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美国

证券和交易委员会

华盛顿特区 20549 

____________________________________________ 

表格 10-Q

（标记一）

 

☒根据1934年证券交易法第13或15(d)条款的季度报告

截至季度结束日期的财务报告2024年9月6日

或者

 

☐根据1934年证券交易法第13或15(d)条款的过渡报告

对于从             到             的过渡期

佣金文件号 001-15885

Materion公司

（依据章程规定的注册机构名称）

俄亥俄州						34-1919973
（设立或组织的其他管辖区域）						（纳税人识别号码）

6070 Parkland Blvd., Mayfield Heights, 俄亥俄州 44124

（主要执行办公室地址） （邮政编码）

注册人的电话号码，包括区号：

(216)-486-4200

在法案第12(b)条的规定下注册的证券：

每个类别的标题			交易标的			在其上注册的交易所的名称
没有名义价值的普通股			MTRN			纽约证券交易所

请在复选框中表示，申报人（1）在过去12个月内（或申报人需要提交此类报告的较短期限）已提交所有应按照1934年证券交易法第13或15(d)条提交的报告，和（2）在过去90天内一直受到该提交要求的限制。是 þ没有¨

根据规则405及第232.405章的有关规定，在过去12个月内（或注册人需要提交该等文件的较短时期内），注册人是否已经递交了每个交互式数据文件。是  þ没有¨

请在检查标记中表明注册人是一个大型加速文件提交人、一个加速文件提交人、一个非加速文件提交人、一个较小的报告公司，还是一个新兴成长公司。请参阅《证券交易法1934年规则120亿.2》中“大型加速文件提交人”、“加速文件提交人”、“较小报告公司”和“新兴成长公司”的定义。

大型加速报告人 加快推进者¨

非加速报告人 ¨ 小型报告公司☐

新兴增长公司 ☐

如果是新兴成长型企业，请勾选复选标记，表明注册者已选择不使用延长过渡期来符合根据证券交易法第13(a)条规定提供的任何新财务会计准则。 ¨    

请在勾选框中标注是否注册者为壳公司（如《交易所法》120亿.2的定义）。是☐     没有þ

2024年9月27日普通股无面值流通股份数量： 20,751,282.

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第一部分 - 财务信息

项目1. 财务报表

materion公司及其子公司

综合收益表

(未经审计)

						第三季度结束												截至九个月
（以千为单位，除每股金额外）。						2024年9月27日						2023年9月29日						2024年9月27日						2023年9月29日
净销售额						$	436,715					$	403,067					$	1,247,868					$	1,244,144
销售成本						355,777						314,131						1,014,859						974,817
毛利率						80,938						88,936						233,009						269,327
销售、一般和管理费用						35,009						38,806						104,454						118,053
研发费用						7,868						6,322						22,712						21,098
重组费用（收入）						1,493						1,077						6,161						3,194
其他-净额						5,309						6,211						14,112						18,178
营业利润						31,259						36,520						85,570						108,804
其他非营业（收入）—净						(642)						(685)						(1,925)						(2,141)
利息费用-净额						8,839						7,678						25,920						22,820
税前收入						23,062						29,527						61,575						88,125
所得税费用						768						2,963						6,836						11,891
净收入						$	22,294					$	26,564					$	54,739					$	76,234
基本每股收益:
普通股每股净利润						$	1.07					$	1.29					$	2.64					$	3.70
每股摊薄收益:
普通股每股净利润						$	1.07					$	1.27					$	2.61					$	3.65
加权平均流通普通股数目：
基本						20,749						20,640						20,723						20,611
摊薄						20,920						20,905						20,935						20,891

查看这些合并基本报表的附注。

2

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materion公司及其子公司

综合收益的合并报表

(未经审计)

 

						第三季度结束												截至九个月
						9月27日,						九月二十九日，						9月27日,						九月二十九日，
（千美元）						2024						2023						2024						2023
净收入						$	22,294					$	26,564					$	54,739					$	76,234
其他全面收益（损失）：
外币兑换调整						7,579						(3,259)						2,030						(1,313)
衍生工具和对冲活动，扣除税后						(4,452)						2,019						(2,606)						2,860
养老金和离职后福利调整，扣除税后						(62)						(145)						(298)						(466)
其他综合损失						3,065						(1,385)						(874)						1,081
综合收益						$	25,359					$	25,179					$	53,865					$	77,315

查看这些合并基本报表的附注。

3

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materion公司及其子公司

合并资产负债表

(未经审计)

						9月27日,						2023年12月31日,
（千美元）						2024						2023
资产
流动资产
现金及现金等价物						$	17,874					$	13,294
应收账款，净额						214,576						192,747
净存货						476,596						441,597
预付款和其他流动资产						86,314						61,744
总流动资产						795,360						709,382
递延所得税						4,914						4,908
房地产、厂房和设备						1,328,355						1,281,622
减少折旧、耗损和摊销的准备金						(802,294)						(766,939)
物业、厂房和设备-净额						526,061						514,683
营业租赁，使用权资产。						58,871						57,645
无形资产-净额						124,281						133,571
其他资产						26,384						21,664
商誉						321,147						320,873
总资产						$	1,857,018					$	1,762,726
负债和股东权益
流动负债
短期债务						$	37,542					$	38,597
应付账款						130,310						125,663
工资薪金						19,463						25,912
其他负债及应计项目						48,850						45,773
所得税						1,166						5,207
未实现的营业收入						15,497						13,843
总流动负债						252,828						254,995
其他长期负债						12,513						13,300
营运租赁负债						56,698						53,817
融资租赁负债						13,438						13,744
养老及离职后福利						26,178						26,334
未赚收入						81,553						103,983
长期所得税						4,551						3,815
递延所得税						19,608						20,109
长期债务						457,756						387,576
股东权益
无面值的序列优先股（ 5,000 授权股份， 无 已发行的）						—						—
普通股（无面值； 60,000 授权股票，已发行股票为 27,148 在9月27日和楼 12月31日st)						331,646						309,492
留存收益						900,764						854,334
库存中的普通股						(259,191)						(237,746)
累计其他综合损失						(47,822)						(46,948)
其他权益						6,498						5,921
股东权益合计						931,895						885,053
负债合计和股东权益总计						$	1,857,018					$	1,762,726

查看这些合并基本报表的附注。

4

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materion公司及其子公司

合并现金流量表

（未经审计）

						截至九个月
						9月27日,						九月二十九日，
（千美元）						2024						2023
经营活动现金流量：
净收入						$	54,739					$	76,234
调整净利润以计入经营活动现金流量:
折旧、资源递耗和摊销						51,291						46,524
利息支出中递延融资成本的摊销						1,286						1,284
股权激励费用（非现金）						7,715						7,578
递延所得税支出（收益）						(9)						(149)
资产和负债变动：
应收账款						(21,921)						27,832
存货						(34,215)						(30,868)
预付款和其他流动资产						(24,646)						(16,175)
应付账款和应计费用						3,704						(25,533)
未实现的营业收入						(17,568)						(12,398)
应付利息和税款						(3,233)						(1,730)
因客户预付款而产生的未实现收入						—						16,676
其他-净额						(5,579)						(4,770)
经营活动产生的净现金流量						11,564						84,505
投资活动现金流量：
购买房地产、厂房和设备的付款						(50,730)						(85,251)
矿山开发的付款						(10,376)						(9,326)
固定资产出售所得						561						417
投资活动中使用的净现金						(60,545)						(94,160)
融资活动的现金流：
从信贷设施借款的收入，净额						91,057						39,649
偿还长期债务						(22,694)						(11,579)
融资租赁负债本金偿还						(567)						(1,297)
支付现金分红派息						(8,295)						(7,937)
基于股票的补偿奖励的预扣税款支付						(6,575)						(5,101)
融资活动提供的净现金						52,926						13,735
交易所变化的影响						635						(780)
现金及现金等价物净变动额						4,580						3,300
期初现金及现金等价物余额						13,294						13,101
期末现金及现金等价物						$	17,874					$	16,401

See notes to these consolidated financial statements.

