What changed in this filing

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Item 1. Financial Statements

2021-11-02 compared with 2021-08-03 · 148 added, 139 removed, 586 unchanged (33% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Second Quarter Ended Six Months Ended

(Thousands, except per share amounts) July 2, 2021 June 26, 2020* July 2, 2021 June 26, 2020*

Third Quarter Ended Nine Months Ended

(Thousands, except per share amounts) October 1, 2021 September 25, 2020* October 1, 2021 September 25, 2020*

Net sales $ 388,028 $ 287,171 $ 1,113,413 $ 836,585

5 unchanged sentences

Asset impairment charges — — — 1,713

Restructuring expense (income) — 2,387 ( 378 ) 4,551

Restructuring (income) expense — 2,593 ( 378 ) 7,144

Other—net 3,604 2,221 12,272 4,143

Operating profit 20,723 7,571 40,441 2,003

Operating profit (loss) 21,160 ( 616 ) 61,601 1,387

Other non-operating income—net ( 1,279 ) ( 1,076 ) ( 3,832 ) ( 2,871 )

Interest expense—net 861 1,334 2,480 2,839

Income before income taxes 21,142 7,163 41,375 2,293

Income tax expense 3,274 1,360 6,740 368

Income (Loss) before income taxes 21,578 ( 874 ) 62,953 1,419

Income tax expense (benefit) 3,422 ( 6,345 ) 10,162 ( 5,977 )

Net income $ 18,156 $ 5,471 $ 52,791 $ 7,396

6 unchanged sentences

Diluted 20,657 20,592 20,659 20,595

*Amounts for the periods ended June 26, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.

* Amounts for the periods ended September 25, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.

See notes to these consolidated financial statements.

1 unchanged sentence

Consolidated Statements of Comprehensive Income

Second Quarter Ended Six Months Ended

July 2, June 26, July 2, June 26,

Third Quarter Ended Nine Months Ended

October 1, September 25, October 1, September 25,

(Thousands) 2021 2020* 2021 2020*

Net income $ 18,156 $ 5,471 $ 52,791 $ 7,396

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation adjustment ( 2,029 ) 3,076 ( 7,693 ) 3,369

1 unchanged sentence

Pension and post-employment benefit adjustment, net of tax 121 29 368 134

Other comprehensive income (loss) 3,003 1,602 ( 4,445 ) ( 109 )

Other comprehensive (loss) income ( 1,469 ) 2,790 ( 5,914 ) 2,681

Comprehensive income $ 16,687 $ 8,261 $ 46,877 $ 10,077

See notes to these consolidated financial statements.

1 unchanged sentence

Consolidated Balance Sheets

October 1, Dec.

(Thousands) 2021 2020

32 unchanged sentences

Serial preferred stock ( no par value;

5,000 authorized shares, none issued) — —

5,000 authorized shares, no ne issued)

Common stock ( no par value;

60,000 authorized shares, issued shares of 27,148 at both July 2 nd and December 31 st )

60,000 authorized shares, issued shares of 27,148 at both October 1 st and December 31 st )

269,716 258,642

8 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended

July 2, June 26,

Nine Months Ended

October 1, September 25,

(Thousands) 2021 2020*

5 unchanged sentences

Stock-based compensation expense (non-cash) 4,924 3,989

Deferred income tax expense (benefit) 367 ( 723 )

Deferred income tax benefit ( 263 ) ( 5,981 )

Impairment charges — 10,766

Changes in assets and liabilities:

Changes in assets and liabilities, net of acquired assets and liabilities:

Accounts receivable

2 unchanged sentences

Prepaid and other current assets ( 7,020 ) ( 686 )

Accounts payable and accrued expenses 28,403 ( 7,634 )

Accounts payable 14,863 6,281

Accrued expenses 20,451 ( 16,040 )

Unearned revenue 650 ( 298 )

Interest and taxes payable

( 1,504 ) 143

Unearned income due to customer prepayments 9,022 40,385

2 unchanged sentences

Cash flows from investing activities:

Payments for acquisition, net of cash acquired — ( 130,715 )

Payments for purchase of property, plant, and equipment ( 77,640 ) ( 46,285 )

Proceeds from settlement of currency exchange contract — 3,249

Proceeds from sale of property, plant, and equipment 686 35

12 unchanged sentences

Cash and cash equivalents at end of period $ 18,009 $ 117,754

*Amounts for the period ended June 26, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.

* Amounts for the period ended September 25, 2020 have been adjusted to reflect the change in inventory accounting method, as described in Note A to the Consolidated Financial Statements in the Company's 2020 Annual Report on Form 10-K.

