2 0 2 2 A N N U A L R E P O R T
TO OUR SHAREHOLDERS
We push the boundaries of innovation to enable
breakthrough solutions that move the world forward.
At Materion we are guided by this purpose, which has fueled our transformation into
a global leader in advanced materials solutions. With our successful execution on
key organic growth investments and the flawless integration of the HCS-Electronic
Materials business, we delivered another year of record financial performance
and above-market growth in 2022. With new customer partnerships across
a variety of industries aligned with key global megatrends, we also continued to
seed the pipeline for long-term sustainable success.
Our customers further validated that our deep technical expertise and capabilities
are uniquely suited to serve the innovation required to support global shifts toward
stronger and more ubiquitous connectivity, advanced mobility, and
clean energy, solidifying new avenues for future growth. These megatrends are
creating profound possibilities for Materion’s products and services to shape the world.
To deliver on these opportunities, we have added critical talent to our company and our global team now stands at more
than 3,700 people worldwide. Living our core values of safety, ethics, social responsibility, collaboration,
and diversity and inclusion, our people are integral to our customers’ success. Working safely continues to be our
overriding priority, and in 2022 we continued to make progress toward our goal of zero injuries.
Our commitment to Environmental, Social and Governance (ESG) initiatives aligned with our
business strategy continued to gain traction as we set performance goals and further developed procedures and
systems necessary for tracking and measurement. In addition to supporting customer projects that will advance global ESG
priorities, some of our operational wins in 2022 included our Milwaukee facility’s perfect Responsible Business Alliance audit
score and the continued success of our precious metals and other advanced materials recycling and reclamation programs.
As we continue to grow our company, we are determined to deliver on our ESG commitment for the benefit of our people,
our company, customers, and the planet.
Another year of record business performance validated our long-term strategy, even as some
markets began to face headwinds. Our new customer-funded Precision Clad Strip facility achieved full qualification
and is contributing meaningfully to our results. In a strong show of confidence, this customer broadened their partnership
with Materion with a second investment that will further expand the new facility’s capacity starting in 2024. Our integration
of the HCS-Electronic Materials business enabled us to bring a broader portfolio of semiconductor products to the market,
generating value ahead of our expectations. We also announced plans to invest $20 Million in this business to grow capacity
and enhance capabilities to support the logic and advanced chips required to power the most cutting-edge and fastest-
growing electronics applications.
(Continued on next page)
JAMES WEBB SPACE TELESCOPE DELIVERS FIRST IMAGES
NASA released its first, full-color images captured by the
James Webb Space Telescope in 2022. They revealed the
deepest look into space that’s ever been captured in
history, characterized by NASA as the “dawn of a new
era in astronomy.”
Our people at Materion couldn’t be more proud of
seeing the culmination of our focused efforts on
collaborating with some of the world’s greatest
scientists and organizations on material science
and engineering challenges to deliver next-
generation materials and optical solutions that
enabled the world’s largest and most powerful space telescope. It features an array of technical
solutions from all three of our business segments that were specifically developed to enable
the enormous telescope to function in the most demanding conditions in the universe.
(Continued from previous page)
We were thrilled to announce plans to establish a new
advanced chemicals facility in Milwaukee,
Wisconsin, further expanding our capabilities
to support the development of the most
sophisticated semiconductor chips and enhance
our position in the electric vehicles market. A
leading electric vehicle battery customer will help fund
a prototype production line for next-generation battery
solutions at the new site, which is scheduled to ramp up
production in the first half of next year. At our Elmore,
Ohio, site we also advanced another critical customer
investment with the joint commissioning of a molten salt
purification plant with our partner Kairos Power. This
project will support the development of a molten salt
coolant used in a zero-carbon source of electricity that will
help enable the world’s transition to clean energy.
The delivery on our strategy is dependent on our continued
investment in core strategic pillars that are foundational
to the long-term success of the company. We continue to
make advancements in R&D, commercial excellence, and
in the formation of deep customer partnerships that are
vital to continuing to expand our product portfolio. We
are driving operational excellence initiatives
that will enable us to continually enhance the
level of service we provide for our customers.
Smart information technology investments that facilitate
new ways of working – the digital shop floor, manufacturing
execution systems, and more automated business processes
will enable achievement of our long-term performance goals.
We continue to invest in improved cybersecurity tools and
processes to ensure we have state-of-the-art protection of
our digital assets.
The most critical component of our strategy is
our Materion people. We have strengthened our focus
on attracting and retaining the industry’s most exceptional
talent and on further advancing our high-performance
culture. We’ve enhanced recognition programs, improved
communications, and are introducing new training and
development programs to support the ongoing professional
growth of our people.
With our strong team in place, we enter 2023 prepared
to navigate various anticipated economic headwinds and
pockets of softness in the markets we serve. Despite these
challenges, the outlook for our company remains bright.
We have a strong order book and with a broad pipeline of
organic projects poised to deliver. We expect our growth to
continue to outpace that of the industries we serve. We also
plan to maintain our disciplined focus on the future, tracking
our global megatrends as they continue to uncover even
more pathways for long-term growth.
I want to sincerely thank our customers for their trust, our
people for their commitment to our business, and you, our
shareholders, for your continued investment and confidence
in our company.
Jugal Vijayvargiya
President and Chief Executive Officer
2022 STRATEGIC HIGHLIGHTS
• Delivered record financial performance with year-on-year increases of more than 30% across sales, EBITDA, and
earnings-per-share
• Secured meaningful wins and additional customer-funded partnerships in semiconductor, automotive, aerospace, and
defense to deliver continued market outgrowth in 2023
• Completed qualification of customer-funded Precision Clad Strip facility and awarded significant capacity expansion
from the customer
• Flawlessly integrated the recently acquired HCS-Electronic Materials business, generating value beyond expectations
• Established a new advanced chemicals facility to accelerate growth in semiconductor and electric vehicle applications
•
•
Invested ~$80M in capital expenditures to support accelerated organic growth
Increased shareholder dividend for 10th consecutive year
• Closed 2022 with a healthy balance sheet and meaningful available liquidity to support growth initiatives
)
s
n
o
i
l
l
i
m
n
i
$
(
)
s
n
o
i
l
l
i
m
n
i
$
(
Value-added1 (VA) Sales
Value-added1 (VA) Sales
Adjusted EPS2
Adjusted EPS2
$1,114
$830
$711
$704
$640
$1,200
$1,100
$1,000
$900
$800
$700
$600
$500
$400
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
$5.27
$4.06
$3.39
$2.47
$2.13
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
1 Non-GAAP, excludes pass-through metal costs
2 Non-GAAP, excludes special items and acquisition amortization
Operating Cash Flow
Operating Cash Flow
Total Shareholder Return (TSR)3
Total Shareholder Return (TSR)3
$120.0
$110.0
$100.0
$90.0
$80.0
$70.0
$60.0
$50.0
$40.0
$30.0
$20.0
$116.0
$99.2
$101.1
$90.2
$76.4
126%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
43%
30%
62%
10%
2018
2019
2020
2021
2022
MTRN
Peer Group
Average
S&P 600 Small Cap
Materials
Russell 2000
S&P 500
3 Reflects the change in closing price from 3/6/2018 - 3/6/2023 and assumes quarterly
reinvestment of dividends.
MATERION CELEBRATES
50 YEARS ON THE NYSE
President and Chief Executive Officer Jugal Vijayvargiya and the
Materion leadership team ring the opening bell at the New York
Stock Exchange on October 4, 2022, to celebrate 50 years of
trading on the exchange. Materion (NYSE:MTRN) is among the
top 10% of longest listed companies on the NYSE.
[This page intentionally left blank]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
Form 10-K
__________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission File Number 1-15885
__________________________________
MATERION CORPORATION
(Exact name of registrant as specified in its charter)
Ohio
(State or other jurisdiction of
incorporation or organization)
6070 Parkland Blvd., Mayfield Heights, Ohio
(Address of principal executive offices)
34-1919973
(I.R.S. Employer
Identification No.)
44124
(Zip Code)
Registrant’s telephone number, including area code
216-486-4200
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, no par value
Trading Symbol(s)
MTRN
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
¨
Non-accelerated filer
x Accelerated filer
¨
Smaller reporting company
¨
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting firm
that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of common shares, no par value, held by non-affiliates of the registrant (based upon the closing sale price on the New
York Stock Exchange) on July 1, 2022 was $1,488,381,335.
As of January 31, 2023, there were 20,543,518 common shares, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2023 Annual Meeting of Shareholders are incorporated by reference into Part III.
TABLE OF CONTENTS
PART I
Item 1.
Business ...........................................................................................................................................................
Item 1A. Risk Factors .....................................................................................................................................................
Item 1B. Unresolved Staff Comments ............................................................................................................................
Item 2.
Properties .........................................................................................................................................................
Item 3.
Legal Proceedings ............................................................................................................................................
Item 4.
Mine Safety Disclosures ..................................................................................................................................
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ..........................................................................................................................................................
[Reserved] ........................................................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..........................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .........................................................................
Item 8.
Financial Statements and Supplementary Data ...............................................................................................
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .........................
Item 9A. Controls and Procedures ..................................................................................................................................
Item 9B. Other Information ............................................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance ..............................................................................
Item 11.
Executive Compensation .................................................................................................................................
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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 ...................................................................................................
Form 10-K Summary .......................................................................................................................................
Signatures ........................................................................................................................................................
2
6
15
16
17
18
19
21
22
35
37
81
81
81
81
82
82
83
82
83
84
88
89
Forward-looking Statements: Portions of the narrative set forth in this document that are not statements of historical or
current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by
the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned
elsewhere herein: the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition,
and liquidity, including shut downs of our facilities; the global economy, including inflationary pressures, potential future
recessionary conditions and the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns
or sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in
product mix and the financial condition of customers; our success in developing and introducing new products and new product
ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating
prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition
candidates and in acquiring and integrating such businesses, including the integration of the HCS-Electronic Materials
business; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to
these acquisitions; our success in implementing our strategic plans and the timely and successful start-up and completion of
any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and
precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates, interest rates, pension costs
and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and
availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation
plans; the uncertainties related to the impact of war, terrorist activities, and acts of God; changes in government regulatory
requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending
litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions in
operations from, and other effects of, catastrophic and other extraordinary events including the COVID-19 pandemic and the
conflict between Russia and Ukraine; and the risk factors set forth in Part 1, Item 1A of this Form 10-K.
1
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 $1.8 billion in net sales in 2022. The Company was incorporated in Ohio in 1931. 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 Materials, Electronic Materials, Precision Optics,
and Other. Our Other reportable segment includes unallocated corporate costs. Additional information regarding our segments
and business is presented below.
Performance Materials
Performance Materials provides advanced engineered solutions comprised of beryllium and non-beryllium containing alloy
systems and custom engineered parts in strip, bulk, rod, plate, bar, tube, and other customized shapes produced at
manufacturing facilities located throughout the United States and Europe and sold through distribution global hubs. This
segment operates the world's largest bertrandite ore mine and refinery, which is located in Utah, providing feedstock hydroxide
for our beryllium businesses and external sale. 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 required design specifications.
Performance Materials operates through three global product lines: Advanced Alloys, Specialty Materials, and Performance
Solutions, as described below:
•
•
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 competes with companies around the world that produce alloys with similar properties. 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. The properties 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. 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. Key competitors include NGK Insulators, IBC Advanced Alloys Corp., Ningxia Orient Tantalum Industry
Co., Ltd., Le Bronze Alloys, Minotti Metals, SA, KME AG & Co. KG, Aurubis AG, MKM Mansfelder Kupfer und
Messing GmbH, AMPCO Metal, Chuetsu Metal Works Ltd, American Beryllia Inc., CBL Ceramics Limited,
CoorsTek, Inc., and 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
2
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
suitable for 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.
Performance Material'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.
Electronic Materials
Electronic Materials produces advanced chemicals, microelectronics packaging, precious metal, non-precious metal, and
specialty metal products, including vapor deposition targets, frame lid assemblies, clad and precious metal pre-forms, high
temperature braze materials, and ultra-pure wire. These products are used in high-performance logic, advanced memory
high-performance logic, advanced memory, micro-electromechanical systems and power management integrated circuits, radio
frequency devices, data storage, display, architectural glass, solar, optical coating, and other applications within the
semiconductor, energy, and industrial end markets. Electronic Materials also has metal recovery operations and in-house
refining that allow for the recycling of precious metals. This business includes a portion of HCS-Electronic Materials. See Note
B to the Consolidated Financial Statements for additional discussion regarding our acquisition of HCS-Electronic Materials.
Electronic 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.
3
Precision Optics
Precision Optics designs and produces precision thin film coatings, optical filters and assemblies. Headquartered in Westford,
Massachusetts, the business has manufacturing facilities in Europe, Asia and the United States and its products are sold directly
from these facilities, as well as through direct sales offices and independent sales representatives throughout the world.
Principal competition includes Viavi Corporation, Coherent Corporation, MKS Newport Optics, Alluxa, and a number of
smaller regional and national suppliers. 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.
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 800 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 2022.
Availability of Raw Materials
The principal raw materials we use are beryllium, tantalum, aluminum, cobalt, copper, gold, nickel, palladium, platinum,
ruthenium, silver, and tin. Ore reserve data can be found in Part II, 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, 2022, 2021, and 2020 was $576.2 million, $541.1 million, and $279.2
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, 2022 will be filled over the next 18 months.
Acquisitions
On November 1, 2021, the Company acquired HCS-Electronic Materials for a purchase price of approximately $395.9 million
in cash, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism. This business operates
within the Performance Materials and Electronic Materials segments, and the results of operations are included as of the date of
acquisition. Refer to Note B to the Consolidated Financial Statements for additional detail on the acquisition of HCS-Electronic
Materials.
Regulatory Matters
4
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. Materion was a participant in the development of the new standards, which fundamentally
represent our current health and safety operating practices. 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.” OSHA issued the final beryllium standard incorporating these
additional modifications on July 14, 2020. 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 of 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.
In addition to laws that regulate the manufacturing, processing, use, handling, storage, transport, treatment, emission, release,
and disposal of substances and wastes used or generated in manufacturing, we are subject to various laws around the world.
For example, trade regulations, including tariffs or other import or export restrictions, may increase the cost of some of our raw
materials or cross-border shipments, and limit our ability to do business in certain countries or with certain individuals. We are
also required to comply with increasingly complex and changing laws and regulations enacted to protect business and personal
data in the United States and other jurisdictions regarding privacy, data protection and data security, including those related to
the collection, storage, use, transmission and protection of personal information and other consumer, customer, vendor or
employee data. With respect to the laws and regulations noted above, as well as other applicable laws and regulations, the
Company's compliance programs may, under certain circumstances, involve material investments in the form of additional
processes, training, personnel, information technology, and capital.
