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 March 31, 2001
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934 FOR THE TRANSITION PERIOD FROM TO .
Commission file number 0-8328
---------------
DYNAMIC MATERIALS CORPORATION
(Exact name of Registrant as Specified in its Charter)
Delaware 84-0608431
(State of Incorporation (I.R.S. Employer
or Organization) Identification No.)
5405 Spine Road, Boulder, Colorado 80301
(Address of principal executive offices, including zip code)
(303) 665-5700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes / X / No / /
The number of shares of Common Stock outstanding was 4,990,331 as of April
30, 2001.
1
ITEM 1. Financial Statements
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(unaudited)
March 31, December 31,
ASSETS 2001 2000
------ ---------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ - $ 186,530
Accounts receivable, net of allowance for doubtful
accounts of $140,000 and $130,000, respectively 4,516,646 4,632,123
Inventories 4,394,249 3,881,155
Prepaid expenses and other 393,318 258,493
------------- -------------
Total current assets 9,304,213 8,958,301
------------- -------------
PROPERTY, PLANT AND EQUIPMENT 17,987,965 17,769,509
Less- Accumulated depreciation (4,833,680) (4,492,850)
------------- -------------
Property, plant and equipment-net 13,154,285 13,276,659
------------- -------------
RESTRICTED CASH AND INVESTMENTS 179,394 179,394
INTANGIBLE ASSETS, net of accumulated amortization
of $1,171,280 and $1,094,870, respectively 4,916,340 4,992,750
OTHER ASSETS-net 302,255 260,351
------------- -------------
TOTAL ASSETS $ 27,856,487 $ 27,667,455
============= =============
See Notes to Condensed Financial Statements
2
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------------------------------------ ---------------- ----------------
CURRENT LIABILITIES:
Bank overdraft $ 98,098 $ -
Accounts payable 2,058,888 2,051,301
Accrued expenses 1,131,362 1,275,579
Current maturities on long-term debt 4,795,000 725,000
Current portion of capital lease obligation - 3,394
------------- -------------
Total current liabilities 8,083,348 4,055,274
LONG-TERM DEBT 6,285,000 10,230,000
DEFERRED GAIN 73,744 77,887
------------- -------------
Total liabilities 14,442,092 14,363,161
------------- -------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.05 par value;
4,000,000 shares authorized: no issued and
outstanding shares - -
Common stock, $.05 par value; 15,000,000 shares
authorized; 4,990,331 shares issued and
outstanding as of both dates 249,517 249,517
Additional paid-in capital 12,262,109 12,262,109
Retained earnings 902,769 792,668
------------- -------------
13,414,395 13,304,294
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,856,487 $ 27,667,455
============= =============
See Notes to Condensed Financial Statements
3
DYNAMIC MATERIALS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
For the three months
ended March 31,
2001 2000
---------------- ----------------
NET SALES $ 6,938,168 $ 6,386,623
COST OF PRODUCTS SOLD 5,544,457 5,551,787
--------------- --------------
Gross profit 1,393,711 834,836
--------------- --------------
COSTS AND EXPENSES:
General and administrative expenses 760,201 867,531
Selling expenses 359,227 367,029
--------------- --------------
1,119,428 1,234,560
--------------- --------------
INCOME (LOSS) FROM OPERATIONS 274,283 (399,724)
OTHER INCOME (EXPENSE):
Gain on sale of property and other income 555 185,610
Interest expense, net (164,737) (362,697)
--------------- --------------
Income (loss) before income taxes 110,101 (576,811)
INCOME TAX PROVISION - -
--------------- --------------
NET INCOME (LOSS) $ 110,101 $ (576,811)
=============== ==============
NET INCOME (LOSS) PER SHARE
Basic $ 0.02 $ (0.20)
=============== ==============
Diluted $ 0.02 $ (0.20)
=============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 4,990,331 2,842,429
=============== ==============
Diluted 4,990,331 2,842,429
=============== ==============
See Notes to Condensed Financial Statements
4
DYNAMIC MATERIALS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(unaudited)
Common Stock Additional
------------ Paid-In Retained
Shares Amount Capital Earnings
---------- ------------ ------------ ------------
Balances, December 31, 2000 4,990,331 $ 249,517 $ 12,262,109 $ 792,668
Net income - - - 110,101
