MATERION Corp 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW We are an integrated producer of high-performance advanced engineered materials used in a variety of electronic, thermal, and structural applications. Our products are sold into numerous end markets, including semiconductor, industrial, aerospace and defense, automotive, consumer electronics, energy, and telecom and data center. 25 On September 19, 2021, the Company entered into a definitive agreement under which it has agreed to acquire the industry-leading electronic materials business of H.C. Starck (HCS) for a purchase price of approximately $380 million in cash, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism. Acquisition-related transaction and integration costs totaled $5.3 million in the third quarter of 2021. These costs are included in selling, general, and administrative expenses in the Consolidated Statement of Income. On November 1, 2021, the Company completed the acquisition. The Company financed the purchase price for the HCS acquisition with a new $300 million five-year term loan pursuant to a delayed draw term loan facility entered during October 2021 and $103 million of borrowings under its amended revolving credit facility, which was also extended to expire five years in October 2026. The interest rate for the term loan is based on LIBOR plus a tiered rate determined by the Company's quarterly leverage ratio. Coronavirus (COVID-19) Third Quarter 2021 Update The significant macroeconomic impact of the ongoing COVID-19 pandemic impacted several of our end markets throughout 2020 primarily in the first half of the year in the form of reduced demand, particularly in the consumer electronics, automotive, energy, aerospace and defense, and industrial end markets. During the first nine months of 2021, we continued to see improvements in demand as global government-imposed restrictions continued to be lifted and many country vaccination programs gained further momentum. However, the world continues to be impacted by the COVID-19 pandemic and the impact on our operations and the markets we serve is fluid and will depend largely on future developments, including the availability and effectiveness of vaccines globally, new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain the pandemic or mitigate its economic, public health, and other impacts. These developments are constantly evolving and cannot be accurately predicted. We continue to invest in the business, people, and strategies necessary to achieve our long-term priorities as we focus on driving profitable growth. We have continued to operate during the course of the COVID-19 pandemic in all our production facilities, having taken the recommended public health measures to ensure worker and workplace safety. 26 RESULTS OF OPERATIONS Third Quarter Third Quarter Ended October 1, September 25, $ % (Thousands, except per share data) 2021 2020 Change Change Net sales $ 388,028 $ 287,171 $ 100,857 35 % Value-added sales 215,826 164,905 50,921 31 % Gross margin 74,313 45,311 29,002 64 % Gross margin as a % of value-added sales 34 % 27 % Selling, general, and administrative (SG&A) expense 43,195 35,696 7,499 21 % SG&A expense as a % of value-added sales 20 % 22 % Research and development (R&D) expense 6,354 5,417 937 17 % R&D expense as a % of value-added sales 3 % 3 % Restructuring expense — 2,593 (2,593) n.m. Other—net 3,604 2,221 1,383 62 % Operating profit (loss) 21,160 (616) 21,776 n.m. Other non-operating (income)—net (1,279) (1,076) (203) 19 % Interest expense—net 861 1,334 (473) (35) % Income (Loss) before income taxes 21,578 (874) 22,452 n.m. Income tax expense (benefit) 3,422 (6,345) 9,767 n.m. Net income $ 18,156 $ 5,471 $ 12,685 232 % Diluted earnings per share $ 0.88 $ 0.27 $ 0.61 226 % n.m. = not meaningful Net sales of $388.0 million in the third quarter of 2021 increased $100.9 million from $287.2 million in the third quarter of 2020. Net sales increased in all of our segments primarily due to increased volumes, as well as due to sales attributable to our Optics Balzers acquisition, which was completed during the third quarter of 2020. Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in metal prices and changes in mix due to customer-supplied material. Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein. Value-added sales of $215.8 million in the third quarter of 2021 increased $50.9 million, or 31%, compared to the third quarter of 2020. The increase is primarily driven by increased value-added sales into the semiconductor, industrial, and automotive end markets, as well as value-added sales from our Optics Balzers acquisition. Gross margin in the third quarter of 2021 was $74.3 million, which was up 64% compared to the third quarter of 2020. Gross margin expressed as a percentage of value-added sales increased to 34% in the third quarter of 2021 from 27% in the third quarter of 2020. The increase was primarily driven by increased sales volumes in the third quarter of 2021, as well as the absence of $7.3 million of mine development costs recorded in the third quarter of 2020. SG&A expense was $43.2 million in the third quarter of 2021, compared to $35.7 million in the third quarter of 2020. The increase in SG&A expense for the third quarter of 2021 was primarily driven by increased variable compensation expense, as well as costs attributable to our Optics Balzers acquisition. Expressed as a percentage of value-added sales, SG&A expense was 20% and 22% in the third quarter of 2021 and 2020, respectively. R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 3% of value-added sales in the third quarter of both 2021 and 2020. Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. 27 In the third quarter of 2020, we recorded $2.2 million of restructuring charges in our Performance Alloys and Composites segment related to the closure of our Warren, Michigan and Fremont, California facilities. Refer to Note F to the Consolidated Financial Statements for additional discussion. Other-net was $3.6 million of expense in the third quarter of 2021, or a $1.4 million increase from the third quarter of 2020, which was primarily driven by $1.4 million of decreased foreign exchange gains. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net. Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note K to the Consolidated Financial Statements for details of the components. Interest expense-net was $0.9 million and $1.3 million in the third quarter of 2021 and 2020, respectively. The decrease in interest expense is primarily due to reduced borrowings under our revolving credit facility in the third quarter of 2021, compared to the third quarter of 2020. Income tax expense (benefit) for the third quarter of 2021 was $3.4 million, compared to a $6.3 million benefit in the third quarter of 2020. The effective tax rate for the third quarter of 2021 and 2020 was 15.9% and 726.0%, respectively. The effective tax rate for the third quarter of 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits, and the foreign derived intangible income deduction. The effective tax rate for the third quarter of 2020 was higher than the statutory tax rate primarily due to the release of a significant valuation allowance, which generated a tax benefit on a loss for the period. See Note G to the Consolidated Financial Statements for additional discussion. Nine Months Nine Months Ended October 1, September 25, $ % (Thousands, except per share data) 2021 2020 Change Change Net sales $ 1,113,413 $ 836,585 $ 276,828 33 % Value-added sales 622,295 477,944 144,351 30 % Gross margin 210,690 136,836 73,854 54 % Gross margin as a % of value-added sales 34 % 29 % SG&A expense 118,031 99,292 18,739 19 % SG&A expense as a % of value-added sales 19 % 21 % R&D expense 19,164 14,104 5,060 36 % R&D expense as a % of value-added sales 3 % 3 % Impairment charges — 10,766 (10,766) (100) % Restructuring (income) expense (378) 7,144 (7,522) n.m. Other—net 12,272 4,143 8,129 196 % Operating profit 61,601 1,387 60,214 4,341 % Other non-operating (income)—net (3,832) (2,871) (961) 33 % Interest expense—net 2,480 2,839 (359) (13) % Income before income taxes 62,953 1,419 61,534 4,336 % Income tax expense (benefit) 10,162 (5,977) 16,139 n.m. Net income $ 52,791 $ 7,396 $ 45,395 614 % Diluted earnings per share $ 2.56 $ 0.36 $ 2.20 611 % n.m. = not meaningful Net sales of $1.1 billion in the first nine months of 2021 increased $276.8 million from $836.6 million in the first nine months of 2020. Net sales increased in all of our segments primarily due to increased volumes, as well as due to sales attributable to our Optics Balzers acquisition, which was completed during the third quarter of 2020. The change in precious metal and copper prices favorably impacted net sales during the first nine months of 2021 by $42.2 million. 28 Value-added sales of $622.3 million in the first nine months of 2021 increased $144.4 million, or 30%, compared to the first nine months of 2020. The increase is primarily driven by increased value-added sales into the semiconductor, automotive, industrial, and aerospace and defense end markets, as well as value-added sales from our Optics Balzers acquisition. Gross margin in the first nine months of 2021 was $210.7 million, which was up 54% compared to the first nine months of 2020. Gross margin expressed as a percentage of value-added sales increased to 34% in the first nine months of 2021 from 29% in the first nine months of 2020. The increase was primarily driven by increased sales volumes in the first nine months of 2021, as well as the absence in 2021 of $7.3 million of mine development costs and a $1.3 million charge to reserve for slow moving and excess inventory related to the collapse in demand in the oil and gas industry, both