XNAS:BOOM Dynamic Materials Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

Form 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

OR

 

o         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                   TO                   .

 

Commission file number 001-14775

 


 

DYNAMIC MATERIALS CORPORATION

(Exact name of Registrant as Specified in its Charter)

 

Delaware

 

84-0608431

(State of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

5405 Spine Road, Boulder, Colorado 80301

(Address of principal executive offices, including zip code)

 

(303) 665-5700

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 under the Act).  Yes o  No x

 

The number of shares of Common Stock outstanding was 13,511,464 as of July 31, 2012.

 

 

 



Table of Contents

 

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. In particular, we direct your attention to Part I, Item 1- Condensed Consolidated Financial Statements; Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations; Item 3 - Quantitative and Qualitative Disclosures About Market Risk; and Part II, Item 1A — Risk Factors. We intend the forward-looking statements throughout this quarterly report on Form 10-Q and the information incorporated by reference herein to be covered by the safe harbor provisions for forward-looking statements. Statements contained in this report which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. All projections, guidance and other statements regarding our expected financial position and operating results, our business strategy, our financing plans and the outcome of any contingencies are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “believe,” “plan,” “anticipate,” “estimate,” “expect,” “intend,” and other phrases of similar meaning. The forward-looking information is based on information available as of the date of this quarterly report and on numerous assumptions and developments that are not within our control. Although we believe that our expectations as expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Factors that could cause actual results to differ materially include, but are not limited to, the following: changes in global economic conditions; the ability to obtain new contracts at attractive prices; the size and timing of customer orders and shipment; our ability to realize sales from our backlog; fluctuations in customer demand; fluctuations in foreign currencies; competitive factors; the timely completion of contracts; the timing and size of expenditures; the timely receipt of government approvals and permits; the price and availability of metal and other raw material; the adequacy of local labor supplies at our facilities; current or future limits on manufacturing capacity at our various operations; our ability to successfully integrate acquired businesses; the availability and cost of funds; and general economic conditions, both domestic and foreign, impacting our business and the business of the end-market users we serve. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly release the results of any revision to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

2



Table of Contents

 

INDEX

 

 

 

 

Page

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

Item 1

 

Condensed Consolidated Financial Statements

4

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011

4

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 (unaudited)

6

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2012 and 2011 (unaudited)

7

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2012 (unaudited)

8

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)

9

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

10

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosure about Market Risk

30

 

 

 

 

Item 4

 

Controls and Procedures

30

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

 

Item 1

 

Legal Proceedings

31

 

 

 

 

Item 1A

 

Risk Factors

31

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

31

 

 

 

 

Item 4

 

Mine Safety Disclosures

31

 

 

 

 

Item 5

 

Other Information

31

 

 

 

 

Item 6

 

Exhibits

31

 

 

 

 

 

 

Signatures

33

 

3



Table of Contents

 

Part I - FINANCIAL INFORMATION

 

ITEM 1.  Condensed Consolidated Financial Statements

 

DYNAMIC MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

 

 

 

June 30,

 

 

 

 

 

2012

 

December 31,

 

 

 

(unaudited)

 

2011

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

5,215

 

$

5,276

 

Accounts receivable, net of allowance for doubtful accounts of $385 and $424, respectively

 

35,273

 

36,368

 

Inventories

 

48,850

 

43,218

 

Prepaid expenses and other

 

4,509

 

4,858

 

Current deferred tax assets

 

1,490

 

1,469

 

 

 

 

 

 

 

Total current assets

 

95,337

 

91,189

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

79,662

 

72,914

 

Less - accumulated depreciation

 

(33,752

)

(31,512

)

 

 

 

 

 

 

Property, plant and equipment, net

 

45,910

 

41,402

 

 

 

 

 

 

 

GOODWILL, net

 

36,056

 

37,507

 

 

 

 

 

 

 

PURCHASED INTANGIBLE ASSETS, net

 

43,369

 

42,054

 

 

 

 

 

 

 

DEFERRED TAX ASSETS

 

738

 

485

 

 

 

 

 

 

 

OTHER ASSETS, net

 

627

 

789

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

222,037

 

$

213,426

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

DYNAMIC MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Share and Per Share Data)

 

 

 

June 30,

 

 

 

 

 

2012

 

December 31,

 

 

 

(unaudited)

 

2011

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

14,590

 

$

14,753

 

Accrued expenses

 

5,031

 

5,358

 

Dividend payable

 

540

 

535

 

Accrued income taxes

 

604

 

780

 

Accrued employee compensation and benefits

 

3,538

 

4,666

 

Customer advances

 

2,036

 

1,918

 

Lines of credit

 

579

 

13

 

Current maturities on long-term debt

 

62

 

1,153

 

Current portion of capital lease obligations

 

45

 

66

 

Current deferred tax liabilities

 

119

 

68

 

 

 

 

 

 

 

Total current liabilities

 

27,144

 

29,310

 

 

 

 

 

 

 

LINES OF CREDIT

 

35,515

 

26,462

 

 

 

 

 

 

 

LONG-TERM DEBT

 

86

 

118

 

 

 

 

 

 

 

