NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2020
(Amounts in Thousands, Except Share and Per Share Data)
1. ORGANIZATION AND BUSINESS
DMC Global Inc. (“DMC”, "we", "us", "our", or the "Company") was incorporated in the state of Colorado in 1971 and reincorporated in the state of Delaware in 1997. DMC is a diversified holding company headquartered in Broomfield, Colorado and has manufacturing facilities in the United States and Germany. DMC’s portfolio currently consists of two businesses: DynaEnergetics and NobelClad, which collectively address the energy, industrial processing and transportation markets. DynaEnergetics is an international developer, manufacturer and marketer of advanced explosive components and systems used to perforate oil and gas wells. NobelClad is a leading global manufacturer of explosion-welded clad metal plates, which are used to fabricate capital equipment utilized within various process industries and other industrial sectors.
DMC’s objective is to identify well-run businesses and strong management teams and support them with long-term capital and strategic, legal, technology and operating resources. Our approach helps our portfolio companies grow core businesses, launch new initiatives, upgrade technologies and systems to support their long-term strategy, and make acquisitions that improve their competitive positions and expand their markets. DMC’s culture is to foster local innovation versus centralized control and to stand behind our businesses in ways that truly add value.
2. 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.
Marketable Securities
We typically invest in highly rated securities, with the primary objectives of preserving principal, providing access to liquidity to fund the ongoing operations and strategic needs of the Company and its subsidiaries, and achieving a yield that is commensurate with low risk and highly liquid securities. The Company’s investment policy generally limits the amount of credit exposure to any one issuer.
Our investments in marketable debt securities are classified as either trading, available-for-sale or held-to-maturity based on the nature of the securities and their availability for use in current operations. The Company classifies its marketable debt securities on the Consolidated Balance Sheet as current or non-current based on maturities and our expectations of sales and redemptions in the following year.
As of December 31, 2020, our investments were comprised solely of U.S. Treasury securities with maturities ranging from three to twelve months, and these investments have been classified and accounted for as trading securities. The Company’s investments in U.S. Treasury securities are measured at fair value with gains and losses recognized in the Consolidated Statement of Operations within “Other expense, net."
Accounts Receivable
In June 2016, the Financial Accounting Standards Board (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's financial instruments within the scope of this guidance primarily include accounts receivable and marketable securities.
On January 1, 2020, we adopted the new standard under the modified retrospective approach, such that comparative information has not been restated and continues to be reported under accounting standards in effect for those periods. The Company recognized the cumulative effect of the new accounting standard as an adjustment to the January 1, 2020 balance of Retained Earnings in the Condensed Consolidated Balance Sheet, and the adoption of the new accounting standard did not have a material impact on the Company’s financial position and results of operations given limited historical write-off activity within each of the Company’s segments.
In accordance with the new standard, the Company has disaggregated pools of accounts receivable balances by business, geography and/or customer risk profile, and has used history and other experience to establish an allowance for credit losses at the time the receivable is recognized, rather than the historical approach of establishing reserves when accounts receivable balances age or demonstrate they will not be collected. To measure expected credit losses, we have elected to pool trade receivables by segment and analyze DynaEnergetics and NobelClad accounts receivable balances as separate populations. Within each segment, receivables exhibit similar risk characteristics.
During the year ended December 31, 2020, we increased our expected loss rate due to the COVID-19 pandemic-related collapse in oil and gas demand and resulting downturn in well completions. In addition, we continued to review receivables outstanding, including aged balances, and in circumstances where we are aware of a specific customer’s inability to meet its financial obligation to us, we recorded a specific allowance for credit losses (with the offsetting expense charged to “Selling and distribution expenses” in our Condensed Consolidated Statements of Operations) against the amounts due, reducing the net recognized receivable to the amount we estimate will be collected. In total, provisions of $3,381 were recorded during the year ended December 31, 2020. For the years ended December 31, 2019 and 2018, we recorded $575 and $282 of bad debt expense, respectively.
The following table summarizes activity in the allowance for credit losses on receivables from DynaEnergetics and NobelClad customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DynaEnergetics
|
|
NobelClad
|
|
DMC Global Inc.
|
Allowance for doubtful accounts, December 31, 2019
|
$
|
945
|
|
|
$
|
22
|
|
|
$
|
967
|
|
Adjustment for cumulative effect from change in accounting principle
|
50
|
|
|
—
|
|
|
50
|
|
Current period provision for expected credit losses
|
3,069
|
|
|
312
|
|
|
3,381
|
|
Write-offs charged against the allowance
|
(1,243)
|
|
|
(186)
|
|
|
(1,429)
|
|
Recoveries of amounts previously reserved
|
(208)
|
|
|
(134)
|
|
|
(342)
|
|
Impacts of foreign currency exchange rates and other
|
(23)
|
|
|
1
|
|
|
(22)
|
|
Allowance for doubtful accounts, December 31, 2020
|
$
|
2,590
|
|
|
$
|
15
|
|
|
$
|
2,605
|
|
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, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DynaEnergetics
|
|
NobelClad
|
|
DMC Global Inc.
|
Raw materials
|
$
|
13,250
|
|
|
$
|
11,903
|
|
|
$
|
25,153
|
|
Work-in-process
|
7,062
|
|
|
6,682
|
|
|
13,744
|
|
Finished goods
|
12,806
|
|
|
669
|
|
|
13,475
|
|
Supplies
|
—
|
|
|
201
|
|
|
201
|
|
|
$
|
33,118
|
|
|
$
|
19,455
|
|
|
$
|
52,573
|
|
Inventories consisted of the following at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DynaEnergetics
|
|
NobelClad
|
|
DMC Global Inc.
|
Raw materials
|
18,049
|
|
|
8,124
|
|
|
$
|
26,173
|
|
Work-in-process
|
6,443
|
|
|
5,751
|
|
|
12,194
|
|
Finished goods
|
15,041
|
|
|
4
|
|
|
15,045
|
|
Supplies
|
—
|
|
|
316
|
|
|
316
|
|
|
$
|
39,533
|
|
|
$
|
14,195
|
|
|
$
|
53,728
|
|
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
|
15-40 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 consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Land
|
$
|
3,634
|
|
|
$
|
3,551
|
|
Buildings and improvements
|
59,556
|
|
|
58,069
|
|
Manufacturing equipment and tooling
|
72,992
|
|
|
72,081
|
|
Furniture, fixtures and computer equipment
|
22,194
|
|
|
21,683
|
|
Other
|
7,261
|
|
|
6,041
|
|
Construction in process
|
14,641
|
|
|
13,316
|
|
|
$
|
180,278
|
|
|
$
|
174,741
|
|
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 group. 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, 2020, we recognized an impairment charge of $1,361 (recorded in “Restructuring expenses, net and asset impairments”). The COVID-19 pandemic-related collapse in oil and gas demand led to a downturn in well completions and the corresponding demand for DynaEnergetics’ products. As a result, DynaEnergetics recorded asset impairment charges of $1,181 on certain manufacturing assets that will no longer be utilized in production at its Blum, Texas and Troisdorf, Germany facilities. The fair value of the assets upon which an impairment charge was recorded was primarily based upon the Company's estimates as we negotiated disposal of the assets. For the year ended December 31, 2019, we recognized an impairment charge of $6,231 (recorded in “Restructuring expenses, net and asset impairments”) related to production assets in DynaEnergetics' operations in Tyumen, Siberia, which were closed in 2019. The fair value of applicable Russian assets upon which an impairment charge was recorded was primarily based upon the Company's estimates as we negotiated disposal of the assets. For the year ended December 31, 2018, no impairments were recorded. Refer to Note 10 “Restructuring and Asset Impairments” for additional discussion.