recorded in the first nine months of 2020. SG&A expense was $118.0 million in the first nine months of 2021, compared to $99.3 million in the first nine months of 2020. The increase in SG&A expense for the first nine months of 2021 was primarily driven by increased variable compensation expense, as well as costs attributable to our Optics Balzers acquisition. Expressed as a percentage of value-added sales, SG&A expense was 19% and 21% in the first nine months of 2021 and 2020, respectively. R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 3% of value-added sales in the first nine months of both 2021 and 2020. Impairment charges include non-recurring charges relating to goodwill and other assets recorded in the first nine months of 2020 in our Precision Optics segment. Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. During the first quarter of 2021, we substantially completed the closure of our LAC business. In the first nine months of 2020, we recorded $6.8 million of restructuring charges in our Performance Alloys and Composites segment related to the closure of our Warren, Michigan and Fremont, California facilities. Refer to Note F to the Consolidated Financial Statements for additional discussion. Other-net was $12.3 million of expense in the first nine months of 2021, or a $8.1 million increase from the first nine months of 2020, which was primarily driven by $3.6 million of foreign exchange gains realized during the first nine months of 2020 compared to $1.6 million of foreign exchange losses realized in the first nine months of 2021, as well as $2.3 million of increased intangible asset amortization expense, both of which were primarily related to the acquisition of Optics Balzers in third quarter of 2020. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net. Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note K to the Consolidated Financial Statements for details of the components. Interest expense-net was $2.5 million and $2.8 million in the first nine months of 2021 and 2020, respectively. Income tax expense (benefit) for the first nine months of 2021 was $10.2 million of expense, compared to a benefit of $6.0 million in the first nine months of 2020. The effective tax rate for the first nine months of 2021 and 2020 was 16.1% and (421.2)%, respectively. The effective tax rate for the first nine months of 2021 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits, and the foreign derived intangible income deduction. The effective tax rate for the first nine months of 2020 was lower than the statutory tax rate primarily due to the release of a significant valuation allowance, which generated a tax benefit on income for the period. The effective tax rate for the first nine months of 2021 included a net discrete income tax benefit of $0.9 million, primarily related to excess tax benefits from stock-based compensation awards and return to provision adjustments recorded. The effective tax rate for the first nine months of 2020 included a net discrete income tax benefit of $3.8 million, primarily related to the release of a valuation allowance. See Note G to the Consolidated Financial Statements for additional discussion. 29 Value-Added Sales - Reconciliation of Non-GAAP Financial Measure A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the third quarter and first nine months of 2021 and 2020 is as follows: Third Quarter Ended Nine Months Ended October 1, September 25, October 1, September 25, (Thousands) 2021 2020 2021 2020 Net sales Performance Alloys and Composites $ 136,096 $ 91,203 $ 375,533 $ 291,884 Advanced Materials 220,723 165,582 638,481 475,855 Precision Optics 31,209 30,386 99,399 68,846 Other — — — — Total $ 388,028 $ 287,171 $ 1,113,413 $ 836,585 Less: pass-through metal costs Performance Alloys and Composites $ 20,929 $ 9,321 $ 50,936 $ 36,531 Advanced Materials 151,019 110,556 438,928 314,172 Precision Optics — 2,076 43 5,769 Other 254 313 1,211 2,169 Total $ 172,202 $ 122,266 $ 491,118 $ 358,641 Value-added sales Performance Alloys and Composites $ 115,167 $ 81,882 $ 324,597 $ 255,353 Advanced Materials 69,704 55,026 199,553 161,683 Precision Optics 31,209 28,310 99,356 63,077 Other (254) (313) (1,211) (2,169) Total $ 215,826 $ 164,905 $ 622,295 $ 477,944 Internally, management reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through metal costs from net sales. Value-added sales allow management to assess the impact of differences in net sales between periods, segments, or markets, and analyze the resulting margins and profitability without the distortion of movements in pass-through metal costs. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. We sell other metals and materials that are not considered direct pass-throughs, and these costs are not deducted from net sales when calculating value-added sales. Non-GAAP financial measures, such as value-added sales, have inherent limitations and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium can be quite volatile. Our pricing policy is to directly pass the cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations. Trends and comparisons of net sales are affected by movements in the market prices of these metals, but changes in net sales due to metal price movements may not have a proportionate impact on our profitability. During the first quarter of 2021, we added ruthenium, iridium, rhodium, rhenium, and osmium to our definition of value-added sales as the costs of these materials are treated as pass-through and the business use and price volatility of these materials has increased in recent periods. Prior period value-added sales amounts have been recast to reflect this change. Our net sales are also affected by changes in the use of customer-supplied metal. When we manufacture a precious metal product, the customer may purchase metal from us or may elect to provide its own metal, in which case we process the metal on a toll basis and the metal value does not flow through net sales or cost of sales. In either case, we generally earn our margin based upon our fabrication efforts. The relationship of this margin to net sales can change depending upon whether or not the product was made from our metal or the customer’s metal. The use of value-added sales removes the potential distortion in the comparison of net sales caused by changes in the level of customer-supplied metal. 30 By presenting information on net sales and value-added sales, it is our intention to allow users of our financial statements to review our net sales with and without the impact of the pass-through metals. Segment Results The Company consists of four reportable segments: Performance Alloys and Composites, Advanced Materials, Precision Optics, and Other. The Other reportable segment includes unallocated corporate costs. Performance Alloys and Composites Third Quarter Third Quarter Ended October 1, September 25, $ % (Thousands) 2021 2020 Change Change Net sales $ 136,096 $ 91,203 $ 44,893 49 % Value-added sales 115,167 81,882 33,285 41 % Operating profit (loss) 20,928 (437) 21,365 4,889 % Net sales from the Performance Alloys and Composites segment of $136.1 million in the third quarter of 2021 increased 49% compared to net sales of $91.2 million in the third quarter of 2020. The increase was due to sales related to our new precision clad engineered strip project and the timing of beryllium hydroxide sales, as well as increased sales into the automotive, industrial, and aerospace and defense end markets. Value-added sales of $115.2 million in the third quarter of 2021 were 41% higher than value-added sales of $81.9 million in the third quarter of 2020. Performance Alloys and Composites generated operating profit of $20.9 million in the third quarter of 2021 compared to an operating loss of $0.4 million in the third quarter of 2020. The increase in operating profit was primarily due to increased sales volumes and improved operating performance. The operating loss for the third quarter of 2020 included $7.3 million of mine development costs, as well as restructuring charges of $2.2 million related to the closure of our Warren, Michigan and Fremont, California facilities. Nine Months Nine Months Ended October 1, September 25, $ % (Thousands) 2021 2020 Change Change Net sales $ 375,533 $ 291,884 $ 83,649 29 % Value-added sales 324,597 255,353 69,244 27 % Operating profit 51,733 9,910 41,823 422 % Net sales from the Performance Alloys and Composites segment of $375.5 million in the first nine months of 2021 increased 29% compared to net sales of $291.9 million in the first nine months of 2020. The increase was due to sales related to our new precision clad engineered strip project, as well as increased sales into the automotive and industrial end markets. Value-added sales of $324.6 million in the first nine months of 2021 were 27% higher than value-added sales of $255.4 million in the first nine months of 2020. Performance Alloys and Composites generated operating profit of $51.7 million in the first nine months of 2021 compared to $9.9 million in the first nine months of 2020. The increase in operating profit was primarily due to increased sales volumes. Operating profit for the first nine months of 2020 included $7.3 million of mine development costs, as well as restructuring charges of $6.8 million related to the closure of our Warren, Michigan and Fremont, California facilities. 