MATERION CORP, 10-Q filed on 7/23/2020
Quarterly Report
v3.20.2
Document and Entity Information
6 Months Ended
Jun. 26, 2020
shares
Document and Entity Information [Abstract]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Jun. 26, 2020
Document Transition Report false
Entity File Number 001-15885
Entity Registrant Name MATERION CORPORATION
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
Entity Address, Postal Zip Code 44124
City Area Code 216
Local Phone Number 486-4200
Title of 12(b) Security Common Stock, no par value
Trading Symbol MTRN
Security Exchange Name NYSE
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding 20,322,225
Entity Central Index Key 0001104657
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2020
Document Fiscal Period Focus Q2
Amendment Flag false
v3.20.2
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 26, 2020
Jun. 28, 2019
Jun. 26, 2020
Jun. 28, 2019
Income Statement [Abstract]        
Net sales $ 271,468 $ 297,843 $ 549,414 $ 599,284
Cost of sales 223,378 228,249 455,749 460,378
Gross margin 48,090 69,594 93,665 138,906
Selling, general, and administrative expense 32,852 39,891 63,596 79,955
Research and development expense 4,502 4,062 8,687 7,802
Goodwill impairment charges 0 0 9,053 0
Held for sale impairment charges 0 0 1,713 0
Restructuring charges 2,387 0 4,551 0
Other - net (357) 2,891 1,922 7,012
Operating profit 8,706 22,750 4,143 44,137
Other non-operating (income) expense - net (851) 3,112 (1,795) 3,357
Interest Expense-net 1,259 500 1,505 966
Income before income taxes 8,298 19,138 4,433 39,814
Income tax expense 1,620 3,598 858 7,368
Net income $ 6,678 $ 15,540 $ 3,575 $ 32,446
Basic earnings per share:        
Net income per share of common stock (in dollars per share) $ 0.33 $ 0.76 $ 0.18 $ 1.60
Diluted earnings per share:        
Net income per share of common stock (in dollars per share) $ 0.32 $ 0.75 $ 0.17 $ 1.57
Weighted-average number of shares of common stock outstanding:        
Basic (in shares) 20,317 20,383 20,350 20,326
Diluted (in shares) 20,554 20,666 20,587 20,635
v3.20.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 26, 2020
Jun. 28, 2019
Jun. 26, 2020
Jun. 28, 2019
Statement of Comprehensive Income [Abstract]        
Net income $ 6,678 $ 15,540 $ 3,575 $ 32,446
Other comprehensive income (loss):        
Foreign currency translation adjustment 1,166 339 293 (164)
Derivative and hedging activity, net of tax 347 (1,000) (507) (73)
Pension and post-employment benefit adjustment, net of tax 89 13,953 105 14,493
Net current period other comprehensive (loss) income after tax 1,602 13,292 (109) 14,256
Comprehensive income $ 8,280 $ 28,832 $ 3,466 $ 46,702
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 26, 2020
Dec. 31, 2019
Current assets    
Cash and cash equivalents $ 265,068 $ 125,007
Accounts receivable, net 146,527 154,751
Inventories, net 209,847 190,390
Prepaid and other current assets 29,191 21,839
Assets held for sale 5,811 0
Total current assets 656,444 491,987
Deferred income taxes 1,669 1,666
Property, plant, and equipment 924,620 916,965
Less allowances for depreciation, depletion, and amortization (685,355) (684,689)
Property, plant, and equipment—net 239,265 232,276
Operating lease right-of-use assets 48,942 23,413
Intangible assets 5,732 6,380
Other assets 19,169 17,937
Goodwill 70,001 79,011
Total Assets 1,041,222 852,670
Current liabilities    
Short-term debt 151,731 868
Accounts payable 52,093 43,206
Salaries and wages 24,367 41,167
Other liabilities and accrued items 33,429 32,477
Income taxes 1,779 1,342
Unearned revenue 3,003 3,380
Liabilities held for sale 2,126 0
Total current liabilities 268,528 122,440
Other long-term liabilities 10,117 11,560
Operating lease liabilities 44,830 18,091
Finance lease liabilities 16,939 17,424
Retirement and post-employment benefits 32,389 32,466
Unearned income 57,799 32,891
Long-term income taxes 3,508 3,451
Deferred income taxes 2,172 2,410
Long-term debt 0 1,260
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 26 and December 31) 256,756 249,674
