Materion Annual Report 2019

FY2019 Annual Report · Materion

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(cid:21)(cid:19)(cid:20)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)9 To Our Shareholders

Having now completed my third year as President and
Chief Executive Officer of Materion, I am pleased to
share this annual report with you. 2019 was another
exceptional year for our Company, despite a
challenging macroeconomic environment. Solid
execution of our strategy has enabled us to deliver
record results and position the Company for long term
success. I am very proud of our global team for
embracing a high-performance results-oriented culture
and executing our One Materion strategy as we
continue to transform the company to an advanced
materials solutions provider.

2019 highlights include:

• Adjusted earnings of $3.19/share, a 34% year-over-year improvement
• For second consecutive year, delivered double-digit adjusted operating profit margins for all businesses
• Record operating profit margins for PAC and PC businesses
• Increased quarterly dividend for the seventh consecutive year

During the past three years, disciplined execution has resulted in a much higher level of performance.

Value-added1 (VA) Sales
($ in millions)

7 % C A G R

$739

$734

$678

$600

2016

2017

2018

2019

1 Non-GAAP, excludes pass-through metal costs

• New product sales increased 31% from 2016

• Improved product sales mix with growth from highly

differentiated products

• 2019 sales impacted by challenging end markets and

global trade and tariff headwinds

• For first time in company history, earnings surpassed $3/share

• Delivered third consecutive year of >30% earnings growth

EPS – Diluted2

$3.19

% C

$2.38

$1.72

$1.32

2016

2017

2018

2019

2 Non-GAAP, excludes special items

Opera(cid:2)ng Proﬁt (OP)3
($ in millions)

$82.4

% C

$66.0

$47.5

$35.0

2016

2017

2018

2019

3 Non-GAAP, excludes special items

• Double digit operating profit margin of 11% for first time in company

history

• Operating profit margin improved 540 bps over the last three years

• Ended 2019 in a net cash position of $110.1 million, a

$160.0 million improvement compared to 2016

• Significantly improved balance sheet with all-time record

operating cash flow of $99 million in 2019

Net Cash (Debt)4
($ in millions)

$110.1

$42.5

$(49.9)

$(40.8)

2016

2017

2018

2019

4 Non-GAAP, net cash (debt) defined as total cash less
total debt less total unfunded pension benefit obligations

These results demonstrate the collective success of our differentiated product portfolio and
company-wide operational, commercial and functional improvements. We are determined to build on
this success by focusing on our top priority: profitable global growth.

The Company has made a significant number of commercial and technology investments in this regard.
Growth-focused organizations were created in both Europe and Asia led by newly appointed regional
presidents. For each of the markets, we hired sales leaders with deep industry experience and proven
track records of profitable growth. And most recently, One Materion sales executives were appointed to
focus on key global customer accounts and end markets.

Through our ever-expanding innovation capabilities, we continue to take steps to reach our full potential.
In the past three years, R&D spending has been increased by 43%, targeted at large transformational
growth opportunities. In addition, we have established relationships with universities and think tanks
specializing in materials science to explore solutions that align smartly with our key growth drivers.

Since joining Materion I have experienced first-hand the strong innovative and entrepreneurial spirit that
is part of our DNA. Every day, I am impressed by the deep experience and vast knowledge of our materials
scientists, chemists, physicists and engineers who collaborate with our customers and partners to provide
the most optimal solutions, drive emerging technologies and advance scientific breakthroughs. By

enabling “what’s next” as a global high technology solutions provider, we are creating value for our
customers and sustainable competitive advantages for Materion. I am excited about what can be
achieved as we continue to build a strong future together.

Meeting our financial targets and investing for profitable growth are essential, but there is more to the
Materion story. We continually strive to set high standards in safety, ethics, and stewardship and hold
ourselves accountable for doing the right thing with customers, colleagues, communities, and the
environment. In 2019, we delivered Materion’s best year ever in safety performance. Recordable injury
rates were reduced by 50% and over the past three years, we have improved this critical metric by 70%.
But even one injury is one too many. Our global team is focused on achieving zero recordable injuries as
we further strengthen our safety-first culture.

As I write this letter, we are in the midst of unprecendented challenges due to the coronavirus (COVID-19)
pandemic which is impacting all global markets. With our strong balance sheet and available borrowing
capacity, we are well-positioned to weather economic uncertainties, while continuing to invest for the
future. We will continue to execute our One Materion multi-pillar strategy to deliver long-term profitable
growth.

Materion’s success is not possible without our talented and dedicated employees around the world, and I
want to sincerely thank them for all their contributions. Together, we look to the future with a purpose of
partnering with our customers to understand their unmet needs, align our unique capabilities to their
goals, and develop innovative solutions that improve our customers’ competitive position.

Thank you for your continued investment and trust in our Company.

Best regards,

Jugal Vijayvargiya
President and Chief Executive Officer

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TABLE OF CONTENTS

Business

PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.

Properties

Item 3.

Item 4.

Legal Proceedings

Mine Safety Disclosures

PART II
Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Item 6.

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information

PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.

Executive Compensation

Item 12.

Item 13.

Item 14.

PART IV
Item 15.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accountant Fees and Services

Exhibits and Financial Statement Schedules

Item 16.

Form 10-K Summary

Signatures

28
30

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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:

Actual net sales, operating rates, and margins for 2020;

The global economy, including the impact of tariffs and trade agreements;

The impact of any U.S. Federal Government shutdowns and sequestrations;

The condition of the markets which we serve, whether defined geographically or by segment, with the major market
segments being: semiconductor, industrial, aerospace and defense, automotive, energy, consumer electronics, and
telecom and data center;

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 completion and start-up 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 financing 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; and

•

The risk factors set forth elsewhere in Item 1A of this Form 10-K.

Item 1.

BUSINESS

THE COMPANY

Materion Corporation (referred to herein as the Company, our, we, or us), through its wholly owned subsidiaries, is an integrated
producer of high-performance advanced engineered materials used in a variety of electrical, electronic, thermal, and structural
applications with $1.2 billion in net sales in 2019. The Company was incorporated in Ohio in 1931 and has approximately 2,600
employees. Our products are sold into numerous end markets, including semiconductor, industrial, aerospace and defense,
automotive, energy, consumer electronics, and telecom and data center.

SEGMENT INFORMATION

Our businesses are organized under four reportable segments: Performance Alloys and Composites, Advanced Materials, Precision
Coatings, and Other. Our Other reportable segment includes unallocated corporate costs. Additional information regarding our
segments and business is presented below.

Performance Alloys and Composites

Performance Alloys and Composites (PAC) globally 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
produced at manufacturing facilities located throughout the United States and Europe and through distribution hubs globally. This
segment operates the world's largest bertrandite ore mine and refinery, which is located in Utah, providing feedstock hydroxide
for its beryllium businesses and external sales. In addition to the products described below, this segment globally provides
engineering and product development services to help our customers and partners with product design, including delivering
prototype parts and other data to demonstrate that the products will perform under the specified design conditions. PAC operates
through three global product lines: Advanced Alloys, Specialty Materials, and Performance Solutions:

• Advanced Alloys manufactures and globally provides to our customers three upstream (primary) product lines: alloyed
metals, high-performance beryllium products, and beryllium hydroxide. Alloyed metals are made with copper and/or
nickel (with or without beryllium) in ingot, shot, billet, plate, rod, bar, tube forms, and customized shapes. Depending
on the application, the materials may provide one or a combination of superior strength, specific strength, wear and
corrosion resistance, thermal and electrical conductivity, tribological benefits, and machinability. Applications for alloyed
metals products include oil & gas drilling and production components, bearings, bushings, welding electrodes, plastic
injection or metal die casting mold tooling, and electrical or electronic connectors. Major end markets for alloyed metals
include industrial, automotive, aerospace and defense, energy, and telecom and data center. Alloyed metals compete with
companies around the world that produce alloys with similar properties. Key competitors include NGK Insulators, IBC
Advanced Alloys Corp., Ningxia Orient Tantalum Industry Co., Ltd., Ulba Metallurgical, Le Bronze Alloys, Minotti
Metals, SA, KME AG & Co. KG, Aurubis AG, MKM Mansfelder Kupfer und Messing GmbH, AMPCO Metal, and
Chuetsu Metal Works Ltd. High performance beryllium products are primarily beryllium metal products, which may also
be alloys or other mixtures with aluminum and may be beryllium oxide. The materials are manufactured in billet, ingot,
plate, sheet, powder, and customized shape forms. These materials are used in applications that require high stiffness
and/or low density or high thermal conductivity and/or high electrical resistance, which are provided from the unique
combination of material properties, or in applications requiring specific interactions with sub-atomic, high-energy
particles, or in applications requiring strong affinity for oxygen such as in the manufacture of primary aluminum and
magnesium. Direct competitors include American Beryllia Inc., CBL Ceramics Limited, CoorsTek, Inc., Ulba
Metallurgical, and Ningxia Orient Tantalum Industry Co., Ltd. Beryllium hydroxide is produced at our milling operations
in Utah from our bertrandite ore mine and purchased beryl ore. The hydroxide is used primarily as a raw material input
for beryllium-containing alloys and, to a lesser extent, beryllium products. A key competitor is Ulba Metallurgical.

•

Specialty Materials produces and provides our customers various thicknesses of precision strip products as well as various
diameters of rod and wire products. The strip, rod, and wire products are beryllium and non-beryllium containing alloys
that are made primarily with copper and nickel to provide unique combinations of high conductivity, high reliability, and
high formability for use as connectors, contacts, springs, switches, relays, shielding, and bearings. In addition, Specialty
Materials also produces and provides unique engineered strip metal products, which incorporate clad inlay and overlay
metals, including precious and base metal electroplated systems, electron beam welded systems, contour profiled systems,
and solder-coated metal systems. These engineered strip metal products provide a variety of thermal, electrical, or
mechanical properties from a surface area or particular section of the material. Our precision cladding and plating
capabilities allow for precious metal or other base metals to be applied in continuous strip form, only where it is needed,
reducing the material cost to our customers as well as providing design flexibility and performance. Major end markets

include consumer electronics, telecom and data center, automotive, aerospace and defense, industrial, and energy. Key
competitors include NGK Insulators, Wieland Electric, Inc., Aurubis Stolberg GmbH, Diehl Metall Stiftung & Co. KG,
Nippon Mining, Wickeder Group, Heraeus Inc., AMI Doduco, Inc., and other North American continuous strip and plating
companies.

• Performance Solutions provides engineered end-product technologies to our customers, including near-net shape and
finished machined beryllium containing and non-beryllium containing products. These products and materials are used
in applications that require high stiffness and/or low density due to their unique combination of properties. Performance
Solutions provides beryllium metal and beryllium alloy components mainly to the aerospace and defense and energy end
markets. Beryllium foil products are provided for radiographic and acoustic applications, beryllium oxide ceramics are
provided for a wide range of heat sink and high temperature industrial applications, and our copper beryllium products
meet the demanding strength and corrosion resistance specifications required for sub-sea telecommunication equipment.
In addition, our engineering teams have developed several innovative non-beryllium materials to meet demanding wear
resistance or strength-to-weight applications used in a variety of industries. Our ToughMetTM alloys provide extended
life for industrial bushings and bearings and tremendous wear resistance in oil and gas rig components. Our SupremEXTM
products offer the industry’s highest quality aluminum silicon carbide metal matrix composite formulation, well suited
for a wide range of applications from high performance engine components and aerospace structural components to high-
stiffness consumer electronic components. Direct competitors include IBC Advanced Alloys, NGK Metals, CBL Ceramics
Limited, and CoorsTek, Inc.

PAC's products are primarily sold directly from its facilities throughout the United States, Asia, and Europe, as well as distributed
internationally through a network of company-owned service centers, outside distributors, and agents.

Advanced Materials

Advanced Materials produces advanced chemicals, microelectronics packaging, precious metal, non-precious metal, and specialty
metal products, including vapor deposition targets, frame lid assemblies, clad and precious metal pre-forms, high temperature
braze materials, and ultra-pure wire. These products are used in micro-electromechanical systems and power management integrated
circuits, radio frequency devices, storage, display, architectural glass, solar, optical coating, and other applications within the
semiconductor, energy, and industrial end markets. Advanced Materials also has metal recovery operations and in-house refining
that allow for the recycling of precious metals.

Advanced Materials products are sold directly from its facilities throughout the United States, Asia, and Europe, as well as through
direct sales offices and independent sales representatives throughout the world. Principal competition includes companies such
as Honeywell International, Inc., Praxair, Inc., Solar Applied Materials Technology Corp., Grikin, Solaris, Ametek Electronic
Components and Packaging, and Tanaka Holding Co., Ltd., as well as a number of smaller regional and national suppliers.

The majority of the sales into the semiconductor end market from this segment are vapor deposition targets, lids, wire, other related
precious and non-precious metal products, advanced chemicals, and other microelectronic applications. These materials are used
in wireless, light-emitting diode, handheld devices, and other applications, as well as in a number of applications within the energy
and industrial end markets. Since we are an up-front material supplier, changes in our semiconductor sales levels do not necessarily
correspond to changes in the end-use consumer demand in the same period due to down-stream inventory positions, the time to
develop and deploy new products, and manufacturing lead times and scheduling. While our product and market development
efforts allow us to capture new applications, we may lose existing applications and customers from time to time due to the rapid
change in technologies and other factors.

Precision Coatings

The Precision Coatings segment includes the following businesses:

Precision Optics produces sputter-coated precision thin film coatings and optical filter materials. Based in Westford,
Massachusetts, the group has manufacturing facilities in the United States and China.

Large Area Coatings produces high-performance sputter-coated precision flexible thin film materials. Based in Windsor,
Connecticut, the business manufactures and distributes coated and converted thin film material solutions primarily for medical
testing and diagnosis applications.

Precision Coatings' products are sold directly from its facilities throughout the United States and Asia, as well as through direct
sales offices and independent sales representatives throughout the world. Principal competition includes companies such as Viavi
Corporation and Eastman Chemical Company and a number of smaller regional and national suppliers.

Other

The Other segment is comprised of unallocated corporate costs.

OTHER GENERAL INFORMATION

Products

We are committed to providing high-quality, innovative, and reliable products that will enable our customers’ technologies and
fuel their own technological breakthroughs and growth.

Our products include precious and non-precious specialty metals, inorganic chemicals and powders, specialty coatings, specialty
engineered beryllium and copper-based alloys, beryllium composites, ceramics, and engineered clad and plated metal systems.

We are constantly looking ahead to realign product and service portfolios toward the latest market and technology trends so that
we are able to provide customers with an even broader scope of products, services, and specialized expertise. We believe we are
an established leader in our markets.

Approximately 750 customers purchase our products throughout the semiconductor, industrial, aerospace and defense, automotive,
energy, consumer electronics, and telecom and data center end markets. No single customer accounted for more than 10% of our
total net sales for 2019.

Availability of Raw Materials

The principal raw materials we use are beryllium, aluminum, cobalt, copper, gold, nickel, palladium, platinum, ruthenium, silver,
and tin. Ore reserve data can be found in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations." The availability of these raw materials, as well as other materials used by us, is adequate and generally not dependent
on any one supplier.

Patents and Licenses

We own patents, patent applications, and licenses relating to certain of our products and processes. While our rights under these
patents and licenses are of some importance to our operations, our business is not materially dependent on any one patent or license
or on all of our patents and licenses as a group.

Backlog

The backlog of unshipped orders as of December 31, 2019, 2018, and 2017 was $176.4 million, $266.0 million, and $204.0 million,
respectively. Backlog is generally represented by purchase orders that may be terminated under certain conditions. We expect that
substantially all of our backlog of orders at December 31, 2019 will be filled over the next 18 months.

Regulatory Matters

We are subject to a variety of laws that regulate the manufacturing, processing, use, handling, storage, transport, treatment, emission,
release, and disposal of substances and wastes used or generated in manufacturing. For decades, we have operated our facilities
under applicable standards of inplant and outplant emissions and releases. The inhalation of airborne beryllium particulate may
present a health hazard to certain individuals.

On January 9, 2017, the U.S. Occupational Safety and Health Administration (OSHA) published a new standard for workplace
exposure to beryllium that, among other things, lowered the permissible exposure by a factor of ten and established new requirements
for respiratory protection, personal protective clothing and equipment, medical surveillance, hazard communication, and record
keeping. On July 6, 2018, OSHA issued a Direct Final Rule that amended the text of the new standard to clarify OSHA’s intent
with respect to certain terms and provisions of the standard, and on December 11, 2018, OSHA issued a Notice of Proposed
Rulemaking concerning additional modifications to the standard “to clarify certain provisions and to simplify or improve
compliance.” Other government and standard-setting organizations are also reviewing beryllium-related worker safety rules and
standards, and will likely make them more stringent. The development, proposal, or adoption of more stringent standards may
affect the buying decisions by the users of beryllium-containing products. If the standards are made more stringent and/or our
customers or other downstream users decide to reduce their use of beryllium-containing products, our results of operations, liquidity,
and financial condition could be materially adversely affected. The impact of this potential adverse effect would depend on the
nature and extent of the changes to the standards, the cost and ability to meet the new standards, the extent of any reduction in
customer use, and other factors. The magnitude of this potential adverse effect cannot be estimated.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934. Therefore, we file periodic reports, proxy
statements, and other information with the Securities and Exchange Commission (SEC). The SEC maintains an internet site (http://
www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file
electronically.

We use our investor relations website, https://investor.materion.com/, as a channel for routine distribution of important information,
including news releases, analyst presentations, and financial information. As soon as reasonably practicable, we make all documents
that we file with, or furnish to, the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and any amendments to these reports, available free of charge via this website. The content on any website referred
to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.

Executive Officers of the Registrant

Incorporated by reference from information with respect to executive officers of Materion Corporation set forth in Item 10 in Part
III of this Form 10-K.

Item 1A.

RISK FACTORS

Our business, financial condition, results of operations, and cash flows can be affected by a number of factors, including, but not
limited to, those set forth below and elsewhere in this Form 10-K, any one of which could cause our actual results to vary materially
from recent results or from our anticipated future results. Therefore, an investment in us involves some risks, including the risks
described below. The risks discussed below are not the only risks that we may experience. If any of the following risks occur, our
business, results of operations, or financial condition could be negatively impacted.

The businesses of many of our customers are subject to significant fluctuations as a result of the cyclical nature of their
industries and their sensitivity to general economic conditions, which could adversely affect their demand for our products
and reduce our sales and profitability.

A substantial number of our customers are in the semiconductor, industrial, aerospace and defense, automotive, energy, consumer
electronics, and telecom and data center end markets. Each of these end markets is cyclical in nature, influenced by a combination
of factors which could have a negative impact on our business, including, among other things, periods of economic growth or
recession, strength or weakness of the U.S. dollar, the strength of the semiconductor, automotive electronics, and oil and gas
industries, the rate of construction of telecommunications infrastructure equipment, and government spending on defense.

Also, in times when growth rates in our markets are lower, or negative, there may be temporary inventory adjustments by our
customers that may negatively affect our business.

Because we experience seasonal fluctuations in our sales, our quarterly results will fluctuate, and our annual performance
will be affected by the fluctuations.

We expect seasonal patterns to continue, which may cause our quarterly results to fluctuate. If our revenue during any quarter
were to fall below the expectations of investors or securities analysts, our share price could decline, perhaps significantly.
Unfavorable economic conditions, lower than normal levels of demand, and other occurrences in any quarter could also harm our
results of operations. For example, we have experienced customers building inventory in anticipation of increased demand, whereas
in other periods, demand decreased because our customers had excess inventory.

A portion of our revenue is derived from the sale of defense-related products through various contracts and subcontracts. These
contracts may be suspended, canceled, or delayed, which could have an adverse impact on our revenues.

In 2019, 17% of our value-added sales was derived from sales to customers in the aerospace and defense end market. A portion
of these customers operate under contracts with the U.S. Government, which are vulnerable to termination at any time, for
convenience or default. Some of the reasons for cancellation include, but are not limited to, budgetary constraints or re-appropriation
of government funds, timing of contract awards, violations of legal or regulatory requirements, and changes in political agenda.
If cancellations were to occur, it would result in a reduction in our revenue. Furthermore, significant reductions to defense spending
could occur over the next several years due to government spending cuts, which could have a significant adverse impact on us.
For example, high-margin defense application delays and/or push-outs may adversely impact our results of operations, including
quarterly earnings.

The markets for our products are experiencing rapid changes in technology.

We operate in markets characterized by rapidly changing technology and evolving customer specifications and industry standards.
New products may quickly render an existing product obsolete and unmarketable. For example, for many years thermal and
mechanical performance have been at the forefront of device packaging for wireless communications infrastructure devices. In
recent years, a tremendous effort has been put into developing simpler packaging solutions comprised of copper and other similar
components. Our growth and future results of operations depend in part upon our ability to enhance existing products and introduce
newly developed products on a timely basis that conform to prevailing and evolving industry standards, meet or exceed technological
advances in the marketplace, meet changing customer specifications, achieve market acceptance, and respond to our competitors’
products.

The process of developing new products can be technologically challenging and requires the accurate anticipation of technological
and market trends. We may not be able to introduce new products successfully or do so on a timely basis. If we fail to develop
new products that are appealing to our customers or fail to develop products on time and within budgeted amounts, we may be
unable to recover our research and development costs, which could adversely affect our margins and profitability.

The availability of competitive substitute materials for beryllium-containing products may reduce our customers’ demand for
these products and reduce our sales.

In certain product applications, we compete with manufacturers of non-beryllium-containing products, including organic
composites, metal alloys or composites, titanium, and aluminum. Our customers may choose to use substitutes for beryllium-
containing products in their products for a variety of reasons, including, among other things, the lower costs of those substitutes,
the health and safety concerns relating to these products, and the risk of litigation relating to beryllium-containing products. If our
customers use substitutes for beryllium-containing materials in their products, the demand for beryllium-containing products may
decrease, which could reduce our sales.

Our long and variable sales and development cycle makes it difficult for us to predict if and when a new product will be sold
to customers.

Our sales and development cycle, which is the period from the generation of a sales lead or new product idea through the development
of the product and the recording of sales, may typically take several years, making it very difficult to forecast sales and results of
operations. Our inability to accurately predict the timing and magnitude of sales of our products, especially newly introduced
products, could affect our ability to meet our customers’ product delivery requirements or cause our results of operations to suffer
if we incur expenses in a particular period that do not translate into sales during that period, or at all. In addition, these failures
would make it difficult to plan future capital expenditure needs and could cause us to fail to meet our cash flow requirements.

The availability and prices of some raw materials we use in our manufacturing operations fluctuate, and increases in raw
material costs can adversely affect our operating results and our financial condition.

We manufacture advanced engineered materials using various precious and non-precious metals, including aluminum, beryllium,
cobalt, copper, gold, nickel, palladium, platinum, ruthenium, silver, and tin. The availability of, and prices for, these raw materials
are subject to volatility and are influenced by worldwide economic conditions, speculative action, world supply and demand
balances, inventory levels, availability of substitute metals, the U.S. dollar exchange rate, production costs of U.S. and foreign
competitors, anticipated or perceived shortages, and other factors. Precious metal prices, including prices for gold and silver, have
fluctuated significantly in recent years. Higher prices can cause adjustments to our inventory carrying values, whether as a result
of quantity discrepancies, normal manufacturing losses, differences in scrap rates, theft or other factors, which could have a
negative impact on our profitability and cash flows. Also, the price of our products will generally increase in tandem with rising
metal prices, as a result of changes in precious metal prices that are passed through to our customers, which could deter them from
purchasing our products and adversely affect our net sales and operating profit.

Further, we maintain some precious metals and copper on a consigned inventory basis. The owners of the precious metals and
copper charge a fee that fluctuates based on the market price of those metals and other factors. A significant increase in the market
price or the consignment fee of precious metals and/or copper could increase our financing costs, which would increase our
operating costs.

Utilizing precious metals in the manufacturing process creates challenges in physical inventory valuations that may impact
earnings.

We manufacture precious, non-precious, and specialty metal products and also have metal cleaning operations and in-house
refineries that allow for the reclaim of precious metals from internally generated or customer scrap. We refine that scrap through
our internal operations and externally through outside vendors.

When taking periodic physical inventories in our refinery operations, we reconcile the actual precious metals to what was estimated
prior to the physical inventory count. Those estimates are based in part on assays or samples of precious metals taken during the
refining process. If those estimates are inaccurate, we may have an inventory long (more physical precious metal than what we
had estimated) or short (less physical precious metal than what we had estimated). These fluctuations could have a material impact
on our financial statements and may impact earnings. In the past, our gross margin has been reduced by a net quarterly physical
inventory adjustment. Higher precious metal prices may magnify the value of any potential inventory long or short.

Because we maintain a significant inventory of precious metals, we may experience losses due to employee error or theft.

Because we manufacture products that contain precious metals, we maintain a significant amount of precious metals at certain of
our manufacturing facilities. Accordingly, we are subject to the risk of precious metal shortages resulting from employee error
or theft. In the past, we have had precious metal shortages resulting from employee error and theft, which could reoccur in the
future.

While we maintain controls to prevent theft, including physical security measures, if our controls do not operate effectively or are
designed ineffectively, our profitability could be adversely affected, including any charges that we might incur as a result of the
shortage of our inventory and by costs associated with increased security, preventative measures, and insurance.

We have a limited number of manufacturing facilities, and damage to those facilities, or to critical pieces of equipment in these
facilities, could interrupt our operations, increase our costs of doing business, and impair our ability to deliver our products
on a timely basis.

