What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-15 compared with 2023-02-16 · 104 added, 185 removed, 1277 unchanged (18% of the section changed)

47 unchanged sentences

Auditing the reconciliation of precious metals consignment inventory is complex due to the highly detailed nature of the inventory reconciliation and the amount of information that is obtained from third parties.

A physical inventory is performed by the Company on a quarterly basis to verify the existence of inventory.

The Company performs physical inventory procedures to verify the existence of inventory.

The precious metals inventory reconciliation includes estimates based on assays, assumed recovery percentages developed from actual historical data and other analyses, the total estimated volume of solutions and other materials within the refinery, data from refine vendors, and other factors.

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At December 31, 2023, the Company had goodwill of $320.9 million, of which, $88.0 million related to the Precision Optics reporting unit.

As discussed in Notes A and M to the consolidated financial statements, due to recent acquisitions, the Company elected to perform a quantitative annual impairment assessment of its Precision Optics reporting unit’s goodwill as of October 1, 2022, and concluded that there was no impairment, but the estimated fair value of the Precision Optics reporting unit exceeded the carrying value by less than 10%.

As discussed in Notes A and M to the consolidated financial statements, the Company elected to perform a quantitative annual impairment assessment of its Precision Optics reporting unit’s goodwill as of October 1, 2023, and concluded that there was no impairment, but the estimated fair value of the Precision Optics reporting unit exceeded the carrying value by less than 10%.

Auditing the Company’s Precision Optics reporting unit’s goodwill impairment assessment was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting unit.

In particular, the fair value estimate was sensitive to significant assumptions, such as the discount rate, revenue growth rates, terminal growth rate and EBITDA margins, which are affected by expectations about future market or economic conditions.

In particular, the fair value estimate was sensitive to significant assumptions, such as the discount rate, revenue growth rates and EBITDA margins, which are affected by expectations about future market or economic conditions.

How we addressed the matter in our audit

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Research and development expense 27,540 28,977 26,575

Goodwill impairment charges (Note M)

Asset impairment charges (Note M)

Restructuring expense (income) 1,573 ( 438 ) 11,237

Restructuring expense (income) (Note D)

3,824 1,573 ( 438 )

Other — net (Note E)

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Deferred income tax (benefit) expense ( 7,005 ) 1,733 ( 12,957 )

Impairment charges — — 10,472

Net pension curtailments and settlements 142 ( 551 ) —

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Payments for purchase of property, plant, and equipment ( 110,550 ) ( 77,608 ) ( 102,910 )

Proceeds from settlement of currency exchange contract — — 3,249

Payments for mine development ( 9,326 ) — —

Proceeds from sale of property, plant, and equipment 654 850 881

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Cash flows from financing activities:

Proceeds from (repayments of) borrowings under revolving credit agreement, net ( 9,046 ) 118,297 34,000

Proceeds from (repayments of) borrowings under credit facilities, net 8,065 230 118,297

Proceeds from issuance of debt — — 300,000

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Deferred financing costs — — ( 7,403 )

Repurchase of common stock — — ( 6,766 )

Payments of withholding taxes for stock-based compensation awards ( 5,234 ) ( 3,593 ) ( 3,318 )

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Income taxes (Notes A and G)

Unearned revenue (Note D)

Unearned revenue (Note C)

13,843 15,496

Total current liabilities 254,995 238,964

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Other comprehensive income — — — — — ( 1,530 ) — ( 1,530 )

Net pension curtailments and settlements — — — — — 94 — 94

Cumulative effect of accounting change — — — — — — — —

Cash dividends declared ($ 0.475 per share)

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Payments for withholding taxes for stock-based compensation awards ( 49 ) 49 — — ( 3,318 ) — — ( 3,318 )

Repurchase of shares ( 158 ) 158 — — ( 6,766 ) — — ( 6,766 )

Directors’ deferred compensation 5 ( 5 ) 194 — ( 869 ) — 1,039 364

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Other includes unallocated corporate costs.

Refer to Note C for additional segment details.

Refer to Note B for additional segment details.

The Company distributes its products through a combination of company-owned facilities and independent distributors and agents.

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

See Note B for further discussion of the acquisition of HCS-Electronic Materials which was completed on November 1, 2021.

Use of Estimates:

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The associated inventory reserve was $ 0.2 million and $ 0.4 million at December 31, 2023 and 2022, respectively.

All of the Company's inventories, except for its bertrandite ore mine which values inventory using a weighted average cost method, including raw materials, manufacturing supplies inventory as well as international (outside the U.S.) inventories, have been valued using the first-in, first-out (FIFO) method as of December 31, 2022 and 2021.

All of the Company's inventories, including raw materials, manufacturing supplies inventory as well as international (outside the U.S.) inventories, have been valued using the first-in, first-out (FIFO) method as of December 31, 2023 and 2022, except for its bertrandite ore mine which values inventory using a weighted average cost method.

Property, Plant, and Equipment:

Property, plant, and equipment is stated on the basis of cost.