See notes to these consolidated financial statements.

8 unchanged sentences

Equity Total*

Balance at April 2, 2021 20,414 ( 6,734 ) $ 264,940 $ 645,468 $ ( 206,845 ) $ ( 46,087 ) $ 3,860 $ 661,336

Balance at July 2, 2021 20,438 ( 6,710 ) $ 268,205 $ 660,851 $ ( 208,854 ) $ ( 43,084 ) $ 4,583 $ 681,701

Net income — — — 18,156 — — — 18,156

1 unchanged sentence

Cash dividends declared ($ 0.12 per share)

— — — ( 2,452 ) — — — ( 2,452 )

Stock-based compensation activity — — 1,458 ( 28 ) ( 18 ) — — 1,412

1 unchanged sentence

Directors’ deferred compensation 1 1 53 — ( 68 ) — 107 92

Balance at July 2, 2021 20,438 ( 6,710 ) $ 268,205 $ 660,851 $ ( 208,854 ) $ ( 43,084 ) $ 4,583 $ 681,701

Balance at March 27, 2020 20,310 ( 6,838 ) $ 253,967 $ 618,796 $ ( 198,311 ) $ ( 47,173 ) $ 3,490 $ 630,769

Balance at October 1, 2021 20,439 ( 6,709 ) $ 269,716 $ 676,527 $ ( 208,952 ) $ ( 44,553 ) $ 4,690 $ 697,428

Balance at June 26, 2020 20,322 ( 6,826 ) $ 256,756 $ 622,219 $ ( 198,726 ) $ ( 45,571 ) $ 3,678 $ 638,356

Net income — — — 5,471 — — — 5,471

1 unchanged sentence

Cash dividends declared ($ 0.115 per share)

— — — ( 2,338 ) — — — ( 2,338 )

Stock-based compensation activity 7 7 235 19 ( 231 ) — — 23

1 unchanged sentence

Directors’ deferred compensation 1 1 28 — ( 41 ) — 70 57

Balance at June 26, 2020 20,322 ( 6,826 ) $ 256,756 $ 622,219 $ ( 198,726 ) $ ( 45,571 ) $ 3,678 $ 638,356

Balance at September 25, 2020 20,327 ( 6,821 ) $ 257,019 $ 625,371 $ ( 199,185 ) $ ( 42,781 ) $ 3,748 $ 644,172

Common Shares Shareholders' Equity

9 unchanged sentences

Cash dividends declared ($ 0.355 per share)

— — — ( 7,243 ) — — — ( 7,243 )

Stock-based compensation activity 152 152 10,932 ( 79 ) ( 5,929 ) — — 4,924

1 unchanged sentence

Directors’ deferred compensation 4 4 142 — ( 803 ) — 934 273

Balance at July 2, 2021 20,438 ( 6,710 ) $ 268,205 $ 660,851 $ ( 208,854 ) $ ( 43,084 ) $ 4,583 $ 681,701

Balance at October 1, 2021 20,439 ( 6,709 ) $ 269,716 $ 676,527 $ ( 208,952 ) $ ( 44,553 ) $ 4,690 $ 697,428

Balance at December 31, 2019 20,404 ( 6,744 ) $ 249,674 $ 624,954 $ ( 186,845 ) $ ( 45,462 ) $ 3,422 $ 645,743

2 unchanged sentences

Cash dividends declared ($ 0.34 per share)

— — — ( 6,920 ) — — — ( 6,920 )

Stock-based compensation activity 117 117 7,272 ( 59 ) ( 3,133 ) — — 4,080

2 unchanged sentences

Directors’ deferred compensation 3 3 73 — ( 229 ) — 326 170

Balance at June 26, 2020 20,322 ( 6,826 ) $ 256,756 $ 622,219 $ ( 198,726 ) $ ( 45,571 ) $ 3,678 $ 638,356

Balance at September 25, 2020 20,327 ( 6,821 ) $ 257,019 $ 625,371 $ ( 199,185 ) $ ( 42,781 ) $ 3,748 $ 644,172

See notes to these consolidated financial statements.

13 unchanged sentences

Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

The amounts reflected in Note B to the Consolidated Financial Statements are the results of a preliminary purchase price allocation and will be updated upon completion of the final valuation.

The Company is required to complete the purchase price allocation within 12 months of the acquisition date.

If such completion of the allocation results in a change in the preliminary values, the measurement period adjustment will be recognized in the period in which the adjustment amount is determined.

Change in Accounting Principle:

2 unchanged sentences

The effects of the change in accounting principle from LIFO to FIFO were retrospectively applied.

As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheet as of June 26, 2020 and the consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the three and six months ended June 26, 2020 were adjusted as necessary.

