What changed in this filing

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Item 1. Financial Statements

2024-10-30 compared with 2024-08-06 · 112 added, 105 removed, 570 unchanged (28% of the section changed)

2 unchanged sentences

Consolidated Statements of Income

Second Quarter Ended Six Months Ended

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

Third Quarter Ended Nine Months Ended

(Thousands, except per share amounts) September 27, 2024 September 29, 2023 September 27, 2024 September 29, 2023

Net sales $ 436,715 $ 403,067 $ 1,247,868 $ 1,244,144

21 unchanged sentences

Consolidated Statements of Comprehensive Income

Second Quarter Ended Six Months Ended

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

Third Quarter Ended Nine Months Ended

September 27, September 29, September 27, September 29,

(Thousands) 2024 2023 2024 2023

4 unchanged sentences

Pension and post-employment benefit adjustment, net of tax ( 62 ) ( 145 ) ( 298 ) ( 466 )

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

Other comprehensive loss 3,065 ( 1,385 ) ( 874 ) 1,081

Comprehensive income $ 25,359 $ 25,179 $ 53,865 $ 77,315

2 unchanged sentences

Consolidated Balance Sheets

June 28, Dec.

September 27, December 31,

(Thousands) 2024 2023

35 unchanged sentences

Common stock (no par value;

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

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

331,646 309,492

8 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended

June 28, June 30,

Nine Months Ended

September 27, September 29,

(Thousands) 2024 2023

8 unchanged sentences

Accounts receivable

( 21,921 ) 27,832

Inventory ( 34,215 ) ( 30,868 )

18 unchanged sentences

Payments of withholding taxes for stock-based compensation awards ( 6,575 ) ( 5,101 )

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

Net cash provided by financing activities 52,926 13,735

Effects of exchange rate changes 635 ( 780 )

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

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

Net income — — — 22,294 — — — 22,294

5 unchanged sentences

Directors’ deferred compensation — — 36 — ( 54 ) — 63 45

Balance at September 27, 2024 20,751 6,397 $ 331,646 $ 900,764 $ ( 259,191 ) $ ( 47,822 ) $ 6,498 $ 931,895

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

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

Net income — — — 26,564 — — — 26,564

5 unchanged sentences

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

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

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

Common Shares Shareholders' Equity

12 unchanged sentences

Directors’ deferred compensation 1 ( 1 ) 96 — ( 541 ) — 577 132

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

Balance at September 27, 2024 20,751 6,397 $ 331,646 $ 900,764 $ ( 259,191 ) $ ( 47,822 ) $ 6,498 $ 931,895

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 ) 77 — ( 573 ) — 619 $ 123

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

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

See notes to these consolidated financial statements.

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The accompanying consolidated financial statements of Materion Corporation and its subsidiaries (referred to herein as the Company, our, we, or us) contain all of the adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods reported.

All adjustments were of a normal and recurring nature.

All material adjustments were of a normal and recurring nature.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's 2023 Annual Report on Form 10-K.

3 unchanged sentences

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:

New Pronouncements Adopted:

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

9 unchanged sentences

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.

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.

Note B — Segment Reporting

1 unchanged sentence

Performance Materials, Electronic Materials, Precision Optics, and Other.

The Company’s reportable segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the Chief Executive Officer, the Company's chief operating decision maker, in determining how to allocate the Company’s resources and evaluate performance.

The Company’s reportable segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the Chief Executive Officer, the Company's CODM, in determining how to allocate the Company’s resources and evaluate performance.

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 and 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

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

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 2024 and 2023:

(Thousands) Third Quarter 2024 Third Quarter 2023 First Nine Months 2024 First Nine Months 2023

Performance Materials (1)

15 unchanged sentences

Net income $ 22,294 $ 26,564 $ 54,739 $ 76,234

(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.

(1) Excludes inter-segment sales of $ 1.6 million for the third quarter of 2024 and $ 4.8 million for the first nine months of 2024 for Electronic Materials.

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 2024 or 2023.

Inter-segment sales are eliminated in consolidation.

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

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

Materion Corporation and Subsidiaries

1 unchanged sentence

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

Second Quarter 2024

Third Quarter 2024

Semiconductor $ 2,097 $ 198,790 $ 798 $ — $ 201,685

7 unchanged sentences

Total $ 177,376 $ 236,906 $ 22,433 $ — $ 436,715

Second Quarter 2023

Third Quarter 2023

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

10 unchanged sentences

(Thousands) Performance Materials Electronic Materials Precision Optics Other Total

First Six Months 2024

First Nine Months 2024

Semiconductor $ 6,059 $ 533,312 $ 1,877 $ — $ 541,248

7 unchanged sentences

Total $ 533,534 $ 641,564 $ 72,770 $ — $ 1,247,868

First Six Months 2023

First Nine Months 2023

Semiconductor $ 9,713 $ 487,361 $ 2,279 $ — $ 499,353

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 June 28, 2024.

Accounting Standards Codification (ASC) 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 27, 2024.