Depreciation is computed principally by the straight-line method, except certain assets for which depreciation may be computed by the units-of-production method.

Depreciation is computed -principally by the straight-line method.

The depreciable lives that are used in computing the annual provision for depreciation by class of asset are primarily as follows:

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Capitalization of mine development project costs, that meet the definition of an asset, begins once mineralization is classified as proven and probable reserves.

In 2020, the Company expanded a mine to further develop an ore body.

Since the pre-production phase ended when ore was first extracted from this mine, the Company recognized approximately $ 12.9 million of mine development costs in 2020 as a component of cost of sales.

This expansion is expected to benefit future periods.

The cost of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production phase is capitalized during the development of an open-pit mine and are capitalized at each pit.

These costs are amortized as the ore is extracted using the units-of-production method based upon total estimated recoverable proven reserves for the individual pit.

These costs are amortized as the ore is extracted and converted to hydroxide using the units-of-production method based upon total estimated recoverable proven reserves for the individual pit.

The Company uses beryllium pounds as the unit of accounting measure for recording amortization.

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Long-Lived Asset Impairment:

Management performs impairment tests of long-lived assets, including property and equipment, whenever an event occurs or circumstances change that indicate that the carrying value may not be recoverable or the useful life

of the asset has changed.

Upon indications of impairment, assets and liabilities are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

The asset group would be considered impaired when the estimated future undiscounted cash flows generated by the asset group are less than its carrying value.

The asset group would be considered impaired when the estimated future undiscounted cash flows generated by the asset group are less than its carrying

If such undiscounted cash flows indicate that the carrying value of the asset group is not recoverable, impairment losses are measured by comparing the estimated fair value of the asset group to its carrying amount.

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New Pronouncements Adopted:

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers .

This guidance requires companies to apply ASC 606 on the acquisition date to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination.

This is an exception to the recognition and measurement principle in ASC 805 which generally requires an acquirer to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date.

public entities, the guidance is effective for fiscal years beginning after December 15, 2022, and early adoption is permitted.

The Company has early adopted this guidance and has applied it to the accounting for contract assets and contract liabilities acquired as part of the HCS-Electronic Materials (as defined in Note B) acquisition.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

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GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates.

The guidance is available immediately and the Company has applied this guidance in accounting for the interest rate swap as discussed in Note R.

Any additional reference rate reform impacts will be accounted for in accordance with ASU 2020-04.

This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2024.

The Company has applied this guidance in accounting for the interest rate swaps discussed in Note R.

Any additional reference rate reform impacts will be accounted for in accordance with ASU 2020-04 and ASU 2022-06.

No other recently issued or effective ASUs had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.

Reclassifications

Certain items previously reported in specific financial statement captions have been reclassified to conform to the current presentation.

T hese reclassifications had no impact on the Company’s financial position, results of operations, or cash flows.

Note B — Acquisition

On November 1, 2021, the Company acquired the industry-leading electronic materials business of H.C.

Starck Group GmbH (HCS-Electronic Materials) for a cash purchase price of approximately $ 398.9 million, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism.

In 2022, acquisition-related inventory step-up expense was $ 7.5 million and classified in Cost of Sales and transaction and integration costs were $ 4.2 million and classified in Selling, General and Administrative expenses in the accompanying consolidated statements of income.

The Company financed the purchase price for the HCS-Electronic Materials 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.

This acquired business operates within the Performance Materials and Electronic Materials segments, and the results of operations are included as of the date of acquisition.

The combination of Materion and HCS-Electronic Materials enhances the Company's position as the leading supplier to the high growth semiconductor industry.

During the period subsequent to the HCS-Electronic Materials acquisition, we made certain measurement period adjustments to the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the measurement period.

Additionally, we paid a working capital true-up of approximately $ 3.0 million during the second quarter of 2022, which increased the total purchase price.

As of November 1 2022, the purchase price allocation was final.

The following table sets forth cumulative measurement period changes since the acquisition date, as well as the initial allocation of the estimated fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of HCS-Electronic Materials, with the excess recorded to goodwill:

(Thousands) Initial Allocation of Consideration Measurement Period Adjustments Final Allocation

Cash and cash equivalents $ 3,685 $ — $ 3,685

Accounts receivable 28,352 35 28,387

Inventories 70,681 — 70,681

Prepaid and other current assets 660 ( 450 ) 210

Property, plant, and equipment 44,681 355 45,036

Operating lease, right-of-use assets 6,120 — 6,120

Intangible assets 107,800 — 107,800

Other long-term assets 4,528 — 4,528

Goodwill 178,181 3,144 181,325

Total assets acquired $ 444,688 $ 3,084 $ 447,772

Accounts payable $ 12,139 $ ( 240 ) $ 11,899

Salaries and wages 2,516 $ 625 3,141

Other liabilities and accrued items 28 $ — 28

Income taxes 2,183 $ ( 457 ) 1,726

Other long-term liabilities 5,543 $ 215 5,758

Operating lease liabilities 6,042 $ — 6,042

Deferred income taxes 20,300 $ ( 30 ) 20,270

Total liabilities assumed $ 48,751 $ 113 $ 48,864

Net assets acquired $ 395,937 $ 2,971 $ 398,908

Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date.

