| SIGNIFICANT ACCOUNTING POLICIES | SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The Company's consolidated financial statements ("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 (U.S. GAAP) 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 of 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 are referred to as translation adjustments. Translation adjustments are recorded as a separate component of stockholders’ equity and are included in other cumulative comprehensive loss. Transactions denominated in currencies other than the functional 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 expense, net" as unrealized, based on period-end exchange rates, or realized, upon settlement of the transaction. 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 meet its financial obligation to us, we record a specific allowance for doubtful accounts (with the offsetting expense charged to selling and distribution expenses in our Consolidated Statements 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 net realizable value. Significant cost elements included in inventory are material, labor, freight, subcontract costs, and manufacturing overhead. As necessary, we write down inventory to its net realizable value by recording provisions for excess, slow moving and obsolete inventory. 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. Inventories consisted of the following at December 31: 2019 2018 Raw materials $ 26,173 $ 26,544 Work-in-process 12,194 7,157 Finished goods 15,045 16,904 Supplies 316 469 $ 53,728 $ 51,074 Shipping and handling costs incurred by us upon shipment from our manufacturing facilities directly to customers are included in "Cost of products sold" while shipping and handling costs incurred by us upon shipment from our distribution centers to customers are included in "Selling and distribution expenses" 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 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: 2019 2018 Land $ 3,551 $ 3,794 Buildings and improvements 58,069 58,045 Manufacturing equipment and tooling 72,081 51,955 Furniture, fixtures and computer equipment 21,683 21,061 Other 6,041 5,762 Construction in process 13,316 20,108 $ 174,741 $ 160,725 The increase in gross property, plant and equipment in 2019 versus 2018 primarily related to additional construction at DynaEnergetics' 74,000 square foot manufacturing assembly and administrative space on its manufacturing campus in Blum, Texas. 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 group are not sufficient to recover the related carrying value, we estimate the fair value of the asset. Impairment is recognized when the carrying amount of the asset group 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, 2019, we recognized an impairment charge of approximately $6,231 (recorded in “Restructuring expenses, net and asset impairments”) associated with ceasing DynaEnergetics' operations in Tyumen, Siberia related to production assets. The fair value of applicable Russian assets upon which an impairment charge was taken was primarily based upon the Company's estimates of fair value of the assets as we negotiated disposal of the assets. For the year ended December 31, 2018, no impairments were recorded. For the year ended December 31, 2017, we recognized an impairment charge of approximately $1,241 (recorded in “Restructuring expenses, net and asset impairments”) associated with restructuring our NobelClad operations in France, related to assets used in the explosion cladding process. The fair value of applicable French assets upon which an impairment charge was recorded was primarily based upon the utilization of a third-party appraiser. Refer to Note 9 “Restructuring and Asset Impairments” for additional discussion. 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 assets, and a significant change in legal factors or in the business climate that could affect the value of the assets. In the third quarter of 2017, NobelClad experienced a significant decline in its small size core maintenance bookings within the oil and gas industry. Additionally, certain large petrochemical projects forecasted to ship in the subsequent 12 months were delayed, and uncertainty existed as to the ultimate timing of booking and shipping these potential orders. As a result, we determined that a potential indicator of goodwill impairment existed during the third quarter of 2017. We calculated the fair value of NobelClad using a discounted cash flow analysis, compared the value to the carrying value of the NobelClad reporting unit, and found that the carrying value exceeded the fair value by more than the book value of goodwill. During the quarter ended September 30, 2017, we recorded an impairment charge of $17,584 to fully impair all goodwill related to this reporting unit. Purchased Intangible Assets Our purchased intangible assets include finite-lived core technology, customer relationships and trademarks/trade names. For purchased intangible assets, we performed an assessment of recoverability in accordance with the general valuation requirements set forth under ASC 360, “Accounting for the Impairment of Long-Lived Assets.” If impairment indicators are present, estimated undiscounted future cash flows associated with applicable assets or operations are compared with their carrying value to determine if a write-down to fair value is required. For the year ended December 31, 2019, we recognized an impairment charge of approximately $238 (recorded in “Restructuring expenses, net and asset impairments”) to fully impair the net value of customer relationship assets associated with DynaEnergetics Siberia after ceasing DynaEnergetics' operations in Tyumen, Siberia. For the years ended December 31, 2018 and 2017, there were no impairments of purchased intangible assets. Finite-lived intangible assets are amortized over the estimated useful life of the related assets which have a remaining weighted average amortization period