What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-19 compared with 2024-02-15 · 213 added, 99 removed, 1282 unchanged (20% of the section changed)

21 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Materion Corporation

To the Shareholders and the Board of Directors of Materion Corporation

Opinion on the Financial Statements

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Description of the matter

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

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

As discussed in Notes A and M to the consolidated financial statements, during 2024, the Company recorded a $56.1 million impairment charge attributable to its Precision Optics reporting unit.

The Company performed a quantitative impairment assessment of its Precision Optics reporting unit’s goodwill as of October 1, 2024, and concluded that the reporting unit’s carrying value exceeded its estimated fair value and, therefore, goodwill was impaired.

Significant assumptions used in the Company’s fair value estimate included revenue growth rates, EBITDA margins, terminal growth rate and the discount rate.

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

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

In particular, the fair value estimate was sensitive to the significant assumptions named above, which are affected by expectations about future market or economic conditions.

How we addressed the matter in our audit

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In our opinion, Materion Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Materion Corporation and subsidiaries as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 15, 2024 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 19, 2025 expressed an unqualified opinion thereon.

Basis for Opinion

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Research and development expense 29,028 27,540 28,977

Restructuring expense (income) (Note D)

Goodwill impairment 56,067 — —

Long-lived asset impairment 17,134 — —

Loss on asset disposal 6,412 — —

Restructuring expense (Note D)

6,848 3,824 1,573

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Amortization of pension and post-retirement costs ( 307 ) ( 1,318 ) ( 146 )

Loss (gain) on sale of property, plant, and equipment 20 14 ( 282 )

Loss on sale of property, plant, and equipment 1,201 20 14

Deferred income tax (benefit) expense ( 16,598 ) ( 7,005 ) 1,733

Impairment charges 73,201 — —

Loss on asset disposal 6,412

Net pension curtailments and settlements — 142 ( 551 )

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Proceeds from (repayments of) borrowings under credit facilities, net 45,692 8,065 230

Proceeds from issuance of debt — — 300,000

Repayment of debt ( 30,342 ) ( 15,415 ) ( 19,299 )

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Payments of withholding taxes for stock-based compensation awards ( 7,610 ) ( 5,234 ) ( 3,593 )

Net cash provided by (used in) financing activities ( 24,850 ) ( 35,558 ) 393,006

Net cash used in financing activities ( 4,186 ) ( 24,850 ) ( 35,558 )

Effects of exchange rate changes ( 607 ) ( 149 ) ( 2,032 )

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Deferred income taxes (Notes A and G)

20,109 28,214

Long-term debt (Note N)

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Materion Corporation (the Company) is a holding company with subsidiaries that have operations in the United States, Europe, and Asia.

These operations manufacture advanced engineered materials used in a variety of end markets, including semiconductor, industrial, aerospace and defense, automotive, energy, consumer electronics, and telecom and data center.

The Company has four reportable segments:

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The Company extends credit to customers based upon their financial condition, and collateral is not generally required.

During 2024, the Company entered into a factoring agreement to sell certain receivables to a third-party financial institution.

The transfer of the receivables constitute purchases and sales of receivables resulting in a reduction of trade receivables on the consolidated balance sheets and the proceeds are included in the cash flows from operating activities in the consolidated statements of cash flows.

The Company sold $ 48.9 million of receivables in 2024 and recorded a loss on sale of $ 0.7 million.

Inventories are stated at net realizable value.

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Repair and maintenance costs are expensed as incurred.

On October 20, 2024, the Company entered into an agreement to sell the assets of the large area target manufacturing operations at the Company’s Albuquerque facility (“Target assets”) as a part of its portfolio management strategy.

The transaction subsequently closed on October 25, 2024.

In addition, the Company began the wind down of its refinery operations at the Albuquerque facility.

This resulted in a loss on asset disposal of $ 6.4 million, which was recorded in the fourth quarter of 2024.

These assets were a part of the Electronic Materials segment.

Mineral Resources and Mine Development:

Property acquisition costs are capitalized as mineral resources on the balance sheet and are depleted using the units-of-production method based upon total estimated recoverable proven reserves of the beryllium-bearing bertrandite ore body.

