UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
Form 10-K
 (Mark One)
 
x      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014
 

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)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Common Stock, $.05 Par Value
 
The Nasdaq National Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  o  No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act from their obligations under those sections. Yes  o  No x

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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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
(Do not check if smaller reporting company)
 
Smaller reporting company o
 
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 approximate aggregate market value of the voting stock held by non-affiliates of the registrant was $292,888,226 as of June 30, 2014.

The number of shares of Common Stock outstanding was 14,146,109 as of March 13, 2015.

Certain information required by Items 10, 11, 12, 13 and 14 of Form 10-K is incorporated by reference into Part III hereof from the registrant’s proxy statement for its 2014 Annual Meeting of Shareholders, which is expected to be filed with the Securities and Exchange Commission (“SEC”) within 120 days of the close of the registrant’s fiscal year ended December 31, 2014.

 



TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Explanatory Note Regarding Restatement

In this Annual Report on Form 10-K for our fiscal year ended December 31, 2014, we are restating audited financial statements, including the consolidated financial position as of December 31, 2013 and the consolidated results of our operations, comprehensive income (loss), stockholders' equity and our cash flows for each of the two years in the period ended December 31, 2013. Additionally, the Company has included in Note 13 “Selected Quarterly Financial Data (unaudited),” restated interim financial information for the four quarters included in the fiscal year ended December 31, 2013 and the first three quarters included in the fiscal year ended December 31, 2014, along with reconciliations of the previously issued annual and quarterly financial information to the restated information.

We are restating our financial statements and related disclosures to correct non-cash errors reported in our historical consolidated financial statements related to income tax expense and related deferred tax assets and liabilities at our business entities in Germany as well as other adjustments, which were immaterial. In November 15, 2007, we acquired DynaEnergetics under a newly created German subsidiary DynaEnergetics Holding GmbH (“Holding Co”). Subsequent to the acquisition we recognized income tax expense or benefits for German federal and local income tax purposes and paid cash taxes accordingly for Holding Co. However, we incorrectly had been deferring the recognition of the income tax expense or benefit in our calculation of net income for purposes of U.S. GAAP reporting.
    
The non-cash impact of the restatement and other adjustments decreased income from continuing operations by $1,036 thousand in 2013 and $919 thousand in 2012. The cumulative effect of the errors increased shareholders’ equity by $237 thousand as of December 31, 2013. The restatement only impacted the income tax provision (benefit) line item in our consolidated statements of operations for the years ended December 31, 2013 and 2012, respectively. The restatement had no impact on the Company’s revenues, did not affect the Company’s cash balances and has no effect on the Company’s future operations.

We also concluded that a material weakness in internal control over financial reporting existed for deficiencies due to insufficient processes and controls around income tax accounting, and that our disclosure controls were not effective solely because of this material weakness. As such, we have modified our discussion of disclosure controls and procedures included in Item 9A and our report on internal control over financial reporting contained in this annual report on Form 10-K to disclose how the restatement affected our chief executive officer’s and chief financial officer’s assessment of internal controls over financial reporting.

We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon.

Additional information on the restatement can be found in this report in:

Item 1A. "Risk Factors";
Item 6. "Selected Financial Data";
Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
Item 8. “Financial Statements and Supplementary Data”, Note 3 “Restatement of Previously-Issued Financial Statements”; and Note 13 “Selected Quarterly Financial Data (unaudited)”;
Item 9A. “Controls and Procedures”

PART I

ITEM 1.                                                Business
 
References made in this Annual Report on Form 10-K to “we”, “our”, “us”, “DMC” and the “Company” refer to Dynamic Materials Corporation and its consolidated subsidiaries.

Overview
 
Dynamic Materials Corporation operates a diversified family of technical product and process businesses serving the energy, industrial and infrastructure markets. Our businesses operate globally through an international network of manufacturing, distribution and sales facilities.

Today, our business segments consist of NobelClad (48% of 2014 net sales) and DynaEnergetics (52% of 2014 net sales).

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NobelClad is a global leader in the production of explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints. DynaEnergetics manufactures and distributes products utilized by the global oil and gas industry principally for the perforation of oil and gas wells.

Our Strategy
Our diversified business segments each provide a suite of unique technical products to niche segments of the global energy, industrial and infrastructure markets; and each of our businesses has established a strong or leading position in the markets in which it participates. With an underlying focus on free-cash flow generation, our objective is to sustain and grow the market share of our businesses through geographic expansion, development of new applications, and research and development of new and adjacent products that can be sold across our global network of sales and distribution facilities. We also intend to explore potential acquisitions of complementary businesses that could strengthen or add to our existing product and service portfolio, or expand our geographic footprint and market presence.

Business Segments

NobelClad

Clad metal plates are typically used in the construction of heavy, corrosion resistant pressure vessels and heat exchangers. Clad metal plates consist of a thin layer of an expensive, corrosion resistant cladder metal, such as titanium or stainless steel, which is metallurgically combined with a less expensive structural backing metal, such as carbon steel.  For heavy equipment, clad plates generally provide an economical alternative to building the equipment solely of a corrosion resistant alloy.
 
There are three major industrial clad plate manufacturing technologies: Explosion Welding, Hot Rollbonding and Weld Overlay. Explosion welding, the technology utilized by NobelClad, is the most versatile of the clad plate manufacturing methods. Created using a robust cold welding technology, explosion-welded clad products exhibit high bond strength combining the corrosion resistance and mechanical properties of the cladder material with the backer material respectively.  The explosion-welded clad process is suitable for joining virtually any combination of common engineering metals. This represents a competitive advantage versus the hot rollbonding and weld overlay processes, which generally can only clad compatible metals such as nickel alloys and stainless steels.

Explosion-welded clad metal is produced as flat plates or concentric cylinders, which can be further formed and fabricated into a broad range of industrial processing equipment or specialized transition joints. When fabricated properly, the two metals will not come apart, as the bond zone is generally stronger than the parent metals. The dimensional capabilities of the process are broad: cladding metal layers can range from a few thousandths of an inch to several inches and base metal thickness and lateral dimensions are primarily limited by the size capabilities of the world’s metal production mills.  Explosion welding is used to clad a broad range of metals to steel, including aluminum, titanium, zirconium, nickel alloys and stainless steels.
 
Clad Metal End Use Markets
 
Explosion-welded clad metal is primarily used in the construction of large industrial processing equipment that is subject to high pressures and temperatures and/or corrosive processes. Explosion welded clad plates also can be cut into transition joints, which are used to facilitate conventional welding of dissimilar metals. The eight broad industrial sectors discussed below comprise the bulk of demand for NobelClad’s products. This demand is driven by the underlying need for both new equipment and facility maintenance in these primary market sectors.

Oil and Gas: Oil and gas end use markets include both oil and gas production and petroleum refining. Oil and gas production covers a broad scope of operations related to recovering oil and/or gas for subsequent processing in refineries. Clad metal is used in separators, glycol contactors, piping, heat exchangers and other related equipment. The increase in oil and gas production from deep, hot, and more corrosive fields has increased the demand for clad equipment. Many non-traditional energy production methods are potentially commercially viable for bringing natural gas to the market. Clad is commonly used in these facilities. The primary clad metals for this market are stainless steel and nickel alloys clad to steel, with some use of reactive metals, such as titanium and zirconium.

Petroleum refining processes frequently are corrosive, hot, and operate at high pressures. Clad metal is extensively used in a broad range of equipment including desulfurization hydrotreaters, coke drums, distillation columns, separators and heat exchangers. In the United States, refinery capacity utilization is high; and adding capacity and reducing costly down-time are a high priority. The increasing reliance upon low quality, high sulfur crude further drives additional demand for new corrosion

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resistant equipment. Worldwide trends in regulatory control of sulfur emissions in gas, diesel and jet fuel are also increasing the need for clad equipment. Like the upstream oil and gas sector, the clad metals are primarily stainless steel and nickel alloys.

Alternative Energy: Some alternative energy technologies involve conditions that necessitate clad metals. Solar panels predominantly incorporate high purity silicon. Processes for manufacturing high purity silicon utilize a broad range of highly corrosion resistant clad alloys. Many geothermal fields are corrosive, requiring high alloy clad separators to clean the hot steam. Cellulosic ethanol technologies may require corrosion resistant metals such as titanium and zirconium.

Chemical and Petrochemical: Many common products, ranging from plastics to drugs to electronic materials, are produced by chemical processes. Because the production of these items often involves corrosive agents and is conducted under high pressures or temperatures, corrosion resistant equipment is needed. One of the larger applications for clad equipment is in the manufacture of Purified Terephthalic Acid (“PTA”), a precursor product for polyester, which is used in everything from carpets to plastic bottles. This market requires extensive use of stainless steel and nickel alloys, but also uses titanium and, to a lesser extent, zirconium and tantalum.

Hydrometallurgy: The processes for production of nickel, gold, and copper involve acids, high pressures, and high temperatures; and titanium-clad plates are used extensively for construction of associated autoclaves and peripheral equipment.

Aluminum Production: Aluminum is reduced from its oxide in large electric smelters called potlines. The electric current is carried via aluminum conductors. The electricity must be transmitted into steel components for the high temperature smelting operations. Aluminum cannot be welded to steel conventionally. Explosion-welded aluminum-steel transition joints provide an energy efficient and highly durable solution for making these connections. Modern potlines use a large number of transition joints, which are typically replaced after approximately five years in service. Although aluminum production is the major electrochemical application for NobelClad products, there are a number of other electrochemical applications including production of magnesium, chlorine and chlorate.

Shipbuilding: The combined problems of corrosion and top-side weight drive demand for our aluminum-steel transition joints, which serve as the juncture between a ship's upper and lower structures. Top-side weight is often a significant problem with tall ships, including cruise ships, naval vessels, ferries and yachts. Use of aluminum in the upper structure and steel in the lower structure provides stability. Since aluminum cannot be welded directly to steel using traditional welding processes, and since bolted joints between aluminum and steel corrode quickly in seawater, explosion welded transition joints are a common solution. NobelClad's transition joints have been used in the construction of many well-known ships, including the QE II and modern U.S. Navy aircraft carriers.

Power Generation: Fossil fuel and nuclear power generation plants require extensive use of heat exchangers, many of which require corrosion resistant alloys to handle low quality cooling water. Our clad plates are used extensively for heat exchanger tubesheets. The largest clad tubesheets are used in the final low-pressure condensers. For most coastal and brackish water-cooled plants, titanium is the metal of choice technically, and titanium-clad tubesheets are the low-cost solution for power plant condensers.

Industrial Refrigeration: Heat exchangers are a core component of refrigeration systems. When the cooling fluid is seawater, brackish, or even slightly polluted, corrosion resistant metals are necessary. Metal selection can range from stainless steel to copper alloy to titanium. Explosion-welded clad metal is often the low cost solution for making the tubesheets. Applications range from refrigeration chillers on fishing boats to massive air conditioning units for skyscrapers, airports, and deep underground mines.

Operations

The NobelClad segment seeks to build on its leadership position in its markets.  During the three years ended December 31, 2012, 2013 and 2014, the NobelClad segment represented approximately 60%, 59% and 48% of our revenue, respectively.  The three manufacturing plants and their respective shooting sites in Pennsylvania, Germany and France provide the production capacity to address concurrent projects for NobelClad’s North American and international customer base.
 
The principal product of metal cladding, regardless of the process used, is a metal plate composed of two or more dissimilar metals, usually a corrosion resistant metal, or "cladder," bonded to a steel backing plate. Prior to the explosion-welding process, the materials are inspected, the mating surfaces are ground, and the metal plates are assembled for cladding. The process involves placing a sheet of the cladder over a parallel plate of backer material and then covering the cladder with a layer of specifically formulated explosive. A small gap or “standoff space” is maintained between the cladder and backer using small metal spacers. The explosion is then initiated on one side of the cladder and travels across the surface of the cladder forcing it down onto the backer. The explosion happens in approximately one-thousandth of a second.  The collision conditions cause a thin layer of the mating surfaces, as well as the spacers, to be spalled away in a jet.  This action removes oxides and surface contaminants immediately

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ahead of the collision point.  The extreme pressures force the two metal components together, creating a metallurgical bond between them.  The explosion-welded clad process produces a strong, ductile, continuous metallurgical weld over the clad surface.  After the explosion is completed, the resulting clad plates are flattened and cut, and then undergo testing and inspection to assure conformance with internationally accepted product specifications.

EXPLOSION-WELDING PROCESS
 
 

Explosion-welded cladding technology is a method for welding metals that cannot be joined using conventional welding processes, such as titanium-steel, aluminum-steel, and aluminum-copper. Explosion welding also can be used to weld compatible metals, such as stainless steels and nickel alloys to steel.  The cladding metals are typically titanium, stainless steel, aluminum, copper alloys, nickel alloys, tantalum, and zirconium. The base metals are typically carbon steel, alloy steel, stainless steel and aluminum.  Although the patents for the explosion-welded cladding process have expired, NobelClad has proprietary knowledge that distinguishes it from its competitors.  The entire explosion-welding process involves significant precision in all stages, and any errors can be extremely costly as they often result in the discarding of the expensive raw material metals.  NobelClad’s technological expertise is a significant advantage in preventing costly waste.

NobelClad’s metal products are primarily produced for custom projects and conform to requirements set forth in customers’ purchase orders. Upon receipt of an order, NobelClad obtains the component materials from a variety of sources based on quality, availability and cost and then produces the order in one of its three manufacturing plants.  Final products are processed to meet contract specific requirements for product configuration and quality/inspection level.
 
Suppliers and Raw Materials
 
NobelClad's operations involve a range of alloys, steels and other materials, such as stainless steel, copper alloys, nickel alloys, titanium, zirconium, tantalum, aluminum and other metals.  NobelClad sources its raw materials from a number of different producers and suppliers. It holds a limited metal inventory and purchases its raw materials based on contract specifications. Under

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most contracts, any raw material price increases are passed on to NobelClad’s customers.  NobelClad closely monitors the quality of its supplies and inspects the type, dimensions, markings, and certification of all incoming metals to ensure that the materials will satisfy applicable construction codes. NobelClad also manufactures a majority of its own explosives from standard raw materials, thus achieving higher quality and lower cost.
 
Competition
 
Metal Cladding.  NobelClad faces competition from two primary alternative cladding technologies: Hot-Rollbonding and Weld Overlay. Usually the three processes do not compete directly, as each has its own preferential domain of application relating to metal used and thicknesses required.  However, due to specific project considerations such as technical specifications, price and delivery time, explosion-welding may have the opportunity to compete successfully against these technologies.  Rollbond is only produced by a few steel mills in the world. In this process, the clad metal and base metal are bonded during the hot rolling operation in which the metal slab is converted to plate. Being a high temperature process, hot rollbond is limited to joining similar metals, such as stainless steel and nickel alloys to steel.  Rollbond’s niche is production of large quantities of light to medium gauge clad plates; it is frequently lower cost than explosion clad when total metal thickness is under 1 to 2 inches (dependent upon alloy and a number of other factors).  Rollbond products are generally suitable for most pressure vessel applications but have lower bond shear strength and may have inferior corrosion resistance.

The weld overlay process, which is produced by the many vessel fabricators that are often also NobelClad customers, is a slow and labor-intensive process that requires a large amount of floor space for the equipment. In weld overlay cladding, the clad metal layer is deposited on the base metal using arc-welding type processes.  Weld overlay is a cost-effective technology for complicated shapes, for field service jobs, and for production of heavy-wall pressure vessel reactors.  During overlay welding, the cladding metal and base metal are melted together at their interface. The resulting dilution of the cladding metal chemistry may compromise corrosion performance and limit use in certain applications.  Weld metal shrinkage during cooling potentially causes distortion when the base layer is thin; consequently, overlay is rarely the technically preferred solution for construction of new equipment when thicknesses are under thee to four inches.  As with rollbond, weld overlay is limited to metallurgically similar metals, primarily stainless steels and nickel alloys joined to steel.   Weld overlay is typically performed in conventional metal fabrication shops.

Explosion-Welded Metal Cladding.  Competition in the explosion-welded clad metal business is fragmented.  NobelClad holds a strong market position in the clad metal industry. It is the leading producer of explosion-welded clad products in North America, and has a strong position in Europe against smaller competitors. NobelClad’s main competitor in Asia is a division of Asahi Kasei, which has competitive technology and a recognized local brand name.  There are several explosion-welded clad producers in Korea and China, most of which have been technically limited and have offered limited exports outside of their domestic markets. A number of additional small explosion-welding competitors operate throughout the world.  To remain competitive, NobelClad intends to continue developing and providing technologically advanced manufacturing services, maintaining quality levels, offering flexible delivery schedules, delivering finished products on a reliable basis and competing favorably on the basis of price.
 
Customer Profile
 
NobelClad’s products are used in critical applications in a variety of industries, including upstream oil and gas, oil refinery, chemical and petrochemical, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and other similar industries.  NobelClad’s customers in these industries require metal products that can withstand exposure to corrosive materials, high temperatures and high pressures.  NobelClad’s customers can be divided into three tiers: the product end users (e.g., operators of chemical processing plants), the engineering contractors that design and construct plants for end users, and the metal fabricators that manufacture the products or equipment that utilize NobelClad’s metal products.  It is typically the fabricator that places the purchase order with NobelClad and pays the corresponding invoice.  NobelClad has developed strong relationships over the years with the engineering contractors (relatively large companies) that sometimes act as prescriptor to fabricators.
 
Marketing, Sales, Distribution
 
NobelClad conducts its selling efforts by marketing its services to potential customers' senior management, direct sales personnel, program managers, and independent sales representatives. Prospective customers in specific industries are identified through networking in the industry, cooperative relationships with suppliers, public relations, customer references, inquiries from technical articles and seminars and trade shows.  NobelClad’s sales office in the United States covers the Americas and East Asia.  Its sales offices in Europe cover the full European continent, Africa, the Middle East, India, and Southeast Asia.  During 2012 and 2013 NobelClad opened direct sales offices in South Korea and China to address these markets. These sales teams are further supported by local sales offices in the Middle East and India, with contract agents in most other developed countries, including

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Russia and Brazil.  Contract agents typically work under multi-year agreements which are subject to sales performance as well as compliance with NobelClad quality and customer service expectations.  Members of the global sales team may be called to work on projects located outside their usual territory.  By maintaining relationships with its existing customers, developing new relationship with prospective customers, and educating all its customers as to the technical benefits of NobelClad’s products, NobelClad endeavors to have its products specified as early as possible in the design process.
 
NobelClad’s sales are generally shipped from its manufacturing locations in the United States, Germany and France.  Generally, any shipping costs or duties for which NobelClad is responsible will be included in the price paid by the customer.  Regardless of where the sale is booked (in Europe or the U.S.), NobelClad will produce it, capacity permitting, at the location closest to the delivery place. In the event that there is a short-term capacity issue, NobelClad produces the order at any of its production sites, prioritizing timing.  The various production sites allow NobelClad to meet customer production needs in a timely manner.
 
Research and Development
 
We prepare a formal research and development plan annually. It is implemented at our French, German, and  U.S. cladding sites and is supervised by a Technical Committee that reviews progress quarterly and meets once a year to establish the plan for the following 12 months.  The research and development projects concern process support, new products, and special customer-paid projects.

DynaEnergetics

DynaEnergetics manufactures, markets, and sells perforating explosives and associated hardware, as well as seismic explosives, for the international oil and gas industry.  The oil and gas industry uses perforating products to punch holes in the casing or liner of wells to connect them to the surrounding reservoir.  During the drilling process, steel casing and cement are inserted into the well to isolate and support the wellbore. As part of the well completion process, the perforating guns, which contain a series of specialized shaped charges, are lowered into the well to the desired area of the targeted formation.  Once fired, the shaped charges shoot a plasma jet through the casing and cement and into the formation. The resulting channels in the formation allow hydrocarbons to flow into the wellbore.


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DynaEnergetics manufactures and sells the five primary components of a perforating system, which are: 1) carrier tubes and charge tubes, 2) shaped charges, 3) detonating cord, 4) detonators, and 5) control panels.

PRIMARY COMPONENTS OF A PERFORATING GUN




The perforating products manufactured by DynaEnergetics are essential to certain types of modern oil and gas recovery.  These products are sold to large, mid-sized, and small oilfield service companies in the U.S., Europe, Canada, South America, Africa, the Middle East, and Asia, including direct sales to end users.  The market for perforating products has grown in recent years.  Rising worldwide demand for oil and gas increases the demand for perforating products used in exploration and recovery. High levels of exploration (seismic prospecting) and increased production activities in both conventional and unconventional oil and gas fields around the globe are expected to continue.  Expanding exploration activity has led to increasingly complex well completion operations, which in turn, has increased the demand for high quality and technically advanced perforating products.

Operations

The DynaEnergetics segment seeks to build on its products and technologies, as well as its sales, supply chain and distribution network.  During the three years ended December 31, 2012, 2013 and 2014, the DynaEnergetics segment represented approximately 40%, 41% and 52% of our revenue, respectively. 

DynaEnergetics has been producing detonating cord and detonators and selling these and seismic explosives systems for decades. Since 1994 significant emphasis has been placed on enhancing its oilfield product offerings by improving existing products and adding new products through research and development, as well as acquisitions.  In recent years, various types of detonating cord and detonators have been added as well as bi-directional boosters, a wide range of shaped charges, and corresponding gun systems.

In recent years, DynaEnergetics has introduced a number of new technologies designed for safe and selective perforating. Our Radio Frequency-Safe Detonator Systems require a specific electronic code for firing and are immune to induced currents and voltages, static electricity and high-frequency irradiation. This eliminates the risk of oilfield accidents from unintentional

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firing. This safety feature enables concurrent perforating and fracturing processes at drilling sites with multiple wellbores, improving operating efficiencies for our customers.

With selective technologies the operator can sequentially initiate multiple perforating guns in a single run, resulting in significant time and cost savings. DynaEnergetics’ Selectronic Switches provide high reliability through a microprocessor based switch design. The Selectronic switch and software operate in conjunction with our RF-Safe Detonators, Multitronic Firing Panels and a standard PC to enable up to 12 initiation devices per run. DynaEnergetics’ Mulitronic Firing Panels are installed in our customer’s service fleet vehicles to control and sequence perforating operations. The control panels and switches provide uninterrupted communication with all detonators in the gun assembly and enable positive indication of gun firing along with selective control.

Our DynaSelect products combine our Selectronic Switches and RF-Safe Detonator technologies in a one-piece system for improved well site efficiency, reliability, simplicity and service quality. The fully integrated design incorporates advanced software controls and reduces the size of the detonator and switch assembly. DynaSelect reduces by 40% the number of electrical connections required within each perforating gun versus prior detonator models. This improves set-up times and reliability. The DynaSelect switch detonator is controlled by our Multronic IV Firing Panel. This system enables safe and reliable firing of up to 20 guns in a single run and incorporates a signal output function to monitor the movement and position of the tool string.

Our DynaSlot system is designed for well abandonment. During abandonment the wellbore is shut in and permanently sealed so that layers of sedimentary rock, and in particular freshwater aquifers, are pressure isolated. DynaSlot creates complete 360 degree access behind the tubing and casing, which is preferred for plug and abandonment cement squeeze operations.

DynaEnergetics Tubing Conveyed Perforating, or TCP, systems are customized for individual customer needs and well applications. TCP enables perforating of more complex highly deviated and horizontal wells. These types of wells are being increasingly drilled by the industry. TCP tools also perforate long intervals in a single trip, which significantly improves rig efficiency. Our TCP tool range includes mechanical and hydraulic firing systems, gun releases, under-balancing devices and auxiliary components. Our tools are designed to withstand down hole temperatures of up to 260 degrees Celsius, for safe and quick assembly at the well site, and to allow unrestricted total system length.

DynaEnergetics’s manufacturing facilities are located in Germany, Canada, the United States and Russia. During 2013 DynaEnergetics completed a new shaped charge manufacturing facility in Blum, Texas and a perforating gun manufacturing facility in Tyumen, Siberia. A new shaped charge manufacturing facility is under construction in Tyumen, Siberia and is scheduled to be operational in late 2015. These investments have significantly expanded our global capacity for shaped charge and perforating gun production and improve our delivery and customer service capabilities.
 
Suppliers and Raw Materials

DynaEnergetics' product offering consists of complex components that require numerous high-end inputs. DynaEnergetics utilizes a variety of raw materials for the production of oilfield perforating and seismic products, including high-quality steel tubes, steel and copper, explosives (RDX, HMX, HNS), granulates, plastics and ancillary plastic product components.  DynaEnergetics obtains its raw materials primarily from a number of different producers in Germany and other European countries, but also purchases materials from North American, Chinese, and other international suppliers.

Competition

DynaEnergetics faces competition from independent producers of perforating products and from each of the industry's three largest oil and gas service companies, which produce most of their own shaped charges but also buy other perforating components and specialty products from independent suppliers such as DynaEnergetics.  DynaEnergetics competes for sales primarily on customer service, product quality, reliability, product performance, price and, in North America, proximity of distribution centers to oilfield drilling activity.

Customer Profile

DynaEnergetics' perforating and seismic products are purchased by large, mid-sized and small oilfield service companies working in both onshore and offshore oil and gas fields. Our customers select perforating products based on their ability to address a broad spectrum of factors, including pressures and temperatures in the borehole and geological characteristics of the targeted formation. We believe that our customers must balance costs, productivity and risks for every job.
 

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The customers for our oilfield products can be divided into four broad categories: purchasing centers of large service companies, service companies worldwide, oil companies with and without their own service companies, and local resellers. 

Marketing, Sales, Distribution

DynaEnergetics’ worldwide marketing and sales efforts for its oilfield and seismic products are based in Troisdorf, Germany, with regional sales headquarters in Austin, Texas for the Americas and Tyumen, Siberia for the CIS.  DynaEnergetics’ sales strategy focuses on direct selling, distribution through licensed distributors and independent sales representatives, the establishment of international distribution centers to better service our customers, and educating current and potential customers about our products and technologies.  Currently, DynaEnergetics sells its oilfield and seismic products through wholly owned affiliates in the U.S., Canada, Colombia, Russia and Kazakhstan; and through independent sales agents in other parts of the world.  DynaEnergetics serves the Americas region through its network of sales and distributions centers in the United States, Canada and Colombia.

DynaEnergetics also designs and manufactures custom-ordered perforating products for third-party customers according to their designs and specifications.

Research and Development

DynaEnergetics attaches great importance to its research and development capabilities and has devoted substantial resources to its R&D programs.  The R&D staff works closely with sales and operations management teams to establish priorities and effectively manage individual projects.  Through its ongoing involvement in oil and gas industry trade shows and conferences, DynaEnergetics has increased its profile in the oil and gas industry.  An R&D Plan, which focuses on new technology, products, process support and contracted projects, is prepared and reviewed at least annually.

Corporate History and Recent Developments
 
The genesis of the Company was an unincorporated business called “Explosive Fabricators,” which was formed in Colorado in 1965.  The business was incorporated in Colorado in 1971 under the name “E. F. Industries, Inc.,” which was later changed to “Explosive Fabricators, Inc.”  The Company became a public company in 1976.  In 1994, it changed its name to “Dynamic Materials Corporation.”  The Company reincorporated in Delaware in 1997.
 
In 1976, the Company became a licensee of Detaclad®, the explosion-welded clad process developed by DuPont in 1959.  In 1996, the Company purchased the Detaclad® operating business from Dupont.

In 2001, the Company acquired substantially all of the stock of Nobelclad Europe SA, a French company (“Nobelclad France”).  Early in its history, Nobelclad France was a licensee of the Detaclad® technology.  The acquisition of Nobelclad France expanded the Company’s explosive metalworking operations to Europe.
 
In 2007, the Company acquired the German company DYNAenergetics GmbH and Co. KG (“DYNAenergetics”) and certain affiliates.  DYNAenergetics was comprised of two primary businesses: explosive metalworking and oilfield products.  This acquisition expanded the Company’s explosive metalworking operations in Europe and added a complimentary business segment, oilfield products.
 
In 2009, the Company acquired all of the stock of Alberta Canada based LRI Oil Tools Inc. (“LRI”) which is produces and distributes perforating equipment for use by the oil and gas exploration and production industry. 
 
In 2010, the Company purchased the outstanding minority-owned interests in its two Russian joint ventures, which produces and sells perforating gun systems. In 2010, the Company also completed its acquisition of Texas-based Austin Explosives Company (Austin Explosives), which is now part of the Company’s DynaEnergetics business segment. 
 
In 2012, the Company acquired the assets and operating business of Texas-based TRX Industries, Inc., (“TRX”), a manufacturer of perforating guns and one of DynaEnergetic’s suppliers.  This business is now part of the Company’s DynaEnergetics business segment.
 
In 2013, the Company branded its explosive metalworking operations under the single name NobelClad.  The NobelClad segment is comprised of the Company’s U.S. Clad operations as well as the explosion metalworking assets and operations purchased in the Nobelclad France and DYNAenergetics acquisitions.  Also in 2013, the Company branded the oilfield products segment as DynaEnergetics, which is comprised entirely of DYNAenergetics (other than its explosion metalworking operations), its subsidiaries and sister companies. 

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In 2014, the Company sold its specialty welding business, AMK Technical Services ("AMK"), which was acquired in 1997 and in recent years contributed approximately 5% of the Company's consolidated annual revenue. Also in 2014, the Company acquired a modern manufacturing and office complex in Liebenscheid, Germany. The facility is designed to enhance NobelClad's manufacturing capabilities and is expected to ultimately serve as a state-of-the-art production and administrative resource for NobelClad's European operations.

Employees
 
As of December 31, 2014, we employed 503 employees (226 U.S. employees and 277 foreign employees), the majority of whom are engaged in manufacturing operations, with the remainder being engaged in sales and marketing or corporate functions. The majority of our manufacturing employees are not unionized.  In addition, we also use a number of temporary workers at any given time, depending on the workload.
 
In the last three years, the Company has experienced two work stoppages, which lasted for three days in November 2014 and 8 days in December 2014, respectively, at NobelClad's production facility in Rivesaltes, France. The stoppages related to a consolidation program of NobelClad's European explosion welding operations. A restructuring agreement with the labor union at Rivesaltes was reached in January 2015, at which point work was restarted.  We currently believe that employee relations are good.
 
Insurance
 
Our operations expose us to potential liabilities for personal injury or death as a result of the failure of a component that has been designed, manufactured, or serviced by us, or the irregularity or failure of products we have processed or distributed.  We maintain liability insurance that we believe adequately protects us from potential product liability claims.
 
Proprietary Knowledge, Permits and Patents
 
Protection of Proprietary Information.   We hold patents related to the business of explosive metalworking and metallic processes and also own certain registered trademarks, including Detaclad®, Detacouple®, EFTEK®, ETJ 2000® and NOBELCLAD®. Although the patents for the explosion-welded cladding process have expired, our current product application patents expire on various dates through 2020.  Since individual patents relate to specific product applications and not to core technology, we do not believe that such patents are material to our business, and the expiration of any single patent is not expected to have a material adverse effect on our operations.  Much of the manufacturing expertise lies in the knowledge of the factors that affect the quality of the finished clad product, including the types of metals to be explosion-welded, the setting of the explosion, the composition of the explosive, and the preparation of the plates to be bonded.  We have developed this specialized knowledge over our 40 years of experience in the explosive metalworking business.  We are very careful in protecting our proprietary know-how and manufacturing expertise, and we have implemented measures and procedures to ensure that the information remains confidential. We hold various patents and licenses through our DynaEnergetics perforating business, but some of the patents are not yet registered. As with the explosive metalworking business segment, since individual patents relate to specific product applications and not to core technology, we do not believe that such patents are material to our business, and the expiration of any single patent is not expected to have a material adverse effect on our current operations. 
 
Permits.  Explosive metalworking and the production of perforation products involve the use of explosives, making safety a critical factor in our operations.  In addition, explosive metalworking and the production of oilfield products are highly regulated industries for which detailed permits are required.  These permits require renewal every three or four years, depending on the permit.  See Item 1A — Risk Factors — Risk Factors Related to the Dynamic Materials Corporation — We are subject to extensive government regulation and failure to comply could subject us to future liabilities and could adversely affect our ability to conduct or to expand our business for a more detailed discussion of these permits.

Foreign and Domestic Operations and Export Sales
 
All of our sales are shipped from our manufacturing facilities and distribution centers located in the United States, Germany, France, Canada, Russia and Kazakhstan. The following chart represents our net sales based on the geographic location to where we shipped the product, regardless of the country of the actual end user.  NobelClad products are usually shipped to the fabricator before being passed on to the end user.
 

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(Dollars in Thousands)
 
 
For the years ended December 31,
 
 
2014
 
2013
 
2012
United States
 
$
91,009

 
$
88,532

 
$
71,155

Canada
 
23,532

 
18,142

 
21,083

Iraq
 
11,348

 
4,243

 
1,756

Russia
 
7,992

 
5,992

 
6,472

Germany
 
7,721

 
9,208

 
13,992

India
 
7,617

 
8,888

 
3,874

South Korea
 
7,362

 
11,642

 
9,469

France
 
5,478

 
3,756

 
6,249

China
 
1,800

 
606

 
7,986

Kazakhstan
 
1,551

 
2,513

 
2,359

Rest of the world
 
37,151

 
48,538

 
48,342

 
 
 
 
 
 
 
Total
 
$
202,561

 
$
202,060

 
$
192,737

 
Company Information
 
We are subject to the informational requirements of the Securities Exchange Act of 1934.  We therefore file periodic reports, proxy statements and other information with the Securities Exchange Commission (the “SEC”).  Such reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549, or by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.
 