of approximately eight years in total. The remaining weighted average amortization periods of the intangible assets by asset category are as follows: Core technology 8 years Customer relationships 4 months Our purchased intangible assets, other than goodwill, consisted of the following as of December 31, 2019 : Gross Accumulated Amortization Net Core technology $ 17,717 $ (11,837 ) $ 5,880 Customer relationships 35,091 (35,091 ) — Trademarks / Trade names 1,988 (1,988 ) — Total intangible assets $ 54,796 $ (48,916 ) $ 5,880 Our purchased intangible assets, other than goodwill, consisted of the following as of December 31, 2018 : Gross Accumulated Amortization Net Core technology $ 18,916 $ (10,866 ) $ 8,050 Customer relationships 37,122 (36,583 ) 539 Trademarks / Trade names 2,031 (2,031 ) — Total intangible assets $ 58,069 $ (49,480 ) $ 8,589 The change in the gross value of our purchased intangible assets at December 31, 2019 from December 31, 2018 was due to the impairment of customer relationship assets associated with DynaEnergetics Siberia, foreign currency translation, and an adjustment due to recognition of tax benefit of tax amortization previously applied to certain goodwill related to the NobelClad and DynaEnergetics reporting units. After the goodwill was written off at September 30, 2017 and December 31, 2015, respectively, the tax amortization reduces other intangible assets related to the historical acquisition. Expected future amortization of intangible assets is as follows: For the years ended December 31 - 2020 $ 1,126 2021 872 2022 692 2023 692 2024 676 Thereafter 1,822 $ 5,880 Leases On January 1, 2019, the Company adopted a new accounting standard, as amended, that requires the Company to record assets and liabilities on the balance sheet for lease-related rights and obligations and disclose key information about its leasing arrangements. The Company elected the modified retrospective approach upon adoption and elected the package of practical expedients available under the new standard. This new standard establishes a right-of-use (“ROU”) model that requires the Company to recognize ROU assets and lease liabilities on the balance sheet for all leases with a term longer than 12 months at commencement of the lease. Leases are classified as financing or operating, with classification affecting the pattern of expense recognition in the Consolidated Statement of Operations. The Company leases real properties for use in manufacturing and as administrative and sales offices, and leases automobiles and office equipment. Until the end of 2018, our leases of property, plant and equipment were classified as operating leases, and payments made under operating leases were charged to the Consolidated Statement of Operations on a straight-line basis. Upon adoption of the new lease standard on January 1, 2019, the Company recognized ROU assets and lease liabilities in relation to the leases which had previously been classified as operating leases. The Company determines if a contract contains a lease arrangement at the inception of the contract. For leases in which the Company is the lessee, leases are classified as either finance or operating. ROU assets are initially measured at the present value of lease payments over the lease term plus initial direct costs, if any, with the classification affecting the pattern of expense recognition. ROU assets are amortized on a straight line basis to the Consolidated Statement of Operations. If a lease does not provide a discount rate and the rate cannot be readily determined, an incremental borrowing rate is used to determine the future lease payments. Lease and non-lease components within the Company’s lease agreements are accounted for together. The Company has no leases in which the Company is the lessor. Nearly all of the Company’s leasing arrangements are classified as operating leases. As of December 31, 2019 , the total ROU assets and lease liabilities for operating leases were $10,423 and $11,493 , respectively. The ROU assets of $10,423 was included in “Other assets” while $1,716 of the lease liabilities were reported in “Other current liabilities” and $9,777 was reported in “Other long-term liabilities” on the Company’s Consolidated Balance Sheets. The Company’s financing leases were not material as of December 31, 2019 . Cash paid for operating lease liabilities are recorded as cash flows from operating activities in the Company’s Consolidated Statements of Cash Flows. Total operating lease expense included in in the Company’s Consolidated Statements of Income was $4,012 , $2,840 and $2,988 for the years ended December 31, 2019 , 2018 , and 2017 , respectively. Short term and variable lease costs were not material for the year-ended December 31, 2019 . Certain of the Company’s leases contain renewal options and options to extend the leases for up to five years , and a majority of these options are reflected in the calculation of the ROU assets and lease liability due to the likelihood of renewal The following table summarizes the weighted average lease terms and discount rates for operating lease liabilities: December 31, 2019 Weighted average remaining lease term (in years) 8.97 Weighted average discount rate 5.2 % The following table represents maturities of operating lease liabilities as of December 31, 2019 : Due within 1 year $ 1,716 Due after 1 year through 2 years 1,846 Due after 2 years through 3 years 1,573 Due after 3 years through 4 years 1,428 Due after 4 years through 5 years 1,268 Thereafter 6,866 Total future minimum lease payments 14,697 Less imputed interest (3,204 ) Total $ 11,493 Contract Liabilities 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. Contract liabilities were as follows at December 31 : 2019 2018 NobelClad $ 1,427 $ 922 DynaEnergetics 1,309 218 Total $ 2,736 $ 1,140 We expect to recognize the revenue associated with contract liabilities over a time period no longer than one year. Approximately 90% of the $1,140 