Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**Form 10-Q**

 

**(Mark One)**

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

 

**For the quarterly period ended June 30,2009**

 

**OR**

 
| **o** | ** ** | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 FOR  THE TRANSITION PERIOD  FROM          TO          .** |
|-------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Commission file number 001-14775**

** **

----

 

**DYNAMIC MATERIALS CORPORATION**

(Exactname 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**

(Addressof principal executive offices, including zip code)

 

**(303) 665-5700**

(Registrant’stelephone number, including area code)

 

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

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).  Yes  o    No  o

 

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

 
| Large accelerated filer  o         | Accelerated filer  x         |
|----------------------------------------------|----------------------------------------|
|                                         |                                   |
| Non-accelerated filero                       | Smaller reporting company  o |
| (Do not check  if smaller reporting company) |                                   |

 

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

 

Thenumber of shares of Common Stock outstanding was 12,877,306 as of July 31,2009.

 

 

 

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CAUTIONARY NOTE ABOUT FORWARD-LOOKINGSTATEMENTS

 

Thisquarterly report on Form 10-Q contains “forward-looking statements” withinthe meaning of section 27A of the Securities Act of 1933 and section 21E of theSecurities Exchange Act of 1934. In particular, we direct your attention to Part I,Item 1- Condensed Consolidated Financial Statements; Item 2 - Management’sDiscussion and Analysis of Financial Condition and Results of Operations; Item3 - Quantitative and Qualitative Disclosures About Market Risk; and Part II,Item 1A — Risk Factors. We intend the forward-looking statements throughoutthis quarterly report on Form 10-Q and the information incorporated byreference herein to be covered by the safe harbor provisions forforward-looking statements. Statements contained in this report which are nothistorical facts are forward-looking statements that involve risks anduncertainties that could cause actual results to differ materially fromprojected results. All projections, guidance and other statements regarding ourexpected financial position and operating results, our business strategy, ourfinancing plans and the outcome of any contingencies are forward-lookingstatements. These statements can sometimes be identified by our use offorward-looking words such as “may,” “believe,” “plan,” “anticipate,” “estimate,”“expect,” “intend,” and other phrases of similar meaning. The forward-lookinginformation is based on information available as of the date of this quarterlyreport and on numerous assumptions and developments that are not within ourcontrol. Although we believe that our expectations as expressed in theseforward-looking statements are reasonable, we cannot assure you that ourexpectations will turn out to be correct. Factors that could cause actualresults to differ materially include, but are not limited to, the following:the ability to obtain new contracts at attractive prices; the size and timingof customer orders and shipment; our ability to realize sales from our backlog;fluctuations in customer demand; fluctuations in foreign currencies;competitive factors; the timely completion of contracts; the timing and size ofexpenditures; the timely receipt of government approvals and permits; the priceand availability of metal and other raw material; the adequacy of local laborsupplies at our facilities; current or future limits on manufacturing capacityat our various operations; the availability and cost of funds; and generaleconomic conditions, both domestic and foreign, impacting our business and thebusiness of the end-market users we serve. Readers are cautioned not to placeundue reliance on these forward-looking statements, which reflect management’sanalysis only as of the date hereof. We undertake no obligation to publiclyrelease the results of any revision to these forward-looking statements thatmay be made to reflect events or circumstances after the date hereof or toreflect the occurrence of unanticipated events.

 

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**INDEX**

 
| PART I - FINANCIAL INFORMATION                                                                        |                                                                                                              |
|------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------|
|                                                                                                       |                                                                                                              |
| Item 1 — Condensed Consolidated Financial Statements                                                  | 4                                                                                                                 |
|                                                                                                       |                                                                                                              |   |
|                                                                                                       | Consolidated  Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008                      | 4 |
|                                                                                                       | Consolidated Statements of Operations for  the three and six months ended June 30, 2009 and 2008 (unaudited) | 6 |
|                                                                                                       | Consolidated  Statement of Stockholders’ Equity for the six months ended June 30, 2009  (unaudited)     | 7 |
|                                                                                                       | Consolidated Statements of Cash flows for  the six months ended June 30, 2009 and 2008 (unaudited)           | 8 |
|                                                                                                       | Notes to  Condensed Consolidated Financial Statements (unaudited)                                                 | 10 |
|                                                                                                       |                                                                                                              |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations | 22                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 3 —  Quantitative and Qualitative Disclosure about Market Risk                                   | 37                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 4 —  Controls and Procedures                                                                     | 37                                                                                                                |
|                                                                                                       |                                                                                                              |
| PART II - OTHER INFORMATION                                                                           |                                                                                                              |
|                                                                                                       |                                                                                                              |
| Item 1 — Legal Proceedings                                                                            | 38                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 1A — Risk Factors                                                                                | 38                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 2 —  Unregistered Sales of Equity Securities and Use of Proceeds                                 | 38                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 3 —  Defaults Upon Senior Securities                                                             | 38                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 4 —  Submission of Matters to a Vote of Security Holders                                         | 38                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 5 — Other Information                                                                            | 39                                                                                                                |
|                                                                                                       |                                                                                                              |
| Item 6 — Exhibits                                                                                     | 39                                                                                                                |
|                                                                                                       |                                                                                                              |
|                                                                                                       | Signatures                                                                                                        | 41 |
|                                                                                                            |                                                                                                                   |  |  |

 

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**Part I- FINANCIAL INFORMATION**

 

**ITEM 1. Condensed Consolidated Financial Statements**

 

DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES

CONDENSED CONSOLIDATEDBALANCE SHEETS

(Dollars in Thousands)

 
| ** **                                                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                  | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| ** **                                                                                  | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| ASSETS                                                                                      |       |              |       |                  |       |
|                                                                                        |       |              |       |                  |       |
| CURRENT ASSETS:                                                                             |       |              |       |                  |       |
| Cash and cash equivalents                                                                   |       | $                 | 20,794     |                  | $          | 14,360 |   |
| Accounts receivable, net of allowance for doubtful  accounts of $635 and $614, respectively |       | 29,197            |       | 34,719                |       |
| Inventories                                                                                 |       | 32,548            |       | 35,300                |       |
| Prepaid expenses and other                                                                  |       | 2,867             |       | 2,956                 |       |
| Related party receivable and loan                                                           |       | 2,253             |       | 2,611                 |       |
| Current deferred tax assets                                                                 |       | 895               |       | 1,103                 |       |
|                                                                                        |       |              |       |                  |       |
| Total current assets                                                                        |       | 88,554            |       | 91,049                |       |
|                                                                                        |       |              |       |                  |       |
| PROPERTY, PLANT AND EQUIPMENT                                                               |       | 60,374            |       | 58,454                |       |
| Less - Accumulated depreciation                                                             |       | (20,140           | )          | (17,997               | )          |
|                                                                                        |       |              |       |                  |       |
| Property, plant and equipment, net                                                          |       | 40,234            |       | 40,457                |       |
|                                                                                        |       |              |       |                  |       |
| GOODWILL, net                                                                               |       | 42,434            |       | 43,066                |       |
|                                                                                        |       |              |       |                  |       |
| PURCHASED INTANGIBLE ASSETS, net                                                            |       | 49,540            |       | 52,264                |       |
|                                                                                        |       |              |       |                  |       |
| DEFERRED TAX ASSETS                                                                         |       | 722               |       | 331                   |       |
|                                                                                        |       |              |       |                  |       |
| OTHER ASSETS, net                                                                           |       | 1,301             |       | 1,449                 |       |
|                                                                                        |       |              |       |                  |       |
| INVESTMENT IN JOINT VENTURES                                                                |       | 1,065             |       | 970                   |       |
|                                                                                        |       |              |       |                  |       |
| TOTAL ASSETS                                                                                |       | $                 | 223,850    |                  | $          | 229,586 |   |

 

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

 

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DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Share Data)

 

 
| ** **                                                                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                          | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| ** **                                                                                                                          | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                          | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                |       |              |       |                  |       |
| CURRENT LIABILITIES:                                                                                                                |       |              |       |                  |       |
| Accounts payable                                                                                                                    |       | $                 | 10,613     |                  | $          | 15,402 |   |
| Accrued expenses                                                                                                                    |       | 4,083             |       | 6,605                 |       |
| Dividend payable                                                                                                                    |       | 513               |       | —                |       |
| Accrued income taxes                                                                                                                |       | 261               |       | 846                   |       |
| Accrued employee compensation and benefits                                                                                          |       | 4,022             |       | 5,579                 |       |
| Customer advances                                                                                                                   |       | 3,782             |       | 2,685                 |       |
| Related party accounts payable                                                                                                      |       | 24                |       | 17                    |       |
| Lines of credit - current                                                                                                           |       | 151               |       | —                |       |
| Current maturities on long-term debt                                                                                                |       | 10,543            |       | 14,450                |       |
| Current portion of capital lease obligations                                                                                        |       | 92                |       | 163                   |       |
|                                                                                                                                |       |              |       |                  |       |
| Total current liabilities                                                                                                           |       | 34,084            |       | 45,747                |       |
|                                                                                                                                |       |              |       |                  |       |
| LONG-TERM DEBT                                                                                                                      |       | 45,610            |       | 46,178                |       |
|                                                                                                                                |       |              |       |                  |       |
| CAPITAL LEASE OBLIGATIONS                                                                                                           |       | 298               |       | 336                   |       |
|                                                                                                                                |       |              |       |                  |       |
| DEFERRED TAX LIABILITIES                                                                                                            |       | 15,566            |       | 16,833                |       |
|                                                                                                                                |       |              |       |                  |       |
| OTHER LONG-TERM LIABILITIES - RELATED PARTY                                                                                         |       | 344               |       | 303                   |       |
|                                                                                                                                |       |              |       |                  |       |
| OTHER LONG-TERM LIABILITIES                                                                                                         |       | 1,300             |       | 1,687                 |       |
|                                                                                                                                |       |              |       |                  |       |
| COMMITMENTS AND CONTINGENT LIABILITIES                                                                                              |       | —            |       | —                |       |
|                                                                                                                                |       |              |       |                  |       |
| Total liabilities                                                                                                                   |       | 97,202            |       | 111,084               |       |
|                                                                                                                                |       |              |       |                  |       |
| STOCKHOLDERS’ EQUITY:                                                                                                          |       |              |       |                  |       |
| Preferred stock, $.05 par value; 4,000,000 shares  authorized; no issued and outstanding shares                                     |       | —            |       | —                |       |
| Common stock, $.05 par value; 25,000,000 shares  authorized; 12,877,306 and 12,780,877 shares issued and outstanding,  respectively |       | 644               |       | 639                   |       |
| Additional paid-in capital                                                                                                          |       | 44,271            |       | 42,050                |       |
| Retained earnings                                                                                                                   |       | 83,961            |       | 78,042                |       |
| Other cumulative comprehensive loss                                                                                                 |       | (2,228            | )          | (2,229                | )          |
|                                                                                                                                |       |              |       |                  |       |
| Total stockholders’ equity                                                                                                     |       | 126,648           |       | 118,502               |       |
|                                                                                                                                |       |              |       |                  |       |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                     |       | $                 | 223,850    |                  | $          | 229,586 |   |

 

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

 

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DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

(Dollars in Thousands, Except Share Data)

(unaudited)

 
| ** **                                           | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                           | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                           | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| NET SALES                                            |       | $                      | 37,819     |                 | $          | 63,183 |   | $ | 87,578 |   | $ | 121,576 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| COST OF PRODUCTS SOLD                                |       | 28,665                 |       | 44,134               |       | 63,096 |   | 84,816 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| Gross profit                                         |       | 9,154                  |       | 19,049               |       | 24,482 |   | 36,760 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| COSTS AND EXPENSES:                                  |       |                   |       |                 |       |   |   |   |   |
| General and administrative expenses                  |       | 3,043                  |       | 3,815                |       | 6,569 |   | 6,933 |   |
| Selling expenses                                     |       | 1,840                  |       | 2,633                |       | 4,164 |   | 5,474 |   |
| Amortization expense of purchased intangible  assets |       | 1,232                  |       | 2,464                |       | 2,416 |   | 4,825 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| Total costs and expenses                             |       | 6,115                  |       | 8,912                |       | 13,149 |   | 17,232 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| INCOME FROM OPERATIONS                               |       | 3,039                  |       | 10,137               |       | 11,333 |   | 19,528 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| OTHER INCOME (EXPENSE):                              |       |                   |       |                 |       |   |   |   |   |
| Other income                                         |       | 191                    |       | 189                  |       | 74 |   | 41 |   |
| Interest expense                                     |       | (867                   | )          | (1,471               | )          | (1,769 | ) | (2,734 | ) |
| Interest income                                      |       | 38                     |       | 99                   |       | 104 |   | 323 |   |
| Equity in earnings of joint ventures                 |       | 127                    |       | 273                  |       | 79 |   | 289 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES                           |       | 2,528                  |       | 9,227                |       | 9,821 |   | 17,447 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| INCOME TAX PROVISION                                 |       | 1,013                  |       | 3,017                |       | 3,389 |   | 5,989 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| NET INCOME                                           |       | $                      | 1,515      |                 | $          | 6,210 |   | $ | 6,432 |   | $ | 11,458 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| INCOME PER SHARE:                                    |       |                   |       |                 |       |   |   |   |   |
| Basic                                                |       | $                      | 0.12       |                 | $          | 0.49 |   | $ | 0.50 |   | $ | 0.91 |   |
| Diluted                                              |       | $                      | 0.12       |                 | $          | 0.49 |   | $ | 0.50 |   | $ | 0.90 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -      |       |                   |       |                 |       |   |   |   |   |
| Basic                                                |       | 12,595,551             |       | 12,416,900           |       | 12,570,640 |   | 12,406,210 |   |
| Diluted                                              |       | 12,611,430             |       | 12,538,362           |       | 12,601,160 |   | 12,539,580 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| DIVIDENDS DECLARED PER COMMON SHARE                  |       | $                      | 0.04       |                 | $          | 0.15 |   | $ | 0.04 |   | $ | 0.15 |   |

 

The accompanying notes are in integral part of these CondensedConsolidated Financial Statements.

