What changed in this filing

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Item 1. Financial Statements

2024-05-02 compared with 2023-11-01 · 131 added, 243 removed, 442 unchanged (46% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Third Quarter Ended Nine Months Ended

(Thousands, except per share amounts) September 29, 2023 September 30, 2022 September 29, 2023 September 30, 2022

First Quarter Ended

(Thousands, except per share amounts) March 29, 2024 March 31, 2023

Net sales $ 385,287 $ 442,526

21 unchanged sentences

Consolidated Statements of Comprehensive Income

Third Quarter Ended Nine Months Ended

September 29, September 30, September 29, September 30,

First Quarter Ended

March 29, March 31,

(Thousands) 2024 2023

Net income $ 13,409 $ 25,588

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation adjustment ( 4,460 ) 2,689

6 unchanged sentences

Consolidated Balance Sheets

September 29, December 31,

March 29, Dec.

(Thousands) 2024 2023

35 unchanged sentences

Common stock (no par value;

60,000 authorized shares, issued shares of 27,148 at both September 29 th and December 31 st )

60,000 authorized shares, issued shares of 27,148 at March 29 and December 31)

324,492 309,492

8 unchanged sentences

Consolidated Statements of Cash Flows

Nine Months Ended

September 29, September 30,

Three Months Ended

March 29, March 31,

(Thousands) 2024 2023

5 unchanged sentences

Stock-based compensation expense (non-cash) 2,495 2,250

Deferred income tax expense (benefit) ( 149 ) 1,825

Deferred income tax (benefit) expense ( 253 ) ( 52 )

Changes in assets and liabilities:

Accounts receivable

27,832 ( 20,964 )

Inventory ( 26,539 ) ( 12,081 )

6 unchanged sentences

Other-net 2,362 ( 4,520 )

Net cash provided by operating activities 84,505 34,204

Net cash (used in) provided by operating activities ( 13,805 ) 38,105

Cash flows from investing activities:

2 unchanged sentences

Proceeds from sale of property, plant, and equipment 348 212

Payments for acquisition, net of cash acquired — ( 2,971 )

Net cash used in investing activities ( 26,299 ) ( 29,802 )

Cash flows from financing activities:

Proceeds from borrowings under credit facilities, net 39,649 55,735

Repayment of long-term debt ( 11,579 ) ( 11,761 )

Proceeds from borrowings under revolving credit agreement, net 56,779 4,600

Repayment of debt ( 7,586 ) ( 3,907 )

Principal payments under finance lease obligations ( 191 ) ( 799 )

15 unchanged sentences

Comprehensive

Balance at June 30, 2023 20,637 ( 6,511 ) $ 303,390 $ 813,793 $ ( 236,423 ) $ ( 39,443 ) $ 5,806 $ 847,123

Net income — — — $ 26,564 — — — 26,564

Other comprehensive income — — — — — ( 1,385 ) — ( 1,385 )

Cash dividends declared ($ 0.130 per share)

— — — ( 2,683 ) — — — ( 2,683 )

Stock-based compensation activity 8 8 3,174 ( 76 ) ( 562 ) — — 2,536

Payments of withholding taxes for stock-based compensation awards ( 3 ) ( 3 ) — — ( 229 ) — — ( 229 )

Directors’ deferred compensation — — 29 — ( 45 ) — 58 42

Balance at September 29, 2023 20,642 ( 6,506 ) $ 306,593 $ 837,598 $ ( 237,259 ) $ ( 40,828 ) $ 5,864 $ 871,968

Balance at July 1, 2022 20,523 ( 6,625 ) $ 281,296 $ 725,918 $ ( 218,356 ) $ ( 44,619 ) $ 4,915 $ 749,154

Net income — — — 19,952 — — — 19,952

Other comprehensive income — — — — — ( 1,961 ) — ( 1,961 )

Cash dividends declared ($ 0.125 per share)

— — — ( 2,557 ) — — — ( 2,557 )

Stock-based compensation activity 6 6 2,695 ( 30 ) ( 392 ) — — 2,273

Payments of withholding taxes for stock-based compensation awards ( 2 ) ( 2 ) — — ( 244 ) — — ( 244 )

Directors’ deferred compensation 1 1 33 — ( 227 ) — 254 60

Balance at September 30, 2022 20,528 ( 6,620 ) $ 284,024 $ 743,283 $ ( 219,219 ) $ ( 46,580 ) $ 5,169 $ 766,677