Our Internet address is www.dmcglobal.com. Information contained on our website does not constitute part of this Annual Report on Form 10-K.  Our annual report on SEC Form 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our website as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC.  We also regularly post information about our Company on our website under the Investors tab.

ITEM 1A.                                       Risk Factors
 
Risk Factors Related to our NobelClad Segment
 
NobelClad operates a cyclical business and its sales are down significantly from its 2008 peak.
 
NobelClad operates a somewhat cyclical business. Beginning in late 2008 and continuing through 2010, NobelClad's sales in some of its markets slowed down, resulting in declines of 31.2% and 26.5% in 2009 and 2010 sales respectively. While NobelClad's sales increased in 2011, its annual sales for 2012 and 2013 were 40.9% and 39.3%, respectively, below the amount of its peak sales in 2008. Its 2014 annual sales (50.2% below peak sales) were the lowest since the 2008 peak. At December 31, 2007 and 2008, order backlog was $100.0 million and $97.2 million, respectively. Year-end backlog was $46.4 million, $36.9 million and $41.2 million, respectively, in 2012, 2013 and 2014. The explosion-welded cladding market is dependent upon sales of products for use by customers in a limited number of heavy industries, including oil and gas, alternative energy, chemicals and petrochemicals, hydrometallurgy, aluminum production, shipbuilding, power generation, and industrial refrigeration.  These industries tend to be cyclical in nature and an economic slowdown in one or all of these industries-whether due to traditional cyclicality, general economic conditions or other factors-could impact capital expenditures within that industry.  If demand from such industries were to decline or to experience reduced growth rates, our sales would be expected to be affected proportionately, which may have a material adverse effect on our business, financial condition, and results of operations.
 
Our backlog figures may not accurately predict future sales.
 
We define “backlog” at any given point in time to consist of all firm, unfulfilled purchase orders and commitments at that time.  Generally speaking, we expect to fill most items of backlog within the following 12 months.  However, since orders may be rescheduled or canceled and a significant portion of our net sales is derived from a small number of customers, backlog is not

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necessarily indicative of future sales levels.  Moreover, we cannot be sure of when during the future 12-month period we will be able to recognize revenue corresponding to our backlog nor can we be certain that revenues corresponding to our backlog will not fall into periods beyond the 12-month horizon. The percentage increase or decrease in NobelClad's annual sales may be substantially greater or less than the change in backlog at the previous year-end.
 
There is a limited availability of sites suitable for cladding operations.
 
Our cladding process involves the detonation of large amounts of explosives. As a result, the sites where we perform cladding must meet certain criteria, including lack of proximity to a densely populated area, the specific geological characteristics of the site, and the ability to comply with local noise and vibration abatement regulations in conducting the process. In addition, our primary U.S. shooting site is subleased under an arrangement pursuant to which we provide certain contractual services to the sub-landlord.  The efforts to identify suitable sites and obtain permits for using the sites from local government agencies can be time-consuming and may not be successful.  In addition, we could experience difficulty in obtaining or renewing permits because of resistance from residents in the vicinity of proposed sites.  The failure to obtain required governmental approvals or permits could limit our ability to expand our cladding business in the future, and the failure to maintain such permits or satisfy other conditions to use the sites would have a material adverse effect on our business, financial condition and results of operations.
 
The use of explosives subjects us to additional regulation, and any accidents or injuries could subject us to significant liabilities.
 
Our operations involve the detonation of large amounts of explosives.  As a result, we are required to use specific safety precautions under U.S. Occupational Safety and Health Administration guidelines and guidelines of similar entities in Germany and France.  These include precautions which must be taken to protect employees from exposure to sound and ground vibration or falling debris associated with the detonation of explosives.  There is a risk that an accident or death could occur in one of our facilities.  Any accident could result in significant manufacturing delays, disruption of operations or claims for damages resulting from death or injuries, which could result in decreased sales and increased expenses. To date, we have not incurred any significant delays, disruptions or claims resulting from accidents at our facilities.  The potential liability resulting from any accident or death, to the extent not covered by insurance, may require us to use other funds to satisfy our obligations and could cause our business to suffer.  See “Our use of explosives is an inherently dangerous activity that could lead to temporary or permanent closure of our NobelClad shooting sites or DynaEnergetics manufacturing facilities” under "Risk Factors Related to Dynamic Materials Corporation" below.

Certain raw materials we use are subject to supply shortages due to general economic conditions.
 
Although we generally use standard metals and other materials in manufacturing our products, certain materials such as specific grades of carbon steel, titanium, zirconium and nickel can be subject to supply shortages due to general economic conditions or problems with individual suppliers.  While we seek to maintain sufficient alternative supply sources for these materials, we may not always be able to obtain sufficient supplies or obtain supplies at acceptable prices without production delays, additional costs, or a loss of product quality.  If we were to fail to obtain sufficient supplies on a timely basis or at acceptable prices, such loss or failure could have a material adverse effect on our business, financial condition, and results of operations.
 
Certain raw materials NobelClad uses are subject to price increases due to general economic conditions.
 
The markets for certain metals and other raw materials used by NobelClad are highly variable and are characterized by periods of increasing prices.  While prices for much of the raw materials we use have recently decreased, we may again experience increasing prices.  We generally do not hedge commodity prices or enter into forward supply contracts; instead we endeavor to pass along price variations to our customers.  We may see a general downturn in business if the price of raw materials increases enough for our customers to delay planned projects or use alternative materials to complete their projects.
 
Risk Factors Related to DynaEnergetics
 
Prices and pricing trends of oil and natural gas affect the level of exploration, development, and production activity of DynaEnergetics’ customers, which could materially adversely affect DynaEnergetics’ sales and economic performance.

The oil and gas industry is unpredictable and has historically been subject to occasional downturns. Demand for DynaEnergetics’ products is linked to the level of exploration, development, and production activity of, and the corresponding capital spending by, oil and natural gas companies and oilfield services companies. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty,

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and a variety of other economic factors that are beyond our control. Any prolonged reduction in oil and natural gas prices or expectations about lower future prices will depress the immediate levels of exploration, development, and production activity, which could negatively impact DynaEnergetics’ sale of products and economic performance.

The adoption of any future laws or regulations imposing reporting obligations on, or limiting or banning, the hydraulic fracturing process could cause a decrease in natural gas and oil well perforating and could materially adversely affect DynaEnergetics’ sales and economic performance.

DynaEnergetic’s perforating products are used for oil and gas well hydraulic fracturing processes, among other uses. Various federal, state and local legislative and regulatory initiatives have been undertaken which could result in additional requirements or restrictions being imposed on hydraulic fracturing operations. The adoption of these or other laws or implementing regulations imposing reporting obligations on, or limiting or banning, the hydraulic fracturing process could make it more difficult to use hydraulic fracking for natural gas and oil well development, which would reduce the demand for some of DynaEnergetic’s products and could have a material adverse effect on its sales and financial performance.

The manufacturing of explosives subjects DynaEnergetics to various environmental, health and safety laws.
 
DynaEnergetics is subject to a number of environmental, health, and safety laws and regulations, the violation of which could result in significant penalties.  DynaEnergetics’ continued success depends on continued compliance with applicable laws and regulations.  In addition, new environmental, health and safety laws and regulations could be passed which could create costly compliance issues.  While DynaEnergetics endeavors to comply with all applicable laws and regulations, compliance with future laws and regulations may not be economically feasible or even possible. 
 
If DynaEnergetics is unable to obtain all required permits from governmental agencies it will be unable to begin operations at the manufacturing facility it is constructing in Russia.

DynaEnergetics currently imports shaped charges into Russia for sale to its customers and is subject to limitations on the quantities it can import into the country. As the quantities it may import are expected to be further reduced over the coming years, in 2012 DynaEnergetics acquired property and began constructing a shaped charge manufacturing facility in Tyumen, Siberia, Russia to serve its customers in Russia and neighboring countries. Construction of the manufacturing facility is nearly complete and DynaEnergetics plans for it to be operational by late 2015. Before the facility may begin manufacturing explosive shaped charges, however, the Company must receive a number of permits, licenses and other approval from a variety of governmental entities and agencies at the local, state and federal levels. Regulatory authorities often exercise considerable discretion in the enforcement and interpretation of applicable laws, regulations and standards as well as in approving and issuing permits, licenses and consents, and there can be no assurance that all of the necessary permits, licenses and approvals will be received in a timely manner to permit manufacturing to commence as planned. Russia is currently experiencing economic and political instability that could affect the functioning of its governmental agencies and regulatory authorities. If DynaEnergetics experiences a significant delay in commencing its operations, the delay will adversely affect its financial results and its planned strategy to increase sales in the Russian and neighboring countries’ oil and gas market. Failure to receive all of the necessary permits, licenses and approvals could result in an impairment of the investment in this new manufacturing facility.

DynaEnergetics’ continued economic success depends on remaining at the forefront of innovation in the perforating industry.
 
DynaEnergetics’ position in the perforation market depends in part on its ability to remain an innovative leader in the field.  The ability to remain competitive depends in part on the retention of talented personnel.  DynaEnergetics may be unable to remain an innovative leader in the perforation market segment or may be unable to retain top talent in the field.

Risk Factors Related to Dynamic Materials Corporation
 
Our use of explosives is an inherently dangerous activity that could lead to temporary or permanent closure of our NobelClad shooting sites and DynaEnergetics manufacturing facilities.
 
We use a large amount of explosives in connection with the creation of clad metals and manufacturing of perforating shaped charges and detonation cord.  The use of explosives is an inherently dangerous activity.  Explosions, even if occurring as intended, can lead to damage to the shooting site or manufacturing facility or to equipment used at the facility or injury to persons at the facility. If a person were injured or killed in connection with such explosives, or if equipment at the shooting site or manufacturing facility were damaged or destroyed, we might be required to suspend our operations for a period of time while an investigation is

15


undertaken or repairs are made.  Such a delay might impact our ability to meet the demand for our products.  In addition, if the mine were seriously damaged, we might not be able to locate a suitable replacement site to continue our operations.

Weakness in the general global economy may adversely affect certain segments of our end market customers and reduce our sales and results of operations.
 
NobelClad supplies products to customers that fabricate industrial equipment for various capital-intensive industries.  Weakness in the general global economy may adversely affect our end market customers, causing them to cancel or postpone new plant or infrastructure construction, expansion, maintenance, or retrofitting projects that use our NobelClad products.  Similarly, any decrease in oil and gas well drilling activities will reduce the sales of our DynaEnergetics products.  The global general economic climate may lessen demand for our products and reduce our sales and results of operations.
 
Our operating results fluctuate from quarter to quarter.
 
We have experienced, and expect to continue to experience, fluctuations in annual and quarterly operating results caused by various factors, including the timing and size of significant orders by customers, customer inventory levels, shifts in product mix, acquisitions and divestitures, and general economic conditions.  The upstream oil and gas, oil refinery, chemical and petrochemical, hydrometallurgy, aluminum production, shipbuilding, power generation, industrial refrigeration and other diversified industries to which we sell our products are, to varying degrees, cyclical and tend to decline in response to overall declines in industrial production.  As a result, our business is also cyclical, and the demand for our products by these customers depends, in part, on overall levels of industrial production. Any future material weakness in demand in any of these industries could materially reduce our revenues and profitability. In addition, the threat of terrorism and other geopolitical uncertainty could have a negative impact on the global economy, the industries we serve and our operating results.
 
We typically do not obtain long-term volume purchase contracts from our customers. Quarterly sales and operating results, therefore, depend on the volume and timing of the orders in our backlog as well as bookings received during the quarter.  Significant portions of our operating expenses are fixed, and planned expenditures are based primarily on sales forecasts and product development programs. If sales do not meet our expectations in any given period, the adverse impact on operating results may be magnified by our inability to adjust operating expenses sufficiently or quickly enough to compensate for such a shortfall. Results of operations in any period should not be considered indicative of the results for any future period. Fluctuations in operating results may also result in fluctuations in the price of our common stock.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
We are exposed to potentially volatile fluctuations of the U.S. dollar (our reporting currency) against the currencies of many of our operating subsidiaries.
 
Many of our operating subsidiaries conduct business in Euros or other foreign currency such as the Russian Ruble.  Sales made in currencies other than U.S. dollars accounted for 32%, 36%, and 39% of total sales for the years ended 2014, 2013, and 2012, respectively. Any increase (decrease) in the value of the U.S. dollar against any foreign currency that is the functional currency of any of our operating subsidiaries will cause us to experience foreign currency translation losses (gains) with respect to amounts already invested in such foreign currencies. In addition, our company and our operating subsidiaries are exposed to foreign currency risk to the extent that we or they enter into transactions denominated in currencies other than our or their respective functional currencies. For example DYNAenergetics KG’s functional currency is Euros, but its sales often occur in U.S. dollars.  Changes in exchange rates with respect to these items will result in unrealized (based upon period-end exchange rates) or realized foreign currency transaction gains and losses upon settlement of the transactions. In addition, we are exposed to foreign exchange rate fluctuations related to our operating subsidiaries’ assets and liabilities and to the financial results of foreign subsidiaries and affiliates when their respective financial statements are translated into U.S. dollars for inclusion in our consolidated financial statements. Cumulative translation adjustments are recorded in accumulated other comprehensive income (loss) as a separate component of equity. As a result of foreign currency risk, we may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations. Our primary exposure to foreign currency risk is the Euro due to the percentage of our U.S. dollar revenue that is derived from countries where the Euro is the functional currency and the Russian Ruble due to our greenfield investment in Tyumen, Siberia.

We are dependent on a relatively small number of customers for a significant portion of our net sales.
 
A significant portion of our net sales 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,

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delivering product on time and competing aggressively on the basis of price.  We expect to continue to depend upon our principal customers for a significant portion of our sales, although our principal customers may not continue to purchase products and services from us at current levels, if at all. The loss of one or more major customers or a change in their buying patterns could have a material adverse effect on our business, financial condition, and results of operations.
 
In past years, the majority of NobelClad’s revenues have been derived from customers in the oil and gas, alternative energy, chemicals and petrochemicals, hydrometallurgy, aluminum production, shipbuilding, power generation and industrial refrigeration industries. Economic downturns in these industries could have a material adverse effect on our business, financial condition, and results of operations.
 
DynaEnergetics has customers throughout the world.    Economic or political instability in certain regions of the world where DynaEnergetics conducts a significant volume of its business, such as Russia and other oil-producing countries with unsettled economic or political situations, could have a material adverse effect on DynaEnergetics’ business and operating results.
 
Customers have the right to change orders until products are completed.
 
Customers have the right to change orders after they have been placed.  If orders are changed, the extra expenses associated with the change will be passed on to the customer.  However, because a change in an order may delay completion of the project, recognition of income for the project may also be delayed.
 
There is no assurance that we will continue to compete successfully against other clad and perforating companies.
 
Our explosion-welded clad products compete with explosion-welded clad products made by other manufacturers in the clad metal business located throughout the world and with clad products manufactured using other technologies. Our combined North American and European operations typically supply explosion-welded clad to the worldwide market. There is one other well-known explosion-welded clad supplier worldwide, a division of Asahi-Kasei Corporation of Japan. There are also a number of smaller companies worldwide with explosion-welded clad manufacturing capability, including several companies in China and in South Korea that appear to be growing significantly in their domestic market.  There are currently no other significant North American based explosion-welded clad suppliers. We focus strongly on reliability, product quality, on-time delivery performance, and low cost manufacturing to minimize the potential of future competitive threats.  However, there is no guarantee we will be able to maintain our competitive position.
 
Explosion-welded clad products also compete with those manufactured by rollbond and weld overlay cladding processes. In rollbond technology, the clad and base metal are bonded together during a hot rolling process in which slab is converted to plate. In weld overlay, which is typically performed by our fabricator customers, the cladding layer is deposited on the base metal through a fusion welding process. The technical and commercial niches of each cladding process are well understood within the industry and vary from one world market location to another.  Our products compete with weld overlay clad products manufactured by a significant number of our fabricator customers.
 
DynaEnergetics competes principally with perforating companies based in North America, South America, and Russia who produce and market perforating services and products.  DynaEnergetics also competes with oil and gas service companies who are able to satisfy a portion of their perforating needs through in-house production.  To remain competitive, DynaEnergetics must continue to provide innovative products and maintain an excellent reputation for quality, safety, and value.  There can be no assurances that we will continue to compete successfully against these companies.
 
Failure to attract and retain key personnel could adversely affect our current operations.
 
Our continued success depends to a large extent upon the efforts and abilities of key managerial and technical employees. The loss of services of certain of these key personnel could have a material adverse effect on our business, results of operations, and financial condition. There can be no assurance that we will be able to attract and retain such individuals on acceptable terms, if at all; and the failure to do so could have a material adverse effect on our business, financial condition, and results of operations.
 
Liabilities under environmental and safety laws could result in restrictions or prohibitions on our facilities, substantial civil or criminal liabilities, as well as the assessment of strict liability and/or joint and several liability.
 
We are subject to extensive environmental and safety regulation in the countries where our manufacturing facilities are located. Any failure to comply with current and future environmental and safety regulations could subject us to significant liabilities. In particular, any failure to control the discharge of hazardous materials and wastes could subject us to significant liabilities, which could adversely affect our business, results of operations or financial condition.

17


 
We and all our activities in the United States are subject to federal, state and local environmental and safety laws and regulations, including but not limited to, noise abatement and air emissions regulations, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, regulations issued and laws enforced by the labor and employment departments of the U.S. and the states in which we conduct business, by the U.S. Department of Commerce, the U.S. Environmental Protection Agency, and by state and local health and safety agencies.  In Germany, we and all our activities are subject to various safety and environmental regulations of the federal state which are enforced by the local authorities, including the Federal Act on Emission Control (Bundesimmissionsschutzgesetz).  The Federal Act on Emission Control permits are held by companies jointly owned by DYNAenergetics and the other companies that are located at the Würgendorf and Troisdorf manufacturing sites and are for an indefinite period of time.  In France, we and all our activities are subject to state environmental and safety regulations established by various departments of the French Government, including the Ministry of Labor, the Ministry of Ecology and the Ministry of Industry, and to local environmental and safety regulations and administrative procedures established by DRIRE (Direction Régionale de l’Industrie, de la Recherche et de l’Environnement) and the Préfecture des Pyrénées Orientales.  In addition, our shooting operations in France may be particularly vulnerable to noise abatement regulations because these operations are primarily conducted outdoors. The Dillenburg, Germany facility is operated based on a mountain plan (“Bergplan”), which is a specific permit granted by the local mountain authority. This permit must be renewed every three years.
 
Changes in or compliance with environmental and safety laws and regulations could inhibit or interrupt our operations, or require modifications to our facilities. Any actual or alleged violations of environmental and safety laws could result in restrictions or prohibitions on our facilities, substantial civil or criminal sanctions, as well as the assessment of strict liability and/or joint and several liability under applicable law.  Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at our or our predecessor’s past or present facilities and at third party waste disposal sites.  We could also be held liable for any and all consequences arising out of human exposure to hazardous substances or other environmental damage.  Accordingly, environmental, health or safety matters may result in significant unanticipated costs or liabilities.
 
We are subject to extensive government regulation and failure to comply could subject us to future liabilities and could adversely affect our ability to conduct or to expand our business.
 
We are subject to extensive government regulation in the United States, Germany, France, Canada, Russia and Kazakhstan, including guidelines and regulations for the safe manufacture, handling, transport and storage of explosives issued by the U.S. Bureau of Alcohol, Tobacco and Firearms; the Federal Motor Carrier Safety Regulations set forth by the U.S. Department of Transportation; the Safety Library Publications of the Institute of Makers of Explosive; and similar guidelines of their European counterparts.  In Germany, the transport, storage and use of explosives is governed by a permit issued under the Explosives Act (Sprengstoffgesetz).  In France, the manufacture and transportation of explosives is subcontracted to a third party which is responsible for compliance with regulations established by various State and local governmental agencies concerning the handling and transportation of explosives.  Our French operations could be adversely affected if the third party does not comply with these regulations.  We must comply with licensing and regulations for the purchase, transport, storage, manufacture, handling and use of explosives. In addition, while our shooting facilities in Tautavel, France are located outdoors, our shooting facilities located in Pennsylvania and in Dillenburg, Germany are located in mines, which subject us to certain regulations and oversight of governmental agencies that oversee mines.
 
We are also subject to extensive environmental and occupational safety regulation, as described below under “Liabilities under environmental and safety laws could result in restrictions or prohibitions on our facilities, substantial civil or criminal liabilities, as well as the assessment of strict liability and/or joint and several liability” and “The use of explosives subjects us to additional regulation, and any accidents or injuries could subject us to significant liabilities.”
 
The export of certain products from the United States or from foreign subsidiaries of U.S. companies is restricted by U.S. and similar foreign export regulations.  These regulations generally prevent the export of products that could be used by certain end users, such as those in the nuclear or biochemical industries.  In addition, the use and handling of explosives may be subject to increased regulation due to heightened concerns about security and terrorism. Such regulations could restrict our ability to access and use explosives and increase costs associated with the use of such explosives, which could have a material adverse effect on our business, financial condition, and results of operations.
 
Any failure to comply with current and future regulations in the countries where we operate could subject us to future liabilities. In addition, such regulations could restrict our ability to expand our facilities, construct new facilities, or compete in certain markets or could require us to incur other significant expenses in order to maintain compliance. Accordingly, our business, results of operations or financial condition could be adversely affected by our non-compliance with applicable regulations, by any significant limitations on our business as a result of our inability to comply with applicable regulations, or by any requirement that we spend substantial amounts of capital to comply with such regulations.

18



Work stoppages and other labor relations matters may make it substantially more difficult or expensive for us to produce our products, which could result in decreased sales or increased costs, either of which would negatively impact our financial condition and results of operations.
 
We are subject to the risk of work stoppages and other labor relations matters, particularly in Germany and France, where some of our employees are unionized. We recently experienced a total of eleven days work stoppage at our facility in Rivesaltes, France related to the consolidated program of NobelClad's European explosion welding operations. The employees at our U.S. and Canadian facilities, where a significant portion of our products are manufactured, are not unionized. While we believe our relations with employees are satisfactory, any prolonged work stoppage or strike at any one of our principal facilities could have a negative impact on our business, financial condition or results of operations. Besides the work stoppage at our France facility previously mentioned, we have not experienced a strike or work stoppage at any other location in the last 3 years.  However, if a work stoppage occurs at one or more of our facilities, it may materially impair our ability to operate our business in the future.
 
The terms of our indebtedness contain a number of restrictive covenants, the breach of any of which could result in acceleration of payment of our credit facilities.
 
We are parties to a syndicated credit agreement that, as of December 31, 2014, had an outstanding balance of approximately $22.8 million.  This credit agreement was amended and restated in February 2015. Our credit agreement includes various covenants and restrictions, certain of which relate to the incurrence of additional indebtedness; mortgaging and pledging or disposition of major assets.  We are also required to maintain certain financial ratios on a quarterly basis A breach of any of these covenants could result in acceleration of our obligations to repay our debt.  As of December 31, 2014, we were in compliance with all financial covenants and other provisions of the credit agreement and our other loan agreements.  However, our ability to comply with these covenants and ratios may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Any failure to remain in compliance with any material provision or covenant of our credit agreement could result in a default which would, absent a waiver or amendment, require immediate repayment of outstanding indebtedness under our credit facilities.  It may be difficult to liquidate assets sufficient to immediately repay our outstanding indebtedness under our credit facility.
 
The unsuccessful integration of a business we acquire could have a material adverse effect on operating results.
 
We continue to consider possible acquisitions as part of our growth strategy. Any potential acquisition may require additional debt or equity financing, resulting in additional leverage and dilution to existing stockholders. We may be unable to consummate any future acquisition.  If any acquisition is made, we may not be able to integrate such acquisition successfully without a material adverse effect on our financial condition or results of operations.

We have identified material weaknesses in our internal control over financial reporting related to the restatement of previously-issued financial statements. The material weakness could, if not remediated, result in additional material misstatements in our consolidated financial statements.

We have identified material material weaknesses in our internal control over financial reporting and have restated our previously-issued financial statements. These material weaknesses and the resulting restatement may affect investor confidence in the accuracy of our financial disclosures. Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully developed, when it will be fully implemented or the aggregate cost of implementation. Until our remediation plan is fully implemented, our management will continue to devote significant time and attention to these efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk of additional material weaknesses in the Company's internal control over financial reporting, which may also reduce investor confidence in the Company. For more information relating to the Company’s internal control over financial reporting (and disclosure controls and procedures) and the remediation plan undertaken by us, see Part II, Item 9A, “Controls and Procedures.”



19



ITEM 1B.                                       Unresolved Staff Comments

None.

ITEM 2.                                       Properties

Corporate Headquarters
 
Our corporate headquarters are located in Boulder, Colorado.  The term of the lease for the office space is through November 30, 2022.
 
NobelClad
 
We own our principal domestic manufacturing site, which is located in Mount Braddock, Pennsylvania.  We currently lease our primary domestic shooting site, which is located in Dunbar, Pennsylvania, and we also have license and risk allocation agreements relating to the use of a secondary shooting site that is located within a few miles of our Mount Braddock, Pennsylvania manufacturing facility. The shooting site in Dunbar and the nearby secondary shooting site support our Mount Braddock manufacturing facility. The lease for the Dunbar property will expire on December 15, 2015, but we have options to renew the lease which extend through December 15, 2029.  The license and risk allocation agreements will expire on December 31, 2018, but we have options to renew these agreements through December 31, 2028.  NobelClad has a manufacturing site in Würgendorf, Germany and a shooting site in Dillenburg, Germany.  Portions of these sites are leased and portions are owned.  The lease expiration date for our Würgendorf manufacturing site is August 31, 2016, but we have options to renew the lease through August 31, 2021 and the expiration date for our Dillenburg shooting site is August 31, 2016 and may be renewed.  In October 2014, NobelClad purchased a new manufacturing facility in Liebenscheid, Germany which we expect will be operational in the second quarter of 2015. NobelClad owns the land and the buildings housing its operations in Rivesaltes, France, and Tautavel, France (except for a small portion in Tautavel that is leased).  This lease expires on December 31, 2016, and may be extended.
 
DynaEnergetics
 
DynaEnergetics leases a manufacturing site and sales office in Troisdorf, Germany.  The lease expiration date for our Troisdorf manufacturing site is February 29, 2016 and for the sales office the lease expiration date is February 29, 2016.  DynaEnergetics leases office and warehouse space in various cities throughout Alberta, Canada and also leases bunkers for storage of its explosives in various locations throughout Alberta, Canada.  These agreements are on a month to month basis.  In the United States, DynaEnergetics owns manufacturing sites in Texas and leases office and warehouse space in various cities throughout Texas, as well as Lafayette, Louisiana and New Mexico.  We also lease storage bunkers in various locations in Texas, Arkansas, Louisiana and New Mexico which have month to month agreements.  We also lease office and warehouse space in Moscow, Russia and other various cities throughout Russia and office and warehouse space in Aktobe, Kazakhstan.
 
Below are charts summarizing our properties by segment, including their location, type, size, whether owned or leased and lease terms, if applicable.
 
Corporate Headquarters

Location
 
Facility Type
 
Facility Size
 
Owned/Leased
 
Expiration Date of Lease
(if applicable)
Boulder, Colorado
 
Corporate and Sales Office
 
14,630 sq. ft.
 
Leased
 
November 30, 2022


20


NobelClad
 
Location
 
Facility Type
 
Facility Size
 
Owned/Leased
 
Expiration Date of Lease
(if applicable)
Mt. Braddock, Pennsylvania (a)
 
Clad Plate Manufacturing
 
48,000 sq. ft.
 
Owned
 
 
Dunbar, Pennsylvania
 
Clad Plate Shooting Site
 
322 acres
 
Leased
 
December 15, 2015, with renewal options through December 15, 2029
Rivesaltes, France
 
Clad Plate Manufacturing
 
6.6 acres
 
Owned
 
 
Rivesaltes, France
 
Clad Plate Manufacturing, Sales and Administration Office
 
49,643 sq. ft.
 
Owned
 
 
Rivesaltes, France (b)
 
Clad Plate Manufacturing
 
Land around building: 61,354 sq. ft.
 
 
Leased
 
 
June 30, 2020, with renewal options
 Rivesaltes, France (b)
 
 
 
Building: 11,302 sq. ft.
 
Leased
 
 
Tautavel, France
 
Clad Shooting Site
 
116 acres
 
109 acres owned, 7 acres leased
 
December 31, 2016, with renewal options
Dillenburg, Germany
 
Clad Plate Shooting Site
 
11.4 acres
 
 
Owned
 
 
 
 
 
 
 
25,791 sq. ft.
 
Leased
 
August 31, 2016, with renewal options through August 31, 2021
Würgendorf, Germany (b)
 
Manufacturing
 
Land: 24.6 acres
 
 
Owned
 
 
 
 
 
 
 
Shooting site: 56,038 sq. ft.
 
 
Leased
 
August 31, 2016, with renewal options
 
 
 
 
Building: 34,251 sq. ft.
 
Owned
 
 
Würgendorf, Germany (b)
 
Sales and Administration Office
 
3,880 sq. ft.
 
Leased
 
March 31, 2016
Liebenscheid, Germany
 
Manufacturing
 
10.47 acres
 
Owned
 
 




21


DynaEnergetics

Location
 
Facility Type
 
Facility Size
 
Owned/Leased
 
Expiration Date of Lease
(if applicable)
Troisdorf, Germany
 
Manufacturing
 
263,201 sq. ft.
 
Leased
 
February 29, 2016, with renewal options through February 28, 2026
Troisdorf, Germany
 
Office
 
2,033 sq. ft.
 
Leased
 
February 29, 2016
Troisdorf, Germany
 
Office
 
6,135 sq. ft.
 
Leased
 
February 29, 2016
Edmonton, Alberta
 
Sales office and warehouse
 
24,000 sq. ft.
 
Leased
 
January 31, 2019
Edmonton, Alberta
 
Storage magazines
 
759 sq. ft.
 
Leased
 
Month to month agreement
Grande Prairie, Alberta
 
Sales office and warehouse
 
3,000 sq. ft.
 
Leased
 
December 31, 2015, with five year renewal options
Grande Prairie, Alberta
 
Storage magazines
 
144 sq. ft.
 
Leased
 
Month to month agreement
Lloydminster, Alberta (c)
 
Sales office and warehouse
 
5,460 sq. ft.
 
Leased
 
Month to month agreement
Lloydminster, Alberta (c)
 
Storage magazines
 
160 sq. ft.
 
Leased
 
Month to month agreement
Red Deer, Alberta
 
Sales office and warehouse
 
6,583 sq. ft.
 
Leased
 
October 31, 2016
Red Deer, Alberta
 
Storage magazines
 
168 sq. ft.
 
Leased
 
Month to month agreement
Bonnyville, Alberta
 
Sales office and warehouse
 
5,355 sq. ft.
 
Leased
 
April 30, 2019
Bonnyville, Alberta
 
Storage magazines
 
95 sq. ft.
 
Leased
 
April 30, 2015
Andrews, Texas
 
Office and warehouse
 
4,000 sq. ft.
 
Leased
 
December 31, 2016
Andrews, Texas
 
Land for magazines
 
600 sq. ft.
 
Leased
 
Month to month agreement
Austin, Texas
 
Office
 
2,400 sq. ft.
 
Leased
 
April 30, 2017
Lakeway, Texas
 
Office
 
5,412 sq. ft.
 
Leased
 
March 31, 2021
Blum, Texas
 
Office, warehouse, and manufacturing
 
16,800 sq. ft.
 
Owned
 
 
Blum, Texas
 
Land for magazines
 
206.3 acres
 
Owned
 
 
Bridgeport, Texas
 
Office and warehouse
 
4,000 sq. ft.
 
Leased
 
June 30, 2015
Bridgeport, Texas
 
Land for magazines
 
100 acres
 
Leased
 
Month to month agreement
Corpus Christi, Texas
 
Office and warehouse
 
6,000 sq. ft.
 
Leased
 
August 31, 2018
Rosharon, Texas
 
Office and warehouse
 
5,000 sq. ft.
 
Leased
 
August 31, 2015

22


Location
 
Facility Type
 
Facility Size
 
Owned/Leased
 
Expiration Date of Lease
(if applicable)
Rosharon, Texas
 
Land for magazines
 
.25 acres
 
Leased
 
August 31, 2015
Spicewood, Texas
 
Land for magazines
 
500 acres
 
Leased
 
December 31, 2015
Tyler, Texas
 
Office and warehouse
 
4,000 sq. ft.
 
Leased
 
Month to month agreement
Victoria, Texas
 
Office and warehouse
 
4,000 sq. ft.
 
Leased
 
June 30, 2015
Victoria, Texas
 
Storage magazine
 
4,000 sq. ft.
 
Leased
 
Month to month agreement
Whitney, Texas
 
Office, warehouse, and manufacturing
 
36,000 sq. ft.
 
Owned
 
 
East Camden, Arkansas
 
Storage magazine
 
6,000 sq. ft.
 
Leased
 
Month to month agreement
Lafayette, Louisiana
 
Office and warehouse
 
6,800 sq. ft.
 
Leased
 
Month to month agreement
Beaux Bridge, Louisiana
 
Storage magazine
 
600 sq. ft.
 