The Company uses beryllium pounds as the unit of accounting measure, and depletion expense is recorded on a pro-rata basis based upon the amount of beryllium pounds extracted as a percentage of total estimated beryllium pounds contained in the ore body.

Mine development costs at our open pit surface mines include drilling, infrastructure, other related costs to delineate an ore body and the removal of overburden to initially expose an ore body.

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

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

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

All other drilling and related costs are expensed as incurred.

Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of costs applicable to sales.

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

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

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

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Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized over the estimated life of that specific ore block area.

Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component of costs applicable to sales.

All other drilling and related costs are expensed as incurred.

Goodwill and Other Intangible Assets:

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The Company conducts its annual goodwill impairment assessment as of the first day of the fourth quarter, or more frequently under certain circumstances.

For the purpose of the goodwill impairment assessment, the Company has the option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis of impairment of goodwill is necessary or a quantitative assessment ("step one") where the Company estimates the fair value of each reporting unit using a discounted cash flow method (income approach).

Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment.

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Finite-lived intangible assets are also reviewed for impairment if facts and circumstances warrant.

During the fourth quarter of fiscal 2024, the Company's annual goodwill impairment test indicated the carrying value of the Precision Optics reporting unit exceeded its estimated fair value as of the measurement date of October 1, 2024.

As a result, the Company recognized a goodwill impairment charge in the fourth quarter of fiscal 2024 of $ 56.1 million, which was recorded in "Goodwill Impairment" in the accompanying Consolidated Statements of Income in the Precision Optics segment.

As previously disclosed, on September 25, 2024, the Company announced the appointment of a new President of its Precision Optics reporting unit.

As a part of the transition into this role, the new president undertook an extensive review of the business and its short-term and long-term strategic initiatives, concurrent with the Company’s annual strategic planning process.

These changes combined with current operating results resulted in adjustments to the forecast for the Precision Optics reporting unit based on more conservative views of business with key strategic partners.

Long-Lived Asset Impairment:

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

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

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

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

Given the continued losses at the Company’s Malaysia facility and the change in leadership in the Precision Optics segment as discussed above, the Company determined that there were indicators of impairment in the fourth quarter of 2024.

Accordingly, the Company performed a recoverability analysis that indicated the Malaysia asset group was not recoverable.

The Company estimated the fair value of the asset group using the discounted cash flow method (income approach) and compared the estimated fair value to the current carrying value.

As a result of this analysis, the Company fully impaired $ 10.1 million of its customer related intangible asset and recorded a partial impairment of $ 7.0 million related to the facility’s property plant and equipment.

These long-lived asset impairments are presented within the " Long-lived Asset Impairment " line item within the accompanying Consolidated Statements of Income in the Precision Optics segment.

The Company recognizes all derivatives on the balance sheet at fair value.

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The Company expenses all advertising costs as incurred.

Advertising costs were $ 0.3 million in 2023, 2022, and 2021.

Advertising costs were $ 0.1 million in 2024 and $ 0.3 million in 2023 and 2022, respectively.

Stock-based Compensation:

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The fair value of SARs is determined using a Black-Scholes option-pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate, and the expected dividend yield.

The portion of the PRSU awards that are valued based on the Company's total shareholder return as compared to peers is valued using Monte Carlo simulations, which incorporates assumptions regarding the expected volatility, the expected correlation, and the risk-free interest rate.

The portion of the PRSU awards that are valued based on the Company's total shareholder return as compared to peers is valued using Monte Carlo simulations, which

incorporates assumptions regarding the expected volatility, the expected correlation, and the risk-free interest rate.

See Note Q for additional information about stock-based compensation.

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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 R.

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

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

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.

The Company adopted the new guidance and has included the additional required disclosures in Note B.

The adoption of this ASU did not impact the Company’s consolidated financial position, results of operations or cash flows.

New Accounting Guidance Issued and Not Yet Adopted:

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.

In November 2024, the FASB issued amended guidance related to disclosure of disaggregated expenses (“ASU 2024-03”).

