NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(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. The
Company is headquartered in Boulder, Colorado and has manufacturing facilities in the United States, Germany, France and Sweden. Customers are located throughout the world. The Company currently
operates under three business segmentsExplosive Metalworking, in which metals are metallurgically joined or altered by using explosives; Oilfield Products, in which it manufactures,
markets and sells oil field perforating equipment and explosives; and AMK Welding, which utilizes a number of welding technologies to weld components for manufacturers of jet engines and ground-based
turbines. The Company has two wholly-owned operating subsidiaries, Nobelclad Europe S.A. ("Nobelclad"), which was acquired during 2001 from an affiliate of the Company's former parent, and
DYNAenergetics (as defined below) which was acquired in 2007. In addition, the Company has three wholly owned holding companies (Dynamic Materials Luxembourg S.ar.l 1, Dynamic Materials Luxembourg
S.ar.l 2 and DYNAenergetics Holding GmbH) which were established in connection with the acquisition of DYNAenergetics.
On November 15, 2007, the Company and a newly-formed subsidiary, DYNAenergetics Holding GmbH (the "Purchaser"), entered into a Purchase, Sale and
Assignment Agreement (the "Purchase Agreement") with Rolf Rospek, Patrick Xylander, Uwe Gessel, and Oag Beteiligungs-GmbH, a German limited liability company (collectively the "Sellers").
Pursuant to the terms of the Purchase Agreement, on November 15, 2007 the Purchaser acquired 100% of the issued and outstanding shares of DYNAenergetics Beteiligungs-GmbH and all of
the interests in DYNAenergetics GmbH and Co. KG (collectively, "DYNAenergetics") from the Sellers. The Company's statement of operations include the effect of the DYNAenergetics
acquisition from the November 15, 2007 closing date. See Note 3 for additional disclosures regarding this acquisition.
On September 23, 2005, the Company announced that its Board of Directors approved a 2-for-1 split of the Company's common stock.
The split was effected as a stock dividend, and was paid to stockholders of record as of the close of business on October 5, 2005. Stockholders on the record date received one additional share
of common stock for each share held. The payment date was October 12, 2005. All share and per share data in the consolidated financial statements and notes have been adjusted and restated to
reflect the stock split as if it had taken place at the beginning of each period presented.
On June 14, 2000, the Company's stockholders approved a Stock Purchase Agreement ("the Agreement") between the Company and SNPE, Inc. ("SNPE"), a
wholly owned subsidiary of SNPE S.A. (Groupe SNPE). The closing of the transaction, which was held immediately following stockholder approval, resulted in a payment from SNPE of $5,800 to the
Company in exchange for 4,218,182 shares of the Company's common stock at a price of $1.375 per share causing SNPE to become a 50.8% stockholder of the Company on the closing date. As of
December 31, 2005, SNPE
51
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(1) ORGANIZATION AND BUSINESS (Continued)
owned
5,926,982 shares or 50.4% of the Company's common stock. On May 15, 2006, in an underwritten public offering, SNPE sold all of its shares of the Company's common stock. Following the
sale, four members of the Company's board of directors, each of whom had represented SNPE, resigned from the board. All transaction expenses were paid by SNPE.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements include the accounts of the Company and its controlled subsidiaries. Only subsidiaries in which controlling interests are
maintained are consolidated. The equity method is used to account for our ownership in subsidiaries where we do not have a controlling interest. All significant intercompany accounts, profits and
transactions have been eliminated in consolidation.
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 these estimates.
The functional currency for the Company's foreign operations is the applicable local currency for each affiliate company. Assets and liabilities of foreign
subsidiaries for which the functional currency is the local currency are translated at exchange rates in effect at period-end, and the statements of operations are translated at the
average exchange rates during the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as
translation adjustments. Cumulative translation adjustments are recorded as a separate component of stockholders' equity and are included in other cumulative comprehensive income. Transactions
denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and
losses which are reflected in income as unrealized (based on period-end translations) or realized upon settlement of the transactions. Cash flows from the Company's 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.
52
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
For purposes of the financial statements, the Company considers highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents.
Restricted
cash as of December 31, 2006 related to an advance payment received from a customer on a large contract that was secured through a bank guarantee arrangement between
the customer, our subsidiary, Nobelclad, and Nobelclad's bank. Under the bank guarantee, Nobelclad's bank held the advance payment in a trust account until final shipment of the related order and
expiration of the guarantee. The entire order associated with the restricted cash was shipped during the fourth quarter of 2006 and the bank guarantee expired in the first quarter of 2007, at which
point the restriction on the cash lapsed.
In
September 2007, DYNAenergetics entered into an agreement with Skandifinaz Bank AG in Germany to sell certain accounts receivables to the bank. The agreement, which was terminated in
December 2007, provided for a maximum of 4,000 Euros ($5,892 as of December 31, 2007) in receivables to be sold and required the Company to keep 250 Euros ($371 as of
December 31, 2007) on deposit with the bank as guarantee. If the bank is unsuccessful in collecting any of the purchased receivables, it has recourse with the Company for up to this
250 Euros held on deposit. Accordingly the 250 Euros held on deposit with the bank is classified as restricted cash as of December 31, 2007 (See Note 9).
The Company estimates its allowance for doubtful accounts based on historical rates of write-offs of uncollectible receivables and its evaluation of
the year end composition of accounts receivable.
Inventories are stated at the lower-of-cost (first-in, first-out) or market value. Cost elements included in
inventory are material, labor, subcontract costs and factory overhead. Inventories consist of the following at December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
Raw materials
|
|
$
|
13,744
|
|
$
|
6,282
|
Work-in-process
|
|
|
23,699
|
|
|
12,314
|
Finished goods
|
|
|
3,564
|
|
|
|
Supplies
|
|
|
621
|
|
|
630
|
|
|
|
|
|
|
|
$
|
41,628
|
|
$
|
19,226
|
|
|
|
|
|
Shipping
and handling costs incurred by the Company upon shipment to customers are included in cost of products sold in the accompanying Consolidated Statements of Operations.
53
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions, improvements and betterments are capitalized. 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 (except leasehold improvements which are depreciated
over the shorter of their estimated useful life or their lease term of the asset) as follows:
Buildings and improvements
|
|
15-30 years
|
Manufacturing equipment and tooling
|
|
3-15 years
|
Furniture, fixtures and computer equipment
|
|
3-10 years
|
Other
|
|
3-10 years
|
Property,
plant and equipment consist of the following at December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
Land
|
|
$
|
1,679
|
|
$
|
600
|
Buildings and improvements
|
|
|
17,117
|
|
|
8,707
|
Manufacturing equipment and tooling
|
|
|
23,785
|
|
|
12,210
|
Furniture, fixtures and computer equipment
|
|
|
3,840
|
|
|
3,069
|
Other
|
|
|
993
|
|
|
518
|
Construction in process
|
|
|
2,176
|
|
|
6,859
|
|
|
|
|
|
|
|
$
|
49,590
|
|
$
|
31,963
|
|
|
|
|
|
The Company reviews its long-lived assets 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, an impairment loss is recognized to reduce the asset to its estimated fair
value. Otherwise, an impairment loss is not recognized. Long-lived assets to be disposed of, if any, are reported at the lower of carrying amount or fair value less cost to sell.
Goodwill represents the excess of acquisition costs over the fair value of net assets of businesses acquired. Under Statement of Financial Accounting Standards
("SFAS") No. 142, goodwill is no longer required to be amortized; however, the carrying value of goodwill must be tested annually for impairment. The Company's policy is to test goodwill in the
fourth quarter of each year unless circumstances indicate impairment during an intervening period.
