MATERION CORP, 10-Q filed on 10/24/2019
Quarterly Report
v3.19.3
Document and Entity Information
9 Months Ended
Sep. 27, 2019
shares
Document and Entity Information [Abstract]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Sep. 27, 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 Q3
Trading Symbol MTRN
Amendment Flag false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Small Business false
Entity Common Stock, Shares Outstanding 20,402,976
Security Exchange Name NYSE
v3.19.3
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 27, 2019
Sep. 28, 2018
Sep. 27, 2019
Sep. 28, 2018
Income Statement [Abstract]        
Net sales $ 305,979 $ 297,193 $ 905,263 $ 909,745
Cost of sales 241,034 232,258 701,412 724,692
Gross margin 64,945 64,935 203,851 185,053
Selling, general, and administrative expense 36,311 38,872 116,266 115,807
Research and development expense 5,262 4,250 13,064 11,753
Goodwill impairment charges 11,560 0 11,560 0
Asset impairment charges 2,581 0 2,581 0
Other - net 2,942 3,147 9,954 10,384
Operating profit 6,289 18,666 50,426 47,109
Interest expense—net 436 613 1,402 2,010
Other non-operating expense - net 127 800 3,484 1,679
Income before income taxes 5,726 17,253 45,540 43,420
Income tax expense (benefit) 2,263 (2,713) 9,631 1,746
Net income $ 3,463 $ 19,966 $ 35,909 $ 41,674
Basic earnings per share:        
Net income per share of common stock (in dollars per share) $ 0.17 $ 0.99 $ 1.76 $ 2.06
Diluted earnings per share:        
Net income per share of common stock (in dollars per share) $ 0.17 $ 0.97 $ 1.74 $ 2.02
Weighted-average number of shares of common stock outstanding:        
Basic (in shares) 20,401 20,241 20,351 20,199
Diluted (in shares) 20,677 20,648 20,645 20,607
v3.19.3
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 27, 2019
Sep. 28, 2018
Sep. 27, 2019
Sep. 28, 2018
Statement of Comprehensive Income [Abstract]        
Net income $ 3,463 $ 19,966 $ 35,909 $ 41,674
Other comprehensive income (loss):        
Foreign currency translation adjustment (463) 116 (627) 285
Derivative and hedging activity, net of tax 82 125 9 1,213
Pension and post-employment benefit adjustment, net of tax 501 1,507 14,994 4,081
Net current period other comprehensive income (loss) after tax 120 1,748 14,376 5,579
Comprehensive income $ 3,583 $ 21,714 $ 50,285 $ 47,253
v3.19.3
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 27, 2019
Dec. 31, 2018
Current assets    
Cash and cash equivalents $ 94,526 $ 70,645
Accounts receivable 165,477 130,538
Inventories, net 191,956 214,871
Prepaid and other current assets 23,658 23,299
Total current assets 475,617 439,353
Deferred income taxes 1,848 5,616
Property, Plant and Equipment 909,254 898,251
Less allowances for depreciation, depletion, and amortization (675,039) (647,233)
Property, plant, and equipment—net 234,215 251,018
Operating lease, right-of-use asset 25,054 0
Intangible assets 6,692 6,461
Other assets 17,452 7,236
Goodwill 78,961 90,657
Total Assets 839,839 800,341
Current liabilities    
Short-term debt 857 823
Accounts payable 43,675 49,622
Salaries and wages 40,069 47,501
Other liabilities and accrued items 35,549 33,301
Income taxes 1,637 2,615
Unearned revenue 5,188 5,918
Total current liabilities 126,975 139,780
Other long-term liabilities 11,021 14,764
Operating lease liabilities 19,453 0
Finance lease liabilities 17,535 15,221
Retirement and post-employment benefits 31,026 38,853
Unearned income 29,270 32,563
Long-term income taxes 3,121 2,993
Deferred income taxes 2,175 195
Long-term debt 1,467 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 September 27 and December 31) 247,651 234,704
Retained earnings 577,409 548,374
Common stock in treasury (187,464) (175,426)
