines of credit of $17,087. These sources of cash flow were partially offset by uses of cash flows in financing activities which included payment on our loan with the former owners of LRI of $1,157 and payment of quarterly dividends of $1,614.
Net cash flows provided by financing activities for the nine months ended September 30, 2011 totaled $1,569, which included net borrowings on bank lines of credit of $3,999, a contribution of $42 from our non-controlling stockholder and $99 in net proceeds from the
issuance of common stock relating to the exercise of stock options. These sources of cash flow were partially offset by uses of cash flows in financing activities which included payment of quarterly dividends of $1,596, $633 in principal payments on our Nord LB term loan, $109 for the negative tax impact of stock-based compensation and payment on capital lease obligations of $233.
Payment of Dividends
On August 29, 2012, our board of directors declared a quarterly cash dividend of $.04 per share which was paid on October 15, 2012. The dividend totaled $540 and was payable to shareholders of record as of September 30, 2012. We also paid a quarterly cash dividend of $.04 per share in the first and second quarters of 2012 totaling $539 and $540, respectively. We also paid a quarterly cash dividend of $.04 per share in the first, second and third quarters of 2011.
We may continue to pay quarterly dividends in the future subject to capital availability and periodic determinations that cash dividends are in compliance with our debt covenants and are in the best interests of our stockholders, but we cannot assure you that such payments will continue. Future dividends may be affected by, among other items, our views on potential future capital requirements, future business prospects, debt covenant compliance, changes in federal income tax laws, or any other factors that our board of directors deems relevant. Any decision to pay cash dividends is and will continue to be at the discretion of board of directors.
Critical Accounting Policies
Our critical accounting policies have not changed from those reported in our Annual Report filed on Form 10-K for the year ended December 31, 2011.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no events that materially affect our quantitative and qualitative disclosure about market risk from that reported in our Annual Report on Form 10-K for the year ended December 31, 2011.
ITEM 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is accurately recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of September 30, 2012, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. There have been no changes in our internal controls
during the quarter ended September 30, 2012 or in other factors that could materially affect our internal controls over financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. As a result of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. As a result of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the disclosure controls and procedures are met.
None.
There have been no significant changes in the risk factors identified as being attendant to our business in our Annual Report on Form 10-K for the year ended December 31, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
Exhibits
31.1 Certification of the President and Chief Executive Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Senior Vice President and Chief Financial Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 The following materials from the Quarterly Report on Form 10-Q of Dynamic Materials Corporation. for the quarter ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statement of Stockholders’ Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.*
* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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DYNAMIC MATERIALS CORPORATION |
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(Registrant) |
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Date: October 30, 2012 |
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/s/ Richard A. Santa |
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Richard A. Santa, Senior Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) |
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
| FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
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| DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
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No information found
No Customers Found
No Suppliers Found
Price
Yield
| Owner | Position | Direct Shares | Indirect Shares |
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