Leased
 
Month to month agreement
Hobbs, New Mexico (c)
 
Office and warehouse
 
5,000 sq. ft.
 
Leased
 
Month to month agreement
Hobbs, New Mexico (c)
 
Storage magazines
 
600 sq. ft.
 
Leased
 
Month to month agreement
Dunbar, Pennsylvania
 
Storage magazines
 
400 sq. ft.
 
Owned
 
 
Mt. Braddock, Pennsylvania
 
Storage magazines
 
120 sq. ft.
 
Owned
 
 
Neiva, Colombia
 
Warehouse
 
54 sq. ft.
 
Leased
 
Month to month agreement
Russia, Nizhnetavdinskiy District
 
Land
 
59.7 acres
 
Leased
 
October 10, 2015
 
 
 
 
1.6 acres
 
Leased
 
August 8, 2016
Russia, Nizhnetavdinskiy District
 
Office
 
9,860 sq. ft.
 
Owned
 
 
Russia, Nizhnetavdinskiy District
 
Manufacturing
 
58,216 sq. ft.
 
Owned
 
 
Moscow, Russia
 
Sales office
 
939 sq. ft.
 
Leased
 
June 30, 2014, subject for prolongation every year
Chapaevsk, Russia
 
Warehouse
 
3,000 sq. ft.
 
Leased
 
December 31, 2015
Noyabrsk, Russia
 
Warehouse
 
3,229 sq. ft.
 
Leased
 
December 31, 2015
Nizhnevartovsk, Russia
 
Warehouse
 
7,750 sq. ft.
 
Leased
 
March 31, 2015
Sheremetyevo, Russia (Mezdunarodnoye Shosse 9)
 
Warehouse
 
Any shipped quantity of goods
 
Leased
 
Not limited
Aktobe, Kazakhstan
 
Sales Office
 
548 sq. ft.
 
Owned
 
 
Aktobe, Kazakhstan
 
Land (sales office)
 
0.09 acres
 
Owned
 
 
Aktobe, Kazakhstan
 
Storage
 
1,076 sq. ft.
 
Leased
 
Subject for prolongation every year

23


Location
 
Facility Type
 
Facility Size
 
Owned/Leased
 
Expiration Date of Lease
(if applicable)
Aktobe, Kazakhstan
 
Bunker
 
2,273 sq. ft.
 
Owned
 
 
Aktobe, Kazakhstan
 
Land
 
19.76 acres
 
Leased
 
Year 2050
Aktobe, Kazakhstan
 
Land (power line)
 
0.5 acres
 
Leased
 
Year 2050
(a) The Mt. Braddock, Pennsylvania location is also used as a distribution center for our DynaEnergetics business segment.

(b) In connection with the purchase of the manufacturing facility in Liebenschied, Germany, the manufacturing facility and sales and administration office in Würgendorf, Germany and the leased property in Tautevel, France were closed in the first quarter of 2015.

(c) Closed in January 2015.

ITEM 3.                Legal Proceedings
 
Although we may in the future become a party to litigation, there are no pending legal proceedings against us.
 

ITEM 4.                Mine Safety Disclosures
 
Not applicable.


24


PART II

ITEM 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is publicly traded on The Nasdaq National Market (“Nasdaq”) under the symbol “BOOM.”  The following table sets forth quarterly high and low sales prices for the common stock during our last two fiscal years, as reported by Nasdaq.
 
2014
 
High
 
Low
First Quarter
 
$
24.00

 
$
18.61

Second Quarter
 
$
22.97

 
$
18.12

Third Quarter
 
$
23.45

 
$
18.65

Fourth Quarter
 
$
19.11

 
$
14.84

 
2013
 
High
 
Low
First Quarter
 
$
18.87

 
$
13.89

Second Quarter
 
$
17.40

 
$
15.19

Third Quarter
 
$
24.09

 
$
16.48

Fourth Quarter
 
$
23.63

 
$
20.91

 
As of March 13, 2015, there were approximately 298 holders of record of our common stock.

We declared and paid quarterly dividends aggregating $0.16 per share dividend in each of 2014 and 2013. We may pay quarterly dividends subject to capital availability and periodic determinations that cash dividends are in the best interests of our stockholders, but we cannot assure you that such payments will continue.  Future dividends may be affected by, among other items, our views on potential future capital requirements, future business prospects, debt covenant compliance considerations, changes in income tax laws, and any other factors that our Board of Directors deems relevant.  Any determination to pay cash dividends will be at the discretion of the Board of Directors.


25


FINANCIAL PERFORMANCE
 
The following graph compares the performance of our common stock with the Nasdaq Non-Financial Stocks Index and the Nasdaq Composite (U.S.) Index. The comparison of total return (change in year-end stock price plus reinvested dividends) for each of the years assumes that $100 was invested on December 31, 2009, in each of the Company, Nasdaq Non-Financial Stocks Index and the Nasdaq Composite (U.S.) Index with investment weighted on the basis of market capitalization.  Historical results are not necessarily indicative of future performance.



Total Return Analysis
12/31/09
12/31/10
12/30/11
12/31/12
12/31/13
12/31/14
Dynamic Materials Corp
$100
$112.57
$98.65
$69.33
$108.43
$79.9
Nasdaq Non-Financial Stocks
$100
$120.14
$124.54
$147.39
$201.81
$240.97
Nasdaq Composite (US)
$100
$117.55
$117.91
$137.29
$183.26
$206.09


26


ITEM 6.                  Selected Financial Data
 
The following information as of and for the years ended December 31, 2013, 2012, 2011 and 2010 has been restated to reflect adjustments to our previously issued financial statements as more fully described in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in Note 3 "Restatement of Previously-Issued Financial Statements" to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

The following selected financial data should be read in conjunction with the Consolidated Financial Statements, including the related Notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  The 2010 selected financial data includes consolidation of the operating results of the two Russian joint ventures from the April 30, 2010, acquisition date, through December 31, 2010, and balance sheet information as of December 31, 2010.  The 2010 selected financial data also includes the operating results of DYNAenergetics US from the June 4, 2010, acquisition date, through December 31, 2010, and balance sheet information as of December 31, 2010.  The 2012 selected financial data includes the operating results of TRX from the January 3, 2012, acquisition date through December 31, 2012, and the balance sheet information as of December 31, 2012. All years presented reflect the classification of AMK into discontinued operations.
 
We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon.
 
 
(Dollars in Thousands, Except Per Share Data)
 
 
Year Ended December 31,
Statement of Operations
 
2014
 
2013
 
2012
 
2011
 
2010
 
 
 
 
Restated
 
Restated
 
Restated
 
Restated
Net sales
 
$
202,561

 
$
202,060

 
$
192,737

 
$
198,981

 
$
143,902

Gross profit
 
61,419

 
58,134

 
57,652

 
52,244

 
33,254

Cost and expenses
 
54,754

 
47,156

 
41,653

 
36,492

 
29,446

Restructuring expenses
 
6,781

 

 

 

 

Income from operations
 
6,665

 
10,978

 
15,999

 
15,752

 
3,808

Other income (expense), net
 
(826
)
 
(1,169
)
 
(851
)
 
(1,409
)
 
(402
)
Income before income taxes, discontinued operations and non-controlling interest
 
5,839

 
9,809

 
15,148

 
14,343

 
3,406

Income tax provision (benefit)
 
3,913

 
3,736

 
5,316

 
4,075

 
(7
)
Income from continuing operations
 
1,926

 
6,073

 
9,832

 
10,268

 
3,413

Income from discontinued operations
 
641

 
478

 
943

 
1,783

 
1,978

Net income (loss) attributable to non-controlling interest
 

 
92

 
(2
)
 
(50
)
 
(10
)
Net income attributable to Dynamic Materials Corporation
 
$
2,567

 
$
6,459

 
$
10,777

 
$
12,101

 
$
5,401

Net income per share - Basic:
 
 

 
 

 
 

 
 

 
 

Continuing operations
 
$
0.13

 
$
0.44

 
$
0.73

 
$
0.78

 
$
0.26

Discontinued operations
 
$
0.05

 
$
0.03

 
$
0.07

 
$
0.13

 
$
0.15

Net income
 
$
0.18

 
$
0.47

 
$
0.80

 
$
0.91

 
$
0.41

Net income per share - Diluted:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.13

 
$
0.44

 
$
0.73

 
$
0.78

 
$
0.26

Discontinued operations
 
$
0.05

 
$
0.03

 
$
0.07

 
$
0.13

 
$
0.15

Net income
 
$
0.18

 
$
0.47

 
$
0.80

 
$
0.91

 
$
0.41

 
 
 
 
 
 
 
 
 
 
 
Dividends Declared per Common Share
 
$
0.16

 
$
0.16

 
$
0.16

 
$
0.16

 
$
0.16

 
 
 
 
 
 
 
 
 
 
 
Financial Position
 
 

 
 

 
 

 
 

 
 

Total assets
 
219,329

 
240,545

 
235,206

 
213,574

 
201,470

Long-term debt
 
22,782

 
26,400

 
37,853

 
26,650

 
14,734


27


ITEM 7.  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 included elsewhere in this annual report.
 
Unless stated otherwise, all dollar figures in this discussion are presented in thousands (000s).

Executive Overview
 
Our business is organized into two segments:  NobelClad and DynaEnergetics.  Prior to 2014, we were organized into three segments. At the beginning of 2014 management approved a change in operating structure whereby AMK would operate within and be managed as part of the Oilfield Products business segment. Consequently, we combined AMK and DynaEnergetics into one reportable business segment, Oilfield Products. AMK represented 3% of segment assets, 4% of consolidated sales and 2% of segment operating income as of and for the year then ended December 31, 2013. All prior periods segment disclosures have been restated to conform to the 2014 presentation.

On October 1, 2014 we completed the sale of our AMK business. We have reflected the results of AMK as discontinued operations in the consolidated statements of operations for all periods presented. Accordingly, historical consolidated statements of operations included in the Management's Discussion and Analysis of Financial Condition and Results of Operations have been restated to reflect the discontinued operation.

On October 23, 2014, we signed an agreement to purchase a manufacturing facility in the Siegerland region of Germany for €10,528.  The facility will significantly enhance NobelClad’s manufacturing capabilities and its ability to serve customers throughout Europe, the Middle East and Africa.  We expect the plant will be operational in the second quarter of 2015.
    
On October 27, 2014, management announced a plan to restructure its NobelClad European operations. Clad metal plate production will be shifted from facilities in both Rivesaltes, France and Wurgendorf, Germany to the new manufacturing facility in Germany. NobelClad's Rivesaltes plant will continue to produce transition joints with a reduced workforce while the Wurgendorf site will be closed and its workers will be transferred to the new facility. In the fourth quarter of 2014, we incurred restructuring charges related this plan of $6,781. The restructuring charges included severance of $2,466, non-cash impairment charges of $3,946 associated with the Wurgendorf facility and leasehold improvements at a leased facility in France, both of which are being closed under the consolidation program, and other exit costs of $369. We expect to incur additional restructuring charges of approximately $1,000 primarily related to equipment relocation in the first quarter of 2015.

In 2014, NobelClad accounted for 48% of our net sales and 13% of our income from operations before consideration of unallocated corporate expenses and stock-based compensation expense, which are not allocated to our business segments.  DynaEnergetics accounted for 52% and 87% of our 2014 net sales and income from operations, respectively. In 2013 and 2012, NobelClad accounted for 59% and 60% of our net sales, respectively, and 79% and 73%, respectively, of income from operations before unallocated corporate expenses and stock-based compensation expense. In 2013 and 2012, DynaEnergetics accounted for 41% and 40% of our net sales, respectively, and 21% and 27%, respectively, of income from operations before unallocated corporate expenses and stock-based compensation expense.
 
Our 2014 net sales increased by $501, or 0.2%, compared to 2013 net sales.  Sales increased $21,802 (26.1%) in our DynaEnergetics segment and decreased $21,301 (18.0%) in our NobelClad segment. Excluding the impact of restructuring expenses in 2014 of $6,781, our consolidated income from operations increased to $13,446 in 2014 compared to $10,978 in 2013. The $2,468 improvement in consolidated income from operations was due to a $9,973 increase in DynaEnergetics operating income and a $649 decrease in aggregate unallocated corporate expenses and stock-based compensation, offset by a $8,154 decline in NobelClad's operating income. The decrease in corporate expenses was driven by $2,965 of non-recurring expenses in the first quarter of 2013 associated with management retirements. Consolidated operating income for 2014 and 2013 includes amortization expense of $6,103 and $6,348, respectively. Net income was $2,567 for 2014 compared to net income of $6,459 for 2013.
 
Restatement of Previously-Issued Financial Statements

On March 5, 2015, we concluded to restate our financial statements and related disclosures to correct non-cash errors reported in our historical consolidated financial statements related to income tax expense and related deferred tax assets and liabilities at our business entities in Germany as well as other adjustments, which were immaterial. The effects of the restatement are reflected in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and no prior disclosures were modified or updated except those required to reflect the effects of the restatement. See the Explanatory Note

28


included in the front section of the annual report on Form 10-K and Note 3 "Restatement of Previously-Issued Financial Statements” contained in the Notes to Financial Statements for more information regarding the restatement and changes to previously issued financial statements.

The errors arose from incorrect income tax accounting at our operations in Germany. In November 15, 2007 we acquired DynaEnergetics under Holding Co, a newly created German subsidiary. Subsequent to the acquisition we recognized income tax expense or benefits for German federal and local income tax purposes and paid cash taxes accordingly. However, we incorrectly had been deferring the recognition of the income tax expense or benefit in our calculation of net income for purposes of U.S. GAAP reporting.

The non-cash impact of the restatement and other adjustments decreased income from continuing operations by $1,036 in 2013 and $919 in 2012. The cumulative effect of the errors increased shareholders’ equity by $237 as of December 31, 2013. The restatement only impacted the income tax provision (benefit) line item in our consolidated statements of operations for the years ended December 31, 2013 and 2012, respectively. The restatement had no impact on the Company’s revenues, do not affect the Company’s cash balances and have no effect on the Company’s future operations.

We have not amended our previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form 10-Q for the periods affected by the restatement. The financial information that has been previously filed or otherwise reported for these periods is superseded by the information in this Form 10-K, and the financial statements and related financial information contained in such previously-filed reports should no longer be relied upon.

Net sales
 
NobelClad'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. These industries tend to be cyclical in nature and timing of new order inflow remains difficult to predict; however, we believe that our NobelClad segment is well-positioned in the marketplace.
 
Dynaenergetics markets and sells 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.
 
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 of products sold for NobelClad includes the cost of metals and alloys used to manufacture clad metal plates, the cost of explosives, employee compensation and benefits, freight, outside processing costs, depreciation of manufacturing facilities and equipment, manufacturing supplies and other manufacturing overhead expenses.
 
Cost of products sold for DynaEnergetics 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.

NobelClad Backlog
 
We use backlog as a primary means to measure the immediate outlook for our NobelClad business.  We define “backlog” at any given point in time as 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 NobelClad backlog increased to $41,244 at December 31, 2014 from $36,930 at December 31, 2013.
 

29


Forward-Looking Statements
 
This annual report and the documents incorporated by reference into it contain certain forward-looking statements within the safe harbor provisions of the Private Securities Litigations Reform Act of 1995.  These statements include information with respect to our anticipated future financial condition and results of operations and businesses.  Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “continue,” “project,” “forecast,” and similar expressions, as well as statements in the future tense, identify forward-looking statements.
 
These forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.  These risks and uncertainties include:

The ability to obtain new contracts at attractive prices;
The size and timing of customer orders;
Fluctuations in customer demand;
General economic conditions, both domestically and abroad, and their effect on us and our customers;
Competitive factors;
The timely completion of contracts;
The timing and size of expenditures;
The timely receipt of government approvals and permits;
The adequacy of local labor supplies at our facilities;
The application of governmental regulation and oversight of our operations and products and the industries in which our customers operate;
The availability and cost of funds; and
Fluctuations in foreign currencies.
 The effects of these factors are difficult to predict.  New factors emerge from time to time and we cannot assess the potential impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.  Any forward-looking statement speaks only as of the date of this annual report, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of such statement or to reflect the occurrence of unanticipated events.  In addition, see “Risk Factors” for a discussion of these and other factors.
 
Year ended December 31, 2014 compared to Year Ended December 31, 2013
 
Net sales
 
 
 
2014
 
2013
 
Change
 
Percentage
Change
Net sales
 
$
202,561

 
$
202,060

 
$
501

 
0.2
%
 
Net sales for 2014 increased 0.2% to $202,561 from $202,060 in 2013.
 
NobelClad sales decreased 18.0% to $97,108 in 2014 (48% of total sales) from $118,409 in 2013 (59% of total sales).  The decrease in Nobelclad sales this period relates primarily to the lower backlog and timing of shipments out of backlog.
 
DynaEnergetics contributed $105,453 to sales in 2014 (52% of total sales) compared to $83,651 in 2013 (41% of total sales), which represents a sales increase of 26.1%.  The increase in Oilfield products sales was driven by increased demand and favorable product and customer mix primarily from sales of our DynaSelect selective perforating detonator switch.


30


Gross profit
 
 
 
2014
 
2013
 
Change
 
Percentage
Change
Gross profit
 
$
61,419

 
$
58,134

 
$
3,285

 
5.7
%
Consolidated gross profit margin rate
 
30.3
%
 
28.8
%
 
 

 
 

 
Gross profit increased by 5.7% to $61,419 in 2014 from $58,134 in 2013.  Our 2014 consolidated gross profit margin rate increased to 30.3% from 28.8% in 2013 primarily from a higher proportion of sales in DynaEnergetics, which has higher gross profit margins than NobelClad. 
 
NobelClad's gross profit margin decreased from 25.4% in 2013 to 22.3% in 2014. The decrease in gross margin rate relates principally to lower sales volume and unfavorable manufacturing overhead absorption compared with 2013.
 
DynaEnergetics' gross profit margin increased to 38.0% in 2014 from 33.9% in 2013. The full year gross profit margin improved due to favorable price and mix including DynaSelect sales.
 
General and administrative expenses
 
 
 
2014
 
2013
 
Change
 
Percentage
Change
General and administrative expenses
 
$
23,766

 
$
24,672

 
$
(906
)
 
(3.7
)%
Percentage of net sales
 
11.7
%
 
12.2
%
 
 

 
 

 
General and administrative expenses decreased by $906, or 3.7%, to $23,766 in 2014 from $24,672 in 2012.  Excluding the impacts in 2013 of $2,965 in non-recurring expenses associated with management retirements and a $756 asset impairment charge related to an information system project in Russia, our general and administrative expenses increased by $2,815 or 13.4% from an aggregate increase in salaries, benefits and payroll taxes of $1,093, a $976 increase in stock-based compensation expense and a $327 increase in professional services. The increases were driven by year-over-year headcount additions to support business development initiatives, corporate branding and recruiting expenses. Excluding the impact of non-recurring management retirement and asset impairment expenses, general and administrative expenses, as a percentage of net sales, increased to 11.7% in 2014 from 10.4% in 2013.
 
Selling and distribution expenses
 
 
 
2014
 
2013
 
Change
 
Percentage
Change
Selling and distribution expenses
 
$
18,104

 
$
16,136

 
$
1,968

 
12.2
%
Percentage of net sales
 
8.9
%
 
8.0
%
 
 

 
 


Selling and distribution expenses increased by 12.2% to $18,104 in 2014 from $16,136 in 2013.  The increase was primarily due to a $1,000 aggregate increase in salaries, benefits and payroll taxes, a $436 increase in bad debt expense mostly from favorable adjustments in the third quarter of 2013 and an increase of $100 in stock-based compensation expense. As a percentage of net sales, selling and distribution expenses increased to 8.9% in 2014 compared to 8.0% in 2013.

Our 2014 consolidated selling and distribution expenses include $5,928 and $11,892 for our NobelClad and DynaEnergetics business segments, respectively. Our 2013 consolidated selling and distribution expenses include $5,574 and $10,378 for our NobelClad and DynaEnergetics business segments, respectively. The higher level of selling and distribution expenses for our DynaEnergetics segment relative to its contribution to our consolidated net sales reflects the strategy, particularly in North America, maintaining a number of strategically located distribution centers that are in close proximity to areas which contain a large concentration of oilfields and enjoy a high volume of related oil and gas drilling activities.

Amortization expenses
 
 
 
2014
 
2013
 
Change
 
Percentage
Change
Amortization of purchased intangible assets
 
$
6,103

 
$
6,348

 
$
(245
)
 
(3.9
)%
Percentage of net sales
 
3.0
%
 
3.1
%
 
 

 
 


31


 
Amortization expense relates to the amortization of values assigned to intangible assets in connection with our prior years acquisitions of DYNAenergetics, LRI, the two Russian joint ventures, Austin Explosives and our January 3, 2012 acquisition of TRX, all part of our DynaEnergetics business segment.  The $245 decrease in 2014 amortization expenses reflects the impact of foreign currency translation effects and a slight decrease in Q4 2014 amortization expense associated with the DYNAenergetics acquisition based on the amortization schedule. Amortization expense for 2014 includes $4,777, $1,135, and $191 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively.  Amortization expense for 2013 includes $5,021, $1,136, and $191 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively.

Amortization expense (as measured in Euros) associated with the DYNAenergetics acquisition and the acquisition of the two Russian joint ventures is expected to approximate €2,235 and €145, respectively, in 2015.  Our 2015 amortization expense associated with the Austin Explosives acquisition and the acquisition of TRX is expected to approximate $435 and $895, respectively, and  our 2015 amortization expense (as measured in Canadian dollars) associated with the LRI acquisition is expected to approximate 80 CAD.
 
Restructuring expenses
 
 
2014
 
2013
 
Change
 
Percentage
Change
Restructuring expenses
 
$
6,781

 
$

 
$
6,781

 
N/A

Restructuring expenses relate to our decision in the fourth quarter of 2014 to consolidate our NobelClad European operations. Clad metal plate production will be shifted from facilities in both Rivesaltes, France and Wurgendorf, Germany to a new manufacturing facility in Germany. NobelClad's Rivesaltes plant will continue to produce transition joints with a reduced workforce while the Wurgendorf site will be closed and its workers will be transferred to the new facility. The restructuring charges of $6,781 included severance of $2,466, non-cash impairment charges of $3,946 associated with the Wurgendorf facility and leasehold improvements at a leased facility in France, both of which are being closed under the consolidation program, and other exit costs of $369.

Operating income
 
 
 
2014
 
2013
 
Change
 
Percentage
Change
Operating income
 
$
6,665

 
$
10,978

 
$
(4,313
)
 
(39.3
)%
 
Income from operations (“operating income”) decreased by 39.3% to $6,665 in 2014 from $10,978 in 2013. Excluding the impact of restructuring expenses, our consolidated operating income for 2014 was $13,446, an increase of $2,468 or 22.5% over 2013. The above consolidated operating income totals for 2014 and 2013 include $6,381 and $7,217, respectively, of unallocated corporate expenses and $3,588 and $3,401, respectively, of stock-based compensation expense.  These expenses are not allocated to our business segments and thus are not included in the below 2014 and 2013 operating income totals for NobelClad and DynaEnergetics.
 
The increase (after excluding restructuring) in our consolidated operating income for 2014 reflects an increase in operating income for our DynaEnergetics segment of $9,973 and a decrease in unallocated corporate expenses of $836, which were partially offset by a decrease of $8,154 in the operating income reported by our NobelClad segment and an increase of $187 in stock-based compensation. The aggregate net decrease of $649 in unallocated corporate expenses and stock-based compensation expense primarily relates to the $2,965 of non-recurring expenses in the first quarter 2013 associated with management retirements.

NobelClad reported operating income of $2,155 for 2014 compared to $17,090 for 2013. Excluding the impact of $6,781 in restructuring expenses, NobelClad reported operating income of $8,936 in 2014. Operating results of NobelClad for 2014 and 2013 include $1,927 and $2,121, respectively, of amortization expense of purchased intangible assets. The decrease in operating income for 2014 was attributable to lower sales and related unfavorable manufacturing overhead absorption discussed above.  
 
DynaEnergetics' operating income of $14,479 in 2014 compared to $4,506 for 2013. Operating results of DynaEnergetics for 2014 and 2013 include $4,176 and $4,227, respectively, of amortization expense of purchased intangible assets. The increase in operating income for 2014 was largely attributable to the improved sales volumes and gross margin percentages as discussed above.

32



Other income (expense), net
 
 
2014
 
2013
 
Change
 
Percentage
Change
Other income (expense), net
 
$
(313
)
 
$
(528
)
 
$
215

 
(40.7
)%
 
We reported net other expense of $313 in 2014 compared to net other expense of $528 in 2013.  Our 2014 net other income includes net realized and unrealized foreign exchange losses of $451 and net other income items aggregating $138.  Our 2013 net other income includes net realized and unrealized foreign exchange losses of $836 and net other income items aggregating $308. 
 
Interest income (expense), net
 
 
 
2014
 
2013
 
Change
 
Percentage
Change
Interest income (expense), net
 
$
(513
)
 
$
(641
)
 
$
128

 
(20.0
)%
 
We recorded net interest expense of $513 in 2014 compared to net interest expense of $641 in 2013.  The small decrease reflects lower average outstanding borrowings in the first quarter of 2014 as interest rates remained relatively stable. 
 
Income tax provision
 
 
2014
 
2013
 
Change
 
Percentage
Change
 
 
 
 
Restated
 
 
 
 
Income tax provision
 
$
3,913

 
$
3,736

 
$
177

 
4.7
%
Effective tax rate
 
67.0
%
 
38.1
%
 
 

 
 

 
See Note 3 “Restatement of Previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements.

We recorded an income tax provision of $3,913 in 2014 compared with $3,736 in 2013. Our 2014 effective tax rate of 67% includes valuation allowances of $3,737 recorded in the second half of 2014 as described below, partially offset by favorable changes in tax law of $1,376. Our 2013 effective tax rate was 38.1%. Our consolidated income tax provision for 2014 and 2013 included $1,098 and $810, respectively, related to U.S. taxes, with the remainder relating to net foreign tax provisions of $2,815 in 2014 and $2,926 in 2013, respectively, associated with our foreign operations and holding companies.
          
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. A significant piece of objective negative evidence to be evaluated in this assessment is whether there is a three-year cumulative loss incurred in jurisdictions where there are deferred tax assets. We have incurred a three-year cumulative loss in two foreign jurisdiction resulting in local tax loss carryforwards. We also have tax loss carryforwards in another jurisdiction that we do not believe will be realized. As a result, we recorded a valuation allowance against the corresponding net deferred tax assets in the third and fourth quarters of 2014. The amount of the deferred tax assets considered realizable, however, could be adjusted during the carryforward period if positive evidence such as current and expected future taxable income outweighs negative evidence.

In January 2013, the United States Congress authorized, and the President signed into law, changes to the U. S. income tax laws which were retroactive to January 1, 2012. However, since these changes were enacted in 2013, the financial statement benefit of such legislation could not be reflected until the first quarter of 2013. The $908 tax benefit was recognized in the first quarter of 2013. During the second quarter of 2013, we recorded a one-time tax expense of $812 associated with a German tax audit settlement.

Our statutory income tax rates range from 20% to 35% for our various U.S. and foreign operating entities and holding companies. Fluctuations in our consolidated effective tax rate primarily reflect the different tax rates in our U.S. and foreign tax jurisdictions and the variation in contribution to consolidated pre-tax income from each jurisdiction for the respective year.


33


Discontinued Operations
 
 
2014
 
2013
 
Change
 
Percentage
Change
Income from operations of discontinued operations, net of tax
 
$
641

 
$
478

 
$
163

 
34.1
%

On October 1, 2014 we completed the sale of our AMK business. The net proceeds were $6,830, after final purchase price adjustments, and and the purchase was financed through $4,330 in cash consideration and the issuance of a $2,500 90-day secured promissory note to the Company which was paid in full by December 31, 2014. The excess of the selling price over the carrying value of $1,476 was recorded in our Statement of Operations in the fourth quarter 2014.

AMK's net sales were $4,540 and $7,513 in 2014 and 2013, respectively. AMK had a loss from discontinued operations of $77, net of tax of $1 for 2014 compared to income from discontinued operations of $478, net of tax of $241 for 2013. In 2014 we recorded a gain on the sale of AMK of $718, net of tax of $758.

Adjusted EBITDA
 
 
2014
 
2013
 
Change
 
Percentage
Change
Adjusted EBITDA
 
$
30,188

 
$
26,555

 
$
3,633

 
13.7
%
 
Adjusted EBITDA is a non-GAAP measure that we believe provides an important indicator of our ongoing operating performance. Our aggregate depreciation, amortization of purchased intangible assets, restructuring charges and stock-based compensation expense for 2014 and 2013 was $23,523 and $15,669, respectively. These aggregate charges represent a significant percentage of the consolidated operating income that we reported for these periods.  We use non-GAAP EBITDA and Adjusted EBITDA in our operational and financial decision-making and believe that these non-GAAP measures facilitate a more meaningful and accurate comparison of the operating performance of our two business segments than do certain GAAP measures.  Research analysts, investment bankers and lenders also use EBITDA and Adjusted EBITDA to assess operating performance.  In addition, during 2014, our management incentive awards were based, in part, upon the amount of EBITDA achieved during the year. A portion of the equity incentive awards granted in 2014 to our named executive officers will be based on the amount of Adjusted EBITDA achieved in 2014 and 2015. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBIDTA.

 
 
 
2014
 
2013
 
 
 
 
Restated
Net income attributable to DMC
 
2,567

 
6,459

Income from discontinued operations
 
(641
)
 
(478
)
Interest expense
 
551

 
648

Interest income
 
(38
)
 
(7
)
Provision for income taxes
 
3,913

 
3,736

Depreciation
 
7,051

 
5,920

Amortization of purchased intangible assets
 
6,103

 
6,348

EBITDA
 
19,506

 
22,626

Restructuring charges
 
6,781

 

Stock-based compensation
 
3,588

 
3,401

Other (income) expense, net
 
313

 
528

Adjusted EBITDA
 
30,188

 
26,555

 
Adjusted EBITDA increased 13.7% to $30,188 in 2014 from $26,555 in 2013 primarily due to the $2,965 management retirement expenses in 2013.
 

34


Year ended December 31, 2013 compared to Year Ended December 31, 2012
 
Net sales
 
 
2013
 
2012
 
Change
 
Percentage
Change
Net sales
 
$
202,060

 
$
192,737

 
$
9,323

 
4.8
%
 
Net sales for 2013 increased 4.8% to $202,060 from $192,737 in 2012. This $9,323 sales increase includes a favorable foreign exchange translation adjustment of $3,070 that relates principally to the strengthening of the Euro against the U.S. dollar during 2013. Excluding the impact of this foreign exchange adjustment, the increase in our 2013 consolidated net sales was 3.2%.
 
NobelClad sales increased 2.7% to $118,409 in 2013 (59% of total sales) from $115,333 in 2012 (60% of total sales).  The $3,076 increase in year-to-year NobelClad reflects the change in our beginning of the year backlog, which increased to $46,398 at December 31, 2012 from $44,564 at December 31, 2011, a favorable foreign exchange translation adjustment of $1,595, and the impact of timing differences with respect to when orders enter our backlog and the subsequent shipment of these orders.
 
DynaEnergetics contributed $83,651 to sales in 2013 (41% of total sales) compared to $77,404 in 2012 (40% of total sales), which represents a sales increase of 8.1%.  Since average North American rig count in the oil and gas industry was relatively flat during 2013 and 2012, the sales increase is largely attributable to geographical expansion initiatives, favorable changes in product/customer mix and a favorable foreign exchange translation adjustment of $1,475.

Gross profit
 
 
2013
 
2012
 
Change
 
Percentage
Change
Gross profit
 
$
58,134

 
$
57,652

 
$
482

 
0.8
%
Consolidated gross profit margin rate
 
28.8
%
 
29.9
%
 
 

 
 

 
Gross profit increased by 0.8% to $58,134 in 2013 from $57,652 in 2012.  Our 2013 consolidated gross profit margin rate decreased to 28.8% from 29.9% in 2012. 
 
The gross profit margin for NobelClad decreased from 27.0% in 2012 to 25.4% in 2013.  The decrease relates principally to changes in 2013 product mix as compared to 2012. As has been the case historically, we expect to see continued fluctuations in NobelClad's quarterly gross margin rates in the future that result from fluctuations in quarterly sales volume and changes in product/customer mix.
 
DynaEnergetics’ gross margin decreased to 33.9% in 2013 from 34.7% in 2012. After performing a comprehensive review of DynaEnergetics inventories during 2013 to identify potentially excess, slow moving and obsolete inventory items, we determined that a change in our estimate of reserve requirements was required and recorded a year-to-year increase of $1,800 (2.2% of sales) in our provision for excess, slow-moving and obsolete inventory. Excluding the negative impact of this increased inventory provision, the DynaEnergetics' gross margin would have improved to 36.1% in 2013 from 34.7% in 2012 as result of favorable changes in product/customer mix.
 