Accumulated other comprehensive loss (43,858) (58,234)
Other equity 4,058 4,488
Total shareholders' equity 597,796 553,906
Total Liabilities and Shareholders’ Equity $ 839,839 $ 800,341
v3.19.3
Consolidated Balance Sheets (Parenthetical) - $ / shares
shares in Thousands, $ / shares in Thousands
Sep. 27, 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
v3.19.3
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 27, 2019
Sep. 28, 2018
Cash flows from operating activities:    
Net income $ 35,909 $ 41,674
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Depreciation, depletion, and amortization 31,955 26,506
Amortization of deferred financing costs in interest expense 720 720
Stock-based compensation expense (non-cash) 5,230 3,782
Deferred income tax expense (benefit) 5,725 (5,341)
Impairment charges 14,141 0
Net curtailment/settlements 3,296 359
Changes in assets and liabilities:    
Decrease (increase) in accounts receivable (36,146) (10,274)
Decrease (increase) in inventory 22,089 19,754
Decrease (increase) in prepaid and other current assets (416) 4,648
Increase (decrease) in accounts payable and accrued expenses (14,114) (10,290)
Increase (decrease) in unearned revenue (728) 2,365
Increase (decrease) in interest and taxes payable (1,499) 5,557
Domestic pension plan contributions (4,500) (38,000)
Other-net (2,126) 7,783
Net cash used in operating activities 59,536 49,243
Cash flows from investing activities:    
Payments for purchase of property, plant, and equipment (18,193) (21,809)
Payments for mine development (1,903) (5,192)
Proceeds from sale of property, plant, and equipment 17 26
Net cash used in investing activities (20,079) (26,975)
Cash flows from financing activities:    
Repayment of long-term debt (599) (513)
Principal payments under finance lease obligations 894 573
Cash dividends paid (6,612) (6,262)
Repurchase of common stock (199) 0
Payments of withholding taxes for stock-based compensation awards (4,832) (3,006)
Deferred financing costs (2,018) 0
Net cash used in financing activities (15,154) (10,354)
Effects of exchange rate changes (422) (146)
Net change in cash and cash equivalents 23,881 11,768
Cash and cash equivalents at beginning of period 70,645 41,844
Cash and cash equivalents at end of period $ 94,526 $ 53,612
v3.19.3
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 41,674     0 41,674 0 0 0
Other comprehensive income (loss) 4,645     0 0 0 4,645 0
Net curtailment/settlements 359     0 0 0 359 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 (6,262)     0 (6,262) 0 0 0
Stock-based compensation activity (in shares)   192 193          
Stock-based compensation activity 3,782     9,294 (28) (5,484) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (58) (58)          
Payments of withholding taxes for stock-based compensation awards (3,006)     0 0 (3,006) 0 0
Directors' deferred compensation 145 $ 3 $ 3 68 0 86 0 (9)
Ending balance (in shares) at Sep. 28, 2018   20,244            
Ending balances (in Treasury shares) at Sep. 28, 2018     (6,904)          
Ending balances at Sep. 28, 2018 536,743     232,846 571,350 (174,532) (97,358) 4,437
Beginning balance (in shares) at Jun. 29, 2018   20,236            
Beginning balances (in Treasury shares) at Jun. 29, 2018     (6,912)          
Beginning balances at Jun. 29, 2018 515,741     230,763 553,523 (173,825) (99,106) 4,386
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 19,966     0 19,966 0 0 0
Other comprehensive income (loss) 1,389     0 0 0 1,389 0
Net curtailment/settlements 359     0 0 0 359 0
Cash dividends declared (2,125)     0 (2,125) 0 0 0
Stock-based compensation activity (in shares)   11 12          