The Company engaged specialists to assist in the valuation of inventories, property, plant, and equipment, and intangible assets.

In determining the fair value of the amounts above, inventory is fair valued based on the comparative sales method for work in process and finished goods at the selling price less cost to dispose and remaining manufacturing effort.

The remaining working capital accounts' carrying values approximate fair value.

For property, plant and equipment and intangible asset values, the Company utilized various forms of the income, cost and market approaches depending on the asset being valued.

The Company used a relief from royalty method under the income approach to value its trade names and developed technology and the multi-period excess earnings method under the income approach to value customer relationships.

The significant assumptions used to estimate the fair value of these intangible assets included the discount rate and certain assumptions that form the basis of future cash flows (including revenue growth rates, royalty rates for trade names and developed technology, and attrition rates for customer relationships).

Inputs were generally determined by taking into account independent appraisals and historical data, supplemented by current and anticipated market conditions and are considered Level 3 assets as the assumptions are unobservable inputs developed by the Company.

As part of the acquisition, the Company recorded approximately $ 181.3 million of goodwill allocated between its Electronic Materials and Performance Materials segments based on the relative fair values.

Goodwill was calculated as the excess of the purchase price over the estimated fair values of the tangible net assets and intangible assets acquired and primarily attributable to the synergies expected to arise after the acquisition dates.

The goodwill is not expected to be deductible for U.S.

tax purposes.

The following table reports the intangible assets by asset category as of the closing date:

(Thousands) Value at Acquisition Useful Life

Customer relationships $ 50,200 13 years

Technology 35,300 13 years

Trade name 22,300 15 years

Total $ 107,800

Had the HCS-Electronic Materials acquisition occurred as of the beginning of fiscal 2020, the Company's sales and income (loss) before taxes would have been as follows:

Year Ended December 31,

Net Sales $ 1,659,620 $ 1,308,300

Profit income (loss) before taxes $ 91,551 $ ( 17,761 )

The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments that assume the acquisition occurred on January 1, 2020.

These unaudited pro forma results do not represent financial results realized, nor are they intended to be a projection of future results.

The transaction accounting adjustments and other adjustments are based on available information and assumptions that the Company’s management believes are reasonable.

Such adjustments are estimates and actual experience may differ from expectations.

The amortization of inventory step-up from the preliminary purchase price allocation of approximately $ 15 million of expense is reflected in the 2020 unaudited pro forma income (loss) before taxes above.

Additionally, the 2020 pro forma income (loss) before taxes includes approximately $ 10 million of additional interest expense related to committed financing to fund the acquisition, annual acquisition-related intangible asset amortization expense of $ 8.2 million, and transaction expenses of $ 5.5 million as if it occurred on January 1, 2020.

Note C — Segment Reporting and Geographic Information

The Company changed two segment names during the first quarter of 2022:

Performance Alloys and Composites became Performance Materials, and Advanced Materials became Electronic Materials.

The Company believes these names better represent the markets served and the advanced next-generation product solutions provided to our customers.

Other than the name changes, there were no changes in the composition or structure of the Company's reportable segments in 2022.

Note B — Segment Reporting and Geographic Information

The Company has the following operating segments:

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The Other reportable segment includes unallocated corporate costs and assets.

Beginning with the first quarter of 2022, the Company began using earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) as the main operating income metric used by management to measure the financial performance of the Company and each segment.

The Company made this change because recent acquisitions have resulted in increased purchase accounting amortization expense, which in turn has affected the comparability of results across periods and when compared to other companies.

Management believes EBITDA is useful to investors as it better represents the Company's performance, excluding the effect of the recent acquisition of significant intangible assets that are now being amortized.

EBITDA is not a measurement of financial performance under U.S.

Although the Company uses EBITDA to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with U.S.

The primary measure used in evaluating segment performance is EBITDA.

The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for 2023 and 2022:

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Net income $ 95,702 $ 85,990

(1) Excludes inter-segment sales of $ 0.7 million for Performance Materials and $ 14.0 million for Electronic Materials for 2022 and $ 0.2 million for Performance Materials and $ 13.9 million for Electronic Materials for 2021.

(1) Excludes inter-segment sales $ 9.2 million for Electronic Materials for 2023.

Inter-segment sales for Performance Materials were less than $ 0.1 million in 2023.

Excludes inter-segment sales of $ 0.7 million for Performance Materials and $ 14.0 million for Electronic Materials for 2022.

Inter-segment sales are eliminated in consolidation.

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International sales include sales from international operations and direct exports from our U.S.

No individual country, other than the United States, or customer accounted for 10% or more of the Company’s net sales for the years presented.

No individual country, other than the United States, accounted for 10% or more of the Company’s net sales for the years presented.

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

Prior to this, no single customer accounted for ten percent or more of our net sales.

No individual country other than the United States accounted for 10% or more of the Company's net property, plant and equipment as of December 31, 2023 or December 31, 2022.