Human Capital Management
Materion employees are located throughout the world. Employee levels are managed to align with the pace of business and
management believes it has sufficient human capital to operate its business successfully. We employed approximately 3,723
people globally as of December 31, 2022. Approximately 574 were in the Asia–Pacific region, 488 were in the Europe, the
Middle East, and Africa (EMEA) region, and 2,661 were in the North America region. Among our total global employee
population, approximately 2,336 were employed in manufacturing. Our strong employee base, along with their commitment to
customer service excellence and uncompromising values, provides the foundation for our Company’s success.
Our employees are responsible for upholding our core values, which include working safely and collaboratively, conducting all
aspects of business with the highest standards of ethics and integrity, leveraging processes and data to drive continuous
improvement, empowering individuals and teams, embracing change, attracting and developing diverse global talent, and
partnering for the betterment of the communities where we live and operate.
Health and Safety
The health, safety, and well-being of our employees is our highest priority and is a Materion core value. We have a strong
Environmental, Health, and Safety (EHS) program that focuses on implementing policies and training programs, as well as
performing self-audits to ensure our colleagues leave their workplace safely, every day. We continue to invest in safety
improvements such as capital improvements, new safety technology, safety controls, and engineering ergonomic solutions. On
an annual basis, our corporate long-range strategies are reviewed and updated, improvement plans are developed for each
global location, progress is tracked, and daily critical safety statistics and metrics are published internally. Our corporate
intranet site is visible to all global employees, where we share detailed descriptions of serious injuries and near misses and their
corrective actions, as well as other proactive measures to promote lessons learned and ensure worker safety. Safety awareness
and employee engagement programs have been implemented at all global facilities. We also have onsite medical teams at two
key manufacturing sites to provide medical testing for employees to determine any potential exposure to beryllium, of which
Materion is a leading global supplier.
5
Diversity and Inclusion
As part of our human capital management initiatives to attract, develop, and retain diverse global talent, we track and report
internally on key talent metrics including workforce demographics, critical role pipeline data, and diversity hiring analytics.
This data-driven approach helps ensure that we stay aligned to our goal of creating a positive and dynamic global work
environment where all employees can flourish. A truly innovative workforce needs to be diverse and leverage the skills and
perspectives of a broad range of backgrounds and experiences. To attract a global workforce, we strive to create and embed a
culture where employees can bring their whole selves to work.
Our employee resource groups (ERGs) are Company-sponsored groups of global employees that support and promote the
specific mutual objectives of both the employees and the Company, with emphasis on the inclusion, diversity, and professional
development of employees. The ERGs provide opportunities for employees to connect, develop, and grow together in a
supportive environment. As of December 31, 2022, we had four ERGs: ELEVATE (Women); V.E.T. (veterans and allies of the
military); LGBTQ+; and United Voices of Materion (all ethnic backgrounds). Our focus continues to be on the recruitment of
diverse candidates as well as the development of our internal cadres of diverse leaders so that they can advance their careers and
move into leadership positions throughout the Company.
Talent Development
We continue to prioritize professional development and training for all global employees. By providing employees with wide-
ranging development programs, opportunities, and paths to success, we empower them to realize their full potential. Our
development activities provide further opportunities to retain employees and build upon critical capabilities. We strongly
encourage employees to build development plans in partnership with their managers and supervisors, providing both ongoing
and specific opportunities for two-way communication and corresponding action. Apprenticeship programs have been
implemented in some of our large plant sites, and we continue to introduce similar programs throughout the Company.
Likewise, we have implemented career development programs in other key professional functional areas.
We are committed to identifying and developing the talents of our next generation of leaders. Our robust and fully integrated
talent and succession-planning process supports the development of our talent pipeline for critical roles in operations
management, commercial excellence and engineering. We have continued to grow our campus recruitment initiatives while
building programs that develop and grow our early career talent. Additionally, Company development programs have been
designed to target and accelerate key leadership and functional skill sets. On an annual basis, we conduct organizational reviews
with our Chief Executive Officer and all business unit and function senior leaders to identify and evaluate our high potential,
diverse talent and succession plans for our most critical roles.
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).
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. Although the risks are organized by headings, and each risk is discussed separately, many
are interrelated. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.
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.
6
Risks Relating to Economic Conditions
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, inflation, rising interest rates and the 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.
Risks Relating to the COVID-19 Pandemic
The COVID-19 pandemic has had, and may continue to have, an adverse impact on our business.
The worldwide spread of the COVID-19 virus resulted in a global slowdown of economic activity which could continue to
impact demand for a broad variety of goods and services, including from the Company’s customers, while also continuing to
disrupt sales channels and marketing activities for an unknown period of time. New and potentially more contagious variants of
the virus have emerged over the course of the pandemic, along with a surge in cases in several regions across the globe,
including Europe and Asia, resulting in renewed shutdown, mandatory quarantines and shelter in place orders in certain regions.
These events have led, at times, to slowdowns in our operations, including the temporary shutdown of the Company's Shanghai
facility in the first half of 2022. Through continued economic challenges, there continue to be periodic shipping and logistics
challenges and continued supply chain constraints, shortages and delays, along with inflationary pricing pressures.
As normal business operations resume, we continue to practice enhanced sanitation procedures, health checks and social
distancing protocols, however, none of these measures can completely eliminate the risk of exposure or spread of COVID-19.
There could be additional waves or spikes in infection, again causing widespread social, economic and operational impacts.
Further, the lingering impacts of the COVID-19 pandemic may continue to adversely affect the economies and financial
markets in many countries.
Any prolonged disruption of manufacturing or shipment of our products caused by the COVID-19 pandemic or any future
pandemics could materially and adversely affect our results of operations and financial conditions. Surges in infection rate, new
shutdowns or quarantines, emergence of new and potentially more contagious variants of the virus and staffing and labor supply
challenges may impact our suppliers and our ability to source materials in a timely manner. Further, ongoing supply chain
constraints and inflationary pressure could have a negative impact on our results.
Risks Relating to Our Business and Operations
Because we experience seasonal fluctuations in certain end-market 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.
7
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 2022, 16% of our value-added sales were 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 driven by rapidly changing technology and evolving customer specifications and industry standards.
Next-generation solutions 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 disruptive thermal spreading materials which requires
newer technology that replaces the traditional approach of building package. Our growth and future results of operations depend
in part upon our ability to enhance existing products and processes which 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 lose customers or otherwise 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 (despite numerous studies affirming the safety of beryllium
in 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 beryllium, tantalum,
aluminum, cobalt, copper, gold, nickel, palladium, platinum, ruthenium, silver, tin, iridium, rhodium, niobium, hafnium, and
tungsten. The availability of, and prices for, these raw materials are volatile 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.
Prices for precious metal and certain non-precious metals including tantalum, nickel, iridium, rhodium, niobium, hafnium and
tungsten have fluctuated significantly in recent years. Additionally, geopolitical instability and the inflationary environment
8
have added to the volatility. 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 would increase our costs, negatively impacting our
operating profit.
We are not dependent on any one supplier for our primary raw materials, but the business could be impacted by supply
constraints. If, in the future, we are unable to obtain sufficient amounts of metals on a timely basis, we may not be able to
obtain metals from alternate sources at competitive prices. In addition, interruptions or reductions in our supply of metals could
make it difficult to satisfy our customers’ delivery requirements, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
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 theft or employee error.
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 theft and employee error, 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.
Additionally, while we maintain insurance to cover the theft of our inventory, such coverage may not sufficiently cover any
loss.
Access to consigned metals may restrict our operations
We use gold and other precious metals in the production of some of our products. We obtain most precious metals from
consignors under consignment agreements. The consignors retain ownership of the precious metals and charge us fees based on
the amounts we consign and the period of consignment. Because we do not control the consigned inventory, we may not be able
to access the inventory to meet our forecasted needs, which could adversely impact our results of operations.
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 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 (including that caused by climate
change), fire, explosion, act of war or terrorism, or other natural disaster or unexpected event may interrupt our manufacturing
9
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.
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. We protect our sensitive information and confidential personal data, our facilities, and information
technology systems, but we may be vulnerable to future security breaches. 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. The Company has taken steps to
protect our computer systems however there is always a risk of undetected successful intrusions. The Company requires
employees to complete information security training programs multiple times a year to reinforce the importance of protecting
company information and assets. Materion has not experienced a known information security breach to our systems, however
intrusions could pose a risk of undetected data loss or theft that could later be used to harm the Company. There have been no
financial penalties or settlements associated with an information security breach within the last three years.
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.
Data privacy breaches and the evolving global governmental regulation relating to data privacy could adversely affect our
results of operations and profitability.
We collect, store, access and otherwise process certain confidential or sensitive data, including proprietary customer and
business information, personal data or other information that is subject to privacy and security laws, regulations and customer-
imposed requirements. The data privacy laws of the specific jurisdictions in which we operate may vary and potentially
conflict. As such, we cannot predict the cost of compliance with future data privacy laws, regulations and standards, future
interpretations of current laws, regulations and standards, or the potential effects on our business.
Government enforcement actions can be costly and interrupt the regular operation of our business, and a violation of data
privacy laws or a security breach involving personal data can result in fines, reputational damage and civil lawsuits, any of
which may adversely affect our results of operations and profitability.
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, 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
10
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 elsewhere.
Unexpected events and natural disasters at our mine or manufacturing facilities 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 (including severe weather caused by climate change), fire, natural disasters, pit wall failures, and
ore processing changes. Our operations also involve the handling and production of potentially explosive materials. It is
possible that an explosion at our mine or other manufacturing facilities 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.
Tax increases and changes in tax rules may adversely affect our financial results
As a company conducting business on a global basis with material operations throughout the United States, we are exposed,
both directly and indirectly, to the effects of changes in U.S., state, local, and foreign tax rules. Taxes for financial reporting
purposes and cash tax liabilities in the future may be adversely affected by changes in such tax rules. Such changes may put us
at a competitive disadvantage compared to some of our major competitors, to the extent we are unable to pass the tax costs
through to our customers.
The Biden administration has announced in 2021 and 2022, and in certain cases has enacted, a number of tax proposals to fund
new government investments in infrastructure, healthcare, and education, among other things. Certain of these proposals
involve an increase in the domestic corporate tax rate, which if implemented could have a material impact on our future results
of operations and cash flows.
Economic and geopolitical instability including as a result of military conflict could have a material adverse effect on our
operating results, financial condition, and cash flows
Geopolitical conflict may have a global impact on our operations, customers, or suppliers. Conflicts may result in various
sanctions, including asset freezes and prohibitions on transactions. These sanctions could have a larger impact that expands into
other geographies where we do business, including our supply chain, business partners, and customers in those markets, which
could result in lost sales, supply shortages, commodity price fluctuations, increased manufacturing costs, transportation logistics
challenges, customer credit and liquidity issues, and lost efficiencies.
Risks Related to Legal, Compliance and Regulatory Matters
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 domestic and international operations. Revenue from international
operations (principally Europe and Asia) accounted for approximately 51% in 2022, 47% in 2021, and 45% in 2020 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
11
•
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 COVID-19), the ongoing conflict between Russia and Ukraine 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 international trade agreements that could affect a wide variety of
industries and businesses, including those businesses we own and operate.
We may be exposed to certain regulatory and financial risks related to climate change.
Growing concerns about climate change may result in the imposition of additional regulations or restrictions to which we may
become subject. A number of governments or governmental bodies have introduced or are contemplating regulatory changes in
response to climate change, including regulating greenhouse gas emissions. The outcome of new legislation or regulation in the
U.S. and other jurisdictions in which we operate may result in new or additional requirements, additional charges to fund
energy efficiency activities, and fees or restrictions on certain activities. Compliance with these climate change initiatives may
also result in additional costs to us, including, among other things, increased production costs, additional taxes, reduced
emission allowances or additional restrictions on production or operations. Any adopted future climate change regulations could
also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Even without
such regulation, increased public awareness and adverse publicity about potential impacts on climate change emanating from us
or our industry could harm us. We may not be able to recover the cost of compliance with new or more stringent laws and
regulations, which could adversely affect our results of operations, financial position or cash flows.
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 in 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 and may
later develop a chronic lung disease known as chronic beryllium disease (CBD). Severe cases of CBD can cause disability or
death.
12
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, 2022, 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.
Additionally 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.
Expectations relating to environmental, social and governance considerations expose us to potential liabilities, increased
costs and other adverse effects on our business.
Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on
environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas
emissions, human capital and diversity, equity and inclusion. The Company is committed to ensuring that our organization’s
governance and operations are fully aligned with environmentally and socially responsible practices. We make statements about
our environmental, social and governance goals and initiatives through information provided on our website and other
communications. Responding to these environmental, social and governance considerations and implementation of these goals
and initiatives involves risks and uncertainties, requires investments, which could be material, and are impacted by factors that
may be outside our control. In addition, some stakeholders may disagree with our goals and initiatives and the focus of
stakeholders may change and evolve over time. Stakeholders also may have very different views on where environmental,
social and governance focus should be placed, including differing views of regulators in various jurisdictions in which we
operate. Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements,
comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and
varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially
adversely affect our business, reputation, results of operations, financial condition and stock price.
13
Risks Related to Our Debt
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. A global economic
downturn 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 which 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 and amount 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 and acquisition strategies, and other strategic initiatives.
Adverse business conditions could impact our ability to generate cash and service our indebtedness.
Our ability to pay interest on our debt and to satisfy our other debt obligations depends in part upon our future financial and
operating performance and that of our subsidiaries, and upon our ability to renew or refinance borrowings. Prevailing economic
conditions and financial, business, competitive, legislative, regulatory and other factors, many of which are beyond our control,
affect our ability to make these payments. While we believe that cash flow from our current level of operations, available cash
and available borrowings under our revolving credit facility provide adequate sources of liquidity, a significant drop in
operating cash flow resulting from economic conditions, competition or other uncertainties beyond our control could create the
need for alternative sources of liquidity. If we are unable to generate sufficient cash flow to meet our debt service obligations,
we will have to pursue one or more alternatives, such as reducing or delaying capital or other expenditures, refinancing debt,
selling assets, or raising equity capital.
Risks Related to the Execution of Our Strategy
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 whether we will be able to achieve the strategic and other objectives related to any
acquisitions, including our recent acquisition of HCS-Electronic Materials, including the achievement of any expected
synergies. 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, or applicable representation and warranty
insurance, will be enforceable, collectible, or sufficient in amount, scope, or duration to fully offset the possible liabilities
14
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 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.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
15
Item 2.