 

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DYNAMIC MATERIALS CORPORATION & SUBSIDIARIES

CONDENSED CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2009

(Amounts in Thousands)

(unaudited)

 
| ** **                                                         | ** ** | ** **        | ** ** | ** **  | ** ** | ** **     | ** ** | ** **        | ** ** | **Other**      | ** ** | ** ** | ** ** | ** **          | ** ** |
|--------------------------------------------------------------------|------------|-------------------|------------|-------------|------------|----------------|------------|-------------------|------------|----------------|------------|------------|------------|---------------------|------------|
| ** **                                                         | ** ** | ** **        | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **        | ** ** | **Cumulative** | ** ** | ** ** | ** ** | **Comprehensive**   | ** ** |
| ** **                                                         | ** ** | **Common  Stock** | ** ** | **Paid-In** | ** ** | **Retained**   | ** ** | **Comprehensive** | ** ** | ** **     | ** ** | **Income** | ** ** |
| ** **                                                         | ** ** | **Shares**        | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Earnings**      | ** ** | **Loss**       | ** ** | **Total**  | ** ** | **for the  Period** | ** ** |
| Balances,  December 31, 2008                                  |       | 12,781            |       | $           | 639        |           | $          | 42,050            |       | $              | 78,042     |       | $          | (2,229              | )          | $ | 118,502 |   |   |   |
|                                                               |       |              |       |        |       |           |       |              |       |           |       |       |       |                |       |
| Shares  issued for stock option exercises                          |       | 78                |       | 4           |       | 260            |       | —            |       | —         |       | 264        |       |                |       |
| Restricted  stock awards                                           |       | 12                |       | 1           |       | (1             | )          | —            |       | —         |       | —     |       |                |       |
| Shares  issued in connection with the employee stock purchase plan |       | 6                 |       | —      |       | 109            |       | —            |       | —         |       | 109        |       |                |       |
| Excess  tax benefit related to stock options                       |       | —            |       | —      |       | 93             |       | —            |       | —         |       | 93         |       |                |       |
| Stock-based  compensation                                          |       | —            |       | —      |       | 1,760          |       | —            |       | —         |       | 1,760      |       |                |       |
| Dividends  declared                                                |       | —            |       | —      |       | —         |       | (513              | )          | —         |       | (513       | )          |                |       |
| Net  income                                                        |       | —            |       | —      |       | —         |       | 6,432             |       | —         |       | 6,432      |       | 6,432               |       |
| Derivative  valuation adjustment, net of tax of $106               |       | —            |       | —      |       | —         |       | —            |       | 197            |       | 197        |       | 197                 |       |
| Change  in cumulative foreign currency translation adjustment      |       | —            |       | —      |       | —         |       | —            |       | (196           | )          | (196       | )          | (196                | )          |
| Balances,  June 30, 2009                                      |       | 12,877            |       | $           | 644        |           | $          | 44,271            |       | $              | 83,961     |       | $          | (2,228              | )          | $ | 126,648 |   | $ | 6,433 |   |
|                                                                    |            |                   |            |             |            |                |            |                   |            |                |            |            |            |                     |            |  |  |  |  |  |  |

 

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

 

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DYNAMIC MATERIALSCORPORATION & SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHSENDED JUNE 30, 2009 AND 2008

(Dollars inThousands)

(unaudited)

 
| ** **                                                                          | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                              |       |     |       |     |       |
| Net  income                                                                         |       | $        | 6,432      |     | $          | 11,458 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities - |       |     |       |     |       |
| Depreciation  (including capital lease amortization)                                |       | 2,441    |       | 2,354    |       |
| Amortization  of purchased intangible assets                                        |       | 2,416    |       | 4,825    |       |
| Amortization  of capitalized debt issuance costs                                    |       | 141      |       | 114      |       |
| Stock-based  compensation                                                           |       | 1,760    |       | 1,543    |       |
| Deferred  income tax benefit                                                        |       | (954     | )          | (2,410   | )          |
| Equity  in earnings of joint ventures                                               |       | (79      | )          | (289     | )          |
| Change  in -                                                                        |       |     |       |     |       |
| Restricted  cash                                                                    |       | —   |       | 386      |       |
| Accounts  receivable, net                                                           |       | 4,374    |       | 1,237    |       |
| Inventories                                                                         |       | 2,475    |       | 4,731    |       |
| Prepaid  expenses and other                                                         |       | 1,540    |       | (844     | )          |
| Accounts  payable                                                                   |       | (4,407   | )          | (5,086   | )          |
| Customer  advances                                                                  |       | 1,029    |       | (2,859   | )          |
| Accrued  expenses and other liabilities                                             |       | (4,797   | )          | (3,347   | )          |
|                                                                                |       |     |       |     |       |
| Net  cash provided by operating activities                                          |       | 12,371   |       | 11,813   |       |
|                                                                                |       |     |       |     |       |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                              |       |     |       |     |       |
| Acquisition  of property, plant and equipment                                       |       | (2,231   | )          | (4,203   | )          |
| Change  in other non-current assets                                                 |       | 23       |       | 31       |       |
|                                                                                |       |     |       |     |       |
| Net  cash used in investing activities                                              |       | (2,208   | )          | (4,172   | )          |
|                                                                                     |            |          |            |          |            |  |  |

 

The accompanyingnotes are an integral part of these Condensed Consolidated FinancialStatements.

 

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DYNAMIC MATERIALSCORPORATION & SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHSENDED JUNE 30, 2009 AND 2008

(Dollars inThousands)

 
| ** **                                                             | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                 |       |     |       |     |       |
| Payment  on syndicated term loans                                      |       | (3,885   | )          | —   |       |
| Payment  on term loan with French bank                                 |       | —   |       | (443     | )          |
| Payment  on Nord LB term loans                                         |       | (438     | )          | (542     | )          |
| Borrowings  on bank lines of credit, net                               |       | 143      |       | 12,081   |       |
| Payment  of capital lease obligations                                  |       | (102     | )          | (216     | )          |
| Payment  of deferred debt issuance costs                               |       | (19      | )          | (140     | )          |
| Change  in other long-tem liabilities                                  |       | —   |       | 33       |       |
| Net  proceeds from issuance of common stock to employees and directors |       | 373      |       | 240      |       |
| Excess  tax benefit related to exercise of stock options               |       | 93       |       | 132      |       |
|                                                                   |       |     |       |     |       |
| Net  cash provided by (used in) financing activities                   |       | (3,835   | )          | 11,145   |       |
|                                                                   |       |     |       |     |       |
| EFFECTS  OF EXCHANGE RATES ON CASH                                     |       | 106      |       | 553      |       |
|                                                                   |       |     |       |     |       |
| NET  INCREASE IN CASH AND CASH EQUIVALENTS                             |       | 6,434    |       | 19,339   |       |
|                                                                   |       |     |       |     |       |
| CASH  AND CASH EQUIVALENTS, beginning of the period                    |       | 14,360   |       | 9,045    |       |
|                                                                   |       |     |       |     |       |
| CASH  AND CASH EQUIVALENTS, end of the period                          |       | $        | 20,794     |     | $          | 28,384 |   |
|                                                                        |            |          |            |          |            |  |  |

 

The accompanyingnotes are an integral part of these Condensed Consolidated FinancialStatements.

 

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##### **DYNAMIC MATERIALSCORPORATION & SUBSIDIARIES**

##### ** **

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

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

 

**(unaudited)**

 

**1.      BASIS OF PRESENTATION**

 

Theinformation included in the Condensed Consolidated Financial Statements isunaudited but includes all normal and recurring adjustments which, in theopinion of management, are necessary for a fair presentation of the interimperiods presented. These Condensed Consolidated Financial Statements should beread in conjunction with the financial statements that are included in theCompany’s Annual Report filed on Form 10-K for the year ended December 31,2008.  Certain prior year balances in theconsolidated financial statements and notes have been reclassified to conform tothe 2009 presentation.

 

**2.      SIGNIFICANT ACCOUNTINGPOLICIES**

 

**Principlesof Consolidation**

** **

**TheCondensed Consolidated Financial Statements include the accounts of the Companyand its controlled subsidiaries.  Onlysubsidiaries in which controlling interests are maintained areconsolidated.  The equity method is usedto account for our ownership in entities where we do not have a controllinginterest.  All significant intercompany accounts,profits, and transactions have been eliminated in consolidation.**

** **

**Foreign Operations and Foreign Exchange Rate Risk**

** **

**Thefunctional currency for the Company’s foreign operations is the applicablelocal currency for each affiliate company. Assets and liabilities of foreignsubsidiaries are translated at exchange rates in effect at period-end, and thestatements of operations are translated at the average exchange rates duringthe period.  Exchange rate fluctuationson translating foreign currency financial statements into U.S. dollars thatresult in unrealized gains or losses are referred to as translationadjustments. Cumulative translation adjustments are recorded as a separatecomponent of stockholders’ equity and are included in other cumulativecomprehensive income (loss). Transactions denominated in currencies other thanthe local currency are recorded based on exchange rates at the time suchtransactions arise. Subsequent changes in exchange rates result in transactiongains and losses which are reflected in income as unrealized (based onperiod-end translations) or realized upon settlement of the transactions. Cashflows from the Company’s operations in foreign countries are translated atactual exchange rates when known, or at the average rate for the period. As aresult, amounts related to assets and liabilities reported in the consolidatedstatements of cash flows will not agree to changes in the correspondingbalances in the consolidated balance sheets. The effects of exchange ratechanges on cash balances held in foreign currencies are reported as a separateline item below cash flows from financing activities.**

 

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**Revenue Recognition**

** **

**Sales ofclad metal products and welding services are generally based upon customerspecifications set forth in customer purchase orders and require the Company toprovide certifications relative to metals used, services performed, and theresults of any non-destructive testing that the customer has requested beperformed.  All issues of conformity ofthe product to specifications are resolved before the product is shipped andbilled.  Products related to the oilfieldproducts segment, which include detonating cords, detonators, bi-directionalboosters, and shaped charges, as well as, seismic related explosives andaccessories, are standard in nature.  Inall cases, revenue is recognized only when all four of the following criteriahave been satisfied: persuasive evidence of an arrangement exists; the price isfixed or determinable; delivery has occurred; and collection is reasonablyassured.  For contracts that requiremultiple shipments, revenue is recorded only for the units included in eachindividual shipment.  If, as a contractproceeds toward completion, projected total cost on an individual contractindicates a probable loss, the Company will account for such anticipated loss.**

** **

**FairValue of Financial Instruments**

** **

The carrying values of cash and cash equivalents, trade accountsreceivable and payable, accrued expenses, and notes receivable are consideredto approximate fair value due to the short-term nature of theseinstruments.  We estimate that ahypothetical 200 basis point increase in our LIBOR/EURIBOR basis borrowingspread would decrease the fair value of our long-term debt by approximately5%.  The majority of the Company’s debtwas incurred in connection with the acquisition of DYNAenergetics.

 

In September 2006, the Financial Accounting Standards Boards (“FASB”)issued Statement of Financial Accounting Standards (“SFAS”) No. 157, *Fair Value Measurements* (“SFAS 157”). Although thisstatement does not require any new fair value measurements, in certain casesits application has changed previous practice in determining fair value. SFAS157 became effective for the Company beginning January 1, 2008 as itrelates to fair value measurements of financial assets and liabilities andnon-financial assets and liabilities that are recognized at fair value in itsfinancial statements on a recurring basis (at least annually).

 

On January 1, 2009, the Company adopted the deferred provisions ofSFAS 157 as defined by FASB Staff Position (“FSP”) No. 157-2, *Effective Date of FASB Statement No. 157,* (“FSP No. 157-2”).FSP No. 157-2 deferred the adoption date for certain non-financial assetsand liabilities that are recognized or disclosed at fair value on anon-recurring basis.  The adoption in 2009 of SFAS 157 for certainnon-financial assets and liabilities did not have any impact on the Company’sresults of operations or financial position.

 

SFAS 157defines fair value as the price that would be received to sell an asset or paidto transfer a liability in an orderly transaction between market participantsat the measurement date. It establishes a hierarchy for fair value measurementsbased upon the inputs to the valuation and the degree to which they areobservable or not observable in the market. The three levels in the hierarchyare 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 |

 

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|   |   | 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.     |

 

SFAS157 assigns the highest priority to Level 1 inputs and the lowest priority toLevel 3 inputs.

 

As discussed in Note 6, the Company uses an interest rate swapagreement to mitigate interest rate risk on portions of its variable rate termloan debt.   The swap agreement is notexchange listed and is therefore valued with models that use Level 2 inputs.  The degree to which the Company’s creditworthiness impacts the value requires management judgment but as of June 30,2009 and December 31, 2008, the impact of this assessment on the overallvalue of the outstanding interest rate swap was not significant and the Company’svaluation of the agreement is classified within Level 2 of the hierarchy.

