What changed in this filing

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Item 1. Financial Statements

2024-08-06 compared with 2024-05-02 · 208 added, 106 removed, 467 unchanged (40% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

First Quarter Ended

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

Second Quarter Ended Six Months Ended

(Thousands, except per share amounts) June 28, 2024 June 30, 2023 June 28, 2024 June 30, 2023

Net sales $ 425,866 $ 398,551 $ 811,153 $ 841,076

21 unchanged sentences

Consolidated Statements of Comprehensive Income

First Quarter Ended

March 29, March 31,

Second Quarter Ended Six Months Ended

June 28, June 30, June 28, June 30,

(Thousands) 2024 2023 2024 2023

Net income $ 19,036 $ 24,082 $ 32,445 $ 49,670

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation adjustment ( 1,089 ) ( 743 ) ( 5,549 ) 1,946

1 unchanged sentence

Pension and post-employment benefit adjustment, net of tax ( 63 ) ( 254 ) ( 236 ) ( 321 )

Other comprehensive loss ( 2,373 ) 283

Other comprehensive income (loss) ( 1,566 ) 2,183 ( 3,939 ) 2,466

Comprehensive income $ 17,470 $ 26,265 $ 28,506 $ 52,136

2 unchanged sentences

Consolidated Balance Sheets

March 29, Dec.

June 28, Dec.

(Thousands) 2024 2023

35 unchanged sentences

Common stock (no par value;

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

60,000 authorized shares, issued shares of 27,148 at both June 28 th and December 31 st )

328,836 309,492

8 unchanged sentences

Consolidated Statements of Cash Flows

Three Months Ended

March 29, March 31,

Six Months Ended

June 28, June 30,

(Thousands) 2024 2023

5 unchanged sentences

Stock-based compensation expense (non-cash) 5,334 5,042

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

Deferred income tax expense (benefit) 926 ( 166 )

Changes in assets and liabilities:

8 unchanged sentences

Other-net 858 ( 1,783 )

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

Net cash provided by operating activities 6,477 70,522

Cash flows from investing activities:

4 unchanged sentences

Cash flows from financing activities:

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

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

Proceeds from borrowings under credit facilities, net 73,649 15,151

Repayment of long-term debt ( 15,172 ) ( 7,743 )

Principal payments under finance lease obligations ( 382 ) ( 1,117 )

1 unchanged sentence

Payments of withholding taxes for stock-based compensation awards ( 6,402 ) ( 4,872 )

Net cash provided by financing activities 40,297 ( 6,291 )

Net cash provided by/(used in) financing activities 46,200 ( 3,835 )

Effects of exchange rate changes ( 613 ) ( 537 )

11 unchanged sentences

Comprehensive

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

Net income — — — 19,036 — — — 19,036

Other comprehensive income — — — — — ( 1,566 ) — ( 1,566 )

Cash dividends declared ($ 0.135 per share)

— — — ( 2,801 ) — — — ( 2,801 )

Stock-based compensation activity 19 ( 19 ) 4,315 11 ( 1,487 ) — — 2,839

Payments of withholding taxes for stock-based compensation awards ( 4 ) 4 — — ( 389 ) — — ( 389 )

Directors’ deferred compensation 1 ( 1 ) 29 — ( 439 ) — 453 43

Balance at June 28, 2024 20,747 6,401 $ 328,836 $ 881,284 $ ( 258,583 ) $ ( 50,887 ) $ 6,435 $ 907,085

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

Net income — — — 24,082 — — — 24,082

Other comprehensive income — — — — — 2,183 — 2,183

Cash dividends declared ($ 0.130 per share)

— — — ( 2,683 ) — — — ( 2,683 )

Stock-based compensation activity 40 ( 40 ) 5,567 ( 27 ) ( 2,748 ) — — 2,792

Payments of withholding taxes for stock-based compensation awards ( 12 ) 12 — — ( 1,258 ) — — ( 1,258 )

Directors’ deferred compensation — — 21 — ( 511 ) — 503 13

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

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 1 ( 1 ) 60 — ( 487 ) — 514 87

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

Balance at June 28, 2024 20,747 6,401 $ 328,836 $ 881,284 $ ( 258,583 ) $ ( 50,887 ) $ 6,435 $ 907,085

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 ) 48 — ( 528 ) — 561 81

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

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

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.

