Item 1. Financial Statements
Materion Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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Third Quarter Ended
|
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Nine Months Ended
|
|
(Thousands, except per share amounts)
|
|
October 1, 2021
|
|
September 25, 2020*
|
|
October 1, 2021
|
|
September 25, 2020*
|
|
Net sales
|
|
$
|
388,028
|
|
|
$
|
287,171
|
|
|
$
|
1,113,413
|
|
|
$
|
836,585
|
|
|
Cost of sales
|
|
313,715
|
|
|
241,860
|
|
|
902,723
|
|
|
699,749
|
|
|
Gross margin
|
|
74,313
|
|
|
45,311
|
|
|
210,690
|
|
|
136,836
|
|
|
Selling, general, and administrative expense
|
|
43,195
|
|
|
35,696
|
|
|
118,031
|
|
|
99,292
|
|
|
Research and development expense
|
|
6,354
|
|
|
5,417
|
|
|
19,164
|
|
|
14,104
|
|
|
Goodwill impairment charges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,053
|
|
|
Asset impairment charges
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,713
|
|
|
Restructuring (income) expense
|
|
—
|
|
|
2,593
|
|
|
(378)
|
|
|
7,144
|
|
|
Other—net
|
|
3,604
|
|
|
2,221
|
|
|
12,272
|
|
|
4,143
|
|
|
Operating profit (loss)
|
|
21,160
|
|
|
(616)
|
|
|
61,601
|
|
|
1,387
|
|
|
Other non-operating income—net
|
|
(1,279)
|
|
|
(1,076)
|
|
|
(3,832)
|
|
|
(2,871)
|
|
|
Interest expense—net
|
|
861
|
|
|
1,334
|
|
|
2,480
|
|
|
2,839
|
|
|
Income (Loss) before income taxes
|
|
21,578
|
|
|
(874)
|
|
|
62,953
|
|
|
1,419
|
|
|
Income tax expense (benefit)
|
|
3,422
|
|
|
(6,345)
|
|
|
10,162
|
|
|
(5,977)
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|
|
Net income
|
|
$
|
18,156
|
|
|
$
|
5,471
|
|
|
$
|
52,791
|
|
|
$
|
7,396
|
|
|
Basic earnings per share:
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|
|
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|
|
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Net income per share of common stock
|
|
$
|
0.89
|
|
|
$
|
0.27
|
|
|
$
|
2.59
|
|
|
$
|
0.36
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
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Net income per share of common stock
|
|
$
|
0.88
|
|
|
$
|
0.27
|
|
|
$
|
2.56
|
|
|
$
|
0.36
|
|
|
Weighted-average number of shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
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Basic
|
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20,439
|
|
|
20,325
|
|
|
20,414
|
|
|
20,342
|
|
|
Diluted
|
|
20,657
|
|
|
20,592
|
|
|
20,659
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|
|
20,595
|
|
*Amounts for the periods ended September 25, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.
See notes to these consolidated financial statements.
Materion Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
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Third Quarter Ended
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Nine Months Ended
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October 1,
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September 25,
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October 1,
|
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September 25,
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(Thousands)
|
|
2021
|
|
2020*
|
|
2021
|
|
2020*
|
|
Net income
|
|
$
|
18,156
|
|
|
$
|
5,471
|
|
|
$
|
52,791
|
|
|
$
|
7,396
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
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|
Foreign currency translation adjustment
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|
(2,029)
|
|
|
3,076
|
|
|
(7,693)
|
|
|
3,369
|
|
|
Derivative and hedging activity, net of tax
|
|
439
|
|
|
(315)
|
|
|
1,411
|
|
|
(822)
|
|
|
Pension and post-employment benefit adjustment, net of tax
|
|
121
|
|
|
29
|
|
|
368
|
|
|
134
|
|
|
Other comprehensive (loss) income
|
|
(1,469)
|
|
|
2,790
|
|
|
(5,914)
|
|
|
2,681
|
|
|
Comprehensive income
|
|
$
|
16,687
|
|
|
$
|
8,261
|
|
|
$
|
46,877
|
|
|
$
|
10,077
|
|
*Amounts for the periods ended September 25, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.
See notes to these consolidated financial statements.
Materion Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
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|
October 1,
|
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Dec. 31,
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(Thousands)
|
|
2021
|
|
2020
|
|
Assets
|
|
|
|
|
|
Current assets
|
|
|
|
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|
Cash and cash equivalents
|
|
$
|
18,009
|
|
|
$
|
25,878
|
|
|
Accounts receivable, net
|
|
190,601
|
|
|
166,447
|
|
|
Inventories, net
|
|
311,745
|
|
|
250,778
|
|
|
Prepaid and other current assets
|
|
36,138
|
|
|
20,896
|
|
|
Total current assets
|
|
556,493
|
|
|
463,999
|
|
|
Deferred income taxes
|
|
1,908
|
|
|
3,134
|
|
|
Property, plant, and equipment
|
|
1,069,592
|
|
|
998,312
|
|
|
Less allowances for depreciation, depletion, and amortization
|
|
(715,158)
|
|
|
(688,626)
|
|
|
Property, plant, and equipment, net
|
|
354,434
|
|
|
309,686
|
|
|
Operating lease, right-of-use assets
|
|
56,556
|
|
|
62,089
|
|
|
Intangible assets, net
|
|
49,012
|
|
|
54,672
|
|
|
Other assets
|
|
23,269
|
|
|
19,364
|
|
|
Goodwill
|
|
140,990
|
|
|
144,916
|
|
|
Total Assets
|
|
$
|
1,182,662
|
|
|
$
|
1,057,860
|
|
|
Liabilities and Shareholders’ Equity
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Short-term debt
|
|
$
|
529
|
|
|
$
|
1,937
|
|
|
Accounts payable
|
|
71,576
|
|
|
55,640
|
|
|
Salaries and wages
|
|
37,168
|
|
|
18,809
|
|
|
Other liabilities and accrued items
|
|
54,749
|
|
|
40,887
|
|
|
Income taxes
|
|
439
|
|
|
1,898
|
|
|
Unearned revenue
|
|
8,308
|
|
|
7,713
|
|
|
Total current liabilities
|
|
172,769
|
|
|
126,884
|
|
|
Other long-term liabilities
|
|
17,572
|
|
|
17,002
|
|
|
Operating lease liabilities
|
|
52,177
|
|
|
56,761
|
|
|
Finance lease liabilities
|
|
17,285
|
|
|
20,539
|
|
|
Retirement and post-employment benefits
|
|
39,216
|
|
|
41,877
|
|
|
Unearned income
|
|
93,061
|
|
|
86,761
|
|
|
Deferred income taxes
|
|
14,118
|
|
|
15,864
|
|
|
Long-term debt
|
|
79,036
|
|
|
36,542
|
|
|
Shareholders’ equity
|
|
|
|
|
|
Serial preferred stock (no par value; 5,000 authorized shares, none issued)
|
|
—
|
|
|
—
|
|
|
Common stock (no par value; 60,000 authorized shares, issued shares of 27,148 at both October 1st and December 31st)
|
|
269,716
|
|
|
258,642
|
|
|
Retained earnings
|
|
676,527
|
|
|
631,058
|
|
|
Common stock in treasury
|
|
(208,952)
|
|
|
(199,187)
|
|
|
Accumulated other comprehensive loss
|
|
(44,553)
|
|
|
(38,639)
|
|
|
Other equity
|
|
4,690
|
|
|
3,756
|
|
|
Total shareholders' equity
|
|
697,428
|
|
|
655,630
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
1,182,662
|
|
|
$
|
1,057,860
|
|
See the notes to these consolidated financial statements.
Materion Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
(Thousands)
|
|
2021
|
|
2020*
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
|
$
|
52,791
|
|
|
$
|
7,396
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation, depletion, and amortization
|
|
32,478
|
|
|
32,042
|
|
|
Amortization of deferred financing costs in interest expense
|
|
546
|
|
|
547
|
|
|
Stock-based compensation expense (non-cash)
|
|
4,924
|
|
|
3,989
|
|
|
|
|
|
|
|
|
Deferred income tax benefit
|
|
(263)
|
|
|
(5,981)
|
|
|
Impairment charges
|
|
—
|
|
|
10,766
|
|
|
Changes in assets and liabilities, net of acquired assets and liabilities:
|
|
|
|
|
Accounts receivable
|
|
(26,041)
|
|
|
13,899
|
|
|
Inventory
|
|
(62,353)
|
|
|
(6,414)
|
|
|
Prepaid and other current assets
|
|
(7,020)
|
|
|
(686)
|
|
|
Accounts payable
|
|
14,863
|
|
|
6,281
|
|
|
Accrued expenses
|
|
20,451
|
|
|
(16,040)
|
|
|
Unearned revenue
|
|
650
|
|
|
(298)
|
|
Interest and taxes payable
|
|
(1,504)
|
|
|
143
|
|
|
Unearned income due to customer prepayments
|
|
9,022
|
|
|
40,385
|
|
|
Other-net
|
|
1,974
|
|
|
(6,585)
|
|
|
Net cash provided by operating activities
|
|
40,518
|
|
|
79,444
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
Payments for acquisition, net of cash acquired
|
|
—
|
|
|
(130,715)
|
|
|
Payments for purchase of property, plant, and equipment
|
|
(77,640)
|
|
|
(46,285)
|
|
|
Proceeds from settlement of currency exchange contract
|
|
—
|
|
|
3,249
|
|
|
Proceeds from sale of property, plant, and equipment
|
|
686
|
|
|
35
|
|
|
Net cash used in investing activities
|
|
(76,954)
|
|
|
(173,716)
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under revolving credit agreement, net
|
|
43,010
|
|
|
120,000
|
|
|
Repayment of long-term debt
|
|
(1,803)
|
|
|
(16,357)
|
|
|
Principal payments under finance lease obligations
|
|
(2,152)
|
|
|
(1,440)
|
|
|
Cash dividends paid
|
|
(7,243)
|
|
|
(6,920)
|
|
|
Repurchase of common stock
|
|
—
|
|
|
(6,766)
|
|
|
Payments of withholding taxes for stock-based compensation awards
|
|
(3,033)
|
|
|
(2,212)
|
|
|
Net cash provided by financing activities
|
|
28,779
|
|
|
86,305
|
|
|
Effects of exchange rate changes
|
|
(212)
|
|
|
714
|
|
|
Net change in cash and cash equivalents
|
|
(7,869)
|
|
|
(7,253)
|
|
|
Cash and cash equivalents at beginning of period
|
|
25,878
|
|
|
125,007
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
18,009
|
|
|
$
|
117,754
|
|
*Amounts for the period ended September 25, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.
See notes to these consolidated financial statements.