General and administrative expenses
 
 
 
2013
 
2012
 
Change
 
Percentage
Change
General and administrative expenses
 
$
24,672

 
$
18,489

 
$
6,183

 
33.4
%
Percentage of net sales
 
12.2
%
 
9.6
%
 
 

 
 

 
General and administrative expenses increased by $6,183, or 33.4%, to $24,672 in 2013 from $18,489 in 2012.  Excluding the impacts of $2,965 in non-recurring expenses associated with management retirements and a $756 asset impairment charge related to an information system project in Russia, our general and administrative increased $2,462 or 13.3%. This increase includes an aggregate increase of $797 in salaries, benefits and payroll taxes, an increase of $1,212 in consulting/professional service expenses, including $439 for our re-branding project, an increase of $457 in business travel expenses, an increase of $348 in other personnel costs (principally recruiting and relocation), and a net decrease of $352 in all other expense categories. Excluding

35


the impact of non-recurring management retirement and asset impairment expenses, general and administrative expenses, as a percentage of net sales, increased to 10.4% in 2013 from 9.6% in 2012.
 
Selling and distribution expenses
 
 
 
2013
 
2012
 
Change
 
Percentage
Change
Selling and distribution expenses
 
$
16,136

 
$
16,954

 
$
(818
)
 
(4.8
)%
Percentage of net sales
 
8.0
%
 
8.8
%
 
 

 
 


Selling and distribution expenses decreased by 4.8% to $16,136 in 2013 from $16,954 in 2012.  This decrease in our selling and distribution expenses includes decreases in stock-based compensation and commissions of $917 and $175, respectively, which were offset by increases in salaries, benefits and payroll taxes of $222 and a net increase of $52 in all other expense categories. The large decrease in 2013 stock-based compensation expense relates principally to the December 31, 2012 retirement of a senior sales executive for whom $860 of stock-based compensation expense was recognized in 2012. As a percentage of net sales, selling and distribution expenses decreased to 8.0% in 2013 compared to 8.8% in 2012.
 
Our 2013 consolidated selling and distribution expenses include $5,574 and $10,378 for our NobelClad and DynaEnergetics business segments, respectively. Our 2012 consolidated selling and distribution expenses include $6,795 and $9,058 for our NobelClad and DynaEnergetics business segments, respectively. The higher level of selling and distribution expenses for our DynaEnergetics segment relative to its contribution to our consolidated net sales reflects the need, particularly in North America, to maintain a number of strategically located distribution centers that are in close proximity to areas which contain a large concentration of oilfields and enjoy a high volume of related oil and gas drilling activities.

Amortization expenses
 
 
 
2013
 
2012
 
Change
 
Percentage
Change
Amortization of purchased intangible assets
 
$
6,348

 
$
6,210

 
$
138

 
2.2
%
Percentage of net sales
 
3.1
%
 
3.2
%
 
 

 
 

 
Amortization expense relates to the amortization of values assigned to intangible assets in connection with our prior years acquisitions of DYNAenergetics, LRI, the two Russian joint ventures, Austin Explosives and our January 3, 2012 acquisition of TRX, all part of our DynaEnergetics business segment.  The $138 increase in 2013 amortization expenses reflects the impact of foreign currency translation effects. Amortization expense for 2013 includes $5,021, $1,136, and $191 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively.  Amortization expense for 2012 includes $4,924, $1,101, and $185 relating to values assigned to customer relationships, core technology, and trademarks/trade names, respectively.
 
Operating income
 
 
2013
 
2012
 
Change
 
Percentage
Change
Operating income
 
$
10,978

 
$
15,999

 
$
(5,021
)
 
(31.4
)%
 
Income from operations (“operating income”) decreased by 31.4% to $10,978 in 2013 from $15,999 in 2012. The above consolidated operating income totals for 2013 and 2012 include $7,217 and $3,565, respectively, of unallocated corporate expenses and $3,401 and $4,443, respectively, of stock-based compensation expense.  These expenses are not allocated to our business segments and thus are not included in the below 2013 and 2012 operating income totals for NobelClad and DynaEnergetics.
 
The $5,021 decrease in our consolidated operating income for 2013 reflects a decrease of $2,411 in the aggregate operating income reported by our two business segments, an increase in unallocated corporate expenses of $3,652, and a decrease in stock-based compensation expense of $1,042. The aggregate net increase of $2,610 in unallocated corporate expenses and stock-based compensation expense includes $2,965 of non-recurring expenses associated with management retirements, the majority of which relates to the March 1, 2013 retirement of Yvon Cariou, our former President and Chief Executive Officer, who was succeeded in this position by Kevin Longe, our former Chief Operating Officer who joined the Company in July 2012.


36


NobelClad reported operating income of $17,090 in 2013 as compared to $17,439 in 2012.  This $349 or 2.0% decrease in NobelClad's 2013 operating income reflects a small sales increase of 2.7% that was more than offset by a decline in the gross margin rate to 25.4% in 2013 from 27.0% in 2012. Operating results of NobelClad for 2013 and 2012 include $2,121 and $2,054, respectively, of amortization expense of purchased intangible assets.
 
DynaEnergetics reported operating income of $4,506 in 2013 compared to operating income of $6,568 in 2012.  The $2,062 decrease in operating income for our DynaEnergetics segment reflects a $1,522 increase in gross profit that was more than offset by a $3,584, or 17.7%, increase in total operating expenses. While DynaEnergetics reported a 2013 sales increase of $6,247, or 8.1%, the gross profit increase was limited to $1,522 (an incremental gross margin rate of 24.4%) due principally to the $1,800 increase in the provision for excess, slow-moving and obsolete inventory that DynaEnergetics recorded in 2013 as further discussed above. Operating results of DynaEnergetics for 2013 and 2012 include $4,227 and $4,156, respectively, of amortization expense of purchased intangible assets.
 
Other income (expense), net
 
 
2013
 
2012
 
Change
 
Percentage
Change
Other income (expense), net
 
$
(528
)
 
$
(32
)
 
$
(496
)
 
1,550.0
%
 
We reported net other expense of $528 in 2013 compared to net other expense of $32 in 2012.  Our 2013 net other income includes net realized and unrealized foreign exchange losses of $836 and net other income items aggregating $308.  Our 2012 net other expense includes net realized and unrealized foreign exchange losses of $45 and net other income items aggregating $13. 
 
Interest income (expense), net
 
 
2013
 
2012
 
Change
 
Percentage
Change
Interest income (expense), net
 
$
(641
)
 
$
(819
)
 
$
178

 
(21.7
)%
 
We recorded net interest expense of $641 in 2013 compared to net interest expense of $819 in 2012.  The decreases in 2013 net interest expense reflects relatively stable interest rates, decreases in average outstanding borrowings during the year and an increase in capitalized interest on our greenfield capital investment projects in Russia and North America. 
 
Income tax provision
 
 
2013
 
2012
 
Change
 
Percentage
Change
 
 
Restated
 
Restated
 
 
 
 
Income tax provision
 
$
3,736

 
$
5,316

 
$
(1,580
)
 
(29.7
)%
Effective tax rate
 
38.1
%
 
35.1
%
 
 

 
 

 
See Note 3 “Restatement of Previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements.

We recorded an income tax provision of $3,736 in 2013 compared to $5,316 in 2012.  Our 2013 effective tax rate increased to 38.1% from 35.1% in 2012.  Our consolidated income tax provision for 2013 and 2012 included $810 and $3,365, respectively, related to U.S. taxes, with the remainder relating to net foreign tax provisions of $2,926 in 2013 and $1,951 in 2012, respectively, associated with our foreign operations and holding companies.
 
Our statutory income tax rates range from 20% to 35% for our various U.S. and foreign operating entities and holding companies. In January 2013, the United States Congress authorized, and the President signed into law, changes to the U. S. income tax laws which were retroactive to January 1, 2012. However, since these changes were enacted in 2013, the financial statement benefit of such legislation could not be reflected until the first quarter of 2013. The $908 tax benefit that we recognized in 2013 had a significant favorable impact on full year effective tax rate. During 2013, we also recorded a one-time tax expense of $812 associated with a German tax audit settlement as further discussed below. Year-to-year fluctuations in our consolidated effective tax rate also reflect the different tax rates in our U.S. and foreign tax jurisdictions and the variation in contribution to consolidated pre-tax income from each jurisdiction for the respective year.


37


Tax returns of our German subsidiaries have been under routine examination by the German tax authorities for most of 2013. During 2013, German tax authorities proposed and we agreed to a settlement. The key provisions of the settlement resulted in a net reduction of the subsidiaries' loss carryforwards, which reduced the non-current deferred tax assets associated with these carryforwards that were recorded on our books.  Thus, we recorded an additional $812 in income tax expense to reflect these reductions.  The settlement also resulted in an increase in the tax basis of our amortizable, intangible assets; however, under U.S. GAAP, this increase is not reflected in the financial statements.  The tax savings from the increase in these assets will be realized by the Company over the next nine years as a reduction in the taxes payable.

Discontinued Operations
 
 
2013
 
2012
 
Change
 
Percentage
Change
Income from operations of discontinued operations, net of tax
 
$
478

 
$
943

 
$
(465
)
 
(49.3
)%

On October 1, 2014, DMC completed the sale of its AMK business. Net sales for AMK was $7,513 in 2013 compared to $8,830 in 2012. AMK had income from discontinued operations of $478, net of tax of $241 in 2013 compared to income from discontinued operations of $943, net of tax of $461 in 2012.

Adjusted EBITDA
 
 
 
2013
 
2012
 
Change
 
Percentage
Change
Adjusted EBITDA
 
$
26,555

 
$
31,672

 
$
(5,117
)
 
(16.2
)%
 
Adjusted EBITDA is a non-GAAP measure that we believe provides an important indicator of our ongoing operating performance. Our aggregate non-cash depreciation, amortization of purchased intangible assets and stock-based compensation expense for 2013 and 2012 was $15,669 and $15,671, respectively. These aggregate non-cash charges represent a significant percentage of the consolidated operating income that we reported for these periods. We use non-GAAP EBITDA and Adjusted EBITDA in our operational and financial decision-making and believe that these non-GAAP measures facilitate a more meaningful and accurate comparison of the operating performance of our three business segments than do certain GAAP measures.  Research analysts, investment bankers and lenders also use EBITDA and Adjusted EBITDA to assess operating performance.  In addition, during 2013 and 2014, our management incentive awards will be based, in part, upon the amount of EBITDA achieved during the year. A portion of the equity incentive awards granted in 2014 to our named executive officers will be earned based on the amount of Adjusted EBITDA achieved in 2014 and 2015. The following is a reconciliation of the most directly comparable GAAP measure to Adjusted EBIDTA.
 
 
 
 
2013
 
2012
 
 
Restated
 
Restated
Net income attributable to DMC
 
6,459

 
10,777

Income from discontinued operations
 
(478
)
 
(943
)
Interest expense
 
648

 
832

Interest income
 
(7
)
 
(13
)
Provision for income taxes
 
3,736

 
5,316

Depreciation
 
5,920

 
5,018

Amortization of purchased intangible assets
 
6,348

 
6,210

EBITDA
 
22,626

 
27,197

Stock-based compensation
 
3,401

 
4,443

Other (income) expense, net
 
528

 
32

Adjusted EBITDA
 
26,555

 
31,672

 
Adjusted EBITDA decreased 16.2% to $26,555 in 2013 from $31,672 in 2012 primarily due to the decrease in operating income of $5,021 as discussed above.


38


Liquidity and Capital Resources
 
We have historically financed our operations from a combination of internally generated cash flow, revolving credit borrowings, various long-term debt arrangements, and the issuance of common stock.  We believe that cash flow from operations and funds available under our current credit facilities and any future replacement thereof will be sufficient to fund the working capital, debt service, and capital expenditure requirements of our current business operations for the foreseeable future.  Nevertheless, our ability to generate sufficient cash flows from operations will depend upon our success in executing our strategies. If we are unable to (i) realize sales from our backlog; (ii) secure new customer orders; (iii) continue selling products at attractive margins; and (iv) continue to implement cost-effective internal processes, our ability to meet cash requirements through operating activities could be impacted.  Furthermore, any restriction on the availability of borrowings under our credit facilities could negatively affect our ability to meet future cash requirements. 
 
Debt facilities
 
On December 21, 2011, we entered into a five-year syndicated credit agreement, which provided revolving loan availability of $36,000, 16,000 Euros and 1,500 Canadian dollars through a syndicate of four banks. As described further in Note 14 "Subsequent Events" to our consolidated financial statements below in this annual report, on February 23, 2015, we entered into a five year $150,000 syndicated credit facility which amended and replaced our 2011 syndicated credit facility. We also maintain a line of credit with a German bank for certain DYNAenergetics operations. This line of credit provides a borrowing capacity of 4,000 Euros. 
 
As of December 31, 2014, U.S. dollar revolving loans of $19,500 and Euro revolving loans of $3,282 (converted at the December 31, 2014 exchange rate) were outstanding under our 2011 syndicated credit agreement.  While we had approximately $37,598 of unutilized revolving credit loan capacity as of December 31, 2014 under our various credit facilities, future borrowings are subject to compliance with financial covenants that could significantly limit availability.

There are two significant financial covenants under our 2011 syndicated credit agreement, the leverage ratio and fixed charge coverage ratio requirements.  The leverage ratio is defined in the 2011 credit agreement as Consolidated Funded Indebtedness at the balance sheet date as compared to Consolidated EBITDA, which is defined as earnings before provisions for income taxes, interest expense, depreciation and amortization, extraordinary non-recurring charges, and other non-cash charges for the previous twelve months.  For the years ended December 31, 2014 and 2013, Consolidated EBITDA approximated the “Adjusted EBITDA” that we reported for the respective periods.  As of December 31, 2014, the maximum leverage ratio permitted by our credit facility was 2.0 to 1.0. The actual leverage ratio as of December 31, 2014 was .76 to 1.0. The maximum leverage ratio permitted as of March 31, June 30, September 30 and December 31, 2015 is 2.0 to 1.0.
 
The fixed charge ratio, as defined in the 2011 credit agreement, means, for any period, the ratio of Consolidated EBITDA to Fixed Charges.  Consolidated EBITDA is defined above and Fixed Charges equals the sum of cash interest expense, cash dividends, cash income taxes and an amount equal to 75% of depreciation expense.  For the trailing twelve months ended December 31, 2014, the minimum fixed charge ratio permitted by our credit facility was 2.0 to 1.0. The actual fixed charge ratio for the trailing twelve months ended December 31, 2014 was 2.54 to 1.0. The minimum fixed charge coverage ratio permitted for the twelve month periods ending March 31, June 30, September 30 and December 31, 2015 is 2.0 to 1.0.

Our 2015 credit facility contains financial and other covenants similar to those contained in the 2011 syndicated credit agreement. The 2015 credit facility provides that our leverage ratio that shall not exceed 3.0 to 1.0 and that we maintain a minimum debt service coverage ratio of not less than 1.35 to 1.0.

Our existing loan agreements, including the new syndicated credit agreement we entered into in February 2015, 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 December 31, 2014, we were in compliance with all financial covenants and other provisions of our debt agreements.
 

39


Other contractual obligations and commitments
 
The table below presents principal cash flows by expected maturity dates for our debt obligations and other contractual obligations and commitments as of December 31, 2014:
 
 
 
Payment Due by Period
As of December 31, 2014
 
 
Less than
 
 
 
 
 
More than
 
 
Contractual Obligations
 
1 Year
 
1-3 Years
 
3-5 Years
 
5 Years
 
Total
Operating lease obligations (1)
 
1,880

 
2,334

 
1,360

 
940

 
6,514

License agreements obligations (2)
 
398

 
796

 
398

 

 
1,592

Purchase obligations (3)
 
16,779

 

 

 

 
16,779

Total
 
$
19,057

 
$
3,130

 
$
1,758

 
$
940

 
$
24,885

 
(1)  The operating lease obligations presented reflect future minimum lease payments due under non-cancelable portions of our leases as of December 31, 2014.  Our operating lease obligations are described in Note 9 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements.
 
(2)  The license agreements obligations presented reflect future minimum payments due under non-cancelable portions of our agreements as of December 31, 2014.  Our license agreements obligations are described in Note 9 "Commitments and Contingencies" of the Notes to Consolidated Financial Statements.
 
(3)  Amounts represent commitments to purchase goods or services to be utilized in the normal course of business. These amounts are not reflected in accompanying Consolidated Balance Sheets.
 
As of December 31, 2014, we have $19,500 of outstanding borrowings under our U.S. dollar revolving line of credit and $3,282 of outstanding borrowings under our EUR revolving line of credit at then current interest rates of 1.42% and 1.27%, respectively. For more information about our debt obligations, see Note 5 " Debt" and Note 14 "Subsequent Events" to our consolidated financial statements below in this annual report.
 
Cash flows from operating activities
 
Net cash provided by operating activities was $23,313 in 2014 which consisted of net cash flows provided by continuing operations of $23,074 and net cash flows provided by discontinued operations of $239. This compares to net cash provided by operating activities of $32,016 for 2013 which consisted of net cash flows provided by continuing operations of $30,239 and net cash flows provided by discontinued operations of $1,777. The year-over-year decline of continuing operations operating cash flow of $7,165 was driven by a $9,883 increase in net working capital. We experienced unfavorable net working capital changes of $1,773 in 2014 compared to favorable changes in net working capital of $8,110 in 2013. Favorable changes in our 2014 net working capital included increases in customer advances and accrued expenses and other liabilities of $2,782 and $3,267, respectively, which were outweighed by increases of $3,459, $3,004 and $427 in inventory, prepaid expenses and accounts receivable, respectively, and a decrease in accounts payable of $932. The increases in net working capital were driven by higher sales in DynaEnergetics, timing of accounts payable and prepayment for raw materials with long lead times but favorable pricing.

 Net cash flows provided by operating activities was $32,016 in 2013 which consisted of net cash flows provided by continuing operations of $30,239 and net cash flows provided by discontinued operations of $1,777. Net cash flows provided by continuing operations increased by $10,775 over 2012, reflecting a $4,224 decrease in net income that was offset by favorable changes in net working capital of $13,803 and favorable changes in non-cash adjustments aggregating $1,196. We experienced net favorable changes in net working capital of $8,110 in 2013 compared to unfavorable changes in net working capital of $5,693 in 2012. Favorable changes in our 2013 net working capital included a decrease in inventories $6,750 and increases of $2,228 and $1,588 in accounts payable and accrued expenses and other liabilities, respectively. These favorable changes were partly offset by an increase in accounts receivable of $2,185 and decrease of $360 in customer advances. The large decrease in inventories reflects our focused efforts during 2013 to reduce overall inventory levels in our DynaEnergetics business, particularly within the North American distribution system. All other changes in working capital relate to typical fluctuations in our business flow and the related timing of cash payments and receipts.

Net cash flows provided by operating activities was $20,556 in 2012 which consisted of net cash flows provided by continuing operations of $19,464 and net cash flows provided by discontinued operations of $1,092. Net cash flows provided by continuing

40


operations increased by $12,717 over 2011, reflecting a $1,276 decrease in net income that was offset by favorable changes in net working capital of $9,878, and favorable changes in non-cash adjustments aggregating $4,115. While we experienced unfavorable changes to net working capital in both 2012 and 2011, the unfavorable change in net working capital was reduced to $5,693 in 2012 from $15,571 in 2011. Unfavorable changes in our 2012 working capital included an increase in inventories $2,380 and decreases of $3,616, $556 and $409 in accounts payable, customer advances and accrued expenses and other liabilities, respectively. These unfavorable changes were partly offset by decreases in accounts receivable and prepaid expenses of $717 and $551, respectively. All of foregoing changes in working capital relate to typical fluctuations in our business flow and the related timing of cash payments and receipts.
 
Cash flows from investing activities
 
Net cash flows used in investing activities in 2014 totaled $13,383 which consisted of cash flows used in investing activities of continuing operations of $13,263 and $120 of net cash flows used in investing activities of discontinued operations. Net cash flows used in investing activities of continuing operations consisted of capital expenditures of $21,403 which includes $13,140 for the purchase of the new German facility and $4,782 for our greenfield investment in Russia to expand capacity in DynaEnergetics and net proceeds of $6,830 on the sale of AMK.
 
Net cash flows used in investing activities in 2013 totaled $18,240 which consisted of net cash flows used in investing activities of continuing operations of $16,892 and $1,348 of net cash flows used in investing activities of discontinued operations. Net cash flows of investing activities of continuing operations consisted almost entirely of capital expenditures. Our capital expenditures included $9,159 for our greenfield projects in Russia and North America.

Net cash flows used in investing activities in 2012 totaled $26,165 which consisted of net cash flows used in investing activities of continuing operations of $25,651 and $514 of net cash flows used in investing activities of discontinued operations. Net cash flows of investing activities of continuing operations included $15,133 of capital expenditures and our $10,294 cash investment in TRX. Our capital expenditures in 2012 included $6,830 for our greenfield projects in Russia and North America and $2,300 on implementing a new ERP system for our NobelClad U.S. entity.
 
Cash flows from financing activities
 
Net cash flows used in financing activities for 2014 totaled $7,854, which included net repayments on bank lines of credit of $6,069 and payment of quarterly dividends of $2,226. 

Net cash flows used in financing activities for 2013 totaled $11,587, which included net repayments on bank lines of credit of $9,592 and payment of quarterly dividends of $2,187. 

Net cash flows provided by financing activities for 2012 totaled $8,517 and included net borrowings on bank lines of credit of $12,174.  These sources of cash flow were partially offset by uses of cash for financing activities, including $1,176 in loan payments to former owners of LRI and quarterly dividend payments of $2,155.
 

Critical Accounting Policies and Estimates
 
Our historical consolidated financial statements and notes to our historical consolidated financial statements contain information that is pertinent to our management’s discussion and analysis of financial condition and results of operations.  Preparation of financial statements in conformity with accounting principles generally accepted in the United States requires that our management make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.  However, the accounting principles used by us generally do not change our reported cash flows or liquidity.  Existing rules must be interpreted and judgments made on how the specifics of a given rule apply to us.
 
In management’s opinion, the more significant reporting areas impacted by management’s judgments and estimates are revenue recognition, asset impairments, goodwill and other intangible assets, and income taxes.  Management’s judgments and estimates in these areas are based on information available from both internal and external sources, and actual results could differ from the estimates, as additional information becomes known.   We believe the following to be our most critical accounting policies.
 

41


Revenue recognition
 
Sales of clad metal products are generally based upon customer specifications set forth in customer purchase orders and require us to provide certifications relative to metals used, services performed and the results of any non-destructive testing that the customer has requested be performed.  All issues of conformity of the product to specifications are resolved before the product is shipped and billed.  Products related to the DynaEnergetics segment, which include detonating cords, detonators, bi-directional boosters and shaped charges, as well as, seismic related explosives and accessories, are standard in nature.  In all cases, revenue is recognized only when all four of the following criteria have been satisfied: persuasive evidence of an arrangement exists; the price is fixed or determinable; delivery has occurred; and collection is reasonably assured.  Revenue from sales of consigned inventory is recognized upon the use of the product by the consignee or according to the terms of the contract.
 
Inventories

Inventories are stated at the lower-of-cost (first-in, first-out) or market value. Cost elements included in inventory are material, labor, subcontract costs, and manufacturing overhead. As necessary, we record provisions and maintain reserves for excess, slow moving and obsolete inventory. To determine reserve amounts, we regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments.

Asset impairments
 
Finite-lived assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We compare the expected undiscounted future operating cash flows associated with these finite-lived assets to their respective carrying values to determine if they are fully recoverable when indicators of impairment are present. If the expected future operating cash flows of an asset are not sufficient to recover the carrying value, we estimate the fair value of the asset. Impairment is recognized when the carrying amount of the asset is not recoverable and when carrying value exceeds fair value. Long-lived assets to be disposed of, if any, are reported at the lower of carrying amount or fair value less cost to sell. 
 
Business Combinations
 
We account for our business acquisitions using the purchase method of accounting. We allocate the total cost of the acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, we identify and attribute values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions regarding multiple, highly subjective variables, including those with respect to future cash flows, discount rates, asset lives, and the use of different valuation models and therefore require considerable judgment. Our estimates and assumptions are based, in part, on the availability of listed market prices or other transparent market data. These determinations affect the amount of amortization expense recognized in future periods. We base our fair value estimates on assumptions we believe to be reasonable but are inherently uncertain.
 
Goodwill and Other Intangible Assets
 
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. The carrying value of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Examples of such events or changes in circumstances, many of which are subjective in nature, include significant negative industry or economic trends, significant changes in the manner of our use of the acquired assets or our strategy, a significant decrease in the market value of the asset, and a significant change in legal factors or in the business climate that could affect the value of the asset.

Our reporting units for goodwill impairment testing are currently the same as our reportable business segments: NobelClad and DynaEnergetics. Each business segment represents separately managed strategic business units and our chief operating decision maker reviews financial results and evaluates operating performance at this level.

Goodwill impairment testing is performed annually as of December 31 for our NobelClad and DynaEnergetics reporting units. We utilize an income approach (discounted cash flow analysis) to determine the fair value of each reporting unit. We believe the discounted cash flow approach is the most reliable indicator of fair value for our reporting units. The key assumptions used in the discounted cash flows for both reporting units include, among other measures, expected future sales, operating income, working capital and capital expenditures. Discount rates are determined using a peer-based, risk-adjusted weighted average cost of capital. Our approach also includes reviewing for reasonableness the total market capitalization of the Company as of December 31 to the sum of the discounted cash flows for the combined reporting units. No impairment of goodwill was identified in connection

42


with our 2014 annual goodwill impairment tests as our estimated fair values substantially exceeded the carrying values for both reporting units. In 2013, we performed our goodwill impairment testing using a qualitative assessment for NobelClad and a quantitative assessment for DynaEnergetics. There was no impairment identified as part of our 2013 annual goodwill impairment tests. A future impairment is possible and could occur if (i) operating results underperform what we have estimated or (ii) additional volatility of the capital markets or other factors negatively impact our expectations of future results and or cause us to raise the discount rate percentage utilized in our discounted cash flow analysis. While we believe our most recent estimates were appropriate based on our view of then current business trends, no assurance can be provided that impairment charges will not be required in the future.

Finite-lived intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We compare the expected undiscounted future operating cash flows associated with these finite-lived assets to their respective carrying values to determine if they are fully recoverable. If the expected future operating cash flows of an asset are not sufficient to recover the carrying value, we estimate the fair value of the asset. Impairment is recognized when the carrying amount of the asset is not recoverable and when the carrying value exceeds fair value. The projected cash flows require several assumptions related to, among other things, relevant market factors, revenue growth, if any, and operating margins.

Income taxes
 
We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. The deferred income tax impact of tax credits are recognized as an immediate adjustment to income tax expense. We recognize deferred tax assets for the expected future effects of all deductible temporary differences to the extent we believe these assets will more likely than not be realized.  We record a valuation allowance when, based on current circumstances, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, recent financial operations and their associated valuation allowances, if any.

We recognize the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position; the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that is more likely than not of being realized upon ultimate resolution. We recognize interest and penalties related to uncertain tax positions in operating expense.
 
Off Balance Sheet Arrangements
 
We have no obligations, assets or liabilities other than those appearing or disclosed in our financial statements forming part of this annual report or as disclosed in the contractual obligation table above; no trading activities involving non-exchange traded contracts accounted for at fair value; and no relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties.
 
Recent Accounting Pronouncements
 
Please refer to Note 2 "Significant Accounting Policies" to our Consolidated Financial Statements in this annual report for a discussion of recent accounting pronouncements and their anticipated effect on our business.

ITEM 7A.        Quantitative and Qualitative Disclosures about Market Risk
 
Interest Rate Risk
 
Our interest rate risk management policies are designed to reduce the potential earnings volatility that could arise from changes in interest rates.  Periodically, we use interest rate swaps to stabilize funding costs by managing the exposure created by the differing maturities and interest rate structures of our assets and liabilities.  See Note 2 "Significant Accounting Policies" to the Consolidated Financial Statements for further information on interest rate risk management.
 

43


Foreign Currency Risk
 
Our consolidated financial statements are expressed in U.S. dollars, but a portion of our business is conducted in currencies other than U.S. dollars.  Changes in the exchange rates for such currencies into U.S. dollars can affect our revenues, earnings, and the carrying value of our assets and liabilities in our consolidated balance sheet, either positively or negatively.  Sales made in currencies other than U.S. dollars accounted for 32%, 36%, and 39% of total sales for the years ended 2014, 2013, and 2012, respectively. As a result of foreign currency risk, we may experience economic loss and a negative impact on earnings and equity with respect to our holdings solely as a result of foreign currency exchange rate fluctuations. Our primary exposure to foreign currency risk is the Euro due to the percentage of our U.S. dollar revenue that is derived from countries where the Euro is the functional currency and the Russian Ruble due to our greenfield investment in Tyumen, Siberia.
  


44


ITEM 8.                Financial Statements and Supplementary Data
 
DYNAMIC MATERIALS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
As of December 31, 2014 and 2013 and for Each of the Three Years Ended
December 31, 2014, 2013 and 2012
 
 
Page
Financial Statements:
 
 
The consolidated financial statement schedules required by Regulation S-X are filed under Item 15 “Exhibits and Financial Statement Schedules”.


45


Report of Independent Registered Public Accounting Firm
 
The Stockholders and the
Board of Directors of Dynamic Materials Corporation
 
We have audited the accompanying consolidated balance sheets of Dynamic Materials Corporation (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dynamic Materials Corporation at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 3 to the consolidated financial statements, the December 31, 2013 and 2012 consolidated financial statements have been restated to correct errors in the Company’s accounting for income tax expense and related deferred tax assets and liabilities at certain foreign entitites as well as other adjustments which were immaterial.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Dynamic Materials Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 16, 2015 expressed an adverse opinion thereon.