PROPERTIES
We operate manufacturing plants, service and distribution centers, and other facilities throughout the world. During 2022, 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, 2022,
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
Albuquerque, New Mexico (2)
Alzenau, Germany (2)
Balzers, Lichtenstein(3)
Brewster, New York (2)
Buffalo, New York (2)
Delta, Utah (1)
Elmore, Ohio (1)
Farnborough, England (1)
Jena, Germany (3)
Limerick, Ireland (2)
Lincoln, Rhode Island (1)
Lorain, Ohio (1)
Milwaukee, Wisconsin (2)
Newton, MA (1,2)
Penang, Malaysia (3)
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)
Service, Sales, and Distribution Centers
Elmhurst, Illinois (1)
Eschborn, Germany (3)
Seoul, Korea (2)
Shanghai, China (1)
Stuttgart, Germany (1)
Tokyo, Japan (1)
Tyngsboro, Massachusetts (3)
(1) Performance Materials
(2) Electronic Materials
(3) Precision Optics
79,100
13,000/63,200
136,400
83,400
75,000
110,000
100,800
681,000/191,000
10,000
25,800
23,000
166,500/27,100
55,000
106,000/150,000
125,000/69,900
68,000
128,800/287,000
5,800
101,400
24,500
5,000
21,700
32,500
53,000
38,000
78,000
35,000
28,000
500
2,200
5,000
49,000
5,400
4,200
Leased
Owned/Leased
Leased
Leased
Leased
Owned
Owned
Owned/Leased
Leased
Owned
Leased
Owned/Leased
Owned
Owned/Leased
Owned/Leased
Leased
Owned/Leased
Leased
Leased
Leased
Leased
Leased
Leased
Owned
Leased
Leased
Owned
Leased
Leased
Leased
Leased
Leased
Leased
Leased
16
Mine Property
The Company holds certain mineral rights on 7,443.5 acres at the Spor Mountain Mining Properties in Juab County, Utah, from
which the beryllium-bearing ore, bertrandite, is mined by the open pit method. The Spor Mountain Mining Properties are a part
of the Spor Mountain Mine that is owned by Materion. The Spor Mountain Mining Properties are in Juab County, Utah, west of
the Thomas Mountain Range, approximately 47 miles northwest of the Spor Mountain Mill, which is 11.5 miles northeast of
Delta, Utah, in Millard County. The land surface of the mining areas is owned by Materion. The mineral rights, exclusive of
oil and gas, are held by Materion and the State of Utah through the School and Institutional Trust Lands Administration (TLA).
TLA beryllium rights are leased by Materion in nine leasing arrangements with varying acreage and expiration dates ranging
from 2025 through 2046. The leases have historically been renewed prior to the expiration dates. Several former owners are
paid royalties as part of legacy agreements.
Ore resource and reserve data for the Spor Mountain Mine can be found in Part II, Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations". In addition, a Technical Report Summary (TRS) for the Spor
Mountain Mine was prepared in 2021, in accordance with Items 1300-1305 of Regulations S-K by qualified persons who have
no affiliation with the Company. The TRS, which was filed as Exhibit 96 to our Annual Report on Form 10-K for the year
ended December 31, 2021, provides additional details regarding the Spor Mountain Mine, including the technical information
and assumptions to support the estimates of mineral resources and mineral reserves.
In accordance with Item 1302 of Regulation S-K, a registrant is required to file a TRS as an exhibit to its Annual Report on
Form 10-K when disclosing for the first time ore reserves or resources or when ore reserves or resources have changed
materially since the last TRS was filed for the property. Because there have been no material changes to the Company’s
reserves or resources in 2022, it is not filing a TRS as an exhibit to this Form 10-K.
Mine Exploration Status
The Spor Mountain Mine has been in production since 1968. Over the years, seven different mining areas have been identified.
Development drilling was performed across the site for over 30 years and completed in 2000. Additional details can be found
in the TRS.
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, 2022, our subsidiary, Materion Brush Inc., was a defendant in one beryllium case. In Richard Miller v.
Dolphin, Inc. et al., case number CV2020-005163, filed in the Superior Court of Arizona, Maricopa County, the Company is
one of six named defendants in addition to 100 John/Jane Doe defendants. The plaintiff alleges that he contracted beryllium
disease from exposures to beryllium-containing products supplied to his employer, Karsten Manufacturing Corporation, where
he was a production worker, and asserts claims for negligence, strict liability – failure to warn, strict liability – design defect,
and fraudulent concealment. The plaintiff seeks general damages, medical expenses, loss of earnings, consequential damages,
and punitive damages, and his wife claims loss of consortium. A co-defendant, Dolphin, Inc., filed a cross-claim against the
Company for indemnification. On August 12, 2020, the Company moved to dismiss the cross-claim for failure to state a claim
upon which relief can be granted. The court denied the motion on October 23, 2020. On December 7, 2020, the Company filed
a Petition for Special Action in the Court of Appeals seeking to appeal the motion to dismiss the cross-claim. The Court of
Appeals declined to accept jurisdiction on December 30, 2020. The court entered a scheduling order on September 14, 2021
that did not set a date for trial. Amended scheduling orders were entered on April 8, 2022, August 4, 2022, and November 1,
2022, that likewise did not set a trial date. The Company believes that it has substantive defenses and intends to vigorously
defend itself against this suit.
During 2022, one beryllium case was resolved.
No beryllium cases were filed in 2022.
17
The Company has insurance coverage, which may respond, subject to an annual deductible.
Other Claims
On October 14, 2020, Garett Lucyk, et al. v. Materion Brush Inc., et. al., case number 20CV0234, a wage and hour purported
collective and class action lawsuit, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion
Brush Inc. (collectively, the Company). Plaintiff, a former hourly production employee at the Company's Elmore, Ohio facility,
alleges that he and other similarly situated employees are not paid for all time they spend donning and doffing personal
protective equipment in violation of the Fair Labor Standards Act and Ohio law. Plaintiff filed a motion for conditional
certification, which the Company opposed. On August 2, 2022, the Court conditionally certified a class of employees at the
Company’s Elmore facility only and rejected certification of a class across the Company’s other facilities.
In November 2022, the parties reached a settlement for an immaterial amount. The settlement is pending court approval.
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.
18
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 January 31,
2023, there were 652 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, 2022.
Period
October 1 through November 4, 2022
November 5 through December 2, 2022
December 3 through December 31, 2022
Total
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)
— $
—
—
— $
8,316,239
8,316,239
8,316,239
8,316,239
Total Number
of Shares
Purchased (1)
Average
Price Paid
per Share
84.64
80.17
—
—
5,021 $
1,403 $
—
6,424 $
(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, 2022, we did not repurchase any shares under this program.
19
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
2018
2019
2020
2021
2022
$
93 $
124 $
134 $
193 $
86
90
77
108
109
91
127
120
110
145
150
130
185
114
124
119
The above graph assumes that the value of our common shares and each index was $100 on December 31, 2017 and that all
applicable dividends were reinvested.
20
DollarsMaterion Common StockRussell 2000S&P SmallCap 600S&P SmallCap 600 - Materials201720182019202020212022050100150200250300350
Item 6.
[RESERVED]
Reserved.
21
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
2022
$ 1,757,109
1,143,638
343,880
2021
$ 1,510,644
859,700
283,762
2020
$ 1,176,274
665,125
192,633
Gross margin as a % of Value-added sales
30 %
33 %
29 %
Selling, general, and administrative (SG&A) expense
169,338
163,777
133,963
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 (income) expense — net
Interest expense — net
Income before income taxes
Income tax expense (benefit)
Net income
15 %
28,977
3 %
—
—
1,573
24,237
119,755
(5,250)
21,905
103,100
17,110
85,990
19 %
26,575
3 %
—
—
(438)
16,737
77,111
(5,115)
4,901
77,325
4,851
72,474
20 %
20,283
3 %
9,053
1,419
11,237
8,463
8,215
(3,939)
3,879
8,275
(7,187)
15,462
Diluted earnings per share
4.14
3.50
0.75
2022 Compared to 2021
Net sales of $1,757.1 million in 2022 increased $246.5 million from $1,510.6 million in 2021. Increased net sales in the
Performance Materials and Electronic Materials segments were partially offset by a net sales decrease in the Precision Optics
segment. Incremental sales from the full year of HCS-Electronic Materials accounted for $153.3 million of the net sales
increase, most of which were sales into the semiconductor end market. Additionally, volume and price increases drove organic
growth in our industrial (15%), energy (19%) and aerospace and defense (13%) end markets when compared to last year. See
Note C to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment
and market.
The change in precious metal and copper prices, which are passed on to the customer as discussed in the value-added sales
section below, unfavorably impacted net sales by $9.2 million in 2022 compared to 2021. This impact was partially offset by an
increase in the volume of raw material beryllium hydroxide sales in 2022 of $4.0 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 $1,143.6 million in 2022 were up 33%
compared to 2021. Incremental sales from the full year of HCS-Electronic materials accounted for $153.3 million of the value-
22
added sales increase, most of which were sales into the semiconductor end market. Additionally, volume and price increases
drove organic growth in our industrial (15%), semi-conductor (11%), energy (43%) and aerospace and defense (8%) end
markets. These increases were partially offset by foreign currency headwinds.
Gross margin was $343.9 in 2022, a 21% increase from the $283.8 million gross margin recorded in 2021. Gross margin
expressed as a percentage of value-added sales decreased to 30% in 2022 from 33% in 2021 mainly due to lower gross margin
on the HCS-Electronic Materials business and the precision clad strip project.
SG&A expense totaled $169.3 million in 2022 as compared to $163.8 million in 2021. The increase in SG&A expense for
2022 was primarily due to incremental HCS-Electronic Materials SG&A expense of $4.8 million. Expressed as a percentage of
value-added sales, SG&A expense decreased 400 basis points in 2022 to 15% compared to 19% in 2021.
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 $29.0 million in 2022, an increase of 9% compared to 2021. R&D costs as a
percentage of value-added sales remained at 3%.
23
Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In 2022, we
recorded a combined total of $1.6 million of restructuring charges in our Precision Optics, Electronic Materials and Other
segments.
Other-net totaled expense of $24.2 million and $16.7 million in 2022 and 2021, respectively. The increase in Other-net was
driven by an increase in acquisition amortization due to a full year of intangible amortization from the HCS-Electronic
Materials acquisition and higher metal consignment fees partially offset by foreign exchange gains in 2022 compared to losses
in the prior year. Refer to Note E to the Consolidated Financial Statements for the major components within Other-net.
Other non-operating (income) expense-net includes components of pension and post-retirement income other than service
costs. Refer to Note O of the Consolidated Financial Statements for details of the components of net periodic benefit costs.
Interest expense - net was $21.9 million in 2022 and $4.9 million in 2021. The increase in interest expense in 2022 compared
to 2021 was primarily due to borrowings under our term loan facility and under our revolving credit facility incurred in the
fourth quarter of 2021 used to finance the HCS-Electronic Materials acquisition.
Income tax expense (benefit) for 2022 was $17.1 million of expense compared to $4.9 million of benefit in 2021. The effects
of percentage depletion, foreign derived intangible income deduction, and the impacts of research and development credits were
the primary factors for the difference between the effective and statutory tax rates in 2022. 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,
2021 for a discussion of our results for 2021 compared to 2020.
Segment Disclosures
The Company has four reportable segments: Performance Materials, Electronic Materials, Precision Optics, and Other. The
Other reportable segment includes unallocated corporate costs.
Performance Materials
(Thousands)
Net sales
Value-added sales
EBITDA
2022
2021
2020
$
671,525 $
589,587
125,227
511,874 $
440,432
89,028
394,195
345,335
38,745
2022 Compared to 2021
Net sales from the Performance Materials segment of $671.5 in 2022 increased 31% compared to 2021. The increase in sales
was due to higher organic volume in industrial, aerospace and defense, energy and telecom end markets as well as an increase
in the volume of raw material beryllium hydroxide sales in the 2022 of $4 million. In addition, sales from HCS-Electronic
Materials increased sales in this segment by $27.1 million and incremental sales from the clad strip project increased sales by
$54.5 million. These impacts were slightly offset by a decrease in automotive market sales as a result of the global chip
shortage impacting the timing of demand and foreign currency headwinds.
Value-added sales of $589.6 million in 2022 were 34% higher than value-added sales of $440.4 million in 2021. The increase in
value-added sales was driven by the same factors driving the increase in net sales.
EBITDA for the Performance Materials segment was $125.2 million in 2022 compared to $89.0 million in 2021. The increase
in EBITDA was primarily due to the same factors driving the increase in net sales, partially offset by incremental acquisition
and integration costs of $1.1 million, primarily related to purchase accounting inventory step up charges, $9.8 million of
incremental start up costs and $4.1 million of additional resource costs and scrap for the new wide area precision strip clad
facility.
24
Electronic Materials
(Thousands)
Net sales
Value-added sales
EBITDA
2022 Compared to 2021
2022
2021
2020
$
971,902 $
441,955
67,806
866,816 $
289,119
44,852
670,867
220,516
30,127
Net sales from the Electronic Materials segment of $971.9 million in 2022 were 12% higher than net sales of $866.8 million in
2021. The increase in net sales was primarily due to $126.2 million in net sales from the HCS-Electronic Materials acquisition.
The net sales increase from HCS-Electronic Materials was offset by lower precious metal prices impacting net sales by $9.9
million and foreign currency headwinds. In addition, there was an increase in customer-supplied precious metal transactions in
2022, which does not impact value-added sales but would reduce net sales when compared to 2021.
Value-added sales of $442.0 million increased 53% compared to value-added sales of $289.1 million in 2021. The increase was
primarily driven by $126.2 million in value-added sales from the HCS-Electronic Materials acquisition and an increase in
value-added sales in the semiconductor end market. The impact of these items were partially offset by foreign currency
headwinds.
EBITDA for the Electronic Materials segment was $67.8 million in 2022 compared to $44.9 million in 2021. The increase in
EBITDA was primarily due to incremental EBITDA from HCS-Electronic Materials.
Precision Optics
(Thousands)
Net sales
Value-added sales
EBITDA
2022 Compared to 2021
2022
2021
2020
$
113,682 $
113,580
13,753
131,954 $
131,815
25,854
111,212
101,878
2,470
Net sales from the Precision Optics segment were $113.7 million in 2022, a decrease of 14% compared to net sales of $132.0
million in 2021. The change was primarily driven by a reduction in sales related to COVID-19 PCR testing programs, the
discontinuation of a consumer electronic application and foreign currency headwinds.
Value-added sales of $113.6 million in 2022 decreased 14% compared to value-added sales of $131.8 million in 2021. The
decrease in value-added sales was due to the same factors driving the decrease in net sales.
EBITDA for the Precision Optics segment was $13.8 million in 2022 compared to $25.9 million in 2021. The decrease in
EBITDA was driven by decreased volumes, the temporary shut down of the Shanghai facility in the first and second quarters of
2022, related unabsorbed costs and restructuring charges incurred during 2022.
Other
(Thousands)
Net sales
Value-added sales
EBITDA
2022 Compared to 2021
2022
2021
2020
$
— $
— $
(1,483)
(28,345)
(1,666)
(33,371)
—
(2,604)
(16,804)
The Other reportable segment in total includes unallocated corporate costs. Corporate costs of $28.3 million in 2022 decreased
$5.1 million as compared to $33.4 million in 2021. Corporate costs were 2% of total Company value-added sales in 2022
compared to 4% in 2021. The decrease in corporate costs in 2022 compared to 2021 was primarily due to a $7.3 million
decrease in general and administrative expense, primarily related to a decrease in merger and acquisition costs, primarily related
to the HCS-Electronic Materials acquisition in 2021.