Some of our facilities are interdependent. For instance, our manufacturing facility in Elmore, Ohio relies on our mining operation
for its supply of beryllium hydroxide used in production of most of its beryllium-containing materials. Additionally, our Reading,
Pennsylvania; Fremont, California; and Tucson, Arizona manufacturing facilities are dependent on materials produced by our
Elmore, Ohio manufacturing facility, and our Wheatfield, New York manufacturing facility is dependent on our Buffalo, New
York manufacturing facility. The destruction or closure of our mine, any of our manufacturing facilities, or to critical pieces of
equipment within these facilities for a significant period of time as a result of harsh weather, fire, explosion, act of war or terrorism,
or other natural disaster or unexpected event may interrupt our manufacturing capabilities, increase our capital expenditures and
our costs of doing business, and impair our ability to deliver our products on a timely basis. In addition, many of our manufacturing
facilities depend on one source for electric power and natural gas, which could be interrupted due to equipment failures, terrorism,
or another cause.

If such events occur, we may need to resort to an alternative source of manufacturing or to delay production, which could increase
our costs of doing business and/or result in lost sales. Our property damage and business interruption insurance may not cover all
of our potential losses and may not continue to be available to us on acceptable terms, if at all.

Disruptions or volatility in global financial markets could adversely impact our financial performance.

Global economic conditions may cause volatility and disruptions in the capital and credit markets. Should global economic
conditions deteriorate or access to credit markets be reduced, customers may experience difficulty in obtaining adequate financing,
thereby impacting our sales. Our exposure to bad debt losses may also increase if customers are unable to pay for products previously
ordered and/or delivered. Negative or uncertain financial and macroeconomic conditions may have a significant adverse impact
on our sales, profitability, and results of operations. If current global economic conditions deteriorate, it could trigger an economic
downturn of the same or greater severity as the one experienced in 2008 and 2009. This could have a negative impact on our sales
and result in potential non-cash goodwill and asset impairment charges.

Our defined benefit pension plans and other post-employment benefit plans are subject to financial market risks that could
adversely impact our financial performance.

In 2019, the Company's Board of Directors approved changes to the U.S. defined benefit pension plan. The Company froze the
pay and service amounts used to calculate the pension benefits for active participants as of January 1, 2020. The Company has
defined benefit pension plans in other non-U.S. locations. Our pension expense and our required contributions to our pension plans
are directly affected by the value of plan assets, the projected rate of return on plan assets, the actual rate of return on plan assets,
7

and the actuarial assumptions we use to measure our defined benefit pension plan obligations, including the rate at which future
obligations are discounted to a present value, or the discount rate. Significant changes in market interest rates and decreases in
the fair value of plan assets and investment losses on plan assets would increase funding requirements and expenses and may
adversely impact our results of operations.

We provide post-employment health benefits to eligible employees. Our retiree health expense is directly affected by the
assumptions we use to measure our retiree health plan obligations, including the assumed rate at which health care costs will
increase and the discount rate used to calculate future obligations. For retiree health accounting purposes, we have used a graded
assumption schedule to assume the rate at which health care costs will increase. We cannot predict whether changing market or
economic conditions, regulatory changes, or other factors will further increase our retiree health care expenses or obligations,
diverting funds we would otherwise apply to other uses.

A major portion of our bank debt consists of variable-rate obligations, which subjects us to interest rate fluctuations.

Our credit facilities are secured by substantially all of our assets (other than non-mining real property and certain other assets).
Our working capital line of credit includes variable-rate obligations, which expose us to interest rate risks. If interest rates increase,
our debt service obligations on our variable-rate indebtedness would increase even if the amount borrowed remained the same,
resulting in a decrease in our net income. Additional information regarding our market risks is contained in Item 7A "Quantitative
and Qualitative Disclosures About Market Risk."

Our failure to comply with the covenants contained in the terms of our indebtedness could result in an event of default, which
could materially and adversely affect our operating results and our financial condition.

The terms of our credit facilities require us to comply with various covenants, including financial covenants. In the event of a
global economic downturn, it could have a material adverse impact on our earnings and cash flow, which could adversely affect
our ability to comply with our financial covenants and could limit our borrowing capacity. Our ability to comply with these
covenants depends, in part, on factors over that we may have no control. A breach of any of these covenants could result in an
event of default under one or more of the agreements governing our indebtedness which, if not cured or waived, could give the
holders of the defaulted indebtedness the right to terminate commitments to lend and cause all amounts outstanding with respect
to the indebtedness to be due and payable immediately. Acceleration of any of our indebtedness could result in cross-defaults
under our other debt instruments. Our assets and cash flow may be insufficient to fully repay borrowings under all of our outstanding
debt instruments if some or all of these instruments are accelerated upon an event of default, in which case we may be required
to seek legal protection from our creditors.

The terms of our indebtedness may restrict our operations, including our ability to pursue our growth and acquisition strategies.

The terms of our credit facilities contain a number of restrictive covenants, including restrictions in our ability to, among other
things, borrow and make investments, acquire other businesses, and consign additional precious metals. These covenants could
adversely affect our business by limiting our ability to plan for or react to market conditions or to meet our capital needs, as well
as adversely affect our ability to pursue our growth, acquisition strategies, and other strategic initiatives.

We may not be able to complete our acquisition strategy or successfully integrate acquired businesses.

We are active in pursuing acquisitions. We intend to continue to consider further growth opportunities through the acquisition of
assets or companies and routinely review acquisition opportunities. We cannot predict whether we will be successful in pursuing
any acquisition opportunities or what the consequences of any acquisition would be. Future acquisitions may involve the expenditure
of significant funds and management time. Depending upon the nature, size, and timing of future acquisitions, we may be required
to raise additional financing, which may not be available to us on acceptable terms, or at all. Further, we may not be able to
successfully integrate any acquired business with our existing businesses or recognize any expected advantages from any completed
acquisition.

In addition, there may be liabilities that we fail, or are unable, to discover in the course of performing due diligence investigations
on the assets or companies we have already acquired or may acquire in the future. We cannot assure that rights to indemnification
by the sellers of these assets or companies to us, even if obtained, will be enforceable, collectible, or sufficient in amount, scope,
or duration to fully offset the possible liabilities associated with the business or property acquired. Any such liabilities, individually
or in the aggregate, could have a materially adverse effect on our business, financial condition, and results of operations.

Our products are deployed in complex applications and may have errors or defects that we find only after deployment.

Our products are highly complex, designed to be deployed in complicated applications, and may contain undetected defects, errors,
or failures. Although our products are generally tested during manufacturing, prior to deployment, they can only be fully tested
8

when deployed in specific applications. For example, we sell beryllium-copper alloy strip products in a coil form to some customers,
who then stamp the alloy for its specific purpose. On occasion, it is not until such customer stamps the alloy that a defect in the
alloy is detected. Consequently, our customers may discover errors after the products have been deployed. The occurrence of any
defects, errors, or failures could result in installation delays, product returns, termination of contracts with our customers, diversion
of our resources, increased service and warranty costs, and other losses to our customers, end users, or to us. Any of these occurrences
could also result in the loss of, or delay in, market acceptance of our products, and could damage our reputation, which could
reduce our sales.

In addition to the risk of unanticipated warranty or recall expenses, our customer contracts may contain provisions that could cause
us to incur penalties, be liable for damages, including liquidated damages, or incur other expenses, if we experience difficulties
with respect to the functionality, deployment, operation, and availability of our products and services. In the event of late deliveries,
late or improper installations or operations, failure to meet product or performance specifications or other product defects, or
interruptions or delays in our managed service offerings, our customer contracts may expose us to penalties, liquidated damages,
and other liabilities. In the event we were to incur contractual penalties, such as liquidated damages or other related costs that
exceed our expectations, our business, financial condition, and operating results could be materially and adversely affected.

We conduct our sales and distribution operations on a worldwide basis and are subject to the risks associated with doing business
outside the United States.

We sell to customers outside of the United States from our United States and international operations. Revenue from international
operations (principally Europe and Asia) accounted for approximately 37% in 2019, 40% in 2018, and 44% in 2017 of Net sales.
We anticipate that international shipments will account for a significant portion of our sales for the foreseeable future. There are
a number of risks associated with international business activities, including:

• burdens to comply with multiple and potentially conflicting foreign laws and regulations, including export requirements,
tariffs and other barriers, environmental health and safety requirements, increasingly complex requirements concerning
privacy and data security, including the European Union's General Data Protection Regulation, and unexpected changes
in any of these factors;

• difficulty in obtaining export licenses from the U.S. Government;

• political and economic instability and disruptions, including terrorist attacks;

• disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including

the Foreign Corrupt Practices Act (FCPA);

• potentially adverse tax consequences due to overlapping or differing tax structures;

•

fluctuations in currency exchange rates; and

• disruptions in our business or the businesses of our suppliers or customers due to cyber security incidents, public health

concerns (including viral outbreaks, such as the coronavirus) or natural disasters.

Any of these risks could have an adverse effect on our international operations by reducing the demand for our products or reducing
the prices at which we can sell our products, which could result in an adverse effect on our business, financial position, results of
operations, or cash flows. We may hedge our currency transactions to mitigate the impact of currency price volatility on our
earnings; however, hedging activities may not be successful. For example, hedging activities may not cover the Company’s net
euro and yen exposure, which could have an unfavorable impact on our results of operations.

In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws. The FCPA and
similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper
payments to non-U.S. officials for the purpose of obtaining or retaining business. While policies mandate compliance with these
anti-bribery laws, we operate in many parts of the world that have experienced governmental corruption to some degree and, in
certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. We cannot assure
that our internal controls and procedures will always protect us from the reckless or criminal acts committed by our employees
or agents. If we are found to be liable for FCPA violations or other anti-bribery laws, we could suffer from criminal or civil penalties
or other sanctions, which could have a material adverse effect on our business.

Changes in laws or regulations or the manner of their interpretation or enforcement could adversely impact our financial
performance and restrict our ability to operate our business or execute our strategies.

New laws or regulations, or changes in existing laws or regulations, or the manner of their interpretation or enforcement, could
increase our cost of doing business and restrict our ability to operate our business or execute our strategies. In particular, there
may be significant changes in U.S. laws and regulations and existing international trade agreements by the current U.S. presidential
administration that could affect a wide variety of industries and businesses, including those businesses we own and operate. If the
current U.S. presidential administration materially modifies U.S. laws and regulations and international trade agreements, our
business, financial condition, and results of operations could be adversely affected.

We are exposed to lawsuits in the normal course of business, which could harm our business.

During the ordinary conduct of our business, we may become involved in certain legal proceedings, including those involving
product liability claims, third-party lawsuits relating to exposure to beryllium, claims against us of infringement of intellectual
property rights of third parties, or other litigation matters. Due to the uncertainties of litigation, we can give no assurance that we
will prevail at the resolution of future claims. Certain of these matters involve types of claims that, if they result in an adverse
ruling to us, could give rise to substantial liability, which could have a material adverse effect on our business, operating results,
or financial condition.

Although we have insurance which may be applicable in certain circumstances, some jurisdictions preclude insurance coverage
for punitive damage awards. Accordingly, our profitability could be adversely affected if any current or future claimants obtain
judgments for any uninsured compensatory or punitive damages. Further, an unfavorable outcome or settlement of a pending
beryllium case or adverse media coverage could encourage the commencement of additional similar litigation.

Health issues, litigation, and government regulations relating to our beryllium operations could significantly reduce demand
for our products, limit our ability to operate, and adversely affect our profitability.

If exposed to respirable beryllium fumes, dusts, or powder, some individuals may demonstrate an allergic reaction to beryllium
and may later develop a chronic lung disease known as chronic beryllium disease (CBD). Some people who are diagnosed with
CBD do not develop clinical symptoms at all. In others, the disease can lead to scarring and damage of lung tissue, causing clinical
symptoms that include shortness of breath, wheezing, and coughing. Severe cases of CBD can cause disability or death.

Further, some scientists claim there is evidence of an association between beryllium exposure and lung cancer, and certain standard-
setting organizations have classified beryllium and beryllium compounds as human carcinogens.

The health risks relating to exposure to beryllium have been, and will continue to be, a significant issue confronting the beryllium-
containing products industry. The health risks associated with beryllium have resulted in product liability claims, employee, and
third-party lawsuits. As of December 31, 2019, we had one CBD case outstanding.

The increased levels of scrutiny by federal, state, foreign, and international regulatory authorities could lead to regulatory decisions
relating to the approval or prohibition of the use of beryllium-containing materials for various uses. Concerns over CBD and other
potential adverse health effects relating to beryllium, as well as concerns regarding potential liability from the use of beryllium,
may discourage our customers’ use of our beryllium-containing products and significantly reduce demand for our products. In
addition, adverse media coverage relating to our beryllium-containing products could damage our reputation or cause a decrease
in demand for beryllium-containing products, which could adversely affect our profitability.

Our bertrandite ore mining and beryllium-related manufacturing operations and some of our customers’ businesses are subject
to extensive health and safety regulations that impose, and will continue to impose, significant costs and liabilities, and future
regulation could increase those costs and liabilities, or effectively prohibit production or use of beryllium-containing products.

We, as well as our customers, are subject to laws regulating worker exposure to beryllium. OSHA has published a new standard
for workplace exposure to beryllium that, among other things, lowered the permissible exposure by a factor of ten and established
new requirements for respiratory protection, personal protective clothing and equipment, medical surveillance, hazard
communication, and recordkeeping. Materion was a participant in the development of the new standards, which fundamentally
represent our current health and safety operating practices. Other government and standard-setting organizations are also reviewing
beryllium-related worker safety rules and standards, and will likely make them more stringent. The development, proposal, or
adoption of more stringent standards may affect buying decisions by the users of beryllium-containing products. If the standards
are made more stringent and/or our customers or other downstream users decide to reduce their use of beryllium-containing
products, our results of operations, liquidity, and financial condition could be materially adversely affected. The impact of this
potential adverse effect would depend on the nature and extent of the changes to the standards, the cost and ability to meet the

new standards, the extent of any reduction in customer use, and other factors. The magnitude of this potential adverse effect cannot
be estimated.

Our bertrandite ore mining and manufacturing operations are subject to extensive environmental regulations that impose, and
will continue to impose, significant costs and liabilities on us, and future regulation could increase these costs and liabilities
or prevent production of beryllium-containing products.

We are subject to a variety of governmental regulations relating to the environment, including those relating to our handling of
hazardous materials and air and wastewater emissions. Some environmental laws impose substantial penalties for non-compliance.
Others, such as the federal Comprehensive Environmental Response, Compensation, and Liability Act, impose strict, retroactive,
and joint and several liability upon entities responsible for releases of hazardous substances. Bertrandite ore mining is also subject
to extensive governmental regulation on matters such as permitting and licensing requirements, plant and wildlife protection,
reclamation and restoration of mining properties, the discharge of materials into the environment, and the effects that mining has
on groundwater quality and availability. Future requirements could impose on us significant additional costs or obligations with
respect to our extraction, milling, and processing of ore. If we fail to comply with present and future environmental laws and
regulations, we could be subject to liabilities or our operations could be interrupted. In addition, future environmental laws and
regulations could restrict our ability to expand our facilities or extract our bertrandite ore deposits. These environmental laws and
regulations could also require us to acquire costly equipment, obtain additional financial assurance, or incur other significant
expenses in connection with our business, which would increase our costs of production.

Unexpected events and natural disasters at our mine could increase the cost of operating our business.

A portion of our production costs at our mine are fixed regardless of current operating levels. Our operating levels are subject to
conditions beyond our control that may increase the cost of mining for varying lengths of time. These conditions include, among
other things, weather, fire, natural disasters, pit wall failures, and ore processing changes. Our mining operations also involve the
handling and production of potentially explosive materials. It is possible that an explosion could result in death or injuries to
employees and others and material property damage to third parties and us. Any explosion could expose us to adverse publicity
or liability for damages and materially adversely affect our operations. Any of these events could increase our cost of operations.

A security breach of customer, employee, supplier, or company information may have a material adverse effect on our business,
financial condition, and results of operations.

In the conduct of our business, we collect, use, transmit, store, and report data on information systems and interact with customers,
vendors, and employees. Increased global information technology (IT) security threats and more sophisticated and targeted
computer crime pose a risk to the security of our systems and networks and the confidentiality, availability, and integrity of our
data. Despite our security measures, our IT systems and infrastructure may be vulnerable to customer viruses, cyber-attacks,
security breaches caused by employee error or malfeasance, or other disruptions. Any such threat could compromise our networks
and the information stored there could be accessed, publicly disclosed, lost, or stolen. A security breach of our computer systems
could interrupt or damage our operations or harm our reputation, resulting in a loss of sales, operating profits, and assets. In
addition, we could be subject to legal claims or proceedings and/or liability under laws that protect the privacy of personal
information and regulatory penalties if confidential information relating to customers, suppliers, employees, or other parties is
misappropriated from our computer systems.

Similar security threats exist with respect to the IT systems of our lenders, suppliers, consultants, advisers, and other third parties
with whom we conduct business. A security breach of those computer systems could result in the loss, theft, or disclosure of
confidential information and could also interrupt or damage our operations, harm our reputation, and subject us to legal claims.

Item 1B.

UNRESOLVED STAFF COMMENTS

None.

Item 2.

PROPERTIES

We operate manufacturing plants, service and distribution centers, and other facilities throughout the world. During 2019, we
made effective use of our productive capacities at our principal facilities. We believe that the quality and production capacity of
our facilities is sufficient to maintain our competitive position for the foreseeable future. Information as of December 31, 2019,
with respect to our facilities that are owned or leased, and the respective segments in which they are included, is set forth below:

Location

Owned or Leased

Approximate
Number of
Square Feet

Corporate and Administrative Offices

Mayfield Heights, Ohio (1)(2)

Manufacturing Facilities

Leased

79,130

Albuquerque, New Mexico (2)
Alzenau, Germany (2)
Bloomfield, Connecticut (3)
Brewster, New York (2)
Buffalo, New York (2)
Delta, Utah (1)
Elmore, Ohio (1)
Farnborough, England (1)
Fremont, California (1)
Limerick, Ireland (2)
Lincoln, Rhode Island (1)
Lorain, Ohio (1)
Milwaukee, Wisconsin (2)
Reading, Pennsylvania (1)
Santa Clara, California (2)
Shanghai, China (3)
Singapore (1)(2)
Subic Bay, Philippines (2)
Suzhou, China (2)
Taoyuan City, Taiwan (2)
Tucson, Arizona (1)
Tyngsboro, Massachusetts (3)
Westford, Massachusetts (3)
Wheatfield, New York (2)
Windsor, Connecticut (3)

Service, Sales, and Distribution Centers

Elmhurst, Illinois (1)
Maastricht, The Netherlands (2)
Seoul, Korea (2)
Stuttgart, Germany (1)
Tokyo, Japan (1)
Warren, Michigan (1)

(1) PAC
(2) Advanced Materials
(3) Precision Coatings

Owned/Leased
Leased
Leased
Leased
Owned
Owned
Owned/Leased
Leased
Leased
Leased
Owned/Leased
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Leased

Leased
Leased
Leased
Leased
Leased
Leased

13,000/63,223
136,433
44,800
75,000
97,000
100,836
681,000/191,000
10,000
40,000
23,000
130,000/26,451
55,000
98,750
128,863
5,800
101,400
24,500
5,000
21,743
32,523
53,000
38,000
53,000
35,000
34,700

28,500
450
13,654
24,800
7,200
34,500

In addition to the above, the Company holds certain mineral rights on 7,500 acres in Juab County, Utah, from which the beryllium-
bearing ore, bertrandite, is mined by the open pit method. A portion of these mineral rights are held under lease. Ore reserve data
can be found in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Item 3.

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. Among such proceedings are cases alleging that plaintiffs have contracted, or have been
placed at risk of contracting, beryllium sensitization or CBD or other lung conditions as a result of exposure to beryllium (beryllium
cases). The plaintiffs in beryllium cases seek recovery under negligence and various other legal theories and demand compensatory
and often punitive damages, in many cases of an unspecified sum. Spouses of some plaintiffs claim loss of consortium.

Beryllium Claims

As of December 31, 2019, our subsidiary, Materion Brush Inc., was a defendant in one beryllium case. In 2019, one new beryllium
case was filed. In Ronald Dwayne Manning v. Arconic Inc. et al., case number 19CI000219, filed in the Superior Court of the
State of California, Tehama County, the Company is one of four named defendants and 120 Doe defendants. The plaintiff alleges
that he contracted beryllium disease from exposures to beryllium-containing products during his employment as an auto mechanic,
welder, sprinkler installer, and movie projector operator, and asserts claims for negligence, strict liability, fraudulent concealment,
and breach of implied warranties. The plaintiff seeks economic damages, non-economic damages, consequential damages, and
punitive damages. The Company believes that it has substantive defenses and intends to vigorously defend this suit.

The Company has insurance coverage, which may respond, subject to an annual deductible.

The Company was one of six defendants in a case filed on April 7, 2015 in the Superior Court of the State of California, Los
Angeles County, titled Godoy et al. v. The Argen Corporation et al., BC578085. This was a survival and wrongful death complaint.
The complaint alleged that the decedent worked at H. Kramer & Co. in California and alleged that he worked as a dental lab
technician at various dental labs in California, and that he suffered from CBD and other injuries as a result of grinding, melting
and handling beryllium-containing products. The complaint alleged causes of action for negligence, strict liability - failure to
warn, strict liability - design defect, fraudulent concealment, and breach of implied warranties. Plaintiffs other than the personal
representative of the decedent sought compensatory damages. The survival action brought by the decedent's designated personal
representative sought all damages sustained by decedent that he would have been entitled to recover had he lived, including punitive
damages. The Company filed a demurrer on May 29, 2015. At a hearing on September 29, 2015, the court granted the demurrer,
dismissing all claims against the Company, without leave to amend the complaint. On February 3, 2016, the plaintiffs filed a
notice of appeal. On June 23, 2016, the California Supreme Court in a case titled Ramos v. Brenntag Specialties, 2016 WL
3435777, issued a unanimous opinion disapproving the case precedent upon which the Company's successful demurrer had been
based. Based on this decision, the parties stipulated that the judgment entered in favor of the defendants be reversed and the matter
remanded to the trial court for further proceedings. On July 30, 2018, the trial court granted summary adjudication in favor of all
defendants on the survival action on the ground that the action was barred by the statute of limitations. On August 7, 2018, the
Company filed a Notice of Entry of Order Granting Summary Adjudication in Favor of Defendants on Plaintiffs' Survival Action.
The entry of this Order by the trial court eliminated the punitive damages claim from the action. Trial in the Godoy case, which
was originally scheduled for March 12, 2019, was continued to September 4, 2019. In 2019, the Company settled this matter for
an immaterial amount, and the case was dismissed.

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
Form 10-K.

PART II

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

The Company's common shares are listed on the New York Stock Exchange under the symbol “MTRN”. As of February 3, 2020,
there were 745 shareholders of record.

Share Repurchases

The following table presents information with respect to repurchases of common stock made by us during the three months ended
December 31, 2019.

Period
September 28 through November 1, 2019
November 2 through November 29, 2019
November 30 through December 31, 2019
Total

Total Number
of Shares
Purchased (1)

Average
Price Paid
per Share
—
59.50
—
59.50

— $
230
—
230

Total
Number of
Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs (2)

Maximum Dollar
Value that May
Yet Be Purchased
Under the Plans
or Programs (2)
15,081,991
15,081,991
15,081,991
15,081,991

— $
—
—
— $

(1) Represents shares surrendered to the Company by employees to satisfy tax withholding obligations on stock appreciation

rights issued under the Company's stock incentive plan.

(2)

On January 14, 2014, we announced that our Board of Directors authorized the repurchase of up to $50.0 million of
our common stock; this Board authorization does not have an expiration date. During the three months ended
December 31, 2019, we did not repurchase any shares under this program.

Performance Graph

The following graph sets forth the cumulative shareholder return on our common shares as compared to the cumulative total return
of the Russell 2000 Index, the S&P SmallCap 600 Index, and the S&P SmallCap 600 Materials Index, as Materion Corporation
is a component of these indices.

Materion Corporation
Russell 2000
S&P SmallCap 600
S&P SmallCap 600 - Materials

2015

2016

2017

2018

2019

120
162
170
127

172
196
215
196

214
225
244
216

199
200
223
168

265
251
273
202

The above graph assumes that the value of our common shares and each index was $100 on December 31, 2014 and that all
applicable dividends were reinvested.

Item 6.