5

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Materion Corporation and Subsidiaries

Consolidated Statements of Shareholders' Equity

(Unaudited)

			Common Shares												Shareholders' Equity
(Thousands, except per share amounts)			Common Shares						Common Shares Held in Treasury						Common Stock						Retained Earnings						Common Stock in Treasury						Accumulated Other Comprehensive Loss						Other Equity						Total
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
Other comprehensive income			—						—						—						—						—						3,065						—						3,065
Cash dividends declared ($0.135 per share)			—						—						—						(2,802)						—						—						—						(2,802)
Stock-based compensation activity			5						(5)						2,774						(12)						(381)						—						—						2,381
Payments of withholding taxes for stock-based compensation awards			(1)						1						—						—						(173)						—						—						(173)
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
Net income			—						—						—						26,564						—						—						—						26,564
Other comprehensive income			—						—						—						—						—						(1,385)						—						(1,385)
Cash dividends declared ($0.130 per share)			—						—						—						(2,683)						—						—						—						(2,683)
Stock-based compensation activity			8						(8)						3,174						(76)						(562)						—						—						2,536
Payments of withholding taxes for stock-based compensation awards			(3)						3						—						—						(229)						—						—						(229)
Directors’ deferred compensation			—						—						29						—						(45)						—						58						42
Balance at September 29, 2023			20,642						6,506						$	306,593					$	837,598					$	(237,259)					$	(40,828)					$	5,864					$	871,968

6

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			Common Shares												Shareholders' Equity
(Thousands, except per share amounts)			Common Shares						Common Shares Held in Treasury						Common Stock						Retained Earnings						Common Stock in Treasury						Accumulated Other Comprehensive Loss						Other Equity						Total
Balance at December 31, 2023			20,646						6,502						$	309,492					$	854,334					$	(237,746)					$	(46,948)					$	5,921					$	885,053
Net income			—						—						—						54,739						—						—						—						54,739
Other comprehensive loss			—						—						—						—						—						(874)						—						(874)
Cash dividends declared ($0.400 per share)			—						—						—						(8,295)						—						—						—						(8,295)
Stock-based compensation activity			154						(154)						22,058						(14)						(14,329)						—						—						7,715
Payments of withholding taxes for stock-based compensation awards			(50)						50						—						—						(6,575)						—						—						(6,575)
Directors’ deferred compensation			1						(1)						96						—						(541)						—						577						132
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
Net income			—						—						—						76,234						—						—						—						76,234
Other comprehensive loss			—						—						—						—						—						1,081						—						1,081
Cash dividends declared ($0.385 per share)			—						—						—						(7,937)						—						—						—						(7,937)
Stock-based compensation activity			146						(146)						18,416						(117)						(10,721)						—						—						7,578
Payments of withholding taxes for stock-based compensation awards			(48)						48						—						—						(5,101)						—						—						(5,101)
Directors’ deferred compensation			1						(1)						77						—						(573)						—						619						$	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.

7

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note A — Accounting Policies

Basis of Presentation:

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

Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications had no effect on the reported results of operations, cash flows or financial position. Specifically, the net sales related to the previously disclosed precision clad strip project have been reclassified from the other end market to the consumer electronics end market within Note B.

New Pronouncements Adopted:

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07 “Improvements to Reportable Segment Disclosures (Topic 280)”. This ASU updates current reportable segment disclosure requirements to require disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. This ASU will be effective for the annual period ending December 31, 2024. Adoption of this ASU will result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.

In December 2023, the FASB issued ASU No. 2023-09 “Improvements to Income Tax Disclosures (Topic 740)”. This ASU updates current income tax disclosure requirements to require disclosures of specific categories of information within the effective tax rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. This ASU will be effective for the annual period ending December 31, 2025. Adoption of this ASU will result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.

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

 

The Company has the following reportable segments: 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 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 and high temperature braze materials.

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 measurement used by management to measure the financial performance of each segment is earnings before interest, taxes, depreciation and amortization (EBITDA).

8

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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
Net sales:
Performance Materials(1)						$	177,376					$	184,642					$	533,534					$	554,427
Electronic Materials(1)						236,906						192,305						641,564						611,855
Precision Optics						22,433						26,120						72,770						77,862
Other						—						—						—						—
Net sales						436,715						403,067						1,247,868						1,244,144
Segment EBITDA:
Performance Materials						$	44,802					$	46,366					$	115,893					$	134,061
Electronic Materials						12,309						10,155						40,118						37,504
Precision Optics						(39)						3,261						1,297						7,654
Other						(6,578)						(7,497)						(18,522)						(21,750)
Total Segment EBITDA						50,494						52,285						138,786						157,469
Income tax expense						768						2,963						6,836						11,891
Interest expense - net						8,839						7,678						25,920						22,820
Depreciation, depletion and amortization						18,593						15,080						51,291						46,524
Net income						$	22,294					$	26,564					$	54,739					$	76,234

(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 third quarter and first nine months of 2024 and 2023:

9

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(Thousands)						Performance Materials						Electronic Materials						Precision Optics						Other						Total
Third Quarter 2024
End Market
Semiconductor						$	2,097					$	198,790					$	798					$	—					$	201,685
Industrial						33,494						7,352						6,254						—						47,100
Aerospace and defense						44,940						975						5,126						—						51,041
Consumer electronics						49,131						172						4,006						—						53,309
Automotive						18,123						1,724						1,780						—						21,627
Energy						12,819						20,810						—						—						33,629
Telecom and data center						7,929						75						—						—						8,004
Other						8,843						7,008						4,469						—						20,320
Total						$	177,376					$	236,906					$	22,433					$	—					$	436,715
Third Quarter 2023
End Market
Semiconductor						$	2,712					$	151,388					$	624					$	—					$	154,724
Industrial						32,046						7,958						6,954						—						46,958
Aerospace and defense						30,938						1,102						7,124						—						39,164
Consumer electronics						59,486						144						4,254						—						63,884
Automotive						19,447						1,747						2,606						—						23,800
Energy						13,013						25,179						—						—						38,192
Telecom and data center						15,685						10						—						—						15,695
Other						11,315						4,777						4,558						—						20,650
Total						$	184,642					$	192,305					$	26,120					$	—					$	403,067

10

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(Thousands)						Performance Materials						Electronic Materials						Precision Optics						Other						Total
First Nine Months 2024
End Market
Semiconductor						$	6,059					$	533,312					$	1,877					$	—					$	541,248
Industrial						91,765						25,466						19,399						—						136,630
Aerospace and defense						129,011						4,260						16,980						—						150,251
Consumer electronics						166,797						309						11,272						—						178,378
Automotive						54,190						5,367						5,459						—						65,016
Energy						30,191						53,480						—						—						83,671
Telecom and data center						28,913						131						—						—						29,044
Other						26,608						19,239						17,783						—						63,630
Total						$	533,534					$	641,564					$	72,770					$	—					$	1,247,868
First Nine Months 2023
End Market
Semiconductor						$	9,713					$	487,361					$	2,279					$	—					$	499,353
Industrial						111,436						25,102						22,400						—						158,938
Aerospace and defense						92,734						4,670						17,771						—						115,175
Consumer electronics						162,180						526						11,075						—						173,781
Automotive						66,753						4,966						7,090						—						78,809
Energy						38,597						71,940						—						—						110,537
Telecom and data center						49,223						68						—						—						49,291
Other						23,791						17,222						17,247						—						58,260
Total						$	554,427					$	611,855					$	77,862					$	—					$	1,244,144

Note C — Revenue Recognition

Net sales consist primarily of revenue from the sale of precious and non-precious specialty metals, beryllium and copper-based alloys, beryllium composites, and other products into numerous end markets. The Company requires an agreement with a customer that creates enforceable rights and performance obligations. 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 a 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.

Transaction Price Allocated to Future Performance Obligations: 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. The guidance provides certain practical expedients that limit this requirement. As such, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

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

11

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

(Thousands)						September 27, 2024						December 31, 2023						$ change						% change
Accounts receivable, trade						$	215,420					$	193,345					$	22,075					11		%
Unbilled receivables						38,098						29,524						8,574						29		%
Unearned revenue						15,497						13,843						1,654						12		%

Accounts receivable, trade represents payments due from customers relating to the transfer of the Company’s products and services. The Company believes that its receivables are collectible and appropriate allowances for doubtful accounts have been recorded. Impairment losses (bad debt) incurred related to our receivables were immaterial during the third quarter of 2024.

Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed. Unbilled receivables are generally billed and collected within one year. Billings made on contracts are recorded as a reduction of unbilled receivables.