As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheet as of September 25, 2020 and the consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for the three and nine months ended September 25, 2020 were adjusted as necessary.

For further information, refer to the Company's 2020 Annual Report on Form 10-K.

4 unchanged sentences

(Thousands except per share amounts)

Second Quarter Ended Six Months Ended

June 26, 2020 June 26, 2020

Third Quarter Ended Nine Months Ended

September 25, 2020 September 25, 2020

Selected Items As Reported As Adjusted Adjustment As Reported As Adjusted Adjustment

1 unchanged sentence

Gross margin 46,640 45,311 ( 1,329 ) 140,305 136,836 ( 3,469 )

Operating profit 8,706 7,571 ( 1,135 ) 4,143 2,003 ( 2,140 )

Income before income taxes 8,298 7,163 ( 1,135 ) 4,433 2,293 ( 2,140 )

Income tax expense 1,620 1,360 ( 260 ) 858 368 ( 490 )

Operating profit (loss) 713 ( 616 ) ( 1,329 ) 4,856 1,387 ( 3,469 )

Income (Loss) before income taxes 455 ( 874 ) ( 1,329 ) 4,888 1,419 ( 3,469 )

Income tax benefit ( 6,041 ) ( 6,345 ) ( 304 ) ( 5,183 ) ( 5,977 ) ( 794 )

Net income 6,496 5,471 ( 1,025 ) 10,071 7,396 ( 2,675 )

4 unchanged sentences

Consolidated Statement of Comprehensive Income

Second Quarter Ended Six Months Ended

June 26, 2020 June 26, 2020

Third Quarter Ended Nine Months Ended

September 25, 2020 September 25, 2020

Selected Items As Reported As Adjusted Adjustment As Reported As Adjusted Adjustment

2 unchanged sentences

Consolidated Statement of Cash Flows

Six Months Ended

June 26, 2020

Nine Months Ended

September 25, 2020

Selected Items As Reported As Adjusted Adjustment

26 unchanged sentences

Goodwill associated with this acquisition is not tax deductible.

This acquisition is being reported in our Precision Optics segment and the results of Optics Balzers are not material to our Consolidated Financial Statements.

No material measurement period adjustments have been recorded during the second quarter or first six months of 2021.

As of July 2, 2021, the purchase price allocation remains preliminary as the Company completes its assessments of income taxes.

This acquisition is being reported in the Company's Precision Optics segment and the results of Optics Balzers are not material to the Company's Consolidated Financial Statements.

No material measurement period adjustments have been recorded during the third quarter or first nine months of 2021, and as of October 1, 2021, the purchase price allocation is complete.

Note C — Segment Reporting

8 unchanged sentences

Composites Advanced Materials Precision Optics Other Total

Second Quarter 2021

Third Quarter 2021

Net sales $ 136,096 $ 220,723 $ 31,209 $ — $ 388,028

2 unchanged sentences

Operating profit (loss) 20,928 9,281 3,329 ( 12,378 ) 21,160

Second Quarter 2020

Third Quarter 2020

Net sales $ 91,203 $ 165,582 $ 30,386 $ — $ 287,171

Intersegment sales — 6,602 — — 6,602

Operating profit (loss) 6,824 4,653 2,091 ( 5,997 ) 7,571

First Six Months 2021

Operating (loss) profit ( 437 ) 5,749 1,421 ( 7,349 ) ( 616 )

First Nine Months 2021

Net sales $ 375,533 $ 638,481 $ 99,399 $ — $ 1,113,413

2 unchanged sentences

Operating profit (loss) 51,733 26,547 10,513 ( 27,192 ) 61,601

First Six Months 2020

First Nine Months 2020

Net sales $ 291,884 $ 475,855 $ 68,846 $ — $ 836,585

1 unchanged sentence

Operating profit (loss) 9,910 15,452 ( 6,080 ) ( 17,895 ) 1,387

The following table disaggregates revenue for each segment by end market for the second quarter and first six months of 2021 and 2020:

The following table disaggregates revenue for each segment by end market for the third quarter and first nine months of 2021 and 2020:

(Thousands) Performance Alloys and Composites Advanced Materials Precision Optics Other Total

Second Quarter 2021

Third Quarter 2021

Semiconductor $ 3,163 $ 173,689 $ 630 $ — $ 177,482

7 unchanged sentences

Total $ 136,096 $ 220,723 $ 31,209 $ — $ 388,028

Second Quarter 2020

Third Quarter 2020

Semiconductor $ 983 $ 131,380 $ 1,008 $ — $ 133,371

8 unchanged sentences

(Thousands) Performance Alloys and Composites Advanced Materials Precision Optics Other Total

First Six Months 2021

First Nine Months 2021

Semiconductor $ 5,966 $ 495,718 $ 1,664 $ — $ 503,348

7 unchanged sentences

Total $ 375,533 $ 638,481 $ 99,399 $ — $ 1,113,413

First Six Months 2020

First Nine Months 2020

Semiconductor $ 3,426 $ 376,107 $ 1,251 $ — $ 380,784

14 unchanged sentences

Transaction Price Allocated to Future Performance Obligations:

Accounting Standards Codification 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 July 2, 2021.