Materion Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Shareholders' Equity
|
|
(Thousands, except per share amounts)
|
Common Shares
|
|
Common Shares Held in Treasury
|
|
Common
Stock
|
|
Retained
Earnings*
|
|
Common
Stock in
Treasury
|
|
Accumulated Other
Comprehensive
Loss
|
|
Other
Equity
|
|
Total*
|
|
Balance at July 2, 2021
|
20,438
|
|
|
(6,710)
|
|
|
$
|
268,205
|
|
|
$
|
660,851
|
|
|
$
|
(208,854)
|
|
|
$
|
(43,084)
|
|
|
$
|
4,583
|
|
|
$
|
681,701
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
18,156
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,156
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,469)
|
|
|
—
|
|
|
(1,469)
|
|
|
Cash dividends declared ($0.12 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,452)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,452)
|
|
|
Stock-based compensation activity
|
—
|
|
|
—
|
|
|
1,458
|
|
|
(28)
|
|
|
(18)
|
|
|
—
|
|
|
—
|
|
|
1,412
|
|
|
Payments of withholding taxes for stock-based compensation awards
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
|
—
|
|
|
—
|
|
|
(12)
|
|
|
Directors’ deferred compensation
|
1
|
|
|
1
|
|
|
53
|
|
|
—
|
|
|
(68)
|
|
|
—
|
|
|
107
|
|
|
92
|
|
|
Balance at October 1, 2021
|
20,439
|
|
|
(6,709)
|
|
|
$
|
269,716
|
|
|
$
|
676,527
|
|
|
$
|
(208,952)
|
|
|
$
|
(44,553)
|
|
|
$
|
4,690
|
|
|
$
|
697,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 26, 2020
|
20,322
|
|
|
(6,826)
|
|
|
$
|
256,756
|
|
|
$
|
622,219
|
|
|
$
|
(198,726)
|
|
|
$
|
(45,571)
|
|
|
$
|
3,678
|
|
|
$
|
638,356
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
5,471
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,471
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,790
|
|
|
—
|
|
|
2,790
|
|
|
Cash dividends declared ($0.115 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,338)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,338)
|
|
|
Stock-based compensation activity
|
7
|
|
|
7
|
|
|
235
|
|
|
19
|
|
|
(231)
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|
Payments of withholding taxes for stock-based compensation awards
|
(3)
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
(187)
|
|
|
—
|
|
|
—
|
|
|
(187)
|
|
|
Directors’ deferred compensation
|
1
|
|
|
1
|
|
|
28
|
|
|
—
|
|
|
(41)
|
|
|
—
|
|
|
70
|
|
|
57
|
|
|
Balance at September 25, 2020
|
20,327
|
|
|
(6,821)
|
|
|
$
|
257,019
|
|
|
$
|
625,371
|
|
|
$
|
(199,185)
|
|
|
$
|
(42,781)
|
|
|
$
|
3,748
|
|
|
$
|
644,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Shareholders' Equity
|
|
(Thousands, except per share amounts)
|
Common Shares
|
|
Common Shares Held in Treasury
|
|
Common
Stock
|
|
Retained
Earnings*
|
|
Common
Stock in
Treasury
|
|
Accumulated Other
Comprehensive
Loss
|
|
Other
Equity
|
|
Total*
|
|
Balance at December 31, 2020
|
20,328
|
|
|
(6,820)
|
|
|
$
|
258,642
|
|
|
$
|
631,058
|
|
|
$
|
(199,187)
|
|
|
$
|
(38,639)
|
|
|
$
|
3,756
|
|
|
$
|
655,630
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
52,791
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,791
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,914)
|
|
|
—
|
|
|
(5,914)
|
|
|
Cash dividends declared ($0.355 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,243)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,243)
|
|
|
Stock-based compensation activity
|
152
|
|
|
152
|
|
|
10,932
|
|
|
(79)
|
|
|
(5,929)
|
|
|
—
|
|
|
—
|
|
|
4,924
|
|
|
Payments of withholding taxes for stock-based compensation awards
|
(45)
|
|
|
(45)
|
|
|
—
|
|
|
—
|
|
|
(3,033)
|
|
|
—
|
|
|
—
|
|
|
(3,033)
|
|
|
Directors’ deferred compensation
|
4
|
|
|
4
|
|
|
142
|
|
|
—
|
|
|
(803)
|
|
|
—
|
|
|
934
|
|
|
273
|
|
|
Balance at October 1, 2021
|
20,439
|
|
|
(6,709)
|
|
|
$
|
269,716
|
|
|
$
|
676,527
|
|
|
$
|
(208,952)
|
|
|
$
|
(44,553)
|
|
|
$
|
4,690
|
|
|
$
|
697,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
20,404
|
|
|
(6,744)
|
|
|
$
|
249,674
|
|
|
$
|
624,954
|
|
|
$
|
(186,845)
|
|
|
$
|
(45,462)
|
|
|
$
|
3,422
|
|
|
$
|
645,743
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
7,396
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,396
|
|
|
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,681
|
|
|
—
|
|
|
2,681
|
|
|
Cash dividends declared ($0.34 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,920)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,920)
|
|
|
Stock-based compensation activity
|
117
|
|
|
117
|
|
|
7,272
|
|
|
(59)
|
|
|
(3,133)
|
|
|
—
|
|
|
—
|
|
|
4,080
|
|
|
Payments of withholding taxes for stock-based compensation awards
|
(39)
|
|
|
(39)
|
|
|
—
|
|
|
—
|
|
|
(2,212)
|
|
|
—
|
|
|
—
|
|
|
(2,212)
|
|
|
Repurchase of shares
|
(158)
|
|
|
(158)
|
|
|
—
|
|
|
—
|
|
|
(6,766)
|
|
|
—
|
|
|
—
|
|
|
(6,766)
|
|
|
Directors’ deferred compensation
|
3
|
|
|
3
|
|
|
73
|
|
|
—
|
|
|
(229)
|
|
|
—
|
|
|
326
|
|
|
170
|
|
|
Balance at September 25, 2020
|
20,327
|
|
|
(6,821)
|
|
|
$
|
257,019
|
|
|
$
|
625,371
|
|
|
$
|
(199,185)
|
|
|
$
|
(42,781)
|
|
|
$
|
3,748
|
|
|
$
|
644,172
|
|
*Amounts for the periods ended September 25, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.
See notes to these consolidated financial statements.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note A — Accounting Policies
Basis of Presentation: The accompanying consolidated financial statements of Materion Corporation and its subsidiaries (referred to herein as the Company, our, we, or us) contain all of the adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods reported. All adjustments were of a normal and recurring nature. Certain amounts in prior periods have been reclassified to conform to the 2021 consolidated financial statement presentation.
These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's 2020 Annual Report on Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year.
Business Combinations: The Company records assets acquired and liabilities assumed at the date of acquisition at their respective fair values. Any intangible assets acquired in a business combination are recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Change in Accounting Principle: During the fourth quarter of 2020, the Company elected to change its method for valuing its inventories at locations that previously used the last-in, first-out (LIFO) method to the first-in, first-out (FIFO) method. The Company believes that the FIFO method is preferable as it improves comparability with its most similar peers, it more closely resembles the physical flow of its inventory (i.e., it provides better matching of revenues and expenses), and it results in uniformity across a significant majority of the Company’s inventory. The effects of the change in accounting principle from LIFO to FIFO were retrospectively applied. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheet as of September 25, 2020 and the consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the three and nine months ended September 25, 2020 were adjusted as necessary. For further information, refer to the Company's 2020 Annual Report on Form 10-K.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The following tables reflect the impact to the financial statement line items as a result of the change in accounting principle for the prior periods presented in the accompanying financial statements:
Consolidated Statement of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 25, 2020
|
|
September 25, 2020
|
|
Selected Items
|
|
As Reported
|
|
As Adjusted
|
|
Adjustment
|
|
As Reported
|
|
As Adjusted
|
|
Adjustment
|
|
Cost of sales
|
|
$
|
240,531
|
|
|
$
|
241,860
|
|
|
$
|
1,329
|
|
|
$
|
696,280
|
|
|
$
|
699,749
|
|
|
$
|
3,469
|
|
|
Gross margin
|
|
46,640
|
|
|
45,311
|
|
|
(1,329)
|
|
|
140,305
|
|
|
136,836
|
|
|
(3,469)
|
|
|
Operating profit (loss)
|
|
713
|
|
|
(616)
|
|
|
(1,329)
|
|
|
4,856
|
|
|
1,387
|
|
|
(3,469)
|
|
|
Income (Loss) before income taxes
|
|
455
|
|
|
(874)
|
|
|
(1,329)
|
|
|
4,888
|
|
|
1,419
|
|
|
(3,469)
|
|
|
Income tax benefit
|
|
(6,041)
|
|
|
(6,345)
|
|
|
(304)
|
|
|
(5,183)
|
|
|
(5,977)
|
|
|
(794)
|
|
|
Net income
|
|
6,496
|
|
|
5,471
|
|
|
(1,025)
|
|
|
10,071
|
|
|
7,396
|
|
|
(2,675)
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock
|
|
$
|
0.32
|
|
|
$
|
0.27
|
|
|
$
|
(0.05)
|
|
|
$
|
0.50
|
|
|
$
|
0.36
|
|
|
$
|
(0.14)
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock
|
|
$
|
0.32
|
|
|
$
|
0.27
|
|
|
$
|
(0.05)
|
|
|
$
|
0.49
|
|
|
$
|
0.36
|
|
|
$
|
(0.13)
|
|
Consolidated Statement of Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
Nine Months Ended
|
|
|
|
September 25, 2020
|
|
September 25, 2020
|
|
Selected Items
|
|
As Reported
|
|
As Adjusted
|
|
Adjustment
|
|
As Reported
|
|
As Adjusted
|
|
Adjustment
|
|
Net income
|
|
$
|
6,496
|
|
|
$
|
5,471
|
|
|
$
|
(1,025)
|
|
|
$
|
10,071
|
|
|
$
|
7,396
|
|
|
$
|
(2,675)
|
|
|
Comprehensive income
|
|
9,286
|
|
|
8,261
|
|
|
(1,025)
|
|
|
12,752
|
|
|
10,077
|
|
|
(2,675)
|
|
Consolidated Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 25, 2020
|
|
Selected Items
|
|
As Reported
|
|
As Adjusted
|
|
Adjustment
|
|
Net income
|
|
$
|
10,071
|
|
|
$
|
7,396
|
|
|
$
|
(2,675)
|
|
|
Deferred income tax benefit
|
|
(5,187)
|
|
|
(5,981)
|
|
|
(794)
|
|
|
Increase in inventory
|
|
(9,883)
|
|
|
(6,414)
|
|
|
3,469
|
|
New Pronouncements Adopted: In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing various exceptions, such as the exception to the incremental approach for intra-period tax allocation when there is a loss from continuing operations and income or a gain from other items. The amendments in this update also simplify the accounting for income taxes related to income-based franchise taxes and require that an entity reflect enacted tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The Company adopted the standard on January 1, 2021. The adoption did not materially impact the Company's financial statements or disclosures.
New Accounting Guidance Issued and Not Yet Adopted: In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance is intended
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its various contracts will require an update for a new reference rate, and will determine the timing for implementation of this guidance at the completion of that analysis.
No other recently issued or effective ASUs had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.
Note B — Acquisition
Business acquisitions have been accounted for using the acquisition method, with acquired assets and assumed liabilities recognized at their respective fair values as of the acquisition date. The cost in excess of the net assets of the business acquired is included in goodwill.
On July 17, 2020, the Company completed the acquisition of Optics Balzers AG (Optics Balzers), an industry leader in thin film optical coatings. The purchase price for Optics Balzers was $136.1 million, including the assumption of $22.5 million of debt. The transaction was funded with cash on hand. Based on the fair value of assets acquired and liabilities assumed, goodwill of $70.8 million and identifiable intangible assets of $49.3 million were recorded. Goodwill associated with this acquisition is not tax deductible. This acquisition is being reported in the Company's Precision Optics segment and the results of Optics Balzers are not material to the Company's Consolidated Financial Statements. No material measurement period adjustments have been recorded during the third quarter or first nine months of 2021, and as of October 1, 2021, the purchase price allocation is complete.
Note C — Segment Reporting
The Company has the following reportable segments: Performance Alloys and Composites, Advanced Materials, Precision Optics, and Other. The Company’s reportable segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the Chief Executive Officer, the Company's chief operating decision maker, in determining how to allocate the Company’s resources and evaluate performance.
Performance Alloys and Composites produces strip and bulk form alloy products, strip metal products with clad inlay and overlay metals, beryllium-based metals, beryllium, and aluminum metal matrix composites, in rod, sheet, foil, and a variety of customized forms, and beryllia ceramics.
Advanced Materials produces advanced chemicals, microelectric packaging, precious metal, non-precious metal, and specialty metal products, including vapor deposition targets, frame lid assemblies, clad and precious metal preforms, high temperature, and braze materials.
Precision Optics produces thin film coatings, optical filter materials, sputter-coated, and precision-converted thin film materials.