Unearned revenue is recorded for consideration received from customers in advance of satisfaction of the related performance obligations. 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 — 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
Amortization of intangible assets						$	3,217					$	3,153					$	9,227					$	9,403
Metal consignment fees						1,978						2,580						5,896						8,307
Foreign currency (gain) loss						717						609						1,251						571
Other items						(603)						(131)						(2,262)						(103)
Total						$	5,309					$	6,211					$	14,112					$	18,178

12

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note F — Income Taxes

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 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

Pursuant to The Inflation Reduction Act of 2022 (IRA), the Company is eligible for the Advanced Manufacturing Production Credit (production credit) beginning in 2023. The production credit provides an annual cash benefit for a portion of the production costs for the sale of certain critical minerals produced in the U.S. and sold during the year. On 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. U.S. GAAP does not address the accounting for government grants received by a business entity that are outside the scope of ASC 740. Our accounting policy is to analogize to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, under IFRS Accounting Standards. We recognize the benefit of the production credits by applying IAS 20 in pretax income on a systematic basis in line with its recognition of the expenses that the grant is intended to compensate.

Pillar Two

The Organization for Economic Co-operation and Development (OECD) introduced rules to establish a global minimum corporate tax, commonly referred to as Pillar Two. Numerous foreign countries have enacted legislation to implement the Pillar Two rules, effective beginning in 2024, or are expected to enact similar legislation. The Company continues to evaluate the Pillar Two rules but does not expect Pillar Two to have a significant impact on its effective tax rate or consolidated results of operations, financial position, and cash flows.

13

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note G — Earnings Per Share (EPS)

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

						Third Quarter Ended												Nine Months Ended
						September 27,						September 29,						September 27,						September 29,
(Thousands, except per share amounts)						2024						2023						2024						2023
Numerator for basic and diluted EPS:
Net income						$	22,294					$	26,564					$	54,739					$	76,234
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding						20,749						20,640						20,723						20,611
Effect of dilutive securities:
Stock appreciation rights						75						79						83						87
Restricted stock units						44						84						61						89
Performance-based restricted stock units						52						102						68						104
Diluted potential common shares						171						265						212						280
Denominator for diluted EPS:
Adjusted weighted-average shares outstanding						20,920						20,905						20,935						20,891
Basic EPS						$	1.07					$	1.29					$	2.64					$	3.70
Diluted EPS						$	1.07					$	1.27					$	2.61					$	3.65

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:

						September 27,						December 31,
(Thousands)						2024						2023
Raw materials and supplies						$	129,539					$	117,693
Work in process						276,998						268,717
Finished goods						70,059						55,187
Inventories, net						$	476,596					$	441,597

The Company maintains the majority of the precious metals and copper used in production on a consignment basis in order to reduce its exposure to metal market price movements and to reduce its working capital investment. The notional value of off-balance sheet precious metals and copper was $385.7 million and $351.5 million as of September 27, 2024 and December 31, 2023, respectively.

14

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note I — Customer Prepayments

In 2020, the Company entered into an investment agreement and a master supply agreement with a customer to procure equipment to manufacture product for the customer. The customer provided prepayments to the Company to fund the necessary infrastructure improvements and procure the equipment necessary to supply the customer with the desired product. The Company owns, operates and maintains the equipment that is being used to manufacture product for the customer.

Revenue will be recognized as the Company fulfills purchase orders and ships the commercial product to the customer, as product delivery is considered the satisfaction of the performance obligation.

Additionally, during the second quarter of 2022, the Company entered into an amendment to the investment agreement with the same customer to procure additional equipment to manufacture product for the customer. In 2023, the Company received the remaining prepayments related to this amendment, the total of which approximated $38.6 million.

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

						Pension Benefits												Other Benefits
						Third Quarter Ended												Third Quarter Ended
						September 27,						September 29,						September 27,						September 29,
(Thousands)						2024						2023						2024						2023
Components of net periodic benefit (credit) cost
Service cost						$	279					$	209					$	12					$	13
Interest cost						1,916						1,966						58						68
Expected return on plan assets						(2,541)						(2,421)						—						—
Amortization of prior service (benefit) cost						(22)						(21)						—						(139)
Amortization of net loss (gain)						32						(75)						(87)						(95)
Net periodic benefit (credit) cost						$	(336)					$	(342)					$	(17)					$	(153)

						Pension Benefits												Other Benefits
						Nine Months Ended												Nine Months Ended
						September 27,						September 29,						September 27,						September 29,
(Thousands)						2024						2023						2024						2023
Components of net periodic benefit (credit) cost
Service cost						$	813					$	642					$	37					$	38
Interest cost						5,728						5,909						175						205
Expected return on plan assets						(7,600)						(7,282)						—						—
Amortization of prior service (benefit) cost						(64)						(65)						—						(417)
Amortization of net loss (gain)						96						(231)						(262)						(285)
Net periodic benefit (credit) cost						$	(1,027)					$	(1,027)					$	(50)					$	(459)

15

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The Company did not 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 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 June 28, 2024						$	1,718					$	5,709					$	(323)											$	7,104					$	(48,894)					$	(9,097)					$	(50,887)
Other comprehensive income (loss) before reclassifications						(695)						(3,805)						(148)												(4,648)						—						7,579						2,931
Amounts reclassified from accumulated other comprehensive income (loss)						(135)						(1,294)						295												(1,134)						(77)						—						(1,211)
Net current period other comprehensive (loss) income before tax						(830)						(5,099)						147												(5,782)						(77)						7,579						1,720
Deferred taxes						(191)						(1,173)						34												(1,330)						(15)						—						(1,345)
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)
Other comprehensive (loss) income before reclassifications						766						2,398						515												3,679						—						(3,259)						420
Amounts reclassified from accumulated other comprehensive income (loss)						—						(1,140)						83												(1,057)						(299)						—						(1,356)
Net current period other comprehensive (loss) income before tax						766						1,258						598												2,622						(299)						(3,259)						(936)
Deferred taxes						176						289						138												603						(154)						—						449
Net current period other comprehensive (loss) income after tax						590						969						460												2,019						(145)						(3,259)						(1,385)
Balance at September 29, 2023						$	1,880					$	8,038					$	17											$	9,935					$	(40,694)					$	(10,069)					$	(40,828)

16

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

						Gains and Losses on Cash Flow Hedges
(Thousands)						Foreign Currency						Interest Rate						Precious Metals												Total						Pension and Post-Employment Benefits						Foreign Currency Translation						Total
Balance at December 31, 2023						$	1,201					$	4,156					$	(99)											$	5,258					$	(48,658)					$	(3,548)					$	(46,948)
Other comprehensive income (loss) before reclassifications						177						774						(708)												243						—						2,030						2,273
Amounts reclassified from accumulated other comprehensive income (loss)						(335)						(3,856)						564												(3,627)						(266)						—						(3,893)
Net current period other comprehensive (loss) income before tax						(158)						(3,082)						(144)												(3,384)						(266)						2,030						(1,620)
Deferred taxes						(36)						(709)						(33)												(778)						32						—						(746)
Net current period other comprehensive (loss) income after tax						(122)						(2,373)						(111)												(2,606)						(298)						2,030						(874)
Balance at September 27, 2024						$	1,079					$	1,783					$	(210)											$	2,652					$	(48,956)					$	(1,518)					$	(47,822)
Balance at December 31, 2022						$	1,243					$	6,055					$	(223)											$	7,075					$	(40,228)					$	(8,756)					$	(41,909)
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)
Net current period other comprehensive (loss) income before tax						827						2,575						312												3,714						(844)						(1,313)						1,557
Deferred taxes						190						592						72												854						(378)						—						476
Net current period other comprehensive (loss) income after tax						637						1,983						240												2,860						(466)						(1,313)						1,081
Balance at September 29, 2023						$	1,880					$	8,038					$	17											$	9,935					$	(40,694)					$	(10,069)					$	(40,828)

Reclassifications from accumulated other comprehensive income (loss) of gains and losses on foreign currency cash flow hedges are recorded in Net sales in the Consolidated Statements of Income. Reclassifications from accumulated other comprehensive income (loss) of gains and losses on precious metal and copper cash flow hedges are recorded in Cost of sales in the Consolidated Statements of Income. Reclassifications from accumulated other comprehensive income (loss) of gains and losses on the interest rate cash flow hedge is recorded in Interest expense in the Consolidated Statements of Income. Refer to Note N for additional details on cash flow hedges.

