MATERION CORPORATION OVERVIEW
We are an integrated producer of high-performance advanced engineered materials
used in a variety of electronic, thermal, and structural applications. Our
products are sold into numerous end markets, including semiconductor,
industrial, aerospace and defense, automotive, consumer electronics, energy, and
telecom and data center.
Coronavirus (COVID-19) Second Quarter 2021 Update
The significant macroeconomic impact of the ongoing COVID-19 pandemic impacted
several of our end markets throughout 2020 primarily in the first half of the
year in the form of reduced demand, particularly in the consumer electronics,
automotive, energy, aerospace and defense, and industrial end markets. During
the first six months of 2021, we continued to see improvements in demand as
global government-imposed restrictions continued to be lifted and many country
vaccination programs gained further momentum. However, the world continues to be
impacted by the COVID-19 pandemic and the impact on our operations and the
markets we serve is fluid and will depend largely on future developments,
including the availability and effectiveness of vaccines globally, new
information which may emerge concerning the severity of the pandemic and actions
by government authorities to contain the pandemic or mitigate its economic,
public health, and other impacts. These developments are constantly evolving and
cannot be accurately predicted. We continue to invest in the business, people,
and strategies necessary to achieve our long-term priorities as we focus on
driving profitable growth. We have continued to operate during the course of the
COVID-19 pandemic in all our production facilities, having taken the recommended
public health measures to ensure worker and workplace safety.
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RESULTS OF OPERATIONS
Second Quarter
Second Quarter Ended
July 2, June 26, $ %
(Thousands, except per share data) 2021 2020 Change Change
Net sales $ 370,999 $ 271,468 $ 99,531 37 %
Value-added sales 207,887 159,068 48,819 31 %
Gross margin 69,581 46,955 22,626 48 %
Gross margin as a % of value-added sales 33 % 30 %
Selling, general, and administrative (SG&A)
expense 38,060 32,852 5,208 16 %
SG&A expense as a % of value-added sales 18 % 21 %
Research and development (R&D) expense 6,604 4,502 2,102 47 %
R&D expense as a % of value-added sales 3 % 3 %
Restructuring expense - 2,387 (2,387) (100) %
Other-net 4,194 (357) 4,551 (1,275) %
Operating profit 20,723 7,571 13,152 174 %
Other non-operating (income)-net (1,277) (851) (426) 50 %
Interest expense-net 858 1,259 (401) (32) %
Income before income taxes 21,142 7,163 13,979 195 %
Income tax expense 3,274 1,360 1,914 141 %
Net income $ 17,868 $ 5,803 $ 12,065 208 %
Diluted earnings per share $ 0.87 $ 0.28 $ 0.59 211 %
Net sales of $371.0 million in the second quarter of 2021 increased $99.5
million from $271.5 million in the second quarter of 2020. Net sales increased
in all of our segments primarily due to increased volumes, as well as due to
sales attributable to our Optics Balzers acquisition, which was completed during
the third quarter of 2020. The change in precious metal and copper prices
favorably impacted net sales during the second quarter of 2021 by $19.8 million .
Value-added sales is a non-GAAP financial measure that removes the impact of
pass-through metal costs and allows for analysis without the distortion of the
movement or volatility in metal prices and changes in mix due to
customer-supplied material. Internally, we manage our business on this basis,
and a reconciliation of net sales, the most directly comparable GAAP financial
measure, to value-added sales is included herein. Value-added sales of $207.9
million in the second quarter of 2021 increased $48.8 million , or 31%, compared
to the second quarter of 2020. The increase is primarily driven by increased
value-added sales into the semiconductor, industrial, and automotive end
markets, as well as value-added sales from our Optics Balzers acquisition.
Gross margin in the second quarter of 2021 was $69.6 million , which was up 48%
compared to the second quarter of 2020. Gross margin expressed as a percentage
of value-added sales increased to 33% in the second quarter of 2021 from 30% in
the second quarter of 2020. The increase was primarily driven by increased sales
volumes in the second quarter of 2021.
SG&A expense was $38.1 million in the second quarter of 2021, compared to $32.9
million in the second quarter of 2020. The increase in SG&A expense for the
second quarter of 2021 was primarily driven by increased variable compensation
expense, as well as costs attributable to our Optics Balzers acquisition.
Expressed as a percentage of value-added sales, SG&A expense was 18% and 21% in
the second quarter of 2021 and 2020, respectively.