54
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company accounts for purchased intangible assets, which include core technology, customer relationships, order backlog and trademarks / trade names in
accordance with SFAS No. 142. Impairment, if any, is calculated based upon management evaluation whereby, estimated undiscounted future cash flows associated with these assets or operations are
compared with their carrying value to determine if a write-down to fair value is required. Finite lived intangible assets are amortized over the estimated useful life of the related assets
which have a weighted average amortization period of 13 years in total.
The
weighted average amortization period of the intangible assets by asset category are as follows:
Core technology
|
|
20 years
|
Customer relationships
|
|
9 years
|
Trademarks / Trade names
|
|
9 years
|
Order backlog DYNAplat
|
|
within 1 year
|
The
following table presents details of intangible assets as of December 31, 2007:
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Core technology
|
|
$
|
24,653
|
|
$
|
(154
|
)
|
$
|
24,499
|
Customer relationships
|
|
|
33,263
|
|
|
(461
|
)
|
|
32,802
|
Trademarks / Trade names
|
|
|
2,685
|
|
|
(50
|
)
|
|
2,635
|
Oder backlog DYNAplat
|
|
|
2,504
|
|
|
(526
|
)
|
|
1,978
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
63,105
|
|
$
|
(1,191
|
)
|
$
|
61,914
|
|
|
|
|
|
|
|
Expected
future amortization of intangible assets is as follows:
For the years ended December 31
|
|
|
|
|
2008
|
|
$
|
7,309
|
|
2009
|
|
|
5,331
|
|
2010
|
|
|
5,307
|
|
2011
|
|
|
5,141
|
|
2012
|
|
|
5,141
|
|
Thereafter
|
|
|
33,685
|
|
|
|
|
|
$
|
61,914
|
|
|
|
Included in other assets are net deferred debt issuance costs of $1,498 as of December 31, 2007 which relate to the new syndicated credit agreement the
Company entered into for the acquisition of DYNAenergetics. These costs are being amortized over a five-year period which is the term of the syndicated credit agreement.
55
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On occasion, the Company requires customers to make advance payments prior to the shipment of their orders in order to keep customers' credit at acceptable
levels. As of December 31, 2007 and 2006, customer advances totaled $4,593 and $2,394, respectively, and originated from several customers.
Sales of clad metal products and welding services are generally based upon customer specifications set forth in customer purchase orders and require us to provide
certifications relative to metals used, services performed and the results of any non-destructive testing that the customer has requested be performed. All issues of conformity of the
product to specifications are resolved before the product is shipped and billed. Products related to the oilfield products segment, which include detonating cords, detonators,
bi-directional boosters and shaped charges, as well as, seismic related explosives and accessories, are standard in nature. In all cases, revenue is recognized only when all four of the
following criteria have been satisfied: persuasive evidence of an arrangement
exists; the price is fixed or determinable; delivery has occurred; and collection is reasonably assured. For contracts that require multiple shipments, revenue is recorded only for the units included
in each individual shipment. If, as a contract proceeds toward completion, projected total cost on an individual contract indicates a potential loss, the Company will account for such anticipated
loss.
Basic earnings per share ("EPS") is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.
Diluted EPS recognizes the potential dilutive effects of dilutive securities. The following represents a reconciliation of the numerator and denominator used in the calculation of basic and diluted
EPS:
|
|
For the year ended
December 31, 2007
|
|
|
Income
|
|
Shares
|
|
Per share Amount
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,587
|
|
12,083,851
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
Dilutive effect of options to purchase common stock
|
|
|
|
|
189,284
|
|
|
|
Dilutive effect of restricted stock awards
|
|
|
|
|
20,023
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
24,587
|
|
12,293,158
|
|
$
|
2.00
|
|
|
|
|
|
|
|
56
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
|
For the year ended
December 31, 2006
|
|
|
Income
|
|
Shares
|
|
Per share Amount
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,764
|
|
11,841,373
|
|
$
|
1.75
|
|
|
|
|
|
|
|
|
Dilutive effect of options to purchase common stock
|
|
|
|
|
371,408
|
|
|
|
Dilutive effect of restricted stock awards
|
|
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
20,764
|
|
12,213,075
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
For the year ended
December 31, 2005
|
|
|
Income
|
|
Shares
|
|
Per share Amount
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,372
|
|
11,290,053
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
Dilutive effect of options to purchase common stock
|
|
|
|
|
622,584
|
|
|
|
Dilutive effect of convertible subordinated note, net of tax
|
|
|
23
|
|
174,247
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
10,395
|
|
12,086,884
|
|
$
|
0.86
|
|
|
|
|
|
|
|
The Company uses an interest rate swap agreement to manage its interest rate risk on a significant portion of its variable rate term loan debt. The Company's
accounting method for its interest rate swap agreement involves designating the derivative arrangement as a hedge in accordance with accounting principals generally accepted in the United States and
as a result, changes in the fair vale of the swap agreement are recorded in other comprehensive income with the offset as a swap agreement asset or liability. It is the Company's policy to execute
such arrangements with creditworthy banks.
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. The majority of the Company's debt was incurred in connection with the recent acquisition of
DYNAenergetics.
57
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 7).
Nobelclad purchases explosives used in its cladding operation from Nobel Explosifs France, which was a wholly owned subsidiary of Groupe SNPE, the parent company
of SNPE who is the Company's former majority stockholder. For the period ended May 15, 2006 and the year ended December 31, 2005, these purchases totaled $406 and $820, respectively.
The
Company also has related party transactions with its unconsolidated joint ventures, as well as with the minority interest partner of its consolidated joint venture. A summary of
those transactions and
balances as of December 31, 2007 and for the period of November 16, 2007 through December 31, 2007 is summarized below:
|
|
Perfoline
|
|
DYNAenergetics RUS
|
|
KazDYNAenergetics
|
|
Minority Interest Partner
|
|
Total
|
Sales to
|
|
|
|
445
|
|
58
|
|
|
|
503
|
|
|
|
|
|
|
|
|
|
|
|
Interest income from
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and loan to
|
|
523
|
|
449
|
|
131
|
|
|
|
1,103
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and loan from
|
|
120
|
|
|
|
|
|
205
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
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. At December 31, 2007 the Company has no significant financial instruments with off-balance sheet risk of accounting losses, such
as options contracts or other foreign currency hedging arrangements.
58
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other cumulative comprehensive income as of December 31, 2007, 2006 and 2005 consisted of the following:
|
|
2007
|
|
2006
|
|
2005
|
Currency translation adjustment
|
|
$
|
3,690
|
|
$
|
1,713
|
|
$
|
485
|
Interest rate swap valuation adjustment, net of tax
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,543
|
|
$
|
1,713
|
|
$
|
485
|
|
|
|
|
|
|
|
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
("SFAS 157").
SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about
fair value measurements. SFAS No. 157 was initially effective for financial statements issued for fiscal years beginning after November 15, 2007. The FASB issued a staff position
statement ("FSP") in February 2008 that defers the required interpretation date of SFAS 157 for certain assets and liabilities. Any amounts recognized upon adoption as a cumulative effect
adjustment will be recorded to the opening balance of retained earnings in the year of adoption. The Company is in the process of determining the effect, if any, the adoption of SFAS 157 will
have on its results of operations or financial position.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement
No. 115." This Statement permits entities to measure many financial instruments and certain other items at fair value. This election is made on an
instrument-by-instrument basis and is irrevocable. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This
statement is effective for fiscal years beginning after November 15, 2007. The Company did not elect the fair value option for any of its existing financial assets and liabilities.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
and SFAS No. 160,
Accounting and Reporting of Noncontrolling Interest in Consolidated Financial
Statements
, an amendment of ARB No. 51. These new standards will
significantly change the accounting for and reporting of business combination transactions and noncontrolling (minority) interests in consolidated financial statements. SFAS Nos. 141(R) and 160
are required to be adopted simultaneously and are effective for the first annual reporting period beginning on or after December 15, 2008. Thus, we are required to adopt these Standards on
January 1, 2009. Earlier adoption is prohibited. The Company is in the process of determining the effect, if any, the adoption SFAS Nos. 141(R) and 160 will have on its results of
operations or financial position.