25
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 2022, 2021, and 2020 is as follows:
(Thousands)
Net sales
Performance Materials
Electronic Materials
Precision Optics
Other
Total
Less: pass-through metal costs
Performance Materials
Electronic Materials
Precision Optics
Other
Total
Value-added sales
Performance Materials
Electronic Materials
Precision Optics
Other
Total
2022
2021
2020
$
$
671,525 $
971,902
113,682
—
394,195
670,867
111,212
—
$ 1,757,109 $ 1,510,644 $ 1,176,274
511,874 $
866,816 $
131,954 $
—
$
$
81,938 $
529,947
102
1,483
613,470 $
71,442 $
577,697
139
1,666
650,944 $
48,860
450,351
9,334
2,604
511,149
589,587
441,955
113,580
440,432
289,119
131,815
(1,483)
$ 1,143,639 $
(1,666)
859,700 $
345,335
220,516
101,878
(2,604)
665,125
The cost of gold, silver, platinum, palladium, copper, ruthenium, iridium, rhodium, rhenium, and osmium can be quite volatile.
Our pricing policy is to directly pass the 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.
26
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 provided by (used in) financing activities
Effects of exchange rate changes
Net change in cash and cash equivalents
2022
2021
2020
$
115,958 $
90,241 $
101,057
(79,729)
(35,558)
(494,269)
393,006
(2,032)
(1,361) $
(394)
(11,416) $
$
(194,707)
(7,091)
1,612
(99,129)
Net cash provided by operating activities totaled $116.0 million in 2022 versus $90.2 million in 2021. Operating cash flow
increased primarily due to net income increase of $13.5 million, despite an increase in depreciation and amortization of $9.3
million, customer prepayments increase of $8.2 million and favorable impact of deferred taxes of $14.7 million compared to the
prior year. This was partially offset by an increase in working capital outflow, from $33.7 million in 2021 to $58.6 million in
2022. The increase in working capital outflow was primarily driven by an increase in inventory levels to support higher sales as
well as increases in the price of raw materials.
Net cash used in investing activities was $79.7 million in 2022 compared to $494.3 million in 2021. The decrease was due to a
$392.2 million payment, net of cash acquired, for the HCS-Electronic Materials acquisition in 2021. In addition, capital
expenditures decreased by $25.3 million in 2022, compared to 2021, due to increased investments in new equipment funded in
part by customer prepayments in 2021 compared to 2022, primarily related to the precision clad strip project. See Notes B and
K to the Consolidated Financial Statements for additional discussion.
Net cash provided by (used in) financing activities decreased $428.6 million from 2021. In 2021, the Company entered into the
$300 million term loan and incurred $100 million of incremental borrowings under the revolving credit facility used to fund the
acquisition of HCS-Electronic Materials. In 2022, the Company began repaying the incurred debt from 2021 and the net amount
due under the revolving credit facility and term loan decreased by $28.3 million.
Dividends per common share increased 4% to $0.495 per share in 2022. Total dividend payments to common shareholders were
$10.2 million in 2022 and $9.7 million in 2021. In May 2022, the Board of Directors declared an increase in our quarterly
dividend from $0.12 to $0.125 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 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 for at least the next 12 months and the
foreseeable future thereafter. At December 31, 2022, cash and cash equivalents held by our foreign operations totaled $11.7
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, 2022 and December 31, 2021 is as follows:
(Thousands)
Cash and cash equivalents
Total outstanding debt
Net (debt) cash
Available borrowing capacity
December 31,
2022
2021
$
$
13,101 $
431,981
(418,880)
185,294 $
14,462
449,747
(435,285)
176,419
Net (debt) 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
27
borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation and
amortization, and other adjustments.
In January 2023, we amended the agreement governing our $375.0 million revolving credit facility (Credit Agreement).
Pursuant to the amendment, we transition U.S. dollar denominated borrowings from LIBOR to the Secured Overnight Financial
Rate (SOFR) for both the revolving credit agreement and the term loan and increased the cap on precious metals facilities from
$600 million to $615 million.
The Company had previously amended and restated the Credit Agreement in connection with the HCS-Electronic Materials
acquisition in November 2021. A $300 million delayed draw term loan facility was added to the Credit Agreement and the
maturity date of the Credit Agreement was extended from 2024 to 2026. Moreover, the Credit Agreement also provides for an
uncommitted incremental facility whereby, under certain conditions, the Company may be able to borrow additional term loans
in an aggregate amount not to exceed $150.0 million. The Credit Agreement provides the Company and its subsidiaries with
additional capacity to enter into facilities for the consignment of precious metals and copper, and provides enhanced flexibility
to finance acquisitions and other strategic initiatives. Borrowings under the Credit Agreement are secured by substantially all of
the assets of the Company and its direct subsidiaries, with the exception of non-mining real property, precious metal, copper
and certain other assets.
The Credit Agreement allows the Company to borrow money at a premium over SOFR, following the January 2023
amendment, or prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions
stipulated in the agreement. The Credit Agreement includes restrictive covenants relating to restrictions on additional
indebtedness, acquisitions, dividends, and stock repurchases. In addition, the Credit Agreement includes covenants that limit the
Company to a maximum leverage ratio and a minimum interest coverage ratio. We were in compliance with all of our debt
covenants as of December 31, 2022 and December 31, 2021. Cash on hand up to $25 million can benefit the covenants and may
benefit the borrowing capacity under the Credit Agreement.
In November 2021, we completed the acquisition of HCS-Electronic Materials. The Company financed the purchase price for
the HCS-Electronic Materials acquisition with a new $300 million five-year term loan pursuant to its delayed draw term loan
facility under the Credit Agreement and $103 million of borrowings under its amended revolving credit facility. The interest
rate for the term loan is based on SOFR, following the January 2023 amendment, plus a tiered rate determined by the
Company's quarterly leverage ratio.
Portions of our business utilize off-balance sheet consignment arrangements allowing us to use metal owned by precious metal
consignors as we manufacture product for our customers. Metal is purchased from the precious metal consignor and sold to our
customer at the time of product shipment. Expansion of business volumes and/or higher metal prices can put pressure on the
consignment line limitations from time to time. In August 2022, we entered into a precious metals consignment agreement,
maturing on August 31, 2025, which replaced the consignment agreements that would have matured on August 27, 2022. The
available and unused capacity under the metal consignment agreements expiring in August 2025 totaled approximately $241.9
million as of December 31, 2022, compared to $69.8 million as of December 31, 2021 under the metal consignment agreements
that expired on August 27, 2022. The availability is determined by Board approved levels and actual capacity. The availability
is determined by Board approved levels and actual capacity.
In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock. The timing of
the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels, and
other investment opportunities. There is no minimum number of common shares required to be repurchased in a given year, and
the repurchases may be discontinued at any time. We did not repurchase any shares in 2021 or 2022. Since the approval of the
repurchase plan, we have purchased 1,254,264 shares at a total cost of $41.7 million, or an average of $33.23 per share.
Material Future Cash Obligations
The following table summarizes our material future obligations with respect to debt and associated interest as of December 31,
2022. In addition to the amounts below, the Company anticipates incurring costs related to its finance lease obligations and
non-cancelable lease payments for operating leases with an initial lease term in excess of one year. These obligations are further
detailed in Note L.
(Millions)
Debt (1)
Interest payments on debt (2)
Total
2023
2024
2025
21.1
17.3
38.4 $
30.3
15.9
46.2 $
$
2026
353.5
10.3
30.3
14.1
44.4 $ 363.8 $
2027
There-
after
Total
0.2
—
0.2 $
435.7
0.3
—
57.6
0.3 $ 493.3
(1) Refer to Note O to the Consolidated Financial Statements.
28
(2) These amounts represent future interest payments related to our total debt, excluding any interest payments to be made on
borrowings under our Credit Agreement.
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 $373.1
million as of December 31, 2022 versus $480.2 million as of December 31, 2021. We were in compliance with all of the
covenants contained in the consignment agreements as of December 31, 2022 and December 31, 2021. Refer to Note I for
additional information.
ORE RESERVES
The following information concerning our mining properties has been prepared in accordance with the requirements of subpart
1300 of Regulation S-K, which first became applicable to us for the year ended December 31, 2021. These requirements differ
significantly from the previously applicable disclosure requirements of SEC Industry Guide 7. Among other differences,
subpart 1300 of Regulation S-K requires us to disclose our mineral resources, in addition to our mineral reserves, as of the end
of our most recently completed fiscal year.
As used in this Form 10-K, the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource,” “inferred
mineral resource,” “mineral reserve,” “proven mineral reserve” and “probable mineral reserve” are defined and used in
accordance with subpart 1300 of Regulation S-K. Under subpart 1300 of Regulation S-K, mineral resources may not be
classified as “mineral reserves” unless the determination has been made by a qualified person that the mineral resources can be
the basis of an economically viable project. You are specifically cautioned not to assume that any part or all of the mineral
resources in these categories will ever be converted into mineral reserves, as defined by the SEC. We rely on estimates of our
ore resources and recoverable reserves, which estimation is complex due to geological characteristics of the properties and the
number of assumptions made.
You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have
demonstrated economic value. Inferred mineral resources are estimates based on limited geological evidence and sampling and
have a too high of a degree of uncertainty as to their existence to apply relevant technical and economic factors likely to
influence the prospects of economic extraction in a manner useful for evaluation of economic viability. Estimates of inferred
mineral resources may not be converted to a mineral reserve. It cannot be assumed that all or any part of an inferred mineral
resource will ever be upgraded to a higher category. A significant amount of additional work must be completed in order to
determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, you are cautioned not to
assume that all or any part of an inferred mineral resource exists, that it can be the basis of an economically viable project, or
that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or
indicated mineral resources will ever be converted to mineral reserves.
The information that follows relating to the Spor Mountain Mine is derived, for the most part, from the TRS, which was
prepared in compliance with Item 601(b)(96) and subpart 1300 of Regulation S-K. Portions of the following information are
based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full
text of the TRS, which is filed as Exhibit 96 to this Form 10-K and is incorporated by reference herein.
Mineral Resources
A mineral resource is a concentration or occurrence of material of economic interest in or on the Earth’s crust in such form,
grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable
estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or
continuity, that, with the assumed justifiable technical and economic conditions, is likely to, in whole or part, become
economically extractable.
The term "measured mineral resource" is that part of a mineral resource for which quantity and grade or quality are estimated
on the basis of conclusive geological evidence and sampling.
The term “indicated resources” means resources for which quantity and grade or quality can be estimated on the basis of
adequate geological evidence and sampling.
29
The term “inferred resources” means resources for which quantity and grade or quality are estimated on the basis of limited
geological evidence and sampling.
The following represents our indicated and inferred ore mineral resources, exclusive of mineral reserves, as of December 31,
2022 and December 31, 2021:
As of December 31, 2022
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
As of December 31, 2021
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
Indicated
Inferred
1,504
0.128 %
38.38
2,630
0.345 %
18.12
1,504
0.128 %
38.38
2,630
0.345 %
18.12
Mineral Reserves
A mineral reserve is an estimate of tonnage and grade, or quality, of indicated and measured mineral resources that, in the
opinion of a qualified person, can be the basis of an economically viable project. More specifically, it is the economically
mineable part of a measured or Indicated mineral resource, which includes diluting materials and allowances for losses that may
occur when the material is mined or extracted.
Proven mineral reserves are the economically mineable part of a measured mineral resource and can only result from
conversion of a measured mineral resource. Probable mineral reserves are the economically mineable part of an indicated and,
in some cases, a measured mineral resource. All mineral reserves are classified as proven or probable and are supported by life-
of-mine plans. All mineral reserve estimates were reviewed and validated by the Qualified Persons.
The following represents our ore mineral reserves:
As of December 31, 2022
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
As of December 31, 2021
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
Internal Controls Disclosure
Proven
Probable
Total
7,678
0.245 %
37.57
962
0.258 %
4.97
8,640
0.246 %
42.54
7,739
0.245 %
37.92
962
0.258 %
4.97
8,701
0.246 %
42.89
Under subpart 1305 of Regulation S-K, management has included information regarding the internal controls that the Company
used in determining the mineral resource and reserve estimation efforts. There is no disclosure required regarding exploration
procedures as the Company completed development drilling on all areas at the Spor Mountain Mine in 2000, and no future
exploration is planned at this time. As it relates to estimating mineral resources and reserves, the Company incorporates the
following items into the control process:
a. All samples are tested with a berylometer.
b. The berylometer calibration procedures are verified through comparison with the beryllium production from the mill
for the same ores.
c. The lab and field berylometers are calibrated on site each shift.
d. Materion follows industry standard procedures for calibrating its field and laboratory berylometers each shift that they
are utilized.
e. Resource models are reconciled to production data regularly.
f. Materion has been producing ore at the Spor Mountain Mine for over 45 years and has mined and processed materials
from a range of pits from the property. It is considered that Materion has adequate data to support its milling practices.
30
The Qualified Persons have assessed that the Company’s control procedures, including redundant testing at various operational
points, the quality control and quality assurance measures, the calibration measures, the extensive cataloging of sample
duplicates, and the reconciliation with recovered beryllium, are sufficient.
Based upon average production levels in recent years and our near-term production forecasts, proven 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
2022
382
—
382
90 %
344
53 %
2021
386
—
386
91 %
353
55 %
2020
367
—
367
90 %
334
52 %
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 or services to be rendered and the related payment terms, 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
payments attributed to products or services that will be transferred to our customers. We regularly review the creditworthiness
of our customers considering such factors as the macroeconomic environment, current market conditions, geographic
considerations, historical collection experience, a customer’s current credit standing, and the age of outstanding accounts
receivable balances that may affect a customer’s ability to pay. If, after we have recognized revenue, the 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
31
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 products or 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 these amounts using the expected value method. The Company has sufficient historical experience with our
customers that provides predictive value to support 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 the revenue recognition criteria are met. Advanced billings are typically made in association
with products with long manufacturing times and/or products 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 D of the Consolidated Financial Statements for additional
details on our contract balances.
Pensions
32
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.
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 (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. Consistent with December 31, 2021, we used an expected rate of return on domestic plan assets
assumption of 5.25% at December 31, 2022. 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 domestic 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 2023 projected pension
expense approximately $0.1 million. A 0.25 percentage point decrease in the expected rate of return assumption would increase
the 2023 projected pension expense by approximately $0.4 million.
Refer to Note P of the Consolidated Financial Statements for additional details on our pension and other post-employment
benefit plans.
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 in which it is reversed.
We had valuation allowances of $4.9 million and $5.0 million associated with certain federal, state, and foreign deferred tax
assets as of year-end 2022 and 2021, respectively, primarily for net operating loss, capital loss carryforwards and state tax
credits.
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 for
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.
Goodwill and Other Intangible Assets
33
We use the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities
assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair
values of the assets acquired and liabilities assumed are recognized as goodwill. The valuations of the acquired assets and
liabilities will impact the determination of future operating results. Determining the fair value of assets acquired and liabilities
assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including
assumptions with respect to future cash inflows and outflows, revenue growth rates, discount rates, customer attrition rates,
royalty rates, asset lives, contributory asset charges, and market multiples, among other items. We determine the fair values of
intangible assets acquired generally in consultation with third-party valuation advisors.