Retained earnings 588,803 589,888
Common stock in treasury (198,726) (186,845)
Accumulated other comprehensive loss (45,571) (45,462)
Other equity 3,678 3,422
Total shareholders' equity 604,940 610,677
Total Liabilities and Shareholders’ Equity $ 1,041,222 $ 852,670
v3.20.2
Consolidated Balance Sheets (Parenthetical) - $ / shares
shares in Thousands, $ / shares in Thousands
Jun. 26, 2020
Dec. 31, 2019
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
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
6 Months Ended
Jun. 26, 2020
Jun. 28, 2019
Cash flows from operating activities:    
Net income $ 3,575,000 $ 32,446,000
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Depreciation, depletion, and amortization 23,522,000 22,607,000
Amortization of deferred financing costs in interest expense 364,000 472,000
Stock-based compensation expense (non-cash) 3,966,000 3,541,000
Deferred income tax expense (benefit) (234,000) 4,578,000
Net pension curtailments and settlements 94,000 3,296,000
Held for sale impairment charges 10,766,000 0
Changes in assets and liabilities:    
Decrease (increase) in accounts receivable 5,331,000 (11,778,000)
Decrease (increase) in inventory (20,585,000) 1,306,000
Decrease (increase) in prepaid and other current assets (7,264,000) (588,000)
Increase (decrease) in accounts payable and accrued expenses (7,634,000) (18,813,000)
Increase (decrease) in unearned revenue (257,000) (88,000)
Increase (decrease) in interest and taxes payable 1,058,000 (1,130,000)
Increase (decrease) in unearned income due to customer prepayments 26,713,000 0
Domestic pension plan contributions 0 (3,000,000)
Other-net (2,982,000) (2,803,000)
Net cash provided by operating activities 36,433,000 30,046,000
Cash flows from investing activities:    
Payments for purchase of property, plant, and equipment (32,034,000) (13,833,000)
Payments for mine development 0 1,591,000
Proceeds from sale of property, plant, and equipment 33,000 15,000
Net cash used in investing activities (32,001,000) (15,409,000)
Cash flows from financing activities:    
Short-term debt under revolving credit agreement 150,000,000 0
Repayment of long-term debt (428,000) (397,000)
Principal payments under finance lease obligations 626,000 599,000
Cash dividends paid (4,582,000) (4,368,000)
Repurchase of common stock (6,766,000) (199,000)
Payments of withholding taxes for stock-based compensation awards (2,025,000) (4,763,000)
Net cash provided by (used in) financing activities 135,573,000 (10,326,000)
Effects of exchange rate changes 56,000 (100,000)
Net change in cash and cash equivalents 140,061,000 4,211,000
Cash and cash equivalents at beginning of period 125,007,000 70,645,000
Cash and cash equivalents at end of period $ 265,068,000 $ 74,856,000
v3.20.2
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, 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
Net pension curtailments and settlements 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     35 0 607 0 (497)
Stock Issued During Period Value Directors Deferred Compensation, Shares   2 2          
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
Net pension curtailments and settlements 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
Directors' deferred compensation 110     18 0 639 0 (547)
Stock Issued During Period Value Directors Deferred Compensation, Shares   2 2          
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 Dec. 31, 2019   20,404            
Beginning balances (in Treasury shares) at Dec. 31, 2019     (6,744)          
Beginning balances at Dec. 31, 2019 610,677     249,674 589,888 (186,845) (45,462) 3,422
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 3,575     0 3,575 0 0 0
Other comprehensive income (loss) (109)     0 0 0 (109) 0
Net pension curtailments and settlements 94              
Cash dividends declared (4,582)     0 (4,582) 0 0 0
Stock-based compensation activity (in shares)   110 110          
Stock-based compensation activity 4,057     7,037 (78) (2,902) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (36) (36)          