Purchased Intangible Assets
Our purchased intangible assets include finite-lived core technology, customer relationships and trademarks/trade names. 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 four years in total. The remaining weighted average amortization periods of the intangible assets by asset category are as follows:
|
|
|
|
|
|
Core technology
|
3.99 years
|
|
|
|
|
Our purchased intangible assets consisted of the following as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Core technology
|
$
|
17,899
|
|
|
$
|
(14,234)
|
|
|
$
|
3,665
|
|
Customer relationships
|
37,638
|
|
|
(37,638)
|
|
|
—
|
|
Trademarks / Trade names
|
2,194
|
|
|
(2,194)
|
|
|
—
|
|
Total intangible assets
|
$
|
57,731
|
|
|
$
|
(54,066)
|
|
|
$
|
3,665
|
|
Our purchased intangible assets 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
|
|
The change in the gross value of our purchased intangible assets at December 31, 2020 from December 31, 2019 was due to foreign currency translation and an adjustment due to recognition of tax benefit of tax amortization previously applied to certain goodwill related to the DynaEnergetics and NobelClad reporting units. After the goodwill associated with each reporting unit was impaired at December 31, 2015 and September 30, 2017, 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 -
|
|
2021
|
$
|
1,056
|
|
2022
|
875
|
|
2023
|
875
|
|
2024
|
859
|
|
|
|
|
|
|
$
|
3,665
|
|
Leases
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 right of use ("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. ROU asset and lease liability balances were as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
December 31, 2019
|
ROU asset
|
$
|
10,733
|
|
|
$
|
10,423
|
|
|
|
|
|
Current lease liability
|
1,741
|
|
|
1,716
|
|
Long-term lease liability
|
10,066
|
|
|
9,777
|
|
Total lease liability
|
$
|
11,807
|
|
|
$
|
11,493
|
|
The ROU asset is reported in “Other assets” while the current lease liability is reported in “Other current liabilities” and the long-term lease liability is 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, 2020. 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 $3,950, $4,012 and $2,840 for the years ended December 31, 2020, 2019, and 2018, respectively. Short term and variable lease costs were not material for the year ended December 31, 2020.
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, 2020
|
|
December 31, 2019
|
Weighted average remaining lease term
|
8.3 years
|
|
9.0 years
|
Weighted average discount rate
|
5.2
|
%
|
|
5.2
|
%
|
The following table represents maturities of operating lease liabilities as of December 31, 2020:
|
|
|
|
|
|
Due within 1 year
|
$
|
1,741
|
|
Due after 1 year through 2 years
|
1,959
|
|
Due after 2 years through 3 years
|
1,846
|
|
Due after 3 years through 4 years
|
1,691
|
|
Due after 4 years through 5 years
|
1,660
|
|
Thereafter
|
5,747
|
|
Total future minimum lease payments
|
14,644
|
|
Less imputed interest
|
(2,837)
|
|
Total
|
$
|
11,807
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
NobelClad
|
$
|
4,450
|
|
|
$
|
1,427
|
|
DynaEnergetics
|
478
|
|
|
1,309
|
|
Total
|
$
|
4,928
|
|
|
$
|
2,736
|
|
We generally expect to recognize the revenue associated with contract liabilities over a time period no longer than one year, but unforeseen circumstances can cause delays in shipments associated with contract liabilities. Approximately 73% of the $2,736 recorded as contract liabilities at December 31, 2019, was recorded to net sales during the year ended December 31, 2020.
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 7 “Business Segments” for disaggregated revenue disclosures.
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, Performance-AssuredTM DynaStage® perforating systems. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
DynaEnergetics research and development costs
|
$
|
6,335
|
|
|
$
|
7,057
|
|
|
$
|
5,932
|
|
NobelClad research and development costs
|
1,575
|
|
|
1,393
|
|
|
1,278
|
|
Total research and development costs
|
$
|
7,910
|
|
|
$
|
8,450
|
|
|
$
|
7,210
|
|
Earnings Per Share
In periods with net income, 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. Because we are in a net loss position for the year ended December 31, 2020, all potentially dilutive shares are anti-dilutive and are excluded from the determination of diluted EPS.
Basic EPS is then calculated by dividing net income 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Net (loss) income, as reported
|
$
|
(1,412)
|
|
|
$
|
34,041
|
|
|
$
|
30,473
|
|
Less: Distributed net income available to participating securities
|
—
|
|
|
(85)
|
|
|
(27)
|
|
Less: Undistributed net income available to participating securities
|
—
|
|
|
(582)
|
|
|
(666)
|
|
Numerator for basic net (loss) income per share:
|
(1,412)
|
|
|
33,374
|
|
|
29,780
|
|
Add: Undistributed net income allocated to participating securities
|
—
|
|
|
582
|
|
|
666
|
|
Less: Undistributed net income reallocated to participating securities
|
—
|
|
|
(579)
|
|
|
(662)
|
|
Numerator for diluted net (loss) income per share:
|
(1,412)
|
|
|
33,377
|
|
|
29,784
|
|
Denominator:
|
|
|
|
|
|
Weighted average shares outstanding for basic net (loss) income per share
|
14,790,296
|
|
|
14,579,608
|
|
|
14,529,745
|
|
Effect of dilutive securities
|
—
|
|
|
75,742
|
|
|
90,890
|
|
Weighted average shares outstanding for diluted net (loss) income per share
|
14,790,296
|
|
|
14,655,350
|
|
|
14,620,635
|
|
Net (loss) income per share
|
|
|
|
|
|
Basic
|
$
|
(0.10)
|
|
|
$
|
2.29
|
|
|
$
|
2.05
|
|
Diluted
|
$
|
(0.10)
|
|
|
$
|
2.28
|
|
|
$
|
2.04
|
|
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 U.S. Treasury marketable securities are valued using quoted prices in active markets that are accessible as of the measurement date. 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 of $4,244 as of December 31, 2020 and $2,420 as of December 31, 2019 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, 2020 or December 31, 2019.
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 6 "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, marketable securities, and accounts receivable. Generally, we do not require collateral to secure receivables. At December 31, 2020, 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, 2020, 2019, and 2018 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 10 "Restructuring and Asset Impairments" for additional discussion.
Recent Accounting Pronouncements
In December 2019, the FASB issued a new accounting pronouncement regarding accounting for income taxes. The new standard removes certain exceptions to the general principles in ASC 740 Income Taxes and also clarifies and amends existing guidance to provide for more consistent application. The new standard will become effective for the Company in the first quarter of fiscal 2021 and early adoption is permitted. We are evaluating the impact that the adoption of this update will have on our consolidated financial statements.
In March 2020, the FASB issued a new accounting pronouncement regarding the market transition from existing reference rates, such as London Inter-bank Offered Rate ("LIBOR") which is being phased out beginning at the end of 2021, to alternate reference rates, such as Secured Overnight Financing Rate ("SOFR"). The guidance allows for companies to: (1) account for certain contract modifications as a continuation of the existing contract without additional analysis; (2) continue hedge accounting when certain critical terms of a hedging relationship change and assess effectiveness in ways that disregard certain potential sources of ineffectiveness; and (3) make a one-time sale and/or transfer of certain debt securities from held-to-maturity to available-for-sale or trading. This ASU is available for adoption effective immediately, or as of January 1, 2020 or any date thereafter for the Company, and applies prospectively to contract modifications and hedging relationships. The one-time election to sell and/or transfer debt securities classified as held-to-maturity may be made at any time after March 12, 2020. The Company anticipates adopting this standard and will continue to analyze its provisions. The adoption of this new requirement is not expected to have a material impact on the consolidated earnings, financial position or cash flows of the Company.