SELECTED FINANCIAL DATA

Materion Corporation and Subsidiaries

(Thousands except per share data)
For the year
Net sales
Income before income taxes(1)
Income tax expense (benefit)(2)
Net income
Earnings per share of common stock:

Basic
Diluted

Dividends per share of common stock
Depreciation, depletion, and amortization
Capital expenditures
Mine development expenditures
Year-end position
Net current assets
Ratio of current assets to current liabilities

Property, plant, and equipment:

At cost
Cost less depreciation, depletion, and
amortization

Total assets
Long-term liabilities(3)
Long-term debt
Shareholders’ equity

2019

2018

2017

2016

2015

1,185,424
61,990
11,330
50,660

$ 1,207,815
16,342
(4,504)
20,846

$ 1,139,447
36,396
24,945
11,451

969,236
25,315
(425)
25,740

$ 1,025,272
42,818
10,660
32,158

2.49
2.45
0.435
41,116
24,251
2,277

1.03
1.01
0.415
35,524
27,702
6,558

0.57
0.56
0.395
42,751
27,516
1,560

1.29
1.27
0.375
45,651
27,177
9,861

1.60
1.58
0.355
37,817
29,505
22,585

369,547

4.0 to 1

299,573
3.1 to 1

283,834
3.2 to 1

254,907
3.8 to 1

249,616
3.6 to 1

916,965

898,251

891,789

861,267

833,834

232,276
852,670
112,432
1,260
610,677

251,018
800,341
101,401
2,066
553,906

255,578
791,084
161,097
2,827
494,981

252,631
741,298
150,853
3,605
494,089

263,629
742,293
157,182
4,276
482,957

(1) Income before income taxes for 2019 includes a non-cash impairment charge of $14.1 million. For additional information,
refer to Note L of the Consolidated Financial Statements. Income before income taxes for 2018 includes pension settlement charges
totaling $41.4 million. For additional information, refer to Note N of the Consolidated Financial Statements.

(2) Income tax expense (benefit) includes the impact of the Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017
totaling expense of $17.1 million and a benefit of $11.1 million in 2017 and 2018, respectively. For additional information, refer
to Note G of the Consolidated Financial Statements.

(3) Long-term liabilities include long-term obligations relating to Retirement and post-employment benefits, Unearned income,
Operating lease liabilities, Finance lease liabilities, and Other long-term liabilities.

Item 7.

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 electrical, electronic,
thermal, and structural applications. Our products are sold into numerous end markets, including semiconductor, industrial,
aerospace and defense, automotive, energy, consumer electronics, and telecom and data center.

RESULTS OF OPERATIONS

(Thousands except per share data)
Net sales
Value-added sales
Gross margin

Gross margin as a % of Value-added sales

Selling, general, and administrative (SG&A) expense

SG&A expense as a % of Value-added sales

Research and development (R&D) expense
R&D expense as a % of Value-added sales

Goodwill impairment charges
Asset impairment charges
Restructuring expense
Other — net
Operating profit
Other non-operating expense — net
Interest expense — net
Income before income taxes
Income tax expense (benefit)
Net income

Diluted earnings per share

2019 Compared to 2018

2019

1,185,424
733,689
259,144

2018
1,207,815
738,958
251,105

2017
1,139,447
677,697
212,829

35%

147,164

20%

18,271

11,560
2,581
785
11,783
67,000
3,431
1,579
61,990
11,330
50,660

2.45

34%

31%

153,489

144,280

21%

15,187

2%
—
—
5,599
15,334
61,496
42,683
2,471
16,342
(4,504)
20,846

21%

13,981

2%
—
—
644
13,893
40,031
1,452
2,183
36,396
24,945
11,451

1.01

0.56

Net sales of $1,185.4 million in 2019 decreased $22.4 million from $1,207.8 million in 2018. Net sales in the Advanced Materials
segment decreased $12.9 million due to the lower mix of precious metal-containing products and the mix of customer-supplied
material. In addition, net sales in the Precision Coatings segment declined $9.1 million driven by lower sales of blood glucose test
strip products. These changes more than offset the favorable impact of precious metal and copper prices, which increased net sales
in 2019 by approximately $35.4 million.

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 metal 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 $733.7 million in 2019 were down 1% compared to 2018. The
reduction in value-added sales was due to lower demand in the automotive, telecom and data center, consumer electronics, and
semiconductor end markets, partially offset by increased value-added sales into the aerospace and defense end market.

Gross margin was $259.1 million in 2019, or a 3% increase from the $251.1 million gross margin recorded in 2018. Gross margin
expressed as a percentage of value-added sales increased to 35% in 2019 from 34% in 2018. The increase in gross margin was
primarily due to commercial and manufacturing performance improvements.

SG&A expenses totaled $147.2 million in 2019 as compared to $153.5 million in 2018. The decrease in SG&A expenses was
primarily driven by lower variable expenses related to financial targets. Expressed as a percentage of value-added sales, SG&A
expenses were 20% and 21% in 2019 and 2018, respectively.

R&D expense consists primarily of direct personnel costs for pre-production evaluation and testing of new products, prototypes,
and applications. R&D expense was $18.3 million, an increase of 20% compared to 2018 and increased to 2.5% as a percentage

of value-added sales in 2019. The increase in R&D expense reflects additional investment in new product and application
development.

Goodwill and Asset impairment charges includes non-recurring charges relating to goodwill and other assets in our Precision
Coatings segment. Refer to Note L to the Consolidated Financial Statements for additional discussion.

Restructuring expense consists primarily of cost reduction actions taken in order to align costs with commensurate business levels.
These actions are generally accomplished through elimination of vacant positions, consolidation of roles, and staff reduction. In
2019, we recorded $0.8 million of expenses related to restructuring actions taken in Large Area Coatings (a reporting unit in the
Precision Coatings segment) and the Other segment. In 2018, we recorded $5.6 million of expenses related to restructuring actions
taken in our Advanced Materials segment. Refer to Note D to the Consolidated Financial Statements for additional discussion.

Other-net totaled expense of $11.8 million and $15.3 million in 2019 and 2018, respectively. In 2019, metal consignment fees,
amortization of intangible assets, and foreign currency losses decreased $1.8 million, $0.9 million, and $0.8 million, respectively.
Refer to Note E of the Consolidated Financial Statements for the major components of Other-net.

Other non-operating expense-net includes components of pension and post-retirement expense other than service costs. In 2019,
other non-operating expense-net included a non-cash pre-tax pension curtailment charge of $3.3 million associated with the pension
plan amendment to freeze the pay and service amounts used to calculate pension benefits effective December 31, 2019. In 2018,
other non-operating expense included $41.4 million in pension settlements, primarily related to the purchase of a group annuity
contract to relieve the Company of responsibility for certain pension benefit obligations. Refer to Note N of the Consolidated
Financial Statements for details of the components of net periodic benefit costs.

Interest expense - net was $1.6 million in 2019 and $2.5 million in 2018. The decrease in interest expense in 2019 compared to
2018 is primarily due to interest income on investments held in money market accounts.

Income tax expense (benefit) for 2019 was $11.3 million of expense versus a benefit of $4.5 million in 2018. The impact of the
TCJA was the primary factor for the tax benefit in 2018. The effects of percentage depletion, excess tax benefits from equity
compensation, and the foreign derived intangible income deduction were the primary factors for the difference between the effective
and statutory tax rates in 2019. Refer to Note G to the Consolidated Financial Statements for further details on income taxes.

See the Management Discussion and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2018
for a discussion of our results for 2018 compared to 2017.

Segment Disclosures

The Company consists of four reportable segments: Performance Alloys and Composites, Advanced Materials, Precision Coatings,
and Other. The Other reportable segment includes unallocated corporate costs.

Performance Alloys and Composites

(Thousands)
Net sales
Value-added sales
Operating profit

2019 Compared to 2018

2019

2018

2017

500,201
428,084
70,652

500,590
425,471
58,832

429,442
363,465
21,978

Net sales from the Performance Alloys and Composites segment of $500.2 million in 2019 were flat compared to 2018. In addition,
the change in precious metal and copper prices was not material.

Value-added sales of $428.1 million in 2019 were 1% higher than value-added sales of $425.5 million in 2018. The increase in
value-added sales was primarily driven by application wins and strong demand in the aerospace and defense end market, partially
offset by reduced value-added sales into the automotive end market driven by softer demand in Europe and Asia.

Performance Alloys and Composites generated operating profit of $70.7 million, or 17% of value-added sales, in 2019 as compared
to $58.8 million, or 14% of value-added sales, in 2018. Operating profit in 2019 was favorably impacted by favorable product
mix and improved manufacturing performance.

Advanced Materials

(Thousands)
Net sales
Value-added sales
Operating profit

2019 Compared to 2018

2019

2018

2017

573,763
224,254
24,740

586,643
223,714
17,651

590,789
228,062
32,763

Net sales from the Advanced Materials segment of $573.8 million in 2019 were 2% lower than net sales of $586.6 million in 2018.
The decline in net sales was due to the lower mix of precious metal-containing products and the mix of customer-supplied material,
partially offset by the impact of favorable pass-through metal prices of $33.0 million.

Value-added sales of $224.3 million increased slightly compared to value-added sales of $223.7 million in 2018.

Advanced Materials generated operating profit of $24.7 million in 2019, compared to $17.7 million in 2018. Increased operating
profit in 2019, compared to 2018, was the result of cost savings realized primarily from restructuring actions taken in 2018, which
included a $5.6 million restructuring charge, partially offset by unfavorable sales mix and reduced manufacturing yields.

Precision Coatings

(Thousands)
Net sales
Value-added sales
Operating (loss) profit

2019 Compared to 2018

2019

2018

2017

111,460
87,310
(3,550)

120,582
94,231
11,468

119,216
90,678
8,445

Net sales from the Precision Coatings segment of $111.5 million in 2019 decreased 8% compared to net sales of $120.6 million
in 2018 primarily due to decreased sales volume, partially offset by a $5.8 million favorable impact of pass-through precious metal
prices.

Value-added sales of $87.3 million in 2019 decreased 7% compared to value-added sales of $94.2 million in 2018. The decrease
was driven by reduced value-added sales related to blood glucose test trip products, partially offset by increased value-added sales
of $1.5 million into the industrial end market.

The Precision Coatings segment generated operating loss of $3.6 million in 2019, compared to an operating profit of $11.5 million
in 2018. The decrease in operating profit was driven by a goodwill impairment charge of $11.6 million and an other assets
impairment charge of $2.6 million related to our Large Area Coatings (LAC) business, as well as $0.3 million of restructuring
actions taken in 2019.

Other

(Thousands)
Net sales
Value-added sales

Operating loss

2019 Compared to 2018

2019

2018

2017

— $

(5,959)
(24,842)

(4,458)
(26,455)

—
(4,508)
(23,155)

The Other reportable segment in total includes unallocated corporate costs.

Corporate costs of $24.8 million in 2019 decreased $1.7 million as compared to $26.5 million in 2018. As a percent of total
Company value-added sales, corporate costs decreased to 3% in 2019 from 4% in 2018. The decrease in corporate costs in 2019
compared to 2018 is reflective of lower variable expenses related to financial targets.

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 Company
in total for 2019, 2018, and 2017 is as follows:

(Thousands)
Net sales
Performance Alloys and Composites
Advanced Materials
Precision Coatings
Other
Total

Less: pass-through metal costs
Performance Alloys and Composites
Advanced Materials
Precision Coatings
Other
Total

Value-added sales
Performance Alloys and Composites
Advanced Materials
Precision Coatings
Other
Total

2019

2018

2017

500,201
573,763
111,460
—
$ 1,185,424

500,590
586,643
120,582
—
$ 1,207,815

72,117
349,509
24,150
5,959
451,735

428,084
224,254
87,310
(5,959)
733,689

75,119
362,929
26,351
4,458
468,857

425,471
223,714
94,231
(4,458)
738,958

429,442
590,789
119,216
—
1,139,447

65,977
362,727
28,538
4,508
461,750

363,465
228,062
90,678
(4,508)
677,697

The cost of gold, silver, platinum, palladium, and copper can be quite volatile. Our pricing policy is to directly pass the 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.

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 metal 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 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.

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.

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.

FINANCIAL POSITION

Cash Flow

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

(Thousands)

Net cash provided by operating activities

Net cash (used in) investing activities

Net cash (used in) financing activities

Effects of exchange rate changes

Net change in cash and cash equivalents

2019

2018

2017

99,222
(26,484)
(18,054)
(322)
54,362

76,374
(33,828)
(13,605)
(140)
28,801

67,795
(43,358)
(15,445)
1,388

10,380

Net cash provided by operating activities totaled $99.2 million in 2019 versus $76.4 million in 2018. During 2019, we contributed
$4.5 million to our domestic pension plan, compared to contributions of $42.0 million in 2018. Working capital requirements used
cash of $18.5 million during 2019 compared to providing $5.8 million in 2018. Cash flows used in accounts receivable increased
$16.7 million. Three-month trailing days sales outstanding (DSO) was approximately 47 days at December 31, 2019 versus 41
days at December 31, 2018. Inventory reduction initiatives generated a cash flow benefit of $24.0 million in 2019 compared to a
benefit of $4.2 million in 2018, related primarily to our Performance Alloys and Composites business. Cash flows from accounts
payable and accrued expenses used cash of approximately $18.6 million compared to providing $8.8 million in the prior year due
to higher incentive compensation payments tied to improved financial performance. Price movements of precious and base metals
are essentially passed to customers. Therefore, while sudden movements in the price of metals can cause a temporary imbalance
in our cash receipts and payments in either direction, once prices stabilize, our cash flow tends to stabilize as well.

Net cash used in investing activities was $26.5 million in 2019 compared to $33.8 million in 2018, reflecting lower levels of mine
development and capital spending.

Net cash used in financing activities increased $4.5 million from 2018 primarily due to deferred financing fees recorded in 2019
related to our precious metal and credit agreements, as well as increased payments of withholding taxes for stock-based
compensation awards.

Dividends per common share increased 5% to $0.435 per share in 2019. Total dividend payments to common shareholders were
$8.9 million in 2019 and $8.4 million in 2018. In May 2019, the Board of Directors declared an increase in our quarterly dividend
from $0.105 to $0.11 per share. We intend to pay a quarterly dividend on an ongoing basis, subject to a continuing strong capital
structure and a determination that the dividend remains in the best interest of our shareholders.

Liquidity

We believe that 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 and share
repurchase programs, environmental remediation projects, and strategic acquisitions. At December 31, 2019, cash and cash
equivalents held by our foreign operations totaled $15.0 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 the results of operations for the
foreseeable future.

A summary of key data relative to our liquidity, including the outstanding debt, cash balances, and available borrowing capacity,
as of December 31, 2019 and December 31, 2018 is as follows:

(Thousands)
Cash
Total outstanding debt
Net cash
Available borrowing capacity

December 31,

2019

2018

125,007
2,218
122,789
340,906

70,645
3,041
67,604
275,488

Net cash 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 year 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 and amortization, and other adjustments.

In September 2019, we amended and restated the agreement governing our $375.0 million revolving credit facility (Credit
Agreement). The maturity date of the Credit Agreement was extended from 2020 to 2024, and the Credit Agreement provides
more favorable interest rates under certain circumstances. In addition, the Credit Agreement provides the Company and its
subsidiaries with additional capacity to enter into facilities for the consignment, borrowing, or leasing 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 and certain other assets.

The Credit Agreement allows the Company to borrow money at a premium over LIBOR or prime rate and at varying maturities.
The premium resets quarterly according to the terms and conditions available under 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 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 December 31, 2019 and December 31, 2018. Cash on hand does not affect
the covenants or the borrowing capacity under our debt agreements.

Portions of our business utilize off-balance sheet consignment arrangements to finance metal requirements. Expansion of business
volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. In August 2019, we
entered into a precious metals consignment agreement, maturing on August 27, 2022, which replaced the consignment agreement
that would have matured on September 30, 2019. The available and unused capacity under the metal financing lines expiring in
August 2022 totaled approximately $140.7 million as of December 31, 2019, compared to $133.9 million as of December 31,
2018, under the metal financing lines that expired on September 30, 2019. The availability is determined by Board approved levels
and actual line capacity.

Contractual Obligations

A summary of payments to be made under long-term debt agreements, operating leases, significant capital leases, pension plan
contributions, and material purchase commitments by year is as follows:

(Millions)
Total debt (1)
Finance lease payments (2)
Interest payments on total debt (3)
Non-cancelable lease payments (4)
Pension plan contributions (5)
Other long-term liabilities (6)
Purchase obligations
Total

2020

2021

2022

2023

2024

There-
after

Total

0.9
2.2
0.1
7.8
—
1.0
5.7
17.7

1.3
2.2
—
6.7
—
2.7
0.6
13.5

— $
2.2
—
4.8
—
0.4
0.3
7.7

— $
1.5
—
3.8
—
0.6
0.5
6.4

— $
1.2
—
1.9
—
0.6
0.5
4.2

— $

20.9
—
3.3
—
0.6
—
24.8

2.2
30.2
0.1
28.3
—
5.9
7.6
74.3

(1) Total debt relates to installment payments on our fixed rate industrial development revenue bonds that mature in 2021.

(2) The finance lease payments include facilities relating to our Elmore, Ohio and Alzenau, Germany sites.

(3) These amounts represent future interest payments related to our total debt.

(4) The non-cancelable lease payments represent payments under operating leases with initial lease terms in excess of one year

as of December 31, 2019.

(5) Our domestic defined benefit pension plan is overfunded as of December 31, 2019. Contributions in future periods, if any,
will be dependent upon regulatory requirements, the plan funded ratio, plan investment performance, discount rates, actuarial
assumptions, plan amendments, our contribution objectives, and other factors. We anticipate funding those contributions
with cash on hand, cash generated from operations, or borrowings under our existing lines of credit. It is not practical to
estimate the required contributions beyond 2020 at the present time.

(6) Other long-term liabilities include environmental remediation costs. We have an active environmental compliance program.
We estimate the probable cost of identified environmental remediation projects and establish reserves accordingly. The
environmental remediation reserve balance was $5.9 million at December 31, 2019 and $6.5 million at December 31, 2018.

Environmental projects tend to be long term, and the associated payments are typically made over a number of years. Refer
to Note R to the Consolidated Financial Statements for further discussion.

Off-balance Sheet Obligations

We maintain the majority of the precious metals and 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. Refer to Item 7A “Quantitative and Qualitative
Disclosures about Market Risk.” The notional value of off-balance sheet precious metals and copper was $309.3 million as of
December 31, 2019 versus $316.1 million as of December 31, 2018. We were in compliance with all of the covenants contained
in the consignment agreements as of December 31, 2019 and December 31, 2018. Refer to Note I for additional information.

ORE RESERVES

We have proven and probable reserves of beryllium-bearing bertrandite ore in Juab County, Utah. We own approximately 90
percent of the proven reserves, with the remaining reserves leased from the State of Utah. We augment our proven reserves of
bertrandite ore through the purchase of imported beryl ore from time to time. This beryl ore, which is approximately four percent
beryllium, is also processed at the Utah extraction facility. Approximately 90 percent of the beryllium in ore is recovered in the
extraction process. Estimating the quantity and/or grade of ore reserves requires the size, shape, and depth of ore bodies to be
determined by analyzing geological data such as drilling samples. Economic assumptions used to estimate reserves change from
period to period, and as additional geological and operational data is generated during the course of operations, estimates of reserves
may change from period to period.

The term “proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches,
workings, or drill holes; grade and/or quality are computed from the results of detailed sampling, (b) the sites for inspection,
sampling, and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth, and mineral
content of reserves are well-established, and (c) the ore is commercially recoverable through open-pit methods.

The term “probable reserves” means reserves for which quantity and grade and/or quality are computed from information similar
to that used for proven reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less
adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity
between points of observation.

As of December 31, 2019

Tonnage (in thousands)

Grade (% beryllium)

Beryllium pounds (in millions)

As of December 31, 2018
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)

Proven

Probable

Total

7,851

0.246%
38.67

8,047
0.248 %
39.96

962

0.258%
4.97

945
0.257 %
4.85

8,813

0.248%
43.64

8,992
0.249 %
44.81

Based upon average production levels in recent years and our near-term production forecasts, proven and probable reserves would
last a minimum of seventy-five years. The table below details our production of beryllium at our Utah location.

(Thousands of Pounds of Beryllium)
Domestic ore
Purchased ore
Unyielded total
Annual yield
Beryllium produced
% of mill capacity

2019

2018

2017

2016

2015

358
3
361
90%
324
50%

368
—
368
88%
324
50%

326
12
338
88%
296
47%

339
23
362
88%
318
42%

439
26
465
89%
412
55%

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. The following policies are considered
by management to be critical because adherence to these policies relies significantly upon our judgment.

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. We recognize revenue, in an amount that reflects the consideration
to which the Company expects to be entitled, when we satisfy a performance obligation by transferring control of a product to the
customer. The core principle of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606
is supported by five steps which are outlined below with management's judgment in applying each.

1) Identify the contract with a customer

A contract with a customer exists when the Company enters into an enforceable contract with a customer that identifies each party’s
rights regarding the products to be transferred and the related payment terms related to these services, the contract has commercial
substance, and the Company determines that collection of substantially all consideration for products that are transferred is probable
based on the customer’s intent and ability to pay.

Management exercises judgment in its assessment that it is probable that the Company will collect substantially all of the payment
attributed to products or services that will be transferred to our customers. We regularly review the creditworthiness of our customers
considering such factors as historical collection experience, a customer’s current credit standing, the age of accounts receivable
balances, and general economic conditions that may affect a customer’s ability to pay. If after we have recognized revenue,
collectability of an account receivable becomes doubtful, we establish appropriate allowances and reserves against accounts
receivable with respect to the previously recognized revenue that remains uncollected. Allowances and reserves against accounts
receivable are maintained for estimated probable losses and are sufficient enough to ensure that accounts receivable are stated at
amounts that are considered collectible.

If management forms a judgment that a particular customer’s financial condition has deteriorated but decides to deliver products
or services to the customer, we will defer recognizing revenue relating to products sold to that customer until it is probable that
we will collect substantially all of the consideration to which we are entitled, which typically coincides with the collection of cash.

2) Identify the performance obligations in the contract

Performance obligations promised in a contract are identified based on the products that will be transferred to the customer that
are both capable of being distinct, whereby the customer can benefit from the product either on its own or together with other
resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby
the transfer of the product is separately identifiable from other promises in the contract.

Certain of the Company’s contracts with customers may contain multiple performance obligations. As a result, management utilizes
judgment to determine the appropriate accounting, including whether multiple promised products or services in a contract should
be accounted for separately or as a group, how the consideration should be allocated among the performance obligations, and
when to recognize revenue upon satisfaction of the performance obligations.

3) Determine the transaction price

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring
services to the customer. The vast majority of our contracts contain fixed consideration terms. However, the Company also has
contracts with customers that include variable consideration. Volume discounts and rebates are offered as an incentive to encourage
additional purchases and customer loyalty. Volume discounts and rebates typically require a customer to purchase a specified
quantity of products, after which the price of additional products decreases. These contracts include variable consideration because
the total amount to be paid by the customer is not known at contract inception and is affected by the quantity of products ultimately
purchased. As a result, management applies judgment to estimate the volume discounts based on experience with similar contracts,
customers, and current sales forecasts. Also, the Company has contracts, primarily relating to its precious metal products, where
the transaction price includes variable consideration at contract inception because it is calculated based on a commodity index at
a specified date. Management exercises judgment to determine the minimum amount to be included in the transaction price.
Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future
reversal of cumulative revenue under the contract will not occur.

4) Allocate the transaction price to performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation.
Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation
based on the relative standalone selling price. The Company typically determines standalone selling price based on the price at

which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions,
management uses judgment to estimate the standalone selling price taking into account available information such as market
conditions and internally approved pricing guidelines related to the performance obligations.

5) Recognize revenue when or as the Company satisfies a performance obligation

Management applies the principle of control to determine whether the customer obtains control of a product as it is created and if
revenue should be recognized over time. The vast majority of the Company's performance obligations are satisfied at a point in
time when control of the product transfers to the customer. Control of the product is generally transferred to the customer when
the Company has a present right to payment, the customer has legal title, the customer has physical possession, the customer has
the significant risks and rewards of ownership, and the customer has accepted the product.

However, for certain contracts, particularly relating to the U.S. government and relating to specialized products with no alternative
use, we generally recognize revenue over time as we procure the product because of continuous transfer of control to the customer.
This continuous transfer of control to the customer is supported by a termination for convenience clause in the contract that allows
the customer to unilaterally terminate the contract, pay the Company for costs incurred plus a reasonable profit, and take control
of any work in process. We generally use the cost-to-cost measure of progress for these contracts because it best depicts the transfer
of control to the customer which occurs as we incur costs on the related contracts. Under the cost-to-cost measure of progress, the
extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at
completion of the performance obligation. Therefore, revenue is recognized proportionally as costs are incurred for these contracts.

The Company recognizes revenue net of reserves for price adjustments, returns, and prompt payment discounts. Management
generally estimates this amount using the expected value method. The Company has sufficient experience with our customers that
provide predictive value that the reserves recorded are appropriate.

Other considerations

We receive payment from customers equal to the invoice price for most of our sales transactions.

Returned products are generally not accepted unless the customer notifies the Company in writing, and we authorize the product
return by the customer.

Unearned revenue is recorded cash consideration from customers in advance of the shipment of the goods, which is a liability on
our Consolidated Balance Sheets. This contract liability is subsequently reversed and the revenue, cost of sales, and gross margin
are recorded when the Company has transferred control of the product to the customer. The related inventory also remains on our
balance sheet until these revenue recognition criteria are met. Advanced billings are typically made in association with products
with long manufacturing times and/or products paid relating to contracts with the government. Billings in advance of the shipments
allow us to collect cash earlier than billing at the time of the shipment and, therefore, the collected cash can be used to reduce our
investment in working capital. Refer to Note C of the Consolidated Financial Statements for additional details on our contract
balances.

