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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the transition period from to
Commission file number 0-8328
DYNAMIC MATERIALS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 84-0608431
(State or Incorporation or Organization) (I.R.S. Employer Identification No.)
551 Aspen Ridge Drive, Lafayette, Colorado 80026
(Address of principal executive offices, including zip code)
(303) 665-5700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.05 Par Value
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
------- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The approximate aggregate market value of the voting stock held by
non-affiliates of the registrant was $3,984,879 as of March 15, 2001.
The number of shares of Common Stock outstanding was 4,990,331 as of March
15, 2001.
PART I
ITEM 1. Business
Overview
Dynamic Materials Corporation ("DMC" or the "Company") is a worldwide
leader in the high energy metal working business. The high energy metal working
business includes the use of explosives to perform metallurgical bonding, or
metal "cladding". The Company performs metal cladding using its proprietary
technologies. In 1998, the Company established its Aerospace Group after
acquiring three businesses that provide a variety of metalworking, fabrication,
welding and assembly services to the aerospace industry.
Explosive Metalworking. The primary product of the Explosive Metalworking
Group is explosion bonded clad metal plate. Clad metal plates are used in the
construction of heavy corrosion resistant pressure vessels and heat exchangers
for chemical processing, refining, power and similar industries. Clad plates
consist of a thin layer of an expensive, corrosive resistant metal, such as
titanium or stainless steel, which is metallurgically bonded to a less
expensive, less corrosive resistant, thick base metal, typically steel.
Explosion clad occupies a well-defined technical and commercial niche in the
broader clad metal marketplace. Explosion clad is a high performance, low cost
alternative for many applications requiring corrosion resistant alloys.
Explosive metalworking can also be used for precision metal forming, powder
metal compaction, and shock synthesis. The company has a long-term ongoing
contract for shock synthesis of industrial diamonds.
Aerospace Manufacturing. Products manufactured by the Aerospace Group are
typically made from sheet metal and forgings that are subsequently machined or
formed into precise, three-dimensional shapes that are held to tight tolerances.
Metal machining and forming is accomplished through traditional technologies,
including spinning, machining, rolling and hydraulic expansion. DMC also
performs welding services utilizing a variety of manual and automatic welding
techniques that include electron beam and gas tungsten arc welding processes.
The Company's metalworking and welding operations are often performed to support
the manufacture of completed assemblies and sub-assemblies required by its
customers. Assembly and fabrication services are performed utilizing the
Company's close-tolerance machining, forming, welding, inspection and other
special service capabilities. The Company's forming, machining, welding and
assembly operations serve a variety of product applications in the aerospace,
defense, aircraft, high technology and power generation industries.
In January 1998, the Company completed its acquisition of the assets of AMK
Welding ("AMK"), a supplier of commercial aircraft and aerospace-related
automatic and manual gas tungsten and arc welding services. The Company
completed its acquisition of the assets of Spin Forge, LLC ("Spin Forge"), one
of the country's leading manufacturers of tactical missile motor cases and
titanium pressure vessels for commercial aerospace and defense industries, in
March 1998. In December 1998, the Company completed its acquisition of the
assets of Precision Machined Products, Inc. ("PMP"), a contract machining shop
specializing in high precision, high quality, complex machined parts used in the
aerospace, satellite, medical equipment and high technology industries.
Stock Purchase Agreement with SNPE. On June 14, 2000 the Company's
stockholders approved a Stock Purchase Agreement ("the Agreement") between the
Company and SNPE, Inc ("SNPE"). The closing of the transaction, which was held
immediately following stockholder approval, resulted in a payment from SNPE of
$5,800,000 to the Company in exchange for 2,109,091 of the Company's common
stock at a price of $2.75 per share causing SNPE to become a 50.8% stockholder
of the Company on the closing date. In addition, the Company borrowed $1,200,000
under a convertible subordinated note from SNPE and $3,500,000 under a new
credit facility with SNPE. Proceeds from the SNPE equity investment, convertible
subordinated note issuance and credit facility borrowings enabled the Company to
repay all borrowings from its bank under a revolving credit facility on which
the Company had been in default since September 30, 1999.
Dynamic Materials Corporation, formerly Explosive Fabricators, Inc., was
incorporated in Colorado in 1971 and was reincorporated in Delaware in 1997.
Financial Information about Industry Segments
See Note 9 to the Company's financial statements included under Item 8 for
certain financial information about the Company's industry segments.
Investment Considerations
Except for the historical information contained herein, this report on Form
10-K contains forward-looking statements that involve risks and uncertainties.
The Company wishes to caution readers that the risks detailed below, among
others, in some cases have affected the Company's results, and in others could
cause the Company's results to differ materially from those expressed in any
forward-looking statements made by the Company and could otherwise affect the
Company's business, results of operations and financial condition. Certain of
these factors are further discussed below and should be considered in evaluating
the Company's forward-looking statements and any investment in the Company's
Common Stock.
Fluctuations in Operating Results. In 2000, the Company experienced
significant operating losses as a result of a significant decline in sales and
gross margins for its Aerospace segment. In 1999, the Company experienced
significant operating losses as a result of a significant slowdown in global
market demand for explosion bonded clad metal plate and non-recurring charges
associated with plant closing costs, new facility start-up costs, asset
impairment write-downs and expenses incurred in connection with efforts to sell
the Explosive Metalworking Group. While the Company expects to report operating
income for the full year 2001, the Company has experienced, and expects to
continue to experience, quarterly fluctuations in operating results caused by
various factors, including the timing and size of orders by major customers,
customer inventory levels, shifts in product mix, the occurrence of
non-recurring costs associated with plant closings, plant start-ups,
acquisitions and divestitures, and general economic conditions. In addition, the
Company typically does not obtain long-term volume purchase contracts from its
customers. Quarterly sales and operating results therefore depend on the volume
and timing of backlog as well as bookings received during the quarter.
Significant portions of the Company's operating expenses are fixed, and planned
expenditures are based primarily on sales forecasts and product development
programs. If sales do not meet the Company's expectations in any given period,
the adverse impact on operating results may be magnified by the Company's
inability to adjust operating expenses sufficiently or quickly enough to
compensate for such a shortfall. Results of operations in any period should not
be considered indicative of the results to be expected for any future period.
Fluctuations in operating results may also result in fluctuations in the price
of the Company's Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence on Clad Metal Business; Limitation on Growth in Existing Markets
for Clad Metal Products. In the year ended December 31, 2000, the Company's
cladding business accounted for approximately 61% of its net sales. The
explosion bonded clad metal products industry in which the Company currently
operates is mature and offers limited potential for substantial growth in
existing markets. The Company estimates that it currently serves approximately
35% of the world market for its explosion bonded clad metal products.
Historically, the worldwide demand for clad metal products has been cyclical,
with demand being at depressed levels during the major portion of the past two
years. There can be no assurance that the demand for clad metal products will
improve in the future, and such result could have a material adverse effect on
the Company's business, financial condition and results of operations.
Importance of Aerospace Manufacturing. The Company's aerospace
manufacturing business was established in 1998 and accounted for approximately
39% of the Company's net sales for the fiscal year ended December 31, 2000. The
aerospace manufacturing industry is largely reliant on defense industry demand
and positive economic conditions in general. Fluctuations or downturns in either
could have a materially adverse impact on the Company. The Company currently
estimates that it services a very small percentage of the aerospace industry.
While the Company believes that it will be able to increase its market share
through the businesses it currently owns, there can be no assurance that its
sales and marketing efforts will be successful. Failure to either increase or
maintain market share could have a material adverse effect on the Company's
business, financial condition and results of operations.
Availability of Suitable Cladding Sites. The cladding process involves the
detonation of large amounts of explosives. As a result, the sites where the
Company performs cladding must meet certain criteria, including lack of
proximity to a dense population, the specific geological characteristics of the
site, and the Company's ability to comply with local noise and vibration
abatement regulations in conducting the process. The process of identifying
suitable sites and obtaining permits for using the sites from local government
agencies can be time-consuming or costly. In addition, the Company could
experience difficulty in obtaining permits because of resistance from residents
in the vicinity of proposed sites. The Company currently leases its only
cladding site in Dunbar, Pennsylvania. The lease term for the Pennsylvania site
expires in 2005 but the underlying agreement has renewal options extending
through 2029. The failure to obtain required governmental approvals or permits
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Competition. The Company's explosion clad products compete with explosion
clad made by other like-kind manufacturers located throughout the world. The
company typically supplies explosive clad for approximately 35% of the worldwide
market needs. There are two other major explosion clad suppliers in the world
market, Nobelclad Europe S.A., which is wholly owned by an affiliate of the
Company, and Asahi Chemical. The Company has an exclusive joint selling
arrangement in North America, South America and Australia with Nobelclad Europe
S.A. There are no major North American based explosion clad suppliers. The
company continues to focus on reliability, product quality, on-time delivery
performance, and low cost manufacture to minimize the potential of future
competitive threats.
Explosion clad products also compete with clad manufactured by rollbond and
overlay cladding processes. The technical and commercial niches of each process
are well understood. The company has established exclusive sales arrangements
with other manufacturers where explosion clad is not the low cost solution, and
consequently participates as a sales agent in a significant share of the North
American rollbond market. The company has minimal share of the world rollbond
market, which is dominated by very large Japanese and European steel producers.
The U.S. clad market is currently protected from Japanese competition by
anti-dumping duties. The Company's products compete with weld overlay clad
products manufactured by a significant number of its fabricator customers.
Competitive niche positions in the world market are strongly driven by currency
exchange rates and regulatory factors. Unfavorable currency exchange and
regulatory conditions in various parts of world could put the Company at a
competitive disadvantage and have a material adverse effect on the Company's
business, financial condition and results of operations.
Competition in the aerospace business is, and is expected to remain,
intense. Competitors include domestic and international companies. Many of these
competitors have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than those of the
Company. In addition, many of these competitors have name recognition,
established positions in the market, and long standing relationships with
customers. To remain competitive, the Company will be required to continue to
develop and provide technologically advanced manufacturing services, maintain
quality levels, offer flexible delivery schedules, deliver finished products on
a reliable basis and compete favorably on the basis of price. The Company
believes that its primary competitors in the aerospace industry are Aircraft
Welding and Manufacturing Company, Inc., Pressure Systems, Inc., Kaiser
Electroprecision, Eagle-Picher, Custom Microwave and Alliant Techsystems Inc.
The Company competes against aerospace manufacturers on the basis of product
quality, performance and cost. There can be no assurance that the Company will
continue to compete successfully against these companies.
Availability and Pricing of Raw Materials. Although the Company generally
uses standard metals and other materials in manufacturing its products, certain
materials such as specific grades of carbon steel, titanium, zirconium and
nickel are currently obtained from single sources or are subject to supply
shortages due to general economic conditions. While the Company seeks to
maintain a sufficient inventory of these materials and believes that these
materials are available from other sources, there can be no assurance that the
Company would be able to obtain alternative supplies, or a sufficient inventory
of materials, or obtain supplies at acceptable prices without production delays,
additional costs or a loss of product quality. If the Company were to lose a
single-source supply or fail to obtain sufficient supply on a timely basis or
obtain supplies at acceptable prices, such loss or failure would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Supplies."
Customer Concentration. A significant portion of the Company's net sales is
derived from a relatively small number of customers. Large customers also
accounted for a significant portion of the Company's backlog in March 2001. The
Company expects to continue to depend upon its principal customers for a
significant portion of its sales, although there can be no assurance that the
Company's principal customers will continue to purchase products and services
from the Company at current levels, if at all. The loss of one or more major
customers or a change in their buying patterns could have a material adverse
effect on the Company's business, financial condition and results of operations.
Historically, the majority of the Company's revenues have been derived from
customers in the chemical processing, power generation, petrochemical and
aerospace industries. As was evidenced by the operating losses the Company
incurred in 1999 and 2000, an economic downturn in any of these industries can
have a material adverse effect on the Company's business, financial condition
and results of operations.
Dependence on Key Personnel; Need to Attract and Retain Employees. The
Company's continued success depends to a large extent upon the efforts and
abilities of key managerial and technical employees. The loss of services of
certain of these key personnel could have a material adverse effect on the
Company's business, results of operations and financial condition. There can be
no assurance that the Company will be able to attract and retain such
individuals on acceptable terms, if at all, and the failure to do so could have
a material adverse effect on the Company's business, financial condition and
results of operations.
Government Regulation; Safety. The Company's explosion metal working
business is subject to extensive government regulation in the United States,
including guidelines and regulations for the safe handling and transport of
explosives provided by the U.S. Bureau of Alcohol, Tobacco and Firearms, the
U.S. Department of Transportation set forth in the Federal Motor Carrier Safety
Regulations and the Institute of Makers of Explosive Safety Library
Publications. The Company must comply with licensing and regulations for the
purchase, transport, manufacture and use of explosives. In addition, depending
upon the types of explosives used, the detonation by-products may be subject to
environmental regulation. The Company's activities are also subject to federal,
state and local environmental and safety laws and regulations, including but not
limited to, local noise abatement and air emissions regulations, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 as
amended, including the regulations issued and laws enforced by the labor and
employment departments of states in which the Company conducts business, the
U.S. Department of Commerce, the U.S. Environmental Protection Agency and by
state and county health and safety agencies. Any failure to comply with present
and future regulations could subject the Company to future liabilities. In
addition, such regulations could restrict the Company's ability to expand its
facilities, construct new facilities or could require the Company to incur other
significant expenses in order to comply with government regulations. In
particular, any failure by the Company to adequately control the discharge of
its hazardous materials and wastes could subject it to future liabilities, which
could be significant.
The Company's explosive metalworking operation involves the detonation of
large amounts of explosives. As a result, the Company is required to use
specific safety precautions under the Occupational Safety and Health
Administration guidelines. These include precautions which must be taken to
protect employees from shrapnel and facility deterioration as well as exposure
to sound and ground vibration.
Explosive Metalworking
The explosive metalworking business includes the use of explosives to
perform metal cladding and shock synthesis of industrial diamonds. DMC believes
that the characteristics of its high-energy metal working processes will enable
the development of new applications for products in a wide variety of
industries.
Metal Cladding. The principal product of metal cladding is a metal plate
composed of two or more dissimilar metals, usually a corrosion resistant alloy
and carbon steel, bonded together at the molecular level. High energy metal
cladding is performed by detonating an explosion on the surface of an assembly
of two parallel metal plates, the cladding metal and the backing metal,
separated by a "standoff space". The explosive force creates an electron-sharing
metallurgical bond between the two metal components. The metals used can include
metals of the same type, for example steel to steel, as well as metals with
substantially different densities, melting points, and/or yield strengths, such
as titanium and aluminum alloys with stainless and low carbon steels; copper and
aluminum alloys with kovar or stainless steel; zirconium alloys with low carbon
steel and nickel alloys. DMC manufactures clad metal for uses such as the
fabrication of pressure vessels, heat exchangers and transition joints for the
hydrocarbon processing, chemical processing, power generation, petrochemical,
pulp and paper, mining, shipbuilding and heat, ventilation and air conditioning
(HVAC) industries and other industries that require metal products that can
withstand exposure to corrosive materials, high temperatures and high pressures.
In addition, DMC's Dynaclad(TM) and Detaclad(R) technologies have enabled the
use of metal products in new applications such as the manufacture of metal
autoclaves for use in the mining industry.
The Company's clad metal products are produced on a project-by-project
basis based on specifications set forth in a customer's purchase order. Upon
receipt of an order for clad metal from a customer, the Company identifies
sources for the specified raw materials. The Company obtains the raw materials
from a variety of sources based on quality, availability, transportation costs
and unit price. After the Company receives the materials they are inspected for
conformity to the order specification and product quality criteria. The raw
materials are then prepared for bonding at the Company's new Mount Braddock,
Pennsylvania manufacturing facility. Bonding preparation includes abrasive
cleaning of the mating surfaces of each plate, preparation of the assembly,
metal scoring and trimming. In some cases, plates may be seam welded to create
large parts from readily available standard sizes. The completed assemblies are
transported to the Company's Dunbar, Pennsylvania bonding site where a blasting
agent is loaded on top of the assembly and detonated in a carefully controlled
environment using a remote system. The Company returns the now-bonded metal
plates to the Company's Mount Braddock manufacturing facility for further
processing. This processing might include heat-treating, flattening, beveling,
stripping, milling, cutting and/or special surface preparation to comply with
customer specifications. The Company completes the bonding process by performing
testing for final certification of the product to the customer's specifications.
Shock Synthesis. In connection with the 1996 acquisition of the Detaclad
division of DuPont, DMC entered into an agreement to provide shock synthesis
services associated with the manufacture of industrial diamonds. Shock synthesis
is one step in a series of operations required for production of industrial
grade diamond abrasives.
Aerospace Manufacturing
Metalworking. The Company currently manufactures machined and formed metal
parts for the commercial aircraft, aerospace and power generation industries.
Products are made generally from sheet metal or forgings that are subsequently
machined or formed into precise, three-dimensional shapes that are held to tight
tolerances according to customers' specifications.
Traditional metalworking technologies used by DMC in its aerospace
manufacturing operations include spinning, machining, rolling, and hydraulic
expansion. These technologies were acquired in the 1998 purchases of Spin Forge
and PMP. The equipment utilized in the spinning process at Spin Forge is
believed to be the largest of its kind in North America, and is capable of
producing large, thin wall, close tolerance parts. Formed and machined metal
products include tactical and ballistic missile motor cases, high strength,
light weight pressurant tanks utilizing specialty aerospace alloys and other
high precision, high quality and complex parts. The industries served include
space launch vehicle, defense, satellite, stationary power generation,
commercial aircraft, medical and high technology.
The Company's products are produced on a project-by-project basis based on
specifications set forth in a customer's purchase order. Upon receipt of an
order for a product from a customer, the Company identifies sources for the
specified raw materials, which typically include sheet metals composed of
aluminum, titanium, inconels, monels, hastealloys, waspalloy, invar or stainless
steel. The Company obtains the raw materials from a variety of sources based on
quality, availability, transportation costs and unit price. Following the
machining and forming processes, the Company treats the metal parts by using
operations such as anodizing, heat-treating and painting. The Company completes
the manufacturing process by performing testing for final certification of the
product to the customer's specifications.