------------ ------------ --------------- --------------
Balances, March 31, 2001 4,990,331 $ 249,517 $ 12,262,109 $ 902,769
============ ============ =============== ==============
See Notes to Condensed Financial Statements
5
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited)
For the three months
ended March 31,
2001 2000
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 110,101 $ (576,811)
Adjustments to reconcile net income (loss)
to net cash from operating activities-
Depreciation 340,830 296,339
Amortization 76,410 80,231
Amortization of deferred gain (4,143) (8,382)
Amortization of deferred compensation - 4,219
Gain on sale of property, plant and equipment - (185,570)
Change in -
Accounts receivable, net 115,477 (490,118)
Inventories (513,094) (1,242,550)
Prepaid expenses and other (134,825) (49,976)
Income tax receivable - 33,238
Accounts payable 7,587 439,385
Accrued expenses (144,217) (17,495)
------------- -------------
Net cash flows from operating activities (145,874) (1,717,490)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Release of restricted cash and investments - 87,493
Cash paid in connection with the construction
of the Pennsylvania facility - (228,836)
Acquisition of property, plant and equipment (218,456) (55,035)
Proceeds from repayment of loan to related party - 354,588
Change in other non-current assets (41,904) (203,415)
Proceeds from sale of property, plant and equipment - 940,036
------------- -------------
Net cash flows from investing activities (260,360) 894,831
------------- -------------
See Notes to Condensed Financial Statements
6
For the three months
ended March 31,
2001 2000
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on bank line of credit, net - 455,000
Borrowings on SNPE, Inc. line of credit 300,000 -
Payment on industrial development revenue bonds (175,000) (165,000)
Payments on capital lease obligation (3,394) (8,559)
Bank overdraft 98,098 541,218
-------------- -------------
Net cash flows from financing activities 219,704 822,659
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (186,530) -
CASH AND CASH EQUIVALENTS, beginning of the period 186,530 -
-------------- -------------
CASH AND CASH EQUIVALENTS, end of the period $ - $ -
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 150,770 $ 305,657
============== =============
Income taxes $ - $ -
============== =============
See Notes to Condensed Financial Statements
7
DYNAMIC MATERIALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information included in the Condensed 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 Financial Statements should be read in conjunction
with the financial statements that are included in the Company's Annual Report
filed on Form 10-K for the year ended December 31, 2000.
2. NEW ACCOUNTING PRINCIPLE
The FASB recently issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"), which requires that companies recognize all derivatives as either assets
or liabilities in the balance sheet at fair value. Under SFAS 133, accounting
for changes in fair value of a derivative depends on its intended use and
designation. SFAS 133 is effective for fiscal years beginning after June 15,
2000. The Company has implemented SFAS 133 effective January 1, 2001 with no
impact.
3. INVENTORIES
This caption on the Condensed Balance Sheet includes the following:
March 31, December 31,
2001 2000
---------------- ---------------
Raw Materials $ 1,110,701 $ 950,632
Work-in-Process 3,231,520 2,878,802
Supplies 52,028 51,721
------------- -------------
$ 4,394,249 $ 3,881,155
============= =============
8
4. LONG-TERM DEBT
Long-term debt consists of the following at March 31, 2001 and December 31,
2000:
March 31, December 31,
2001 2000
--------------- ---------------
Line of credit, SNPE, Inc. $ 4,050,000 $ 3,750,000
Convertible subordinated note, SNPE, Inc. 1,200,000 1,200,000
Industrial development revenue bonds 5,830,000 6,005,000
--------------- ---------------
Total long-term debt 11,080,000 10,955,000
Less current maturities (4,795,000) (725,000)
--------------- ---------------
$ 6,285,000 $ 10,230,000
=============== ===============
Loan Covenants and Restrictions
The Company's 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 March 31, 2001, the Company is
in compliance with all financial covenants and other provisions of its debt
agreements.