Certain prior year amounts have been reclassified to conform with the current year presentation.

These reclassifications had no effect on the reported results of operations, cash flows or financial position.

Specifically, the net sales related to the previously disclosed precision clad strip project have been reclassified from the other end market to the consumer electronics end market within Note B.

Recently Issued Accounting Standards:

15 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 and high temperature braze materials.

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 first quarter of 2024 and 2023:

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

The below table presents financial information for each segment

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for the second quarter and first six months of 2024 and 2023:

(Thousands) Second Quarter 2024 Second Quarter 2023 First Six Months Ended 2024 First Six Months Ended 2023

Performance Materials (1)

3 unchanged sentences

Precision Optics 25,666 25,050 50,337 51,742

Other — — — —

Net sales 425,866 398,551 811,153 841,076

9 unchanged sentences

Net income $ 19,036 $ 24,082 $ 32,445 $ 49,670

(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.

(1) Excludes inter-segment sales of $ 1.7 million and $ 1.0 million for the second quarter of 2024 and 2023, respectively, and $ 3.2 million and $ 4.1 million for the first six months of 2024 and 2023, respectively, for Electronic Materials.

There were no material inter-segment sales for Performance Materials in 2024 or 2023.

Inter-segment sales are eliminated in consolidation.

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

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

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

First Quarter 2024

Second Quarter 2024

Semiconductor $ 1,300 $ 178,099 $ 754 $ — $ 180,153

7 unchanged sentences

Total $ 187,513 $ 212,687 $ 25,666 $ — $ 425,866

First Quarter 2023

Second Quarter 2023

Semiconductor $ 4,411 $ 155,356 $ 745 $ — $ 160,512

7 unchanged sentences

Total $ 182,771 $ 190,730 $ 25,050 $ — $ 398,551

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

First Six Months 2024

Semiconductor $ 3,962 $ 334,522 $ 1,079 $ — $ 339,563

Industrial 58,272 18,114 13,144 — 89,530

Aerospace and defense 84,071 3,286 11,854 — 99,211

Consumer electronics 119,599 137 7,266 — 127,002

Automotive 36,067 3,643 3,679 — 43,389

Energy 17,372 32,670 — — 50,042

Telecom and data center 20,984 56 — — 21,040

Other 15,831 12,230 13,315 41,376

Total $ 356,158 $ 404,658 $ 50,337 $ — $ 811,153

First Six Months 2023

Semiconductor $ 7,001 $ 335,972 $ 1,656 $ — $ 344,629

Industrial 79,390 17,144 15,445 — 111,979

Aerospace and defense 61,796 3,568 10,647 — 76,011

Consumer electronics 104,473 382 6,822 — 111,677

Automotive 47,306 3,219 4,484 — 55,009

Energy 25,584 46,761 — — 72,345

Telecom and data center 33,538 58 — — 33,596

Other 10,697 12,445 12,688 — 35,830

Total $ 369,785 $ 419,549 $ 51,742 $ — $ 841,076

Note C — Revenue Recognition

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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 March 29, 2024.

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

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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 March 29, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 57.9 million.

After considering the practical expedient at June 28, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 46.0 million.

Materion Corporation and Subsidiaries

2 unchanged sentences

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

(Thousands) March 29, 2024 December 31, 2023 $ change % change

(Thousands) June 28, 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 first three months of 2024.

Impairment losses (bad debt) incurred related to our receivables were immaterial during the second quarter 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 $ 6.9 million of the December 31, 2023 unearned amounts as revenue during the first three months of 2024.

The Company recognized approximately $ 13.1 million of the December 31, 2023 unearned amounts as revenue during the first six 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.