3. DEBT
Outstanding borrowings consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Syndicated credit agreement:
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure facility
|
$
|
11,750
|
|
|
$
|
14,875
|
|
|
|
|
|
Outstanding borrowings
|
11,750
|
|
|
14,875
|
|
Less: debt issuance costs
|
(486)
|
|
|
(603)
|
|
Total debt
|
11,264
|
|
|
14,272
|
|
Less: current portion of long-term debt
|
(3,125)
|
|
|
(3,125)
|
|
Long-term debt
|
$
|
8,139
|
|
|
$
|
11,147
|
|
Syndicated Credit Agreement
On March 8, 2018, we entered into a five-year $75,000 syndicated credit agreement (“credit facility”) which allows for revolving loans of up to $50,000 with a $20,000 US dollar equivalent sublimit for alternative currency loans. In addition, the new agreement included a $25,000 Capital Expenditure Facility (“Capex Facility”) which was used to assist in financing our DynaEnergetics manufacturing expansion project in Blum, Texas. In March 2019, the Capex Facility converted from a revolving loan to a term loan which is amortizable at 12.5% of principal per year with a balloon payment for the outstanding balance upon the credit facility maturity date in 2023. In 2019, we prepaid an additional $7,000 above the required amortization amount. The credit facility has an accordion feature to increase the commitments by $100,000 under the revolving loan class and/or by adding a term loan subject to approval by applicable lenders. We entered into the credit facility with a syndicate of three banks, with KeyBank, N.A. acting as administrative agent. The syndicated credit facility is secured by the assets of DMC including accounts receivable, inventory, and fixed assets, as well as guarantees and share pledges by DMC and its subsidiaries.
Borrowings under the $50,000 revolving loan limit can be in the form of one, two, three, or six month London Interbank Offered Rate (“LIBOR”) loans. Additionally, US dollar borrowings on the revolving loan can be in the form of Base Rate loans (Base Rate borrowings are based on the greater of the administrative agent’s Prime rate, an adjusted Federal Funds rate or an adjusted LIBOR rate). LIBOR loans bear interest at the applicable LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%). Base Rate loans bear interest at the defined Base rate plus an applicable margin (varying from 0.50% to 2.00%). All revolving loan borrowings and repayments have been in the form of one- or two-month loans and are reported on a net basis in our Consolidated Statements of Cash Flows.
Borrowings under the $20,000 alternate currency sublimit can be in euros, Canadian dollars, pounds sterling, and in any other currency acceptable to the administrative agent. Alternative currency borrowings denominated in euros, pounds sterling, and any other currency that is dealt with on the London Interbank Deposit Market shall be comprised of LIBOR loans and bear interest at the LIBOR rate plus an applicable margin (varying from 1.50% to 3.00%). We have not made any borrowings under the alternative currency sublimit.
On June 25, 2020, we entered into an amendment ("Amendment") to the credit facility related to the debt-to-EBITDA leverage ratio covenant and a debt service coverage ratio covenant, among other things. The Amendment waives the debt service coverage ratio covenant for the quarters ending September 30, 2020, December 31, 2020, and March 31, 2021. The debt service coverage ratio minimum of 1.35 to 1 was applicable for the quarter ending June 30, 2020 and will resume beginning with the quarter ending June 30, 2021 and thereafter. The debt service coverage ratio is defined in the credit facility as the ratio of Consolidated Pro Forma EBITDA less the sum of capital distributions paid in cash, cash income taxes and Consolidated Unfunded Capital Expenditures (as defined in the credit facility) to Debt Service Charges (as defined in the credit facility).
Additionally, the Amendment added a minimum liquidity covenant requiring the total of cash and cash equivalents held by U.S. subsidiaries and available borrowing capacity under the credit facility to exceed $10,000 for the quarters ending September 30, 2020, December 31, 2020, and March 31, 2021. The minimum liquidity covenant is not required after the quarter ending March 31, 2021.
During the period from the Amendment through August 31, 2020, borrowings outstanding under the credit facility bore interest at LIBOR plus a margin of 1.75% or at a Base Rate (as defined in the credit facility) plus a margin of 0.75%. For the period from September 1, 2020 through the date of receipt of the covenant compliance certificate for the quarter ending March 31, 2021, borrowings outstanding under the credit facility will bear interest at LIBOR plus a margin of 1.75% to 3.00% or at a Base Rate plus a margin of 0.75% to 2.00%. In each case, the margin is based on the Company's Leverage Ratio of Consolidated Funded Indebtedness (as defined in the credit facility) on the last day of such period to Consolidated Pro Forma EBITDA for such period. Additionally, the Amendment set the minimum LIBOR at 0.75%.
On October 22, 2020, in connection with the commencement of our at-the-market offering, we entered into an amendment to the credit facility to waive the requirement that we repay outstanding balances under the credit facility from the proceeds of any equity offering. The waiver applies to at-the-market offerings up to $75 million.
The credit facility includes various covenants and restrictions, certain of which relate to the payment of dividends or other distributions to stockholders; redemption of capital stock; incurrence of additional indebtedness; mortgaging, pledging or disposition of major assets; and maintenance of specified ratios. As of December 31, 2020, we were in compliance with all financial covenants and other provisions of our debt agreements.
Line of Credit with German Bank
We maintain a line of credit with a German bank for our NobelClad and DynaEnergetics operations in Europe. In July 2020, the German Bank Facility was amended to increase the borrowing capacity from €4,000 to €7,000. This line of credit is also used to issue bank guarantees to customers to secure advance payments made by them. As of December 31, 2020, we had no outstanding borrowings under this line of credit and bank guarantees of €3,676 secured by the line of credit. The line of credit bears interest at a EURIBOR-based variable rate which at December 31, 2020 was 4.50%. The line of credit has open-ended terms and can be canceled by the bank at any time.
Debt Issuance Costs
Included in long-term debt are deferred debt issuance costs of $486 and $603 as of December 31, 2020 and 2019, respectively. Deferred debt issuance costs are being amortized over the remaining term of the credit facility, which expires on March 8, 2023.
4. EQUITY PROGRAM
On October 22, 2020, the Company commenced an at-the-market ("ATM") equity program under its shelf registration statement, which allows it to sell and issue up to $75 million in shares of its common stock from time to time. The Company entered into an Equity Distribution Agreement on October 22, 2020 with KeyBanc Capital Markets Inc. ("KeyBanc") relating to the issuance and sale of shares of common stock pursuant to the program. KeyBanc is not required to sell any specific amount of securities but will act as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices, on mutually agreed terms between KeyBanc and us. There is no specific date on which the ATM equity program will end and there are no minimum purchase requirements. KeyBanc will be entitled to compensation for shares sold pursuant to the program in an amount up to 1.5% of the gross proceeds of any shares of common stock sold under the Equity Distribution Agreement.
During the year ended December 31, 2020, the Company sold 608,360 shares of common stock through its ATM equity program for gross proceeds of $26,132 at a weighted average price per share of $42.95. Net proceeds from such sales were $25,740, after deducting commissions paid to the sales agents of approximately $392.
5. STOCK OWNERSHIP AND BENEFIT PLANS
Our stock-based compensation expense results from restricted stock awards ("RSAs"), restricted stock units ("RSUs"), performance share units ("PSUs"), and stock issued under the Employee Stock Purchase Plan. The following table sets forth the total stock-based compensation expense included in the Consolidated Statements of Operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Cost of products sold
|
|
$
|
652
|
|
|
$
|
620
|
|
|
$
|
342
|
|
General and administrative expenses
|
|
4,408
|
|
|
4,052
|
|
|
2,862
|
|
Selling and distribution expenses
|
|
615
|
|
|
532
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net of income taxes
|
|
5,675
|
|
|
5,204
|
|
|
3,580
|
|
|
|
|
|
|
|
|
Earnings per share impact
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
|
$
|
0.36
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.38
|
|
|
$
|
0.36
|
|
|
$
|
0.24
|
|
On November 4, 2016, our stockholders approved the 2016 Omnibus Incentive Plan (“2016 Plan”). The 2016 Plan provides for the granting of various types of equity-based incentives, including stock options, RSAs, RSUs, stock appreciation rights, performance shares, performance units, other stock-based awards, and cash-based awards. Our stockholders approved a total of 5,000,000 shares available for grant under the 2016 Plan, less 1,639,881 of RSAs and RSUs previously granted under the 2006 Stock Incentive Plan ("2006 Plan") as of the 2006 Plan's expiration of September 21, 2016. As of the inception of the 2016 plan on September 21, 2016, 3,360,119 shares were available for grant under the 2016 Plan. As of December 31, 2020, we have granted RSAs, RSUs, and PSUs representing an aggregate of 825,099 shares of stock under the 2016 Plan, and 2,535,020 shares are available for future grant.
