MATERION CORP, 10-Q filed on 7/25/2019
Quarterly Report
v3.19.2
Document and Entity Information
6 Months Ended
Jun. 28, 2019
shares
Document and Entity Information [Abstract]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Jun. 28, 2019
Document Transition Report false
Entity File Number 001-15885
Entity Registrant Name MATERION CORPORATION
Local Phone Number 486-4200
Title of 12(b) Security Common Stock, no par value
Entity Incorporation, State or Country Code OH
Entity Tax Identification Number 34-1919973
Entity Address, Address Line One 6070 Parkland Blvd
Entity Address, City or Town Mayfield Heights
Entity Address, State or Province OH
City Area Code 216
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Address, Postal Zip Code 44124
Entity Central Index Key 0001104657
Current Fiscal Year End Date --12-31
Entity Filer Category Large Accelerated Filer
Document Fiscal Year Focus 2019
Document Fiscal Period Focus Q2
Trading Symbol MTRN
Amendment Flag false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Small Business false
Entity Common Stock, Shares Outstanding 20,399,425
Security Exchange Name NYSE
v3.19.2
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2019
Jun. 29, 2018
Jun. 28, 2019
Jun. 29, 2018
Income Statement [Abstract]        
Net sales $ 297,843 $ 309,085 $ 599,284 $ 612,552
Cost of sales 228,249 247,247 460,378 492,434
Gross margin 69,594 61,838 138,906 120,118
Selling, general, and administrative expense 39,891 38,473 79,955 76,935
Research and development expense 4,062 3,860 7,802 7,503
Other net 2,891 4,313 7,012 7,237
Operating profit 22,750 15,192 44,137 28,443
Interest expense—net 500 667 966 1,397
Other non-operating expense - net 3,112 437 3,357 879
Income before income taxes 19,138 14,088 39,814 26,167
Income tax expense 3,598 2,944 7,368 4,459
Net income $ 15,540 $ 11,144 $ 32,446 $ 21,708
Basic earnings per share:        
Net income per share of common stock (in dollars per share) $ 0.76 $ 0.55 $ 1.60 $ 1.08
Diluted earnings per share:        
Net income per share of common stock (in dollars per share) $ 0.75 $ 0.54 $ 1.57 $ 1.05
Weighted-average number of shares of common stock outstanding:        
Basic (in shares) 20,383 20,221 20,326 20,178
Diluted (in shares) 20,666 20,593 20,635 20,583
v3.19.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 28, 2019
Jun. 29, 2018
Jun. 28, 2019
Jun. 29, 2018
Statement of Comprehensive Income [Abstract]        
Net income $ 15,540 $ 11,144 $ 32,446 $ 21,708
Other comprehensive income (loss):        
Foreign currency translation adjustment 339 (944) (164) 169
Derivative and hedging activity, net of tax (1,000) 1,763 (73) 1,088
Pension and post-employment benefit adjustment, net of tax 13,953 1,296 14,493 2,574
Net current period other comprehensive income (loss) after tax 13,292 2,115 14,256 3,831
Comprehensive income $ 28,832 $ 13,259 $ 46,702 $ 25,539
v3.19.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 28, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 74,856 $ 70,645
Accounts receivable 142,327 130,538
Inventories, net 213,329 214,871
Prepaid and other current assets 23,904 23,299
Total current assets 454,416 439,353
Deferred income taxes 1,052 5,616
Property, Plant and Equipment 913,325 898,251
Less allowances for depreciation, depletion, and amortization (669,861) (647,233)
Property, plant, and equipment—net 243,464 251,018
Operating lease, right-of-use asset 26,788 0
Intangible assets 5,213 6,461
Other assets 15,280 7,236
Goodwill 90,633 90,657
Total Assets 836,846 800,341
Current liabilities    
Short-term debt 847 823
Accounts payable 41,658 49,622
Salaries and wages 36,250 47,501
Other liabilities and accrued items 38,482 33,301
Income taxes 1,971 2,615
Unearned revenue 5,829 5,918
Total current liabilities 125,037 139,780
Other long-term liabilities 11,419 14,764
Operating lease liabilities 21,118 0
Finance lease liabilities 18,325 15,221
Retirement and post-employment benefits 30,663 38,853
Unearned income 30,354 32,563
Long-term income taxes 3,093 2,993
Deferred income taxes 383 195
Long-term debt 1,669 2,066