This amendment requires public business entities to provide detailed disclosures in the notes to financial statements disaggregating specific expense categories, including employee compensation, depreciation, and intangible asset amortization, as well as certain other disclosures to provide enhanced transparency into the nature and function of expenses.

This new guidance is effective for annual periods beginning in the Company’s fiscal 2027 and interim periods following annual adoption, with early adoption permitted.

This guidance will be applied on a prospective basis with retrospective application permitted.

Management is currently evaluating this ASU to determine its impact on the Company’s disclosures.

Reclassifications:

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.

Additionally, net sales related to the life sciences end market have been reclassified out of the other line item within Note B.

Note B — Segment Reporting and Geographic Information

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

The Company’s operating 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 operating 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 (CODM), in determining how to allocate the Company’s resources and evaluate performance.

The segments are determined based on several factors, including the availability of discrete financial information and the Company’s organizational and management structure.

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, microelectronics 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.

The Other reportable segment includes unallocated corporate costs and assets.

The primary measure used in evaluating segment performance is EBITDA.

The primary measure used by the CODM in evaluating segment performance is EBITDA.

The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for 2024, 2023 and 2022:

(Thousands) 2023 2022

Performance Materials (1)

Year Ended December 31, 2024

Performance Materials Electronic Materials Precision Optics Other Consolidated

Net sales (1)

$ 744,503 $ 845,746 $ 94,490 $ — $ 1,684,739

Electronic Materials (1)

Cost of sales 541,346 746,187 71,199 22 1,358,754

Selling, general and administrative expense 57,368 40,623 20,662 26,935 145,588

Goodwill impairment — — 56,067 — 56,067

Long-lived asset impairment — — 17,134 — 17,134

Loss on asset disposal — 6,412 — — 6,412

Other segment items (2)

14,192 23,125 13,742 59 51,118

Precision Optics 103,889 113,682

Segment depreciation, depletion and amortization 37,679 18,044 11,017 1,936 68,676

Segment EBITDA $ 169,276 $ 47,443 $ ( 73,297 ) $ ( 25,080 ) $ 118,342

Income tax expense 9,014

Interest expense - net 34,764

Depreciation, depletion and amortization 68,676

Net Income $ 5,888

Year Ended December 31, 2023

Performance Materials Electronic Materials Precision Optics Other Consolidated

Net sales (1)

$ 755,547 $ 805,751 $ 103,889 $ — $ 1,665,187

Cost of sales 539,007 705,301 71,804 33 1,316,145

Selling, general and administrative expense 59,624 45,346 20,510 32,431 157,911

Other segment items (2)

13,592 26,397 12,999 ( 1,011 ) 51,977

Segment depreciation, depletion and amortization 31,147 17,040 11,284 2,173 61,644

Segment EBITDA $ 174,471 $ 45,747 $ 9,860 $ ( 29,280 ) $ 200,798

Income tax expense 12,129

Interest expense - net 31,323

Depreciation, depletion and amortization 61,644

Net Income $ 95,702

Year Ended December 31, 2022

Performance Materials

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Precision Optics

Other ( 29,280 ) ( 28,345 )

Total Segment EBITDA 200,798 178,441

Other Consolidated

Net sales (1)

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

Cost of sales

496,411 840,384 76,410 24 1,413,229

Selling, general and administrative expense

61,235 51,656 21,941 34,506 169,338

Other segment items (2)

12,988 28,564 12,119 ( 4,134 ) 49,537

Segment depreciation, depletion and amortization

24,336 16,508 10,541 2,051 53,436

Segment EBITDA

$ 125,227 $ 67,806 $ 13,753 $ ( 28,345 ) $ 178,441

Income tax expense 17,110

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Depreciation, depletion and amortization 53,436

Net income $ 95,702 $ 85,990

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

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

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

(1) Excludes inter-segment sales of $ 5.9 million, $ 9.2 million and $ 14.0 million for Electronic Materials for 2024, 2023 and 2022, respectively.

Inter-segment sales for Performance Materials were less than $ 0.1 million in 2024 and 2023.

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

Inter-segment sales are eliminated in consolidation.