Intangible assets other than goodwill are recognized if the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed or exchanged, regardless of the Company’s intent to do
so. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in
a business combination and is reviewed annually for impairment or more frequently if impairment indicators arise. Finite-lived
intangible assets are reviewed for impairment if facts and circumstances warrant. There were no indicators during interim
periods that required the performance of an interim impairment assessment. The Company conducted its annual 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 Electronic Materials segment totaled $206.7 million as of December 31, 2022. Within the Precision Optics
segment, goodwill totaled $86.7 million. The remaining $26.2 million is related to the Performance Materials segment.
For the purpose of the annual 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 is
necessary. In performing step zero for our impairment test, we are required to make assumptions and judgments including, but
not limited to, macroeconomic conditions as related to our business, current and future financial performance of our reporting
units, industry and market considerations, and cost factors such as changes in raw materials, labor, or other costs. If the step
zero analysis indicates that it is more likely than not that the fair value of a reporting unit is less than its respective carrying
value including goodwill, then we would perform an additional quantitative analysis. The next step compares the fair value of
the reporting unit to its carrying value, including goodwill. An impairment charge is recognized for the amount the carrying
value of the reporting unit exceeds its fair value.
The Company notes that reporting units with goodwill due to recent acquisitions are likely to have fair values to the proximity
of the carrying value due to the shorter period of time for fair value from the recent acquisition to have changed. The Precision
Optics reporting unit includes the 2020 goodwill of $70.6 million related to the Optics Balzers acquisition and the Performance
Materials and Electronic Materials segments include $24.3 million and $157.0 million, respectively, of goodwill related to the
HCS-Electronic Materials acquisition. As a result of the timing of the recent acquisitions over the past few years, the Company
elected to bybass the qualitative assessment and perform a quantitative assessment of the Performance Materials, Electronic
Materials and Precision Optics reporting units' goodwill balances.
The quantitative analysis compares estimated fair value of the reporting unit, using an income approach (a discounted cash flow
model), as well as a market approach, with its carrying value. The income approach and market approach are weighted in
arriving at fair value based on the relative merits of the methods used and the quantity and quality of collected data to arrive at
the indicated fair value.
The income approach requires several assumptions including future sales growth, EBITDA margins and capital expenditures.
The Company’s reporting units each provide their forecast of results for the next five years. These forecasts form the basis for
the information used in the discounted cash flow model. The discounted cash flow model also requires the use of a discount rate
and a terminal revenue growth rate (the revenue growth rate for the period beyond the five years forecast by the reporting
units), as well as projections of future operating margins (for the period beyond the forecast five years). The Company used a
discount rate in the mid-teens and a terminal growth rate of low single digits.
The market approach requires several assumptions including sales and EBITDA multiples for comparable companies that
operate in the same markets as the reporting unit. During the fourth quarter of 2022, the Company considered sales multiples in
the low single digits and EBITDA multiples in the range high single digits to low double digits.
Based on the quantitative assessment performed for the Precision Optics reporting unit, the fair value exceeded the carrying
value by less than 10%, but by a sufficient amount to support no indicators of impairment as of October 1, 2022. As of October
1, 2022, based on the quantitative assessments for the other reporting units, the estimated fair value was substantially in excess
of the carrying value for the remaining reporting units.
Management believes the future sales growth and EBITDA margins in the long range plan, terminal growth rate and the
discount rate used in the valuations requires significant use of judgment. If any of our reporting units do not meet our long
range plan estimates or our discount rate increase significantly, we could be required to perform an interim goodwill
impairment analysis or recognize charges in future periods. Any impairment charges that the Company may take in the future
could be material to its consolidated results of operations and financial condition. The assumptions used for the reporting units
34
and indefinite-lived intangibles with fair values exceeding carrying values of less than 10% are more sensitive to future
performance and will be monitored accordingly.
We also compared our market capitalization as of October 1, 2022 to the carrying value of our equity and considering an
implied control premium, we noted no impairment indicators or triggering events.
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 precious metal consignors 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, 2022, the additional pre-tax
cost to us as a result of an increase in the consignment fee would be approximately $2.2 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 consignment 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 consignment lines.
A significant prolonged increase in metal prices could result in our consignment lines being fully utilized, and, absent securing
additional consignment line capacity from precious metal consignors, 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 consignment 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 with terms that 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, 2022, 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, 2022, the additional pre-tax cost to us as a result of an increase in the consignment fee would be
approximately $0.5 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.
35
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 2022, 2021, or 2020 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 and 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. As of December 31, 2022 the fair value of our interest rate swap asset was $7.9 million. In February 2023 we
amended the terms of the interest rate swap to hedge the change in 1-month USD-SOFR. See Note R for further discussion.
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 $55.8 million as of December 31, 2022. If the dollar weakened 10%
against the currencies we have hedged from the December 31, 2022 exchange rates, the reduced gain and/or increased loss on
the outstanding contracts as of December 31, 2022 would reduce 2022 pre-tax profits by approximately $2.6 million. This
reduction in profits would be primarily offset with the foreign currency gain from the 10% movement in the exchange rates
with effective hedges.
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 to any one financial
institution. All of the banks in our bank group had credit in good standing as of December 31, 2022. 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.
36
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 (PCAOB ID: 42)
Consolidated Statements of Income for the Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022, 2021, and 2020
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
38
39
43
44
45
46
47
48
90
37
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, 2022. 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, 2022, the Company’s internal control over financial reporting is
effective.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated in their report.
38
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, 2022 and 2021, the related consolidated statements of income, comprehensive income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2022, 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, 2022, 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 16, 2023 expressed an unqualified opinion thereon.
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.
39
Reconciliation of Precious Metals Consignment Inventory
Description of the matter At December 31, 2022, the notional value of the Company’s off-balance sheet precious
metals was $373.1 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 process. This included controls over management's review of the
significant inputs into and underlying the reconciliation.
included, among others, evaluating
To test the Company’s reconciliation of the precious metals physical consignment
inventory, our procedures
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, 2022,
evaluated the underlying data used in the reconciliation, and confirmed certain
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.
40
Description of the matter At December 31, 2022, the Company had goodwill of $319.5 million, of which, $86.7
Precision Optics Goodwill Impairment Evaluation
How we addressed the
matter in our audit
million related to the Precision Optics reporting unit. As discussed in Notes A and M to
the consolidated financial statements, due to recent acquisitions, the Company elected to
perform a quantitative annual impairment assessment of its Precision Optics reporting
unit’s goodwill as of October 1, 2022, and concluded that there was no impairment, but
the estimated fair value of the Precision Optics reporting unit exceeded the carrying
value by less than 10%.
Auditing the Company’s Precision Optics reporting unit’s goodwill impairment
assessment was complex and highly judgmental due to the significant estimation
required in determining the fair value of the reporting unit. In particular, the fair value
estimate was sensitive to significant assumptions, such as the discount rate, revenue
growth rates, terminal growth rate and EBITDA margins, which are affected by
expectations about future market or economic conditions.
We obtained an understanding, evaluated the design and tested the operating
effectiveness of controls over the Company’s Precision Optics reporting unit goodwill
impairment process, including controls over the significant assumptions discussed
above. We also tested management’s controls over the completeness and accuracy of
the underlying data used in its analysis.
To test the estimated fair value of the Company’s Precision Optics reporting unit, our
audit procedures included, among others, assessing fair value methodologies and testing
the significant assumptions discussed above and the underlying data used by the
Company in its analysis. For example, we compared the significant assumptions used
by management to current industry and economic trends, recent historical performance,
and other relevant factors. We also assessed the historical accuracy of management’s
estimates and performed sensitivity analyses of significant assumptions to evaluate the
changes in fair value that would result from changes in the assumptions. In addition, we
involved our valuation specialists to assist with our evaluation of the methodology and
significant assumptions used by the Company in the determination of the fair value for
the Company’s Precision Optics reporting unit.
/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 16, 2023
41
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, 2022,
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, 2022,
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, 2022 and 2021, the
related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item
15(a) and our report dated February 16, 2023 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 16, 2023
42
Materion Corporation and Subsidiaries
Years Ended December 31, 2022, 2021, & 2020
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 M)
Asset impairment charges (Note M)
Restructuring expense (income)
Other — net (Note E)
Operating profit
Other non-operating (income) expense — net (Note O)
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
2022
2021
2020
$ 1,757,109 $ 1,510,644 $ 1,176,274
1,413,229
343,880
1,226,882
283,762
169,338
28,977
—
—
1,573
24,237
119,755
163,777
26,575
—
—
(438)
16,737
77,111
983,641
192,633
133,963
20,283
9,053
1,419
11,237
8,463
8,215
(5,250)
(5,115)
(3,939)
21,905
103,100
17,110
4,901
77,325
4,851
3,879
8,275
(7,187)
85,990 $
72,474 $
15,462
4.19 $
3.55 $
0.76
4.14 $
3.50 $
0.75
$
$
$
20,511
20,760
20,422
20,689
20,338
20,603
The accompanying notes are an integral part of the consolidated financial statements.
43
Materion Corporation and Subsidiaries
Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Comprehensive Income
(Thousands)
Net income
Other comprehensive income:
Foreign currency translation adjustment
Derivative and hedging activity, net of tax expense (benefit) of $1,387, $482,
and $(28), respectively
Pension and post-employment benefit adjustment, net of tax expense (benefit)
of $518, $1,094 and $(651), respectively
Other comprehensive income (loss)
Comprehensive income
2022
2021
2020
$
85,990 $
72,474 $
15,462
(5,869)
(6,904)
9,030
4,655
1,603
(80)
(526)
3,771
(1,740)
84,250 $
(1,530)
70,944 $
$
(2,127)
6,823
22,285
The accompanying notes are an integral part of the consolidated financial statements.
44
Materion Corporation and Subsidiaries
Years Ended December 31, 2022, 2021, and 2020
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:
2022
2021
2020
$
85,990 $
72,474 $
15,462
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 (gain) on sale of property, plant, and equipment
Deferred income tax (benefit) expense
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
Increase (decrease) in unearned income due to customer prepayments
Other — net
Net cash provided by operating activities
Cash flows from investing activities:
Payments for acquisition, net of cash acquired
Payments for purchase of property, plant, and equipment
Proceeds from settlement of currency exchange contract
Proceeds from sale of property, plant, and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from (repayments of) borrowings under revolving credit agreement, net
Proceeds from issuance of debt
Repayment of 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 provided by (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
53,436
1,734
8,813
(146)
14
1,733
—
(551)
(4,377)
(63,986)
(1,604)
12,860
207
154
21,942
(261)
115,958
44,137
967
6,517
437
(282)
(12,957)
—
—
(30,490)
(43,458)
(3,855)
40,219
106
(220)
13,752
2,894
90,241
42,384
790
5,528
(151)
466
(9,850)
10,472
94
(707)
(1,288)
2,475
(21,877)
2,935
(157)
54,103
378
101,057
(2,971)
(392,240)
(130,715)
(77,608)
(102,910)
(67,274)
—
850
—
881
3,249
33
(79,729)
(494,269)
(194,707)
(9,046)
9,276
(19,299)
(2,736)
(10,160)
—
—
(3,593)
(35,558)
(2,032)
(1,361)
14,462
118,297
300,000
(2,054)
(2,819)
(9,697)
(7,403)
—
(3,318)
393,006
(394)
(11,416)
25,878
34,000
—
(20,634)
(2,213)
(9,257)
—
(6,766)
(2,221)
(7,091)
1,612
(99,129)
125,007
$
13,101 $
14,462 $
25,878
The accompanying notes are an integral part of the consolidated financial statements.
45
Materion Corporation and Subsidiaries
December 31, 2022 and 2021
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 L)
Intangible assets (Notes A and M)
Other assets (Note O)
Goodwill (Notes A and M)
Total Assets
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt (Note N)
Accounts payable
Salaries and wages
Other liabilities and accrued items
Income taxes (Notes A and G)
Unearned revenue (Note D)
Total current liabilities
Other long-term liabilities
Operating lease liabilities (Note L)
Finance lease liabilities (Note L)
Retirement and post-employment benefits (Note O)
Unearned income (Notes A and K)
Long-term income taxes (Notes A and G)
Deferred income taxes (Notes A and G)
Long-term debt (Note N)
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 2022 and 2021)
Retained earnings
Common stock in treasury (6,605 shares for 2022 and 6,700 shares for 2021)
Accumulated other comprehensive loss (Note P)
Other equity
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
-
2022
2021
$
13,101 $
215,211
423,080
39,056
690,448
3,265
1,209,205
(760,440)
448,765
64,249
143,219
22,535
319,498
14,462
213,819
361,115
37,856
627,252
5,431
1,132,223
(723,248)
408,975
63,096
156,736
27,369
318,620
$ 1,691,979 $ 1,607,479
$
21,105 $
107,899
35,543
54,993
3,928
15,496
238,964
12,181
59,055
13,876
20,422
107,736
665
28,214
410,876
15,359
86,243
37,544
53,388
4,205
7,770
204,509
14,954
57,099
16,327
33,394
97,962
1,190
27,216
434,388
—
288,100
769,418
(220,864)
(41,909)
5,245
799,990
—
271,978
693,756
(209,920)
(40,169)
4,795
720,440
$ 1,691,979 $ 1,607,479
The accompanying notes are an integral part of the consolidated financial statements.
46
—
—
15,462
6,729
—
6,729
94
—
—
—
—
—
—
—
—
—
—
—
—
334
94
—
(9,257)
5,619
(2,221)
(6,766)
227
Materion Corporation and Subsidiaries
Years Ended December 31, 2022, 2021, and 2020
Consolidated Statements of Shareholders’ Equity
(Thousands)
Common Shares
Common
Shares
Held in
Treasury
Common
Shares
Common
Stock
Retained
Earnings
Shareholders' Equity
Common
Stock In
Treasury
Accumulated
Other
Comprehensive
Income (Loss)
Other
Equity
Total
Balance at December 31, 2019
20,404
6,744 $ 249,674 $ 624,954 $ (186,845) $
(45,462) $ 3,422 $ 645,743
Net income
Other comprehensive income
Net pension curtailments and settlements
Cumulative effect of accounting change
Cash dividends declared ($0.455 per share)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,462
—
—
—
(9,257)
—
—
—
—
—
Stock-based compensation activity
117
(117)
8,867
(101)
(3,147)
Payments for withholding taxes for stock-based
compensation awards
Repurchase of shares
Directors' deferred compensation
Balance at December 31, 2020
Net income
Other comprehensive income
Cash dividends declared ($0.475 per share)
Stock-based compensation activity
Payments for withholding taxes for stock-based
compensation awards
Directors’ deferred compensation
(39)
(158)
4
39
158
(4)
—
—
101
—
—
—
(2,221)
(6,766)
(208)
20,328
6,820 $ 258,642 $ 631,058 $ (199,187) $
(38,639) $ 3,756 $ 655,630
—
—
—
164
(49)
5
—
—
—
—
—
—
72,474
—
(9,697)
—
—
—
(164)
13,142
(79)
(6,546)
49
(5)
—
194
—
—
(3,318)
(869)
—
—
72,474
(1,530)
—
—
—
—
—
—
—
—
1,039
(1,530)
(9,697)
6,517
(3,318)
364
Balance at December 31, 2021
20,448
6,700 $ 271,978 $ 693,756 $ (209,920) $
(40,169) $ 4,795 $ 720,440
Net income
Other comprehensive income
Cash dividends declared ($0.495 per share)
Stock-based compensation activity
Payments for withholding taxes for stock-based
compensation awards
Directors’ deferred compensation
Balance at December 31, 2022
—
—
—
135
(43)
3
—
—
—
—
—
—
85,990
—
(10,160)
—
—
—
(135)
15,977
(168)
(6,996)
43
(3)
—
145
—
—
(3,593)
(355)
—
—
85,990
(1,740)
—
(1,740)
—
—
—
—
—
—
(10,160)
8,813
—
(3,593)
450
240
20,543
6,605 $ 288,100 $ 769,418 $ (220,864) $
(41,909) $ 5,245 $ 799,990
The accompanying notes are an integral part of the consolidated financial statements.