Serial preferred stock (no par value; 5,000 authorized shares, none issued) 0 0
Common stock (no par value; 60,000 authorized shares, issued shares of 27,148 at June 28 and December 31) 245,785 234,704
Retained earnings 576,211 548,374
Common stock in treasury (187,224) (175,426)
Accumulated other comprehensive loss (43,978) (58,234)
Other equity 3,991 4,488
Total shareholders' equity 594,785 553,906
Total Liabilities and Shareholders’ Equity $ 836,846 $ 800,341
v3.19.2
Consolidated Balance Sheets (Parenthetical) - $ / shares
shares in Thousands, $ / shares in Thousands
Jun. 28, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Serial preferred stock, par value (in dollars per share) $ 0 $ 0
Serial preferred stock, shares authorized 5,000 5,000
Serial preferred stock, shares issued 0 0
Common stock, par value (in dollars per share) $ 0 $ 0
Common stock, shares authorized 60,000 60,000
Common stock, shares, issued 27,148 27,148
v3.19.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 28, 2019
Jun. 29, 2018
Cash flows from operating activities:    
Net income $ 32,446 $ 21,708
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Depreciation, depletion, and amortization 22,607 18,349
Amortization of deferred financing costs in interest expense 472 514
Stock-based compensation expense (non-cash) 3,541 2,164
Deferred income tax expense (benefit) 4,578 429
Pension curtailment 3,296 0
Changes in assets and liabilities:    
Decrease (increase) in accounts receivable (11,778) (12,060)
Decrease (increase) in inventory 1,306 10,428
Decrease (increase) in prepaid and other current assets (588) 4,928
Increase (decrease) in accounts payable and accrued expenses (18,813) (14,189)
Increase (Decrease) in Unearned Revenue (88) 2,132
Increase (decrease) in interest and taxes payable (1,130) 2,084
Domestic pension plan contributions (3,000) (13,000)
Other-net (2,803) 5,817
Net cash used in operating activities 30,046 29,304
Cash flows from investing activities:    
Payments for purchase of property, plant, and equipment (13,833) (17,153)
Payments for mine development (1,591) (3,425)
Proceeds from sale of property, plant, and equipment 15 27
Net cash used in investing activities (15,409) (20,551)
Cash flows from financing activities:    
Repayment of long-term debt (397) (383)
Principal payments under finance lease obligations 599 425
Cash dividends paid (4,368) (4,137)
Repurchase of common stock (199) 0
Payments of withholding taxes for stock-based compensation awards (4,763) (2,765)
Net cash used in financing activities (10,326) (7,710)
Effects of exchange rate changes (100) 8
Net change in cash and cash equivalents 4,211 1,051
Cash and cash equivalents at beginning of period 70,645 41,844
Cash and cash equivalents at end of period $ 74,856 $ 42,895
v3.19.2
Consolidated Statements of Shareholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Shares
Common Shares Held In Treasury
Common Stock
Retained Earnings
Common Stock In Treasury
Accumulated Other Comprehensive Income (Loss)
Other Equity
Beginning balance (in shares) at Dec. 31, 2017   20,107            
Beginning balances (in Treasury shares) at Dec. 31, 2017     (7,042)          
Beginning balances at Dec. 31, 2017 $ 494,981     $ 223,484 $ 536,116 $ (166,128) $ (102,937) $ 4,446
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 21,708     0 21,708 0 0 0
Other comprehensive income (loss) 3,256     0 0 0 3,256 0
Pension curtailment 0              
Tax Cuts and Jobs Act of 2017 Reclassification From Aoci to Retained Earnings 0     0 (575) 0 575 0
Cumulative effect of accounting change 425     0 425 0 0 0
Cash dividends declared (4,137)     0 (4,137) 0 0 0
Stock-based compensation activity (in shares)   181 181          
Stock-based compensation activity 2,164     7,220 (14) (5,042) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (53) (53)          
Payments of withholding taxes for stock-based compensation awards (2,765)     0 0 (2,765) 0 0
Directors' deferred compensation 109 $ 1 $ 2 59 0 110 0 (60)
Ending balance (in shares) at Jun. 29, 2018   20,236            