Certain prior year balances in the consolidated financial statements and notes have been reclassified to conform to the 2007 presentation.
59
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(3) ACQUISITION
As discussed in Note 1, the Company completed its acquisition of DYNAenergetics on November 15, 2007. DYNAenergetics manufacturers clad metal plates
and various explosives-related oilfield products and operates under two business segments: Explosive Metalworking and Oilfield Products. The acquisition enhances the Company's ability to address
growing worldwide demand for clad metal plates and expands the Company's position in the global explosion welding market. The addition of the Oilfield Products business segment will augment the
Company's involvement in specialized explosive manufacturing processes and position the Company within the growing international oil and gas services industry.
As
part of the Oilfield Products business segment, the Company has several joint ventures, most of which are unconsolidated and accounted for under the equity method (see Note 4).
The
acquisition was valued at $112,144 and was financed by (i) the payment of $81,224 in cash, net of cash acquired of $1,870 and transaction related taxes of $3,708
(2,530 Euros) due from one of the sellers and withheld by the Purchaser, (ii) the issuance of 251,041 shares of common stock of the Company (valued at $13,509), and (iii) the
assumption of approximately $11,833 (8,074 Euros) of DYNAenergetics debt. The cash portion of the purchase price was financed using proceeds from the new syndicated credit agreement (see
Note 5) and existing available cash.
The
purchase price of the acquisition was allocated to the Company's tangible and identifiable intangible assets based on their estimated fair values as set forth below. Property, plant
and equipment were recorded at fair values based on appraisals performed as of the acquisition date. The preliminary allocation to identifiable intangible assets was based on preliminary valuation
data and the estimates and assumptions are subject to change. The excess of the purchase price over the tangible and identifiable intangible assets was recorded as goodwill. The Company is still in
the process of analyzing other potential purchase accounting adjustments including compiling remaining acquisition related
60
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(3) ACQUISITION (Continued)
expenses.
The preliminary allocation of the purchase price to the assets and liabilities of DYNAenergetics is as follows:
Current assets
|
|
$
|
30,222
|
Property, plant and equipment
|
|
|
7,845
|
Intangible assets
|
|
|
62,794
|
Goodwill
|
|
|
45,143
|
Investment in joint ventures
|
|
|
1,324
|
Other assets
|
|
|
11
|
|
|
|
|
Total assets acquired
|
|
|
147,339
|
Current liabilities
|
|
|
14,239
|
Long term debt
|
|
|
11,833
|
Deferred tax liabilities
|
|
|
19,850
|
Other long term liabilities
|
|
|
1,096
|
Minority interest
|
|
|
10
|
|
|
|
|
Total liabilities acquired
|
|
|
47,028
|
|
|
|
Net assets acquired
|
|
$
|
100,311
|
|
|
|
The
Company acquired identifiable finite-lived intangible assets as a result of the acquisition of DYNAenergetics. The finite-lived intangible assets acquired are preliminarily
classified and valued as follows:
|
|
Value
|
|
Weighted Average Amortization Period
|
Core technology
|
|
$
|
24,531
|
|
20 years
|
Customer relationships
|
|
|
33,099
|
|
9 years
|
Trademarks / Trade names
|
|
|
2,672
|
|
9 years
|
Order backlog DYNAplat
|
|
|
2,492
|
|
Within 1 year
|
|
|
|
|
|
Total intangible assets
|
|
$
|
62,794
|
|
|
|
|
|
|
|
These
amounts are included in Intangible Assets and further discussed in Note 2.
The
Company acquired Goodwill in the amount of $45,143 as a result of the acquisition of DYNAenergetics. The amount of goodwill assigned to each reportable segment is as follows:
|
|
Value
|
Explosive Metalworking
|
|
$
|
24,669
|
Oilfield Products
|
|
|
20,474
|
|
|
|
Total intangible assets
|
|
$
|
45,143
|
|
|
|
61
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(3) ACQUISITION (Continued)
The
following table presents the pro-forma combined results of operations assuming (i) the acquisition had occurred on January 1, 2007 and January 1,
2006; (ii) pro-forma amortization expense of the purchased intangible assets and (iii) pro-forma interest expense assuming the Company utilized its syndicated
credit agreement to finance the acquisition:
|
|
(Unaudited)
|
|
|
For the year ended December 31,
|
|
|
2007
|
|
2006
|
Net sales
|
|
$
|
222,004
|
|
$
|
152,299
|
|
|
|
|
|
Income from operations of continuing operations
|
|
$
|
43,229
|
|
$
|
30,054
|
|
|
|
|
|
Net income
|
|
$
|
24,676
|
|
$
|
16,385
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.01
|
|
$
|
1.35
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.97
|
|
$
|
1.31
|
|
|
|
|
|
The
pro-forma results above are not necessarily indicative of the operating results that would have actually occurred if the acquisition had been in effect on the dates
indicated, nor are they necessarily indicative of future results of the combined companies.
(4) INVESTMENT IN JOINT VENTURES
Operating results include the Company's proportionate share of income from joint ventures, which consist of unconsolidated joint ventures accounted for under the
equity method. These investments (all of which resulted from the acquisition of DYNAenergetics and pertain to the Company's Oilfield Products business segment) include the following: (1) 53.5%
interest in Perfoline, which is a Russian manufacturer of perforating gun systems; (2) 55% interest in DYNAenergetics RUS which is a Russian trading company that sells the Company's oilfield
products and (3) 60% interest in KazDYNAenergetics which is a Kazakhstan trading company that sells the Company's oilfield products. Due to certain minority interest veto rights that
effectively require the minority interest shareholders to participate in ordinary course of business decisions, these joint ventures have been accounted for under the equity method instead of being
consolidated in these financial statements. Investments in these joint ventures totaled $1,361 as of December 31, 2007.
62
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(4) INVESTMENT IN JOINT VENTURES (Continued)
Summarized unaudited financial information for the joint ventures accounted for under the equity method as of December 31, 2007 and for the period from
November 15, 2007 through December 31, 2007 is as follows:
Current assets
|
|
$
|
4,148
|
Noncurrent assets
|
|
|
666
|
|
|
|
Total assets
|
|
$
|
4,814
|
|
|
|
Current liabilities
|
|
$
|
1,400
|
Noncurrent liabilities
|
|
|
1,048
|
Equity
|
|
|
2,366
|
|
|
|
Total liabilities and equity
|
|
$
|
4,814
|
|
|
|
Net sales
|
|
$
|
1,377
|
|
|
|
Operating income
|
|
$
|
199
|
|
|
|
Net income
|
|
$
|
135
|
|
|
|
Equity in earnings of joint ventures
|
|
$
|
24
|
|
|
|
(5) DEBT
Lines of credit consist of the following at December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
Commerzbank revolving line of credit
|
|
$
|
3,225
|
|
$
|
|
Commerzbank line of credit
|
|
|
1,473
|
|
|
|
Deutsche Bank revolving line of credit
|
|
|
680
|
|
|
|
Nord LB line of credit
|
|
|
2,209
|
|
|
|
|
|
|
|
|
|
|
|
7,587
|
|
|
|
Less current portion
|
|
|
(7,587
|
)
|
|
|
|
|
|
|
|
Long-term lines of credit
|
|
$
|
|
|
$
|
|
|
|
|
|
|
63
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(5) DEBT (Continued)
Long-term
debt consists of the following at December 31, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Syndicated credit agreement term loan
|
|
$
|
45,000
|
|
$
|
|
|
Syndicated credit agreement Euro term loan
|
|
|
20,621
|
|
|
|
|
Euro term loanFrench bank
|
|
|
427
|
|
|
764
|
|
Nord LB 3,000 Euro term loan
|
|
|
3,314
|
|
|
|
|
Nord LB 500 Euro term loan
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69,565
|
|
|
764
|
|
Less current maturities
|
|
|
(8,035
|
)
|
|
(382
|
)
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
61,530
|
|
$
|
382
|
|
|
|
|
|
|
|
In connection with its November 15, 2007 acquisition of DYNAenergetics, the Company assumed four lines of credit with three German banks. These lines of
credit provide total borrowing capacity of 7,500 Euros and are also used by the Company to issue bank guarantees to its customers to secure advance payment made by them. These lines of credit
had borrowings totaling $7,587 outstanding as of December 31, 2007. Bank guarantees outstanding as of December 31, 2007 totaled 857 Euros ($1,261
based upon the December 31, 2007 exchange rate). Two of the lines of credit bear interest at EURIBOR based variable rates with a weighted average interest rate at December 31, 2007 of
7.71%. The remaining two lines of credit bear interest at fixed rates with a weighted average interest rate at December 31, 2007 of 6.33%. Two of the lines of credit (with 2,000 Euros in
borrowing capacity and 1,961 Euros ($2,889) outstanding as December 31, 2007) have open-ended terms but can be cancelled by the banks at any time. The remaining lines of
credit expire in 2008.