5. INCOME TAXES
No tax provision has been recorded for the quarter ended March 31, 2001 as
any provision necessary would be offset by the recognition of tax benefits not
recorded on fiscal year 2000 losses. The Company did not record tax benefits for
either the quarter ended March 31, 2000 or the year ended December 31, 2000,
since it had utilized all of its tax loss carry-backs in 1999 and the Company's
financial position and near-term operations outlook made the future realization
of tax benefits associated with tax loss carry-forwards uncertain.
6. BUSINESS SEGMENTS
The Company is organized in the following two segments: the Explosive
Metalworking Group and the Aerospace Group. The Explosive Metalworking Group
uses explosives to perform metal cladding, metal forming and shock synthesis.
The most significant product of this group is clad metal which is used in the
fabrication of pressure vessels, heat exchangers and transition joints used in
the hydrocarbon processing, chemical processing, power generation,
petrochemical, pulp and paper, mining, shipbuilding and heat, ventilation and
air conditioning industries. The Aerospace Group machines, forms and welds parts
for the commercial aircraft, aerospace and defense industries.
9
The Company's reportable segments are strategic business units that offer
different products and services and are separately managed. Each segment is
marketed to different customer types and requires different manufacturing
processes and technologies. Segment information is presented for the three
months ended March 31, 2001 and 2000 as follows:
Explosive
Manufacturing Aerospace Total
------------- --------------- -----------
For the three months ended March 31, 2001:
Net sales $ 4,168,837 $ 2,769,331 $ 6,938,168
=========== ============ ==========
Depreciation and amortization $ 209,737 $ 207,503 $ 417,240
=========== ============ ==========
Income (loss) from operations $ 305,303 $ (31,020) $ 274,283
Unallocated amounts:
Other income 555
Interest expense, net (164,737)
-----------
Total income before income taxes $ 110,101
==========
Explosive
Manufacturing Aerospace Total
------------- --------------- -----------
For the three months ended March 31, 2000:
Net sales $ 3,305,345 $ 3,081,278 $ 6,386,623
=========== ============ ==========
Depreciation and amortization $ 163,539 $ 213,031 $ 376,570
=========== ============ ==========
Loss from operations $ (388,437) $ (11,287) $ (399,724)
Unallocated amounts:
Other income 185,610
Interest expense, net (362,697)
----------
Total loss before income taxes $ (576,811)
==========
10
All of the Company's sales are shipped from domestic locations and all of
the Company's assets are located within the United States. The following
represents the Company's net sales based on the geographic location of the
customer:
For the three months
ended March 31,
-----------------------------
2001 2000
------------ ----------
United States $6,315,260 $5,624,234
Canada 325,567 202,957
Australia 204,212 -
South Korea 10,139 380,244
Other foreign countries 82,990 179,188
------------ ------------
Total net sales $6,938,168 $6,386,623
============ ============
During the three month periods ended March 31, 2001 and March 31, 2000, no
single customer accounted for more than 10% of total net sales.
11
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Dynamic Materials Corporation ("DMC" or the "Company") is a worldwide
leader in explosive metalworking and, through its Aerospace Group, is involved
in a variety of metal forming, machining, welding, and assembly activities. The
explosive metalworking business includes the use of explosives to perform
metallurgical bonding, or "metal cladding" and shock synthesis of synthetic
diamonds. The Company performs metal cladding using its proprietary
technologies. The Company's revenues from its explosive metalworking businesses,
as a proportion of total Company revenues, have declined in the past two years
as a result of a significant slowdown in global market demand for explosion
bonded clad metal products and the 1998 acquisitions of AMK Welding ("AMK"),
Spin Forge and Precision Machined Products ("PMP"). The Company's Aerospace
Group was formed from these three acquisitions and accounted for 22%, 42% and
39% of the Company's 1998, 1999 and 2000 revenues, respectively.