Ending balances (in Treasury shares) at Jun. 29, 2018     (6,912)          
Ending balances at Jun. 29, 2018 515,741     230,763 553,523 (173,825) (99,106) 4,386
Beginning balance (in shares) at Mar. 30, 2018   20,191            
Beginning balances (in Treasury shares) at Mar. 30, 2018     (6,958)          
Beginning balances at Mar. 30, 2018 504,329     227,694 545,093 (171,574) (101,221) 4,337
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 11,144     0 11,144 0 0 0
Other comprehensive income (loss) 1,540     0 0 0 1,540 0
Tax Cuts and Jobs Act of 2017 Reclassification From Aoci to Retained Earnings 0     0 (575) 0 575 0
Cumulative effect of accounting change 0     0 0 0 0 0
Cash dividends declared (2,125)     0 (2,125) 0 0 0
Stock-based compensation activity (in shares)   55 55          
Stock-based compensation activity 1,393     3,020 (14) (1,613) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (11) (11)          
Payments of withholding taxes for stock-based compensation awards (632)     0 0 (632) 0 0
Directors' deferred compensation 92 $ 1 $ 2 49 0 (6) 0 49
Ending balance (in shares) at Jun. 29, 2018   20,236            
Ending balances (in Treasury shares) at Jun. 29, 2018     (6,912)          
Ending balances at Jun. 29, 2018 515,741     230,763 553,523 (173,825) (99,106) 4,386
Beginning balance (in shares) at Dec. 31, 2018   20,242            
Beginning balances (in Treasury shares) at Dec. 31, 2018     (6,906)          
Beginning balances at Dec. 31, 2018 553,906     234,704 548,374 (175,426) (58,234) 4,488
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 32,446     0 32,446 0 0 0
Other comprehensive income (loss) 10,960     0 0 0 10,960 0
Pension curtailment 3,296     0 0 0 3,296 0
Cumulative effect of accounting change (179)     0 (179) 0 0 0
Cash dividends declared (4,368)     0 (4,368) 0 0 0
Stock-based compensation activity (in shares)   247 247          
Stock-based compensation activity 3,541     11,046 (62) (7,443) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (87) (87)          
Payments of withholding taxes for stock-based compensation awards (4,763)     0 0 (4,763) 0 0
Repurchase of shares (in shares)   (5) (5)          
Repurchase of shares (199)     0 0 (199) 0 0
Directors' deferred compensation 145 $ 2 $ 2 35 0 607 0 (497)
Ending balance (in shares) at Jun. 28, 2019   20,399            
Ending balances (in Treasury shares) at Jun. 28, 2019     (6,749)          
Ending balances at Jun. 28, 2019 594,785     245,785 576,211 (187,224) (43,978) 3,991
Beginning balance (in shares) at Mar. 29, 2019   20,354            
Beginning balances (in Treasury shares) at Mar. 29, 2019     (6,794)          
Beginning balances at Mar. 29, 2019 566,877     241,480 562,941 (184,812) (57,270) 4,538
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 15,540     0 15,540 0 0 0
Other comprehensive income (loss) 9,996     0 0 0 9,996 0
Pension curtailment 3,296     0 0 0 3,296 0
Cash dividends declared (2,243)     0 (2,243) 0 0 0
Stock-based compensation activity (in shares)   55 55          
Stock-based compensation activity 1,994     4,287 (27) (2,266) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (12) (12)          
Payments of withholding taxes for stock-based compensation awards (785)     0 0 (785) 0 0
Repurchase of shares (in shares)   0 0          
Repurchase of shares 0     0 0 0 0 0
Directors' deferred compensation 110 $ 2 $ 2 18 0 639 0 (547)
Ending balance (in shares) at Jun. 28, 2019   20,399            
Ending balances (in Treasury shares) at Jun. 28, 2019     (6,749)          
Ending balances at Jun. 28, 2019 $ 594,785     $ 245,785 $ 576,211 $ (187,224) $ (43,978) $ 3,991
v3.19.2
Consolidated Statements of Shareholders' Equity (Parenthetical) - $ / shares
3 Months Ended 6 Months Ended
Jun. 28, 2019
Jun. 29, 2018
Jun. 28, 2019
Jun. 29, 2018
Statement of Stockholders' Equity [Abstract]        
Cash dividends declared (per share) $ 0.110 $ 0.105 $ 0.215 $ 0.205
v3.19.2
Accounting Policies
6 Months Ended
Jun. 28, 2019
Accounting Policies [Abstract]  
Accounting Policies Accounting Policies