Accrued Liabilities

We have various accruals on our balance sheet that are based in part upon our judgment, including accruals for litigation,
environmental remediation, and workers’ compensation costs. When a loss is probable, we establish accrual balances based on
the reasonably estimable loss or range of loss as determined by a review of the available facts and circumstances by management
and independent advisors and specialists, as appropriate. When no point of loss is more likely than another, the accrual is established
at the low end of the estimated reasonable range. Litigation and environmental accruals are established only for identified and/
or asserted claims; future claims, therefore, could give rise to increases to the accruals. The accruals are adjusted as facts and
circumstances change, as well as for changes in our strategies or the pertinent regulatory requirements. Since these accruals are
estimates, the ultimate resolution may be greater or less than the established accrual balance for a variety of reasons, including
court decisions, additional discovery, inflation levels, cost control efforts, and resolution of similar cases. Changes to the accruals
would then result in an additional charge or credit to the income statement in the period when the change is made. Refer to Note
R of the Consolidated Financial Statements.

Legal claims may be subject to partial or complete insurance recovery. The accrued liability is recorded at the gross amount of
the estimated cost and the insurance recoverable, if any, is recorded as an asset and is not netted against the liability. The accrued
legal liability includes the estimated indemnity cost only, if any, to resolve the claim through a settlement or court verdict. The
legal defense costs are not included in the accrual and are expensed in the period incurred, with the level of expense in a given
year affected by the number and types of claims we are actively defending.

Non-employee claims for chronic beryllium disease (CBD) are covered by insurance, subject to certain limitations. The insurance
covers defense costs and indemnity payments (resulting from settlements or court verdicts) and is subject to various levels of
deductibles. In 2019 and 2018, defense and indemnity costs were less than the deductible.

Pensions

The annual net periodic expense and benefit obligations related to the Company's defined benefit plans are determined on an
actuarial basis. This determination requires critical assumptions regarding the discount rate, long-term rate of return on plan assets,
increases in compensation levels, and amortization periods for actuarial gains and losses. Assumptions are determined based on
Company data and appropriate market indicators and are evaluated each year as of the plans' measurement date. Changes in the
assumptions to reflect actual experience, as well as the amortization of actuarial gains and losses, could result in a material change
in the annual net periodic expense and benefit obligations reported in the financial statements.

Beginning in 2017, the Company has elected to use a spot-rate approach to estimate the service and interest cost components of
net periodic benefit cost for its defined benefit pension plans. The spot-rate approach applies separate discount rates (along the
yield curve) for each projected benefit payment in the calculation.

Our pension plan investment strategies are governed by a policy adopted by the Board of Directors. A senior management team
oversees a group of outside investment analysts and brokerage firms that implement these strategies. The future return on pension
assets is dependent upon the plan’s asset allocation, which changes from time to time, and the performance of the underlying
investments. As a result of our review of various factors, we used an expected rate of return on plan assets assumption of 6.25%
at December 31, 2019 and 6.75% at December 31, 2018. This assumption is reflective of management’s view of the long-term
returns in the marketplace, as well as changes in risk profiles and available investments. Should the assets earn an average return
less than the expected return assumption over time, in all likelihood the future pension expense would increase.

The impact of a change in the discount rate or expected rate of return assumption on pension expense can vary from year to year
depending upon the undiscounted liability level, the current discount rate, the asset balance, other changes to the plan, and other
factors. A 0.25 percentage point decrease to the discount rate would increase the 2020 projected pension expense approximately
$31 thousand. A 0.25 percentage point decrease in the expected rate of return assumption would increase the 2020 projected
pension expense by approximately $0.4 million.

Refer to Note N of the Consolidated Financial Statements for additional details on our pension and other post-employment benefit
plans.

Last In, First Out (LIFO) Inventory

The prices of certain major raw materials that we use, including copper, nickel, gold, silver, and other precious metals, fluctuate
during a given year. Where possible, such changes in material costs, in either direction, are generally reflected in selling price
adjustments, particularly with precious metals and copper.

The prices of labor and other factors of production, including supplies and utilities, generally increase with inflation. Portions of
these cost increases may be offset by manufacturing improvements and other efficiencies. From time to time, we will revise our
billing practices to include an energy surcharge in an attempt to recover a portion of our higher energy costs from our customers.
However, market factors, alternative materials, and competitive pricing may limit our ability to offset all or a portion of a cost
increase with higher prices.

We use the LIFO method for costing the majority of our domestic inventories. Under the LIFO method, inflationary cost increases
are charged against the current period cost of goods sold in order to more closely match the cost with the associated revenue. The
carrying value of the inventory is based upon older costs and, as a result, the LIFO cost of the inventory on the balance sheet is
typically, but not always, lower than it would be under most alternative costing methods. The LIFO cost may also be lower than
the current replacement cost of the inventory. The LIFO inventory value tends to be less volatile during years of fluctuating costs
than the inventory value would be using other costing methods.

The LIFO impact on the income statement in any given year is dependent upon the inflation rate effect on raw material purchases
and manufacturing conversion costs, the level of purchases in a given year, and changes in the inventory mix and quantities.

Deferred Taxes

We record deferred tax assets and liabilities based upon the temporary difference between the financial reporting and tax basis of
assets and liabilities. If it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation
allowance is established. All available evidence, both positive and negative, is considered to determine whether a valuation
allowance is needed. We review the expiration dates of certain deferred tax assets against projected income levels to determine
if a valuation allowance is needed. Certain deferred tax assets do not have an expiration date. We also evaluate deferred tax
assets for realizability due to cumulative operating losses by jurisdiction and record a valuation allowance as warranted. A valuation
allowance may increase tax expense and reduce net income in the period it is recorded. If a valuation allowance is no longer
required, it will reduce tax expense and increase net income in the period that it is reversed.

We had valuation allowances of $17.7 million and $15.9 million associated with certain federal, state, and foreign deferred tax
assets as of year-end 2019 and 2018, respectively, primarily for net operating loss carryforwards.

Refer to Note G of the Consolidated Financial Statements for additional deferred tax details.

Precious Metal Physical Inventory Counts

We take and record the results of a physical inventory count of our precious metals on a quarterly basis. Our precious metal
operations include a refinery that processes precious metal-containing scrap and other materials from our customers, as well as
our own internally generated scrap. We also outsource portions of our refining requirements to other vendors, particularly those
materials with longer processing times. The precious metal content within these various refine streams may be in solutions, sludges,
and other non-homogeneous forms and can vary over time based upon the input materials, yield rates, and other process parameters.
The determination of the weight of the precious metal content within the refine streams as part of a physical inventory count
requires the use of estimates and calculations based upon assays, assumed recovery percentages developed from actual historical
data and other analyses, the total estimated volumes of solutions and other materials within the refinery, data from our refine
vendors, and other factors. The resulting calculated weight of the precious metals in our refine operations may differ, in either
direction, from what our records indicate that we should have on hand, which would then result in an adjustment to our pre-tax
income in the period when the physical inventory was taken, and the related estimates were made.

Impairment of Goodwill and Long-Lived Assets

Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The Company conducted its
annual goodwill impairment assessment as of the first day of the fourth quarter.

Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment. Goodwill
within the Advanced Materials segment totaled $50.2 million as of December 31, 2019. Within the Precision Coatings segment,
goodwill totaled $26.9 million, with $17.8 million and $9.1 million relating to the Precision Optics and LAC reporting units,
respectively, as of December 31, 2019. The remaining $1.9 million is related to the Performance Alloys and Composites segment.

For the purpose of the goodwill impairment assessment, we have the option to perform a qualitative assessment (commonly referred
to as "step zero") to determine whether further quantitative analysis for impairment of goodwill or indefinite-lived intangible assets
is necessary. At the September 28, 2019 annual assessment date, we opted to perform a "step zero" qualitative assessment for
each of our reporting units. The results of the step zero indicated that no goodwill impairment existed. However, as further described
in the subsequent paragraph, the Company performed an interim impairment analysis for the LAC reporting unit in the third quarter
of 2019.

As of September 29, 2018, the Company determined that the fair value of the LAC reporting unit exceeded the carrying value by
approximately 50 percent, which indicated no impairment at that time. The sales growth assumption for the LAC reporting unit
was based on expected future orders. A key input into our valuation analysis is our sales growth assumptions, which can be impacted
by increased competition, pricing pressures, and contract negotiations with new and existing customers. These factors impact both
the timing and magnitude of sales of our products. Precious metal prices, particularly palladium used by our LAC reporting unit
and its customer base, have fluctuated significantly in recent years. Palladium price movements have increased competitive pricing
pressure in the LAC business. The key risk with precious metal pricing volatility is the possibility that rising prices could deter
our customers from purchasing our products, which would adversely affect our net sales and operating profit.

During the third quarter of 2019, we began to experience a decline in sales volume with a significant customer. Based on an
assessment that the decline in sales volume was expected to continue, the Company initiated a restructuring plan at the end of
September to reduce the LAC reporting unit’s cost structure. The Company considered these factors to be impairment indicators.
As a result, the Company performed an interim impairment analysis as of September 27, 2019 related to the LAC reporting unit.
The Company first reviewed long-lived assets, which resulted in an impairment charge of $2.6 million in the third quarter of 2019.
The Company then performed a "step one" quantitative interim goodwill impairment test.

In the step one test, we estimated the fair value of the LAC reporting unit using a discounted cash flow (DCF) model. We prepared
an operating forecast, which included several assumptions including future sales growth from new products and applications, as
well as assumptions regarding future industry-specific market conditions, capital expenditures, and working capital changes. This
forecast was reviewed and approved by management and served as the basis for the assumptions used in the DCF model. The DCF
model included five years of forecasted cash flows from this process, plus cash flows projected to be generated from the end of
the forecasted period into perpetuity. In addition to the estimate of future cash flows, other significant estimates involved in the
determination of fair value of the reporting unit were the discount rate and growth rate used in the DCF model. The discount rate
used in the DCF model considered market and industry data as well as a specific risk premium. The growth rate for the purpose
of calculating cash flows through perpetuity was set after the forecasted period.

As a result of this analysis, we recorded an $11.6 million impairment charge in the third quarter of 2019. These non-cash charges

were recorded in Goodwill impairment charges and Asset impairment charges in the Consolidated Statements of Income. The
remaining balance of goodwill for the LAC reporting unit as of December 31, 2019 is $9.1 million. The Company may determine
in connection with future impairment tests that some or all of the remaining carrying value of the LAC reporting unit's goodwill
balance may be impaired.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to precious metal and commodity price, interest rate, foreign exchange rate, and utility cost differences. While
the degree of exposure varies from year to year, our methods and policies designed to manage these exposures have remained
fairly consistent over time. Generally, we attempt to minimize the effects of these exposures on our pre-tax income and cash flows
through the use of natural hedges, which include pricing strategies, borrowings denominated in the same terms as the exposed
asset, off-balance sheet financing arrangements, and other methods. Where we cannot use a natural hedge, we may use derivative
financial instruments to minimize the effects of these exposures when practical and cost efficient. The use of off-balance sheet
financing arrangements and derivative financial instruments is subject to policies approved by the Audit Committee of the Board
of Directors with oversight provided by a group of senior financial managers at our corporate office.

Precious metals. We use gold and other precious metals in manufacturing various products. To reduce the exposure to market
price changes, the majority of our precious metal requirements are maintained on a consigned inventory basis. We purchase the
metal out of consignment from our suppliers when it is ready to ship to a customer as a finished product. Our purchase price forms
the basis for the price charged to the customer for the precious metal content and, therefore, the current cost is matched to the
selling price, and the price exposure is minimized.

We are charged a consignment fee by the financial institutions that own the precious metals. This fee is a function of the market
price of the metal, the quantity of metal we have on hand, and the rate charged by the institution. Because of market forces and
competition, the fee can only be charged to customers in a limited case-by-case basis. Should the market price of precious metals
that we have on consignment increase by 20% from the prices on December 31, 2019, the additional pre-tax cost to us as a result
of an increase in the consignment fee would be approximately $1.7 million on an annual basis. This calculation assumes no
changes in the quantity of metal held on consignment or the underlying fee and that none of the additional fees are charged to
customers.

To further limit price and financing rate exposures, under some circumstances, we will require customers to furnish their own
metal for processing. Customers may also elect to provide their own material for us to process on a toll basis as opposed to
purchasing our material.

The available capacity of our existing credit lines to consign precious metals is a function of the quantity and price of the metals
on hand. As prices increase, a given quantity of metal will utilize a larger proportion of the existing credit lines. A significant
prolonged increase in metal prices could result in our credit lines being fully utilized, and, absent securing additional credit line
capacity from financial institutions, could require us to purchase precious metals rather than consign them, require customers to
supply their own metal, and/or force us to turn down additional business opportunities. If we were in a significant precious metal
ownership position, we might elect to use derivative financial instruments to hedge the potential price exposure. The cost to
finance and potentially hedge the purchased inventory may also be higher than the consignment fee. The financial statement
impact of the risk from rising metal prices impacting our credit availability cannot be estimated at the present time.

In certain circumstances, we may elect to fix the price of precious metals for a customer for a stated quantity over a specified
period of time. In those cases, we may secure hedge contracts whose terms match the terms in the agreement with our customer
so that the gain or loss on the contract with the customer due to subsequent movements in the precious metal price will generally
be offset by a gain or loss on the hedge contract. At December 31, 2019, we did not have a material amount of such hedge contracts
outstanding.

Copper. We also use copper in our production processes. When possible, fluctuations in the purchase price of copper are passed
on to customers in the form of price adders or reductions. While over time our price exposure to copper is generally in balance,
there can be a lag between the change in our cost and the pass-through to our customers, resulting in higher or lower margins in
a given period. To mitigate this impact, we hedge a portion of this pricing risk.

We consign the majority of our copper inventory requirements. As with precious metals, the available capacity under the existing
lines is a function of the quantity and price of metal on hand. Should the market cost of copper increase by 20% from the price
as of December 31, 2019, the additional pre-tax cost to us as a result of an increase in the consignment fee would be approximately

$0.1 million on an annual basis. This calculation assumes no changes in the quantity of inventory or the underlying fee and that
none of the additional fees are charged to customers.

Lower of cost or net realizable value. In our manufacturing processes, we use various metals that are not widely used by others
or actively traded and, therefore, there is no established efficient market for derivative financial instruments that could be used to
effectively hedge the related price exposures. For certain applications, our pricing practice with respect to these metals is to
establish the selling price based upon our cost to purchase the material, limiting our price exposure. However, the inventory
carrying value may be exposed to market fluctuations. The inventory value is maintained at the lower of cost or net realizable
value and if the market value were to drop below the carrying value, the inventory would have to be reduced accordingly and a
charge recorded against cost of sales. This risk is mainly associated with long manufacturing lead-time items and with sludges
and scrap materials, which generally have longer processing times to be refined or processed into a usable form for further
manufacturing and are typically not covered by specific sales orders from customers. We did not record any material lower of
cost or net realizable value charges in 2019, 2018, or 2017 as a result of market price fluctuations of metals in our inventories.

Interest rates. We are exposed to changes in interest rates on our cash balances. We may also be exposed to changes in interest
rates if we incur future borrowings under our Credit Agreement. We may manage this interest rate exposure by maintaining a
combination of short-term and long-term debt and variable and fixed rate instruments. We may also use interest rate swaps to fix
the interest rate on variable rate obligations, as we deem appropriate. There were no interest rate derivatives outstanding as of
December 31, 2019. Excess cash is typically invested in high quality instruments that mature in 90 days or less. Investments are
made in compliance with policies approved by the Board of Directors.

Foreign currencies. Portions of our international operations sell products priced in foreign currencies, mainly the euro and yen,
while the majority of these products’ costs are incurred in U.S. dollars. We are exposed to currency movements in that if the U.S.
dollar strengthens, the translated value of the foreign currency sale and the resulting margin on that sale will be reduced. To
minimize this exposure, we may purchase foreign currency forward contracts, options, and collars in compliance with approved
policies. If the dollar strengthened, the decline in the translated value of our margins would be at least partially offset by a gain
on the hedge contract. A decrease in the value of the dollar would result in larger margins but potentially a loss on the contract,
depending upon the method used to hedge the exposure. Our current policy limits our hedges to 80% or less of the forecasted
exposure.

The notional value of outstanding currency contracts was $42.0 million as of December 31, 2019. If the dollar weakened 10%
against the currencies we have hedged from the December 31, 2019 exchange rates, the reduced gain and/or increased loss on the
outstanding contracts as of December 31, 2019 would reduce pre-tax profits by approximately $4.2 million in 2019. This calculation
does not take into account the increase in margins as a result of translating foreign currency sales at the more favorable exchange
rates, any changes in margins from potential volume fluctuations caused by currency movements, or the translation effects on any
other foreign currency denominated income statement or balance sheet item.

Utilities. The cost of natural gas and electricity used in our operations may vary from year to year and from season to season.
We attempt to minimize these fluctuations and the exposure to higher costs by utilizing fixed price agreements of set durations,
when deemed appropriate, obtaining competitive bidding between regional energy suppliers, and other methods.

Economy. We are exposed to changes in global economic conditions and the potential impact those changes may have on various
facets of our business. We have a program in place to closely monitor the credit worthiness and financial condition of our key
providers of financial services, including our bank group and insurance carriers, as well as the credit worthiness of customers and
vendors, and have various contingency plans in place.

Our bank lines are established with a number of different banks in order to mitigate our exposure with any one financial institution.
All of the banks in our bank group had credit in good standing as of December 31, 2019. The financial statement impact from
the risk of one or more of the banks in our bank group reducing our lines due to their insolvency or other causes cannot be estimated
at the present time.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements
Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018, and 2017
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts

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Management’s Report on Internal Control over Financial Reporting

The management of Materion Corporation and subsidiaries is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Materion Corporation and
subsidiaries’ internal control system was designed to provide reasonable assurance to the Company’s management and Board of
Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.

Materion Corporation and subsidiaries’ management assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2019. In making this assessment, it used the framework set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria) in Internal Control - Integrated Framework (2013).

Based on our assessment we believe that, as of December 31, 2019, the Company’s internal control over financial reporting is
effective.

The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated in their report.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Materion Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Materion Corporation and subsidiaries (the Company) as of
December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income (loss), shareholders' equity
and cash flows for each of the three years in the period ended December 31, 2019 and the related notes and financial statement
schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 13, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

ASU No. 2016-02
As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for leases in 2019
due to the adoption of ASU 2016-02, Leases (Topic 842).

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.

Reconciliation of Precious Metals Consignment Inventory
Description of the matter At December 31, 2019, the notional value of the Company’s off-balance sheet precious
metals was $309.3 million. As discussed in Note I to the consolidated financial statements,
the Company uses estimates to measure the precious metal content within various
refinement streams which can vary over time based upon the input materials, yield rates,
and other process parameters.

How we addressed the
matter in our audit

Auditing the reconciliation of precious metals consignment inventory is complex due to
the highly detailed nature of the inventory reconciliation and the amount of information
that is obtained from third parties. A physical inventory is performed by the Company on
a quarterly basis to verify the existence of inventory. The precious metals inventory
reconciliation includes estimates based on assays, assumed recovery percentages
developed from actual historical data and other analyses, the total estimated volume of
solutions and other materials within the refinery, data from refine vendors, and other
factors. The reconciliation of precious metals consignment inventory presents the resulting
calculated weight of the precious metals generated from these estimates within the
Company’s refine operations. This calculated weight may differ, from what the Company’s
records indicate should be on hand, which would then result in an adjustment to pre-tax
income.

We obtained an understanding, evaluated the design and tested the operating effectiveness
of controls over the Company’s reconciliation of the precious metals consignment
inventory processes. This included controls over management's review of the significant
inputs into and underlying the reconciliation.

To test the Company’s reconciliation of the precious metals physical consignment
inventory, our procedures included, among others, evaluating the significant assumptions
and data used to estimate the total value of the precious metal which was identified through
the physical inventory. We observed the physical inventory process, tested inventory
activity from the date of observation through December 31 2019, evaluated the underlying
data used in the reconciliation, and confirmed the consigned inventory held with the third
parties. We assessed the historical accuracy of management’s estimates, which are based
on assays, assumed recovery percentages developed from actual historical data and other
analyses, the total estimated volume of solutions and other materials within the refinery,
data from their refine vendors, and other factors and assessed the historical accuracy of
management’s analysis to evaluate the assumptions that were most significant to the
calculated weight of the precious metal inventory.

Quantitative Impairment Assessment of Large Area Coatings Goodwill

Description of the matter As discussed in Note L to the consolidated financial statements, during third quarter of
2019, the Large Area Coatings (LAC) reporting unit began to experience a decline in sales
volume from a significant customer and initiated a restructuring plan. The Company
considered these factors to be impairment indicators and as a result the Company performed
a quantitative goodwill impairment analysis utilizing a discounted cash flow analysis to
determine the fair value of the reporting unit. As a result, the Company recognized a $11.6
million impairment charge, which is the amount by which the carrying value exceeded
the estimated fair value of the reporting unit.

How we addressed the
matter in our audit

Auditing the interim quantitative impairment assessment of the LAC reporting unit is
complex as the income approach requires the Company to make assumptions and estimates
regarding future market conditions, growth rates, capital expenditures, and working capital
changes. The fair value of the reporting unit is based on a number of subjective factors
including; consideration of valuation approaches, consideration of the Company’s business
outlook, and assumptions regarding the weighted average cost of capital (discount rate),
annual growth rates, terminal growth rate and estimated future cash flows.

We obtained an understanding, evaluated the design and tested the operating effectiveness
of controls over the Company’s quantitative goodwill impairment process to determine
the fair value of the LAC reporting unit and measure the goodwill impairment. This
included controls over management's review of the significant assumptions underlying
the fair value determination.

To test the estimated fair value of the LAC reporting unit, we performed audit procedures
that included, among others, assessing methodologies and testing the significant
assumptions discussed above and the underlying data used by the Company in its analysis.
We compared the significant assumptions used by management to current industry and
economic trends. We assessed the historical accuracy of management’s estimates and
performed sensitivity analyses of significant assumptions to evaluate the changes in the
fair value of the reporting unit that would result from changes in the assumptions. We
involved our specialist to assist in the evaluation of the forecast assumptions (e.g. annual
growth rates, weighted average cost of capital (WACC), and terminal growth rate) used
in the assessment.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since at least 1958, but we are unable to determine the specific year.
Cleveland, Ohio
February 13, 2020

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Materion Corporation

Opinion on Internal Control over Financial Reporting

We have audited Materion Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2019, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Materion Corporation and subsidiaries (the
Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based
on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Materion Corporation and subsidiaries as of December 31, 2019 and 2018, the related
consolidated statements of income, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years
in the period ended December 31, 2019 and the related notes and financial statement schedule listed in the Index at Item 15(a)
and our report dated February 13, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Cleveland, Ohio
February 13, 2020

Materion Corporation and Subsidiaries
Years Ended December 31, 2019, 2018, and 2017

Consolidated Statements of Income

(Thousands except per share amounts)
Net sales

Cost of sales

Gross margin

Selling, general, and administrative expense

Research and development expense

Goodwill impairment charges (Note L)

Asset impairment charges (Note L)

Restructuring expense (Note D)

Other — net (Note E)

Operating profit

Other non-operating expense — net (Note N)
Interest expense — net (Note F)

Income before income taxes

Income tax expense (benefit) (Note G)

Net income

Basic earnings per share:
Net income per share of common stock
Diluted earnings per share:
Net income per share of common stock

Weighted-average number of shares of common stock outstanding:

Basic

Diluted

2019
$ 1,185,424

2018

2017

$ 1,207,815

$ 1,139,447

926,280

259,144

147,164

18,271

11,560

2,581

785

11,783

67,000

3,431
1,579

61,990

11,330

50,660

2.49

2.45

956,710

251,105

153,489

15,187

—

5,599

15,334

61,496

42,683
2,471

16,342
(4,504)
20,846

1.03

1.01

926,618

212,829

144,280

13,981

—

644

13,893

40,031

1,452
2,183

36,396

24,945

11,451

0.57

0.56

20,365

20,655

20,212

20,613

20,027

20,415

The accompanying notes are an integral part of the consolidated financial statements.
36

Materion Corporation and Subsidiaries
Years Ended December 31, 2019, 2018, and 2017

Consolidated Statements of Comprehensive Income (Loss)

(Thousands)
Net income

Other comprehensive income:

Foreign currency translation adjustment
Derivative and hedging activity, net of tax benefit (expense) of $5, $672, and
($271)
Pension and post-employment benefit adjustment, net of tax (expense) of
($4,741), ($13,300), and ($13,820)

Other comprehensive income (loss)
Comprehensive income (loss)

2019

2018

2017

50,660

20,846

11,451

(421)

(4)

13,197

12,772

(484)

138

45,049

44,703

63,432

65,549

1,552

(1,074)

(17,234)
(16,756)
(5,305)

The accompanying notes are an integral part of the consolidated financial statements.