RSAs and RSUs are granted to employees and non-employee directors based on time-vesting. For RSAs or RSUs granted to employees, vesting typically occurs in one-third increments on the first, second, and third anniversary of the grant date. For RSAs or RSUs granted to non-employee directors, vesting occurs on the first anniversary of the grant date. Each RSA represents a restricted share of common stock that has voting and dividend rights and becomes fully unrestricted upon vesting. Each RSU represents the right to receive one share of stock upon vesting.
The fair value of RSAs and RSUs granted to employees and non-employee directors is based on the fair value of DMC’s stock on the grant date. RSAs and RSUs granted to employees and non-employee directors are amortized to compensation expense over the vesting period on a straight-line basis. Our policy is to recognize forfeitures of RSAs and RSUs as they occur.
PSUs are granted to employees with vesting based on performance and market conditions. Each PSU represents the right to receive stock upon the achievement of certain conditions. A target number of PSUs is awarded on the grant date, and the recipient is eligible to earn shares of common stock between 0% and 200% of the number of targeted PSUs awarded. A portion of an employee's grant is based on actual performance against a targeted Adjusted EBITDA goal while the remainder is based on relative total shareholder return ("TSR") performance compared to our peer group disclosed in our Proxy Statement. For awards granted in 2020, 25% of the grant is based on the achievement of targeted Adjusted EBITDA and 75% of the grant is based on the achievement of relative TSR performance. For PSUs granted prior to 2020, 50% of the grant is based on the achievement of targeted Adjusted EBITDA and 50% of the grant is based on the achievement of relative TSR performance. The PSUs earned, if any, cliff vest at the end of the third year following the year of grant based on the degree of satisfaction of the PSUs performance and market conditions.
The fair value of PSUs with target Adjusted EBITDA performance conditions is based on the fair value of DMC’s stock on the grant date, and the value is amortized to compensation expense over the vesting period based on the estimated probable satisfaction of the performance condition. The fair value of PSUs with TSR performance conditions is based on a third-party valuation simulating a range of possible TSR outcomes over the performance period, and the resulting fair value is amortized to compensation expense over the vesting period based on a straight-line basis. Our policy is to recognize forfeitures of PSUs as they occur.
A summary of the activity of our nonvested shares of RSAs issued is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Plan
|
|
2006 Plan (1)
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Balance at December 31, 2018
|
289,931
|
|
|
$
|
18.81
|
|
|
63,035
|
|
|
$
|
22.91
|
|
Granted
|
75,531
|
|
|
48.74
|
|
|
—
|
|
|
—
|
|
Vested
|
(71,317)
|
|
|
24.67
|
|
|
(62,537)
|
|
|
8.65
|
|
Forfeited
|
(2,665)
|
|
|
18.65
|
|
|
(498)
|
|
|
6.22
|
|
Balance at December 31, 2019
|
291,480
|
|
|
$
|
25.12
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
100,882
|
|
|
34.07
|
|
|
—
|
|
|
—
|
|
Vested
|
(135,709)
|
|
|
26.20
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(7,088)
|
|
|
37.08
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2020
|
249,565
|
|
|
$
|
27.81
|
|
|
—
|
|
|
$
|
—
|
|
(1) There was no activity related to the 2006 plan during the year ended December 31, 2020.
A summary of the activity of our nonvested RSUs issued under the 2016 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Plan
|
|
2006 Plan (1)
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Balance at December 31, 2018
|
95,325
|
|
|
$
|
17.99
|
|
|
26,329
|
|
|
$
|
16.69
|
|
Granted
|
25,576
|
|
|
45.97
|
|
|
—
|
|
|
—
|
|
Vested
|
(28,843)
|
|
|
18.16
|
|
|
(26,329)
|
|
|
6.96
|
|
Forfeited
|
(4,999)
|
|
|
19.67
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2019
|
87,059
|
|
|
$
|
26.05
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
27,730
|
|
|
35.29
|
|
|
—
|
|
|
—
|
|
Vested
|
(39,009)
|
|
|
23.53
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(4,340)
|
|
|
15.65
|
|
|
—
|
|
|
—
|
|
Balance at December 31, 2020
|
71,440
|
|
|
$
|
31.65
|
|
|
—
|
|
|
$
|
—
|
|
(1) There was no activity related to the 2006 plan during the year ended December 31, 2020.
A summary of the activity of our nonvested PSUs issued under the 2016 Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
Balance at December 31, 2018
|
|
46,000
|
|
|
$
|
22.32
|
|
Granted
|
|
17,640
|
|
|
60.75
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
63,640
|
|
|
$
|
32.97
|
|
Granted
|
|
45,948
|
|
|
49.93
|
|
Vested
|
|
(46,000)
|
|
|
18.18
|
|
Forfeited
|
|
(7,478)
|
|
|
43.17
|
|
Balance at December 31, 2020
|
|
56,110
|
|
|
$
|
57.63
|
|
As of December 31, 2020, total unrecognized stock-based compensation related to unvested awards was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized stock compensation
|
|
Weighted-average recognition period
|
Unvested RSAs
|
|
$
|
3,805
|
|
|
1.3 years
|
Unvested RSUs
|
|
$
|
1,246
|
|
|
1.4 years
|
Unvested PSUs
|
|
$
|
1,545
|
|
|
1.5 years
|
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan (“ESPP”) pursuant to which we are authorized to issue up to 850,000 shares of DMC common stock, of which 206,350 shares remain available for future purchase as of December 31, 2020. The offerings begin on the first day following each previous offering (“Offering Date”) and end six months from the Offering Date (“Purchase Date”). The ESPP provides that full time employees may authorize DMC to withhold up to 15% of their earnings, subject to certain limitations, to be used to purchase stock at the lesser of 85% of the fair market value of the stock on the Offering Date or the Purchase Date. In connection with the ESPP, 18,462, 16,553, and 18,100 shares of our stock were purchased during the years ended December 31, 2020, 2019, and 2018, respectively. Our total stock-based compensation expense for 2020, 2019, and 2018 includes $133, $159, and $121, respectively, in compensation expense associated with the ESPP.
401(k) Plan
We offer a contributory 401(k) plan to our employees. We make matching contributions equal to 100% of each employee’s contribution up to 3% of qualified compensation and 50% of the next 2% of qualified compensation contributed by each employee. Total DMC contributions were $1,069, $1,156, and $828 for the years ended December 31, 2020, 2019 and 2018, respectively.
Deferred Compensation Plan
The Company maintains a Non-Qualified Deferred Compensation Plan (the “Plan”) as part of its overall compensation package for certain employees. Participants are eligible to defer a portion of their annual salary, their annual incentive bonus, and their equity awards through the Plan on a tax-deferred basis. Deferrals into the Plan are not matched or subsidized by the Company, nor are they eligible for above-market or preferential earnings.
The Plan provides for deferred compensation obligations to be settled either by delivery of a fixed number of shares of DMC’s common stock or in cash, in accordance with participant contributions and elections. For deferred equity awards, subsequent to equity award vesting and after a period prescribed by the Plan, participants can elect to diversify contributions of equity awards into other investment options available to Plan participants. Once diversified, contributions of equity awards will be settled by delivery of cash.
The Company has established a grantor trust commonly known as a “rabbi trust” and contributed certain assets to satisfy the future obligations to participants in the Plan. These assets are subject to potential claims of the Company’s general creditors. The assets held in the trust include unvested RSAs, vested company stock awards, company-owned life insurance (“COLI”) on certain employees, and money market and mutual funds. Unvested RSAs and common stock held by the trust are reflected in the Consolidated Balance Sheets within “Treasury stock, at cost, and company stock held for deferred compensation, at par” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock. COLI is accounted for at the cash surrender value while money market and mutual funds held by the trust are accounted for at fair value.
Deferred compensation obligations that will be settled in cash are accounted for on an accrual basis in accordance with the terms of the Plan. These obligations are adjusted based on changes in value of the underlying investment options chosen by Plan participants. Deferred compensation obligations that will be settled by delivery of a fixed number of previously vested shares of the Company’s common stock are reflected in the Consolidated Statements of Stockholders’ Equity within “Common stock” at the par value of the common stock or unvested RSAs. These accounts are not adjusted for subsequent changes in the fair value of the common stock.
The balances related to the deferred compensation plan are as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet location
|
2020
|
|
2019
|
Deferred compensation assets
|
|
Other assets
|
$
|
7,596
|
|
|
$
|
4,461
|
|
Deferred compensation obligations
|
|
Other long-term liabilities
|
$
|
11,894
|
|
|
$
|
6,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Subsidiary Defined Benefit and Defined Contribution Plans
We have defined benefit pension plans at certain foreign subsidiaries for which we have recorded an unfunded pension obligation of $2,404 and $2,079 as of December 31, 2020 and 2019, respectively, which is included in other long-term liabilities in the Consolidated Balance Sheets. All necessary adjustments to the obligation are based upon actuarial calculations and the service cost component is recorded within "General and administrative expenses" while all other costs are included within "Other expense, net" in the Consolidated Statements of Operations. We recognized expense of $122, $406 and $10 for the years ended December 31, 2020, 2019 and 2018, respectively.
During the fourth quarter of 2020, a new defined contribution pension plan went into effect for employees at the foreign subsidiaries, which replaced the defined benefit plan. Under the new plan, pension benefits will be financed both through contributions by the Company and employees. The Company contributes between 1.5% and 4.5% of the employee's salary annually. During the year ended December 31, 2020, the Company contributed $323 to the defined contribution plan. Past contributions into the defined benefit plan were unchanged by the new defined contribution plan, and participants will continue to accrue pension benefits on those contributions.
6. INCOME TAXES
The domestic and foreign components of income (loss) before taxes for our operations consist of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Domestic
|
$
|
(7,103)
|
|
|
$
|
33,837
|
|
|
$
|
9,399
|
|
Foreign
|
5,143
|
|
|
22,865
|
|
|
25,208
|
|
Total (loss) income before income taxes
|
$
|
(1,960)
|
|
|
$
|
56,702
|
|
|
$
|
34,607
|
|
The components of the (benefit) provision for income taxes consist of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Current – Federal
|
$
|
162
|
|
|
$
|
4,543
|
|
|
$
|
444
|
|
Current – State
|
196
|
|
|
557
|
|
|
371
|
|
Current – Foreign
|
1,407
|
|
|
13,272
|
|
|
6,972
|
|
Current income tax expense
|
1,765
|
|
|
18,372
|
|
|
7,787
|
|
|
|
|
|
|
|
Deferred – Federal
|
(1,997)
|
|
|
1,770
|
|
|
98
|
|
Deferred – State
|
156
|
|
|
(290)
|
|
|
—
|
|
Deferred -– Foreign
|
(472)
|
|
|
2,809
|
|
|
(3,751)
|
|
Deferred income tax (benefit) expense
|
(2,313)
|
|
|
4,289
|
|
|
(3,653)
|
|
Income tax (benefit) provision
|
$
|
(548)
|
|
|
$
|
22,661
|
|
|
$
|
4,134
|
|
Our deferred tax assets and liabilities consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
Net operating loss carryforward
|
$
|
8,715
|
|
|
$
|
9,138
|
|
Inventory differences
|
644
|
|
|
721
|
|
Equity compensation
|
1,357
|
|
|
1,203
|
|
Investment in subsidiaries
|
—
|
|
|
2,300
|
|
Restructuring
|
103
|
|
|
7
|
|
Purchased goodwill
|
1,308
|
|
|
1,807
|
|
Accrued employee compensation and benefits
|
3,562
|
|
|
2,945
|
|
Lease liabilities
|
2,792
|
|
|
2,259
|
|
Other, net
|
753
|
|
|
134
|
|
Gross deferred tax assets
|
19,234
|
|
|
20,514
|
|
Less valuation allowances
|
(8,566)
|
|
|
(9,680)
|
|
Total deferred tax assets
|
10,668
|
|
|
10,834
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Purchased intangible assets and goodwill
|
(373)
|
|
|
(987)
|
|
Depreciation and amortization
|
(4,878)
|
|
|
(7,366)
|
|
Right of use assets
|
(2,550)
|
|
|
(1,997)
|
|
Other, net
|
(539)
|
|
|
(434)
|
|
Total deferred tax liabilities
|
(8,340)
|
|
|
(10,784)
|
|
|
|
|
|
Net deferred tax assets
|
$
|
2,328
|
|
|
$
|
50
|
|
As of December 31, 2020, we had loss carryforwards for tax purposes totaling approximately $49,899, comprised of $46,344 foreign and $3,555 domestic state loss carryforwards, which will be available to offset future taxable income in certain jurisdictions. Certain losses can be carried forward indefinitely, while the remainder generally have carryforward periods of 5 to 20 years, depending on jurisdiction. We have analyzed the net operating losses and placed valuation allowances on those where we have determined the realization is not more likely than not to occur.
We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. Additionally, a three-year cumulative loss at a Consolidated Financial Statement level may be viewed as negative evidence impacting a jurisdiction that by itself is not in a three-year cumulative loss position. At December 31, 2018, the Company was no longer in a consolidated three-year cumulative loss position. Accordingly, we evaluated deferred tax assets at the jurisdictional level and released valuation allowances of $5,818 in jurisdictions where we believe sufficient future taxable income will be generated to use existing deferred tax assets. We continue to record valuation allowances against deferred tax assets where we do not believe sufficient future taxable income will be generated to use existing
deferred tax assets. Accordingly, in 2020 and 2019 we recorded a net decrease of $1,114 and a net increase of $537, respectively, to the valuation allowance comprised of changes principally to legal entity structuring in Germany and the closure of our facility in Tyumen, Siberia. The net decrease in the valuation allowance in 2020 and the net increase in the valuation allowance in 2019 includes increases of $532 and $71, respectively, related to currency revaluation. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if positive evidence such as current and expected future taxable income outweighs negative evidence.