The Company had a $10,000 credit facility with Wells Fargo Bank, National Association. Borrowings under the credit facility carried interest at either the Bank's
prime rate less 0.5% or LIBOR plus 2% and were secured by accounts receivable, inventory and any equipment acquired after the date of the agreement. This credit facility was terminated on
November 15, 2007 when the Company entered into the new syndicated credit agreement.
The Company maintains a 4,000 Swedish Krona line of credit ($625 based upon the December 31, 2007 exchange rate) with a Swedish bank for its Nitro Metall
operations. As of December 31, 2007 and 2006, there were no outstanding borrowings under this line of credit. Borrowings under the line of credit are secured by real estate used in Nitro
Metall's operations. This line of credit carries an interest rate equal to the basic rate stipulated by the Central Bank of Sweden ("Repo Rate"), which was 4.0% as of December 31, 2007.
Consistent with previous years, the line of credit expired on December 31, 2007 and was renewed on January 1, 2008 for an additional one- year term.
64
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(5) DEBT (Continued)
In connection with the acquisition of DYNAenergetics, the Company entered into a five-year syndicated credit agreement on November 15, 2007.
The credit agreement, which provides for term loans of $45,000 and 14,000 Euros and revolving loans of $25,000 and
7,000 Euros, is through a syndicate of seven banks, with JP Morgan Chase Bank, N.A. acting as administrative agent for the U.S. Dollar loans and JP Morgan Europe Ltd. acting as
administrative agent for the Euro loans. The credit facility expires on November 16, 2012.
U.S.
Dollar Loans: At the Company's option, borrowings under the $45,000 term loan and the $25,000 revolving loan can be in the form of Alternate Base Rate loans ("ABR" borrowings are
based on the greater of adjusted Prime rates, adjusted CD rates or adjusted Federal Funds rates) or one, two, three, or six month LIBOR loans. ABR loans bear interest at the defined ABR rate plus .25%
(at the Company's current leverage ratio) and LIBOR loans bear interest at the applicable LIBOR rate plus 1.75% (at the Company's current leverage ratio). As of December 31, 2007, all
borrowings under the $45,000 term loan are set with the one month LIBOR option bearing interest at an all-in rate of 6.78%. The $45,000 term loan requires annual minimum principal payments
beginning with $4,500 due on November 16, 2008 and ending with $18,000 due on November 16, 2012. As of December 31, 2007, there were no borrowings under the $25,000 revolving
loan.
Euro
Loans: At the Company's option, borrowings under the 14,000 Euro term loan and 7,000 Euro revolving loan can be based on one, two, three, or six month EURIBOR rates
and bear interest at the applicable EURIBOR rate plus 1.75% (at the Company's current leverage ratio). As of December 31, 2007, the borrowings under the Euro term loan are based on the one
month EURIBOR option bearing interest at an all-in rate of 6.688%. The Euro term loan requires annual minimum principal payments beginning with 1,400 Euros due on
November 16, 2008 with a final payment of 5,600 Euros due on November 16, 2012. As of December 31, 2007, there were no borrowings under the 7,000 Euro revolving
loan.
The
$45,000 and 14,000 Euro term loans are both subject to additional formula-based annual principal payments if certain excess cash flow measures are met.
The
syndicated credit facility is secured by the assets of the Company including accounts receivable, inventory and fixed assets.
In June 2001, Nobelclad obtained a term loan from a French bank that provided for borrowings of 1,448 Euros, of which 290 Euros ($427) was
outstanding as of December 31, 2007. Borrowings under the term loan bear interest at EURIBOR plus 0.4%. The interest rate on outstanding borrowings as of December 31, 2007 was 4.54%. The
final annual principal payment is due in June 2008.
In connection with its November 15, 2007 acquisition of DYNAenergetics, the Company assumed two Euro term loans with Nord LB. The first is a
3,000 Euro ($4,419 based on the December 31, 2007
65
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(5) DEBT (Continued)
exchange
rate) term loan that DYNAenergetics obtained in September 2006. This loan, which bears interest at a fixed rate of 5.375%, requires quarterly principal payments of 150 Euros ($221
based on the December 31, 2007 exchange rate) plus interest and matures with the final payment in September, 2011 Borrowings outstanding under this term loan agreement totaled $3,314 as of
December 31, 2007. DYNAenergetics obtained a second term loan from Nord LB for 500 Euros ($736 based on the December 31, 2007 exchange rate) in February 2003. The term loan bears
interest at a fixed rate of 5.57% and requires quarterly principal and interest payments of 29 Euros ($43 based on the December 31, 2007 exchange rate) through February 2009. Borrowings
outstanding under this term loan agreement totaled $203 as of December 31, 2007.
The Company's existing loan agreements include various covenants and restrictions, certain of which relate to the incurrence of additional indebtedness,
mortgaging, pledging or disposition of major assets, limits on capital expenditures and maintenance of specified financial ratios. As of December 31, 2007, the Company was in compliance with
all financial covenants and other provisions of its debt agreements.
On November 15, 2007, the Company entered into an interest rate swap agreement that effectively converted the LIBOR based variable rate borrowings under
the $45,000 term loan to a fixed rate of 6.34%. The Company has designated the swap agreement as an effective cash flow hedge with matched terms in accordance with SFAS No. 133,
Accounting for Derivative Instruments and
Hedging Activities,
and as a result, changes in the fair value of the swap agreement are recorded in other
comprehensive income with the offset as a swap agreement asset or liability. As of December 31, 2007, the fair value of swap agreement was a liability of $237. The swap agreement expires on
November 16, 2008.
The Company's debt matures as follows:
Year ended December 31
|
|
|
|
|
2008
|
|
|
15,622
|
|
2009
|
|
|
10,768
|
|
2010
|
|
|
10,727
|
|
2011
|
|
|
13,787
|
|
2012
|
|
|
26,248
|
|
|
|
|
|
$
|
77,152
|
|
|
|
(6) STOCK OWNERSHIP AND BENEFIT PLANS
Through its 1997 Equity Incentive Plan ("1997 Plan"), the Company had provided for grants of both incentive stock options and non-statutory stock
options. On September 21, 2006, the Company's
66
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(6) STOCK OWNERSHIP AND BENEFIT PLANS (Continued)
stockholders
approved, and the Company adopted, the 2006 Stock Incentive Plan ("2006 Plan"). Upon the adoption of the 2006 Plan, the 1997 Plan was terminated with respect to new grants of stock
options; however, all unexercised options previously granted under the 1997 Plan remain outstanding. The 2006 Plan provides for the grant of various types of equity-based incentives, including stock
options, restricted stock, restricted stock units, stock appreciation rights, performance shares, performance units and other stock-based awards. There are a total of 942,500 shares available for
grant under the 2006 Plan (which includes 92,500 rolled over from the 1997 Plan). As of December 31, 2007, the only awards granted under the 2006 Plan were 86,750 shares of restricted stock
leaving 855,750 shares available for future grant.