Reclassifications from accumulated other comprehensive income (loss) for pension and post-employment benefits are included in the computation of the net periodic pension and post-employment benefit expense. Refer to Note J for additional details on pension and post-employment expenses.

17

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note L — Stock-based Compensation Expense

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:

Risk-free interest rate						4.17		%
Dividend yield						0.38		%
Volatility						38.3		%
Expected term (in years)						4.6

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 $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 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 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

The Company measures and records financial instruments at fair value. A hierarchy is used for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:

Level 1 — Quoted market prices in active markets for identical assets and liabilities;

Level 2 — Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3 — Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect

those that a market participant would use.

18

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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 in  Active Markets  for Identical Assets (Level 1)												Significant Other Observable Inputs (Level 2)												Significant Unobservable Inputs (Level 3)
						2024						2023						2024						2023						2024						2023						2024						2023
Financial Assets
Deferred compensation investments						$	5,654					$	4,899					$	5,654					$	4,899					$	—					$	—					$	—					$	—
Foreign currency forward contracts						1,163						615						—						—						1,163						615						—						—
Interest rate swap						3,601						6,492						—						—						3,601						6,492						—						—
Precious metal swaps						104						353						—						—						104						353						—						—
Total						$	10,522					$	12,359					$	5,654					$	4,899					$	4,868					$	7,460					$	—					$	—
Financial Liabilities
Deferred compensation liability						$	5,654					$	4,899					$	5,654					$	4,899					$	—					$	—					$	—					$	—
Foreign currency forward contracts						1,777						1,500						—						—						1,777						1,500						—						—
Interest Rate Swap						1,287						1,096																		1,287						1,096												—
Precious metal swaps						380						485						—						—						380						485						—						—
Total						$	9,098					$	7,980					$	5,654					$	4,899					$	3,444					$	3,081					$	—					$	—

The Company uses a market approach to value the assets and liabilities for financial instruments in the table above. Outstanding contracts are valued through models that utilize market observable inputs, including both spot and forward prices, for the same underlying currencies, metals, and interest rates. The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of September 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. Deferred compensation investments are primarily presented in Other assets. Deferred compensation liabilities are primarily presented in Other long-term liabilities.

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

Interest Rate. On March 4, 2022, the Company entered into a $100.0 million interest rate swap to hedge the interest rate risk on the Credit Agreement described in Note P. The swap hedges the change in 1-month Secured Overnight Financial Rate (SOFR) from March 4, 2022 to November 2, 2026. On March 21, 2023, the Company entered into two $50.0 million interest rate swaps to hedge the interest rate risk on the Credit Agreement described in Note P. The swaps hedge the change in 1-month USD-SOFR. The purpose of these hedges is to manage the risk of changes in the monthly interest payments attributable to changes in the benchmark interest rate.

Foreign Currency.    The Company sells a portion of its products to overseas customers in their local currencies, primarily the euro and yen. The Company secures foreign currency derivatives, mainly forward contracts and options, to hedge these anticipated sales transactions. The purpose of the hedge program is to protect against the reduction in the dollar value of foreign currency sales from adverse exchange rate movements. Should the dollar strengthen significantly, the decrease in the translated value of the foreign currency sales should be partially offset by gains on

19

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

the hedge contracts. Depending upon the methods used, the hedge contracts may limit the benefits from a weakening U.S. dollar.

The use of forward contracts locks in a firm rate and eliminates any downside from an adverse rate movement as well as any benefit from a favorable rate movement. The Company may from time to time choose to hedge with options or a tandem of options, known as a collar. These hedging techniques can limit or eliminate the downside risk but can allow for some or all of the benefit from a favorable rate movement to be realized. Unlike a forward contract, a premium is paid for an option; collars, which are a combination of a put and call option, may have a net premium but can be structured to be cash neutral. The Company will primarily hedge with forward contracts due to the relationship between the cash outlay and the level of risk.

The use of foreign currency derivative contracts is governed by policies approved by the Audit Committee of the Board of Directors. A team consisting of senior financial managers reviews the estimated exposure levels, as defined by budgets, forecasts, and other internal data, and determines the timing, amounts, and nature of instruments to use to hedge exposures. Management analyzes the effective hedged rates and the actual and projected gains and losses on the hedging transactions against the program objectives, targeted rates, and levels of risk assumed. Foreign currency contracts are typically layered in at different times for a specified exposure period in order to minimize the impact of market rate movements.

Precious Metals.    The Company maintains the majority of its precious metal production requirements on consignment in order to reduce its working capital investment and the exposure to metal price movements. When a product containing precious metal is fabricated and delivered to the customer, the metal content is purchased out of consignment based on the current market price. The price paid by the Company for the precious metal forms the basis for the price charged to the customer for the metal content in the product. This methodology allows for changes in either direction in the market prices of the precious metals used by the Company to be passed through to the customer and reduces the impact changes in prices could have on the Company's margins and operating profit. The consigned metal is owned by precious metal consignors that charge the Company consignment fees based upon the value of the metal as it fluctuates while on consignment. Each precious metal consignor retains title to its consigned precious metal until it is purchased by the Company, and it is the Company’s typical practice to purchase metal out of consignment only after a product containing that metal has been purchased by one of our customers.

In certain instances, a customer may want to fix the price for the precious metal at the time the sales order is placed rather than at the time of shipment. Setting the sales price at a different date than when the material would be purchased out of consignment potentially creates an exposure to movements in the market price of the metal. Therefore, in these limited situations, the Company may elect to enter into a forward contract to purchase precious metal. The forward contract allows the Company to purchase metal at a fixed price on a specific future date. The price in the forward contract serves as the basis for the price to be charged to the customer. By doing so, the selling price and purchase price are matched, and the Company's price exposure is reduced.

The Company refines precious metal-containing materials for its customers and typically will purchase the refined metal from the customer at current market prices. In limited circumstances, the customer may want to fix the price to be paid at the time of the order as opposed to when the material is refined. The customer may also want to fix the price for a set period of time. The Company may then elect to enter into a hedge contract, either a forward contract or a swap, to fix the price for the estimated quantity of metal to be refined and purchased, thereby reducing the exposure to adverse movements in the price of the metal. The Company may also enter into hedges to mitigate the risk relating to the prices of the metals that we process or refine.

In certain circumstances, the Company also refines metal from the customer and may retain a portion of the refined metal as payment. The Company may elect to enter into a forward contract to sell precious metal to reduce the Company's price exposure in these instances.

The Company may, from time to time, elect to purchase precious metal and hold in inventory rather than on consignment due to potential credit line limitations or other factors. These purchases are infrequent and, when made are typically held for a short duration. A forward contract will be secured at the time of the purchase to fix the price to be paid when the metal is transferred back to the consignment line, thereby limiting any price exposure during the time when the metal was owned by the Company.

20

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The Company will only enter into a derivative contract if there is an underlying identified exposure. Contracts are typically held to maturity. The Company does not engage in derivative trading activities and does not use derivatives for speculative purposes. The Company only uses hedge contracts that are denominated in the same currency or metal as the underlying exposure.

All derivatives are recorded on the balance sheet at fair value. If a derivative is designated and effective as a cash flow hedge, changes in the fair value of the derivative are recognized in other comprehensive income (OCI) and reclassified into income in the same period or periods during which the hedged transaction affects earnings. The ineffective portion of a derivative's fair value, if any, is recognized in earnings immediately. If a derivative is not a hedge, changes in the fair value are adjusted through income. The fair values of the outstanding derivatives are recorded on the balance sheet as assets (if the derivatives are in a gain position) or liabilities (if the derivatives are in a loss position). The derivative assets and liabilities are classified as short-term or long-term depending upon the contract maturity date.