 
 
/s/ Ernst & Young LLP
 
Denver, Colorado
March 16, 2015


46


DYNAMIC MATERIALS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
(Amounts in Thousands, Except Share and Per Share Data)
 
 
2014
 
2013
 
 
 
Restated
ASSETS
 

 
 

CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
9,400

 
$
10,598

Accounts receivable, net of allowance for doubtful accounts of $542 and $419, respectively
35,501

 
37,785

Inventory, net
40,101

 
41,191

Prepaid expenses and other
6,123

 
4,277

Current deferred tax assets
3,971

 
3,456

Assets held for sale

 
6,299

 
 
 
 
Total current assets
95,096

 
103,606

 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
109,733

 
98,573

Less - accumulated depreciation
(45,898
)
 
(38,358
)
 
 
 
 
Property, plant and equipment, net
63,835

 
60,215

 
 
 
 
GOODWILL, net
32,762

 
37,970

 
 
 
 
PURCHASED INTANGIBLE ASSETS, net
26,734

 
36,458

 
 
 
 
DEFERRED TAX ASSETS
587

 
403

 
 
 
 
OTHER ASSETS, net
315

 
1,893

 
 
 
 
TOTAL ASSETS
$
219,329

 
$
240,545


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

47


DYNAMIC MATERIALS CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2014 AND 2013
(Amounts in Thousands, Except Share and Per Share Data)

 
2014
 
2013
 
 
 
Restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Accounts payable
$
14,076

 
$
14,567

Accrued expenses
5,638

 
3,927

Dividend payable
559

 
550

Accrued income taxes
3,770

 
2,657

Accrued employee compensation and benefits
4,582

 
4,552

Customer advances
3,510

 
1,019

Current debt obligations

 
2,907

Current deferred tax liabilities
373

 
435

Liabilities related to assets held for sale

 
826

 
 
 
 
Total current liabilities
32,508

 
31,440

 
 
 
 
LINES OF CREDIT
22,782

 
26,400

 
 
 
 
DEFERRED TAX LIABILITIES
7,003

 
7,795

 
 
 
 
OTHER LONG-TERM LIABILITIES
2,121

 
1,881

 
 
 
 
Total liabilities
64,414

 
67,516

 
 
 
 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)


 


 
 

 
 

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; 13,997,076 and 13,772,324 shares issued and outstanding, respectively
700

 
689

Additional paid-in capital
67,088

 
62,934

Retained earnings
113,723

 
113,390

Other cumulative comprehensive loss
(26,596
)
 
(3,984
)
 
 
 
 
Total stockholders’ equity
154,915

 
173,029

 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
219,329

 
$
240,545


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

48


DYNAMIC MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(Amounts in Thousands, Except Share and Per Share Data)

 
2014
 
2013
 
2012
 
 
 
Restated
 
Restated
NET SALES
$
202,561

 
$
202,060

 
$
192,737

COST OF PRODUCTS SOLD
141,142

 
143,926

 
135,085

Gross profit
61,419

 
58,134

 
57,652

COSTS AND EXPENSES:
 

 
 

 
 
General and administrative expenses
23,766

 
24,672

 
18,489

Selling and distribution expenses
18,104

 
16,136

 
16,954

Amortization of purchased intangible assets
6,103

 
6,348

 
6,210

Restructuring expenses
6,781

 

 

Total costs and expenses
54,754

 
47,156

 
41,653

INCOME FROM OPERATIONS
6,665

 
10,978

 
15,999

OTHER INCOME (EXPENSE):
 

 
 

 
 
Other income (expense), net
(313
)
 
(528
)
 
(32
)
Interest expense
(551
)
 
(648
)
 
(832
)
Interest income
38

 
7

 
13

INCOME BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
5,839

 
9,809

 
15,148

INCOME TAX PROVISION
3,913

 
3,736

 
5,316

INCOME FROM CONTINUING OPERATIONS
1,926

 
6,073

 
9,832

DISCONTINUED OPERATIONS:
 
 
 
 
 
Income (loss) from operations of discontinued operations, net of tax
(77
)
 
478

 
943

Gain on sale of discontinued operations, net of tax
718

 

 

Income from discontinued operations
641

 
478

 
943

NET INCOME
2,567

 
6,551

 
10,775

Less: Net income (loss) attributable to non-controlling interest

 
92

 
(2
)
NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION
$
2,567

 
$
6,459

 
$
10,777

 
 
 
 
 
 
INCOME PER SHARE - BASIC:
 

 
 

 
 
Continuing operations
$
0.13

 
$
0.44

 
$
0.73

Discontinued operations
$
0.05

 
$
0.03

 
$
0.07

Net income
$
0.18

 
$
0.47

 
$
0.80

INCOME PER SHARE - DILUTED:
 
 
 
 
 
Continuing operations
$
0.13

 
$
0.44

 
$
0.73

Discontinued operations
$
0.05

 
$
0.03

 
$
0.07

Net income
$
0.18

 
$
0.47

 
$
0.80

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 

 
 
Basic
13,687,485

 
13,533,566

 
13,264,636

Diluted
13,689,707

 
13,537,525

 
13,268,713

 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.16

 
$
0.16

 
$
0.16

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

49


DYNAMIC MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(Amounts in Thousands)

 
 
2014
 
2013
 
2012
 
 
 
Restated
 
Restated
Net income including non-controlling interest
$
2,567

 
$
6,551

 
$
10,775

 
 
 
 
 
 
Change in cumulative foreign currency translation adjustment
(22,612
)
 
2,619

 
2,606

 
 
 
 
 
 
Total comprehensive income (loss)
(20,045
)
 
9,170

 
13,381

 
 
 
 
 
 
Comprehensive income attributable to non-controlling interest

 
96

 
1

 
 
 
 
 
 
Comprehensive income (loss) attributable to Dynamic Materials Corporation
$
(20,045
)
 
$
9,074

 
$
13,380

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

50


DYNAMIC MATERIALS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(Amounts in Thousands, Except Share Data)

 
 
 
Dynamic Materials Corporation Stockholders
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
 
 
 
 
 
 
Additional
 
 
 
Cumulative
 
Non-
 
 
 
Common Stock
 
Paid-In
 
Retained
 
Comprehensive
 
Controlling
 
 
 
Shares
 
Amount
 
Capital
 
Earnings
 
Loss
 
Interest
 
Total
Balances, December 31, 2011 (Restated)
13,367,169

 
$
668

 
$
55,983

 
$
100,511

 
$
(9,202
)
 
$
83

 
$
148,043

Net income (loss) *

 

 

 
10,777

 

 
(2
)
 
10,775

Change in cumulative foreign currency translation adjustment *

 

 

 

 
2,603

 
3

 
2,606

Shares issued in connection with stock compensation plans
152,386

 
8

 
185

 

 

 

 
193

Tax impact of stock-based compensation

 

 
(453
)
 

 

 

 
(453
)
Stock-based compensation

 

 
4,443

 

 

 

 
4,443

Dividends declared

 

 

 
(2,160
)
 

 

 
(2,160
)
Balances, December 31, 2012 (Restated)
13,519,555

 
$
676

 
$
60,158

 
$
109,128

 
$
(6,599
)
 
$
84

 
$
163,447

Net income *

 

 

 
6,459

 

 
92

 
6,551

Change in cumulative foreign currency translation adjustment *

 

 

 

 
2,615

 
4

 
2,619

Shares issued in connection with stock compensation plans
252,769

 
13

 
282

 

 

 

 
295

Tax impact of stock-based compensation

 

 
(907
)
 

 

 

 
(907
)
Stock-based compensation

 

 
3,401

 

 

 

 
3,401

Dividends declared

 

 

 
(2,197
)
 

 

 
(2,197
)
Acquisition of minority interest

 

 

 

 

 
(180
)
 
(180
)
Balances, December 31, 2013 (Restated)
13,772,324

 
$
689

 
$
62,934

 
$
113,390

 
$
(3,984
)
 
$

 
$
173,029

Net income

 

 

 
2,567

 

 

 
2,567

Change in cumulative foreign currency translation adjustment

 

 

 

 
(22,612
)
 

 
(22,612
)
Shares issued in connection with stock compensation plans
224,752

 
11

 
348

 

 

 

 
359

Tax impact of stock-based compensation

 

 
106

 

 

 

 
106

Stock-based compensation

 

 
3,700

 

 

 

 
3,700

Dividends declared

 

 

 
(2,234
)
 

 

 
(2,234
)
Balances, December 31, 2014
13,997,076

 
$
700

 
$
67,088

 
$
113,723

 
$
(26,596
)
 
$

 
$
154,915

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

51



DYNAMIC MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(Amounts in Thousands)




 
 
2014
 
2013
 
2012
 
 
 
Restated
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
2,567

 
$
6,551

 
$
10,775

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

 
 

 


Loss (income) from discontinued operations, net of tax
77

 
(478
)
 
(943
)
Gain on sale of discontinued operations, net of tax
(718
)
 

 

Depreciation (including capital lease amortization)
7,051

 
5,920

 
5,018

Amortization of purchased intangible assets
6,103

 
6,348

 
6,210

Amortization of deferred debt issuance costs
102

 
102

 
124

Stock-based compensation
3,588

 
3,401

 
4,443

Excess tax benefit from stock-based compensation
(156
)
 

 

Deferred income tax benefit
(255
)
 
(521
)
 
(470
)
Loss on disposal of property, plant and equipment
12

 
50

 

Restructuring and impairment charges
6,781

 
756

 

Cash payments for restructuring charges
(305
)
 

 

Change in:
 

 
 

 
 
Accounts receivable, net
(427
)
 
(2,185
)
 
717

Inventory, net
(3,459
)
 
6,750

 
(2,380
)
Prepaid expenses and other
(3,004
)
 
89

 
551

Accounts payable
(932
)
 
2,228

 
(3,616
)
Customer advances
2,782

 
(360
)
 
(556
)
Accrued expenses and other liabilities
3,267

 
1,588

 
(409
)
 
 
 
 
 
 
Net cash flows provided by continuing operations
23,074

 
30,239

 
19,464

Net cash flows provided by discontinued operations
239

 
1,777

 
1,092

Net cash provided by operating activities
23,313

 
32,016

 
20,556

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(21,403
)
 
(16,223
)
 
(15,133
)
Net proceeds on sale of AMK Technical Services
6,830

 

 

Acquisition of TRX Industries

 

 
(10,294
)
Acquisition of minority interest

 
(180
)
 

Change in other non-current assets
1,310

 
(489
)
 
(224
)
 
 
 
 
 
 
Net cash flows used in continuing operations
(13,263
)
 
(16,892
)
 
(25,651
)
Net cash flows used in discontinued operations
(120
)
 
(1,348
)
 
(514
)
Net cash used in investing activities
(13,383
)
 
(18,240
)
 
(26,165
)
 
 
 
 
 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

52



DYNAMIC MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 AND 2012
(Amounts in Thousands)




 
2014
 
2013
 
2012
 
 
 
Restated
 
Restated
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
(6,069
)
 
(9,592
)
 
12,174

Payment on loans with former owners of LRI
(50
)
 
(63
)
 
(1,176
)
Payment on capital lease obligations
(24
)
 
(40
)
 
(66
)
Payment of dividends
(2,226
)
 
(2,187
)
 
(2,155
)
Excess tax benefit from stock-based compensation
156

 

 

Other
359

 
295

 
(260
)
 
 
 
 
 
 
Net cash provided by (used in) financing activities
(7,854
)
 
(11,587
)
 
8,517

 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
(3,274
)
 
191

 
(8
)
 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(1,198
)
 
2,380

 
2,900

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
10,598

 
8,218

 
5,318

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
9,400

 
$
10,598

 
$
8,218



SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
 
Cash paid during the period for -
 
 
 
 
 
Interest
$
514

 
$
631

 
$
746

Income taxes, net
$
3,586

 
$
1,938

 
$
7,395

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

53


DYNAMIC MATERIALS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2014
(Amounts in Thousands, Except Share and Per Share Data)
 
1. ORGANIZATION AND BUSINESS
 
Dynamic Materials Corporation (“DMC”) was incorporated in the state of Colorado in 1971 and reincorporated in the state of Delaware in 1997. DMC is headquartered in Boulder, Colorado and has manufacturing facilities in the United States, Germany, France, Canada and Russia.  Customers are located throughout the world. DMC currently operates under two business segments. In 2013 we branded our explosive metalworking operations under the single name NobelClad. Our NobelClad segment is comprised of our U.S. Clad operations as well as the assets and operations purchased in the Nobelclad Europe S.A. (“Nobelclad France”) and Dynaplat GmbH and Co. KG (“Dynaplat”) acquisitions. The NobelClad segment metallurgically joins or alters metals by using explosives. Our DynaEnergetics segment, which previously was included in the Oilfield Products segment with AMK Technical Services, is comprised entirely of DYNAenergetics GmbH and Co. KG (“DYNAenergetics”), its subsidiaries and sister companies. DynaEnergetics manufactures, markets, and sells oilfield perforating equipment and explosives.

2012 Acquisition
 
On January 3, 2012, we acquired the assets and operating business of Texas-based TRX Industries, Inc. (“TRX”), a manufacturer of perforating guns for our DynaEnergetics segment.  Our statements of operations include the results of the TRX acquisition from the January 3, 2012 closing date.  See Note 4 "Acquisitions" for additional disclosures regarding this acquisition.

2014 sale of AMK Technical Services

On October 1, 2014, DMC completed the sale of its AMK Technical Services ("AMK") business. The operating results of AMK have been classified as discontinued operations in all periods presented. See Note 11 "Discontinued Operations" for additional disclosures regarding this sale.

NobelClad Restructuring

On October 27, 2014, management announced a plan to restructure its NobelClad European operations. Clad metal plate production will be shifted from facilities in both Rivesaltes, France and Wurgendorf, Germany to the new manufacturing facility in Liebenscheid, Germany. See Note 12 "Restructuring" for additional disclosures regarding these restructuring plans.

2.      SIGNIFICANT ACCOUNTING POLICIES
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of DMC and its controlled subsidiaries.  Only subsidiaries in which controlling interests are maintained are consolidated.  All significant intercompany accounts, profits, and transactions have been eliminated in consolidation.

Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.
 
Foreign Operations and Foreign Exchange Rate Risk
 
The functional currency for our foreign operations is the applicable local currency for each affiliate company. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated at exchange rates in effect at period-end, and the statements of operations are translated at the average exchange rates during the period.  Exchange rate fluctuations on translating foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded as a separate component of stockholders’ equity and are included in other cumulative comprehensive income (loss). Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates

54


result in transaction gains and losses, which are reflected in income as unrealized (based on period-end translations) or realized upon settlement of the transactions. Cash flows from our operations in foreign countries are translated at actual exchange rates when known, or at the average rate for the period. As a result, amounts related to assets and liabilities reported in the consolidated statements of cash flows will not agree to changes in the corresponding balances in the consolidated balance sheets. The effects of exchange rate changes on cash balances held in foreign currencies are reported as a separate line item below cash flows from financing activities.
 
Cash and Cash Equivalents
 
For purposes of the consolidated financial statements, we consider highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
 
Accounts Receivable
 
We review our accounts receivable balance routinely to identify any specific customers with collectability issues.  In circumstances where we are aware of a specific customer’s inability to meets its financial obligation to us, we record a specific allowance for doubtful accounts (with the offsetting expense charged to our statement of operations) against the amounts due reducing the net recognized receivable to the amount we estimate will be collected. 

Inventories
    
Inventories are stated at the lower-of-cost (first-in, first-out) or market value. Cost elements included in inventory are material, labor, subcontract costs, and manufacturing overhead. As necessary, we record provisions and maintain reserves for excess, slow moving and obsolete inventory. To determine reserve amounts, we regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments.

Comprehensive reviews of DynaEnergetics' inventories were performed throughout 2013 to identify potentially excess, slow moving and obsolete inventory items. These reviews reflected management's efforts to reduce overall inventory levels and rationalize product line offerings. Additionally, our estimate for reserving, or writing-off, inventory changed from a combination of qualitative and quantitative considerations to a more specific quantitative analysis whereby inventory items which have not had movement for a certain duration are reserved against after a prescribed period.

In 2013 we changed our inventory management philosophy and intend to aggressively reduce our investment in inventory. In connection with this philosophy, we identified certain slow-moving and obsolete inventories and therefore revised our assumptions for calculating estimated inventory reserves, resulting in a change in estimate. We determined that our December 31, 2013 inventory reserves for our DynaEnergetics business segment should be increased by $1,800 to adequately provide for estimated requirements and recorded corresponding expense of $1,800 ($1,218, net of tax) in cost of products sold in our 2013 consolidated statement of operations. The impact of this change in estimate reduced earnings per share by $0.09 per share (basic and diluted) for the year ended December 31, 2013. Inventory reserves in 2014 increased by $1,146 and resulted in expense recognized of $1,287.

Inventories, net of reserves of $3,117 and $1,729 and most of which related to finished goods, consist of the following at December 31, 2014 and 2013 respectively:

 
2014
 
2013
Raw materials
$
15,208

 
$
13,119

Work-in-process
11,528

 
9,985

Finished goods
12,782

 
17,273

Supplies
583

 
814

 
 
 
 
 
$
40,101

 
$
41,191


Shipping and handling costs incurred by us upon shipment to customers are included in cost of products sold in the accompanying consolidated statements of operations.


55


Property, Plant and Equipment
 
Property, plant and equipment are recorded at cost, except for assets acquired in acquisitions which are recorded at fair value. Additions, improvements, and betterments are capitalized. Maintenance and repairs are charged to operations as the costs are incurred.  Depreciation is computed using the straight-line method over the estimated useful life of the related asset (except leasehold improvements which are depreciated over the shorter of their estimated useful life or the lease term) as follows:
 
Buildings and improvements
15-30 years
Manufacturing equipment and tooling
3-15 years
Furniture, fixtures, and computer equipment
3-10 years
Other
3-10 years
Gross property, plant and equipment consist of the following at December 31, 2014 and 2013:
 
 
 
2014
 
2013
Land
 
$
3,344

 
$
2,693

Buildings and improvements
 
39,489

 
31,774

Manufacturing equipment and tooling
 
40,433

 
37,844

Furniture, fixtures and computer equipment
 
14,813

 
14,079

Other
 
3,425

 
4,909

Construction in process
 
$
8,229

 
$
7,274

 
 
 
 
 
 
 
$
109,733

 
$
98,573

 
Asset Impairments
 
Finite-lived assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We compare the expected undiscounted future operating cash flows associated with these finite-lived assets to their respective carrying values to determine if they are fully recoverable when indicators of impairment are present. If the expected future operating cash flows of an asset are not sufficient to recover the carrying value, we estimate the fair value of the asset. Impairment is recognized when the carrying amount of the asset is not recoverable and when carrying value exceeds fair value. Long-lived assets to be disposed of, if any, are reported at the lower of carrying amount or fair value less cost to sell. 

For the year ended December 31, 2014, we recognized an impairment charge of approximately $3,946 (recorded in Restructuring expenses) associated with the restructuring of our NobelClad Europe operations. The impairment charges are primarily associated with the Wurgendorf, Germany facility and leasehold improvements at a leased facility in France, both of which are being closed under the restructuring program (See Note 12 "Restructuring"). The impairment of the facility in Germany was determined by a third-party appraiser using a combination of the cost and sales comparison approach, which are fair value techniques in accordance with Financial Accounting Standards Board ("FASB") ASC Section 820 Fair Value Measurements and Disclosures. For the year ended December 31, 2013 we recognized an impairment loss of approximately $756 (recorded in G&A expenses) associated with implementation costs for a systems implementation project at our Russian and Kazakhstan locations within our DynaEnergetics segment. We had subsequently made the strategic decision to abandon this system implementation project and, therefore, the impairment loss recognized represents writing down the carrying amount of this asset to zero. There were no asset impairments for the year ending December 31, 2012.
 
Goodwill
 
Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. The carrying value of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Examples of such events or changes in circumstances, many of which are subjective in nature, include significant negative industry or economic trends, significant changes in the manner of our use of the acquired assets or our strategy, a significant decrease in the market value of the asset, and a significant change in legal factors or in the business climate that could affect the value of the asset.


56


Our reporting units for goodwill impairment testing are currently the same as our reportable business segments: NobelClad and DynaEnergetics. Each business segment represents separately managed strategic business units and our chief operating decision maker reviews financial results and evaluates operating performance at this level.

Goodwill impairment testing is performed annually as of December 31 for our NobelClad and DynaEnergetics reporting units. We utilize an income approach (discounted cash flow analysis) to determine the fair value of each reporting unit. We believe the discounted cash flow approach is the most reliable indicator of fair value for our reporting units. The key assumptions used in the discounted cash flows for both reporting units include, among other measures, expected future sales, operating income, working capital and capital expenditures. Discount rates are determined using a peer-based, risk-adjusted weighted average cost of capital. Our approach also includes reviewing for reasonableness the total market capitalization of the Company as of December 31 to the sum of the discounted cash flows for the combined reporting units. No impairment of goodwill was identified in connection with our 2014 annual goodwill impairment tests as our estimated fair values substantially exceeded the carrying values for both reporting units. In 2013, we performed our goodwill impairment testing using a qualitative assessment for NobelClad and a quantitative assessment for DynaEnergetics. There was no impairment identified as part of our 2013 annual goodwill impairment tests. A future impairment is possible and could occur if (i) operating results underperform what we have estimated or (ii) additional volatility of the capital markets or other factors negatively impact our expectations of future results and or cause us to raise the discount rate percentage utilized in our discounted cash flow analysis. While we believe our most recent estimates were appropriate based on our view of then current business trends, no assurance can be provided that impairment charges will not be required in the future.

The changes to the carrying amount of goodwill during the period are summarized below: 
 
NobelClad
 
DynaEnergetics
 
Total
Goodwill balance at December 31, 2012
$
21,734

 
$
15,697

 
$
37,431

Adjustment due to recognition of tax benefit of tax amortization of certain goodwill
$
(353
)
 
$
(598
)
 
$
(951
)
Adjustment due to exchange rate differences
$
857

 
$
633

 
$
1,490

 
 
 
 
 
 
Goodwill balance at December 31, 2013
$
22,238

 
$
15,732

 
$
37,970

Adjustment due to recognition of tax benefit of tax amortization of certain goodwill
(318
)
 
(547
)
 
(865
)
Adjustment due to exchange rate differences
(2,502
)
 
(1,841
)
 
(4,343
)
 
 
 
 
 
 
Goodwill balance at December 31, 2014
$
19,418

 
$
13,344

 
$
32,762

 
All of the goodwill shown above, which is primarily in Germany, is amortizable goodwill for tax purposes.
 
Purchased Intangible Assets
 
Our purchased intangible assets include core technology, customer relationships and trademarks/trade names.  Impairment, if any, is calculated based upon our evaluation whereby, estimated undiscounted future cash flows associated with these assets or operations are compared with their carrying value to determine if a write-down to fair value is required if impairment indicators are present.  Finite lived intangible assets are amortized over the estimated useful life of the related assets which have a weighted average amortization period of 12 years in total.
 
The weighted average amortization periods of the intangible assets by asset category are as follows:
 
Core technology
20 years
Customer relationships
9 years
Trademarks / Trade names
9 years
 

57


The following table presents details of our purchased intangible assets, other than goodwill, as of December 31, 2014:
 
 
Gross
 
Accumulated
Amortization
 
Net
Core technology
$
20,667

 
$
(7,360
)
 
$
13,307

Customer relationships
40,195

 
(27,270
)
 
12,925

Trademarks / Trade names
2,216

 
(1,714
)
 
502

 
 
 
 
 
 
Total intangible assets
$
63,078

 
$
(36,344
)
 
$
26,734

 
The following table presents details of our purchased intangible assets, other than goodwill, as of December 31, 2013:
 
 
Gross
 
Accumulated
Amortization
 
Net
Core technology
$
23,391

 
$
(7,155
)
 
$
16,236

Customer relationships
45,269

 
(25,813
)
 
19,456

Trademarks / Trade names
2,510

 
(1,744
)
 
766

 
 
 
 
 
 
Total intangible assets
$
71,170

 
$
(34,712
)
 
$
36,458

 
The change in the gross value of our purchased intangible assets from December 31, 2013 to December 31, 2014 is due solely to the impact of foreign currency translation adjustments.

Expected future amortization of intangible assets is as follows:
 
For the years ended December 31 -
 

2015
$
4,285

2016
4,285

2017
4,263

2018
3,026

2019
1,692

Thereafter
9,183

 
 
 
$
26,734

 
Other Assets
 
Included in other assets are net deferred debt issuance costs of $203 and $305 as of December 31, 2014 and 2013, respectively.  On December 21, 2011, we entered into a five-year syndicated credit agreement, which amended and restated in its entirety the prior syndicated agreement entered into on November 16, 2007.  The outstanding balance of deferred debt issuance as of December 31, 2011 included additional costs of $435 that were incurred in connection with our amended and restated credit agreement and $95 of deferred debt issuance costs that were carried over from the prior agreement.  These deferred debt issuance are being amortized over the five-year term of the amended and restated credit agreement which expires on December 21, 2016.
 
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 December 31, 2014 and 2013 customer advances totaled $3,510 and $1,019, respectively, and originated from several customers.
 

58


Revenue Recognition
 
Sales of clad metal products are generally based upon customer specifications set forth in customer purchase orders and require us to provide certifications relative to metals used, services performed, and the results of any non-destructive testing that the customer has requested be performed.  All issues of conformity of the product to specifications are resolved before the product is shipped and billed.  Products related to the DynaEnergetics segment, which include detonating cords, detonators, bi-directional boosters, and shaped charges, as well as, seismic related explosives and accessories, are standard in nature.  In all cases, revenue is recognized only when all four of the following criteria have been satisfied: persuasive evidence of an arrangement exists; the price is fixed or determinable; delivery has occurred; and collection is reasonably assured.  Revenue from sales of consigned inventory is recognized upon the use of the product by the consignee or according to the terms of the contract.

Research and Development

Research and development costs, which are expensed as incurred, were $3,099, $2,199 and $2,075, for the years ended December 31, 2014, 2013 and 2012, respectively, and are included in our cost of products sold. Research and development costs include expenses associated with developing new products and processes, as well as, improvements to current manufacturing processes.

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.


59


Computation and reconciliation of earnings per common share for the years ended December 31, 2014, 2013 and 2012 are as follows:

 
2014
 
2013
 
2012
Numerator:
 
 
 
 
 
Income from continuing operations, net of non-controlling interest
$
1,926

 
$
5,981

 
$
9,834

Less income allocated to RSAs
(52
)
 
(102
)
 
(193
)
Income from continuing operations allocated to common stock for EPS calculation
1,874

 
5,879

 
9,641

Income from discontinued operations
641

 
478

 
943

Net income allocated to common stock for EPS calculation
$
2,515

 
$
6,357

 
$
10,584

 
 
 
 
 
 
Denominator:
 
 
 
 
 
Weighted average common shares outstanding - basic
13,687,485

 
13,533,566

 
13,264,636

Dilutive stock-based compensation plans
2,222

 
3,959

 
4,077

Weighted average common shares outstanding - diluted
13,689,707

 
13,537,525

 
13,268,713

 
 
 
 
 
 
Income per share - Basic:
 
 
 
 
 
Continuing operations
$
0.13

 
$
0.44

 
$
0.73

Discontinued operations
0.05

 
0.03

 
0.07

Net income allocated to common stock for EPS calculation
$
0.18

 
$
0.47

 
$
0.80

 
 
 
 
 
 
Income per share - Diluted:
 
 
 
 
 
Continuing operations
$
0.13

 
$
0.44

 
$
0.73

Discontinued operations
0.05

 
0.03

 
0.07

Net income allocated to common stock for EPS calculation
$
0.18

 
$
0.47

 
$
0.80


 
Fair Value of Financial Instruments
 
The carrying values of cash and cash equivalents, trade accounts receivable and payable, accrued expenses and lines of credit approximate their fair value and are included in Level 1.
 
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are required to use an established hierarchy for fair value measurements based upon the inputs to the valuation and the degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows:
 
·                  Level 1 — Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.
 
·                  Level 2 — Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.
 
·                  Level 3 — Inputs to the valuation that are unobservable inputs for the asset or liability.

60


 
The highest priority is assigned to Level 1 inputs and the lowest priority to Level 3 inputs.
 
Income Taxes
 
See Note 3 “Restatement of Previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements.

We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. The deferred income tax impact of tax credits are recognized as an immediate adjustment to income tax expense. We recognize deferred tax assets for the expected future effects of all deductible temporary differences to the extent we believe these assets will more likely than not be realized.  We record a valuation allowance when, based on current circumstances, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, recent financial operations and their associated valuation allowances, if any.

We recognize the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position; the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that is more likely than not of being realized upon ultimate resolution. We recognize interest and penalties related to uncertain tax positions in operating expense.
  
Concentration of Credit Risk and Off Balance Sheet Arrangements
 
Financial instruments, which potentially subject us to a concentration of credit risk, consist primarily of cash, cash equivalents, and accounts receivable. Generally, we do not require collateral to secure receivables.  At December 31, 2014, we had no financial instruments with off-balance sheet risk of accounting losses.
 
Other Cumulative Comprehensive Loss
 
Other cumulative comprehensive loss as of December 31, 2014, 2013, and 2012 consisted entirely of currency translation adjustments including those in intra-entity foreign currency transactions that are long-term investments.

Recent Accounting Pronouncements
 
In June 2014, the FASB issued an accounting standards update to clarify the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The pronouncement is effect for reporting periods beginning after December 15, 2015. The adoption of this update is not expected to have a significant impact on our financial statements.

In May 2014, the FASB issued an accounting standards update to clarify the principles of recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and IFRS. The pronouncement is effective for reporting periods beginning after December 15, 2016. We are still evaluating the impact on our financial statements for the expected adoption of this pronouncement.

In April 2014, the FASB issued an accounting standards update which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The pronouncement is effective for reporting periods beginning after December 15, 2014, however, early adoption is permitted. DMC has not elected to early adopt this pronouncement.

3.    RESTATEMENT OF PREVIOUSLY-ISSUED FINANCIAL STATEMENTS

On March 5, 2015, we concluded to restate our financial statements and related disclosures to correct non-cash errors reported in our historical consolidated financial statements related to income tax expense and related deferred tax assets and liabilities at our business entities in Germany as well as other adjustments, which were immaterial.


61


The errors arose from incorrect income tax accounting at our operations in Germany. In November 15, 2007, we acquired DynaEnergetics under a newly created German subsidiary DynaEnergetics Holding GmbH (“Holding Co”). Subsequent to the acquisition we recognized income tax expense or benefits for German federal and local income tax purposes and paid cash taxes accordingly for Holding Co. However, we incorrectly had been deferring the recognition of the income tax expense or benefit in our calculation of net income for purposes of U.S. GAAP reporting.

The non-cash impact of the restatement and other adjustments, which were immaterial, decreased income from continuing operations by $1,036 in 2013 and $919 in 2012. The cumulative effect of the errors increased shareholders’ equity by $2,000 as of December 31, 2011. The restatement only impacted the income tax provision (benefit) line item in our consolidated statements of operations for the years ended December 31, 2013 and 2012, respectively. The restatement had no impact on the Company’s revenues, did not affect the Company’s cash balances and has no effect on the Company’s future operations.

The following table summarizes the impact of the restatement on our previously reported consolidated balance sheet for the year ending December 31, 2013 (in thousands, except share and per share data):

 
December 31, 2013
 
As Reported
 
Adjustments
 
Restated
ASSETS
 

 
 
 
 
CURRENT ASSETS:
 

 
 
 
 
Cash and cash equivalents
$
10,598

 
$

 
$
10,598

Accounts receivable, net of allowance for doubtful accounts of $419
37,785

 

 
37,785

Inventory, net
41,191

 

 
41,191

Prepaid expenses and other
4,375

 
(98
)
 
4,277

Current deferred tax assets
3,440

 
16

 
3,456

Assets held for sale
6,299

 

 
6,299

 
 
 
 
 
 
Total current assets
103,688

 
(82
)
 
103,606

 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
98,573

 

 
98,573

Less - accumulated depreciation
(38,358
)
 

 
(38,358
)
 
 
 
 
 
 
Property, plant and equipment, net
60,215

 

 
60,215

 
 
 
 
 
 
GOODWILL, net
37,970

 

 
37,970

 
 
 
 
 
 
PURCHASED INTANGIBLE ASSETS, net
36,458

 

 
36,458

 
 
 
 
 
 
DEFERRED TAX ASSETS
388

 
15

 
403

 
 
 
 
 
 
OTHER ASSETS, net
1,893

 

 
1,893

 
 
 
 
 
 
TOTAL ASSETS
$
240,612

 
$
(67
)
 
$
240,545















62


 
December 31, 2013
 
As Reported
 
Adjustments
 
Restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 
 
 
CURRENT LIABILITIES:
 

 
 
 
 
Accounts payable
$
14,567

 
$

 
$
14,567

Accrued expenses
3,927

 

 
3,927

Dividend payable
550

 

 
550

Accrued income taxes
2,811

 
(154
)
 
2,657

Accrued employee compensation and benefits
4,552

 

 
4,552

Customer advances
1,019

 

 
1,019

Current debt obligations
2,907

 

 
2,907

Current deferred tax liabilities
435

 

 
435

Liabilities related to assets held for sale
826

 

 
826

 
 
 
 
 
 
Total current liabilities
31,594

 
(154
)
 
31,440

 
 
 
 
 
 
LINES OF CREDIT
26,400

 

 
26,400

 
 
 
 
 
 
DEFERRED TAX LIABILITIES
7,945

 
(150
)
 
7,795

 
 
 
 
 
 
OTHER LONG-TERM LIABILITIES
1,881

 

 
1,881

 
 
 
 
 
 
Total liabilities
67,820

 
(304
)
 
67,516

 
 
 
 
 
 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)


 


 


 
 

 
 
 
 
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; 13,772,324 shares issued and outstanding
689

 

 
689

Additional paid-in capital
62,934

 

 
62,934

Retained earnings
113,399

 
(9
)
 
113,390

Other cumulative comprehensive loss
(4,230
)
 
246

 
(3,984
)
 
 
 
 
 
 
Total stockholders’ equity
172,792

 
237

 
173,029

 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
240,612

 
$
(67
)
 
$
240,545




63


The following tables summarize the impact of the restatement on our previously reported statements of consolidated operations for fiscal years 2013 and 2012 (in thousands, except per share data):

 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
NET SALES
$
202,060

 
$

 
$
202,060

 
$
192,737

 
$

 
$
192,737

COST OF PRODUCTS SOLD
143,926

 

 
143,926

 
135,085

 

 
135,085

Gross profit
58,134

 

 
58,134

 
57,652

 

 
57,652

COSTS AND EXPENSES:
 

 
 
 
 
 
 

 
 
 
 
General and administrative expenses
24,672

 

 
24,672

 
18,489

 

 
18,489

Selling and distribution expenses
16,136

 

 
16,136

 
16,954

 

 
16,954

Amortization of purchased intangible assets
6,348

 

 
6,348

 
6,210

 

 
6,210

Total costs and expenses
47,156

 

 
47,156

 
41,653

 

 
41,653

INCOME FROM OPERATIONS
10,978

 

 
10,978

 
15,999

 

 
15,999

OTHER INCOME (EXPENSE):
 

 
 
 
 
 
 

 
 
 
 
Other income (expense), net
(528
)
 

 
(528
)
 
(32
)
 

 
(32
)
Interest expense
(648
)
 

 
(648
)
 
(832
)
 

 
(832
)
Interest income
7

 

 
7

 
13

 

 
13

INCOME BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
9,809

 

 
9,809

 
15,148

 

 
15,148

INCOME TAX PROVISION
2,700

 
1,036

 
3,736

 
4,397

 
919

 
5,316

INCOME FROM CONTINUING OPERATIONS
7,109

 
(1,036
)
 
6,073

 
10,751

 
(919
)
 
9,832

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
 
 
 
Income from operations of discontinued operations, net of tax
478

 

 
478

 
943

 

 
943

NET INCOME
7,587

 
(1,036
)
 
6,551

 
11,694

 
(919
)
 
10,775

Less: Net income (loss) attributable to non-controlling interest
92

 

 
92

 
(2
)
 

 
(2
)
NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION
$
7,495

 
$
(1,036
)
 
$
6,459

 
$
11,696

 
$
(919
)
 
$
10,777

 
 
 
 
 
 
 
 
 
 
 
 
INCOME PER SHARE - BASIC:
 

 
 
 
 
 
 

 
 
 
 
Continuing operations
$
0.52

 
$
(0.08
)
 
$
0.44

 
$
0.80

 
$
(0.07
)
 
$
0.73

Discontinued operations
$
0.03

 
$

 
$
0.03

 
$
0.07

 
$

 
$
0.07

Net income
$
0.55

 
$
(0.08
)
 
$
0.47

 
$
0.87

 
$
(0.07
)
 
$
0.80

INCOME PER SHARE - DILUTED:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.51

 
$
(0.07
)
 
$
0.44

 
$
0.80

 
$
(0.07
)
 
$
0.73

Discontinued operations
$
0.03

 
$

 
$
0.03

 
$
0.07

 
$

 
$
0.07

Net income
$
0.54

 
$
(0.07
)
 
$
0.47

 
$
0.87

 
$
(0.07
)
 
$
0.80

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 
 
 
 