recorded as contract liabilities at December 31, 2018 , was recorded to net sales during the year ended December 31, 2019 . Revenue Recognition On January 1, 2018, the Company adopted a new accounting standard, as amended, regarding revenue from contracts with customers using the modified retrospective approach, which was applied to all contracts with customers. Under the new standard, an entity is required to recognize revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods. There was no cumulative financial statement effect of initially applying the new revenue standard because an analysis of our contracts supported the recognition of revenue consistent with our historical approach. In accordance with the modified retrospective approach, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company’s revenues are primarily derived from consideration paid by customers for tangible goods. The Company analyzes its different products by segment to determine the appropriate basis for revenue recognition, as described below. Revenue is not generated from sources other than contracts with customers and revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. There are no material upfront costs for operations that are incurred from contracts with customers. Our rights to payments for goods transferred to customers arise when control is transferred at a point in time and not on any other criteria. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 60 days. In instances when we require customers to make advance payments prior to the shipment of their orders, we record a contract liability. We have determined that our contract liabilities do not include a significant financing component given the short duration between order initiation and order fulfillment within each of our segments. Refer to Note 6 “Business Segments” for disaggregated revenue disclosures. For the years ended December 31, 2019 , 2018 and 2017 , we recorded $575 , $282 , and $306 of bad debt expense, respectively. NobelClad Customers agree to terms and conditions at the time of initiating an order. The significant majority of transactions contain a single performance obligation - the delivery of a clad metal product. In instances where multiple products are included within an order, each product represents a separate performance obligation given that: (1) the customer can benefit from each product on a standalone basis and (2) each product is distinct within the context of the contract. The transaction price is readily determinable and fixed at the time the transaction is entered into with the customer. NobelClad is entitled to each product’s transaction price upon the customer obtaining control of the item. Such control occurs as of a point in time, which is generally based upon relevant International Commercial Terms (“Incoterms”) as it relates to product ownership and legal title being transferred. Upon fulfillment of applicable Incoterms, NobelClad has performed its contractual requirements such that it has a present right to payment, and the customer from that point forward bears all risks and rewards of ownership. In addition, at this date, the customer has the ability to direct the use of, or restrict access to, the asset. No payment discounts, rebates, refunds, or any other forms of variable consideration are included within NobelClad contracts. NobelClad also does not provide service-type warranties either via written agreement or customary business practice, nor does it allow customer returns. For contracts that contain only one performance obligation, the total transaction price is allocated to the sole performance obligation. For contracts which contain multiple distinct performance obligations, judgment is required to determine the standalone selling price (“SSP”) for each performance obligation. NobelClad uses the expected cost plus margin approach in order to estimate SSP, whereby an entity forecasts its expected costs of satisfying a performance obligation and then adds an appropriate margin for that good. The required judgment described herein largely is mitigated given the short duration between order initiation and complete order fulfillment. DynaEnergetics Customers agree to terms and conditions at the time of initiating an order. Transactions contain standard products, which may include perforating system components, such as detonating cord, or systems and associated hardware, including factory-assembled DynaStage ® perforating systems and DynaSelect ® detonators. In instances where multiple products are included within an order, each product represents a separate performance obligation given that: (1) the customer can benefit from each product on a standalone basis and (2) each product is distinct within the context of the contract. The transaction price is readily determinable and fixed at the time the transaction is entered into with the customer. DynaEnergetics is entitled to each product’s transaction price upon the customer obtaining control of the item. Such control occurs as of a point in time, which is generally based upon relevant Incoterms as it relates to product ownership and legal title being transferred. Upon fulfillment of applicable Incoterms, DynaEnergetics has performed its contractual requirements such that it has a present right to payment, and the customer from that point forward bears all risks and rewards of ownership. In addition, at this date, the customer has the ability to direct the use of, or restrict access to, the asset. No payment discounts, rebates, refunds, or any other forms of variable consideration are included within contracts. DynaEnergetics also does not provide service-type warranties either via written agreement or customary business practice, nor does it allow customer returns without its prior approval. For orders that contain only one performance obligation, the total transaction price is allocated to the sole performance obligation. For orders that contain multiple products being purchased by the customer, judgment is required to determine SSP for each distinct performance obligation. However, such judgment largely is mitigated given that products purchased are generally shipped at the same time. In instances where products purchased are not shipped at the same time, DynaEnergetics uses the contractually stated price to determine SSP as this price approximates the price of each good as sold separately. 