Payments of withholding taxes for stock-based compensation awards (2,025)     0 0 (2,025) 0 0
Repurchase of shares (in shares)   (158) (158)          
Repurchase of shares (6,766)     0 0 (6,766) 0 0
Directors' deferred compensation 113     45 0 (188) 0 256
Stock Issued During Period Value Directors Deferred Compensation, Shares   2 2          
Ending balance (in shares) at Jun. 26, 2020   20,322            
Ending balances (in Treasury shares) at Jun. 26, 2020     (6,826)          
Ending balances at Jun. 26, 2020 604,940     256,756 588,803 (198,726) (45,571) 3,678
Beginning balance (in shares) at Mar. 27, 2020   20,310            
Beginning balances (in Treasury shares) at Mar. 27, 2020     (6,838)          
Beginning balances at Mar. 27, 2020 596,478     253,967 584,505 (198,311) (47,173) 3,490
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 6,678     0 6,678 0 0 0
Other comprehensive income (loss) 1,602     0 0 0 1,602 0
Cash dividends declared (2,337)     0 (2,337) 0 0 0
Stock-based compensation activity (in shares)   11 11          
Stock-based compensation activity 2,473     2,775 (43) (259) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   0 0          
Payments of withholding taxes for stock-based compensation awards (10)     0 0 (10) 0 0
Directors' deferred compensation 56     14 0 (146) 0 188
Stock Issued During Period Value Directors Deferred Compensation, Shares   1 1          
Ending balance (in shares) at Jun. 26, 2020   20,322            
Ending balances (in Treasury shares) at Jun. 26, 2020     (6,826)          
Ending balances at Jun. 26, 2020 $ 604,940     $ 256,756 $ 588,803 $ (198,726) $ (45,571) $ 3,678
v3.20.2
Consolidated Statements of Shareholders' Equity (Parenthetical) - $ / shares
3 Months Ended 6 Months Ended
Jun. 26, 2020
Jun. 28, 2019
Jun. 26, 2020
Jun. 28, 2019
Statement of Stockholders' Equity [Abstract]        
Cash dividends declared (per share) $ 0.115 $ 0.110 $ 0.225 $ 0.215
v3.20.2
Accounting Policies
6 Months Ended
Jun. 26, 2020
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 2020 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 2019 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 June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 is effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. Early adoption is permitted. The Company adopted this guidance as of January 1, 2020, and the adoption did not have a material effect on the Company’s consolidated financial statements. Accounts receivable were net of an allowance for credit losses of $0.7 million and $0.4 million at June 26, 2020 and December 31, 2019, respectively. The change in the allowance for credit losses includes expense and net write-offs, none of which is significant.
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.
v3.20.2
Segment Reporting
6 Months Ended
Jun. 26, 2020
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 MaterialsPrecision CoatingsOtherTotal
Second Quarter 2020
Net sales$101,614  $150,108  $19,746  $—  $271,468  
Intersegment sales
(213) 8,997  —  —  8,784  
Operating profit (loss)8,244  4,370  2,091  (5,999) 8,706  
Second Quarter 2019
Net sales$135,231  $133,238  $29,374  $—  $297,843  
Intersegment sales 19,260  19,266  
Operating profit (loss)19,328  6,139  3,937  (6,654) 22,750  
First Six Months 2020
Net sales$200,681  $310,273  $38,460  $—  $549,414  
Intersegment sales
 18,188  —  —  18,190  
Operating profit (loss)13,035  9,155  (7,501) (10,546) 4,143  
First Six Months 2019
Net sales$262,344  $277,263  $59,677  $—  $599,284  
Intersegment sales15  36,473  —  —  36,488  
Operating profit (loss)38,286  13,219  6,014  (13,382) 44,137  
The following table disaggregates revenue for each segment by end market for the second quarter and first six months of 2020 and 2019, respectively:
 (Thousands)Performance Alloys and CompositesAdvanced MaterialsPrecision CoatingsOtherTotal
Second Quarter 2020
End Market
Semiconductor$1,537  $123,908  $232  $—  $125,677  
Industrial23,831  8,419  2,574  —  34,824  
Aerospace and Defense17,952  1,650  4,119  —  23,721  