Welding. The Company's capabilities for providing welding services and
assemblies reside primarily in the recent acquisitions of AMK Welding and Spin
Forge. Both AMK and Spin Forge provide welding and assembly services to the
commercial aircraft, aerospace, power generation and defense industries. Welding
services are provided on a project-by-project basis based on specifications set
forth in customer's purchase orders. Upon receipt of an order for welded
assemblies the Company performs welding services using customer specific welding
procedures.
The welding services are performed utilizing a variety of manual and
automatic welding techniques, including electron beam and gas tungsten arc
welding processes. The Company has considerable expertise in vacuum controlled
atmospheric purged chamber welding which is a critical capability when welding
titanium, zirconium, high temperature nickel alloys and other specialty alloys.
In addition to its welding capabilities, the Company also utilizes various
special stress relieving and non-destructive examination processes such as mag
particle and radiographic inspection in support of its welding operations.
Metal Assembly Operations. The Company's metalworking and welding
operations are often performed to support the manufacture of completed
assemblies and sub-assemblies required by its customers. DMC's assembly
capabilities are provided on a project-by-project basis according to
specifications set forth in customers' purchase orders. After receiving customer
orders for completed assemblies and sub-assemblies, the Company performs
fabrication services utilizing its close-tolerance machining, forming, welding,
inspection and other special service capabilities.
Strategy
The Company's strategy for growth is to expand and refine its basic
processes and product offerings to generate solutions to the materials needs of
customers in its target markets. Key elements of the Company's strategy include:
Add New Product Lines or Customers. The Company seeks to grow its sales
base by adding new product lines and/or programs to its Aerospace Group and new
customers to both of its business segments. The Company is currently focusing on
expanding its metal forming and machining businesses through new sales and
marketing initiatives. The Company's future sales growth plans depend on a
number of factors. See "Investment Considerations" for a discussion of certain
of the risks associated with the Company's ability to achieve its planned sales
growth.
Take Advantage of Recent Investments in New Technology and Manufacturing
Leadership. The Company seeks to take advantage of its technology leadership in
the metal working business. In 1998 and 1999, the Company invested nearly $7
million in new manufacturing equipment and technologies that Company management
believes has substantially increased manufacturing efficiencies and plant
capacity. Management believes this new clad plate manufacturing facility will
provide a significant advantage to the Company in the increasingly competitive
global marketplace for explosion bonded clad metal plates.
Establish Global Presence. The Company seeks to establish a global sales
and marketing presence in the major international markets for explosion metal
working, including Europe, Australia and the Far East. The Company is working to
establish relationships with end users, engineering contractors, metal
fabricators and independent sales representatives in these markets and has
developed the capacity in its sales and marketing department to address these
markets. The Company is currently planning to expand its operations to include
facilities located outside of the United States. On March 16, 2001, the Company
announced that it has reached agreement to acquire 100% of the stock of
Nobleclad Europe S.A. ("Nobleclad") and Nitro Metall Aktiebolag ("Nitro Metall")
from Nobel Explosifs France ("NEF"). Nobelclad and Nitro Metall operate cladding
businesses located in Rivesaltes, France and Likenas, Sweden, respectively,
which generated combined revenues of approximately $10.5 million in calendar
year 2000. NEF is wholly owned by Groupe SNPE and is a sister company to SNPE,
Inc., which owns 55% of the Company's common stock. The acquisition is expected
to close in the third quarter of 2001. The purchase price of approximately $5.4
million will be financed through a $4.0 million intercompany note agreement
between the Company and SNPE, Inc. and the assumption of approximately $1.4
million in third party bank debt associated with Nobleclad's planned acquisition
of Nitro Metall from NEF prior to the Company's purchase of Nobleclad stock. The
Company plans to continue expanding internationally depending on a number of
factors. See "Investment Considerations" for a discussion of certain of the
risks associated with the Company's ability to establish a global presence.
Suppliers
The Company uses numerous suppliers of alloys, steels and other materials
for its operations. The Company typically bears a short-term risk of alloy,
steel and other component price increases, which could adversely affect the
Company's gross profit margins. Although the Company will work with customers
and suppliers to minimize the impact of any component shortages, component
shortages have had, and are expected to have, from time to time, short-term
adverse effects on the Company's business.
Competition
Competition in the explosion metal working business and the aerospace
business is, and is expected to remain, intense. Competitors include major
domestic and international companies. Competitors in the explosion metal working
business use alternative technologies; additionally certain of DMC's customers
and suppliers who have some in-house metalworking capabilities. Many of these
companies have financial, technical, marketing, sales, manufacturing,
distribution and other resources significantly greater than those of the
Company. In addition, many of these companies have name recognition, established
positions in the market, and long standing relationships with customers. To
remain competitive, the Company will be required to continue to develop and
provide technologically advanced manufacturing services, maintain quality
levels, offer flexible delivery schedules, deliver finished products on a
reliable basis and compete favorably on the basis of price.
Customer Profile and Marketing
The primary industries served by the Company are the chemical processing,
power generation, petrochemical, commercial aerospace and marine engineering
industries. The Company's metal cladding customers in these industries require
metal products that can withstand exposure to corrosive materials, high
temperatures and high pressures. The Company's Aerospace Group customers operate
in industries that require metal products that meet rigorous criteria for
tolerances, weight, strength and reliability.
At any given time, certain customers may account for significant portions
of the Company's business. A significant portion of the Company's net sales is
derived from a relatively small number of customers. Large customers also
accounted for a significant portion of the Company's backlog in March 2001. The
Company expects to continue to depend upon its principal customers for a
significant portion of its sales, although there can be no assurance that the
Company's principal customers will continue to purchase products and services
from the Company at current levels, if at all. The loss of one or more major
customers or a change in their buying pattern could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company extends its internal selling efforts by marketing its services
to potential customers through senior management, direct sales personnel,
program managers and independent sales representatives. Prospective accounts in
specific industries are identified through networking in the industry,
cooperative relationships with suppliers, public relations, customer references,
inquiries from technical articles and seminars and trade shows. The Company
markets its products to three tiers of customers; the product end-users (e.g.,
operators of chemical processing plants), the engineering contractors in charge
of specifying the metal parts to be used by the end-users, and the metal
fabricators who manufacture the products or equipment that utilize the Company's
metal products. By maintaining relationships with these parties and educating
them as to the technical benefits of DMC's high-energy metal worked products,
the Company endeavors to have its products specified as early as possible in the
design process.
Backlog
The Company's backlog was approximately $9.0 million at December 31, 2000
compared with approximately $11.8 million and $15.8 million at December 31, 1999
and 1998, respectively. Backlog consists of firm purchase orders and commitments
that the Company expects to fill within the next 12 months. The Company expects
most of the backlog at December 31, 2000 to be filled during 2001. However,
since orders may be rescheduled or canceled and a significant portion of the
Company's net sales is derived from a small number of customers, backlog is not
necessarily indicative of future sales levels.
Employees
The Company employs approximately 195 full-time employees as of March 15,
2001, the majority of whom are engaged in manufacturing operations. The Company
believes that its relations with its employees are good.
Protection of Proprietary Information
The Company holds 11 United States patents related to the business of
explosion metal working and metallic processes and also owns certain registered
trademarks, including Detaclad(R), Detacouple(R), Dynalock(R) and EFTEK(R). The
Company's current patents expire on various dates through 2012; however, the
Company does not believe that such patents are material to its business and the
expiration of any single patent is not expected to have a material adverse
effect on the Company or its operations.
Financial Information about Foreign and Domestic Operations and Export
Sales
See Note 9 to the Company's financial statements included under Item 8 for
certain financial information about the Company's export sales.
ITEM 2. Properties
The Company's principal manufacturing site, which is owned by the Company,
is located in Mount Braddock, Pennsylvania. The Company also leases property in
Dunbar, Pennsylvania that serves as an explosion site. The lease for the Dunbar,
Pennsylvania property will expire in December 2005, but has renewal options that
extend through 2029. The Company also leases office space for its corporate
headquarters in Lafayette, Colorado under a lease that expires in April 2001.
The Company has entered into a new lease for office space in Boulder, Colorado
to house its corporate headquarters. This new lease expires in February 2003.
The Company owns the land and buildings housing the operations of AMK in South
Windsor, Connecticut. The Company leases the land and building occupied by its
Spin Forge operations in El Segundo, California. The lease expires in January
2002, and the Company holds an option to purchase the land and building housing
the Spin Forge operations through January 2002. Both the lease and option may be
extended under certain conditions. The Company also leases the land and building
occupied by its PMP operations in Fort Collins, Colorado. The lease expires in
December 2003, and the Company has an option to renew the lease for an
additional five-year term. The Company also holds a first right of offer to
purchase the land and building housing the PMP operations through December 2008.
The Company believes that its current facilities are adequate for its existing
operations and are in good condition. See "Investment Considerations" for a
discussion of certain of the risks associated with the Company's ability to
renew the leases for its current manufacturing sites and to identify and
establish new manufacturing sites.
ITEM 3. Legal Proceedings
On October 15, 1999, the Company was named as a third party defendant in a
civil action brought in the United States District Court, District of Wyoming.
The additional parties to the action were the plaintiff, The Industrial Company
of Wyoming, Inc. ("TIC"), and the defendant and third party plaintiff, Process
Partners, Inc., d/b/a International Alliance Group ("IAG"). The Company reached
a settlement in May 2000 pursuant to which the Company made a payment of $10,000
to the third party plaintiff in exchange for dismissal of the litigation with
prejudice and a general release of claims.
ITEM 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote by security holders during the fourth
quarter of the fiscal year ended December 31, 2000.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of the Company was publicly traded on The Nasdaq Stock
Market (National Market) under the symbol "BOOM" from January 3, 1997 through
February 3, 2000. On February 4, 2000, the Company transferred to Nasdaq's
SmallCap Market as a result of the Company's inability to maintain the $5
million minimum market value of public float required by the Nasdaq National
Market. The following table sets forth quarterly high and low bid quotations for
the Common Stock during the Company's last two fiscal years, as reported by
Nasdaq. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
1999 High Low
First Quarter $ 6 7/32 $ 3 1/4
Second Quarter $ 5 $ 3
Third Quarter $ 4 1/8 $ 1 5/16
Fourth Quarter $ 1 7/8 $ 27/32
2000
First Quarter $ 2 5/8 $ 1 1/8
Second Quarter $ 1 27/32 $ 3/4
Third Quarter $ 1 11/16 $ 1
Fourth Quarter $ 1 3/8 $ 3/4
As of March 15, 2001 there were approximately 311 holders of record of the
Common Stock.
The Company has never declared or paid dividends on its Common Stock. The
Company currently intends to retain any future earnings to finance the growth
and development of its business and therefore does not anticipate paying any
cash dividends in the foreseeable future.
ITEM 6. Selected Financial Data
The selected financial data set forth below has been derived from the
financial statements of the Company.
Year Ended December 31,
---------------- -------------- ---------------- -------------- --------------
2000 1999 1998 1997 1996
---------------- -------------- ---------------- -------------- --------------
Statement of Income
Net sales $27,862,581 $29,131,289 $38,212,051 $32,119,585 $29,165,289
Cost of products sold 23,822,815 25,419,287 30,372,600 24,459,168 23,187,155
------------- ------------ ----------- ----------- -----------
Gross profit 4,039,766 3,712,002 7,839,451 7,660,417 5,978,134
Costs and expenses 5,105,879 6,608,895 5,303,495 4,370,091 3,302,602
------------- ------------ ----------- ----------- -----------
Income from operations (1,066,113) (2,896,893) 2,535,956 3,290,326 2,675,532
Other income (expense) (864,386) (975,215) (263,200) (61,413) (92,878)
------------- ------------ ----------- ----------- ------------
(Loss) income before income tax provision (1,930,499) (3,872,108) 2,272,756 3,228,913 2,582,654
Income tax benefit (expense) - 1,154,000 (887,000) (1,221,000) (959,000)
------------- ------------ ----------- ----------- -----------
Net (loss) income before extraordinary (1,930,499) (2,718,108) 1,385,756 2,007,913 1,623,654
item
Extraordinary item - loss from
extinguishment of debt (80,111) - - - -
------------- ------------ ----------- ----------- -----------
Net (loss) income $ (2,010,610) $(2,718,108) $ 1,385,756 $ 2,007,913 $ 1,623,654
============= ============ =========== =========== ===========
Net (loss) income per share:
Basic $(0.50) $(0.96) $0.50 $0.75 $0.64
Diluted $(0.50) $(0.96) $0.49 $0.70 $0.59
Weighted average number of shares
outstanding:
Basic 4,004,873 2,822,184 2,770,139 2,681,943 2,522,305
Diluted 4,004,873 2,822,184 2,852,547 2,875,703 2,741,868
Financial Position
Current assets $ 8,958,301 $8,898,184 $11,145,995 $ 9,809,503 $11,653,968
Total assets 27,667,455 30,087,318 33,201,578 14,405,809 16,485,240
Current liabilities 4,055,274 19,921,074 6,069,050 3,455,700 4,111,784
Non-current liabilities 10,307,887 136,261 14,503,617 90,632 4,147,696
Stockholders' equity 13,304,294 10,029,983 12,628,911 10,859,477 8,225,760
Selected unaudited quarterly financial data for the years ended December 31,
2000 and 1999 is presented below:
Year ended December 31, 2000
------------------ ----------------- ---------------- -----------------
Quarter ended Quarter ended Quarter ended Quarter ended
March 31, June 30, September 30, December 31,
------------------ ----------------- ---------------- -----------------
Net sales $ 6,386,625 $ 8,320,483 $ 6,259,297 $ 6,896,176
Gross profit $ 834,837 $ 1,064,165 $ 1,048,630 $ 1,092,134
Net loss before extraordinary item $ (576,815) $ (606,383) $ (363,381) $ (383,920)
Net (loss) income $ (576,815) $ (686,494) $ (363,381) $ (383,920)
Net (loss) income per share - basic and diluted
Net (loss) income per share before $(0.20) $(0.19) $(0.07) $(0.08)
extraordinary item
Extraordinary item - (0.02) - -
----------------- ----------------- ---------------- -----------------
Net (loss) income per share $ (0.20) $ (0.21) $ (0.07) $ (0.08)
================= ================ =============== =================
Year ended December 31, 1999
------------------ ----------------- ---------------- -----------------
Quarter ended Quarter ended Quarter ended Quarter ended
March 31, June 30, September 30, December 31,
------------------ ----------------- ---------------- -----------------
Net sales $ 9,706,261 $ 7,737,924 $ 6,267,617 $ 5,419,487
Gross profit $ 1,862,196 $ 861,069 $ 509,737 $ 479,000
Net (loss) income $ 144,842 $ (1,090,635) $ (765,191) $ (1,007,124)
Net (loss) income per share - basic and diluted $ 0.06 $ (0.39) $ (0.27) $ (0.36)
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Dynamic Materials Corporation ("DMC" or the "Company") is a worldwide
leader in explosive metalworking and, through its Aerospace Group, is involved
in a variety of metal forming, machining, welding, and assembly activities. The
explosive metalworking business includes the use of explosives to perform
metallurgical bonding, or "metal cladding" and shock synthesis of synthetic
diamonds. The Company performs metal cladding using its proprietary
technologies. The Company's revenues from its explosive metalworking businesses,
as a proportion of total Company revenues, have declined in the past two years
as a result a significant slowdown in global market demand for explosion bonded
clad metal plate and the 1998 acquisitions of AMK Welding, Spin Forge and
Precision Machined Products. The Company's Aerospace Group was formed from these
three acquisitions and accounted for 22%, 42% and 39% of the Company's 1998,
1999 and 2000 revenues, respectively.
Explosive Metalworking. Clad metal products are used in manufacturing
processes or environments that involve highly corrosive chemicals, high
temperatures and/or high pressure conditions. For example, the Company
fabricates clad metal tube sheets for heat exchangers. Heat exchangers are used
in a variety of high temperature, high pressure, highly corrosive chemical
processes, such as processing crude oil in the petrochemical industry and
processing chemicals used in the manufacture of synthetic fibers. In addition,
the Company has produced titanium clad plates used in the fabrication of metal
autoclaves to replace autoclaves made of brick and lead for two customers in the
mining industry. The Company believes that its clad metal products are an
economical, high-performance alternative to the use of solid corrosion-resistant
alloys. In addition to clad metal products, the explosive metalworking business
includes shock synthesis of synthetic diamonds.
Aerospace Manufacturing. Products manufactured by the Aerospace Group are
typically made from sheet metal and forgings that are subsequently machined or
formed into precise, three-dimensional shapes that are held to tight tolerances.
Metal machining and forming is accomplished through traditional technologies,
including spinning, machining, rolling and hydraulic expansion. DMC also
performs welding services utilizing a variety of manual and automatic welding
techniques that include electron beam and gas tungsten arc welding processes.
The Company's forming and welding operations are often performed to support the
manufacture of completed assemblies and sub-assemblies required by its
customers. Fabrication and assembly services are performed utilizing the
Company's close-tolerance machining, forming, welding, inspection and other
special service capabilities. The Company's forming, machining, welding and
assembly operations serve a variety of product applications in the commercial
aircraft, aerospace, defense and power generation industries. Product
applications include tactical missile motor cases, titanium pressure tanks for
launch vehicles, and complex, high precision component parts for satellites.
The Company completed three separate business acquisitions during 1998. On
January 5, 1998, the Company acquired certain assets of AMK Welding, Inc.
("AMK"). AMK supplies commercial aircraft and aerospace-related automatic and
manual, gas tungsten and arc welding services. On March 18, 1998, the Company
completed the acquisition of certain assets of Spin Forge, LLC ("Spin Forge").
The Company's management believes Spin Forge is one of the country's leading
manufacturers of tactical missile motor cases and titanium pressure vessels for
the commercial aerospace and defense industries. On December 1, 1998, the
Company acquired substantially all of the assets of Precision Machined Products,
Inc. ("PMP"). PMP is a contract machining shop specializing in high-precision,
high-quality, complex machined parts used in the aerospace, satellite and high
technology industries. On March 16, 2001, the Company announced that it has
reached agreement to acquire 100% of the stock of Nobleclad Europe S.A.