 

 
 
 
 
Basic
13,533,566

 

 
13,533,566

 
13,264,636

 

 
13,264,636

Diluted
13,537,525

 

 
13,537,525

 
13,268,713

 

 
13,268,713

 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.16

 
$

 
$
0.16

 
$
0.16

 
$

 
$
0.16


64


The following tables summarize the impact of the restatement on our previously reported consolidated statements of comprehensive income for fiscal years 2013 and 2012 (in thousands):
 
Year Ended December 31, 2013
 
Year Ended December 31, 2012
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
Net income including non-controlling interest
$
7,587

 
$
(1,036
)
 
$
6,551

 
$
11,694

 
$
(919
)
 
$
10,775

 
 
 
 
 
 
 
 
 
 
 
 
Change in cumulative foreign currency translation adjustment
2,237

 
382

 
2,619

 
2,796

 
(190
)
 
2,606

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
9,824

 
(654
)
 
9,170

 
14,490

 
(1,109
)
 
13,381

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interest
96

 

 
96

 
1

 

 
1

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Dynamic Materials Corporation
$
9,728

 
$
(654
)
 
$
9,074

 
$
14,489

 
$
(1,109
)
 
$
13,380



65


The following tables summarize the impact of the restatement on our previously reported consolidated statements of cash flows for fiscal years 2013 and 2012 (in thousands):
 
Year Ended December 31, 2013
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
7,587

 
$
(1,036
)
 
$
6,551

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

 
 

 
 
Income from discontinued operations, net of tax
(478
)
 

 
(478
)
Depreciation (including capital lease amortization)
5,920

 

 
5,920

Amortization of purchased intangible assets
6,348

 

 
6,348

Amortization of deferred debt issuance costs
102

 

 
102

Stock-based compensation
3,401

 

 
3,401

Deferred income tax benefit
(1,666
)
 
1,145

 
(521
)
Loss on disposal of property, plant and equipment
50

 

 
50

Restructuring and impairment charges
756

 

 
756

Change in:
 

 
 

 
 
Accounts receivable, net
(2,185
)
 

 
(2,185
)
Inventory, net
6,750

 

 
6,750

Prepaid expenses and other
79

 
10

 
89

Accounts payable
2,228

 

 
2,228

Customer advances
(360
)
 

 
(360
)
Accrued expenses and other liabilities
1,707

 
(119
)
 
1,588

 
 
 
 
 
 
Net cash flows provided by continuing operations
30,239

 

 
30,239

Net cash flows provided by discontinued operations
1,777

 

 
1,777

Net cash provided by operating activities
32,016

 

 
32,016

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(16,223
)
 

 
(16,223
)
Acquisition of minority interest
(180
)
 

 
(180
)
Change in other non-current assets
(489
)
 

 
(489
)
 
 
 
 
 
 
Net cash flows used in continuing operations
(16,892
)
 

 
(16,892
)
Net cash flows used in discontinued operations
(1,348
)
 

 
(1,348
)
Net cash used in investing activities
(18,240
)
 

 
(18,240
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
(9,592
)
 

 
(9,592
)
Payment on loans with former owners of LRI
(63
)
 

 
(63
)
Payment on capital lease obligations
(40
)
 

 
(40
)
Payment of dividends
(2,187
)
 

 
(2,187
)
Other
295

 

 
295

 
 
 
 
 
 
Net cash used in financing activities
(11,587
)
 

 
(11,587
)
 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
191

 

 
191

 
 
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
2,380

 

 
2,380

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
8,218

 

 
8,218

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
10,598

 
$

 
$
10,598



66



 
Year Ended December 31, 2012
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
11,694

 
$
(919
)
 
$
10,775

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

 
 

 
 
Income from discontinued operations, net of tax
(943
)
 

 
(943
)
Depreciation (including capital lease amortization)
5,018

 

 
5,018

Amortization of purchased intangible assets
6,210

 

 
6,210

Amortization of deferred debt issuance costs
124

 

 
124

Stock-based compensation
4,443

 

 
4,443

Deferred income tax benefit
(1,159
)
 
689

 
(470
)
Change in:
 

 
 

 
 
Accounts receivable, net
717

 

 
717

Inventory, net
(2,380
)
 

 
(2,380
)
Prepaid expenses and other
463

 
88

 
551

Accounts payable
(3,616
)
 

 
(3,616
)
Customer advances
(556
)
 

 
(556
)
Accrued expenses and other liabilities
(551
)
 
142

 
(409
)
 
 
 
 
 
 
Net cash flows provided by continuing operations
19,464

 

 
19,464

Net cash flows provided by discontinued operations
1,092

 

 
1,092

Net cash provided by operating activities
20,556

 

 
20,556

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(15,133
)
 

 
(15,133
)
Acquisition of TRX Industries
(10,294
)
 

 
(10,294
)
Change in other non-current assets
(224
)
 

 
(224
)
 
 
 
 
 
 
Net cash flows used in continuing operations
(25,651
)
 

 
(25,651
)
Net cash flows used in discontinued operations
(514
)
 

 
(514
)
Net cash used in investing activities
(26,165
)
 

 
(26,165
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
12,174

 

 
12,174

Payment on loans with former owners of LRI
(1,176
)
 

 
(1,176
)
Payment on capital lease obligations
(66
)
 

 
(66
)
Payment of dividends
(2,155
)
 

 
(2,155
)
Other
(260
)
 

 
(260
)
 
 
 
 
 
 
Net cash provided by financing activities
8,517

 

 
8,517

 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
(8
)
 

 
(8
)
 
 
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
2,900

 

 
2,900

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
5,318

 

 
5,318

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
8,218

 
$

 
$
8,218



67


4.      ACQUISITIONS
 
TRX Industries
 
On January 3, 2012, we acquired the assets and operating business of Texas-based TRX Industries, Inc., a manufacturer of perforating guns, for a purchase price of $10,294.  TRX, which has now been integrated into our subsidiary DYNAenergetics US, had 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 on property, plant and equipment and discounted cash flow analysis on the identifiable intangible assets.  The allocation of the 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 6 years.  These amounts are included in Purchased Intangible Assets and are further discussed in Note 2 "Significant Accounting Policies."
 
5.      DEBT
 
Lines of credit consisted of the following at December 31, 2014 and 2013:
 
 
2014
 
2013
Syndicated credit agreement:
 

 
 

U.S. Dollar revolving loan
$
19,500

 
$
26,400

Euro revolving loan
3,282

 

Canadian Dollar revolving loan

 

Commerzbank line of credit

 
2,856

 
22,782

 
29,256

Less current portion

 
(2,856
)
 
 
 
 
Long-term lines of credit
$
22,782

 
$
26,400

 
Other debt consisted of the following at December 31, 2014 and 2013:
 
 
2014
 
2013
Loans with former owners of LRI
$

 
$
51

Less current maturities

 
(51
)
 
 
 
 
Other long-term debt
$

 
$


68


 
Syndicated Credit Agreement
 
On December 21, 2011, we entered into a five-year syndicated credit agreement (“credit facility”) which amended and restated in its entirety our prior syndicated credit facility entered into on November 16, 2007.  The credit facility due to mature on December 21, 2016, which provided revolving loan availability of $36,000, 16,000 Euros and 1,500 Canadian dollars, was entered into with a syndicate of four banks, with JP Morgan Chase Bank, N.A. acting as administrative agent for the U.S. and Canadian dollar loans and JP Morgan Europe Ltd. acting as administrative agent for the Euro loans.  Based upon our expected 2015 operating results, planned 2015 capital expenditures and expected changes in working capital levels during 2015, we expect our average 2015 borrowings to be equal to or exceed the amount of outstanding borrowings at December 31, 2014.  Thus, we have classified all borrowings outstanding as of December 31, 2014 under our syndicated credit agreement as long-term lines of credit.
 
U.S. Dollar Revolving Loans:  At our option, borrowings under the $36,000 revolving loan can be in the form of Alternate Base Rate loans (“ABR” borrowings are based on the greater of adjusted Prime rates, adjusted CD rates, or adjusted Federal Funds rates) or one, two, three, or six month London Interbank Offered Rate (“LIBOR”) loans.  ABR loans bear interest at the defined ABR rate plus 0.00% (at our current leverage ratio) and LIBOR loans bear interest at the applicable LIBOR rate plus 1.25% (at our current leverage ratio).  As of December 31, 2014, outstanding revolving loans totaled $19,500 and had an all-in interest rate of 1.42% based on the LIBOR rate.  Our rates are subject to change based upon changes in our current leverage ratio.
 
Euro Revolving Loans:  At our option, borrowings under the 16,000 Euro revolving loan can be based on one, two, three, or six month Euro Interbank Offered Rate (“EURIBOR”) rates and bear interest at the applicable EURIBOR rate plus 1.25% (at our current leverage ratio).  As of December 31, 2014, we had outstanding borrowings of 2,700 Euros ($3,282 based on the December 31, 2014 exchange rate) and had an all-in interest rate of 1.27% based on the EURIBOR rate.
 
Canadian Dollar Revolving Loans:  At our option, borrowings under the 1,500 Canadian dollar revolving loan can be based on one, two, three or six month Canadian Dealer Offered Rate (“CDOR”) rates and bear interest at the applicable CDOR rate plus 1.50% (at our current leverage ratio).  As of December 31, 2014, there were no borrowings outstanding under our 1,500 Canadian dollar revolving loan.

The syndicated credit facility was secured by the assets of DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC.
 
On February 23, 2015, we entered into a five-year $150,000 syndicated credit agreement which amended and replaced in its entirety our syndicated credit facility entered into on December 11, 2011. See "Subsequent Events" (footnote 12) for further information.

Line of Credit with German Bank
 
We maintain a line of credit with a German bank for certain DYNAenergetics operations.  This line of credit provides a borrowing capacity of 4,000 Euros and is also used by DYNAenergetics to issue bank guarantees to its customers to secure advance payments made by them.  As of December 31, 2014, we had no outstanding borrowings under this line of credit. As of December 31, 2014, we had bank guarantees secured by the line of credit of $1,220.  The line of credit bears interest at a EURIBOR-based variable rate which at December 31, 2014 was 3.85%.  The line of credit has open-ended terms and can be canceled by the bank at any time.
 
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 December 31, 2014, we were in compliance with all financial covenants and other provisions of our debt agreements.

Scheduled Debt Maturity

We do not have any debt as of December 31, 2014 with scheduled maturity.
 

69


6. STOCK OWNERSHIP AND BENEFIT PLANS
 
On September 21, 2006, our stockholders approved, and we adopted, the 2006 Stock Incentive Plan (“2006 Plan”).  On May 23, 2013, our stockholders approved an amendment to the 2006 Plan to increase the number of shares of common stock that may be issued under the 2006 Plan. The 2006 Plan provides for the grant of various types of equity-based incentives, including stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares, performance units and other stock-based awards.  There are a total of 1,617,500 shares available for grant under the 2006 Plan.  As of December 31, 2014, we have granted an aggregate of 1,217,221 shares of restricted stock and restricted stock units under the 2006 Plan, leaving 400,279 shares available for future grant.
 
The following table sets forth the total stock-based compensation expense included in the Consolidated Statements of Operations:
 
 
 
2014
 
2013
 
2012
Cost of products sold
 
$
309

 
$
304

 
$
324

General and administrative expenses
 
2,995

 
2,913

 
3,018

Selling and distribution expenses
 
284

 
184

 
1,101

Stock-based compensation expense before income taxes and discontinued operations
 
3,588

 
3,401

 
4,443

Income tax benefit
 
(970
)
 
(990
)
 
(864
)
Stock-based compensation expense before discontinued operations, net of income taxes
 
2,618

 
2,411

 
3,579

 
 
 
 
 
 
 
Discontinued operations
 
112

 

 

Income tax benefit
 
(38
)
 

 

Stock-based compensation expense in discontinued operations, net of income taxes
 
74

 

 

 
 
 
 
 
 
 
Stock-based compensation expense, net of income taxes
 
2,692

 
2,411

 
3,579

 
 
 
 
 
 
 
Earnings per share impact - Basic:
 
 

 
 

 
 

Continuing operations
 
$
0.19

 
$
0.18

 
$
0.27

Discontinued operations
 
$
0.01

 
$

 
$

Net income
 
$
0.20

 
$
0.18

 
$
0.27

Earnings per share impact - Diluted:
 
 
 
 
 
 
Continuing operations
 
$
0.19

 
$
0.18

 
$
0.27

Discontinued operations
 
$
0.01

 
$

 
$

Net income
 
$
0.20

 
$
0.18

 
$
0.27

 
Our stock-based compensation expense results from restricted stock awards, restricted stock units and stock issued under the Employee Stock Purchase Plan.  Our 2012 stock-based compensation expense includes $672 relating to the accelerated recognition of stock-based compensation expense resulting from accelerated vesting of restricted stock awards associated with the retirement of our former President and Chief Executive Officer on March 1, 2013 and the December 31, 2012 retirement of another senior executive.  During the first quarter of 2013 and, as a result of board actions taken in January 2013, we recorded a one-time expense of $2,965 associated with these management retirements.  This expense included $894 of stock-based compensation, with the remainder representing cash payments.
 
Restricted Stock Awards and Units:  Restricted stock awards and restricted stock units are granted to employees and non-employee directors based on time-vesting and/or performance conditions. Stock awards with time-vesting only generally vest in one-third increments on the first, second, and third anniversary of the grant date.  For stock awards with performance conditions, one-quarter of the shares vest on each of the first and second anniversaries of the grant date.  On the third anniversary, all or a portion of the remaining one-half of the shares will vest based on a formula that takes into account the Company’s achievement of Adjusted EBITDA compared to a target amount and the relative total return to the Company’s stockholders in comparison to the total stockholder return of the Company’s peer group of public companies. The fair value of restricted stock and restricted

70


stock unit awards granted to employees and non-employee directors is based on the fair value of DMC’s stock on the grant date. Stock awards granted to employees are amortized to compensation expense over the vesting period on a straight-line basis. Stock awards granted to non-employee directors are amortized to compensation expense over one year, which represents the term of their appointment.

A summary of the activity of our nonvested shares of restricted stock issued under the 2006 Plan for the years ended December 31, 2014, 2013, and 2012 is as follows:
 
 
 
Shares
 
Weighted Average
Grant Date
Fair Value
Balance at December 31, 2011
 
261,829

 
$
30.59

Granted
 
116,900

 
20.74

Vested
 
(136,344
)
 
27.20

 
 


 


Balance at December 31, 2012
 
242,385

 
$
27.75

Granted
 
163,579

 
16.37

Vested
 
(216,851
)
 
27.95

Forfeited
 
(2,000
)
 
22.05

 
 


 


Balance at December 31, 2013
 
187,113

 
$
17.63

Granted
 
157,680

 
21.31

Vested
 
(81,823
)
 
18.55

Forfeited
 
(250
)
 
22.05

 
 
 
 
 
Balance at December 31, 2014
 
262,720

 
$
19.55

 
On March 1, 2013 Kevin Longe, our President and Chief Executive Officer, was granted 30,000 shares of restricted stock outside of our 2006 Plan per specific exemptions in the Nasdaq regulations. The exemption relates to equity compensation agreed upon at an arms length basis to hire a new executive or director if the terms of the grant are promptly disclosed after the award. These shares vest in one-third increments on the first, second, and third anniversary of the date of grant.


71


A summary of the activity of our nonvested restricted stock units for the years ended December 31, 2014, 2013, and 2012 is as follows:
 
 
 
Share
Units
 
Weighted Average
Grant Date
Fair Value
Balance at December 31, 2011
 
53,998

 
$
20.43

Granted
 
50,200

 
20.44

Vested
 
(20,769
)
 
20.43

Forfeited
 
(3,000
)
 
21.15

 
 


 


Balance at December 31, 2012
 
80,429

 
$
20.41

Granted
 
56,217

 
15.67

Vested
 
(35,001
)
 
20.88

Forfeited
 
(2,300
)
 
19.01

 
 


 


Balance at December 31, 2013
 
99,345

 
$
17.59

Granted
 
33,895

 
21.25

Vested
 
(48,674
)
 
18.87

 
 
 
 
 
Balance at December 31, 2014
 
84,566

 
$
18.33

 
As of December 31, 2014, there was $2,548 and $738 of total unrecognized stock-based compensation related to unvested restricted stock awards and restricted stock units, respectively.  The cost is expected to be recognized over a weighted average period of 1.63 years and 1.61 years for the restricted stock awards and restricted stock units, respectively.
 
Employee Stock Purchase Plan
 
We have an Employee Stock Purchase Plan (“ESPP”) which is authorized to issue up to 600,000 shares of which 115,218 shares remain available for future purchases. The offerings begin on the first day following each previous offering (“Offering Date”) and end six months from the offering date (“Purchase Date”).  The ESPP provides that full time employees may authorize DMC to withhold up to 15% of their earnings, subject to certain limitations, to be used to purchase common stock of DMC at the lesser of 85% of the fair market value of DMC’s common stock on the Offering Date or the Purchase Date. In connection with the ESPP, 20,148; 22,689; and 14,717 shares of our stock were purchased during the years ended December 31, 2014, 2013, and 2012, respectively.  Our total stock-based compensation expense for 2014, 2013, and 2012 includes $92, $76, and $58 respectively, in compensation expense associated with the ESPP.
 
401(k) Plan
 
We offer a contributory 401(k) plan to our employees. We make matching contributions equal to 100% of each employee’s contribution up to 3% of qualified compensation and 50% of the next 2% of qualified compensation contributed by each employee.  Total DMC contributions were $523, $485, and $431 for the years ended December 31, 2014, 2013 and 2012, respectively.

Defined Benefit Plans

We have defined benefit pension plans at certain foreign subsidiaries for which we have recorded an unfunded pension obligation of $1,143 and $910 as of December 31, 2014 and 2013, respectively, which is included in other long-term liabilities in the Consolidated Balance Sheets. All necessary adjustments to the obligation are based upon actuarial calculations are recorded directly to the statement of operations. We recognized net adjustments of $349, $67 and $235, respectively, for the years ended December 31, 2014, 2013 and 2012.

7. INCOME TAXES (RESTATED)
 
See Note 3 “Restatement of Previously-Issued Financial Statements” to the Consolidated Financial Statements for information on the adjustments made related to the restatement of previously-issued financial statements.

72



The domestic and foreign components of income before tax for our operations for the years ended December 31 are summarized below:
 
 
 
2014
 
2013
 
2012
 
 
 
 
Restated
 
Restated
Domestic
 
$
(706
)
 
$
6,339

 
$
6,312

Foreign
 
6,545

 
3,470

 
8,836

 
 
 
 
 
 
 
 
 
$
5,839

 
$
9,809

 
$
15,148

 
The components of the provision for income taxes for the years ended December 31 are as follows:
 
 
 
2014
 
2013
 
2012
 
 
 
 
Restated
 
Restated
Current - Federal
 
$
378

 
$
1,144

 
$
3,396

Current - State
 
16

 
93

 
136

Current - Foreign
 
3,774

 
3,020

 
2,254

 
 
 
 
 
 
 
Current income tax expense
 
4,168

 
4,257

 
5,786

 
 
 
 
 
 
 
Deferred - Federal
 
(236
)
 
658

 
(140
)
Deferred - State
 
(82
)
 
(64
)
 
(27
)
Deferred - Foreign
 
63

 
(1,115
)
 
(303
)
 
 
 
 
 
 
 
Deferred income tax benefit
 
(255
)
 
(521
)
 
(470
)
 
 
 
 
 
 
 
Income tax provision
 
$
3,913

 
$
3,736

 
$
5,316

 
A reconciliation of our income tax provision computed by applying the Federal statutory income tax rate of 35% in December 31, 2014, 2013, and 2012 to income before taxes is as follows:
 
 
 
2014
 
2013
 
2012
 
 
 
 
Restated
 
Restated
Statutory U.S. federal income tax
 
$
2,042

 
$
3,401

 
$
5,302

U.S. state income tax, net of federal benefit
 
(15
)
 
85

 
45

Foreign rate differential
 
(1,558
)
 
(1,259
)
 
(2,271
)
Domestic production activities deduction
 
(21
)
 
(211
)
 
(316
)
Tax audit adjustments
 
(338
)
 
812

 

Intercompany distributions
 
16

 
2,239

 

Foreign equity compensation
 
338

 
234

 
254

Deemed repatriation of foreign earnings
 

 
(908
)
 
908

Current year tax credits
 
(156
)
 
(628
)
 
(29
)
Change in valuation allowances
 
3,737

 
73

 

Other
 
(132
)
 
(102
)
 
1,423

 
 
 
 
 
 
 
Provision for income taxes
 
$
3,913

 
$
3,736

 
$
5,316

    
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. A significant piece of objective negative evidence to be evaluated in this assessment is whether

73


there is a three-year cumulative loss incurred in jurisdictions where there are deferred tax assets. In jurisdictions where we have incurred a three-year cumulative loss, we recorded a valuation allowance against the corresponding net deferred tax assets in the third and fourth quarters in the amount of $3,737 in 2014. The amount of the deferred tax assets considered realizable, however, could be adjusted during the carryforward period if positive evidence such as current and expected future taxable income outweighs negative evidence.

In January 2013, the United States Congress authorized, and the President signed into law, legislation which retroactively changed federal tax laws for 2012. Since this legislation was enacted in 2013, the financial statement benefit from these changes, totaling $908, was reflected in the provision for income taxes in the consolidated statement of operations during the twelve months ended December 31, 2013.

Our deferred tax assets and liabilities at December 31, 2014 and 2013 consist of the following:
 
 
 
2014
 
2013
 
 
 
 
Restated
Deferred tax assets:
 
 

 
 

Net foreign operating loss carryforward
 
$
6,932

 
$
5,396

Inventory differences
 
2,337

 
2,373

Equity compensation
 
836

 
556

Investment in subsidiaries
 
935

 
1,147

Restructuring
 
1,265

 

Other, net
 
418

 
591

Gross deferred tax assets
 
12,723

 
10,063

Less valuation allowances
 
(3,032
)
 
(75
)
Total deferred tax assets
 
9,691

 
9,988

 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
Purchased intangible assets
 
(9,813
)
 
(12,445
)
Depreciation and amortization
 
(2,476
)
 
(1,676
)
Other, net
 
(220
)
 
(238
)
Total deferred tax liabilities
 
(12,509
)
 
(14,359
)
 
 
 
 
 
Net deferred tax liabilities
 
$
(2,818
)
 
$
(4,371
)
     
As of December 31, 2014, we had loss carryforwards for tax purposes totaling approximately $41,390, comprised solely of foreign loss carryforwards which will be available to offset future taxable income due to laws in certain foreign jurisdictions. If not used, the foreign tax loss carryforwards generally may be carried forward indefinitely or have at least a ten-year carryforward period. We have analyzed the foreign net operating losses and placed valuation allowance on those where we have determined the realization is not more likely than not to occur.

As a result of stock-based compensation in December 31, 2014 we increased additional paid-in-capital by $106 for the tax impact and in December 31, 2013, and 2012, we decreased additional paid-in-capital by $907, and $453, respectively, for the tax impact.  To the extent these adjustments reduced taxes currently payable, they are not reflected in the current income tax provision for those years.
 
As of December 31, 2014, 2013 and 2012, income considered to be permanently reinvested in non-U.S. subsidiaries totaled approximately $37,772, $37,795 and $42,543, respectively.  Deferred income taxes have not been provided on this undistributed income, as we do not plan to initiate any action that would require the payment of U.S. income taxes on these earnings.  It is not practical to estimate the amount of additional taxes that might be payable on these amounts of undistributed foreign income.
 
At December 31, 2014 and 2013, the balance of unrecognized tax benefits was $0.  We recognize interest and penalties related to uncertain tax positions in operating expense.  As of December 31, 2014 and 2013, our accrual for interest and penalties related to uncertain tax positions was $0.
 

74


DMC files income tax returns in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. No income tax examinations are currently in progress. Tax returns of our German subsidiaries were under routine examination by the German tax authorities for most of 2013. During 2013, German tax authorities proposed and we agreed to a settlement. The key provisions of the settlement resulted in a net reduction of the subsidiaries' loss carryforwards, which reduced the non-current deferred tax assets associated with these carryforwards that were recorded on our books.  Thus, we recorded an additional $812 in income tax expense to reflect these reductions. DMC’s U.S. Federal tax returns for the tax years 2011-2014 remain open to examination while most of DMC’s state tax returns remain open to examination for the tax years 2010-2014.  DMC’s foreign tax returns remain open to examination for the tax years 2009-2014.

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

Prior to 2014, we were organized into three segments. At the beginning of 2014 management approved a change in operating structure whereby AMK will operate within and be managed as part of the Oilfield Products business segment. Consequently, we combined AMK and DynaEnergetics into one reportable business segment, Oilfield Products. AMK represented 3% of segment assets, 4% of consolidated sales and 2% of segment operating income as of and for the year then ended December 31, 2013. All prior periods segment disclosures have been restated to conform to the 2014 presentation.

Due to the completed sale of AMK, as of December 31, 2014 the operating results of AMK have been classified as discontinued operations in all periods presented. All prior periods segment disclosures have been restated to conform to the 2014 presentation. Refer to Note 11 "Discontinued Operations" for further details. 

The accounting policies of all the segments are the same as those described in the summary of significant accounting policies.  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.

Beginning in 2011, we changed our methodology of allocating corporate overhead to our business segments. In connection with this change, we no longer allocate certain corporate expenses that do not directly benefit our business segments. DMC corporate and our U.S. NobelClad business fall under the same legal entity and historically their general ledgers have been combined. Beginning January 1, 2013, and in connection with implementing a new ERP system, we have separated DMC corporate and NobelClad U.S. into two general ledgers. Therefore we now have specifically identified corporate property, plant and equipment that are not allocated to our business segments. These assets consist of computer hardware, computer software, leasehold improvements and furniture related to our corporate offices.

75


Segment information is presented for the years ended December 31, 2014, 2013, and 2012 as follows:
 

Year Ended December 31,

2014

2013

2012
Net sales:





NobelClad
$
97,108


$
118,409


$
115,333

DynaEnergetics
105,453


83,651


77,404







Consolidated net sales
$
202,561


$
202,060


$
192,737



Year Ended December 31,

2014

2013

2012
Income before income taxes:





NobelClad
$
2,155


$
17,090


$
17,439

DynaEnergetics
14,479

 
4,506

 
6,568

 
 
 
 
 
 
Segment operating income
16,634

 
21,596

 
24,007

 
 
 
 
 
 
Unallocated corporate expenses
(6,381
)
 
(7,217
)
 
(3,565
)
Stock-based compensation
(3,588
)
 
(3,401
)
 
(4,443
)
Other income (expense)
(313
)
 
(528
)
 
(32
)
Interest expense
(551
)

(648
)

(832
)
Interest income
38


7


13


 
 
 
 
 
Consolidated income before income taxes
$
5,839


$
9,809


$
15,148



Year Ended December 31,

2014

2013

2012
Depreciation and Amortization:





NobelClad
$
6,482


$
6,118


$
5,580

DynaEnergetics
6,672


6,150


5,648


 
 
 
 
 
Segment depreciation and amortization
$
13,154


$
12,268


$
11,228



Year Ended December 31,

2014

2013

2012
Capital Expenditures:





NobelClad
$
13,696

 
$
2,425

 
$
4,747

DynaEnergetics
7,366

 
13,022

 
10,386







Segment capital expenditures
21,062


15,447


15,133

Corporate and other
341


776




 
 
 
 
 
Consolidated capital expenditures
$
21,403


$
16,223


$
15,133



76


 
Year Ended December 31,
 
2014
 
2013
Assets:
 
 
 
NobelClad
$
93,383

 
$
99,115

DynaEnergetics
103,914

 
112,919

 

 

Segment assets
197,297

 
212,034

 
 
 
 
Cash and cash equivalents
9,400

 
10,598

Prepaid expenses and other assets
6,438

 
6,170

Deferred tax assets
4,558

 
3,859

Corporate property, plant and equipment
1,636

 
1,585

Assets held for sale

 
6,299

 
 
 
 
Consolidated assets
$
219,329

 
$
240,545



The geographic location of our property, plant and equipment, net of accumulated depreciation, is as follows:
 
 
 
As of December 31,
 
 
2014
 
2013
United States
 
$
26,291

 
$
28,501

Germany
 
21,210

 
12,703

Russia
 
9,556

 
10,152

France
 
4,440

 
5,801

Canada
 
1,655

 
2,230

Kazakhstan
 
461

 
438

Rest of the world
 
222

 
390

 
 
 
 
 
Total
 
$
63,835

 
$
60,215


All of our sales are from products shipped from our manufacturing facilities and distribution centers located in the United States, Germany, France, Canada, Russia and Kazakhstan. The following represents our net sales based on the geographic location of the customer: 
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
2012
United States
 
$
91,009

 
$
88,532

 
$
71,155

Canada
 
23,532

 
18,142

 
21,083

Iraq
 
11,348

 
4,243

 
1,756

Russia
 
7,992

 
5,992

 
6,472

Germany
 
7,721

 
9,208

 
13,992

India
 
7,617

 
8,888

 
3,874

South Korea
 
7,362

 
11,642

 
9,469

France
 
5,478

 
3,756

 
6,249

China
 
1,800

 
606

 
7,986

Kazakhstan
 
1,551

 
2,513

 
2,359

Rest of the world
 
37,151

 
48,538

 
48,342

 
 
 
 
 
 
 
Total
 
$
202,561

 
$
202,060

 
$
192,737

 

77


During the years ended December 31, 2014, 2013 and 2012, no one customer accounted for more than 10% of total net sales. 
 
9. COMMITMENTS AND CONTINGENCIES
 
We lease certain office space, equipment, storage space, vehicles and other equipment under various non-cancelable lease agreements. Future minimum rental commitments under non-cancelable leases are as follows: 
 
 
Operating Leases
Year ended December 31 -
 
 

2015
 
$
1,880

2016
 
1,349

2017
 
985

2018
 
852

2019
 
508

Thereafter
 
940

 
 
 
Total minimum payments
 
$
6,514

 
Total rental expense included in continuing operations was $4,103, $3,838, and $3,146 for the years ended December 31, 2014, 2013, and 2012, respectively.
 
During 2008, we entered into a license agreement and a risk allocation agreement related to our U.S. NobelClad business.  These agreements, which were amended in 2012, provide us with the ability to perform our explosive shooting process at a second shooting site in Pennsylvania.  Future minimum payments required to be made by us under these agreements are as follows:
 
Year ended December 31 -
 

2015
$
398

2016
398

2017
398

2018
398

2019

Thereafter

 
 

Total minimum payments
$
1,592

 
In the normal course of business, we are party to various contractual disputes and claims. After considering our evaluations by legal counsel regarding pending actions, we are of the opinion that the outcome of such actions will not have a material adverse effect on the financial position or results of operations.

10.      RETIREMENT EXPENSES

During the first quarter of 2013 and, as a result of board actions taken in January 2013, we recorded a one-time expense of $2,965 associated with management retirements, the majority of which relates to the March 1, 2013 retirement of Yvon Cariou, our former President and Chief Executive Officer.  This expense includes $894 of stock-based compensation, with the remainder representing cash payments.        

11.      DISCONTINUED OPERATIONS

On October 1, 2014 DMC completed the sale of its AMK business. The net proceeds were $6,830, after final purchase price adjustments, and the purchase was financed through $4,330 in cash consideration and the issuance of a $2,500 90-day secured promissory note to the Company which was paid in full by December 31, 2014. The excess of the selling price over the carrying value of $1,476 was recorded in our Statement of Operations in the fourth quarter 2014. The operating results of AMK have been classified as discontinued operations in all periods presented.    

78


Operating results of the discontinued operations (formerly included in the Oilfield Products segment) for the years ended December 31, 2014, 2013 and 2012 are summarized as follows:
 
2014
 
2013
 
2012
Net sales
$
4,540

 
$
7,513

 
$
8,830

 
 
 
 
 
 
Income (loss) from operations
$
(76
)
 
$
719

 
$
1,404

Tax provision
1

 
241

 
461

 
 
 
 
 
 
Income (loss) from operations, net of tax
$
(77
)
 
$
478

 
$
943

 
 
 
 
 
 
Gain on sale of discontinued operations
$
1,476

 
$

 
$

Tax provision
758

 

 

 
 
 
 
 
 
Gain on sale of discontinued operations, net of tax
$
718

 
$

 
$


The assets and liabilities of AMK have been reflected in assets and liabilities held for sale in the Condensed Consolidated Balance Sheet as of December 31, 2013 and are comprised of the following:
 
December 31,
2013
Cash
$
19

Accounts receivable
930

Inventory
359

Prepaid expenses and other
6

Current deferred tax assets
67

Property, plant and equipment, net
4,801

Noncurrent deferred tax assets
117

 
 
Total assets
$
6,299

 
 
Accounts payable
$
101

Accrued expenses
63

Accrued employee compensation
254

Customer advances
6

Noncurrent deferred tax liabilities
402

 
 
Total liabilities
$
826


12.      RESTRUCTURING

On October 23, 2014 we signed an agreement to purchase a manufacturing facility in the Siegerland region of Germany for $13,140.  The facility will significantly enhance NobelClad segment’s manufacturing capabilities and its ability to serve customers throughout Europe, the Middle East and Africa. On October 27, 2014, management announced the plan to restructure its NobelClad European operations. Clad metal plate production will be shifted from facilities in both Rivesaltes, France and Wurgendorf, Germany to the new manufacturing facility in Germany. NobelClad's Rivesaltes plant will continue to produce transition joints with a reduced workforce while the Wurgendorf site will be closed and its workers will be transferred to the new facility. We expect to incur total pretax restructuring and impairment charges of approximately $7,250 associated with this plan

79


of which $6,781 ($5,135 after-tax) was incurred in the fourth quarter of 2014. The pretax restructuring charges recorded in the fourth quarter of 2014 included severance of $2,466, non-cash impairment charges of $3,946 primarily associated with the Wurgendorf facility and leasehold improvements at a leased facility in France, both of which are being closed under the consolidation program, and other exit costs of $369. The restructuring and impairment charges are reported in the “restructuring expenses” line item in our consolidated statement of operations for the the year ended December 31, 2014. We expect to incur additional restructuring charges of approximately $500 primarily related to equipment relocation in the first and second quarters of 2015. As of December 31, 2014 we recorded a liability for restructuring charges of $2,486 primarily related to accrued severance, which we will be paid out in 2015.
 
