Mail Stop 7010
November 10, 2005
Mr. Yvon Pierre Cariou
Dynamic Materials Corporation
5405 Spine Road
Boulder, Colorado 80301
Re: Dynamic Materials Corporation
Form 10-K for the year ended December 31, 2004
File No. 1-14775
Dear Mr. Cariou:
We have reviewed your response letter dated September 9,
2005
and have the following additional comments. Where indicated, we
think you should revise your document in response to these
comments.
If you disagree, we will consider your explanation as to why our
comment is inapplicable or a revision is unnecessary. Please be
as
detailed as necessary in your explanation. In some of our
comments,
we may ask you to provide us with information so we may better
understand your disclosure. After reviewing this information, we
may
raise additional comments.
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
Financial Statements for the Year Ended December 31, 2004
Consolidated Statements of Cash Flows, page 35
1. We note that your reconciliation of cash flows from operating
activities begins with income from continuing operations. Please
note that paragraph 28 of SFAS 95 indicates that companies that
use
the indirect method of reporting operating cash flows should
adjust
net income to reconcile it to net cash flow from operating
activities. Please confirm to us that you will revise your
statements of cash flows accordingly in future periodic filings.
2. We note that you present one net number for cash flows used in
discontinued operations at the bottom of your statement of cash
flows. We do not object to your presentation of cash flows from
discontinued operations separately from your presentation of cash
flows from continuing operations. However, we do not believe that
netting together cash flows from operating, investing, and
financing
activities is consistent with the basic principles of SFAS 95.
Please quantify for us, and separately disclose in future periodic
filings, the cash flows used in discontinued operations for each
of
operating activities, investing activities, and financing
activities.
Note 8 - Discontinued Operations, page 53
3. We note your response to comment 1 from our letter dated July
27,
2005, and the additional information shared with us in a
conference
call on October 31, 2005. We appreciate the information you have
been providing us, and we request your continued patience as we
find
out more about your transaction with Aerojet. We continue to be
concerned that this transaction may not qualify for treatment as a
discontinued operation, and therefore we have the following
additional comments:
* We note that you believe that the guidance in EITF 03-13 is
applicable to this transaction despite the fact that the only
asset
sold to Aerojet was the Spin Forge inventory. We continue to
struggle with the fact that the remaining assets of your Spin
Forge
business, which includes the land and building under an operating
sub-lease to Aerojet and the specialized manufacturing equipment
under an operating lease to Aerojet, do not appear to have been
disposed of or to qualify as held for sale as of December 31,
2004.
We are particularly concerned because our understanding from the
information provided thus far is that the Spin Forge business uses
specialized manufacturing equipment; therefore, the disposition of
this specialized manufacturing equipment would appear to be a
critical factor in any determination of whether this component of
an
entity had been "disposed of". Please provide us with a detailed
analysis of why you believe it is appropriate to analyze this
transaction under EITF 03-13. Your response should specifically
address the fact that paragraph 18 of EITF 03-13 states that this
consensus should be applied to a component of an enterprise that
is
either disposed of or classified as held for sale. Please provide
two separate analyses, one assuming the treatment of your real
estate
lease with Spin Forge LLC is a capital lease, and the other
assuming
your real estate lease with Spin Forge LLC is an operating lease.
* Assuming the guidance in EITF 03-13 applies to this transaction,
please provide us with a robust analysis of this transaction under
EITF 03-13. Please provide two separate analyses, one assuming
the
treatment of your real estate lease with Spin Forge LLC is a
capital
lease, and the other assuming your real estate lease with Spin
Forge
LLC is an operating lease. If you consider the significance of
any
cash flows, please provide us with your calculations. We note
your
response to this issue in your letter dated September 9, 2005;
however, we are requesting a significantly more detailed analysis.
4. As requested during the conference call on October 31, 2005,
please provide us with a copy of your analysis supporting the
conclusion that your real estate lease with Spin Forge LLC should
have been accounted for as a capital lease beginning in 2003.
FORM 8-K FILED NOVEMBER 8, 2005
Exhibit 99.1
5. We read that you recently reached an agreement to sell your
purchase option on the Spin Forge property to the property owner
for
$2.3 million, and you expect this transaction to result in a pre-
tax
gain of $2.2 million. We have the following comments:
* Please provide us with more information on why you decided to
enter
into this agreement. Specifically address why management believes
that this agreement is a better decision for your company than
exercising the purchase option on the land and then selling the
land
to a third party at fair market value. Also tell us how you and
Spin
Forge LLC determined the $2.3 million purchase price that Spin
Forge
LLC will pay to reacquire this option from you. In this regard,
we
note that the $2.3 million price is significantly less than your
bargain purchase option exercise price of $2.88 million.
* Please tell us, and quantify, if you paid any amounts to acquire
your purchase option on the Spin Forge property beyond the $10,000
option fee mentioned in your March 18, 1998 Option Agreement with
Spin Forge LLC.
* Please tell us how Spin Forge LLC will fund this option purchase
(i.e. cash, note, or a combination of these).
* Please tell us how you calculated your estimated pre-tax gain
and
the accounting guidance that you relied upon.
* Please provide us with a copy of this agreement.
* * *
Please respond to these comments within 10 business
days,
or tell us when you will provide us with a response. Please
provide
us with a response letter that keys your responses to our comments
and provides any requested information. Detailed letters greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your responses to our comments.
If you have any questions regarding these comments, please
direct them to Jennifer Thompson, Staff Accountant, at (202) 551-
3737
or, in her absence, to the undersigned at (202) 551-3768.
Sincerely,
John Cash
Accounting Branch Chief
Mr. Yvon Pierre Cariou
Dynamic Materials Corporation
November 10, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-7010
DIVISION OF
CORPORATION FINANCE