The following table disaggregates revenue for each segment by end market for 2023 and 2022:

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Total $ 671,525 $ 971,902 $ 113,682 $ — $ 1,757,109

Note D — Revenue Recognition

Note C — Revenue Recognition

Net sales consist primarily of revenue from the sale of precious and non-precious specialty metals, beryllium and copper-based alloys, beryllium composites, and other products into numerous end markets.

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The Company does not include extended payment terms in its contracts with customers.

Note D — Restructuring

During 2023, the Company implemented various restructuring initiatives across the Performance Materials, Electronic Materials and Precision Optics segments to improve operational efficiency.

This resulted in severance and related costs of approximately $ 3.8 million during 2023.

Approximately $ 2.7 million of those severance costs were paid as of December 31, 2023.

In 2022, the Company recorded a combined total of $ 1.6 million of restructuring charges in our Precision Optics, Electronic Materials and Other segments as a result of cost reduction actions taken in order to reduce our fixed cost structure.

Note E — Other-net

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Foreign currency loss (gain) 218 ( 679 ) 1,573

Net (gain) loss on disposal of fixed assets 14 ( 282 ) 466

Other items ( 367 ) 304 ( 114 )

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Interest paid $ 32,044 $ 21,190 $ 3,652

The increase in interest expense in 2022 versus 2021 was driven by increased borrowings under our revolving credit facility and new term loan during 2021 primarily to finance the acquisition of HCS-Electronic Materials.

The increase in interest expense in 2023 versus 2022 was primarily driven by increased interest rates.

Amortization of deferred financing costs within interest expense was $ 1.7 million in 2023, $ 1.7 million in 2022, and $ 1.0 million in 2021.

Note G — Income Taxes

On August 9, 2022, President Biden signed the CHIPS and Science Act (CHIPS Act) into law.

The CHIPS Act provides incentives, beginning in 2023, for manufacturing semiconductors and certain tooling equipment used in the semiconductor manufacturing process.

On August 16, 2022, President Biden also signed the Inflation Reduction Act of 2022 (IRA) into law.

The IRA, among other provisions, includes a new corporate alternative minimum tax on certain large corporations, an excise tax on stock buybacks, and tax credits for certain critical minerals.

The Company does not expect to be an applicable corporation subject to the alternative minimum tax based on our reported GAAP earnings the past three years.

The CHIPS Act and the IRA did not have an impact to our consolidated financial statements for the year ended December 31, 2022.

We continue to examine the impacts the CHIPS Act and the IRA may have on the Company in 2023 and subsequent years.

Income (loss) before income taxes and income tax expense (benefit) are comprised of the following:

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Foreign derived intangible income deduction ( 8.6 ) ( 1.7 ) ( 2.3 )

Non-deductible goodwill impairment — — 7.1

Research and development tax credit ( 0.8 ) ( 2.0 ) ( 1.2 )

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Non-deductible transaction costs — — 1.6

Interest from tax authorities — — ( 3.8 )

Adjustment to unrecognized tax benefits 2.7 ( 0.5 ) ( 1.9 )

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Valuation allowance 0.8 0.6 ( 8.5 )

Impact of refundable credits ( 1.6 ) — —

Other items 0.7 ( 0.3 ) 0.1

Effective tax rate 11.3 % 16.6 % 6.3 %

The Company’s income tax expense was $ 12,129 , $ 17,110 and $ 4,851 and the Company’s effective tax rate was 11.3 %, 16.6 % and 6.3 % for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively.

In 2023, the effective tax rate is lower than the U.S.

statutory tax rate primarily due to a foreign-derived intangible income deduction optimization project completed, percentage depletion and excess tax benefits for stock compensation.

In 2022, the effective tax rate is below the U.S.

statutory tax rate primarily due to percentage depletion, the research and development tax credit and the foreign-derived intangible income deduction.

In 2021, the effective tax rate is below the U.S.

statutory tax rate primarily due to the release of our Germany valuation allowance, percentage depletion and the foreign-derived intangible income deduction.

Deferred tax assets and (liabilities) are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities.

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Accrued compensation expense 3,317 5,477

Net operating loss and credit carryforwards 9,915 11,423

Net operating loss, capital loss and credit carryforwards 13,729 9,915

Subtotal 80,542 69,810

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Lease assets ( 9,933 ) ( 12,078 )

Inventory — ( 2,329 )

Amortization ( 30,829 ) ( 32,925 )

Mine development — ( 917 )

Pensions — ( 400 )

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Total deferred tax liabilities ( 89,771 ) ( 89,824 )

Net deferred tax liabilities $ ( 24,949 ) $ ( 21,785 )

Net deferred tax (liabilities)/assets $ ( 15,200 ) $ ( 24,949 )

The Company had deferred income tax assets offset with a valuation allowance for certain foreign and state net operating losses, a domestic capital loss carryforward, state investment and research and development tax credit carryforwards, and deferred tax assets that are not likely to be realized for certain of the Company's controlled foreign corporations.