Prior
to January 1, 2006, the Company accounted for its stock-based compensation plan under the recognition and measurement provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related interpretations, as permitted by Statement of Financial Accounting Standards No. 123,
Accounting and Disclosure of Stock-Based
Compensation
("SFAS 123"). Accordingly, no stock-based compensation expense was recognized in the
Consolidated Statements of Operations for the full year 2005 because the options granted under the Company's stock-based compensation plan had exercise prices equal to the market value of the
underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards No. 123
(revised 2004),
Share-Based Payment
("SFAS 123R") using the modified prospective transition method. Under the transition method, compensation
cost recognized in the full year 2007 and 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested, as of January 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to January 1,
2006, based on the grant date fair value estimated in accordance with SFAS 123R.
Prior
to the adoption of SFAS 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Consolidated
Statements of Cash Flows. SFAS 123R requires tax benefits resulting from deductions in excess of the compensation cost recognized for those options ("excess tax benefits") to be classified as
financing cash flows. The $402
and $1,154 of excess tax benefit classified as a financing cash inflow in the Consolidated Statements of Cash Flows for the years ended December 31, 2007 and 2006, respectively, would have been
classified as an operating cash inflow if the Company had not adopted SFAS 123R.
The
following table sets forth the total stock-based compensation expense included in the Consolidated Statements of Operations as a result of adopting SFAS 123R on
January 1, 2006, and the
67
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(6) STOCK OWNERSHIP AND BENEFIT PLANS (Continued)
related
decrease in pretax income and net income and earnings per share compared to what it would have reported had it continued to account for stock-based compensation under APB 25:
|
|
2007
|
|
2006
|
|
Cost of products sold
|
|
$
|
168
|
|
$
|
71
|
|
General and administrative expense
|
|
|
888
|
|
|
493
|
|
Selling expense
|
|
|
245
|
|
|
96
|
|
|
|
|
|
|
|
Stock-based compensation expense before income taxes
|
|
|
1,301
|
|
|
660
|
|
Income tax benefit
|
|
|
(232
|
)
|
|
(148
|
)
|
|
|
|
|
|
|
Stock-based compensation expense, net of income taxes
|
|
$
|
1,069
|
|
$
|
512
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
Basicincome before income taxes
|
|
$
|
0.11
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
Basicnet income
|
|
$
|
0.09
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
Dilutedincome before income taxes
|
|
$
|
0.11
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
Dilutednet income
|
|
$
|
0.09
|
|
$
|
0.04
|
|
|
|
|
|
|
|
The
following table illustrates the effect on net income and basic and diluted earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based compensation for the year ended December 31, 2005. For purposes of this pro forma disclosure, the value of the options is estimated using a Black-Scholes option-pricing model and
amortized to expense over the options' vesting periods. The following assumptions were used in the options pricing model for the year ended December 31, 2005: a risk free interest rate of 3.7%;
an expected volatility factor of 91.1%; an expected dividend yield of 0.5%; and an expected life of 4 years.
|
|
2005
|
|
Net income-as reported
|
|
$
|
10,372
|
|
Deduct stock-based compensation expense determined under fair value method, net of related tax effects
|
|
|
(481
|
)
|
|
|
|
|
Pro forma net income
|
|
$
|
9,891
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basicas reported
|
|
$
|
0.92
|
|
|
|
|
|
|
Basicpro forma
|
|
$
|
0.88
|
|
|
|
|
|
|
Dilutedas reported
|
|
$
|
0.86
|
|
|
|
|
|
|
Dilutedpro forma
|
|
$
|
0.82
|
|
|
|
|
|
The
Company's stock-based compensation expense results from stock option grants, restricted stock awards and stock issued under the Employee Stock Purchase Plan.
68
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(6) STOCK OWNERSHIP AND BENEFIT PLANS (Continued)
Stock
Options: Under the 1997 Plan, incentive stock options were granted at exercise prices that equaled the fair market value of the stock at the date of grant based upon the closing
sales price of the Company's common stock on that date. Incentive stock options generally vested 25% annually and expired ten years from the date of grant. Non-statutory stock options were
generally granted at exercise prices that equaled the fair market value of the stock at the date of grant. These options vested over periods ranging from one to four years and had expiration dates ten
years from the date of grant. As of December 31, 2007, no options have been granted under the 2006 Plan.
The
fair value for the single option award granted since January 1, 2006 was estimated on the date of grant using a Black-Scholes option-pricing model with the following
assumptions: a risk free interest rate of 4.35%; an expected volatility factor of 86.6%; an expected dividend yield of .375%; and an expected life of 4 years. The computation of expected
volatility is based on historical volatility from the past four years, based on the current expected life of outstanding options. The computation of expected life is based on historical exercise
patterns. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of the option granted during
the year ended December 31, 2006 was $22.30. Each grant is valued as a single award and compensation expense is recognized on a straight-line basis over the vesting period. In
accordance with the modified prospective transition method, results for prior periods have not been restated.
A
summary of stock option activity for the years ended December 31, 2007, 2006 and 2005 is as follows:
|
|
Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
Balance at December 31, 2004
|
|
1,052,922
|
|
$
|
1.89
|
|
|
|
|
|
Granted
|
|
246,754
|
|
|
9.39
|
|
|
|
|
|
Exercised
|
|
(707,250
|
)
|
|
2.10
|
|
|
|
|
|
Cancelled
|
|
(4,000
|
)
|
|
4.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
588,426
|
|
$
|
4.77
|
|
|
|
|
|
Granted
|
|
20,000
|
|
|
35.21
|
|
|
|
|
|
Exercised
|
|
(167,400
|
)
|
|
2.99
|
|
|
|
|
|
Cancelled
|
|
(74,426
|
)
|
|
12.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
366,600
|
|
$
|
5.76
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(160,600
|
)
|
|
4.65
|
|
|
|
|
|
Cancelled
|
|
(15,000
|
)
|
|
35.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
191,000
|
|
$
|
4.39
|
|
6.59
|
|
$
|
10,412
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
105,000
|
|
$
|
3.99
|
|
6.20
|
|
$
|
5,766
|
|
|
|
|
|
|
|
|
|
The
intrinsic value of options exercised for the years ended December 31, 2007, 2006 and 2005 was $5,220, $5,141 and $11,256, respectively. As of December 31, 2007, there
was $374 of total
69
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(6) STOCK OWNERSHIP AND BENEFIT PLANS (Continued)
unrecognized
stock-based compensation cost related to unvested stock options. The cost is expected to be recognized over a weighted average period of 0.56 years.