R&D expense consists primarily of direct personnel costs for product innovation
including pre-production development, evaluation, and testing of new products,
prototypes, and applications to deliver new high performing advanced materials
to our customers. R&D expense accounted for 3% of value-added sales in the
second quarter of both 2021 and 2020.
Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure.
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In the second quarter of 2020, we recorded $2.4 million of restructuring charges
in our Performance Alloys and Composites segment related to the closure of our
Warren, Michigan and Fremont, California facilities. Refer to Note F to the
Consolidated Financial Statements for additional discussion.
Other-net was $4.2 million of expense in the second quarter of 2021, or a $4.6
million increase from the second quarter of 2020, which was primarily driven by
$2.5 million of decreased foreign exchange gains, primarily related to a $2.2
million foreign exchange hedge gain realized in the second quarter of 2020, and
$0.9 million of increased intangible asset amortization expense, both related to
the acquisition of Optics Balzers . Refer to Note E to the Consolidated Financial
Statements for details of the major components within Other-net.
Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note K to the Consolidated Financial Statements for details of the components.
Interest expense-net was$0.9 million and$1.3 million in the second quarter of 2021 and 2020, respectively. The decrease in interest expense is primarily due to reduced borrowings under our revolving credit facility in the second quarter of 2021, compared to the second quarter of 2020. Income tax expense for the second quarter of 2021 was$3.3 million , compared to$1.4 million in the second quarter of 2020. The effective tax rate for the second quarter of 2021 and 2020 was 15.5% and 19.0%, respectively. The effective tax rate for the second quarter of both 2021 and 2020 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits, and the foreign derived intangible income deduction. See Note G to the Consolidated Financial Statements for additional discussion. Six Months Six Months Ended July 2, June 26, $ % (Thousands, except per share data) 2021 2020 Change Change Net sales$ 725,385 $ 549,414 $ 175,971 32 % Value-added sales 406,469 313,039 93,430 30 % Gross margin 136,377 91,525 44,852 49 % Gross margin as a % of value-added sales 34 % 29 % SG&A expense 74,836 63,596 11,240 18 % SG&A expense as a % of value-added sales 18 % 20 % R&D expense 12,810 8,687 4,123 47 % R&D expense as a % of value-added sales 3 % 3 % Impairment charges - 10,766 (10,766) (100) % Restructuring (income) expense (378) 4,551 (4,929) (108) % Other-net 8,668 1,922 6,746 351 % Operating profit 40,441 2,003 38,438 1,919 % Other non-operating (income)-net (2,553) (1,795) (758) 42 % Interest expense-net 1,619 1,505 114 8 % Income before income taxes 41,375 2,293 39,082 1,704 % Income tax expense 6,740 368 6,372 1,732 % Net income$ 34,635 $ 1,925 $ 32,710 1,699 % Diluted earnings per share$ 1.68 $ 0.09 $ 1.59 1,767 % Net sales of$725.4 million in the first six months of 2021 increased$176.0 million from$549.4 million in the first six months of 2020. Net sales increased in all of our segments primarily due to increased volumes, as well as due to sales attributable to ourOptics Balzers acquisition, which was completed during the third quarter of 2020. The change in precious metal and copper prices favorably impacted net sales during the first six months of 2021 by$37.6 million . Value-added sales of$406.5 million in the first six months of 2021 increased$93.0 million , or 30%, compared to the first six months of 2020. The increase is primarily driven by increased value-added sales into the semiconductor, automotive, aerospace and defense, and industrial end markets, as well as value-added sales from ourOptics Balzers acquisition. 28 -------------------------------------------------------------------------------- Gross margin in the first half of 2021 was$136.4 million , which was up 49% compared to the first half of 2020. Gross margin expressed as a percentage of value-added sales increased to 34% in the first six months of 2021 from 29% in the first six months of 2020. The increase was primarily driven by increased sales volumes in the first half of 2021. SG&A expense was$74.8 million in the first six months of 2021, compared to$63.6 million in the first six months of 2020. The increase in SG&A expense for the first half of 2021 was primarily driven by increased variable compensation expense, as well as costs attributable to ourOptics Balzers acquisition. Expressed as a percentage of value-added sales, SG&A expense was 18% and 20% in the first half of 2021 and 2020, respectively. R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 3% of value-added sales in the first half of both 2021 and 2020.
Impairment charges include non-recurring charges relating to goodwill and other assets recorded in the first six months of 2020 in our Precision Optics segment.
Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. During the first quarter of 2021, we substantially completed the closure of our LAC business.
In the first half of 2020, we recorded
Other-net was$8.7 million of expense in the first six months of 2021, or a$6.7 million increase from the first six months of 2020, which was primarily driven by$2.5 million of foreign exchange gains realized during the first six months of 2020 compared to$1.2 million of foreign exchange losses realized in the first six months of 2021, as well as$1.9 million of increased intangible asset amortization expense, both of which were primarily related to the acquisition ofOptics Balzers in third quarter of 2020. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.
Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note K to the Consolidated Financial Statements for details of the components.
Interest expense-net was
Income tax expense for the first half of 2021 was$6.7 million , compared to$0.4 million in the first half of 2020. The effective tax rate for the first half of 2021 and 2020 was 16.3% and 16.0%, respectively. The effective tax rate for the first six months of both 2021 and 2020 was lower than the statutory tax rate primarily due to the impact of percentage depletion and research and development credits. The effective tax rate for the first six months of 2021 included a net discrete income tax benefit of$0.5 million , primarily related to excess tax benefits from stock-based compensation awards. 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. See Note G to the Consolidated Financial Statements for additional discussion. 29
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Value-Added Sales - Reconciliation of Non-GAAP Financial Measure A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the second quarter and first six months of 2021 and 2020 is as follows:
Second Quarter Ended Six Months Ended
July 2, June 26, July 2, June 26,
(Thousands) 2021 2020 2021 2020
Net sales
Performance Alloys and Composites $ 125,294 $ 101,614 $ 239,437 $ 200,681
Advanced Materials 213,114 150,108 417,758 310,273
Precision Optics 32,591 19,746 68,190 38,460
Other - - - -
Total $ 370,999 $ 271,468 $ 725,385 $ 549,414 Less: pass-through metal costs
Performance Alloys and Composites $ 16,696 $ 11,858 $ 30,007 $ 27,210
Advanced Materials 146,214 97,944 287,909 203,616
Precision Optics 9 1,968 43 3,693
Other 193 630 957 1,856
Total $ 163,112 $ 112,400 $ 318,916 $ 236,375
Value-added sales
Performance Alloys and Composites $ 108,598 $ 89,756 $ 209,430 $ 173,471
Advanced Materials 66,900 52,164 129,849 106,657
Precision Optics 32,582 17,778 68,147 34,767
Other (193) (630) (957) (1,856)
Total $ 207,887 $ 159,068 $ 406,469 $ 313,039
Internally, management reviews net sales on a value-added basis. Value-added
sales is a non-GAAP financial measure that deducts the value of the pass-through
metal costs from net sales. Value-added sales allow management to assess the
impact of differences in net sales between periods, segments, or markets, and
analyze the resulting margins and profitability without the distortion of
movements in pass-through metal costs. The dollar amount of gross margin and
operating profit is not affected by the value-added sales calculation. We sell
other metals and materials that are not considered direct pass-throughs, and
these costs are not deducted from net sales when calculating value-added sales.
Non-GAAP financial measures, such as value-added sales, have inherent
limitations and should not be considered in isolation, or as a substitute for
analyses of results as reported under GAAP.
The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium,
rhodium, rhenium, and osmium can be quite volatile. Our pricing policy is to
directly pass the cost of these metals on to the customer in order to mitigate
the impact of metal price volatility on our results from operations. Trends and
comparisons of net sales are affected by movements in the market prices of these
metals, but changes in net sales due to metal price movements may not have a
proportionate impact on our profitability. During the first quarter of 2021, we
added ruthenium, iridium, rhodium, rhenium, and osmium to our definition of
value-added sales as the costs of these materials are treated as pass-through
and the business use and price volatility of these materials has increased in
recent periods. Prior period value-added sales amounts have been recast to
reflect this change.
Our net sales are also affected by changes in the use of customer-supplied
metal. When we manufacture a precious metal product, the customer may purchase
metal from us or may elect to provide its own metal, in which case we process
the metal on a toll basis and the metal value does not flow through net sales or
cost of sales. In either case, we generally earn our margin based upon our
fabrication efforts. The relationship of this margin to net sales can change
depending upon whether or not the
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product was made from our metal or the customer's metal. The use of value-added
sales removes the potential distortion in the comparison of net sales caused by
changes in the level of customer-supplied metal.