Remaining performance obligations include non-cancelable purchase orders and customer contracts.

1 unchanged sentence

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 July 2, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 78.1 million.

After considering the practical expedient at October 1, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 81.0 million.

Materion Corporation and Subsidiaries

2 unchanged sentences

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

(Thousands) July 2, 2021 December 31, 2020 $ change % change

(Thousands) October 1, 2021 December 31, 2020 $ change % change

Accounts receivable, trade

6 unchanged sentences

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 first six months of 2021.

Impairment losses (bad debt) incurred relating to our receivables were immaterial during the first nine months of 2021.

Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed.

2 unchanged sentences

Unearned revenue is recorded for consideration received from customers in advance of satisfaction of the related performance obligations.

The Company recognized approximately $ 3.2 million of the December 31, 2020 unearned amounts as revenue during the first six months of 2021.

The Company recognized approximately $ 5.6 million of the December 31, 2020 unearned amounts as revenue during the first nine months of 2021.

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.

1 unchanged sentence

Note E — Other-net

Other-net for the second quarter and first six months of 2021 and 2020 is summarized as follows:

Second Quarter Ended Six Months Ended

July 2, June 26, July 2, June 26,

Other-net for the third quarter and first nine months of 2021 and 2020 is summarized as follows:

Third Quarter Ended Nine Months Ended

October 1, September 25, October 1, September 25,

(Thousands) 2021 2020 2021 2020

1 unchanged sentence

Amortization of intangible assets 1,283 907 3,461 1,201

Foreign currency (gain) loss ( 33 ) ( 2,486 ) 1,216 ( 2,548 )

Foreign currency loss (gain) 380 ( 1,029 ) 1,596 ( 3,577 )

Net loss (gain) on disposal of fixed assets 81 19 ( 283 ) 74

5 unchanged sentences

Income of $ 0.4 million was recorded in the first quarter of 2021, primarily related to lower than previously estimated facility closure costs that were recorded in 2020.

Remaining severance payments are immaterial and reflected in Salaries and wages in the Consolidated Balance Sheet as of July 2, 2021.

Remaining severance payments are immaterial and reflected in Salaries and wages in the Consolidated Balance Sheet as of October 1, 2021.

Any additional costs related to the closure of this business are expected to be immaterial.

In addition, during 2020, the Company initiated a restructuring plan in its Performance Alloys and Composites segment to close its Warren, Michigan and Fremont, California locations.

Costs associated with the plan totaled $ 2.4 million and

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

$ 4.6 million in the second quarter and first six months of 2020, respectively.

In the second quarter of 2020, these costs included $ 0.9 million of severance associated with approximately 60 employees and $ 1.5 million of facility and other related costs.

Included in restructuring charges for the first six months of 2020 was $ 1.4 million of severance associated with approximately 60 employees and $ 3.1 million of facility and other related costs.

Remaining severance payments of $ 0.1 million and facility costs of $ 0.5 million related to these initiatives are reflected within Salaries and wages and Other liabilities and accrued items, respectively, in the Consolidated Balance Sheet and are expected to be substantially paid in the next twelve months.

In addition, during 2020, the Company initiated a restructuring plan in its Performance Alloys and Composites segment to close its Warren, Michigan and Fremont, California locations.

Costs associated with the plan totaled $ 2.2 million and $ 6.8 million in the third quarter and first nine months of 2020, respectively.

In the third quarter of 2020, these costs included $ 0.4 million of severance and $ 1.6 million of facility and other related costs.

Included in restructuring charges for the first nine months of 2020 was $ 1.8 million of severance associated with approximately 60 employees and $ 4.4 million of facility and other related costs.

Note G — Income Taxes

The Company's effective tax rate for the second quarter of 2021 and 2020 was 15.5 % and 19.0 %, respectively, and 16.3 % and 16.0 % in the first six months of 2021 and 2020, respectively.

The Company's effective tax rate for the third quarter of 2021 and 2020 was 15.9 % and 726.0 %, respectively, and 16.1 % and ( 421.2 )% in the first nine months of 2021 and 2020, respectively.

