SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Dynamic Materials Corporation (“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.

Income Taxes

The effective tax rate for each of the periods reported differs from the U.S. statutory rate due primarily to favorable foreign permanent differences, variation in contribution to consolidated pre-tax income from each jurisdiction for the respective periods and differences between the U.S. and foreign tax rates (which range from 20% to 35%) on earnings that have been permanently reinvested.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use existing deferred tax assets. A significant piece of objective negative evidence to be evaluated in this assessment is whether there is a three-year cumulative loss incurred in jurisdictions where there are deferred tax assets. We have incurred a three-year cumulative loss in one foreign jurisdiction resulting in local tax loss carryforwards with no expiration date. We also have cumulative tax loss carryforwards in another jurisdiction that we do not believe will be realized. As a result, we recorded a valuation allowance of $716 against the net deferred tax assets in the third quarter of 2014. The amount of the deferred tax assets considered realizable, however, could be adjusted during the carryforward period if positive evidence such as current and expected future taxable income outweighs negative evidence.

In January 2013, the United States Congress authorized, and the President signed into law, changes to the U. S. income tax laws which were retroactive to January 1, 2012. However, since these changes were enacted in 2013, the financial statement benefit of such legislation could not be reflected until the first quarter of 2013. The $914 tax benefit that we recognized in the first quarter of 2013 had a significant favorable impact on our first quarter and first half of 2013 effective tax rate. During the second quarter of 2013, we recorded a one-time tax expense of $430 associated with a German tax audit settlement. This non-recurring adjustment had a significant unfavorable impact on our second quarter and first half 2013 effective tax rate.

Earnings Per Share

Unvested awards of share-based payments with rights to receive dividends or dividend equivalents, such as our restricted stock awards (“RSAs”), are considered participating securities for purposes of calculating earnings per share (“EPS”) and require the use of the two class method for calculating EPS. Under this method, a portion of net income is allocated to these participating securities and therefore is excluded from the calculation of EPS allocated to common stock, as shown in the table below.

Computation and reconciliation of earnings per common share are as follows:



	Three months ended September 30,						Nine months ended September 30,
	2014			2013			2014			2013
Numerator:
Income from continuing operations	$	2,478		$	3,355		$	7,098		$	6,835
Less income allocated to RSAs	(54		)	(59		)	(147		)	(115		)
Income from continuing operations allocated to common stock for EPS calculation	2,424			3,296			6,951			6,720
Income (loss) from discontinued operations	20			256			(77		)	473
Net income allocated to common stock for EPS calculation	$	2,444		$	3,552		$	6,874		$	7,193

Denominator:
Weighted average common shares outstanding - basic	13,686,200			13,540,394			13,673,637			13,528,880
Dilutive stock-based compensation plans	1,525			4,271			5,060			4,093
Weighted average common shares outstanding - diluted	13,687,725			13,544,665			13,678,697			13,532,973

Income (loss) per share - Basic:
Continuing operations	$	0.18		$	0.24		$	0.51		$	0.49
Discontinued operations	—			0.02			(0.01		)	0.03
Net income allocated to common stock for EPS calculation	$	0.18		$	0.26		$	0.50		$	0.52

Income (loss) per share - Diluted:
Continuing operations	$	0.18		$	0.24		$	0.51		$	0.49
Discontinued operations	—			0.02			(0.01		)	0.03
Net income allocated to common stock for EPS calculation	$	0.18		$	0.26		$	0.50		$	0.52

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, trade accounts receivable and payable, accrued expenses, lines of credit and other debt approximate their fair value.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued an accounting standards update to clarify the principles of recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and IFRS. The pronouncement is effective for reporting periods beginning after December 15, 2016. The adoption of this update is not expected to have a significant impact on our financial statements.

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