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives not designated as hedging instruments (on a gross basis) and the balance sheet classification as of September 27, 2024 and December 31, 2023:

						September 27, 2024												December 31, 2023
(Thousands)						Notional Amount						Fair Value						Notional Amount						Fair Value
Foreign currency forward contracts
Prepaid and other current assets						$	31,145					$	1,150					$	23,122					$	558
Other liabilities and accrued items						27,343						1,343						25,853						1,180

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

21

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives designated as cash flow hedges (on a gross basis) and balance sheet classification as of September 27, 2024 and December 31, 2023:

						September 27, 2024
												Fair Value
(Thousands)						Notional Amount						Prepaid and other current assets						Other assets						Other liabilities and accrued items						Other long-term liabilities
Foreign currency forward contracts - yen						$	1,830					$	13					$	—					$	73					$	—
Foreign currency forward contracts - euro						13,931						—						—						361						—
Precious metal swaps						265						104						—						380						—
Interest rate swap						200,000						2,271						1,330						322						965
Total						$	216,026					$	2,388					$	1,330					$	1,136					$	965
						December 31, 2023
												Fair Value
						Notional Amount						Prepaid and other current assets						Other assets						Other liabilities and accrued items						Other long-term liabilities
Foreign currency forward contracts - yen						$	2,167					$	32					$	—					$	20					$	—
Foreign currency forward contracts - euro						23,064						25						—						300						—
Precious metal swaps						15,717						353						—						485						—
Interest rate swap						200,000						3,658						2,834						—						1,096
Total						$	240,948					$	4,068					$	2,834					$	805					$	1,096

All of the contracts summarized above were designated and effective as cash flow hedges. We expect to reclassify $1.3 million of net gains into earnings in the next 12 months contemporaneously with the earnings effects of the related forecasted transactions. 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 third quarter and first nine months of 2024 and 2023: 

												Third Quarter Ended
(Thousands)												September 27, 2024						September 29, 2023
Hedging relationship						Line item
Foreign currency forward contracts						Net sales						$	(135)					$	—
Precious metal swaps						Cost of sales						295						83
Interest rate swap						Interest expense - net						(1,294)						(1,140)
Total												$	(1,134)					$	(1,057)

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

												Nine Months Ended
(Thousands)												September 27, 2024						September 29, 2023
Hedging relationship						Line item
Foreign currency forward contracts						Net sales						$	(335)					$	(35)
Precious metal swaps						Cost of sales						564						193
Interest rate swap						Interest expense - net						(3,856)						(2,950)
Total												$	(3,627)					$	(2,792)

Note O — Contingencies

Legal Proceedings. The Company is party to several pending legal proceedings and claims arising in the normal course of business. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matters. To the extent there is a reasonable possibility that the losses could exceed any amounts accrued, the Company will adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

Environmental Proceedings. The Company has an active environmental compliance program and records reserves for the probable cost of identified environmental remediation projects. The reserves are established based upon analyses conducted by the Company’s engineers and outside consultants and are adjusted from time to time based upon ongoing studies, the difference between actual and estimated costs, and other factors. 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 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)						September 27, 2024						December 31, 2023
Borrowings under Credit Agreement						$	241,375					$	149,250
Borrowings under the Term Loan Facility						247,500						270,000
Overdraft Sweep Facility						—						3,825
Foreign debt						8,499						5,918
Total debt outstanding						497,374						428,993
Current portion of long-term debt						(37,542)						(38,597)
Gross long-term debt						459,832						390,396
Unamortized deferred financing fees						(2,076)						(2,820)
Long-term debt						$	457,756					$	387,576

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. 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.

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Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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.

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

We are an integrated producer of high-performance advanced engineered materials used in a variety of electronic, thermal, and structural applications. Our products are sold into numerous end markets, including semiconductor, industrial, aerospace and defense, automotive, consumer electronics, energy, and telecom and data center.

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RESULTS OF OPERATIONS

Third Quarter

						Third Quarter Ended
						September 27,						September 29,						$						%
(Thousands, except per share data)						2024						2023						Change						Change
Net sales						$	436,715					$	403,067					$	33,648					8		%
Value-added sales						263,828						270,532						(6,704)						(2)		%
Gross margin						80,938						88,936						(7,998)						(9)		%
Gross margin as a % of value-added sales						31		%				33		%
Selling, general, and administrative (SG&A) expense						35,009						38,806						(3,797)						(10)		%
SG&A expense as a % of value-added sales						13		%				14		%
Research and development (R&D) expense						7,868						6,322						1,546						24		%
R&D expense as a % of value-added sales						3		%				2		%
Restructuring expense						1,493						1,077						416						39		%
Other—net						5,309						6,211						(902)						(15)		%
Operating profit						31,259						36,520						(5,261)						(14)		%
Other non-operating (income)—net						(642)						(685)						43						(6)		%
Interest expense—net						8,839						7,678						1,161						15		%
Income before income taxes						23,062						29,527						(6,465)						(22)		%
Income tax expense						768						2,963						(2,195)						(74)		%
Net income						$	22,294					$	26,564					$	(4,270)					(16)		%
Diluted earnings per share						$	1.07					$	1.27					$	(0.20)					(16)		%

Net sales of $436.7 million in the third quarter of 2024 increased $33.6 million from $403.1 million in the third quarter of 2023. An increase in net sales in the Electronic Materials was partially offset by decreased net sales in the Performance Materials and Precision Optics segments. The increase in the Electronic Materials segment was primarily due to higher precious metal pass through costs, increasing net sales by approximately $30.3 million when compared to the prior year third quarter.

Volume increases in the semiconductor (11%) and aerospace and defense (30%) end markets were partially offset by a decrease in the telecom and data center (49%) end market as well as decreased sales in the consumer electronic end market (17%) primarily driven by our largest customer. Additionally, there was a $2.9 million year over year decrease in raw material beryllium hydroxide sales compared to the third quarter of 2023. See Note B to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment and market.

Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in precious metal market prices and changes in mix due to customer-supplied material. Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein. Value-added sales of $263.8 million in the third quarter of 2024 decreased $6.7 million, or 2%, compared to the third quarter of 2023. A volume decrease in the telecom and data center (47%) end market as well as decreased sales in the consumer electronic end market (16%) primarily driven by our largest customer were partially offset by an increase in the aerospace and defense (35%) and semiconductor (10%) end markets. Additionally, there was a $2.9 million year over year decrease in raw material beryllium hydroxide sales compared to the third quarter of 2023.

Gross margin in the third quarter of 2024 was $80.9 million, a decrease of 9% compared to the third quarter of 2023. Gross margin expressed as a percentage of value-added sales decreased to 31% in the third quarter of 2024 from 33% in the third quarter of 2023. The decrease in gross margin is primarily due to unfavorable price/mix as well as higher costs associated with the production ramp of the precision clad strip facility.

SG&A expense was $35.0 million in the third quarter of 2024, compared to $38.8 million in the third quarter of 2023. The decrease in SG&A expense was primarily due to various cost savings initiatives implemented throughout 2023 and during the

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first nine months of 2024. Expressed as a percentage of value-added sales, SG&A expense was 13% and 14% in the third quarter of 2024 and 2023, respectively.

R&D expense consists primarily of direct personnel and material costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense as a percent of value-added sales increased slightly from 2% in the third quarter of 2023 to 3% in the third quarter of 2024.

Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In the third quarter of 2024, we recorded $1.5 million of restructuring charges across all segments. In the third quarter of 2023, we recorded $1.1 million of restructuring charges primarily in our Electronic Materials segment. See Note D to the Consolidated Financial Statements for further discussion.

Other-net was $5.3 million of expense in the third quarter of 2024, or a $0.9 million decrease from the third quarter of 2023. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.

Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note J to the Consolidated Financial Statements for details of the components.

Interest expense-net was $8.8 million and $7.7 million in the third quarter of 2024 and 2023, respectively. The increase in interest expense is primarily due to an increase in interest rates and borrowings compared to the prior year period.

Income tax expense for the third quarter of 2024 was $0.8 million, compared to $3.0 million in the third quarter of 2023. The effective tax rate for the third quarter of 2024 and 2023 was 3.3% and 10.0%, respectively. The effective tax rate for 2024 and 2023 is lower than the statutory tax rate primarily due to the impact of the foreign-derived intangible income deduction, percentage depletion and research and development tax credits. See Note F to the Consolidated Financial Statements for additional discussion.