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federal examinations for years before 2019, state and local examinations for years before 2019, and foreign examinations for tax years before 2018.

We operate under a tax holiday in Malaysia, which was extended and is effective through July 31, 2027.

We operate under a tax holiday in Malaysia, which is effective through July 31, 2027.

The tax holiday is conditional upon our meeting certain employment, sales, and investment thresholds.

The impact of this holiday decreased foreign taxes by $ 3.0 million in 2022.

The Company did not have a tax benefit from the tax holiday in 2023.

A reconciliation of the Company’s unrecognized tax benefits for the year-to-date periods ended December 31, 2023 and 2022 is as follows:

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Income taxes paid during 2023, 2022, and 2021, were approximately $ 7.5 million, $ 14.5 million, and $ 21.8 million, respectively.

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations as of December 31, 2022.

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities as, with the exception of a China subsidiary, these amounts continue to be indefinitely reinvested in foreign operations as of December 31, 2023.

The amount of such unrepatriated earnings totaled $ 87.3 million as of December 31, 2023.

It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on the remittance of such undistributed earnings.

Government Tax Credits

The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022.

The IRA, among other provisions, includes a new corporate alternative minimum tax on certain large corporations and new or enhanced federal energy and manufacturing tax credits effective for tax years beginning in 2023.

The Company is not subject to the minimum tax as our average annual book profits over the prior three-year period were less than $1 billion.

The IRA introduced a new Advanced Manufacturing Production Credit, which provides an annual cash benefit for a portion of production costs for the sale of certain critical minerals produced in the U.S.

and sold during the year.

Pursuant to the IRA, the Company is eligible for the production credit beginning in 2023.

The Company records the production credit as a reduction in cost of goods sold as the applicable items are produced and sold.

GAAP does not address the accounting for government grants received by a business entity that are outside the scope of ASC 740;

our accounting policy is to analogize to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, under IFRS Accounting Standards.

We recognize the benefit of tax credits accounted for by applying IAS 20 in pretax income on a systematic basis in line with its recognition of the expenses that the grant is intended to compensate.

The Organization for Economic Co-operation and Development (OECD) has introduced rules to establish a global minimum corporate tax rate of 15%, commonly referred to as Pillar Two.

Numerous foreign countries have enacted legislation to implement the Pillar Two rules, effective beginning in 2024, or are expected to enact similar legislation.

The Company is currently evaluating the potential impacts that Pillar Two may have on future periods and will continue to monitor the implementation of Pillar Two rules in the jurisdictions in which it operates.

Note H — Earnings Per Share

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Inventory balances are presented net of an excess and obsolete reserve totaling $ 17.3 million and $ 19.8 million at December 31, 2023 and December 31, 2022, respectively.

The Company takes and records the results of a physical inventory count of its precious metals on a quarterly basis.

The Company takes and records the results of a physical inventory count of its precious metals on a periodic basis.

The Company's precious metal operations include a refinery that processes precious metal-containing scrap and other materials from its customers, as well as its own internally generated scrap.

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Department of Defense (DoD), in previous periods, for reimbursement of the DoD's share of the cost of equipment.

This amount was recorded in property, plant, and equipment and the reimbursements

are reflected in Unearned income on the Consolidated Balance Sheets.

This amount was recorded in property, plant, and equipment and the reimbursements are reflected in Unearned income on the Consolidated Balance Sheets.

The equipment was placed in service during 2012, and its full cost is being depreciated in accordance with Company policy.

The unearned income liability is being reduced ratably with the depreciation expense recorded over the life of the equipment.

Unearned income was reduced by $ 4.4 million in 2022 and $ 4.3 million in both 2021 and 2020 and credited to cost of sales in the Consolidated Statements of Income, offsetting the impact of the depreciation expense on the associated equipment on the Company's cost of sales and gross margin.

Unearned income was reduced by $ 4.6 million in 2023 and 2022 and $ 4.3 million in 2021 and credited to cost of sales in the Consolidated Statements of Income, offsetting the impact of the depreciation expense on the associated equipment on the Company's cost of sales and gross margin.

The unamortized unearned income balance was $ 10.7 million and $ 15.3 million at December 31, 2023 and December 31, 2022, respectively.

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Depreciation expense related to software was $ 1.8 million in 2023, 2022, and 2021, respectively.

As of December 31, 2022 and December 31, 2021 capital expenditures in accounts payable was $ 12.1 million and $ 2.1 million, respectively.

As of December 31, 2023 and December 31, 2022 capital expenditures in accounts payable were $ 7.0 million and $ 12.1 million, respectively.

Note K — Customer Prepayments

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The prepayments will remain in Unearned income until commercial purchase orders are received for product serviced out of the equipment, at which time a portion of the purchase order value related to prepayments will be reclassified to Unearned revenue.

As of December 31, 2022 $ 4.5 million of the prepayments are classified as Unearned revenue.

No amounts of the prepayments were classified as short-term unearned revenue as of December 31, 2021

As of December 31, 2023 and 2022, $ 5.8 million and $ 4.5 million, respectively, of prepayments are classified as Unearned revenue.