(2) Other segment items for each reportable segment include:

• Research and development expense

• Restructuring expense

• Other operating expense - primarily comprised of metal consignment fees, intangible amortization and foreign currency (gains)/losses as further detailed in Note E

• Non-operating expenses primarily related to pension costs

Other geographic information includes the following:

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

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

In fiscal year 2024 and 2023, one customer in our Performance Materials segment accounted for approximately ten percent of our net sales.

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

No individual country other than the United States accounted for 10% or more of the Company's net property, plant and equipment as of December 31, 2024 or December 31, 2023.

The CODM does not regularly review segment assets to make decisions regarding the allocation of resources, and as such the Company has not included assets for each reportable segment.

The following table disaggregates revenue for each segment by end market for 2024, 2023 and 2022:

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Energy 41,649 68,830 — — 110,479

Telecom and Data Center 62,456 80 — — 62,536

Life Sciences 10,243 17,937 21,886 — 50,066

Other 65,386 7,528 353 73,267

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Energy 49,055 91,140 — — 140,195

Telecom and Data Center 65,230 149 — — 65,379

Life Sciences 8,798 15,265 22,199 — 46,262

Other 85,855 6,523 360 — 92,738

Total $ 755,547 $ 805,751 $ 103,889 $ — $ 1,665,187

Semiconductor $ 8,666 $ 784,517 $ 5,107 $ — $ 798,290

Industrial 168,012 47,407 31,948 — 247,367

Aerospace and Defense 110,884 5,882 16,988 — 133,754

Consumer Electronics 138,193 1,144 22,666 — 162,003

Automotive 93,581 7,590 9,922 — 111,093

Energy 50,021 98,844 — — 148,865

Life Sciences 11,520 16,960 27,051 — 55,531

Other 90,648 9,558 — — 100,206

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

Note C — Revenue Recognition

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The Company generally recognizes revenue, in an amount that reflects the consideration to which it expects to be entitled, upon satisfaction of a performance obligation by transferring control over a product to the customer.

Control over the product is generally transferred to the customer when the Company has a present right to payment, the customer has legal title, the customer has physical possession, the customer has the significant risks and rewards of ownership, and/or the customer has accepted the product.

Control over the product is generally transferred to the customer when the

Company has a present right to payment, the customer has legal title, the customer has physical possession, the customer has the significant risks and rewards of ownership, and/or the customer has accepted the product.

Shipping and Handling Costs :

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Note D — Restructuring

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

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

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

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

Summary of Restructuring Plans .

In fiscal years 2024 and 2023, we announced restructuring plans that were both designed to reduce costs and expenses in response to macroeconomic conditions and current operating performance.

These actions impact all three of our business segments as well as Corporate.

When completed, the restructuring programs are expected to result in the reduction in annual cost of sales and operating expenses.

Fiscal Year 2024 Plan

In 2024, we initiated a new restructuring plan designed to further reduce costs and expenses in response to current macroeconomic conditions and to right size the cost structure within our business segments as well as eliminate excess corporate costs.

In connection with the 2024 Plan, we have recorded restructuring expenses of $ 6.8 million in fiscal year 2024.

Of these charges, $ 6.7 million were associated with workforce reduction, including severance and other personnel-related costs.

While the majority of the workforce reduction was completed in fiscal year 2024, we expect to substantially complete the remaining restructuring activities by the end of the second quarter of fiscal year 2025.

Fiscal Year 2023 Plan

In the fourth quarter of fiscal year 2023, we initiated the restructuring plan designed to reduce costs and expenses in response to the macroeconomic conditions.

The plan primarily related to a reduction in force across the three business segments.

Of the $ 3.8 million in charges, $ 3.4 million related to workforce reduction actions.