Basis of Presentation: In management’s opinion, 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 2019 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 2018 Annual Report on Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year.
New Pronouncements Adopted: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02 (Topic 842), Leases, which eliminates the off-balance-sheet accounting for leases. This guidance requires lessees to report their operating leases as both an asset and liability on the balance sheet and disclose key information about leasing arrangements. The Company adopted this guidance as of January 1, 2019 using the modified retrospective method and applied it retrospectively through a cumulative-effect adjustment to retained earnings. The Company applied the transitional package of practical expedients allowed by the standard to not reassess the identification, classification, and initial direct costs of leases commencing before this ASU's effective date; however, the Company did not elect the hindsight transitional practical expedient. The Company also applied the practical expedient to not separate lease and non-lease components to new leases as well as existing leases through transition. The Company made an accounting policy election not to apply recognition requirements of the guidance to short-term leases.

Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with legacy generally accepted accounting principles.

The Company recorded a net reduction to opening retained earnings of $0.2 million as of January 1, 2019 due to the cumulative impact of adopting Topic 842, with the impact primarily related to derecognition of a built-to-suit lease. Refer to Note H for additional disclosures relating to the Company's leasing arrangements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends and simplifies existing guidance to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The Company adopted this guidance as of January 1, 2019, and the adoption did not have a material effect on the Company’s consolidated financial statements.

New Pronouncements Issued: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This ASU requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. The standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. Early adoption is permitted. The Company is currently assessing the effect that this ASU will have on its financial position, results of operations, and disclosures.
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.
v3.19.2
Segment Reporting
6 Months Ended
Jun. 28, 2019
Segment Reporting [Abstract]  
Segment Reporting Segment Reporting
 
The Company has the following reportable segments: Performance Alloys and Composites, Advanced Materials, Precision Coatings, 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, beryllia ceramics, and bulk metallic glass materials.
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 braze materials, and ultra-fine wire.
Precision Coatings 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 Coatings
 
Other
 
Total
Second Quarter 2019
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
135,231

 
$
133,238

 
$
29,374

 
$

 
$
297,843

Intersegment sales 
 
6

 
19,260

 

 

 
19,266

Operating profit (loss)
 
19,328

 
6,139

 
3,937

 
(6,654
)
 
22,750

Second Quarter 2018
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
129,765

 
$
150,324

 
$
28,996

 
$

 
$
309,085

Intersegment sales
 
3

 
11,400

 

 

 
11,403

Operating profit (loss)
 
12,309

 
5,572

 
2,233

 
(4,922
)
 
15,192

 
 
 
 
 
 
 
 
 
 
 
First Six Months 2019
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
262,344

 
$
277,263

 
$
59,677

 
$

 
$
599,284

Intersegment sales
 
15

 
36,473

 

 

 
36,488

Operating profit (loss)
 
38,286

 
13,219

 
6,014

 
(13,382
)
 
44,137

First Six Months 2018
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
248,001

 
$
303,869

 
$
60,682

 
$

 
$
612,552

Intersegment sales
 
31

 
23,052

 

 

 
23,083

Operating profit (loss)
 
22,170

 
11,470

 
5,608

 
(10,805
)
 
28,443



In the second quarter of 2019, the Company recategorized its end markets based on the ongoing refinement of its go-to-market strategy. The changes reflect new processes designed to enable the Company to better serve global customers and growth markets.