("Nobleclad") and Nitro Metall Aktiebolag ("Nitro Metall") from Nobel Explosifs
France ("NEF"). Nobelclad and Nitro Metall operate cladding businesses located
in Rivesaltes, France and Likenas, Sweden, respectively, which generated
combined revenues of approximately $10.5 million in calendar year 2000. NEF is
wholly owned by Groupe SNPE and is a sister company to SNPE, Inc., which owns
55% of the Company's common stock. The acquisition is expected to close in the
third quarter of 2001. The purchase price of approximately $5.4 million will be
financed through a $4.0 million intercompany note agreement between the Company
and SNPE, Inc. and the assumption of approximately $1.4 million in third party
bank debt associated with Nobleclad's planned acquisition of Nitro Metall from
NEF prior to the Company's purchase of Nobleclad stock.
On January 8, 1999, the Board of Directors of DMC declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock. The dividend was paid on January 15, 1999, the rights record date,
to the stockholders of record on that date. Each Right entitled the registered
holder to purchase from DMC one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.05 per share, of DMC at a purchase
price of $22.50, subject to adjustment. The rights were redeemed by the Company
at a redemption price of $.001 per right on June 20, 2000.
Due largely to the operating loss the Company incurred during 1999, the
Company violated certain financial covenants under its debt agreements beginning
with the quarter ended September 30, 1999. Once it became apparent that
financial covenant violations under its debt agreements would continue, the
Company began to evaluate various business strategies and financing alternatives
in connection with the need to restructure its debt agreements and/or
re-capitalize the Company's balance sheet. These efforts culminated in the
Company entering into a Stock Purchase Agreement (the "Agreement") with SNPE,
Inc. ("SNPE") that was signed on January 20, 2000 and subsequently approved by
the Company's stockholders on June 14, 2000. The closing of the transaction,
which was held immediately following stockholder approval, resulted in a payment
from SNPE of $5,800,000 to the Company in exchange for 2,109,091 of the
Company's common stock at a price of $2.75 per share causing SNPE to become a
50.8% stockholder of the Company on the closing date. The Company also borrowed
$3,500,000 on June 14, 2000 under a new credit facility with SNPE. The SNPE
credit facility, which bears interest at the Federal Funds Rate plus 1.5%, may
be increased to a maximum of $4,500,000 in total borrowings subject to certain
approvals by SNPE. Proceeds from the SNPE equity investment, convertible
subordinated note issuance and credit facility borrowings enabled the Company to
repay all borrowings from its bank under a revolving credit facility on which
the Company had been in default since September 30, 1999.
In 2000, the Company experienced significant operating losses as a result
of a significant decline in sales revenue and gross margin levels within its
Aerospace Group. The Company's Explosive Metalworking Group generated a small
operating income in 2000 after incurring significant operating losses in 1999.
The Company also experienced, and expects to continue to experience, quarterly
fluctuations in operating results caused by various factors, including the
timing and size of orders from major customers, customer inventory levels,
shifts in product mix, the occurrence of acquisition and divestiture-related
costs, and general economic conditions. The Company typically does not obtain
long-term volume purchase contracts from its customers. Quarterly sales and
operating results therefore depend on the volume and timing of backlog as well
as bookings received during the quarter. A significant portion of the Company's
operating expenses is fixed, and planned expenditures are based primarily on
sales forecasts and product development programs. If sales do not meet the
Company's expectations in any given period, the adverse impact on operating
results may be magnified by the Company's inability to adjust operating expenses
sufficiently or quickly enough to compensate for such a shortfall. In addition,
the Company uses numerous suppliers of alloys, steels and other materials for
its operations. The Company typically bears a short-term risk of alloy, steel
and other component price increases, which could adversely affect the Company's
gross profit margins. Although the Company will work with customers and
suppliers to minimize the impact of any component shortages, component shortages
have had, and are expected from time to time to have, short-term adverse effects
on the Company's business. Results of operations in any period should not be
considered indicative of the results to be expected for any future period.
Fluctuations in operating results may also result in fluctuations in the price
of the Company's common stock.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Sales. Net sales for 2000 decreased 4.4% to $27,862,581 from
$29,131,289 in 1999. The Company's Aerospace Group contributed $10,896,904 to
2000 sales (39.1% of total sales) sales versus sales of $12,116,650 in 1999
(41.6% of total sales). This decrease of $1,219,746, or 10.1%, reflects a
$1,829,045 decline in sales at Spin Forge that is attributable to a major
customer deferring shipments on a long-term production contract from 2000 to the
latter part of 2001 and decreased sales under certain missile motor case
programs. The sales decrease that the Aerospace Group experienced in 2000 is
expected to reverse itself in 2001. Sales by the Explosive Metalworking Group,
whose operations include explosion bonding of clad metal and shock synthesis of
synthetic diamonds, decreased 0.3% from $17,014,639 in 1999 (58.4% of total
sales) to $16,965,677 in 2000 (60.9% of total sales). The small decrease
reflects the continued effects of a significant, cyclical slowdown in global
market demand for explosion bonded clad metal plate that continued from 1999
through the year 2000. Strong booking activity during the early part of 2001
supports the Company's belief that the global market demand for clad metal
products is improving.
Gross Profit. Despite the 4.4% decrease in the Company's net sales, gross
profit for 2000 increased by 8.8% to $4,039,766 from $3,712,002 in 1999. The
Company's gross profit margin for 2000 was 14.5%, a 14.2% increase from the
gross profit margin of 12.7% in 1999. The gross profit margin for the Company's
Explosion Metalworking Group increased from 4.4% in 1999 to 16.0% in 2000, while
the gross profit margin for the Aerospace Group decreased to 13.5% in 2000 from
24.5% in 1999. The large increase in the gross profit margin for the Explosive
Metalworking Group is principally due to significant reductions in fixed
manufacturing overhead costs resulting from the July 1999 closing of the Group's
Colorado manufacturing facility and the consolidation of all of the Group's
manufacturing activities in its new Mount Braddock, Pennsylvania plant. Price
increases during the last half of the year also contributed to the Explosive
Metalworking Group's improved gross margin performance. The significant decline
in the gross margin rate for the Aerospace Group reflects a large decrease in
sales at Spin Forge and a decrease in gross margin levels at Precision Machined
Products and AMK Welding due to product mix changes and higher operating
expenses. The weak financial performance of the Aerospace Group is being
addressed through expanded sales and marketing programs, organizational changes
at all three divisions and the implementation of new production control and
scheduling systems. The Company believes that these changes should enable the
Group to return to profitability before the end of 2001.
General and Administrative. General and administrative expenses increased
by $85,953, or 2.4%, to $3,622,403 in 2000 from $3,536,450 in 1999. As a
percentage of net sales, general and administrative expenses increased from
12.1% in 1999 to 13.0% in 2000. This increased percentage is largely
attributable to the decrease in the Company's sales during 2000. General and
administrative expenses in 2000 included $56,780 of non-recurring severance pay.
Selling Expense. Selling expenses increased by 4.1% to $1,483,476 in 2000
from $1,424,774 in 1999. As a percentage of net sales, selling expenses
increased from 4.9% in 1999 to 5.3% in 2000. Year 2000 selling expenses included
$80,284 of non-recurring expenses associated with severance pay and other
employee separation costs within the Explosive Metalworking Group sales
department. Excluding non-recurring employee separation costs, selling expenses
decreased by $21,582 or 1.5% from 1999 to 2000.
Start-up Costs. In the third quarter of 1998, the Company began to
separately report the start-up costs associated with the construction of a new
facility in Pennsylvania for the manufacture of clad metal plates. These
start-up costs included salaries, benefits and travel expenses for Company
employees assigned to this project, field office expenses and other operating
expenses directly associated with this construction project. The new facility
commenced operations in August 1999 at which time all operating costs associated
with this new facility began to be recorded as manufacturing overhead that is
included in the computation of cost of products sold. Start-up costs in 1999
totaled $334,372.
Plant Closing Costs. On April 23, 1999, the Company announced that it would
be closing its Louisville, Colorado-based explosion bonded clad metal plate
manufacturing facility in the third quarter of 1999 and consolidating all of its
Explosive Metalworking Group operations into the new Pennsylvania-based clad
metal plate manufacturing facility. For the year ended December 31, 1999, the
Company recorded non-recurring charges of $812,197 related to costs associated
with this plant closing. No additional plant closing costs were incurred
subsequent to December 31, 1999. Plant closing costs include severance pay to
terminated employees, outplacement service fees and certain expenses incurred in
connection with final plant shutdown, clean-up and site reclamation work
subsequent to the discontinuation of manufacturing activities at this facility
in July.
Impairment of Long-lived Assets. In connection with the plant closing
discussed above, the Company identified certain long-lived assets associated
with its Colorado manufacturing operations that were to be abandoned and that
had negligible fair market values. Accordingly, the Company recorded asset
impairment write-down charges in the aggregate amount of $179,004 during 1999.
The Company also identified certain inventory that was determined to have
little value as a result of the plant closing. This inventory, which totaled
approximately $108,000, was consequently written off in 1999 as a charge to cost
of products sold.
Costs Related to Attempted Asset Disposition. On June 23, 1999, the Company
announced that it had entered into an agreement to sell certain assets relating
to its Explosive Metalworking Group to AMETEK for approximately $17 million.
However, on October 20, 1999, AMETEK notified the Company that it was
terminating the Asset Purchase Agreement. In connection with the Company's
efforts during 1999 to sell its Explosive Metalworking Group, the Company
recorded non-recurring expenses of $322,098. These expenses related principally
to investment banking, legal and other third party fees associated with the
terminated AMETEK transaction.
Income (Loss) from Operations. The Company reported a $1,066,113 loss from
operations in 2000 compared to a loss from operations of $2,896,893 in 1999. The
$1,830,780 year-to-year decrease in the Company's loss from operations reflects
a significant improvement in operating results for the Explosive Metalworking
Group that was partially offset by the first-ever operating loss for the
Aerospace Group. The Explosive Metalworking Group reported income from
operations of $82,149 in 2000, as compared to a loss from operations of
$3,437,118 in 1999 that included $1,325,573 of non-recurring expenses associated
with new facility start-up costs, plant closing costs and asset impairment
write-downs. Excluding these non-recurring expenses, the Explosive Metalworking
Group operating results showed a year-to-year improvement of $2,193,694 on sales
that were essentially unchanged from 1999 to 2000. These improved results
reflect an increase in gross margins from 4.4% in 1999 to 16.0% in 2000,
resulting from fixed manufacturing cost savings in 2000 associated with the
consolidation of manufacturing facilities in 1999 and stronger selling prices
during the second half of 2000. The Company's Aerospace Group reported a loss
from operations of $1,148,262 in 2000, as compared to income from operations of
$862,323 in 1999. This unfavorable variance is attributable to the large decline
in year-to-year sales at Spin Forge and reduced gross profit levels at Precision
Machined Products and AMK Welding. The weak financial performance of the
Aerospace Group is being addressed through expanded sales and marketing
programs, organizational changes at all three divisions and the implementation
of new production control and scheduling systems. The Company believes that
these changes should enable the Group to return to profitability before the end
of 2001.
Interest Expense. Interest expense increased by 8.3% to $1,094,181 in 2000
from $1,009,911 in 1999. This increase is attributable to interest expense under
the Company's industrial development revenue bonds that were used to finance the
new clad metal plate manufacturing facility in Pennsylvania. Interest expense on
the bonds was capitalized during the construction period, which ended on August
1, 1999, and expensed thereafter as the facility became operational. The
increase in bond interest expense was partly offset by a decrease in interest on
other outstanding debt that resulted from the reduction in revolving credit debt
that was made possible by the equity invested in the Company by SNPE, Inc. on
June 14, 2000.
Income Tax Benefit. The Company recorded no income tax benefit in 2000 and
an income tax benefit of $1,154,000 in 1999. The Company was able to carry-back
a major portion of its 1999 loss to prior years in which the Company generated
taxable income and recognize a tax benefit associated with these loss
carry-backs. However, the 1999 tax loss exceeded the amount of Federal tax that
could carried back to the 1997 and 1998 tax years and the Company did not
recognize a tax benefit with respect to the portion of the 1999 tax loss that
can be carried forward. Additionally, the 1999 tax loss could not be carried
back for state tax purposes. As a result of the foregoing factors, the effective
tax benefit rate of 29.8% in 1999 was significantly lower than the Company's
effective tax rate of 39.0% in 1998. Again in 2000, the Company did not record a
tax benefit associated with the tax loss that can be carried forward since the
future realization of the tax benefits associated with the tax loss
carry-forwards remains uncertain as of the date of the December 31, 2000
financial statements.
Extraordinary Item - Loss from Extinguishment of Debt. In December 1998,
the Company entered into an interest rate swap agreement with its bank related
to the bank lines of credit. The Company terminated this swap agreement in the
third quarter of 1999 resulting in a deferred gain of $45,600 that was being
amortized over the terms of the acquisition line of credit. Once the bank lines
of credit were extinguished as part of the SNPE transaction, the unamortized
deferred gain of $31,388 was offset against the unamortized deferred finance
charges of $111,499 related to the lines of credit and recorded as an
extraordinary loss of extinguishment.
Net Income (Loss). The Company recorded a net loss of $2,010,610 in 2000 as
compared a net loss of $2,718,108 in 1999. The $707,498 decrease in the
Company's net loss is much lower than the decreased operating loss from 1999 to
2000 would suggest due to the recognition of $1,154,000 in tax benefits in 1999
versus the recognition of no tax benefit in 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Net sales for 1999 decreased 23.8% to $29,131,289 from
$38,212,051 in 1998. The Company's new Aerospace Group, which was formed in 1998
as a result of the acquisitions of AMK, Spin Forge and PMP, contributed
$12,116,650 to 1999 sales (41.6% of total sales) sales versus sales of
$8,484,778 in 1998 (22.2% of total sales). This 42.8% increase in Aerospace
Group sales is largely due to the December 1, 1998 acquisition of PMP whose
results are included in Aerospace Group sales for all of 1999 but only one month
of 1998. The increase in Aerospace Group sales was more than offset by a
$12,712,634 decline in sales by the Company's Explosion Metalworking Group.
Sales by this Group, whose operations include explosion bonding of clad metal
and shock synthesis of synthetic diamonds, decreased 42.8% from $29,727,273 in
1998 (77.8% of total sales) to $17,014,639 in 1999 (58.4% of total sales). The
large decrease in Explosive Metalworking Group sales reflects a significant
slowdown in global market demand for explosion bonded clad metal plate that is
expected to continue for the year 2000.
Gross Profit. As a result of the sharp decline in the Company's net sales,
gross profit for 1999 decreased by 52.6% to $3,712,002 from $7,839,451 in 1998.
The Company's gross profit margin for 1999 was 12.7%, a 38.0% decline from the
gross profit margin of 20.5% in 1998. Gross profit margin for the Company's
Explosion Metalworking Group decreased from 18.1% in 1998 to 4.4% in 1999, while
the 1999 gross profit margin for the Aerospace Group decreased to 24.5% from
29.2% in 1998. The large decrease in the gross profit margin for the Explosive
Metalworking Group is principally due to unfavorable fixed manufacturing
overhead cost variances associated with the sharp declines in production and
sales of clad plates. Fixed manufacturing overhead costs for the Explosive
Metalworking Group have been significantly reduced through the July 1999 closing
of the Group's Colorado manufacturing facility and consolidation of all of the
Group's manufacturing activities in its new Mount Braddock, Pennsylvania plant.
The decline in the gross margin rate for the Aerospace Group reflects a decrease
in year-to-year sales at Spin Forge and related unfavorable absorption of fixed
manufacturing overhead expenses into cost of products sold.
General and Administrative. General and administrative expenses increased
by $273,457, or 8.4%, to $3,536,450 in 1999 from $3,262,993 in 1998. This
increase includes a $556,108 increase in direct Aerospace Group general and
administrative expenses. The increase in direct general and administrative
expenses of the Aerospace Group relates to the timing of the 1998 acquisitions
of AMK, Spin Forge and PMP that were completed on January 5, March 18 and
December 1, 1998, respectively. As a percentage of net sales, general and
administrative expenses increased from 8.5% in 1998 to 12.1% in 1999. This
increased percentage is largely attributable to the significant decrease in
sales by the Explosive Metalworking Group.
Selling Expense. Selling expenses decreased by 23.0% to $1,424,774 in 1999
from $1,850,973 in 1998. This decrease reflects lower expense levels in a number
of categories, including compensation and benefits, advertising and promotion,
reserves for bad debts and travel and entertainment expenses. Compensation and
benefit expense decreases are associated with reduced staffing levels in
response to the decline in demand for explosion bonded clad metal plate.
However, due to the 23.8% decrease in 1999 sales, selling expenses as a
percentage of net sales increased slightly from 4.8% in 1998 to 4.9% in 1999.
Start-up Costs. In the third quarter of 1998, the Company began to
separately report the start-up costs associated with the construction of a new
facility in Pennsylvania for the manufacture of clad metal plates. Start-up
costs increased from $189,529 in 1998 to $334,372 in 1999. These start-up costs
included salaries, benefits and travel expenses for Company employees assigned
to this project, field office expenses and other operating expenses directly
associated with this construction project. The new facility commenced operations
in August 1999 at which time all operating costs associated with this new
facility began to be recorded as manufacturing overhead that is included in the
computation of cost of products sold.
Plant Closing Costs. On April 23, 1999, the Company announced that it would
be closing its Louisville, Colorado-based explosion bonded clad metal plate
manufacturing facility in the third quarter of 1999 and consolidating all of its
Explosive Metalworking Group operations into the new Pennsylvania-based clad
metal plate manufacturing facility. For the year ended December 31, 1999, the
Company recorded non-recurring charges of $812,197 related to costs associated
with this plant closing. Plant closing costs include severance pay to terminated
employees, outplacement service fees and certain expenses incurred in connection
with final plant shutdown, clean-up and site reclamation work subsequent to the
discontinuation of manufacturing activities at this facility in July.