The Other reportable segment includes unallocated corporate costs and assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Performance
Alloys and
Composites
|
|
Advanced Materials
|
|
Precision Optics
|
|
Other
|
|
Total
|
|
Third Quarter 2021
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
136,096
|
|
|
$
|
220,723
|
|
|
$
|
31,209
|
|
|
$
|
—
|
|
|
$
|
388,028
|
|
|
Intersegment sales
|
|
32
|
|
|
3,036
|
|
|
—
|
|
|
—
|
|
|
3,068
|
|
|
Operating profit (loss)
|
|
20,928
|
|
|
9,281
|
|
|
3,329
|
|
|
(12,378)
|
|
|
21,160
|
|
|
Third Quarter 2020
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
91,203
|
|
|
$
|
165,582
|
|
|
$
|
30,386
|
|
|
$
|
—
|
|
|
$
|
287,171
|
|
|
Intersegment sales
|
|
—
|
|
|
6,602
|
|
|
—
|
|
—
|
|
6,602
|
|
|
Operating (loss) profit
|
|
(437)
|
|
|
5,749
|
|
|
1,421
|
|
|
(7,349)
|
|
|
(616)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months 2021
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
375,533
|
|
|
$
|
638,481
|
|
|
$
|
99,399
|
|
|
$
|
—
|
|
|
$
|
1,113,413
|
|
|
Intersegment sales
|
|
47
|
|
|
8,908
|
|
|
—
|
|
|
—
|
|
|
8,955
|
|
|
Operating profit (loss)
|
|
51,733
|
|
|
26,547
|
|
|
10,513
|
|
|
(27,192)
|
|
|
61,601
|
|
|
First Nine Months 2020
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
291,884
|
|
|
$
|
475,855
|
|
|
$
|
68,846
|
|
|
$
|
—
|
|
|
$
|
836,585
|
|
|
Intersegment sales
|
|
2
|
|
|
24,790
|
|
|
—
|
|
—
|
|
24,792
|
|
|
Operating profit (loss)
|
|
9,910
|
|
|
15,452
|
|
|
(6,080)
|
|
|
(17,895)
|
|
|
1,387
|
|
The following table disaggregates revenue for each segment by end market for the third quarter and first nine months of 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Performance Alloys and Composites
|
|
Advanced Materials
|
|
Precision Optics
|
|
Other
|
|
Total
|
|
Third Quarter 2021
|
|
|
|
|
|
|
|
|
|
|
|
End Market
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
$
|
3,163
|
|
|
$
|
173,689
|
|
|
$
|
630
|
|
|
$
|
—
|
|
|
$
|
177,482
|
|
|
Industrial
|
|
31,521
|
|
|
10,479
|
|
|
8,296
|
|
|
—
|
|
|
50,296
|
|
|
Aerospace and defense
|
|
19,129
|
|
|
1,622
|
|
|
5,652
|
|
|
—
|
|
|
26,403
|
|
|
Consumer electronics
|
|
9,717
|
|
|
530
|
|
|
7,788
|
|
|
—
|
|
|
18,035
|
|
|
Automotive
|
|
28,922
|
|
|
1,719
|
|
|
2,571
|
|
|
—
|
|
|
33,212
|
|
|
Energy
|
|
7,524
|
|
|
27,081
|
|
|
—
|
|
|
—
|
|
|
34,605
|
|
|
Telecom and data center
|
|
14,980
|
|
|
31
|
|
|
—
|
|
|
—
|
|
|
15,011
|
|
|
Other
|
|
21,140
|
|
|
5,572
|
|
|
6,272
|
|
|
—
|
|
|
32,984
|
|
|
Total
|
|
$
|
136,096
|
|
|
$
|
220,723
|
|
|
$
|
31,209
|
|
|
$
|
—
|
|
|
$
|
388,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2020
|
|
|
|
|
|
|
|
|
|
|
|
End Market
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
$
|
983
|
|
|
$
|
131,380
|
|
|
$
|
1,008
|
|
|
$
|
—
|
|
|
$
|
133,371
|
|
|
Industrial
|
|
21,630
|
|
|
9,967
|
|
|
4,976
|
|
|
—
|
|
|
36,573
|
|
|
Aerospace and defense
|
|
14,740
|
|
|
1,687
|
|
|
4,867
|
|
|
—
|
|
|
21,294
|
|
|
Consumer electronics
|
|
11,074
|
|
|
78
|
|
|
6,550
|
|
|
—
|
|
|
17,702
|
|
|
Automotive
|
|
14,077
|
|
|
1,477
|
|
|
1,059
|
|
|
—
|
|
|
16,613
|
|
|
Energy
|
|
5,825
|
|
|
16,693
|
|
|
—
|
|
|
—
|
|
|
22,518
|
|
|
Telecom and data center
|
|
10,452
|
|
|
500
|
|
|
—
|
|
|
—
|
|
|
10,952
|
|
|
Other
|
|
12,422
|
|
|
3,800
|
|
|
11,926
|
|
|
—
|
|
|
28,148
|
|
|
Total
|
|
$
|
91,203
|
|
|
$
|
165,582
|
|
|
$
|
30,386
|
|
|
$
|
—
|
|
|
$
|
287,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Performance Alloys and Composites
|
|
Advanced Materials
|
|
Precision Optics
|
|
Other
|
|
Total
|
|
First Nine Months 2021
|
|
|
|
|
|
|
|
|
|
|
|
End Market
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
$
|
5,966
|
|
|
$
|
495,718
|
|
|
$
|
1,664
|
|
|
$
|
—
|
|
|
$
|
503,348
|
|
|
Industrial
|
|
85,815
|
|
|
33,756
|
|
|
23,305
|
|
|
—
|
|
|
142,876
|
|
|
Aerospace and defense
|
|
60,221
|
|
|
4,680
|
|
|
17,825
|
|
|
—
|
|
|
82,726
|
|
|
Consumer electronics
|
|
30,483
|
|
|
961
|
|
|
24,212
|
|
|
—
|
|
|
55,656
|
|
|
Automotive
|
|
78,195
|
|
|
5,145
|
|
|
6,871
|
|
|
—
|
|
|
90,211
|
|
|
Energy
|
|
16,541
|
|
|
78,487
|
|
|
—
|
|
|
—
|
|
|
95,028
|
|
|
Telecom and data center
|
|
39,348
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
39,488
|
|
|
Other
|
|
58,964
|
|
|
19,594
|
|
|
25,522
|
|
|
—
|
|
|
104,080
|
|
|
Total
|
|
$
|
375,533
|
|
|
$
|
638,481
|
|
|
$
|
99,399
|
|
|
$
|
—
|
|
|
$
|
1,113,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Nine Months 2020
|
|
|
|
|
|
|
|
|
|
|
|
End Market
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductor
|
|
$
|
3,426
|
|
|
$
|
376,107
|
|
|
$
|
1,251
|
|
|
$
|
—
|
|
|
$
|
380,784
|
|
|
Industrial
|
|
68,801
|
|
|
26,748
|
|
|
10,647
|
|
|
—
|
|
|
106,196
|
|
|
Aerospace and defense
|
|
46,898
|
|
|
4,764
|
|
|
14,095
|
|
|
—
|
|
|
65,757
|
|
|
Consumer electronics
|
|
35,725
|
|
|
216
|
|
|
13,496
|
|
|
—
|
|
|
49,437
|
|
|
Automotive
|
|
48,656
|
|
|
4,743
|
|
|
1,083
|
|
|
—
|
|
|
54,482
|
|
|
Energy
|
|
16,844
|
|
|
49,488
|
|
|
—
|
|
|
—
|
|
|
66,332
|
|
|
Telecom and data center
|
|
33,027
|
|
|
2,158
|
|
|
—
|
|
|
—
|
|
|
35,185
|
|
|
Other
|
|
38,507
|
|
|
11,631
|
|
|
28,274
|
|
|
—
|
|
|
78,412
|
|
|
Total
|
|
$
|
291,884
|
|
|
$
|
475,855
|
|
|
$
|
68,846
|
|
|
$
|
—
|
|
|
$
|
836,585
|
|
Intersegment sales are eliminated in consolidation.
Note D — Revenue Recognition
Net sales consist primarily of revenue from the sale of precious and non-precious specialty metals, beryllium and copper-based alloys, beryllium composites, and other products into numerous end markets. The Company requires an agreement with a customer that creates enforceable rights and performance obligations. The Company generally recognizes revenue, in an amount that reflects the consideration to which it expects to be entitled, upon satisfaction of a performance obligation, by transferring control over a product to the customer. Control over the product is generally transferred to the customer when the Company has a present right to payment, the customer has legal title, the customer has physical possession, the customer has the significant risks and rewards of ownership, and/or the customer has accepted the product.
Transaction Price Allocated to Future Performance Obligations: Accounting Standards Codification 606, Revenue from Contracts with Customers, requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied at October 1, 2021. Remaining performance obligations include non-cancelable purchase orders and customer contracts. The guidance provides certain practical expedients that limit this requirement. As such, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
After considering the practical expedient at October 1, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $81.0 million.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Contract Balances: The timing of revenue recognition, billings, and cash collections resulted in the following contract assets and contract liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
October 1, 2021
|
|
December 31, 2020
|
|
$ change
|
|
% change
|
|
Accounts receivable, trade
|
|
$
|
176,766
|
|
|
$
|
156,821
|
|
|
$
|
19,945
|
|
|
13
|
%
|
|
Unbilled receivables
|
|
12,450
|
|
|
8,832
|
|
|
3,618
|
|
|
41
|
%
|
|
Unearned revenue
|
|
8,308
|
|
|
7,713
|
|
|
595
|
|
|
8
|
%
|
Accounts receivable, trade represents payments due from customers relating to the transfer of the Company’s products and services. The Company believes that its receivables are collectible and appropriate allowances for doubtful accounts have been recorded. Impairment losses (bad debt) incurred relating to our receivables were immaterial during the first nine months of 2021.
Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed. Unbilled receivables are generally billed and collected within one year. Billings made on contracts are recorded as a reduction of unbilled receivables.
Unearned revenue is recorded for consideration received from customers in advance of satisfaction of the related performance obligations. The Company recognized approximately $5.6 million of the December 31, 2020 unearned amounts as revenue during the first nine months of 2021.
As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component because the period between the transfer of a product or service to a customer and when the customer pays for that product or service will be one year or less. The Company does not include extended payment terms in its contracts with customers.
Note E — Other-net
Other-net for the third quarter and first nine months of 2021 and 2020 is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
Nine Months Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Metal consignment fees
|
|
$
|
2,243
|
|
|
$
|
2,317
|
|
|
$
|
6,857
|
|
|
$
|
6,583
|
|
|
Amortization of intangible assets
|
|
1,283
|
|
|
907
|
|
|
3,461
|
|
|
1,201
|
|
|
Foreign currency loss (gain)
|
|
380
|
|
|
(1,029)
|
|
|
1,596
|
|
|
(3,577)
|
|
|
Net loss (gain) on disposal of fixed assets
|
|
81
|
|
|
19
|
|
|
(283)
|
|
|
74
|
|
|
Other items
|
|
(383)
|
|
|
7
|
|
|
641
|
|
|
(138)
|
|
|
Total
|
|
$
|
3,604
|
|
|
$
|
2,221
|
|
|
$
|
12,272
|
|
|
$
|
4,143
|
|
Note F — Restructuring
During 2020, the Company determined it would close its Large Area Coatings (LAC) business (a reporting unit in the Precision Optics segment). The closure was substantially completed by the end of the first quarter of 2021. Income of $0.4 million was recorded in the first quarter of 2021, primarily related to lower than previously estimated facility closure costs that were recorded in 2020.
Remaining severance payments are immaterial and reflected in Salaries and wages in the Consolidated Balance Sheet as of October 1, 2021. Any additional costs related to the closure of this business are expected to be immaterial.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
In addition, during 2020, the Company initiated a restructuring plan in its Performance Alloys and Composites segment to close its Warren, Michigan and Fremont, California locations. Costs associated with the plan totaled $2.2 million and $6.8 million in the third quarter and first nine months of 2020, respectively. In the third quarter of 2020, these costs included $0.4 million of severance and $1.6 million of facility and other related costs. Included in restructuring charges for the first nine months of 2020 was $1.8 million of severance associated with approximately 60 employees and $4.4 million of facility and other related costs.
Note G — Income Taxes
The Company's effective tax rate for the third quarter of 2021 and 2020 was 15.9% and 726.0%, respectively, and 16.1% and (421.2)% in the first nine months of 2021 and 2020, respectively. The effective tax rate for each period in 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits, and the foreign derived intangible income deduction. The effective tax rate for the third quarter of 2020 was higher than the statutory tax rate primarily due to the release of a significant valuation allowance, which generated a tax benefit on a loss for the period. The effective tax rate for the first nine months of 2020 was lower than the statutory tax rate primarily due to the release of a significant valuation allowance, which generated a tax benefit on income for the period. The effective tax rate for the first nine months of 2021 included a net discrete income tax benefit of $0.9 million, primarily related to excess tax benefits from stock-based compensation awards and return to provision adjustments recorded. The effective tax rate for the first nine months of 2020 included a net discrete income tax benefit of $3.8 million, primarily related to the release of a valuation allowance.
Given the Company’s recent history of foreign earnings, management believes that there is a reasonable possibility that, within the next twelve months, sufficient positive evidence may become available to allow management to reach a conclusion that a significant portion of the valuation allowance recorded against the deferred tax assets held by its German subsidiaries will be reversed. The reversal would result in an income tax benefit for the quarterly and annual period in which the Company releases the valuation allowance. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company actually achieves.