Common Shares Shareholders' Equity

(Thousands, except per share amounts) Common Shares Common Shares Held in Treasury Common

Stock Retained

Earnings Common

Treasury Accumulated Other

Comprehensive

Balance at December 31, 2023 20,646 6,502 $ 309,492 $ 854,334 $ ( 237,746 ) $ ( 46,948 ) $ 5,921 $ 885,053

6 unchanged sentences

Directors’ deferred compensation — — 31 — ( 48 ) — 61 44

Balance at September 29, 2023 20,642 ( 6,506 ) $ 306,593 $ 837,598 $ ( 237,259 ) $ ( 40,828 ) $ 5,864 $ 871,968

Balance at March 29, 2024 20,731 6,417 $ 324,492 $ 865,038 $ ( 256,268 ) $ ( 49,321 ) $ 5,982 $ 889,923

Balance at December 31, 2022 20,543 6,605 $ 288,100 $ 769,418 $ ( 220,864 ) $ ( 41,909 ) $ 5,245 $ 799,990

6 unchanged sentences

Directors’ deferred compensation 1 ( 1 ) 27 — ( 17 ) — 58 68

Balance at September 30, 2022 20,528 ( 6,620 ) $ 284,024 $ 743,283 $ ( 219,219 ) $ ( 46,580 ) $ 5,169 $ 766,677

Balance at March 31, 2023 20,609 6,539 $ 297,802 $ 792,421 $ ( 231,906 ) $ ( 41,626 ) $ 5,303 $ 821,994

See notes to these consolidated financial statements.

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The interim period results are not necessarily indicative of the results to be expected for the full year.

New Pronouncements Adopted:

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This guidance is intended to provide temporary optional expedients and exceptions to the U.S.

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.

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 N.

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.

Recently Issued Accounting Standards:

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No.

2023-07 “Improvements to Reportable Segment Disclosures (Topic 280)”.

This ASU updates current reportable segment disclosure requirements to require disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) and included within each reported measure of a segment's profit or loss.

This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources.

This ASU will be effective for the annual period ending December 31, 2024.

Adoption of this ASU will result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.

In December 2023, the FASB issued ASU No.

2023-09 “Improvements to Income Tax Disclosures (Topic 740)”.

This ASU updates current income tax disclosure requirements to require disclosures of specific categories of information within the effective tax rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction.

This ASU will be effective for the annual period ending December 31, 2025.

Adoption of this ASU will result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.

Note B — Segment Reporting

3 unchanged sentences

Performance Materials provides advanced engineered solutions comprised of beryllium and non-beryllium containing alloy systems and custom engineered parts in strip, bulk, rod, plate, bar, tube, and other customized shapes.

Electronic Materials produces advanced chemicals, microelectric packaging, precious metal, non-precious metal, and specialty metal products, including vapor deposition targets, frame lid assemblies, clad and precious metal preforms, high temperature braze materials, and ultra-fine wire.

Precision Optics produces thin film coatings, optical filter materials, sputter-coated, and precision-converted thin film materials.

1 unchanged sentence

The primary measurement used by management to measure the financial performance of each segment is earnings before interest, taxes, depreciation and amortization (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 the third quarter and first nine months of 2023 and 2022:

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Thousands) Third Quarter 2023 Third Quarter 2022 First Nine Months 2023 First Nine Months 2022

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 the first quarter of 2024 and 2023:

(Thousands) Three months ended March 29, 2024 Three months ended March 31, 2023

Performance Materials (1)

3 unchanged sentences

Precision Optics 24,670 26,692

Other — — — —

Net sales $ 385,287 $ 442,526

9 unchanged sentences

Net income $ 13,409 $ 25,588

(1) Excludes inter-segment sales of $ 3.2 million for the third quarter of 2023 and $ 7.3 million for the first nine months of 2023 for Electronic Materials.

There were no material inter-segment sales for Performance Materials in 2023.

Excludes inter-segment sales of $ 0.2 million for the third quarter of 2022 and $ 0.6 million for the first nine months of 2022 for Performance Materials and $ 3.8 million for the third quarter of 2022 and $ 12.1 million for the first nine months of 2022 for Electronic Materials.