31 Advanced Materials Third Quarter Third Quarter Ended October 1, September 25, $ % (Thousands) 2021 2020 Change Change Net sales $ 220,723 $ 165,582 55,141 33 % Value-added sales 69,704 55,026 14,678 27 % Operating profit 9,281 5,749 3,532 61 % Net sales from the Advanced Materials segment of $220.7 million in the third quarter of 2021 were 33% higher than net sales of $165.6 million in the third quarter of 2020. The increase in net sales was primarily due to increased sales volumes in the semiconductor end market, partially offset by the impact of pass-through metal prices of $5.3 million. Value-added sales of $69.7 million in the third quarter of 2021 increased 27% compared to value-added sales of $55.0 million in the third quarter of 2020. The increase was primarily driven by increased value-added sales into the semiconductor end market. The Advanced Materials segment generated operating profit of $9.3 million in the third quarter of 2021 compared to $5.7 million in the third quarter of 2020. The increase in operating profit is due to increased sales volumes, as well as improved operating performance. Nine Months Nine Months Ended October 1, September 25, $ % (Thousands) 2021 2020 Change Change Net sales $ 638,481 $ 475,855 162,626 34 % Value-added sales 199,553 161,683 37,870 23 % Operating profit 26,547 15,452 11,095 72 % Net sales from the Advanced Materials segment of $638.5 million in the first nine months of 2021 were 34% higher than net sales of $475.9 million in the first nine months of 2020. The increase in net sales was primarily due to increased sales volumes, as well as the impact of higher pass-through metal prices of $34.6 million. Value-added sales of $199.6 million in the first nine months of 2021 increased 23% compared to value-added sales of $161.7 million in the first nine months of 2020. The increase was primarily driven by increased value-added sales into the semiconductor end market. The Advanced Materials segment generated operating profit of $26.5 million in the first nine months of 2021 compared to $15.5 million in the first nine months of 2020. The increase in operating profit is due to increased sales volumes, as well as improved operating performance. 32 Precision Optics Third Quarter (Thousands) Third Quarter Ended October 1, September 25, $ % 2021 2020 Change Change Net sales $ 31,209 $ 30,386 823 3 % Value-added sales 31,209 28,310 2,899 10 % Operating profit 3,329 1,421 1,908 134 % Net sales from the Precision Optics segment of $31.2 million in the third quarter of 2021 increased 3% compared to net sales of $30.4 million in the third quarter of 2020. The increase was primarily due to to a full quarter of sales attributable to our Optics Balzers acquisition compared to only two months in the prior-year same period, partially offset by no sales related to our LAC reporting unit, whose closure was finalized in the first quarter of 2021. Value-added sales of $31.2 million in the third quarter of 2021 increased 10% compared to value-added sales of $28.3 million in the third quarter of 2020. The increase in value-added sales was due to the same factors driving the increase in net sales. The Precision Optics segment generated an operating profit of $3.3 million in the third quarter of 2021, compared to an operating profit of $1.4 million in the third quarter of 2020. The increase was driven by our Optics Balzers acquisition. Nine Months (Thousands) Nine Months Ended October 1, September 25, $ % 2021 2020 Change Change Net sales $ 99,399 $ 68,846 30,553 44 % Value-added sales 99,356 63,077 36,279 58 % Operating profit (loss) 10,513 (6,080) 16,593 NM NM = Not Meaningful Net sales from the Precision Optics segment of $99.4 million in the first nine months of 2021 increased 44% compared to net sales of $68.8 million in the first nine months of 2020. The increase was primarily due to sales attributable to our Optics Balzers acquisition, partially offset by lower sales related to our LAC reporting unit, whose closure was finalized in the first quarter of 2021. In addition, sales from our base Precision Optics business increased, compared to the first nine months of 2020. Value-added sales of $99.4 million in the first nine months of 2021 increased 58% compared to value-added sales of $63.1 million in the first nine months of 2020. The increase in value-added sales was due to the same factors driving the increase in net sales. The Precision Optics segment generated an operating profit of $10.5 million in the first nine months of 2021, compared to an operating loss of $6.1 million in the first nine months of 2020. The increased operating profit in the first nine months of 2021 was driven by our Optics Balzers acquisition. The operating loss in the first nine months of 2020 included impairment charges of $10.8 million related to our LAC reporting unit. Other Third Quarter (Thousands) Third Quarter Ended October 1, September 25, $ % 2021 2020 Change Change Net sales $ — $ — — — % Value-added sales (254) (313) 59 (19) % Operating loss (12,378) (7,349) (5,029) 68 % The Other reportable segment in total includes unallocated corporate costs. Corporate costs were $12.4 million in the third quarter of 2021 compared to $7.3 million in the third quarter of 2020. Corporate costs accounted for 6% and 