Impairment of Long-lived Assets. In connection with the plant closing
discussed above, the Company identified certain long-lived assets associated
with its Colorado manufacturing operations that were to be abandoned and that
had negligible fair market values. Accordingly, the Company recorded asset
impairment write-down charges in the aggregate amount of $179,004 during 1999.
The Company also identified certain inventory that was determined to have
little value as a result of the plant closing. This inventory, which totaled
approximately $108,000, was consequently written off in 1999 as a charge to cost
of products sold.
Costs Related to Attempted Asset Disposition. On June 23, 1999, the Company
announced that it had entered into an agreement to sell certain assets relating
to its Explosive Metalworking Group to AMETEK for approximately $17 million.
However, on October 20, 1999, AMETEK notified the Company that it was
terminating the Asset Purchase Agreement. In connection with the Company's
efforts during 1999 to sell its Explosive Metalworking Group, the Company
recorded non-recurring expenses of $322,098. These expenses related principally
to investment banking, legal and other third party fees associated with the
terminated AMETEK transaction.
Income (Loss) from Operations. The Company reported a $2,896,893 loss from
operations in 1999 compared to income from operations of $2,535,956 in 1998. The
1999 operating loss is a result of the 23.8% decrease in net sales discussed
above and non-recurring charges in the aggregate amount of $1,647,671 associated
with plant closing costs, new facility start-up costs, asset impairment
write-downs and expenses incurred in connection with efforts to sell the
Explosive Metalworking Group. The Company's Aerospace Group reported income from
operations of $862,323 in 1999 as compared to $1,283,338 in 1998; with this
decrease being largely attributable to unfavorable product mix changes that
resulted decreased gross margin levels. The Explosive Metalworking Group
reported a loss from operations of $3,437,118 in 1999, including $1,325,573 of
non-recurring expenses associated with new facility start-up costs, plant
closing costs and asset impairment write-downs, as compared to income from
operations of $1,252,618 in 1998. Non-recurring corporate costs in the amount of
$322,098 that were incurred in connection with the attempted sale of the
Explosive Metalworking Group were not allocated to either of the Company's two
business segments in computing the above business segment income (loss) from
operations amounts for 1999.
Interest Expense. Interest expense increased by 256% to $1,009,911 in 1999
from $283,706 in 1998. This large increase is attributable to borrowings under
the Company's revolving line of credit with the Company's bank that were
required to finance the 1998 acquisitions of AMK, Spin Forge and PMP and that
were outstanding for a full year in 1999 and to interest expense under the
Company's industrial development revenue bonds that were used to finance the new
clad metal plate manufacturing facility in Pennsylvania. Interest expense on the
bonds was capitalized during the construction period, which ended on August 1,
1999, and expensed thereafter as the facility became operational.
Income Tax Provision. Due to losses before income taxes and the ability to
carry-back the major portion of these losses to prior years in which the Company
generated taxable income, the Company recorded an income tax benefit of
$1,154,000 in 1999 as compared to a tax provision of $887,000 in 1998. The
effective tax rates for recording the 1999 tax benefit and the 1998 tax
provision were 29.8% and 39.0%, respectively. The 1999 tax loss exceeded the
amount of Federal tax that can be carried back to the 1997 and 1998 tax years
and the Company did not recognize a tax benefit with respect to the portion of
the 1999 tax loss that can be carried forward. Additionally, the 1999 tax loss
cannot be carried back for state tax purposes. As a result of the foregoing
factors, the effective tax benefit rate for 1999 was significantly lower than
the Company's effective tax rate for 1998.
Net Income (Loss). The Company recorded a net loss of $2,718,108 in 1999 as
compared to net income of $1,385,756 in 1998. The significant decrease in net
earnings was primarily attributable to decreased gross profit from the Company's
explosion metalworking group, non-recurring expenses in the aggregate amount of
$1,647,671 associated with plant closing costs, new facility start-up costs,
asset impairment write-downs and expenses incurred in connection with efforts to
sell the Explosive Metalworking Group and increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has obtained most of its operational financing
from a combination of operating activities and an asset-backed revolving credit
facility. Due primarily to the operating losses the Company incurred during 1999
and the first quarter of 2000, the Company violated certain financial covenants
under both the revolving credit facility that was then in effect and the
reimbursement agreement related to the letter of credit supporting payment of
principal and interest under the Company's industrial revenue development bonds
(the "Bonds") used to finance the construction of its manufacturing facilities
in Pennsylvania. On June 14, 2000 the Company's stockholders approved a Stock
Purchase Agreement (the "Agreement") between the Company and SNPE, Inc ("SNPE").
The closing of the transaction, which was held immediately following stockholder
approval, resulted in a payment from SNPE of $5,800,000 to the Company in
exchange for 2,109,091 shares of the Company's common stock at a price of $2.75
per share causing SNPE to become a 50.8% stockholder of the Company on the
closing date. An additional $1,200,000 cash payment was made by SNPE to the
Company to purchase a five-year, 5% Convertible Subordinated Note that is
convertible in whole or in part into common stock by SNPE at a conversion price
of $6 per share. The Company also borrowed $3,500,000 on June 14, 2000 under a
new credit facility with SNPE that bears interest at the Federal Funds Rate plus
1.5% and may be increased to a maximum of $4,500,000 in total borrowings subject
to certain approvals by SNPE. Proceeds from the SNPE equity investment,
convertible subordinated note issuance and credit facility borrowings aggregated
$10,500,000 and enabled the Company to repay all outstanding borrowings under
its bank revolving credit facility on which the Company had been in default
since September 30, 1999. The bank revolving credit facility was terminated on
June 14, 2000. As a result of the SNPE debt and equity infusion, the Company was
also able to restructure financial covenants under the reimbursement agreement
with its bank relating to the industrial development revenue bonds and is
currently in full compliance with all provisions of its debt agreements. The
three-year bank letter of credit that supports the Company's industrial
development revenue bonds expires in September 2001. Company management believes
that the Company will be able to obtain a replacement letter of credit
arrangement on terms similar to those of the existing letter of credit and
underlying reimbursement agreement.
The Company believes that its cash flow from operations and funds available
under its credit facility with SNPE, or a replacement credit facility with a
third party financial institution, will be sufficient to fund working capital,
debt service obligations and capital expenditure requirements of its current
business operations for the foreseeable future. SNPE has agreed to extend its
credit facility, which is currently callable upon 90 days' notice and had an
original maturity date of June 30, 2001, to March 31, 2002. Management of the
Company intends to replace the SNPE credit facility with a new third party
credit facility during the last half of 2001 or the early part of 2002 and
believes that the Company's strengthened balance sheet and improving operating
results will enable the Company to secure such third party financing on
reasonable terms. Until the Company is able to secure such third party financing
on reasonable terms, it will continue to rely on the financial support of SNPE.
Company management believes that it will be able to negotiate an increase in the
SNPE credit facility during 2001 if the Company's working capital requirements
increase as a result of the anticipated sales growth during the year. A
significant portion of the Company's sales is derived from a relatively small
number of customers; therefore, the failure to perform existing contracts on a
timely basis, and to receive payment for such services in a timely manner, or to
enter into future contracts at projected volumes and profitability levels could
adversely affect the Company's ability to meet its cash requirements exclusively
through operating activities. Consequently, any restriction on the availability
of borrowing under the SNPE credit facility or a replacement facility could
negatively affect the Company's ability to meet its future cash requirements.
Highlights from the Statement of Cash Flows for the Year Ended December 31, 2000
Net cash flows used in operating activities for the year ended December 31,
2000 was $134,702, which consisted primarily of a net loss of $2,010,610 that
was largely offset by depreciation and amortization expense of $1,569,124 and
positive net changes in various components of working capital. Sources of cash
flow from working capital included a $1,360,000 reduction in income tax
receivable and a $419,507 increase in accounts payable and accrued expenses.
These positive changes in working capital were largely offset by increases in
accounts receivable and inventories of $815,244 and $470,327, respectively.
Net cash flow from investing activities for the year ended December 31,
2000 was $1,215,290. Significant sources of cash flow from investing activities
included $940,036 in proceeds from the sales of property, plant and equipment,
$354,588 from the repayment of a loan to a related party, $255,008 from the
release of bond proceeds and $245,971 from other changes in noncurrent assets.
These sources were partially offset by capital expenditures of $570,223,
including $336,347 of expenditures on the new manufacturing facility in
Pennsylvania.
Financing activities for the year ended December 31, 2000 used $894,058 of
cash. Significant sources of cash flow from financing activities included net
proceeds in the aggregate amount of $10,186,252 from the SNPE transaction that
closed on June 14, 2000. Sources of cash flow from the SNPE transaction were
more than offset by the repayment of $10,255,000 in bank line of credit
borrowings and $680,000 of industrial development revenue bond principal
payments.
Highlights from the Statement of Cash Flows for the year ended December 31, 1999
Net cash flows used in operating activities for the year ended December 31,
1999 was a negative $111,522, which was comprised of a net loss of $2,718,108
largely offset by depreciation and amortization expense of $1,513,270 and net
positive changes in various components of working capital.
Net cash used from investing activities for the year ended December 31,
1999 was $826,658. Significant uses of cash for investing activities included
cash paid in connection with the construction of the Company's new cladding
facility totaling $5,082,680 and other capital expenditures totaling $351,425.
These uses of cash were partially offset by the release of bond proceeds of
$4,735,362.
Net cash flow from financing activities for the year ended December 31,
2000 was $938,180. Significant sources of cash from investing activities
included borrowings on the bank line of credit of $1,500,000, cash received upon
the termination of the swap agreements of $150,900 and net proceed from the
issuance of common stock of $102,305. These sources of cash were partly offset
by the repayment of the bank overdraft of $611,833 and payments on the
industrial development revenue bonds of $165,000.
Highlights from the Statement of Cash Flows for the year ended December 31,
1998
Net cash flows from operating activities for the year ended December 31,
1998 was $2,786,547. Significant sources of cash flow included net income of
$1,385,756, depreciation and amortization of $1,107,651 and net positive changes
in various components of working capital.
Net cash used in investing activities during the year ended December 31,
1998 was $18,535,339. Significant uses of cash included the investment of bond
proceeds of $6,550,707, the acquisitions of Spin Forge, PMP and AMK which
totaled $10,425,579, cash paid in connection with the construction of the
Company's new cladding facility totaling $1,853,723, other capital expenditures
of $961,092 and a loan to a related party of $280,000. The only significant
source of cash was the release of bond proceeds of $1,501,726.
Net cash flows from financing activities for the year ended December 31,
1998 was $15,694,983. Significant components of these cash flows include the
industrial development revenue bond proceeds of $6,850,000, net borrowings on
the bank lines of credit of $8,600,000 and the bank overdraft of $805,304.
Significant uses of cash from financing activities were bond issue costs paid
totaling $195,720, the payment of financing costs of $100,216 and the cash paid
in connection with shares repurchased from a related party totaling $425,285.
Forward-Looking Statements
Statements which are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from projected results. 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; fluctuations in customer demand; competitive
factors; the timely completion of contracts; any actions which may be taken by
SNPE as the controlling shareholder of the Company with respect to the Company
and its businesses; the timing and size of expenditures; the timely receipt of
government approvals and permits; the adequacy of local labor supplies at the
Company's facilities; the availability and cost of funds; and general economic
conditions, both domestically and abroad. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 7A Quantitative and Qualitative Disclosure about Market Risk
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates, primarily debt
obligations. Since most of the Company's obligations carry variable interest
rates, there is no material difference between the book value and the fair value
of those obligations.
As of December 31,
2000
---------------------
Line of credit with SNPE, Inc. - variable rate $ 3,750,000
Interest rate 8.18%
Subordinated note with SNPE, Inc. - fixed rate $ 1,200,000
Interest rate 5.00%
Industrial development revenue
Bonds - variable rate $ 6,005,000
Interest rate 5.10%
As of December 31,
1999
---------------------
Bank lines of credit - variable rate $ 10,100,000
Weighted average interest rate 8.94%
Industrial development revenue
Bonds - variable rate $ 6,685,000
Interest rate 5.70%
The table below presents principal cash flows and related weighted-average
interest rates by expected maturity dates for the Company's debt obligations.
As of December 31, 2000
------------- --------------- ------------- ------------ -------------- ----------------
2001 2002 2003 2004 2005 and Total
Thereafter
------------- --------------- ------------- ------------ -------------- ----------------
Line of credit with SNPE, Inc. - $ 3,750,000 - - - $ 3,750,000
Weighted average interest rate 8.18% 8.18% - - - 8.18%
Subordinated note with SNPE, Inc. - - - - $ 1,200,000 $ 1,200,000
5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
Industrial development
Revenue bonds $ 725,000 $ 795,000 $ 855,000 $ 930,000 $ 2,700,000 $ 6,005,000
Interest rate 5.10% 5.10% 5.10% 5.10% 5.10% 5.10%
ITEM 8. Financial Statements
DYNAMIC MATERIALS CORPORATION
INDEX TO FINANCIAL STATEMENTS
As of December 31, 2000 and 1999 and for the Three Years Ended
December 2000, 1999 and 1998
Page
Report of Independent Public Accountants.................................... 24
Financial Statements:
Balance Sheets......................................................... 25
Statements of Operations............................................... 27
Statements of Stockholders' Equity..................................... 28
Statements of Cash Flows............................................... 30
Notes to Financial Statements ......................................... 32
The financial statement schedules required by Regulation S-X are filed under
Item 14 "Exhibits, Financial Statement Schedules and Reports on Form 8-K".
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dynamic Materials Corporation:
We have audited the accompanying balance sheets of DYNAMIC MATERIALS CORPORATION
(a Delaware corporation) as of December 31, 2000 and 1999, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dynamic Materials Corporation
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 28, 2001
(Except with respect to the matter
discussed in Note 12, as to which the
date is March 15, 2001)
Page 1 of 2
DYNAMIC MATERIALS CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999
------ -------------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $186,530
Accounts receivable, net of allowance for doubtful accounts of $130,000 and
$112,000, respectively 4,632,123
Inventories 3,881,155 3,410,828
Prepaid expenses and other 258,493 310,477
Income tax receivable - 1,360,000
-------------- --------------
Total current assets 8,958,301 8,898,184
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT 17,769,509 18,867,796
Less- Accumulated depreciation (4,492,850) (4,538,838)
-------------- ---------------
Property, plant and equipment--net 13,276,659 14,328,958
-------------- ---------------
CONSTRUCTION IN PROCESS - 389,795
RESTRICTED CASH AND INVESTMENTS 179,394 424,312
RECEIVABLE FROM RELATED PARTY - 354,588
INTANGIBLE ASSETS, net of accumulated amortization of $1,094,870 and $786,077,
respectively 4,992,750 5,281,543
OTHER ASSETS, net 260,351 409,938
-------------- ---------------
$27,667,455 $30,087,318
============== ===============
The accompanying notes to financial statements are
an integral part of these balance sheets.
Page 2 of 2
DYNAMIC MATERIALS CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------------------------------ ---------------- ---------------
CURRENT LIABILITIES:
Bank overdraft - $ 193,471
Accounts payable 2,051,301 1,810,577
Accrued expenses 1,275,579 1,096,796
Current maturities on long-term debt 725,000 16,785,000
Current portion of capital lease obligation 3,394 35,230
---------------- ---------------
Total current liabilities 4,055,274 19,921,074
LONG-TERM DEBT 10,230,000 -
CAPITAL LEASE OBLIGATION - 3,069
DEFERRED GAIN ON SWAP TERMINATION 77,887 133,192
---------------- --------------
Total liabilities 14,363,161 20,057,335
---------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Preferred stock, $.05 par value; 4,000,000 shares authorized; no issued and - -
outstanding shares
Common stock, $.05 par value; 15,000,000 shares authorized; 4,990,331 and
2,842,429 shares issued and outstanding, respectively 249,517 142,122
Additional paid-in capital 12,262,109 7,122,553
Deferred compensation - (37,970)
Retained earnings 792,668 2,803,278
---------------- ---------------
13,304,294 10,029,983
---------------- ---------------
$27,667,455 $30,087,318
================ ===============
The accompanying notes to financial statements are
an integral part of these balance sheets.
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------------- ---------------- ---------------
NET SALES $27,862,581 $29,131,289 $38,212,051
COST OF PRODUCTS SOLD 23,822,815 25,419,287 30,372,600
----------------- ---------------- ---------------
Gross profit 4,039,766 3,712,002 7,839,451
----------------- ---------------- ---------------
COSTS AND EXPENSES:
General and administrative expenses 3,622,403 3,536,450 3,262,993
Selling expenses 1,483,476 1,424,774 1,850,973
New facility start up costs - 334,372 189,529
Plant closing costs - 812,197 -
Impairment of long-lived assets - 179,004 -
Costs related to attempted asset disposition - 322,098 -
----------------- ---------------- ---------------
Total costs and expenses 5,105,879 6,608,895 5,303,495
----------------- ---------------- ---------------
(LOSS) INCOME FROM OPERATIONS (1,066,113) (2,896,893) 2,535,956
OTHER INCOME (EXPENSE):
Other income 198,290 14,784 8,921
Interest expense, net of amounts capitalized (1,094,181) (1,009,911) (283,706)
Interest income 31,505 19,912 11,585
----------------- ---------------- ---------------
(Loss) income before income taxes (1,930,499) (3,872,108) 2,272,756
INCOME TAX BENEFIT (EXPENSE) - 1,154,000 (887,000)
----------------- ---------------- ---------------
NET (LOSS) INCOME BEFORE EXTRAORDINARY ITEM (1,930,499) (2,718,108) 1,385,756
EXTRAORDINARY ITEM - LOSS FROM EARLY EXTINGUISHMENT OF DEBT (80,111) - -
----------------- ---------------- ---------------
NET (LOSS) INCOME $(2,010,610) $(2,718,108) $ 1,385,756
================= ================ ===============
NET (LOSS) INCOME PER SHARE - BASIC
Net (loss) income before extraordinary item $ (0.48) $ (0.96) $ 0.50
Extraordinary item (0.02) - -
----------------- ---------------- ---------------
Net (loss) income $ (0.50) $ (0.96) $ 0.50
================= ================ ===============
NET (LOSS) INCOME PER SHARE - DILUTED
Net (loss) income before extraordinary item $ (0.48) $ (0.96) $ 0.49
Extraordinary item (0.02) - -
Net (loss) income $ (0.50) $ $ 0.49
================= ================ ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 4,004,873 2,822,184 2,770,139
========= ========= =========
Diluted 4,004,873 2,822,184 2,852,547
========= ========= =========
The accompanying notes to financial statements
are an integral part of these statements.
Page 1 of 2
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additional
Common Stock Paid-In Deferred Retained
Shares Amount Capital Compensation Earnings
--------------- ----------------- ------------------ ------------------- ------------
BALANCES, December 31, 1997 2,718,708 $ 135,936 $ 6,587,911 $ - $ 4,135,630
Common stock issued for stock
option exercises 57,115 2,856 139,865 - -
Common stock issued in
connection with the
Employee Stock Purchase
Plan 23,068 1,153 111,271 - -
Tax benefit related to non-
statutory options - - 20,021 - -
Shares issued in connection
with the purchase of
Spin Forge 50,000 2,500 447,300 - -
Restricted stock grant related
to the purchase of
Spin Forge 7,500 375 67,125 (67,500) -
Shares issued in connection
with the purchase of
PMP 40,000 2,000 213,680 - -
Amortization of deferred
compensation - - - 12,655 -
Shares repurchased from
related party (73,168) (3,658) (421,627) - -
Shares received from related
party in partial satisfaction of
related party receivable (24,832) (1,242) (143,096) - -
Net income - - - - 1,385,756
------------ ----------- --------------- ------------ ------------
BALANCES, December 31, 1998 2,798,391 139,920 7,022,450 (54,845) 5,521,386
The accompanying notes to financial statements are
an integral part of these statements.
Page 2 of 2
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Additional
Common Stock Paid-In Deferred Retained
Shares Amount Capital Compensation Earnings
---------------- ----------------- ----------------- ------------------ -------------
BALANCES, December 31, 1998 2,798,391 $ 139,920 $ 7,022,450 $ (54,845) $ 5,521,386
Common stock issued for stock
option exercises 19,500 975 52,150 - -
Common stock issued in
connection with the
Employee Stock Purchase
Plan 24,538 1,227 47,953 - -
Amortization of deferred
compensation - - - 16,875 -
Net loss - - - - (2,718,108)
---------------- ----------------- ----------------- ------------------ --------------
BALANCES, December 31, 1999 2,842,429 142,122 7,122,553 (37,970) 2,803,278
Common stock issued to SNPE, Inc.,
net $563,748 in of issuance costs 2,109,091 105,455 5,130,797 - -
Common stock issued in
connection with the
Employee Stock Purchase
Plan 42,561 2,128 42,322 - -
Amortization of deferred
compensation - - - 4,219 -
Forfeiture of restricted stock grant (3,750) (188) (33,563) 33,751 -
Net loss - - - - (2,010,610)
---------------- ----------------- ----------------- ------------------ --------------
BALANCES, December 31, 2000 4,990,331 $ 249,517 $12,262,109 $ - $ 792,668
================ ================= ================= ================== ==============
The accompanying notes to financial statements are
an integral part of these statements.
Page 1 of 2
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (2,010,610) $(2,718,108) $ 1,385,756
Adjustments to reconcile net (loss) income
to net cash flows from operating activities-
Depreciation 1,311,417 1,187,785 942,688
Amortization 308,793 326,318 152,308
Amortization of deferred compensation 4,219 16,875 12,655
Amortization of deferred gain on swap termination (55,305) (17,708) -
Provision for deferred income taxes - 66,300 119,900
Impairment of long-lived assets - 179,004 -
Gain on sale of property, plant and equipment (185,570) - -
Change in (excluding acquisitions)-
Accounts receivable, net (815,244) 1,015,779 578,209
Inventories (470,327) 1,963,001 18,090
Prepaid expenses and other (1,582) (95,701) (34,235)
Income tax receivable 1,360,000 (860,068) (204,938)
Accounts payable 240,724 (537,513) (786,769)
Accrued expenses 178,783 (637,486) 602,883
------------- ------------- -------------
Net cash flows from operating activities (134,702) (111,522) 2,786,547
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment and earnings on bond proceeds (10,090) (110,693) (6,550,707)
Release of bond proceeds by trustee 255,008 4,735,362 1,501,726
Cash paid in connection with the construction
of the new facility (336,347) (5,082,680) (1,853,723)
Purchase of AMK assets - - (939,968)
Purchase of Spin Forge assets - - (2,615,691)
Purchase of PMP assets - - (6,869,920)
Acquisition of property, plant and equipment (233,876) (351,425) (961,092)
Loan to related party - (74,588) (280,000)
Proceeds from repayment of loan to related party 354,588 - -
Change in other noncurrent assets 245,971 57,366 34,036
Proceeds on sale of property, plant and equipment 940,036 - -
------------ ------------- -------------
Net cash flows from investing activities 1,215,290 (826,658) (18,535,339)
------------ ------------- -------------
The accompanying notes to financial statements
are an integral part of these statements.
Page 2 of 2
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
-------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Industrial development revenue bond proceeds $ - $ - $ 6,850,000
Bond issue costs paid - - (195,720)
Borrowings/(payments) on bank line of credit, net 155,000 1,500,000 8,600,000
Repayment on bank line of credit (10,255,000) - -
Payment on industrial development revenue bonds (680,000) (165,000) -
Proceeds from issuance of common stock to SNPE, Inc.,
net of issuance costs 5,236,252 - -
Borrowings on SNPE, Inc. line of credit 3,750,000 - -
Borrowings on SNPE, Inc. convertible subordinated note 1,200,000 - -
Payments on long-term debt - (5,742) (84,378)
Payments on capital lease obligation (34,905) (32,450) (29,888)
Payment of deferred financing costs (116,384) - (100,216)
Cash received upon termination of swap agreements - 150,900 -
Repayment of bank overdraft (193,471) (611,833) -
Bank overdraft - - 805,304
Cash paid in connection with the shares repurchased
from related party - - (425,285)
Net proceeds from issuance of common stock 44,450 102,305 255,145
Tax benefit related to non-statutory options - - 20,021
-------------- ------------- ------------
Net cash flows from financing activities (894,058) 938,180 15,694,983
-------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 186,530 - (53,809)
CASH AND CASH EQUIVALENTS, beginning of the year - - 53,809
-------------- ------------- ------------
CASH AND CASH EQUIVALENTS, end of the year $ 186,530 $ - $ -
============== ============== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest, net of amounts capitalized $ 850,717 $ 951,507 $ 138,677
============== ============= ============
Income taxes $ - $ 145,307 $ 952,017
============== ============= ============
NON-CASH INVESTING ACTIVITIES:
During 1998, $144,338 of the shares acquired from a related party were in
satisfaction of a receivable from that party.
Acquisitions:
2000 1999 1998
-------------- -------------- ---------------
Accounts receivable $ - $ - $ 474,517
Inventories - - 1,362,360
Prepaids and other - - 31,500
Property, plant and equipment - - 5,617,460
Intangible assets - - 4,529,705
Liabilities assumed - - (924,483)
Common stock issued - - (665,480)
-------------- ------------- -------------
Net cash paid $ - $ - $10,425,579
============== ============= =============
The accompanying notes to financial statements
are an integral part of these statements.
DYNAMIC MATERIALS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(1) ORGANIZATION AND BUSINESS
Dynamic Materials Corporation (the "Company") was incorporated in the state
of Colorado in 1971, and reincorporated in the state of Delaware during 1997, to
provide products and services requiring explosive metalworking. The Company is
based in the United States and has customers throughout North America, Western
Europe, Australia and the Far East. The Company currently operates under two
business groups - explosion metalworking, in which metals are metallurgically
joined or altered by using explosives; and aerospace, in which parts are
machined, formed or welded primarily for the commercial aircraft and aerospace
industries.
Transaction with SNPE, Inc.
On June 14, 2000 the Company's stockholders approved a Stock Purchase
Agreement ("the Agreement") between the Company and SNPE, Inc. ("SNPE"). The
closing of the transaction, which was held immediately following stockholder
approval, resulted in a payment from SNPE of $5,800,000 to the Company in
exchange for 2,109,091 of the Company's common stock at a price of $2.75 per
share causing SNPE to become a 50.8% stockholder of the Company on the closing
date. In addition, the Company borrowed $1,200,000 under a convertible
subordinated note from SNPE and $3,500,000 under a new credit facility with SNPE
(see Note 4). Proceeds from the SNPE equity investment, convertible subordinated
note issuance and credit facility borrowings enabled the Company to repay all
borrowings from its bank under a revolving credit facility on which the Company
had been in default since September 30, 1999.
(2) ACQUISITIONS
AMK Welding, Inc. - South Windsor, Connecticut
On January 5, 1998, the Company acquired certain assets of AMK Welding,
Inc. ("AMK"). AMK supplies commercial aircraft and aerospace-related automatic
and manual, gas tungsten and arc welding services. The total purchase price of
approximately $940,000 included a cash payment made to the seller of $900,000
and transaction costs paid of approximately $40,000. Assets acquired consisted
primarily of machinery and equipment, land and the building that houses AMK's
operations.
Spin Forge, LLC - El Segundo, California
On March 18, 1998, the Company acquired certain assets of Spin Forge, LLC
("Spin Forge") for a purchase price of approximately $3,826,000 that was paid
with a combination of approximately $2,616,000 in cash (which includes
approximately $146,000 in transaction related costs), assumption of
approximately $760,000 in liabilities and 50,000 shares of the Company's stock
valued at $449,800. Spin Forge manufactures tactical missile motor cases and
titanium pressure vessels for the commercial aerospace and defense industries.
Principal assets acquired included machinery and equipment and inventories. The
Company leases the land and buildings from Spin Forge, LLC and holds an option
to purchase such property for approximately $2,900,000, subject to certain
adjustments, exercisable under certain conditions through January 2002. The
option may be extended beyond this date under specified conditions provided that
the option price must be adjusted upwards in the event that the fair market
value of the property at the time of exercise is higher than $2,900,000.
As part of a Personal Services Agreement between the Company and one of the
former owners of Spin Forge, the Company granted 7,500 shares of restricted
stock to that former owner. In connection with this acquisition, the former
owner became an officer of the Company. The restricted stock grant was recorded
as deferred compensation and was being amortized to expense over the four year
vesting period of the grant. During the third quarter of 2000, the officer
resigned from the Company and, consequently, the unvested shares of the
restricted stock grant were forfeited.
Precision Machined Products, Inc. - Fort Collins, Colorado
On December 1, 1998, the Company acquired substantially all of the assets
of Precision Machined Products, Inc. ("PMP") for a purchase price of
approximately $7,073,000 (including approximately $57,000 in transaction related
costs) which was paid with a combination of $6,800,000 in cash payments to the
seller and the delivery of 40,000 shares of the Company's stock valued at
approximately $216,000. PMP is a contract machining shop specializing in high
precision, high quality, complex machined parts used in the aerospace,
satellite, medical equipment and high technology industries. The Company is
leasing the land and building used in the operation of PMP and held an option to
purchase such land and building at fair market value that was exercisable
through December 2000. Subsequent to the expiration of the option term, the
Company has a right of first offer to purchase the land and building at fair
market value. This right of first offer is exercisable through December 2008.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Cost elements included in inventory are material, labor, subcontract
costs and factory overhead.
Inventories consist of the following at December 31, 2000 and 1999:
2000 1999
Raw materials $ 950,632 $ 1,311,345
Work in process 2,878,802 2,001,784
Supplies 51,721 97,699
------------ ------------
$ 3,881,155 $ 3,410,828
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions, improvements
and betterments are capitalized when incurred. Maintenance and repairs are
charged to operations as the costs are incurred. Depreciation is computed using
the straight-line method over the estimated useful life of the related asset as
follows:
Building and improvements 3-20 years
Manufacturing equipment and tooling 3-15 years
Furniture, fixtures and computer equipment 3-10 years
Other 3-5 years
Property, plant and equipment consists of the following at December 31,
2000 and 1999:
2000 1999
Land $ 241,600 $ 387,308
Building and improvements 5,138,626 6,699,198
Manufacturing equipment and tooling 10,220,578 9,736,646
Furniture, fixtures and computer equipment 1,957,948 1,802,751
Other 210,757 241,893
------------- -------------
$17,769,509 $18,867,796
Construction in Process
Building and equipment costs of $726,142 related to the Company's new
manufacturing facility were transferred from construction in process to
property, plant and equipment during the year ended December 31, 2000.
Construction began in September 1998 and was largely completed during the third
quarter of 1999. Residual costs incurred on the project in late 1999 and into
2000 related primarily to bringing a few remaining pieces of manufacturing
equipment online. The project was financed using proceeds from the issuance of
industrial development revenue bonds ("the Bonds") (see Note 4). Total net
interest expense incurred on the bonds during 2000, 1999 and 1998 was $388,357,
$188,648 and $(10,560), respectively (net of interest earned on the related
invested bond proceeds held in trust of $10,089, $110,693 and $89,693 during
2000, 1999 and 1998, respectively). Of the total net bond interest incurred
during 1999, $96,222 was incurred prior to the new facility being ready for
service and was, therefore, capitalized. No interest was capitalized during
2000.
Intangible Assets and Goodwill
The Company holds numerous United States product and process patents
related to the business of explosion metalworking and metallic products produced
by various explosive processes. The Company's current patents expire between
2001 and 2010; however, expiration of any single patent is not expected to have
a material adverse effect on the Company or its operations.
Patent costs are included in intangible assets in the accompanying balance
sheets and include primarily legal and filing fees associated with the patent
registration. These costs are amortized over the expected useful life of the
issued patent, up to 17 years.
As a result of the Detaclad acquisition in 1996, $1,081,375 of excess cost
over assets acquired was recorded. These costs are being amortized over a
25-year period using the straight-line method. The Company also acquired certain
tradenames and entered into a non-compete agreement in connection with the
Detaclad acquisition, which are included in intangible assets in the
accompanying balance sheets. The costs attributed to the tradenames have been
fully amortized while the non-compete agreement is being amortized over five
years from the date of acquisition.
As a result of the AMK acquisition discussed in Note 2, the Company entered
into two non-compete agreements which are valued at $50,000 each and are
included in intangible assets and are being amortized over five years.
As a result of the PMP acquisition discussed in Note 2, $4,334,723 of
excess cost over assets acquired was recorded and is being amortized over a
25-year period using the straight-line method. In addition, the Company entered
into a non-compete agreement related to the acquisition of PMP. The value
attributable to the non-compete agreement of $100,000 is also included in
intangible assets and is being amortized over four years.
Intangible assets and goodwill are summarized as follows as of December 31,
2000 and 1999:
2000 1999
--------------- ---------------
Goodwill $ 5,416,098 $ 5,416,098
Non-compete agreements 400,000 400,000
Other 271,522 251,522
--------------- --------------
6,087,620 6,067,620
Accumulated amortization (1,094,870) (786,077)
--------------- --------------
$ 4,992,750 $ 5,281,543
=============== ==============
The Company evaluates the carrying value of its goodwill in accordance with
the asset impairment accounting policy discussed below. However, if no events
trigger a review under the asset impairment policy, the Company evaluates
goodwill recoverability by reviewing whether ongoing events and circumstances
throughout the year warrant revised estimates of goodwill useful lives. If
estimates are changed and the useful life is shortened, the unamortized goodwill
is allocated to the reduced number of remaining periods in the revised useful
life, and the excess is expensed as a cost of operations. The Company has
recorded no such revision to the carrying value of its goodwill during the years
presented.
Asset Impairments
The Company reviews its long-lived assets and certain identifiable
intangibles to be held and used by the Company for impairment whenever events or
changes in circumstances indicate their carrying amount may not be recoverable.
In so doing, the Company estimates the future net cash flows expected to result
from the use of the asset and its eventual disposition. If the sum of the
expected future net cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, and impairment loss is recognized to
reduce the asset to its estimated fair value. Otherwise, an impairment loss is
not recognized. Long-lived assets and certain identifiable intangibles to be
disposed of, if any, are reported at the lower of carrying amount or fair value
less cost to sell.
Plant Closing Costs
On April 22, 1999, the Company announced that it would be closing its
Louisville, Colorado-based explosion bonded clad metal plate manufacturing
facility in the third quarter of 1999 and consolidating all of its Explosive
Metalworking Group operations into the new Pennsylvania-based clad plate
manufacturing facility. The Company recorded a total of $812,197 in
non-recurring charges during the year ended December 31, 1999 to cover costs
associated with this plant closing. Plant closing costs include severance pay to
terminated employees, outplacement service fees and certain expenses incurred in
connection with final plant shutdown, clean-up and site reclamation work
subsequent to the discontinuation of manufacturing activities at this facility.
In connection with the plant closing discussed above, the Company
identified certain long-lived assets associated with its Colorado manufacturing
operations that were abandoned and had negligible fair market values.
Accordingly, the Company recorded asset impairment write-downs of $179,004
during the second and third quarters of 1999. The impaired assets, which after
the write-down had no carrying value, have been disposed of.
The Company also identified certain inventory that was determined to have
little value as a result of the plant closing. This inventory, which totaled
approximately $108,000, was consequently written off in the second quarter of
1999. This charge is included in cost of products sold for the year ended
December 31, 1999.
Other Assets
Included in other assets are deferred financing costs of $100,748 and
$144,842, net of accumulated amortization of $15,636 and $155,767, as of
December 31, 2000 and 1999, respectively. The deferred financing costs
outstanding as of December 31, 2000 were incurred in connection with the SNPE
subordinated note and credit facility (See Notes 1 and 4). These costs are being
amortized over the applicable terms of the debt agreements. The deferred
financing costs outstanding at December 31, 1999 related to the Company's
previous lines of credit (see Note 4). As these lines of credit were
extinguished in connection with the SNPE transaction on June 14, 2000, the
unamortized deferred finance costs, net of the deferred gain on the termination
of the related swap agreement of $80,111, was written off and recorded as
extraordinary item - loss from extinguishment of debt. Also included in other
assets at December 31, 2000 and 1999 are bond issue costs of $127,140 and
$156,194, respectively, associated with the industrial development revenue bonds
used to finance the Company's new manufacturing facility (Note 4). These costs,
which originally totaled $195,720, are being amortized over the life of the
bonds. As of December 31, 1999, other assets included $75,359 of costs related
to the issuance of stock to SNPE, Inc. These costs consisted primarily of
professional fees associated with the SNPE transaction and during 2000, were
offset against additional paid-in capital or included in deferred finance costs
in proportion to the equity and subordinated debt components of the SNPE
transaction (Note 1).
Revenue Recognition
The Company's contracts with its customers generally require the production
and delivery of multiple units or products. The Company records revenue from its
contracts using the completed contract method as products are completed and
shipped to the customer. If, as a contract proceeds toward completion, projected
total cost on an individual contract indicates a potential loss, the Company
provides currently for such anticipated loss.
Net (Loss) Income Per Share
Basic earnings per share ("EPS") is computed by dividing net (loss) income
by the weighted average number of shares of common stock outstanding during the
period. Diluted EPS recognizes the potential dilutive effects of dilutive
securities. The following represents a reconciliation of the numerator and
denominator used in the calculation of basic and diluted EPS:
For the year ended December 31, 1998
Per share
Income Shares Amount
------ ------ ------
Net income $1,385,756
==========
Basic earnings per share:
Income available to common
shareholders $1,385,756 2,770,139 $ 0.50
==========
Dilutive effect of options to purchase common
stock - 82,408
--------- --------
Dilutive earnings per share:
Income available to common
shareholders $1,385,756 2,852,547 $ 0.49
========== ========= ==========
During the years ended December 31, 2000 and 1999, the Company incurred a
net loss, therefore, there is no difference in basic and diluted loss per share
because the effect of options to purchase common stock and the conversion of the
convertible subordinated debt is antidilutive.
Fair Value of Financial Instruments
The carrying value 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. The fair value of
the Company's long-term debt is estimated to approximate carrying value based on
the borrowing rates currently available to the Company for bank loans with
similar terms and average maturities.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future income tax consequences based on enacted tax laws of temporary
differences between the financial reporting and tax bases of assets and
liabilities. The Company recognizes deferred tax assets for the expected future
effects of all deductible temporary differences. Deferred tax assets are then
reduced, if deemed necessary, by a valuation allowance for the amount of any tax
benefits which, more likely than not based on current circumstances, are not
expected to be realized (see Note 6).
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
Start-up Costs
AICPA Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities," ("SOP 98-5") provides for guidance on the financial reporting for
start-up and organization costs. It requires costs of start-up activities and
organization costs to be expensed as incurred. SOP 98-5 was effective for
financial statements for fiscal years beginning after December 15, 1998,
however, the Company elected to adopt SOP 98-5 in 1998.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to a
concentration of credit risk, consist primarily of cash, restricted cash, cash
equivalents and accounts receivable. Generally, the Company does not require
collateral to secure receivables. The Company currently has no significant
financial instruments with off-balance sheet risk of accounting losses, such as
foreign exchange contracts, options contracts, or other foreign currency hedging
arrangements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
New Accounting Principles
The FASB recently issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which requires that companies recognize all derivatives as either assets
or liabilities in the balance sheet at fair value. Under SFAS 133, accounting
for changes in fair value of a derivative depends on its intended use and
designation. SFAS 133 is effective for fiscal years beginning after June 15,
2000. The Company has implemented SFAS 133 effective January 1, 2001 with no
impact.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 ("SAB 101") "Views on Selected Revenue
Recognition Issues" which provides the staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. The
Company was required to implement SAB 101 during the year ended December 31,
2000. The Company has implemented SAB 101 with no impact.
(4) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2000 and 1999:
2000 1999
--------------- -------------
Line of Credit - SNPE, Inc. $ 3,750,000 $ -
Convertible Subordinated Note - SNPE, Inc. 1,200,000 -
Bank lines of credit - 10,100,000
Industrial development revenue bonds 6,005,000 6,685,000
-------------- --------------
10,955,000 16,785,000
Less- Current maturities (725,000) (16,785,000)
-------------- --------------
$ 10,230,000 $ -
============== ==============
SNPE, Inc. Line of Credit
In connection with the SNPE transaction (see Note 1), the Company borrowed
$3,500,000 on June 14, 2000 under a new credit facility with SNPE. The SNPE
credit facility, which bears interest at the Federal Funds Rate plus 1.5%, may
be increased to a maximum of $4,500,000 in total borrowings subject to certain
approvals by SNPE. The interest rate at December 31, 2000 was 8.18%. The credit
facility was originally scheduled to mature on June 14, 2001. However, SNPE
subsequently agreed to amend the maturity date to March 31, 2002. During
September 2000, the Company obtained the required approvals from SNPE and
borrowed an additional $250,000 resulting in a $3,750,000 balance outstanding
under the credit facility as of December 31, 2000. The credit facility is
secured by the Company's accounts receivable, inventory and property, plant and
equipment, except such assets that relate to the Company's Explosive
Metalworking Group.
SNPE, Inc. Convertible Subordinated Note
In connection with the SNPE transaction (see Note 1), a cash payment was
made by SNPE to the Company to purchase a five-year, 5% Convertible Subordinated
Note ("Subordinated Note"). SNPE may convert the Subordinated Note into common
stock of the Company at a conversion price of $6 at any time up to, and
including the maturity date (June 14, 2005).
Bank Lines of Credit
The bank lines of credit were paid in their entirety in connection with the
SNPE transaction discussed in Note 1. The weighted average interest rate on all
line of credit borrowings at December 31, 1999 was 8.94%. The Company was in
default on these lines of credit at December 31, 1999 and, as the corresponding
waiver extended only through March 30, 2000, and certain covenant violations
were likely to continue beyond this date, the subject debt was classified as a
current liability in the December 31, 1999 financial statements.
In December 1998, the Company entered into an interest rate swap agreement
with its bank related to the bank lines of credit. The Company terminated this
swap agreement in the third quarter of 1999 resulting in a deferred gain of
$45,600 that was being amortized over the terms of the acquisition line of
credit. Once the bank lines of credit were extinguished as part of the SNPE
transaction, the unamortized deferred gain of $31,388 was offset against the
unamortized deferred finance charges of $111,499 related to the lines of credit
and recorded as a extraordinary loss on extinguishment.
Industrial Development Revenue Bonds
During September 1998, the Company began construction on a new
manufacturing facility in Fayette County, Pennsylvania. This project was being
financed with proceeds from industrial development revenue bonds issued by the
Fayette County Industrial Development Authority. The loan bears interest at a
variable rate which is set weekly based on the current weekly market rate for
tax-exempt bonds. The interest rate at December 31, 2000 and 1999 was 5.1% and
5.7%, respectively. The Company has established a bank letter of credit in the
trustee's favor for the principal amount of outstanding bonds plus 98 days
accrued interest on the bonds. The letter of credit was secured by the Company's
accounts receivable, inventory, property, plant and equipment and the bond
proceeds not yet expended for construction. On June 14, 2000, in conjunction
with the line of credit entered into with SNPE, the collateral securing the
letter of credit was reduced to include only those assets described above that
relate to the Explosive Metalworking Group. The portion of the borrowings not
yet expended for construction was $179,394 as of December 31, 2000 and was
classified as restricted cash and investments in the accompanying balance sheet.
The proceeds are held by a trustee until qualified expenditures are made and
reimbursed to the Company. The Company may redeem the bonds prior to maturity at
an amount equal to the outstanding principal plus any accrued interest. The
bonds mature on September 1, 2013 at which time all amounts become due and
payable. The three-year bank letter of credit that supports the Company's
industrial development revenue bonds expires in September 2001. Company
management believes that the Company will be able to obtain a replacement letter
of credit arrangement on terms similar to those of the existing letter of credit
and underlying reimbursement agreement.
In September 1998, the Company entered into an interest rate swap agreement
with its bank under which the Company converted the variable interest rate on
the bonds to a rate that is largely fixed. The Company terminated this swap
agreement during the third quarter of 1999 resulting in a deferred gain of
$105,300 which is being amortized over the term of the bonds.
Loan Covenants and Restrictions
The Company's 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.
Scheduled Debt Maturity
The Company's long-term debt matures based on the following:
Year ended December 31-
2001 $ 725,000
2002 4,545,000
2003 855,000
2004 930,000
2005 1,990,000
Thereafter 1,910,000
------------
$10,955,000
(5) COMMON STOCK OPTIONS AND BENEFIT PLAN
Stock Option Plans
The Company maintains stock option plans that provide for grants of both
incentive stock options and non-statutory stock options. During 1997, the 1992
Incentive Stock Option Plan and the 1994 Nonemployee Director Stock Option Plan
were both amended and restated in the form of the 1997 Equity Incentive Plan,
which was approved by the Company's stockholders in May of 1997. Incentive stock
options are granted at exercise prices that equal the fair market value at date
of grant based upon the closing sales price of the Company's common stock on
that date. Incentive stock options generally vest 25% annually and expire ten
years from the date of grant. Non-statutory stock options are granted at
exercise prices that range from 85% to 100% of the fair market value of the
stock at date of grant. These options vest over periods ranging from one to four
years and have expiration dates that range from five to ten years from the date
of grant. Under the 1997 Equity Incentive Plan, there are 1,075,000 shares of
common stock authorized to be granted, of which 497,999 remain available for
future grants.
Statement of Financial Accounting Standards No. 123 ("SFAS 123")
SFAS 123, "Accounting for Stock-Based Compensation," defines a fair value
based method of accounting for employee stock options or similar equity
instruments. However, SFAS 123 allows the continued measurement of compensation
cost for such plans using the intrinsic value based method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), provided
that pro forma disclosures are made of net income and net income per share,
assuming the fair value based method of SFAS 123 had been applied. The Company
has elected to account for its stock-based compensation plans under APB 25;
accordingly, for purposes of the pro forma disclosures presented below, the
Company has computed the fair values of all options granted during 2000, 1999
and 1998, using an acceptable option pricing model and the following weighted
average assumptions:
2000 1999 1998
-------------- --------------- -------------
Risk-free interest rate 6.4% 4.8% 5.4%
Expected lives 4.0 years 4.0 years 4.0 years
Expected volatility 97.2% 82.2% 68.0%
Expected dividend yield 0% 0% 0%
To estimate expected lives of options for this valuation, it was assumed
options will be exercised upon becoming fully vested at the end of four years.
All options are initially assumed to vest. Cumulative compensation cost
recognized in pro forma net income with respect to options that are forfeited
prior to vesting is adjusted as a reduction of pro forma compensation expense in
the period of forfeiture.
The total fair value of options granted was computed to be approximately
$153,705, $260,900 and $2,211,800 for the years ended December 31, 2000, 1999
and 1998, respectively. These amounts are amortized on a straight-line basis
over the vesting periods of the options. Pro forma stock-based compensation
(including the effects of its Employee Stock Purchase Plan), net of the effect
of forfeitures, was $311,459, $597,200 and $520,200 for 2000, 1999 and 1998,
respectively.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net (loss) income and pro forma net
(loss) income per common share would have been reported as follows:
Year Ended December 31,
2000 1999 1998
-------------- -------------- -----------
Net (loss) income:
As reported $(2,010,610) $(2,718,108) $1,385,756
Pro forma $(2,322,069) $(3,315,308) $865,556
Pro forma basic earnings per common share:
As reported $(.50) $(.96) $.50
Pro forma $(.58) $(1.17) $.31
Pro forma diluted earnings per common share:
As reported $(.50) $(.96) $.49
Pro forma $(.58) $(1.17) $.31
Weighted average shares used to calculate pro forma diluted earnings per
share were determined as described in Note 3, except in applying the treasury
stock method to outstanding options, net proceeds assumed received upon exercise
were increased by the amount of compensation cost attributable to future service
periods and not yet recognized as pro forma expense and the amount of any tax
benefits upon assumed exercise that would be credited to additional paid-in
capital.
A summary of stock option activity for the years ended December 31, 2000,
1999 and 1998 is as follows:
2000 1999 1998
---------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
----------- -------- ---------- -------- ---------- --------
Outstanding at beginning of year 540,334 $6.66 540,625 $6.94 349,115 $5.62
Granted 127,500 $1.59 102,500 $4.27 490,000 $7.41
Cancelled (313,583) $5.62 (83,291) $6.49 (241,375) $7.07
Exercised - - (19,500) $2.72 (57,115) $2.50
----------- -------- ---------- -------- ---------- --------
Outstanding at end of year 354,251 $5.75 540,334 $6.66 540,625 $6.94
=========== ======== ========== ======== ========== ========
Exercisable at end of year 212,376 $7.22 262,962 $7.04 178,462 $6.16
=========== ======== ========== ======== ========== ========
The weighted average fair values and weighted average exercise prices of
options granted are as follows:
For the Year Ended For the Year Ended For the Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
---------------------------------------------------------------------------------------------
Fair Exercise Fair Exercise Fair Exercise
Number Value Price Number Value Price Number Value Price
---------------------------------------------------------------------------------------------
Exercise Price
Less than market
Price 47,500 $1.14 $1.33 20,000 $2.90 $3.72 197,500 $4.83 $6.91
Equal to market price 80,000 $1.24 $1.75 82,500 $2.62 $4.19 280,500 $4.36 $7.83
Greater than market
Price - - - - - - 12,000 $0.13 $5.44
--------- ------ ------- -------- ------- ------- -------- ------- ------
Total 127,500 $1.21 $1.59 102,500 $2.67 $4.10 490,000 $4.51 $7.41
========= ====== ======= ======== ======= ======= ======== ======= ======
The following table summarizes information about employee stock options
outstanding and exercisable at December 31, 2000:
Options Outstanding Options Exercisable
---------------------------------------------------------------- ---------------------------------------
Number of Weighted
Options Average Number
Range of Outstanding at Remaining Weighted Exercisable at Weighted
Exercise December 31, Contractual Life Average December 31, Average
Prices 2000 in Years Exercise Price 2000 Exercise Price
- ------------ --------------- ---------------- -------------- --------------- --------------
$1.33 - 2.00 89,750 9.14 $1.54 4,500 $2.00
$3.72 - 4.19 36,000 8.09 $4.01 19,875 $3.91
$5.31 - 7.63 78,501 6.67 $6.83 71,251 $6.90
$7.88 - 7.92 83,000 6.84 $7.88 58,250 $7.88
$8.00 - 9.63 67,000 6.34 $8.42 58,500 $8.46
---------- ------ --------- ---------- ---------
354,251 7.42 $5.75 212,376 $7.22
========== ====== ========= ========== =========
Employee Stock Purchase Plan
During 1998, the Company adopted an Employee Stock Purchase Plan ("ESPP")
which was approved by the Company's stockholders in May of 1998. The Company is
authorized to issue up to 175,000 shares under the ESPP. The initial offering
under the ESPP was January 1, 1998 and ended June 30, 1998. Subsequent offerings
begin on the first day following each previous offering ("Offering Date") and
end six months from the offering date ("Purchase Date"). The ESPP provides that
full time employees may authorize the Company to withhold up to 15% of their
earnings, subject to certain limitations, to be used to purchase common stock of
the Company at the lesser of 85% of the fair market value of the Company's
common stock on the Offering Date or the Purchase Date. In connection with the
ESPP, 42,561, 24,538 and 23,068 shares of the Company's stock were purchased
during the years ended December 31, 2000, 1999 and 1998, respectively.
The pro forma net income calculation above reflects $29,124 and $29,200 and
$46,800 in compensation expense associated with the ESPP for 2000, 1999 and
1998, respectively. The compensation expense represents the fair value of the
employees' purchase rights which was estimated using an acceptable pricing model
with the following weighted average assumptions:
Year Ended December 31,
2000 1999 1998
-------------- --------------- --------------
Risk-free interest rate 6.3% 4.5% 5.24%
Expected lives 0.5 year 0.5 year 0.5 year
Expected volatility 149.3% 131.0% 71.0%
Expected dividend yield 0% 0% 0%
401(k) Plan
The Company offers a contributory 401(k) plan (the "Plan") to its
employees. The Company made matching contributions to the Plan at 50% of the
employees' contribution for the first 8% of the employees' compensation for
2000, 1999 and 1998. Total Company contributions were $169,535, $185,747 and
$158,890 for the years ended December 31, 2000, 1999 and 1998, respectively.
(6) INCOME TAXES
The components of the (benefit) provision for income taxes are as follows:
2000 1999 1998
-------------- ------------ -----------
Current -- Federal $ - $(1,061,660) $ 662,000
Current - State - (158,640) 85,079
Deferred - Federal - 57,680 107,280
Deferred - State - 8,620 12,620
Tax effect of deduction for exercised stock
options credited to paid-in capital - - 20,021
-------------- ----------- ----------
Income tax (benefit) provision $ - $(1,154,000) $ 887,000
============== ============ ==========
The Company's deferred tax assets and liabilities at December 31, 2000 and
1999 consist of the following:
2000 1999
---------- ----------
Deferred tax assets-
Federal net operating loss carry-forward $1,332,000 $ 270,000
Federal AMT tax credit carry-forward 169,000 102,000
State net operating loss carry-forward 414,000 248,000
Inventory 15,500 14,000
Allowance for doubtful accounts 50,500 43,700
Repair reserve 31,500 59,600
Vacation accrual 121,500 43,100
Accrual for unbilled services 4,000 3,900
Other - 29,100
---------- ----------
2,138,000 813,400
Deferred tax liability-
Depreciation (1,085,500) (556,400)
Other (20,500) -
Valuation allowance (1,032,000) (257,000)
---------- ----------
Net deferred tax assets $ - $ -
========== ==========
Net current deferred tax assets $ 261,000 $ 189,000
Net long-term deferred tax assets 771,000 68,000
Valuation allowance (1,032,000) (257,000)
---------- ----------
$ - $ -
========== ==========
A reconciliation of the Company's income tax provision (benefit) computed
by applying the federal statutory income tax rate of 34% to income before taxes
is as follows:
2000 1999 1998
------------ ------------ ----------
Federal income tax at statutory rate $ (683,600) $(1,316,500) $772,700
State tax items, net (99,500) (3,800) 93,400
Nondeductible expenses 8,100 4,300 20,900
Federal tax net operating loss in excess
of book net operating loss - (121,000) -
Federal AMT tax credit carry-forward -
not recognized - 26,000 -
Change in valuation allowance 775,000 257,000 -
------------ ------------ ----------
(Benefit) provision for income taxes $ - $(1,154,000) $887,000
============ =========== ==========
The income tax receivable of $1,360,000 outstanding at December 31, 1999,
related to Federal and State tax refunds due to the Company as a result of its
1999 tax loss carryback. The refunds were received during 2000. The available
tax loss carrybacks were fully utilized in 1999 and, were therefore, not
available for any of the 2000 tax loss. The Company has $4,092,000 in NOL
carryforwards that expire through 2020.
(7) CAPITAL LEASE
In February 1996, the Company entered into an agreement to lease a phone
system. The lease has been capitalized using an implicit interest rate of 8.25%.
Future minimum lease payments under the lease as of December 31, 2000 totaled
$3,394.
(8) RECEIVABLE FROM RELATED PARTY
In connection with the acquisition of Spin Forge, the Company advanced
$280,000 to the seller. Prior to the acquisition, Spin Forge was owned and
controlled by an individual and his spouse. Later in 1998, this individual was
named President and CEO of the Company and served in that capacity until his
resignation in the third quarter of 2000. The advance was made to allow the
seller to retire certain debt that was outstanding on land and buildings that
the Company currently leases from the seller and on which the Company holds a
purchase option as discussed in Note 2. The Company also agreed to make
additional advances to the seller in connection with future principal payments
that the seller was required to make to satisfy debt obligations relating to the
property. The Company made additional advances totaling $74,588 during 1999,
bringing the balance outstanding to $354,588 as of December 31, 1999. No
additional advances were made during 2000. The outstanding balance was paid in
full during the first quarter of 2000. The Company's promissory note from the
seller, which was to mature on January 1, 2002, earned no interest, was secured
by a pledge of 50,000 shares of the Company's common stock held by the seller
and was personally guaranteed by the seller's two owners.
(9) BUSINESS SEGMENTS
The Company is organized in the following two segments: the Explosive
Metalworking Group ("Explosive Manufacturing") and the Aerospace Group
("Aerospace"). Explosive Manufacturing uses explosives to perform metal cladding
and shock synthesis. The most significant product of this group is clad metal
which is used in the fabrication of pressure vessels, heat exchangers and
transition joints used in the hydrocarbon processing, chemical processing, power
generation, petrochemical, pulp and paper, mining, shipbuilding and heat,
ventilation and air conditioning industries. Aerospace machines, forms and welds
parts for the commercial aircraft, aerospace and defense industries.
The accounting policies of both segments are the same as those described in
the summary of significant accounting policies.
The Company's reportable segments are strategic business units that offer
different products and services and are separately managed. Each segment is
marketed to different customer types and requires different manufacturing
processes and technologies.
Aerospace was formed in 1998 as a result of the Company's acquisitions of
AMK, Spin Forge and PMP during the year ended December 31, 1998. Explosive
Manufacturing was the Company's only segment prior to 1998. Segment information
is presented for the years ended December 31, 2000, 1999 and 1998 as follows:
Explosive
Manufacturing Aerospace Total
-------------- ------------ ------------
As of and for the year ended December 31, 2000:
Net sales $16,965,677 $10,896,904 $27,862,581
========== ========== ==========
Depreciation and amortization $ 820,953 $ 799,257 $ 1,620,210
========== ========== ==========
Income (loss) from operations $ 82,149 $(1,148,262) $(1,066,113)
Unallocated amounts:
Other income 198,290
Interest expense (1,094,181)
Interest income 31,505
-----------
Consolidated loss before income taxes and extraordinary item $(1,930,499)
===========
Segment assets $14,488,880 $12,539,505 $27,028,385
========== ==========
Assets not allocated to segments:
Cash 186,530
Prepaid expenses and other 193,966
Other long-term corporate assets 258,574
----------
Consolidated total assets $27,667,455
==========
Capital expenditures $ 483,443 $ 86,780 $ 570,223
========== ========== ==========
Explosive
Manufacturing Aerospace Total
-------------- ------------ -----------
As of and for the year ended December 31, 1999:
Net sales $17,014,639 $ 12,116,650 $29,131,289
========== =========== ==========
Depreciation and amortization $ 785,958 $ 728,145 $ 1,514,103
========== =========== ==========
Segment (loss) income from operations $(3,437,118) $ 862,323 $(2,574,795)
Corporate non-recurring charge (322,098)
----------
Loss from operations $(2,896,893)
Unallocated amounts:
Other income 14,784
Interest expense (1,009,911)
Interest income 19,912
----------
Consolidated loss before income taxes $(3,872,108)
===========
Segment assets $15,250,163 $ 12,561,020 $27,811,183
========== ===========
Assets not allocated to segments:
Prepaid expenses and other 151,609
Income tax receivable 1,360,000
Other long-term corporate assets 764,526
----------
Consolidated total assets $30,087,318
==========
Capital expenditures $ 5,244,292 $ 189,813 $ 5,434,105
========== =========== ==========
Explosive
Manufacturing Aerospace Total
-------------- ------------ ------------
As of and for the year ended December 31, 1998:
Net sales $29,727,273 $ 8,484,778 $ 38,212,051
========== ============ ==========
Depreciation and amortization $ 861,769 $ 233,227 $ 1,094,996
========== ============ ==========
Income from operations $ 1,252,618 $ 1,283,338 $ 2,535,956
Unallocated amounts:
Other income 8,921
Interest expense (283,706)
Interest income 11,585
----------
Consolidated income before income taxes $ 2,272,756
==========
Segment assets $18,086,015 $ 13,428,751 $ 31,514,766
=========== ===========
Assets not allocated to segments:
Prepaid expenses and other 214,776
Income tax receivable 499,932
Current deferred tax asset 224,800
Other long-term corporate assets 747,304
----------
Consolidated total assets $ 33,201,578
==========
Capital expenditures $ 2,442,041 $ 372,774 $ 2,814,815
========== =========== ==========
Capital expenditures for the Explosive Manufacturing segment included
$336,347, $5,082,680 and $1,853,723 of costs incurred related to the
construction of the Company's new manufacturing facility and the acquisition of
related manufacturing equipment during the years ended December 31, 2000, 1999
and 1998, respectively.
All of the Company's sales are shipped from domestic locations and all of
the Company's assets are located within the United States. The following
represents the Company's net sales based on the geographic location of the
customer:
For the years ended December 31,
--------------------------------
2000 1999 1998
--------------- --------------- -------------
United States $25,115,688 $26,563,764 $32,478,791
Canada 986,508 1,516,580 3,818,968
Australia 9,600 149,626 38,428
Mexico 300,537 449,405 305,398
South Korea 1,022,285 11,390 -
Other foreign countries 427,963 440,524 1,570,466
----------- ----------- -----------
Total consolidated net sales $27,862,581 $29,131,289 $38,212,051
=========== =========== ===========
All of the Company's sales are made in U.S. dollars and as a result the
Company is not exposed to foreign exchange risks.
During the years ended December 31, 2000 and December 31, 1998, no one
customer accounted for more than 10% of total net sales. During the year ended
December 31, 1999, sales to one customer represented approximately $2,968,000
(10%) of total net sales.
(10) COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, storage space, vehicles and other
equipment under various operating lease agreements. Future minimum rental
commitments under noncancelable operating leases are as follows:
Year ended December 31-
2001 $ 596,206
2002 369,069
2003 337,863
2004 237,673
2005 139,339
Thereafter 49,880
------------
$1,730,030
Total rental expense included in operations was $885,726, $843,690 and
$713,731 in the years ended December 31, 2000, 1999 and 1998, respectively.
In the normal course of business, the Company is a party to various
contractual disputes and claims. After considering the Company's insurance
coverage and evaluations by legal counsel regarding pending actions, management
is of the opinion that the outcome of such actions will not have a material
adverse effect on the financial position or results of operations of the
Company.
(11) STOCKHOLDERS' EQUITY
The Company's authorized capital consists of 15,000,000 shares of common
stock, $.05 par value, of which 4,990,331 shares are outstanding as of December
31, 2000 and 4,000,000 shares of preferred stock, $.05 par value, of which no
shares are issued and outstanding.
On January 8, 1999, the Board of Directors of the Company declared a
dividend of one preferred share purchase right for each outstanding share of
common stock of the Company to record holders of common stock at the close of
business on January 15, 1999. The rights were exercisable following the
occurrence of certain specified events and each right would have entitled the
holder, within certain limitations, to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock for $22.50 subject to certain
anti-dilution adjustments. If a person or group were to have acquired 15 percent
of the Company's common stock, every other holder of a right would have been
entitled to buy at the right's then-exercise price a number of shares of the
Company's common stock having a value of twice such exercise price. After the
threshold was crossed, the rights would have become non-redeemable, except that,
prior to the time a person or group acquired 50% or more of the common stock,
the rights other than those held by such person or group could be exchanged at a
ratio of one share of common stock for each right. In the event of certain
extraordinary transactions, including mergers, the rights entitle holders to buy
at the right's then-exercise price equity in the acquiring company having a
value of twice such exercise price. The rights did not have any voting rights
nor were they entitled to dividends. The rights were redeemed by the Company at
$.001 each on June 20, 2000.
(12) SUBSEQUENT EVENTS
On March 15, 2000, the Company announced that it has reached an agreement
to acquire 100% of the stock of Nobelclad Europe S.A. ( "Nobelclad") and Nitro
Metall Aktiebolag ("Nitro Metall") from Nobel Explosifs France ("NEF").
Nobelclad and Nitro Metall operate cladding businesses located in Rivesaltes,
France and Likenas, Sweden, respectively, which generated combined revenues of
approximately $10.5 million during the year ended December 31, 2000. NEF is
wholly owned by Groupe SNPE and is a sister company to SNPE, which owns 55% of
the Company's common stock.
The acquisition, which is expected to close in the third quarter of 2001,
is subject to the customary due diligence reviews and the finalization of a
definitive stock purchase agreement. The purchase price of approximately $5.4
million will be financed through a $4.0 million intercompany note agreement
between the Company and SNPE and the assumption of approximately $1.4 million in
third party bank debt associated with Nobelclad's planned acquisition of Nitro
Metall from NEF prior to the Company's purchase of Nobelclad stock.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Directors
Mr. Bernard Hueber. Mr. Hueber, age 59, has served as director of the
Company and has been Chairman of the Board of the Company since June 2000. His
current term as director will expire at the annual meeting of stockholders in
2003. Mr. Hueber also currently serves as the Chairman of the Board and Chief
Executive Officer of Nobel Explosifs France, a company engaged in the
manufacture and sale of commercial explosives for industrial applications and
the explosive cladding business, a position he has held since 1990.
Mr. Gerard Munera. Mr. Munera has served as a director of the Company since
September 2000, and his current term will expire at the annual meeting of
stockholders in 2003. From October 1996 to the present, Mr. Munera, age 65, has
been chairman and CEO of Synergex, a personally controlled holding company, with
majority participation in Arcadia (a manufacturer of low rise curtain walls,
store fronts and office partitions) and in Estancia El Olmo, a large cattle
ranch, as well as minority participation in other companies, particularly in the
gold mining and high technology industries. Between 1990 and 1991, Mr. Munera
was Senior Vice President Corporate Planning and Development and a member of the
Executive Committee of RTZ plc. Between 1991 and 1994, Mr. Munera was President
of Minorco (USA), a diversified $1.5 billion natural resources group. From 1994
to October 1996, Mr. Munera was Chairman and CEO of Latin American Gold Inc., a
gold exploration and mining company.
Mr. Michel Philippe. Mr. Philippe, age 57, has served as director of the
Company since June 2000, and his current term will expire at the annual meeting
of stockholders in 2002. Mr. Philippe is currently Corporate Senior Vice
President of Financial and Legal affairs of Groupe SNPE, a position he has held
since 1990.
Dr. George W. Morgenthaler. Dr. Morgenthaler, age 73, has served as a
director of the Company since June 1986, and his current term will expire at the
annual meeting of stockholders in 2001. Dr. Morgenthaler also served as a
director during the period from 1971 to 1976. Dr. Morgenthaler has been a
Professor of Aerospace Engineering at the University of Colorado at Boulder
since 1986. He has served as Department Chair, Director of the University of
Colorado's BioServe Commercial Space Center and Associate Dean of Engineering
for Research. Previously, Dr. Morgenthaler was Vice President of Technical
Operations at Martin Marietta's Denver Aerospace Division, Vice President
Primary Products Division of Martin Marietta Aluminum Co. and Vice President and
General Manager of the Baltimore Division of Martin Marietta Aerospace Co. Dr.
Morgenthaler has served as a director of Computer Technology Assoc. Inc. from
1993 to 1999 and served as a director of Columbia Aluminum Company from 1987 to
1996.
Mr. Bernard Fontana. Mr. Fontana, age 40, has served as a director of the
Company since June 2000 and was President and Chief Executive Officer of the
Company from June 2000 to November 2000. Mr. Fontana's current term as director
will expire at the annual meeting of stockholders in 2001. Mr. Fontana has been
Executive Vice President of the Fine Chemicals division of Groupe SNPE since
January 2001. Mr. Fontana has also been Vice President of Groupe SNPE, North
America since September 1999 and President of SNPE, Inc. since November 1999.
Mr. Fontana was Vice President of Strategy and Business Development of the
Chemicals division of Groupe SNPE from June 1998 to September 1999, General
Manager of SNPE Chimie from September 1996 to June 1998 and General Manager,
Bergerac N.C., a business unit of Groupe SNPE, from 1992 to September 15, 1996.
Mr. Bernard Riviere. Mr. Riviere, age 61, has served as director of the
Company since June 2000, and his current term will expire at the annual meeting
of stockholders in 2002. Mr. Riviere is currently Senior Vice President and CEO
of Groupe SNPE, a position he has held since September 1999. Mr. Riviere was
Senior Vice President of the Chemicals division of Groupe SNPE from April 1996
to September 1999 and Senior Vice President of Business Development for Groupe
SNPE from September 1994 to April 1996.
Mr. Dean K. Allen. Mr. Allen, age 65, has served the Company as a director
since July 1993, and his current term will expire at the annual meeting of
stockholders in 2002. In January 2001, Mr. Allen retired as President of Parsons
Europe, Middle East and South Africa, a position he had held since February
1996. Mr. Allen was Vice President and General Manager of Raytheon Engineers and
Constructors, Europe, from February 1994 to December 1995.
Executive Officers
The following individuals serve as executive officers of the Company. Each
executive officer is elected by the Board of Directors and serves at the
pleasure of the Board.
Name Position Age
Mr. Yvon Pierre Cariou President and Chief Executive Officer 55
Mr. Richard A. Santa Vice President, Chief Financial Officer and Secretary 50
Mr. John G. Banker. Vice President, Marketing and Sales, Clad Metal 54
Products Division
Mr. Yvon Pierre Cariou. Mr. Cariou has served as President and Chief
Executive Officer since November 2000. From March 2000 to November 2000, Mr.
Cariou was a consultant who performed research and development projects for the
oil industry and market research for a start-up company. From November 1998 to
March 2000, Mr. Cariou was President and Chief Executive Officer of Astrocosmos
Metallurgical Inc., a division of Groupe Carbone Lorraine of France, involved in
the design and fabrication of process equipment for the chemical and
pharmaceutical industries. From September 1993 to September 1998, Mr. Cariou was
a Partner and Vice President Sales and Marketing of Hydrodyne/FPI Inc. From
January 1991 to September 1993, Mr. Cariou was President of MAINCO Corp. and
ESCO Corp., manufacturing divisions of Nu-Swift, a public company based in the
United Kingdom.
Mr. Richard A. Santa. Mr. Santa has served as Vice President, Chief
Financial Officer and Secretary of the Company since October 1996 and served as
interim Chief Financial Officer from August 1996 to October 1996. Prior to
joining the Company in August 1996, Mr. Santa was Corporate Controller of Scott
Sports Group Inc. from September 1993 to April 1996. From April 1996 to August
1996, Mr. Santa was a private investor. From June 1992 to August 1993, Mr. Santa
was Chief Financial Officer of Scott USA, a sports equipment manufacturer and
distributor. Earlier in his career, Mr. Santa was a senior manager with Price
Waterhouse, where he was employed for ten years.
Mr. John G. Banker. Mr. Banker has served as Vice President, Marketing and
Sales, Clad Metal Products Division since June 2000. From June 1996 to June
2000, Mr. Banker was President of CLAD Metal Products, Inc. From June 1977 to
June 1996, Mr. Banker was employed by the Company in various technical, sales
and management positions, holding the position of Senior Vice President, Sales
and New Business Development from June 1991 to July 1995.
ITEM 11. Executive Compensation
SUMMARY OF COMPENSATION
The following table shows compensation awarded or paid to, or earned by,
the Company's executive officers (the "Named Executive Officers") during the
fiscal years ended December 31, 2000, 1999 and 1998:
Summary Compensation Table
Annual Compensation Long-Term
------------------------------------------------ Compensation
Awards
----------------
Name and Principal Fiscal Other Annual All Other
Position Year Salary ($) Bonus ($) Compensation ($)(1) Options (#) Compensation ($)
- --------------------------- ----- ---------- --------- ------------------- ----------- ----------------
Yvon Pierre Cariou......... 2000 23,130 10,000 - - -
President and
Chief Executive Officer (2)
- ------------------------------ ------- -------------- -------------- ------------------- ---------------- -----------------
Richard A. Santa........... 2000 157,037 16,500 - 10,000 6,537(3)
Vice President, Chief 1999 136,930 - - 10,000 6,021(4)
Financial Officer and 1998 124,730 30,000 - 40,000 6,305(5)
Secretary
- ------------------------------ ------- -------------- -------------- ------------------- ---------------- -----------------
John G. Banker............. 2000 65,866 10,000 - - 1,528(7)
Vice President,
Sales and Marketing (6)
- ------------------------------ ------- -------------- -------------- ------------------- ---------------- -----------------
Joseph P. Allwein.......... 2000 136,107 - - 20,000 6,290(9)
President and 1999 209,167 - 51,701(10) 40,000 5,379(11)
Chief Executive Officer (8) 1998 127,381 75,000 - 62,500 5,966(12)
- ------------------------------ ------- -------------- -------------- ------------------- ---------------- -----------------
(1) Except as disclosed in this column, the amount of perquisites provided to
each Named Executive Officer did not exceed the lesser of $50,000 or 10% of
total salary and bonus for each fiscal year.
(2) Mr. Cariou joined the Company in November 2000.
(3) Includes $1,287 of life insurance premiums and $5,250 of matching
contributions under the 401(k) plan.
(4) Includes $1,021 of life insurance premiums and $5,000 of matching
contributions under the 401(k) plan.
(5) Includes $1,305 of life insurance premiums and $5,000 of matching
contributions under the 401(k) plan.
(6) Mr. Banker joined the Company in June 2000.
(7) Includes $1,528 of life insurance premiums.
(8) Mr. Allwein joined the Company in March 1998 and terminated employment with
the Company in August 2000.
(9) Includes $1,040 of life insurance premiums and $5,250 of matching
contributions under the 401(k) plan.
(10) Includes $42,817 for the cost of a Company-provided apartment and $8,884
for the cost of a Company-provided automobile.
(11) Includes $1,212 of life insurance premiums and $4,167 of matching
contributions under the 401(k) plan.
(12) Includes $995 of life insurance premiums and $4,971 of matching
contributions under the 401(k) plan.
STOCK OPTION EXERCISES
The Company grants options to its executive officers under its 1997 Equity
Incentive Plan (the "1997 Plan"). As of March 15, 2001, options to purchase a
total of 475,750 shares were outstanding under the 1997 Plan and options to
purchase 376,500 shares remained available for grant thereunder.
The following table shows for the fiscal year ended December 31, 2000,
certain information regarding options exercised by, and held at year-end by, the
Named Executive Officers:
Option Exercises in Fiscal 2000 and Fiscal Year-End Option Values
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 2000 December 31, 2000 (1)
----------------- ---------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ------------------ ---------------- ------------ ----------------- ---------------------
Yvon Pierre Cariou............. - - -/- -/-
Richard A. Santa............... - - 55,000/30,000 -/-
John. G. Banker................ - - -/- -/-
- -------------------
(1) i.e., value of options for which the fair market value of the Company's
Common Stock at December 31, 2000 ($1.00) exceeds the exercise price.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the ownership
of DMC's common stock as of March 21, 2001 by: (i) each person or group known by
DMC to be the beneficial owner of more than 5% of DMC's common stock, (ii) each
director of DMC; (iii) each executive officer; and (iv) all executive officers
and directors of DMC as a group.
Beneficial
Ownership (1)
Number Percent
Name and Address of Beneficial Owner (2) Of Shares of Total
- ------------------------------------ --------- --------
SNPE Inc.
100 College Road East
Princeton, NJ 08540 (3)................................................. 2,763,491 55.38%
Mr. Yvon Pierre Cariou..................................................... - *
Mr. Richard A. Santa (4)................................................... 67,033 1.33%
Mr. John G. Banker ........................................................ 6,010 *
Mr. Bernard Hueber (5)..................................................... - *
Mr. Dean K. Allen (4)...................................................... 32,000 *
Mr. Bernard Fontana ....................................................... - *
Mr. George W. Morgenthaler (4)............................................. 102,778 2.05
Dr. Gerard Munera.......................................................... - *
Mr. Michel Philippe........................................................ - *
Mr. Bernard Riviere ....................................................... - *
All executive officers and directors as a group (7 persons) (5)............ 207,821 4.08%
- ----------
*Less than 1%
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws where
applicable, DMC believes that each of the stockholders named in this table
has sole voting and investment power with respect to the shares indicated
as beneficially owned. Applicable percentages are based on 4,990,331 shares
outstanding on March 15, 2001 adjusted as required by rules promulgated by
the SEC.
(2) Unless otherwise indicated, the address of each beneficial owner is c/o
Dynamic Materials Corporation, 551 Aspen Ridge Drive, Lafayette, Colorado
80026.
(3) The information reported is based solely on information contained in the
Form 4 filed by each of SNPE, Inc., SOFIGEXI, and SNPE. Each reported that
it had shared voting and investment power and beneficial ownership of
2,763,491 shares.
(4) Amounts reported include shares subject to stock options exercisable within
60 days of March 15, 2001 as follows: Mr. Santa, 66,250 shares; Mr. Allen,
20,000 shares; and Mr. Morgenthaler, 20,000 shares. Shares of common stock
subject to options that are exercisable within 60 days of March 15, 2001
are deemed to be beneficially owned by the person holding those options for
the purpose of computing the percentage ownership of the person, but are
not treated as outstanding for the purpose of computing any other person's
percentage ownership.
(5) The amount reported includes 106,250 shares subject to stock options
exercisable within 60 days of March 15, 2001. The applicable percentage is
based on 5,096,581 shares outstanding, which includes shares subject to
stock options exercisable within 60 days.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires DMC's
directors and officers, and persons who own more than 10% of a registered class
of DMC's equity securities, to file with the SEC an initial report of ownership
and to report changes in ownership of common stock and other equity securities
of DMC. Officers, directors and greater than 10% stockholders are required by
SEC regulations to furnish DMC with copies of all Section 16(a) forms they file.
To DMC's knowledge, based solely on a review of the copies of such reports
furnished to DMC and written representations that no other reports were
required, during the fiscal year ended December 31, 2000, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, except that a Form 3 was filed late by
Gerard Munera relative to his being named a director of DMC.
ITEM 13. Certain Relationships and Related Transactions
In connection with the acquisition of Spin Forge, the Company advanced
$280,000 to the seller. Prior to the acquisition, Spin Forge was owned and
controlled by Joe Allwein and his spouse. Later in 1998, Mr. Allwein was named
President and CEO of the Company and served in that capacity until his
resignation in the third quarter of 2000. The advance was made to allow the
seller to retire certain debt that was outstanding on land and buildings that
the Company currently leases from the seller and on which the Company holds a
purchase option as discussed in Note 2. The Company also agreed to make
additional advances to the seller in connection with future principal payments
that the seller was required to make to satisfy debt obligations relating to the
property. The Company made additional advances totaling $74,588 during 1999,
bringing the balance outstanding to $354,588 as of December 31, 1999. No
additional advances were made during 2000. The outstanding balance was paid in
full during the first quarter of 2000.
On March 16, 2001, the Company announced that it has reached agreement to
acquire 100% of the stock of Nobleclad Europe S.A. ("Nobleclad") and Nitro
Metall Aktiebolag ("Nitro Metall") from Nobel Explosifs France ("NEF").
Nobelclad and Nitro Metall operate cladding businesses located in Rivesaltes,
France and Likenas, Sweden, respectively, which generated combined revenues of
approximately $10.5 million in calendar year 2000. NEF is wholly owned by Groupe
SNPE and is a sister company to SNPE, Inc., which owns 55% of the Company's
common stock. The acquisition is expected to close in the third quarter of 2001.
The purchase price of approximately $5.4 million will be financed through a $4.0
million intercompany note agreement between the Company and SNPE, Inc. and the
assumption of approximately $1.4 million in third party bank debt associated
with Nobleclad's planned acquisition of Nitro Metall from NEF prior to the
Company's purchase of Nobleclad stock.
ITEM 14. Exhibits, List and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
3.1 Articles of Incorporation (incorporated by reference to the
Company's Definitive Proxy Statement filed with the Commission on
July 14, 1997).
3.2 Bylaws of the Company (incorporated by reference to the Company's
Definitive Proxy Statement filed with the Commission on July 14,
1997).
4.1 Shareholders Rights Plan, dated January 8, 1999 (incorporated by
reference to the Company's Registration Statement filed with the
Commission on January 21, 1999).
10.1 Employment Agreement between Company and Richard Santa dated
October 21, 1996 (incorporated by reference to the Company's Form
10-K filed with the Commission on March 30, 2000).
10.2 1997 Equity Incentive Plan, adopted by the Directors on March 4,
1997, and approved by the Company's Shareholders on May 23, 1997
(incorporated by reference to the Company's Definitive Proxy
Statement filed with the Commission on April 17, 1997).
10.3 Employee Stock Purchase Plan, dated January 9, 1998 (incorporated
by reference to the Company's Definitive Proxy Statement filed
with the Commission on April 22, 1998).
10.4 Asset Purchase Agreement, dated January 1998, between the Company
and AMK, Inc. (incorporated by reference to the Company's Form
10-Q filed with the Commission on May 15, 1998).
10.5 Stock Agreement, dated as of March 18, 1998, between Company and
Joseph Allwein (incorporated by reference to the Company's Form
8-K filed with the Commission on April 2, 1998).
10.6 Stock Agreement, dated as of March 18, 1998, between Company and
Spin Forge, LLC (incorporated by reference to the Company's Form
8-K filed with the Commission on April 2, 1998).
10.7 Operating Lease, dated as of March 18, 1998, between Company and
Spin Forge, LLC (incorporated by reference to the Company's Form
8-K filed with the Commission on April 2, 1998).
10.8 Option Agreement, dated as of March 18, 1998, between Company and
Spin Forge, LLC (incorporated by reference to the Company's Form
8-K filed with the Commission on April 2, 1998).
10.9 Non-Competition Agreement, dated as of March 18, 1998, between
Company and Joseph Allwein (incorporated by reference to the
Company's Form 8-K filed with the Commission on April 2, 1998).
10.10 Asset Purchase Agreement between the Company, Spin Forge, LLC,
Joseph Allwein and Darlene Bauer Allwein (incorporated by
reference to the Company's Form 8-K filed with the Commission on
April 2, 1998).
10.11 Reimbursement Agreement between the Company and KeyBank National
Association, dated September 1, 1998 (incorporated by reference
to the Company's Form 10-Q filed with the Commission on November
17, 1998).
10.12 Separation Agreement between the Company and Paul Lang, dated as
of September 1, 1998 (incorporated by reference to the Company's
Form 10-Q filed with the Commission on November 14, 1998).
10.13 Loan Agreement between Company and Fayette County Industrial
Development Authority, dated September 1, 1998 (incorporated by
reference to the Company's Form 10-Q filed with the Commission on
November 17, 1998).
10.14 Asset Purchase Agreement, dated as of November 18, 1998, between
Company, Precision Machined Products, Inc., Richard B. Bellows
and Michelle L. Bellows (incorporated by reference to the
Company's Form 8-K filed with the Commission on December 8,
1998).
10.15 Amended and Restated Credit Facility and Security Agreement,
dated as of November 30, 1998, between the Company and Key Bank
National Association (incorporated by reference to the Company's
Form 10-K filed with the Commission on April 1, 1999).
10.16 Option and Right of First Offer Agreement, dated as of December
1, 1998, between the Company and JEA Property, LLC (incorporated
by reference to the Company's Form 8-K filed with the Commission
on December 8, 1998).
10.17 Operating Lease, dated as of December 1, 1998, between the
Company and JEA Property, LLC (incorporated by reference to the
Company's Form 8-K filed with the Commission on December 8,
1998).
10.18 First Amendment to Amended and Restated Credit Facility and
Security Agreement, dated as of December 31, 1998, between
Company and Key Bank National Association (incorporated by
reference to the Company's Form 10-K filed with the Commission on
April 1, 1999).
10.19 Amended and Restated Employee Stock Option Plan approved by the
Directors of the Company on March 26, 1999 (incorporated by
reference to the Company's Definitive Proxy Statement filed with
the Commission on April 26, 1999).
10.20 Change in Control Agreement between Company and Mark Jarman,
dated March 26, 1999 (incorporated by reference to the Company's
Form 10-Q filed with the Commission on August 13, 1999).
10.21 Change in Control Agreement between Company and Richard Santa,
dated March 26, 1999 (incorporated by reference to the Company's
Form 10-Q filed with the Commission on August 13, 1999).
10.22 Change of Control Agreement between Company and Joseph Allwein,
dated March 26, 1999 (incorporated by reference to the Company's
Form 10-Q filed with the Commission on August 13, 1999).
10.23 Deferral and Waiver Agreement, dated as of October 15, 1999,
between Company and Key Bank National Association (incorporated
by reference to the Company's Form 10-Q filed with the Commission
on November, 15, 1999).
10.24 First Amendment to Deferral and Waiver Agreement, dated as of
December 30, 1999, between Company and Key Bank National
Association (incorporated by reference to the Company's Form 8-K
filed with the Commission on January 11, 2000).
10.25 Stock Purchase Agreement, dated January 20, 2000, between the
Company and SNPE, Inc. (incorporated by reference to the
Company's Form 8-K filed with the Commission on January 31,
2000).
10.26 Agreement and Amendment to Operating Lease, dated as of February
1, 2000 between the Company and Spin Forge, LLC (incorporated by
reference to the Company's Form 10-K filed with the Commission on
March 30, 2000).
10.27 Letter Agreement, dated February 1, 2000 terminating a Loan
Agreement between the Company and Spin Forge, LLC, which Loan
Agreement was dated as of March 18, 1998 (incorporated by
reference to the Company's Form 10-K filed with the Commission on
March 30, 2000).
10.28 Second Amendment to Deferral and Waiver Agreement, dated as of
March 27, 2000, between Company and Key Bank National Association
(incorporated by reference to the Company's Form 10-K filed with
the Commission on March 30, 2000).
10.29 Form of Directors and Officers Indemnification Agreement
(incorporated by reference to the Company's Form 10-K filed with
the Commission on March 30, 2000).
10.30 Stock Purchase Agreement, dated as of January 20, 2000, between
the Company and SNPE, Inc. (incorporated by reference to the
Company's Definitive Proxy Statement filed with the Commission on
May 9, 2000).
10.31 Amendment Number One to Stock Purchase Agreement, dated as of
April 20, 2000, between the Company and SNPE, Inc. (incorporated
by reference to the Company's Form 10-Q filed with the Commission
on May 12, 2000).
10.32 Third Amendment to Deferral and Waiver Agreement, dated as of May
2, 2000, between the Company and Keybank National Association
(incorporated by reference to the Company's Form 10-Q filed with
the Commission on May 12, 2000).
10.33 Registration Rights Agreement, dated as of June 14, 2000, between
the Company and SNPE, Inc. (incorporated by reference to the
Company's Form 8-K filed with the Commission on June 22, 2000).
10.34 First Amendment to Rights Agreement, dated as of June 13, 2000,
between the Company and Harris Trust & Savings Bank (incorporated
by reference to the Company's Form 8-K filed with the Commission
on June 22, 2000).
10.35 Credit Facility and Security Agreement, dated as of June 14,
2000, between the Company and SNPE, Inc. (incorporated by
reference to the Company's Form 8-K filed with the Commission on
June 22, 2000).
10.36 Convertible Subordinated Note, dated as of June 14, 2000, between
the Company and SNPE, Inc. (incorporated by reference to the
Company's Form 8-K filed with the Commission on June 22, 2000).
10.37 First Amendment to Reimbursement Agreement, dated as of June 14,
2000, between the Company and Keybank National Association
(incorporated by reference to the Company's Form 8-K filed with
the Commission on June 22, 2000).
10.38 Personal Services Agreement, dated as of June 16, 2000, between
the Company and John G. Banker (incorporated by reference to the
Company's Form 8-K filed with the Commission on June 22, 2000).
27 Financial Data Schedule
99.1 Press Release dated March 16, 2001
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated November 22, 2000, reporting
under Item 5 that the Company issued a press release with regard to the election
of Yvon Pierre Cariou to the position of President and Chief Executive Officer
of the Company, and the resignation of Bernard Fontana from that Position.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DYNAMIC MATERIALS CORPORATION
March 28, 2001 By: /s/ Richard A. Santa
----------------------
Richard A. Santa
Vice President and Chief Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ Yvon Pierre Cariou President and Chief Executive Officer March 28, 2001
- -------------------------------- (Principal Executive Officer)
Yvon Pierre Cariou
/s/ Richard A. Santa Vice President and Chief Financial Officer March 28, 2001
- -------------------------------- (Principal Financial and Accounting Officer)
Richard A. Santa
/s/ Bernard Hueber Chairman and Director March 28, 2001
- --------------------------------
Bernard Hueber
/s/ Dean K. Allen Director March 28, 2001
- --------------------------------
Dean K. Allen
/s/ Bernard Fontana Director March 28, 2001
- --------------------------------
Bernard Fontana
/s/ George W. Morgenthaler Director March 28, 2001
- --------------------------------
George W. Morgenthaler
/s/ Gerard Munera Director March 28, 2001
- --------------------------------
Gerard Munera
/s/ Michel Philippe Director March 28, 2001
- --------------------------------
Michel Philippe
/s/ Bernard Riviere Director March 28, 2001
- --------------------------------
Bernard Riviere
DYNAMIC MATERIALS CORPORATION
INDEX TO SCHEDULE II
AS OF DECEMBER 31, 2000
PAGE
Report of Independent Public Accountants....................................63
Schedule II (a).............................................................64
Schedule II (b).............................................................64
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dynamic Materials Corporation:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of Dynamic Materials Corporation
included in this Form 10-K and have issued our report thereon dated February 28,
2001. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 28, 2001
DYNAMIC MATERIALS CORPORATION
SCHEDULE II(a) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at Additions Accounts Balance at
beginning Charged to receivable Other end of
of period income written off Adjustments period
Year ended -
December 31, 1998 $ 150,000 $ 78,732 $ (3,732) $ - $ 225,000
December 31, 1999 $ 225,000 $ 24,698 $ (137,698) $ - $ 112,000
December 31, 2000 $ 112,000 $ 45,756 $ (27,756) $ - $ 130,000
DYNAMIC MATERIALS CORPORATION
SCHEDULE II(b) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
REPAIR RESERVE
Balance at Additions Balance at
beginning charged to Repairs end of
of period income Allowed period
Year ended -
December 31, 1998 $ 150,000 $ 30,582 $ (55,582) $ 125,000
December 31, 1999 $ 125,000 $ 80,296 $ (52,296) $ 153,000
December 31, 2000 $ 153,000 $ 50,526 $(123,526) $ 80,000