The activity in the accrued balances incurred in relation to restructuring during the years ended December 31, 2023, and December 31, 2024, were as follows:

Reduction in Force

(Thousands) Performance Materials Electronic Materials Precision Optics Other Consolidated

Balance at December 31, 2022

$ — $ — $ — $ — $ —

Additional Charges 375 2,199 745 76 3,395

Cash Payments ( 373 ) ( 1,811 ) ( 745 ) ( 76 ) ( 3,005 )

Balance at December 31, 2023

$ 2 $ 388 $ — $ — $ 390

Additional Charges 1,549 2,034 1,258 1,905 6,746

Cash Payments ( 1,495 ) ( 2,129 ) ( 1,198 ) ( 1,497 ) ( 6,319 )

Balance at December 31, 2024

$ 56 $ 293 $ 60 $ 408 $ 817

Note E — Other-net

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Interest paid $ 35,922 $ 32,044 $ 21,190

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

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

The increase in interest expense in 2024 versus 2023 was primarily driven by increased borrowings.

Amortization of deferred financing costs within interest expense was $ 1.7 million in 2024, 2023, and 2022, respectively.

Note G — Income Taxes

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Impact of foreign operations ( 4.8 ) ( 0.4 ) 0.6

Non-deductible transaction costs — — 1.6

Adjustment to unrecognized tax benefits 5.4 2.7 ( 0.5 )

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Impact of refundable credits ( 17.5 ) ( 1.6 ) —

Goodwill impairment 97.1 — —

Other items ( 0.9 ) 0.7 ( 0.3 )

Effective tax rate 60.5 % 11.3 % 16.6 %

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

The Company’s income tax expense was $ 9.0 million, $ 12.1 million and $ 17.1 million and the Company’s effective tax rate was 60.5 %, 11.3 % and 16.6 % for the years ended December 31, 2024, December 31, 2023 and December 31, 2022,

respectively.

In 2024, the effective tax rate is higher than the U.S.

statutory tax rate primarily due to the impairment of non-deductible goodwill in the Precision Optics reporting unit.

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

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

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

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

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

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Amortization ( 25,220 ) ( 30,829 )

Pensions — ( 400 )

Unrealized gains

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Net deferred tax (liabilities)/assets $ ( 278 ) $ ( 15,200 )

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

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

The Company intends to maintain a valuation allowance on these deferred tax assets until a realization event occurs to support reversal of all or a portion of the allowance.

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The Company had state net operating loss carryforwards of $ 14.5 million that expire in calendar years 2025 through 2041 and state tax credits of $ 3.6 million that expire in calendar years 2025 through 2039.

The Company also had a capital loss carryforward of $ 7.4 million that expires in 2026.

A valuation allowance of $ 5.2 million has been provided against certain foreign and state net operating loss carryforwards, a U.S.

The Company also has capital loss carryforwards of $ 7.6 million that expire in calendar years 2026 through 2028.

A valuation allowance of $ 8.6 million has been provided against certain foreign net operating loss carryforwards, a U.S.

capital loss carryforward, and state tax credits due to uncertainty of their realization.

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Income taxes paid during 2024, 2023, and 2022, were approximately $ 11.5 million, $ 7.5 million, and $ 14.5 million, respectively.

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

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, or any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations as of December 31, 2024.

The amount of such unrepatriated earnings totaled $ 91.6 million as of December 31, 2024.

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Government Tax Credits

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

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

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

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

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.

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

On October 24, 2024, the U.S.

Treasury Department published final regulations on the production credit that provided clarifying guidance that the definition of production costs for purposes of computing the production credit includes material costs and extraction costs.

The production credit recognized in 2024 was based on the Company’s analysis of the eligible production costs that qualify for the production credit under 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.

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

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

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

We recognize the benefit of the production credit 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 rate, commonly referred to as Pillar Two.

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

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

Pillar Two legislation enacted in jurisdictions the Company operates in did not have an impact on its effective tax rate or consolidated results of operations, financial position, or cash flows in 2024.

We will continue to evaluate the impact of Pillar Two legislation on future reporting periods.

Note H — Earnings Per Share

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Inventory balances are presented net of an excess and obsolete reserve totaling $ 19.7 million and $ 16.8 million at December 31, 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 our exposure to metal price movements and to reduce our working capital investment.

The notional value of off-balance sheet precious metals and copper was $ 381.6 million as of December 31, 2024 versus $ 351.5 million as of December 31, 2023.

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

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The resulting calculated weight of the precious metals in the Company's refine operations may differ, in either direction, from what its records indicate that the Company should have on hand, which would then result in an adjustment to its pre-tax income in the period when the physical inventory was taken, and the related estimates were made.