On March 11, 2021, President Biden signed the American Rescue Plan (the Rescue Plan) into law. The Rescue Plan, among other things, extends and enhances a number of current-law tax incentives for businesses. While the Company continues to examine the impacts the Rescue Plan may have on its business, it does not expect it will have a material impact to its consolidated financial statements.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note H — Earnings Per Share (EPS)
The following table sets forth the computation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
Nine Months Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
(Thousands, except per share amounts)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Numerator for basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,156
|
|
|
$
|
5,471
|
|
|
$
|
52,791
|
|
|
$
|
7,396
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS:
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
20,439
|
|
|
20,325
|
|
|
20,414
|
|
|
20,342
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock appreciation rights
|
|
72
|
|
|
46
|
|
|
73
|
|
|
39
|
|
|
Restricted stock units
|
|
94
|
|
|
77
|
|
|
113
|
|
|
90
|
|
|
Performance-based restricted stock units
|
|
52
|
|
|
144
|
|
|
59
|
|
|
124
|
|
|
Diluted potential common shares
|
|
218
|
|
|
267
|
|
|
245
|
|
|
253
|
|
|
Denominator for diluted EPS:
|
|
|
|
|
|
|
|
|
|
Adjusted weighted-average shares outstanding
|
|
20,657
|
|
|
20,592
|
|
|
20,659
|
|
|
20,595
|
|
|
Basic EPS
|
|
$
|
0.89
|
|
|
$
|
0.27
|
|
|
$
|
2.59
|
|
|
$
|
0.36
|
|
|
Diluted EPS
|
|
$
|
0.88
|
|
|
$
|
0.27
|
|
|
$
|
2.56
|
|
|
$
|
0.36
|
|
Adjusted weighted-average shares outstanding - diluted exclude securities totaling 55,598 and 114,335 for the quarters ended October 1, 2021 and September 25, 2020, respectively and 56,319 and 164,447 for the nine months ended October 1, 2021 and September 25, 2020, respectively. These securities are primarily related to restricted stock units and stock appreciation rights with fair market values and exercise prices greater than the average market price of the Company's common shares and were excluded from the dilution calculation as the effect would have been anti-dilutive.
Note I — Inventories
Inventories on the Consolidated Balance Sheets are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
|
|
December 31,
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Raw materials and supplies
|
|
$
|
79,937
|
|
|
$
|
42,905
|
|
|
Work in process
|
|
179,616
|
|
|
156,093
|
|
|
Finished goods
|
|
52,192
|
|
|
51,780
|
|
|
Inventories, net
|
|
$
|
311,745
|
|
|
$
|
250,778
|
|
The Company maintains the majority of the precious metals and copper used in production on a consignment basis in order to reduce its exposure to metal price movements and to reduce its working capital investment. The notional value of off-balance sheet precious metals and copper was $452.9 million and $400.0 million as of October 1, 2021 and December 31, 2020, respectively. Amounts for the year ended December 31, 2020 have been revised to reflect a $44.6 million reclassification out of work in process and into finished goods inventory.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note J — Customer Prepayments
The Company entered into investment and master supply agreements with a customer to procure equipment to manufacture product for the customer. The customer is providing prepayments to the Company in the amount of approximately $70 million in the aggregate to enable the Company to purchase and install certain equipment and make necessary infrastructure improvements to supply product to the customer. The Company will own the equipment and be responsible for operating and maintenance costs. The prepayment from the customer will be applied when commercial production of the product is sold and delivered to the customer in connection with a master supply agreement. Accordingly, as of October 1, 2021 and December 31, 2020, $67.9 million and $58.8 million, respectively, of prepayments were classified as Unearned income in the Consolidated Balance Sheet, of which $1.0 million and $9.0 million, respectively, was received during the third quarter and first nine months of 2021.
Note K — Pensions and Other Post-employment Benefits
The following is a summary of the net periodic benefit credit for the third quarter and first nine months of 2021 and 2020 for the domestic pension plans (which include the defined benefit pension plan and the supplemental retirement plans) and the domestic retiree medical plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Third Quarter Ended
|
|
Third Quarter Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Components of net periodic benefit (credit) cost
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20
|
|
|
$
|
14
|
|
|
Interest cost
|
|
986
|
|
|
1,215
|
|
|
29
|
|
|
53
|
|
|
Expected return on plan assets
|
|
(2,234)
|
|
|
(2,206)
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service cost (benefit)
|
|
—
|
|
|
—
|
|
|
(374)
|
|
|
(374)
|
|
|
Amortization of net loss (gain)
|
|
418
|
|
|
284
|
|
|
(69)
|
|
|
(83)
|
|
|
Total net benefit (credit) cost
|
|
$
|
(830)
|
|
|
$
|
(707)
|
|
|
$
|
(394)
|
|
|
$
|
(390)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Nine Months Ended
|
|
Nine Months Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Components of net periodic benefit (credit) cost
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60
|
|
|
$
|
45
|
|
|
Interest cost
|
|
2,959
|
|
|
3,644
|
|
|
87
|
|
|
160
|
|
|
Expected return on plan assets
|
|
(6,702)
|
|
|
(6,616)
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service cost (benefit)
|
|
—
|
|
|
—
|
|
|
(1,123)
|
|
|
(1,123)
|
|
|
Amortization of net loss (gain)
|
|
1,253
|
|
|
852
|
|
|
(206)
|
|
|
(249)
|
|
|
Net periodic benefit (credit) cost
|
|
$
|
(2,490)
|
|
|
$
|
(2,120)
|
|
|
$
|
(1,182)
|
|
|
$
|
(1,167)
|
|
|
Settlements
|
|
—
|
|
|
94
|
|
|
—
|
|
|
—
|
|
|
Total net benefit (credit) cost
|
|
$
|
(2,490)
|
|
|
$
|
(2,026)
|
|
|
$
|
(1,182)
|
|
|
$
|
(1,167)
|
|
The Company did not make any contributions to its domestic defined benefit plan in the third quarter or first nine months of 2021 or 2020.
The Company reports the service cost component of net periodic benefit credit in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit credit in Other non-operating (income) expense.
In May 2019, the Company's Board of Directors approved changes to the U.S. defined benefit pension plan. The Company
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
froze the pay and service amounts used to calculate pension benefits for active participants in the pension plan as of January 1, 2020.
Note L — Accumulated Other Comprehensive Income (Loss)
Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the third quarter and first nine months of 2021 and 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
|
|
|
|
|
|
(Thousands)
|
|
Foreign Currency
|
|
Precious Metals
|
|
Copper
|
|
Total
|
|
Pension and Post-Employment Benefits
|
|
Foreign Currency Translation
|
|
Total
|
|
Balance at July 2, 2021
|
|
$
|
1,603
|
|
|
$
|
186
|
|
|
$
|
—
|
|
|
$
|
1,789
|
|
|
$
|
(43,226)
|
|
|
$
|
(1,647)
|
|
|
$
|
(43,084)
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
625
|
|
|
30
|
|
|
8
|
|
|
663
|
|
|
—
|
|
|
(2,029)
|
|
|
(1,366)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(2)
|
|
|
(83)
|
|
|
(8)
|
|
|
(93)
|
|
|
114
|
|
|
—
|
|
|
21
|
|
|
Net current period other comprehensive (loss) income before tax
|
|
623
|
|
|
(53)
|
|
|
—
|
|
|
570
|
|
|
114
|
|
|
(2,029)
|
|
|
(1,345)
|
|
|
Deferred taxes
|
|
143
|
|
|
(12)
|
|
|
—
|
|
|
131
|
|
|
(7)
|
|
|
—
|
|
|
124
|
|
|
Net current period other comprehensive (loss) income after tax
|
|
480
|
|
|
(41)
|
|
|
—
|
|
|
439
|
|
|
121
|
|
|
(2,029)
|
|
|
(1,469)
|
|
|
Balance at October 1, 2021
|
|
$
|
2,083
|
|
|
$
|
145
|
|
|
$
|
—
|
|
|
$
|
2,228
|
|
|
$
|
(43,105)
|
|
|
$
|
(3,676)
|
|
|
$
|
(44,553)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 26, 2020
|
|
$
|
1,065
|
|
|
$
|
(779)
|
|
|
$
|
104
|
|
|
$
|
390
|
|
|
$
|
(41,241)
|
|
|
$
|
(4,720)
|
|
|
$
|
(45,571)
|
|
|
Other comprehensive (loss) income before reclassifications
|
|
(520)
|
|
|
(617)
|
|
|
182
|
|
|
(955)
|
|
|
—
|
|
|
3,076
|
|
|
2,121
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
191
|
|
|
710
|
|
|
(353)
|
|
|
548
|
|
|
(11)
|
|
|
—
|
|
|
537
|
|
|
Net current period other comprehensive (loss) income before tax
|
|
(329)
|
|
|
93
|
|
|
(171)
|
|
|
(407)
|
|
|
(11)
|
|
|
3,076
|
|
|
2,658
|
|
|
Deferred taxes
|
|
(76)
|
|
|
22
|
|
|
(38)
|
|
|
(92)
|
|
|
(40)
|
|
|
—
|
|
|
(132)
|
|
|
Net current period other comprehensive (loss) income after tax
|
|
(253)
|
|
|
71
|
|
|
(133)
|
|
|
(315)
|
|
|
29
|
|
|
3,076
|
|
|
2,790
|
|
|
Balance at September 25, 2020
|
|
$
|
812
|
|
|
$
|
(708)
|
|
|
$
|
(29)
|
|
|
$
|
75
|
|
|
$
|
(41,212)
|
|
|
$
|
(1,644)
|
|
|
$
|
(42,781)
|
|
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and Losses on Cash Flow Hedges
|
|
|
|
|
|
|
|
(Thousands)
|
|
Foreign Currency
|
|
Precious Metals
|
|
Copper
|
|
Total
|
|
Pension and Post-Employment Benefits
|
|
Foreign Currency Translation
|
|
Total
|
|
Balance at December 31, 2020
|
|
$
|
519
|
|
|
$
|
(170)
|
|
|
$
|
468
|
|
|
$
|
817
|
|
|
$
|
(43,473)
|
|
|
$
|
4,017
|
|
|
$
|
(38,639)
|
|
|
Other comprehensive income (loss) before reclassifications
|
|
1,893
|
|
|
532
|
|
|
2,444
|
|
|
4,869
|
|
|
—
|
|
|
(7,693)
|
|
|
(2,824)
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
138
|
|
|
(122)
|
|
|
(3,049)
|
|
|
(3,033)
|
|
|
348
|
|
|
—
|
|
|
(2,685)
|
|
|
Net current period other comprehensive (loss) income before tax
|
|
2,031
|
|
|
410
|
|
|
(605)
|
|
|
1,836
|
|
|
348
|
|
|
(7,693)
|
|
|
(5,509)
|
|
|
Deferred taxes
|
|
467
|
|
|
95
|
|
|
(137)
|
|
|
425
|
|
|
(20)
|
|
|
—
|
|
|
405
|
|
|
Net current period other comprehensive (loss) income after tax
|
|
1,564
|
|
|
315
|
|
|
(468)
|
|
|
1,411
|
|
|
368
|
|
|
(7,693)
|
|
|
(5,914)
|
|
|
Balance at October 1, 2021
|
|
$
|
2,083
|
|
|
$
|
145
|
|
|
$
|
—
|
|
|
$
|
2,228
|
|
|
$
|
(43,105)
|
|
|
$
|
(3,676)
|
|
|
$
|
(44,553)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
1,324
|
|
|
$
|
(452)
|
|
|
$
|
25
|
|
|
$
|
897
|
|
|
$
|
(41,346)
|
|
|
$
|
(5,013)
|
|
|
$
|
(45,462)
|
|
|
Other comprehensive (loss) income before reclassifications
|
|
(863)
|
|
|
(1,851)
|
|
|
(170)
|
|
|
(2,884)
|
|
|
—
|
|
|
3,369
|
|
|
485
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
198
|
|
|
1,519
|
|
|
100
|
|
|
1,817
|
|
|
34
|
|
|
—
|
|
|
1,851
|
|
|
Net current period other comprehensive (loss) income before tax
|
|
(665)
|
|
|
(332)
|
|
|
(70)
|
|
|
(1,067)
|
|
|
34
|
|
|
3,369
|
|
|
2,336
|
|
|
Deferred taxes
|
|
(153)
|
|
|
(76)
|
|
|
(16)
|
|
|
(245)
|
|
|
(100)
|
|
|
—
|
|
|
(345)
|
|
|
Net current period other comprehensive (loss) income after tax
|
|
(512)
|
|
|
(256)
|
|
|
(54)
|
|
|
(822)
|
|
|
134
|
|
|
3,369
|
|
|
2,681
|
|
|
Balance at September 25, 2020
|
|
$
|
812
|
|
|
$
|
(708)
|
|
|
$
|
(29)
|
|
|
$
|
75
|
|
|
$
|
(41,212)
|
|
|
$
|
(1,644)
|
|
|
$
|
(42,781)
|
|
Reclassifications from accumulated other comprehensive income (loss) of gains and losses on foreign currency cash flow hedges are recorded in Net sales in the Consolidated Statements of Income. Reclassifications from accumulated other comprehensive income (loss) of gains and losses on precious metal and copper cash flow hedges are recorded in Cost of sales in the Consolidated Statements of Income. Refer to Note O for additional details on cash flow hedges.