The following table disaggregates revenue for each segment by end market for the second quarter and first six months of 2019 and 2018, respectively:
 (Thousands)

Performance Alloys and Composites

Advanced Materials

Precision Coatings

Other

Total
Second Quarter 2019










End Market










Semiconductor

$
1,303


$
100,758


$
93


$


$
102,154

Industrial

28,585


7,704


3,842




40,131

Aerospace and Defense

26,046


1,125


4,750




31,921

Consumer Electronics

22,663


500


4,430




27,593

Automotive

16,564


1,669


365




18,598

Energy

11,303


16,027






27,330

Telecom and Data Center

18,244


713






18,957

Other

10,523


4,742


15,894




31,159

    Total

$
135,231


$
133,238


$
29,374


$


$
297,843












Second Quarter 2018










End Market










Semiconductor

$
1,299


$
118,525


$
428


$


$
120,252

Industrial

28,974


7,951


3,171




40,096

Aerospace and Defense

25,964


1,010


4,960




31,934

Consumer Electronics

16,150


174


5,021




21,345

Automotive

23,236


1,804


469




25,509

Energy

9,825


12,069






21,894

Telecom and Data Center

17,784


566






18,350

Other

6,533


8,225


14,947




29,705

    Total

$
129,765


$
150,324


$
28,996


$


$
309,085




 (Thousands)
 
Performance Alloys and Composites
 
Advanced Materials
 
Precision Coatings
 
Other
 
Total
First Six Months 2019
 
 
 
 
 
 
 
 
 
 
End Market
 
 
 
 
 
 
 
 
 
 
Semiconductor
 
$
3,268

 
$
205,125

 
$
205

 
$

 
$
208,598

Industrial
 
55,015

 
15,635

 
7,992

 

 
78,642

Aerospace and Defense
 
53,120

 
2,618

 
9,622

 

 
65,360

Consumer Electronics
 
36,218

 
705

 
7,916

 

 
44,839

Automotive
 
37,277

 
3,023

 
587

 

 
40,887

Energy
 
22,397

 
38,190

 

 

 
60,587

Telecom and Data Center
 
35,836

 
914

 

 

 
36,750

Other
 
19,213

 
11,053

 
33,355

 

 
63,621

    Total
 
$
262,344

 
$
277,263

 
$
59,677

 
$

 
$
599,284


 
 
 
 
 
 
 
 
 
 
First Six Months 2018
 
 
 
 
 
 
 
 
 
 
End Market
 
 
 
 
 
 
 
 
 
 
Semiconductor
 
$
2,387

 
$
226,842

 
$
971

 
$

 
$
230,200

Industrial
 
58,577

 
15,416

 
5,899

 

 
79,892

Aerospace and Defense
 
44,246

 
2,020

 
9,644

 

 
55,910

Consumer Electronics
 
31,455

 
626

 
9,291

 

 
41,372

Automotive
 
46,773

 
4,184

 
691

 

 
51,648

Energy
 
17,612

 
33,480

 

 

 
51,092

Telecom and Data Center
 
32,647

 
1,031

 

 

 
33,678

Other
 
14,304

 
20,270

 
34,186

 

 
68,760

    Total
 
$
248,001

 
$
303,869

 
$
60,682

 
$

 
$
612,552



Intersegment sales are eliminated in consolidation.
v3.19.2
Revenue Recognition
6 Months Ended
Jun. 28, 2019
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer [Text Block] 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 (ASC) 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 June 28, 2019. Remaining performance obligations include noncancelable 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 June 28, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $19.6 million.

Contract Balances: The timing of revenue recognition, billings, and cash collections resulted in the following contract assets and contract liabilities:

(Thousands)
 
June 28, 2019
 
December 31, 2018
 
$ change
 
% change
Accounts receivable, trade
 
$
132,493

 
$
124,498

 
$
7,995

 
6
 %
Unbilled receivables
 
9,430

 
4,619

 
4,811

 
104
 %
Unearned revenue
 
5,829

 
5,918

 
(89
)
 
(2
)%


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 second quarter and first six months of 2019.

Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed. Unbilled receivables are normally 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 $5.0 million of the unearned amounts as revenue during the first six months of 2019.