CAPITAL LEASE OBLIGATIONS

 

48

 

70

 

 

 

 

 

 

 

DEFERRED TAX LIABILITIES

 

9,285

 

10,185

 

 

 

 

 

 

 

OTHER LONG-TERM LIABILITIES

 

1,140

 

1,238

 

 

 

 

 

 

 

Total liabilities

 

73,218

 

67,383

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock, $0.05 par value; 4,000,000 shares authorized; no issued and outstanding shares

 

 

 

Common stock, $0.05 par value; 25,000,000 shares authorized; 13,511,464 and 13,367,169 shares issued and outstanding, respectively

 

675

 

668

 

Additional paid-in capital

 

57,998

 

55,983

 

Retained earnings

 

102,564

 

98,565

 

Other cumulative comprehensive loss

 

(12,508

)

(9,256

)

 

 

 

 

 

 

Total Dynamic Materials Corporation’s stockholders’ equity

 

148,729

 

145,960

 

Non-controlling interest

 

90

 

83

 

 

 

 

 

 

 

Total stockholders’ equity

 

148,819

 

146,043

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

222,037

 

$

213,426

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

DYNAMIC MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Dollars in Thousands, Except Share and Per Share Data)

(unaudited)

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

NET SALES

 

$

48,687

 

$

54,165

 

$

98,899

 

$

99,740

 

 

 

 

 

 

 

 

 

 

 

COST OF PRODUCTS SOLD

 

34,748

 

38,692

 

70,583

 

73,964

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

13,939

 

15,473

 

28,316

 

25,776

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

4,641

 

4,194

 

9,146

 

7,869

 

Selling and distribution expenses

 

4,128

 

3,911

 

8,319

 

7,638

 

Amortization of purchased intangible assets

 

1,520

 

1,471

 

3,064

 

2,876

 

 

 

 

 

 

 

 

 

 

 

Total costs and expenses

 

10,289

 

9,576

 

20,529

 

18,383

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

3,650

 

5,897

 

7,787

 

7,393

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

409

 

(136

)

209

 

(339

)

Interest expense

 

(196

)

(486

)

(407

)

(896

)

Interest income

 

3

 

 

8

 

3

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

3,866

 

5,275

 

7,597

 

6,161

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX PROVISION

 

1,167

 

1,418

 

2,509

 

1,565

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

2,699

 

3,857

 

5,088

 

4,596

 

 

 

 

 

 

 

 

 

 

 

Less: Net income (loss) attributable to noncontrolling interest

 

46

 

(11

)

9

 

(23

)

 

 

 

 

 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION

 

$

2,653

 

$

3,868

 

$

5,079

 

$

4,619

 

 

 

 

 

 

 

 

 

 

 

INCOME PER SHARE:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.20

 

$

0.29

 

$

0.38

 

$

0.35

 

Diluted

 

$

0.20

 

$

0.29

 

$

0.38

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

Basic

 

13,205,620

 

13,060,456

 

13,203,310

 

13,059,782

 

Diluted

 

13,209,732

 

13,070,536

 

13,207,562

 

13,069,834

 

 

 

 

 

 

 

 

 

 

 

DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.04

 

$

0.04

 

$

0.08

 

$

0.08

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

6



Table of Contents

 

DYNAMIC MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Dollars in Thousands)

(unaudited)

 

 

 

Three months ended

 

Six months ended

 

 

 

June 30,

 

June 30,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net income including non-controlling interest

 

$

2,699

 

$

3,857

 

$

5,088

 

$

4,596

 

 

 

 

 

 

 

 

 

 

 

Change in cumulative foreign currency translation adjustment

 

(7,085

)

2,269

 

(3,254

)

9,361

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

(4,386

)

6,126

 

1,834

 

13,957

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to non-controlling interest

 

42

 

(9

)

7

 

(92

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) attributable to Dynamic Materials Corporation

 

$

(4,428

)

$

6,135

 

$

1,827

 

$

14,049

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

7



Table of Contents

 

DYNAMIC MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2012

(Amounts in Thousands)

(unaudited)

 

 

 

Dynamic Materials Corporation Stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Cumulative

 

Non-

 

 

 

 

 

Common Stock

 

Paid-In

 

Retained

 

Comprehensive

 

Controlling

 

 

 

 

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Interest

 

Total

 

Balances, December 31, 2011

 

13,367

 

$

668

 

$

55,983

 

$

98,565

 

$

(9,256

)

$

83

 

$

146,043

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

5,079

 

 

9

 

5,088

 

Change in cumulative foreign currency translation adjustment

 

 

 

 

 

(3,252

)

(2

)

(3,254

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

7

 

1,834

 

Shares issued in connection with stock compensation plans

 

144

 

7

 

91

 

 

 

 

98

 

Tax impact of stock-based compensation

 

 

 

(11

)

 

 

 

(11

)

Stock-based compensation

 

 

 

1,935

 

 

 

 

1,935

 

Dividends declared

 

 

 

 

(1,080

)

 

 

(1,080

)

Balances, June 30, 2012

 

13,511

 

$

675

 

$

57,998

 

$

102,564

 

$

(12,508

)

$

90

 