The effective tax rate for each period in 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 each period in 2020 was lower than the statutory 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.

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.

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.

Given the Company’s recent history of foreign earnings, management believes that there is a reasonable possibility that, within the next twelve months, sufficient positive evidence may become available to allow management to reach a conclusion that a significant portion of the valuation allowance recorded against the deferred tax assets held by its German subsidiaries will be reversed.

The reversal would result in an income tax benefit for the quarterly and annual period in which the Company releases the valuation allowance.

However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company actually achieves.

On March 11, 2021, President Biden signed the American Rescue Plan (the Rescue Plan) into law.

1 unchanged sentence

While the Company continues to examine the impacts the Rescue Plan may have on its business, it does not expect it will have a material impact to its consolidated financial statements.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note H — Earnings Per Share (EPS)

The following table sets forth the computation of basic and diluted EPS:

Second Quarter Ended Six Months Ended

July 2, June 26, July 2, June 26,

Third Quarter Ended Nine Months Ended

October 1, September 25, October 1, September 25,

(Thousands, except per share amounts) 2021 2020 2021 2020

12 unchanged sentences

Diluted EPS $ 0.88 $ 0.27 $ 2.56 $ 0.36

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 52,709 and 191,500 for the quarters ended July 2, 2021 and June 26, 2020, respectively and 64,478 and 230,893 for the six months ended July 2, 2021 and June 26, 2020, respectively.

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 55,598 and 114,335 for the quarters ended October 1, 2021 and September 25, 2020, respectively and 56,319 and 164,447 for the nine months ended October 1, 2021 and September 25, 2020, respectively.

These securities are primarily related to restricted stock units and stock appreciation rights with fair market values and exercise prices greater than the average market price of the Company's common shares and were excluded from the dilution calculation as the effect would have been anti-dilutive.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note I — Inventories

Inventories on the Consolidated Balance Sheets are summarized as follows:

July 2, December 31,

October 1, December 31,

(Thousands) 2021 2020

4 unchanged sentences

The Company maintains the majority of the precious metals and copper used in production on a consignment basis in order to reduce its exposure to metal price movements and to reduce its working capital investment.

The notional value of off-balance sheet precious metals and copper was $ 456.3 million and $ 400.0 million as of July 2, 2021 and December 31, 2020, respectively.

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.

Amounts for the year ended December 31, 2020 have been revised to reflect a $ 44.6 million reclassification out of work in process and into finished goods inventory.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note J — Customer Prepayments

3 unchanged sentences

The prepayment from the customer will be applied when commercial production of the product is sold and delivered to the customer in connection with a master supply agreement.

Accordingly, as of July 2, 2021 and December 31, 2020, $ 66.9 million and $ 58.8 million, respectively, of prepayments are classified as Unearned Income in the Consolidated Balance Sheet, of which $ 2.2 million and $ 8.0 million, respectively, was received during the second quarter and first six months of 2021.

Accordingly, as of October 1, 2021 and December 31, 2020, $ 67.9 million and $ 58.8 million, respectively, of prepayments were classified as Unearned income in the Consolidated Balance Sheet, of which $ 1.0 million and $ 9.0 million, respectively, was received during the third quarter and first nine months of 2021.

Note K — Pensions and Other Post-employment Benefits

The following is a summary of the net periodic benefit cost for the second quarter and first six months of 2021 and 2020 for the domestic pension plans (which include the defined benefit pension plan and the supplemental retirement plans) and the domestic retiree medical plan.

The following is a summary of the net periodic benefit credit for the third quarter and first nine months of 2021 and 2020 for the domestic pension plans (which include the defined benefit pension plan and the supplemental retirement plans) and the domestic retiree medical plan.

Pension Benefits Other Benefits

Second Quarter Ended Second Quarter Ended

July 2, June 26, July 2, June 26,

Third Quarter Ended Third Quarter Ended

October 1, September 25, October 1, September 25,

(Thousands) 2021 2020 2021 2020

5 unchanged sentences

Amortization of net loss (gain) 418 284 ( 69 ) ( 83 )

Net periodic benefit (credit) cost $ ( 830 ) $ ( 706 ) $ ( 394 ) $ ( 389 )

Settlements — 94 — —

Total net benefit (credit) cost $ ( 830 ) $ ( 707 ) $ ( 394 ) $ ( 390 )

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Pension Benefits Other Benefits

Six Months Ended Six Months Ended

July 2, June 26, July 2, June 26,

Nine Months Ended Nine Months Ended

October 1, September 25, October 1, September 25,

(Thousands) 2021 2020 2021 2020

8 unchanged sentences

Total net benefit (credit) cost $ ( 2,490 ) $ ( 2,026 ) $ ( 1,182 ) $ ( 1,167 )

The Company did not make any contributions to its domestic defined benefit plan in the second quarter or first six months of 2021 or 2020.