Stock-based compensation activity 1,618     2,074 (14) (442) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (5) (5)          
Payments of withholding taxes for stock-based compensation awards (241)     0 0 (241) 0 0
Directors' deferred compensation 36 $ 2 $ 1 9 0 (24) 0 51
Ending balance (in shares) at Sep. 28, 2018   20,244            
Ending balances (in Treasury shares) at Sep. 28, 2018     (6,904)          
Ending balances at Sep. 28, 2018 536,743     232,846 571,350 (174,532) (97,358) 4,437
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 35,909     0 35,909 0 0 0
Other comprehensive income (loss) 11,080     0 0 0 11,080 0
Net curtailment/settlements 3,296     0 0 0 3,296 0
Cumulative effect of accounting change (179)     0 (179) 0 0 0
Cash dividends declared (6,612)     0 (6,612) 0 0 0
Stock-based compensation activity (in shares)   252 252          
Stock-based compensation activity 5,230     12,882 (83) (7,569) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (89) (89)          
Payments of withholding taxes for stock-based compensation awards (4,832)     0 0 (4,832) 0 0
Repurchase of shares (in shares)   (5) (5)          
Repurchase of shares (199)     0 0 (199) 0 0
Directors' deferred compensation 197 $ 3 $ 3 65 0 562 0 (430)
Ending balance (in shares) at Sep. 27, 2019   20,403            
Ending balances (in Treasury shares) at Sep. 27, 2019     (6,745)          
Ending balances at Sep. 27, 2019 597,796     247,651 577,409 (187,464) (43,858) 4,058
Beginning balance (in shares) at Jun. 28, 2019   20,399            
Beginning balances (in Treasury shares) at Jun. 28, 2019     (6,749)          
Beginning balances at Jun. 28, 2019 594,785     245,785 576,211 (187,224) (43,978) 3,991
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 3,463     0 3,463 0 0 0
Other comprehensive income (loss) 120     0 0 0 120 0
Cash dividends declared (2,244)     0 (2,244) 0 0 0
Stock-based compensation activity (in shares)   5 5          
Stock-based compensation activity 1,689     1,836 (21) (126) 0 0
Payments of withholding taxes for stock-based compensation awards (in shares)   (2) (2)          
Payments of withholding taxes for stock-based compensation awards (69)     0 0 (69) 0 0
Directors' deferred compensation 52 $ 1 $ 1 30 0 (45) 0 67
Ending balance (in shares) at Sep. 27, 2019   20,403            
Ending balances (in Treasury shares) at Sep. 27, 2019     (6,745)          
Ending balances at Sep. 27, 2019 $ 597,796     $ 247,651 $ 577,409 $ (187,464) $ (43,858) $ 4,058
v3.19.3
Consolidated Statements of Shareholders' Equity (Parenthetical) - $ / shares
3 Months Ended 9 Months Ended
Sep. 27, 2019
Sep. 28, 2018
Sep. 27, 2019
Sep. 28, 2018
Statement of Stockholders' Equity [Abstract]        
Cash dividends declared (per share) $ 0.110 $ 0.105 $ 0.325 $ 0.310
v3.19.3
Accounting Policies
9 Months Ended
Sep. 27, 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 J for additional disclosures relating to the Company's leasing arrangements.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which intended to simplify the subsequent measurement of goodwill. This ASU eliminates the requirement for an entity to calculate the implied fair value of goodwill in measuring an impairment charge. Instead, an entity will perform its annual, or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an impairment charge for the amount by which the carrying amount exceeds the fair value. 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. Refer to Note F for additional disclosures related to goodwill.
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.
v3.19.3
Segment Reporting
9 Months Ended
Sep. 27, 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
Third Quarter 2019
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
130,704