13.    SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

As more fully discussed in Note 3 “Restatement of Previously-Issued Financial Statements,” the following operating results for each of the eight fiscal quarters in the two year period ended December 31, 2014 (except for the current quarter ending December 31, 2014) have been restated to reflect adjustments to our previously-issued consolidated financial statements.

The "As Reported" financial statements reflect the financial results of AMK as discontinued operations due to the completed sale of AMK on October 1, 2014. See Note 11 "Discontinued Operations" for further details. For the years ended December 31, 2014 and 2013, AMK represented less than 5% of consolidated assets, consolidated sales and consolidated operating income.


80


The following tables summarize the impact of the restatement on our previously reported interim consolidated balance sheet for fiscal years 2014 and 2013 (in thousands, except share and per share data):

 
March 31, 2014
 
March 31, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
ASSETS
 

 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 

 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
9,131

 
$

 
$
9,131

 
$
8,246

 
$

 
$
8,246

Accounts receivable, net of allowance for doubtful accounts of $459 and $440, respectively
35,973

 

 
35,973

 
31,948

 

 
31,948

Inventory, net
43,106

 
(54
)
 
43,052

 
46,491

 

 
46,491

Prepaid expenses and other
6,142

 
(98
)
 
6,044

 
5,956

 
(89
)
 
5,867

Current deferred tax assets
2,424

 
16

 
2,440

 
1,587

 
2

 
1,589

Assets held for sale
6,276

 

 
6,276

 
5,402

 

 
5,402

 
 
 
 
 
 
 
 
 
 
 
 
Total current assets
103,052

 
(136
)
 
102,916

 
99,630

 
(87
)
 
99,543

 
 
 
 
 
 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
100,208

 

 
100,208

 
85,896

 

 
85,896

Less - accumulated depreciation
(40,934
)
 
202

 
(40,732
)
 
(33,661
)
 

 
(33,661
)
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
59,274

 
202

 
59,476

 
52,235

 

 
52,235

 
 
 
 
 
 
 
 
 
 
 
 
GOODWILL, net
37,689

 

 
37,689

 
36,125

 

 
36,125

 
 
 
 
 
 
 
 
 
 
 
 
PURCHASED INTANGIBLE ASSETS, net
34,597

 

 
34,597

 
39,428

 

 
39,428

 
 
 
 
 
 
 
 
 
 
 
 
DEFERRED TAX ASSETS
552

 
44

 
596

 
1,060

 
(138
)
 
922

 
 
 
 
 
 
 
 
 
 
 
 
OTHER ASSETS, net
1,711

 

 
1,711

 
529

 

 
529

 
 
 
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
$
236,875

 
$
110

 
$
236,985

 
$
229,007

 
$
(225
)
 
$
228,782

 
 
 
 
 
 
 
 
 
 
 
 


81


 
March 31, 2014
 
March 31, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 

 
 
 
 
 
 
 
 
 
 
Accounts payable
$
13,438

 
$

 
$
13,438

 
$
10,362

 
$

 
$
10,362

Accrued expenses
4,315

 

 
4,315

 
4,453

 

 
4,453

Dividend payable
557

 

 
557

 
547

 

 
547

Accrued income taxes
2,034

 
(102
)
 
1,932

 
295

 
5

 
300

Accrued employee compensation and benefits
3,140

 

 
3,140

 
3,778

 

 
3,778

Customer advances
2,996

 

 
2,996

 
1,378

 

 
1,378

Current debt obligations
516

 

 
516

 
64

 

 
64

Current portion of capital lease obligations
10

 

 
10

 
50

 

 
50

Current deferred tax liabilities
404

 

 
404

 
155

 

 
155

Liabilities related to assets held for sale
758

 

 
758

 
543

 

 
543

 
 
 
 
 
 
 
 
 
 
 
 
Total current liabilities
28,168

 
(102
)
 
28,066

 
21,625

 
5

 
21,630

 
 
 
 
 
 
 
 
 
 
 
 
LINES OF CREDIT
26,900

 

 
26,900

 
38,256

 

 
38,256

 
 
 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT

 

 

 
37

 

 
37

 
 
 
 
 
 
 
 
 
 
 
 
CAPITAL LEASE OBLIGATIONS
7

 

 
7

 
6

 

 
6

 
 
 
 
 
 
 
 
 
 
 
 
DEFERRED TAX LIABILITIES
7,566

 
158

 
7,724

 
8,344

 
(1,021
)
 
7,323

 
 
 
 
 
 
 
 
 
 
 
 
OTHER LONG-TERM LIABILITIES
1,930

 
88

 
2,018

 
1,582

 

 
1,582

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
64,571

 
144

 
64,715

 
69,850

 
(1,016
)
 
68,834

 
 
 
 
 
 
 
 
 
 
 
 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)


 


 


 


 


 


 
 

 
 
 
 
 
 

 
 
 
 
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; 13,944,094 and 13,683,307 shares issued and outstanding, respectively
698

 

 
698

 
684

 

 
684

Additional paid-in capital
63,589

 
101

 
63,690

 
60,682

 

 
60,682

Retained earnings
114,480

 
(160
)
 
114,320

 
107,769

 
919

 
108,688

Other cumulative comprehensive loss
(6,463
)
 
25

 
(6,438
)
 
(10,087
)
 
(128
)
 
(10,215
)
 
 
 
 
 
 
 
 
 
 
 
 
Total DMC’s stockholders’ equity
172,304

 
(34
)
 
172,270

 
159,048

 
791

 
159,839

Non-controlling interest

 

 

 
109

 

 
109

 
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity
172,304

 
(34
)
 
172,270

 
159,157

 
791

 
159,948

 
 
 
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
236,875

 
$
110

 
$
236,985

 
$
229,007

 
$
(225
)
 
$
228,782



82


 
June 30, 2014
 
June 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
ASSETS
 

 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 

 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
8,643

 
$

 
$
8,643

 
$
2,368

 
$

 
$
2,368

Accounts receivable, net of allowance for doubtful accounts of $504 and $471, respectively
38,409

 

 
38,409

 
39,959

 

 
39,959

Inventory, net
45,887

 

 
45,887

 
45,190

 

 
45,190

Prepaid expenses and other
7,218

 
(98
)
 
7,120

 
5,504

 
(89
)
 
5,415

Current deferred tax assets
2,532

 
16

 
2,548

 
1,944

 
2

 
1,946

Assets held for sale
6,155

 

 
6,155

 
6,206

 

 
6,206

 
 
 
 
 
 
 
 
 
 
 
 
Total current assets
108,844

 
(82
)
 
108,762

 
101,171

 
(87
)
 
101,084

 
 
 
 
 
 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
102,564

 

 
102,564

 
90,651

 

 
90,651

Less - accumulated depreciation
(42,220
)
 
202

 
(42,018
)
 
(35,010
)
 

 
(35,010
)
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
60,344

 
202

 
60,546

 
55,641

 

 
55,641

 
 
 
 
 
 
 
 
 
 
 
 
GOODWILL, net
37,161

 

 
37,161

 
36,447

 

 
36,447

 
 
 
 
 
 
 
 
 
 
 
 
PURCHASED INTANGIBLE ASSETS, net
32,939

 

 
32,939

 
38,121

 

 
38,121

 
 
 
 
 
 
 
 
 
 
 
 
DEFERRED TAX ASSETS
792

 
(276
)
 
516

 
458

 
(139
)
 
319

 
 
 
 
 
 
 
 
 
 
 
 
OTHER ASSETS, net
1,868

 

 
1,868

 
505

 

 
505

 
 
 
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
$
241,948

 
$
(156
)
 
$
241,792

 
$
232,343

 
$
(226
)
 
$
232,117

 
 
 
 
 
 
 
 
 
 
 
 


83


 
June 30, 2014
 
June 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 

 
 
 
 
 
 
 
 
 
 
Accounts payable
$
9,689

 
$

 
$
9,689

 
$
14,111

 
$

 
$
14,111

Accrued expenses
3,671

 

 
3,671

 
4,657

 

 
4,657

Dividend payable
559

 

 
559

 
549

 

 
549

Accrued income taxes
2,471

 
(154
)
 
2,317

 
906

 
5

 
911

Accrued employee compensation and benefits
4,119

 

 
4,119

 
4,338

 

 
4,338

Customer advances
2,617

 

 
2,617

 
4,758

 

 
4,758

Current debt obligations
20

 

 
20

 
63

 

 
63

Current portion of capital lease obligations
5

 

 
5

 
45

 

 
45

Current deferred tax liabilities
417

 

 
417

 
155

 

 
155

Liabilities related to assets held for sale
742

 

 
742

 
820

 

 
820

 
 
 
 
 
 
 
 
 
 
 
 
Total current liabilities
24,310

 
(154
)
 
24,156

 
30,402

 
5

 
30,407

 
 
 
 
 
 
 
 
 
 
 
 
LINES OF CREDIT
31,800

 

 
31,800

 
28,843

 

 
28,843

 
 
 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT

 

 

 
20

 

 
20

 
 
 
 
 
 
 
 
 
 
 
 
CAPITAL LEASE OBLIGATIONS
6

 

 
6

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
DEFERRED TAX LIABILITIES
7,186

 
554

 
7,740

 
8,050

 
(646
)
 
7,404

 
 
 
 
 
 
 
 
 
 
 
 
OTHER LONG-TERM LIABILITIES
2,000

 
58

 
2,058

 
1,668

 

 
1,668

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
65,302

 
458

 
65,760

 
68,983

 
(641
)
 
68,342

 
 
 
 
 
 
 
 
 
 
 
 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)


 


 


 


 


 


 
 

 
 
 
 
 
 

 
 
 
 
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; 13,979,119 and 13,750,163 shares issued and outstanding, respectively
699

 

 
699

 
688

 

 
688

Additional paid-in capital
64,861

 
89

 
64,950

 
61,530

 

 
61,530

Retained earnings
116,808

 
(731
)
 
116,077

 
110,659

 
545

 
111,204

Other cumulative comprehensive loss
(5,722
)
 
28

 
(5,694
)
 
(9,642
)
 
(130
)
 
(9,772
)
 
 
 
 
 
 
 
 
 
 
 
 
Total DMC’s stockholders’ equity
176,646

 
(614
)
 
176,032

 
163,235

 
415

 
163,650

Non-controlling interest

 

 

 
125

 

 
125

 
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity
176,646

 
(614
)
 
176,032

 
163,360

 
415

 
163,775

 
 
 
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
241,948

 
$
(156
)
 
$
241,792

 
$
232,343

 
$
(226
)
 
$
232,117



84


 
September 30, 2014
 
September 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
ASSETS
 

 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 

 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
14,932

 
$

 
$
14,932

 
$
9,333

 
$

 
$
9,333

Accounts receivable, net of allowance for doubtful accounts of $599 and $340, respectively
30,923

 

 
30,923

 
30,394

 

 
30,394

Inventory, net
41,846

 
280

 
42,126

 
41,384

 

 
41,384

Prepaid expenses and other
7,161

 
(378
)
 
6,783

 
3,977

 
(89
)
 
3,888

Current deferred tax assets
5,583

 
16

 
5,599

 
2,513

 
2

 
2,515

Assets held for sale
6,011

 

 
6,011

 
6,610

 

 
6,610

 
 
 
 
 
 
 
 
 
 
 
 
Total current assets
106,456

 
(82
)
 
106,374

 
94,211

 
(87
)
 
94,124

 
 
 
 
 
 
 
 
 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
100,305

 

 
100,305

 
95,717

 

 
95,717

Less - accumulated depreciation
(42,625
)
 
202

 
(42,423
)
 
(36,469
)
 

 
(36,469
)
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
57,680

 
202

 
57,882

 
59,248

 

 
59,248

 
 
 
 
 
 
 
 
 
 
 
 
GOODWILL, net
34,382

 

 
34,382

 
37,553

 

 
37,553

 
 
 
 
 
 
 
 
 
 
 
 
PURCHASED INTANGIBLE ASSETS, net
29,403

 

 
29,403

 
37,646

 

 
37,646

 
 
 
 
 
 
 
 
 
 
 
 
DEFERRED TAX ASSETS
439

 
(9
)
 
430

 
397

 
(239
)
 
158

 
 
 
 
 
 
 
 
 
 
 
 
OTHER ASSETS, net
1,236

 

 
1,236

 
499

 

 
499

 
 
 
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
$
229,596

 
$
111

 
$
229,707

 
$
229,554

 
$
(326
)
 
$
229,228

 
 
 
 
 
 
 
 
 
 
 
 


85


 
September 30, 2014
 
September 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 

 
 
 
 
 
 
 
 
 
 
Accounts payable
$
9,104

 
$

 
$
9,104

 
$
9,020

 
$

 
$
9,020

Accrued expenses
3,245

 

 
3,245

 
4,222

 

 
4,222

Dividend payable
559

 

 
559

 
550

 

 
550

Accrued income taxes
3,030

 
(58
)
 
2,972

 
1,325

 
(88
)
 
1,237

Accrued employee compensation and benefits
4,667

 

 
4,667

 
5,346

 

 
5,346

Customer advances
2,364

 

 
2,364

 
1,387

 

 
1,387

Current debt obligations
4

 

 
4

 
65

 

 
65

Current portion of capital lease obligations
5

 

 
5

 
33

 

 
33

Current deferred tax liabilities
435

 

 
435

 
274

 

 
274

Liabilities related to assets held for sale
721

 

 
721

 
765

 

 
765

 
 
 
 
 
 
 
 
 
 
 
 
Total current liabilities
24,134

 
(58
)
 
24,076

 
22,987

 
(88
)
 
22,899

 
 
 
 
 
 
 
 
 
 
 
 
LINES OF CREDIT
26,000

 

 
26,000

 
25,550

 

 
25,550

 
 
 
 
 
 
 
 
 
 
 
 
LONG-TERM DEBT

 

 

 
5

 

 
5

 
 
 
 
 
 
 
 
 
 
 
 
CAPITAL LEASE OBLIGATIONS
4

 

 
4

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
DEFERRED TAX LIABILITIES
8,641

 
866

 
9,507

 
8,084

 
(242
)
 
7,842

 
 
 
 
 
 
 
 
 
 
 
 
OTHER LONG-TERM LIABILITIES
1,958

 
30

 
1,988

 
1,755

 

 
1,755

 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities
60,737

 
838

 
61,575

 
58,381

 
(330
)
 
58,051

 
 
 
 
 
 
 
 
 
 
 
 
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 9)


 


 


 


 


 


 
 

 
 
 
 
 
 

 
 
 
 
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; 13,979,119 and 13,759,007 shares issued and outstanding, respectively
699

 

 
699

 
688

 

 
688

Additional paid-in capital
65,836

 
78

 
65,914

 
62,099

 

 
62,099

Retained earnings
118,745

 
(888
)
 
117,857

 
113,670

 
167

 
113,837

Other cumulative comprehensive loss
(16,421
)
 
83

 
(16,338
)
 
(5,464
)
 
(163
)
 
(5,627
)
 
 
 
 
 
 
 
 
 
 
 
 
Total DMC’s stockholders’ equity
168,859

 
(727
)
 
168,132

 
170,993

 
4

 
170,997

Non-controlling interest

 

 

 
180

 

 
180

 
 
 
 
 
 
 
 
 
 
 
 
Total stockholders’ equity
168,859

 
(727
)
 
168,132

 
171,173

 
4

 
171,177

 
 
 
 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
229,596

 
$
111

 
$
229,707

 
$
229,554

 
$
(326
)
 
$
229,228



86


The following tables summarize the impact of the restatement on our previously reported interim consolidated statement of operations (in thousands, except per share data):
 
Three months ended March 31, 2014
 
Three months ended March 31, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
NET SALES
$
46,769

 
$

 
$
46,769

 
$
44,836

 
$

 
$
44,836

COST OF PRODUCTS SOLD
32,203

 
(148
)
 
32,055

 
32,047

 

 
32,047

Gross profit
14,566

 
148

 
14,714

 
12,789

 

 
12,789

COSTS AND EXPENSES:
 

 
 
 
 
 
 

 
 
 
 
General and administrative expenses
5,542

 
250

 
5,792

 
8,014

 

 
8,014

Selling and distribution expenses
4,223

 

 
4,223

 
4,030

 

 
4,030

Amortization of purchased intangible assets
1,616

 

 
1,616

 
1,585

 

 
1,585

Total costs and expenses
11,381

 
250

 
11,631

 
13,629

 

 
13,629

INCOME (LOSS) FROM OPERATIONS
3,185

 
(102
)
 
3,083

 
(840
)
 

 
(840
)
OTHER INCOME (EXPENSE):
 

 
 
 
 
 
 

 
 
 
 
Other income (expense), net
(435
)
 

 
(435
)
 
296

 

 
296

Interest expense
(109
)
 

 
(109
)
 
(172
)
 

 
(172
)
Interest income
5

 

 
5

 
3

 

 
3

INCOME (LOSS) BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
2,646

 
(102
)
 
2,544

 
(713
)
 

 
(713
)
INCOME TAX PROVISION (BENEFIT)
692

 
49

 
741

 
(1,049
)
 
108

 
(941
)
INCOME FROM CONTINUING OPERATIONS
1,954

 
(151
)
 
1,803

 
336

 
(108
)
 
228

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
 
 
 
Loss from operations of discontinued operations, net of tax
(316
)
 

 
(316
)
 
(93
)
 

 
(93
)
NET INCOME
1,638

 
(151
)
 
1,487

 
243

 
(108
)
 
135

Less: Net income attributable to non-controlling interest

 

 

 
28

 

 
28

NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION
$
1,638

 
$
(151
)
 
$
1,487

 
$
215

 
$
(108
)
 
$
107

 
 
 
 
 
 
 
 
 
 
 
 
INCOME PER SHARE - BASIC:
 

 
 
 
 
 
 

 
 
 
 
Continuing operations
$
0.14

 
$
(0.01
)
 
$
0.13

 
$
0.03

 
$
(0.01
)
 
$
0.02

Discontinued operations
$
(0.02
)
 
$

 
$
(0.02
)
 
$
(0.01
)
 
$

 
$
(0.01
)
Net income
$
0.12

 
$
(0.01
)
 
$
0.11

 
$
0.02

 
$
(0.01
)
 
$
0.01

INCOME PER SHARE - DILUTED:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.14

 
$
(0.01
)
 
$
0.13

 
$
0.03

 
$
(0.01
)
 
$
0.02

Discontinued operations
$
(0.02
)
 
$

 
$
(0.02
)
 
$
(0.01
)
 
$

 
$
(0.01
)
Net income
$
0.12

 
$
(0.01
)
 
$
0.11

 
$
0.02

 
$
(0.01
)
 
$
0.01

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 
 
 
 
 

 
 
 
 
Basic
13,644,239

 

 
13,644,239

 
13,509,792

 

 
13,509,792

Diluted
13,649,953

 

 
13,649,953

 
13,513,797

 

 
13,513,797

 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.04

 
$

 
$
0.04

 
$
0.04

 
$

 
$
0.04


87


 
Three months ended June 30, 2014
 
Three months ended June 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
NET SALES
$
51,911

 
$

 
$
51,911

 
$
55,554

 
$

 
$
55,554

COST OF PRODUCTS SOLD
36,067

 
(54
)
 
36,013

 
39,155

 

 
39,155

Gross profit
15,844

 
54

 
15,898

 
16,399

 

 
16,399

COSTS AND EXPENSES:
 

 
 
 
 
 
 

 
 
 
 
General and administrative expenses
5,813

 
(42
)
 
5,771

 
5,006

 

 
5,006

Selling and distribution expenses
4,733

 

 
4,733

 
4,310

 

 
4,310

Amortization of purchased intangible assets
1,617

 

 
1,617

 
1,568

 

 
1,568

Total costs and expenses
12,163

 
(42
)
 
12,121

 
10,884

 

 
10,884

INCOME FROM OPERATIONS
3,681

 
96

 
3,777

 
5,515

 

 
5,515

OTHER INCOME (EXPENSE):
 

 
 
 
 
 
 

 
 
 
 
Other income (expense), net
332

 

 
332

 
(420
)
 

 
(420
)
Interest expense
(174
)
 

 
(174
)
 
(183
)
 

 
(183
)
Interest income
1

 

 
1

 
1

 

 
1

INCOME BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
3,840

 
96

 
3,936

 
4,913

 

 
4,913

INCOME TAX PROVISION
1,172

 
667

 
1,839

 
1,768

 
373

 
2,141

INCOME FROM CONTINUING OPERATIONS
2,668

 
(571
)
 
2,097

 
3,145

 
(373
)
 
2,772

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
 
 
 
Income from operations of discontinued operations, net of tax
219

 

 
219

 
310

 

 
310

NET INCOME
2,887

 
(571
)
 
2,316

 
3,455

 
(373
)
 
3,082

Less: Net income attributable to non-controlling interest

 

 

 
15

 

 
15

NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION
$
2,887

 
$
(571
)
 
$
2,316

 
$
3,440

 
$
(373
)
 
$
3,067

 
 
 
 
 
 
 
 
 
 
 
 
INCOME PER SHARE - BASIC:
 

 
 
 
 
 
 

 
 
 
 
Continuing operations
$
0.19

 
$
(0.04
)
 
$
0.15

 
$
0.23

 
$
(0.03
)
 
$
0.20

Discontinued operations
$
0.02

 
$

 
$
0.02

 
$
0.02

 
$

 
$
0.02

Net income
$
0.21

 
$
(0.04
)
 
$
0.17

 
$
0.25

 
$
(0.03
)
 
$
0.22

INCOME PER SHARE - DILUTED:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.19

 
$
(0.04
)
 
$
0.15

 
$
0.23

 
$
(0.03
)
 
$
0.20

Discontinued operations
$
0.02

 
$

 
$
0.02

 
$
0.02

 
$

 
$
0.02

Net income
$
0.21

 
$
(0.04
)
 
$
0.17

 
$
0.25

 
$
(0.03
)
 
$
0.22

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 
 
 
 
 

 
 
 
 
Basic
13,672,457

 

 
13,672,457

 
13,526,623

 

 
13,526,623

Diluted
13,677,911

 

 
13,677,911

 
13,530,588

 

 
13,530,588

 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.04

 
$

 
$
0.04

 
$
0.04

 
$

 
$
0.04


88


 
Six months ended June 30, 2014
 
Six months ended June 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
NET SALES
$
98,680

 
$

 
$
98,680

 
$
100,390

 
$

 
$
100,390

COST OF PRODUCTS SOLD
68,269

 
(202
)
 
68,067

 
71,203

 

 
71,203

Gross profit
30,411

 
202

 
30,613

 
29,187

 

 
29,187

COSTS AND EXPENSES:
 

 
 
 
 
 
 

 
 
 
 
General and administrative expenses
11,356

 
208

 
11,564

 
13,019

 

 
13,019

Selling and distribution expenses
8,956

 

 
8,956

 
8,340

 

 
8,340

Amortization of purchased intangible assets
3,232

 

 
3,232

 
3,153

 

 
3,153

Total costs and expenses
23,544

 
208

 
23,752

 
24,512

 

 
24,512

INCOME FROM OPERATIONS
6,867

 
(6
)
 
6,861

 
4,675

 

 
4,675

OTHER INCOME (EXPENSE):
 

 
 
 
 
 
 

 
 
 
 
Other income (expense), net
(103
)
 

 
(103
)
 
(124
)
 

 
(124
)
Interest expense
(283
)
 

 
(283
)
 
(355
)
 

 
(355
)
Interest income
5

 

 
5

 
4

 

 
4

INCOME BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
6,486

 
(6
)
 
6,480

 
4,200

 

 
4,200

INCOME TAX PROVISION
1,864

 
716

 
2,580

 
719

 
482

 
1,201

INCOME FROM CONTINUING OPERATIONS
4,622

 
(722
)
 
3,900

 
3,481

 
(482
)
 
2,999

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations of discontinued operations, net of tax
(97
)
 

 
(97
)
 
217

 

 
217

NET INCOME
4,525

 
(722
)
 
3,803

 
3,698

 
(482
)
 
3,216

Less: Net income attributable to non-controlling interest

 

 

 
43

 

 
43

NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION
$
4,525

 
$
(722
)
 
$
3,803

 
$
3,655

 
$
(482
)
 
$
3,173

 
 
 
 
 
 
 
 
 
 
 
 
INCOME PER SHARE - BASIC:
 

 
 
 
 
 
 

 
 
 
 
Continuing operations
$
0.33

 
$
(0.05
)
 
$
0.28

 
$
0.25

 
$
(0.04
)
 
$
0.21

Discontinued operations
$
(0.01
)
 
$

 
$
(0.01
)
 
$
0.02

 
$

 
$
0.02

Net income
$
0.32

 
$
(0.05
)
 
$
0.27

 
$
0.27

 
$
(0.04
)
 
$
0.23

INCOME PER SHARE - DILUTED:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.33

 
$
(0.05
)
 
$
0.28

 
$
0.25

 
$
(0.04
)
 
$
0.21

Discontinued operations
$
(0.01
)
 
$

 
$
(0.01
)
 
$
0.02

 
$

 
$
0.02

Net income
$
0.32

 
$
(0.05
)
 
$
0.27

 
$
0.27

 
$
(0.04
)
 
$
0.23

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 
 
 
 
 

 
 
 
 
Basic
13,668,223

 

 
13,668,223

 
13,523,028

 

 
13,523,028

Diluted
13,673,807

 

 
13,673,807

 
13,527,011

 

 
13,527,011

 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.08

 
$

 
$
0.08

 
$
0.08

 
$

 
$
0.08


89


 
Three months ended September 30, 2014
 
Three months ended September 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
NET SALES
$
51,886

 
$

 
$
51,886

 
$
52,331

 
$

 
$
52,331

COST OF PRODUCTS SOLD
36,803

 

 
36,803

 
36,229

 

 
36,229

Gross profit
15,083

 

 
15,083

 
16,102

 

 
16,102

COSTS AND EXPENSES:
 

 
 
 
 
 
 

 
 
 
 
General and administrative expenses
5,503

 
(40
)
 
5,463

 
5,672

 

 
5,672

Selling and distribution expenses
4,639

 

 
4,639

 
3,658

 

 
3,658

Amortization of purchased intangible assets
1,575

 

 
1,575

 
1,581

 

 
1,581

Total costs and expenses
11,717

 
(40
)
 
11,677

 
10,911

 

 
10,911

INCOME FROM OPERATIONS
3,366

 
40

 
3,406

 
5,191

 

 
5,191

OTHER INCOME (EXPENSE):
 

 
 
 
 
 
 

 
 
 
 
Other income (expense), net
472

 

 
472

 
(247
)
 

 
(247
)
Interest expense
(137
)
 

 
(137
)
 
(129
)
 

 
(129
)
Interest income
1

 

 
1

 
1

 

 
1

INCOME BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
3,702

 
40

 
3,742

 
4,816

 

 
4,816

INCOME TAX PROVISION
1,224

 
196

 
1,420

 
1,460

 
378

 
1,838

INCOME FROM CONTINUING OPERATIONS
2,478

 
(156
)
 
2,322

 
3,356

 
(378
)
 
2,978

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
 
 
 
Income from operations of discontinued operations, net of tax
20

 

 
20

 
255

 

 
255

NET INCOME
2,498

 
(156
)
 
2,342

 
3,611

 
(378
)
 
3,233

Less: Net income attributable to non-controlling interest

 

 

 
49

 

 
49

NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION
$
2,498

 
$
(156
)
 
$
2,342

 
$
3,562

 
$
(378
)
 
$
3,184

 
 
 
 
 
 
 
 
 
 
 
 
INCOME PER SHARE - BASIC:
 

 
 
 
 
 
 

 
 
 
 
Continuing operations
$
0.18

 
$
(0.01
)
 
$
0.17

 
$
0.24

 
$
(0.03
)
 
$
0.21

Discontinued operations
$

 
$

 
$

 
$
0.02

 
$

 
$
0.02

Net income
$
0.18

 
$
(0.01
)
 
$
0.17

 
$
0.26

 
$
(0.03
)
 
$
0.23

INCOME PER SHARE - DILUTED:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.18

 
$
(0.01
)
 
$
0.17

 
$
0.24

 
$
(0.03
)
 
$
0.21

Discontinued operations
$

 
$

 
$

 
$
0.02

 
$

 
$
0.02

Net income
$
0.18

 
$
(0.01
)
 
$
0.17

 
$
0.26

 
$
(0.03
)
 
$
0.23

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 
 
 
 
 

 
 
 
 
Basic
13,688,649

 

 
13,688,649

 
13,540,394

 

 
13,540,394

Diluted
13,690,174

 

 
13,690,174

 
13,544,665

 

 
13,544,665

 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.04

 
$

 
$
0.04

 
$
0.04

 
$

 
$
0.04


90


 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
NET SALES
$
150,566

 
$

 
$
150,566

 
$
152,720

 
$

 
$
152,720

COST OF PRODUCTS SOLD
105,073

 
(202
)
 
104,871

 
107,431

 

 
107,431

Gross profit
45,493

 
202

 
45,695

 
45,289

 

 
45,289

COSTS AND EXPENSES:
 

 
 
 
 
 
 

 
 
 
 
General and administrative expenses
16,858

 
169

 
17,027

 
18,694

 

 
18,694

Selling and distribution expenses
13,596

 

 
13,596

 
11,997

 

 
11,997

Amortization of purchased intangible assets
4,808

 

 
4,808

 
4,734

 

 
4,734

Total costs and expenses
35,262

 
169

 
35,431

 
35,425

 

 
35,425

INCOME FROM OPERATIONS
10,231

 
33

 
10,264

 
9,864

 

 
9,864

OTHER INCOME (EXPENSE):
 

 
 
 
 
 
 

 
 
 
 
Other income (expense), net
369

 

 
369

 
(371
)
 

 
(371
)
Interest expense
(420
)
 

 
(420
)
 
(484
)
 

 
(484
)
Interest income
6

 

 
6

 
5

 

 
5

INCOME BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
10,186

 
33

 
10,219

 
9,014

 

 
9,014

INCOME TAX PROVISION
3,088

 
912

 
4,000

 
2,179

 
860

 
3,039

INCOME FROM CONTINUING OPERATIONS
7,098

 
(879
)
 
6,219

 
6,835

 
(860
)
 
5,975

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations of discontinued operations, net of tax
(77
)
 

 
(77
)
 
473

 

 
473

NET INCOME
7,021

 
(879
)
 
6,142

 
7,308

 
(860
)
 
6,448

Less: Net income attributable to non-controlling interest

 

 

 
92

 

 
92

NET INCOME ATTRIBUTABLE TO DYNAMIC MATERIALS CORPORATION
$
7,021

 
$
(879
)
 
$
6,142

 
$
7,216

 
$
(860
)
 
$
6,356

 
 
 
 
 
 
 
 
 
 
 
 
INCOME PER SHARE - BASIC:
 

 
 
 
 
 
 

 
 
 
 
Continuing operations
$
0.51

 
$
(0.06
)
 
$
0.45

 
$
0.49

 
$
(0.06
)
 
$
0.43

Discontinued operations
$
(0.01
)
 
$

 
$
(0.01
)
 
$
0.03

 
$

 
$
0.03

Net income
$
0.50

 
$
(0.06
)
 
$
0.44

 
$
0.52

 
$
(0.06
)
 
$
0.46

INCOME PER SHARE - DILUTED:
 
 
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.51

 
$
(0.06
)
 
$
0.45

 
$
0.49

 
$
(0.06
)
 
$
0.43

Discontinued operations
$
(0.01
)
 
$

 
$
(0.01
)
 
$
0.03

 
$

 
$
0.03

Net income
$
0.50

 
$
(0.06
)
 
$
0.44

 
$
0.52

 
$
(0.06
)
 
$
0.46

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 
 
 
 
 

 
 
 
 
Basic
13,676,730

 

 
13,676,730

 
13,528,880

 

 
13,528,880

Diluted
13,681,790

 

 
13,681,790

 
13,532,973

 

 
13,532,973

 
 
 
 
 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.12

 
$

 
$
0.12

 
$
0.12

 
$

 
$
0.12


91


 
Three months ended December 31, 2014
 
Three months ended December, 2013
 
As Reported
 
As Reported
 
Adjustments
 
Restated
NET SALES
$
51,995

 
$
49,339

 
$

 
$
49,339

COST OF PRODUCTS SOLD
36,271

 
36,495

 

 
36,495

Gross profit
15,724

 
12,844

 