Consumer Electronics9,956  21  3,404  —  13,381  
Automotive16,415  1,186   —  17,608  
Energy5,590  9,327  —  —  14,917  
Telecom and Data Center12,586  788  —  —  13,374  
Other13,747  4,809  9,410  —  27,966  
Total$101,614  $150,108  $19,746  $—  $271,468  
Second Quarter 2019
End Market
Semiconductor$1,303  $101,634  $93  $—  $103,030  
Industrial28,585  7,704  3,842  —  40,131  
Aerospace and Defense26,046  1,125  4,750  —  31,921  
Consumer Electronics22,663  500  4,430  —  27,593  
Automotive16,564  1,669  365  —  18,598  
Energy11,303  16,027  —  —  27,330  
Telecom and Data Center18,244  713  —  —  18,957  
Other10,523  3,866  15,894  —  30,283  
Total$135,231  $133,238  $29,374  $—  $297,843  
(Thousands)Performance Alloys and CompositesAdvanced MaterialsPrecision CoatingsOtherTotal
First Six Months 2020
End Market
Semiconductor$2,443  $244,727  $243  $—  $247,413  
Industrial47,171  16,781  5,671  —  69,623  
Aerospace and Defense32,158  3,077  9,228  —  44,463  
Consumer Electronics24,651  138  6,946  —  31,735  
Automotive34,579  3,266  24  —  37,869  
Energy11,019  32,795  —  —  43,814  
Telecom and Data Center22,575  1,658  —  —  24,233  
Other26,085  7,831  16,348  —  50,264  
Total$200,681  $310,273  $38,460  $—  $549,414  
First Six Months 2019
End Market
Semiconductor$3,268  $206,725  $205  $—  $210,198  
Industrial55,015  15,632  7,992  —  78,639  
Aerospace and Defense53,120  2,618  9,622  —  65,360  
Consumer Electronics36,218  705  7,916  —  44,839  
Automotive37,277  3,023  587  —  40,887  
Energy22,397  38,224  —  —  60,621  
Telecom and Data Center35,836  914  —  —  36,750  
Other19,213  9,422  33,355  —  61,990  
Total$262,344  $277,263  $59,677  $—  $599,284  

Intersegment sales are eliminated in consolidation.
v3.20.2
Revenue Recognition
6 Months Ended
Jun. 26, 2020
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 26, 2020. 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 June 26, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $29.2 million.
Contract Balances: The timing of revenue recognition, billings, and cash collections resulted in the following contract assets and contract liabilities:
(Thousands)June 26, 2020December 31, 2019$ change% change
Accounts receivable, trade
$141,465  $141,168  $297  — %
Unbilled receivables
5,218  13,583  (8,365) (62)%
Unearned revenue
3,003  3,380  (377) (11)%
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 2020.

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 $3.1 million of the unearned amounts as revenue during the first six months of 2020.

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.
v3.20.2
Other-net
6 Months Ended
Jun. 26, 2020
Other Income and Expenses [Abstract]  
Other-net Other-net
Other-net for the second quarter and first six months of 2020 and 2019 is summarized as follows: 
 Second Quarter EndedSix Months Ended
 June 26,June 28,June 26,June 28,
(Thousands)2020201920202019
Metal consignment fees$2,037  $2,225  $4,266  $5,316  
Amortization of intangible assets106  368  294  758  
Foreign currency (gain) loss(2,486) 307  (2,548) 384  
Net loss on disposal of fixed assets 118  55  142  
Other items(23) (127) (145) 412  
Total$(357) $2,891  $1,922  $7,012  
v3.20.2
Restructuring
6 Months Ended
Jun. 26, 2020
Restructuring and Related Activities [Abstract]  
Restructuring and Related Activities Disclosure [Text Block] Restructuring
In the first half of 2020, the Company initiated a restructuring plan in its Performance Alloys and Composites (PAC) segment to close its Warren, Michigan and Fremont, California locations. Costs associated with the plan totaled $2.4 million and $4.6 million in the second quarter and first six months of 2020, respectively. In the second quarter of 2020, these costs included $0.9 million of severance associated with approximately 60 employees and $1.5 million of facility and other related costs. Included in restructuring charges for the first six months of 2020 was $1.4 million of severance associated with approximately 60 employees and $3.1 million of facility and other related costs.