Materion Corporation and Subsidiaries
Years Ended December 31, 2019, 2018, and 2017

Consolidated Statements of Cash Flows

(Thousands)
Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation, depletion, and amortization

Amortization of deferred financing costs in interest expense

Stock-based compensation expense (non-cash)

Amortization of pension and post-retirement costs

Loss on sale of property, plant, and equipment

Deferred income tax expense (benefit)

Impairment charges

Net pension curtailments and settlements

Changes in assets and liabilities net of acquired assets and liabilities:

Decrease (increase) in accounts receivable

Decrease (increase) in inventory

Decrease (increase) in prepaid and other current assets
Increase (decrease) in accounts payable and accrued expenses

Increase (decrease) in unearned revenue

Increase (decrease) in interest and taxes payable

Domestic pension plan contributions

Other — net

Net cash provided by operating activities

Cash flows from investing activities:

Payments for purchase of property, plant, and equipment

Payments for mine development

Payments for acquisition

Proceeds from sale of property, plant, and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of long-term debt
Repayment of long-term debt

Principal payments under finance lease obligations

Cash dividends paid

Deferred financing costs

Repurchase of common stock

Payments of withholding taxes for stock-based compensation awards

Net cash used in financing activities

Effects of exchange rate changes

Net change in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

2019

2018

2017

50,660

20,846

11,451

35,524

42,751

41,116
962

7,170
386

344

2,584

14,141

3,328

(23,933)
24,031

1,418
(18,575)
(2,538)
(805)
(4,500)
3,433

99,222

(24,251)
(2,277)
—

44
(26,484)

—
(823)
(1,200)
(8,856)
(2,130)
(199)
(4,846)
(18,054)
(322)
54,362

70,645

1,009

5,313
5,551

518
(1,318)
—

41,406

(7,219)
4,234

1,162
8,820

477

435
(42,000)
1,616

76,374

(27,702)
(6,558)
—

432
(33,828)

—
(777)
(861)
(8,389)
—
(422)
(3,156)
(13,605)
(140)
28,801

41,844

919

4,957

4,865

234

20,256

—

(18,484)
(9,462)
(11,606)
34,433

4,336
(514)
(16,000)
(341)
67,795

(27,516)
(1,560)
(16,504)
2,222
(43,358)

55,000
(55,797)
(843)
(7,913)
(300)
(1,086)
(4,506)
(15,445)
1,388

10,380

31,464

41,844

The accompanying notes are an integral part of the consolidated financial statements.

125,007

70,645

Materion Corporation and Subsidiaries
December 31, 2019 and 2018

Consolidated Balance Sheets

(Thousands)
Assets
Current assets

Cash and cash equivalents (Note A)
Accounts receivable (Note A)
Inventories, net (Notes A and I)
Prepaid and other current assets

Total current assets

Deferred income taxes (Notes A and G)
Property, plant, and equipment (Notes A and J)
Less allowances for depreciation, depletion, and amortization

Property, plant, and equipment — net
Operating lease, right-of-use asset (Note K)
Intangible assets (Notes A and L)
Other assets (Note N)
Goodwill (Notes A and L)

Total Assets

Liabilities and Shareholders’ Equity
Current liabilities

Short-term debt (Note M)
Accounts payable
Salaries and wages
Other liabilities and accrued items
Income taxes (Notes A and G)
Unearned revenue

Total current liabilities
Other long-term liabilities
Operating lease liabilities (Note K)
Finance lease liabilities (Note K)
Retirement and post-employment benefits (Note N)
Unearned income (Notes A and J)
Long-term income taxes (Notes A and G)
Deferred income taxes (Notes A and G)
Long-term debt (Note M)
Shareholders’ equity

Serial preferred stock (no par value; 5,000 authorized shares, none issued)
Common stock (no par value; 60,000 authorized shares, issued shares of 27,148 for both 2019
and 2018)
Retained earnings
Common stock in treasury (6,744 shares for 2019 and 6,906 shares for 2018)
Accumulated other comprehensive loss (Note O)
Other equity

Total shareholders’ equity

Total Liabilities and Shareholders’ Equity

2019

2018

125,007
154,751
190,390
21,839
491,987
1,666
916,965
(684,689)
232,276
23,413
6,380
17,937
79,011
852,670

868
43,206
41,167
32,477
1,342
3,380
122,440
11,560
18,091
17,424
32,466
32,891
3,451
2,410
1,260

70,645
130,538
214,871
23,299
439,353
5,616
898,251
(647,233)
251,018
—
6,461
7,236
90,657
800,341

823
49,622
47,501
33,301
2,615
5,918
139,780
14,764
—
15,221
38,853
32,563
2,993
195
2,066

—

249,674
589,888
(186,845)
(45,462)
3,422
610,677
852,670

234,704
548,374
(175,426)
(58,234)
4,488
553,906
800,341

The accompanying notes are an integral part of the consolidated financial statements.

Materion Corporation and Subsidiaries
Years Ended December 31, 2019, 2018, and 2017

Consolidated Statements of Shareholders’ Equity

(Thousands)

Balance at January 1, 2017

Net income

Other comprehensive income (loss)

Tax Cuts and Jobs Act Reclassification

Cash dividends declared ($0.395 per share)

Stock-based compensation activity

Payments for withholding taxes for stock-
based compensation awards

Repurchase of shares

Directors' deferred compensation

Balance at December 31, 2017

Net income

Other comprehensive income (loss)

Net pension curtailments and settlements

Tax Cuts and Jobs Act Reclassification

Cumulative effect of accounting change

Cash dividends declared ($0.415 per share)

Stock-based compensation activity

Payments for withholding taxes for stock-
based compensation awards

Repurchase of shares

Directors’ deferred compensation

Balance at December 31, 2018

Net income

Other comprehensive income (loss)

Net pension curtailments and settlements

Cumulative effect of accounting change

Cash dividends declared ($0.435 per share)

Stock-based compensation activity

Payments for withholding taxes for stock-
based compensation awards

Repurchase of shares

Directors’ deferred compensation

Balance at December 31, 2019

Common Shares

Common
Shares
Held in
Treasury
7,200

Common
Shares

19,949

—

Common
Stock

Retained
Earnings

Shareholders' Equity

Common
Stock In
Treasury

Accumulated
Other
Comprehensive
Income (Loss)

Other
Equity

Total

$ 212,702

$ 517,903

$(154,399) $

(86,181) $

4,064

$494,089

—

11,451

—

14,675

(7,913)

—

(5,794)

(4,506)

(1,086)

(343)

—

(2,081)

(14,675)

—

382

11,451

(2,081)

—

(7,913)

4,956

(4,506)

(1,086)

296

(296)

10,750

(108)

(32)

108

(2)

—

20,107

7,042

$ 223,484

$ 536,116

$(166,128) $

(102,937) $

4,446

$494,981

—

20,846

—

(575)

425

(8,389)

—

202

(203)

11,131

(49)

(5,768)

(60)

(10)

(3)

—

(3,156)

(422)

—

2,722

41,406

575

—

20,846

2,722

41,406

—

425

(8,389)

5,314

(3,156)

(422)

179

20,242

6,906

$ 234,704

$ 548,374

$(175,426) $

(58,234) $

4,488

$553,906

—

50,660

—

(179)

(8,856)

—

252

(252)

14,876

(111)

(7,595)

(89)

(5)

(4)

—

(4,846)

(199)

1,221

—

9,444

3,328

—

(1,066)

50,660

9,444

3,328

(179)

(8,856)

7,170

(4,846)

(199)

249

20,404

6,744

$ 249,674

$ 589,888

$(186,845) $

(45,462) $

3,422

$610,677

The accompanying notes are an integral part of the consolidated financial statements.

Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements

Note A — Significant Accounting Policies

(Dollars in thousands)

Organization: Materion Corporation (the Company) is a holding company with subsidiaries that have operations in the United
States, Europe, and Asia. These operations manufacture advanced engineered materials used in a variety of end markets, including
semiconductor, industrial, aerospace and defense, automotive, energy, consumer electronics, and telecom and data center. The
Company has four reportable segments: Performance Alloys and Composites, Advanced Materials, Precision Coatings, and Other.
Other includes unallocated corporate costs.

Refer to Note B for additional segment details. The Company is vertically integrated and distributes its products through a
combination of company-owned facilities and independent distributors and agents.

Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results may differ from those estimates.

Consolidation: The Consolidated Financial Statements include the accounts of Materion Corporation and its subsidiaries. All of
the Company’s subsidiaries were wholly owned as of December 31, 2019. Intercompany accounts and transactions are eliminated
in consolidation.

Cash Equivalents: All highly liquid investments with a maturity of three months or less when purchased are considered to be
cash equivalents. At December 31, 2019, the Company had $104.5 million of cash equivalents invested in institutional money
market funds. The carrying value of the money market funds approximates fair value due to their short-term maturities.

Accounts Receivable: An allowance for doubtful accounts is maintained for the estimated losses resulting from the inability of
customers to pay amounts due. The allowance is based upon identified delinquent accounts, customer payment patterns, and other
analyses of historical data and trends. The allowance for doubtful accounts was $392 and $616 at December 31, 2019 and 2018,
respectfully. The Company extends credit to customers based upon their financial condition, and collateral is not generally required.

Inventories: Inventories are stated at the lower of cost or net realizable value. The cost of the majority of domestic inventories
is determined using the last-in, first-out (LIFO) method to reflect a better matching of costs and revenues. The remaining inventories
are stated principally at average costs. Inventories valued on the LIFO cost method were approximately 45% and 57% of inventories
in 2019 and 2018, respectively.

Property, Plant, and Equipment: Property, plant, and equipment is stated on the basis of cost. Depreciation is computed principally
by the straight-line method, except certain assets for which depreciation may be computed by the units-of-production method.
The depreciable lives that are used in computing the annual provision for depreciation by class of asset are primarily as follows:

Land improvements
Buildings
Leasehold improvements
Machinery and equipment
Furniture and fixtures
Automobiles and trucks
Research equipment
Computer hardware
Computer software

Years
10 to 20
20 to 40
Life of lease
3 to 15
4 to 10
3 to 8
3 to 10
3 to 10
3 to 10

An asset acquired under a finance lease will be recorded at the lesser of the present value of the projected lease payments or the
fair value of the asset and will be depreciated in accordance with the above schedule. Leasehold improvements will be depreciated
over the life of the improvement if it is shorter than the life of the lease. Repair and maintenance costs are expensed as incurred.

Mineral Resources and Mine Development: Property acquisition costs are capitalized as mineral resources on the balance sheet
and are depleted using the units-of-production method based upon total estimated recoverable proven reserves of the beryllium-

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

Mine development costs at our open pit surface mines include drilling, infrastructure, other related costs to delineate an ore body,
and the removal of overburden to initially expose an ore body. Before mineralization is classified as proven and probable reserves,
costs are classified as exploration expense. Capitalization of mine development project costs that meet the definition of an asset
begins once mineralization is classified as proven and probable reserves.

Drilling and related costs are capitalized for an ore body where proven and probable reserves exist, and the activities are directed
at obtaining additional information on the ore body. All other drilling and related costs are expensed as incurred. Drilling costs
incurred during the production phase for operational ore control are allocated to inventory costs and then included as a component
of costs applicable to sales.

The costs of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production phase
are capitalized during the development of an open-pit mine and are capitalized at each pit. These costs are amortized as the ore
is extracted using the units-of-production method based upon total estimated recoverable proven reserves for the individual pit.
The Company uses beryllium pounds as the unit of accounting measure for recording amortization.

To the extent that the aforementioned costs benefit an entire ore body, the costs are amortized over the estimated useful life of the
ore body. Costs incurred to access specific ore blocks or areas that only provide benefit over the life of that area are amortized
over the estimated life of that specific ore block area.

Goodwill and Other Intangible Assets: Goodwill is reviewed annually for impairment or more frequently if impairment indicators
arise. The Company conducts its annual goodwill and indefinite-lived intangible asset impairment assessment as of the first day
of the fourth quarter, or more frequently under certain circumstances. Goodwill is assigned to the reporting unit, which is the
operating segment level or one level below the operating segment. Intangible assets with finite lives are amortized using the
straight-line method or effective interest method, as applicable, over the periods estimated to be benefited, which is generally 20
years or less. Finite-lived intangible assets are also reviewed for impairment if facts and circumstances warrant.

Long-Lived Asset Impairment: In accordance with Accounting Standards Codification (“ASC”) 360, “Property, Plant and
Equipment,” management performs impairment tests of long-lived assets, including property and equipment, whenever an event
occurs or circumstances change that indicate that the carrying value may not be recoverable or the useful life of the asset has
changed. Upon indications of impairment, assets and liabilities are grouped at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and liabilities. The asset group would be considered impaired when the
estimated future undiscounted cash flows generated by the asset group are less than its carrying value. If such undiscounted cash
flows indicate that the carrying value of the asset group is not recoverable, impairment losses are measured by comparing the
estimated fair value of the asset group to its carrying amount.

Derivatives: The Company recognizes all derivatives on the balance sheet at fair value. If the derivative is designated and effective
as a cash flow hedge, changes in the fair value of the derivative are recognized in other comprehensive income (loss), a component
of shareholders’ equity, until the hedged item is recognized in earnings. If the derivative is designated as a fair value hedge, changes
in fair value are offset against the change in the fair value of the hedged asset, liability, or commitment through earnings. The
ineffective portion of a derivative’s change in fair value, if any, is recognized in earnings immediately. If a derivative is not a
hedge, changes in its fair value are adjusted through the income statement.

Asset Retirement Obligation: The Company records a liability to recognize the legal obligation to remove an asset at the time
the asset is acquired or when the legal liability arises. The liability is recorded for the present value of the ultimate obligation by
discounting the estimated future cash flows using a credit-adjusted risk-free interest rate. The liability is accreted over time, with
the accretion charged to expense. An asset equal to the fair value of the liability is recorded concurrent with the liability and
depreciated over the life of the underlying asset. The Company's asset retirement obligation related to its mine located in Utah for
the years ended December 31, 2019 and 2018 was $1.4 million and $1.3 million, respectively.

Unearned Income: Expenditures for capital equipment to be reimbursed under government contracts are recorded in property,
plant, and equipment, while the reimbursements for those expenditures are recorded in unearned income, a liability on the balance
sheet. When the assets subject to reimbursement are placed in service, the total cost is depreciated over the useful lives, and the
unearned income liability is reduced and credited to cost of sales on the Consolidated Statements of Income ratably with the annual
depreciation expense. Depreciation and amortization expense on the Consolidated Statements of Cash Flows is shown net of the
associated period reduction in the unearned income liability.

Advertising Costs: The Company expenses all advertising costs as incurred. Advertising costs were $677 in 2019, $1,196 in 2018,
and $1,252 in 2017.

Stock-based Compensation: The Company recognizes stock-based compensation expense based on the grant date fair value of
the award over the period during which an employee is required to provide service in exchange for the award. The fair value of
restricted stock units is based on the closing price of the Company's common shares on the grant date. Stock appreciation rights
(SARs) are granted with an exercise price equal to the closing price of the Company's common shares on the date of grant. The
fair value of SARs is determined using a Black-Scholes option-pricing model, which incorporates assumptions regarding the
expected volatility, the expected option life, the risk-free interest rate, and the expected dividend yield. See Note P for additional
information about stock-based compensation.

Capitalized Interest: Interest expense associated with active capital asset construction and mine development projects is capitalized
and amortized over the future useful lives of the related assets.

Income Taxes: The Company uses the liability method in measuring the provision for income taxes and recognizing deferred tax
assets and liabilities on the balance sheet. The Company will record a valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized, as warranted by current facts and circumstances. The Company applies a more-
likely-than-not recognition threshold for all tax uncertainties and will record a liability for those tax benefits that have a less than
50% likelihood of being sustained upon examination by the taxing authorities.

Net Income Per Share: Basic earnings per share (EPS) is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the assumed conversion of all
dilutive common stock equivalents as appropriate using the treasury stock method.

New Pronouncements Adopted: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2016-02 (Topic 842), Leases, which eliminates the off-balance-sheet accounting for leases. This guidance
requires lessees to report their operating leases as both an asset and liability on the balance sheet and disclose key information
about leasing arrangements. The Company adopted this guidance as of January 1, 2019 using the modified retrospective method
and applied it retrospectively through a cumulative-effect adjustment to retained earnings. The Company applied the transitional
package of practical expedients allowed by the standard to not reassess the identification, classification, and initial direct costs of
leases commencing before this ASU's effective date; however, the Company did not elect the hindsight transitional practical
expedient. The Company also applied the practical expedient to not separate lease and non-lease components to new leases as
well as existing leases through transition. The Company made an accounting policy election not to apply recognition requirements
of the guidance to short-term leases (leases less than twelve months in duration).

Results for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts are not
adjusted and continue to be reported in accordance with legacy generally accepted accounting principles.

The Company recorded a net reduction to opening retained earnings of $0.2 million as of January 1, 2019 due to the cumulative
impact of adopting Topic 842, with the impact primarily related to derecognition of a built-to-suit lease. Refer to Note K for
additional disclosures relating to the Company's leasing arrangements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which intended to simplify the subsequent measurement of goodwill. This ASU eliminates the requirement for an
entity to calculate the implied fair value of goodwill in measuring an impairment charge. Instead, an entity will perform its annual,
or interim, goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount and recording an
impairment charge for the amount by which the carrying amount exceeds the fair value. The Company adopted this guidance as
of January 1, 2019, and the adoption did not have a material effect on the Company's consolidated financial statements. Refer to
Note L for additional disclosures related to goodwill.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for
Hedging Activities, which amends and simplifies existing guidance to allow companies to more accurately present the economic
effects of risk management activities in the financial statements. The Company adopted this guidance as of January 1, 2019, and
the adoption did not have a material effect on the Company’s consolidated financial statements.

New Pronouncements Issued: In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This ASU
requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade
receivables, from an “incurred loss” to a “current expected credit loss” model. The standard will be effective for fiscal years
beginning after December 15, 2019, including interim periods within such fiscal years. Early adoption is permitted. The Company
is nearing completion of its assessment process, as well as the impact to the consolidated financial statements. The adoption of
this ASU is not expected to have a material impact on the Company's results of operations, cash flows, or debt covenants.

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 and Geographic Information

The Company has the following operating segments: Performance Alloys and Composites, Advanced Materials, Precision Coatings,
and Other. The Company’s operating segments represent components of the Company for which separate financial information
is available that is utilized on a regular basis by the Chief Executive Officer, the Company's Chief Operating Decision Maker, in
determining how to allocate the Company’s resources and evaluate performance. The segments are determined based on several
factors, including the availability of discrete financial information and the Company’s organizational and management structure.

Performance Alloys and Composites 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.

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

Precision Coatings 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.

Financial information for reportable segments was as follows:

(Thousands)
2019
Net sales

Intersegment sales

Operating profit (loss)

Depreciation, depletion, and amortization

Expenditures for long-lived assets

Total Assets
2018
Net sales

Intersegment sales

Operating profit (loss)

Depreciation, depletion, and amortization
Expenditures for long-lived assets

Total Assets
2017
Net sales
Intersegment sales

Operating profit (loss)

Depreciation, depletion, and amortization

Expenditures for long-lived assets

Total Assets

Intersegment sales are eliminated in consolidation.

Performance
Alloys and
Composites

Advanced
Materials

Precision
Coatings

Other

Total

$ 500,201

$ 573,763

$ 111,460

— $ 1,185,424

70,652

24,437

15,520

70,047

24,740

8,955

7,572

400,022

215,368

—
(3,550)
5,695

1,045

78,981

—
(24,842)
2,029

2,391

158,299

70,085

67,000

41,116

26,528

852,670

$ 500,590

$ 586,643

$ 120,582

— $ 1,207,815

58,832

17,434

15,396

50,460

17,651

8,575

15,523

410,239

207,183

—

11,468

7,066

1,983

90,537

—
(26,455)
2,449

1,358

92,382

50,497

61,496

35,524

34,260

800,341

$ 429,442
114

$ 590,789
58,056

$ 119,216
—

21,978

23,209

10,427

32,763

7,354

13,318

8,445

9,721

3,048

418,798

202,389

97,504

— $ 1,139,447

—
(23,155)
2,467

2,283

72,393

58,170

40,031

42,751

29,076

791,084

The primary measures of evaluating segment performance are operating profit and net sales. From an assets perspective, segments
are evaluated based upon a return on invested capital metric, which includes inventory (excluding the impact of LIFO), accounts
receivable, and property, plant, and equipment.

Other geographic information includes the following:

(Thousands)
Net sales

United States
Asia
Europe
All other

Total
Long-lived assets by country deployed

United States
All other

Total

2019

2018

2017

743,345
256,114
169,132
16,833
1,185,424

194,596
37,680
232,276

726,881
270,672
186,081
24,181
1,207,815

215,395
35,623
251,018

650,675
265,991
205,118
17,663
1,139,447

227,412
28,166
255,578

International sales include sales from international operations and direct exports from our U.S. operations. No individual country,
other than the United States, or customer accounted for 10% or more of the Company’s net sales for the years presented.

Long-lived assets are comprised of property, plant, and equipment based on physical location.

The following table disaggregates revenue for each segment by end market for 2019 and 2018:

(Thousands)
2019
End Market
Semiconductor
Industrial
Aerospace and Defense
Consumer Electronics
Automotive
Energy
Telecom and Data Center
Other
Total

2018
End Market
Semiconductor
Industrial
Aerospace and Defense
Consumer Electronics
Automotive
Energy
Telecom and Data Center
Other
Total

Performance
Alloys and
Composites

Advanced
Materials

Precision
Coatings

Other

Total

5,353
106,334
109,717
72,360
69,057
41,101
61,344
34,935
500,201

5,020
111,149
88,041
62,816
93,720
40,877
67,157
31,810
500,590

432,658
29,917
5,647
1,254
8,179
74,613
2,981
18,514
573,763

436,807
32,246
3,813
1,002
7,843
72,027
2,792
30,113
586,643

711
14,253
20,731
18,201
969
—
—
56,595
111,460

1,460
12,756
20,044
18,838
1,362
—
—
66,122
120,582

438,722
— $
150,504
—
136,095
—
91,815
—
78,205
—
115,714
—
64,325
—
110,044
—
— $ 1,185,424

443,287
— $
156,151
—
111,898
—
82,656
—
102,925
—
112,904
—
69,949
—
—
128,045
— $ 1,207,815

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

Shipping and Handling Costs: The Company accounts for shipping and handling activities related to contracts with customers
as costs to fulfill its promise to transfer the associated products. Accordingly, customer payments of shipping and handling costs
are recorded as a component of net sales, and related costs are recorded as a component of cost of sales.

Taxes Collected from Customers and Remitted to Governmental Authorities: Revenue is recorded net of taxes collected from
customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to
the relevant government authority.

Product Warranty: Substantially all of the Company’s customer contracts contain a warranty that provides assurance that the
purchased product will function as expected and in accordance with certain specifications. The warranty is intended to safeguard
the customer against existing defects and does not provide any incremental service to the customer.

Transaction Price Allocated to Future Performance Obligations: ASC 606 requires that the Company disclose the aggregate
amount of transaction price that is allocated to performance obligations that have not yet been satisfied at December 31, 2019.
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 December
31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $42.3
million.

Contract Costs: The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the
amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs primarily
relate to sales commissions, which are included in selling, general, and administrative expenses.

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

(Thousands)

Accounts receivable, trade

Unbilled receivables

Unearned revenue

December 31,
2019

December 31,
2018

$ change

% change

141,168

124,498

16,670

13,583

3,380

4,619

5,918

8,964
(2,538)

13 %

194 %

(43)%

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 relating to our receivables were immaterial during 2019.

Unbilled receivables represent expenditures on contracts, plus applicable profit margin, not yet billed. Unbilled receivables are
normally 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 $5.0 million of the unearned amounts as revenue during 2019.

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

In 2019, the Company initiated a restructuring plan in the Large Area Coatings (LAC) business (a reporting unit in the Precision
Coatings segment) to reduce headcount, idle certain machinery and equipment, and exit a facility in Windsor, Connecticut. Costs

associated with this plan also included severance and related costs for 19 employees. Remaining severance payments related to
these initiatives of $0.1 million are reflected within Other liabilities and accrued items in the Consolidated Balance Sheets.

In addition, in each of the last three years, the Company completed cost reduction actions in order to align costs with commensurate
business levels. These actions were accomplished through elimination of vacant positions, consolidation of roles, and staff
reduction. Costs associated with these actions in 2019 were in the Other segment and included severance associated with seven
employees and other related costs. Remaining severance payments related to these initiatives of $0.1 million are reflected within
Other liabilities and accrued items in the Consolidated Balance Sheets. The Company expects that the remaining severance payments
will be substantially paid by the end of 2020 and does not expect to incur additional costs related to these initiatives.

Costs associated with these actions in 2018 were in the Advanced Materials segment and included severance associated with
approximately forty employees and other related costs. Remaining severance payments amount to approximately $1.3 million as
of December 31, 2019.

Costs associated with these actions in 2017 were within the Other and Precision Coatings segments and included severance
associated with twenty-three employees and other related costs. The severance payments were substantially paid by the end of
2017.

These costs are presented in the Company's segment results as follows:

(Thousands)
Performance Alloys & Composites
Advanced Materials
Precision Coatings
Other
Total

Note E — Other-net

Other-net is summarized for 2019, 2018, and 2017 as follows:

(Thousands)
Metal consignment fees
Amortization of intangible assets
Foreign currency loss (gain)
Net loss (gain) on disposal of fixed assets

Rental income
Other items
Total other-net

Note F — Interest expense-net

2019

2018

2017

— $
—
328
457
785

— $

5,599
—
—
5,599

(16)
—
431
229
644

(Income) Expense

2019

2018

2017

9,247
1,400
666

344
(87)
213
11,783

10,999
2,265
1,487
518
(416)
481
15,334

8,782
4,629
(722)
234
(168)
1,138
13,893

The following chart summarizes the interest incurred, capitalized, and paid for 2019, 2018, and 2017:

(Thousands)
Interest incurred, net
Less: Capitalized interest
Total net expense
Interest paid

2019

2018

2017

$
$

1,641
62
1,579
1,799

$
$

2,870
399
2,471
1,436

$
$

2,608
425
2,183
1,646

The decrease in interest expense for 2019 versus 2018 was primarily due to interest income received on investments held in money
market accounts. The increase in interest expense in 2018 compared to 2017 was primarily due to interest expense recorded for a
finance lease entered into in 2017 in connection with the acquisition of the high-performance target materials business of the

Heraeus Group. Amortization of deferred financing costs within interest expense was $1.0 million in 2019, $1.0 million in 2018,
and $0.9 million in 2017.

Note G — Income Taxes

On December 22, 2017, comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (TCJA) was enacted
in the United States. The SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) to address the application of U.S. GAAP
in situations where a registrant did not have the necessary information available, prepared, or analyzed in reasonable detail to
complete the accounting for certain income tax effects of the TCJA. The Company applied the guidance in SAB 118 when
accounting for the enactment-date effects of the TCJA in 2017 and throughout 2018. As of December 31, 2017, the Company had
not completed its accounting for the enactment-date income tax effects of the TCJA under ASC 740 for the following items:
remeasurement of deferred tax assets and liabilities, the one-time transition tax on earnings of foreign subsidiaries, and the policy
election to account for global intangible low-taxed income (GILTI) as a period cost. In 2017, the Company recorded a total
provisional amount of $17.1 million, which was recognized and included as a component of income tax expense. The $17.1 million
provisional amount included $5.0 million of tax expense for the re-measurement of deferred tax assets, $6.1 million of tax expense
for the transition tax on the mandatory deemed repatriation of foreign earnings, a $9.5 million valuation allowance recorded on
foreign tax credits that were deemed unrealizable as a result of the TCJA, and a $3.5 million tax benefit for the generation of
foreign tax credits.

The Company completed its accounting for all of the enactment-date income tax effects of the TCJA in the fourth quarter of 2018.
During 2018, the Company recognized adjustments to the provisional amounts recorded as of December 31, 2017 and included
the adjustments as a component of income tax expense. In 2018, the Company recorded a $11.1 million net tax benefit related to
the enactment-date effects of the TCJA, including a $2.8 million tax benefit for the re-measurement of deferred tax assets and
liabilities, a $1.2 million tax benefit for the one-time transition tax on the mandatory deemed repatriation of foreign earnings, and
a $7.1 million tax benefit related to the generation of foreign tax credits and the reversal of the valuation allowance related to
foreign tax credits.

Income before income taxes and income tax expense (benefit) are comprised of the following:

(Thousands)
Income before income taxes:

Domestic
Foreign

Total income before income taxes

Income tax expense:

Current income tax expense:

Domestic
Foreign

Total current

Deferred income tax expense (benefit):

Domestic
Foreign

Total deferred

Total income tax expense (benefit)

2019

2018

2017

$
$

56,725
5,265
61,990

7,544
1,202
8,746

1,326
1,258
2,584
11,330

$
$

20,272
(3,930)
16,342

(5,896) $
2,710
(3,186) $

(4,083) $
2,765
(1,318) $
(4,504) $

28,327
8,069
36,396

1,912
2,777
4,689

19,935
321
20,256
24,945

A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:

2019

2018

2017

U.S. federal statutory rate
State and local income taxes, net of federal tax effect
Effect of excess of percentage depletion over cost depletion
Manufacturing production deduction, including impact of NOL carryback
Foreign derived intangible income deduction
Non-deductible goodwill impairment
Tax Cuts and Jobs Act impact
Foreign rate differential
Research and development tax credit
Foreign tax credit
Foreign repatriation
Incremental fixed asset basis
Adjustment to unrecognized tax benefits
Stock compensation - excess tax benefits
Valuation allowance
Other items

Effective tax rate

21.0%
1.0
(4.5)
—
(3.2)
1.2
2.5
(0.1)
(1.2)
(0.3)
0.4
—
0.2
(3.4)
2.2
2.5
18.3%

21.0 %
0.1
(17.8)
6.3
(2.9)
—
(67.8)
1.5
(7.6)
(1.9)
2.0
—
2.7
(4.4)
38.7
2.5
(27.6)%

35.0%
2.3
(10.0)
(0.8)
—
—
47.1
(3.4)
(2.6)
(1.1)
1.3
(3.4)
2.8
(1.9)
2.4
0.8
68.5%

Deferred tax assets and (liabilities) are determined based on temporary differences between the financial reporting and tax basis
of assets and liabilities. Deferred tax assets and (liabilities) recorded in the Consolidated Balance Sheets consist of the following:

(Thousands)
Asset (liability)
Post-employment benefits other than pensions
Other reserves
Deferred compensation
Environmental reserves
Inventory
Lease liabilities
Pensions
Accrued compensation expense
Net operating loss and credit carryforwards
Research and development tax credit carryforward
Foreign tax credit carryforward
Subtotal
Valuation allowance

Total deferred tax assets

Depreciation
Lease assets
Amortization
Mine development

Total deferred tax liabilities
Net deferred tax (liabilities) assets

December 31,

2019

2018

1,626
543
3,314
1,384
2,740
4,614
5,149
5,364
13,513
25
—
38,272
(17,676)
20,596
(10,780)
(4,428)
(2,426)
(3,706)
(21,340)

(744) $

2,198
693
3,539
1,463
3,032
—
8,105
6,215
12,002
744
2,385
40,376
(15,917)
24,459
(10,280)
—
(3,635)
(5,123)
(19,038)
5,421

The Company had deferred income tax assets offset with a valuation allowance for certain foreign and state net operating losses,
state investment and research and development tax credit carryforwards, and deferred tax assets that are not likely to be realized
for several of the Company's controlled foreign corporations. The Company intends to maintain a valuation allowance on these
deferred tax assets until a realization event occurs to support reversal of all or a portion of the allowance.

At December 31, 2019, for income tax purposes, the Company had foreign net operating loss carryforwards of $29.4 million that
do not expire, and $6.5 million that expire in calendar years 2020 through 2027, of which $0.5 million expires within the next
twelve months. The Company also had state net operating loss carryforwards of $21.6 million that expire in calendar years 2020
through 2037 and state tax credits of $3.6 million that expire in calendar years 2020 through 2034. A valuation allowance of $11.6
million has been provided against certain foreign and state net operating loss carryforwards and state tax credits due to uncertainty
of their realization.

The Company files income tax returns in the U.S. federal jurisdiction, and in various state, local, and foreign jurisdictions. With
limited exceptions, the Company is no longer subject to U.S. federal examinations for years before 2015, state and local examinations
for years before 2016, and foreign examinations for tax years before 2011.

A reconciliation of the Company’s unrecognized tax benefits for the year-to-date periods ended December 31, 2019 and 2018 is
as follows:

(Thousands)
Balance at January 1
Additions to tax provisions related to the current year
Additions to tax positions related to prior years
Reduction to tax positions related to prior years
Lapses on statutes of limitations
Balance at December 31

2019

2018

2,883
—
399
—
(61)
3,221

2,944
443
4
(508)
—
2,883

Included in the balance of unrecognized tax benefits, including interest and penalties, as of December 31, 2019 and December 31,
2018 are $2.4 million and $2.2 million, respectively, of tax benefits that would affect the Company’s effective tax rate if recognized.
It is reasonably possible that the amount of unrecognized tax benefits will change in the next twelve months; however, we do not
expect the change to have a material impact on the Consolidated Statements of Income or the Consolidated Balance Sheets.

The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the
accompanying Consolidated Statements of Income. Accrued interest and penalties are included on the related tax liability line in
the Consolidated Balance Sheets. The amount of interest and penalties, net of the related tax benefit, recognized in earnings was
immaterial during 2019, 2018, and 2017. As of December 31, 2019 and 2018, accrued interest and penalties, net of the related
tax benefit, were immaterial.

Income taxes paid during 2019, 2018, and 2017, were approximately $9.3 million, $2.6 million, and $8.1 million, respectively.

No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax,
or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in
foreign operations as of December 31, 2019. The amount of such unrepatriated earnings totaled $84.8 million as of December
31, 2019. It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on
the remittance of such undistributed earnings.

Note H — Earnings Per Share

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

(Thousands except per share amounts)
Numerator for basic and diluted EPS:

Net income
Denominator:

Denominator for basic EPS:

Weighted-average shares outstanding

Effect of dilutive securities:
Stock appreciation rights
Restricted stock units
Performance-based restricted stock units
Diluted potential common shares

Denominator for diluted EPS:

2019

2018

2017

50,660

20,846

11,451

20,365

20,212

20,027

72
75
143
290

170
85
146
401

174
96
118
388

Adjusted weighted-average shares outstanding

Basic EPS
Diluted EPS

20,655
2.49
2.45

$
$

20,613
1.03
1.01

$
$

20,415
0.57
0.56

$
$

Equity awards covering shares of common stock totaling 71,199 in 2019, 65,112 in 2018, and 124,319 in 2017 were excluded
from the diluted EPS calculation as their effect would have been anti-dilutive.

Note I — Inventories, net

Inventories in the Consolidated Balance Sheets are summarized as follows:

(Thousands)
Raw materials and supplies
Work in process
Finished goods
Subtotal

Less: LIFO reserve balance

Inventories

December 31,

2019

2018

35,612
177,780
25,506
238,898
48,508
190,390

33,182
195,879
30,643
259,704
44,833
214,871

The liquidation of LIFO inventory layers increased cost of sales by $0.9 million and $1.2 million in 2019 and 2018,
respectively, and reduced cost of sales by $0.8 million in 2017.

The Company takes and records the results of a physical inventory count of its precious metals on a quarterly basis. The Company's
precious metal operations include a refinery that processes precious metal-containing scrap and other materials from its customers,
as well as its own internally generated scrap. The Company also outsources portions of its refining requirements to other vendors,
particularly those materials with longer processing times. The precious metal content within these various refine streams may be
in solutions, sludges, and other non-homogeneous forms and can vary over time based upon the input materials, yield rates, and
other process parameters. The determination of the weight of the precious metal content within the refine streams as part of a
physical inventory count requires the use of estimates and calculations based upon assays, assumed recovery percentages developed
from actual historical data and other analyses, the total estimated volumes of solutions and other materials within the refinery,
data from the Company's refine vendors, and other factors. The resulting calculated weight of the precious metals in the Company's
refine operations may differ, in either direction, from what its records indicate that the Company should have on hand, which
would then result in an adjustment to its pre-tax income in the period when the physical inventory was taken, and the related
estimates were made.

The Company maintains the majority of the precious metals and copper used in production on a consignment basis in order to
reduce our exposure to metal price movements and to reduce our working capital investment. The notional value of off-balance
sheet precious metals and copper was $309.3 million as of December 31, 2019 versus $316.1 million as of December 31, 2018.

Note J — Property, Plant, and Equipment

Property, plant, and equipment on the Consolidated Balance Sheets is summarized as follows:

(Thousands)
Land
Buildings
Machinery and equipment
Software
Construction in progress
Allowances for depreciation

Subtotal

Finance leases
Allowances for depreciation

Subtotal
Mineral resources
Mine development
Allowances for amortization and depletion

Subtotal

Property, plant, and equipment — net

December 31,

2019

4,874
150,323
639,310
44,652
16,699
(669,250)
186,608
26,069
(3,569)
22,500
4,980
30,058
(11,870)
23,168
232,276

2018

4,874
149,701
631,421
42,678
14,468
(642,365)
200,777
22,150
(2,412)
19,738
4,980
27,979
(2,456)
30,503
251,018

The Company received $63.5 million from the U.S. Department of Defense (DoD), in previous periods, for reimbursement of the
DoD's share of the cost of equipment. This amount was recorded in property, plant, and equipment and the reimbursements are
reflected in Unearned income on the Consolidated Balance Sheets. The equipment was placed in service during 2012, and its full
cost is being depreciated in accordance with Company policy. The unearned income liability is being reduced ratably with the
depreciation expense recorded over the life of the equipment.

Unearned income was reduced by $4.4 million and $4.3 million in 2019 and 2018, respectively, and credited to cost of sales in
the Consolidated Statements of Income, offsetting the impact of the depreciation expense on the associated equipment on the
Company's cost of sales and gross margin.

We recorded depreciation and depletion expense of $30.3 million in 2019, $33.3 million in 2018, and $38.1 million in 2017.
Depreciation, depletion, and amortization as shown on the Consolidated Statement of Cash Flows is also net of the reduction in
the unearned income liability in 2019, 2018, and 2017. The net book value of capitalized software was $7.9 million and $8.0
million at December 31, 2019 and December 31, 2018, respectively. Depreciation expense related to software was $2.4 million,
$2.6 million, and $2.4 million in 2019, 2018, and 2017, respectively.

Note K — Leasing Arrangements

The Company leases warehouse and manufacturing real estate, and manufacturing and computer equipment under operating leases
with lease terms ranging up to 25 years. Several operating lease agreements contain options to extend the lease term and/or options
for early termination. The lease term consists of the non-cancelable period of the lease, periods covered by options to extend the
lease if the Company is reasonably certain to exercise the option, and periods covered by an option to terminate the lease if the
Company is reasonably certain not to exercise the option. The weighted average remaining lease term for the Company's operating
and finance leases as of December 31, 2019 was 4.69 years and 19.47 years, respectively.

The discount rate implicit within the leases is generally not determinable, and, therefore, the Company determines the discount
rate based on its incremental borrowing rate. The incremental borrowing rate for leases is determined based on the lease term in
which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure the
Company's operating and finance lease liabilities as of December 31, 2019 was 5.91% and 5.31%, respectively.

The components of operating and finance lease cost for 2019 were as follows:

(Thousands)
Components of lease expense
Operating lease cost

Finance lease cost

Amortization of right-of-use assets
Interest on lease liabilities

Total lease cost

2019

9,835

1,414
1,028
12,277

Operating lease expense under ASC 840 amounted to $11.6 million and $9.3 million during 2018 and 2017, respectively. The
Company straight-lines its expense of fixed payments for operating leases over the lease term and expenses the variable lease
payments in the period incurred. These variable lease payments are not included in the calculation of right-of-use assets or lease
liabilities.

Supplemental balance sheet information related to the Company's operating and finance leases as of December 31, 2019 was as
follows:

(Thousands)
Supplemental balance sheet information

Operating Leases

Operating lease right-of-use assets
Other liabilities and accrued items
Operating lease liabilities

Finance Leases

Property, plant, and equipment
Allowances for depreciation, depletion, and amortization

Finance lease assets, net

Other liabilities and accrued items
Finance lease liabilities

Total principal payable on finance leases

Future maturities of the Company's lease liabilities as of December 31, 2019 are as follows:

(Thousands)
2020
2021
2022
2023
2024
2025 and thereafter
Total lease payments
Less amount of lease payment representing interest
Total present value of lease payments

Dec. 31,

2019

$
$

23,413
6,542
18,091

26,069
(3,570)
22,499
1,265
17,424
18,689

Finance

Leases

Operating

Leases

2,224
2,224
2,224
1,515
1,160
20,875
30,222
11,533
18,689

7,759
6,725
4,754
3,807
1,891
3,341
28,277
3,644
24,633

As of December 31, 2018, prior to the adoption of Topic 842, future minimum payments under capital leases and operating
leases having initial or non-cancelable lease terms in excess of one year were as follows:

(Thousands)
2019
2020
2021
2022
2023
2024 and thereafter
Total minimum lease payments
Less amount of lease payment representing interest
Total present value of net minimum lease payments

Capital

Leases

Operating

Leases

2,172
2,172
2,172
2,172
1,463
21,056
31,207
19,338
11,869

7,287
6,525
4,966
3,790
3,532
4,287
30,387

Supplemental cash flow information related to leases for the year ended December 31, 2019 was as follows:

(Thousands)
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases

Note L — Intangible Assets and Goodwill

Intangible Assets

Dec. 31,

2019

15,841
1,028
1,200

The cost and accumulated amortization of intangible assets subject to amortization as of December 31, 2019 and 2018, is as
follows:

2019

2018

(Thousands)
Customer relationships
Technology
Licenses and other
Total

Gross
Carrying
Amount

39,601
13,377
4,257
57,235

Accumulated
Amortization
$

(37,692) $
(12,816)
(3,046)
(53,554) $

Gross
Carrying
Amount

Net

1,909
561
1,211
3,681

39,601
13,377
4,257
57,235

Accumulated
Amortization
$

(37,077) $
(12,238)
(2,725)
(52,040) $

Net

2,524
1,139
1,532
5,195

The aggregate amortization expense relating to intangible assets for the year ended December 31, 2019 and estimated amortization
expense for each of the five succeeding years is as follows:

(Thousands)
2019
2020
2021
2022
2023
2024

Amortization

Expense

1,400
615
523
523
513
421

Intangible assets also includes deferred financing costs relating to the Company's revolving credit and consignments lines of
$2.7 million and $1.3 million at December 31, 2019 and 2018, respectively.

Goodwill

Goodwill arises from the purchase price for acquired businesses exceeding the fair value of tangible and intangible assets acquired
less assumed liabilities.

Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The Company conducts its annual
goodwill impairment assessment as of the first day of the fourth quarter, or more frequently under certain circumstances. For the
purpose of the goodwill impairment assessment, the Company has the option to perform a qualitative assessment (commonly
referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwill or indefinite-lived
intangible assets is necessary or a quantitative assessment ("step one") where the Company estimates the fair value of each reporting
unit using a discounted cash flow method (income approach). Goodwill is assigned to the reporting unit, which is the operating
segment level or one level below the operating segment. The balance of goodwill at December 31, 2019 and 2018 was $79.0
million and $90.7 million, respectively.

A summary of changes in goodwill by reportable segment is as follows:

(Thousands)

Balance at December 31, 2018

Impairment charge
Other

Balance at December 31, 2019

Performance
Alloys and
Composites

Advanced
Materials

Precision
Coatings

Total

1,899

50,276

—
—
1,899

—
(86)
50,190

38,482
(11,560)
—
26,922

90,657
(11,560)
(86)
79,011

During the third quarter of 2019, the LAC reporting unit began to experience a decline in sales volume from a significant customer.
Based on an assessment that the decline in sales volume was expected to continue, the Company initiated a restructuring plan at
the end of the third quarter to reduce the LAC reporting unit’s cost structure. Refer to Note D for further details of the restructuring
plan. The Company considered these factors to be impairment indicators. As a result, the Company performed an interim
impairment analysis as of September 27, 2019 using a "step one" quantitative assessment for the LAC reporting unit. The LAC
reporting unit prepared an operating forecast that included several assumptions including future sales growth from new products
and applications, as well as assumptions regarding future industry-specific market conditions, capital expenditures, and working
capital changes. In addition to the estimates of future cash flows, other significant estimates involved in the determination of fair
value of the reporting unit were the weighted average cost of capital (discount rate), annual growth rate, and terminal growth rate
used in the discounted cash flow (DCF) model. The discount rates used in the DCF model consider market and industry data as
well as specific risk premiums for the LAC reporting unit. The Company first reviewed long-lived assets, which resulted in an
impairment charge of $2.6 million in the third quarter of 2019. The Company then performed a goodwill impairment analysis
which resulted in an $11.6 million charge in the third quarter of 2019, which represents the excess of the carrying value over the
estimated fair value of LAC. The Company estimated fair value using a discounted cash flow analysis for goodwill and estimated
market values for other assets. These non-cash charges relating to goodwill and other assets were recorded in Goodwill impairment
charges and Asset impairment charges, respectively, in the Consolidated Statements of Income.

The results of the Company's 2019, 2018, and 2017 annual goodwill impairment assessments indicated that no other goodwill
impairment existed.

Note M — Debt

Long-term debt in the Consolidated Balance Sheets is summarized as follows:

(Thousands)
Fixed rate industrial development revenue bonds payable in annual installments through 2021

Total debt outstanding

Current portion of long-term debt

Gross long-term debt

Unamortized deferred financing fees

Long-term debt

Maturities on long-term debt instruments as of December 31, 2019 are as follows:

(Thousands)
2020
2021
Thereafter
Total

December 31,

2019

2018

2,218

2,218
(868)
1,350
(90)
1,260

3,041

3,041
(823)
2,218
(152)
2,066

868
1,350
—
2,218

In September 2019, the Company amended and restated the agreement governing its $375.0 million revolving credit facility (Credit
Agreement). The maturity date of the Credit Agreement was extended from 2020 to 2024, and the Credit Agreement provides
more favorable interest rates under certain circumstances. In addition, the Credit Agreement provides the Company and its
subsidiaries with additional capacity to enter into facilities for the consignment, borrowing, or leasing of precious metals and
copper, and provides enhanced flexibility to finance acquisitions and other strategic initiatives. 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 $200.0 million. 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 and certain other assets.
The Credit Agreement allows the Company to borrow money at a premium over LIBOR or prime rate and at varying maturities.
The premium resets quarterly according to the terms and conditions available under 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 subject to a maximum leverage ratio and a minimum
fixed charge coverage ratio. The Company was in compliance with all of its debt covenants as of December 31, 2019 and December
31, 2018.

At December 31, 2019 and 2018 there was $41.8 million and $27.2 million outstanding against the letters of credit sub-facility,
respectively. The Company pays a variable commitment fee that may reset quarterly (0.175% as of December 31, 2019) of the
available and unborrowed amounts under the revolving credit line.

The available borrowings under the individual existing credit lines total $340.9 million as of December 31, 2019.

In April 2011, the Company entered into an agreement with the Toledo-Lucas County Port Authority and the Dayton–Montgomery
County Port Authority in Ohio to co-issue $8.0 million in taxable development revenue bonds, with a fixed amortization term that
will mature in 2021. The interest rate on these bonds was fixed at 4.90%, and the unamortized balance of the bonds was $2.2
million at December 31, 2019.

Note N — Pensions and Other Post-Employment Benefits

The obligation and funded status of the Company’s pension and other post-employment benefit plans are shown below. The Pension
Benefits column aggregates defined benefit pension plans in the U.S., Germany, and England, and the U.S. supplemental retirement
plans. The Other Benefits column includes the domestic retiree medical and life insurance plan.

(Thousands)

Change in benefit obligation

Benefit obligation at beginning of year

Service cost

Interest cost

Net pension curtailments and settlements

Actuarial loss (gain)

Benefit payments

Foreign currency exchange rate changes and other

Benefit obligation at end of year

Change in plan assets

Fair value of plan assets at beginning of year

Plan settlements

Actual return on plan assets

Employer contributions

Employee contributions

Benefit payments from fund

Expenses paid from assets

Foreign currency exchange rate changes and other

Fair value of plan assets at end of year

Funded status at end of year

Amounts recognized in the Consolidated
Balance Sheets consist of:

Other assets

Other liabilities and accrued items

Retirement and post-employment benefits

Pension Benefits

Other Benefits

2019

2018

2019

2018

170,136

313,728

11,375

14,166

5,918

6,292

(12,212)

20,409

(3,170)

(613)

186,760

145,046

—

27,264

4,702

124

(2,933)

(391)

234

6,953

9,554

(112,644)

(31,824)

(13,700)

(1,931)

170,136

234,976

(111,542)

(8,570)

42,227

146

(10,826)

(890)

(475)

174,046

145,046

399

—

(2,192)

(981)

8,681

—

111

396

—

(2,453)

(876)

11,375

—

(12,714) $

(25,090) $

(8,681) $

(11,375)

11,298

1,948

— $

(997)

(23,015)

(411)

(26,627)

(1,012)

(7,669)

(12,714) $

(25,090) $

(8,681) $

—

(1,258)

(10,117)

(11,375)

In 2019, the Company's Board of Directors approved changes to the U.S. defined benefit pension plan. The Company froze the
pay and service amounts used to calculate the pension benefits for active participants as of January 1, 2020. The Company recognized
a non-cash pretax pension curtailment charge of $3.3 million associated with the plan amendment in 2019.

During 2018, the Company completed a partial plan settlement transaction relating to its U.S. pension plan wherein plan assets
amounting to $111.5 million were used to purchase a group annuity contract from Mutual of America. This transaction relieved
the Company of responsibility for the pension benefit obligation and consequently transferred the obligation and payment
responsibility to Mutual of America for retirement benefits owed to approximately 1,150 retirees, beneficiaries, and other
participants. The annuity contract covered retirees who commenced receiving benefits on or before June 1, 2018. The monthly
retirement benefit payment amounts currently received by retirees and their beneficiaries did not change as a result of this
transaction. Those plan participants not included in the transaction remain in the Plan, and responsibility for payment of the
retirement benefits remains with the Company.

The following amounts are included within accumulated other comprehensive loss at December 31, 2019 and are expected to be
recognized as components of net periodic benefit cost during 2020:

(Thousands)

Amounts recognized in other comprehensive income (before tax)
consist of:

Net actuarial loss (gain)

Net prior service cost (credit)

Amortizations expected to be recognized during next fiscal year
(before tax):

Amortization of net loss

Net prior service cost (credit)

Pension Benefits

Other Benefits

2019

2018

2019

2018

48,073

—

48,073

1,707

—

1,707

61,599

3,810

65,409

3,769

482

4,251

(4,529) $

(5,049)

(9,578) $

— $

(1,497)

(1,497) $

(2,429)

(6,546)

(8,975)

—

(1,497)

The following table provides information regarding the accumulated benefit obligation:

(Thousands)

Additional information

Pension Benefits

Other Benefits

2019

2018

2019

2018

Accumulated benefit obligation for all defined benefit pension plans

185,402

161,169

— $

For defined benefit pension plans with benefit obligations in excess of
plan assets:

Aggregate benefit obligation

Aggregate fair value of plan assets

For defined benefit pension plans with accumulated benefit
obligations in excess of plan assets:

Aggregate accumulated benefit obligation

Aggregate fair value of plan assets

25,640

3,045

24,482

3,045

165,344

138,305

156,639

138,305

—

The following table summarizes components of net benefit cost:

(Thousands)
Net benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit

Recognized net actuarial loss (gain)
Net periodic cost
Net pension curtailments and settlements
Total net benefit cost

Pension Benefits

Other Benefits

2019

2018

2017

2019

2018

2017

5,918
6,292
(8,777)

483
3,304
7,220
3,328
10,548

6,953
9,554
(14,231)
(123)
7,171
9,324
41,406
50,730

7,587
9,949
(13,760)
(274)
6,636
10,138
—
10,138

67
399
—
(1,497)
(93)
(1,124)
—
(1,124) $

111
396
—
(1,497)
—
(990)
—
(990) $

91
398
—
(1,497)
—
(1,008)
—
(1,008)

In 2019, net benefit cost includes a $3.3 million curtailment charge related to the freeze of our U.S. defined benefit plan effective
January 1, 2020.