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 were as follows for the years ended December 31: 2019 2018 2017 DynaEnergetics research and development costs $ 7,057 $ 5,932 $ 4,335 NobelClad research and development costs 1,393 1,278 833 Total research and development costs $ 8,450 $ 7,210 $ 5,168 Earnings Per Share The Company computes earnings per share (“EPS”) using a two-class method, which is an earnings allocation formula that determines EPS for (i) each class of common stock (the Company has a single class of common stock), and (ii) participating securities according to dividends declared and participation rights in undistributed earnings. Restricted stock awards are considered participating securities as they receive non-forfeitable rights to dividends as common stock. Basic EPS is then calculated by dividing net income (loss) available to common shareholders of the Company by the weighted‑average number of common shares outstanding during the period. Diluted EPS adjusts basic EPS for the effects of restricted stock awards, restricted stock units, performance share units and other potentially dilutive financial instruments (dilutive securities), only in the periods in which such effect is dilutive. The effect of the dilutive securities is reflected in diluted EPS by application of the more dilutive of (1) the treasury stock method or (2) the two-class method assuming nonvested shares are not converted into common shares. For the periods presented, diluted EPS using the treasury stock method was less dilutive than the two-class method; as such, only the two-class method has been included below. EPS was calculated as follows for the years ended December 31: 2019 2018 2017 Net income (loss) as reported $ 34,041 $ 30,473 $ (18,853 ) Less: Distributed net income available to participating securities (85 ) (27 ) — Less: Undistributed net income available to participating securities (582 ) (666 ) — Numerator for basic net income per share: 33,374 29,780 (18,853 ) Add: Undistributed net income allocated to participating securities 582 666 — Less: Undistributed net income reallocated to participating securities (579 ) (662 ) — Numerator for diluted net income per share: 33,377 29,784 (18,853 ) Denominator: Weighted average shares outstanding for basic net income per share 14,579,608 14,529,745 14,346,851 Effect of dilutive securities 75,742 90,890 — Weighted average shares outstanding for diluted net income per share 14,655,350 14,620,635 14,346,851 Net income (loss) per share: Basic $ 2.29 $ 2.05 $ (1.31 ) Diluted $ 2.28 $ 2.04 $ (1.31 ) Fair Value of Financial Instruments 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. The carrying value of accounts receivable and payable, accrued expenses, revolving loans under our credit facility and borrowings under our capital expenditure facility approximate their fair value. Our revolving loans and borrowings under our capital expenditure facility reset each month at market interest rates. All of these items are considered Level 1 assets and liabilities. Our foreign currency forward contracts are valued using quoted market prices or are determined using a yield curve model based on current market rates. As a result, we classify these investments as Level 2 in the fair value hierarchy. Money market funds and mutual funds held to satisfy future deferred compensation obligations are valued based upon the market values of underlying securities, and therefore we classify these assets as Level 2 in the fair value hierarchy. We did not hold any Level 3 assets or liabilities as of December 31, 2019 or December 31, 2018 . The asset impairment charges recorded in the fourth quarters of 2019 and 2018 and the goodwill impairment charge recorded in the third quarter of 2017 were calculated using 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, that 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 to be realized upon ultimate resolution. We recognize interest and penalties related to uncertain tax positions in operating expense. See Note 5 "Income Taxes" for further information on our income taxes. 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, 2019 , 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, 2019 , 2018 , and 2017 consisted entirely of currency translation adjustments including those in intra-entity foreign currency transactions that are classified as long-term investments. During 2019, the Company substantially liquidated the assets and liabilities of DynaEnergetics Siberia, as defined by U.S. GAAP, and as a result the cumulative foreign currency translation losses were reclassified to "Restructuring expenses, net and asset impairments" in the Consolidated Statement of Operations from "Other cumulative comprehensive loss" in the Consolidated Balance Sheets. Refer to Note 9 "Restructuring and Asset Impairments" for additional discussion. Recent Accounting Pronouncements In June 2016, the FASB issued a new accounting pronouncement regarding credit losses for financial instruments. The new standard requires entities to measure expected credit losses for certain financial assets held at the reporting date using a current expected credit loss model, which is based on historical experience, adjusted for current conditions and reasonable and supportable forecasts. The Company will adopt the new standard on January 1, 2020. The Company's financial instruments within the scope of this guidance primarily include trade receivables, and management does not expect a material impact to its financial statements upon adoption in 2020. |