Remaining severance payments of $1.2 million and facility costs of $0.4 million related to these initiatives are reflected within Other liabilities and accrued items in the Consolidated Balance Sheets. The Company expects to incur additional costs related to these initiatives of approximately $4 million in the remainder of 2020.
v3.20.2
Income Taxes
6 Months Ended
Jun. 26, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company's effective tax rate for the second quarter of 2020 and 2019 was 19.5% and 18.8%, respectively, and 19.4% and 18.5% for the first six months of 2020 and 2019, 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 2020 included a net discrete income tax expense of $0.8 million, primarily related to an impairment of goodwill. 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 awards.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law.  The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations.  While the Company continues to examine the impacts the CARES Act may have on its business, it does not expect it will have a material impact to its consolidated financial statements.
On July 9, 2020, the U.S. Treasury Department issued final tax regulations related to the foreign-derived intangible income and global intangible low-taxed income (GILTI) provisions. Also, on July 20, 2020 the U.S. Treasury Department released final tax regulations permitting a taxpayer to elect to exclude from its GILTI inclusion items of income subject to a high effective rate of foreign tax. The Company is currently assessing the impact of the new legislation to its consolidated financial statements.
v3.20.2
Earnings Per Share
6 Months Ended
Jun. 26, 2020
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 EndedSix Months Ended
June 26,June 28,June 26,June 28,
(Thousands, except per share amounts)2020201920202019
Numerator for basic and diluted EPS:
Net income$6,678  $15,540  $3,575  $32,446  
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding20,317  20,383  20,350  20,326  
Effect of dilutive securities:
Stock appreciation rights36  76  36  92  
Restricted stock units63  76  80  77  
Performance-based restricted stock units138  131  121  140  
Diluted potential common shares237  283  237  309  
Denominator for diluted EPS:
Adjusted weighted-average shares outstanding20,554  20,666  20,587  20,635  
Basic EPS$0.33  $0.76  $0.18  $1.60  
Diluted EPS$0.32  $0.75  $0.17  $1.57  
Adjusted weighted-average shares outstanding-diluted excludes securities totaling 191,500 and 84,509 for the quarters ended June 26, 2020 and June 28, 2019, respectively, and 230,893 and 144,154 for the six months ended June 26, 2020 and June 28, 2019, respectively. These securities primarily related to restricted stock units and stock appreciation rights with fair market values and exercise prices less 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.
v3.20.2
Inventories
6 Months Ended
Jun. 26, 2020
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories on the Consolidated Balance Sheets are summarized as follows:
June 26,December 31,
(Thousands)20202019
Raw materials and supplies$54,720  $35,612  
Work in process172,678  177,780  
Finished goods30,304  25,506  
Subtotal$257,702  $238,898  
Less: LIFO reserve balance47,855  48,508  
Inventories$209,847  $190,390  
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 2020 and 2019.
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 $333.9 million as of June 26, 2020 versus $309.3 million as of December 31, 2019.
v3.20.2
Held for Sale
6 Months Ended
Jun. 26, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block] Held for Sale
In the first six months of 2020, the Company committed to a plan to sell its Large Area Coatings (LAC) reporting unit within the Precision Coatings segment and determined that it met the criteria to be classified as held for sale. Therefore, its assets and liabilities have been presented as held for sale in the Consolidated Balance Sheet as of June 26, 2020. Assets and liabilities classified as held for sale are measured at the lower of carrying value or fair value less costs to sell.
Before measuring the fair value less costs to sell of the disposal group as a whole, the Company first reviewed individual assets and liabilities to determine if any fair value adjustments were required. The Company recorded a goodwill impairment charge of $9.1 million in the first half of 2020 to write-off the remaining balance of goodwill for the LAC reporting unit. The Company determined fair value based on its expected proceeds to be received, which it concluded is most representative of the value of the assets.
The Company then estimated the fair value of the disposal group as a whole, less costs to sell, and compared the fair value to the remaining carrying value. Based on this review, the Company recorded a $1.7 million asset impairment loss in the first six months of 2020. No additional impairment charges were recorded in the second quarter of 2020.