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 (income) expense.

The Company did no t make any contributions to its domestic defined benefit plan in the third quarter or first nine months of 2021 or 2020.

The Company reports the service cost component of net periodic benefit credit in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit credit in Other non-operating (income) expense.

In May 2019, the Company's Board of Directors approved changes to the U.S.

defined benefit pension plan.

The Company froze the pay and service amounts used to calculate pension benefits for active participants in the pension plan as of January 1, 2020.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

froze the pay and service amounts used to calculate pension benefits for active participants in the pension plan as of January 1, 2020.

Note L — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the second quarter and first six months of 2021 and 2020 are as follows:

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the third quarter and first nine months of 2021 and 2020 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 April 2, 2021 $ 1,462 $ 320 $ 280 $ 2,062 $ ( 43,309 ) $ ( 4,840 ) $ ( 46,087 )

Balance at July 2, 2021 $ 1,603 $ 186 $ — $ 1,789 $ ( 43,226 ) $ ( 1,647 ) $ ( 43,084 )

Other comprehensive income (loss) before reclassifications 625 30 8 663 — ( 2,029 ) ( 1,366 )

3 unchanged sentences

Net current period other comprehensive (loss) income after tax 480 ( 41 ) — 439 121 ( 2,029 ) ( 1,469 )

Balance at July 2, 2021 $ 1,603 $ 186 $ — $ 1,789 $ ( 43,226 ) $ ( 1,647 ) $ ( 43,084 )

Balance at March 27, 2020 $ 1,214 $ ( 841 ) $ ( 330 ) $ 43 $ ( 41,330 ) $ ( 5,886 ) $ ( 47,173 )

Balance at October 1, 2021 $ 2,083 $ 145 $ — $ 2,228 $ ( 43,105 ) $ ( 3,676 ) $ ( 44,553 )

Balance at June 26, 2020 $ 1,065 $ ( 779 ) $ 104 $ 390 $ ( 41,241 ) $ ( 4,720 ) $ ( 45,571 )

Other comprehensive (loss) income before reclassifications ( 520 ) ( 617 ) 182 ( 955 ) — 3,076 2,121

3 unchanged sentences

Net current period other comprehensive (loss) income after tax ( 253 ) 71 ( 133 ) ( 315 ) 29 3,076 2,790

Balance at June 26, 2020 $ 1,065 $ ( 779 ) $ 104 $ 390 $ ( 41,241 ) $ ( 4,720 ) $ ( 45,571 )

Balance at September 25, 2020 $ 812 $ ( 708 ) $ ( 29 ) $ 75 $ ( 41,212 ) $ ( 1,644 ) $ ( 42,781 )

Materion Corporation and Subsidiaries

8 unchanged sentences

Net current period other comprehensive (loss) income after tax 1,564 315 ( 468 ) 1,411 368 ( 7,693 ) ( 5,914 )

Balance at July 2, 2021 $ 1,603 $ 186 $ — $ 1,789 $ ( 43,226 ) $ ( 1,647 ) $ ( 43,084 )

Balance at October 1, 2021 $ 2,083 $ 145 $ — $ 2,228 $ ( 43,105 ) $ ( 3,676 ) $ ( 44,553 )

Balance at December 31, 2019 $ 1,324 $ ( 452 ) $ 25 $ 897 $ ( 41,346 ) $ ( 5,013 ) $ ( 45,462 )

4 unchanged sentences

Net current period other comprehensive (loss) income after tax ( 512 ) ( 256 ) ( 54 ) ( 822 ) 134 3,369 2,681

Balance at June 26, 2020 $ 1,065 $ ( 779 ) $ 104 $ 390 $ ( 41,241 ) $ ( 4,720 ) $ ( 45,571 )

Reclassifications from accumulated other comprehensive income (loss) of gains and losses on foreign currency cash flow hedges are recorded in Net sales in the Consolidated Statements of Income (Loss).

Balance at September 25, 2020 $ 812 $ ( 708 ) $ ( 29 ) $ 75 $ ( 41,212 ) $ ( 1,644 ) $ ( 42,781 )

Reclassifications from accumulated other comprehensive income (loss) of gains and losses on foreign currency cash flow hedges are recorded in Net sales in the Consolidated Statements of Income.

Reclassifications from accumulated other comprehensive income (loss) of gains and losses on precious metal and copper cash flow hedges are recorded in Cost of sales in the Consolidated Statements of Income.