(1) Excludes inter-segment sales of $ 1.5 million for the first quarter of 2024 and $ 3.1 million for the first quarter of 2023 for Electronic Materials.

Inter-segment sales are eliminated in consolidation.

The following table disaggregates revenue for each segment by end market for the third quarter and first nine months of 2023 and 2022:

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

Third Quarter 2023

Semiconductor $ 2,712 $ 151,388 $ 624 $ — $ 154,724

Industrial 32,046 7,958 6,954 — 46,958

Aerospace and defense 30,938 1,102 7,124 — 39,164

Consumer electronics 10,827 144 4,254 — 15,225

Automotive 19,447 1,747 2,606 — 23,800

Energy 13,013 25,179 — — 38,192

Telecom and data center 15,685 10 — — 15,695

Other 59,974 4,777 4,558 — 69,309

Total $ 184,642 $ 192,305 $ 26,120 $ — $ 403,067

Third Quarter 2022

Semiconductor $ 2,410 $ 185,223 $ 1,151 $ — $ 188,784

Industrial 44,550 9,383 7,564 — 61,497

Aerospace and defense 28,262 1,243 3,532 — 33,037

Consumer electronics 9,607 364 6,799 — 16,770

Automotive 24,802 1,863 2,268 — 28,933

Energy 15,971 25,220 — — 41,191

Telecom and data center 15,412 42 — — 15,454

Other 28,343 7,503 6,679 — 42,525

Total $ 169,357 $ 230,841 $ 27,993 $ — $ 428,191

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The following table disaggregates revenue for each segment by end market for the first quarter of 2024 and 2023:

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

First Nine Months 2023

First Quarter 2024

Semiconductor $ 2,662 $ 156,424 $ 325 $ — $ 159,411

7 unchanged sentences

Total $ 168,646 $ 191,971 $ 24,670 $ — $ 385,287

First Nine Months 2022

First Quarter 2023

Semiconductor $ 2,590 $ 180,616 $ 911 $ — $ 184,117

13 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 September 29, 2023.

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 September 29, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 55.9 million.

After considering the practical expedient at March 29, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 57.9 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) September 29, 2023

December 31, 2022

$ change % change

(Thousands) March 29, 2024 December 31, 2023 $ 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 related to our receivables were immaterial during the third quarter of 2023.

Impairment losses (bad debt) incurred related to our receivables were immaterial during the first three months of 2024.

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

1 unchanged sentence

Billings made on contracts are recorded as a reduction of unbilled receivables.

Unbilled receivables are included within the prepaid and other current assets line item on the Consolidated Balance Sheet.

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

The Company recognized approximately $ 11.6 million of the December 31, 2022 unearned amounts as revenue during the first nine months of 2023.

The Company recognized approximately $ 6.9 million of the December 31, 2023 unearned amounts as revenue during the first three months of 2024.

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 D — Restructuring

Over the first nine months of 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 $ 1.1 million and $ 3.2 million during the three months and nine months ended September 29, 2023, respectively.

Approximately $ 1.9 million of those severance costs were paid as of September 29, 2023.

In the first nine months of 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.

The Company implemented various restructuring initiatives across the Performance Materials, Electronic Materials and Precision Optics segments to improve operational efficiency during the first three months of 2024 and 2023.

This resulted in severance and related costs of approximately $ 1.6 million during the three months ended March 29, 2024 and $ 0.7 million during the three months ended March 31, 2023.

Of the $ 1.6 million, approximately $ 0.9 million of those severance costs were paid as of March 29, 2024.

Note E — Other-net

Other-net for the third quarter and first nine months of 2023 and 2022 is summarized as follows:

Third Quarter Ended Nine Months Ended

September 29, September 30, September 29, September 30,

Other-net for the first quarter of 2024 and 2023 is summarized as follows:

First Quarter Ended

March 29, March 31,

(Thousands) 2024 2023

1 unchanged sentence

Metal consignment fees 2,023 2,929

Foreign currency (gain) loss 609 235 571 ( 70 )

Foreign currency loss (gain) 433 ( 208 )

Other items ( 946 ) ( 67 )

3 unchanged sentences

Note F — Income Taxes

The Company's effective tax rate for the third quarter of 2023 and 2022 was 10.0 % and 18.2 %, respectively, and 13.5 % and 18.0 % in the first nine months of 2023 and 2022, respectively.