 
$
147,650

 
$
27,625

 
$

 
$
305,979

Intersegment sales 
 

 
17,161

 

 

 
17,161

Operating profit (loss)
 
18,780

 
6,202

 
(11,198
)
 
(7,495
)
 
6,289

Third Quarter 2018
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
124,103

 
$
144,072

 
$
29,018

 
$

 
$
297,193

Intersegment sales
 
2

 
13,265

 

 

 
13,267

Operating profit (loss)
 
16,728

 
6,882

 
3,499

 
(8,443
)
 
18,666

 
 
 
 
 
 
 
 
 
 
 
First Nine Months 2019
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
393,048

 
$
424,913

 
$
87,302

 
$

 
$
905,263

Intersegment sales
 
15

 
53,634

 

 

 
53,649

Operating profit (loss)
 
57,066

 
19,421

 
(5,184
)
 
(20,877
)
 
50,426

First Nine Months 2018
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
372,104

 
$
447,941

 
$
89,700

 
$

 
$
909,745

Intersegment sales
 
33

 
36,317

 

 

 
36,350

Operating profit (loss)
 
38,898

 
18,352

 
9,107

 
(19,248
)
 
47,109



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

Performance Alloys and Composites

Advanced Materials

Precision Coatings

Other

Total
Third Quarter 2019










End Market










Semiconductor

$
1,220


$
107,883


$


$


$
109,103

Industrial

28,353


8,302


3,365




40,020

Aerospace and Defense

27,653


1,779


5,303




34,735

Consumer Electronics

18,399


395


5,613




24,407

Automotive

16,071


3,012


296




19,379

Energy

10,629


20,911






31,540

Telecom and Data Center

14,964


835






15,799

Other

13,415


4,533


13,048




30,996

    Total

$
130,704


$
147,650


$
27,625


$


$
305,979












Third Quarter 2018










End Market










Semiconductor

$
1,381


$
104,806


$
269


$


$
106,456

Industrial

26,812


9,269


3,338




39,419

Aerospace and Defense

19,840


910


5,203




25,953

Consumer Electronics

14,964


149


4,730




19,843

Automotive

25,292


1,707


398




27,397

Energy

12,395


19,338






31,733

Telecom and Data Center

17,530


951






18,481

Other

5,889


6,942


15,080




27,911

    Total

$
124,103


$
144,072


$
29,018


$


$
297,193




 (Thousands)
 
Performance Alloys and Composites
 
Advanced Materials
 
Precision Coatings
 
Other
 
Total
First Nine Months 2019
 
 
 
 
 
 
 
 
 
 
End Market
 
 
 
 
 
 
 
 
 
 
Semiconductor
 
$
4,489

 
$
314,607

 
$
205

 
$

 
$
319,301

Industrial
 
83,368

 
23,934

 
11,358

 

 
118,660

Aerospace and Defense
 
80,774

 
4,397

 
14,924

 

 
100,095

Consumer Electronics
 
54,617

 
1,100

 
13,530

 

 
69,247

Automotive
 
53,348

 
6,035

 
882

 

 
60,265

Energy
 
33,026

 
59,136

 

 

 
92,162

Telecom and Data Center
 
50,800

 
1,749

 

 

 
52,549

Other
 
32,626

 
13,955

 
46,403

 

 
92,984

    Total
 
$
393,048

 
$
424,913

 
$
87,302

 
$

 
$
905,263


 
 
 
 
 
 
 
 
 
 
First Nine Months 2018
 
 
 
 
 
 
 
 
 
 
End Market
 
 
 
 
 
 
 
 
 
 
Semiconductor
 
$
3,768

 
$
333,797

 
$
1,240

 
$

 
$
338,805

Industrial
 
85,389

 
25,002

 
9,237

 

 
119,628

Aerospace and Defense
 
64,086

 
2,912

 
14,847

 

 
81,845

Consumer Electronics
 
46,419

 
775

 
14,021

 

 
61,215

Automotive
 
72,065

 
5,890

 
1,089

 

 
79,044

Energy
 
30,007

 
53,045

 

 

 
83,052

Telecom and Data Center
 
50,177

 
1,982

 

 

 
52,159

Other
 
20,193

 
24,538

 
49,266

 

 
93,997

    Total
 
$
372,104

 
$
447,941

 
$
89,700

 
$

 
$
909,745



Intersegment sales are eliminated in consolidation.
v3.19.3
Revenue Recognition
9 Months Ended
Sep. 27, 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 September 27, 2019. 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 September 27, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $21.6 million.

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

(Thousands)
 
September 27, 2019
 
December 31, 2018
 
$ change
 
% change
Accounts receivable, trade
 
$
149,957

 
$
124,498

 
$
25,459

 
20
 %
Unbilled receivables
 
16,206

 
4,619

 
11,587

 
251
 %
Unearned revenue
 
5,188

 
5,918

 
(730
)
 
(12
)%


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 third quarter and first nine 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 nine 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.
v3.19.3
Other-net
9 Months Ended
Sep. 27, 2019
Other Income and Expenses [Abstract]  
Other-net Other-net
Other-net expense for the third quarter and first nine months of of 2019 and 2018 is summarized as follows: 
 
 
Third Quarter Ended
 
Nine Months Ended
 
 
Sept. 27,
 
Sept. 28,
 
Sept. 27,
 
Sept. 28,
(Thousands)
 
2019
 
2018
 
2019
 
2018
Metal consignment fees
 
$
1,936

 
$
2,503

 
$
7,252

 
$
7,520

Amortization of intangible assets
 
375

 
524

 
1,133

 
1,858

Foreign currency loss
 
469

 
140

 
853

 
1,359

Net loss on disposal of fixed assets
 
1

 
14

 
143

 
37

Rental income
 
(29
)
 
