| SIGNIFICANT ACCOUNTING POLICIES | SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of DMC and its controlled subsidiaries. Only subsidiaries in which controlling interests are maintained are consolidated. All significant intercompany accounts, profits, and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Foreign Operations and Foreign Exchange Rate Risk The functional currency for our foreign operations is the applicable local currency for each affiliate company. Assets and liabilities of foreign subsidiaries for which the functional currency is the local currency are translated at exchange rates in effect at period-end, and the statements of operations are translated at the average exchange rates during the period. Exchange rate fluctuations on translating foreign currency financial statements into U.S. dollars that result in unrealized gains or losses are referred to as translation adjustments. Cumulative translation adjustments are recorded as a separate component of stockholders’ equity and are included in other cumulative comprehensive income (loss). Transactions denominated in currencies other than the local currency are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and losses, which are reflected in other income (expense) as unrealized (based on period-end translations) or realized upon settlement of the transactions. Cash flows from our operations in foreign countries are translated at actual exchange rates when known, or at the average rate for the period. As a result, amounts related to assets and liabilities reported in the consolidated statements of cash flows will not agree to changes in the corresponding balances in the consolidated balance sheets. The effects of exchange rate changes on cash balances held in foreign currencies are reported as a separate line item below cash flows from financing activities. Cash and Cash Equivalents For purposes of the consolidated financial statements, we consider highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable We review our accounts receivable balance routinely to identify any specific customers with collectability issues. In circumstances where we are aware of a specific customer’s inability to meets its financial obligation to us, we record a specific allowance for doubtful accounts (with the offsetting expense charged to our statement of operations) against the amounts due reducing the net recognized receivable to the amount we estimate will be collected. Inventories Inventories are stated at the lower-of-cost (first-in, first-out) or market value. Cost elements included in inventory are material, labor, subcontract costs, and manufacturing overhead. As necessary, we record provisions and maintain reserves for excess, slow moving and obsolete inventory. To determine reserve amounts, we regularly review inventory quantities on hand and values, and compare them to estimates of future product demand, market conditions, production requirements and technological developments. In 2013 we changed our inventory management philosophy in order to reduce our investment in inventory. In connection with this, we identified certain slow-moving and obsolete inventories and therefore revised our assumptions for calculating estimated inventory reserves, resulting in a change in estimate which was primarily driven by specific quantitative analysis whereby inventory items which have not had movement for a certain duration are reserved against after a prescribed period. We determined that our December 31, 2013 inventory reserves for our DynaEnergetics business segment should be increased to adequately provide for estimated requirements and recorded corresponding expense in cost of products sold in our 2013 consolidated statement of operations. For the twelve months ended December 31, 2015 , 2014 , and 2013 , we increased our inventory reserves and recognized expenses in cost of products sold in our consolidated statement of operations as follows: 2015 2014 2013 Increase in inventory reserve $ 565 $ 1,146 $ 1,800 Expense recorded 1,952 1,287 1,800 Inventories, net of reserves of $3,682 and $3,117 most of which related to finished goods, consist of the following at December 31, 2015 and 2014 respectively: 2015 2014 Raw materials $ 14,513 $ 15,208 Work-in-process 8,112 11,528 Finished goods 12,320 12,782 Supplies 504 583 $ 35,449 $ 40,101 Shipping and handling costs incurred by us upon shipment to customers are included in cost of products sold in the accompanying consolidated statements of operations. Property, Plant and Equipment Property, plant and equipment are recorded at cost, except for assets acquired in acquisitions which are recorded at fair value. Additions and improvements are capitalized. Maintenance and repairs are charged to operations as the costs are incurred. Depreciation is computed using the straight-line method over the estimated useful life of the related asset (except leasehold improvements which are depreciated over the shorter of their estimated useful life or the lease term) as follows: Buildings and improvements 15-30 years Manufacturing equipment and tooling 3-15 years Furniture, fixtures, and computer equipment 3-10 years Other 3-10 years Gross property, plant and equipment consist of the following at December 31, 2015 and 2014 : 2015 2014 Land $ 3,380 $ 3,344 Buildings and improvements 41,429 39,489 Manufacturing equipment and tooling 38,599 40,433 Furniture, fixtures and computer equipment 16,777 14,813 Other 2,937 3,425 Construction in process 3,401 8,229 $ 106,523 $ 109,733 Asset Impairments Finite-lived assets are tested for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We compare the expected undiscounted future operating cash flows associated with these finite-lived assets to their respective carrying values to determine if they are fully recoverable when indicators of impairment are present. If the expected future operating cash flows of an asset are not sufficient to recover the carrying value, we estimate the fair value of the asset. Impairment is recognized when the carrying amount of the asset is not recoverable and when carrying value exceeds fair