A reconciliation of our income tax provision computed by applying the Federal statutory income tax rate of 21% to income before taxes is as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Statutory U.S. federal income tax
|
$
|
(412)
|
|
|
$
|
11,907
|
|
|
$
|
7,268
|
|
U.S. state income tax, net of federal benefit
|
(24)
|
|
|
492
|
|
|
430
|
|
U.S. TCJA - net impact
|
—
|
|
|
—
|
|
|
(604)
|
|
Foreign rate differential
|
1,223
|
|
|
4,257
|
|
|
3,054
|
|
|
|
|
|
|
|
Tax audit adjustments
|
—
|
|
|
—
|
|
|
(11)
|
|
|
|
|
|
|
|
Equity compensation
|
(715)
|
|
|
(1,469)
|
|
|
(156)
|
|
Deemed repatriation of foreign earnings
|
—
|
|
|
187
|
|
|
281
|
|
German legal entity structuring
|
1,161
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible penalties
|
—
|
|
|
—
|
|
|
1,686
|
|
DynaEnergetics Siberia shut down
|
324
|
|
|
6,193
|
|
|
—
|
|
Other
|
(460)
|
|
|
561
|
|
|
1,046
|
|
Change in valuation allowances
|
(1,645)
|
|
|
533
|
|
|
(8,860)
|
|
|
|
|
|
|
|
Income tax (benefit) provision
|
$
|
(548)
|
|
|
$
|
22,661
|
|
|
$
|
4,134
|
|
DMC files income tax returns in the U.S. federal jurisdiction, as well as various U.S. state and foreign jurisdictions. During the fourth quarter of 2019, our German operating entities commenced a tax audit for fiscal years 2015 through 2017. We expect this audit to be completed in the first quarter of 2021. If any issues addressed in the audit are resolved in a manner not consistent with our expectations, the Company could be required to adjust its provision for income taxes in future periods.
DMC’s U.S. federal tax returns are open for examination for the tax years 2017 onward. Most of DMC’s state tax returns remain open to examination for the tax years 2016 onward. DMC’s foreign tax returns generally remain open to examination for the tax years 2016 onward, depending on jurisdiction.
At December 31, 2020 and 2019, the balance of unrecognized tax benefits was zero. We recognize interest and penalties related to uncertain tax positions in operating expense. As of December 31, 2020 and 2019, our accrual for interest and penalties related to uncertain tax positions was zero.
The Tax Cuts and Jobs Act (“TCJA”), enacted in December 2017, provides that foreign earnings generally can be repatriated to the U.S. without federal tax consequence. We have reassessed the assertion that cumulative earnings by our foreign subsidiaries are indefinitely reinvested. We continue to permanently reinvest the earnings of our international subsidiaries and therefore we do not provide for U.S. income taxes or withholding taxes that could result from the distribution of those earnings to the U.S. parent. If any such earnings were ultimately distributed to the U.S. in the form of dividends or otherwise, or if the shares of our international subsidiaries were sold or transferred, we could be subject to additional U.S. federal and state income taxes. Due to the multiple avenues in which earnings can be repatriated, and because a large portion of these earnings are not liquid, it is not practical to estimate the amount of additional taxes that might be payable on these amounts of undistributed foreign income.
7. BUSINESS SEGMENTS
Our business is organized in the following two segments: DynaEnergetics and NobelClad. DynaEnergetics designs, manufactures and distributes products utilized by the global oil and gas industry principally for the perforation of oil and gas wells. NobelClad produces explosion-welded clad metal plates for use in the construction of corrosion resistant industrial processing equipment and specialized transition joints.
The accounting policies of both segments are the same as those described in the summary of significant accounting policies. Our reportable segments are separately managed strategic business units that offer different products and services. Each segment’s products are marketed to different customer types and require different manufacturing processes and technologies.
Segment information is as follows as of and for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Net sales:
|
|
|
|
|
|
DynaEnergetics
|
$
|
146,395
|
|
|
$
|
310,424
|
|
|
$
|
237,448
|
|
NobelClad
|
82,766
|
|
|
87,126
|
|
|
88,981
|
|
Net sales
|
$
|
229,161
|
|
|
$
|
397,550
|
|
|
$
|
326,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
(Loss) income before income taxes:
|
|
|
|
|
|
DynaEnergetics
|
$
|
6,150
|
|
|
$
|
68,781
|
|
|
$
|
44,476
|
|
NobelClad
|
6,886
|
|
|
7,193
|
|
|
6,499
|
|
Segment operating income before income taxes
|
13,036
|
|
|
75,974
|
|
|
50,975
|
|
|
|
|
|
|
|
Unallocated corporate expenses
|
(8,357)
|
|
|
(12,345)
|
|
|
(9,971)
|
|
Stock-based compensation
|
(5,675)
|
|
|
(5,204)
|
|
|
(3,580)
|
|
Other expense, net
|
(233)
|
|
|
(169)
|
|
|
(1,202)
|
|
Interest expense, net
|
(731)
|
|
|
(1,554)
|
|
|
(1,615)
|
|
(Loss) income before income taxes
|
$
|
(1,960)
|
|
|
$
|
56,702
|
|
|
$
|
34,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Depreciation and Amortization:
|
|
|
|
|
|
DynaEnergetics
|
$
|
7,263
|
|
|
$
|
6,375
|
|
|
$
|
6,308
|
|
NobelClad
|
3,504
|
|
|
3,046
|
|
|
3,212
|
|
Segment depreciation and amortization
|
10,767
|
|
|
9,421
|
|
|
9,520
|
|
Corporate and other (1)
|
314
|
|
|
439
|
|
|
—
|
|
Consolidated depreciation and amortization
|
11,081
|
|
|
9,860
|
|
|
$
|
9,520
|
|
(1) Prior to 2019, the Company fully allocated corporate and other depreciation to the segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
Acquisition of property, plant and equipment
|
|
|
|
|
|
DynaEnergetics
|
$
|
11,741
|
|
|
$
|
19,785
|
|
|
$
|
41,041
|
|
NobelClad
|
1,975
|
|
|
5,560
|
|
|
2,281
|
|
Segment acquisition of property, plant and equipment
|
13,716
|
|
|
25,345
|
|
|
43,322
|
|
Corporate and other
|
137
|
|
|
1,865
|
|
|
1,773
|
|
Consolidated acquisition of property, plant and equipment
|
$
|
13,853
|
|
|
$
|
27,210
|
|
|
$
|
45,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
Assets:
|
|
|
|
DynaEnergetics
|
$
|
132,775
|
|
|
$
|
165,775
|
|
NobelClad
|
60,208
|
|
|
58,205
|
|
Segment assets
|
192,983
|
|
|
223,980
|
|
|
|
|
|
Cash and cash equivalents
|
28,187
|
|
|
20,353
|
|
Marketable securities
|
25,736
|
|
|
—
|
|
Prepaid expenses and other assets
|
24,125
|
|
|
24,535
|
|
Deferred tax assets
|
4,582
|
|
|
3,836
|
|
Corporate property, plant and equipment
|
4,032
|
|
|
4,717
|
|
Consolidated assets
|
$
|
279,645
|
|
|
$
|
277,421
|
|
The geographic location of our property, plant and equipment, net of accumulated depreciation, is as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
United States
|
$
|
77,283
|
|
|
$
|
76,957
|
|
Germany
|
31,924
|
|
|
29,499
|
|
Russia
|
—
|
|
|
1,495
|
|
Canada
|
102
|
|
|
210
|
|
France
|
85
|
|
|
50
|
|
|
|
|
|
Rest of the world
|
17
|
|
|
23
|
|
Total
|
$
|
109,411
|
|
|
$
|
108,234
|
|
All of our sales are from products shipped from our manufacturing facilities and distribution centers located in the United States, Germany, and Canada. The following represents our net sales based on the geographic location of the customer for years ended December 31:
DynaEnergetics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
United States
|
$
|
110,903
|
|
|
$
|
264,892
|
|
|
$
|
184,576
|
|
India
|
5,814
|
|
|
588
|
|
|
1,863
|
|
Canada
|
3,830
|
|
|
11,491
|
|
|
23,006
|
|
Egypt
|
3,413
|
|
|
3,356
|
|
|
314
|
|
Iraq
|
3,287
|
|
|
1,104
|
|
|
2,419
|
|
Oman
|
2,551
|
|
|
2,922
|
|
|
1,277
|
|
Indonesia
|
1,832
|
|
|
1,686
|
|
|
1,201
|
|
Kuwait
|
1,716
|
|
|
1,068
|
|
|
2,014
|
|
Ukraine
|
1,591
|
|
|
3,824
|
|
|
3,594
|
|
Australia
|
1,148
|
|
|
654
|
|
|
361
|
|
Algeria
|
1,068
|
|
|
645
|
|
|
1,630
|
|
Malaysia
|
1,049
|
|
|
871
|
|
|
1,063
|
|
Pakistan
|
876
|
|
|
850
|
|
|
364
|
|
United Arab Emirates
|
840
|
|
|
850
|