$

148,819

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

8



Table of Contents

 

DYNAMIC MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(Dollars in Thousands)

(unaudited)

 

 

 

2012

 

2011

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

5,088

 

$

4,596

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation (including capital lease amortization)

 

2,729

 

2,628

 

Amortization of purchased intangible assets

 

3,064

 

2,876

 

Amortization of deferred debt issuance costs

 

66

 

157

 

Stock-based compensation

 

1,935

 

1,663

 

Deferred income tax benefit

 

(459

)

(1,367

)

(Gain) loss on disposal of property, plant and equipment

 

(2

)

101

 

Change in:

 

 

 

 

 

Accounts receivable, net

 

1,212

 

(6,763

)

Inventories

 

(4,401

)

(11,114

)

Prepaid expenses and other

 

300

 

(870

)

Accounts payable

 

80

 

5,759

 

Customer advances

 

169

 

1,396

 

Accrued expenses and other liabilities

 

(1,706

)

1,693

 

 

 

 

 

 

 

Net cash provided by operating activities

 

8,075

 

755

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Acquisition of property, plant and equipment

 

(5,595

)

(2,286

)

Acquisition of TRX Industries

 

(10,294

)

 

Change in other non-current assets

 

126

 

36

 

 

 

 

 

 

 

Net cash used in investing activities

 

(15,763

)

(2,250

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Borrowings on bank lines of credit, net

 

9,924

 

5,818

 

Payment on loans with former owners of LRI

 

(1,138

)

 

Payment on Nord LB term loans

 

 

(421

)

Payment on capital lease obligations

 

(40

)

(156

)

Payment of dividends

 

(1,074

)

(1,062

)

Contribution from non-controlling stockholder

 

 

42

 

Net proceeds from issuance of common stock to employees and directors

 

98

 

99

 

Tax impact of stock-based compensation

 

(11

)

(109

)

 

 

 

 

 

 

Net cash provided by financing activities

 

7,759

 

4,211

 

 

 

 

 

 

 

EFFECTS OF EXCHANGE RATES ON CASH

 

(132

)

325

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(61

)

3,041

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of the period

 

5,276

 

4,572

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, end of the period

 

$

5,215

 

$

7,613

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

9



Table of Contents

 

DYNAMIC MATERIALS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Currency Amounts in Thousands, Except Share and Per Share Data)

(unaudited)

 

1.      BASIS OF PRESENTATION

 

The information included in the condensed consolidated financial statements is unaudited but includes all normal and recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the financial statements that are included in our Annual Report filed on Form 10-K for the year ended December 31, 2011.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Dynamic Materials Corporation (“DMC”) and its controlled subsidiaries.  Only subsidiaries in which controlling interests are maintained are consolidated.  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.

 

2.      SIGNIFICANT ACCOUNTING POLICIES

 

Income Taxes

 

The effective tax rate for each of the periods reported differs from the U.S. statutory rate due primarily to favorable foreign permanent differences, variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods and differences between the U.S. and foreign tax rates (which range from 19% to 33%) on earnings that have been permanently reinvested.

 

Earnings Per Share

 

Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock awards (“RSAs”), are considered participating securities for purposes of calculating earnings per share (“EPS”) and require the use of the two class method for calculating EPS.  Under this method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to common stock, as shown in the table below.

 

10



Table of Contents

 

Computation and reconciliation of earnings per common share are as follows:

 

 

 

For the Three Months Ended

 

For the Three Months Ended

 

 

 

June 30, 2012

 

June 30, 2011

 

 

 

Income

 

Shares

 

EPS

 

Income

 

Shares

 

EPS

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to DMC

 

$

2,653

 

 

 

 

 

$

3,868

 

 

 

 

 

Less income allocated to RSAs

 

(60

)

 

 

 

 

(83

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common stock for EPS calculation

 

$

2,593

 

13,205,620

 

$

0.20

 

$

3,785

 

13,060,456

 

$

0.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjust shares for dilutives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation plans

 

 

 

4,112

 

 

 

 

 

10,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to DMC

 

$

2,653

 

 

 

 

 

$

3,868

 

 

 

 

 

Less income allocated to RSAs

 

(60

)

 

 

 

 

(83

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common stock for EPS calculation

 

$

2,593

 

13,209,732

 

$

0.20

 

$

3,785

 

13,070,536

 

$

0.29

 

 

 

 

For the Six Months Ended

 

For the Six Months Ended

 

 

 

June 30, 2012

 

June 30, 2011

 

 

 

Income

 

Shares

 

EPS

 

Income

 

Shares

 

EPS

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to DMC

 

$

5,079

 

 

 

 

 

$

4,619

 

 

 

 

 

Less income allocated to RSAs

 

(111

)

 

 

 

 

(100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common stock for EPS calculation

 

$

4,968

 

13,203,310

 

$

0.38

 

$

4,519

 

13,059,782

 

$

0.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjust shares for dilutives:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation plans

 

 

 

4,252

 

 

 

 

 

10,052

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to DMC

 

$

5,079

 

 

 

 

 

$

4,619

 

 

 

 

 

Less income allocated to RSAs

 

(111

)

 

 

 

 

(100

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income allocated to common stock for EPS calculation

 

$

4,968

 

13,207,562

 

$

0.38

 

$

4,519

 

13,069,834

 

$

0.35

 

 

Recent Accounting Pronouncements

 

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The amendment is to be applied retrospectively and is effective for fiscal years, and interim periods

 

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within those years, beginning after December 15, 2011.  Other than revised disclosures, this update did not have a material impact on our financial statements.