4% of Company-wide value-added sales in the third quarter of 2021 and 2020, 33 respectively. The increase in corporate costs in the third quarter of 2021 compared to the third quarter of 2020 is primarily related to increased variable compensation expenses, foreign exchange losses in the third quarter of 2021 compared to foreign exchange gains in the third quarter of 2020, as well as increased acquisition costs. Nine Months (Thousands) Nine Months Ended October 1, September 25, $ % 2021 2020 Change Change Net sales $ — $ — — — % Value-added sales (1,211) (2,169) 958 (44) % Operating loss (27,192) (17,895) (9,297) 52 % Corporate costs were $27.2 million in the first nine months of 2021 compared to $17.9 million in the first nine months of 2020. Corporate costs accounted for 4% of Company-wide value-added sales in the first nine months of both 2021 and 2020. The increase in corporate costs in the first nine months of 2021 compared to the first nine months of 2020 is primarily related to foreign exchange losses in the first nine months of 2021 compared to foreign exchange gains in the first nine months of 2020, as well as increased variable compensation expenses. 34 FINANCIAL POSITION Cash Flow A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows: Nine Months Ended October 1, September 25, $ (Thousands) 2021 2020 Change Net cash provided by operating activities $ 40,518 $ 79,444 $ (38,926) Net cash used in investing activities (76,954) (173,716) 96,762 Net cash provided by financing activities 28,779 86,305 (57,526) Effects of exchange rate changes (212) 714 (926) Net change in cash and cash equivalents $ (7,869) $ (7,253) $ (616) Net cash provided by operating activities totaled $40.5 million in the first nine months of 2021 versus $79.4 million in the prior-year period. The decrease in operating cash flow was primarily due the usage in working capital change of $87.3 million (displayed below) and less unearned income due to customer prepayments of $31.4 million, partially offset by increased net income of $45.4 million. The following table displays the impact of working capital items on cash during the first nine months of 2021 and 2020, respectively: Nine Months Ended October 1, September 25, $ (Thousands) 2021 2020 Change Cash provided (used): Accounts receivable $ (26,041) $ 13,899 $ (39,940) Inventory (62,353) (6,414) (55,939) Accounts payable 14,863 6,281 8,582 Cash (used in) provided by working capital items $ (73,531) $ 13,766 $ (87,297) Three-month trailing days sales outstanding was approximately 42 days at October 1, 2021 and 41 days at December 31, 2020. Net cash used in investing activities was $77.0 million in the first nine months of 2021 compared to $173.7 million in the prior-year period. The decrease is primarily due to $130.7 million paid in the first nine months of 2020 for the acquisition of Optics Balzers, partially offset by increased capital expenditures, primarily related to investments in new equipment funded by customer prepayments. See Note J to the Consolidated Financial Statements for additional discussion. Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year 2021, the Company expects payments for property, plant, and equipment to be approximately $100.0 million. Net cash provided by financing activities totaled $28.8 million in the first nine months of 2021 and $86.3 million in the comparable prior-year period. The decrease is primarily due to decreased net borrowings of $77.0 million under our revolving credit facility in the first nine months of 2021, partially offset by no repurchases of common stock in the first nine months of 2021 compared to $6.8 million in the first nine months of 2020. Liquidity We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend program, environmental remediation projects, and strategic acquisitions. At October 1, 2021, cash and cash equivalents held by our foreign operations totaled $16.6 million. We do not expect restrictions on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition, or results of operations for the foreseeable future. 35 A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of October 1, 2021 and December 31, 2020 is as follows: October 1, December 31, (Thousands) 2021 2020 Cash and cash equivalents $ 18,009 $ 25,878 Total outstanding debt 79,565 38,506 Net debt $ (61,556) $ (12,628) Available borrowing capacity $ 319,385 $ 245,772 Net (debt) cash is a non-GAAP financial measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods. The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each period depicted. The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts the borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation and amortization, and other adjustments. In September and October 2021, we amended and then amended and restated the agreement governing our $375.0 million revolving credit facility (Credit Agreement) to, among