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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
( ) 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 of Incorporation or Organization) (I.R.S. Employer Identification No.)
5405 Spine Road, Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 665-5700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
--- ---
The number of shares of Common Stock outstanding was 5,046,116 as of July
30, 2002.
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements"
within the meaning of section 27A of the Securities Act of 1933 and section 21E
of the Securities Exchange Act of 1934. In particular, we direct your attention
to Part I Item 1- Financial Statements, Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 3 -
Quantitative and Qualitative Disclosures About Market Risk. We intend the
forward-looking statements throughout the quarterly report on Form 10-Q and the
information incorporated by reference to be covered by the safe harbor
provisions for 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. All projections and statements regarding our expected
financial position and operating results, our business strategy, our financing
plans and the outcome of any contingencies are forward-looking statements. These
statements can sometimes be identified by our use of forward-looking words such
as "may", "believe", "plan", "will", "anticipate", "estimate", "expect",
"intend" and other phrases of similar meaning. The forward-looking information
is based on information available as of the date of this report on Form 10-Q and
on numerous assumptions and developments that are not within our control.
Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot assure you that our
expectations will turn out to be correct. Factors that could cause actual
results to differ materially include, but are not limited to the following: the
ability to obtain new contracts at attractive prices; the size and timing of
customer orders; 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 our
businesses; the timing and size of expenditures; the timely receipt of
government approvals and permits; the adequacy of local labor supplies at our
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. We undertake no obligation to publicly release the results
of any revision to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
2
INDEX
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements.....................................4
Consolidated Balance Sheets as of June 30, 2002 (unaudited)
and December 31, 2001................................................4
Consolidated Statements of Operations for the three and six months ended
June 30, 2002 and 2001 (unaudited) ..................................6
Consolidated Statements of Stockholders' Equity for the six months ended
June 30, 2002 (unaudited) ...........................................7
Consolidated Statements of Cash Flows for the six months ended
June 30, 2002 and 2001 (unaudited) ..................................8
Notes to Consolidated Financial Statements (unaudited)...................10
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ...............................................16
Item 3 - Quantitative and Qualitative Disclosures about Market Risk...........24
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings....................................................25
Item 2 - Changes in Securities and use of Proceeds............................25
Item 3 - Defaults Upon Senior Securities......................................25
Item 4 - Submission of Matters to a Vote of Security Holders..................25
Item 5 - Other information....................................................25
Item 6 - Reports on Form 8-K and Exhibits.....................................25
Signatures ..........................................................26
3
Part I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 2002 2001
(unaudited)
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 815,833 $ 1,811,618
Accounts receivable, net of allowance for doubtful
accounts of $298,078 and $234,304, respectively 8,712,573 6,486,171
Inventories 6,836,464 6,708,422
Prepaid expenses and other 751,092 1,143,356
Current deferred tax asset 261,400 261,400
Income tax receivable 4,594 -
----------- -----------
Total current assets 17,381,956 16,410,967
----------- -----------
PROPERTY, PLANT AND EQUIPMENT 22,709,799 21,353,725
Less- Accumulated depreciation (7,198,479) (6,144,251)
----------- -----------
Property, plant and equipment, net 15,511,320 15,209,474
----------- -----------
RESTRICTED CASH AND INVESTMENTS 189,128 189,128
GOODWILL, net of accumulated amortization
of $768,913 4,647,185 4,647,185
INTANGIBLE ASSETS, net of accumulated amortization
of $640,937 and $614,938, respectively 90,585 56,584
OTHER ASSETS, net 339,566 400,007
----------- -----------
TOTAL ASSETS $ 38,159,740 $ 36,913,345
=========== ===========
The accompanying notes to Consolidated Financial Statements
are an integral part of these balance sheets.
4
DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
------------------------------------ 2002 2001
(unaudited)
----------- ------------
CURRENT LIABILITIES:
Bank overdraft $ 428,361 $ -
Accounts payable 2,512,415 3,153,391
Accrued expenses 2,811,594 3,085,766
Current maturities on long-term debt 3,191,191 1,821,666
----------- -----------
Total current liabilities 8,943,561 8,060,823
LONG-TERM DEBT 12,037,378 13,675,431
NET DEFERRED TAX LIABILITIES 825,204 469,000
DEFERRED GAIN ON SWAP TERMINATION 55,011 62,097
OTHER LONG-TERM LIABILITIES 38,468 -
----------- -----------
Total liabilities 21,899,622 22,267,351
----------- -----------
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;
5,046,116 and 5,029,983 shares issued and
outstanding, respectively 252,307 251,500
Additional paid-in capital 12,348,696 12,315,596
Retained earnings 3,675,037 2,592,898
Other cumulative comprehensive income (loss) (15,922) (514,000)
----------- -----------
Total stockholders' equity 16,260,118 14,645,994
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,159,740 $ 36,913,345
=========== ===========
The accompanying notes to Consolidated Financial Statements
are an integral part of these balance sheets.