 

3.      ACQUISITIONS

 

TRX Industries

 

On January 3, 2012, we acquired the assets and operating business of Texas-based TRX Industries, Inc. (“TRX”), a manufacturer of perforating guns, for a purchase price of $10,294.  TRX, which now operates as a division of DYNAenergetics US, has been a long-term supplier to DYNAenergetics US and, in recent years, accounted for a rapidly growing percentage of its perforating gun purchases.

 

The acquisition of TRX was structured as an asset purchase in an all-cash transaction.  The purchase price was allocated to tangible and identifiable intangible assets based on their fair values as determined by appraisals performed as of the acquisition date.  The allocation of the preliminary purchase price to the assets of TRX was as follows:

 

Current assets

 

$

2,702

 

Property, plant and equipment

 

2,227

 

Intangible assets

 

5,365

 

Deferred tax assets

 

40

 

 

 

 

 

Total assets acquired

 

10,334

 

 

 

 

 

Current liabilities

 

40

 

 

 

 

 

Total liabilities assumed

 

40

 

 

 

 

 

Net assets acquired

 

$

10,294

 

 

We acquired identifiable finite-lived intangible assets as a result of the acquisition of TRX.  The finite-lived intangible assets acquired were classified as customer relationships, totaling $5,365, and are being amortized over 7 years.  These amounts are included in Purchased Intangible Assets and are further discussed in Note 6.

 

4.      INVENTORY

 

The components of inventory are as follows at June 30, 2012 and December 31, 2011:

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

Raw materials

 

$

15,338

 

$

15,526

 

Work-in-process

 

13,834

 

10,511

 

Finished goods

 

18,479

 

15,947

 

Supplies

 

1,199

 

1,234

 

 

 

$

48,850

 

$

43,218

 

 

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5.      GOODWILL

 

The changes to the carrying amount of goodwill during the period are summarized below:

 

 

 

Explosive

 

Oilfield

 

 

 

 

 

Metalworking

 

Products

 

Total

 

Goodwill balance at December 31, 2011

 

$

21,637

 

$

15,870

 

$

37,507

 

Adjustment due to recognition of tax benefit of tax amortization of certain goodwill

 

(162

)

(245

)

(407

)

Adjustment due to exchange rate differences

 

(594

)

(450

)

(1,044

)

 

 

 

 

 

 

 

 

Goodwill balance at June 30, 2012

 

$

20,881

 

$

15,175

 

$

36,056

 

 

6.      PURCHASED INTANGIBLE ASSETS

 

The following table presents details of our purchased intangible assets, other than goodwill, as of June 30, 2012:

 

 

 

 

 

Accumulated

 

 

 

 

 

Gross

 

Amortization

 

Net

 

Core technology

 

$

21,414

 

$

(4,935

)

$

16,479

 

Customer relationships

 

42,591

 

(16,672

)

25,919

 

Trademarks / Trade names

 

2,293

 

(1,322

)

971

 

 

 

 

 

 

 

 

 

Total intangible assets

 

$

66,298

 

$

(22,929

)

$

43,369

 

 

The following table presents details of our purchased intangible assets, other than goodwill, as of December 31, 2011:

 

 

 

 

 

Accumulated

 

 

 

 

 

Gross

 

Amortization

 

Net

 

Core technology

 

$

22,041

 

$

(4,525

)

$

17,516

 

Customer relationships

 

38,165

 

(14,720

)

23,445

 

Trademarks / Trade names

 

2,361

 

(1,268

)

1,093

 

 

 

 

 

 

 

 

 

Total intangible assets

 

$

62,567

 

$

(20,513

)

$

42,054

 

 

The change in the gross value of our purchased intangible assets from December 31, 2011 to June 30, 2012 reflects the additional intangible assets associated with the acquisition of TRX and the impact of foreign currency translation adjustments.

 

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7.      CUSTOMER ADVANCES

 

On occasion, we require customers to make advance payments prior to the shipment of their orders in order to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels.  As of June 30, 2012 and December 31, 2011, customer advances totaled $2,036 and $1,918, respectively, and originated from several customers.

 

8.      DEBT

 

Lines of credit consisted of the following at June 30, 2012 and December 31, 2011:

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

Syndicated credit agreement:

 

 

 

 

 

U.S. Dollar revolving loan

 

$

25,500

 

$

20,247

 

Euro revolving loan

 

8,552

 

6,215

 

Canadian Dollar revolving loan

 

1,463

 

 

Commerzbank line of credit

 

579

 

 

Nord LB line of credit

 

 

13

 

 

 

 

 

 

 

 

 

36,094

 

26,475

 

Less current portion

 

(579

)

(13

)

 

 

 

 

 

 

Long-term lines of credit

 

$

35,515

 

$

26,462

 

 

Long-term debt consisted of the following at June 30, 2012 and December 31, 2011:

 

 

 

June 30,

 

December 31,

 

 

 

2012

 

2011

 

Loans with former owners of LRI

 

$

148

 

$

1,271

 

Less current maturities

 

(62

)

(1,153

)

 

 

 

 

 

 

Long-term debt

 

$

86

 

$

118

 

 

Loan Covenants and Restrictions

 

Our existing loan agreements include various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurrence of additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified financial ratios.  As of June 30, 2012, we were in compliance with all financial covenants and other provisions of our debt agreements.

 

9.      BUSINESS SEGMENTS

 

Our business is organized in the following three segments:  Explosive Metalworking, Oilfield Products, and AMK Welding. The Explosive Metalworking segment uses explosives to perform metal cladding and shock synthesis of industrial diamonds. The most significant product of this group is clad metal which is used in the fabrication of pressure vessels, heat exchangers, and transition joints for various industries, including upstream oil and gas, oil refinery, petrochemicals, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration,

 

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and similar industries.  The Oilfield Products segment manufactures, markets and sells oilfield perforating equipment and explosives, including detonating cords, detonators, bi-directional boosters and shaped charges, and seismic related explosives and accessories.  AMK Welding utilizes a number of welding technologies to weld components for manufacturers of jet engine and ground-based turbines.

 

The accounting policies of all the segments are the same as those described in the summary of significant accounting policies included herein and in our Annual Report on Form 10-K for the year ended December 31, 2011.  Our reportable segments are separately managed strategic business units that offer different products and services. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.

 

Segment information is presented for the three and six months ended June 30, 2012 and 2011 as follows:

 

 

 

Explosive

 

Oilfield

 

AMK

 

 

 

 

 

Metalworking

 

Products

 

Welding

 

Total

 

For the three months ended June 30, 2012:

 

 

 

 

 

 

 

 

 

Net sales

 

$

27,374

 

$

18,924

 

$

2,389

 

$

48,687

 

Depreciation and amortization

 

$

1,378

 

$

1,379

 

$

125

 

$

2,882

 

Income from operations

 

$

3,589

 

$

1,701

 

$

165

 

$

5,455

 

Unallocated amounts:

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

 

 

 

 

 

(839

)

Stock-based compensation

 

 

 

 

 

 

 

(966

)

Other income

 

 

 

 

 

 

 

409

 

Interest expense

 

 

 

 

 

 

 

(196

)

Interest income

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated income before income taxes

 

 

 

 

 

 

 

$

3,866

 

 

 

 

Explosive

 

Oilfield

 

AMK

 

 

 

 

 

Metalworking

 

Products

 

Welding

 

Total

 

For the three months ended June 30, 2011:

 

 

 

 

 

 

 

 

 

Net sales

 

$

35,751

 

$

15,717

 

$

2,697

 

$

54,165

 

Depreciation and amortization

 

$

1,495

 

$

1,129

 

$

119

 

$

2,743

 

Income from operations

 

$

5,605

 

$

1,159

 

$

702

 

$

7,466

 

Unallocated amounts:

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

 

 

 

 

 

(698

)

Stock-based compensation

 

 

 

 

 

 

 

(871

)

Other expense

 

 

 

 

 

 

 

(136

)

Interest expense

 

 

 

 

 

 

 

(486

)

 

 

 

 

 

 

 

 

 

 

Consolidated income before income taxes

 

 

 

 

 

 

 

$

5,275

 

 

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Explosive

 

Oilfield

 

AMK

 

 

 

 

 

Metalworking

 

Products

 

Welding

 

Total

 

For the six months ended June 30, 2012:

 

 

 

 

 

 

 

 

 

Net sales

 

$

54,908

 

$

39,898

 

$

4,093

 

$

98,899

 

Depreciation and amortization

 

$

2,780

 

$

2,764

 

$

249

 

$

5,793

 

Income from operations

 

$

7,688

 

$

3,747

 

$

77

 

$

11,512

 

Unallocated amounts:

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

 

 

 

 

 

(1,790

)

Stock-based compensation

 

 

 

 

 

 

 

(1,935

)

Other income

 

 

 

 

 

 

 

209

 

Interest expense

 

 

 

 

 

 

 

(407

)

Interest income

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

Consolidated income before income taxes

 

 

 

 

 

 

 

$

7,597

 

 

 

 

Explosive

 

Oilfield

 

AMK

 

 

 

 

 

Metalworking

 

Products

 

Welding

 

Total

 

For the six months ended June 30, 2011:

 

 

 

 

 

 

 

 

 

Net sales

 

$

61,826

 

$

32,773

 

$

5,141

 

$

99,740

 

Depreciation and amortization

 

$

2,954

 

$

2,309

 

$

241

 

$

5,504

 

Income from operations

 

$

7,159

 

$

2,083

 

$

1,170

 

$

10,412

 

Unallocated amounts:

 

 

 

 

 

 

 

 

 

Corporate expenses

 

 

 

 

 

 

 

(1,356

)

Stock-based compensation

 

 

 

 

 

 

 

(1,663

)

Other expense

 

 

 

 

 

 

 

(339

)

Interest expense

 

 

 

 

 

 

 

(896

)

Interest income

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

Consolidated income before income taxes

 

 

 

 

 

 

 

$

6,161

 

 

During the three and six months ended June 30, 2012, no one customer accounted for more than 10% of total net sales.  During the three months ended June 30, 2011, sales to one customer represented $12,354 (22.8%) of total net sales.  During the six months ended June 30, 2011, sales to one customer represented $13,585 (13.6%) of total net sales.

 

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ITEM 2.                Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with our historical consolidated financial statements and notes, as well as the selected historical consolidated financial data that are included in our Annual Report filed on Form 10-K for the year ended December 31, 2011.

 

Unless stated otherwise, all currency amounts in this discussion are presented in thousands (000’s).

 

Executive Overview

 

Our business is organized into three segments:  Explosive Metalworking (which we also refer to as DMC Clad), Oilfield Products and AMK Welding.  For the six months ended June 30, 2012, Explosive Metalworking accounted for 56% of our net sales and 67% of our income from operations before consideration of unallocated corporate expenses and stock-based compensation expense, which are not allocated to our business segments.  Our Oilfield Products segment accounted for 40% and of 32% of our first half 2012 net sales and income from operations, respectively, while the AMK Welding segment accounted for 4% of net sales and 1% of our income from operations for the first half of 2012.

 

Our net sales for the six months ended June 30, 2012 decreased by $841, or 0.8%, compared to the same period of 2011.  The year-to-year consolidated net sales decrease reflects sales decreases of $6,918 (11.2%) for our Explosive Metalworking segment and $1,048 (20.4%) for our AMK Welding segment, which were largely offset by a sales increase in our Oilfield Products segment of $7,125 (21.7%).  As a result of an improvement in our consolidated first half gross margin rate to 28.6% in 2012 from 25.8% in 2011, our consolidated income from operations increased to $7,787 for the six months ended June 30, 2012 from $7,393 in the same period of 2011.  This $394 increase reflects increases of $529 and $1,664 in the operating income reported by our Explosive Metalworking and Oilfield Products segments, respectively, which were partially offset by a decrease in AMK Welding’s operating income of $1,093 and a net increase in aggregate unallocated corporate expenses and stock-based compensation expense of $706.  Reported consolidated operating income for the six month periods ended June 30, 2012 and 2011 includes amortization expense of $3,064 and $2,876, respectively, relating to purchased intangible assets associated with several acquisitions executed between November of 2007 and January of 2012.  We reported net income of $5,079 for the first half of 2012 compared to $4,619 for the same period of 2011.

 

Impact of Current Economic Situation on the Company

 

We were only minimally impacted in 2008 by the global economic slowdown.  However, during 2009 and 2010, we experienced a significant slowdown in Explosive Metalworking sales to some of the markets we serve.  The explosion-welded clad plate market is dependent upon sales of products for use by customers in a number of heavy industries, including oil and gas, chemicals and petrochemicals, aluminum production, power generation, shipbuilding, industrial refrigeration, alternative energy and hydrometallurgy.  These industries tend to be cyclical in nature and the current worldwide economic downturn has affected many of these markets.  While certain sectors continue to be slow, including alternative energy, hydrometallurgy and power generation, quoting activity in other end markets remains healthy, and we continue to track an extensive list of projects. While timing of new order inflow remains difficult to predict, our Explosive Metalworking segment benefited from the modest improvement in 2011 and early 2012 of some of

 

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the industries it supplies and we believe that it is well-positioned to further benefit as global economic conditions improve.

 

As a result of acquisitions made during 2009 and 2010 and strong organic sales growth beginning in the third quarter of 2010, our Oilfield Products segment has grown into a second core business for us, generating 35% of our consolidated net sales in 2011 and 40% of our year to date 2012 consolidated net sales as compared to only 13% of our consolidated net sales in 2009.

 

Our Explosive Metalworking backlog increased from $44,564 at December 31, 2011 to $57,253 at March 31, 2012 and then decreased slightly to $56,625 at June 30, 2012.  While second quarter 2012 Explosive Metalworking sales met our expectations, we had anticipated somewhat stronger second quarter bookings than what we realized.  As a result, we now expect full year 2012 Explosive Metalworking sales to be down by 5% to 7% from the $126,199 in net sales that this segment reported in 2011.  We also expect second half 2012 Oilfield Products sales to grow at a slower pace than the 21.7% year over year sales increase that this segment reported for the first six months of  2012.   Based upon the June 30, 2012 Explosive Metalworking backlog and lower than previously expected second half 2012 sales for our Oilfield Products business segment, we currently expect that our 2012 consolidated net sales will be comparable to the $208,891 in consolidated net sales that we reported in 2011.

 

Net sales

 

Explosive Metalworking’s revenues are generated principally from sales of clad metal plates and sales of transition joints, which are made from clad plates, to customers that fabricate industrial equipment for various industries, including oil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration, and similar industries.  While a large portion of the demand for our clad metal products is driven by new plant construction and large plant expansion projects, maintenance and retrofit projects at existing chemical processing, petrochemical processing, oil refining, and aluminum smelting facilities also account for a significant portion of total demand.

 

Oilfield Products’ revenues are generated principally from sales of shaped charges, detonators and detonating cord, and bidirectional boosters and perforating guns to customers who perform the perforation of oil and gas wells and from sales of seismic products to customers involved in oil and gas exploration activities.

 

AMK Welding’s revenues are generated from welding, heat treatment, and inspection services that are provided with respect to customer-supplied parts for customers primarily involved in the power generation industry and aircraft engine markets.

 

A significant portion of our revenue is derived from a relatively small number of customers; therefore, the failure to complete existing contracts on a timely basis, to receive payment for such services in a timely manner, or to enter into future contracts at projected volumes and profitability levels could adversely affect our ability to meet cash requirements exclusively through operating activities. We attempt to minimize the risk of losing customers or specific contracts by continually improving product quality, delivering product on time and competing aggressively on the basis of price.

 

Gross profit and cost of products sold

 

Cost of products sold for Explosive Metalworking includes the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits,

 

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freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

 

Cost of products sold for Oilfield Products includes the cost of metals, explosives and other raw materials used to manufacture shaped charges, detonating products and perforating guns as well as employee compensation and benefits, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.

 

AMK Welding’s cost of products sold consists principally of employee compensation and benefits, welding supplies (wire and gas), depreciation of manufacturing facilities and equipment, outside services and other manufacturing overhead expenses.

 

Backlog

 

We use backlog as a primary means of measuring the immediate outlook for our Explosive Metalworking business.  We define “backlog” at any given point in time as consisting of all firm, unfulfilled purchase orders and commitments at that time.  Generally speaking, we expect to fill most backlog orders within the following 12 months.  From experience, most firm purchase orders and commitments are realized.

 

Our backlog with respect to the Explosive Metalworking segment increased to $56,625 at June 30, 2012 from $44,564 at December 31, 2011. Our June 30, 2011 backlog was $54,026.

 

Three and Six Months Ended June 30, 2012 Compared to the Three and Six Months Ended June 30, 2011

 

Net sales

 

 

 

Three Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

Percentage

 

 

 

2012

 

2011

 

Change

 

Change

 

Net sales

 

$

48,687

 

$

54,165

 

$

(5,478

)

(10.1

)%

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

Percentage

 

 

 

2012

 

2011

 

Change

 

Change

 

Net sales

 

$

98,899

 

$

99,740

 

$

(841

)

(0.8

)%

 

Net sales for the second quarter of 2012 decreased 10.1% to $48,687 from $54,165 for the second quarter of 2011.  Explosive Metalworking sales decreased 23.4% to $27,374 for the three months ended June 30, 2012 (56% of total sales) from $35,751 for the same period of 2011 (66% of total sales).  This $8,377 decrease in second quarter sales relates principally to timing differences with respect to when larger orders enter our backlog and the subsequent shipment of these orders.  Sales in the second quarter of 2011 included more than $11 million in shipments on two large orders that were booked in December 2010 and reflected in both our December 31, 2010 backlog of $56,539 and March 31, 2011 backlog of $58,530.  While our March 31, 2012 backlog of $57,253 represented a significant increase from the backlog of $44,564 that we reported at December 31, 2011, the larger orders included in the March 31, 2012 backlog entered the backlog during the month of March, with the majority of shipments on these orders scheduled for delivery in the third and fourth quarters of 2012.

 

Oilfield Products contributed $18,924 to second quarter 2012 sales (39% of total sales), which represents a 20.4% increase from sales of $15,717 for the second quarter of 2011 (29% of total

 

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sales). This sales increase reflects incremental sales of $1,745 from the January 3, 2012 acquisition of TRX Industries and continued strong demand for our perforating products, particularly in the United States, resulting from a year over year increase in drilling activities, including the expanding use of new horizontal drilling techniques, and the re-perforation of existing oil and gas wells.

 

AMK Welding contributed $2,389 to second quarter 2012 sales (5% of total sales), compared to sales of $2,697 for the second quarter of 2011 (5% of total sales), a sales decrease of $308 or 11.4%.  This decrease reflects a $405, or 19.8%, decline in ground power sales that is attributable to a customer’s decision to discontinue new production work on a ground turbine platform that has accounted for a major portion of AMK’s historical ground power revenues. We believe that AMK can replace this lost revenue stream over time by developing new business opportunities with both existing and new customers in the aircraft engine, ground turbine, and oil and gas industries.

 

Net sales for the first half of 2012 remained relatively flat at $98,899 compared to $99,740 for the first half of 2011.  Explosive Metalworking sales decreased 11.2% to $54,908 for the six months ended June 30, 2012 (56% of total sales) from $61,826 for the same period of 2011 (62% of total sales).  This $6,918 decrease in year to date sales relates principally to the timing of shipments from beginning of the year and beginning of the quarter backlogs as further explained above.