(119
)
 
(87
)
 
(378
)
Other items
 
190

 
85

 
660

 
(12
)
Total
 
$
2,942

 
$
3,147

 
$
9,954

 
$
10,384


v3.19.3
Restructuring
9 Months Ended
Sep. 27, 2019
Restructuring and Related Activities [Abstract]  
Restructuring and Related Activities Disclosure [Text Block] Restructuring

In the third quarter of 2019, the Company initiated a restructuring plan in the Large Area Coatings (LAC) business (a reporting unit in the Precision Coatings segment) to reduce headcount, idle certain machinery and equipment, and exit a facility in Windsor, Connecticut. Costs associated with this plan also included severance and related costs for approximately 19 employees.

In addition, in the third quarter of 2019, the Company completed other cost reduction actions in order to align costs with commensurate business levels. These actions were accomplished through elimination of vacant positions, consolidation of roles,
and staff reduction. Costs associated with these actions within the Other segment included severance associated with approximately seven employees and other related costs.
These costs are presented in the Consolidated Statements of Income as follows:
 
 
Third Quarter Ended
 
Nine Months Ended
(Thousands)
 
Sept. 27, 2019
 
Sept. 28, 2018
 
Sept. 27, 2019
 
Sept. 28, 2018
Cost of sales
 
$
286

 
$

 
$
286

 
$

Selling, general, and administrative (SG&A) expense
 
499

 

 
499

 

Total
 
$
785

 
$

 
$
785

 
$


Remaining severance payments related to these initiatives of $0.6 million are reflected within Other liabilities and accrued items in the Consolidated Balance Sheets. The Company does not expect to incur additional costs related to these initiatives.
v3.19.3
Goodwill
9 Months Ended
Sep. 27, 2019
Goodwill Disclosure [Abstract]  
Goodwill Goodwill
A summary of changes in goodwill by reportable segment is as follows:
(Thousands)
 
Performance Alloys and Composites
 
Advanced Materials
 
Precision Coatings
 
Total
Balance at December 31, 2018
 
$
1,899

 
$
50,276

 
$
38,482

 
$
90,657

Impairment charge
 

 

 
(11,560
)
 
(11,560
)
Other
 

 
(136
)
 

 
(136
)
Balance at September 27, 2019
 
$
1,899

 
$
50,140

 
$
26,922

 
$
78,961


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.
During the third quarter of 2019, the LAC reporting unit began to experience a decline in sales volume from a significant customer. Based on an assessment that the decline in sales volume was expected to continue, the Company initiated a restructuring plan at the end of September to reduce LAC’s cost structure. Refer to Note E for further details of the restructuring plan. The Company considered these factors to be impairment indicators. As a result, the Company performed an interim impairment analysis as of September 27, 2019 related to the LAC reporting unit. The Company first reviewed long-lived assets which resulted in an impairment charge of $2.6 million. The Company then performed a goodwill impairment analysis which resulted in an $11.6 million charge. The Company estimated fair value using a discounted cash flow analysis for goodwill and estimated market values for other assets. These non-cash charges relating to goodwill and other assets were recorded in Goodwill impairment charges and Asset impairment charges, respectively, in the Consolidated Statements of Income.
v3.19.3
Income Taxes
9 Months Ended
Sep. 27, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes

The Company's effective tax rate for the third quarter of 2019 and 2018 was 39.5% and (15.7)%, respectively, and 21.1% and 4.0% for the first nine months of 2019 and 2018, respectively.

The effective tax rate for the third quarter and first nine months of 2019 differed from the statutory tax rate primarily due to discrete income tax expense of $1.8 million and $1.3 million recorded in the third quarter and first nine months of 2019, respectively. The discrete income tax expense recorded in the third quarter of 2019 consisted of $0.8 million of expense related to an impairment of goodwill and a $1.0 million 2018 U.S. Federal income tax return to provision tax expense adjustment.
The effective tax rate for the third quarter and first nine months of 2018 differed from the statutory tax rate primarily due to discrete income tax benefits of $6.1 million and $7.1 million recorded in the third quarter and first nine months of 2018, respectively. The discrete income tax benefits were comprised primarily of $10.4 million related to Staff Accounting Bulletin (SAB) No. 118 adjustments, partially offset by $2.2 million of expense for a valuation allowance related to deferred tax assets that were not likely to be realized for one of the Company's controlled foreign corporations, and a $1.5 million 2017 U.S. Federal income tax return to provision tax expense adjustment.
v3.19.3
Earnings Per Share
9 Months Ended
Sep. 27, 2019
Earnings Per Share [Abstract]  
Earnings Per Share Earnings Per Share (EPS)
The following table sets forth the computation of basic and diluted EPS:
 