5
DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Restated-See Note 2)
- --------------------------------------------------------------------------------
(unaudited)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
---- ----- ---- ----
NET SALES $ 9,628,835 $ 11,252,246 $ 21,603,046 $ 20,769,647
COST OF PRODUCTS SOLD 7,335,884 8,054,569 16,184,585 15,381,864
------------- -------------- ------------- --------------
GROSS PROFIT 2,292,951 3,197,677 5,418,461 5,387,783
------------- -------------- ------------- --------------
COSTS AND EXPENSES:
General and administrative expenses 1,050,440 1,234,276 2,079,429 2,265,076
Selling expenses 582,443 658,362 1,218,399 1,212,089
------------ -------------- ------------- -------------
1,632,883 1,892,638 3,297,828 3,477,165
------------ -------------- ------------- -------------
INCOME FROM OPERATIONS 660,068 1,305,039 2,120,633 1,910,618
OTHER INCOME (EXPENSE):
Other expense, net (46,629) (72,758) (39,568) (76,322)
Interest expense (173,353) (186,642) (357,891) (363,651)
Interest income 162 4,662 520 7,909
------------ -------------- ------------- ------------
INCOME BEFORE INCOME
TAXES 440,248 1,050,301 1,723,694 1,478,554
INCOME TAX PROVISION 144,684 145,850 641,555 252,660
------------ ------------- ------------- ------------
NET INCOME $ 295,564 $ 904,451 $ 1,082,139 $ 1,225,894
======= ======= ========= =========
NET INCOME PER SHARE
Basic $ 0.06 $ 0.18 $ 0.21 $ 0.25
============ ============= ============ ============
Diluted $ 0.06 $ 0.18 $ 0.21 $ 0.24
============ ============= ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -
Basic 5,036,159 4,990,592 5,033,364 4,990,462
Diluted 5,105,780 5,042,215 5,103,187 5,007,969
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
6
DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(unaudited)
Other
Additional Cumulative Comprehensive
Common Stock Paid-In Retained Comprehensive Income for
Shares Amount Capital Earnings Loss Total the period
--------- -------- ----------- ----------- ------------- ----------- -----------
Balances, December 31, 2001 5,029,983 $ 251,500 $ 12,315,596 $ 2,592,898 $ (514,000) $ 14,645,994
Shares issued for stock option
exercises 9,752 488 14,978 - - 15,466
Shared issued in connection with the
employee stock purchase plan 6,381 319 18,122 - - 18,441
Net income - - - 1,082,139 - 1,082,139 $ 1,082,139
Change in cumulative translation
adjustment - - - - 498,078 498,078 498,078
--------- -------- ----------- ----------- ------------- ----------- -----------
Balances, June 30, 2002 5,046,116 $ 252,307 $ 12,348,696 $ 3,675,037 $ (15,922) $ 16,260,118 $ 1,580,217
========= ======== =========== =========== ============= =========== ===========
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
7
DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Restated - See Note 2)
(unaudited)
2002 2001
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,082,139 $ 1,225,894
Adjustments to reconcile net income
to net cash flows from operating activities-
Depreciation 876,372 794,604
Amortization 55,999 152,819
Amortization of deferred gain on swap termination (7,086) (8,157)
Provision for deferred income taxes 334,714 -
Loss on sale of property, plant and equipment - 103
Change in -
Accounts receivable, net (1,831,842) (1,608,807)
Inventories 200,151 (1,780,917)
Prepaid expenses and other (340,459) 3,186
Income tax receivable (4,594) -
Accounts payable (841,649) 440,148
Accrued expenses 337,063 551,667
------------- -------------
Net cash flows used in operating activities (139,192) (229,460)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (884,360) (893,687)
Change in other non-current assets (29,559) 6,321
Proceeds from sale of property, plant and equipment - 500
------------- -------------
Net cash flows used in investing activities (913,919) (886,866)
------------- -------------
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
8
DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (Restated - See Note 2)
(unaudited)
2002 2001
------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings / (repayments) on bank lines of credit, net (725,032) -
Borrowings / (repayments) on related party lines of credit 566,970 1,990,000
Payment on industrial development revenue bonds (390,000) (355,000)
Borrowings for the purchase of Nitro Metall - 1,274,000
Dividends paid by Nobelclad / Nitro Metall to former
parent company - (296,000)
Distribution to former parent on Nobelclad's
June 2001 acquisition of Nitro Metall - (1,293,000)
Payments on capital lease obligation - (3,394)
Change in other long-term liabilities 34,626 -
Net proceeds from issuance of common stock to employees 33,907 23,049
Bank overdraft 406,007 158,141
------------- ----------
Net cash flows (used in) provided from
financing activities (73,522) 1,497,796
------------- ----------
EFFECTS OF EXCHANGE RATES ON CASH 130,848 (130,000)
------------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (995,785) 251,470
CASH AND CASH EQUIVALENTS, beginning of the period 1,811,618 298,530
------------- ----------
CASH AND CASH EQUIVALENTS, end of the period $ 815,833 $ 550,000
============= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 336,371 $ 317,217
============= ==========
Income taxes $ 286,710 $ 115,174
============= ==========
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
9
DYNAMIC MATERIALS CORPORATION & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The information included in the Consolidated Financial Statements is
unaudited but includes all normal and recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of the interim
periods presented. These Consolidated Financial Statements should be read in
conjunction with the financial statements that are included in the Company's
Annual Report filed on Form 10-K for the year ended December 31, 2001.