Explosive Metalworking. Clad metal products are used in manufacturing
processes or environments that involve highly corrosive chemicals, high
temperatures and/or high pressure conditions. For example, the Company
fabricates clad metal tube sheets for heat exchangers. Heat exchangers are used
in a variety of high temperature, high pressure, highly corrosive chemical
processes, such as processing crude oil in the petrochemical industry and
processing chemicals used in the manufacture of synthetic fibers. In addition,
the Company has produced titanium clad plates used in the fabrication of metal
autoclaves to replace autoclaves made of brick and lead for two customers in the
mining industry. The Company believes that its clad metal products are an
economical, high-performance alternative to the use of solid corrosion-resistant
alloys. In addition to clad metal products, the explosive metalworking business
includes shock synthesis of synthetic diamonds.
Aerospace Manufacturing. Products manufactured by the Aerospace Group are
typically made from sheet metal and forgings that are subsequently machined or
formed into precise, three-dimensional shapes that are held to tight tolerances.
Metal machining and forming is accomplished through traditional technologies,
including spinning, machining, rolling and hydraulic expansion. DMC also
performs welding services utilizing a variety of manual and automatic welding
techniques that include electron beam and gas tungsten arc welding processes.
The Company's forming and welding operations are often performed to support the
manufacture of completed assemblies and sub-assemblies required by its
customers. Fabrication and assembly services are performed utilizing the
Company's close-tolerance machining, forming, welding, inspection and other
special service capabilities. The Company's forming, machining, welding and
assembly operations serve a variety of product applications in the commercial
aircraft, aerospace, defense and power generation industries. Product
applications include tactical missile motor cases, titanium pressure tanks for
launch vehicles, and complex, high precision component parts for satellites.
12
On March 16, 2001, the Company announced that it has reached agreement to
acquire 100% of the stock of Nobleclad Europe S.A. ("Nobleclad") and Nitro
Metall Aktiebolag ("Nitro Metall") from Nobel Explosifs France ("NEF").
Nobelclad and Nitro Metall operate cladding businesses located in Rivesaltes,
France and Likenas, Sweden, respectively, which generated combined unaudited
revenues of approximately $10.5 million in calendar year 2000. NEF is wholly
owned by Groupe SNPE and is a sister company to SNPE, Inc., which owns 55% of
the Company's common stock. The acquisition is expected to close in the third
quarter of 2001. The purchase price of approximately $5.4 million will be
financed through a $4.0 million intercompany note agreement between the Company
and SNPE, Inc. and the assumption of approximately $1.4 million in third party
bank debt associated with Nobleclad's planned acquisition of Nitro Metall from
NEF prior to the Company's purchase of Nobleclad stock.
In 2000, the Company experienced significant operating losses as a result
of a significant decline in sales revenue and gross margin levels within its
Aerospace Group. The Company's Explosive Metalworking Group generated a small
operating income in 2000 after incurring significant operating losses in 1999.
The Company also experienced, and expects to continue to experience, quarterly
fluctuations in operating results caused by various factors, including the
timing and size of orders from major customers, customer inventory levels,
shifts in product mix, the occurrence of acquisition and divestiture-related
costs, and general economic conditions. The Company typically does not obtain
long-term volume purchase contracts from its customers. Quarterly sales and
operating results therefore depend on the volume and timing of backlog as well
as bookings received during the quarter. A significant portion of the Company's
operating expenses are fixed, and planned expenditures are based primarily on
sales forecasts and product development programs. If sales do not meet the
Company's expectations in any given period, the adverse impact on operating
results may be magnified by the Company's inability to adjust operating expenses
sufficiently or quickly enough to compensate for such a shortfall. In addition,
the Company uses numerous suppliers of alloys, steels and other materials for
its operations. The Company typically bears a short-term risk of alloy, steel
and other component price increases, which could adversely affect the Company's
gross profit margins. Although the Company will work with customers and
suppliers to minimize the impact of any component shortages, component shortages
have had, and are expected from time to time to have, short-term adverse effects
on the Company's business. Results of operations in any period should not be
considered indicative of the results to be expected for any future period.