Reclassifications from accumulated other comprehensive income (loss) for pension and post-employment benefits are included in the computation of the net periodic pension and post-employment benefit expense. Refer to Note K for additional details on pension and post-employment expenses.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note M — Stock-based Compensation Expense
Stock-based compensation expense, which includes awards settled in shares and in cash, was $1.5 million and $5.3 million in the third quarter and first nine months of 2021, respectively, compared to less than $0.1 million and $4.1 million, respectively, in the same periods of 2020.
The Company granted 52,709 stock appreciation rights (SARs) to certain employees during the first nine months of 2021. The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the nine months ended October 1, 2021 were $68.82 and $20.66, respectively. The Company estimated the fair value of the SARs using the following weighted-average assumptions in the Black-Scholes model:
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
0.57
|
%
|
|
Dividend yield
|
|
0.7
|
%
|
|
Volatility
|
|
37.6
|
%
|
|
Expected term (in years)
|
|
4.6
|
The Company granted 59,818 stock-settled restricted stock units (RSUs) to certain employees and 9,904 to non-employee directors during the first nine months of 2021. The Company measures the fair value of stock-settled RSUs based on the closing market price of a share of Materion common stock on the date of the grant. The weighted-average fair value per share was $68.62 and $75.77 for stock-settled RSUs granted to employees and non-employee directors, respectively, during the nine months ended October 1, 2021. RSUs are generally expensed over the vesting period of three years for employees and one year for non-employee directors.
The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first nine months of 2021. The weighted-average fair value of the stock-settled PRSUs was $83.78 per share and will be expensed over the vesting period of three years. The final payout to the employees for all PRSUs will be based upon the Company’s return on invested capital and its total return to shareholders over the vesting period relative to a peer group’s performance over the same period.
At October 1, 2021, unamortized compensation cost related to the unvested portion of all stock-based awards was approximately $10.9 million, and is expected to be recognized over the remaining vesting period of the respective grants.
Note N — Fair Value of Financial Instruments
The Company measures and records financial instruments at fair value. A hierarchy is used for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 — Quoted market prices in active markets for identical assets and liabilities;
Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 — Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect
those that a market participant would use.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of October 1, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Total Carrying Value in the Consolidated Balance Sheets
|
|
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation investments
|
|
$
|
3,994
|
|
|
$
|
3,802
|
|
|
$
|
3,994
|
|
|
$
|
3,802
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency forward contracts
|
|
1,800
|
|
|
107
|
|
|
—
|
|
|
—
|
|
|
1,800
|
|
|
107
|
|
|
—
|
|
|
—
|
|
|
Precious metal swaps
|
|
237
|
|
|
127
|
|
|
—
|
|
|
—
|
|
|
237
|
|
|
127
|
|
|
—
|
|
|
—
|
|
|
Copper swaps
|
|
—
|
|
|
632
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
632
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
6,031
|
|
|
$
|
4,668
|
|
|
$
|
3,994
|
|
|
$
|
3,802
|
|
|
$
|
2,037
|
|
|
$
|
866
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liability
|
|
$
|
3,994
|
|
|
$
|
3,802
|
|
|
$
|
3,994
|
|
|
$
|
3,802
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency forward contracts
|
|
128
|
|
|
1,203
|
|
|
—
|
|
|
—
|
|
|
128
|
|
|
1,203
|
|
|
—
|
|
|
—
|
|
|
Precious metal swaps
|
|
49
|
|
|
349
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
349
|
|
|
—
|
|
|
—
|
|
|
Copper swaps
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
4,171
|
|
|
$
|
5,381
|
|
|
$
|
3,994
|
|
|
$
|
3,802
|
|
|
$
|
177
|
|
|
$
|
1,579
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company uses a market approach to value the assets and liabilities for financial instruments in the table above. Outstanding contracts are valued through models that utilize market observable inputs, including both spot and forward prices, for the same underlying currencies and metals. The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of October 1, 2021 and December 31, 2020. The Company's deferred compensation investments and liabilities are based on the fair value of the investments corresponding to the employees’ investment selections, primarily in mutual funds, based on quoted prices in active markets for identical assets. Deferred compensation investments are primarily presented in Other assets. Deferred compensation liabilities are primarily presented in Other long-term liabilities.
Note O — Derivative Instruments and Hedging Activity
The Company uses derivative contracts to hedge portions of its foreign currency exposures and uses derivatives to hedge a portion of its precious metal and copper exposures. The objectives and strategies for using derivatives in these areas are as follows:
Foreign Currency. The Company sells a portion of its products to overseas customers in their local currencies, primarily the euro and yen. The Company secures foreign currency derivatives, mainly forward contracts and options, to hedge these anticipated sales transactions. The purpose of the hedge program is to protect against the reduction in the dollar value of foreign currency sales from adverse exchange rate movements. Should the dollar strengthen significantly, the decrease in the translated value of the foreign currency sales should be partially offset by gains on the hedge contracts. Depending upon the methods used, the hedge contracts may limit the benefits from a weakening U.S. dollar.
The use of forward contracts locks in a firm rate and eliminates any downside from an adverse rate movement as well as any benefit from a favorable rate movement. The Company may from time to time choose to hedge with options or a tandem of options, known as a collar. These hedging techniques can limit or eliminate the downside risk but can allow for some or all of the benefit from a favorable rate movement to be realized. Unlike a forward contract, a premium is paid for an option; collars, which are a combination of a put and call option, may have a net premium but
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
can be structured to be cash neutral. The Company will primarily hedge with forward contracts due to the relationship between the cash outlay and the level of risk.
The use of foreign currency derivative contracts is governed by policies approved by the Audit Committee of the Board of Directors. A team consisting of senior financial managers reviews the estimated exposure levels, as defined by budgets, forecasts, and other internal data, and determines the timing, amounts, and instruments to use to hedge exposures. Management analyzes the effective hedged rates and the actual and projected gains and losses on the hedging transactions against the program objectives, targeted rates, and levels of risk assumed. Foreign currency contracts are typically layered in at different times for a specified exposure period in order to minimize the impact of market rate movements.
Precious Metals. The Company maintains the majority of its precious metal production requirements on consignment in order to reduce its working capital investment and the exposure to metal price movements. When a precious metal product is fabricated and ready for shipment to the customer, the metal is purchased out of consignment at the current market price. The price paid by the Company forms the basis for the price charged to the customer. This methodology allows for changes in either direction in the market prices of the precious metals used by the Company to be passed through to the customer and reduces the impact changes in prices could have on the Company's margins and operating profit. The consigned metal is owned by financial institutions that charge the Company a financing fee based upon the current value of the metal on hand.
In certain instances, a customer may want to establish the price for the precious metal at the time the sales order is placed rather than at the time of shipment. Setting the sales price at a different date than when the material would be purchased potentially creates an exposure to movements in the market price of the metal. Therefore, in these limited situations, the Company may elect to enter into a forward contract to purchase precious metal. The forward contract allows the Company to purchase metal at a fixed price on a specific future date. The price in the forward contract serves as the basis for the price to be charged to the customer. By doing so, the selling price and purchase price are matched, and the Company's price exposure is reduced.
The Company refines precious metal-containing materials for its customers and typically will purchase the refined metal from the customer at current market prices. In limited circumstances, the customer may want to fix the price to be paid at the time of the order as opposed to when the material is refined. The customer may also want to fix the price for a set period of time. The Company may then elect to enter into a hedge contract, either a forward contract or a swap, to fix the price for the estimated quantity of metal to be purchased, thereby reducing the exposure to adverse movements in the price of the metal. The Company may also enter into hedges to mitigate the risk relating to the prices of the metals which we process or refine.
In certain circumstances, the Company also refines metal from the customer and may retain a portion of the refined metal as payment. The Company may elect to enter into a forward contract to sell precious metal to reduce the Company's price exposure.
The Company may from time to time elect to purchase precious metal and hold in inventory rather than on consignment due to potential credit line limitations or other factors. These purchases are typically held for a short duration. A forward contract will be secured at the time of the purchase to fix the price to be used when the metal is transferred back to the consignment line, thereby limiting any price exposure during the time when the metal was owned.
Copper. The Company also uses copper in its production processes. When possible, fluctuations in the purchase price of copper are passed on to customers in the form of price adders or reductions. While over time the Company's price exposure to copper is generally in balance, there can be a lag between the change in the Company's cost and the pass-through to its customers, resulting in higher or lower margins in a given period. To mitigate this impact, the Company hedges a portion of this pricing risk.
The Company will only enter into a derivative contract if there is an underlying identified exposure. Contracts are typically held to maturity. The Company does not engage in derivative trading activities and does not use derivatives for speculative purposes. The Company only uses hedge contracts that are denominated in the same currency or metal as the underlying exposure.
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
All derivatives are recorded on the balance sheet at fair value. If the derivative is designated and effective as a cash flow hedge, changes in the fair value of the derivative are recognized in other comprehensive income (OCI) until the hedged item is recognized in earnings. The ineffective portion of a derivative's fair value, if any, is recognized in earnings immediately. If a derivative is not a hedge, changes in the fair value are adjusted through income. The fair values of the outstanding derivatives are recorded on the balance sheet as assets (if the derivatives are in a gain position) or liabilities (if the derivatives are in a loss position). The fair values will also be classified as short-term or long-term depending upon their maturity dates.
The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives not designated as hedging instruments (on a gross basis) and balance sheet classification as of October 1, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2021
|
|
December 31, 2020
|
|
(Thousands)
|
|
Notional
Amount
|
|
Fair
Value
|
|
Notional
Amount
|
|
Fair
Value
|
|
Foreign currency forward contracts
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
58,289
|
|
|
$
|
914
|
|
|
$
|
62,012
|
|
|
$
|
107
|
|
|
Other liabilities and accrued items
|
|
17,735
|
|
|
125
|
|
|
7,695
|
|
|
55
|
|
These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans. Other-net included $0.7 million of foreign currency gains in the third quarter of 2021 and $0.5 million of foreign currency losses related to derivatives in the first nine months of 2021, compared to $0.4 million and $2.7 million of foreign currency gains in the third quarter and first nine months of 2020, respectively.
The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives designated as cash flow hedges (on a gross basis) and balance sheet classification as of October 1, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2021
|
|
December 31, 2020
|
|
(Thousands)
|
|
Notional
Amount
|
|
Fair
Value
|
|
Notional
Amount
|
|
Fair
Value
|
|
Prepaid expenses
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts - yen
|
|
$
|
4,786
|
|
|
$
|
109
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Foreign currency forward contracts - euro
|
|
27,028
|
|
|
720
|
|
|
—
|
|
|
—
|
|
|
Precious metal swaps
|
|
4,447
|
|
|
225
|
|
|
2,155
|
|
|
127
|
|
|
Copper swaps
|
|
—
|
|
|
—
|
|
|
6,225
|
|
|
632
|
|
|
Total
|
|
36,261
|
|
|
1,054
|
|
|
8,380
|
|
|
759
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts - yen
|
|
327
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Foreign currency forward contracts - euro
|
|
3,567
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
Precious metal swaps
|
|
541
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
4,435
|
|
|
69
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities and accrued items
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts - yen
|
|
606
|
|
|
3
|
|
|
2,668
|
|
|
59
|
|
|
Foreign currency forward contracts - euro
|
|
—
|
|
|
—
|
|
|
17,611
|
|
|
1,089
|
|
|
Precious metal swaps
|
|
870
|
|
|
49
|
|
|
4,964
|
|
|
349
|
|
|
Copper swaps
|
|
—
|
|
|
—
|
|
|
2,445
|
|
|
27
|
|
|
Total
|
|
1,476
|
|
|
52
|
|
|
27,688
|
|
|
1,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,172
|
|
|
$
|
1,071
|
|
|
$
|
36,068
|
|
|
$
|
765
|
|
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
All of these contracts were designated and effective as cash flow hedges. The Company expects to relieve substantially the entire balance in OCI as of October 1, 2021 to the Consolidated Statements of Income within the next 15-months. Refer to Note L for additional OCI details.