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.
v3.19.2
Other-net
6 Months Ended
Jun. 28, 2019
Other Income and Expenses [Abstract]  
Other-net Other-net
Other-net expense for the second quarter and first six months of of 2019 and 2018 is summarized as follows: 
 
 
Second Quarter Ended
 
Six Months Ended
 
 
June 28,
 
June 29,
 
June 28,
 
June 29,
(Thousands)
 
2019
 
2018
 
2019
 
2018
Metal consignment fees
 
$
2,225

 
$
2,588

 
$
5,316

 
$
5,017

Amortization of intangible assets
 
368

 
561

 
758

 
1,334

Foreign currency loss
 
307

 
1,230

 
384

 
1,219

Net loss (gain) on disposal of fixed assets
 
118

 
(3
)
 
142

 
23

Rental income
 
(29
)
 
(134
)
 
(58
)
 
(260
)
Other items
 
(98
)
 
71

 
470

 
(96
)
Total
 
$
2,891

 
$
4,313

 
$
7,012

 
$
7,237


v3.19.2
Income Taxes
6 Months Ended
Jun. 28, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes

The Company's effective tax rate for the second quarter of 2019 and 2018 was 18.8% and 20.9%, respectively, and 18.5% and 17.0% for the first six months of 2019 and 2018, respectively. The effective tax rate for each period is lower than the statutory tax rate primarily due to the impact of percentage depletion and the research and development credit. Additionally, the effective tax rate for the first six months of 2019 included a net discrete income tax benefit of $0.5 million, primarily related to excess tax benefits from stock-based compensation. The effective tax rate for the first six months of 2018 included a net discrete income tax benefit of $1.0 million, primarily related to Staff Accounting Bulletin (SAB) No. 118 adjustments.
v3.19.2
Earnings Per Share
6 Months Ended
Jun. 28, 2019
Earnings Per Share [Abstract]  
Earnings Per Share Earnings Per Share (EPS)
The following table sets forth the computation of basic and diluted EPS:
 
 
Second Quarter Ended
 
Six Months Ended
 
 
June 28,
 
June 29,
 
June 28,
 
June 29,
(Thousands, except per share amounts)
 
2019
 
2018
 
2019
 
2018
Numerator for basic and diluted EPS:
 
 
 
 
 
 
 
 
Net income
 
$
15,540

 
$
11,144

 
$
32,446

 
$
21,708

Denominator:
 
 
 
 
 
 
 
 
Denominator for basic EPS:
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
20,383

 
20,221

 
20,326

 
20,178

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock appreciation rights
 
76

 
166

 
92

 
185

Restricted stock units
 
76

 
75

 
77

 
85

Performance-based restricted stock units
 
131

 
131

 
140

 
135

Diluted potential common shares
 
283

 
372

 
309

 
405

Denominator for diluted EPS:
 

 

 
 
 
 
Adjusted weighted-average shares outstanding
 
20,666

 
20,593

 
20,635

 
20,583

Basic EPS
 
$
0.76

 
$
0.55

 
$
1.60

 
$
1.08

Diluted EPS
 
$
0.75

 
$
0.54

 
$
1.57

 
$
1.05



Securities totaling 84,509 and 65,112 for the quarters ended June 28, 2019 and June 29, 2018, respectively, and 144,154 and 65,112 for the six months ended June 28, 2019 and June 29, 2018, respectively, were excluded from the dilution calculation as their effect would have been anti-dilutive.
v3.19.2
Inventories
6 Months Ended
Jun. 28, 2019
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories on the Consolidated Balance Sheets are summarized as follows:
 
 
June 28,
 
December 31,
(Thousands)
 
2019
 
2018
Raw materials and supplies
 
$
38,425

 
$
33,182

Work in process
 
190,428

 
195,879

Finished goods
 
32,062

 
30,643

Subtotal
 
$
260,915

 
$
259,704

Less: LIFO reserve balance
 
47,586

 
44,833

Inventories
 
$
213,329

 
$
214,871


The liquidation of last in, first out (LIFO) inventory layers increased cost of sales by $0.1 million in the second quarter and first six months of both 2019 and 2018.
The Company maintains the majority of the precious metals and copper used 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 $295.7 million as of June 28, 2019 versus $316.1 million as of December 31, 2018.
v3.19.2
Leases
6 Months Ended
Jun. 28, 2019
Leases [Abstract]  
Leases of Lessee Disclosure [Text Block] Leases
The Company leases warehouse and manufacturing real estate, and manufacturing and computer equipment under operating leases with lease terms ranging up to 25 years. Several operating lease agreements contain options to extend the lease term and/or options for early termination. The lease term consists of the non-cancelable period of the lease, periods covered by options to extend the lease if the Company is reasonably certain to exercise the option, and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the option. The weighted average remaining lease term for the Company's operating and finance leases as of June 28, 2019 was 5.09 years and 19.87 years, respectively.