The effective tax rate for 2023 was lower than the statutory tax rate primarily due to the impact of the foreign derived intangible income deduction, percentage depletion, research and development and production credits.

The effective tax rate for 2022 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development credits and the foreign-derived intangible income deduction.

The effective tax rate for the first nine months of 2023 included a net discrete income tax benefit of $ 3.4 million, primarily related to an optimization of our foreign-derived intangible income deduction benefit, excess tax benefits from stock-based compensation awards and return to provision adjustments .

The effective tax rate for the first nine months of 2022 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.

The Company's effective tax rate for the first quarter of 2024 and 2023 was 8.2 % and 15.2 %, respectively.

The effective tax rate for the first quarter of 2024 was lower than the statutory tax rate primarily due to the impact of percentage depletion, the foreign derived intangible income deduction, and excess tax benefits from stock-based compensation awards.

The effective tax rate for the first quarter of 2024 and 2023 included a net discrete income tax benefit of $ 1.2 million and $ 0.5 million, respectively, primarily related to excess tax benefits from stock-based compensation awards.

Government Tax Credits

On August 16, 2022, President Biden 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 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 (production credit), which provides an annual cash benefit for a portion of production costs for the sale of certain minerals produced in the U.S.

and sold by a taxpayer during the year.

The IRA affords the Company eligibility to a production credit beginning in 2023, for which the Company expects to recognize cash savings of approximately $ 10 million for the year ending December 31, 2023.

The issuance of guidance and interpretation as to the eligibility for, calculation of, and methods for claiming the production credit remain pending.

We will continue to monitor developments related to the production credit from the Internal Revenue Service and U.S.

Treasury Department and evaluate the potential impact to the Company’s production credit.

The Company will finalize the expected annual production credit impact as further guidance is issued.

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

Pursuant to The Inflation Reduction Act of 2022 (IRA), the Company is eligible for the Advanced Manufacturing Production Credit (“production credit”) beginning in 2023.

The production credit provides an annual cash benefit for a portion of the production costs for the sale of certain critical minerals produced in the U.S.

and sold during the year.

On December 15, 2023, the U.S.

Treasury Department published proposed regulations on the production credit that include clarifying guidance regarding the definition of production costs in the computation of the production credit.

Although the proposed guidance is not authoritative and is subject to change in the regulatory review process, the guidance indicates that the Treasury Department may implement a narrower definition of eligible production costs in the final regulations.

The ultimate amount of the benefit that the Company is entitled to receive in connection with the production credit will depend on the final regulations issued on the production credit.

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.

We recognize the benefit of the production credits 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) introduced rules to establish a global minimum corporate tax, 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 continues to evaluate the Pillar Two rules but does not expect Pillar Two to have a significant impact on its effective tax rate or consolidated results of operations, financial position, and cash flows.

Materion Corporation and Subsidiaries

2 unchanged sentences

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

Third Quarter Ended Nine Months Ended

September 29, September 30, September 29, September 30,

First Quarter Ended

March 29, March 31,

(Thousands, except per share amounts) 2024 2023

Numerator for basic and diluted EPS:

Net income $ 26,564 $ 19,952 $ 76,234 $ 57,226

Net income (loss) $ 13,409 $ 25,588

Denominator for basic EPS:

9 unchanged sentences

Diluted EPS $ 0.64 $ 1.23

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 47,250 and 45,016 for the quarters ended September 29, 2023 and September 30, 2022, respectively, and 36,927 and 54,680 for the nine months ended September 29, 2023 and September 30, 2022, 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.

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 71,285 and 17,902 for the quarters ended March 29, 2024 and March 31, 2023, respectively.

These securities are primarily related to restricted stock units (RSUs) and stock appreciation rights (SARs) 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.

Note H — Inventories

Inventories on the Consolidated Balance Sheets are summarized as follows:

September 29, December 31,

March 29, December 31,

(Thousands) 2024 2023

3 unchanged sentences

Inventories, net $ 466,574 $ 441,597

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 market price movements and to reduce its working capital investment.

The notional value of off-balance sheet precious metals and copper was $ 344.8 million and $ 373.1 million as of September 29, 2023 and December 31, 2022, respectively.

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 $ 332.1 million and $ 351.5 million as of March 29, 2024 and December 31, 2023, respectively.