2. ACQUISITION OF NOBELCLAD EUROPE S.A.
On July 3, 2001, DMC completed its acquisition of substantially all of the
outstanding stock of Nobelclad Europe S.A. ("Nobelclad") from Nobel Explosifs
France ("NEF"). Nobelclad and its wholly-owned subsidiary, Nitro Metall AB
("Nitro Metall") are the primary manufacturers of explosion clad products in
Europe and operate cladding businesses located in Rivesaltes, France and
Likenas, Sweden, respectively, along with sales offices in each country.
Products manufactured by Nobelclad and Nitro Metall are similar to those
produced by DMC's domestic factory in Mount Braddock, Pennsylvania. 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 purchase price of approximately $5.3
million was financed through a $4.0 million intercompany note agreement between
the Company and SNPE, Inc. and the assumption of approximately $1.23 million in
third party bank debt associated with Nobelclad's acquisition of Nitro Metall
from NEF prior to DMC's purchase of Nobelclad stock.
As a result of DMC and Nobelclad both being majority owned by Groupe SNPE,
the acquisition of Nobelclad has been accounted for as a reorganization of
entities under common control. The historical financial position and operating
results of DMC have been restated to reflect the addition of the Nobelclad and
Nitro Metall historical financial results as if the companies had been
consolidated from June 2000, the date on which Groupe SNPE acquired its majority
ownership in DMC.
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of DMC and any
subsidiary in which it has a greater than a 50% interest. All significant
intercompany accounts, profits and transactions have been eliminated in
consolidation.
10
Foreign Operations and Foreign Exchange Rate Risk
The functional currency for our foreign operations is the applicable local
currency for each affiliate company. Assets and liabilities of foreign
subsidiaries for which the functional currency is the local currency are
translated at exchange rates in effect at period-end, and the statements of
operations are translated at the average exchange rates during the period.
Exchange rate fluctuations on translating foreign currency financial statements
into U.S. Dollars that result in unrealized gains or losses are referred to as
translation adjustments. Cumulative translation adjustments are recorded as a
separate component of stockholders' equity and are included in other cumulative
comprehensive income (loss). Transactions denominated in currencies other than
the local currency are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result in transaction
gains and losses which are reflected in income as unrealized (based on
period-end translations) or realized upon settlement of the transactions. Cash
flows from our operations in foreign countries are translated at actual exchange
rates when known, or at the average rate for the period. As a result, amounts
related to assets and liabilities reported in the consolidated statements of
cash flows will not agree to changes in the corresponding balances in the
consolidated balance sheets. The effects of exchange rate changes on cash
balances held in foreign currencies are reported as a separate line item below
cash flows from financing activities.
Revenue Recognition
DMC's contracts with its customers generally require the production and
delivery of multiple units or products. The Company records revenue from the
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, we provide
currently for such anticipated loss.
New accounting pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") authorized
the issuance of Statement of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires the use of the purchase method of accounting for all
business combinations initiated after June 30, 2001. SFAS No. 141 requires
intangible assets to be recognized if they arise from contractual or legal
rights or are "separable", i.e., it is feasible that they may be sold,
transferred, licensed, rented, exchanged or pledged. As a result, it is likely
that more intangible assets will be recognized under SFAS No. 141 than its
predecessor, APB Opinion No.16 although in some instances previously recognized
intangibles will be subsumed into goodwill.
Under SFAS No. 142, goodwill will no longer be amortized on a straight-line
basis over its estimated useful life, but will be tested for impairment on an
annual basis and whenever indicators of impairment arise. The goodwill
impairment test, which is based on fair value, is to be performed on a reporting
unit level. A reporting unit is defined as a SFAS No. 131 operating segment or
one level lower. Goodwill will no longer be allocated to other long-lived assets
for impairment testing under SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Under SFAS No.
142, intangible assets with indefinite lives will not be amortized. Instead they
will be carried at the lower of cost or market
11
value and tested for impairment at least annually. All other recognized
intangible assets will continue to be amortized over their estimated useful
lives.
DMC adopted the provisions of SFAS No. 142 effective January 1, 2002;
however, we are still in the process of completing the transitional impairment
test of goodwill that must be completed within the first year of adoption. For
the six months ended June 30, 2002, the adoption of SFAS No. 142 reduced DMC's
goodwill amortization expense to zero from approximately $108,000 for the first
six months of 2001. Under SFAS No. 142, the carrying value of goodwill is to be
evaluated based upon its current fair value as if the purchase price allocation
occurred on January 1, 2002. Fair value for goodwill and intangible assets is
determined based upon discounted cash flows and appraised values. DMC believes
that the results of the goodwill impairment test could be a pre-tax charge
against earnings associated with a cumulative effect from a change in accounting
principle of up to $3.8 million.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which is effective for financial statements issued for fiscal years
beginning after June 15, 2002. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. DMC is currently evaluating
the potential impact, if any, the adoption of SFAS 143 will have on its
financial position and results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which is effective for fiscal periods
beginning after December 15, 2001 and interim periods within those fiscal years.
SFAS 144 supercedes SFAS 121, and establishes an accounting model for impairment
or disposal of long-lived assets to be disposed of by sale. DMC has implemented
SFAS 144 effective January 1, 2002 with no impact.