other things, (i) include an increase in the maximum leverage ratio covenant on a temporary basis in connection with the HCS acquisition and permit the incurrence of certain debt in connection with the HCS acquisition, (ii) provide for a $300 million delayed draw term loan facility and (iii) extend the maturity of revolving credit facility to October 2026. We financed the purchase price for the HCS acquisition with the new $300 million term loan and $103 million of borrowings under the amended revolving credit facility. The Credit Agreement provides more favorable interest rates under certain circumstances. In addition, the Credit Agreement provides enhanced flexibility to finance acquisitions and other strategic initiatives. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its direct subsidiaries, with the exception of non-mining real property, certain precious metals and certain other assets. The Credit Agreement allows the Company to borrow money at a premium over LIBOR or a prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions available under the agreement. The Credit Agreement includes restrictive covenants relating to restrictions on additional indebtedness, acquisitions, dividends, and stock repurchases. In addition, the Credit Agreement includes covenants subject to a maximum leverage ratio and an interest coverage ratio. We were in compliance with all of our debt covenants as of October 1, 2021. Portions of our business utilize off-balance sheet consignment arrangements to finance metal requirements. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. In 2019, we entered into a precious metals consignment agreement, maturing on August 27, 2022. The available and unused capacity under the metal financing lines expiring in August 2022 totaled approximately $97.1 million as of October 1, 2021, compared to $50.0 million as of December 31, 2020. The availability is determined by Board approved levels and actual line capacity. In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock. The timing of the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels, and other investment opportunities. There is no minimum quantity requirement to repurchase our common stock for a given year, and the repurchases may be discontinued at any time. We did not repurchase any shares under this program in the third quarter or first nine months of 2021. Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million. We paid cash dividends of $2.4 million and $7.2 million on our common stock in the third quarter and first nine months of 2021, respectively. We intend to pay a quarterly dividend on an ongoing basis, subject to a determination that the dividend remains in the best interest of our shareholders. 36 OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS We maintain the majority of the precious metals and portions of the copper we use in production on a consignment basis in order to reduce our exposure to metal price movements and to reduce our working capital investment. The notional value of off-balance sheet precious metals and copper was $452.9 million and $400.0 million as of October 1, 2021 and December 31, 2020, respectively. We were in compliance with all of the covenants contained in the consignment agreements as of October 1, 2021. For additional information on our contractual obligations, refer to our 2020 Annual Report on Form 10-K. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the inherent use of estimates and management’s judgment in establishing those estimates. For additional information regarding critical accounting policies, please refer to our 2020 Annual Report on Form 10-K. Forward-looking Statements: Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity; our ability to achieve the strategic and other objectives related to the HCS acquisition, included any expected synergies; the global economy, including the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns and sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses, including the integration of the HCS business; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions, including, without limitation, the HCS acquisition being accretive in the expected timeframe or at all; our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal financing fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions on operations from, and other effects of, catastrophic and other extraordinary events including the COVID-19 pandemic; and the risk factors set forth in Part 1, Item 1A of the Company's 2020 Annual Report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures about Market Risk For information regarding market risks, refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2020 Annual Report on Form 10-K. There have been no material changes in our market risks since the inclusion of this discussion in our 2020 Annual Report on Form 10-K. 37