Materion Corporation and Subsidiaries

6 unchanged sentences

Additionally, during the second quarter of 2022, the Company entered into an amendment to the investment agreement with the same customer to procure additional equipment to manufacture product for the customer.

During 2023, the Company has received approximately $ 16.7 million in prepayments under the terms of this amended agreement.

As of September 29, 2023 and December 31, 2022, $ 90.0 million and $ 85.9 million, respectively, of prepayments are classified as Unearned income on the Consolidated Balance Sheets.

In 2023 the Company received the remaining prepayment related to this amendment, the total of which approximated $ 38.6 million.

As of March 29, 2024 and December 31, 2023, $ 77.9 million and $ 84.7 million, respectively, of prepayments are classified as Unearned income on the Consolidated Balance Sheets.

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 September 29, 2023 $ 5.8 million of the prepayments are classified as Unearned revenue.

As of March 29, 2024 $ 7.5 million of the prepayments are classified as Unearned revenue.

Note J — Pensions and Other Post-employment Benefits

The following is a summary of the net periodic benefit cost for the third quarter and first nine months ended September 29, 2023 and September 30, 2022, respectively, for the pension plans as shown below.

The Pension Benefits column aggregates defined benefit pension plans in the U.S., Germany, Liechtenstein, England, and the U.S.

The following is a summary of the net periodic benefit (income)/cost for the first quarter of 2024 and 2023 for the pension plans as shown below.

The Pension Benefits columns aggregate defined benefit pension plans in the U.S., Germany, Liechtenstein, England, and the U.S.

supplemental retirement plans.

The Other Benefits column includes the domestic retiree medical and life insurance plan.

Pension Benefits Other Benefits

Third Quarter Ended Third Quarter Ended

September 29, September 30, September 29, September 30,

(Thousands) 2023 2022 2023 2022

Components of net periodic benefit (credit) cost

Service cost $ 209 $ 281 $ 13 $ 21

Interest cost 1,966 1,203 68 39

Expected return on plan assets ( 2,421 ) ( 2,380 ) — —

Amortization of prior service (benefit) cost ( 21 ) ( 19 ) ( 139 ) ( 374 )

Amortization of net loss (gain) ( 75 ) 410 ( 95 ) ( 68 )

Net periodic benefit (credit) cost $ ( 342 ) $ ( 505 ) $ ( 153 ) $ ( 382 )

The Other Benefits columns include the domestic retiree medical and life insurance plan.

Pension Benefits Other Benefits

Nine Months Ended Nine Months Ended

September 29, September 30, September 29, September 30,

First Quarter Ended First Quarter Ended

March 29, March 31, March 29, March 31,

(Thousands) 2024 2023 2024 2023

Components of net periodic benefit (credit) cost

Components of net periodic benefit (income) cost

Service cost $ 268 $ 222 $ 12 $ 13

1 unchanged sentence

Expected return on plan assets ( 2,530 ) ( 2,439 ) — —

Amortization of prior service (benefit) cost ( 65 ) ( 57 ) ( 417 ) ( 1,122 )

Amortization of prior service cost (benefit) ( 21 ) ( 23 ) — ( 139 )

Amortization of net loss (gain) 32 ( 81 ) ( 87 ) ( 95 )

Net periodic benefit (credit) cost $ ( 1,027 ) $ ( 1,425 ) $ ( 459 ) $ ( 1,146 )

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The Company did no t make any contributions to its domestic defined benefit plan in the third quarter or first nine months of 2023 or 2022.

Total net benefit (income) cost $ ( 344 ) $ ( 348 ) $ ( 17 ) $ ( 153 )

The Company did not make any contributions to its defined benefit plan in the first quarter of 2024 or 2023.

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.

Note K — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the third quarter and first nine months of 2023 and 2022 are as follows:

Gains and Losses on Cash Flow Hedges

(Thousands) Foreign Currency Interest Rate Precious Metals Total Pension and Post-Employment Benefits Foreign Currency Translation Total

Balance at June 30, 2023

$ 1,290 $ 7,069 $ ( 443 ) $ 7,916 $ ( 40,549 ) $ ( 6,810 ) $ ( 39,443 )

Other comprehensive income (loss) before reclassifications 766 2,398 515 3,679 — ( 3,259 ) 420

Amounts reclassified from accumulated other comprehensive income (loss) — ( 1,140 ) 83 ( 1,057 ) ( 299 ) — ( 1,356 )