 

**RelatedParty Transactions**

** **

**TheCompany has related party transactions with its unconsolidated joint ventures,as well as with the minority shareholder of one of its consolidated jointventures.  A summary of related partybalances as of June 30, 2009 and December 31, 2008 is summarizedbelow:**

** **
| ** **                       | ** ** | **As of June 30, 2009** | ** ** | **As of December 31, 2008** | ** ** |
|----------------------------------|------------|------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **Accounts**                 | ** ** | **Accounts**                     | ** ** | **Other** | ** ** | **Accounts** | ** ** | **Accounts** | ** ** | **Other** | ** ** |
| ** **                       | ** ** | **receivable from**          | ** ** | **payable to**                   | ** ** | **long-term** | ** ** | **receivable from** | ** ** | **payable to** | ** ** | **long-term** | ** ** |
| ** **                       | ** ** | **and loan to**              | ** ** | **and loan from**                | ** ** | **loan from** | ** ** | **and loan to** | ** ** | **and loan from** | ** ** | **loan from** | ** ** |
| Perfoline                        |       | $                            | 505        |                             | $          | 17 |   | $ | — |   | $ | 449 |   | $ | 17 |   | $ | — |   |
| DYNAenergetics  RUS              |       | 1,228                        |       | —                           |       | — |   | 1,582 |   | — |   | — |   |
| Noncontrolling  Interest Partner |       | 520                          |       | 7                                |       | 344 |   | 580 |   | — |   | 303 |   |
|                             |       |                         |       |                             |       |   |   |   |   |   |   |   |   |
| Total                            |       | $                            | 2,253      |                             | $          | 24 |   | $ | 344 |   | $ | 2,611 |   | $ | 17 |   | $ | 303 |   |

 

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Asummary of related party transactions for the three and six months ended June 30,2009 and 2008 is summarized below:

 
| ** **                      | ** ** | **Three months ended** | ** ** | **Three months ended** | ** ** |
|---------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **June 30, 2009** | ** ** | **June 30, 2008** | ** ** |
| ** **                      | ** ** | ** **             | ** ** | **Interest**           | ** ** | ** ** | ** ** | **Interest** | ** ** |
| ** **                      | ** ** | **Sales to**           | ** ** | **income from**        | ** ** | **Sales to** | ** ** | **income from** | ** ** |
| Perfoline                       |       | $                      | 17         |                   | $          | 10 |   | $ | 14 |   | $ | 13 |   |
| DYNAenergetics RUS              |       | 692                    |       | —                 |       | 1,137 |   | — |   |
| Noncontrolling Interest Partner |       | 146                    |       | —                 |       | 460 |   | — |   |
|                            |       |                   |       |                   |       |   |   |   |   |
| Total                           |       | $                      | 855        |                   | $          | 10 |   | $ | 1,611 |   | $ | 13 |   |

 
| ** **                      | ** ** | **Six months ended**   | ** ** | **Six months ended**   |       |
|---------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **June 30, 2009** | ** ** | **June 30, 2008** |       |
| ** **                      | ** ** | ** **             | ** ** | **Interest**           | ** ** | ** ** | ** ** | **Interest** |   |
| ** **                      | ** ** | **Sales to**           | ** ** | **income from**        | ** ** | **Sales to** | ** ** | **income from** |   |
| Perfoline                       |       | $                      | 57         |                   | $          | 20 |   | $ | 47 |   | $ | 26 |   |
| DYNAenergetics RUS              |       | 734                    |       | —                 |       | 1,137 |   | — |   |
| Noncontrolling Interest Partner |       | 444                    |       | —                 |       | 984 |   | — |   |
|                            |       |                   |       |                   |       |   |   |   |   |
| Total                           |       | $                      | 1,235      |                   | $          | 20 |   | $ | 2,168 |   | $ | 26 |   |

 

**EarningsPer Share**

** **

**In 2008,the FASB issued FSP EITF 03-6-1, *Determining WhetherInstruments Granted in Share-Based Payment Transactions Are ParticipatingSecurities,* and it became effective for the Company beginning January 1,2009.  Under this standard, unvestedawards of share-based payments with rights to receive dividends or dividendequivalents, such as our restricted stock awards (RSAs), are considered participatingsecurities for purposes of calculating earnings per share (“EPS”).  Under the two-class method required by EITF03-6-1, a portion of net income is allocated to these participating securitiesand therefore is excluded from the calculation of EPS allocated to commonstock, as shown in the table below.  ThisFSP requires retrospective applications for periods prior to the effective dateand as a result, all prior period earnings per share data presented herein havebeen adjusted to conform to these provisions. The Company’s adoption of this FSP resulted in a $.01 per sharereduction to the previously reported basic EPS and no change to the diluted EPS for the three months ended June 30,2008.  The adoption of this FSP resultedin a $.01 per share reduction to the previously reported basic EPS and dilutedEPS for the six months ended June 30, 2008.**

 

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**Computationand reconciliation of earnings per common share are as follows:**

 
| ** **                                                         | ** ** | **For the Three Months Ended** | ** ** | **For the Three Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | **June 30, 2009**         | ** ** | **June 30, 2008**         | ** ** |
| ** **                                                         | ** ** | **Income**                     | ** ** | **Shares**                     | ** ** | **EPS** | ** ** | **Income** | ** ** | **Shares** | ** ** | **EPS** | ** ** |
| Basic  earnings per share:                                         |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net  income                                                        |       | $                              | 1,515      |                           |       |   |   |   | $ | 6,210 |   |   |   |   |   |
| Less  income allocated to RSAs                                     |       | 31                             |       |                           |       |   |   | 97 |   |   |   |   |   |
|                                                               |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net  income allocated to common stock for basic EPS calculation    |       | $                              | 1,484      |                           | 12,595,551 |   | $ | 0.12 |   | $ | 6,113 |   | 12,416,900 |   | $ | 0.49 |   |
|                                                               |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Adjust  shares for Dilutives:                                      |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Stock-based  compensation plans                                    |       |                           |       | 15,879                         |       |   |   |   |   | 121,462 |   |   |   |
|                                                               |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Diluted  earnings per share:                                       |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net  income                                                        |       | $                              | 1,515      |                           |       |   |   |   | $ | 6,210 |   |   |   |   |   |
| Less  income allocated to RSAs                                     |       | 31                             |       |                           |       |   |   | 96 |   |   |   |   |   |
|                                                               |       |                           |       |                           |       |   |   |   |   |   |   |   |   |
| Net  income allocated to common stock for dilutive EPS calculation |       | $                              | 1,484      |                           | 12,611,430 |   | $ | 0.12 |   | $ | 6,114 |   | 12,538,362 |   | $ | 0.49 |   |

 
| ** **                                                         | ** ** | **For the Six Months Ended** | ** ** | **For the Six Months Ended** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                         | ** ** | **June 30, 2009**       | ** ** | **June 30, 2008**       | ** ** |
| ** **                                                         | ** ** | **Income**                   | ** ** | **Shares**                   | ** ** | **EPS** | ** ** | **Income** | ** ** | **Shares** | ** ** | **EPS** | ** ** |
| Basic  earnings per share:                                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Net  income                                                        |       | $                            | 6,432      |                         |       |   |   |   | $ | 11,458 |   |   |   |   |   |
| Less  income allocated to RSAs                                     |       | 132                          |       |                         |       |   |   | 183 |   |   |   |   |   |
|                                                               |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Net  income allocated to common stock for basic EPS calculation    |       | $                            | 6,300      |                         | 12,570,640 |   | $ | 0.50 |   | $ | 11,275 |   | 12,406,210 |   | $ | 0.91 |   |
|                                                               |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Adjust  shares for Dilutives:                                      |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Stock-based  compensation plans                                    |       |                         |       | 30,520                       |       |   |   |   |   | 133,370 |   |   |   |
|                                                               |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Diluted  earnings per share:                                       |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Net  income                                                        |       | $                            | 6,432      |                         |       |   |   |   | $ | 11,458 |   |   |   |   |   |
| Less  income allocated to RSAs                                     |       | 132                          |       |                         |       |   |   | 182 |   |   |   |   |   |
|                                                               |       |                         |       |                         |       |   |   |   |   |   |   |   |   |
| Net  income allocated to common stock for dilutive EPS calculation |       | $                            | 6,300      |                         | 12,601,160 |   | $ | 0.50 |   | $ | 11,276 |   | 12,539,580 |   | $ | 0.90 |   |

 

**RecentAccounting Pronouncements**

** **

**In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations* and SFAS No. 160,*Accounting and Reporting of Noncontrolling Interestin Consolidated Financial Statements*, an amendment of ARB No. 51.These new standards significantly changed the accounting for and reporting ofbusiness combination transactions and noncontrolling (minority) interests inconsolidated financial statements on January 1, 2009 and were required tobe adopted simultaneously.  The adoptionof these standards in 2009 did not have any impact on the Company’s results ofoperations or financial position.**

 

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**In March 2008, the FASB issued SFAS No. 161,*Disclosures about Derivative Instruments andHedging Activities*.  SFAS 161 requires additional disclosuresrelated to the use of derivative instruments, the accounting for derivativesand how derivatives impact financial statements on January 1, 2009. The adoption of SFAS No. 161 in 2009 did not have any impact on theCompany’s results of operations or financial position.**

** **

In April 2009, the FASB issued FASB StaffPosition (“FSP”) FAS 107-1 and Accounting Principles Board Opinion (“APB”) 28-1, *InterimDisclosures about Fair Value of Financial**Instruments* (“FSP FAS107-1”). The FSP amends FAS 107, *Disclosures about Fair Value of Financial Instruments*, andAPB 28, *Interim Financial Reporting*, to requiredisclosures about fair value of financial instruments for interim financialstatements of publicly traded companies.  FSP FAS 107-1 is effective for interimreporting periods ending after June 15, 2009.  Theadoption of FSP FAS 107-1 in the second quarter of 2009 did not have any impact on theCompany’s results of operations or financial position.

 

In May 2009, the FASB issued SFAS No. 165,*Subsequent Events*. SFAS 165 is intendedto establish general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. Specifically, this standard sets forth theperiod after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements, the circumstances underwhich an entity should recognize events or transactions occurring after thebalance sheet date in its financial statements, and the disclosures that anentity should make about events or transactions that occurred after the balancesheet date.  SFAS 165 is effective for financial statements issued forfiscal years and interim periods beginning after June 15, 2009 and will beapplied prospectively.  The Company hasadopted SFAS 165 in the periods ended June 30, 2009 and has evaluated forsubsequent events through July 31, 2009, the issuance date of the Company’sconsolidated financial statements.  Norecognized or non-recognized subsequent events were noted.

 

In June 2009, the FASB issued SFAS No. 168,*The FASB Accounting Standards Codification and theHierarchy of Generally Accepted Accounting Principles*.  SFAS168 will become the single source of authoritative nongovernmental U.S.generally accepted accounting principles (“GAAP”), superseding existing FASB,American Institute of Certified Public Accountants (“AICPA”), Emerging IssuesTask Force (“EITF”), and related accounting literature.  SFAS 168reorganizes the thousands of GAAP pronouncements into roughly 90 accountingtopics and displays them using a consistent structure.  Also includedis relevant Securities and Exchange Commission guidance organized using thesame topical structure in separate sections.  SFAS 168 will beeffective for financial statements issued for reporting periods that end after September 15,2009.  This will have an impact on the notes to the Company’sfinancial statements since all future references to authoritative accountingliterature will be references in accordance with SFAS 168.

 

**3.      INVESTMENT IN JOINT VENTURES**

 

Operating results include the Company’sproportionate share of income from unconsolidated joint ventures, which areaccounted for under the equity method. These investments (all of which resulted from the acquisition ofDYNAenergetics and pertain to the Company’s Oilfield Products business segment)include the following: (1) 65.19% interest in Perfoline, which is aRussian manufacturer of perforating gun systems and (2) 55% interest inDYNAenergetics RUS which is a Russian trading company that sells the Company’soilfield products.  Due to certainnoncontrolling interestveto rights that allow the noncontrolling interest shareholders to participatein ordinary course of business decisions, these joint ventures have beenaccounted for under the equity method

 

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instead of being consolidated in these financialstatements.  Investments in these jointventures totaled $1,065 and $970 as of June 30, 2009 and December 31,2008, respectively.