Fluctuations in operating results may also result in fluctuations in the price
of the Company's common stock.
13
Quarter Ended March 31, 2001 Compared to March 31, 2000
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain income statement data:
Percentage of Net Sales
Three Months Ended March 31,
2001 2000
---- ----
Net sales 100.0 100.0
Cost of products sold Manufactured 79.9 86.9
----- -----
Gross margin 20.1 13.1
General & administrative 11.0 13.6
Selling expenses 5.2 5.7
Income (loss) from operations 4.0 (6.3)
Interest expense 2.4 5.7
Net income (loss) 1.6 (9.0)
Net Sales. Net sales for the quarter ended March 31, 2001 increased 8.6% to
$6,938,168 from $6,386,623 in the first quarter of 2000. The Company's Aerospace
Group, which was formed in 1998 as a result of the acquisitions of AMK, Spin
Forge and PMP, contributed $2,769,331 (39.9% of total sales) to 2001 first
quarter sales versus sales of $3,081,278 (48.2% of total sales) in the first
quarter of 2000. Sales by the Company's Explosive Metalworking Group, which
includes explosion bonding of clad metal and shock synthesis of synthetic
diamonds, increased 26.1% from $3,305,345 in the first quarter of 2000 to
$4,168,837 in the first quarter of 2001. The increase in Explosive Metalworking
Group sales reflects what management believes is an increase in global market
demand for clad metal as supported by first quarter 2001 new order bookings that
were at their highest quarterly level in more than two years.
Gross Profit. The Company's gross profit for the quarter ended March 31,
2001 increased by 66.9% to $1,393,711 from $834,836 in the first quarter of
2000. The gross profit margin for the quarter ended March 31, 2001 was 20.1%,
representing a 53.4% increase from the gross profit margin of 13.1% for the
first quarter of 2000. The gross profit margin for the Company's Explosive
Metalworking Group increased from 7.8% in the first quarter of 2000 to 23.0% in
the first quarter of 2001. The increase in the gross profit margin for the
Explosive Metalworking Group is due to improvements in product pricing and a
more favorable absorption of fixed manufacturing overhead cost into cost of
products sold as a result of the 26.1% increase in Explosive Metalworking Group
net sales. The gross profit margin for the Aerospace Group was 15.7% for the
quarter ended March 31, 2001 as compared to 18.8% in the first quarter of 2000.
This decrease relates principally to product mix differences between the two
quarters and unfavorable absorption of fixed manufacturing expenses into cost of
products sold at Spin Forge due to year-to-year sales decreases at this
location.
14
General and Administrative. General and administrative expenses for the
quarter ended March 31, 2001 decreased 12.4% to $760,201 from $867,531 in the
first quarter of 2000. The decrease in general and administrative expenses is
largely due to reductions in salaries, payroll taxes and benefits as well as
reductions in legal expenses. General and administrative expenses as a
percentage of net sales decreased from 13.6% in the first quarter of 2000 to
11.0% for the quarter ended March 31, 2001.
Selling Expenses. Selling expenses decreased by 2.1% to $359,227 for the
quarter ended March 31, 2001 from $367,029 in the first quarter of 2000. Due to
the 8.6% increase in sales, selling expenses as a percentage of net sales
decreased from 5.7% in the first quarter of 2000 to 5.2% for the quarter ended
March 31, 2001.