47
Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note A — Significant Accounting Policies
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 Materials, Electronic Materials, Precision Optics, and Other.
Other includes unallocated corporate costs.
Refer to Note C for additional segment details. The Company distributes its products through a combination of company-owned
facilities and independent distributors and agents.
Business Combinations: The Company records assets acquired and liabilities assumed at the date of acquisition at their
respective fair values. Intangible assets acquired in a business combination are recognized and reported apart from goodwill.
Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a
business combination. Acquisition-related expenses are recognized separately from the business combination and are expensed
as incurred.
See Note B for further discussion of the acquisition of HCS-Electronic Materials which was completed on November 1, 2021.
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, 2022. 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.
Accounts Receivable: An allowance for doubtful accounts is maintained for the expected losses resulting from the inability of
customers to pay amounts due. The Company considers the current market conditions and credit losses related to the
Company's trade receivables based on the macroeconomic environment, geographic considerations, and other expected market
trends. Additionally, the allowance is based upon identified delinquent accounts, customer payment patterns, and other analyses
of historical data and trends. Accounts receivable were net of an allowance for credit losses of $0.6 million and $0.5 million at
December 31, 2022 and December 31, 2021, respectively. The change in the allowance for credit losses includes expense and
net write-offs, neither of which were material. The Company extends credit to customers based upon their financial condition,
and collateral is not generally required.
Inventories: Inventories are stated at net realizable value. The associated inventory reserve was $0.4 million and $0.3 million at
December 31, 2022 and 2021, respectively. All of the Company's inventories, except for its bertrandite ore mine which values
inventory using a weighted average cost method, including raw materials, manufacturing supplies inventory as well as
international (outside the U.S.) inventories, have been valued using the first-in, first-out (FIFO) method as of December 31,
2022 and 2021.
48
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 the ore body.
Mine development costs at our open pit surface mines include drilling, infrastructure, other related costs to delineate an ore
body and the removal of overburden to initially expose an ore body. Costs incurred before mineralization is classified as
proven and probable reserves are expensed and 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.
In 2020, the Company expanded a mine to further develop an ore body. Since the pre-production phase ended when ore was
first extracted from this mine, the Company recognized approximately $12.9 million of mine development costs in 2020 as a
component of cost of sales. This expansion is expected to benefit future periods.
The cost of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production phase is
capitalized during the development of an open-pit mine and are capitalized at each pit. These costs are amortized as the ore is
extracted 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.
Drilling costs incurred during the production phase for operational ore control are allocated to inventory costs and then included
as a component of costs applicable to sales. All other drilling and related costs are expensed as incurred.
Goodwill and Other Intangible Assets: 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 of impairment of goodwill is necessary or a quantitative assessment ("step one") where the Company estimates the fair
value of each reporting unit using a discounted cash flow method (income approach). Goodwill is assigned to the reporting unit,
which is the operating segment level or one level below the operating segment. 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: 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
49
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, 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.
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.
Also included in Unearned Income as of December 31, 2022 and 2021, are $85.9 million and $72.6 million, respectively, of
customer prepayments. See Note K for additional discussion.
Advertising Costs: The Company expenses all advertising costs as incurred. Advertising costs were $0.3 million in 2022, 2021,
and 2020.
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. Stock-based
awards include performance-based restricted stock units (PRSUs), restricted stock units (RSUs), and stock appreciation rights
(SARs). The fair value of PRSUs and RSUs is primarily based on the closing market price of a share of the Company's common
stock on the date of grant, modified as appropriate to take into account the features of such grants. 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. The portion of the PRSU awards that are valued
based on the Company's total shareholder return as compared to peers is valued using Monte Carlo simulations, which
incorporates assumptions regarding the expected volatility, the expected correlation, and the risk-free interest rate. See Note Q
for additional information about stock-based compensation.
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 October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers. This guidance requires companies to apply ASC 606 on the acquisition
date to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business
combination. This is an exception to the recognition and measurement principle in ASC 805 which generally requires an
acquirer to recognize and measure the assets it acquires and the liabilities it assumes at fair value on the acquisition date. For
50
public entities, the guidance is effective for fiscal years beginning after December 15, 2022, and early adoption is permitted.
The Company has early adopted this guidance and has applied it to the accounting for contract assets and contract liabilities
acquired as part of the HCS-Electronic Materials (as defined in Note B) acquisition.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting. This guidance is intended to provide temporary optional expedients and exceptions to the
U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the
expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative
reference rates. The guidance is available immediately and the Company has applied this guidance in accounting for the interest
rate swap as discussed in Note R. Any additional reference rate reform impacts will be accounted for in accordance with ASU
2020-04.
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.
Reclassifications
Certain items previously reported in specific financial statement captions have been reclassified to conform to the current
presentation. These reclassifications had no impact on the Company’s financial position, results of operations, or cash flows.
Note B — Acquisition
On November 1, 2021, the Company acquired the industry-leading electronic materials business of H.C. Starck Group GmbH
(HCS-Electronic Materials) for a cash purchase price of approximately $398.9 million, on a cash-free, debt-free basis, subject to
a customary purchase price adjustment mechanism. In 2022, acquisition-related inventory step-up expense was $7.5 million and
classified in Cost of Sales and transaction and integration costs were $4.2 million and classified in Selling, General and
Administrative expenses in the accompanying consolidated statements of income. The Company financed the purchase price
for the HCS-Electronic Materials acquisition with a new $300 million five-year term loan pursuant to a delayed draw term loan
facility entered during October 2021 and $103 million of borrowings under its amended revolving credit facility, which was
also extended to expire five years in October 2026. This acquired business operates within the Performance Materials and
Electronic Materials segments, and the results of operations are included as of the date of acquisition. The combination of
Materion and HCS-Electronic Materials enhances the Company's position as the leading supplier to the high growth
semiconductor industry.
During the period subsequent to the HCS-Electronic Materials acquisition, we made certain measurement period adjustments to
the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the
measurement period. Additionally, we paid a working capital true-up of approximately $3.0 million during the second quarter
of 2022, which increased the total purchase price. As of November 1 2022, the purchase price allocation was final. The
following table sets forth cumulative measurement period changes since the acquisition date, as well as the initial allocation of
the estimated fair value of the identifiable tangible and intangible assets acquired and liabilities assumed of HCS-Electronic
Materials, with the excess recorded to goodwill:
51
(Thousands)
Assets:
Cash and cash equivalents
Accounts receivable
Inventories
Prepaid and other current assets
Property, plant, and equipment
Operating lease, right-of-use assets
Intangible assets
Other long-term assets
Goodwill
Total assets acquired
Liabilities:
Accounts payable
Salaries and wages
Other liabilities and accrued items
Income taxes
Other long-term liabilities
Operating lease liabilities
Deferred income taxes
Total liabilities assumed
Net assets acquired
Initial Allocation of
Consideration
Measurement
Period Adjustments
Final Allocation
$
$
$
$
$
3,685 $
28,352
70,681
660
44,681
6,120
107,800
4,528
178,181
444,688 $
12,139 $
2,516 $
28 $
2,183 $
5,543 $
6,042 $
20,300 $
48,751 $
395,937 $
— $
35
—
(450)
355
—
—
—
3,144
3,084 $
(240) $
625
—
(457)
215
—
(30)
113 $
2,971 $
3,685
28,387
70,681
210
45,036
6,120
107,800
4,528
181,325
447,772
11,899
3,141
28
1,726
5,758
6,042
20,270
48,864
398,908
Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition date. The Company
engaged specialists to assist in the valuation of inventories, property, plant, and equipment, and intangible assets.
In determining the fair value of the amounts above, inventory is fair valued based on the comparative sales method for work in
process and finished goods at the selling price less cost to dispose and remaining manufacturing effort. The remaining working
capital accounts' carrying values approximate fair value. For property, plant and equipment and intangible asset values, the
Company utilized various forms of the income, cost and market approaches depending on the asset being valued. The Company
used a relief from royalty method under the income approach to value its trade names and developed technology and the multi-
period excess earnings method under the income approach to value customer relationships. The significant assumptions used to
estimate the fair value of these intangible assets included the discount rate and certain assumptions that form the basis of future
cash flows (including revenue growth rates, royalty rates for trade names and developed technology, and attrition rates for
customer relationships). Inputs were generally determined by taking into account independent appraisals and historical data,
supplemented by current and anticipated market conditions and are considered Level 3 assets as the assumptions are
unobservable inputs developed by the Company.
As part of the acquisition, the Company recorded approximately $181.3 million of goodwill allocated between its Electronic
Materials and Performance Materials segments based on the relative fair values. Goodwill was calculated as the excess of the
purchase price over the estimated fair values of the tangible net assets and intangible assets acquired and primarily attributable
to the synergies expected to arise after the acquisition dates. The goodwill is not expected to be deductible for U.S. tax
purposes.
The following table reports the intangible assets by asset category as of the closing date:
(Thousands)
Customer relationships
Technology
Trade name
Total
Value at Acquisition
Useful Life
$
$
50,200
35,300
22,300
107,800
13 years
13 years
15 years
52
Had the HCS-Electronic Materials acquisition occurred as of the beginning of fiscal 2020, the Company's sales and income
(loss) before taxes would have been as follows:
Net Sales
Profit income (loss) before taxes
(Unaudited)
Year Ended December 31,
2021
2020
$
$
1,659,620
91,551
$
$
1,308,300
(17,761)
The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the
historical results with pro forma adjustments that assume the acquisition occurred on January 1, 2020. These unaudited pro
forma results do not represent financial results realized, nor are they intended to be a projection of future results. The
transaction accounting adjustments and other adjustments are based on available information and assumptions that the
Company’s management believes are reasonable. Such adjustments are estimates and actual experience may differ from
expectations. The amortization of inventory step-up from the preliminary purchase price allocation of approximately
$15 million of expense is reflected in the 2020 unaudited pro forma income (loss) before taxes above. Additionally, the 2020
pro forma income (loss) before taxes includes approximately $10 million of additional interest expense related to committed
financing to fund the acquisition, annual acquisition-related intangible asset amortization expense of $8.2 million, and
transaction expenses of $5.5 million as if it occurred on January 1, 2020.
Note C — Segment Reporting and Geographic Information
The Company changed two segment names during the first quarter of 2022: Performance Alloys and Composites became
Performance Materials, and Advanced Materials became Electronic Materials. The Company believes these names better
represent the markets served and the advanced next-generation product solutions provided to our customers. Other than the
name changes, there were no changes in the composition or structure of the Company's reportable segments in 2022.
The Company has the following operating segments: Performance Materials, Electronic Materials, Precision Optics, and Other.
The Company’s operating segments represent components of the Company for which separate financial information is available
that is utilized on a regular basis by the Chief Executive Officer, the Company's Chief Operating Decision Maker, in
determining how to allocate the Company’s resources and evaluate performance. The segments are determined based on several
factors, including the availability of discrete financial information and the Company’s organizational and management
structure.
Performance Materials provides advanced engineered solutions comprised of beryllium and non-beryllium containing alloy
systems and custom engineered parts in strip, bulk, rod, plate, bar, tube, and other customized shapes.
Electronic Materials produces advanced chemicals, microelectronics packaging, precious metal, non-precious metal, and
specialty metal products, including vapor deposition targets, frame lid assemblies, clad and precious metal preforms, high
temperature braze materials, and ultra-fine wire.
Precision Optics produces thin film coatings, optical filter materials, sputter-coated, and precision-converted thin film materials.
The Other reportable segment includes unallocated corporate costs and assets.
Beginning with the first quarter of 2022, the Company began using earnings before interest, taxes, depreciation, depletion and
amortization (EBITDA) as the main operating income metric used by management to measure the financial performance of the
Company and each segment. The Company made this change because recent acquisitions have resulted in increased purchase
accounting amortization expense, which in turn has affected the comparability of results across periods and when compared to
other companies. Management believes EBITDA is useful to investors as it better represents the Company's performance,
excluding the effect of the recent acquisition of significant intangible assets that are now being amortized. EBITDA is not a
measurement of financial performance under U.S. GAAP. Although the Company uses EBITDA to assess the performance of
its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations,
and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in
accordance with U.S. GAAP.
53
The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most
directly comparable GAAP financial measure) for 2022 and 2021:
(Thousands)
Net sales:
Performance Materials(1)
Electronic Materials(1)
Precision Optics
Other
Net sales
Segment EBITDA:
Performance Materials
Electronic Materials
Precision Optics
Other
Total Segment EBITDA
Income tax expense
Interest expense - net
Depreciation, depletion and amortization
Net income
2022
2021
$
$
671,525 $
511,874
971,902
113,682
—
1,757,109
866,816
131,954
—
1,510,644
$
125,227
67,806 $
13,753
(28,345)
178,441
17,110
21,905
53,436
$
85,990 $
89,028
44,852
25,854
(33,371)
126,363
4,851
4,901
44,137
72,474
(1) Excludes inter-segment sales of $0.7 million for Performance Materials and $14.0 million for Electronic Materials for 2022 and $0.2 million for Performance
Materials and $13.9 million for Electronic Materials for 2021. Inter-segment sales are eliminated in consolidation.
Other geographic information includes the following:
(Thousands)
Net sales
United States
Asia
Europe
All other
Total
Property, plant, and equipment, net by country deployed
United States
All other
Total
2022
2021
2020
867,053 $
519,395
355,691
14,970
1,757,109 $
794,862 $
426,303
270,213
19,266
1,510,644 $
641,727
329,968
189,281
15,298
1,176,274
372,779 $
327,969 $
75,986
81,006
448,765 $
408,975 $
223,340
86,346
309,686
$
$
$
$
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.