The
following table summarizes information about employee stock options outstanding and exercisable at December 31, 2007:
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Exercise Prices
|
|
Number of
Options
Outstanding at
December 31, 2007
|
|
Weighted Average Remaining
Contractual Life
in Years
|
|
Weighted Average
Exercise Price
|
|
Number
Exercisable at
December 31, 2007
|
|
Weighted Average
Exercise Price
|
$1.13 - $1.42
|
|
50,750
|
|
5.60
|
|
$
|
1.33
|
|
50,750
|
|
$
|
1.33
|
$1.48 - $1.68
|
|
21,250
|
|
6.14
|
|
$
|
1.56
|
|
21,250
|
|
$
|
1.56
|
$4.87 - $4.87
|
|
109,000
|
|
7.06
|
|
$
|
4.87
|
|
23,000
|
|
$
|
4.87
|
$20.62 - $20.62
|
|
10,000
|
|
7.42
|
|
$
|
20.62
|
|
10,000
|
|
$
|
20.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,000
|
|
6.59
|
|
$
|
4.39
|
|
105,000
|
|
$
|
3.99
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock Awards: Restricted stock granted to the executive officers and employees of the Company vests in one-third increments on the first, second and third
anniversary of the grant. Restricted stock granted to directors of the Company vests on the date of the second annual meeting following the date of grant. The fair value of the restricted stock awards
is based on the fair value of the Company's stock on the date of grant and is amortized to compensation expense over the vesting period on a straight line basis.
A
summary of the status of our nonvested shares of restricted stock as of December 31, 2007, and the changes during the year ended December 31, 2007 was as follows:
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Balance at December 31, 2006
|
|
52,250
|
|
$
|
33.27
|
Granted
|
|
34,500
|
|
|
35.92
|
Vested
|
|
(15,094
|
)
|
|
33.19
|
Forfeited
|
|
(2,000
|
)
|
|
32.24
|
|
|
|
|
|
Balance at December 31, 2007
|
|
69,656
|
|
$
|
34.63
|
|
|
|
|
|
As
of December 31, 2007, there was $1,836 of total unrecognized stock-based compensation related to unvested restricted stock awards. The cost is expected to be recognized over a
weighted average period of 1.14 years.
The Company has an Employee Stock Purchase Plan ("ESPP") which is authorized to issue up to 450,000 shares of which 60,351 shares remain available for future
purchases. The offerings begin on the
70
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(6) STOCK OWNERSHIP AND BENEFIT PLANS (Continued)
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, 5,628, 3,429 and 10,794 shares of the Company's stock were purchased during the years ended December 31, 2007, 2006 and
2005, respectively. The Company's total stock-based compensation expense for 2007 and 2006 includes $46 and $28 respectively, in compensation expense associated with the ESPP. The pro forma net income
calculation shown above reflects $35 in compensation expense associated with the ESPP for 2005.
The Company offers a contributory 401(k) plan to its employees. The Company makes matching contributions equal to 100% of each employee's contribution up to 3%
and 50% of the next 2% contributed by each employee. Total Company contributions were $287, $217 and $184 for the years ended December 31, 2007, 2006 and 2005, respectively.
(7) INCOME TAXES
The domestic and foreign components of income before tax for the Company's continuing operations for the years ended December 31 are summarized below:
|
|
2007
|
|
2006
|
|
2005
|
Domestic
|
|
$
|
32,551
|
|
$
|
20,638
|
|
$
|
10,530
|
Foreign
|
|
|
6,169
|
|
|
9,970
|
|
|
5,075
|
|
|
|
|
|
|
|
|
|
$
|
38,720
|
|
$
|
30,608
|
|
$
|
15,605
|
|
|
|
|
|
|
|
The
components of the provision for income taxes for the Company's continuing operations for the years ended December 31 are as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
CurrentFederal
|
|
$
|
10,641
|
|
$
|
5,341
|
|
$
|
4,631
|
|
CurrentState
|
|
|
1,592
|
|
|
783
|
|
|
349
|
|
CurrentForeign
|
|
|
2,271
|
|
|
3,182
|
|
|
1,705
|
|
|
|
|
|
|
|
|
|
|
|
|
14,504
|
|
|
9,306
|
|
|
6,685
|
|
DeferredFederal
|
|
|
(105
|
)
|
|
1,922
|
|
|
(1,283
|
)
|
DeferredState
|
|
|
(23
|
)
|
|
121
|
|
|
(183
|
)
|
DeferredForeign
|
|
|
(229
|
)
|
|
(8
|
)
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
(357
|
)
|
|
2,035
|
|
|
(1,452
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
14,147
|
|
$
|
11,341
|
|
$
|
5,233
|
|
|
|
|
|
|
|
|
|
71
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(7) INCOME TAXES (Continued)
A
reconciliation of the Company's income tax provision for continuing operations computed by applying the Federal statutory income tax rate of 35% in 2007, 2006 and 2005 to income before
taxes for the years ended December 31 is as follows:
|
|
2007
|
|
2006
|
|
2005
|
|
Federal income tax at statutory rate
|
|
$
|
13,552
|
|
$
|
10,713
|
|
$
|
5,463
|
|
State tax items, net
|
|
|
1,030
|
|
|
629
|
|
|
523
|
|
Effect of difference between U.S. Federal and Foreign tax rates
|
|
|
131
|
|
|
(217
|
)
|
|
(119
|
)
|
Permanent differences
|
|
|
(198
|
)
|
|
245
|
|
|
924
|
|
Tax on foreign dividend received
|
|
|
|
|
|
634
|
|
|
|
|
Tax credits related to the amendment of prior year tax returns
|
|
|
|
|
|
|
|
|
(706
|
)
|
Current year tax credits
|
|
|
(177
|
)
|
|
(635
|
)
|
|
(934
|
)
|
Changes in valuation allowance
|
|
|
(82
|
)
|
|
(2
|
)
|
|
177
|
|
Other
|
|
|
(109
|
)
|
|
(26
|
)
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
14,147
|
|
$
|
11,341
|
|
$
|
5,233
|
|
|
|
|
|
|
|
|
|
72
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(7) INCOME TAXES (Continued)
The
Company's deferred tax assets and liabilities at December 31, 2007 and 2006 consist of the following:
|
|
2007
|
|
2006
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Income tax credit carryforward
|
|
$
|
417
|
|
$
|
115
|
|
|
State net operating loss carryforward
|
|
|
404
|
|
|
42
|
|
|
Inventory and repair reserve
|
|
|
47
|
|
|
76
|
|
|
Allowance for doubtful accounts
|
|
|
114
|
|
|
98
|
|
|
Equity compensation
|
|
|
225
|
|
|
100
|
|
|
Vacation and other compensation accrual
|
|
|
334
|
|
|
357
|
|
|
Capital lease obligations
|
|
|
281
|
|
|
|
|
|
Other
|
|
|
261
|
|
|
177
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
2,083
|
|
|
965
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Purchased intangible assets
|
|
|
(19,175
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
(1,605
|
)
|
|
(1,129
|
)
|
|
Investment in joint ventures
|
|
|
(464
|
)
|
|
|
|
|
Foreign income taxable in future periods
|
|
|
(147
|
)
|
|
(105
|
)
|
|
Deferred profit
|
|
|
(414
|
)
|
|
(360
|
)
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
(21,805
|
)
|
|
(1,594
|
)
|
|
|
|
|
|
|
Net deferred tax assets / (liabilities)
|
|
|
(19,722
|
)
|
|
(629
|
)
|
Valuation allowance
|
|
|
(112
|
)
|
|
(175
|
)
|
|
|
|
|
|
|
Net deferred tax assets / (liabilities)
|
|
$
|
(19,834
|
)
|
$
|
(804
|
)
|
|
|
|
|
|
|
Net current deferred tax assets / (liabilities)
|
|
$
|
728
|
|
$
|
708
|
|
Net long-term deferred tax assets / (liabilities)
|
|
|
(20,562
|
)
|
|
(1,512
|
)
|
|
|
|
|
|
|
Net deferred tax assets / (liabilities)
|
|
$
|
(19,834
|
)
|
$
|
(804
|
)
|
|
|
|
|
|
|
As
a result of stock option activity in 2007, 2006 and 2005, the Company recorded tax benefits of $402, $1,154 and $3,728, respectively, directly to additional paid in capital. Thus,
these tax benefits, which reduce taxes currently payable, are not reflected in the current income tax provision for those years.