By presenting information on net sales and value-added sales, it is our
intention to allow users of our financial statements to review our net sales
with and without the impact of the pass-through metals.
Segment Results
The Company consists of four reportable segments: Performance Alloys and
Composites, Advanced Materials, Precision Optics, and Other. The Other
reportable segment includes unallocated corporate costs.
Performance Alloys and Composites
Second Quarter
Second Quarter Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ 125,294 $ 101,614 $ 23,680 23 %
Value-added sales 108,598 89,756 18,842 21 %
Operating profit 17,314 6,824 10,490 154 %
Net sales from the Performance Alloys and Composites segment of $125.3 million
in the second quarter of 2021 increased 23% compared to net sales of $101.6
million in the second quarter of 2020. The increase was due to sales related to
our new precision clad engineered strip project, as well as increased sales into
the automotive and industrial end markets. Value-added sales of $108.6 million
in the second quarter of 2021 were 21% higher than value-added sales of $89.8
million in the second quarter of 2020.
Performance Alloys and Composites generated operating profit of $17.3 million in
the second quarter of 2021 compared to $6.8 million in the second quarter of
2020. The increase in operating profit was primarily due to increased sales
volumes and improved operating performance. Operating profit for the second
quarter of 2020 included restructuring charges of $2.4 million related to the
closure of our Warren, Michigan and Fremont, California facilities.
Six Months
Six Months Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ 239,437 $ 200,681 $ 38,756 19 %
Value-added sales 209,430 173,471 35,959 21 %
Operating profit 30,805 10,347 20,458 198 %
Net sales from the Performance Alloys and Composites segment of $239.4 million
in the first six months of 2021 increased 19% compared to net sales of $200.7
million in the first six months of 2020. The increase was due to sales related
to our new precision clad engineered strip project, as well as increased sales
into the automotive and aerospace and defense end markets. Value-added sales of
$209.4 million in the first six months of 2021 were 21% higher than value-added
sales of $173.5 million in the first six months of 2020.
Performance Alloys and Composites generated operating profit of $30.8 million in
the first six months of 2021 compared to $10.3 million in the first six months
of 2020. The increase in operating profit was primarily due to increased sales
volumes. Operating profit for the first half of 2020 included restructuring
charges of $4.6 million related to the closure of our Warren, Michigan and
Fremont, California facilities.
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Advanced Materials
Second Quarter
Second Quarter Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ 213,114 $ 150,108 63,006 42 %
Value-added sales 66,900 52,164 14,736 28 %
Operating profit 8,333 4,653 3,680 79 %
Net sales from the Advanced Materials segment of $213.1 million in the second
quarter of 2021 were 42% higher than net sales of $150.1 million in the second
quarter of 2020. The increase in net sales was primarily due to increased sales
volumes, as well as the impact of higher pass-through metal prices of $20.8
million .
Value-added sales of $66.9 million in the second quarter of 2021 increased 28%
compared to value-added sales of $52.2 million in the second quarter of 2020.
The increase was primarily driven by increased value-added sales into the
semiconductor end market.
The Advanced Materials segment generated operating profit of $8.3 million in the
second quarter of 2021 compared to $4.7 million in the second quarter of 2020.
The increase in operating profit is due to increased sales volumes, as well as
improved operating performance.
Six Months
Six Months Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ 417,758 $ 310,273 107,485 35 %
Value-added sales 129,849 106,657 23,192 22 %
Operating profit 17,266 9,703 7,563 78 %
Net sales from the Advanced Materials segment of $417.8 million in the first six
months of 2021 were 35% higher than net sales of $310.3 million in the first six
months of 2020. The increase in net sales was primarily due to increased sales
volumes, as well as the impact of higher pass-through metal prices of $39.8
million .
Value-added sales of $129.8 million in the first half of 2021 increased 22%
compared to value-added sales of $106.7 million in the first half of 2020. The
increase was primarily driven by increased value-added sales into the
semiconductor end market.
The Advanced Materials segment generated operating profit of $17.3 million in
the first half of 2021 compared to $9.7 million in the first half of 2020. The
increase in operating profit is due to increased sales volumes, as well as
improved operating performance.