Income/Loss from Operations. Income from operations for the quarter ended
March 31, 2001 totaled $274,283, a $674,007 increase from the $399,724 operating
loss reported in the first quarter of 2000. This increase reflects a gross
profit increase of $558,875 primarily associated with increased sales and
improved margins related to the Company's Explosive Metalworking Group as well
as reductions in operating expenses totaling $115,132. Income from operations
for the Explosive Metalworking Group increased by $693,740 from a loss of
$388,437 for the first quarter of 2000 to income from operations of $305,303 for
the first quarter of 2001. The increase in income from operations for the
Explosive Metalworking Group is due primarily to improvements in pricing and the
favorable absorption of fixed manufacturing overhead costs into costs of
products sold that resulted from the 26.1% increase in Explosive Metalworking
Group net sales. Income from operations for the Aerospace Group declined by
$19,733 from a loss of $11,287 for the first quarter of 2000 to a loss from
operations of $31,020 for the first quarter of 2001. This decrease relates
principally to product mix differences between the two quarters and unfavorable
absorption of fixed manufacturing expenses into cost of products sold at Spin
Forge due to the year-to-year sales decrease at this location.
Interest Expense. Interest expense decreased to $164,737 for the quarter
ended March 31, 2001 from $362,697 in the first quarter of 2000. This decrease
resulted from the reduction in revolving credit debt that was made possible by
the equity invested in the Company by SNPE, Inc. on June 14, 2000.
Income Tax Provision. No tax provision has been recorded for the quarter
ended March 31, 2001 as any provision necessary would be offset by the
recognition of tax benefits not recorded on year 2000 losses. The Company did
not record tax benefits for either the quarter ended March 31, 2000 or the year
ended December 31, 2000, since it had utilized all of its tax loss carry-backs
in 1999 and the Company's financial position and near-term operations outlook
made the future realization of tax benefits associated with tax loss
carry-forwards uncertain.
15
Liquidity and Capital Resources
Historically, the Company has obtained most of its operational financing
from a combination of operating activities and an asset-backed revolving credit
facility. Due primarily to the operating losses the Company incurred during 1999
and the first quarter of 2000, the Company violated certain financial covenants
under both the revolving credit facility that was then in effect and the
reimbursement agreement related to the letter of credit supporting payment of
principal and interest under the Company's industrial revenue development bonds
(the "Bonds") used to finance the construction of its manufacturing facilities
in Pennsylvania. On June 14, 2000 the Company's stockholders approved a Stock
Purchase Agreement (the "Agreement") between the Company and SNPE, Inc ("SNPE").
The closing of the transaction, which was held immediately following stockholder
approval, resulted in a payment from SNPE of $5,800,000 to the Company in
exchange for 2,109,091 shares of the Company's common stock at a price of $2.75
per share causing SNPE to become a 50.8% stockholder of the Company on the
closing date. An additional $1,200,000 cash payment was made by SNPE to the
Company to purchase a five-year, 5% Convertible Subordinated Note that is
convertible in whole or in part into common stock by SNPE at a conversion price
of $6 per share. The Company also borrowed $3,500,000 on June 14, 2000 under a
new credit facility with SNPE that bears interest at the Federal Funds Rate plus
1.5% and may be increased to a maximum of $4,500,000 in total borrowings subject
to certain approvals by SNPE (as of March 31, 2001, $4,050,000 was drawn and
outstanding under this facility). Proceeds from the SNPE equity investment,
convertible subordinated note issuance and credit facility borrowings aggregated
$10,500,000 and enabled the Company to repay all outstanding borrowings under
its bank revolving credit facility on which the Company had been in default
since September 30, 1999. The bank revolving credit facility was terminated on
June 14, 2000. As a result of the SNPE debt and equity infusion, the Company was
also able to restructure financial covenants under the reimbursement agreement
with its bank relating to the industrial development revenue bonds and is
currently in full compliance with all provisions of its debt agreements. The
three-year bank letter of credit that supports the Company's industrial
development revenue bonds expires in September 2001. Company management believes
that the Company will be able to obtain a replacement letter of credit
arrangement on terms similar to those of the existing letter of credit and
underlying reimbursement agreement.