Note L — Leasing Arrangements

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Total $ 194,409 $ ( 63,447 ) $ 130,962 $ 189,533 $ ( 49,932 ) $ 139,601

During 2021, the Company acquired $ 50.2 million in customer relationships with a useful life of 13 years and $ 35.3 million in technology with a useful life of 13 years, as well as a $ 22.3 million trade name with a useful life of 15 years related to the HCS-Electronic Materials acquisition.

During 2020, the Company accelerated amortization on $ 26.2 million of intangible assets for its LAC business that was shut down on December 31, 2020.

These assets were fully amortized as of December 31, 2020 and fully written off in 2021 with no impact to the Consolidated Statements of Income in 2021.

Amortization expense for 2023, 2022, and 2021 was $ 12.9 million, $ 12.4 million , and $ 6.0 million, respectively.

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Balance at December 31, 2023 $ 26,157 206,673 $ 88,043 $ 320,873

Due to recent acquisitions, the Company elected to perform a quantitative annual impairment assessment of its reporting units' goodwill as of October 1, 2022 and determined that the estimated fair values for each of its reporting units exceeded their carrying values, therefore no impairment charges were necessary.

Due to the recent downturn in the semi-conductor market impacting the Electronic Materials reporting unit and recent results for the Precision Optics reporting unit, the Company elected to perform a quantitative annual impairment assessment for the Electronic Materials and Precision Optics reporting units' goodwill as of October 1, 2023 and a qualitative impairment test for the Performance Materials reporting unit.

Based on the testing performed, the Company determined that the estimated fair values for each of its reporting units exceeded their carrying values;

therefore no impairment charges were necessary.

The estimated fair value of the Company's Precision Optics reporting unit exceeded the carrying value by less than 10%.

Management believes the future sales growth and EBITDA margins in the long range plan, terminal growth rate and the discount rate used in the valuations requires significant use of judgment.

Management believes the future sales growth and EBITDA margins in the long range plan and the discount rate used in the valuations requires significant use of judgment.

If any of our reporting units do not meet our long range plan estimates or our discount rate increase significantly, we could be required to perform an interim goodwill impairment analysis or recognize charges in future periods.

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The assumptions used for the reporting units with fair values exceeding carrying values of less than 10% are more sensitive to future performance and will be monitored accordingly.

The results of the Company's 2022 and 2021 annual goodwill impairment assessments indicated that no goodwill impairment existed.

The Company's accumulated goodwill impairment losses were $ 20.6 million as of December 31, 2023, 2022 and 2021.

6 unchanged sentences

Borrowings under the Term Loan Facility 270,000 285,000

Overdraft Sweep Facility 3,825 —

Foreign debt 5,918 7,541

37 unchanged sentences

Net pension curtailments and settlements ( 4,350 ) ( 3,104 ) — —

Acquisition — — — —

Plan amendments — — — —

Actuarial (gain) loss 11,307 ( 61,819 ) ( 308 ) ( 1,800 )

5 unchanged sentences

Plan settlements ( 4,350 ) ( 3,104 ) — —

Acquisition — — — —

Actual return on plan assets 10,946 ( 53,283 ) — —

11 unchanged sentences

Net amount recognized $ ( 11,909 ) $ ( 3,436 ) $ ( 4,900 ) $ ( 5,505 )

The benefit obligation decreased in 2022 due to actuarial gains that were driven by increases in the discount rate.

The benefit obligation increased in 2023 due to actuarial losses that were driven by decreases in the discount rate.

The following amounts are included within accumulated other comprehensive loss at December 31, 2023 :

78 unchanged sentences

The rate of compensation increase assumption is no longer applicable for the domestic defined benefit due to the Company freezing the plan effective January 1, 2020.

The rate of compensation assumption to determine the benefit obligation and net cost for the domestic retiree medical plan was 3.5 % in 2022 and 3.0 % in both 2022 and 2021.

The rate of compensation assumption to determine the benefit obligation and net cost for the domestic retiree medical plan was 3.5 % in 2023 and 2022, respectively.

Assumptions for the defined benefit pension plans in Germany, Liechtenstein, and England are determined separately from the U.S.

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Multi-strategy hedge funds (f) 4,845

Alternatives 3,553

Private equity funds 78

79 unchanged sentences

Refer to Note R for additional details on cash flow hedges.

Reclassifications from accumulated other comprehensive income for interest rate swaps are recorded in interest expense.

Refer to Note F for additional details on interest expense.

Reclassifications from accumulated other comprehensive income for pension and post-employment benefits are included in the computation of the net periodic pension and post-employment benefit expense.

23 unchanged sentences

Exercised ( 57 ) 41.91

Cancelled — —

Outstanding at December 31, 2023 246 $ 72.73

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The fair value will be amortized to compensation cost on a straight-line basis over the vesting period of three years , or earlier if the employee is retirement eligible and continued vesting is approved by the Board of Directors as defined in the Plan.