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Precision Optics
Second Quarter
Second Quarter Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ 32,591 $ 19,746 12,845 65 %
Value-added sales 32,582 17,778 14,804 83 %
Operating profit 2,626 2,091 535 26 %
Net sales from the Precision Optics segment of $32.6 million in the second
quarter of 2021 increased 65% compared to net sales of $19.7 million in the
second quarter of 2020. The increase was primarily due to sales attributable to
our Optics Balzers acquisition, partially offset by no sales related to our LAC
reporting unit, whose closure was finalized in the first quarter of 2021. In
addition the base business increased slightly compared to the same period last
year.
Value-added sales of $32.6 million in the second quarter of 2021 increased 83%
compared to value-added sales of $17.8 million in the second quarter of 2020.
The increase in value-added sales was due to the same factors driving the
increase in net sales.
The Precision Optics segment generated an operating profit of $2.6 million in
the second quarter of 2021, compared to an operating profit of $2.1 million in
the second quarter of 2020. The increase was driven by our Optics Balzers
acquisition.
Six Months
Six Months Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ 68,190 $ 38,460 29,730 77 %
Value-added sales 68,147 34,767 33,380 96 %
Operating profit (loss) 7,184 (7,501) 14,685 NM
NM = Not Meaningful
Net sales from the Precision Optics segment of $68.2 million in the first half
of 2021 increased 77% compared to net sales of $38.5 million in the first half
of 2020. The increase was primarily due to sales attributable to our Optics
Balzers acquisition, partially offset by lower sales related to our LAC
reporting unit, whose closure was finalized in the first quarter of 2021.
Value-added sales of $68.1 million in the first half of 2021 increased 96%
compared to value-added sales of $34.8 million in the first half of 2020. The
increase in value-added sales was due to the same factors driving the increase
in net sales.
The Precision Optics segment generated an operating profit of $7.2 million in
the first six months of 2021, compared to an operating loss of $7.5 million in
the first six months of 2020. The operating profit in the first six months of
2021 was driven by our Optics Balzers acquisition. The operating loss in the
first six months of 2020 included impairment charges of $10.8 million related to
our LAC reporting unit.
Other
Second Quarter
Second Quarter Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ - $ - - - %
Value-added sales (193) (630) 437 (69) %
Operating loss (7,550) (5,997) (1,553) 26 %
The Other reportable segment in total includes unallocated corporate costs.
Corporate costs were
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increase in corporate costs in the second quarter of 2021 compared to the second
quarter of 2020 is primarily related to increased variable compensation
expenses.
Six Months
Six Months Ended
July 2, June 26, $ %
(Thousands) 2021 2020 Change Change
Net sales $ - $ - - - %
Value-added sales (957) (1,856) 899 (48) %
Operating loss (14,814) (10,546) (4,268) 40 %
Corporate costs were $14.8 million in the first half of 2021 compared to $10.5
million in the first half of 2020. Corporate costs accounted for 4% and 3% of
Company-wide value-added sales in the first half of 2021 and 2020, respectively.
The increase in corporate costs in the first half of 2021 compared to the first
half of 2020 is primarily related to increased variable compensation expenses.
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FINANCIAL POSITION
Cash Flow
A summary of cash flows provided by (used in) operating, investing, and
financing activities is as follows:
Six Months Ended
July 2, June 26, $
(Thousands) 2021 2020 Change
Net cash provided by operating activities
Net cash used in investing activities (57,109) (32,001) (25,108)
Net cash provided by financing activities 11,522 135,573 (124,051)
Effects of exchange rate changes (11) 56 (67)
Net change in cash and cash equivalents
Net cash provided by operating activities totaled$44.1 million in the first six months of 2021 versus$36.4 million in the prior-year period. The increase in operating cash flow was primarily due to increased net income of$32.7 million , partially offset by a usage in working capital change of$5.4 million discussed below and less unearned income due to customer prepayments of$18.7 million . The following table displays the impact of working capital items on cash during the first six months of 2021 and 2020, respectively: Six Months Ended July 2, June 26, $ (Thousands) 2021 2020 Change Cash provided (used): Accounts receivable$ (13,941) $ 5,331 $ (19,272) Inventory (40,651) (18,446) (22,205)
Accounts payable and accrued expenses 28,403 (7,634) 36,037
Cash used in working capital items
Three-month trailing days sales outstanding was approximately 42 days atJuly 2, 2021 and 41 days atDecember 31, 2020 . Net cash used in investing activities was$57.1 million in the first six months of 2021 compared to$32.0 million in the prior-year period due to increased capital expenditures, primarily related to investments in new equipment funded by customer prepayments. See Note J to the Consolidated Financial Statements for additional discussion. Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year 2021, the Company expects payments for property, plant, and equipment to be approximately$100.0 million . Net cash provided by financing activities totaled$11.5 million in the first six months of 2021 and$135.6 million in the comparable prior-year period. The decrease is primarily due to decreased net borrowings of$127.5 million under our revolving credit facility in the first six months of 2021, partially offset by no repurchases of common stock in the first six months of 2021 compared to$6.8 million in the first six months of 2020. Liquidity We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend program, environmental remediation projects, and strategic acquisitions. AtJuly 2, 2021 , cash and cash equivalents held by our foreign operations totaled$22.5 million . We do not expect restrictions on repatriation of cash held outside ofthe United States to have a material effect on our overall liquidity, financial condition, or results of operations for the foreseeable future. 35 -------------------------------------------------------------------------------- A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as ofJuly 2, 2021 andDecember 31, 2020 is as follows: July 2, December 31, (Thousands) 2021 2020 Cash and cash equivalents$ 24,345 $ 25,878 Total outstanding debt 59,273 38,506 Net debt$ (34,928) $ (12,628)