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

After considering the practical expedient at September 27, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $ 39.9 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) June 28, 2024

(Thousands) September 27, 2024

December 31, 2023

8 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 second quarter of 2024.

Impairment losses (bad debt) incurred related to our receivables were immaterial during the third quarter of 2024.

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

2 unchanged sentences

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

The Company recognized approximately $ 13.1 million of the December 31, 2023 unearned amounts as revenue during the first six months of 2024.

The Company recognized approximately $ 13.5 million of the December 31, 2023 short-term unearned amounts as revenue during the first nine 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 — 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,

Note D — 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 nine months ended September 27, 2024 and the three and nine months ended September 29, 2023.

This resulted in severance and related costs of approximately $ 1.5 million and $ 6.2 million during the three months and nine months ended September 27, 2024, respectively, and $ 1.1 million and $ 3.2 million during the three months and nine months ended September 29, 2023, respectively.

Of the $ 6.2 million incurred in 2024, approximately $ 4.8 million of those severance costs were paid as of September 27, 2024.

Note E — Other-net

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

Third Quarter Ended Nine Months Ended

September 27, September 29, September 27, September 29,

(Thousands) 2024 2023 2024 2023

4 unchanged sentences

Total $ 5,309 $ 6,211 $ 14,112 $ 18,178

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 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 Company's effective tax rate for the third quarter of 2024 and 2023 was 3.3 % and 10.0 %, respectively, and 11.1 % and 13.5 % in the first nine 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, research and development and production tax credits, 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.

The effective tax rate for the first nine months of 2024 includes a nominal amount of discrete income tax expense 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 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.

Government Tax Credits

2 unchanged sentences

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.

On October 24, 2024, the U.S.

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

The company is currently in the process of analyzing the final regulations to determine the amount of the production costs eligible for inclusion in the calculation of the production credit for the tax year ended December 31, 2024.

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

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

9 unchanged sentences

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

Second Quarter Ended Six Months Ended

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

Third Quarter Ended Nine Months Ended

September 27, September 29, September 27, September 29,

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

12 unchanged sentences

Diluted EPS $ 1.07 $ 1.27 $ 2.61 $ 3.65

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.

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 148,038 and 47,250 for the quarters ended September 27, 2024 and September 29, 2023, respectively, and 110,555 and 36,927 for the nine months ended September 27, 2024 and September 29, 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:

June 28, December 31,

September 27, December 31,

(Thousands) 2024 2023

4 unchanged sentences

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

The notional value of off-balance sheet precious metals and copper was $ 385.7 million and $ 351.5 million as of September 27, 2024 and December 31, 2023, respectively.

Materion Corporation and Subsidiaries

7 unchanged sentences

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.

As of September 27, 2024 and December 31, 2023, $ 65.6 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 June 28, 2024, $ 5.7 million of the prepayments are classified as Unearned revenue.

As of September 27, 2024 $ 7.0 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 second quarter and first six months ended June 28, 2024 and June 30, 2023, respectively, for the pension plans as shown below.

The following is a summary of the net periodic benefit cost for the third quarter and first nine months ended September 27, 2024 and September 29, 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.

2 unchanged sentences

Pension Benefits Other Benefits

Second Quarter Ended Second Quarter Ended

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

Third Quarter Ended Third Quarter Ended

September 27, September 29, September 27, September 29,

(Thousands) 2024 2023 2024 2023

7 unchanged sentences

Pension Benefits Other Benefits

Six Months Ended Six Months Ended

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

Nine Months Ended Nine Months Ended

September 27, September 29, September 27, September 29,

(Thousands) 2024 2023 2024 2023

8 unchanged sentences

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.

The Company did no t make any contributions to its domestic defined benefit plan in the third quarter or first nine months 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 second quarter and first six months of 2024 and 2023 are as follows:

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the third quarter and first nine months of 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 March 29, 2024

Balance at June 28, 2024

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

4 unchanged sentences

Net current period other comprehensive (loss) income after tax ( 639 ) ( 3,926 ) 113 ( 4,452 ) ( 62 ) 7,579 3,065

Balance at September 27, 2024

$ 1,079 $ 1,783 $ ( 210 ) $ 2,652 $ ( 48,956 ) $ ( 1,518 ) $ ( 47,822 )

Balance at June 30, 2023

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

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

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

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

Balance at June 30, 2023

Balance at September 29, 2023

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

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Net current period other comprehensive (loss) income after tax ( 122 ) ( 2,373 ) ( 111 ) ( 2,606 ) ( 298 ) 2,030 ( 874 )

Balance at June 28, 2024

Balance at September 27, 2024

$ 1,079 $ 1,783 $ ( 210 ) $ 2,652 $ ( 48,956 ) $ ( 1,518 ) $ ( 47,822 )

1 unchanged sentence

$ 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

Other comprehensive income (loss) before reclassifications 862 5,525 119 6,506 — ( 1,313 ) 5,193

Amounts reclassified from accumulated other comprehensive income (loss) ( 35 ) ( 2,950 ) 193 ( 2,792 ) ( 844 ) — ( 3,636 )

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Net current period other comprehensive (loss) income after tax 637 1,983 240 2,860 ( 466 ) ( 1,313 ) 1,081

Balance at June 30, 2023

Balance at September 29, 2023

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

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Note L — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.7 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.