5 unchanged sentences

Note M — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.2 million and $ 3.8 million in the second quarter and first six months of 2021, respectively, compared to $ 3.1 million and $ 4.1 million, respectively, in the same periods of 2020.

The Company granted 52,709 stock appreciation rights (SARs) to certain employees during the first six months of 2021.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the six months ended July 2, 2021 were $ 68.82 and $ 20.66 , respectively.

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 1.5 million and $ 5.3 million in the third quarter and first nine months of 2021, respectively, compared to less than $ 0.1 million and $ 4.1 million, respectively, in the same periods of 2020.

The Company granted 52,709 stock appreciation rights (SARs) to certain employees during the first nine months of 2021.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the nine months ended October 1, 2021 were $ 68.82 and $ 20.66 , respectively.

The Company estimated the fair value of the SARs using the following weighted-average assumptions in the Black-Scholes model:

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Expected term (in years) 4.6

The Company granted 55,064 stock-settled restricted stock units (RSUs) to certain employees and 9,904 to non-employee directors during the first six months of 2021.

The Company granted 59,818 stock-settled restricted stock units (RSUs) to certain employees and 9,904 to non-employee directors during the first nine months of 2021.

The Company measures the fair value of stock-settled RSUs based on the closing market price of a share of Materion common stock on the date of the grant.

The weighted-average fair value per share was $ 68.44 and $ 75.77 for stock-settled RSUs granted to employees and non-employee directors, respectively, during the six months ended July 2, 2021.

The weighted-average fair value per share was $ 68.62 and $ 75.77 for stock-settled RSUs granted to employees and non-employee directors, respectively, during the nine months ended October 1, 2021.

RSUs are generally expensed over the vesting period of three years for employees and one year for non-employee directors.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first six months of 2021.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first nine months of 2021.

The weighted-average fair value of the stock-settled PRSUs was $ 83.78 per share and will be expensed over the vesting period of three years .

The final payout to the employees for all PRSUs will be based upon the Company’s return on invested capital and its total return to shareholders over the vesting period relative to a peer group’s performance over the same period.

At July 2, 2021, unamortized compensation cost related to the unvested portion of all stock-based awards was approximately $ 12.7 million, and is expected to be recognized over the remaining vesting period of the respective grants.

At October 1, 2021, unamortized compensation cost related to the unvested portion of all stock-based awards was approximately $ 10.9 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note N — Fair Value of Financial Instruments

8 unchanged sentences

Notes to Consolidated Financial Statements

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of July 2, 2021 and December 31, 2020:

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of October 1, 2021 and December 31, 2020:

(Thousands) Total Carrying Value in the Consolidated Balance Sheets Quoted Prices

16 unchanged sentences

Outstanding contracts are valued through models that utilize market observable inputs, including both spot and forward prices, for the same underlying currencies and metals.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of July 2, 2021 and December 31, 2020.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of October 1, 2021 and December 31, 2020.

The Company's deferred compensation investments and liabilities are based on the fair value of the investments corresponding to the employees’ investment selections, primarily in mutual funds, based on quoted prices in active markets for identical assets.

61 unchanged sentences

The fair values will also be classified as short-term or long-term depending upon their maturity dates.

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives not designated as hedging instruments (on a gross basis) and balance sheet classification as of July 2, 2021 and December 31, 2020:

July 2, 2021 December 31, 2020

October 1, 2021 December 31, 2020

(Thousands) Notional

4 unchanged sentences

These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans.

Other-net included $ 0.4 million of foreign currency losses in the second quarter of 2021 and $ 1.2 million of foreign currency gains related to derivatives in the first six months of 2021, compared to $ 1.7 million and $ 2.3 million of foreign currency gains in the second quarter and first six months of 2020, respectively.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives designated as cash flow hedges (on a gross basis) and balance sheet classification as of July 2, 2021 and December 31, 2020:

July 2, 2021 December 31, 2020

Other-net included $ 0.7 million of foreign currency gains in the third quarter of 2021 and $ 0.5 million of foreign currency losses related to derivatives in the first nine months of 2021, compared to $ 0.4 million and $ 2.7 million of foreign currency gains in the third quarter and first nine months of 2020, respectively.

October 1, 2021 December 31, 2020

(Thousands) Notional

8 unchanged sentences

Foreign currency forward contracts - euro 3,567 56 — —

Precious metal swaps 541 12 — —

Total 4,435 69 — —

5 unchanged sentences

Total 1,476 52 27,688 1,524

Other long-term liabilities

Foreign currency forward contracts - yen 271 — — —

Foreign currency forward contracts - euro 2,383 13 — —

Total $ 42,172 $ 1,071 $ 36,068 $ 765

Total $ 40,683 $ 500 $ 36,068 $ 765

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

All of these contracts were designated and effective as cash flow hedges.