54
The following table disaggregates revenue for each segment by end market for 2022 and 2021:
(Thousands)
2022
End Market
Semiconductor
Industrial
Aerospace and Defense
Consumer Electronics
Automotive
Energy
Telecom and Data Center
Other
Total
2021
End Market
Semiconductor
Industrial
Aerospace and Defense
Consumer Electronics
Automotive
Energy
Telecom and Data Center
Other
Total
Performance
Materials
Electronic
Materials
Precision
Optics
Other
Total
$
8,666 $ 784,517 $
168,012
110,884
49,859
93,581
50,021
65,230
125,272
47,407
5,882
1,144
7,590
98,844
149
26,369
$ 671,525 $ 971,902 $ 113,682 $
5,107 $
31,948
16,988
22,666
9,922
—
—
27,051
$
8,481 $ 683,085 $
123,337
86,046
41,694
105,466
23,913
53,510
69,427
45,025
5,509
1,184
7,321
99,330
173
25,189
$ 511,874 $ 866,816 $ 131,954 $
2,572 $
32,779
23,622
32,485
8,356
—
—
32,140
— $ 798,290
247,367
—
133,754
—
73,669
—
111,093
—
148,865
—
—
65,379
178,692
—
— $ 1,757,109
— $ 694,138
201,141
—
115,177
—
75,363
—
121,143
—
123,243
—
53,683
—
—
126,756
— $ 1,510,644
Note D — 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 for 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, 2022.
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, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations
was approximately $63.9 million.
55
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,
2022
December 31,
2021
$ change
% change
$
$
215,726
10,765
15,496
$
213,584
7,961
7,770
2,142
2,804
7,726
1 %
35 %
99 %
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 2022.
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 $7.1 million of the December 31, 2021 unearned amounts as revenue
during 2022. The Company recognized approximately $6.8 million of the December 31, 2020 unearned amounts as revenue
during 2021.
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 E — Other-net
Other-net is summarized for 2022, 2021, and 2020 as follows:
(Thousands)
Metal consignment fees
Amortization of intangible assets
Foreign currency loss (gain)
Net (gain) loss on disposal of fixed assets
Other items
Total other-net
Note F — Interest Expense-net
(Income) Expense
2022
2021
2020
$
$
12,212 $
12,400
(679)
14
290
24,237 $
9,305 $
5,973
1,573
(282)
168
16,737 $
8,587
2,377
(2,569)
466
(398)
8,463
The following chart summarizes the interest incurred, capitalized, and paid in 2022, 2021, and 2020:
(Thousands)
Interest incurred, net
Less: Capitalized interest
Total net expense
Interest paid
2022
2021
2020
$
$
$
23,014 $
1,109
21,905 $
21,190 $
5,277 $
376
4,901 $
3,652 $
3,889
10
3,879
3,442
The increase in interest expense in 2022 versus 2021 was driven by increased borrowings under our revolving credit facility and
new term loan during 2021 primarily to finance the acquisition of HCS-Electronic Materials. Amortization of deferred
financing costs within interest expense was $1.7 million in 2022, $1.0 million in 2021, and $0.8 million in 2020.
56
Note G — Income Taxes
On August 9, 2022, President Biden signed the CHIPS and Science Act (CHIPS Act) into law. The CHIPS Act provides
incentives, beginning in 2023, for manufacturing semiconductors and certain tooling equipment used in the semiconductor
manufacturing process. On August 16, 2022, President Biden also signed the Inflation Reduction Act of 2022 (IRA) into law.
The IRA, among other provisions, includes a new corporate alternative minimum tax on certain large corporations, an excise
tax on stock buybacks, and tax credits for certain critical minerals. The Company does not expect to be an applicable
corporation subject to the alternative minimum tax based on our reported GAAP earnings the past three years. The CHIPS Act
and the IRA did not have an impact to our consolidated financial statements for the year ended December 31, 2022. We
continue to examine the impacts the CHIPS Act and the IRA may have on the Company in 2023 and subsequent years.
Income (loss) before income taxes and income tax expense (benefit) are comprised of the following:
(Thousands)
Income (loss) before income taxes:
Domestic
Foreign
Total income (loss) before income taxes
Income tax expense:
Current income tax expense (benefit):
Domestic
Foreign
Total current
Deferred income tax (benefit) expense:
Domestic
Foreign
Total deferred
Total income tax expense (benefit)
2022
2021
2020
90,403 $
12,697
103,100 $
54,684 $
22,641
77,325 $
(1,153)
9,428
8,275
12,571 $
14,603 $
2,806
3,205
15,377 $
17,808 $
588 $
1,145
1,733 $
17,110 $
(7,953) $
(5,004)
(12,957) $
4,851 $
812
1,851
2,663
(5,641)
(4,209)
(9,850)
(7,187)
$
$
$
$
$
$
$
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:
2022
2021
2020
U.S. federal statutory rate
State and local income taxes, net of federal tax effect
Effect of excess of percentage depletion over cost depletion
Foreign derived intangible income deduction
Non-deductible goodwill impairment
Research and development tax credit
Impact of foreign operations
Non-deductible transaction costs
Interest from tax authorities
Adjustment to unrecognized tax benefits
Equity compensation
Non-deductible officers' compensation
Valuation allowance
Other items
Effective tax rate
21.0 %
1.7
(3.1)
(1.7)
—
(2.0)
0.6
—
—
(0.5)
(0.9)
1.2
0.6
(0.3)
16.6 %
21.0 %
(0.3)
(3.4)
(2.3)
—
(1.2)
0.3
1.6
—
(1.9)
(0.5)
1.4
(8.5)
0.1
6.3 %
21.0 %
(10.0)
(43.0)
(1.8)
7.1
(16.4)
(5.3)
6.9
(3.8)
1.8
(5.3)
6.8
(45.5)
0.6
(86.9) %
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:
57
(Thousands)
Asset (liability)
Post-employment benefits other than pensions
Other reserves
Deferred compensation
Environmental reserves
Inventory
Research expenditures
Revenue recognition
Lease liabilities
Interest expense carryforward
Pensions
Accrued compensation expense
Net operating loss and credit carryforwards
Subtotal
Valuation allowance
Total deferred tax assets
Depreciation
Lease assets
Inventory
Amortization
Mine development
Pensions
Unrealized gains
Total deferred tax liabilities
Net deferred tax liabilities
December 31,
2022
2021
1,230 $
1,831
3,850
1,321
6,118
7,069
7,878
12,651
12,470
—
5,477
9,915
69,810
(4,935)
64,875
(42,481)
(12,078)
—
(32,925)
—
(400)
(1,940)
(89,824)
(24,949) $
1,714
1,901
3,263
1,358
—
—
5,027
11,639
14,163
1,393
6,410
11,423
58,291
(4,957)
53,334
(24,484)
(11,184)
(2,329)
(35,542)
(917)
—
(663)
(75,119)
(21,785)
$
$
The Company had deferred income tax assets offset with a valuation allowance for certain foreign and state net operating
losses, a domestic capital loss carryforward, state investment and research and development tax credit carryforwards, and
deferred tax assets that are not likely to be realized for certain of the Company's controlled foreign corporations. The Company
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, 2022, for income tax purposes, the Company had foreign net operating loss carryforwards of $21.2 million
that do not expire, and $3.2 million that expire in calendar years 2023 through 2027. The Company had state net operating loss
carryforwards of $16.3 million that expire in calendar years 2023 through 2040 and state tax credits of $4.1 million that expire
in calendar years 2023 through 2037. The Company also had a capital loss carryforward of $7.4 million that expires in 2026. A
valuation allowance of $4.9 million has been provided against certain foreign and state net operating loss carryforwards, a U.S.
capital loss carryforward, 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 2019, state and local
examinations for years before 2018, and foreign examinations for tax years before 2017.
We operate under a tax holiday in Malaysia, which was extended and is effective through July 31, 2027. The tax holiday is
conditional upon our meeting certain employment, sales, and investment thresholds. The impact of this holiday decreased
foreign taxes by $3.0 million in 2022.
58
A reconciliation of the Company’s unrecognized tax benefits for the year-to-date periods ended December 31, 2022 and 2021 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
2022
2021
1,142 $
—
—
(8)
(482)
652 $
2,360
431
—
(45)
(1,604)
1,142
$
$
Included in the balance of unrecognized tax benefits, including interest and penalties, as of December 31, 2022 and December
31, 2021 are $0.7 million and $1.2 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 2022, 2021, and 2020. As of December 31, 2022 and 2021, accrued interest and penalties, net of the
related tax benefit, were immaterial.
Income taxes paid during 2022, 2021, and 2020, were approximately $14.5 million, $21.8 million, and $3.9 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, 2022. The amount of such unrepatriated earnings totaled $105.4 million as of
December 31, 2022. 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:
2022
2021
2020
$
85,990 $
72,474 $
15,462
20,511
20,422
20,338
81
102
66
249
78
124
65
267
39
102
124
265
Adjusted weighted-average shares outstanding
Basic EPS
Diluted EPS
20,760
20,689
$
$
4.19 $
4.14 $
3.55 $
3.50 $
20,603
0.76
0.75
Equity awards covering shares of common stock totaling 56,636 in 2022, 55,598 in 2021, and 166,255 in 2020 were excluded
from the diluted EPS calculation as their effect would have been anti-dilutive.
59
Note I — Inventories, net
Inventories in the Consolidated Balance Sheets are summarized as follows:
(Thousands)
Raw materials and supplies
Work in process
Finished goods
Inventories, net
$
December 31,
2022
113,694 $
249,105
60,281
423,080
2021
93,518
221,638
45,959
361,115
Inventory balances are presented net of an excess and obsolete reserve totaling $19.8 million and $23.9 million at December 31,
2022 and December 31, 2021, respectively.
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 $373.1 million as of December 31, 2022 versus $480.2 million as of December 31, 2021.
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,
2022
$
26,579 $
200,223
770,628
44,886
100,188
(720,455)
422,049
31,662
(7,395)
24,267
4,980
30,059
(32,590)
2,449
448,765 $
$
2021
26,627
173,907
687,502
45,445
130,838
(690,166)
374,153
32,865
(6,193)
26,672
4,980
30,059
(26,889)
8,150
408,975
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
60
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 in 2022
and $4.3 million in both 2021 and 2020 and credited to cost of sales in the Consolidated Statements of Income, offsetting the
impact of the depreciation expense on the associated equipment on the Company's cost of sales and gross margin. The
unamortized unearned income balance was $15.3 million and $19.7 million at December 31, 2022 and December 31, 2021,
respectively.
We recorded depreciation and depletion expense of $35.2 million in 2022, $31.4 million in 2021, and $30.9 million in 2020.
Depreciation, depletion, and amortization as shown on the Consolidated Statement of Cash Flows is net of the reduction in the
unearned income liability in 2022, 2021, and 2020. The net carrying value of capitalized software was $4.6 million and $5.4
million at December 31, 2022 and December 31, 2021, respectively. Depreciation expense related to software was $1.8 million
in 2022, 2021, and 2020, respectively.
As of December 31, 2022 and December 31, 2021 capital expenditures in accounts payable was $12.1 million and $2.1 million,
respectively.
Note K — Customer Prepayments
In 2020, the Company entered into an investment agreement and a master supply agreement with a customer to procure
equipment to manufacture product for the customer. The customer provided prepayments to the Company to fund the necessary
infrastructure improvements and procure the equipment necessary to supply the customer with the desired product. The
Company owns, operates and maintains the equipment that is being used to manufacture product for the customer.
Revenue will be recognized as the Company fulfills purchase orders and ships the commercial product to the customer, as
product delivery is considered the satisfaction of the performance obligation.
Additionally, during the second quarter of 2022, the Company entered into an amendment to the investment agreement with the
same customer to procure additional equipment to manufacture product for the customer. As of December 31, 2022, the
Company has received approximately $21.9 million in prepayments under the terms of this amended agreement.
As of December 31, 2022 and 2021, $85.9 million and $72.6 million, respectively, of prepayments are classified as Unearned
income on the Consolidated Balance Sheet. The prepayments will remain in Unearned income until commercial purchase orders
are received for product serviced out of the equipment, at which time a portion of the purchase order value related to
prepayments will be reclassified to Unearned revenue. As of December 31, 2022 $4.5 million of the prepayments are classified
as Unearned revenue. No amounts of the prepayments were classified as short-term unearned revenue as of December 31, 2021
Note L — 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. As of December 31, 2022, we had no material leases
that had yet to commence.
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
over which lease payments are made, adjusted for the impact of collateral.
The components of operating and finance lease cost for 2022 and 2021 were as follows:
61
(Thousands)
Components of lease expense
Operating lease cost
Finance lease cost
Amortization of right-of-use assets
Interest on lease liabilities
Total lease cost
2022
2021
$
13,381 $
11,825
1,202
819
15,402 $
1,989
1,009
14,823
$
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, 2022 and
2021 is as follows:
(Thousands, except lease term and discount rate)
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
Weighted Average Remaining Lease Term
Operating leases
Finance leases
Weighted Average Discount Rate
Operating leases
Finance leases
2022
2021
$
$
$
$
$
64,249 $
8,401
59,055
63,096
7,906
57,099
31,662 $
(7,395)
24,267 $
1,485 $
13,876
15,361 $
32,865
(6,193)
26,672
2,800
16,327
19,127
11.78
17.98
11.47
16.96
6.08%
5.11%
6.19%
4.99%
62
Future maturities of the Company's lease liabilities as of December 31, 2022 are as follows:
(Thousands)
2023
2024
2025
2026
2027
2028 and thereafter
Total lease payments
Less amount of lease payment representing interest
Total present value of lease payments
Supplemental cash flow information related to leases 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
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Finance leases
Note M — Intangible Assets and Goodwill
Intangible Assets
Finance
Leases
Operating
Leases
$
$
2,216 $
1,385
1,230
1,204
1,204
16,579
23,818
8,457
15,361 $
12,338
9,642
8,743
7,355
5,913
51,574
95,565
28,109
67,456
2022
2021
$
19,653 $
818
2,736
17,580
1,009
2,819
9,967
—
9,191
—
The cost and accumulated amortization of intangible assets subject to amortization as of December 31, 2022 and 2021, is as
follows:
(Thousands)
Customer relationships
Technology
Licenses and other
Total
2022
Gross
Carrying
Amount
Accumulated
Amortization
2021
Gross
Carrying
Amount
Accumulated
Amortization
$ 110,347 $
44,886
34,300
$ 189,533 $
Net
81,397 $ 111,220 $
34,466
23,738
(28,950) $
(10,420)
(10,562)
(49,932) $ 139,601 $ 190,702 $
45,014
34,468
Net
88,443
(22,777) $
38,097
(6,917)
26,589
(7,879)
(37,573) $ 153,129
During 2021, the Company acquired $50.2 million in customer relationships with a useful life of 13 years and $35.3 million in
technology with a useful life of 13 years, as well as a $22.3 million trade name with a useful life of 15 years related to the HCS-
Electronic Materials acquisition.
During 2020, the Company accelerated amortization on $26.2 million of intangible assets for its LAC business that was shut
down on December 31, 2020. These assets were fully amortized as of December 31, 2020 and fully written off in 2021 with no
impact to the Consolidated Statements of Income in 2021.
63
Amortization expense for 2022, 2021, and 2020 was $12.4 million, $6.0 million, and $2.4 million, respectively.