 

Summarized unaudited financial information for thejoint ventures accounted for under the equity method as of June 30, 2009and December 31, 2008 and for the three and six months ended June 30,2009 and 2008 is as follows:

 
| ** **                   | ** ** | **June 30,** | ** ** | **December 31,** |   |   |   |   |   |
|------------------------------|------------|-------------------|------------|-----------------------|--------|--------|--------|--------|--------|
| ** **                   | ** ** | **2009**          | ** ** | **2008**              |   |   |   |   |   |
| Current assets               |       | $                 | 3,825      |                  | $      | 4,667  |   |   |   |   |   |
| Noncurrent assets            |       | 671               |       | 714                   |   |   |   |   |   |
| Total assets                 |       | $                 | 4,496      |                  | $      | 5,381  |   |   |   |   |   |
|                         |       |              |       |                  |   |   |   |   |   |
| Current liabilities          |       | $                 | 1,530      |                  | $      | 2,064  |   |   |   |   |   |
| Noncurrent liabilities       |       | 657               |       | 830                   |   |   |   |   |   |
| Equity                       |       | 2,309             |       | 2,487                 |   |   |   |   |   |
| Total liabilities and equity |       | $                 | 4,496      |                  | $      | 5,381  |   |   |   |   |   |

 
| ** **                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                           | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                           | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net sales                            |       | $                      | 1,676      |                 | $          | 2,522 |   | $ | 2,782 |   | $ | 4,725 |   |
| Operating income                     |       | $                      | 284        |                 | $          | 617 |   | $ | 363 |   | $ | 788 |   |
| Net income                           |       | $                      | 232        |                 | $          | 549 |   | $ | 142 |   | $ | 535 |   |
| Equity in earnings of joint ventures |       | $                      | 127        |                 | $          | 273 |   | $ | 79 |   | $ | 289 |   |

 

**4.      INVENTORY**

 

**Thecomponents of inventory are as follows at June 30, 2009 and December 31,2008:**

** **
| ** **      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------|------------|-------------------|------------|-----------------------|------------|
| ** **      | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| Raw materials   |       | $                 | 11,180     |                  | $          | 11,610 |   |
| Work-in-process |       | 16,232            |       | 18,950                |       |
| Finished goods  |       | 4,454             |       | 3,903                 |       |
| Supplies        |       | 682               |       | 837                   |       |
|            |       |              |       |                  |       |
|            |       | $                 | 32,548     |                  | $          | 35,300 |   |

 

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**5.      PURCHASED INTANGIBLE ASSETS**

 

The following tablepresents details of our purchased intangible assets, other than goodwill, as ofJune 30, 2009:

 
| ** **               | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|--------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **               | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| Core technology          |       | $          | 23,514     |             | $          | (1,910     | )          | $ | 21,604 |   |
| Customer relationships   |       | 31,726     |       | (5,729           | )          | 25,997     |       |
| Trademarks / Trade names |       | 2,561      |       | (622             | )          | 1,939      |       |
|                     |       |       |       |             |       |       |       |
| Total intangible assets  |       | $          | 57,801     |             | $          | (8,261     | )          | $ | 49,540 |   |

 

The following tablepresents details of our purchased intangible assets, other than goodwill, as ofDecember 31, 2008:

 
| ** **               | ** ** | ** ** | ** ** | **Accumulated**  | ** ** | ** ** | ** ** |
|--------------------------|------------|------------|------------|------------------|------------|------------|------------|
| ** **               | ** ** | **Gross**  | ** ** | **Amortization** | ** ** | **Net**    | ** ** |
| Core technology          |       | $          | 23,596     |             | $          | (1,327     | )          | $ | 22,269 |   |
| Customer relationships   |       | 31,837     |       | (3,980           | )          | 27,857     |       |
| Trademarks / Trade names |       | 2,570      |       | (432             | )          | 2,138      |       |
|                     |       |       |       |             |       |       |       |
| Total intangible assets  |       | $          | 58,003     |             | $          | (5,739     | )          | $ | 52,264 |   |

 

Thedecrease in the gross value of our purchased intangible assets from December 31,2008 to June 30, 2009 is due to the impact of foreign currencytranslation.  The decrease in goodwillfrom $43,066 at December 31, 2008 to $42,434 at June 30, 2009 is alsodue to the impact of foreign currency translation.

 

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**6.****     ****DEBT**

 

**Lines ofcredit consist of the following at June 30, 2009 and December 31,2008:**

** **
| ** **             | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **             | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| Nord LB line of credit |       | $                 | 151        |                  | $          | — |   |
|                        |            |                   |            |                       |            |  |  |

** **

**Long-termdebt consists of the following at June 30, 2009 and December 31,2008:**

** **
| ** **                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                 | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| Syndicated credit agreement term loan      |       | $                 | 37,756     |                  | $          | 40,500 |   |
| Syndicated credit agreement Euro term loan |       | 16,501            |       | 17,763                |       |
| Nord LB 3,000 Euro term loan               |       | 1,896             |       | 2,326                 |       |
| Nord LB 500 Euro term loan                 |       | —            |       | 39                    |       |
|                                       |       |              |       |                  |       |
|                                       |       | 56,153            |       | 60,628                |       |
| Less current maturities                    |       | (10,543           | )          | (14,450               | )          |
|                                       |       |              |       |                  |       |
| Long-term debt                             |       | $                 | 45,610     |                  | $          | 46,178 |   |

** **

LoanCovenants and Restrictions

 

The Company’s existing loan agreements includevarious covenants and restrictions, certain of which relate to the incurrence ofadditional indebtedness; mortgaging, pledging or disposition of major assets;limits on capital expenditures; and maintenance of specified financialratios.  As of June 30, 2009, theCompany was in compliance with all financial covenants and other provisions ofits debt agreements.

 

SwapAgreement

 

On November 17, 2008, the Company enteredinto a two-year interest rate swap agreement with an initial notional amount of$40,500 (decreasing to $33,750 in November 2009) that effectivelyconverted the LIBOR based variable rate US borrowings under the syndicatedcredit agreement to a fixed rate of 4.87% (4.62% effective April 1, 2009due to an improvement in the Company’s leverage ratio).  The Company had designated the swap agreementas an effective cash flow hedge with matched terms and, as a result,changes in the fair value of the swap agreement were recorded in othercomprehensive income with the offset as a swap agreement asset or liability. During the quarter ended June 30, 2009, the Company made an unanticipatedrepayment of $2,744 on its variable rate US borrowings and elected tode-designate this portion of the cash flow hedge.  Due to the resulting ineffectiveness of thisportion of the cash flow hedge, the Company recorded an immaterial loss of lessthan $100 during the quarter ended June 30, 2009.  Future settlements and changes in the fairvalue related to the de-designated portion of the cash flow hedge will berecorded as realized and unrealized gains/losses on swap agreement within otherincome in the Company’s statement of operations.

 

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The Company has recorded the fair value of itsinterest rate swap agreement as follows:

 
| ** **                       | ** ** | **June 30, 2009**       | ** ** | **December 31, 2008** | ** ** |
|----------------------------------|------------|------------------------------|------------|----------------------------|------------|
| **Interest rate swap liability** | ** ** | **Balance sheet location**   | ** ** | **Fair value**             | ** ** | **Balance sheet location** | ** ** | **Fair value** | ** ** |
|                             |       |                         |       |                       |       |   |   |   |   |
| Current  portion                 |       | Accrued expenses             |       | $                          | 839        |   | Accrued expenses |   | $ | 759 |   |
| Long-term  portion               |       | Other long-term  liabilities |       | 299                        |       | Other long-term  liabilities |   | 647 |   |
|                             |       |                         |       |                       |       |   |   |   |   |
|                             |       |                         |       | $                          | 1,138      |   |   |   | $ | 1,406 |   |

 

**7.      BUSINESS SEGMENTS**

 

TheCompany is organized in the following three segments:  Explosive Metalworking, Oilfield Products,and AMK Welding. The Explosive Metalworking segment uses explosives to performmetal cladding and shock synthesis of industrial diamonds. The most significantproducts of this group are clad metal plates which are used by customers in thefabrication of pressure vessels, heat exchangers and other equipment forvarious industries, including upstream oil and gas, oil refinery,petrochemicals, alternative energy, hydrometallurgy, power generation,industrial refrigeration, and similar industries and internally to producetransition joints for use in the aluminum production and shipbuildingindustries.  The Oilfield Products segmentmanufactures, markets and sells oilfield perforating equipment and explosives,including detonating cords, detonators, bi-directional boosters and shapedcharges, and seismic related explosives and accessories.  AMK Welding utilizes a number of weldingtechnologies to weld components for manufacturers of jet engine andground-based turbines.

 

The accounting policies of all the segments are the same as thosedescribed in the summary of significant accounting policies.  The Company’s reportable segments areseparately managed strategic business units that offer different products andservices. Each segment’s products are marketed to different customer types andrequire different manufacturing processes and technologies.

 

Segment information ispresented for the three and six months ended June 30, 2009 and 2008 asfollows:

 
| ** **                                      | ** ** | **Explosive**    | ** ** | ** **   | ** ** | ** **  | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                      | ** ** | **Metalworking** | ** ** | **Oilfield** | ** ** | **AMK**     | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Group**        | ** ** | **Products** | ** ** | **Welding** | ** ** | **Total**  | ** ** |
| For  the three months ended June 30, 2009: |       |             |       |         |       |        |       |       |       |
| Net  sales                                      |       | $                | 31,604     |         | $          | 4,014       |       | $          | 2,201      |   | $ | 37,819 |   |
| Depreciation  and amortization                  |       | $                | 1,435      |         | $          | 857         |       | $          | 115        |   | $ | 2,407 |   |
| Income  from operations                         |       | $                | 4,601      |         | $          | (906        | )          | $          | 306        |   | $ | 4,001 |   |
| Equity  in earnings of joint ventures           |       | $                | —     |         | $          | 127         |       | $          | —     |   | 127 |   |
| Unallocated  amounts:                           |       |             |       |         |       |        |       |       |       |
| Stock-based  compensation                       |       |             |       |         |       |        |       | (962       | )          |
| Other  income                                   |       |             |       |         |       |        |       | 191        |       |
| Interest  expense                               |       |             |       |         |       |        |       | (867       | )          |
| Interest  income                                |       |             |       |         |       |        |       | 38         |       |
|                                            |       |             |       |         |       |        |       |       |       |
| Consolidated  income before income taxes        |       |             |       |         |       |        |       | $          | 2,528      |   |

 

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| ** **                                      | ** ** | **Explosive**    | ** ** | ** **   | ** ** | ** **  | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|------------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                      | ** ** | **Metalworking** | ** ** | **Oilfield** | ** ** | **AMK**     | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | **Group**        | ** ** | **Products** | ** ** | **Welding** | ** ** | **Total**  | ** ** |
| For  the three months ended June 30, 2008: |       |             |       |         |       |        |       |       |       |
| Net  sales                                      |       | $                | 52,996     |         | $          | 7,922       |       | $          | 2,265      |   | $ | 63,183 |   |
| Depreciation  and amortization                  |       | $                | 2,660      |         | $          | 937         |       | $          | 108        |   | $ | 3,705 |   |
| Income  from operations                         |       | $                | 9,815      |         | $          | 616         |       | $          | 585        |   | $ | 11,016 |   |
| Equity  in earnings of joint ventures           |       | $                | —     |         | $          | 273         |       | $          | —     |   | 273 |   |
| Unallocated  amounts:                           |       |             |       |         |       |        |       |       |       |
| Stock-based  compensation                       |       |             |       |         |       |        |       | (879       | )          |
| Other  income                                   |       |             |       |         |       |        |       | 189        |       |
| Interest  expense                               |       |             |       |         |       |        |       | (1,471     | )          |
| Interest  income                                |       |             |       |         |       |        |       | 99         |       |
|                                            |       |             |       |         |       |        |       |       |       |
| Consolidated  income before income taxes        |       |             |       |         |       |        |       | $          | 9,227      |   |

 
| ** **                                    | ** ** | **Explosive**    | ** ** | ** **   | ** ** | ** **  | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|------------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                    | ** ** | **Metalworking** | ** ** | **Oilfield** | ** ** | **AMK**     | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Group**        | ** ** | **Products** | ** ** | **Welding** | ** ** | **Total**  | ** ** |
| For  the six months ended June 30, 2009: |       |             |       |         |       |        |       |       |       |
| Net  sales                                    |       | $                | 75,076     |         | $          | 8,048       |       | $          | 4,454      |   | $ | 87,578 |   |
| Depreciation  and amortization                |       | $                | 2,925      |         | $          | 1,704       |       | $          | 228        |   | $ | 4,857 |   |
| Income  from operations                       |       | $                | 14,012     |         | $          | (1,600      | )          | $          | 681        |   | $ | 13,093 |   |
| Equity  in earnings of joint ventures         |       | $                | —     |         | $          | 79          |       | $          | —     |   | 79 |   |
| Unallocated  amounts:                         |       |             |       |         |       |        |       |       |       |
| Stock-based  compensation                     |       |             |       |         |       |        |       | (1,760     | )          |
| Other  income                                 |       |             |       |         |       |        |       | 74         |       |
| Interest  expense                             |       |             |       |         |       |        |       | (1,769     | )          |
| Interest  income                              |       |             |       |         |       |        |       | 104        |       |
|                                          |       |             |       |         |       |        |       |       |       |
| Consolidated  income before income taxes      |       |             |       |         |       |        |       | $          | 9,821      |   |

 
| ** **                                    | ** ** | **Explosive**    | ** ** | ** **   | ** ** | ** **  | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|------------------|------------|--------------|------------|-------------|------------|------------|------------|
| ** **                                    | ** ** | **Metalworking** | ** ** | **Oilfield** | ** ** | **AMK**     | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Group**        | ** ** | **Products** | ** ** | **Welding** | ** ** | **Total**  | ** ** |
| For  the six months ended June 30, 2008: |       |             |       |         |       |        |       |       |       |
| Net  sales                                    |       | $                | 104,638    |         | $          | 12,373      |       | $          | 4,565      |   | $ | 121,576 |   |
| Depreciation  and amortization                |       | $                | 5,044      |         | $          | 1,919       |       | $          | 216        |   | $ | 7,179 |   |
| Income  from operations                       |       | $                | 19,799     |         | $          | 50          |       | $          | 1,222      |   | $ | 21,071 |   |
| Equity  in earnings of joint ventures         |       | $                | —     |         | $          | 289         |       | $          | —     |   | 289 |   |
| Unallocated  amounts:                         |       |             |       |         |       |        |       |       |       |
| Stock-based  compensation                     |       |             |       |         |       |        |       | (1,543     | )          |
| Other  income                                 |       |             |       |         |       |        |       | 41         |       |
| Interest  expense                             |       |             |       |         |       |        |       | (2,734     | )          |
| Interest  income                              |       |             |       |         |       |        |       | 323        |       |
|                                          |       |             |       |         |       |        |       |       |       |
| Consolidated  income before income taxes      |       |             |       |         |       |        |       | $          | 17,447     |   |