The Company expects to relieve substantially the entire balance in OCI as of July 2, 2021 to the Consolidated Statements of Income within the next 15-months.

The Company expects to relieve substantially the entire balance in OCI as of October 1, 2021 to the Consolidated Statements of Income within the next 15-months.

Refer to Note L for additional OCI details.

The following table summarizes the amounts reclassified from accumulated other comprehensive income relating to the hedging relationship of the Company’s outstanding derivatives designated as cash flow hedges and income statement classification as of the second quarter and first six months of 2021 and 2020:

Second Quarter Ended

(Thousands) July 2, 2021 June 26, 2020

The following table summarizes the pre-tax amounts reclassified from accumulated other comprehensive income relating to the hedging relationship of the Company’s outstanding derivatives designated as cash flow hedges and income statement classification as of the third quarter and first nine months of 2021 and 2020:

Third Quarter Ended

(Thousands) October 2, 2021 September 25, 2020

Hedging relationship Line item

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Total $ ( 93 ) $ 548

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Six Months Ended

(Thousands) July 2, 2021 June 26, 2020

Nine Months Ended

(Thousands) October 1, 2021 September 25, 2020

Hedging relationship Line item

6 unchanged sentences

For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims , refer to Note T ("Contingencies and Commitments") in the Company's 2020 Annual Report on Form 10-K.

Two beryllium cases were outstanding as of July 2, 2021.

Two beryllium cases were outstanding as of October 1, 2021.

The Company does not expect the resolution of these matters to have a material impact on the consolidated financial statements.

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The Company has an active environmental compliance program and records reserves for the probable cost of identified environmental remediation projects.

The reserves are established based upon analyses conducted by the Company’s engineers and outside consultants and are adjusted from time to time based upon ongoing studies, the difference between actual and estimated costs, and other factors.

The reserves are established based upon analyses conducted by the Company’s engineers and outside consultants and are adjusted from time to time based upon ongoing studies, the

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

difference between actual and estimated costs, and other factors.

The reserves may also be affected by rulings and negotiations with regulatory agencies.

The undiscounted reserve balance was $ 5.2 million and $ 5.5 million at July 2, 2021 and December 31, 2020, respectively, and is included in Other liabilities and accrued items and Other long-term liabilities on the Consolidated Balance Sheet.

The undiscounted reserve balance was $ 4.9 million and $ 5.5 million at October 1, 2021 and December 31, 2020, respectively, and is included in Other liabilities and accrued items and Other long-term liabilities on the Consolidated Balance Sheet.

Environmental projects tend to be long-term, and the final actual remediation costs may differ from the amounts currently recorded.

Note Q — Debt

(Thousands) July 2, 2021 December 31, 2020

(Thousands) October 1, 2021 December 31, 2020

Borrowings under Credit Agreement $ 77,010 $ 34,000

4 unchanged sentences

Long-term debt $ 79,036 $ 36,542

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

As of July 2, 2021 and December 31, 2020, the Company had $ 56.5 million and $ 34.0 million, respectively, outstanding against its revolving credit facility with average interest rates of 1.46 % and 1.65 % at July 2, 2021 and December 31, 2020, respectively.

The remaining borrowing capacity under the revolving credit facility as of July 2, 2021 and December 31, 2020 wa s $ 273.0 million and $ 245.8 million, respectively.

As of October 1, 2021 and December 31, 2020, the Company had $ 77.0 million and $ 34.0 million, respectively, outstanding against its revolving credit facility (Credit Agreement) with average interest rates of 1.51 % and 1.65 % at October 1, 2021 and December 31, 2020, respectively.

The remaining borrowing capacity under the revolving credit facility as of October 1, 2021 and December 31, 2020 wa s $ 319.4 million and $ 245.8 million, respectively.

The Company has the option to repay or borrow additional funds under the revolving credit facility until the maturity date in 2024.

The Credit Agreement includes covenants subject to a maximum leverage ratio and a minimum fixed charge coverage ratio.

The Company was in compliance with all of its debt covenants as of July 2, 2021.

At July 2, 2021 and December 31, 2020, there was $ 47.3 million and $ 48.1 million outstanding against the letters of credit sub-facility, respectively.

The Company was in compliance with all of its debt covenants as of October 1, 2021.

At October 1, 2021 and December 31, 2020, there was $ 47.3 million and $ 48.1 million outstanding against the letters of credit sub-facility, respectively.

Note R — Subsequent Event

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 Statements 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements