What changed in this filing

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Item 1A. Risk Factors

2024-02-15 compared with 2023-02-16 · 45 added, 62 removed, 211 unchanged (34% of the section changed)

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Also, in times when growth rates in our markets are lower, or negative, there may be temporary inventory adjustments by our customers that may negatively affect our business .

Risks Relating to the COVID-19 Pandemic

The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business.

The worldwide spread of the COVID-19 virus resulted in a global slowdown of economic activity which could continue to impact demand for a broad variety of goods and services, including from the Company’s customers, while also continuing to disrupt sales channels and marketing activities for an unknown period of time.

New and potentially more contagious variants of the virus have emerged over the course of the pandemic, along with a surge in cases in several regions across the globe, including Europe and Asia, resulting in renewed shutdown, mandatory quarantines and shelter in place orders in certain regions.

These events have led, at times, to slowdowns in our operations, including the temporary shutdown of the Company's Shanghai facility in the first half of 2022 .

Through continued economic challenges, there continue to be periodic shipping and logistics challenges and continued supply chain constraints, shortages and delays, along with inflationary pricing pressures.

As normal business operations resume, we continue to practice enhanced sanitation procedures, health checks and social distancing protocols, however, none of these measures can completely eliminate the risk of exposure or spread of COVID-19.

There could be additional waves or spikes in infection, again causing widespread social, economic and operational impacts.

Further, the lingering impacts of the COVID-19 pandemic may continue to adversely affect the economies and financial markets in many countries.

Any prolonged disruption of manufacturing or shipment of our products caused by the COVID-19 pandemic or any future pandemics could materially and adversely affect our results of operations and financial conditions.

Surges in infection rate, new shutdowns or quarantines, emergence of new and potentially more contagious variants of the virus and staffing and labor supply challenges may impact our suppliers and our ability to source materials in a timely manner.

Further, ongoing supply chain constraints and inflationary pressure could have a negative impact on our results.

For example, we have experienced customers building inventory in anticipation of increased demand, whereas in other periods, we experienced decreased demand because our customers had excess inventory.

Risks Relating to Our Business and Operations

Because we experience seasonal fluctuations in certain end-market sales, our quarterly results will fluctuate, and our annual performance will be affected by the fluctuations.

We expect seasonal patterns to continue, which may cause our quarterly results to fluctuate.

If our revenue during any quarter were to fall below the expectations of investors or securities analysts, our share price could decline, perhaps significantly.

Unfavorable economic conditions, lower than normal levels of demand, and other occurrences in any quarter could also harm our results of operations.

For example, we have experienced customers building inventory in anticipation of increased demand, whereas in other periods, demand decreased because our customers had excess inventory.

A portion of our revenue is derived from the sale of defense-related products through various contracts and subcontracts.

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Prices for precious metal and certain non-precious metals including tantalum, nickel, iridium, rhodium, niobium, hafnium and tungsten have fluctuated significantly in recent years.

Additionally, geopolitical instability and the inflationary environment

have added to the volatility.

Additionally, geopolitical instability and the inflationary environment have added to the volatility.

Higher prices can cause adjustments to our inventory carrying values, whether as a result of quantity discrepancies, normal manufacturing losses, differences in scrap rates, theft or other factors, which could have a negative impact on our profitability and cash flows.

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Additionally, our Reading, Pennsylvania and Tucson, Arizona manufacturing facilities are dependent on materials produced by our Elmore, Ohio manufacturing facility, and our Wheatfield, New York manufacturing facility is dependent on our Buffalo, New York manufacturing facility.

capabilities, increase our capital expenditures and our costs of doing business, and impair our ability to deliver our products on a timely basis.

The destruction or closure of our mine, any of our manufacturing facilities, or to critical pieces of equipment within these facilities for a significant period of time as a result of harsh weather (including that caused by climate change), fire, explosion, act of war or terrorism, or other natural disaster or unexpected event, including a security incident such as a ransomware attack, may interrupt our manufacturing capabilities, increase our capital expenditures and our costs of doing business, and impair our ability to deliver our products on a timely basis.

In addition, many of our manufacturing facilities depend on one source for electric power and natural gas, which could be interrupted due to equipment failures, terrorism, or another cause.

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Our property damage and business interruption insurance may not cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all.

A security breach of customer, employee, supplier, or Company information may have a material adverse effect on our business, financial condition, and results of operations.

In the conduct of our business, we collect, use, transmit, store, and report data on information systems and interact with customers, vendors, and employees.

Increased global information technology (IT) security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and the confidentiality, availability, and integrity of our data.

We protect our sensitive information and confidential personal data, our facilities, and information technology systems, but we may be vulnerable to future security breaches.

Despite our security measures, our IT systems and infrastructure may be vulnerable to customer viruses, cyber-attacks, security breaches caused by employee error or malfeasance, or other disruptions.

Any such threat could compromise our networks and the information stored there could be accessed, publicly disclosed, lost, or stolen.

A security breach of our computer systems could interrupt or damage our operations or harm our reputation, resulting in a loss of sales, operating profits, and assets.

The Company has taken steps to protect our computer systems however there is always a risk of undetected successful intrusions.

The Company requires employees to complete information security training programs multiple times a year to reinforce the importance of protecting company information and assets.

Materion has not experienced a known information security breach to our systems, however intrusions could pose a risk of undetected data loss or theft that could later be used to harm the Company.

There have been no financial penalties or settlements associated with an information security breach within the last three years.

Similar security threats exist with respect to the IT systems of our lenders, suppliers, consultants, advisers, and other third parties with whom we conduct business.

A security breach of those computer systems could result in the loss, theft, or disclosure of confidential information and could also interrupt or damage our operations, harm our reputation, and subject us to legal claims.

A security incident impacting customer, employee, supplier, or Company information, or Company systems or infrastructure, may have a material adverse effect on our business, financial condition, and results of operations.

In the conduct of our business, we collect, use, transmit, store, and report data on information systems owned by the Company or hosted by third parties, and interact with customers, vendors, and employees.

Increased global information technology (IT) security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks, as well as those of third parties who we rely on, and risk the confidentiality, availability, and integrity of our data.

We protect our sensitive, confidential, or proprietary information as well as personal data, our facilities, and information technology systems, but we and third parties upon whom we rely to host or protect our data, facilities, and IT systems may be vulnerable to future security incidents.

Despite our security measures, the IT systems and infrastructure of the Company and third parties who host or secure our data may be vulnerable to customer viruses, cyber-attacks, security breaches caused by employee error or malfeasance, and exploitable third-party software vulnerabilities or other disruptions.

Any such threat could compromise our networks and those of third parties and the information stored there could be accessed, publicly disclosed, lost, or stolen.

Attacks impacting our systems or data could interrupt or damage our operations or harm our reputation, resulting in a loss of sales, operating profits, and assets.

The Company has taken steps to protect our computer systems;

however, there is always a risk of successful intrusions or attacks, and any intrusions or attacks could pose a risk of undetected data loss or theft that could later be used to harm the Company.

These security threats exist with respect to the IT systems of our lenders, suppliers, consultants, advisers, and other third parties with whom we conduct business.

Cyber attacks, vulnerabilities, and disruptions impacting those systems could result in the loss, theft, or disclosure of confidential, proprietary, or personal information and could also interrupt or damage our operations, harm our reputation, and subject us to legal claims.

Data privacy breaches and the evolving global governmental regulation relating to data privacy could adversely affect our results of operations and profitability.

We collect, store, access and otherwise process certain confidential or sensitive data, including proprietary customer and business information, personal data or other information that is subject to privacy and security laws, regulations and customer-imposed requirements.

The data privacy laws of the specific jurisdictions in which we operate may vary and potentially conflict.

As such, we cannot predict the cost of compliance with future data privacy laws, regulations and standards, future interpretations of current laws, regulations and standards, or the potential effects on our business.

Government enforcement actions can be costly and interrupt the regular operation of our business, and a violation of data privacy laws or a security breach involving personal data can result in fines, reputational damage and civil lawsuits, any of which may adversely affect our results of operations and profitability.

The Company is subject to increasingly complex and changing laws and regulations enacted to protect business and personal information in the United States and other jurisdictions regarding privacy, data protection and data security, including those related to the collection, storage, use, transmission and protection of personal information and other customer, vendor or employee data.

Laws and regulations addressing personal information, including with respect to the European Union’s General Data Protection Regulation (GDPR), and the California Consumer Privacy Act of 2018 (CCPA) as amended by the California Privacy Rights Act (CPRA), and other similar United States state privacy laws, and the interpretation and enforcement of these and similar laws and regulations, are continuously evolving and there is significant uncertainty with respect to how compliance with these laws and regulations may develop and the costs and complexity of future compliance.

The interpretation and application of data protection laws may be interpreted and applied in a manner that is inconsistent with our data practices.

In addition, as a result of existing or new data protection requirements, we incur and expect to continue to incur significant ongoing costs as part of our efforts to protect our business data and personal information and comply with applicable law.

Any failure, or perceived failure, to comply with our data protection or privacy-related legal obligations may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results and financial condition.

Our defined benefit pension plans and other post-employment benefit plans are subject to financial market risks that could adversely impact our financial performance.

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For retiree health accounting purposes, we have used a graded assumption schedule to assume the rate at which health care costs will increase.

We cannot predict whether changing

market or economic conditions, regulatory changes, or other factors will further increase our retiree health care expenses or obligations, diverting funds we would otherwise apply elsewhere.

We cannot predict whether changing market or economic conditions, regulatory changes, or other factors will further increase our retiree health care expenses or obligations, diverting funds we would otherwise apply elsewhere.

Unexpected events and natural disasters at our mine or manufacturing facilities could increase the cost of operating our business.

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Any of these events could increase our cost of operations.

Tax increases and changes in tax rules may adversely affect our financial results

As a company conducting business on a global basis with material operations throughout the United States, we are exposed, both directly and indirectly, to the effects of changes in U.S., state, local, and foreign tax rules.

Taxes for financial reporting purposes and cash tax liabilities in the future may be adversely affected by changes in such tax rules.

Tax increases and changes in tax laws may adversely affect our financial results

Taxes for financial reporting purposes and cash tax liabilities in the future may be adversely affected by changes in such tax laws.

Such changes may put us at a competitive disadvantage compared to some of our major competitors, to the extent we are unable to pass the tax costs through to our customers.

The Biden administration has announced in 2021 and 2022, and in certain cases has enacted, a number of tax proposals to fund new government investments in infrastructure, healthcare, and education, among other things.

Certain of these proposals involve an increase in the domestic corporate tax rate, which if implemented could have a material impact on our future results of operations and cash flows.

Economic and geopolitical instability including as a result of military conflict could have a material adverse effect on our operating results, financial condition, and cash flows

Geopolitical conflict may have a global impact on our operations, customers, or suppliers.

Conflicts may result in various sanctions, including asset freezes and prohibitions on transactions.

These sanctions could have a larger impact that expands into other geographies where we do business, including our supply chain, business partners, and customers in those markets, which could result in lost sales, supply shortages, commodity price fluctuations, increased manufacturing costs, transportation logistics challenges, customer credit and liquidity issues, and lost efficiencies.

Our success is dependent upon our relationships with certain key customers.

Although the Company serves a diverse customer base, a portion of our sales is concentrated amongst a limited number of customers.

If we lost one or more of these major customers, or if one or more major customers significantly decreased its orders for our products, our business, results of operations and financial condition could be materially and adversely impacted.

In fiscal year 2023, one customer accounted for approximately ten percent of our net sales.

Our business may be impacted by external factors that we may not be able to control.

War, civil conflict, terrorism, other geopolitical and diplomatic tensions, natural disasters, climate change and public health issues including domestic or international pandemics, other outbreaks of contagious diseases (such as the COVID-19 pandemic) and other adverse public health developments have caused or could cause damage or disruption to domestic or international commerce by creating economic or political uncertainties.

Additionally, the volatility in the financial markets could negatively impact our business.

These events could result in a decrease in demand for our products, affect the availability of credit facilities to us, our customers or other members of the supply chain necessary to transact business, make it difficult or impossible to deliver orders to customers or receive materials from suppliers, affect the availability or pricing of energy sources or result in other severe consequences that may or may not be predictable.

As a result, our business, financial condition and results of operations could be materially adversely affected.

Risks Related to Legal, Compliance and Regulatory Matters

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• fluctuations in currency exchange rates;

• disruptions in our business or the businesses of our suppliers or customers due to cyber security incidents, public health concerns (including viral outbreaks, such as COVID-19), the ongoing conflict between Russia and Ukraine or natural disasters.

Any of these risks could have an adverse effect on our international operations by reducing the demand for our products or reducing the prices at which we can sell our products, which could result in an adverse effect on our business, financial position, results of operations, or cash flows.

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Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations.

Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us or our industry could harm us.

Even without such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us

or our industry could harm us.

We may not be able to recover the cost of compliance with new or more stringent laws and regulations, which could adversely affect our results of operations, financial position or cash flows.

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The health risks associated with beryllium have resulted in product liability claims, employee, and third-party lawsuits.

As of December 31, 2022, we had one CBD case outstanding.

The increased levels of scrutiny by federal, state, foreign, and international regulatory authorities could lead to regulatory decisions relating to the approval or prohibition of the use of beryllium-containing materials for various uses.

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Additionally we, as well as our customers, are subject to laws regulating worker exposure to beryllium.

OSHA has published a new standard for workplace exposure to beryllium that, among other things, lowered the permissible exposure by a factor of ten and established new requirements for respiratory protection, personal protective clothing and equipment, medical surveillance, hazard communication, and recordkeeping.

Materion was a participant in the development of the new standards, which fundamentally represent our current health and safety operating practices.

In 2018 OHSA issued a final standard for workplace exposure to beryllium.

Materion was a participant in the development of the standards, which fundamentally represent our current health and safety operating practices.

Other government and standard-setting organizations are also reviewing beryllium-related worker safety rules and standards, and will likely make them more stringent.

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Bertrandite ore mining is also subject to extensive governmental regulation on matters such as permitting and licensing requirements, plant and wildlife protection, reclamation and restoration of mining properties, the discharge of materials into the environment, and the effects that mining has on groundwater quality and availability.

Future requirements could impose on us significant additional costs or obligations with respect to our extraction, milling, and processing of ore.

Future requirements could impose on us significant additional

costs or obligations with respect to our extraction, milling, and processing of ore.

If we fail to comply with present and future environmental laws and regulations, we could be subject to liabilities or our operations could be interrupted.

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Our failure to comply with the covenants contained in the terms of our indebtedness could result in an event of default, which could materially and adversely affect our operating results and our financial condition.

Additionally, restrictive covenants contained in our indebtedness may restrict our operations, including our ability to pursue our growth and acquisition strategies.

The terms of our credit facilities require us to comply with various covenants, including financial covenants.

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Our assets and cash flow may be insufficient to fully repay borrowings under all of our outstanding debt instruments if some or all of these instruments are accelerated upon an event of default, in which case we may be required to seek legal protection from our creditors.

The terms and amount of our indebtedness may restrict our operations, including our ability to pursue our growth and acquisition strategies.

The terms of our credit facilities contain a number of restrictive covenants, including restrictions in our ability to, among other things, borrow and make investments, acquire other businesses, and consign additional precious metals.

Additionally, the terms of the agreements governing our indebtedness contain a number of restrictive covenants, including restrictions in our ability to, among other things, borrow and make investments, acquire other businesses, and consign additional precious metals.

These covenants could adversely affect our business by limiting our ability to plan for or react to market conditions or to meet our capital needs, as well as adversely affect our ability to pursue our growth and acquisition strategies, and other strategic initiatives.

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Our ability to pay interest on our debt and to satisfy our other debt obligations depends in part upon our future financial and operating performance and that of our subsidiaries, and upon our ability to renew or refinance borrowings.

Prevailing economic conditions and financial, business, competitive, legislative, regulatory and other factors, many of which are beyond our control, affect our ability to make these payments.

Prevailing economic

conditions and financial, business, competitive, legislative, regulatory and other factors, many of which are beyond our control, affect our ability to make these payments.

While we believe that cash flow from our current level of operations, available cash and available borrowings under our revolving credit facility provide adequate sources of liquidity, a significant drop in operating cash flow resulting from economic conditions, competition or other uncertainties beyond our control could create the need for alternative sources of liquidity.

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We intend to continue to consider further growth opportunities through the acquisition of assets or companies and routinely review acquisition opportunities.

We cannot predict whether we will be successful in pursuing any acquisition opportunities or whether we will be able to achieve the strategic and other objectives related to any acquisitions, including our recent acquisition of HCS-Electronic Materials, including the achievement of any expected synergies.

Future acquisitions may involve the expenditure of significant funds and management time.

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In addition, there may be liabilities that we fail, or are unable, to discover in the course of performing due diligence investigations on the assets or companies we have already acquired or may acquire in the future.

We cannot assure that rights to indemnification by the sellers of these assets or companies to us, even if obtained, or applicable representation and warranty insurance, will be enforceable, collectible, or sufficient in amount, scope, or duration to fully offset the possible liabilities

associated with the business or property acquired.

Any such liabilities, individually or in the aggregate, could have a materially adverse effect on our business, financial condition, and results of operations.

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In the event we were to incur contractual penalties, such as liquidated damages or other related costs that exceed our expectations, our business, financial condition, and operating results could be materially and adversely affected.

UNRESOLVED STAFF COMMENTS

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-K

Item 1A. Risk Factors