Nine Months

						Nine Months Ended
						September 27,						September 29,						$						%
(Thousands, except per share data)						2024						2023						Change						Change
Net sales						$	1,247,868					$	1,244,144					$	3,724					—		%
Value-added sales						801,509						837,351						(35,842)						(4)		%
Gross margin						233,009						269,327						(36,318)						(13)		%
Gross margin as a % of value-added sales						29		%				32		%
SG&A expense						104,454						118,053						(13,599)						(12)		%
SG&A expense as a % of value-added sales						13		%				14		%
R&D expense						22,712						21,098						1,614						8		%
R&D expense as a % of value-added sales						3		%				3		%
Restructuring (income) expense						6,161						3,194						2,967						93		%
Other—net						14,112						18,178						(4,066)						(22)		%
Operating profit						85,570						108,804						(23,234)						(21)		%
Other non-operating (income)—net						(1,925)						(2,141)						216						(10)		%
Interest expense—net						25,920						22,820						3,100						14		%
Income before income taxes						61,575						88,125						(26,550)						(30)		%
Income tax expense						6,836						11,891						(5,055)						(43)		%
Net income						$	54,739					$	76,234					$	(21,495)					(28)		%
Diluted earnings per share						$	2.61					$	3.65					$	(1.04)					(28)		%

Net sales of $1,247.9 million in the first nine months of 2024 increased $3.7 million from $1,244.1 million in the first nine months of 2023. An increase in net sales in the Electronic Materials segment was partially offset by decreases in the Performance Materials and Precision Optics segments. The increase in the Electronic Materials segment was primarily due to

26

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higher precious metal pass through costs, increasing net sales by approximately $49.3 million when compared to the prior year first nine months.

Volume decreases in the energy (24%), industrial (14%), telecom and data center (41%) and automotive (18%) end markets were partially offset by an increase in the aerospace and defense (30%) end market. See Note B to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment and market.

Value-added sales of $801.5 million in the first nine months of 2024 decreased $35.8 million, or 4%, compared to the first nine months of 2023. Volume decreases in the industrial (19%), semiconductor (6%), automotive (20%), energy (24%), and telecom and data center (40%) end markets were partially offset by an increase in the aerospace and defense (36%) end market.

Gross margin in the first nine months of 2024 was $233.0 million, a decrease of 13% compared to the first nine months of 2023. Gross margin expressed as a percentage of value-added sales decreased to 29% in the first nine months of 2024 from 32% in the first nine months of 2023. Gross margin decreased from the prior year period primarily due to impact of lower volumes and related unabsorbed costs in the first half of 2024. Additionally, gross margin was unfavorably impacted by higher costs associated with the production ramp of the precision clad strip facility.

SG&A expense was $104.5 million in the first nine months of 2024, compared to $118.1 million in the first nine months of 2023. The decrease in SG&A expense was primarily due to various cost savings initiatives implemented throughout 2023 and during the nine months of 2024. Expressed as a percentage of value-added sales, SG&A expense was 13% and 14% in the first nine months of 2024 and 2023, respectively.

R&D expense consists primarily of direct personnel and material costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 3% of value-added sales in the first nine months of both 2024 and 2023.

Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In the first nine months of 2024, we recorded a combined total of $6.2 million of restructuring charges in our Electronic Materials, Precision Optics, Performance Materials and Other segments. In the first nine months of 2023, we recorded a combined total of $3.2 million of restructuring charges primarily in our Precision Optics, Electronic Materials and Performance Materials segments. Refer to Note D to the Consolidated Financial Statements for details.

Other-net was $14.1 million of expense in the first nine months of 2024, or a $4.1 million decrease from the first nine months of 2023. Refer to Note E to the Consolidated Financial Statements for details of the major components within Other-net.

Other non-operating (income)-net includes components of pension and post-retirement expense other than service costs. Refer to Note J to the Consolidated Financial Statements for details of the components.

Interest expense-net was $25.9 million and $22.8 million in the first nine months of 2024 and 2023, respectively. The increase in interest expense is primarily due to an increase in interest rates and borrowings compared to the prior year period.

Income tax expense for the first nine months of 2024 was $6.8 million, compared to $11.9 million in the nine months of 2023. The Company's effective tax rate for the first nine months of 2024 and 2023 was 11.1% and 13.5%, respectively. 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. See Note F to the Consolidated Financial Statements for additional discussion.

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Value-Added Sales - Reconciliation of Non-GAAP Financial Measure

A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the third quarter and first nine months of 2024 and 2023 is as follows:

						Third Quarter Ended												Nine Months Ended
						September 27,						September 29,						September 27,						September 29,
(Thousands)						2024						2023						2024						2023
Net sales
Performance Materials						$	177,376					$	184,642					$	533,534					$	554,427
Electronic Materials						236,906						192,305						641,564						611,855
Precision Optics						22,433						26,120						72,770						77,862
Other						—						—						—						—
Total						$	436,715					$	403,067					$	1,247,868					$	1,244,144
Less: pass-through metal costs
Performance Materials						$	13,768					$	15,748					$	41,283					$	51,906
Electronic Materials						159,067						116,772						404,953						354,829
Precision Optics						52						15						123						58
Other						—						—						—						—
Total						$	172,887					$	132,535					$	446,359					$	406,793
Value-added sales
Performance Materials						$	163,608					$	168,894					$	492,251					$	502,521
Electronic Materials						77,839						75,533						236,611						257,026
Precision Optics						22,381						26,105						72,647						77,804
Other						—						—						—						—
Total						$	263,828					$	270,532					$	801,509					$	837,351

Internally, management reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through precious metal market costs from net sales. Value-added sales allow management to assess the impact of differences in net sales between periods, segments, or markets, and analyze the resulting margins and profitability without the distortion of movements in pass-through market metal costs. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. We sell other metals and materials that are not considered direct pass-throughs, and these costs are not deducted from net sales when calculating value-added sales. Non-GAAP financial measures, such as value-added sales, have inherent limitations and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium can be quite volatile. Our pricing policy is to directly pass the market cost of these metals on to the customer in order to mitigate the impact of metal price volatility on our results from operations. Trends and comparisons of net sales are affected by movements in the market prices of these metals, but changes in net sales due to metal price movements may not have a proportionate impact on our profitability.

Our net sales are also affected by changes in the use of customer-supplied metal. When we manufacture a precious metal product, the customer may purchase metal from us or may elect to provide its own metal, in which case we process the metal on a toll basis and the metal value does not flow through net sales or cost of sales. In either case, we generally earn our margin based upon our fabrication efforts. The relationship of this margin to net sales can change depending upon whether or not the product was made from our metal or the customer’s metal. The use of value-added sales removes the potential distortion in the comparison of net sales caused by changes in the level of customer-supplied metal.

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By presenting information on net sales and value-added sales, it is our intention to allow users of our financial statements to review our net sales with and without the impact of the pass-through metals.

Segment Results

The Company consists of four reportable segments: Performance Materials, Electronic Materials, Precision Optics, and Other. The Other reportable segment includes unallocated corporate costs.

Performance Materials

Third Quarter

						Third Quarter Ended
						September 27,						September 29,						$						%
(Thousands)						2024						2023						Change						Change
Net sales						$	177,376					$	184,642					$	(7,266)					(4)		%
Value-added sales						163,608						168,894						(5,286)						(3)		%
EBITDA						44,802						46,366						(1,564)						(3)		%

Net sales from the Performance Materials segment of $177.4 million in the third quarter of 2024 decreased 4% compared to net sales of $184.6 million in the third quarter of 2023. The decrease in sales was due to lower sales volumes in the telecom and data center (49%) end market as well as decreased sales in the consumer electronic (17%) end market primarily driven by our largest customer. Additionally, there was a $2.9 million year over year decrease in the volume of raw material beryllium hydroxide sales compared to the third quarter of 2023. These decreases were partially offset by increased volumes in the aerospace and defense (45%) end market.

Value-added sales of $163.6 million in the third quarter of 2024 were 3% lower than value-added sales of $168.9 million in the third quarter of 2023. The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Performance Materials segment was $44.8 million in the third quarter of 2024, compared to $46.4 million in the third quarter of 2023. The impact of unfavorable pricing/mix was offset by the favorable impact manufacturing performance as a result of the various cost control measures implemented throughout 2024.