Available borrowing capacity
Net (debt) cash is a non-GAAP financial measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods. The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each period depicted. The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts the borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation and amortization, and other adjustments. In 2019, we amended and restated the agreement governing our$375.0 million revolving credit facility (Credit Agreement). The maturity date of the Credit Agreement was extended from 2020 to 2024, and the Credit Agreement provides more favorable interest rates under certain circumstances. In addition, the Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the consignment, borrowing, or leasing of precious metals and copper, and provides enhanced flexibility to finance acquisitions and other strategic initiatives. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its direct subsidiaries, with the exception of non-mining real property and certain other assets. The Credit Agreement allows the Company to borrow money at a premium over LIBOR or a prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions available under the agreement. The Credit Agreement includes restrictive covenants relating to restrictions on additional indebtedness, acquisitions, dividends, and stock repurchases. In addition, the Credit Agreement includes covenants subject to a maximum leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all of our debt covenants as ofJuly 2, 2021 . Cash on hand does not affect the covenants or the borrowing capacity under our debt agreements. Portions of our business utilize off-balance sheet consignment arrangements to finance metal requirements. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. In 2019, we entered into a precious metals consignment agreement, maturing onAugust 27, 2022 , which replaced the consignment agreement that would have matured onSeptember 30, 2019 . The available and unused capacity under the metal financing lines expiring inAugust 2022 totaled approximately$93.7 million as ofJuly 2, 2021 , compared to$50.0 million as ofDecember 31, 2020 . The availability is determined by Board approved levels and actual line capacity. InJanuary 2014 , our Board of Directors approved a plan to repurchase up to$50.0 million of our common stock. The timing of the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels, and other investment opportunities. There is no minimum quantity requirement to repurchase our common stock for a given year, and the repurchases may be discontinued at any time. We did not repurchase any shares under this program in the second quarter or first six months of 2021. Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of$41.7 million . We paid cash dividends of$2.5 million and$4.8 million on our common stock in the second quarter and first six months of 2021, respectively. We intend to pay a quarterly dividend on an ongoing basis, subject to a determination that the dividend remains in the best interest of our shareholders. 36
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OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS We maintain the majority of the precious metals and portions of the copper we use in production on a consignment basis in order to reduce our exposure to metal price movements and to reduce our working capital investment. The notional value of off-balance sheet precious metals and copper was$456.3 million and$400.0 million as ofJuly 2, 2021 andDecember 31, 2020 , respectively. We were in compliance with all of the covenants contained in the consignment agreements as ofJuly 2, 2021 . For additional information on our contractual obligations, refer to our 2020 Annual Report on Form 10-K. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted inthe United States requires the inherent use of estimates and management's judgment in establishing those estimates. For additional information regarding critical accounting policies, please refer to our 2020 Annual Report on Form 10-K. Forward -looking Statements: Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity; the global economy, including the impact of tariffs and trade agreements; the impact of anyU.S. Federal Government shutdowns and sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses, including the integration ofOptics Balzers ; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions, including, without limitation, the acquisition ofOptics Balzers being accretive in the expected timeframe or at all; our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal financing fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company's stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions on operations from, and other effects of, catastrophic and other extraordinary events including the COVID-19 pandemic; and the risk factors set forth in Part 1, Item 1A of the Company's 2020 Annual Report on Form 10-K.
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