 

**Duringthe three months ended June 30, 2009, sales to one customer representedapproximately $3,912 (10.3%) of total net sales.  During the six months ended June 30,2009, no sales to any one customer accounted for more than 10% of totalsales.  During the three and six monthsended June 30, 2008, no sales to any one customer accounted for more than10% of total net sales.**

 

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**8.         COMPREHENSIVE INCOME**

 

**TheCompany**’s comprehensive income for the three and sixmonths ended June 30, 2009 and 2008 was as follows:

** **
| ** **                                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                           | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                           | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Net income for the period                            |       | $                      | 1,515      |                 | $          | 6,210 |   | $ | 6,432 |   | $ | 11,458 |   |
| Interest rate swap valuation adjustment, net of  tax |       | 160                    |       | 195                  |       | 197 |   | (90 | ) |
| Foreign currency translation adjustment              |       | 5,722                  |       | (148                 | )          | (196 | ) | 7,109 |   |
|                                                 |       |                   |       |                 |       |   |   |   |   |
| Comprehensive income                                 |       | $                      | 7,397      |                 | $          | 6,257 |   | $ | 6,433 |   | $ | 18,477 |   |

** **

Othercumulative comprehensive loss as of June 30, 2009 and December 31,2008 consisted of the following:

 
| ** **                                                                          | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                          | ** ** | **2009**          | ** ** | **2008**              | ** ** |
| Currency translation adjustment                                                     |       | $                 | (1,539     | )                     | $          | (1,343 | ) |
| Interest rate swap valuation adjustment, net of  tax of $398 and $520, respectively |       | (689              | )          | (886                  | )          |
|                                                                                |       |              |       |                  |       |
|                                                                                |       | $                 | (2,228     | )                     | $          | (2,229 | ) |

 

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**ITEM 2.        Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

The following discussion should be read in conjunction with ourhistorical consolidated financial statements and notes, as well as the selectedhistorical consolidated financial data that are included in the Company’sAnnual Report filed on Form 10-K for the year ended December 31,2008.

 

Unless statedotherwise, all dollar figures in this discussion are presented in thousands(000’s).

 

**Executive Overview**

 

Our business isorganized into three segments:  ExplosiveMetalworking, Oilfield Products, and AMK Welding.  For the six months ended June 30, 2009,Explosive Metalworking accounted for 86% of our net sales and 107% of ourincome from continuing operations before consideration of stock-basedcompensation expense, which is not allocated to our business segments.  Our Oilfield Products and AMK Weldingsegments accounted for 9% and 5%, respectively, of our first half 2009 netsales.

 

Our net sales for thesix months ended June 30, 2009 decreased by $33,998 (28.0%) compared tothe first six months of 2008, reflecting year-to-year net sales decreases of$29,562 (28.3%), $4,325 (35.0%), and $111 (2.4%) for our ExplosiveMetalworking, Oilfield Products, and AMK Welding segments, respectively.  The sales decrease of approximately $34million includes a sales volume decrease of approximately $26.4 million and anunfavorable foreign exchange translation adjustment of approximately $7.6million on our European sales relating to the increased value of the U.S.dollar against the Euro.  Income fromoperations decreased 42% to $11,333 in the first six months of 2009 from$19,528 in the first six months of 2008. This $8,195 decrease reflects declines in Explosive Metalworking’s,Oilfield Products’, and AMK Welding’s operating income of $5,787, $1,650, and$541, respectively, and a $217 increase in stock-based compensationexpense.  Our net income decreased by43.9% to $6,432 for the six months ended June 30, 2009 from $11,458 in thesame period of 2008.

 

*Impact of Current EconomicSituation on the Company*

 

TheCompany was only minimally impacted in 2008 by the global economicslowdown.    However, during the firsthalf of 2009, we have seen a significant slowdown in Explosive Metalworkingsales to some of the markets we serve.  The explosion-weld clad plate market isdependent upon sales of products for use by customers in a limited number ofheavy industries, including oil and gas, alternative energy, chemicals andpetrochemicals, hydrometallurgy, aluminum production, shipbuilding, powergeneration, and industrial refrigeration. These industries tend to be cyclical in nature and the current worldwideeconomic downturn has affected many of these markets.    Despite the slowdown we have already seenin certain sectors, including chemical, petrochemical and hydrometallurgy,quoting activity in other end markets remains healthy and we continue to trackan extensive list of large infrastructure projects. While timing of new orderinflow remains difficult to predict, we believe that our Explosive Metalworkingsegment is well-positioned to benefit as global economic conditions improve.

 

Asa result of the 28% decline in our net sales during the first half of 2009 andthe decrease in our Explosive Metalworking backlog from $97,247 at December 31,2008 to $57,090 at June 30, 2009, we now expect our consolidated net salesin 2009 to decrease approximately 28% to 32% (previous guidance was for adecrease of 17% to 23%) from the amount we achieved in 2008.  

 

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In light of theslowdown in order inflow that we are experiencing, we have deferred some of ourprevious planned capital expenditures and are continuing to carefully manageexpenses.  We generated cash flow fromoperations of $12,371 during the first half of 2009 and expect to generate positivecash flow from operations during the second half of 2009.

 

*Net sales*

 

ExplosiveMetalworking’s revenues are generated principally from sales of clad metalplates and sales of transition joints, which are made from clad plates, tocustomers that fabricate industrial equipment for various industries, includingoil and gas, petrochemicals, alternative energy, hydrometallurgy, aluminumproduction, shipbuilding, power generation, industrial refrigeration, andsimilar industries.  While a largeportion of the demand for our clad metal products is driven by new plantconstruction and large plant expansion projects, maintenance and retrofitprojects at existing chemical processing, petrochemical processing, oilrefining, and aluminum smelting facilities also account for a significantportion of total demand.

 

OilfieldProducts’ revenues are generated principally from sales of shaped charges,detonators and detonating cord, bi-directional boosters and perforating guns tocustomers who perform the perforation of oil and gas wells and from sales ofseismic products to customers involved in oil and gas exploration activities.

 

AMKWelding’s revenues are generated from welding, heat treatment, and inspectionservices that are provided with respect to customer-supplied parts forcustomers primarily involved in the power generation industry and aircraftengine markets.

 

*Gross profit and cost of productssold*

 

Costof products sold for Explosive Metalworking include the cost of metals andalloys used to manufacture clad metal plates, the cost of explosives, employeecompensation and benefits, freight, outside processing costs, depreciation ofmanufacturing facilities and equipment, manufacturing supplies, and othermanufacturing overhead expenses.

 

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

 

AMKWelding’s cost of products sold consists principally of employee compensationand benefits, welding supplies (wire and gas), depreciation of manufacturingfacilities and equipment, outside services, and other manufacturing overheadexpenses.

 

*Income taxes*

 

Our effectiveincome tax rate increased slightly to 34.5% for the first half of 2009 from34.3% for the same period of 2008.  Goingforward, based upon existing tax regulations and current federal, state andforeign statutory tax rates, we expect our full year 2009 effective tax rate onour projected consolidated pre-tax income to range between 34% and 35%.

 

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* *

*Backlog*

 

Weuse backlog as a primary means of measuring the immediate outlook for ourbusiness.  We define “backlog” at anygiven point in time as consisting of all firm, unfulfilled purchase orders andcommitments at that time.  Generallyspeaking, we expect to fill most backlog orders within the following 12months.  From experience, most firmpurchase orders and commitments are realized.

 

Our backlogwith respect to the Explosive Metalworking segment decreased to $57,090 at June 30,2009 from $97,247 at December 31, 2008 and $74,174 at March 31,2009.  As a result of the lower salesthat we reported during the first half of the 2009 and this significant declinein backlog that reflects a slow down in new order inflow during the first halfof year, we are now forecasting that our consolidated net sales for fiscal 2009will decline approximately 28% to 32% from those reported in fiscal 2008.  We anticipate this sales decline because ofuncertainty associated with current global economic conditions, the slowdown wehave already seen in the chemical, petrochemical, and hydrometallurgy sectors,and the difficulty in predicting the timing of large orders that we continue toquote.

 

**Three and Six Months Ended June 30, 2009 Comparedto Three and Six Months Ended June 30, 2008**

 

*Net sales*

 
| ** ** | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** ** | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** ** | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Net sales  |       | $                      | 37,819     |       | $          | 63,183         |       | $ | (25,364 | ) | (40.1 | )% |
|            |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** ** | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** ** | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** ** | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Net sales  |       | $                    | 87,578     |       | $          | 121,576        |       | $ | (33,998 | ) | (28.0 | )% |
|            |            |                      |            |            |            |                |            |  |  |  |  |  |

 

Net sales for the second quarter of 2009decreased 40.1% to $37,819 from $63,183 in the second quarter of 2008.  Explosive Metalworking sales decreased 40.4%to $31,604 in the three months ended June 30, 2009 (84% of total sales)from $52,996 in the same period of 2008 (84% of total sales).  The decrease in Explosive Metalworking salesreflects a business slowdown in several of the industries that this businesssegment serves and includes approximately $3.0 million of unfavorable foreignexchange translation adjustments.

 

Oilfield Products contributed $4,014 tosecond quarter 2009 sales (10% of total sales), which represents a 49.3%decrease from sales of $7,922 in the second quarter of 2008 (12% of totalsales).  The $3,908 decline in salesreflects a significant volume decrease as well as approximately $1.0 million inunfavorable foreign exchange adjustments.

 

AMK Welding contributed$2,201 to second quarter 2009 sales (6% of total sales), which represents a2.8% decrease from sales of $2,265 in the second quarter of 2008 (4% of totalsales).

 

Net sales for the first half of 2009decreased 28.0% to $87,578 from $121,576 in the first half of 2008.  Explosive Metalworking sales decreased 28.3%to $75,076 in the six months ended June 30, 2009 (86% of total sales) from$104,638 in the same period of 2008 (86% of total sales).  The decrease in Explosive Metalworking salesreflects a business slowdown in several of the 

 

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industries that this business segment serves andincludes approximately $6.0 million of unfavorable foreign exchange translationadjustments.

 

Oilfield Products contributed $8,048 tofirst half of 2009 sales (9% of total sales), which represents a 35.0% decreasefrom sales of $12,373 in the first half of 2008 (10% of total sales).  The $4,325 decline in sales reflects both avolume decrease and a negative impact of approximately $1.6 million fromunfavorable foreign exchange adjustments.

 

AMK Welding contributed$4,454 to first half of 2009 sales (5% of total sales), which represents a 2.4%decrease from sales of $4,565 in the first half of 2008 (4% of total sales).

 

*Gross profit*

 
| ** **                            | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|---------------------------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **                            | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                            | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Gross profit                          |       | $                      | 9,154      |       | $          | 19,049         |       | $ | (9,895 | ) | (51.9 | )% |
| Consolidated gross profit margin rate |       | 24.2                   | %          | 30.1       | %          |           |       |   |   |
|                                       |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** **                            | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|---------------------------------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** **                            | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                            | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Gross profit                          |       | $                    | 24,482     |       | $          | 36,760         |       | $ | (12,278 | ) | (33.4 | )% |
| Consolidated gross profit margin rate |       | 28.0                 | %          | 30.2       | %          |           |       |   |   |
|                                       |            |                      |            |            |            |                |            |  |  |  |  |  |

 

Gross profit decreased by 51.9% to $9,154 forthe three months ended June 30, 2009 from $19,049 for the three monthsended June 30, 2008. Our second quarter 2009 consolidated gross profitmargin rate decreased to 24.2% from 30.1% in the second quarter of 2008.  For the six months ended June 30, 2009,gross profit decreased to $24,482 from $36,760 for the same period of2008.  Our year to date consolidatedgross profit margin rate decreased to 28.0% from 30.2% for the first six monthsof 2008.

 

The gross profit margin rate for ExplosiveMetalworking decreased from 29.7% in the second quarter of 2008 to 25.5% in thesecond quarter of 2009.  The decreasedsecond quarter 2009 gross profit margin rate for Explosive Metalworking relatesentirely to our European cladding operations where the gross margin rate forthe quarter was 37% lower than the gross margin rate reported in the secondquarter of 2008 on a year to year sales decline of 35%.  Our U.S. clad division was able to report aslightly higher gross margin rate in the second quarter of 2009 versus thecomparable period of 2008 despite a 45% drop in sales.  Our year to date gross profit margin rate forExplosive Metalworking decreased to 29.2% from 30.2%.  Historically, gross margins for our Europeanexplosion welding divisions have been lower than those reported by our U.S.division due to less efficient fixed manufacturing cost structures associatedwith our smaller European facilities. The gap between our U.S. and European gross margins has widened this yearas a result of the sales declines we have experienced and a more competitivepricing environment in certain of the markets served by our Europeandivisions.  We are taking steps to reducefixed manufacturing overhead costs at all of our facilities but the benefit ofthese actions will not be fully reflected in our gross margin performance until2010 and will likely be muted by the expected continuation of a verycompetitive pricing environment.  As hasbeen the case historically, we expect to see continued fluctuations inExplosive Metalworking’s quarterly gross margin rates during the remainder of2009 that result from anticipated fluctuations in quarterly sales volume andchanges in product mix. Due largely to the expected decline in sales during the

 

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second half of2009 from those reported in the first half of the year and resultant lessfavorable absorption of fixed manufacturing overhead expenses, we currentlyexpect second half 2009 gross margins for Explosive Metalworking to be in arange of 21% to 23% and full year gross margins to be in a range of 25% to 27%.