The Company believes that its cash flow from operations and funds available
under its credit facility with SNPE, or a replacement credit facility with a
third party financial institution, will be sufficient to fund working capital,
debt service obligations and capital expenditure requirements of its current
business operations for the foreseeable future. SNPE has agreed to extend its
credit facility, which was originally callable upon 90 days' notice and had an
original maturity date of June 30, 2001, to March 31, 2002. Management of the
Company intends to replace the SNPE credit facility with a new third party
credit facility during the last half of 2001 or the early part of 2002 and
believes that the Company's strengthened balance sheet and improving operating
results will enable the Company to secure such third party financing on
reasonable terms. Until the Company is able to secure such third party financing
on reasonable terms, it will continue to rely on the financial support of SNPE.
Company management believes that it will be able to negotiate an increase in the
16
SNPE credit facility during 2001 if the Company's working capital requirements
increase as a result of the anticipated sales growth during the year. A
significant portion of the Company's sales is derived from a relatively small
number of customers; therefore, the failure to perform existing contracts on a
timely basis, and to receive payment for such services in a timely manner, or to
enter into future contracts at projected volumes and profitability levels could
adversely affect the Company's ability to meet its cash requirements exclusively
through operating activities. Consequently, any restriction on the availability
of borrowing under the SNPE credit facility or a replacement facility could
negatively affect the Company's ability to meet its future cash requirements.
Highlights from the Statement of Cash Flows for the Quarter Ended March 31, 2001
Net cash used in operations for the quarter ended March 31, 2001 was
$145,874. Significant sources included net income of $110,101 and depreciation
and amortization of $413,097. These sources were more than offset by negative
changes in working capital totaling $669,072.
Cash used in investing activities totaled $260,360 and was comprised of
acquisitions of property, plant and equipment of $218,456 and increases in other
assets of $41,904.
Net cash flows from financing activities totaled $219,704. Significant
sources included borrowings on the SNPE, Inc. line of credit of $300,000 and a
bank overdraft of $98,098. Uses of cash included a payment on the industrial
development revenue bonds of $175,000.
Highlights from the Statement of Cash Flows for the Quarter Ended March 31, 2000
Net cash used in operating activities for the quarter ended March 31, 2000
was $1,717,490. Significant uses included a net loss of $576,811, a gain on the
sale of property, plant and equipment of $185,570 and a negative change in
working capital totaling $1,327,516. These uses were partly offset by
depreciation and amortization totaling $372,407.
Net cash flows from investing activities totaled $894,831 for the
quarter ended March 31, 2000. Significant sources included $940,036 in proceeds
from the sale of property, plant and equipment, $354,588 in proceeds from the
receipt of payment on a loan to a related party and $87,493 from the release of
restricted cash and investments. Significant uses, partly offseting the sources,
included $228,836 paid in connection with the construction of the Pennsylvania
facility, $55,035 of property, plant and equipment acquisitions and an increase
of $203,415 in other non-current assets.
Net cash flows from financing activities were $822,659 and included
borrowings on the bank line of credit for $455,000 and a bank overdraft of
$541,218. Uses of cash included a payment on the industrial development revenue
bonds of $165,000.
17
Forward-Looking Statements
Statements which are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from projected results. Factors that could
cause actual results to differ materially include, but are not limited to the
following: the ability to obtain new contracts at attractive prices; the size
and timing of customer orders; fluctuations in customer demand; competitive
factors; the timely completion of contracts; any actions which may be taken by
SNPE as the controlling shareholder of the Company with respect to the Company
and its businesses; the timing and size of expenditures; the timely receipt of
government approvals and permits; the adequacy of local labor supplies at the
Company's facilities; the availability and cost of funds; and general economic
conditions, both domestically and abroad. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect management's
analysis only as of the date hereof. The Company undertakes no obligation to
publicly release the results of any revision to these forward-looking statements
which, may be made to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
There have been no events that materially effect the Company's quantitative
and qualitative disclosure about market risk as reported in the December 31,
2000 Form 10-K.
18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6.
(a) Reports on Form 8-K
None.
(b) Exhibits
27 Financial Data Schedule
19
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
DYNAMIC MATERIALS CORPORATION
(Registrant)
Date: May 14, 2001
Richard A. Santa, Vice President and
Chief Financial Officer (Duly Authorized Officer and
Principal Financial and Accounting Officer)
20