The notional value of off-balance sheet precious metals and copper was $ 351.5 million as of December 31, 2023 versus $ 373.1 million as of December 31, 2022.

Note J — Property, Plant, and Equipment

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

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

Unearned income was reduced by $ 4.4 million in 2024, 2023 and 2022 and credited to cost of sales in the Consolidated Statements of Income, offsetting the impact of the depreciation expense on the associated equipment on the Company's cost of sales and gross margin.

The unamortized unearned income balance was $ 6.3 million and $ 10.7 million at December 31, 2024 and December 31, 2023, respectively.

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The net c arrying value of capitalize d software was $ 2.8 million and $ 4.0 million at December 31, 2024 and December 31, 2023, respectively.

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

Depreciation expense related to software was $ 1.6 million in 2024, $ 1.8 million in 2023 and 2022, respectively.

As of December 31, 2024 and December 31, 2023 capital expenditures in accounts payable were $ 3.0 million and $ 7.0 million, respectively.

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Total $ 177,250 $ ( 69,557 ) $ 107,693 $ 194,409 $ ( 63,447 ) $ 130,962

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

As noted in Note A, the Company performed a recoverability analysis which indicated the Malaysia asset group was not recoverable.

The Company estimated the fair value of the asset group utilizing using the discounted cash flow method (income approach) and compared the estimated fair value to the current carrying value.

As a result of this analysis, the Company fully impaired $ 10.1 million of intangible assets.

This long-lived asset impairment is presented within the "Long-lived Asset Impairment" line item within the accompanying Consolidated Statements of Income.

Amortization expense f or 2024, 2023, and 2022 was $ 12.1 million, $ 12.9 million, and $ 12.4 million, respectively.

Estimated amortization e xpense for each of the five succeeding years is as follows:

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Intangible assets also includes deferred costs relating to the Company's revolving credit and consignments lines of $ 1.6 million and $ 2.6 million at December 31, 2024 and 2023, respectively.

In 2021, the Company acquired HCS-Electronic Materials for a total purchase price of $ 398.9 million, and recorded goodwill of $ 181.3 million.

Goodwill of $ 157.0 million and $ 24.3 million associated with the HCS-Electronic Materials acquisition was allocated to the Electronic Materials and Performance Materials segments, respectively.

The balance of goodwill at December 31, 2024 and 2023 was $ 263.7 million and $ 320.9 million, respectively.

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Balance at December 31, 2024 $ 26,157 206,300 $ 31,281 $ 263,738

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

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

therefore no impairment charges were necessary.

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

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

Due to the slower than expected semi-conductor market recovery impacting the Electronic Materials reporting unit and recent results for the Precision Optics reporting unit, the Company elected to perform a quantitative annual impairment assessment for the Electronic Materials and Precision Optics reporting units' goodwill as of October 1, 2024 and a qualitative impairment test for the Performance Materials reporting unit.

As discussed in Note A, the Company's annual goodwill impairment test indicated the carrying value of the Precision Optics reporting unit exceeded its estimated fair value as of the measurement date of October 1, 2024.

As a result, the Company recognized a goodwill impairment charge in the fourth quarter of fiscal 2024 of $ 56.1 million which was recorded in "Goodwill Impairment" in the accompanying Consolidated Statements of Income in the Precision Optics segment.

Based on the testing performed for the Electronic Materials reporting unit, the Company determined that the estimated fair value exceeded its carrying value;

therefore no impairment charge was necessary.

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

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

Any impairment charges that the Company may take in the future could be material to its consolidated results of operations and financial condition.

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

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

Accumulated impairment losses were from the closure of the LAC reporting unit which was closed as of December 31, 2020.

The Company's accumulated goodwill impairment losses were $ 76.7 million as of December 31, 2024, and $ 20.6 million as of December 31, 2023.

Accumulated impairment losses were from the closure of the LAC reporting unit which was closed as of December 31, 2020 and the Precision Optics charge taken in the fourth quarter of 2024.