The discount rate implicit within the leases is generally not determinable, and, therefore, the Company determines the discount rate based on its incremental borrowing rate. The incremental borrowing rate for leases is determined based on the lease term in which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure the Company's operating and finance lease liabilities as of June 28, 2019 was 5.55% and 5.31%, respectively.

The components of operating and finance lease cost for the second quarter and first six months of 2019 were as follows:
 
 
Second Quarter Ended
 
Six Months Ended
 
 
June 28,
 
June 28,
(Thousands)
 
2019
 
2019
Components of lease expense
 
 
 
 
Operating lease cost
 
$
2,291

 
$
5,003

 
 
 
 
 
Finance lease cost
 
 
 
 
Amortization of right-of-use assets
 
354

 
710

Interest on lease liabilities
 
259

 
522

Total lease cost
 
$
2,904

 
$
6,235



Operating lease expense amounted to $2.3 million and $3.0 million during the second quarter of 2019 and 2018, respectively, and $5.0 million and $6.1 million during the first six months of 2019 and 2018, respectively. The Company straight-lines its expense of fixed payments for operating leases over the lease term and expenses the variable lease payments in the period incurred. These variable lease payments are not included in the calculation of right-of-use assets or lease liabilities.
Supplemental balance sheet information related to the Company's operating and finance leases as of June 28, 2019 was as follows:
 
 
June 28,
(Thousands)
 
2019
Supplemental balance sheet information
 
 
 
 
 
Operating Leases
 
 
Operating lease right-of-use assets
 
$
26,788

Other liabilities and accrued items
 
6,927

Operating lease liabilities
 
21,118

 
 
 
Finance Leases
 
 
Property, plant, and equipment
 
$
26,330

Allowances for depreciation, depletion, and amortization
 
(3,140
)
Finance lease assets, net
 
$
23,190

Other liabilities and accrued items
 
$
1,238

Finance lease liabilities
 
18,325

Total principal payable on finance leases
 
$
19,563



Future maturities of the Company's lease liabilities as of June 28, 2019 are as follows:
 
 
Finance
 
Operating
(Thousands)
 
Leases
 
Leases
2019
 
$
1,122

 
$
4,201

2020
 
2,244

 
7,618

2021
 
2,244

 
6,619

2022
 
2,244

 
4,727

2023
 
1,534

 
3,818

2024 and thereafter
 
22,414

 
5,148

Total lease payments
 
31,802

 
32,131

Less amount of lease payment representing interest
 
12,239

 
4,086

Total present value of lease payments

 
$
19,563

 
$
28,045



Supplemental cash flow information related to leases for the first six months of 2019 was as follows:
 
 
Six Months Ended
 
 
June 28,
(Thousands)
 
2019
Supplemental cash flow information
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
7,710

Operating cash flows from finance leases
 
522

Financing cash flows from finance leases
 
599


v3.19.2
Pensions and Other Post-employment Benefits
6 Months Ended
Jun. 28, 2019
Retirement Benefits [Abstract]  
Pensions and Other Post-employment Benefits Pensions and Other Post-employment Benefits
The following is a summary of the net periodic benefit cost for the second quarter of 2019 and 2018 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
 

Second Quarter Ended

Second Quarter Ended


June 28,

June 29,

June 28,

June 29,
(Thousands)

2019

2018

2019

2018
Components of net periodic benefit cost (benefit)








Service cost

$
1,418


$
1,674


$
18


$
28

Interest cost

1,347


2,397


99


99

Expected return on plan assets

(2,167
)

(3,697
)




Amortization of prior service benefit

122


(30
)

(375
)

(374
)
Amortization of net loss (gain)

627


1,959


(23
)


Pension curtailment charge
 
3,296

 

 