The following table summarizes the pre-tax amounts reclassified from accumulated other comprehensive income relating to the hedging relationship of the Company’s outstanding derivatives designated as cash flow hedges and income statement classification as of the third quarter and first nine months of 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
(Thousands)
|
|
|
|
October 2, 2021
|
|
September 25, 2020
|
|
Hedging relationship
|
|
Line item
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Net sales
|
|
$
|
(2)
|
|
|
$
|
191
|
|
|
Precious metal swaps
|
|
Cost of sales
|
|
(83)
|
|
|
710
|
|
|
Copper swaps
|
|
Cost of sales
|
|
(8)
|
|
|
(353)
|
|
|
Total
|
|
|
|
$
|
(93)
|
|
|
$
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
(Thousands)
|
|
|
|
October 1, 2021
|
|
September 25, 2020
|
|
Hedging relationship
|
|
Line item
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Net sales
|
|
$
|
138
|
|
|
$
|
198
|
|
|
Precious metal swaps
|
|
Cost of sales
|
|
(122)
|
|
|
1,519
|
|
|
Copper swaps
|
|
Cost of sales
|
|
(3,049)
|
|
|
100
|
|
|
Total
|
|
|
|
$
|
(3,033)
|
|
|
$
|
1,817
|
|
Note P — Contingencies
Legal Proceedings. For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims, refer to Note T ("Contingencies and Commitments") in the Company's 2020 Annual Report on Form 10-K.
Two beryllium cases were outstanding as of October 1, 2021. The Company does not expect the resolution of these matters to have a material impact on the consolidated financial statements.
Other Litigation. The Company is party to several pending legal proceedings and claims arising in the normal course of business. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matters. To the extent there is a reasonable possibility that the losses could exceed any amounts accrued, the Company will adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
On October 14, 2020, Garett Lucyk, et al. v. Materion Brush Inc., et. al., case number 20CV0234, a wage and hour purported collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush Inc. (collectively, the Company). Plaintiff, a former hourly production employee at the Company's Elmore, Ohio facility, alleges, among other things, that he and other similarly situated employees nationwide are not paid for all time they spend donning and doffing personal protective equipment in violation of the Fair Labor Standards Act and Ohio law. The case is currently in the preliminary stages. The Company believes that it has substantive defenses and intends to vigorously defend this suit.
Environmental Proceedings. The Company has an active environmental compliance program and records reserves for the probable cost of identified environmental remediation projects. The reserves are established based upon analyses conducted by the Company’s engineers and outside consultants and are adjusted from time to time based upon ongoing studies, the
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
difference between actual and estimated costs, and other factors. The reserves may also be affected by rulings and negotiations with regulatory agencies. The undiscounted reserve balance was $4.9 million and $5.5 million at October 1, 2021 and December 31, 2020, respectively, and is included in Other liabilities and accrued items and Other long-term liabilities on the Consolidated Balance Sheet. Environmental projects tend to be long-term, and the final actual remediation costs may differ from the amounts currently recorded.
Note Q — Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
October 1, 2021
|
|
December 31, 2020
|
|
Borrowings under Credit Agreement
|
|
$
|
77,010
|
|
|
$
|
34,000
|
|
|
Foreign debt
|
|
2,555
|
|
|
3,157
|
|
|
Fixed rate industrial development revenue bonds
|
|
—
|
|
|
1,322
|
|
|
Total debt outstanding
|
|
79,565
|
|
|
38,479
|
|
|
Current portion of long-term debt
|
|
(529)
|
|
|
(1,937)
|
|
|
Long-term debt
|
|
$
|
79,036
|
|
|
$
|
36,542
|
|
As of October 1, 2021 and December 31, 2020, the Company had $77.0 million and $34.0 million, respectively, outstanding against its revolving credit facility (Credit Agreement) with average interest rates of 1.51% and 1.65% at October 1, 2021 and December 31, 2020, respectively. The remaining borrowing capacity under the revolving credit facility as of October 1, 2021 and December 31, 2020 was $319.4 million and $245.8 million, respectively. The Company has the option to repay or borrow additional funds under the revolving credit facility until the maturity date in 2024. The Credit Agreement includes covenants subject to a maximum leverage ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all of its debt covenants as of October 1, 2021.
At October 1, 2021 and December 31, 2020, there was $47.3 million and $48.1 million outstanding against the letters of credit sub-facility, respectively.
Note R — Subsequent Event
On September 19, 2021, the Company entered into a definitive agreement under which it has agreed to acquire the industry-leading electronic materials business of H.C. Starck (HCS) for a purchase price of approximately $380 million in cash, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism. Acquisition-related transaction and integration costs totaled $5.3 million in the third quarter of 2021. These costs are included in selling, general, and administrative expenses in the Consolidated Statements of Income. On November 1, 2021, the Company completed the acquisition. The Company financed the purchase price for the HCS acquisition with a new $300 million five-year term loan pursuant to a delayed draw term loan facility entered during October 2021 and $103 million of borrowings under its amended revolving credit facility, which was also extended to expire five years in October 2026. The interest rate for the term loan is based on LIBOR plus a tiered rate determined by the Company's quarterly leverage ratio.
|
|
|
|
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
OVERVIEW
We are an integrated producer of high-performance advanced engineered materials used in a variety of electronic, thermal, and structural applications. Our products are sold into numerous end markets, including semiconductor, industrial, aerospace and defense, automotive, consumer electronics, energy, and telecom and data center.
On September 19, 2021, the Company entered into a definitive agreement under which it has agreed to acquire the industry-leading electronic materials business of H.C. Starck (HCS) for a purchase price of approximately $380 million in cash, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism. Acquisition-related transaction and integration costs totaled $5.3 million in the third quarter of 2021. These costs are included in selling, general, and administrative expenses in the Consolidated Statement of Income. On November 1, 2021, the Company completed the acquisition. The Company financed the purchase price for the HCS acquisition with a new $300 million five-year term loan pursuant to a delayed draw term loan facility entered during October 2021 and $103 million of borrowings under its amended revolving credit facility, which was also extended to expire five years in October 2026. The interest rate for the term loan is based on LIBOR plus a tiered rate determined by the Company's quarterly leverage ratio.
Coronavirus (COVID-19) Third Quarter 2021 Update
The significant macroeconomic impact of the ongoing COVID-19 pandemic impacted several of our end markets throughout 2020 primarily in the first half of the year in the form of reduced demand, particularly in the consumer electronics, automotive, energy, aerospace and defense, and industrial end markets. During the first nine months of 2021, we continued to see improvements in demand as global government-imposed restrictions continued to be lifted and many country vaccination programs gained further momentum. However, the world continues to be impacted by the COVID-19 pandemic and the impact on our operations and the markets we serve is fluid and will depend largely on future developments, including the availability and effectiveness of vaccines globally, new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain the pandemic or mitigate its economic, public health, and other impacts. These developments are constantly evolving and cannot be accurately predicted. We continue to invest in the business, people, and strategies necessary to achieve our long-term priorities as we focus on driving profitable growth. We have continued to operate during the course of the COVID-19 pandemic in all our production facilities, having taken the recommended public health measures to ensure worker and workplace safety.
RESULTS OF OPERATIONS
Third Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
(Thousands, except per share data)
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
388,028
|
|
|
$
|
287,171
|
|
|
$
|
100,857
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
Value-added sales
|
|
215,826
|
|
|
164,905
|
|
|
50,921
|
|
|
31
|
%
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
74,313
|
|
|
45,311
|
|
|
29,002
|
|
|
64
|
%
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of value-added sales
|
|
34
|
%
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative (SG&A) expense
|
|
43,195
|
|
|
35,696
|
|
|
7,499
|
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
SG&A expense as a % of value-added sales
|
|
20
|
%
|
|
22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (R&D) expense
|
|
6,354
|
|
|
5,417
|
|
|
937
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
R&D expense as a % of value-added sales
|
|
3
|
%
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expense
|
|
—
|
|
|
2,593
|
|
|
(2,593)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
Other—net
|
|
3,604
|
|
|
2,221
|
|
|
1,383
|
|
|
62
|
%
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
21,160
|
|
|
(616)
|
|
|
21,776
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
Other non-operating (income)—net
|
|
(1,279)
|
|
|
(1,076)
|
|
|
(203)
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
Interest expense—net
|
|
861
|
|
|
1,334
|
|
|
(473)
|
|
|
(35)
|
%
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income taxes
|
|
21,578
|
|
|
(874)
|
|
|
22,452
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
3,422
|
|
|
(6,345)
|
|
|
9,767
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
18,156
|
|
|
$
|
5,471
|
|
|
$
|
12,685
|
|
|
232
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.88
|
|
|
$
|
0.27
|
|
|
$
|
0.61
|
|
|
226
|
%
|
|
|
|
|
|
|
|
|
n.m. = not meaningful
Net sales of $388.0 million in the third quarter of 2021 increased $100.9 million from $287.2 million in the third quarter of 2020. Net sales increased in all of our segments primarily due to increased volumes, as well as due to sales attributable to our Optics Balzers acquisition, which was completed during the third quarter of 2020.
Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in metal prices and changes in mix due to customer-supplied material. Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein. Value-added sales of $215.8 million in the third quarter of 2021 increased $50.9 million, or 31%, compared to the third quarter of 2020. The increase is primarily driven by increased value-added sales into the semiconductor, industrial, and automotive end markets, as well as value-added sales from our Optics Balzers acquisition.
Gross margin in the third quarter of 2021 was $74.3 million, which was up 64% compared to the third quarter of 2020. Gross margin expressed as a percentage of value-added sales increased to 34% in the third quarter of 2021 from 27% in the third quarter of 2020. The increase was primarily driven by increased sales volumes in the third quarter of 2021, as well as the absence of $7.3 million of mine development costs recorded in the third quarter of 2020.
SG&A expense was $43.2 million in the third quarter of 2021, compared to $35.7 million in the third quarter of 2020. The increase in SG&A expense for the third quarter of 2021 was primarily driven by increased variable compensation expense, as well as costs attributable to our Optics Balzers acquisition. Expressed as a percentage of value-added sales, SG&A expense was 20% and 22% in the third quarter of 2021 and 2020, respectively.
R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 3% of value-added sales in the third quarter of both 2021 and 2020.
Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure.
In the third quarter of 2020, we recorded $2.2 million of restructuring charges in our Performance Alloys and Composites segment related to the closure of our Warren, Michigan and Fremont, California facilities. Refer to Note F to the Consolidated Financial Statements for additional discussion.
Other-net was $3.6 million of expense in the third quarter of 2021, or a $1.4 million increase from the third quarter of 2020, which was primarily driven by $1.4 million of decreased foreign exchange gains. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.
Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note K to the Consolidated Financial Statements for details of the components.
Interest expense-net was $0.9 million and $1.3 million in the third quarter of 2021 and 2020, respectively. The decrease in interest expense is primarily due to reduced borrowings under our revolving credit facility in the third quarter of 2021, compared to the third quarter of 2020.
Income tax expense (benefit) for the third quarter of 2021 was $3.4 million, compared to a $6.3 million benefit in the third quarter of 2020. The effective tax rate for the third quarter of 2021 and 2020 was 15.9% and 726.0%, respectively. The effective tax rate for the third quarter of 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits, and the foreign derived intangible income deduction. The effective tax rate for the third quarter of 2020 was higher than the statutory tax rate primarily due to the release of a significant valuation allowance, which generated a tax benefit on a loss for the period. See Note G to the Consolidated Financial Statements for additional discussion.