 

Oilfield Products reported a gross profit marginrate of 17.7% for the second quarter of 2009 compared to a gross profit marginrate of 33.6% for the second quarter of 2008. Oilfield Products reported a gross profit margin rate of 21.2% for thefirst half of 2009 compared to a gross profit margin rate of 30.6% for thefirst half of 2008. The large decrease in Oilfield Products’ second quarter andfirst half gross margin relate principally to second quarter and year to datesales declines of 49.3% and 35.0%, respectively, and resultant less favorable absorptionof fixed manufacturing overhead expenses but also include the impact ofnon-recurring costs associated with the relocation of certain productionactivities during the second quarter and changes in product/customer mix. Weexpect incremental improvement in this segment’s quarterly sales and grossmargin performance during the third and fourth quarters of 2009 and expectOilfield Products to report a gross margin in the range of 28% to 30% for thefull year 2009.

 

The gross profit margin rate for AMK Weldingdecreased to 23.7% in the second quarter of 2009 from 34.3% in the secondquarter of 2008. The gross profit margin rate for AMK Welding decreased to24.9% in the first six months of 2009 from 35.3% in the first six months of2008.  The decrease in AMK Welding’sgross margin relates principally to an increase in manufacturing overheadassociated with internal and external engineering and product developmentexpenses as AMK seeks to expand both its service offerings and customer base.  We expect modest improvement in AMK Welding’ssales during the second half of 2009 from those reported in the first half ofthe year and expect this segment to report a full year gross margin in therange of 28% to 30%.

 

*General and administrative expenses*

 
| ** **                                 | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|--------------------------------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **                                 | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                                 | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| General & administrative expenses |       | $                      | 3,043      |       | $          | 3,815          |       | $ | (772 | ) | (20.2 | )% |
| Percentage of net sales                    |       | 8.0                    | %          | 6.0        | %          |           |       |   |   |
|                                            |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** **                                 | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|--------------------------------------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** **                                 | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                                 | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| General & administrative expenses |       | $                    | 6,569      |       | $          | 6,933          |       | $ | (364 | ) | (5.3 | )% |
| Percentage of net sales                    |       | 7.5                  | %          | 5.7        | %          |           |       |   |   |
|                                            |            |                      |            |            |            |                |            |  |  |  |  |  |

 

General and administrative expensesdecreased by $772, or 20.2%, to $3,043 in the second quarter of 2009 from$3,815 in the second quarter of 2008. This decrease includes a $224 decrease in accrued incentivecompensation, a $105 decrease in salary expense associated principally withincreased utilization of accrued vacation time carried over from prior yearsthat more than offset the impact of annual salary adjustments, a decrease of$76 in legal, audit and consulting expenses, and a net decrease of $367 in allother expenses categories that reflects the impact of tight controls overdiscretionary spending as well as certain non-recurring professional servicefees that we incurred in 2008 relating to the integration of DYNAenergetics.The $772 decrease in total general and administrative expenses also reflectsthe positive effect of $230 in 

 

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favorableforeign exchange translation adjustments. As a percentage of net sales, general and administrative expensesincreased to 8.0% in the second quarter of 2009 from 6.0% in the second quarterof 2008.

 

General and administrative expenses forthe six months ended June 30, 2009 totaled $6,569 compared to $6,933 forthe same period of 2008. General and administrative expenses of our Europeandivisions decreased by $266, or 8.7%, as a result of a 5.5% increase in netexpenses as measured in Euros being offset by $393 in favorable foreignexchange translation adjustments.  OurU.S. general and administrative expenses decreased by $98 or 2.5%.  As a percentage of net sales, general andadministrative expenses increased to 7.5% in the first half of 2009 from 5.7%in the first half of 2008.

 

*Sellingexpenses*

 
| ** **              | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|-------------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **              | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **              | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Selling expenses        |       | $                      | 1,840      |       | $          | 2,633          |       | $ | (793 | ) | (30.1 | )% |
| Percentage of net sales |       | 4.9                    | %          | 4.2        | %          |           |       |   |   |
|                         |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** **              | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|-------------------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** **              | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **              | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Selling expenses        |       | $                    | 4,164      |       | $          | 5,474          |       | $ | (1,310 | ) | (23.9 | )% |
| Percentage of net sales |       | 4.8                  | %          | 4.5        | %          |           |       |   |   |
|                         |            |                      |            |            |            |                |            |  |  |  |  |  |

 

Sellingexpenses, which include sales commissions of $425 in 2009 and $598 in 2008,decreased by 30.1% to $1,840 in the second quarter of 2009 from $2,633 in thesecond quarter of 2008.  The $793decrease in our consolidated selling expenses includes decreased sellingexpenses of $427 and $366 at our European and U.S. divisions,respectively.  The decrease in Europeanselling expenses relates principally to staff reductions within our Europeanexplosion welding divisions and also includes $174 of favorable foreignexchange translation adjustments. The $366 decrease in our U.S. sellingexpenses reflects decreased sales commissions of $174, a $90 decrease in baddebt expense, a $93 decrease in accrued incentive compensation and a $90reduction in business development, advertising and promotional expenses thatwere partially offset by a $64 increase in salary expense and a net increase of$17 in other spending categories. As a percentage of net sales, sellingexpenses increased to 4.9% in the second quarter of 2009 from 4.2% in thesecond quarter of 2008.

 

Selling expenses decreasedby 23.9% to $4,164 in the first half of 2009 from $5,474 in the same period of2008.  These selling expenses includesales commissions of $808 and $1,052 for 2009 and 2008, respectively.  The $1,310 decrease in ourconsolidated selling expenses includes decreased year to date selling expensesof $1,101 and $209 at our European and U.S. divisions, respectively. Thedecrease in European selling expenses relates principally to staff reductionswithin our European explosion welding divisions and non-recurring expenses inthe first quarter of 2008 relating to the termination of contracts with formersales agents and also includes $396 of favorable foreign exchange translation adjustments.The $209 decrease in our U.S.selling expenses reflects decreased sales commissions of $67, a $52decrease in bad debt expense, a $98 decrease in accrued incentive compensation,a $32 decrease in travel expenses and a $174 

 

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reduction inbusiness development, advertising and promotional expenses that were partiallyoffset by a $139 increase in salary expense, a $47 increase in stock-basedcompensation and a net increase of $28 in other spending categories.  As a percentage of net sales, sellingexpenses increased to 4.8% in the first half of 2009 from 4.5% in the firsthalf of 2008.

 

*Amortizationexpenses*

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **                                           | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                                           | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Amortization expense of purchased intangible  assets |       | $                      | 1,232      |       | $          | 2,464          |       | $ | (1,232 | ) | (50.0 | )% |
| Percentage of net sales                              |       | 3.3                    | %          | 3.9        | %          |           |       |   |   |
|                                                      |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** **                                           | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|------------------------------------------------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** **                                           | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                                           | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Amortization expense of purchased intangible  assets |       | $                    | 2,416      |       | $          | 4,825          |       | $ | (2,409 | ) | (49.9 | )% |
| Percentage of net sales                              |       | 2.8                  | %          | 4.0        | %          |           |       |   |   |
|                                                      |            |                      |            |            |            |                |            |  |  |  |  |  |

 

Amortization expense relates entirely to the amortization of valuesassigned to intangible assets in connection with the November 15, 2007acquisition of DYNAenergetics. Amortization expense for the three months ended June 30, 2009includes $854, $285 and $93 relating to values assigned to customerrelationships, core technology and trademarks/trade names, respectively.  Amortization expense for the three monthsended June 30, 2008 includes $1,050, $981, $327 and $106 relating tovalues assigned to order backlog, customer relationships, core technology andtrademarks/trade names, respectively.

 

Amortization expense for the six months ended June 30, 2009includes $1,675, $559 and $182 relating to values assigned to customerrelationships, core technology and trademarks/trade names, respectively.  Amortization expense for the six months endedJune 30, 2008 includes $2,055, $1,921, $640 and $209 relating to valuesassigned to order backlog, customer relationships, core technology andtrademarks/trade names, respectively. The value assigned to order backlog was fully amortized during the firstsix months of 2008.  Amortization expensevariances for the other categories of purchased intangible assets relate toforeign exchange translation adjustments. Amortization expense for 2009 (as measured in Euros) is expected toapproximate €905 per quarter for the remaining two quarters of 2009 and isexpected to remain at this level for most of calendar year 2010.

 

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*Operatingincome*

 
| ** **       | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **       | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **       | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Operating income |       | $                      | 3,039      |       | $          | 10,137         |       | $ | (7,098 | ) | (70.0 | )% |
|                  |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** **       | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|------------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** **       | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **       | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Operating income |       | $                    | 11,333     |       | $          | 19,528         |       | $ | (8,195 | ) | (42.0 | )% |
|                  |            |                      |            |            |            |                |            |  |  |  |  |  |

 

Income from operations (“operating income”)decreased by 70% to $3,039 in the second quarter of 2009 from $10,137 in thesecond quarter of 2008.  For the firstsix months of 2009 operating income decreased by 42% to $11,333 from $19,528for the first six months of 2008.

 

Explosive Metalworking reported operatingincome of $4,601 in the second quarter of 2009 as compared to $9,815 in thesecond quarter of 2008.  This 53.1%decrease in Explosive Metalworking operating income is largely attributable tothe 40.4% decrease in net sales discussed above.  Explosive Metalworking reported operatingincome of $14,012 in the first half of 2009 as compared to $19,799 in the firsthalf of 2008.  This 29.2% decrease inExplosive Metalworking operating income is largely attributable to the 28.3%decrease in net sales discussed above.

 

Oilfield Products reported an operatingloss of $906 for the second quarter of 2009 as compared to operating income of $616for the second quarter of 2008.  For thefirst half of 2009, Oilfield Products reported an operating loss of $1,600 ascompared to operating income of $50 for the first half of 2008.

 

AMK Welding reported operating income of$306 for the three months ended June 30, 2009 as compared to $585 for thesame period of 2008.  AMK Weldingreported operating income of $681 for the first six months of 2009 as comparedto $1,222 for the fist six months of 2008.

 

Operating income for the three and sixmonths ended June 30, 2009 includes $962 and $1,760, respectively, ofstock-based compensation compared to stock-based compensation expense for thethree and six months ended June 30, 2008 of $879 and $1,543,respectively.  This expense is notallocated to our business segments and thus is not included in the above firstquarter operating income or loss totals for Explosive Metalworking, OilfieldProducts and AMK Welding.

 

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* *

*Interest income (expense), net*

 
| ** **                     | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|--------------------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **                     | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                     | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Interest income (expense), net |       | $                      | (829       | )          | $          | (1,372         | )          | $ | 543 |   | (39.6 | )% |
|                                |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** **                     | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|--------------------------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** **                     | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **                     | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Interest income (expense), net |       | $                    | (1,665     | )          | $          | (2,411         | )          | $ | 746 |   | (30.9 | )% |
|                                |            |                      |            |            |            |                |            |  |  |  |  |  |

 

We recordednet interest expense of $829 in the three months ended June 30, 2009compared to net interest expense of $1,372 in the same time period of2008.  We recorded net interest expenseof $1,665 in the first half of 2009 compared to net interest expense of $2,411in the first half of 2008.  This decreasein net interest expense reflects term debt reductions and lower interest rates.

 

*Income tax provision*
| ** **           | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|----------------------|------------|------------------------|------------|------------|------------|----------------|------------|
| ** **           | ** ** | **June 30,**      | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **           | ** ** | **2009**               | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Income tax provision |       | $                      | 1,013      |       | $          | 3,017          |       | $ | (2,004 | ) | (66.4 | )% |
| Effective tax rate   |       | 40.1                   | %          | 32.7       | %          |           |       |   |   |
|                      |            |                        |            |            |            |                |            |  |  |  |  |  |

 
| ** **           | ** ** | **Six Months Ended** | ** ** | ** ** | ** ** | ** **     | ** ** |
|----------------------|------------|----------------------|------------|------------|------------|----------------|------------|
| ** **           | ** ** | **June 30,**    | ** ** | ** ** | ** ** | **Percentage** | ** ** |
| ** **           | ** ** | **2009**             | ** ** | **2008**   | ** ** | **Change**     | ** ** | **Change** | ** ** |
| Income tax provision |       | $                    | 3,389      |       | $          | 5,989          |       | $ | (2,600 | ) | (43.4 | )% |
| Effective tax rate   |       | 34.5                 | %          | 34.3       | %          |           |       |   |   |
|                      |            |                      |            |            |            |                |            |  |  |  |  |  |

 

We recorded an income tax provision of $1,013 in the second quarter of2009 compared to $3,017 in the second quarter of 2008.  The effective tax rate increased to 40.1% inthe second quarter of 2009 from 32.7% in the second quarter of 2008.  The income tax provisions for the threemonths ended June 30, 2009 and 2008 include $1,054 and $2,609,respectively, related to U.S. taxes, with the remainder relating to foreigntaxes and foreign tax benefits associated with the operations of Nobelclad andits Swedish subsidiary, Nitro Metall, as well as the DYNAenergetics and Dynaplatdivisions and related holding companies in Germany and Luxembourg.