Nine Months

						Nine Months Ended
						September 27,						September 29,						$						%
(Thousands)						2024						2023						Change						Change
Net sales						$	533,534					$	554,427					$	(20,893)					(4)		%
Value-added sales						492,251						502,521						(10,270)						(2)		%
EBITDA						115,893						134,061						(18,168)						(14)		%

Net sales from the Performance Materials segment of $533.5 million in the first nine months of 2024 decreased 4% compared to net sales of $554.4 million in the first nine months of 2023. The decrease in sales was due to lower sales volumes in the industrial (18%), telecom and data center (41%) and automotive (19%) end markets. These decreases were partially offset by increased volumes in the aerospace and defense (39%) end market.

Value-added sales of $492.3 million in the first nine months of 2024 were 2% lower than value-added sales of $502.5 million in the first nine months of 2023. The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Performance Materials segment was $115.9 million in the first nine months of 2024 compared to $134.1 million in the first nine months of 2023. The decrease in EBITDA was primarily driven by the impact unfavorable price/mix as well as the impact of lower volumes and related unabsorbed costs in the first half of 2024. Additionally, EBITDA was unfavorably impacted by higher costs associated with the production ramp of the precision clad strip facility.

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Electronic Materials

Third Quarter

						Third Quarter Ended
						September 27,						September 29,						$						%
(Thousands)						2024						2023						Change						Change
Net sales						$	236,906					$	192,305					$	44,601					23		%
Value-added sales						77,839						75,533						2,306						3		%
EBITDA						12,309						10,155						2,154						21		%

Net sales from the Electronic Materials segment of $236.9 million in the third quarter of 2024 were 23% higher than net sales of $192.3 million in the third quarter of 2023. The increase in net sales was primarily due to higher precious metal pass through costs, which increased net sales by $30.3 million compared to the third quarter of 2023. Additionally, net sales increased as a result of higher sales volumes in the semiconductor (11%) end market.

Value-added sales of $77.8 million in the third quarter of 2024 increased 3% compared to value-added sales of $75.5 million in the third quarter of 2023. The increase in value-added sales was due to the sales volume increases noted above which also drove the increase in net sales.

EBITDA for the Electronic Materials segment was $12.3 million in the third quarter of 2024 compared to $10.2 million in the third quarter of 2023. EBITDA increased due to higher sales volume along with the impact of various targeted cost control initiatives implemented in 2023 and throughout 2024.

Nine Months

						Nine Months Ended
						September 27,						September 29,						$						%
(Thousands)						2024						2023						Change						Change
Net sales						$	641,564					$	611,855					$	29,709					5		%
Value-added sales						236,611						257,026						(20,415)						(8)		%
EBITDA						40,118						37,504						2,614						7		%

Net sales from the Electronic Materials segment of $641.6 million in the first nine months of 2024 were 5% higher than net sales of $611.9 million in the first nine months of 2023. The increase in net sales was primarily due to higher precious metal pass through costs, which increased net sales by $49.3 million compared to the first nine months of 2023. This was partially offset by decreased sales volumes in the energy (26%) end market.

Value-added sales of $236.6 million in the first nine months of 2024 decreased 8% compared to value-added sales of $257.0 million in the first nine months of 2023. The decrease in value-added sales was driven by decreased sales volumes in the energy (28%) and semiconductor (4%) end markets.

EBITDA for the Electronic Materials segment was $40.1 million in the first nine months of 2024 compared to $37.5 million in the first nine months of 2023. Despite decreased value-added sales, EBITDA increased slightly as a result of the various targeted cost control initiatives implemented in 2023 and throughout 2024.

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Precision Optics

Third Quarter

(Thousands)						Third Quarter Ended
						September 27,						September 29,						$						%
						2024						2023						Change						Change
Net sales						$	22,433					$	26,120					$	(3,687)					(14)		%
Value-added sales						22,381						26,105						(3,724)						(14)		%
EBITDA						(39)						3,261						(3,300)						(101)		%

Net sales from the Precision Optics segment of $22.4 million in the third quarter of 2024 decreased 14% compared to net sales of $26.1 million in the third quarter of 2023. The decrease was primarily due to lower sales volumes in the aerospace and defense end market (28%).

Value-added sales of $22.4 million in the third quarter of 2024 decreased 14% compared to value-added sales of $26.1 million in the third quarter of 2023. The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was a slight loss in the third quarter of 2024 compared to income of $3.3 million in the third quarter of 2023. The decrease in EBITDA was due to the impact of lower sales volumes and unfavorable mix.

Nine Months

(Thousands)						Nine Months Ended
						September 27,						September 29,						$						%
						2024						2023						Change						Change
Net sales						$	72,770					$	77,862					$	(5,092)					(7)		%
Value-added sales						72,647						77,804						(5,157)						(7)		%
EBITDA						1,297						7,654						(6,357)						(83)		%

Net sales from the Precision Optics segment of $72.8 million in the first nine months of 2024 decreased 7% compared to net sales of $77.9 million in the first nine months of 2023. The decrease was primarily due to lower sales volumes in the industrial (13%) and automotive (23%) end markets.

Value-added sales of $72.6 million in the first nine months of 2024 decreased 7% compared to value-added sales of $77.8 million in the first nine months of 2023. The decrease in value-added sales was due to the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was $1.3 million in the first nine months of 2024 compared to $7.7 million in the first nine months of 2023. The decrease in EBITDA was due to the impact of lower sales volumes and unfavorable mix.

Other

Third Quarter

(Thousands)						Third Quarter Ended
						September 27,						September 29,						$						%
						2024						2023						Change						Change
Net sales						$	—					$	—					$	—					—		%
Value-added sales						—						—						—						—		%
EBITDA						(6,578)						(7,497)						919						(12)		%

The Other reportable segment in total includes unallocated corporate costs.

Corporate costs were $6.6 million in the third quarter of 2024 compared to $7.5 million in the third quarter of 2023. Corporate costs as a percent of Company-wide value-added sales decreased from 3% in the third quarter of 2023, to 2% in the third quarter of 2024. The decrease in corporate costs is the result of various targeted cost control initiatives implemented in 2024.

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Nine Months

(Thousands)						Nine Months Ended
						September 27,						September 29,						$						%
						2024						2023						Change						Change
Net sales						$	—					$	—					$	—					—		%
Value-added sales						—						—						—						—		%
EBITDA						(18,522)						(21,750)						3,228						(15)		%

Corporate costs were $18.5 million in the first nine months of 2024 compared to $21.8 million in the first nine months of 2023. Corporate costs as a percent of Company-wide value-added sales decreased from 3% in the first nine months of 2023, to 2% in the first nine months of 2024. The decrease in corporate costs is the result of various targeted cost control initiatives implemented in 2024.

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FINANCIAL POSITION

Cash Flow

A summary of cash flows provided by (used in) operating, investing, and financing activities is as follows: 

						Nine Months Ended
						September 27,						September 29,						$
(Thousands)						2024						2023						Change
Net cash provided by operating activities						$	11,564					$	84,505					$	(72,941)
Net cash used in investing activities						(60,545)						(94,160)						33,615
Net cash provided by financing activities						52,926						13,735						39,191
Effects of exchange rate changes						635						(780)						1,415
Net change in cash and cash equivalents						$	4,580					$	3,300					$	1,280

Net cash provided by operating activities totaled $11.6 million in the first nine months of 2024 versus $84.5 million in the prior-year period. The decrease in operating cash flow was driven by lower earnings as well as unfavorable working capital usage. Working capital requirements used cash of $48.5 million in the first nine months of 2024 compared to working capital usage of $9.5 million for the first nine months of 2023. The increase in cash used for working capital was primarily due to timing of cash collections for outstanding receivables in the third quarter of 2024 and a continued increase in inventory throughout 2023 and 2024 to support continued business growth and customer partnerships. Additionally, the Company received $16.7 million of customer prepayments in the first nine months of 2023 and none in 2024.

Net cash used in investing activities was $60.5 million in the first nine months of 2024 compared to $94.2 million in the prior-year period. The decrease in cash used in investing activities is due to decreased capital expenditures in line with decreased cash provided by operating activities.

Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year 2024, the Company expects payments for property, plant, and equipment to be approximately $80 million.

Net cash provided by financing activities totaled $52.9 million in the first nine months of 2024 and $13.7 million in the comparable prior-year period. The increase is primarily due to a increase in borrowings under our revolving credit facilities in the first nine months of 2024 of $91.1 million, compared to net borrowings of $39.6 million in the same period in the prior year.