Beginning in 2018, the Company reports the service cost component of net benefit cost in the same line item as other compensation
costs in operating expenses and the non-service cost components of net benefit cost in Other non-operating expenses. Additionally,
Pension Benefit Guaranty Corporation premiums are reported within expected return on plan assets. In conjunction with the
pension annuity and other lump-sum payments, the Company remeasured the periodic benefit obligation of its U.S. plans in the
period payments were made and recorded settlement charges totaling $41.4 million during 2018.

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

(Thousands)
Change in other comprehensive
income
OCI at beginning of year

Increase (decrease) in OCI:

Recognized during year — prior
service cost (credit)

Recognized during year — net
actuarial (losses) gains

Occurring during year — prior
service cost

Occurring during year — net
actuarial losses (gains)

Other adjustments

Foreign currency exchange rate
changes

OCI at end of year

Pension Benefits

Other Benefits

2019

2018

2017

2019

2018

2017

65,409

122,802

121,329

(8,976) $

(8,020) $

(9,961)

(3,811)

123

274

1,497

(3,304)

(7,171)

(6,636)

—

2,062

(12,212)

(8,997)
(41,406)

3,804

4,055

—

(2,192)
—

(2,453)
—

—

444

—

(71)
48,073

58
65,409

(24)
122,802

—
(9,578) $

—
(8,976) $

—
(8,020)

In determining the projected benefit obligation and the net benefit cost, as of a December 31 measurement date, the Company
used the following weighted-average assumptions:

Pension Benefits

Other Benefits

2019

2018

2017

2019

2018

2017

Weighted-average assumptions
used to determine benefit
obligations at fiscal year end
Discount rate
Rate of compensation increase
Weighted-average assumptions
used to determine net cost for the
fiscal year
Discount rate
Expected long-term return on plan
assets

Rate of compensation increase

3.12%
3.00%

4.07%
3.87%

3.53%
3.93%

3.20%
3.00%

4.11%
4.00%

3.43%
4.00%

4.16%

3.63%

3.93%

4.11%

3.43%

3.68%

6.06%
2.99%

6.63%
3.98%

6.89%
3.91%

N/A
4.00%

Discount Rate. The discount rate used to determine the present value of the projected and accumulated benefit obligation at the
end of each year is established based upon the available market rates for high quality, fixed income investments whose maturities
match the plan’s projected cash flows.

The Company uses a spot-rate approach to estimate the service and interest cost components of net periodic benefit cost for its
defined benefit pension plans. The spot-rate approach applies separate discount rates for each projected benefit payment in the
calculation.

Expected Long-Term Return on Plan Assets. Management establishes the domestic expected long-term rate of return assumption
by reviewing historical trends and analyzing the current and projected market conditions in relation to the plan’s asset allocation
and risk management objectives. Consideration is given to both recent plan asset performance as well as plan asset performance
over various long-term periods of time, with an emphasis on the assumption being a prospective, long-term rate of return.
Management consults with and considers the opinions of its outside investment advisers and actuaries when establishing the rate
and reviews assumptions with the Audit Committee of the Board of Directors.

Rate of Compensation Increase. The rate of compensation increase assumption was not applicable for the domestic defined
benefit plan in 2019 due to the Company freezing the plan effective January 1, 2020. The rate of compensation assumption for
the domestic retiree medical plan was 4.0% in 2019 and 4.0% in 2018 for both the domestic defined benefit pension plan and the
domestic retiree medical plan.

Assumptions for the defined benefit pension plans in Germany and England are determined separately from the U.S. plan
assumptions, based on historical trends and current and projected market conditions in Germany and England. One plan in Germany
is unfunded.

Assumed health care trend rates at fiscal year end
Health care trend rate assumed for next year
Rate that the trend rate gradually declines to (ultimate trend rate)
Year that the rate reaches the ultimate trend rate

2019
6.25%
5.00%
2025

2018
6.50%
5.00%
2025

Assumed health care cost trend rates can have an effect on the amounts reported for the health care plans. A one-percentage-point
change in assumed health care cost trend rates would have the following effects:

(Thousands)
Effect on total of service and interest cost components
Effect on post-employment benefit obligation

1-Percentage-
Point Increase

1-Percentage-
Point Decrease

2019

2018

2019

2018

6
149

6
163

(6) $

(139)

(6)
(152)

Plan Assets

The following tables present the fair values of the Company’s defined benefit pension plan assets as of December 31, 2019 and
2018 by asset category. The Company has some investments that are valued using net asset value (NAV) as the practical expedient
and have not been classified in the fair value hierarchy. Refer to Note Q for definitions of the fair value hierarchy.

(Thousands)
Cash
Equity securities (a)
Fixed-income securities (b)
Other types of investments:

Real estate fund (c)

Total
Investments measured at NAV: (d)

Pooled investment fund (e)
Multi-strategy hedge funds (f)
Intermediate-term bonds (g)
Private equity funds
Total assets at fair value

(Thousands)
Cash
Equity securities (a)
Fixed-income securities (b)
Other types of investments:

Real estate fund (c)

Total
Investments measured at NAV: (d)

Pooled investment fund (e)
Multi-strategy hedge funds (f)
Intermediate-term bonds (g)
Private equity funds
Total assets at fair value

Total

Level 1

Level 2

Level 3

December 31, 2019

1,718
47,722
3,923

3,121
56,484

— $
—
—

—
—

1,718
47,722
3,923

3,121
56,484

113,187
4,277
—
98
174,046

Total

Level 1

Level 2

Level 3

December 31, 2018

21,881
50,862
18,211

3,257
94,211

— $
—
—

—
—

21,881
50,862
18,211

3,257
94,211

24,947
4,113
21,678
97
145,046

—
—
—

—
—

—
—
—

—
—

(a) Equity securities are primarily comprised of corporate stock and mutual funds directly held by the plans. Equity securities

are valued using the closing price reported on the active market on which the individual securities are traded.

(b) Fixed income securities are primarily comprised of governmental and corporate bonds directly held by the plans.
Governmental and corporate bonds are valued using both market observable inputs for similar assets that are traded on an
active market and the closing price on the active market on which the individual securities are traded.

(c) Includes a mutual fund that typically invests at least 80% of its assets in equity and debt securities of companies in the real
estate industry or related industries or in companies which own significant real estate assets at the time of investment.
(d) Certain assets that are measured at fair value using the NAV practical expedient have not been classified in the fair value

hierarchy.

(e) Pooled investment fund consists of various investment types including equity investments covering a range of geographies
and including investment managers that hold long and short positions, property investments, and other multi-strategy
funds which combine a range of different credit, equity, and macro-orientated ideas and dynamically allocate funds across
asset classes.

(f) Includes a fund that invests in a broad portfolio of hedge funds.
(g) Includes a mutual fund that employs a value-oriented approach to fixed income investment management and a mutual

fund that invests primarily in investment-grade debt securities.

The Company’s domestic defined benefit pension plan investment strategy, as approved by the Governance and Organization
Committee of the Board of Directors, is to employ an allocation of investments that will generate returns equal to or better than
the projected long-term growth of pension liabilities so that the plan will be self-funding. The return objective is to maximize
investment return to achieve and maintain a 100% funded status over time, taking into consideration required cash contributions.
The allocation of investments is designed to maximize the advantages of diversification while mitigating the risk and overall
portfolio volatility to achieve the return objective. Risk is defined as the annual variability in value and is measured in terms of
the standard deviation of investment return. Under the Company’s investment policies, allowable investments include domestic
equities, international equities, fixed income securities, cash equivalents, and alternative securities (which include real estate,
private venture capital investments, hedge funds, and tactical asset allocation). Ranges, in terms of a percentage of the total assets,
are established for each allowable class of security. Derivatives may be used to hedge an existing security or as a risk reduction
strategy. Current asset allocation guidelines are to invest 10% to 40% in equity securities, 60% to 90% in fixed income securities
and cash, and up to 20% in alternative securities. Management reviews the asset allocation on a quarterly or more frequent basis
and makes revisions as deemed necessary.

None of the plan assets noted above are invested in the Company’s common stock.

Cash Flows

Employer Contributions. The Company does not expect to contribute to its domestic defined benefit pension plan in 2020.

All plan participants with an accrued benefit may elect an immediate payout in lieu of their future monthly annuity if the lump
sum amount does not exceed $100,000.

Estimated Future Benefit Payments. The following benefit payments, which reflect expected future service, as appropriate, are
expected to be paid:

(Thousands)
2020
2021
2022
2023
2024
2025 through 2029

Other Benefits

Pension Benefits

Gross Benefit
Payment

3,752
3,921
4,799
6,231
6,410
42,020

1,012
979
884
804
722
2,544

Net of
Medicare
Part D
Subsidy

997
966
872
794
713
2,518

Other Benefit Plans

In addition to the plans shown above, the Company also has certain foreign subsidiaries with accrued unfunded pension and other
post-employment arrangements. The liability for these arrangements was $1.4 million at December 31, 2019 and $1.6 million at
December 31, 2018, and was included in retirement and post-employment benefits in the Consolidated Balance Sheets.

The Company also sponsors defined contribution plans available to substantially all U.S. employees. The Company’s annual
defined contribution expense, including the expense for the enhanced defined contribution plan, was $7.0 million in 2019, $5.2
million in 2018, and $4.5 million in 2017.

Note O — Accumulated Other Comprehensive Income

Changes in the components of accumulated other comprehensive income, including amounts reclassified out, for 2019, 2018, and
2017, and the balances in accumulated other comprehensive income as of December 31, 2019, 2018, and 2017 are as follows:

(Thousands)

Gains and Losses
On Cash Flow Hedges

Foreign
Currency

Precious
Metals

Copper

Total

Pension and
Post-
Employment
Benefits

Foreign
Currency
Translation

Total

Balance at December 31, 2016

$ 1,837

— $

— $ 1,837

(82,358) $

(5,660) $ (86,181)

Other comprehensive income (loss)
before reclassifications

Amounts reclassified from accumulated
other comprehensive income

Other comprehensive income (loss)
before tax

Deferred taxes on current period
activity

Other comprehensive income (loss)
after tax

Balance at December 31, 2017

Other comprehensive income (loss)
before reclassifications

Amounts reclassified from accumulated
other comprehensive income

Other comprehensive income (loss)
before tax

Deferred taxes on current period
activity

Other comprehensive income (loss)
after tax

(1,180)

(463)

632

208

(548)

(255)

330

(59)

(196)

(878)

959

—

(1,643)

(8,279)

1,552

(8,370)

840

4,865

—

5,705

(803)

(3,414)

1,552

(2,665)

271

13,820

—

14,091

(1,074)

(17,234)

1,552

(16,756)

(196) $

— $

763

(196) $

— $

763

(99,592) $

(4,108) $(102,937)

(99,592) $

(4,108) $(102,937)

(333)

467

(569)

(435)

11,396

(484)

10,477

(109)

—

(99)

46,953

—

46,854

(323)

358

(569)

(534)

58,349

(484)

57,331

Balance at December 31, 2018

$ 1,263

Balance at December 31, 2018

$ 1,263

(627)

304

275

(128)

(672)

13,300

—

12,628

(441)

(441) $

138

901

(441) $

901

45,049

(484)

44,703

(54,543) $

(4,592) $ (58,234)

(54,543) $

(4,592) $ (58,234)

Other comprehensive income (loss)
before reclassifications

Amounts reclassified from accumulated
other comprehensive income

Other comprehensive income (loss)
before tax

Deferred taxes on current period
activity

Other comprehensive income (loss)
after tax

108

(1,285)

(29)

595

(690)

(159)

(531)

209

393

602

136

466

(968)

9,085

(421)

7,696

959

8,853

—

9,812

(9)

17,938

(421)

17,508

(5)

(4)

4,741

—

4,736

13,197

(421)

12,772

Balance at December 31, 2019

$ 1,324

(452) $

897

(41,346) $

(5,013) $ (45,462)

Reclassifications from accumulated other comprehensive income of gains and losses on foreign currency cash flow hedges are
recorded in Net sales in the Consolidated Statements of Income while gains and losses on precious metal cash flow hedges are
recorded in Cost of sales in the Consolidated Statements of Income. Refer to Note Q for additional details on cash flow hedges.

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

Note P — Stock-based Compensation

Stock incentive plans (the 2006 Stock Incentive Plan and the 2006 Non-employee Director Equity Plan) were approved at the
May 2006 annual meeting of shareholders. These plans authorize the granting of option rights, SARs, performance-restricted
shares, performance shares, performance units, and restricted shares. The 2006 Stock Incentive Plan and the 2006 Non-employee
Director Equity Plan were amended to, among other things, add additional shares to the plans. These amendments were last
approved by shareholders at the May 2017 annual meeting.

Stock-based compensation expense, which includes awards settled in shares and in cash and is recognized as a component of
selling, general, and administrative (SG&A) expenses, was $11.1 million, $11.4 million, and $7.7 million in 2019, 2018, and 2017,
respectively. The Company derives a tax deduction measured by the excess of the market value over the grant price at the date
stock-based awards vest or are exercised. The Company recognized $2.1 million, $1.2 million, and $2.0 million of tax benefits in
2019, 2018, and 2017, respectively, relating to the issuance of common stock for the exercise/vesting of equity awards.

The following sections provide information on awards settled in shares.

SARs. The Company grants SARs to certain employees. Upon exercise of vested SARs, the participant will receive a number of
shares of common stock equal to the spread (the difference between the market price of the Company’s common shares at the time
of exercise and the strike price established on the grant date) divided by the common share price. The strike price of the SARs is
equal to the market value of the Company’s common shares on the day of the grant. The number of SARs available to be issued
is established by plans approved by the shareholders. The vesting period and the life of the SARs are established at the time of
grant. The exercise of the SARs is generally satisfied by the issuance of treasury shares. SARs granted in 2019 and 2018 vest in
equal installments annually over three years, while SARs granted prior to 2018 generally vest three years from the date of grant.
SARs granted prior to 2011 expire in ten years, while the SARs granted in 2011 and later expire in seven years.

The following table summarizes the Company's SARs activity during 2019:

(Shares in thousands)
Outstanding at December 31, 2018
Granted
Exercised
Cancelled
Outstanding at December 31, 2019
Vested and expected to vest as of December 31, 2019
Exercisable at December 31, 2019

Number of
SARs

Weighted-
average
Exercise
Price Per
Share

Aggregate
Intrinsic
Value
(thousands)

Weighted-
average
Remaining
Term (Years)

379
73
(196)
(6)
250
250
72

33.01
58.30
26.71
49.93
44.95
44.95
37.70

6,730

3,631
3,631
1,557

4.8
4.8
3.8

A summary of the status and changes of shares subject to SARs and the related average price per share follows:

(Shares in thousands)
Nonvested as of December 31, 2018
Granted
Vested
Cancelled
Nonvested as of December 31, 2019

Number of
SARs

Weighted-
average
Grant
Date
Fair Value

319
73
(208)
(6)
178

10.33
17.76
9.02
15.35
14.72

As of December 31, 2019, $1.3 million of expense with respect to non-vested SARs has yet to be recognized as expense over a
weighted-average period of approximately 22 months. The total fair value of shares vested during both 2019 and 2018 was $1.9
million, compared to $1.7 million in 2017.

The weighted-average grant date fair value for 2019, 2018, and 2017 was $17.76, $15.73, and $10.89, respectively. The fair value
will be amortized to compensation cost on a straight-line basis over the vesting period of three years, or earlier if the employee is

retirement eligible as defined in the Plan. Stock-based compensation expense relating to SARs was $0.9 million in 2019, $0.7
million in 2018, and $1.4 million in 2017.

The fair value of the SARs was estimated on the grant date using the Black-Scholes pricing model with the following assumptions:

Risk-free interest rate
Dividend yield
Volatility
Expected lives (in years)

2019

2018

2017

2.47%
0.7%
31.7%
5.2

2.58%
0.8%
31.9%
5.5

1.92%
1.1%
34.0%
5.6

The risk-free rate of return was based on U.S. Treasury yields with a maturity equal to the expected life of the award. The dividend
yield was based on the Company's historical dividend rate and stock price. The expected volatility of stock was derived by referring
to changes in the Company's historical common stock prices over a time-frame similar to the expected life of the award. In addition
to considering the vesting period and contractual term of the award for the expected life assumption, the Company analyzes actual
historical exercise experience for previously granted awards.

Restricted Stock Units (RSUs) - Employees. The Company may grant RSUs to employees of the Company. These units constitute
an agreement to deliver shares of common stock to the participant at the end of the vesting period, which is defined at the date of
the grant, and are forfeited should the holder’s employment terminate during the restriction period. The fair market value of the
RSUs is determined on the date of the grant and is amortized over the vesting period. The vesting period is typically three years
unless the recipient is retirement eligible and continued vesting is approved by the Board of Directors.

The fair value of the RSUs settled in stock is based on the closing stock price on the date of grant. The weighted-average grant
date fair value for 2019, 2018, and 2017 was $58.33, $50.35, and $35.24, respectively. Cash-settled RSUs are accounted for as
liability-based compensation awards and adjusted based on the closing price of Materion’s common stock over the vesting period
of three years.

Stock-based compensation expense relating to stock-settled RSUs was $2.2 million in 2019, $1.2 million in 2018, and $1.4 million
in 2017. The unamortized compensation cost on the outstanding RSUs was $3.8 million as of December 31, 2019 and is expected
to be amortized over a weighted-average period of 23 months. The total fair value of shares vested during 2019, 2018, and 2017
was $1.2 million $1.4 million, and $1.2 million, respectively.

The following table summarizes the stock-settled RSU activity during 2019:

(Shares in thousands)
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019

Number of
Shares

Weighted-
average
Grant Date
Fair Value

130
70
(44)
(11)
145

38.99
58.33
27.52
52.15
50.79

RSUs - Non-Employee Directors. In 2019, 2018, and 2017, 11,048, 14,728, and 18,656 RSUs, with a one year vesting period,
were granted to certain non-employee members of the Board of Directors. The weighted-average grant date fair value of these
RSUs were $68.79, $51.60, and $34.30 in 2019, 2018, and 2017, respectively. The Company recognized $0.7 million of expense
with respect to these awards in each of the last three years. At December 31, 2019, $0.2 million of expense with respect to non-
vested RSU awards granted to the Board of Directors has yet to be recognized and will be amortized into expense over a weighted-
average period of approximately four months.

Long-term Incentive Plans. Under long-term incentive compensation plans, executive officers and selected other employees
receive restricted stock unit awards based upon the Company’s performance over the defined period, typically three years. Total
units earned for grants made in 2019, 2018, and 2017, may vary between 0% and 200% of the units granted based on the attainment
of performance targets during the related three-year period. All grants made in 2019 and 2018 will be settled in Materion common
shares and are equity classified. For grants made to certain executives prior to 2018, attainment up to 100% is paid in Materion
common shares and equity classified, while the remainder are classified as liability awards and settled in cash. Grants made to

all other employees prior to 2018 are settled in cash. Vesting of performance-based awards is contingent upon the attainment of
threshold performance objectives.

The following table summarizes the activity related to equity-based, performance-based RSUs during 2019:

(Shares in thousands)
Outstanding at December 31, 2018
Granted
Vested
Forfeited
Outstanding at December 31, 2019

Number of
Shares

Weighted-
average
Grant Date
Fair Value

202
56
(83)
(6)
169

35.76
69.84
22.77
58.93
52.74

Compensation expense is based upon the performance projections for the plan period of three years, the percentage of requisite
service rendered, and the fair market value of the Company’s common shares on the date of grant. The offset to the compensation
expense for the portion of the award to be settled in shares is recorded within shareholders’ equity and was $3.3 million for 2019,
$2.7 million for 2018, and $1.5 million for 2017.

Directors' Deferred Compensation. Non-employee directors may defer all or part of their compensation into the Company’s
common stock. The fair value of the deferred shares is determined at the share acquisition date and is recorded within shareholders’
equity. Subsequent changes in the fair value of the Company’s common shares do not impact the recorded values of the shares.

The following table summarizes the stock activity for the directors' deferred compensation plan during 2019:

(Shares in thousands)
Outstanding at December 31, 2018
Granted
Distributed
Outstanding at December 31, 2019

Number of
Shares

Weighted-
average
Grant Date
Fair Value

152
13
(57)
108

23.55
66.35
63.81
56.02

During the years ended December 31, 2019, 2018, and 2017, the weighted-average grant date fair value was $66.35, $53.11, and
$35.34, respectively.

Note Q — Fair Value Information and Derivative 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 upon 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.

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets at
December 31, 2019 and 2018:

(Thousands)
December 31, 2019
Financial Assets

Deferred compensation investments
Foreign currency forward contracts
Precious metal swaps
Copper swaps

Total
Financial Liabilities

Deferred compensation liability

Foreign currency forward contracts
Precious metal swaps
Copper swaps

Total
December 31, 2018
Financial Assets

Deferred compensation investments
Foreign currency forward contracts
Precious metal swaps

Total
Financial Liabilities

Deferred compensation liability
Foreign currency forward contracts
Precious metal swaps
Copper swaps

Total

Fair Value Measurements

Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Other
Significant
Unobservable
Inputs
(Level 3)

Total

3,391
188
35
61
3,675

3,391
211
623
28
4,253

2,156
246
237
2,639

2,156
432
135
569
3,292

3,391
—
—
—
3,391

2,156
—
—
2,156

2,156
—
—
—
2,156

— $
188
35
61
284

— $
211
623
28
862

— $
246
237
483

— $
432
135
569
1,136

—
—
—
—
—

—
—
—
—

—
—
—
—
—

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 and metals. 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.

The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values at
December 31, 2019 and 2018.

The Company uses derivative contracts to hedge portions of its foreign currency exposures and may also use derivatives to hedge
a portion of its precious metal exposures. The objectives and strategies for using derivatives in these areas are as follows:

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 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.

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 precious metal
product is fabricated and ready for shipment to the customer, the metal is purchased out of consignment at the current
market price. The price paid by the Company forms the basis for the price charged to the customer. 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 financial institutions who charge the Company a financing fee based upon the current value
of the metal on hand.

In certain instances, a customer may want to establish 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
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 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 which we
process or refine.

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 typically held for a short duration. A forward
contract will be secured at the time of the purchase to fix the price to be used when the metal is transferred back to the
consignment line, thereby limiting any price exposure during the time when the metal was owned.

Copper. The Company also uses copper in its production processes. When possible, fluctuations in the purchase price of
copper are passed on to customers in the form of price adders or reductions. While over time the Company's price exposure
to copper is generally in balance, there can be a lag between the change in the Company's cost and the pass-through to its
customers, resulting in higher or lower margins in a given period. To mitigate this impact, the Company hedges a portion
of this pricing risk.

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 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.

The use of derivatives is governed by policies adopted by the Audit Committee of the Board of Directors. 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 the derivative is designated and effective as a cash flow hedge,
changes in the fair value of the derivative are recognized in OCI until the hedged item is recognized in 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 fair values will also be classified
as short-term or long-term depending upon their maturity dates.

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 balance sheet classification as of December 31, 2019 and 2018:

(Thousands)
Foreign currency forward contracts

Prepaid expenses
Other liabilities and accrued items

December 31, 2019

December 31, 2018

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

13,734
5,757

95
16

8,767
8,771

244
249

These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans. Other-net
included foreign currency losses relating to these derivatives of $0.1 million in 2019 and foreign currency gains of $0.9 million
in 2018.

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives designated as
cash flow hedges (on a gross basis) and balance sheet classification at December 31, 2019 and 2018:

(Thousands)
Prepaid expenses

Foreign currency forward contracts - yen
Foreign currency forward contracts - euro
Precious metal swaps
Copper swaps

Other assets

Precious metal swaps

Other liabilities and accrued items

Foreign currency forward contracts - yen
Foreign currency forward contracts - euro
Precious metal swaps
Copper swaps

Other long-term liabilities
Precious metal swaps

December 31, 2019

December 31, 2018

Notional
Amount

Fair
Value

Notional
Amount

Fair
Value

1,025
3,466
1,116
1,951
7,558

157

2,355
15,686
7,034
1,266
26,341

149

10
83
34
61
188

12
183
618
28
841

— $
725
4,533
—
5,258

—

1,264
19,158
2,864
11,170
34,456

—

Total

34,205

657

39,714

—
2
237
—
239

—

17
166
135
569
887

—

648

All of these contracts were designated and effective as cash flow hedges. No ineffectiveness expense was recorded in 2019, 2018,
or 2017.