Net current period other comprehensive (loss) income before tax 766 1,258 598 2,622 ( 299 ) ( 3,259 ) ( 936 )

Deferred taxes 176 289 138 603 ( 154 ) — 449

Net current period other comprehensive (loss) income after tax 590 969 460 2,019 ( 145 ) ( 3,259 ) ( 1,385 )

Balance at September 29, 2023

$ 1,880 $ 8,038 $ 17 $ 9,935 $ ( 40,694 ) $ ( 10,069 ) $ ( 40,828 )

Balance at July 1, 2022

$ 3,226 $ 3,250 $ 108 $ 6,584 $ ( 39,926 ) $ ( 11,277 ) $ ( 44,619 )

Other comprehensive (loss) income before reclassifications 837 4,360 441 $ 5,638 — ( 6,094 ) ( 456 )

Amounts reclassified from accumulated other comprehensive income (loss) ( 41 ) ( 115 ) ( 126 ) $ ( 282 ) ( 18 ) — ( 300 )

Net current period other comprehensive (loss) income before tax 796 4,245 315 5,356 ( 18 ) ( 6,094 ) ( 756 )

Deferred taxes 183 976 72 1,231 ( 26 ) — 1,205

Net current period other comprehensive (loss) income after tax 613 3,269 243 4,125 8 ( 6,094 ) ( 1,961 )

Balance at September 30, 2022

$ 3,839 $ 6,519 $ 351 $ 10,709 $ ( 39,918 ) $ ( 17,371 ) $ ( 46,580 )

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note K — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the first quarter of 2024 and 2023 are as follows:

Gains and Losses on Cash Flow Hedges

1 unchanged sentence

Balance at December 31, 2023 $ 1,201 $ 4,156 $ ( 99 ) $ 5,258 $ ( 48,658 ) $ ( 3,548 ) $ ( 46,948 )

$ 1,243 $ 6,055 $ ( 223 ) $ 7,075 $ ( 40,228 ) $ ( 8,756 ) $ ( 41,909 )

Other comprehensive income (loss) before reclassifications 665 3,840 ( 333 ) 4,172 — ( 4,460 ) ( 288 )

3 unchanged sentences

Net current period other comprehensive (loss) income after tax 512 1,985 ( 237 ) 2,260 ( 173 ) ( 4,460 ) ( 2,373 )

Balance at September 29, 2023

$ 1,880 $ 8,038 $ 17 $ 9,935 $ ( 40,694 ) $ ( 10,069 ) $ ( 40,828 )

Balance at March 29, 2024 $ 1,713 $ 6,141 $ ( 336 ) $ 7,518 $ ( 48,831 ) $ ( 8,008 ) $ ( 49,321 )

Balance at December 31, 2022 $ 1,243 $ 6,055 $ ( 223 ) $ 7,075 $ ( 40,228 ) $ ( 8,756 ) $ ( 41,909 )

$ 2,348 $ — $ 72 $ 2,420 $ ( 39,702 ) $ ( 2,887 ) $ ( 40,169 )

Other comprehensive (loss) income before reclassifications ( 67 ) ( 1,703 ) ( 475 ) ( 2,245 ) — 2,689 444

3 unchanged sentences

Net current period other comprehensive (loss) income after tax ( 78 ) ( 1,914 ) ( 347 ) ( 2,339 ) ( 67 ) 2,689 283

Balance at September 30, 2022

$ 3,839 $ 6,519 $ 351 $ 10,709 $ ( 39,918 ) $ ( 17,371 ) $ ( 46,580 )

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.

Balance at March 31, 2023 $ 1,165 $ 4,141 $ ( 570 ) $ 4,736 $ ( 40,295 ) $ ( 6,067 ) $ ( 41,626 )

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).

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.

6 unchanged sentences

Note L — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.6 million and $ 7.8 million in the third quarter and first nine months of 2023, respectively, compared to $ 2.2 million and $ 6.0 million, respectively, in the same periods of 2022.

The Company granted 47,084 stock appreciation rights (SARs) to certain employees during the first nine months of 2023.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the nine months ended September 29, 2023 were $ 113.28 and $ 42.27 , respectively.

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.6 million and $ 2.4 million in the first quarter of 2024 and 2023, respectively.

The Company granted 36,919 SARs to certain employees during the first quarter of 2024.