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
|
|
|
|
(Thousands, except per share data)
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,113,413
|
|
|
$
|
836,585
|
|
|
$
|
276,828
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
Value-added sales
|
|
622,295
|
|
|
477,944
|
|
|
144,351
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
210,690
|
|
|
136,836
|
|
|
73,854
|
|
|
54
|
%
|
|
|
|
|
|
|
|
|
|
Gross margin as a % of value-added sales
|
|
34
|
%
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expense
|
|
118,031
|
|
|
99,292
|
|
|
18,739
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
SG&A expense as a % of value-added sales
|
|
19
|
%
|
|
21
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R&D expense
|
|
19,164
|
|
|
14,104
|
|
|
5,060
|
|
|
36
|
%
|
|
|
|
|
|
|
|
|
|
R&D expense as a % of value-added sales
|
|
3
|
%
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
—
|
|
|
10,766
|
|
|
(10,766)
|
|
|
(100)
|
%
|
|
|
|
|
|
|
|
|
|
Restructuring (income) expense
|
|
(378)
|
|
|
7,144
|
|
|
(7,522)
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
Other—net
|
|
12,272
|
|
|
4,143
|
|
|
8,129
|
|
|
196
|
%
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
61,601
|
|
|
1,387
|
|
|
60,214
|
|
|
4,341
|
%
|
|
|
|
|
|
|
|
|
|
Other non-operating (income)—net
|
|
(3,832)
|
|
|
(2,871)
|
|
|
(961)
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
Interest expense—net
|
|
2,480
|
|
|
2,839
|
|
|
(359)
|
|
|
(13)
|
%
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
62,953
|
|
|
1,419
|
|
|
61,534
|
|
|
4,336
|
%
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
10,162
|
|
|
(5,977)
|
|
|
16,139
|
|
|
n.m.
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
52,791
|
|
|
$
|
7,396
|
|
|
$
|
45,395
|
|
|
614
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
2.56
|
|
|
$
|
0.36
|
|
|
$
|
2.20
|
|
|
611
|
%
|
|
|
|
|
|
|
|
|
n.m. = not meaningful
Net sales of $1.1 billion in the first nine months of 2021 increased $276.8 million from $836.6 million in the first nine months of 2020. Net sales increased in all of our segments primarily due to increased volumes, as well as due to sales attributable to our Optics Balzers acquisition, which was completed during the third quarter of 2020. The change in precious metal and copper prices favorably impacted net sales during the first nine months of 2021 by $42.2 million.
Value-added sales of $622.3 million in the first nine months of 2021 increased $144.4 million, or 30%, compared to the first nine months of 2020. The increase is primarily driven by increased value-added sales into the semiconductor, automotive, industrial, and aerospace and defense end markets, as well as value-added sales from our Optics Balzers acquisition.
Gross margin in the first nine months of 2021 was $210.7 million, which was up 54% compared to the first nine months of 2020. Gross margin expressed as a percentage of value-added sales increased to 34% in the first nine months of 2021 from 29% in the first nine months of 2020. The increase was primarily driven by increased sales volumes in the first nine months of 2021, as well as the absence in 2021 of $7.3 million of mine development costs and a $1.3 million charge to reserve for slow moving and excess inventory related to the collapse in demand in the oil and gas industry, both recorded in the first nine months of 2020.
SG&A expense was $118.0 million in the first nine months of 2021, compared to $99.3 million in the first nine months of 2020. The increase in SG&A expense for the first nine months of 2021 was primarily driven by increased variable compensation expense, as well as costs attributable to our Optics Balzers acquisition. Expressed as a percentage of value-added sales, SG&A expense was 19% and 21% in the first nine months of 2021 and 2020, respectively.
R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 3% of value-added sales in the first nine months of both 2021 and 2020.
Impairment charges include non-recurring charges relating to goodwill and other assets recorded in the first nine months of 2020 in our Precision Optics segment.
Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. During the first quarter of 2021, we substantially completed the closure of our LAC business.
In the first nine months of 2020, we recorded $6.8 million of restructuring charges in our Performance Alloys and Composites segment related to the closure of our Warren, Michigan and Fremont, California facilities. Refer to Note F to the Consolidated Financial Statements for additional discussion.
Other-net was $12.3 million of expense in the first nine months of 2021, or a $8.1 million increase from the first nine months of 2020, which was primarily driven by $3.6 million of foreign exchange gains realized during the first nine months of 2020 compared to $1.6 million of foreign exchange losses realized in the first nine months of 2021, as well as $2.3 million of increased intangible asset amortization expense, both of which were primarily related to the acquisition of Optics Balzers in third quarter of 2020. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.
Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note K to the Consolidated Financial Statements for details of the components.
Interest expense-net was $2.5 million and $2.8 million in the first nine months of 2021 and 2020, respectively.
Income tax expense (benefit) for the first nine months of 2021 was $10.2 million of expense, compared to a benefit of $6.0 million in the first nine months of 2020. The effective tax rate for the first nine months of 2021 and 2020 was 16.1% and (421.2)%, respectively. The effective tax rate for the first nine months of 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits, and the foreign derived intangible income deduction. The effective tax rate for the first nine months of 2020 was lower than the statutory tax rate primarily due to the release of a significant valuation allowance, which generated a tax benefit on income for the period. The effective tax rate for the first nine months of 2021 included a net discrete income tax benefit of $0.9 million, primarily related to excess tax benefits from stock-based compensation awards and return to provision adjustments recorded. The effective tax rate for the first nine months of 2020 included a net discrete income tax benefit of $3.8 million, primarily related to the release of a valuation allowance. See Note G to the Consolidated Financial Statements for additional discussion.
Value-Added Sales - Reconciliation of Non-GAAP Financial Measure
A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the third quarter and first nine months of 2021 and 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
Nine Months Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
October 1,
|
|
September 25,
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
Performance Alloys and Composites
|
|
$
|
136,096
|
|
|
$
|
91,203
|
|
|
$
|
375,533
|
|
|
$
|
291,884
|
|
|
Advanced Materials
|
|
220,723
|
|
|
165,582
|
|
|
638,481
|
|
|
475,855
|
|
|
Precision Optics
|
|
31,209
|
|
|
30,386
|
|
|
99,399
|
|
|
68,846
|
|
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
388,028
|
|
|
$
|
287,171
|
|
|
$
|
1,113,413
|
|
|
$
|
836,585
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: pass-through metal costs
|
|
|
|
|
|
|
|
|
|
Performance Alloys and Composites
|
|
$
|
20,929
|
|
|
$
|
9,321
|
|
|
$
|
50,936
|
|
|
$
|
36,531
|
|
|
Advanced Materials
|
|
151,019
|
|
|
110,556
|
|
|
438,928
|
|
|
314,172
|
|
|
Precision Optics
|
|
—
|
|
|
2,076
|
|
|
43
|
|
|
5,769
|
|
|
Other
|
|
254
|
|
|
313
|
|
|
1,211
|
|
|
2,169
|
|
|
Total
|
|
$
|
172,202
|
|
|
$
|
122,266
|
|
|
$
|
491,118
|
|
|
$
|
358,641
|
|
|
|
|
|
|
|
|
|
|
|
|
Value-added sales
|
|
|
|
|
|
|
|
|
|
Performance Alloys and Composites
|
|
$
|
115,167
|
|
|
$
|
81,882
|
|
|
$
|
324,597
|
|
|
$
|
255,353
|
|
|
Advanced Materials
|
|
69,704
|
|
|
55,026
|
|
|
199,553
|
|
|
161,683
|
|
|
Precision Optics
|
|
31,209
|
|
|
28,310
|
|
|
99,356
|
|
|
63,077
|
|
|
Other
|
|
(254)
|
|
|
(313)
|
|
|
(1,211)
|
|
|
(2,169)
|
|
|
Total
|
|
$
|
215,826
|
|
|
$
|
164,905
|
|
|
$
|
622,295
|
|
|
$
|
477,944
|
|
Internally, management reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through metal costs from net sales. Value-added sales allow management to assess the impact of differences in net sales between periods, segments, or markets, and analyze the resulting margins and profitability without the distortion of movements in pass-through metal costs. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. We sell other metals and materials that are not considered direct pass-throughs, and these costs are not deducted from net sales when calculating value-added sales. Non-GAAP financial measures, such as value-added sales, have inherent limitations and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.
The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium can be quite volatile. Our pricing policy is to directly pass the cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations. Trends and comparisons of net sales are affected by movements in the market prices of these metals, but changes in net sales due to metal price movements may not have a proportionate impact on our profitability. During the first quarter of 2021, we added ruthenium, iridium, rhodium, rhenium, and osmium to our definition of value-added sales as the costs of these materials are treated as pass-through and the business use and price volatility of these materials has increased in recent periods. Prior period value-added sales amounts have been recast to reflect this change.
Our net sales are also affected by changes in the use of customer-supplied metal. When we manufacture a precious metal product, the customer may purchase metal from us or may elect to provide its own metal, in which case we process the metal on a toll basis and the metal value does not flow through net sales or cost of sales. In either case, we generally earn our margin based upon our fabrication efforts. The relationship of this margin to net sales can change depending upon whether or not the product was made from our metal or the customer’s metal. The use of value-added sales removes the potential distortion in the comparison of net sales caused by changes in the level of customer-supplied metal.
By presenting information on net sales and value-added sales, it is our intention to allow users of our financial statements to review our net sales with and without the impact of the pass-through metals.
Segment Results
The Company consists of four reportable segments: Performance Alloys and Composites, Advanced Materials, Precision Optics, and Other. The Other reportable segment includes unallocated corporate costs.
Performance Alloys and Composites
Third Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
Net sales
|
|
$
|
136,096
|
|
|
$
|
91,203
|
|
|
$
|
44,893
|
|
|
49
|
%
|
|
|
|
|
|
Value-added sales
|
|
115,167
|
|
|
81,882
|
|
|
33,285
|
|
|
41
|
%
|
|
|
|
|
|
Operating profit (loss)
|
|
20,928
|
|
|
(437)
|
|
|
21,365
|
|
|
4,889
|
%
|
|
|
|
|
Net sales from the Performance Alloys and Composites segment of $136.1 million in the third quarter of 2021 increased 49% compared to net sales of $91.2 million in the third quarter of 2020. The increase was due to sales related to our new precision clad engineered strip project and the timing of beryllium hydroxide sales, as well as increased sales into the automotive, industrial, and aerospace and defense end markets. Value-added sales of $115.2 million in the third quarter of 2021 were 41% higher than value-added sales of $81.9 million in the third quarter of 2020.
Performance Alloys and Composites generated operating profit of $20.9 million in the third quarter of 2021 compared to an operating loss of $0.4 million in the third quarter of 2020. The increase in operating profit was primarily due to increased sales volumes and improved operating performance. The operating loss for the third quarter of 2020 included $7.3 million of mine development costs, as well as restructuring charges of $2.2 million related to the closure of our Warren, Michigan and Fremont, California facilities.
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
Net sales
|
|
$
|
375,533
|
|
|
$
|
291,884
|
|
|
$
|
83,649
|
|
|
29
|
%
|
|
|
|
|
|
Value-added sales
|
|
324,597
|
|
|
255,353
|
|
|
69,244
|
|
|
27
|
%
|
|
|
|
|
|
Operating profit
|
|
51,733
|
|
|
9,910
|
|
|
41,823
|
|
|
422
|
%
|
|
|
|
|
Net sales from the Performance Alloys and Composites segment of $375.5 million in the first nine months of 2021 increased 29% compared to net sales of $291.9 million in the first nine months of 2020. The increase was due to sales related to our new precision clad engineered strip project, as well as increased sales into the automotive and industrial end markets. Value-added sales of $324.6 million in the first nine months of 2021 were 27% higher than value-added sales of $255.4 million in the first nine months of 2020.
Performance Alloys and Composites generated operating profit of $51.7 million in the first nine months of 2021 compared to $9.9 million in the first nine months of 2020. The increase in operating profit was primarily due to increased sales volumes. Operating profit for the first nine months of 2020 included $7.3 million of mine development costs, as well as restructuring charges of $6.8 million related to the closure of our Warren, Michigan and Fremont, California facilities.
Advanced Materials
Third Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
Net sales
|
|
$
|
220,723
|
|
|
$
|
165,582
|
|
|
55,141
|
|
|
33
|
%
|
|
|
|
|
|
Value-added sales
|
|
69,704
|
|
|
55,026
|
|
|
14,678
|
|
|
27
|
%
|
|
|
|
|
|
Operating profit
|
|
9,281
|
|
|
5,749
|
|
|
3,532
|
|
|
61
|
%
|
|
|
|
|
Net sales from the Advanced Materials segment of $220.7 million in the third quarter of 2021 were 33% higher than net sales of $165.6 million in the third quarter of 2020. The increase in net sales was primarily due to increased sales volumes in the semiconductor end market, partially offset by the impact of pass-through metal prices of $5.3 million.