 
Third Quarter Ended
 
Nine Months Ended
 
 
Sept. 27,
 
Sept. 28,
 
Sept. 27,
 
Sept. 28,
(Thousands, except per share amounts)
 
2019
 
2018
 
2019
 
2018
Numerator for basic and diluted EPS:
 
 
 
 
 
 
 
 
Net income
 
$
3,463

 
$
19,966

 
$
35,909

 
$
41,674

Denominator:
 
 
 
 
 
 
 
 
Denominator for basic EPS:
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
20,401

 
20,241

 
20,351

 
20,199

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock appreciation rights
 
59

 
168

 
80

 
183

Restricted stock units
 
75

 
86

 
73

 
84

Performance-based restricted stock units
 
142

 
153

 
141

 
141

Diluted potential common shares
 
276

 
407

 
294

 
408

Denominator for diluted EPS:
 

 

 
 
 
 
Adjusted weighted-average shares outstanding
 
20,677

 
20,648

 
20,645

 
20,607

Basic EPS
 
$
0.17

 
$
0.99

 
$
1.76

 
$
2.06

Diluted EPS
 
$
0.17

 
$
0.97

 
$
1.74

 
$
2.02



Securities totaling 70,562 and 65,112 for the quarters ended September 27, 2019 and September 28, 2018, respectively, and 127,759 and 65,112 for the nine months ended September 27, 2019 and September 28, 2018, respectively, were excluded from the dilution calculation as the effect would have been anti-dilutive.
v3.19.3
Inventories
9 Months Ended
Sep. 27, 2019
Inventory Disclosure [Abstract]  
Inventories Inventories
Inventories on the Consolidated Balance Sheets are summarized as follows:
 
 
Sept. 27,
 
December 31,
(Thousands)
 
2019
 
2018
Raw materials and supplies
 
$
36,399

 
$
33,182

Work in process
 
182,015

 
195,879

Finished goods
 
22,516

 
30,643

Subtotal
 
$
240,930

 
$
259,704

Less: LIFO reserve balance
 
48,974

 
44,833

Inventories
 
$
191,956

 
$
214,871


The liquidation of last in, first out (LIFO) inventory layers decreased cost of sales by $0.5 million and $0.4 million in the third quarter and first nine months of 2019, respectively, compared to an increase to cost of sales of $0.2 million and $0.3 million in the third quarter and first nine months of 2018, respectively.
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 $302.9 million as of September 27, 2019 versus $316.1 million as of December 31, 2018.
v3.19.3
Leases
9 Months Ended
Sep. 27, 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 September 27, 2019 was 4.83 years and 19.52 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 September 27, 2019 was 5.57% and 5.31%, respectively.

The components of operating and finance lease cost for the third quarter and first nine months of 2019 were as follows:
 
 
Third Quarter Ended
 
Nine Months Ended
 
 
Sept. 27,
 
Sept. 27,
(Thousands)
 
2019
 
2019
Components of lease expense
 
 
 
 
Operating lease cost
 
$
2,449

 
$
7,452

 
 
 
 
 
Finance lease cost
 
 
 
 
Amortization of right-of-use assets
 
353

 
1,063

Interest on lease liabilities
 
256

 
778

Total lease cost
 
$
3,058

 
$
9,293



Operating lease expense amounted to $2.4 million and $2.8 million during the third quarter of 2019 and 2018, respectively, and $7.5 million and $8.9 million during the first nine 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 September 27, 2019 was as follows:
 
 
Sept. 27,
(Thousands)
 
2019
Supplemental balance sheet information
 
 
 
 
 
Operating Leases
 
 
Operating lease right-of-use assets
 
$
25,054

Other liabilities and accrued items
 
6,908

Operating lease liabilities
 
19,453

 
 