The fair value of derivative contracts recorded in accumulated other comprehensive loss totaled $0.7 million and $0.6 million as
of December 31, 2019 and December 31, 2018, respectively. Deferred losses of $0.7 million at December 31, 2019 are expected
to be reclassified to earnings within the next 18-month period.

The following table summarizes the amounts reclassified from accumulated OCI relating to the hedging relationship of the
Company’s outstanding derivatives designated as cash flow hedges and income statement classification for year ended December
31, 2019:

(Thousands)

Hedging relationship
Foreign currency forward contracts

Precious metal swaps
Copper swaps

Total

Line item
Net sales

Cost of sales
Cost of sales

2019

(29)
595
393
959

The derivative activity in the table above is reflected in cash flows from operating activities.

Note R — Contingencies and Commitments

Beryllium Cases

The Company is a defendant from time to time in proceedings in various state and federal courts brought by plaintiffs alleging
that they have contracted, or have been placed at risk of contracting, beryllium sensitization or Chronic Beryllium Disease (CBD)
or related ailments as a result of exposure to beryllium. Plaintiffs in beryllium cases seek recovery under theories of negligence
and various other legal theories and seek compensatory and punitive damages, in many cases of an unspecified sum. Spouses, if
any, often claim loss of consortium.

Employee cases, in which plaintiffs have a high burden of proof, have historically involved relatively small losses to the Company.
Third-party plaintiffs (typically employees of customers) face a lower burden of proof than do the Company’s employees, but
these cases have generally been covered by varying levels of insurance. Management has vigorously contested the beryllium cases
brought against the Company.

Non-employee beryllium cases are covered by insurance, subject to certain limitations. The insurance covers defense costs and
indemnity payments (resulting from settlements or court verdicts) and is subject to various levels of deductibles. In 2019 and
2018, defense and indemnity costs were less than or equal to the deductible.

One beryllium case, originally filed and dismissed during 2015, but reversed and remanded in 2016 to the trial court, was outstanding
as of December 31, 2018 but was settled for an immaterial amount and dismissed in 2019. One beryllium case was filed in 2019
and was outstanding as of December 31, 2019. The Company does not expect the resolution of this matter to have a material
impact on the consolidated financial statements.

Although it is not possible to predict the outcome of any pending litigation, the Company provides for costs related to litigation
matters when a loss is probable, and the amount is reasonably estimable. Litigation is subject to many uncertainties, and it is
possible that some of the actions could be decided unfavorably in amounts exceeding the Company’s reserves. An unfavorable
outcome or settlement of a beryllium case or adverse media coverage could encourage the commencement of additional similar
litigation. The Company is unable to estimate its potential exposure to unasserted claims.

Based upon currently known facts and assuming collectibility of insurance, the Company does not believe that resolution of the
current or any potential future beryllium proceedings will have a material adverse effect on the financial condition or cash flow
of the Company. However, the Company’s results of operations could be materially affected by unfavorable results in one or more
cases.

Environmental Proceedings

The Company has an active program for environmental compliance that includes the identification of environmental projects and
estimating the impact on the Company’s financial performance and available resources. Environmental expenditures that relate
to current operations, such as wastewater treatment and control of airborne emissions, are either expensed or capitalized as
appropriate. The Company records reserves for the probable costs for identified environmental remediation projects. The
Company’s environmental engineers perform routine ongoing analyses of the remediation sites and will use outside consultants
to assist in their analyses from time to time. Accruals are based upon their analyses and are established based on the reasonably
estimable loss or range of loss. The accruals are revised for the results of ongoing studies, changes in strategies, inflation, and for

differences between actual and projected costs. The accruals may also be affected by rulings and negotiations with regulatory
agencies. The timing of payments often lags the accrual, as environmental projects typically require a number of years to complete.

The environmental reserves recorded represent the Company's best estimate of what is reasonably possible and cover existing or
currently foreseen projects based upon current facts and circumstances. The Company does not believe that it is reasonably
possible that the cost to resolve environmental matters for sites where the investigative work and work plan development are
substantially complete will be materially different than what has been accrued while the ultimate loss contingencies for sites that
are in the preliminary stages of investigation cannot be reasonably determined at the present time. As facts and circumstances
change, the ultimate cost may be revised, and the recording of additional costs may be material in the period in which the additional
costs are accrued. The Company does not believe that the ultimate liability for environmental matters will have a material impact
on its financial condition or liquidity due to the nature of known environmental matters and the extended period of time during
which environmental remediation normally takes place.

The undiscounted reserve balance at the beginning of the year, the amounts expensed and paid, and the balance at December 31,
2019 and 2018 are as follows:

(Thousands)
Reserve balance at beginning of year
Expensed
Paid
Reserve balance at end of year
Ending balance recorded in:
Other liabilities and accrued items
Other long-term liabilities

2019

2018

6,521
482
(1,066)
5,937

982
4,955

6,499
718
(696)
6,521

1,168
5,353

The majority of spending in 2019 and 2018 was for various remediation projects at the Elmore, Ohio plant site.

Other

The Company is subject to various legal or other proceedings that relate to the ordinary course of its business. The Company
believes that the resolution of these proceedings, individually or in the aggregate, will not have a material adverse impact upon
the Company’s consolidated financial statements.

At December 31, 2019, the Company had outstanding letters of credit totaling $41.8 million related to workers’ compensation,
consigned precious metal guarantees, environmental remediation issues, and other matters. The majority of the Company's
outstanding letters of credit expire in 2020 and are expected to be renewed.

Note S — Quarterly Data (Unaudited)

The following tables summarize selected quarterly financial data for the years ended December 31, 2019 and 2018:

(Thousands except per share amounts)
Net sales
Gross margin

Percent of net sales

Net income(1)
Net income per share of common stock:

Basic
Diluted

Net sales
Gross margin

Percent of net sales

Net income (loss)
Net income (loss) per share of common stock:

Basic(2)
Diluted(2)(3)

First
Quarter
$ 301,441
69,312

Second
Quarter
$ 297,843
69,594

23.0%

16,906

0.83

0.82

23.4%

15,540

0.76

0.75

First
Quarter
$ 303,467
58,280

Second
Quarter
$ 309,085
61,838

19.2 %

20.0 %

10,564

0.52
0.51

11,144

0.55
0.54

2019

Third
Quarter
305,979
65,231

21.3%
3,463

0.17

2018

Third
Quarter
297,193
64,935

21.8 %

19,966

0.99
0.97

Fourth
Quarter
280,161
55,007

19.6%

14,751

0.72

0.71

Total
$ 1,185,424
259,144

21.9%

50,660

2.49

2.45

Fourth
Quarter
298,070
66,052

22.2 %

(20,828)

(1.03)
(1.03)

Total
$ 1,207,815
251,105

20.8 %

20,846

1.03
1.01

(1) Net income for the third quarter 2019 includes the impact of $14.1 million of non-cash impairment charges. For additional
information refer to Note L.

(2) Net income (loss) per basic and diluted share for the fourth quarter 2018 includes the impact of $41.4 million in pension settlement
charges. For additional information refer to Note N. In addition, net income (loss) per basic and diluted share for the fourth quarter
of 2018 includes the impact of $11.1 million of income tax benefits as a result of the TCJA signed into law on December 22, 2017.
For additional information refer to Note G.

(3) Since the Company reported a net loss for the fourth quarter of 2018, the effects of potential common shares were excluded
from diluted earnings per share, as their inclusion would have been anti-dilutive.

The Company follows a 13-week quarterly accounting cycle pursuant to which the first three fiscal quarters end on a Friday and
the fiscal year always ends on December 31.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

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 December 31, 2019 pursuant to Rules 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 December 31, 2019.

Management’s Report on Internal Control over Financial Reporting

The Report of Management on Internal Control over Financial Reporting and the Report of Independent Registered Public
Accounting Firm thereon are set forth in Item 8 of this Form 10-K and are incorporated herein by reference.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required
by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended December 31, 2019 that has
materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

The Company adopted the new lease guidance under ASC 842 on January 1, 2019. Although the adoption of ASC 842 did not
have a material impact on the Company’s financial results, changes to the Company’s processes and controls related to leasing
arrangements were implemented. These changes included creating new accounting policies, implementing a new software solution,
and gathering information necessary for disclosures.

Item 9B. OTHER INFORMATION

None.

PART III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information under “Election of Directors” in Materion Corporation's Proxy Statement for the 2020 Annual Meeting of
Shareholders (Proxy Statement), to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, is
incorporated herein by reference.

A listing of executive officers, their ages, positions, and offices held over the past five years, is as follows:

Name
Jugal K. Vijayvargiya

Age
51

Joseph P. Kelley

Gregory R. Chemnitz

Positions and Offices Held
President and Chief Executive Officer (March 2017-Present); President Delphi Electronics
and Safety, a global technology solutions provider to the automotive and transportation sectors
(prior to March 2017)

Vice President, Finance and Chief Financial Officer

Vice President, General Counsel and Secretary (January 2017-Present); Vice President,
General Counsel (prior to January 2017)

The information required by Item 10 with respect to directors, the Audit Committee of the Board of Directors, and Audit Committee
financial experts is incorporated herein by reference from the section entitled “Corporate Governance; Committees of the Board
of Directors — Audit Committee” and “— Audit Committee Expert, Financial Literacy and Independence” in the Proxy Statement.

We have adopted a Policy Statement on Significant Corporate Governance Issues and a Code of Conduct Policy that applies to
our chief executive officer and senior financial officers, including the principal financial and accounting officer, controller, and
other persons performing similar functions, in compliance with applicable New York Stock Exchange and Securities and Exchange
Commission requirements. The aforementioned materials and any amendments thereto, along with the charters of the Audit,
Governance and Organization, and Compensation Committees of our Board of Directors, which also comply with applicable
requirements, are available on our website at http://materion.com, and copies are also available upon request by any shareholder
to Secretary, Materion Corporation, 6070 Parkland Boulevard, Mayfield Heights, Ohio 44124.

Item 11.

EXECUTIVE COMPENSATION

Incorporated by reference from the sections of the Proxy Statement entitled “Executive Compensation” and “2019 Compensation
of Non-Employee Directors."

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required under Item 12 regarding security ownership is incorporated by reference from the section of the Proxy
Statement entitled “Security Ownership of Certain Beneficial Owners and Management." The information required by Item 12
regarding securities authorized for issuance under equity compensation plans is incorporated by reference from the section of the
Proxy Statement entitled "Equity Compensation Plan Information."

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from the sections of the Proxy Statement entitled “Related Party Transactions” and “Corporate
Governance; Committees of the Board of Directors — Director Independence.”

Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from the section of the Proxy Statement entitled “Ratification of Independent Registered Public
Accounting Firm.”

PART IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements and Supplemental Information

See Index to Consolidated Financial Statements in Item 8 of this Form 10-K.

(a) 2. Financial Statement Schedules

The following consolidated financial information for the years ended December 31, 2019, 2018, and 2017 is submitted herewith:

Schedule II — Valuation and qualifying accounts.

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable, and therefore have been omitted.

(a) 3. Exhibits

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

3.1

3.2

4.1#

4.2

10.1

10.2

10.3

10.4

10.5*

10.6*

10.7*

10.8*

10.9*

Amended and Restated Articles of Incorporation of Materion Corporation (filed as Exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the period ended on June 27, 2014), incorporated herein by reference.

Amended and Restated Code of Regulations (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-
Q for the period ended June 27, 2014), incorporated herein by reference.

Description of Materion Corporation Common Stock

Third Amended and Restated Credit Agreement, dated September 24, 2019, by and among Materion Corporation,
Materion Netherlands B.V., the other foreign borrowers from time to time party thereto, the financial institutions
from time to time party thereto as lenders, JPMorgan Chase Bank, N.A. as administrative agent, Wells Fargo Bank,
National Association and Bank of America, N.A., as co-syndication agents, and KeyBank National Association,
as documentation agent (filed as Exhibit 10.1 to the Company's 8-K filed on September 30, 2019) incorporated
herein by reference.

Pursuant to Regulation S-K, Item 601(b)(4), the Company agrees to furnish to the Securities and Exchange
Commission, upon its request, a copy of the instruments defining the rights of holders of long-term debt of the
Company that are not being filed with this report.

Metals Consignment Agreement, dated as of August 27, 2019, among Materion Corporation, certain of its
subsidiaries and Bank of Montreal (filed as Exhibit 10.1 to the Company's Form 8-K Filed on August 29, 2019),
incorporated herein by reference.

The Bank of Nova Scotia Consignment Agreement with Materion Advanced Materials Germany GMBH dated as
of February 28, 2017 (filed as Exhibit 99.1 to the Company's Form 8-K filed on March 1, 2017), incorporated
herein by reference.

Form of Indemnification Agreement entered into by the Company and its executive officers (filed as Exhibit 10a
to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008), incorporated herein by
reference.

Form of Indemnification Agreement entered into by the Company and its directors (filed as Exhibit 10b to the
Company’s Annual Report on Form 10-K for the year ended December 31, 2008), incorporated herein by reference.

Amended and Restated Form of Severance Agreement for Executive Officers (filed as Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q for the period ended June 27, 2008), incorporated herein by reference.

Amendment No. 1 to Amended and Restated Severance Agreement, dated May 4, 2011 (filed as Exhibit 10.2 to
the Company’s Quarterly Report on Form 10-Q for the period ended July 1, 2011), incorporated herein by reference.

Amended and Restated Form of Severance Agreement for Key Employees (filed as Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q for the period ended June 27, 2008), incorporated herein by reference.
Form of Severance Agreement for Key Employees (filed as Exhibit 10f to the Company's Annual Report on Form
10-K for the year ended December 31, 2015), incorporated herein by reference.

Severance Agreement for Jugal Vijayvargiya dated as of March 3, 2017 (filed as Exhibit 10.2 to the Company's
Form 8-K filed on March 3, 2017), incorporated herein by reference.

10.10*

CEO Offer Letter for Jugal Vijayvargiya dated as of March 1, 2017 (filed as Exhibit 10.1 to the Company's Form
8-K filed on March 3, 2017), incorporated herein by reference.

10.11*

10.12#*

10.13*

10.14*

10.15*

10.16*

10.17*

10.18*

10.19*

10.20*

10.21*

10.22*

10.23*

10.24*

10.25*

10.26*

10.27*

10.28*

10.29*

10.30*

10.31*

10.32*

10.33*

(21)#

(23)#

(24)#

Form of Trust Agreement between the Company and Key Trust Company of Ohio, N.A. (formerly Ameritrust
Company National Association) on behalf of the Company’s executive officers (filed as Exhibit 10e to the
Company’s Annual Report on Form 10-K for the year ended December 31, 1994), incorporated herein by reference.

2019 Management Incentive Plan.

Materion Corporation 2006 Stock Incentive Plan (as Amended and Restated as of May 3, 2017) (filed as Exhibit 4.3
to the Registration Statement on Form S-8 (Registration No. 333-217633), incorporated herein by reference.

Form of 2016 Restricted Stock Units Agreement (Cash-settled) (filed as Exhibit 10t to the Company's Annual
Report on Form 10-K for the year ended December 31, 2015), incorporated herein by reference.

Form of 2016 Restricted Stock Units Agreement (Stock-settled) (filed as Exhibit 10u to the Company's Annual
Report on Form 10-K for the year ended December 31, 2015), incorporated herein by reference.
.
Form of 2016 Performance-Based Restricted Stock Units (Cash-settled) (filed as Exhibit 10v to the Company's
Annual Report on Form 10-K for the year ended December 31, 2015), incorporated herein by reference.
.
Form of 2016 Performance-Based Restricted Stock Units (Stock-settled) (filed as Exhibit 10w to the Company's
Annual Report on Form 10-K for the year ended December 31, 2015), incorporated herein by reference.
.
Form of 2010 Stock Appreciation Rights Agreement (filed as Exhibit 10.34 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009), incorporated herein by reference.

Form of 2016 Stock Appreciation Rights Agreement (filed as Exhibit 10ad to the Company's Annual Report on
Form 10-K for the year ended December 31, 2015), incorporated herein by reference.
.
Materion Corporation Supplemental Retirement Benefit Plan (filed as Exhibit 10.1 to the Company’s Form 8-K
filed on September 19, 2011), incorporated herein by reference.

Amendment No. 1 to the Supplemental Retirement Benefit Plan (filed as Exhibit 10al to the Company's Annual
Report on Form 10-K for the year ended December 31, 2012), incorporated herein by reference.

Amendment No. 2 to the Supplemental Retirement Benefit Plan (filed as Exhibit 10ah to the Company's Annual
Report on Form 10-K for the year ended December 31, 2013), incorporated herein by reference.

Materion Corporation 2006 Non-employee Director Equity Plan (as Amended and Restated as of May 3, 2017)
(filed as Exhibit 4.3 to the Registration Statement on Form S-8 (Registration No. 333-217618), incorporated herein
by reference.

Amended and Restated Executive Deferred Compensation Plan II (filed as Exhibit 10.1 to the Company’s Quarterly
Report on Form 10-Q for the period ended March 28, 2008), incorporated herein by reference.

Amendment No. 1 to the Amended and Restated Executive Deferred Compensation Plan II (filed as Exhibit 10bf
to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008), incorporated herein by
reference.

Amendment No. 2 to the Amended and Restated Executive Deferred Compensation Plan II (filed as Exhibit 10.2
to the Company’s Quarterly Report on Form 10-Q for the period ended July 3, 2009), incorporated herein by
reference.

Amendment No. 3 to the Amended and Restated Executive Deferred Compensation Plan II, dated July 6, 2011
(filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the period ended July 1, 2011),
incorporated herein by reference.

Materion Corporation Restoration & Deferred Compensation Plan, dated March 4, 2015 (filed as Exhibit 10.1 to
the Company's Form 8-K filed on March 10, 2015), incorporated herein by reference.

Trust Agreement between the Company and Fidelity Investments dated September 26, 2006 for certain deferred
compensation plans for Non-employee Directors of the Company (filed as Exhibit 99.4 to the Current Report on
Form 8-K filed by the Company on September 29, 2006), incorporated herein by reference.

Trust Agreement between the Company and Fidelity Management Trust Company, dated June 25, 2009 relating to
the Executive Deferred Compensation Plan II (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form
10-Q for the period ended July 3, 2009), incorporated herein by reference.

Form of 2018 Non-Employee Directors Restricted Stock Unit Agreement (filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 29, 2018), incorporated herein by reference.

Form of 2018 Restricted Stock Unit Agreement covering grants made in 2018 and 2019 (filed as Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2018), incorporated herein by
reference.
Form of 2018 Performance-Based Restricted Stock Unit Agreement covering grants made in 2018 and 2019 (filed
as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 30, 2018), incorporated
herein by reference.
Subsidiaries of the Registrant.

Consent of Ernst & Young LLP.
Powers of Attorney.

(31.1)#

(31.2)#

(32)#

(95)#

Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a).

Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a).

Certifications of Chief Executive Officer and Chief Financial Officer required by 18 U.S.C. Section 1350.

Mine Safety Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection
Act for the Fiscal Year Ended December 31, 2019.

(101.INS)#

Inline 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.CAL)# Inline XBRL Taxonomy Extension Calculation Linkbase Document.
(101.DEF)#
Inline XBRL Taxonomy Extension Definition 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 in Inline XBRL and contained in the Exhibit 101 attachments)

Denotes a compensatory plan or arrangement.

Filed or furnished herewith.

Item 16.

FORM 10-K SUMMARY

None.

Pursuant to the requirements of Section 13 or 15(d) 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.

SIGNATURES

MATERION CORPORATION

By:

/s/ Jugal K. Vijayvargiya
Jugal K. Vijayvargiya
President and Chief Executive Officer

February 13, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Jugal K. Vijayvargiya

Jugal K. Vijayvargiya

/s/ Joseph P. Kelley
Joseph P. Kelley

Vinod M. Khilnani

Emily M. Liggett

Robert J. Phillippy

Patrick Prevost

N. Mohan Reddy

Craig S. Shular

Darlene J. S. Solomon

Robert B. Toth

President and Chief Executive Officer
and Director (Principal Executive
Officer)

Vice President, Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)

Director

February 13, 2020

Joseph P. Kelley, by signing his name hereto, does sign and execute this report on behalf of each of the above-named
officers and directors of Materion Corporation, pursuant to Powers of Attorney executed by each such officer and director
filed with the Securities and Exchange Commission.

February 13, 2020

By:

/s/ Joseph P. Kelley
Joseph P. Kelley
Attorney-in-Fact

Materion Corporation and Subsidiaries

Schedule II—Valuation and Qualifying Accounts

Years Ended December 31, 2019, 2018, and 2017

Column A

Column B

Column C

ADDITIONS

Column D

Column E

Balance at
Beginning of
Period

Charged to
Costs
and Expenses

Charged to
Other
Accounts

Deduction

Balance at End
of Period

392

13,529

616

12,026

640

13,176

(Thousands)
Year ended December 31, 2019

Deducted from asset accounts:

Allowance for doubtful accounts
receivable

616

(39) $

— $

185 (A) $

Inventory reserves and obsolescence

12,026

2,238

—

735 (B)

Year ended December 31, 2018

Deducted from asset accounts:

Allowance for doubtful accounts
receivable

640

271

— $

295 (A) $

Inventory reserves and obsolescence

13,176

3,341

—

4,491 (B)

Year ended December 31, 2017

Deducted from asset accounts:

Allowance for doubtful accounts
receivable

857

— $

301 (A) $

Inventory reserves and obsolescence

14,407

3,521

—

4,752 (B)

Note (A) - Bad debts written-off, net of recoveries
Note (B) - Inventory write-offs

CORPORATE DATA

Annual Meeting
The Annual Meeting of Shareholders will be held on
Wednesday, May 13, 2020 at 9:00 a.m. EDT at Materion
Corporation, 6070 Parkland Blvd., Mayfield Hts., OH 44124.

Investor Information
Materion Corporation maintains an active program of
communication with shareholders, securities analysts, and
other members of the investment community. Upon
written request, Materion Corporation will provide, without
charge, a copy of Materion’s annual report on Form 10-K
for the year ended December 31, 2019, as well as any
Securities and Exchange Commission (SEC) filings.

For such documents, please contact:
Stephen F. Shamrock
Vice President, Corporate Controller
and Investor Relations
(216) 383-4010

Auditors
Ernst & Young LLP
950 Main Avenue, Suite 1800
Cleveland, Ohio 44113

Transfer Agent and Registrar
Equiniti Trust Company
P.O. Box 64854
St. Paul, Minnesota 55164-0854
For shareholder inquiries, call: (800) 468-9716
www.shareowneronline.com

Stock Listing
New York Stock Exchange/Symbol: MTRN

Corporate Headquarters
Materion Corporation
6070 Parkland Boulevard
Mayfield Heights, Ohio 44124
(216) 486-4200
Facsimile: (216) 383-4091

Website
Materion Corporation’s website offers financial and
investor information, news and facts about the Company,
its businesses, markets, and products.

Visit the site at: www.materion.com

Governance
The Company has adopted corporate governance guidelines
and a Code of Conduct Policy, in compliance with applicable
New York Stock Exchange and SEC requirements. These
materials, along with the charters of the Audit,
Compensation and Governance and Organization
Committees of the Company’s Board of Directors, which
also comply with applicable requirements, are available on
the Company’s website.

DIRECTORS and EXECUTIVE OFFICERS

Executive Officers

Jugal K. Vijayvargiya
President and Chief Executive Officer

Joseph P. Kelley
Vice President, Finance and Chief Financial Officer

Gregory R. Chemnitz
Vice President, General Counsel and Secretary

Board of Directors and
Committees of the Board

Vinod M. Khilnani 2, 3, 4
Non-Executive Chairman of the Board
Retired Executive Chairman
CTS Corporation

Emily M. Liggett 2, 4
Chief Executive Officer
Liggett Advisors

Robert J. Phillippy 1, 4
Former Chief Executive Officer
Newport Corporation

Patrick Prevost 2, 4
Former Chief Executive Officer
Cabot Corporation

N. Mohan Reddy, Ph.D. 1, 3, 4
B. Charles Ames Professor of Management
Case Western Reserve University

Craig S. Shular 1, 3, 4
Former Executive
Chairman of the Board
GrafTech International Ltd.

Darlene J. S. Solomon, Ph.D. 2, 4
Senior Vice President and Chief Technology Officer
Agilent Technologies, Inc.

Robert B. Toth 2, 4
Former Managing Director
CCMP Capital Advisors, LLC

Jugal K. Vijayvargiya 3
President and Chief Executive Officer
Materion Corporation

Audit Committee

Compensation Committee

Executive Committee

Governance and Organization Committee

(cid:25)(cid:19)(cid:26)(cid:19)(cid:51)(cid:68)(cid:85)(cid:78)(cid:79)(cid:68)(cid:81)(cid:71)(cid:37)(cid:82)(cid:88)(cid:79)(cid:72)(cid:89)(cid:68)(cid:85)(cid:71)(cid:15)(cid:48)(cid:68)(cid:92)(cid:73)(cid:76)(cid:72)(cid:79)(cid:71)(cid:43)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:15)(cid:50)(cid:75)(cid:76)(cid:82)(cid:23)(cid:23)(cid:20)(cid:21)(cid:23)(cid:21)(cid:20)(cid:25)(cid:17)(cid:23)(cid:27)(cid:25)(cid:17)(cid:23)(cid:21)(cid:19)(cid:19)(cid:90)(cid:90)(cid:90)(cid:17)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:82)(cid:81)(cid:17)(cid:70)(cid:82)(cid:80)