During
the year ended December 31, 2005, the Company completed an analysis of prior year tax credits and related items. As a result of the analysis, the Company filed amended
federal and state income tax returns. The amended state returns reported additional net operating losses and credits above the
amounts the Company had previously recorded on its books and records. In assessing these additional losses and credits, the Company determined that the utilization of a portion of these was not
probable, due to potential changes in the states in which the Company has income tax nexus. Thus, the Company recorded a net valuation allowance of approximately $177 against the deferred tax assets
during the year ended December 31, 2005. As of December 31, 2007, the balance of this valuation allowance is $112.
73
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(7) INCOME TAXES (Continued)
As of December 31, 2007 and 2006, income considered to be permanently reinvested in non-U. S. subsidiaries totaled approximately $9,709 and
$11,284, respectively. Deferred income taxes have not been provided on this undistributed income, as the Company does not plan to initiate any action that would require the payment of U. S. income
taxes on these earnings. It is not practical to estimate the amount of additional taxes that might be payable on these amounts of undistributed foreign income. As a result of providing current Federal
and state income taxes on the remaining undistributed foreign earnings as of December 31, 2007 and 2006, $43 and $105 are included in permanent differences reported in the above income tax rate
reconciliations for 2007 and 2006, respectively.
The
components of the income tax credit carryforward as of December 31, 2007 are foreign tax credits of $370 (which, if unused, expire between 2012 and 2016) and research related
state tax credits of $47 (which expire beginning in 2013). The components of the income tax credit carryforward as of December 31, 2006 are foreign tax credits of $397 (which, if unused, expire
in 2012 and 2013) and research related tax credits of $107 (which expire beginning in 2013), net of reserves of $389 against prior research related federal and state credits.
As
of December 31, 2007, the Company has state net operating loss carryforwards of approximately 1,800. Portions of these carryforwards, if unused, will expire beginning at the
end of 2010 with the last portion due to expire in 2023.
On
January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxesan interpretation of FASB No. 109 ("FIN 48"), which clarifies the accounting and disclosure for uncertainty in tax positions. FIN 48 seeks to harmonize certain
accounting practices associated with the recognition and measurement of income taxes. As a result of the implementation of FIN 48, the Company recognized no material adjustment in the liability
for unrecognized income tax benefits. On the adoption date of January 1, 2007, the Company had $394 of unrecognized tax benefits, all of which would affect our effective tax rate if recognized.
At December 31, 2007, the balance of unrecognized tax benefits is $389, and primarily relates to uncertain U.S. Federal tax positions. The unrecognized tax benefits have been reclassified from
deferred tax liabilities to other long-term liabilities in 2007. The Company has identified no uncertain tax position for which it is reasonably possible that the total amount of
unrecognized tax benefits will significantly increase or decrease within the 12 months following the date of adoption of FIN 48.
The
Company recognizes interest and penalties related to uncertain tax positions in operating expense. As of December 31, 2007, the Company's accrual for interest and penalties
related to uncertain tax positions is insignificant.
The
Company's U.S. Federal tax returns for the tax years 2004-2007 remain open to examination while most of the Company's state tax returns remain open to examination for the
tax years 2002-2007. The Company's foreign tax returns remain open to examination for the tax years 2004-2007 in France and 2002-2007 in Sweden.
74
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(8) BUSINESS SEGMENTS
Following the November 15, 2007 acquisition of DYNAenergetics, the Company is organized in the following three segments: Explosive Metalworking, Oilfield
Products and AMK Welding. The Explosive Metalworking segment uses explosives to perform metal cladding and shock synthesis of industrial diamonds. The most significant product of this group is clad
metal which is used in the fabrication of pressure vessels, heat exchangers and transition joints for various industries, including upstream oil and gas, oil refinery, petrochemicals, hydrometallurgy,
aluminum production, shipbuilding, power generation, industrial refrigeration and similar industries. The Oilfield Products segment manufactures, markets and sells oilfield perforating equipment and
explosives, including detonating cords, detonators, bi-directional boosters and shaped charges, and seismic related explosives and accessories. AMK Welding utilizes a number of welding
technologies to weld components for manufacturers of jet engine and ground-based turbines.
The
accounting policies of all the segments are the same as those described in the summary of significant accounting policies. The Company's reportable segments are separately managed
strategic business units that offer different products and services. Each segment's products are marketed to different customer types and require different manufacturing processes and technologies.
75
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(8) BUSINESS SEGMENTS (Continued)
Segment
information is presented for the years ended December 31, 2007, 2006 and 2005 as follows:
|
|
Explosive Metalworking Group
|
|
Oilfield Products
|
|
AMK Welding
|
|
Total
|
|
As of and for the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
155,438
|
|
$
|
2,545
|
|
$
|
7,192
|
|
$
|
165,175
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
2,591
|
|
$
|
451
|
|
$
|
305
|
|
$
|
3,347
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations of continuing operations
|
|
$
|
38,902
|
|
$
|
(126
|
)
|
$
|
1,417
|
|
$
|
40,193
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of joint ventures
|
|
$
|
|
|
$
|
24
|
|
$
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
(1,301
|
)
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
(172
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
(722
|
)
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
|
|
|
|
|
|
|
|
|
$
|
38,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
146,348
|
|
$
|
74,190
|
|
$
|
6,031
|
|
$
|
226,569
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
9,045
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
|
Prepaid expenses and other assets
|
|
|
|
|
|
|
|
|
|
|
|
4,144
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
|
|
|
|
|
|
|
|
|
$
|
240,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
7,196
|
|
$
|
92
|
|
$
|
1,691
|
|
$
|
8,979
|
|
|
|
|
|
|
|
|
|
|
|
76
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(8) BUSINESS SEGMENTS (Continued)
|
|
Explosive
Metalworking Group
|
|
AMK Welding
|
|
Total
|
|
As of and for the year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
108,362
|
|
$
|
5,110
|
|
$
|
113,472
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
1,150
|
|
$
|
219
|
|
$
|
1,369
|
|
|
|
|
|
|
|
|
|
Income from operations of continuing operations
|
|
$
|
29,605
|
|
$
|
1,158
|
|
$
|
30,763
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
(660
|
)
|
|
Other expense
|
|
|
|
|
|
|
|
|
(115
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(84
|
)
|
|
Interest income
|
|
|
|
|
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
|
|
|
|
|
|
$
|
30,608
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
57,271
|
|
$
|
4,618
|
|
$
|
61,889
|
|
|
|
|
|
|
|
|
|
|
Assets not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
17,886
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
3,059
|
|
|
Prepaid expenses and other assets
|
|
|
|
|
|
|
|
|
1,431
|
|
|
Current deferred tax assets
|
|
|
|
|
|
|
|
|
708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