|
|
3,074
|
|
Germany
|
605
|
|
|
828
|
|
|
419
|
|
Rest of the world
|
5,872
|
|
|
14,795
|
|
|
10,273
|
|
Total DynaEnergetics
|
$
|
146,395
|
|
|
$
|
310,424
|
|
|
$
|
237,448
|
|
NobelClad
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
United States
|
$
|
38,311
|
|
|
$
|
44,934
|
|
|
$
|
37,272
|
|
Canada
|
6,597
|
|
|
6,196
|
|
|
7,120
|
|
China
|
5,389
|
|
|
—
|
|
|
12,503
|
|
Germany
|
5,100
|
|
|
4,072
|
|
|
3,649
|
|
United Arab Emirates
|
4,008
|
|
|
1,949
|
|
|
1,019
|
|
France
|
2,895
|
|
|
3,591
|
|
|
4,491
|
|
Spain
|
2,670
|
|
|
1,706
|
|
|
1,083
|
|
Norway
|
2,215
|
|
|
4,496
|
|
|
679
|
|
South Korea
|
1,972
|
|
|
2,964
|
|
|
2,263
|
|
Netherlands
|
1,765
|
|
|
2,026
|
|
|
2,237
|
|
Sweden
|
1,569
|
|
|
2,013
|
|
|
2,337
|
|
Australia
|
1,519
|
|
|
1,498
|
|
|
512
|
|
India
|
1,421
|
|
|
1,243
|
|
|
2,428
|
|
Italy
|
1,220
|
|
|
770
|
|
|
1,618
|
|
Belgium
|
1,213
|
|
|
2,365
|
|
|
3,386
|
|
South Africa
|
870
|
|
|
5
|
|
|
—
|
|
Bahrain
|
588
|
|
|
565
|
|
|
20
|
|
Rest of the world
|
3,444
|
|
|
6,733
|
|
|
6,364
|
|
Total NobelClad
|
$
|
82,766
|
|
|
$
|
87,126
|
|
|
$
|
88,981
|
|
During the year ended December 31, 2020, one customer in our DynaEnergetics segment accounted for approximately 12% of total net sales. During the years ended December 31, 2019 and 2018, no customers were responsible for 10% or more of total net sales.
8. DERIVATIVES
We are exposed to foreign currency exchange risk resulting from fluctuations in exchange rates, primarily the U.S. dollar to the euro, the U.S. dollar to the Canadian dollar and, to a lesser extent, other currencies, arising from inter-company and third party transactions entered into by our subsidiaries that are denominated in currencies other than their functional currency. Changes in exchange rates with respect to these transactions result in unrealized gains or losses if such transactions are unsettled at the end of the reporting period or realized gains or losses at settlement of the transaction. We use foreign currency forward contracts to offset foreign exchange rate fluctuations on foreign currency denominated asset and liability positions. None of these contracts are designated as accounting hedges, and all changes in the fair value of the forward contracts are recognized in "Other expense, net" within our Consolidated Statements of Operations.
We execute derivatives with a third party foreign exchange brokerage firm. The primary credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements, and thus we perform a review of the credit risk of our counterparties at the inception of the contract and on an ongoing basis. We anticipate that our counterparties will be able to fully satisfy their obligations under the agreements but will take action if doubt arises regarding the counterparties' ability to perform.
As of December 31, 2020 and 2019, the notional amounts of the forward currency contracts the Company held were $2,092 and $22,860, respectively. At December 31, 2020 and 2019, the fair values of outstanding foreign currency forward contracts were $0.
The gain or loss recognized on derivatives is as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative type
|
|
Income Statement Location
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency contracts
|
|
Other expense, net
|
|
$
|
(1,058)
|
|
|
$
|
(969)
|
|
|
$
|
(77)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Company records an accrual for contingent liabilities when a loss is both probable and reasonably estimable. If some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued. When no amount within a range of loss appears to be a better estimate than any other amount, the lowest amount in the range is accrued.
Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
The following legal matter was resolved in the second quarter of 2019:
Anti-dumping and Countervailing Duties
In June 2015, U.S. Customs and Border Protection (“U.S. Customs”) sent us a Notice of Action that proposed to classify certain of our imports as subject to anti-dumping duties pursuant to a 2010 anti-dumping duty (“AD”) order on Oil Country Tubular Goods (“OCTG”) from China. A companion countervailing duty (“CVD”) order on the same product was in effect as well. The Notice of Action covered one entry of certain raw material steel mechanical tubing made in China and imported into the U.S. from Canada by our DynaEnergetics segment during 2015 for use in manufacturing perforating guns.
Between July 2015 and September 2018, we responded to U.S. Customs regarding their Notice of Action, filed a scope ruling with the U.S. Department of Commerce, and then filed an appeal with the U.S. Court of International Trade. Ultimately, U.S. Customs' position was upheld, and during the quarter ended September 30, 2018, the Company paid accrued AD/CVD and interest to U.S. Customs.
In December 2016, we received notice from U.S. Customs that it may pursue penalties against us related to the AD/CVD issue, and received a formal notice that U.S. Customs was seeking penalties in February 2017. Between then and October 2018, we filed a response to the notice, engaged in discussions with U.S. Customs Headquarters regarding the scope of penalties asserted, and submitted a petition for relief and mitigation of penalties in May 2017. In October 2018, we received a decision in which a mitigated amount of $8,000 was asserted. In December 2018, we submitted a supplemental petition requesting a waiver of the penalty. On April 12, 2019, we received notice that our waiver request was denied and tendered the $8,000 in the second quarter of 2019.
Purchase Commitments
NobelClad entered into a contract in 2018 with a supplier to purchase roll bonded products for resale. The agreement included minimum annual thresholds that run through December 31, 2022. In November 2020, NobelClad and the supplier reached an agreement to terminate the agreement and NobelClad paid $200 to settle any future commitment under the arrangement.
Operating Leases and License Agreements
We lease certain office space, equipment, storage space, vehicles and other equipment under various non-cancelable, operating lease agreements. Additionally, we have a license agreement and a risk allocation agreement related to our U.S. NobelClad business to provide us with the ability to perform our explosive shooting process at a second shooting site in Pennsylvania, which we account for as an operating lease. On January 1, 2019, we adopted ASC 842, and recorded assets and liabilities on the balance sheet for these leases. Refer to Note 2 "Summary of Significant Accounting Policies" for further discussion of our lease accounting including our future commitments under those operating lease agreements.
10. RESTRUCTURING AND ASSET IMPAIRMENTS
DynaEnergetics
During the first quarter of 2020, DynaEnergetics reduced its workforce to address a sharp decline in well completions in the Company’s core oil and gas end market principally due to the COVID-19 pandemic. The workforce reduction impacted full-time, part-time and temporary direct-labor roles in manufacturing and assembly as well as general and administrative positions. We recorded total restructuring charges of $938 during the first quarter of 2020.
During the second quarter of 2020, the COVID-19 pandemic-related collapse in oil and gas demand led to a downturn in well completions and the corresponding demand for DynaEnergetics’ products. As a result, DynaEnergetics recorded asset impairment charges of $1,181 on certain manufacturing assets that will no longer be utilized in production at its Blum, Texas and Troisdorf, Germany facilities. Additionally, DynaEnergetics further reduced its workforce during the quarter and recorded severance expenses of $121.