Stock-based compensation expense, which includes awards settled in shares and in cash, was $ 2.4 million and $ 7.7 million in the third quarter and first nine months of 2024, respectively, compared to $ 2.6 million and $ 7.8 million, respectively, in the same periods of 2023.

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

The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the nine months ended September 27, 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 47,595 stock-settled RSUs to certain employees during the first six months of 2024.

The Company granted 50,873 stock-settled RSUs to certain employees during the first nine 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 $ 131.51 for stock-settled RSUs granted to employees during the six months ended June 28, 2024.

The weighted-average fair value per share was $ 130.31 for stock-settled RSUs granted to employees during the nine months ended September 27, 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 six months of 2024.

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

At September 27, 2024, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately $ 19.3 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 June 28, 2024 and December 31, 2023:

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of September 27, 2024 and December 31, 2023:

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

5 unchanged sentences

Foreign currency forward contracts 1,163 615 — — 1,163 615 — —

Interest rate swaps 7,439 6,492 — — 7,439 6,492 — —

Interest rate swap 3,601 6,492 — — 3,601 6,492 — —

Precious metal swaps 104 353 — — 104 353 — —

3 unchanged sentences

Foreign currency forward contracts 1,777 1,500 — — 1,777 1,500 — —

Interest rate swaps 26 1,096 — — 26 1,096 — —

Interest Rate Swap 1,287 1,096 1,287 1,096 —

Precious metal swaps 380 485 — — 380 485 — —

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 June 28, 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 September 27, 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.

2 unchanged sentences

Note N — Derivative Instruments and Hedging Activity

The Company uses derivative contracts to hedge exposure to movements in interest rates associated with borrowings, foreign currency exposures, and precious metal and copper exposures.

The Company uses derivative contracts to hedge exposure to movements in interest rates associated with borrowings, foreign currency exposures, and precious metal exposures.

The objectives and strategies for using derivatives in these areas are as follows:

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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 June 28, 2024 and December 31, 2023:

June 28, 2024 December 31, 2023

September 27, 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 $ 0.1 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.

Other-net included $ 0.2 million of foreign currency losses and $ 0.2 million of foreign currency gains related to derivatives in the third quarter and first nine months of 2024, respectively, compared to less than $ 0.1 million of foreign currency losses in the third quarter and $ 0.4 million of foreign currency losses in the first nine months of 2023.

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 June 28, 2024 and December 31, 2023:

June 28, 2024

September 27, 2024

(Thousands) Notional

3 unchanged sentences

Precious metal swaps 265 104 — 380 —

Interest rate swaps 200,000 4,611 2,828 — 26

Interest rate swap 200,000 2,271 1,330 322 965

Total $ 216,026 $ 2,388 $ 1,330 $ 1,136 $ 965

4 unchanged sentences

Precious metal swaps 15,717 353 — 485 —

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

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

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

1 unchanged sentence

We expect to reclassify $ 1.3 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 .

At September 27, 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

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 2024 and 2023:

Third Quarter Ended

(Thousands) September 27, 2024 September 29, 2023

Hedging relationship Line item

5 unchanged sentences

Notes to Consolidated Financial Statements

Six Months Ended

(Thousands) June 28, 2024 June 30, 2023

Nine Months Ended

(Thousands) September 27, 2024 September 29, 2023

Hedging relationship Line item

13 unchanged sentences

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

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.

The undiscounted reserve balance was $ 4.4 million and $ 4.6 million at September 27, 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) June 28, 2024 December 31, 2023

(Thousands) September 27, 2024 December 31, 2023

Borrowings under Credit Agreement $ 241,375 $ 149,250

7 unchanged sentences

Long-term debt $ 457,756 $ 387,576

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.

As of September 27, 2024 and December 31, 2023, the Company had $ 241.4 million outstanding at an average interest rate of 6.90 % 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 September 27, 2024 was $ 127.0 million.

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

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.

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 27, 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.

The balance outstanding on the term loan facility as of September 27, 2024 and December 31, 2023 was $ 247.5 million and $ 270.0 million, respectively.

At September 27, 2024 and December 31, 2023, there was $ 6.7 million and $ 47.0 million, respectively, outstanding against the letters of credit sub-facility.

Note Q — Subsequent Events

On October 20, 2024, the Company entered into an agreement to sell the assets of the target manufacturing operations at the Company’s Albuquerque facility (“Target assets”).

The transaction subsequently closed on October 25, 2024.

Based on the facts and circumstances as of September 27, 2024, the Company determined that not all criteria were met to classify the Target assets as held for sale as of September 27, 2024.

Approximately $ 5 million of net assets were included in the transaction.

Based on the final purchase price, the Company estimates that a loss will be recorded in the fourth quarter of 2024.

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