|
|
|
|
|
|
$
|
84,973
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
7,342
|
|
$
|
1,308
|
|
$
|
8,650
|
|
|
|
|
|
|
|
|
|
77
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(8) BUSINESS SEGMENTS (Continued)
|
|
Explosive
Metalworking Group
|
|
AMK
Welding
|
|
Total
|
|
As of and for the year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
75,582
|
|
$
|
3,709
|
|
$
|
79,291
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
1,328
|
|
$
|
199
|
|
$
|
1,527
|
|
|
|
|
|
|
|
|
|
Income from operations of continuing operations
|
|
$
|
15,160
|
|
$
|
608
|
|
$
|
15,768
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated amounts:
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(219
|
)
|
|
Interest income
|
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
|
|
|
|
|
|
$
|
15,605
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
$
|
37,940
|
|
$
|
2,949
|
|
$
|
40,889
|
|
|
|
|
|
|
|
|
|
|
Assets not allocated to segments:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
5,763
|
|
|
Marketable securities
|
|
|
|
|
|
|
|
|
1,950
|
|
|
Prepaid expenses and other assets
|
|
|
|
|
|
|
|
|
898
|
|
|
Current deferred tax assets
|
|
|
|
|
|
|
|
|
572
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
819
|
|
|
Other receivables related to discontinued operations
|
|
|
|
|
|
|
|
|
681
|
|
|
Assets of discontinued operations
|
|
|
|
|
|
|
|
|
3,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
|
|
|
|
|
|
$
|
55,311
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
2,217
|
|
$
|
631
|
|
$
|
2,848
|
|
|
|
|
|
|
|
|
|
The
geographic location of the Company's property, plant and equipment, net of accumulated depreciation, is as follows:
|
|
As of December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
United States
|
|
$
|
22,056
|
|
$
|
16,242
|
|
$
|
9,387
|
France
|
|
|
3,810
|
|
|
3,298
|
|
|
2,751
|
Sweden
|
|
|
1,499
|
|
|
720
|
|
|
434
|
Germany
|
|
|
7,998
|
|
|
|
|
|
|
Canada
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
35,446
|
|
$
|
20,260
|
|
$
|
12,572
|
|
|
|
|
|
|
|
78
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(8) BUSINESS SEGMENTS (Continued)
All
of the Company's sales are shipped from the manufacturing locations located in the United States, France, Sweden, Germany and Canada. The following represents the Company's net sales
based on the geographic location of the customer:
|
|
For the years ended December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
United States
|
|
$
|
64,735
|
|
$
|
56,395
|
|
$
|
32,126
|
South Korea
|
|
|
16,904
|
|
|
3,080
|
|
|
7,771
|
Canada
|
|
|
12,588
|
|
|
10,787
|
|
|
7,562
|
China
|
|
|
10,790
|
|
|
1,055
|
|
|
3,368
|
Germany
|
|
|
8,626
|
|
|
2,265
|
|
|
939
|
Belgium
|
|
|
6,727
|
|
|
2,546
|
|
|
2,495
|
Italy
|
|
|
5,461
|
|
|
3,466
|
|
|
2,208
|
France
|
|
|
5,280
|
|
|
4,791
|
|
|
2,417
|
Spain
|
|
|
3,492
|
|
|
2,465
|
|
|
5,369
|
Netherlands
|
|
|
3,033
|
|
|
1,967
|
|
|
2,757
|
Thailand
|
|
|
2,597
|
|
|
1,651
|
|
|
|
Norway
|
|
|
2,596
|
|
|
481
|
|
|
469
|
India
|
|
|
2,355
|
|
|
3,764
|
|
|
140
|
Malaysia
|
|
|
2,154
|
|
|
358
|
|
|
5,148
|
Singapore
|
|
|
2,110
|
|
|
149
|
|
|
86
|
Egypt
|
|
|
1,666
|
|
|
|
|
|
|
Sweden
|
|
|
1,378
|
|
|
677
|
|
|
363
|
United Kingdom
|
|
|
1,278
|
|
|
335
|
|
|
324
|
Mexico
|
|
|
1,082
|
|
|
1,230
|
|
|
664
|
Australia
|
|
|
1,039
|
|
|
235
|
|
|
1,940
|
Russia
|
|
|
607
|
|
|
11,137
|
|
|
838
|
Other foreign countries
|
|
|
8,677
|
|
|
4,638
|
|
|
2,307
|
|
|
|
|
|
|
|
Total
|
|
$
|
165,175
|
|
$
|
113,472
|
|
$
|
79,291
|
|
|
|
|
|
|
|
During
the years ended December 31, 2007, 2006 and 2005, no one customer accounted for more than 10% of total net sales.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases certain office space, equipment, storage space, vehicles and other equipment under various non-cancelable lease agreements. Certain
of these leases (primarily equipment related)
79
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(9) COMMITMENTS AND CONTINGENCIES (Continued)
are
recorded as capital leases. Amortization expense associated with the capital leases is combined with depreciation expense of fixed assets. Details of the capital leased assets are as:
|
|
2007
|
|
Manufacturing equipment and tooling
|
|
$
|
815
|
|
Furniture, fixtures and computer equipment
|
|
|
134
|
|
|
|
|
|
Total
|
|
|
949
|
|
Less: Accumulated amortization
|
|
|
(37
|
)
|
|
|
|
|
Net capitalized leased assets
|
|
$
|
912
|
|
|
|
|
|
Future
minimum rental commitments under non-cancelable leases are as follows:
|
|
Capital Leases
|
|
Operating Leases
|
Year ended December 31
|
|
|
|
|
|
|
|
2008
|
|
$
|
432
|
|
$
|
944
|
|
2009
|
|
|
187
|
|
|
835
|
|
2010
|
|
|
125
|
|
|
608
|
|
2011
|
|
|
105
|
|
|
186
|
|
2012
|
|
|
77
|
|
|
32
|
|
Therafter
|
|
|
87
|
|
|
89
|
|
|
|
|
|
|
Total minimum payments
|
|
|
1,013
|
|
$
|
2,694
|
|
|
|
|
|
|
|
Amounts representing interest
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
910
|
|
|
|
|
Current portion of capital lease obligations
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
521
|
|
|
|
|
|
|
|
|
|
Total
rental expense included in operations was $687, $596 and $603 for the years ended December 31, 2007, 2006 and 2005, respectively.
As
part of its agreement with Skandifinanz Bank AG discussed in Note 2, DYNAenergetics sold receivables in the fourth quarter of 2007 in the amount of 853 Euros ($1,256
based on the December 31, 2007 exchange rate). As of the end of January 2008, customers have made payments on all but 90 Euros ($133 based on the December 31, 2007 exchange rate).
In
the normal course of business, the Company is a party to various contractual disputes and claims. After considering the Company's 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.
80
DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 2007
(Dollars in Thousands, Except Per Share Data)
(10) DISCONTINUED OPERATIONS
On September 17, 2004, DMC completed the divestiture of its Spin Forge division under an agreement that involved subleasing the Spin Forge real estate and
leasing the manufacturing equipment and tooling to a third party. Under the master agreement relating to this divestiture transaction, the Company sold all inventory, books and records, intangible
personal property, business information and technology, customer contracts, and licenses and permits relating to the Spin Forge business to this third party for a sales price of approximately $1,700.
The third party also assumed full responsibility for Spin Forge business activities and operating expenses. Despite the fact that the Company retained ownership of the equipment and continued to carry
a capital lease asset of $2,880 on its books, the Company concluded that the Spin Forge divestiture transaction qualified for treatment as discontinued operations since the Company had completely
exited the Spin Forge operating business and had no intent to ever again operate any of the leased assets. In December 2006, the third party purchaser of the Spin Forge business purchased the majority
of these leased assets while the remainder of the leased assets was liquidated by the Company. This transaction resulted in a pretax gain of $228, which was recorded as discontinued operations in the
fourth quarter of 2006. The Company had received rent of $23 per month on these leased assets until the date of their sale.
On
January 10, 2006, the Company sold its purchase option on the Spin Forge real estate to the property owner for $2,300. The completion of this transaction resulted in a pretax
gain of $2,197, which was recorded as discontinued operations in the first quarter of 2006. In connection with the sale of the purchase option, the underlying lease agreement was terminated.
Accordingly, the capital lease asset of $2,880 and the related lease obligation of the same amount were removed from the Company's balance sheet in the first quarter of 2006.
Discontinued
operations for the year ended December 31, 2006 is summarized as follows:
|
|
2006
|
|
Gain on sale of real estate purchase option
|
|
$
|
2,425
|
|
Related income tax expense
|
|
|
(928
|
)
|
|
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
1,497
|
|
|
|
|
|
81