value. Long-lived assets to be disposed of, if any, are reported at the lower of carrying amount or fair value less cost to sell. For the year ended December 31, 2015, we recognized an impairment charge of approximately $205 (recorded in restructuring expenses) associated with restructuring our DynaEnergetics operations in Canada and Colombia. The impairment charges are primarily associated with assets used in the perforating gun manufacturing facility and distribution center in Edmonton, Alberta and the distribution centers in Colombia, all of which are closed under the restructuring program (See Note 10 "Restructuring"). For the year ended December 31, 2014, we recognized an impairment charge of approximately $3,946 (recorded in restructuring expenses) associated with the restructuring of our NobelClad Europe operations. The impairment charges are primarily associated with the Würgendorf, Germany facility and leasehold improvements at a leased facility in France, both of which are being closed under the restructuring program (See Note 10 "Restructuring"). The impairment of the facility in Germany was determined by a third-party appraiser using a combination of the cost and sales comparison approach, which are fair value techniques in accordance with Financial Accounting Standards Board ("FASB") ASC Section 820 Fair Value Measurements and Disclosures . For the year ended December 31, 2013 we recognized an impairment charge of approximately $756 (recorded in G&A expenses) associated with implementation costs for a systems implementation project at our Russian and Kazakhstan locations within our DynaEnergetics segment. We had subsequently made the strategic decision to abandon this system implementation project and, therefore, the impairment recognized represents writing down the carrying amount of this asset to zero. Goodwill Goodwill represents the excess of the purchase price in a business combination over the fair value of the net tangible and intangible assets acquired. The carrying value of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Examples of such events or changes in circumstances, many of which are subjective in nature, include significant negative industry or economic trends, significant changes in the manner of our use of the acquired assets or our strategy, a significant decrease in the market value of the asset, and a significant change in legal factors or in the business climate that could affect the value of the asset. Our reporting units for goodwill impairment testing are currently the same as our reportable business segments: NobelClad and DynaEnergetics. Each business segment represents separately managed strategic business units and our chief operating decision maker reviews financial results and evaluates operating performance at this level. During the fourth quarter of 2015, we observed a decrease in the market capitalization of the Company, thereby providing a potential indicator of impairment, which coincided with our 2015 annual goodwill impairment tests for our NobelClad and DynaEnergetics reporting units. We utilize an income approach (discounted cash flow analysis) to determine the fair value of each reporting unit. We believe the discounted cash flow approach is the most reliable indicator of fair value for our reporting units. The key assumptions used in the discounted cash flows for both reporting units include, among other measures, expected future sales, operating income, working capital and capital expenditures. Discount rates are determined using a peer-based, risk-adjusted weighted average cost of capital. Our approach also includes reviewing for reasonableness the total market capitalization of the Company as of December 31 to the sum of the discounted cash flows for the combined reporting units. In connection with our 2015 annual goodwill impairment tests, we found that the fair value of the DynaEnergetics reporting unit was less than its carrying value due primarily to the sustained decline in global oil prices, expected reduction in exploration and production activities of certain of our customers, and the impact these factors have on our expected future cash flows. We valued the assets of DynaEnergetics with the assistance of a third-party valuation specialist using a combination of the market and cost approaches for tangible assets as well as the relief from royalty and multi-period excess earnings methods for intangible assets, which are fair value techniques in accordance with FASB ASC Section 820 Fair Value Measurements and Disclosures. Based on the results of that valuation, recorded a goodwill impairment charge of $11,464 to impair fully the goodwill related to the DynaEnergetics reporting unit. As of December 31, 2015 the fair value of the NobelClad reporting unit, with $17,190 of goodwill, exceeded the carrying value of its net assets. No impairment of goodwill was identified in connection with our 2014 and 2013 annual goodwill impairment tests as our estimated fair values substantially exceeded the carrying values for both reporting units. A future impairment is possible at NobelClad and could occur if (i) operating results underperform what we have estimated or (ii) additional volatility of the capital markets or other factors negatively impact our expectations of future results and or cause us to raise the discount rate percentage utilized in our discounted cash flow analysis. While we believe our most recent estimates were appropriate based on our view of then current business trends, no assurance can be provided that impairment charges will not be required in the future. The changes to the carrying amount of goodwill during the period are summarized below: NobelClad DynaEnergetics Total Goodwill balance at December 31, 2013 $ 22,238 $ 15,732 $ 37,970 Adjustment due to recognition of tax benefit of tax amortization of certain goodwill $ (318 ) $ (547 ) $ (865 ) Adjustment due to exchange rate differences $ (2,502 ) $ (1,841 ) $ (4,343 ) Goodwill balance at December 31, 2014 $ 19,418 $ 13,344 $ 32,762 Adjustment due to recognition of tax benefit of tax amortization of certain goodwill (326 ) (563 ) (889 ) Adjustment due to exchange rate differences (1,902 ) (1,317 ) (3,219 ) Goodwill impairment — (11,464 ) (11,464 ) Goodwill balance at December 31, 2015 $ 17,190 $ — $ 17,190 Purchased Intangible Assets Our purchased intangible assets include core technology, customer relationships and trademarks/trade names. Impairment, if any, is calculated based upon our evaluation whereby, estimated undiscounted future cash flows associated with these assets or operations are compared with their carrying value to determine if a write-down to fair value is required if impairment indicators are present. In association with the 2015 goodwill impairment testing, we tested finite-lived intangibles for impairment, and found that the carrying amounts of assets at the lowest level of identifiable cash flows, in this case our reporting units, are fully recoverable. Finite lived intangible assets are amortized over the estimated useful life of the related assets which have a weighted average amortization period of 12 years in total. The weighted average amortization periods of the intangible assets by asset category are as follows: Core technology 20 years Customer relationships 9 years Trademarks / Trade names 9 years The following table presents details of our purchased intangible assets, other than goodwill, as of December 31, 2015 : Gross Accumulated Amortization Net Core technology $ 18,524 $ (7,528 ) $ 10,996 Customer relationships 36,830 (27,701 ) 9,129 Trademarks / Trade names 1,988 (1,695 ) 293 Total intangible assets $ 57,342 $ (36,924 ) $ 20,418 The following table presents details of our purchased intangible assets, other than goodwill, as of December 31, 2014 : Gross Accumulated Amortization Net Core technology $ 20,667 $ (7,360 ) $ 13,307 Customer relationships 40,195 (27,270 ) 12,925 Trademarks / Trade names 2,216 (1,714 ) 502 Total intangible assets $ 63,078 $ (36,344 ) $ 26,734 The change in the gross value of our purchased intangible assets from December 31, 2014 to December 31, 2015 is due solely to the impact of foreign currency translation adjustments. Expected future amortization of intangible assets is as follows: For the years ended December 31 - 2016 $ 3,956 2017 3,936 2018 2,734 2019 1,538 2020 1,538 Thereafter 6,716 $ 20,418 Other Assets Included in other assets are net deferred debt issuance costs of $674 and $203 as of December 31, 2015 and 2014 , respectively. On February 23, 2015, we entered into a five -year $150 million syndicated credit agreement (“credit facility”) which amended and replaced in its entirety our prior syndicated credit facility entered into on December 11, 2011. In conjunction with entering the credit facility, we wrote off $32 of previously deferred debt issuance costs, carried over $162 of costs related to the prior credit agreement, and incurred $1,042 of additional costs. On December 18, 2015, we amended the credit facility, and we wrote off $508 of previously deferred debt issuance costs, carried over $508 of costs related to the prior credit agreement, and incurred $180 of additional costs. Remaining deferred debt issuance costs are being amortized over the five -year term of the amended and restated credit agreement which expires on February 23, 2020. Customer Advances On occasion, we require customers to make advance payments prior to the shipment of their orders in order to help finance our inventory investment on large orders or to keep customers’ credit limits at acceptable levels. As of December 31, 2015 and 2014 customer advances totaled $2,396 and $3,510 , respectively, and originated from several customers. Revenue Recognition Sales of clad metal products are generally based upon customer specifications set forth in customer purchase orders and require us to provide certifications relative to metals used, services performed, and the results of any non-destructive testing that the customer has requested be performed. All issues of conformity of the product to specifications are resolved before the product is shipped and billed. Products related to the DynaEnergetics segment, which include detonating cords, detonators, bi-directional boosters, and shaped charges, as well as, seismic related explosives and accessories, are standard in nature. In all cases, revenue is recognized only when all four of the following criteria have been satisfied: persuasive evidence of an arrangement exists; the price is fixed or determinable; delivery has occurred; and collection is reasonably assured. Research and Development Research and development costs include expenses associated with developing new products and processes as well as improvements to current manufacturing processes. Research and development costs are included in our cost of products sold and are as follows for the years ended December 31, 2015 , 2014 and 2013 : 2015 2014 2013 DynaEnergetics research and development costs $ 2,357 $ 2,541 $ 1,706 NobelClad research and development costs 685 558 493 Total research and development costs $ 3,042 $ 3,099 $ 2,199 Earnings Per Share Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock awards (“RSAs”), are considered participating securities for purposes of calculating earnings per share (“EPS”) and require the use of the two class method for calculating EPS. Under this method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to common stock, as shown in the table below. Because we are in a net loss position for the year ended December 31, 2015, all potentially dilutive shares are anti-dilutive and are excluded from the determination of diluted EPS. Computation and reconciliation of earnings per common share for the years ended December 31, 2015 , 2014 and 2013 are as follows: 2015 2014 2013 Numerator: Income (loss) from continuing operations, net of non-controlling interest $ (23,971 ) $ 1,926 $ 6,073 Less income allocated to RSAs — (52 ) (102 ) Income (loss) from continuing operations allocated to common stock for EPS calculation (23,971 ) 1,874 5,971 Income from discontinued operations — 641 478 Net income (loss) allocated to common stock for EPS calculation $ (23,971 ) $ 2,515 $ 6,449 Denominator: Weighted average common shares outstanding - basic 13,935,097 13,687,485 13,533,566 Dilutive stock-based compensation plans — 2,222 3,959 Weighted average common shares outstanding - diluted 13,935,097 13,689,707 13,537,525 Income (loss) per share - Basic: Continuing operations $ (1.72 ) $ 0.13 $ 0.44 Discontinued operations — 0.05 0.03 Net income (loss) allocated to common stock for EPS calculation $ (1.72 ) $ 0.18 $ 0.47 Income (loss) per share - Diluted: Continuing operations $ (1.72 ) $ 0.13 $ 0.44 Discontinued operations — 0.05 0.03 Net income (loss) allocated to common stock for EPS calculation $ (1.72 ) $ 0.18 $ 0.47 Fair Value of Financial Instruments The carrying values of cash and cash equivalents, trade accounts receivable and payable, accrued expenses and lines of credit approximate their fair value and are included in Level 1. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are required to use an established hierarchy for fair value measurements based upon the inputs to the valuation and the degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows: · Level 1 — Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date. · Level 2 — Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data. · Level 3 — Inputs to the valuation that are unobservable inputs for the asset or liability. The highest priority is assigned to Level 1 inputs and the lowest priority to Level 3 inputs. Income Taxes We recognize deferred tax assets and liabilities for the expected future income tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. The deferred income tax impact of tax credits are recognized as an immediate adjustment to income tax expense. We recognize deferred tax assets for the expected future effects of all deductible temporary differences to the extent we believe these assets will more likely than not be realized. We record a valuation allowance when, based on current circumstances, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, recent financial operations and their associated valuation allowances, if any. We recognize the tax benefits from uncertain tax positions only when it is more likely than not, based on the technical merits of the position; the tax position will be sustained upon examination, including the resolution of any related appeals or litigation. The tax benefits recognized in the consolidated financial statements from such a position are measured as the largest benefit that is more likely than not of being realized upon ultimate resolution. We recognize interest and penalties related to uncertain tax positions in operating expense. Concentration of Credit Risk and Off Balance Sheet Arrangements Financial instruments, which potentially subject us to a concentration of credit risk, consist primarily of cash, cash equivalents, and accounts receivable. Generally, we do not require collateral to secure receivables. At December 31, 2015 , we had no financial instruments with off-balance sheet risk of accounting losses. Other Cumulative Comprehensive Loss Other cumulative comprehensive loss as of December 31, 2015 , 2014 , and 2013 consisted entirely of currency translation adjustments including those in intra-entity foreign currency transactions that are long-term investments. Recent Accounting Pronouncements In February 2016, the Financial Accounting Standards Board ("FASB") issued an accounting standards update (ASU) which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. This ASU will be effective beginning in the first quarter of 2019. Early adoption as of its issuance is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. We are currently evaluating the impact of adopting the new leases standard on our consolidated financial statements. In November 2015, the FASB issued an accounting standards update which requires that deferred tax liabilities and assets be classified as noncurrent in the statement of financial position based on an analysis of each taxpaying component within a jurisdiction. This ASU would be effective for the Company December 1, 2017, however the Company has elected to early adopt prospectively beginning with the year ended December 31, 2015, as is permitted under the standard. Due to the prospective treatment, prior periods presented in these financial statements have not been adjusted. The adoption of this ASU did not have an impact on the Company's financial position. In July 2015, the FASB issued an accounting standards update to simplify the measurement of inventory and changes the measurement from lower of cost or market to lower of cost and net realizable value. This pronouncement is effective for reporting periods beginning after December 15, 2016. We currently are evaluating the potential impact the adoption of this standard will have on our financial statements. In April 2015, the FASB issued an accounting standards update to revise the presentation of debt issuance costs. Under this pronouncement, entities will present debt issuance costs in their balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the deferred debt issuance costs will continue to be included in interest expense. The pronouncement, which is to be applied retrospectively to all prior periods, is effective for fiscal years beginning after December 15, 2015, with early adoption permitted for financial statements that have not been previously issued. We currently are evaluating the potential impact the adoption of this standard will have on our financial statements. In June 2014, the FASB issued an accounting standards update to clarify the accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The pronouncement is effective for reporting periods beginning after December 15, 2015. We currently are evaluating the potential impact the adoption of this standard will have on our financial statements. In May 2014, the FASB issued an accounting standards update to clarify the principles of recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and IFRS. The pronouncement is effective for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We currently are evaluating the potential impact the adoption of this standard will have on our financial statements. |