 

Net periodic benefit cost (benefit)

$
4,643


$
2,303


$
(281
)

$
(247
)

 
 
Pension Benefits
 
Other Benefits
 
 
Six Months Ended
 
Six Months Ended
 
 
June 28,
 
June 29,
 
June 28,
 
June 29,
(Thousands)
 
2019
 
2018
 
2019
 
2018
Components of net periodic benefit cost (benefit)
 
 
 
 
 
 
 
 
Service cost
 
$
2,758

 
$
3,348

 
$
35

 
$
56

Interest cost
 
2,904

 
4,794

 
199

 
198

Expected return on plan assets
 
(4,290
)
 
(7,394
)
 

 

Amortization of prior service benefit
 
242

 
(61
)
 
(749
)
 
(749
)
Amortization of net loss (gain)
 
1,431

 
3,919

 
(46
)
 

Pension curtailment charge
 
3,296

 

 

 

Net periodic benefit cost (benefit)
 
$
6,341

 
$
4,606

 
$
(561
)
 
$
(495
)
The Company made contributions to the domestic defined benefit pension plan of $3.0 million and $13.0 million in the six months of 2019 and 2018, respectively.
The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit cost in Other non-operating expenses.
In May 2019, the Company's Board of Directors approved changes to the U.S. defined benefit pension plan. The Company will freeze the pay and service amounts used to calculate pension benefits for active participants in the pension plan as of January 1, 2020. The Company recognized a non-cash pre-tax pension curtailment charge of $3.3 million associated with the plan amendment during the second quarter of 2019.
v3.19.2
Accumulated Other Comprehensive Income
6 Months Ended
Jun. 28, 2019
Equity [Abstract]  
Accumulated Other Comprehensive Income Accumulated Other Comprehensive Income (Loss)
Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the second quarter of 2019 and 2018 and first six months of 2019 and 2018 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 March 29, 2019

$
1,663


$
(24
)

$
189

 
$
1,828


$
(54,003
)

$
(5,095
)

$
(57,270
)
Other comprehensive income before reclassifications

(269
)

(563
)

(580
)
 
(1,412
)

14,224


339


13,151

Amounts reclassified from accumulated other comprehensive income

(46
)

(1
)

163

 
116


3,781




3,897

Net current period other comprehensive income (loss) before tax

(315
)

(564
)

(417
)
 
(1,296
)

18,005


339


17,048

Deferred taxes

(72
)

(130
)

(94
)
 
(296
)

4,052




3,756

Net current period other comprehensive income (loss) after tax

(243
)

(434
)

(323
)
 
(1,000
)

13,953


339


13,292

Balance at June 28, 2019

$
1,420


$
(458
)

$
(134
)
 
$
828


$
(40,050
)

$
(4,756
)

$
(43,978
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 30, 2018
 
$
326

 
$
(238
)
 
$

 
$
88

 
$
(98,314
)
 
$
(2,995
)
 
$
(101,221
)
Other comprehensive income (loss) before reclassifications
 
871

 
635

 

 
1,506

 

 
(944
)
 
562

Amounts reclassified from accumulated other comprehensive income
 
42

 
23

 

 
65

 
1,622

 

 
1,687

Net current period other comprehensive income (loss) before tax
 
913

 
658

 

 
1,571

 
1,622

 
(944
)
 
2,249

Deferred taxes
 
(343
)
 
151

 

 
(192
)
 
326

 

 
134

Net current period other comprehensive income (loss) after tax
 
1,256

 
507

 

 
1,763

 
1,296

 
(944
)
 
2,115

Balance at June 29, 2018
 
$
1,582

 
$
269

 
$

 
$
1,851

 
$
(97,018
)
 
$
(3,939
)
 
$
(99,106
)





 
 
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, 2018
 
$
1,263

 
$
79

 
$
(441
)
 
$
901

 
$
(54,543
)
 
$
(4,592
)
 
$
(58,234
)
Other comprehensive income before reclassifications
 
248

 
(636
)
 
304

 
(84
)
 
14,224

 
(164
)
 
13,976

Amounts reclassified from accumulated other comprehensive income
 
(44
)
 
(62
)
 
92

 
(14
)
 
4,441