Liquidity

We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend program, environmental remediation projects, and strategic acquisitions for at least the next twelve months and for the foreseeable future thereafter. At September 27, 2024, cash and cash equivalents held by our foreign operations totaled $14.2 million. We do not expect restrictions on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition, or results of operations for the foreseeable future.

Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which currently provide for borrowings of up to $21.7 million. At September 27, 2024, the Company had borrowings outstanding of $7.2 million, which reduced the aggregate availability under these facilities to $14.5 million.

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A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, as of September 27, 2024 and December 31, 2023 is as follows:

						September 27,						December 31,
(Thousands)						2024						2023
Cash and cash equivalents						$	17,874					$	13,294
Total outstanding debt						495,298						426,173
Net debt						$	(477,424)					$	(412,879)
Available borrowing capacity						$	171,460					$	178,734

Net debt is a non-GAAP financial measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods.

The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each period depicted. The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts the borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation, depletion and amortization, and other adjustments.

In January 2023, we amended the agreement governing our $375.0 million revolving credit facility and term loan facility (Credit Agreement).

Pursuant to the amendment, we transitioned U.S. dollar denominated borrowings from LIBOR to SOFR for both the revolving credit agreement and the term loan and increased the cap on precious metals consignment line from $600 million to $615 million.

The Company had previously amended and restated the Credit Agreement in connection with the HCS-Electronic Materials acquisition in November 2021. A $300 million delayed draw term loan facility was added to the Credit Agreement and the maturity date of the Credit Agreement was extended from 2024 to 2026. The Company financed a portion of the the purchase price for the HCS-Electronic Materials with a $300 million term loan pursuant to the delayed draw term loan facility. The Credit Agreement also provides for an uncommitted incremental facility whereby, under certain conditions, the Company may be able to borrow additional term loans in an aggregate amount not to exceed $150.0 million. The Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the consignment of precious metals and copper, and provides enhanced flexibility to finance acquisitions and other strategic initiatives. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its direct subsidiaries, with the exception of non-mining real property, precious metal, copper and certain other assets.

The Credit Agreement allows the Company to borrow money at a premium over SOFR, following the January 2023 amendment or prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions stipulated in the agreement. The Credit Agreement includes restrictive covenants relating to restrictions on additional indebtedness, acquisitions, dividends, and stock repurchases. In addition, the Credit Agreement includes covenants that limit the Company to a maximum leverage ratio and a minimum interest coverage ratio. We were in compliance with all of our debt covenants as of September 27, 2024 and December 31, 2023. Cash on hand up to $25.0 million can benefit the covenants and may benefit the borrowing capacity under the Credit Agreement.

Portions of our business utilize off-balance sheet consignment arrangements allowing us to use metal owned by precious metal consignors as we manufacture product for our customers. Metal is purchased from the precious metal consignor and sold to our customer at the time of product shipment. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. In August 2022, we entered into a precious metals consignment agreement, maturing on August 31, 2025, which replaced the consignment agreements that would have matured on August 27, 2022. The available and unused capacity under the metal consignment agreements expiring in August 2025 totaled approximately $229.3 million as of September 27, 2024, compared to $263.5 million as of December 31, 2023. The availability is determined by Board approved levels and actual capacity.

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In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock. The timing of the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels, and other investment opportunities. There is no minimum quantity requirement to repurchase our common stock for a given year, and the repurchases may be discontinued at any time. We did not repurchase any shares under this program in the third quarter or first nine months of 2024. Since the approval of the repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million.

We paid cash dividends of $2.8 million and $8.3 million on our common stock in the third quarter and first nine months of 2024, respectively. We intend to pay a quarterly dividend on an ongoing basis, subject to a determination that the dividend remains in the best interest of our shareholders.

OFF-BALANCE SHEET ARRANGEMENTS AND CASH OBLIGATIONS

We maintain the majority of the precious metals and portions of the copper we use 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 $385.7 million and $351.5 million as of September 27, 2024 and December 31, 2023, respectively. We were in compliance with all of the covenants contained in the consignment agreements as of September 27, 2024. For additional information on our material cash obligations, refer to our 2023 Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the inherent use of estimates and management’s judgment in establishing those estimates. For additional information regarding critical accounting policies, please refer to our 2023 Annual Report on Form 10-K.

As noted in the "Critical Accounting Policies" section in our 2023 Annual Report on Form 10-K, the Company performs a goodwill impairment assessment for each reporting unit in the fourth quarter. If a quantitative test is performed, the fair value of the reporting unit will be estimated using an income approach (a discounted cash flow model) as well as a market approach.

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 has begun an extensive review of the business and its short-term and long-term strategic initiatives, concurrent with the Company’s annual strategic planning process, which will conclude later in the fourth quarter of 2024. As of October 30, 2024, there have been no changes to the long-term strategy for the Precision Optics reporting unit.

The upcoming results of the new President’s review, including any shifts in strategy of the Precision Optics reporting unit as part of the annual strategic planning process, could materially impact the future cash flow assumptions of the Precision Optics reporting unit. Due to the fact that the carrying value of the Precision Optics reporting unit exceeded fair value by less than 10% in the Company’s 2023 goodwill assessment, any future changes in business conditions or strategic initiatives impacting the future cash flow assumptions could have an unfavorable impact on the fair value of the Precision Optics reporting unit, which could result in future impairment.

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Forward-looking Statements: Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein: the global economy, including inflationary pressures, potential future recessionary conditions and the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns or sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions; our success in implementing our strategic plans and the timely and successful start-up and completion of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including outbreaks of infectious diseases and the conflict between Russia and Ukraine and other hostilities; realization of expected financial benefits expected from the Inflation Reduction Act of 2022; and the risk factors set forth in Part 1, Item 1A of the Company's 2023 Annual Report on Form 10-K.

Item 3.			Quantitative and Qualitative Disclosures about Market Risk

For information regarding market risks, refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2023 Annual Report on Form 10-K. There have been no material changes in our market risks since the inclusion of this discussion in our 2023 Annual Report on Form 10-K.

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Item 4.			Controls and Procedures

a)Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and with participation of the Company's management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of disclosure controls and procedures as of September 27, 2024 pursuant to Rule 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended (Exchange Act). Based on that evaluation, management, including the chief executive officer and chief financial officer, concluded that disclosure controls and procedures are effective as of September 27, 2024.

b)Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended September 27, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II OTHER INFORMATION

Item 1.			Legal Proceedings

Our subsidiaries and our holding company are subject, from time to time, to a variety of civil and administrative proceedings arising out of our normal operations, including, without limitation, product liability claims, health, safety, and environmental claims, and employment-related actions.

The information presented in the Legal Proceedings section of Note O ("Contingencies") of the Notes to Consolidated Financial Statements (Unaudited) is incorporated herein by reference.

Item 2.			Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table presents information with respect to repurchases of common stock made by the Company during the three months ended September 27, 2024.

Period						Total Number of Shares Purchased						Average Price Paid per Share						Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)						Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
June 29 through August 2, 2024						—						$	—					—						$	8,316,239
August 3 through August 30, 2024						—						—						—						8,316,239
August 31 through September 27, 2024						—						—						—						8,316,239
Total						—						$	—					—						$	8,316,239

(1)			On January 14, 2014, the Company announced that its Board of Directors had authorized the repurchase of up to $50.0 million of its common stock. During the three months ended September 27, 2024, the Company did not repurchase any shares under this program. As of September 27, 2024, $8.3 million may still be purchased under the program.

Item 4.			Mine Safety Disclosures

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95 to this quarterly report on Form 10-Q.

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Item 5.			Other Information

During the quarter ended September 27, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).

Item 6.			Exhibits

All documents referenced below were filed pursuant to the Exchange Act by Materion Corporation, file number 001-15885, unless otherwise noted.

31.1						Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a)*
31.2						Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a)*
32						Certifications of Chief Executive Officer and Chief Financial Officer required by 18 U.S.C. Section 1350*
95						Mine Safety Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act for the period ended September 27, 2024*
101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*
101.SCH						Inline XBRL Taxonomy Extension Schema Document*
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)

*Submitted electronically herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

MATERION CORPORATION

Dated: October 30, 2024

/s/ Shelly M. Chadwick

Shelly M. Chadwick

Vice President, Finance and Chief Financial Officer

(Principal Financial and Accounting Officer)

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