 
12,844

COSTS AND EXPENSES:
 

 
 

 
 
 
 
General and administrative expenses
6,740

 
5,980

 

 
5,980

Selling and distribution expenses
4,509

 
4,138

 

 
4,138

Amortization of purchased intangible assets
1,295

 
1,614

 

 
1,614

Restructuring expenses
6,781

 

 

 

Total costs and expenses
19,325

 
11,732

 

 
11,732

INCOME (LOSS) FROM OPERATIONS
(3,601
)
 
1,112

 

 
1,112

OTHER INCOME (EXPENSE):
 

 
 

 
 
 
 
Other income (expense), net
(682
)
 
(157
)
 

 
(157
)
Interest expense
(132
)
 
(164
)
 

 
(164
)
Interest income
32

 
2

 

 
2

INCOME (LOSS) BEFORE INCOME TAXES, DISCONTINUED OPERATIONS AND NON-CONTROLLING INTEREST
(4,383
)
 
793

 

 
793

INCOME TAX PROVISION (BENEFIT)
(87
)
 
522

 
176

 
698

INCOME (LOSS) FROM CONTINUING OPERATIONS
(4,296
)
 
271

 
(176
)
 
95

DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
Income from operations of discontinued operations, net of tax

 
6

 

 
6

Gain on sale of discontinued operations, net of tax
718

 

 

 

Income from discontinued operations
718

 
6

 

 
6

NET INCOME (LOSS)
(3,578
)
 
277

 
(176
)
 
101

 
 
 
 
 
 
 
 
INCOME (LOSS) PER SHARE - BASIC:
 

 
 

 
 
 
 
Continuing operations
$
(0.32
)
 
$
0.02

 
$
(0.01
)
 
$
0.01

Discontinued operations
$
0.05

 
$

 
$

 
$

Net income
$
(0.27
)
 
$
0.02

 
$
(0.01
)
 
$
0.01

INCOME (LOSS) PER SHARE - DILUTED:
 
 
 
 
 
 
 
Continuing operations
$
(0.32
)
 
$
0.02

 
$
(0.01
)
 
$
0.01

Discontinued operations
$
0.05

 
$

 
$

 
$

Net income
$
(0.27
)
 
$
0.02

 
$
(0.01
)
 
$
0.01

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
 

 
 

 
 
 
 
Basic
13,696,399

 
13,543,007

 

 
13,543,007

Diluted
13,697,821

 
13,549,288

 

 
13,549,288

 
 
 
 
 
 
 
 
DIVIDENDS DECLARED PER COMMON SHARE
$
0.04

 
$
0.04

 
$

 
$
0.04




92


The following tables summarize the impact of the restatement on our previously reported interim consolidated statements of comprehensive income (loss) for the fiscal years 2014 and 2013 (in thousands):
 
Three months ended March 31, 2014
 
Three months ended March 31, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
Net income including non-controlling interest
$
1,638

 
$
(151
)
 
$
1,487

 
$
243

 
$
(108
)
 
$
135

 
 
 
 
 
 
 
 
 
 
 
 
Change in cumulative foreign currency translation adjustment
(2,233
)
 
(221
)
 
(2,454
)
 
(3,627
)
 
8

 
(3,619
)
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive loss
(595
)
 
(372
)
 
(967
)
 
(3,384
)
 
(100
)
 
(3,484
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interest

 

 

 
25

 

 
25

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss attributable to Dynamic Materials Corporation
$
(595
)
 
$
(372
)
 
$
(967
)
 
$
(3,409
)
 
$
(100
)
 
$
(3,509
)

 
Three months ended June 30, 2014
 
Three months ended June 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
Net income including non-controlling interest
$
2,887

 
$
(571
)
 
$
2,316

 
$
3,455

 
$
(373
)
 
$
3,082

 
 
 
 
 
 
 
 
 
 
 
 
Change in cumulative foreign currency translation adjustment
741

 
3

 
744

 
446

 
(3
)
 
443

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
3,628

 
(568
)
 
3,060

 
3,901

 
(376
)
 
3,525

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interest

 

 

 
16

 

 
16

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Dynamic Materials Corporation
$
3,628

 
$
(568
)
 
$
3,060

 
$
3,885

 
$
(376
)
 
$
3,509


 
Six months ended June 30, 2014
 
Six months ended June 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
Net income including non-controlling interest
$
4,525

 
$
(722
)
 
$
3,803

 
$
3,698

 
$
(482
)
 
$
3,216

 
 
 
 
 
 
 
 
 
 
 
 
Change in cumulative foreign currency translation adjustment
(1,492
)
 
(218
)
 
(1,710
)
 
(3,181
)
 
6

 
(3,175
)
 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income
3,033

 
(940
)
 
2,093

 
517

 
(476
)
 
41

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interest

 

 

 
41

 

 
41

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to Dynamic Materials Corporation
$
3,033

 
$
(940
)
 
$
2,093

 
$
476

 
$
(476
)
 
$


93


 
Three months ended September, 2014
 
Three months ended September 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
Net income including non-controlling interest
$
2,498

 
$
(156
)
 
$
2,342

 
$
3,611

 
$
(378
)
 
$
3,233

 
 
 
 
 
 
 
 
 
 
 
 
Change in cumulative foreign currency translation adjustment
(10,701
)
 
54

 
(10,647
)
 
4,183

 
(33
)
 
4,150

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
(8,203
)
 
(102
)
 
(8,305
)
 
7,794

 
(411
)
 
7,383

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interest

 

 

 
55

 

 
55

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to Dynamic Materials Corporation
$
(8,203
)
 
$
(102
)
 
$
(8,305
)
 
$
7,739

 
$
(411
)
 
$
7,328


 
Nine months ended September 30, 2014
 
Nine months ended September 30, 2013
 
As Reported
 
Adjustments
 
Restated
 
As Reported
 
Adjustments
 
Restated
Net income including non-controlling interest
$
7,021

 
$
(879
)
 
$
6,142

 
$
7,308

 
$
(860
)
 
$
6,448

 
 
 
 
 
 
 
 
 
 
 
 
Change in cumulative foreign currency translation adjustment
(12,191
)
 
(163
)
 
(12,354
)
 
1,003

 
(27
)
 
976

 
 
 
 
 
 
 
 
 
 
 
 
Total comprehensive income (loss)
(5,170
)
 
(1,042
)
 
(6,212
)
 
8,311

 
(887
)
 
7,424

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income attributable to non-controlling interest

 

 

 
96

 

 
96

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income (loss) attributable to Dynamic Materials Corporation
$
(5,170
)
 
$
(1,042
)
 
$
(6,212
)
 
$
8,215

 
$
(887
)
 
$
7,328







94


The following tables summarize the impact of the restatement on our previously reported interim consolidated statement of cash flows for fiscal years 2014 and 2013 (in thousands):
 
Three months ended March 31, 2014
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
1,638

 
$
(151
)
 
$
1,487

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

 
 

 
 
Loss from discontinued operations, net of tax
316

 

 
316

Depreciation (including capital lease amortization)
1,826

 
(202
)
 
1,624

Amortization of purchased intangible assets
1,616

 

 
1,616

Amortization of deferred debt issuance costs
25

 

 
25

Stock-based compensation
555

 
162

 
717

Deferred income tax benefit
612

 
58

 
670

Change in:
 

 
 

 
 
Accounts receivable, net
1,570

 

 
1,570

Inventory, net
(2,513
)
 
54

 
(2,459
)
Prepaid expenses and other
(1,867
)
 

 
(1,867
)
Accounts payable
(1,051
)
 

 
(1,051
)
Customer advances
1,980

 

 
1,980

Accrued expenses and other liabilities
(1,291
)
 
140

 
(1,151
)
 
 
 
 
 
 
Net cash flows provided by continuing operations
3,416

 
61

 
3,477

Net cash flows used in discontinued operations
(298
)
 

 
(298
)
Net cash provided by operating activities
3,118

 
61

 
3,179

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(1,994
)
 

 
(1,994
)
Change in other non-current assets
32

 

 
32

 
 
 
 
 
 
Net cash flows used in continuing operations
(1,962
)
 

 
(1,962
)
Net cash flows used in discontinued operations
(63
)
 

 
(63
)
Net cash used in investing activities
(2,025
)
 

 
(2,025
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
(1,863
)
 

 
(1,863
)
Payment on loans with former owners of LRI
(15
)
 

 
(15
)
Payment on capital lease obligations
(15
)
 

 
(15
)
Payment of dividends
(550
)
 

 
(550
)
Net proceeds from issuance of common stock to employees and directors
22

 

 
22

Excess tax benefit from stock-based compensation
87

 
(61
)
 
26

 
 
 
 
 
 
Net cash used in financing activities
(2,334
)
 
(61
)
 
(2,395
)
 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
(226
)
 

 
(226
)
 
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(1,467
)
 

 
(1,467
)
 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
10,598

 

 
10,598

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
9,131

 
$

 
$
9,131





95



 
Six months ended June 30, 2014
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
4,525

 
$
(722
)
 
$
3,803

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

 
 

 
 
Loss from discontinued operations, net of tax
97

 

 
97

Depreciation (including capital lease amortization)
3,581

 
(202
)
 
3,379

Amortization of purchased intangible assets
3,232

 

 
3,232

Amortization of deferred debt issuance costs
51

 

 
51

Stock-based compensation
1,591

 
150

 
1,741

Deferred income tax benefit
72

 
776

 
848

Loss on disposal of property, plant and equipment
5

 

 
5

Change in:
 
 
 

 
 
Accounts receivable, net
(858
)
 

 
(858
)
Inventory, net
(5,000
)
 

 
(5,000
)
Prepaid expenses and other
(2,873
)
 

 
(2,873
)
Accounts payable
(4,778
)
 

 
(4,778
)
Customer advances
1,613

 

 
1,613

Accrued expenses and other liabilities
(645
)
 
59

 
(586
)
 
 
 
 
 
 
Net cash flows provided by continuing operations
613

 
61

 
674

Net cash flows provided by discontinued operations
48

 

 
48

Net cash provided by operating activities
661

 
61

 
722

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(4,123
)
 

 
(4,123
)
Change in other non-current assets
(59
)
 

 
(59
)
 
 
 
 
 
 
Net cash flows used in continuing operations
(4,182
)
 

 
(4,182
)
Net cash flows used in discontinued operations
(85
)
 

 
(85
)
Net cash used in investing activities
(4,267
)
 

 
(4,267
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
2,555

 

 
2,555

Payment on loans with former owners of LRI
(31
)
 

 
(31
)
Payment on capital lease obligations
(22
)
 

 
(22
)
Payment of dividends
(1,108
)
 

 
(1,108
)
Net proceeds from issuance of common stock to employees and directors
234

 

 
234

Excess tax benefit from stock-based compensation
112

 
(61
)
 
51

 
 
 
 
 
 
Net cash provided by financing activities
1,740

 
(61
)
 
1,679

 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
(89
)
 

 
(89
)
 
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(1,955
)
 

 
(1,955
)
 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
10,598

 

 
10,598

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
8,643

 
$

 
$
8,643





96



 
Nine months ended September 30, 2014
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
7,021

 
$
(879
)
 
$
6,142

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

 
 

 
 
Loss from discontinued operations, net of tax
77

 

 
77

Depreciation (including capital lease amortization)
5,406

 
(202
)
 
5,204

Amortization of purchased intangible assets
4,808

 

 
4,808

Amortization of deferred debt issuance costs
76

 

 
76

Stock-based compensation
2,565

 
139

 
2,704

Deferred income tax benefit
(608
)
 
863

 
255

Loss on disposal of property, plant and equipment
6

 

 
6

Change in:
 

 
 

 
 
Accounts receivable, net
5,342

 

 
5,342

Inventory, net
(3,012
)
 
280

 
(2,732
)
Prepaid expenses and other
(3,146
)
 
(267
)
 
(3,413
)
Accounts payable
(5,084
)
 

 
(5,084
)
Customer advances
1,445

 

 
1,445

Accrued expenses and other liabilities
683

 
127

 
810

 
 
 
 
 
 
Net cash flows provided by continuing operations
15,579

 
61

 
15,640

Net cash flows provided by discontinued operations
239

 

 
239

Net cash provided by operating activities
15,818

 
61

 
15,879

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(6,472
)
 

 
(6,472
)
Change in other non-current assets
373

 

 
373

 
 
 
 
 
 
Net cash flows used in continuing operations
(6,099
)
 

 
(6,099
)
Net cash flows used in discontinued operations
(120
)
 

 
(120
)
Net cash used in investing activities
(6,219
)
 

 
(6,219
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
(3,213
)
 

 
(3,213
)
Payment on loans with former owners of LRI
(47
)
 

 
(47
)
Payment on capital lease obligations
(23
)
 

 
(23
)
Payment of dividends
(1,667
)
 

 
(1,667
)
Net proceeds from issuance of common stock to employees and directors
234

 

 
234

Excess tax benefit from stock-based compensation
113

 
(61
)
 
52

 
 
 
 
 
 
Net cash used in financing activities
(4,603
)
 
(61
)
 
(4,664
)
 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
(662
)
 

 
(662
)
 
 
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
4,334

 

 
4,334

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
10,598

 

 
10,598

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
14,932

 
$

 
$
14,932





97



 
Three months ended March 31, 2013
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
243

 
$
(108
)
 
$
135

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

 
 

 
 
Loss from discontinued operations, net of tax
93

 

 
93

Depreciation (including capital lease amortization)
1,272

 

 
1,272

Amortization of purchased intangible assets
1,585

 

 
1,585

Amortization of deferred debt issuance costs
25

 

 
25

Stock-based compensation
1,422

 

 
1,422

Deferred income tax benefit
130

 
173

 
303

Loss on disposal of property, plant and equipment
21

 

 
21

Change in:
 

 
 

 
 
Accounts receivable, net
2,784

 

 
2,784

Inventory, net
619

 

 
619

Prepaid expenses and other
(952
)
 

 
(952
)
Accounts payable
(596
)
 

 
(596
)
Customer advances
55

 

 
55

Accrued expenses and other liabilities
(916
)
 
(65
)
 
(981
)
 
 
 
 
 
 
Net cash flows provided by continuing operations
5,785

 

 
5,785

Net cash flows provided by discontinued operations
559

 

 
559

Net cash provided by operating activities
6,344

 

 
6,344

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(4,366
)
 

 
(4,366
)
Change in other non-current assets
45

 

 
45

 
 
 
 
 
 
Net cash flows used in continuing operations
(4,321
)
 

 
(4,321
)
Net cash flows used in discontinued operations
(87
)
 

 
(87
)
Net cash used in investing activities
(4,408
)
 

 
(4,408
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
(202
)
 

 
(202
)
Payment on loans with former owners of LRI
(16
)
 

 
(16
)
Payment on capital lease obligations
(13
)
 

 
(13
)
Payment of dividends
(540
)
 

 
(540
)
Excess tax benefit from stock-based compensation
(890
)
 

 
(890
)
 
 
 
 
 
 
Net cash used in financing activities
(1,661
)
 

 
(1,661
)
 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
(247
)
 

 
(247
)
 
 
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
28

 

 
28

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
8,218

 

 
8,218

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
8,246

 
$

 
$
8,246






98



 
Six months ended June 30, 2013
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
3,698

 
$
(482
)
 
$
3,216

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

 
 

 
 
Income from discontinued operations, net of tax
(217
)
 

 
(217
)
Depreciation (including capital lease amortization)
2,583

 

 
2,583

Amortization of purchased intangible assets
3,153

 

 
3,153

Amortization of deferred debt issuance costs
51

 

 
51

Stock-based compensation
2,057

 

 
2,057

Deferred income tax benefit
229

 
547

 
776

Loss on disposal of property, plant and equipment
21

 

 
21

Change in:
 

 
 

 
 
Accounts receivable, net
(5,193
)
 

 
(5,193
)
Inventory, net
1,960

 

 
1,960

Prepaid expenses and other
(545
)
 

 
(545
)
Accounts payable
3,105

 

 
3,105

Customer advances
3,434

 

 
3,434

Accrued expenses and other liabilities
409

 
(65
)
 
344

 
 
 
 
 
 
Net cash flows provided by continuing operations
14,745

 

 
14,745

Net cash flows provided by discontinued operations
680

 

 
680

Net cash provided by operating activities
15,425

 

 
15,425

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(9,301
)
 

 
(9,301
)
Change in other non-current assets
192

 

 
192

 
 
 
 
 
 
Net cash flows used in continuing operations
(9,109
)
 

 
(9,109
)
Net cash flows used in discontinued operations
(425
)
 

 
(425
)
Net cash used in investing activities
(9,534
)
 

 
(9,534
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
(9,811
)
 

 
(9,811
)
Payment on loans with former owners of LRI
(32
)
 

 
(32
)
Payment on capital lease obligations
(25
)
 

 
(25
)
Payment of dividends
(1,088
)
 

 
(1,088
)
Net proceeds from issuance of common stock to employees and directors
163

 

 
163

Excess tax benefit from stock-based compensation
(836
)
 

 
(836
)
 
 
 
 
 
 
Net cash used in financing activities
(11,629
)
 

 
(11,629
)
 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
(112
)
 

 
(112
)
 
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
(5,850
)
 

 
(5,850
)
 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
8,218

 

 
8,218

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
2,368

 
$

 
$
2,368





99



 
Nine months ended September 30, 2013
 
As Reported
 
Adjustments
 
Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net income
$
7,308

 
$
(860
)
 
$
6,448

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

 
 

 
 
Loss (income) from discontinued operations, net of tax
(473
)
 

 
(473
)
Depreciation (including capital lease amortization)
4,004

 

 
4,004

Amortization of purchased intangible assets
4,734

 

 
4,734

Amortization of deferred debt issuance costs
76

 

 
76

Stock-based compensation
2,685

 

 
2,685

Deferred income tax benefit
(126
)
 
1,018

 
892

Loss on disposal of property, plant and equipment
5

 

 
5

Change in:
 

 
 

 
 
Accounts receivable, net
4,868

 

 
4,868

Inventory, net
6,588

 

 
6,588

Prepaid expenses and other
1,031

 

 
1,031

Accounts payable
(2,208
)
 

 
(2,208
)
Customer advances
21

 

 
21

Accrued expenses and other liabilities
1,303

 
(158
)
 
1,145

 
 
 
 
 
 
Net cash flows provided by continuing operations
29,816

 

 
29,816

Net cash flows provided by discontinued operations
655

 

 
655

Net cash provided by operating activities
30,471

 

 
30,471

 
 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Acquisition of property, plant and equipment
(13,426
)
 

 
(13,426
)
Change in other non-current assets
209

 

 
209

 
 
 
 
 
 
Net cash flows used in continuing operations
(13,217
)
 

 
(13,217
)
Net cash flows used in discontinued operations
(604
)
 

 
(604
)
Net cash used in investing activities
(13,821
)
 

 
(13,821
)
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Borrowings (repayments) on bank lines of credit, net
(13,252
)
 

 
(13,252
)
Payment on loans with former owners of LRI
(47
)
 

 
(47
)
Payment on capital lease obligations
(39
)
 

 
(39
)
Payment of dividends
(1,637
)
 

 
(1,637
)
Net proceeds from issuance of common stock to employees and directors
163

 

 
163

Excess tax benefit from stock-based compensation
(895
)
 

 
(895
)
 
 
 
 
 
 
Net cash used in financing activities
(15,707
)
 

 
(15,707
)
 
 
 
 
 
 
EFFECTS OF EXCHANGE RATES ON CASH
172

 

 
172

 
 
 
 
 
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
1,115

 

 
1,115

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, beginning of the period
8,218

 

 
8,218

 
 
 
 
 
 
CASH AND CASH EQUIVALENTS, end of the period
$
9,333

 
$

 
$
9,333



100


14.      SUBSEQUENT EVENTS

Amended Credit Facility

On February 23, 2015, we entered into a five-year $150,000 syndicated credit agreement (“credit facility”) which amended and replaced in its entirety our prior syndicated credit facility entered into on December 11, 2011. The new credit facility allows for revolving loans of $90,000 in US dollars, $10,000 in alternate currencies and a $50,000 US dollar term loan facility. The term loan facility is available in a single advance and expires 364 days after the February 23, 2015 closing date. If drawn, the term loan is amortizable in quarterly installments as follows: 10% of principal is due in each of years one and two, 20% of principal is due in each of years three and four and 30% of principal is due in year five with the remaining balance due at maturity. The new facility has a $100,000 accordion feature to increase the commitments in any of the three previous loan classes subject to approval by applicable lenders. We entered into the credit facility with a syndicate of four banks, with JP Morgan Chase Bank, N.A. acting as administrative agent for the U.S. and Canadian dollar loans and JP Morgan Europe Ltd. acting as administrative agent for the Euro and other alternate currency loans. The syndicated credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC and its subsidiaries.

Borrowings under the $90,000 revolving loan and $50,000 term loan can be in the form of Alternate Base Rate loans (“ABR” borrowings are based on the greater of adjusted Prime rates, adjusted CD rates, or adjusted Federal Funds rates) or one, two, three, or six month London Interbank Offered Rate (“LIBOR”) loans. ABR loans bear interest at the defined ABR rate plus an applicable margin (varying from 0.25% to 1.25%) and LIBOR loans bear interest at the applicable LIBOR rate plus an applicable margin (varying from 1.25% to 2.25%).

Borrowings under the $10,000 Alternate Currency revolving loans can be in Canadian Dollars, Euros, Pounds Sterling and any other currency that is freely transferable and convertible to U.S. Dollars. Alternative currency borrowings denominated in Canadian Dollars shall be comprised of Canadian Dealer Offered Rate (“CDOR”) Loans or Canadian Prime Loans, at our option, and bear interest at the CDOR rate plus applicable margin (varying from 1.25% to 2.25%) or the applicable Canadian Prime Rate plus an applicable margin (varying from 0.25% to 1.25%), respectively. Alternative currency borrowings denominated in Euros shall be comprised of Euro Interbank Offered Rate (“EURIBOR”) loans and bear interest at the EURIBOR rate plus an applicable margin (varying from 1.25% to 2.25%). Alternative currency borrowings denominated in any other alternate currency shall be comprised of Eurocurrency loans and bear interest at the LIBOR rate plus an applicable margin (varying from 1.25% to 2.25%).
 
The credit facility includes 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 ratios.

DynaEnergetics Restructuring

In the first quarter of 2015, we launched several initiatives to enhance DynaEnergetics’ operational efficiencies and align its production and distribution resources with the anticipated demands of the market.  In January 2015, we closed two North American distribution centers. On February 24, 2014, we announced the closure of a perforating gun manufacturing facility and distribution center in Edmonton, Alberta. North America perforating gun manufacturing will be consolidated at DynaEnergetics existing gun facility in Whitney, Texas. We also are exiting several other distribution centers in Texas and Colombia. The Colombia market will continue to be served but from our existing facilities in Texas. Two new centralized distribution centers will replace the smaller and less efficient distribution centers being closed. In the first half of 2015, we expect to incur restructuring and impairment charges of approximately $1,500 to $2,500 related to these actions.

Corporate Restructuring

In the first quarter of 2015, we restructured our corporate office by eliminating several positions and two non-employee director positions. We expect to incur restructuring charges of approximately $1,500 to $2,000 in the first quarter of 2015 associated with severance and acceleration of unvested stock awards.


101


ITEM 9.                Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
There are no changes in or disagreements with accountants on accounting and financial disclosure for the fiscal year ended December 31, 2013.

ITEM 9A.             Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Based on that evaluation and as a result of the material weakness in internal control over financial reporting as set forth below, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2014. Our management’s annual report on internal control over financial reporting is set forth below.


102


Management’s Report on Internal Control over Financial Reporting
 
The management of Dynamic Materials Corporation and subsidiaries (“DMC”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). 

Under the supervision and with the participation of DMC’s management, including its Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of DMC’s internal control over financial reporting as of December 31, 2014 based on the 2013 framework in "Internal Control – Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. In designing and evaluating the internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2014, our internal controls over financial reporting were not effective due to a material weakness in our controls over deferred income tax accounting for certain foreign entities. More specifically, the calculation of deferred tax positions for certain foreign entities was based on inappropriate methods and supporting data. The controls over reconciliation and review of income tax accounting did not identify the inappropriate methods and supporting data used in the computations. The matter was discovered during the course of the 2014 external audit of the accounts and related controls. As a result of the significance of the accounting errors resulting from the deficient controls, the financial statements for 2013 and 2012 have been restated.

DMC’s internal control over financial reporting as of December 31, 2014, has also been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report which expressed an adverse opinion and is included elsewhere herein.

Remediation Efforts to Address Material Weakness

We are currently evaluating the controls and procedures we will design and put in place to remediate this material weakness. These controls and procedures may include the following:

Revise, as necessary, the process and internal controls to compile and review deferred tax account balances and their impact on the income tax provision.
Add internal and external resources focused on the preparation and review of the tax accounts.
Provide income tax accounting training.

We are in the process of remediating this material weakness by executing upon the above actions. The actions that we are taking are subject to ongoing senior management review, as well as Audit Committee oversight. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take and our initiatives may not prove to be successful in remediating this material weakness. Management believes the foregoing efforts will effectively remediate the material weakness. As we continue to evaluate and work to improve our internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of our internal controls.


103


Changes in Internal Control Over Financial Reporting

Except as described above, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fourth quarter of 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
/s/ Kevin Longe
 
Kevin Longe
 
President and Chief Executive Officer
 
March 13, 2015
 
 
 
/s/ Michael Kuta
 
Michael Kuta
 
Chief Financial Officer
 
March 13, 2015

104


Report of Independent Registered Public Accounting Firm
 
The Stockholders and the
Board of Directors of Dynamic Materials Corporation
 
We have audited Dynamic Materials Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Dynamic Materials Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified and reported a material weakness in controls related to the Company’s accounting for income tax expense and related deferred tax assets and liabilities for certain foreign entities. As a result of the material weakness and resulting accounting errors, the financial statements for 2013 and 2012 have been restated.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Dynamic Materials Corporation as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2014 financial statements, and this report does not affect our report dated March 16, 2015, which expressed an unqualified opinion on those financial statements.

In our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Dynamic Materials Corporation has not maintained effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.



 
 
/s/ Ernst & Young LLP
Denver, Colorado
March 16, 2015

105


ITEM 9B.             Other Information
 
Not applicable.


106


PART III

ITEM 10.                                         Directors, Executive Officers and Corporate Governance
 
Item 10 incorporates information by reference to our Proxy Statement for the 2015 Annual Meeting of Shareholders, which is expected to be filed with the Securities and Exchange Commission within 120 days of the close of fiscal year 2014.

ITEM 11.                                         Executive Compensation
 
Item 11 incorporates information by reference to our Proxy Statement for the 2015 Annual Meeting of Shareholders, which is expected to be filed with the Securities and Exchange Commission within 120 days of the close of fiscal year 2014.

ITEM 12.                                         Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
Item 12 incorporates information by reference to our Proxy Statement for the 2015 Annual Meeting of Shareholders, which is expected to be filed with the Securities and Exchange Commission within 120 days of the close of fiscal year 2014.
 
For information regarding securities authorized for issuance under our equity compensation plans see the Proxy Statement for our 2014 Annual Meeting of Shareholders, which information is incorporated herein by reference.

ITEM 13.                                         Certain Relationships and Related Transactions, and Director Independence
 
Item 13 incorporates information by reference to our Proxy Statement for the 2015 Annual Meeting of Shareholders, which is expected to be filed with the Securities and Exchange Commission within 120 days of the close of fiscal year 2014.

ITEM 14.                                         Principal Accounting Fees and Services
 
Item 14 incorporates information by reference to our Proxy Statement for the 2015 Annual Meeting of Shareholders, which is expected to be filed with the Securities and Exchange Commission within 120 days of the close of fiscal year 2014.
 

PART IV

ITEM 15.                                         Exhibits and Financial Statement Schedules
 
(a)(1)                  Financial Statements
 
See Index to Financial Statements in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
 
(a)(2)                  Financial Statement Schedules
 
See Schedule II beginning on page 84 of this Annual Report on Form 10-K.
 
(a)(3)                  Exhibits
 

107


Exhibit
Number
 
Description
3.1
 
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on July 29, 2014).
3.2
 
Bylaws of the Company (incorporated by reference to Exhibit 4.2 to the Company’s Quarterly report on Form 10-Q/A filed with the Commission on May 14, 2004).
10.1
 
Second Amended and Restated Credit Agreement dated as of February 23, 2015, by and among the Company, the borrowers party thereto, the Guarantors party thereto, the Lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Europe Limited, as London agent, JPMorgan Chase Bank, N.A., Toronto Branch, as Canadian agent, KeyBank National Association, as syndication agent, and Wells Fargo Bank, National Association, as documentation agent.
10.2
 
Employment Agreement, dated as of March 1, 2013, by and between the Company and Kevin Longe (incorporated by reference to Exhibit 10.2 to the Company's Form 10-K filed with the Commission on March 14, 2013). *
10.3
 
Employment Offer Letter dated February 23, 2014, from the Company to Michael L. Kuta (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on March 31, 2014).*
10.4
 
Agreement, dated as of January 18, 2013, by and between the Company and Richard A. Santa (incorporated by reference to Exhibit 10.3 to the Company's Form 10-K filed with the Commission on March 14, 2013). *
10.5
 
Dynamic Materials Corporation 2006 Stock Incentive Plan, as amended by Amendment No. 1 to Dynamic Materials Corporation 2006 Stock Inventive Plan dated March 11, 2013 (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K filed with the Commission on March 7, 2014).*
10.6
 
Dynamic Materials Corporation Performance-Based Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed with the Commission on May 24, 2013). *
10.7
 
Dynamic Materials Corporation Nonqualified Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 24, 2014).*
10.8
 
Form of Executive Officer Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on June 12, 2007). *
10.9
 
Form of Non-Executive Director Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on June 12, 2007). *
10.10
 
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed with the Commission on January 24, 2011). *
21.1
 
Subsidiaries of the Company.
23.1
 
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
31.1
 
Certification of the President and Chief Executive Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of the Chief Financial Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
 
The following materials from the Annual Report on Form 10-K of Dynamic Materials Corporation. For the year ended December 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.**
 

* Management contract or compensatory plan or arrangement.
 
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.


108


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
DYNAMIC MATERIALS CORPORATION
 
 
 
 
 
March 16, 2015
By:
/s/ Michael Kuta
 
 
Michael Kuta
 
 
Chief Financial Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
 
SIGNATURE
 
TITLE
 
DATE
 
 
 
 
 
/s/ Kevin Longe
 
President and Chief Executive Officer
 
March 16, 2015
Kevin Longe
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Michael Kuta
 
Chief Financial Officer
 
March 16, 2015
Michael Kuta
 
(Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
/s/ Gerard Munera
 
Chairman and Director
 
March 16, 2015
Gerard Munera
 
 
 
 
 
 
 
 
 
/s/ David Aldous
 
Director
 
March 16, 2015
David Aldous
 
 
 
 
 
 
 
 
 
 
 
Director
 
March 16, 2015
Yvon Pierre Cariou
 
 
 
 
 
 
 
 
 
/s/ Robert A. Cohen
 
Director
 
March 16, 2015
Robert A. Cohen
 
 
 
 
 
 
 
 
 
/s/ James J. Ferris
 
Director
 
March 16, 2015
James J. Ferris
 
 
 
 
 
 
 
 
 
/s/ Richard P. Graff
 
Director
 
March 16, 2015
Richard P. Graff
 
 
 
 
 
 
 
 
 
/s/ Bernard Hueber
 
Director
 
March 16, 2015
Bernard Hueber
 
 
 
 
 
 
 
 
 
 
 
Director
 
March 16, 2015
Rolf Rospek
 
 
 
 


109


DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
INDEX TO SCHEDULE II
 
AS OF DECEMBER 31, 2014
 
 
PAGE


110




DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
SCHEDULE II(a) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ALLOWANCE FOR DOUBTFUL ACCOUNTS
 
 
 
Balance at
beginning
of period
 
Additions
charged to
income
 
Accounts
receivable
written off
 
Other
Adjustments
 
Balance at
end of
period
Year ended -
 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
$
424

 
$
63

 
$
(10
)
 
$
(71
)
 
$
406

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
$
406

 
$
221

 
$
(13
)
 
$
(195
)
 
$
419

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
$
419

 
$
140

 
$

 
$
(17
)
 
$
542


DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
SCHEDULE II(b) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
WARRANTY RESERVE
 
 
 
Balance at
beginning
of period
 
Additions
charged to
income
 
Repairs
allowed
 
Other
Adjustments
 
Balance at
end of
period
Year ended -
 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
$
540

 
$
172

 
$
(101
)
 
$
(190
)
 
$
421

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
$
421

 
$

 
$
(117
)
 
$
(116
)
 
$
188

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
$
188

 
$
162

 
$
(216
)
 
$
(4
)
 
$
130


DYNAMIC MATERIALS CORPORATION AND SUBSIDIARIES
SCHEDULE II(c) - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
INVENTORY RESERVE
 
 
 
Balance at
beginning
of period
 
Additions
charged to
income
 
Inventory
write-offs
 
Other Adjustments
 
Balance at
end of
period
Year ended -
 
 

 
 

 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
$
157

 
$
856

 
$
(676
)
 

 
$
337

 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
$
337

 
$
2,714

 
$
(1,322
)
 

 
$
1,729

 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
$
1,729

 
$
1,606

 
$
(77
)
 
(141
)
 
$
3,117



111