 

Oilfield Products contributed $39,898 to the first half 2012 sales (40% of total sales), which represents a 21.7% increase from sales of $32,773 for the first half of 2011 (33% of total sales). This sales increase reflects incremental sales of $3,756 from the January 3, 2012 acquisition of TRX Industries and continued strong demand for our perforating products, particularly in the United States, as further described above.

 

AMK Welding contributed $4,093 to the first half of 2012 sales (4% of total sales), compared to sales of $5,141 for the first half of 2011 (5% of total sales), a sales decrease of $1,048 or 20.4%.  This decrease reflects a $1,325, or 33.7%, decline in ground power sales that is attributable to a customer’s decision to discontinue new production work on a ground turbine platform as discussed above.

 

Gross profit

 

 

 

Three Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

Percentage

 

 

 

2012

 

2011

 

Change

 

Change

 

Gross profit

 

$

13,939

 

$

15,473

 

$

(1,534

)

(9.9

)%

Consolidated gross profit margin rate

 

28.6

%

28.6

%

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

Percentage

 

 

 

2012

 

2011

 

Change

 

Change

 

Gross profit

 

$

28,316

 

$

25,776

 

$

2,540

 

9.9

%

Consolidated gross profit margin rate

 

28.6

%

25.8

%

 

 

 

 

 

Gross profit decreased by 9.9% to $13,939 for the three months ended June 30, 2012 from $15,473 for the three months ended June 30, 2011. Our second quarter 2012 consolidated gross profit margin rate of 28.6% was the same as that reported in the second quarter of 2011.  For the six months ended June 30, 2012, gross profit increased by 9.9% to $28,316 from $25,776 for the same period of 2011.  Our year to date consolidated gross profit margin rate increased to 28.6% in 2012 from 25.8% for the first six months of 2011.

 

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The gross profit margin for Explosive Metalworking increased from 25.2% in the second quarter of 2011 to 25.5% in the second quarter of 2012, a modest increase of 1.2%.  For the six-month period, our gross profit margin for this segment increased by 18.5% to 25.9% in 2012 from 21.8% in 2011.  The significant improvement in our year to date 2012 gross profit margin rate relates to favorable changes in product mix as compared to the first half of 2011 combined with an improved pricing environment.  As has been the case historically, we expect to see continued fluctuations in Explosive Metalworking’s quarterly gross margin rates in the future that result from fluctuations in quarterly sales volume and changes in product mix.

 

Oilfield Products gross profit margin decreased slightly to 35.1% in the second quarter of 2012 from 35.7% in the second quarter of 2011.  Oilfield Products reported a gross profit margin of 34.2% for the first half of 2012 compared to a gross profit margin of 32.8% for the first half of 2011.  The increase in Oilfield Products’ gross margin for the first six months of 2012 relates principally to favorable changes in product/customer mix.

 

The gross profit margin for AMK Welding decreased to 17.0% in the second quarter of 2012 from 34.4% in the second quarter of 2011.  The gross profit margin for AMK Welding decreased to 14.6% for the first six months of 2012 from 32.2% for the first six months of 2011.  Since the majority of AMK’s manufacturing costs are fixed in nature, the decreases in AMK’s second quarter and year to date sales had a significant, depressing effect on 2012 gross margin performance.

 

Based upon the expected contribution to 2012 consolidated net sales by each of our three business segments, we expect our consolidated full year 2012 gross margin to be in a range of 29% to 30%.

 

General and administrative expenses

 

 

 

Three Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

Percentage

 

 

 

2012

 

2011

 

Change

 

Change

 

General and administrative expenses

 

$

4,641

 

$

4,194

 

$

447

 

10.7

%

Percentage of net sales

 

9.5

%

7.7

%

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

Percentage

 

 

 

2012

 

2011

 

Change

 

Change

 

General and administrative expenses

 

$

9,146

 

$

7,869

 

$

1,277

 

16.2

%

Percentage of net sales

 

9.2

%

7.9

%

 

 

 

 

 

General and administrative expenses increased by $447, or 10.7%, to $4,641 for the three months ended June 30, 2012 from $4,194 for the same period of 2011.  This increase includes increases of $228 in salaries and accrued incentive compensation, an increase in outside professional service fees of $144, an increase of $56 in stock-based compensation, and a net increase of $19 in all other expense categories.  As a percentage of net sales, general and administrative expenses increased to 9.5% in the second quarter of 2012 from 7.7% in the second quarter of 2011.

 

General and administrative expenses increased by $1,277, or 16.2%, to $9,146 for the six months ended June 30, 2012 from $7,869 for the same period of 2011.  This increase includes increases of $770 in salaries and accrued incentive compensation, an increase in outside professional service fees of $326, an increase of $223 in stock-based compensation, and a net decrease of $42 in all other expense categories.  As a percentage of net sales, general and

 

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administrative expenses increased to 9.2% in the first half of 2012 from 7.9% in the first half of 2011.

 

Selling and distribution expenses

 

 

 

Three Months Ended

 

 

 

 

 

 

 

June 30,

 

 

 

Percentage

 

 

 

2012

 

2011

 

Change

 

Change

 

Selling and distribution expenses

 

$

4,128

 

$

3,911

 

$

217

 

5.5

%

Percentage of net sales

 

8.5

%

7.2

%

 

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,