Stock-based compensation expense relating to SARs was $ 0.9 million in each of the last three years.

Stock-based compensation expense relating to SARs was $ 1.3 million in 2023, and $ 0.9 million in 2022 and 2021, respectively.

The total intrinsic value of stock options exercised during 2023, 2022, and 2021 was $ 3.6 million, $ 2.1 million and $ 1.6 million, respectively.

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The fair market value of the RSUs is determined on the date of the grant and is amortized over the vesting period.

With the exception of the 2022 annual employee grant, the vesting period is typically three years unless the recipient is retirement eligible and continued vesting is approved by the Board of Directors.

The 2022 annual employee grant vests in three equal annual installments on the anniversary of the grant date.

For the 2021 annual employee grant, the vesting period is three years unless the recipient is retirement eligible and continued vesting is approved by the Board of Directors.

The 2023 and 2022 annual employee grants vests in three equal annual installments on the anniversary of the grant date.

The fair value of RSUs settled in stock is based on the closing stock price on the date of grant.

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The weighted-average grant date fair value of these RSUs was $ 105.54 , $ 81.59 , and $ 75.77 in 2023, 2022, and 2021, respectively.

The Company recognized $ 0.9 million of expense related to these awards in 2022, compared to $ 0.8 million of expense in 2021 and $ 0.7 million of expense in 2020.

At December 31, 2022, $ 0.3 million of expense with respect to non-vested RSU awards granted to the Board of Directors has yet to be recognized and will be amortized into expense over a weighted-average period of approximately four months .

The Company recognized $ 0.9 million of expense related to these awards in 2023 and 2022, respectively compared to $ 0.8 million of expense in 2021.

At December 31, 2023, $ 0.4 million of expense with respect to non-vested RSU awards granted to the Board of Directors has yet to be recognized and will be amortized into expense over a weighted-average period of approximately five months .

Long-term Incentive Plans.

33 unchanged sentences

Foreign currency forward contracts 615 — 615 —

Interest rate swap 7,863 7,863

Interest rate swaps 6,492 6,492

Precious metal swaps 353 — 353 —

3 unchanged sentences

Foreign currency forward contracts 1,500 — 1,500 —

Interest rate swap — —

Interest rate swaps 1,096 1,096

Precious metal swaps 485 — 485 —

4 unchanged sentences

Foreign currency forward contracts 1,291 — 1,291 —

Interest rate swaps 7,863 7,863

Precious metal swaps 118 — 118 —

3 unchanged sentences

Foreign currency forward contracts 1,757 — 1,757 —

Interest rate swaps — —

Precious metal swaps 411 — 411 —

5 unchanged sentences

Deferred compensation liabilities are primarily presented in Other long-term liabilities.

Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable estimate of its fair value.

As noted in Note R, the Company entered into a $ 100.0 million interest rate swap to hedge the interest rate risk on the fixed rate portion of the Credit Agreement.

The fair value of the interest rate swap asset was $ 7.9 million as of December 31, 2022, and was determined using level 2 inputs.

The total of the outstanding amount on the fixed rate debt and the fair value of the interest rate swap approximates the total fair value of the fixed rate debt as of December 31, 2022.

Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable estimate of it s fair value.

As noted below, the Company entered into interest rate swaps to hedge the interest rate risk on the fixed rate portion of the Credit Agreement.

The net fair value of the interest rate swaps were $ 5.4 million as of December 31, 2023, and were determined using level 2 inputs.

The total of the outstanding amount on the fixed rate debt and the fair value of the interest rate swaps approximate the total fair value of the fixed rate debt as of December 31, 2023.

The carrying values of the other working capital items in the Consolidated Balance Sheets approximate fair values at December 31, 2023 and 2022.

2 unchanged sentences

Interest Rate.

On March 4, 2022, the Company entered into a $ 100.0 million interest rate swap to hedge the interest rate risk on the Credit Agreement described in Note P.

The swap hedges the change in 1-month LIBOR from March 4, 2022 to November 2, 2026.

In February 2023 we amended the terms of the interest rate swap to hedge the change in 1-month

The purpose of this hedge is to manage the risk of changes in the monthly interest payments attributable to changes in the benchmark interest rate.

On March 4, 2022, the Company entered into a $ 100.0 million interest rate swap to hedge the interest rate risk on the Credit Agreement described in Note N.

The swap hedges the change in 1-month SOFR from March 4, 2022 to November 2, 2026.

On March 21, 2023, the Company entered into two $ 50.0 million interest rate swaps to hedge the interest rate risk on the Credit Agreement described in Note N.

The swaps hedge the change in 1-month USD-SOFR.

The purpose of these hedges is to manage the risk of changes in the monthly interest payments attributable to changes in the benchmark interest rate.

Foreign Currency.

33 unchanged sentences

A forward contract will be secured at the time of the purchase to fix the price to be paid when the metal is transferred back to the consignment line, thereby limiting any price exposure during the time when the metal was owned by the Company.

The Company also uses copper in its production processes.

When possible, fluctuations in the purchase price of copper are passed on to customers in the form of price adders or reductions.

While over time the Company's price exposure to copper is generally in balance, there can be a lag between the change in the Company's cost and the pass-through to its customers, resulting in higher or lower margins in a given period.

To mitigate this impact, the Company hedges a portion of this pricing risk.

A team consisting of senior financial managers reviews the estimated exposure levels, as defined by budgets, forecasts, and other internal data, and determines the timing, amounts, and instruments to use to hedge exposures.

20 unchanged sentences

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

Other-net included foreign currency gains related to these derivatives of $ 0.2 million in 2022, compared to $ 1.2 million of foreign currency gains in 2021.

Other-net included foreign currency losses related to these derivatives of $ 1.1 million in 2023, compared to $ 0.2 million of foreign currency gains in 2022.

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 at December 31, 2023 and 2022:

5 unchanged sentences

Precious metal swaps 15,717 353 — 485 —

Interest rate swap 100,000 3,114 4,749 — —

Interest rate swaps 200,000 3,658 2,834 — 1,096

Total $ 240,948 $ 4,068 $ 2,834 $ 805 $ 1,096

4 unchanged sentences

Precious metal swaps 8,758 118 — 411 —

Interest rate swaps 100,000 3,114 4,749 — —

Total $ 137,455 $ 3,732 $ 4,749 $ 957 $ 163

8 unchanged sentences

Precious metal swaps Cost of sales 301 ( 126 )

Interest rate swap Interest expense - net ( 250 ) —

Copper swaps Cost of sales — ( 3,049 )

Interest rate swaps Interest expense - net ( 4,513 ) ( 250 )

Total $ ( 4,247 ) $ ( 552 )

8 unchanged sentences

Management has vigorously contested the beryllium cases brought against the Company.

Non-employee beryllium cases are covered by insurance, subject to certain limitations.

Some non-employee beryllium cases are covered by insurance, subject to certain limitations.

The insurance covers defense costs and indemnity payments (resulting from settlements or court verdicts) and is subject to various levels of deductibles.

Defense and indemnity costs were less than or equal to the deductible in both 2023 and 2022.

As of December 31, 2022, the Company was a defendant in one beryllium litigation cases, which was also outstanding as of December 31, 2021.

The Company does not expect the resolution of this case to have a material impact on its consolidated financial statements.

During 2022, one beryllium litigation case was resolved.

As of December 31, 2023, there were no pending beryllium litigation cases.

Although it is not possible to predict the outcome of any pending litigation, the Company provides for costs related to litigation matters when a loss is probable, and the amount is reasonably estimable.

2 unchanged sentences

The Company is unable to estimate its potential exposure to unasserted claims.

Based upon currently known facts and assuming collectability of insurance, the Company does not believe that resolution of the current or any potential future beryllium proceedings will have a material adverse effect on the financial condition or cash flow of the Company.

Based upon currently known facts and assuming collectability of insurance, the Company does not believe that resolution of any potential future beryllium proceedings will have a material adverse effect on the financial condition or cash flow of the Company.

However, the Company’s results of operations could be materially affected by unfavorable results in one or more cases.

1 unchanged sentence

The Company has an active program for environmental compliance that includes the identification of environmental projects and estimating the impact on the Company’s financial performance and available resources.

Environmental expenditures that

relate to current operations, such as wastewater treatment and control of airborne emissions, are either expensed or capitalized as appropriate.

Environmental expenditures that relate to current operations, such as wastewater treatment and control of airborne emissions, are either expensed or capitalized as appropriate.

The Company records reserves for the probable costs for identified environmental remediation projects.

The Company’s environmental engineers perform routine ongoing analyses of the remediation sites and will use outside consultants to assist in their analyses from time to time.

The Company’s environmental engineers perform routine ongoing analyses of the remediation sites and will use outside consultants

to assist in their analyses from time to time.

Reserve accruals are based upon their analyses and are established based on the reasonably estimable loss or range of loss.

28 unchanged sentences

The Company believes that the resolution of these proceedings, individually or in the aggregate, will not have a material adverse impact upon the Company’s consolidated financial statements.

On October 14, 2020, Garett Lucyk, et al.

Materion Brush Inc., et.

, case number 20CV0234, a wage and hour purported collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush Inc.

(collectively, the Company).

Plaintiff, a former hourly production employee at the Company's Elmore, Ohio facility, alleges that he and other similarly situated employees are not paid for all time they spend donning and doffing personal protective equipment in violation of the Fair Labor Standards Act and Ohio law.

Plaintiff filed a motion for conditional certification, which the Company opposed.

On August 2, 2022, the Court conditionally certified a class of employees at the Company’s Elmore facility only and rejected certification of a class across the Company’s other facilities.

In November 2022, the parties reached a settlement for an immaterial amount.

The settlement is pending court approval.

At December 31, 2023, the Company had outstanding letters of credit totaling $ 47.0 million related to workers’ compensation, consigned precious metal guarantees, environmental remediation issues, and other matters.

2 unchanged sentences

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 8. Financial Statements and Supplementary Data