4. INVENTORY
The components of inventory are as follows at June 30, 2002 and December
31, 2001:
June 30, December 31,
2002 2001
(unaudited)
-------------- --------------
Raw Materials $ 2,384,782 $ 2,414,394
Work-in-Process 4,243,983 4,230,671
Supplies 207,699 63,357
------------- -------------
$ 6,836,464 $ 6,708,422
============= =============
12
5. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 2002 and December 31,
2001:
June 30, December 31,
2002 2001
(unaudited)
-------------- -------------
Line of credit - SNPE S.A. $ 1,037,859 $ 360,000
Convertible subordinated note, SNPE, Inc. 1,200,000 1,200,000
Term loan, SNPE, Inc. (related to
acquisition of Nobelclad) 4,000,000 4,000,000
Bank lines of credit 4,100,710 4,657,097
Industrial development revenue bonds 4,890,000 5,280,000
------------ ------------
Total 15,228,569 15,497,097
Less current maturities (3,191,191) (1,821,666)
------------- ------------
Long-term portion $ 12,037,378 $ 13,675,431
============== ============
Loan Covenants and Restrictions
Our 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. The principal financial covenants relate to minimum debt service
coverage, minimum net income and minimum net worth as measured at the end of
each calendar quarter. As of June 30, 2002, we are in compliance with all
financial covenants and other provisions of our debt agreements.
6. BUSINESS SEGMENTS
DMC is organized in the following two segments: the Explosive Metalworking
Group and the Aerospace Group. The Explosive Metalworking Group 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. The
Aerospace Group machines, forms and welds parts for the commercial aircraft,
aerospace and defense industries.
DMC'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. Segment information is presented for the three months and the six
months ended June 30, 2002 and 2001 as follows:
13
Explosive
Manufacturing Aerospace Total
------------- ------------- -------------
For the three months ended June 30, 2002:
Net sales $ 7,479,219 $ 2,149,616 $ 9,628,835
=========== =========== ============
Depreciation and amortization $ 298,106 $ 198,827 $ 496,933
============ ============ ============
Income (loss) from operations $ 990,178 $ (330,110) $ 660,068
Unallocated amounts:
Other income (expense) (46,629)
Interest expense, net (173,191)
---------
Consolidated income before income taxes $ 440,248
=========
Explosive
Manufacturing Aerospace Total
------------- ------------- -------------
For the three months ended June 30, 2001
(Restated - See Note 2):
Net sales $ 8,042,402 $ 3,209,844 $ 11,252,246
============ =========== ===========
Depreciation and amortization $ 251,115 $ 203,171 $ 454,286
============ ============ ===========
Income (loss) from operations $ 1,333,357 $ (28,318) $ 1,305,039
Unallocated amounts:
Other income (expense) (72,758)
Interest expense, net (181,980)
------------
Consolidated income before income taxes $ 1,050,301
============
Explosive
Manufacturing Aerospace Total
------------- ------------- -------------
For the six months ended June 30, 2002:
Net sales $17,099,612 $ 4,503,434 $21,603,046
========== =========== ==========
Depreciation and amortization $ 553,726 $ 378,645 $ 932,371
========== =========== ==========
Income (loss) from operations $ 2,940,475 $ (819,842) $ 2,120,633
Unallocated amounts:
Other income (expense) (39,568)
Interest expense, net (357,371)
----------
Consolidated income before income taxes $ 1,723,694
===========
14
Explosive
Manufacturing Aerospace Total
------------- ------------- -------------
For the six months ended June 30, 2001
(Restated - See Note 2):
Net sales $14,790,471 $ 5,979,176 $20,769,647
========== =========== ==========
Depreciation and amortization $ 536,748 $ 410,675 $ 947,423
========== =========== ==========
Income (loss) from operations $ 1,969,957 $ (59,339) $ 1,910,618
Unallocated amounts:
Other income (expense) (76,322)
Interest expense, net (355,742)
----------
Consolidated income before income taxes $ 1,478,554
==========
7. COMPREHENSIVE INCOME
DMC's comprehensive income for the three and six months ended June 30, 2002
and 2001 was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ----------------------------
2002 2001 2002 2001
---------- ---------- ----------- -----------
Net income for the period $ 295,564 $ 904,451 $ 1,082,139 $ 1,225,894
Foreign currency translation adjustment 492,756 (506,076) 498,078 (639,076)
-------- --------- ------- ---------
Comprehensive income $ 788,320 $ 398,375 $ 1,580,217 $ 586,818
======== ======== ========== ==========
15
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Dynamic Materials Corporation ("DMC") 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.
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, we fabricate 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, DMC 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. We believe that
our 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.
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 close-tolerance machining,
forming, welding, inspection and other special service capabilities. Our
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.
Restatement of 2001 for Reorganization. On July 3, 2001, DMC completed the
acquisition of substantially all of the outstanding stock of Nobelclad Europe
S.A. ("Nobelclad") from Nobel Explosifs France ("NEF"). Nobelclad and its
wholly-owned subsidiary, Nitro Metall AB ("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 our common stock. The purchase price of approximately
$5.3 million was financed through a $4.0 million intercompany note agreement
between DMC and SNPE, Inc. and the assumption of approximately $1.23 million in
third party bank debt associated with Nobelclad's acquisition of Nitro Metall
from NEF prior to the DMC's purchase of Nobelclad stock. As a result of DMC and
Nobelclad both being majority owned by Groupe SNPE, the acquisition of Nobelclad
has been accounted for as a reorganization of entities under common
16
control. Our historical financial position and operating results have been
restated to reflect the addition of the Nobelclad and Nitro Metall historical
financial results as if the companies had been consolidated from June 2000, the
date on which Groupe SNPE acquired its majority ownership in DMC.
Historically, DMC has 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. We typically do not obtain long-term
volume purchase contracts from our 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 DMC's operating expenses
is fixed, and planned expenditures are based primarily on sales forecasts and
product development programs. If sales do not meet our 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, DMC uses numerous suppliers of
alloys, steels and other materials for its operations. We typically bear a
short-term risk of alloy, steel and other component price increases, which could
adversely affect our gross profit margins. Although DMC 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 our 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 our common stock.
Three months and six months ended June 30, 2002 compared to three months and six
months ended June 30, 2001
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain income statement data:
Percentage of net sales
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
(Restated) (Restated)
-------- --------- ------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 76.2% 71.6% 74.9% 74.1%
----- ----- ----- -----
Gross margin 23.8% 28.4% 25.1% 25.9%
General & administrative 10.9% 11.0% 9.6% 10.9%
Selling expenses 6.0% 5.9% 5.7% 5.8%
---- ---- ---- ----
Income from operations 6.9% 11.5% 9.8% 9.2%
Other expense, net 0.5% 0.6% 0.2% 0.4%
Interest expense, net 1.8% 1.6% 1.6% 1.7%
Income tax provision 1.5% 1.3% 3.0% 1.2%
---- ---- ---- ----
Net income 3.1% 8.0% 5.0% 5.9%
==== ==== ==== =====
17
Net Sales. Net sales for the quarter ended June 30, 2002 decreased by 14.4% to
$9,628,835 from $11,252,246 in the second quarter of 2001. Sales by the
Explosive Metalworking Group, which includes explosion bonding of clad metal and
shock synthesis of synthetic diamonds, decreased by 7.0% to $7,479,219 in the
second quarter of 2002 from $8,042,402 in the second quarter of 2001. Results
for the second quarter of 2002 and 2001 include net sales of Nobelclad and its
wholly-owned subsidiary, Nitro Metall, in the amounts of $2,941,988 and
$2,797,960 for the respective quarterly periods. The Aerospace Group contributed
sales of $2,149,616 (22.3% of total sales) in the second quarter of 2002 versus
$3,209,844 (28.5% of total sales) in the second quarter of 2001. The 33%
quarter-to-quarter decline in Aerospace Group sales reflects sales declines of
66% and 42% at the Precision Machined Products and Spin Forge divisions,
respectively, that were partially offset by an 83% sales increase at AMK
Welding.
For the six months ended June 30, 2002, net sales increased by 4.0% to
$21,603,046 from $20,769,647 for the comparable period of 2001. Sales by the
Explosive Metalworking Group for the comparable six-month periods increased by
15.6% to $17,099,612 in 2002 from $14,790,471 in 2001. Results for the six
months ended June 30, 2002 and 2001 include net sales of Nobelclad and Nitro
Metall in the amounts of $6,207,952 and $5,377,192, respectively. Aerospace
Group sales for the six-month period ended June 30, 2002 totaled $4,503,434
(20.8% of total sales), a decrease of 24.7% from sales of $5,979,176 (28.8% of
sales) reported for the comparable period of 2001. This sales decrease is
attributable to sales decreases of 63% and 22% at Precision Machined Products
and Spin Forge, respectively, that were partially offset by a 68% sales increase
at AMK Welding.
Gross Profit. Gross profit for the quarter ended June 30, 2002 decreased by
28.3% to $2,292,951 from $3,197,677 in the second quarter of 2001. The gross
profit margin for the second quarter of 2002 was 23.8%, a 16.2% decrease from
the gross profit margin of 28.4% for the second quarter of 2001. This decrease
is attributable to lower sales volumes during the second quarter of 2002
compared to 2001 and the resultant less favorable absorption of fixed
manufacturing overhead expenses. For the six months ended June 30, 2002, gross
profit increased slightly to $5,418,461 from $5,387,783 in the comparable period
of 2001. The gross profit margin for the six months ended June 30, 2002 was
25.1% compared to 25.9% for the first six months of 2001.
The gross profit margin for the Explosive Metalworking Group decreased to 23.3%
in the second quarter of 2002 from 24.2% in the second quarter of 2001. For the
six months ended June 30, 2002, the gross profit margin for the Explosive
Metalworking Group increased to 25.2% from 21.6% for the six months ended June
30, 2001. Improved Explosive Metalworking Group gross profit margins are
attributable to favorable changes in product mix and higher sales volume that
resulted in a more favorable absorption of fixed manufacturing overhead
expenses. The gross profit margin for the Aerospace Group decreased to 0.5% for
the second quarter of 2002 from 4.2% for the same period in 2001. For the six
months ended June 30, 2002, the gross profit margin was a negative 0.1% as
compared to a positive gross margin of 4.4% in the comparable period of 2001.
The decline in the Aerospace Group gross margin is principally due to the poor
sales performance of the Precision Machined Products and Spin Forge divisions
where negative gross margins were reported for both the second quarter of 2002
and the six-month period then ended.
18
General and Administrative. General and administrative expenses for the quarter
ended June 30, 2002 were $1,050,440 as compared to $1,234,276 in the second
quarter of 2001. For the six months ended June 30, 2002, general and
administrative expenses decreased by 8.2% to $2,079,429 from $2,265,076 in the
comparable period of 2001. As a percentage of net sales, general and
administrative expenses decreased from 11.0% in the second quarter of 2001 to
10.9% in the second quarter of 2002 and decreased from 10.9% to 9.6% for the
comparable six-month period. For both the second quarter of 2002 and the
six-month period then ended, the decline of general and administrative expenses
reflects significant staffing reduction in the administration of the Aerospace
Group and reduction of Corporate general and administrative expenses, including
the discontinuance of the amortization of goodwill.
Selling Expense. Selling expenses decreased by 11.5% to $582,443 for the quarter
ended June 30, 2002 from $658,362 in the second quarter of 2001. For the six
months ended June 30, 2002, selling expenses increased by 0.5% to $1,218,399
from $1,212,089 in the comparable period of 2001. The small increase in expenses
for the six-month period relates to the accrual of bonus expense associated with
the Explosive Metalworking Group's strong 2002 financial performance and annual
salary adjustments that were effective as of the beginning of 2002 that were
largely offset by reductions in other spending categories. As a percentage of
net sales, selling expenses increased from 5.9% in the second quarter 2001 to
6.0% in the second quarter of 2002 and decreased from 5.8% for the six months
ended June 30, 2001 to 5.7% for the comparable period of 2002.
Income from Operations. For the quarter ended June 30, 2002, we reported income
from operations of $660,068, a decrease of 49.4% from the $1,305,039 of
operating income reported for the second quarter of 2001. For the six months
ended June 30, 2002, we reported operating income of $2,120,633, which
represented a 11.0% increase from the $1,910,618 in operating income that we
reported for the first six months of 2001.
Our Explosive Metalworking Group reported income from operations of $990,178 in
the second quarter of 2002 as compared to operating income of $1,333,357 for the
comparable period of 2001. This lower second quarter income from operations
reflects a sales decrease of $563,183 and a decrease in the Group's gross margin
rate from 24.2% in 2001 to 23.3% in 2002. For the six months ended June 30,
2002, our Explosive Metalworking Group reported income from operations of
$2,940,475 as compared to operating income of $1,969,957 for the comparable
period of 2001. This significant improvement reflects a sales increase of
$2,309,141 and an improvement in gross margin to 25.2% in 2002 from 21.6% in
2001. The Explosive Metalworking Group recently booked several large orders
aggregating approximately $5 million relating to the supply of titanium clad for
Inco's Goro Nickel Project in New Caledonia. These orders are scheduled to ship
in the fourth quarter of 2002 and should enable the Group to report full year
2002 operating income that is higher than that reported for 2001.
Our Aerospace Group reported an operating loss of $330,110 in the second quarter
of 2002 as compared to an operating loss of $28,318 in the prior year second
quarter. For the six months ended June 30, 2002, our Aerospace Group reported an
operating loss of $819,842 as compared to an operating loss of $59,339 for the
comparable period of 2001. The Aerospace Group's increased operating loss is
attributable to the significant decline in sales and gross profit at the Group's
Precision Machined Products and Spin Forge divisions that was only partially
offset by the strong performance of AMK Welding. Our Aerospace Group continues
to suffer from the negative effects of September 11 on the commercial aircraft
market, as well as the decreased demand for satellite and launch vehicle
component parts that has resulted from the depressed state of the
telecommunications industry. We have reorganized management teams at PMP and
Spin Forge and taken other steps to reduce operating costs at these two
divisions. Modest improvements in the Group's operating results are expected in
the second half of 2002 and the Group is expected to return to profitability for
the full year 2003.
19
Interest Expense. Interest expense decreased to $173,191 for the quarter ended
June 30, 2002 from $181,980 in the second quarter of 2001. This decrease results
from lower average interest rates in 2002. For the six months ended June 30,
2002, interest expenses increased by 0.5% to $357,371 from $355,742 for the
comparable period in 2001. This increase resulted from higher 2002 borrowing
levels associated with the term loan and revolving credit debt that was incurred
in connection with the July 3, 2001 acquisition of Nobelclad and its Nitro
Metall subsidiary that were not fully offset by lower average interest rates in
the 2002 period.
Income Tax Provision. We recorded a consolidated income tax provision of
$144,684 in the second quarter of 2002 versus $145,850 in the second quarter of
2001 of which $76,000 and zero, respectively, related to U.S. income taxes, with
the remainder relating to the foreign taxes associated with the acquired
operations of Nobelclad. For the six-month period, we recorded a consolidated
income tax provision of $641,555 in 2002 versus $252,660 in 2001 of which
$354,000 and zero, respectively, related to U.S. income taxes, with the
remainder relating to the foreign taxes associated with the acquired operations
of Nobelclad. This increased tax provision for the six-month period reflects an
increase in income before taxes as well as an increase in the effective tax rate
from 17.1% in 2001 to 37.2% in 2002. The increase in the effective tax rate
reflects the fact that no U.S. tax provision was recorded during the first six
months of 2001 due to the recognition of the tax benefits associated with loss
carry-forwards from 2000.
Liquidity and Capital Resources
Historically, we have obtained most of our operational financing from a
combination of operating activities and an asset-backed revolving credit
facility. In December 2001, we obtained a $6,000,000 revolving line of credit
with a U.S. bank that replaced the $4,500,000 credit facility between DMC and
SNPE, Inc. This bank line of credit will be used to finance ongoing working
capital requirements of our U.S. operations. Initial proceeds from the bank line
were used to repay $3,650,000 of borrowings that were outstanding under the
credit facility with SNPE, Inc. The bank line, which expires on December 4,
2004, carries an interest rate equal to the bank's prime rate plus 1.0% through
February 28, 2002 and the bank's prime rate plus 0.5% thereafter. Borrowings
under the line of credit are limited to a calculated borrowing base that is a
function of inventory and accounts receivable balances and are secured by
accounts receivable and inventory of our U.S. operations and by new investments
in property, plant and equipment that are made during the term of the agreement.
As of June 30, 2002, borrowing availability under the line of credit was
approximately $2,500,000 greater than the $2,656,065 in outstanding borrowings
as of that date and the interest rate on outstanding borrowings was 5.25%.
In connection with its July 3, 2001 acquisition of Nobelclad, the Company
entered into a $4,000,000 term loan agreement with SNPE. The term loan bears
interest at the Federal Funds Rate plus 3.0%, payable quarterly. Commencing
September 30, 2002 and on the last day of each calendar quarter thereafter,
principal payments of $333,333 are due, with a final principal payment of
$333,337 being due on June 30, 2005. The term loan is secured by a pledge of 65%
of the capital stock of Nobelclad held by the Company. In anticipation of its
acquisition by the Company, Nobelclad acquired the stock of Nitro Metall and
financed this acquisition with proceeds obtained from a revolving credit
facility with a French bank that provides for maximum borrowings of 1,488,266
Euros ($1,444,645 based upon the June 30, 2002 exchange rate). This bank line of
credit, which had outstanding borrowings of $1,444,645 on June 30, 2002, carries
interest at the Euro Interbank Offered Rate ("EURIBOR") plus 0.4%. Beginning on
June 21, 2004 and on each anniversary date thereafter until final maturity on
June 21, 2008, maximum borrowings available under the line become permanently
reduced by 289,653 Euros ($288,929 based upon the June 30, 2002 exchange rate).
The bank has the option of demanding early
20
repayment of any outstanding loans if Groupe SNPE's indirect ownership of
Nobelclad falls below 50%. Nobelclad also maintains a 2 million Euro ($1,995,000
based upon the June 30, 2002 exchange rate) intercompany working capital line
with Groupe SNPE under which borrowings of $1,037,859 were outstanding as of
June 30, 2002. This intercompany line bears interest at EURIBOR plus 1.5%.
The Company believes that its cash flow from operations and funds available
under its credit facilities will be sufficient to fund working capital, debt
service obligations and capital expenditure requirements of its current business
operations for the foreseeable future. However, 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 Company's credit facilities could negatively affect the
Company's ability to meet its future cash requirements. DMC attempts to minimize
its risk of losing customers or specific contracts by continually improving
product quality, delivering product on time and competing favorably on the basis
of price. Borrowing from multiple lenders minimizes risks associated with the
availability of funds. The nature of DMC's business is largely insulated from
the negative effects of inflation on sales and operating income because the
pricing on custom orders reflects current raw material and other manufacturing
costs.
Highlights from the Statement of Cash Flows for the six months ended June 30,
2002
Net cash flows used in operating activities for the six months ended June
30, 2002 were $139,192. Significant sources of operating cash flow included net
income of $1,082,139, depreciation and amortization of $932,371 and deferred
taxes of $334,714. These sources of operating cash flow were more than offset by
negative changes in working capital that totaled $2,481,330, including a
$1,831,842 increase in accounts receivable and a $504,586 decrease in accounts
payable and accrued expenses.
Cash used in investing activities totaled $913,919 and was comprised
primarily of capital expenditures in the amount of $884,360.
Net cash flows used in financing activities for the six months ended June
30, 2002 totaled $73,522. The primary uses of cash flow from financing
activities were repayments on the bank line of credit of $725,032 and principal
payments on industrial development revenue bonds in the amount of $390,000 that
were partially offset by borrowings on related party line of credit for $566,970
and a $406,007 bank overdraft.
Highlights from the Statement of Cash Flows for the six months ended June 30,
2001 (Restated)
Net cash used in operations for the six months ended June 30, 2001 was
$229,460. Significant sources included net income of $1,225,894 and depreciation
and amortization of $947,423. These sources were more than offset by negative
changes in working capital that totaled $2,394,723, including a $1,780,917
increase in inventories and a $1,608,807 increase in accounts receivable that
were partially offset by a $991,815 increase in accounts payable and accrued
expenses.
21
Cash used in investing activities totaled $886,866 and was comprised
primarily of capital expenditures in the amount of $893,687.
Net cash flows from financing activities totaled $1,497,796. Significant
sources included borrowings on related party lines of credit for $1,990,000 and
bank borrowings of $1,274,000 relating to Nobelclad's acquisition of Nitro
Metall. These sources were partially offset by a distribution to NEF, the former
parent of Nitro Metall, in the amount of $1,293,000 relating to Nobelclad's
acquisition of Nitro Metall, dividend payments of $296,000 by Nobelclad and
Nitro Metall to NEF and $355,000 in principal payments on our industrial
development revenue bonds.
Future Capital Needs and Resources
We anticipate that, for the foreseeable future, significant amounts of
available cash flows will be utilized for:
- operating expenses to support our domestic and foreign manufacturing
operations;
- capital expenditures;
- debt service requirements; and
- other general corporate expenditures.
We expect cash inflows from operating activities to exceed outflows for the
full year 2002. However, our success depends on the execution of our strategies,
including our ability to:
- secure an adequate level of new customer orders at all operating
divisions;
- effectively integrate the operations of Nobelclad and Nitro Metall
with our domestic cladding business;
- continue to implement the most cost-effective internal processes.
Based on available cash resources, anticipated capital expenditures and
projected operating cash flow, we believe that we will be able to fully fund our
operations through 2002. In making this assessment, we have considered:
- presently scheduled debt service requirements during the remainder of
2002 as well as the availability of funding related to our line of
credit with SNPE and our bank lines of credit as of June 30, 2002;
- the anticipated level of capital expenditures during the remainder of
2002;
- our expectation of realizing positive cash flow from operations during
the two remaining quarters of 2002.
If our business plans change, or if economic conditions change materially,
our cash flow, profitability and anticipated cash needs could change
significantly. In particular, any acquisition or new business opportunity could
involve significant additional funding needs in excess of the identified
currently available sources, and could require us to raise additional equity or
debt funding to meet those needs.
22
Critical Accounting Policies
In response to the SEC's Release No. 33-8040, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, we identified the most critical
accounting principles upon which our financial status depends. We determined the
critical principles by considering accounting policies that involve the most
complex or subjective decisions or assessments. We identified our most critical
accounting policies to be those related to revenue recognition, inventory
valuation and impact of foreign currency exchange rate risks. We state these
accounting policies in the notes to the consolidated financial statements and at
relevant sections in this discussion and analysis. This discussion and analysis
should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this report.
Impact of SFAS No. 142
In June 2001, the FASB authorized the issuance of SFAS No. 142, Goodwill
and Other Intangible Assets. Under SFAS No. 142, goodwill will no longer be
amortized on a straight-line basis over its estimated useful life, but will be
tested for impairment on an annual basis and whenever indicators of impairment
arise. The goodwill impairment test, which is based on fair value, is to be
performed on a reporting unit level. A reporting unit is defined as a SFAS No.
131 operating segment or one level lower. Goodwill will no longer be allocated
to other long-lived assets for impairment testing under SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Under SFAS No. 142, intangible assets with indefinite lives will not be
amortized. Instead they will be carried at the lower of cost or market value and
tested for impairment at least annually. All other recognized intangible assets
will continue to be amortized over their estimated useful lives.
DMC adopted the provisions of SFAS No. 142 effective January 1, 2002;
however, we are still in the process of completing the transitional impairment
test of goodwill that must be completed within the first year of adoption. For
the six months ended June 30, 2002, the adoption of SFAS No. 142 reduced DMC's
goodwill amortization expense to zero from approximately $108,000 for the first
six months of 2001. Under SFAS No. 142, the carrying value of goodwill is to be
evaluated based upon its current fair value as if the purchase price allocation
occurred on January 1, 2002. Fair value for goodwill and intangible assets is
determined based upon discounted cash flows and appraised values. DMC believes
that the results of the goodwill impairment test could be a pre-tax charge
against earnings associated with a cumulative effect from a change in accounting
principle of up to $3.8 million.
23
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no events that materially affect our quantitative and
qualitative disclosure about market risk as reported in our Annual Report on
Form 10-K for the year ended December 31, 2001.
24
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6.
(a) Reports on Form 8-K
Report on Form 8-K, filed July 18, 2002, reporting the dismissal of Arthur
Andersen LLP as independent public accountant of the Company and appointment of
Ernst & Young LLP to serve as independent public accountants for the fiscal year
ending December 31, 2002.
Amendment to Report on Form 8-K filed July 25, 2002 including revised
second Item 4 with respect to the audit opinion issued by Arthur Andersen to
include the last two years, not only the year ended December 31, 2001, as
required by Item 304 (a)(1)(ii)of Regulation S-K.
(b) Exhibits
99.1 - Certification of the President and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 - Certification of the Vice President and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
25
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNAMIC MATERIALS CORPORATION
(Registrant)
Date: August 14, 2002 /s/ Richard A. Santa
----------------------------------------------------
Richard A. Santa, Vice President and Chief Financial
Officer (Duly Authorized Officer and Principal
Financial and Accounting Officer)
26