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

Note D — Restructuring

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 first quarter of 2024 and 2023 is summarized as follows:

First Quarter Ended

March 29, March 31,

Note D — Other-net

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

Second Quarter Ended Six Months Ended

June 28, June 30, June 28, June 30,

(Thousands) 2024 2023 2024 2023

1 unchanged sentence

Metal consignment fees 1,895 2,797 3,918 5,726

Foreign currency loss (gain) 433 ( 208 )

Foreign currency (gain) loss 101 170 534 ( 38 )

Other items ( 713 ) 95 ( 1,659 ) 28

Total $ 4,446 $ 6,192 $ 8,803 $ 11,966

Note E — Restructuring

The Company implemented various restructuring initiatives across the Performance Materials, Electronic Materials, Precision Optics and Other segments to improve operational efficiency during the three and six months ended June 28, 2024 and across the Performance Materials, Electronic Materials and Precision Optics segments for the three and six months ended June 30, 2023.

This resulted in severance and related costs of approximately $ 3.0 million and $ 4.7 million during the three months and six months ended June 28, 2024, respectively, and $ 1.5 million and $ 2.1 million during the three months and six months ended June 30, 2023, respectively.

Of the $ 4.7 million incurred in 2024, approximately $ 3.6 million of those severance costs were paid as of June 28, 2024.

Materion Corporation and Subsidiaries

1 unchanged sentence

Note F — Income Taxes

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.

The Company's effective tax rate for the second quarter of 2024 and 2023 was 20.4 % and 15.3 %, respectively, and 15.8 % and 15.2 % in the first six months of 2024 and 2023, respectively.

The effective tax rate for 2024 is lower than the statutory tax rate primarily due to the impact of percentage depletion and the foreign derived intangible income deduction.

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

The effective tax rate for the first six months of 2024 includes a net discrete income tax benefit of $ 0.2 million, primarily consisting of $ 1.0 million of excess tax benefits from stock-based compensation awards offset by a $ 1.1 million valuation allowance recorded against deferred tax assets that are not likely to be realized for one of the Company’s foreign subsidiaries.

The effective tax rate for the first six months of 2023 included a net discrete income tax benefit of $ 1.0 million, primarily related to excess tax benefits from stock-based compensation awards.

Government Tax Credits

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

First Quarter Ended

March 29, March 31,

Second Quarter Ended Six Months Ended

June 28, June 30, June 28, June 30,

(Thousands, except per share amounts) 2024 2023 2024 2023

Numerator for basic and diluted EPS:

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

Net income $ 19,036 $ 24,082 $ 32,445 $ 49,670

Denominator for basic EPS

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Diluted EPS $ 0.91 $ 1.15 $ 1.55 $ 2.38

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.

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 137,252 and 47,084 for the quarters ended June 28, 2024 and June 30, 2023, respectively, and totaling 95,392 and 69,716 for the six months ended June 28, 2024 and June 30, 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 stock 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:

March 29, December 31,

June 28, December 31,

(Thousands) 2024 2023

3 unchanged sentences

Inventories, net $ 462,963 $ 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 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.

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 $ 384.5 million and $ 351.5 million as of June 28, 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.

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.

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

As of June 28, 2024 and December 31, 2023, $ 72.4 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 March 29, 2024 $ 7.5 million of the prepayments are classified as Unearned revenue.

As of June 28, 2024, $ 5.7 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 (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.

The following is a summary of the net periodic benefit cost for the second quarter and first six months ended June 28, 2024 and June 30, 2023, 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.

supplemental retirement plans.

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

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

Pension Benefits Other Benefits

First Quarter Ended First Quarter Ended

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

Second Quarter Ended Second Quarter Ended

June 28, June 30, June 28, June 30,

(Thousands) 2024 2023 2024 2023

Components of net periodic benefit (income) cost

Components of net periodic benefit (credit) cost

Service cost $ 266 $ 211 $ 12 $ 13

1 unchanged sentence

Expected return on plan assets ( 2,529 ) ( 2,422 ) — —

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

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

Amortization of net loss (gain) 32 ( 75 ) ( 87 ) ( 95 )

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.

Net periodic benefit (credit) cost $ ( 347 ) $ ( 337 ) $ ( 17 ) $ ( 153 )

Pension Benefits Other Benefits

Six Months Ended Six Months Ended

June 28, June 30, June 28, June 30,

(Thousands) 2024 2023 2024 2023

Components of net periodic benefit (credit) cost

Service cost $ 534 $ 433 $ 25 $ 25

Interest cost 3,812 3,943 117 136

Expected return on plan assets ( 5,059 ) ( 4,861 ) — —

Amortization of prior service (benefit) cost ( 42 ) ( 44 ) — ( 278 )

Amortization of net loss (gain) 64 ( 156 ) ( 174 ) ( 190 )

Net periodic benefit (credit) cost $ ( 691 ) $ ( 685 ) $ ( 32 ) $ ( 307 )

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 second quarter or first six months of 2024 or 2023.

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:

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the second quarter and first six months of 2024 and 2023 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 December 31, 2023 $ 1,201 $ 4,156 $ ( 99 ) $ 5,258 $ ( 48,658 ) $ ( 3,548 ) $ ( 46,948 )

Balance at March 29, 2024

$ 1,713 $ 6,141 $ ( 336 ) $ 7,518 $ ( 48,831 ) $ ( 8,008 ) $ ( 49,321 )

Other comprehensive income (loss) before reclassifications 207 739 ( 227 ) 719 — ( 1,089 ) ( 370 )

3 unchanged sentences

Net current period other comprehensive (loss) income after tax 5 ( 432 ) 13 ( 414 ) ( 63 ) ( 1,089 ) ( 1,566 )

Balance at June 28, 2024

$ 1,718 $ 5,709 $ ( 323 ) $ 7,104 $ ( 48,894 ) $ ( 9,097 ) $ ( 50,887 )

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

Other comprehensive (loss) income before reclassifications 163 4,830 79 5,072 — ( 743 ) 4,329

Amounts reclassified from accumulated other comprehensive income (loss) — ( 1,028 ) 85 ( 943 ) ( 207 ) — ( 1,150 )

Net current period other comprehensive (loss) income before tax 163 3,802 164 — 4,129 ( 207 ) ( 743 ) 3,179

Deferred taxes 38 874 37 949 47 — 996

Net current period other comprehensive (loss) income after tax 125 2,928 127 3,180 ( 254 ) ( 743 ) 2,183

Balance at June 30, 2023

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

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

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 December 31, 2023

$ 1,201 $ 4,156 $ ( 99 ) $ 5,258 $ ( 48,658 ) $ ( 3,548 ) $ ( 46,948 )

Other comprehensive income (loss) before reclassifications 872 4,579 ( 560 ) 4,891 — ( 5,549 ) ( 658 )

Amounts reclassified from accumulated other comprehensive income (loss) ( 200 ) ( 2,562 ) 269 ( 2,493 ) ( 189 ) — ( 2,682 )

Net current period other comprehensive (loss) income before tax 672 2,017 ( 291 ) 2,398 ( 189 ) ( 5,549 ) ( 3,340 )

Deferred taxes 155 464 ( 67 ) 552 47 599

Net current period other comprehensive (loss) income after tax 517 1,553 ( 224 ) 1,846 ( 236 ) ( 5,549 ) ( 3,939 )

Balance at June 28, 2024

$ 1,718 $ 5,709 $ ( 323 ) $ 7,104 $ ( 48,894 ) $ ( 9,097 ) $ ( 50,887 )

Balance at December 31, 2022

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

Other comprehensive (loss) income before reclassifications 96 3,127 ( 396 ) 2,827 — 1,946 4,773

3 unchanged sentences

Net current period other comprehensive (loss) income after tax 47 1,014 ( 220 ) 841 ( 321 ) 1,946 2,466

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).