 
Finance Leases
 
 
Property, plant, and equipment
 
$
25,830

Allowances for depreciation, depletion, and amortization
 
(3,331
)
Finance lease assets, net
 
$
22,499

Other liabilities and accrued items
 
$
1,243

Finance lease liabilities
 
17,535

Total principal payable on finance leases
 
$
18,778



Future maturities of the Company's lease liabilities as of September 27, 2019 are as follows:
 
 
Finance
 
Operating
(Thousands)
 
Leases
 
Leases
2019
 
$
552

 
$
2,129

2020
 
2,208

 
7,726

2021
 
2,208

 
6,661

2022
 
2,208

 
4,715

2023
 
1,498

 
3,785

2024 and thereafter
 
21,729

 
5,210

Total lease payments
 
30,403

 
30,226

Less amount of lease payment representing interest
 
11,625

 
3,865

Total present value of lease payments

 
$
18,778

 
$
26,361



Supplemental cash flow information related to leases for the first nine months of 2019 was as follows:
 
 
Nine Months Ended
 
 
Sept. 27,
(Thousands)
 
2019
Supplemental cash flow information
 
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
11,763

Operating cash flows from finance leases
 
778

Financing cash flows from finance leases
 
894


v3.19.3
Pensions and Other Post-employment Benefits
9 Months Ended
Sep. 27, 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 third quarter and first nine months 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
 

Third Quarter Ended

Third Quarter Ended


Sept. 27,

Sept. 28,

Sept. 27,

Sept. 28,
(Thousands)

2019

2018

2019

2018
Components of net periodic benefit cost (benefit)








Service cost

$
1,359


$
1,674


$
18


$
27

Interest cost

1,500


2,397


100


99

Expected return on plan assets

(2,134
)

(3,697
)




Amortization of prior service benefit

120


(31
)

(374
)

(374
)
Amortization of net loss (gain)

762


1,959


(24
)


Net periodic benefit cost (benefit)

$
1,607


$
2,302


$
(280
)

$
(248
)
Net curtailments/settlements
 

 
359

 

 

Total net benefit cost (benefit)
 
$
1,607

 
$
2,661

 
$
(280
)
 
$
(248
)

 
 
Pension Benefits
 
Other Benefits
 
 
Nine Months Ended
 
Nine Months Ended
 
 
Sept. 27,
 
Sept. 28,
 
Sept. 27,
 
Sept. 28,
(Thousands)
 
2019
 
2018
 
2019
 
2018
Components of net periodic benefit cost (benefit)
 
 
 
 
 
 
 
 
Service cost
 
$
4,117

 
$
5,022

 
$
53

 
$
83

Interest cost
 
4,404

 
7,191

 
299

 
297

Expected return on plan assets
 
(6,424
)
 
(11,091
)
 

 

Amortization of prior service benefit
 
362

 
(92
)
 
(1,123
)
 
(1,123
)
Amortization of net loss (gain)
 
2,193

 
5,878

 
(70
)
 

Net periodic benefit cost (benefit)
 
$
4,652

 
$
6,908

 
$
(841
)
 
$
(743
)
Net curtailments/settlements
 
3,296

 
359

 

 

Total net benefit cost (benefit)
 
$
7,948

 
$
7,267

 
$
(841
)
 
$
(743
)
The Company made contributions to the domestic defined benefit pension plan of $4.5 million and $38.0 million in the first nine 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 first nine months of 2019.
v3.19.3
Accumulated Other Comprehensive Income
9 Months Ended
Sep. 27, 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 third quarter and first nine 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 June 28, 2019

$
1,420


$
(458
)

$
(134
)
 
$
828


$
(40,050
)

$
(4,756
)

$
(43,978
)
Other comprehensive income before reclassifications

354


(730
)

(271
)
 
(647
)



(463
)

(1,110
)
Amounts reclassified from accumulated other comprehensive income

(3
)

343


413

 
753


609




1,362

Net current period other comprehensive income (loss) before tax

351


(387
)

142

 
106


609


(463
)

252

Deferred taxes

80


(66
)

10

 
24


108




132

Net current period other comprehensive income (loss) after tax

271


(321
)

132

 
82


501


(463
)

120

Balance at September 27, 2019

$
1,691


$
(779
)

$
(2
)
 
$
910


$
(39,549
)

$
(5,219
)

$
(43,858
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 29, 2018
 
$
1,582