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the three months ended March 29, 2024 were $ 135.58 and $ 50.46 , 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 54,788 stock-settled restricted stock units (RSUs) to certain employees during the first nine months of 2023.

The Company granted 37,466 stock-settled RSUs to certain employees during the first quarter of 2024.

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 $ 112.53 for stock-settled RSUs granted to employees during the nine months ended September 29, 2023.

The weighted-average fair value per share was $ 135.57 for stock-settled RSUs granted to employees during the three months ended March 29, 2024.

RSUs are generally expensed over the vesting period of three years for employees.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first nine months of 2023.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first quarter of 2024.

The weighted-average fair value of the stock-settled PRSUs was $ 169.26 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 September 29, 2023, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 17.0 million, and is expected to be recognized over the remaining vesting period of the respective grants.

At March 29, 2024, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 25.5 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note M — 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 September 29, 2023 and December 31, 2022:

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of March 29, 2024 and December 31, 2023:

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

5 unchanged sentences

Foreign currency forward contracts 1,644 615 — — 1,644 615 — —

Interest rate swap 10,438 7,863 — — 10,438 7,863 — —

Interest rate swaps 8,120 6,492 — — 8,120 6,492 — —

Precious metal swaps — 353 — — — 353 — —

3 unchanged sentences

Foreign currency forward contracts 809 1,500 — — 809 1,500 — —

Interest Rate Swap — — — — — —

Interest rate swaps 146 1,096 — — 146 1,096 —

Precious metal swaps 439 485 — — 439 485 — —

2 unchanged sentences

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

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of September 29, 2023 and December 31, 2022.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of March 29, 2024 and December 31, 2023.

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.

6 unchanged sentences

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.

The swap hedges the change in 1-month Secured Overnight Financial Rate (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 P.

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

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.

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.

21 unchanged sentences

The price paid by the Company for the precious metal forms the basis for the price charged to the customer for the metal content in the product.

This methodology allows for changes in either direction in the market prices of the precious metals used by the Company to be passed through to the customer and reduces the impact changes in prices could have on the Company's margins and operating profit.

This methodology allows for changes in either direction in the market prices of the precious metals used by the Company to be passed through to the customer and reduces the impact that changes in prices could have on the Company's margins and operating profit.

The consigned metal is owned by precious metal consignors that charge the Company consignment fees based upon the value of the metal as it fluctuates while on consignment.

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The Company may elect to enter into a forward contract to sell precious metal to reduce the Company's price exposure in these instances.

The Company may, from time to time, elect to purchase precious metal and hold in inventory rather than on consignment due to potential credit line limitations or other factors.

The Company may, from time to time, elect to purchase precious metal and hold in inventory rather than on consignment due to potential consignment line limitations or other factors.

These purchases are infrequent and, when made are typically held for a short duration.

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.

A forward contract will be secured at the time of the purchase to fix the

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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 will only enter into a derivative contract if there is an underlying identified exposure.

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The derivative assets and liabilities are classified as short-term or long-term depending upon the contract maturity date.

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 the balance sheet classification as of September 29, 2023 and December 31, 2022:

September 29, 2023 December 31, 2022

March 29, 2024

December 31, 2023

(Thousands) Notional

4 unchanged sentences

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

Other-net included less than $ 0.1 million of foreign currency losses in the third quarter and $ 0.4 million of foreign currency losses related to derivatives in the first nine months of 2023, compared to less than $ 0.1 million of foreign currency losses and $ 0.7 million of foreign currency gains in the third quarter and first nine months of 2022, respectively.

Other-net included $ 0.4 million of foreign currency gains and $ 0.2 million of foreign currency losses related to derivatives in the first quarter of 2024 and 2023, 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 September 29, 2023 and December 31, 2022:

September 29, 2023

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 the balance sheet classification as of March 29, 2024 and December 31, 2023:

March 29, 2024

(Thousands) Notional

3 unchanged sentences

Precious metal swaps 3,640 — — 439 —

Interest rate swap 200,000 5,047 5,391 — —

Interest rate swaps 200,000 4,709 3,411 — 146

Total $ 225,354 $ 5,137 $ 3,411 $ 465 $ 146

4 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

All of the contracts summarized above were designated and effective as cash flow hedges.

We expect to reclassify $ 5.6 million of net gains into earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions.

At September 29, 2023, the maximum term of derivative instruments that hedge forecasted transactions was approximately four years .

Refer to Note K for further details related to OCI.

The following table summarizes the amounts reclassified from accumulated other comprehensive income relating to the Company’s outstanding derivatives designated as cash flow hedges and associated income statement classification as of the third quarter and first nine months of 2023 and 2022:

Third Quarter Ended

(Thousands) September 29, 2023 September 30, 2022

Hedging relationship Line item

Foreign currency forward contracts Net sales $ — $ ( 41 )

Precious metal swaps Cost of sales 83 ( 126 )

Interest rate swap Interest expense - net ( 1,140 ) ( 115 )

Total $ ( 1,057 ) $ ( 282 )

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Nine Months Ended

(Thousands) September 29, 2023 September 30, 2022

We expect to reclassify $ 4.7 million of gains into earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions.

At March 29, 2024, the maximum term of derivative instruments that hedge forecasted transactions was approximately four years .

Refer to Note K for additional OCI details.

The following table summarizes the amounts reclassified from accumulated other comprehensive income related to the Company’s outstanding derivatives designated as cash flow hedges and associated income statement classification as of the first quarter of 2024 and 2023:

First Quarter Ended

(Thousands) March 29, 2024

March 31, 2023

Hedging relationship Line item

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Legal Proceedings .

For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims, refer to Note S "Contingencies and Commitments" in the Company's 2022 Annual Report on Form 10-K.

There were no pending beryllium cases as of September 29, 2023.

One beryllium case that was settled in the second quarter of 2023 was dismissed with prejudice during the third quarter of 2023 after receiving court approval.

Other Litigation.

The Company is party to several pending legal proceedings and claims arising in the normal course of business.

1 unchanged sentence

In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matters.

To the extent there is a reasonable possibility that the losses could exceed any amounts accrued, the Company will adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

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

Materion Brush Inc.

al., 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, among other things, that he and other similarly situated employees nationwide 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 Court preliminarily approved the settlement on March 30, 2023 and a final approval hearing was held on July 6, 2023.

There were no objections to the settlement and the Court entered an order approving the final settlement on July 7, 2023, and the settlement amount was subsequently paid out prior to the end of the third quarter.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

Environmental Proceedings.

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

The undiscounted reserve balance was $ 4.4 million and $ 4.5 million at September 29, 2023 and December 31, 2022, 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 $ 4.5 million and $ 4.6 million at March 29, 2024 and December 31, 2023, 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.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Note P — Debt

(Thousands) September 29, 2023 December 31, 2022

(Thousands) March 29, 2024

December 31, 2023

Borrowings under Credit Agreement $ 197,750 $ 149,250

7 unchanged sentences

Long-term debt $ 428,710 $ 387,576

As of September 29, 2023 and December 31, 2022, the Company had $ 176.8 million outstanding at an average interest rate of 6.92 % and $ 143.3 million outstanding at an average interest rate of 6.08 %, respectively, under its revolving credit facility.

The available borrowing capacity under the revolving credit facility as of September 29, 2023 was $ 151.0 million.

As of March 29, 2024 and December 31, 2023, the Company had $ 197.8 million outstanding at an average interest rate of 6.92 % and $ 149.3 million outstanding at an average interest rate of 6.96 %, respectively, under its revolving credit facility.

The available borrowing capacity under the revolving credit facility as of March 29, 2024 was $ 130.2 million.

The Company has the option to repay or borrow additional funds under the revolving credit facility until the maturity date in 2026.

The amended and restated credit agreement governing the revolving credit facility (Credit Agreement) includes covenants subject to a maximum leverage ratio and a minimum fixed charge coverage ratio.

We were in compliance with all of our debt covenants as of September 29, 2023.

The balance outstanding on the term loan facility as of September 29, 2023 and December 31, 2022 was $ 273.8 million and $ 285.0 million, respectively.

At September 29, 2023 and December 31, 2022, there was $ 47.3 million and $ 46.5 million, respectively, outstanding against the letters of credit sub-facility.

We were in compliance with all of our debt covenants as of March 29, 2024.

The balance outstanding on the term loan facility as of March 29, 2024 and December 31, 2023 was $ 262.5 million and $ 270.0 million, respectively.

At both March 29, 2024 and December 31, 2023, there was $ 47.0 million outstanding against the letters of credit sub-facility.

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