Note N — Debt

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We were in compliance with all of our debt covenants as of December 31, 2024 and December 31, 2023.

Cash on hand up to $ 25 million can benefit the covenants and may benefit the borrowing capacity under the Credit Agreement.

Cash on hand up to $ 25 million can benefit the covenants and may benefit the

borrowing capacity under the Credit Agreement.

At December 31, 2024 and 2023, there was $ 438.9 million and $ 419.3 million outstanding under the Credit Agreement, respectively.

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Net amount recognized $ ( 14,910 ) $ ( 11,909 ) $ ( 4,666 ) $ ( 4,900 )

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

The benefit obligation decreased in 2024 due to actuarial gains that were driven by decreases in the discount rate.

The following amounts are included within accumulated other comprehensive loss at December 31, 2024 :

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The following table summarizes amounts recognized in other comprehensive income (OCI).

Note any gains or losses and prior service costs or credits that have not been recognized as a component of net periodic benefit costs are recorded as a component of other comprehensive income, net of deferred taxes.

The Company elects to recognize actuarial gains/(losses) using the corridor approach.

Pension Benefits Other Benefits

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

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

The rate of compensation assumption to determine the benefit obligation and net cost for the domestic retiree medical plan was 3.5 % in both 2024 and 2023.

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

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Multi-strategy hedge funds (f) 4,845

Alternatives 3,553

Private equity funds 78

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Derivatives may be used to hedge an existing security or as a risk reduction strategy.

Current asset allocation guidelines are to invest 0 % to 40 % in equity securities, 60 % to

90 % in fixed income securities and cash, and up to 20 % in alternative securities.

Current asset allocation guidelines are to invest 0 % to 40 % in equity securities, 60 % to 90 % in fixed income securities and cash, and up to 20 % in alternative securities.

Management reviews the asset allocation on a quarterly or more frequent basis and makes revisions as deemed necessary.

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On Cash Flow Hedges Pension and Post- Employment Benefits Foreign Currency Translation

(Thousands) Foreign Currency Interest Rate Precious Metals Copper Total Total

(Thousands) Foreign Currency Interest Rate Precious Metals Total Total

Balance at December 31, 2021 $ 2,348 $ — $ 72 $ 2,420 $ ( 39,702 ) $ ( 2,887 ) $ ( 40,169 )

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Exercised ( 49 ) 56.74

Cancelled ( 2 ) 101.77

Outstanding at December 31, 2024 232 $ 85.86

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

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

Stock-based compensation expense relating to SARs was $ 1.5 million in 2024, $ 1.3 million in 2023 and $ 0.9 million in 2022.

The total intrinsic value of stock options exercised during 2024, 2023, and 2022 was $ 3.2 million, $ 3.6 million and $ 2.1 million, respectively.

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The weighted-average grant date fair value of these RSUs was $ 115.72 , $ 105.54 , and $ 81.59 in 2024, 2023, and 2022, respectively.

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

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

The Company recognized $ 1.1 million of expense related to these awards in 2024, compared to $ 0.9 million of expense in 2023 and 2022.

At December 31, 2024, $ 0.4 million of expense with respect to non-vested RSU awards granted to the Board of Directors has yet to be recognized and will be amortized into expense over a weighted-average period of approximately four months .

Long-term Incentive Plans.

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

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

Other-net included foreign currency gains related to these derivatives of $ 0.4 million in 2024, compared to $ 1.1 million of foreign currency losses in 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 balance sheet classification at December 31, 2024 and 2023:

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

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

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

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

Defense and indemnity costs were less than or equal to the deductible in both 2024 and 2023.

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

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

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

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

to assist in their analyses from time to time.

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

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

The accruals are revised for the results of ongoing studies, changes in strategies, inflation, and for differences between actual and projected costs.

The accruals are revised for the results of ongoing studies, changes in strategies,

inflation, and for differences between actual and projected costs.

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

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At December 31, 2024, the Company had outstanding letters of credit totaling $ 48.6 million related to workers’ compensation, consigned precious metal guarantees, environmental remediation issues, and other matters.

The majority of the Company's outstanding letters of credit expire in 2023 and are expected to be renewed.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data