During the third quarter of 2020, DynaEnergetics sold the land and buildings in Tyumen, Siberia to a third-party for $448, which was equal to the carrying value of the assets held for sale.
During the third quarter of 2019, DynaEnergetics completed a series of capacity expansion initiatives at its manufacturing facilities in North America and Germany. The new capacity improved DynaEnergetics’ operating efficiencies and enabled the business to more effectively serve its global customer base. Capitalizing on its more efficient manufacturing footprint, DynaEnergetics ceased its operations in Tyumen, Siberia in September 2019. During the third and fourth quarters of 2019, the Company released substantially all of its employees inside Russia, sold inventories and certain fixed assets, and proceeded to wind-down the operation.
During the third and fourth quarters of 2019, DynaEnergetics recorded non-cash asset impairment charges of $6,231, which was calculated by comparing the estimated fair value less costs to sell to the carrying value of the assets, severance charges of $1,261, and other exit costs of $268 within “Restructuring expenses, net and asset impairments.” Additionally,
DynaEnergetics recorded a non-cash inventory write down of $630 within “Cost of products sold” and an accounts receivable write down of $131 within "Selling and distribution expenses" associated with the decision to cease operations in Siberia.
During the fourth quarter of 2019, regional shifts in North American drilling and completion activity led DynaEnergetics to close distribution facilities in Canada and Oklahoma and to accelerate a planned consolidation of its perforating system assembly operations in Mt. Braddock, Pennsylvania into its flagship North American facility in Blum, Texas. Additionally, the Company substantially liquidated the assets and liabilities of DynaEnergetics' Siberian operations, as defined under U.S. GAAP. As a result, the related cumulative foreign currency translation loss of $10,420 was reclassified from the Consolidated Balance Sheets into the Consolidated Statement of Operations and was included within “Restructuring expenses, net and asset impairments.”
NobelClad
During the first and second quarters of 2020, NobelClad reduced its workforce as part of cost reduction efforts undertaken in response to the COVID-19 pandemic. The workforce reduction impacted direct-labor roles in manufacturing as well as general and administrative positions. During the fourth quarter of 2020, NobelClad identified certain assets that would no longer be used on a prospective basis and recorded asset impairment charges of $181 to write-off the remaining net book value of the assets upon disposal. During the fourth quarter of 2017, NobelClad announced plans to consolidate its European production facilities by closing manufacturing operations in France. During the second quarter of 2019, NobelClad sold its production facility in France and related assets and recognized a gain of $519. During 2019, NobelClad also recorded an additional accrual of $1,166 for known and probable severance liabilities related to employees terminated as part of closing the manufacturing operations in France. The additional severance accrual was recorded based, in part, on a successful appeal of severance benefits by some terminated employees during the second quarter of 2019.
Corporate
During the first quarter of 2020 in conjunction with the cost reduction efforts undertaken by DynaEnergetics and NobelClad in response to the COVID-19 pandemic, we eliminated certain positions in our corporate offices.
Total restructuring charges incurred for these programs are as follows and are reported in the "Restructuring expenses, net and asset impairments" line item in our Consolidated Statements of Operations for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
Severance
|
|
Asset Impairment
|
|
Contract Termination Costs
|
|
Equipment Moving Costs
|
|
Other Exit Costs (1)
|
|
Total
|
DynaEnergetics
|
$
|
936
|
|
|
$
|
1,181
|
|
|
$
|
19
|
|
|
$
|
126
|
|
|
$
|
660
|
|
|
$
|
2,922
|
|
NobelClad
|
140
|
|
|
180
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
346
|
|
Corporate
|
119
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
119
|
|
Total
|
$
|
1,195
|
|
|
$
|
1,361
|
|
|
$
|
19
|
|
|
$
|
126
|
|
|
$
|
686
|
|
|
$
|
3,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
Severance
|
|
Asset Impairment / (Gain on asset disposals)
|
|
Contract Termination Costs
|
|
Equipment Moving Costs
|
|
Other Exit Costs
|
|
Total
|
DynaEnergetics
|
$
|
1,671
|
|
|
$
|
6,277
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,683
|
|
|
$
|
18,631
|
|
NobelClad
|
1,166
|
|
|
(636)
|
|
|
39
|
|
|
233
|
|
|
70
|
|
|
872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
2,837
|
|
|
$
|
5,641
|
|
|
$
|
39
|
|
|
$
|
233
|
|
|
$
|
10,753
|
|
|
$
|
19,503
|
|
(1) Other exit costs include DynaEnergetics Siberia's cumulative translation losses reclassified into the Consolidated Statement of Operations upon substantial liquidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
Severance
|
|
|
|
Contract Termination Costs
|
|
Equipment Moving Costs
|
|
Other Exit Costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
NobelClad
|
$
|
637
|
|
|
|
|
$
|
43
|
|
|
$
|
249
|
|
|
$
|
185
|
|
|
$
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The changes to the restructuring liability within accrued expenses associated with these programs is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Expense (1)
|
|
Payments
|
|
Currency and Other Adjustments
|
|
December 31, 2020
|
Severance
|
$
|
2,404
|
|
|
$
|
1,195
|
|
|
$
|
(2,547)
|
|
|
$
|
(94)
|
|
|
$
|
958
|
|
Contract termination costs
|
—
|
|
|
19
|
|
|
(19)
|
|
|
—
|
|
|
—
|
|
Equipment moving costs
|
—
|
|
|
126
|
|
|
(126)
|
|
|
—
|
|
|
—
|
|
Other exit costs
|
271
|
|
|
686
|
|
|
(1,132)
|
|
|
175
|
|
|
—
|
|
Total
|
$
|
2,675
|
|
|
$
|
2,026
|
|
|
$
|
(3,824)
|
|
|
$
|
81
|
|
|
$
|
958
|
|
(1) Excludes asset impairment expenses
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
Quarter ended March 31,
|
|
Quarter ended June 30,
|
|
Quarter ended September 30,
|
|
Quarter ended December 31,
|
Net sales
|
|
$
|
73,564
|
|
|
$
|
43,203
|
|
|
$
|
55,281
|
|
|
$
|
57,113
|
|
Gross profit
|
|
$
|
24,470
|
|
|
$
|
6,604
|
|
|
$
|
13,593
|
|
|
$
|
12,186
|
|
Net income (loss)
|
|
$
|
4,155
|
|
|
$
|
(5,648)
|
|
|
$
|
1,008
|
|
|
$
|
(927)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.28
|
|
|
$
|
(0.38)
|
|
|
$
|
0.07
|
|
|
$
|
(0.06)
|
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
(0.38)
|
|
|
$
|
0.07
|
|
|
$
|
(0.06)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
Quarter ended March 31,
|
|
Quarter ended June 30,
|
|
Quarter ended September 30,
|
|
Quarter ended December 31,
|
Net sales
|
|
$
|
100,135
|
|
|
$
|
110,954
|
|
|
$
|
100,094
|
|
|
$
|
86,367
|
|
Gross profit
|
|
$
|
36,405
|
|
|
$
|
42,073
|
|
|
$
|
36,224
|
|
|
$
|
30,221
|
|
Net income (loss)
|
|
$
|
15,170
|
|
|
$
|
17,244
|
|
|
$
|
6,915
|
|
|
$
|
(5,288)
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.02
|
|
|
$
|
1.17
|
|
|
$
|
0.47
|
|
|
$
|
(0.36)
|
|
Diluted
|
|
$
|
1.01
|
|
|
$
|
1.15
|
|
|
$
|
0.46
|
|
|
$
|
(0.36)
|
|