Balance at June 30, 2023

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

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

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

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Note L — Stock-based Compensation Expense

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.

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.7 million and $ 5.3 million in the second quarter and first six months of 2024, respectively, compared to $ 2.8 million and $ 5.2 million, respectively, in the same periods of 2023.

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

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the six months ended June 28, 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 37,466 stock-settled RSUs to certain employees during the first quarter of 2024.

The Company granted 47,595 stock-settled RSUs to certain employees during the first six months 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 $ 135.57 for stock-settled RSUs granted to employees during the three months ended March 29, 2024.

The weighted-average fair value per share was $ 131.51 for stock-settled RSUs granted to employees during the six months ended June 28, 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 quarter of 2024.

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

The weighted-average fair value of the stock-settled PRSUs was $ 164.40 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 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.

At June 28, 2024, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 21.8 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note M — Fair Value of Financial Instruments

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Notes to Consolidated Financial Statements

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:

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of June 28, 2024 and December 31, 2023:

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

16 unchanged sentences

Outstanding contracts are valued through models that utilize market observable inputs, including both spot and forward prices, for the same underlying currencies, 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 March 29, 2024 and December 31, 2023.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of June 28, 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.

33 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 that 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 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.

13 unchanged sentences

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 consignment 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 credit 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

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.

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.

8 unchanged sentences

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 March 29, 2024 and December 31, 2023:

March 29, 2024

December 31, 2023

June 28, 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 $ 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.

Other-net included $ 0.1 million of foreign currency losses and $ 0.4 million of foreign currency gains in the second quarter and first six months of 2024, respectively, compared to $ 0.2 million and $ 0.4 million of foreign currency losses in the second quarter and first six months of 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 the balance sheet classification as of March 29, 2024 and December 31, 2023:

March 29, 2024

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 June 28, 2024 and December 31, 2023:

June 28, 2024

(Thousands) Notional

13 unchanged sentences

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

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

We expect to reclassify $ 4.6 million of net gains into earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions.

At June 28, 2024, 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 second quarter and first six months of 2024 and 2023:

Second Quarter Ended

(Thousands) June 28, 2024 June 30, 2023

Hedging relationship Line item

3 unchanged sentences

Total $ ( 1,257 ) $ ( 943 )

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

Six Months Ended

(Thousands) June 28, 2024 June 30, 2023

Hedging relationship Line item

Foreign currency forward contracts Net sales $ ( 200 ) $ ( 35 )

Precious metal swaps Cost of sales 269 110

Interest rate swap Interest expense - net ( 2,562 ) ( 1,810 )

Total $ ( 2,493 ) $ ( 1,735 )

Note O — Contingencies

3 unchanged sentences

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.

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.

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.

Environmental Proceedings.

2 unchanged sentences

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

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.

The undiscounted reserve balance was $ 4.4 million and $ 4.6 million at June 28, 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.

Note P — Debt

(Thousands) March 29, 2024

December 31, 2023

(Thousands) June 28, 2024 December 31, 2023

Borrowings under Credit Agreement $ 222,375 $ 149,250

7 unchanged sentences

Long-term debt $ 445,990 $ 387,576

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.

As of June 28, 2024 and December 31, 2023, the Company had $ 222.4 million outstanding at an average interest rate of 7.18 % 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 June 28, 2024 was $ 105.5 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 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.

In connection with the revolving credit facility, the administrative agent provides the Company with an overdraft sweep facility that the Company uses on a daily basis for short-term cash needs.

As of June 28, 2024, there was nothing outstanding on the overdraft sweep facility.

The amended and restated credit agreement governing the revolving credit facility and the term loan 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 June 28, 2024.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

The balance outstanding on the term loan facility as of June 28, 2024 and December 31, 2023 wa s $ 255.0 million and $ 270.0 million, respectively.

At June 28, 2024 and December 31, 2023, there was $ 47.1 million and $ 47.0 million, respectively, 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