Value-added sales of $69.7 million in the third quarter of 2021 increased 27% compared to value-added sales of $55.0 million in the third quarter of 2020. The increase was primarily driven by increased value-added sales into the semiconductor end market.
The Advanced Materials segment generated operating profit of $9.3 million in the third quarter of 2021 compared to $5.7 million in the third quarter of 2020. The increase in operating profit is due to increased sales volumes, as well as improved operating performance.
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
Net sales
|
|
$
|
638,481
|
|
|
$
|
475,855
|
|
|
162,626
|
|
|
34
|
%
|
|
|
|
|
|
Value-added sales
|
|
199,553
|
|
|
161,683
|
|
|
37,870
|
|
|
23
|
%
|
|
|
|
|
|
Operating profit
|
|
26,547
|
|
|
15,452
|
|
|
11,095
|
|
|
72
|
%
|
|
|
|
|
Net sales from the Advanced Materials segment of $638.5 million in the first nine months of 2021 were 34% higher than net sales of $475.9 million in the first nine months of 2020. The increase in net sales was primarily due to increased sales volumes, as well as the impact of higher pass-through metal prices of $34.6 million.
Value-added sales of $199.6 million in the first nine months of 2021 increased 23% compared to value-added sales of $161.7 million in the first nine months of 2020. The increase was primarily driven by increased value-added sales into the semiconductor end market.
The Advanced Materials segment generated operating profit of $26.5 million in the first nine months of 2021 compared to $15.5 million in the first nine months of 2020. The increase in operating profit is due to increased sales volumes, as well as improved operating performance.
Precision Optics
Third Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Third Quarter Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
Net sales
|
|
$
|
31,209
|
|
|
$
|
30,386
|
|
|
823
|
|
|
3
|
%
|
|
|
|
|
|
Value-added sales
|
|
31,209
|
|
|
28,310
|
|
|
2,899
|
|
|
10
|
%
|
|
|
|
|
|
Operating profit
|
|
3,329
|
|
|
1,421
|
|
|
1,908
|
|
|
134
|
%
|
|
|
|
|
Net sales from the Precision Optics segment of $31.2 million in the third quarter of 2021 increased 3% compared to net sales of $30.4 million in the third quarter of 2020. The increase was primarily due to to a full quarter of sales attributable to our Optics Balzers acquisition compared to only two months in the prior-year same period, partially offset by no sales related to our LAC reporting unit, whose closure was finalized in the first quarter of 2021.
Value-added sales of $31.2 million in the third quarter of 2021 increased 10% compared to value-added sales of $28.3 million in the third quarter of 2020. The increase in value-added sales was due to the same factors driving the increase in net sales.
The Precision Optics segment generated an operating profit of $3.3 million in the third quarter of 2021, compared to an operating profit of $1.4 million in the third quarter of 2020. The increase was driven by our Optics Balzers acquisition.
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Nine Months Ended
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
|
|
|
|
Net sales
|
|
$
|
99,399
|
|
|
$
|
68,846
|
|
|
30,553
|
|
|
44
|
%
|
|
|
|
|
|
Value-added sales
|
|
99,356
|
|
|
63,077
|
|
|
36,279
|
|
|
58
|
%
|
|
|
|
|
|
Operating profit (loss)
|
|
10,513
|
|
|
(6,080)
|
|
|
16,593
|
|
|
NM
|
|
|
|
|
NM = Not Meaningful
Net sales from the Precision Optics segment of $99.4 million in the first nine months of 2021 increased 44% compared to net sales of $68.8 million in the first nine months of 2020. The increase was primarily due to sales attributable to our Optics Balzers acquisition, partially offset by lower sales related to our LAC reporting unit, whose closure was finalized in the first quarter of 2021. In addition, sales from our base Precision Optics business increased, compared to the first nine months of 2020.
Value-added sales of $99.4 million in the first nine months of 2021 increased 58% compared to value-added sales of $63.1 million in the first nine months of 2020. The increase in value-added sales was due to the same factors driving the increase in net sales.
The Precision Optics segment generated an operating profit of $10.5 million in the first nine months of 2021, compared to an operating loss of $6.1 million in the first nine months of 2020. The increased operating profit in the first nine months of 2021 was driven by our Optics Balzers acquisition. The operating loss in the first nine months of 2020 included impairment charges of $10.8 million related to our LAC reporting unit.
Other
Third Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Third Quarter Ended
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
%
|
|
Value-added sales
|
|
(254)
|
|
|
(313)
|
|
|
59
|
|
|
(19)
|
%
|
|
Operating loss
|
|
(12,378)
|
|
|
(7,349)
|
|
|
(5,029)
|
|
|
68
|
%
|
The Other reportable segment in total includes unallocated corporate costs.
Corporate costs were $12.4 million in the third quarter of 2021 compared to $7.3 million in the third quarter of 2020. Corporate costs accounted for 6% and 4% of Company-wide value-added sales in the third quarter of 2021 and 2020,
respectively. The increase in corporate costs in the third quarter of 2021 compared to the third quarter of 2020 is primarily related to increased variable compensation expenses, foreign exchange losses in the third quarter of 2021 compared to foreign exchange gains in the third quarter of 2020, as well as increased acquisition costs.
Nine Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
Nine Months Ended
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
%
|
|
|
2021
|
|
2020
|
|
Change
|
|
Change
|
|
Net sales
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
%
|
|
Value-added sales
|
|
(1,211)
|
|
|
(2,169)
|
|
|
958
|
|
|
(44)
|
%
|
|
Operating loss
|
|
(27,192)
|
|
|
(17,895)
|
|
|
(9,297)
|
|
|
52
|
%
|
Corporate costs were $27.2 million in the first nine months of 2021 compared to $17.9 million in the first nine months of 2020. Corporate costs accounted for 4% of Company-wide value-added sales in the first nine months of both 2021 and 2020. The increase in corporate costs in the first nine months of 2021 compared to the first nine months of 2020 is primarily related to foreign exchange losses in the first nine months of 2021 compared to foreign exchange gains in the first nine months of 2020, as well as increased variable compensation expenses.
FINANCIAL POSITION
Cash Flow
A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
|
|
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
40,518
|
|
|
$
|
79,444
|
|
|
$
|
(38,926)
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(76,954)
|
|
|
(173,716)
|
|
|
96,762
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
28,779
|
|
|
86,305
|
|
|
(57,526)
|
|
|
|
|
|
|
Effects of exchange rate changes
|
|
(212)
|
|
|
714
|
|
|
(926)
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
(7,869)
|
|
|
$
|
(7,253)
|
|
|
$
|
(616)
|
|
|
|
|
|
Net cash provided by operating activities totaled $40.5 million in the first nine months of 2021 versus $79.4 million in the prior-year period. The decrease in operating cash flow was primarily due the usage in working capital change of $87.3 million (displayed below) and less unearned income due to customer prepayments of $31.4 million, partially offset by increased net income of $45.4 million.
The following table displays the impact of working capital items on cash during the first nine months of 2021 and 2020, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
October 1,
|
|
September 25,
|
|
$
|
|
|
|
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Change
|
|
|
|
|
|
Cash provided (used):
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(26,041)
|
|
|
$
|
13,899
|
|
|
$
|
(39,940)
|
|
|
|
|
|
|
Inventory
|
|
(62,353)
|
|
|
(6,414)
|
|
|
(55,939)
|
|
|
|
|
|
|
Accounts payable
|
|
14,863
|
|
|
6,281
|
|
|
8,582
|
|
|
|
|
|
|
Cash (used in) provided by working capital items
|
|
$
|
(73,531)
|
|
|
$
|
13,766
|
|
|
$
|
(87,297)
|
|
|
|
|
|
Three-month trailing days sales outstanding was approximately 42 days at October 1, 2021 and 41 days at December 31, 2020.
Net cash used in investing activities was $77.0 million in the first nine months of 2021 compared to $173.7 million in the prior-year period. The decrease is primarily due to $130.7 million paid in the first nine months of 2020 for the acquisition of Optics Balzers, partially offset by increased capital expenditures, primarily related to investments in new equipment funded by customer prepayments. See Note J to the Consolidated Financial Statements for additional discussion.
Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year 2021, the Company expects payments for property, plant, and equipment to be approximately $100.0 million.
Net cash provided by financing activities totaled $28.8 million in the first nine months of 2021 and $86.3 million in the comparable prior-year period. The decrease is primarily due to decreased net borrowings of $77.0 million under our revolving credit facility in the first nine months of 2021, partially offset by no repurchases of common stock in the first nine months of 2021 compared to $6.8 million in the first nine months of 2020.
Liquidity
We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend program, environmental remediation projects, and strategic acquisitions. At October 1, 2021, cash and cash equivalents held by our foreign operations totaled $16.6 million. We do not expect restrictions on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition, or results of operations for the foreseeable future.
A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of October 1, 2021 and December 31, 2020 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
|
|
December 31,
|
|
(Thousands)
|
|
2021
|
|
2020
|
|
Cash and cash equivalents
|
|
$
|
18,009
|
|
|
$
|
25,878
|
|
|
Total outstanding debt
|
|
79,565
|
|
|
38,506
|
|
|
Net debt
|
|
$
|
(61,556)
|
|
|
$
|
(12,628)
|
|
|
Available borrowing capacity
|
|
$
|
319,385
|
|
|
$
|
245,772
|
|
Net (debt) cash is a non-GAAP financial measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods.
The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each period depicted. The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts the borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation and amortization, and other adjustments.
In September and October 2021, we amended and then amended and restated the agreement governing our $375.0 million revolving credit facility (Credit Agreement) to, among other things, (i) include an increase in the maximum leverage ratio covenant on a temporary basis in connection with the HCS acquisition and permit the incurrence of certain debt in connection with the HCS acquisition, (ii) provide for a $300 million delayed draw term loan facility and (iii) extend the maturity of revolving credit facility to October 2026. We financed the purchase price for the HCS acquisition with the new $300 million term loan and $103 million of borrowings under the amended revolving credit facility. The Credit Agreement provides more favorable interest rates under certain circumstances. In addition, the Credit Agreement provides enhanced flexibility to finance acquisitions and other strategic initiatives. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its direct subsidiaries, with the exception of non-mining real property, certain precious metals and certain other assets.
The Credit Agreement allows the Company to borrow money at a premium over LIBOR or a prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions available under the agreement. The Credit Agreement includes restrictive covenants relating to restrictions on additional indebtedness, acquisitions, dividends, and stock repurchases. In addition, the Credit Agreement includes covenants subject to a maximum leverage ratio and an interest coverage ratio. We were in compliance with all of our debt covenants as of October 1, 2021.
Portions of our business utilize off-balance sheet consignment arrangements to finance metal requirements. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. In 2019, we entered into a precious metals consignment agreement, maturing on August 27, 2022. The available and unused capacity under the metal financing lines expiring in August 2022 totaled approximately $97.1 million as of October 1, 2021, compared to $50.0 million as of December 31, 2020. The availability is determined by Board approved levels and actual line capacity.
In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock. The timing of the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels, and other investment opportunities. There is no minimum quantity requirement to repurchase our common stock for a given year, and the repurchases may be discontinued at any time. We did not repurchase any shares under this program in the third quarter or first nine months of 2021. Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million.
We paid cash dividends of $2.4 million and $7.2 million on our common stock in the third quarter and first nine months of 2021, respectively. We intend to pay a quarterly dividend on an ongoing basis, subject to a determination that the dividend remains in the best interest of our shareholders.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
We maintain the majority of the precious metals and portions of the copper we use in production on a consignment basis in order to reduce our exposure to metal price movements and to reduce our working capital investment. The notional value of off-balance sheet precious metals and copper was $452.9 million and $400.0 million as of October 1, 2021 and December 31, 2020, respectively. We were in compliance with all of the covenants contained in the consignment agreements as of October 1, 2021. For additional information on our contractual obligations, refer to our 2020 Annual Report on Form 10-K.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the inherent use of estimates and management’s judgment in establishing those estimates. For additional information regarding critical accounting policies, please refer to our 2020 Annual Report on Form 10-K.
Forward-looking Statements: Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity; our ability to achieve the strategic and other objectives related to the HCS acquisition, included any expected synergies; the global economy, including the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns and sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses, including the integration of the HCS business; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions, including, without limitation, the HCS acquisition being accretive in the expected timeframe or at all; our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal financing fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions on operations from, and other effects of, catastrophic and other extraordinary events including the COVID-19 pandemic; and the risk factors set forth in Part 1, Item 1A of the Company's 2020 Annual Report on Form 10-K.