 

For the six month ended June 30, 2009, we recorded and income taxprovision of $3,389 compared to $5,989 in the same period of 2008.  The effective tax rate increased to 34.5% in thefirst half of 2009 from 34.3% in the first half of 2008.  The income tax provisions for the six monthsended June 30, 2009 and 2008 include $3,176 and $5,560, respectively,related to U.S. taxes, with the remainder relating to foreign taxes and foreigntax benefits associated with the operations of Nobelclad and its Swedishsubsidiary, Nitro Metall, as well as the DYNAenergetics and Dynaplat divisionsand related holding companies in Germany and Luxembourg.  Our blended 

 

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effective tax rate for 2009 is expected to range from 34% to 35% basedon projected consolidated pre-tax income.

 

# **Liquidity and Capital Resources**

# ** **

**We havehistorically financed our operations from a combination of internally generatedcash flow, revolving credit borrowings, various long-term debt arrangements,and the issuance of common stock.  Inconnection with the acquisition of DYNAenergetics, we entered into a five-yearsyndicated credit agreement.  The creditagreement, which provided term loans of $45,000 and 14,000 Euros and revolvingcredit loan availability of $25,000 and 7,000 Euros, is through a syndicate ofseven banks.  The credit facility in theapproximate amount of $100,000 expires on November 16, 2012.  As of June 30, 2009, term loans of$37,756 and 11,746 Euros ($16,501) were outstanding under the credit facilityand an additional $1,896 was outstanding under term loan obligations ofDYNAenergetics.  We had no outstandingrevolving credit borrowings under our syndicated credit agreement as of June 30,2009 and had $151 outstanding under separate DYNAenergetics’ line of creditagreements as of that date.  While we hadapproximately $40,800 of unutilized revolving credit loan capacity  as of June 30, 2009  under our various credit facilities, future borrowings are subject tocompliance with financial covenants that could limit availability.**

** **

Webelieve that cash flow from operations and funds available under our currentcredit facilities and any future replacement thereof will be sufficient to fundthe working capital, debt service, and capital expenditure requirements of ourcurrent business operations for the foreseeable future.  Nevertheless, our ability to generatesufficient cash flows from operations will depend upon our success in executingour strategies. If we are unable to (i) realize sales from our backlog; (ii) securenew customer orders at attractive prices; and (iii) continue to implementcost-effective internal processes, our ability to meet cash requirementsthrough operating activities could be impacted. Furthermore, any restriction on the availability of borrowings under ourcredit facilities could negatively affect our ability to meet future cashrequirements.

 

*Debtand other contractual obligations and commitments*

 

**Our existingloan agreements include various covenants and restrictions, certain of whichrelate 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, use of cash for acquisitions, andmaintenance of specified financial ratios. As of June 30, 2009, we were in compliance with all financialcovenants and other provisions of our debt agreements.**

** **

The Company’s principal cash flows related to debt obligations and othercontractual obligations and commitments have not materially changed since December 31,2008.

 

***Cash flows fromoperating activities***

** **

Net cash flows providedby operating activities for the first half of 2009 totaled $12,371.  Significant sources of operating cash flowincluded net income of $6,432, non-cash depreciation and amortization expenseof $4,998, stock-based compensation of $1,760 and net positive changes invarious components of working capital in the amount of $214.  These sources of operating cash flow werepartially offset by a deferred income tax benefit of $954.  Net positive changes in working capitalincluded decreases in accounts receivable, inventories and prepaid expenses of$4,374, $2,475 and $1,540, respectively, and an increase in customer advancesof $1,029.  These positive changes inworking capital were almost entirely offset by decreases in accounts payableand accrued expenses of $4,407 and $4,797, respectively.

 

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Net cash flows providedby operating activities for the first half of 2008 totaled $11,813.  Significant sources of operating cash flowincluded net income of $11,458, non-cash depreciation and amortization expenseof $7,293 and stock-based compensation of $1,543.  These sources of operating cash flow werepartially offset by a deferred income tax benefit of $2,410, $289 for equity inearnings of joint ventures and net negative changes in various components ofworking capital in the amount of $5,782. Net negative changes in working capital included increases in prepaidexpenses of $844 and decreases in accounts payable, customer advances andaccrued expenses and other liabilities of $5,086, $2,859 and $3,347,respectively.  These negative changes inworking capital were partially offset by decreases in restricted cash, accountsreceivable and inventories of $386, $1,237 and $4,731, respectively.

 

*Cash flows from investingactivities*

 

Net cash flows used byinvesting activities for the first six months of 2009 totaled $2,208 andconsisted almost entirely of capital expenditures.

 

Net cash flows used byinvesting activities for the first six months of 2008 totaled $4,172 andconsisted almost entirely of capital expenditures.

 

*Cash flows from financingactivities*

 

Net cash flows used infinancing activities for the first half of 2009 were $3,835, which consistedprimarily of $3,885 in required prepayments of term loans under our syndicatedcredit agreement from excess cash flow that we generated in fiscal year 2008,$438 in principal payments on Nord LB term loans and payment on capital leaseobligations of $102.  These uses of cashflow were slightly offset by net borrowings on bank lines of credit of $143 and$373 in net proceeds from the issuance of common stock relating to the exerciseof stock options.

 

Net cash flows providedby financing activities for the first six months of 2008 were $11,145, whichconsisted primarily of net borrowings on bank lines of credit of $12,081 and$240 in net proceeds from the issuance of common stock relating to the exerciseof stock options.  These sources of cashflow were partially offset by a final principal payment on a term loan withFrench bank of $443, a $542 principal payment on a Nord LB term loan, paymentsof deferred debt issuance costs of $140 and payment on capital leaseobligations of $216.

 

*Payment of Dividends*

 

On June 8, 2009,our board of directors declared a quarterly cash dividend of $.04 per sharewhich was paid on July 15, 2009. The dividend totaled $513 and was payable to shareholders of record asof June 30, 2009. We paid an annual cash dividend in 2008 of $0.15 pershare.

 

We may continue to payquarterly dividends in the future subject to capital availability and periodicdeterminations that cash dividends are in compliance with our debt covenantsand are in the best interests of our stockholders, but we cannot assure youthat such payments will continue.  Futuredividends may be affected by, among other items, our views on potential futurecapital requirements, future business prospects, debt covenant compliance,changes in federal income tax laws, or any other factors that our board ofdirectors deems relevant.  Any decisionto pay cash dividends is and will continue to be at the discretion of board ofdirectors.

 

**CriticalAccounting Policies**

 

Ourhistorical consolidated financial statements and notes to our historicalconsolidated financial statements contain information that is pertinent to ourmanagement’s discussion and 

 

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analysis of financialcondition and results of operations. Preparation of financial statements in conformity with accountingprinciples generally accepted in the United States requires that our managementmake estimates, judgments and assumptions that affect the reported amounts ofassets, liabilities, revenues and expenses, and the disclosure of contingentassets and liabilities.  However, theaccounting principles used by us generally do not change our reported cashflows or liquidity.  Interpretation ofthe existing rules must be done and judgments made on how the specifics ofa given rule apply to us.

 

Inmanagement’s opinion, the more significant reporting areas impacted bymanagement’s judgments and estimates are revenue recognition, assetimpairments, inventory valuation and impact of foreign currency exchange raterisks.  Management’s judgments andestimates in these areas are based on information available from both internaland external sources, and actual results could differ from the estimates, asadditional information becomes known.  We believe the following to be our most critical accounting policies.

 

*Revenuerecognition*

 

**Sales of clad metal products andwelding services are generally based upon customer specifications set forth incustomer purchase orders and require us to provide certifications relative tometals used, services performed and the results of any non-destructive testingthat the customer has requested be performed. All issues of conformity of the product to specifications are resolvedbefore the product is shipped and billed. Products related to the oilfield products segment, which includedetonating cords, detonators, bi-directional boosters and shaped charges, aswell as, seismic related explosives and accessories, are standard innature.  In all cases, revenue isrecognized only when all four of the following criteria have been satisfied:persuasive evidence of an arrangement exists; the price is fixed ordeterminable; delivery has occurred; and collection is reasonably assured.  For contracts that require multipleshipments, revenue is recorded only for the units included in each individualshipment.  If, as a contract proceedstoward completion, projected total cost on an individual contract indicates aprobable loss, the Company will account for such anticipated loss.**

** **

*Assetimpairments*

 

Wereview our long-lived assets to be held and used by us for impairment wheneverevents or changes in circumstances indicate their carrying amount may not berecoverable. In so doing, we estimate the future net cash flows expected toresult from the use of these assets and their eventual disposition. If the sumof the expected future net cash flows (undiscounted and without interestcharges) is less than the carrying amount of these assets, an impairment lossis recognized to reduce the asset to its estimated fair value. Otherwise, animpairment loss is not recognized. Long-lived assets to be disposed of, if any, are reported at the lowerof carrying amount or fair value less costs to sell.

 

*BusinessCombinations*

 

Weaccounted for our business acquisition in accordance with the provisions ofSFAS No. 141, *Business Combinations*,using the purchase method of accounting. We allocated the total cost of theacquisition to the underlying net assets based on their respective estimatedfair values. As part of this allocation process, we identified and attributedvalues and estimated lives to the intangible assets acquired. Thesedeterminations involved significant estimates and assumptions regardingmultiple, highly subjective variables, including those with respect to futurecash flows, discount rates, asset lives, and the use of different valuationmodels and therefore required considerable judgment. Our estimates andassumptions were based, in part, on the availability of listed market prices orother transparent market data. These determinations affect the amount of 

 

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amortizationexpense recognized in future periods. We based our fair value estimates onassumptions we believe to be reasonable but are inherently uncertain.

 

EffectiveJanuary 1, 2009 we will account for business acquisitions in accordancewith SFAS No. 141 (Revised), *Business Combinations*(“SFAS 141R”).  SFAS 141R, which appliesprospectively to business acquisitions with a closing date following theeffective date, significantly changes the financial accounting and reporting ofbusiness combinations.

 

*Goodwilland Other Intangible Assets*

 

Wereview the carrying value of goodwill at least annually to assess impairmentbecause it is not amortized.  Additionally,we review the carrying value of any intangible asset or goodwill wheneverevents or changes in circumstances indicate that its carrying amount may not berecoverable. Examples of such events or changes in circumstances, many of whichare subjective in nature, include significant negative industry or economictrends, significant changes in the manner of our use of the acquired assets orour strategy, a significant decrease in the market value of the asset, and asignificant change in legal factors or in the business climate that couldaffect the value of the asset. We assess impairment by comparing the fair valueof an identifiable intangible asset or goodwill with its carrying value. Thedetermination of fair value involves significant management judgment asdescribed further below. Impairments are expensed when incurred. Specifically,we test for impairment as follows:

 

*Goodwill*

 

Inaccordance with Statement of Financial Accounting Standards No. 142, *Goodwill and Other Intangible Assets* (“SFAS 142”), we testgoodwill for impairment on a “reporting unit” level as defined by reference toSFAS No. 131, *Disclosures about Segmentsof an Enterprise and Related Information*, on at least an annualbasis. A reporting unit is a group of businesses (i) for which discretefinancial information is available and (ii) that have similar economiccharacteristics. We test goodwill for impairment using the following two-stepapproach:

 

Thefirst step is a comparison of each reporting unit’s fair value to its carryingvalue. We estimate fair value using the best information available, includingmarket information and discounted cash flow projections, also referred to asthe income approach. The income approach uses a reporting unit’s projection ofestimated operating results and cash flows that is discounted using aweighted-average cost of capital that reflects current market conditions. Theprojections incorporate our best estimates of economic and market conditionsover the projected period including growth rates in sales and estimates offuture expected changes in operating margins and cash expenditures. Othersignificant estimates and assumptions include terminal value growth rates,future estimates of capital expenditures and changes in future working capitalrequirements.  We validate our estimatesof fair value under the income approach by comparing the values to fair valueestimates using a market approach.

 

Ifthe carrying value of the reporting unit is higher than its fair value, thereis an indication that impairment may exist, and the second step must beperformed to measure the amount of impairment loss.  In the second step, we allocate the fairvalue of the reporting unit to the assets and liabilities of the reporting unitas if it had just been acquired in a business combination and as if thepurchase price was equivalent to the fair value of the reporting unit.  The excess of the fair value of the reportingunit over the amounts assigned to its assets and liabilities is referred to asthe implied fair value of goodwill. We then compare that implied fair value ofthe reporting unit’s goodwill to the carrying value of that goodwill. If theimplied fair value is less than the carrying value, we recognize an impairmentloss for the excess.

 

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Ourimpairment testing in the fourth quarter of 2008 did not result in adetermination that any of our goodwill was impaired; however, the passingmargin of the first step of our goodwill impairment testing relative to theOilfield Products reporting unit as of December 31, 2008 was minimal(estimated fair value was less than 10% greater than the carrying value).  Future impairment is possible and will occurif (i) the unit’s operating results underperform what we have estimated or(ii) additional volatility of the capital markets cause us to raise the 16percent discount rate utilized in our discounted cash flow analysis or decreasethe multiples utilized in our market-based analysis.  We did not observe any indicators in thequarter ended June 30, 2009 that would necessitate interim impairmenttesting of goodwill.