The assets and liabilities of the LAC reporting unit classified as held for sale at June 26, 2020 were as follows:
(Thousands)
Accounts receivable, net$2,987  
Inventories, net1,305  
Prepaid and other current assets 
Property, plant, and equipment - net2,508  
Operating lease, right-of-use assets716  
Impairment on carrying value(1,713) 
Assets held for sale$5,811  
Accounts payable$870  
Salaries and wages245  
Other liabilities and accrued items228  
Operating lease liabilities728  
Other long term liabilities 55  
Liabilities held for sale$2,126  
Excluding the $9.1 million goodwill impairment charge and $1.7 million asset impairment charge recorded in the first half of 2020, the operating results of the LAC reporting unit were not material to the Company for any period presented.
v3.20.2
Goodwill
6 Months Ended
Jun. 26, 2020
Goodwill Disclosure [Abstract]  
Goodwill Goodwill
A summary of changes in goodwill by reportable segment is as follows:
(Thousands)Performance Alloys and CompositesAdvanced MaterialsPrecision CoatingsTotal
Balance at December 31, 2019$1,899  $50,190  $26,922  $79,011  
Impairment charge—  —  (9,053) (9,053) 
Other—  43  —  43  
Balance at June 26, 2020$1,899  $50,233  $17,869  $70,001  
Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The Company conducts its annual goodwill impairment assessment as of the first day of the fourth quarter, or more frequently under certain circumstances. Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment.
v3.20.2
Customer Prepayments
6 Months Ended
Jun. 26, 2020
Customer Prepayments [Abstract]  
Customer Prepayments Investment Agreement [Text Block] Customer Prepayments
The Company entered into an investment agreement with a customer to procure equipment to manufacture product for the customer. The customer will make 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, $31.4 million of prepayments are classified as Unearned Income in the Consolidated Balance Sheet, of which $19.6 million were received during the second quarter of 2020, and the liability is expected to be settled as commercial shipments are made.
v3.20.2
Leases
6 Months Ended
Jun. 26, 2020
Leases [Abstract]  
Leases of Lessee Disclosure 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 26, 2020 was 13.57 years and 19.37 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 26, 2020 was 6.41% and 5.31%, respectively.
The components of operating and finance lease cost for the second quarter and first six months of 2020 and 2019 were as follows:
Second Quarter EndedSix Months Ended
(Thousands)June 26, 2020June 28, 2019June 26, 2020June 28, 2019
Components of lease expense
Operating lease cost$2,274  $2,291  $4,532  $5,003  
Finance lease cost
Amortization of right-of-use assets350  354  701  710  
Interest on lease liabilities238  259  482  522  
Total lease cost$2,862  $2,904  $5,715  $6,235  

Operating lease expense amounted to $2.3 million and $4.5 million during the second quarter and first six months of 2020, respectively, compared to $2.3 million and $5.0 million, respectively, during the same periods of 2019. 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 26, 2020 and December 31, 2019 was as follows:
June 26,Dec. 31,
(Thousands)20202019
Supplemental balance sheet information
Operating Leases
Operating lease right-of-use assets
$48,942  $23,413  
Other liabilities and accrued items5,298  6,542  
Operating lease liabilities44,830  18,091  
Finance Leases
Property, plant, and equipment
$26,258  $26,069  
Allowances for depreciation, depletion, and amortization
(4,035) (3,570) 
Finance lease assets, net$22,223  $22,499  
Other liabilities and accrued items$1,305  $1,265  
Finance lease liabilities16,939  17,424  
Total principal payable on finance leases$18,244  $18,689  

Future maturities of the Company's lease liabilities as of June 26, 2020 are as follows:
FinanceOperating
(Thousands)LeasesLeases
2020$1,119  $3,986  
20212,238  7,841  
20222,238  6,846  
20231,528  6,548  
20241,174  4,704  
2025 and thereafter 21,126  46,967  
Total lease payments29,423  76,892  
Less amount of lease payment representing interest11,179  26,764  
Total present value of lease payments
$18,244  $50,128  

Supplemental cash flow information related to leases for the first six months of 2020 and 2019 were as follows:
Six Months Ended
(Thousands)June 26, 2020June 28, 2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$7,275  $7,710  
Operating cash flows from finance leases482  522  
Financing cash flows from finance leases626  599  
v3.20.2
Pensions and Other Post-employment Benefits
6 Months Ended
Jun. 26, 2020
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 and first six months of 2020 and 2019 for the domestic pension plans (which include the defined benefit pension plan and the supplemental retirement plans) and the domestic retiree medical plan.
 Pension BenefitsOther Benefits
 Second Quarter EndedSecond Quarter Ended
June 26,June 28,June 26,June 28,
(Thousands)202020192020