 

Theuse of different estimates or assumptions within our discounted cash flow modelwhen determining the fair value of our reporting units or using methodologiesother than as described above could result in different values for reportingunits and could result in an impairment charge.

 

*Intangible assets subject to amortization*

 

Anintangible asset that is subject to amortization is reviewed when impairmentindicators are present in accordance with SFAS No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets*.We compare the expected undiscounted future operating cash flows associatedwith finite-lived assets to their respective carrying values to determine ifthe asset is fully recoverable. If the expected future operating cash flows arenot sufficient to recover the carrying value, we estimate the fair value of theasset. Impairment is recognized when the carrying amount of the asset is notrecoverable and when the carrying value exceeds fair value. The projected cashflows require several assumptions related to, among other things, relevantmarket factors, revenue growth, if any, and operating margins.

 

*Impactof foreign currency exchange rate risks*

 

Thefunctional currency for our foreign operations is the applicable local currencyfor each affiliate company. Assets and liabilities of foreign subsidiaries forwhich the functional currency is the local currency are translated at exchangerates in effect at period-end, and the statements of operations are translatedat the average exchange rates during the period.  Exchange rate fluctuations on translatingforeign currency financial statements into U.S. dollars that result inunrealized gains or losses are referred to as translation adjustments.Cumulative translation adjustments are recorded as a separate component ofstockholders’ equity and are included in other cumulative comprehensive income(loss). Transactions denominated in currencies other than the local currencyare recorded based on exchange rates at the time such transactions arise.Subsequent changes in exchange rates result in transaction gains and losses,which are reflected in income as unrealized (based on period-end translations)or realized upon settlement of the transactions. Cash flows from our operationsin foreign countries are translated at actual exchange rates when known, or atthe average rate for the period. As a result, amounts related to assets andliabilities reported in the consolidated statements of cash flows will notagree to changes in the corresponding balances in the consolidated balancesheets. The effects of exchange rate changes on cash balances held in foreigncurrencies are reported as a separate line item below cash flows from financingactivities.

 

*Incometaxes*

 

Weaccount for income taxes in accordance with Statement of Financial AccountingStandards No.  109, *Accounting for IncomeTaxes* (“SFAS 109”), which requires the recognition of deferred taxassets and deferred tax liabilities for the expected future income taxconsequences of transactions that have been included in our financialstatements but not our tax returns. Deferred tax assets and liabilities are determined based on income taxcredits and on the temporary differences between the Consolidated FinancialStatement basis and the tax basis of assets and

 

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liabilities usingenacted tax rates in effect for the year in which the differences are expectedto reverse.  We routinely evaluatedeferred tax assets to determine if they will, more likely than not, berecovered from future projected taxable income; if not, we record anappropriate valuation allowance.

 

**Recent Accounting Pronouncements**

 

**In December 2007,the FASB issued SFAS No. 141(R), *Business Combinations*and SFAS No. 160, *Accounting and Reportingof Noncontrolling Interest in Consolidated Financial Statements*, anamendment of ARB No. 51. These new standards significantly changed theaccounting for and reporting of business combination transactions andnoncontrolling (minority) interests in consolidated financial statements on January 1,2009 and were required to be adopted simultaneously.  The adoption of these standards in 2009 didnot have any impact on the Company’s results of operations or financialposition.**

** **

**In March 2008,the FASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities*.  SFAS 161requires additional disclosures related to the use of derivative instruments,the accounting for derivatives and how derivatives impact financial statementson January 1, 2009.  The adoption of SFAS No. 161 in 2009 didnot have any impact on the Company’s results of operations or financialposition.**

** **

In April 2009, the FASB issued FASB StaffPosition (“FSP”) FAS 107-1 and Accounting Principles Board Opinion (“APB”) 28-1, *InterimDisclosures about Fair Value of Financial**Instruments* (“FSP FAS107-1”). The FSP amends FAS 107, *Disclosures about Fair Value of Financial Instruments*, andAPB 28, *Interim Financial Reporting*, to requiredisclosures about fair value of financial instruments for interim financialstatements of publicly traded companies.  FSP FAS 107-1 is effective for interimreporting periods ending after June 15, 2009.  Theadoption of FSP FAS 107-1 in the second quarter of 2009 did not have any impact on theCompany’s results of operations or financial position.

 

In May 2009, the FASB issued SFAS No. 165,*Subsequent Events*. SFAS 165 is intendedto establish general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. Specifically, this standard sets forth theperiod after the balance sheet date during which management of a reportingentity should evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements, the circumstances underwhich an entity should recognize events or transactions occurring after thebalance sheet date in its financial statements, and the disclosures that anentity should make about events or transactions that occurred after the balancesheet date.  SFAS 165 is effective for financial statements issued forfiscal years and interim periods beginning after June 15, 2009 and will beapplied prospectively.  The Company hasadopted SFAS 165 in the periods ended June 30, 2009 and has evaluated forsubsequent events through July 31, 2009, the issuance date of the Company’sconsolidated financial statements.  Norecognized or non-recognized subsequent events were noted.

 

In June 2009, the FASB issued SFAS No. 168,The FASB Accounting Standards Codification and the Hierarchy of GenerallyAccepted Accounting Principles.  SFAS 168 will become the singlesource of authoritative nongovernmental U.S. generally accepted accountingprinciples (“GAAP”), superseding existing FASB, American Institute of CertifiedPublic Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and relatedaccounting literature.  SFAS 168 reorganizes the thousands of GAAPpronouncements into roughly 90 accounting topics and displays them using aconsistent structure.  Also included is relevant Securities andExchange

 

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Commission guidance organized using the same topicalstructure in separate sections.  SFAS 168 will be effective forfinancial statements issued for reporting periods that end after September 15,2009.  This will have an impact on the notes to the Company’s financialstatements since all future references to authoritative accounting literaturewill be references in accordance with SFAS 168.

 

**ITEM 3.**     Quantitativeand Qualitative Disclosure about Market Risk

** **

There have been no events that materially affect our quantitative andqualitative disclosure about market risk from that reported in our AnnualReport on Form 10-K for the year ended December 31, 2008.

 

**ITEM 4.****    ****Controls and Procedures**

 

The Company maintains disclosure controls andprocedures that are designed to ensure that information required to bedisclosed in the Company’s Exchange Act reports is accurately recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms, and that such information is accumulated and communicatedto the Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure.  In designing and evaluatingthe disclosure controls and procedures, management recognized that any controlsand procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, andmanagement necessarily applied its judgment in evaluating the cost-benefit relationshipof possible controls and procedures.

 

As of June 30, 2009, the Company carried out anevaluation, under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)).  Based on that evaluation, the Company’s ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures were effective.  There have been no changes in the Company’sinternal controls during the quarter ended June 30, 2009 or in otherfactors that could materially affect the Company’s internal controls overfinancial reporting.

 

The Company’s management, including the Company’sChief Executive Officer and Chief Financial Officer, does not expect that theCompany’s disclosure controls or its internal controls will prevent all errorsand all fraud.  Further, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs.  As a result of the inherent limitations inall control systems, no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any, within the Company havebeen detected.  These inherentlimitations include the realities that judgments in decision-making can be faulty,and that breakdowns can occur because of simple errors or mistakes.  As a result of the inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand not be detected.  Accordingly, theCompany’s disclosure controls and procedures are designed to providereasonable, not absolute, assurance that the disclosure controls and proceduresare met.

 

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**Part II - OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

None.

 

**Item 1A. RiskFactors**

 

Our 2008 Annual Report on Form 10-Kincludes a detailed discussion of our risk factors.  The information presented below updates andshould be read in conjunction with the risk factors and information disclosedin our Form 10-K.

 

**We have seen arecent slowdown in some of our markets and anticipate sales will decline during2009.**

** **

During thefourth quarter of 2008 and first half of 2009, we have seen a slowdown in ourExplosive Metalworking sales to some of the markets we serve and anticipate oursales to decrease by approximately 28% to 32% for the full year in 2009 fromthe amount we achieved in 2008.  Theexplosion-weld cladding market is dependent upon sales of products for use by customersin a limited number of heavy industries, including oil and gas, alternativeenergy, chemicals and petrochemicals, hydrometallurgy, aluminum production,shipbuilding, power generation, and industrial refrigeration.  These industries tend to be cyclical innature and the current worldwide economic downturn has affected many of thesemarkets.  Indeed, we have already seen aslowdown in the chemical, petrochemical and hydrometallurgy sectors.  An economic slowdown in one or all of theseindustries—whether due to traditional cyclicality, general economic conditionsor other factors—could impact capital expenditures within the industry.  If demand from such industries were todecline or to experience reduced growth rates, our sales would be expected to beaffected proportionately, which may have a material adverse effect on ourbusiness, financial condition, and results of operations.

 

**Ourbacklog figures may not accurately predict future sales.**

** **

We define “backlog” at any givenpoint in time to consist of all firm, unfulfilled purchase orders andcommitments at that time.  Generallyspeaking, we expect to fill most items of backlog within the following 12months.  However, since orders may berescheduled or canceled, and a significant portion of our net sales is derivedfrom a small number of customers, backlog is not necessarily indicative offuture sales levels.  Moreover, we cannotbe sure of when during the future 12-month period we will be able to recognizerevenue corresponding to our backlog; nor can we be certain that revenuescorresponding to our backlog will not fall into periods beyond the 12-monthhorizon.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds**

 

None.

 

**Item 3. Defaults Upon Senior Securities**

 

None.

 

**Item 4. Submission of Matters to a Vote of Security Holders**

 

The Company’s Annual Meeting of Stockholders was held on June 4,2009.  At the Annual Meeting, thestockholders of the Company (i) elected the persons listed below to serveas

 

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directors of the Company until the 2010 Annual Meeting of Stockholders (ii) approvedthe Company’s Short Term Incentive Plan and (iii) ratified the appointmentof Ernst & Young LLP as the Company’s independent registered publicaccounting firm for the fiscal year ending December 31, 2009.

 

TheCompany had 12,751,127 shares of Common Stock outstanding as of April 13,2009, the record date for the Annual Meeting. At the Annual Meeting, holders of a total of 11,511,637 shares of CommonStock were present in person or represented by proxy.  The following sets forth informationregarding the results of the voting at the Annual Meeting:

 

Proposal1

 

| ** **                 | ** ** | **Shares Voted**    | ** ** | **Shares**   | ** ** |
|----------------------------|------------|---------------------|------------|--------------|------------|
| **Election  of Directors** | ** ** | **“For”** | ** ** | **Withheld** | ** ** |
|                       |       |                |       |         |       |
| Dean K. Allen              |       | 9,213,676           |       | 2,297,961    |       |
| Yvon Pierre Cariou         |       | 11,288,703          |       | 222,934      |       |
| Bernard Hueber             |       | 9,132,739           |       | 2,378,898    |       |
| Gerard Munera              |       | 9,248,054           |       | 2,263,583    |       |
| Richard P. Graff           |       | 11,187,117          |       | 324,520      |       |
| Rolf Rospek                |       | 10,719,258          |       | 792,379      |       |

 

Proposal 2                     To approve the Company’sShort Term Incentive Plan

 

| **Shares Voted**    | ** ** | **Shares Voted**        | ** ** | **Shares Voted**        | ** ** | ** **    |
|---------------------|------------|-------------------------|------------|-------------------------|------------|---------------|
| **“For”** | ** ** | **“Against”** | ** ** | **“Abstain”** | ** ** | **Non-votes** |
|                |       |                    |       |                    |       |          |
| 7,435,676           |       | 385,832                 |       | 12,567                  |       | 3,677,562     |

 

Proposal 3                     To ratify the appointment ofErnst & Young LLP as the Company’s independent registered publicaccounting firm for the fiscal year ending December 31, 2009.

 

| **Shares Voted**    | ** ** | **Shares Voted**        | ** ** | **Shares Voted**        |   |   |
|---------------------|------------|-------------------------|------------|-------------------------|--------|--------|
| **“For”** | ** ** | **“Against”** | ** ** | **“Abstain”** |   |   |
| ** **          | ** ** | ** **              | ** ** | ** **              |   |   |
| 11,295,229          |       | 140,022                 |       | 76,386                  |   |   |
| ** **          | ** ** | ** **              | ** ** | ** **              |   |   |

 

**Item 5. Other Information**

 

None.

 

**Item 6.**

 

**Exhibits**

 

31.1         Certification of the President and Chief ExecutiveOfficer pursuant to 17 CFR 240.13a-14(a) or 17 CFR 240.15d-14(a), asadopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

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31.2         Certification of the Vice President and ChiefFinancial Officer pursuant to 17 CFR 240.13a-14(a) or 17 CFR240.15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-OxleyAct of 2002.

 

32.1         Certification of the President and Chief ExecutiveOfficer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

32.2         Certification of the Vice President and ChiefFinancial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuantto Section 906 of the Sarbanes-Oxley Act of 2002.

 

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##### **SIGNATURES**

##### ** **

Inaccordance with the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

 
|                      | **DYNAMIC  MATERIALS CORPORATION**                                                                                                             |
|---------------------------|------------------------------------------------------------------------------------------------------------------------------------------------|
|                      | (Registrant)                                                                                                                                   |
|                      |                                                                                                                                           |
|                      |                                                                                                                                           |
| Date:  July 31, 2009 | /s/  Richard A. Santa                                                                                                                          |
|                      | Richard A. Santa, Senior Vice President and Chief  Financial Officer (Duly Authorized Officer and Principal Financial and  Accounting Officer) |

 

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