Estimated amortization expense for each of the five succeeding years is as follows:
(Thousands)
2023
2024
2025
2026
2027
Amortization
Expense
12,473
12,473
11,851
10,626
10,471
Intangible assets also includes deferred costs relating to the Company's revolving credit and consignments lines of $3.6 million
and $3.6 million at December 31, 2022 and 2021, respectively.
Goodwill
In 2021, the Company acquired HCS-Electronic Materials for a total purchase price of $398.9 million, and recorded goodwill of
$181.3 million. Goodwill of $157.0 million and $24.3 million associated with the HCS-Electronic Materials acquisition was
allocated to the Electronic Materials and Performance Materials segments, respectively.
The balance of goodwill at December 31, 2022 and 2021 was $319.5 million and $318.6 million, respectively.
A summary of changes in goodwill by reportable segment is as follows:
(Thousands)
Performance
Materials
Electronic
Materials
Precision Optics
Total
Balance at December 31, 2020
$
1,899 $
50,527 $
92,490 $
Acquisition
Impairment charge
Other
23,904
154,277
—
—
—
(284)
(4,193)
—
—
144,916
178,181
—
(4,477)
Balance at December 31, 2021
$
25,803 $
204,520 $
88,297 $
318,620
Acquisition
Impairment charge
Other
—
354
—
2,150
—
—
(1,626)
—
—
878
Balance at December 31, 2022
$
26,157
206,670 $
86,671 $
319,498
Due to recent acquisitions, the Company elected to perform a quantitative annual impairment assessment of its reporting units'
goodwill as of October 1, 2022 and determined that the estimated fair values for each of its reporting units exceeded their
carrying values, therefore no impairment charges were necessary. The estimated fair value of the Company's Precision Optics
reporting unit exceeded the carrying value by less than 10%.
Management believes the future sales growth and EBITDA margins in the long range plan, terminal growth rate and the
discount rate used in the valuations requires significant use of judgment. If any of our reporting units do not meet our long
range plan estimates or our discount rate increase significantly, we could be required to perform an interim goodwill
impairment analysis or recognize charges in future periods. Any impairment charges that the Company may take in the future
could be material to its consolidated results of operations and financial condition. The assumptions used for the reporting units
with fair values exceeding carrying values of less than 10% are more sensitive to future performance and will be monitored
accordingly.
The results of the Company's 2022 and 2021 annual goodwill impairment assessments indicated that no goodwill impairment
existed.
The Company's accumulated goodwill impairment losses were $20.6 million as of December 31, 2022, 2021 and 2020.
Accumulated impairment losses were from the closure of the LAC reporting unit which was closed as of December 31, 2020.
64
Note N — Debt
Long-term debt in the Consolidated Balance Sheets is summarized as follows:
(Thousands)
Borrowings under Credit Agreement with average interest rate of 6.08% at December 31, 2022
and 2.12% at December 31, 2021
Borrowings under the Term Loan Facility
Foreign debt
Total long-term debt outstanding
December 31,
2022
2021
$ 143,250 $ 152,296
300,000
285,000
7,541
435,791
2,252
454,548
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, 2022 are as follows:
(Thousands)
2023
2024
2025
2026
2027
2028 and thereafter
Total
(21,105)
(15,359)
$ 414,686 $ 439,189
(4,801)
(3,810)
$ 410,876 $ 434,388
21,105
30,337
30,337
353,543
204
265
$ 435,791
In 2021, the Company amended and restated our $375.0 million revolving credit facility (Credit Agreement) in connection with
the HCS-Electronic Materials acquisition. A $300 million delayed draw term loan facility was added to the Credit Agreement
and the maturity date of the Credit Agreement was extended from 2024 to 2026. Moreover, the Credit Agreement also provides
for an uncommitted incremental facility whereby, under certain conditions, the Company may be able to borrow additional term
loans in an aggregate amount not to exceed $150.0 million. On November 1, 2021, Materion borrowed the full $300 million
available under the delayed draw term loan facility and used the proceeds to pay a portion of the purchase price of the HCS-
Electronic Materials acquisition.
The Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the
consignment of precious metals and copper, and provides enhanced flexibility to finance acquisitions and other strategic
initiatives. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its direct
subsidiaries, with the exception of non-mining real property, precious metals, copper and certain other assets.
In January 2023, we amended the Credit Agreement to transition U.S. dollar denominated borrowings from LIBOR to the
Secured Overnight Financial Rate (SOFR) for both the revolving credit agreement and the term loan and to increase the cap on
precious metals facilities from $600 million to $615 million.
The Credit Agreement allows the Company to borrow money at a premium over SOFR, following the January 2023
amendment, or prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions
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 interest coverage ratio. We were in compliance with all of our debt covenants as
of December 31, 2022 and December 31, 2021. Cash on hand up to $25 million can benefit the covenants and may benefit the
borrowing capacity under the Credit Agreement. At December 31, 2022 and 2021, there was $428.3 million and $452.3 million
outstanding under the Credit Agreement, respectively.
65
At December 31, 2022 and 2021 there was $46.5 million and $46.3 million letters of credit outstanding against the credit sub-
facility, respectively. The Company pays a variable commitment fee that may reset quarterly (0.28% as of December 31, 2022)
on the available and unborrowed amounts under the revolving credit line.
The available borrowings under the individual existing credit lines totaled $185.3 million as of December 31, 2022.
Note O — 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, Liechtenstein, 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
Acquisition
Plan amendments
Actuarial (gain) loss
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
Acquisition
Actual return on plan assets
Employer contributions
Employee contributions
Benefit payments from fund
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
Net amount recognized
Pension Benefits
Other Benefits
2022
2021
2022
2021
$
235,779 $
246,107 $
7,514 $
8,190
1,231
4,874
(3,104)
—
—
(61,819)
(5,821)
(3,108)
168,032
227,340
(3,104)
—
(53,283)
831
786
(6,175)
(1,799)
164,596
1,722
4,186
—
—
—
(8,448)
(4,927)
(2,861)
235,779
226,176
—
—
5,769
955
878
(5,399)
(1,039)
227,340
78
156
—
—
—
(1,800)
(443)
—
5,505
—
—
—
—
—
—
—
—
—
80
116
—
—
—
(112)
(742)
(18)
7,514
—
—
—
—
—
—
—
—
—
$
$
$
(3,436) $
(8,439) $
(5,505) $
(7,514)
11,761 $
18,566 $
— $
(536)
(14,661)
(1,662)
(25,343)
(754)
(4,751)
(3,436) $
(8,439) $
(5,505) $
—
(754)
(6,760)
(7,514)
The benefit obligation decreased in 2022 due to actuarial gains that were driven by increases in the discount rate.
The following amounts are included within accumulated other comprehensive loss at December 31, 2022:
(Thousands)
Amounts recognized in other comprehensive income (before tax)
consist of:
Pension Benefits
Other Benefits
2022
2021
2022
2021
Net actuarial loss (gain)
Net prior service cost (credit)
Net transition obligation/(asset)
Net amount recognized
$
$
43,039 $
42,440 $
(5,573) $
(617)
—
(695)
637
(556)
—
42,422 $
42,382 $
(6,129) $
(4,044)
(2,054)
—
(6,098)
66
The following table provides information regarding the accumulated benefit obligation:
(Thousands)
Additional information
Pension Benefits
Other Benefits
2022
2021
2022
2021
Accumulated benefit obligation for all defined benefit pension plans
$
167,366 $
233,717 $
— $
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
18,490
3,279
17,833
3,279
58,052
33,148
56,043
33,148
—
—
—
—
—
—
—
—
—
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 benefit (credit) cost
Net pension curtailments and settlements
Total net benefit (credit) cost
Pension Benefits
Other Benefits
2022
2021
2020
2022
2021
2020
$
$
1,231 $
4,874
(9,570)
1,722 $
4,186
(9,881)
(78)
(82)
1,701
(1,842)
(551)
(2,393) $
2,344
(1,711)
—
(1,711) $
1,403 $
5,234
(9,333)
—
1,678
(1,018)
94
(924) $
78 $
80 $
156
—
116
—
(1,497)
(272)
(1,535)
—
(1,535) $
(1,497)
(275)
(1,576)
—
(1,576) $
59
213
—
(1,497)
(332)
(1,557)
—
(1,557)
Components of net periodic benefit cost, other than service cost, are included in Other non-operating (income) expense in the
Consolidated Statements of Income. Additionally, Pension Benefit Guaranty Corporation premiums are reported within
expected return on plan assets.
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
Pension Benefits
Other Benefits
2022
2021
2020
2022
2021
2020
$
42,382 $
48,673 $
48,073 $
(6,098) $
(7,525) $
(9,578)
78
82
—
1,497
1,497
1,497
(1,701)
(2,344)
(1,678)
—
—
(799)
272
—
275
—
1,112
551
(4,553)
—
3,146
(94)
(1,800)
—
(345)
—
524
25
—
—
332
—
224
—
—
OCI at end of year
$
42,422 $
42,382 $
48,673 $
(6,129) $
(6,098) $
(7,525)
67
In determining the projected benefit obligation and the net benefit cost, as of a December 31 measurement date, the Company
used the following assumptions:
Pension Benefits
Other Benefits
2022
2021
2020
2022
2021
2020
Assumptions used to
determine benefit
obligations at fiscal
year end
Discount rate
Rate of compensation
increase
Assumptions used to
determine net cost for
the fiscal year
Discount rate
Expected long-term
return on plan assets
Rate of compensation
increase
2.16% - 5.54%
0.22% - 3.02%
0.03% - 2.76%
5.52 %
2.90 %
2.45 %
1.75% - 3.00%
1.50% - 3.00%
1.50% - 3.00%
3.50 %
3.00 %
3.00 %
0.22% - 3.02%
0.03% - 2.76%
0.21% - 3.48%
2.90 %
2.45 %
3.20 %
1.20% - 5.25%
1.20% - 5.75%
1.80% - 6.00%
N/A
N/A
N/A
1.50% - 3.00%
1.50% - 3.00%
1.50% - 3.00%
3.00 %
3.00 %
3.00 %
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 is no longer applicable for the domestic
defined benefit due to the Company freezing the plan effective January 1, 2020. The rate of compensation assumption to
determine the benefit obligation and net cost for the domestic retiree medical plan was 3.5% in 2022 and 3.0% in both 2022 and
2021.
Assumptions for the defined benefit pension plans in Germany, Liechtenstein, and England are determined separately from the
U.S. plan assumptions, based on historical trends and current and projected market conditions in each respective country. 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
2022
6.00%
5.00%
2032
2021
6.00%
5.00%
2028
Plan Assets
The following tables present the fair values of the Company’s defined benefit pension plan assets as of December 31, 2022 and
2021 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 R for definitions of the fair value hierarchy.
68
(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)
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)
Private equity funds
Total assets at fair value
Total
Level 1
Level 2
Level 3
December 31, 2022
— $
—
—
—
—
1,058 $
37,083
13,314
1,058 $
37,083
13,314
3,115
54,570
3,115
54,570
103,142
6,812
72
164,596
Total
Level 1
Level 2
Level 3
December 31, 2021
— $
—
—
—
—
4,777 $
49,618
14,344
4,777 $
49,618
14,344
3,258
71,997
3,258
71,997
147,832
7,438
73
227,340
—
—
—
—
—
—
—
—
—
—
$
$
$
$
(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.
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.
(c)
(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.
Includes a fund that invests in a broad portfolio of hedge funds.
(f)
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 0% to 40% in equity securities, 60% to
69
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 2023.
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)
2023
2024
2025
2026
2027
2028 through 2032
Other Benefit Plans
Other Benefits
Pension Benefits
Gross Benefit
Payment
7,565
8,174
8,880
9,773
10,638
56,634
767
679
608
518
478
1,815
Net of
Medicare
Part D
Subsidy
767
679
608
518
478
1,815
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 $0.5 million at December 31, 2022 and $1.1
million at December 31, 2021, and was included in retirement and post-employment benefits on 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 $13.1 million in 2022, $9.9
million in 2021, and $9.8 million in 2020.
70
Note P — Accumulated Other Comprehensive (Loss) Income
Changes in the components of accumulated other comprehensive (loss) income, including amounts reclassified out, for 2022,
2021, and 2020, and the balances in accumulated other comprehensive (loss) income as of December 31, 2022, 2021, and 2020
are as follows:
(Thousands)
Foreign
Currency
Interest
Rate
Precious
Metals
Copper
Total
Gains and Losses
On Cash Flow Hedges
Pension and
Post-
Employment
Benefits
Foreign
Currency
Translation
Total
Balance at December 31, 2019
$ 1,324 $ — $
(452) $
25 $
897 $
(41,346) $
(5,013) $ (45,462)
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
(1,268)
—
(1,675)
218 $ (2,725)
(2,721)
9,030
3,584
222
(1,046)
(241)
(805)
—
—
—
—
2,041
354
2,617
(57)
—
2,560
366
84
282
572
129
443
(108)
(28)
(2,778)
(651)
9,030
—
6,144
(679)
(80)
(2,127)
9,030
6,823
Balance at December 31, 2020
$
519 $ — $
(170) $
468 $
817 $
(43,473) $
4,017 $ (38,639)
Balance at December 31, 2020
$
519 $ — $
(170) $
468 $
817 $
(43,473) $
4,017 $ (38,639)
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
2,252
123
2,375
546
1,829
—
—
—
—
—
508
2,444
5,204
4,428
(6,904)
2,728
(193)
(3,049)
(3,119)
437
—
(2,682)
315
73
(605)
(137)
2,085
482
4,865
1,094
(6,904)
46
—
1,576
242
(468)
1,603
3,771
(6,904)
(1,530)
Balance at December 31, 2021
$ 2,348 $ — $
72 $ — $ 2,420 $
(39,702) $
(2,887) $ (40,169)
Balance at December 31, 2021
$ 2,348 $ — $
72 $ — $ 2,420 $
(39,702) $
(2,887) $ (40,169)
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
(1,260)
8,113
(259)
(176)
(250)
(126)
(1,436)
(331)
7,863
1,808
(385)
(90)
(1,105)
6,055
(295)
—
—
—
—
—
6,594
(394)
(5,869)
331
(552)
6,042
1,387
386
(8)
518
—
(166)
(5,869)
—
165
1,905
4,655
(526)
(5,869)
(1,740)
Balance at December 31, 2022
$ 1,243 $ 6,055 $
(223) $ — $ 7,075 $
(40,228) $
(8,756) $ (41,909)
Reclassifications of gains and losses on foreign currency cash flow hedges from accumulated other comprehensive income 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 R 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 O for additional details on
pension and other post-employment expenses.
71
Note Q — Stock-based Compensation
The Company maintains two stock incentive plans (the 2006 Stock Incentive Plan and the 2006 Non-employee Director Equity
Plan) that have been approved by its shareholders. These plans authorize the granting of option rights, stock appreciation rights
(SARs), performance-restricted shares, performance shares, performance units, restricted shares, and restricted stock units
(RSUs).
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 $9.0 million, $7.3 million, and $5.7 million in 2022, 2021, and
2020, 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 $1.0 million, $0.9 million, and $0.5 million of tax
benefits in 2022, 2021, and 2020, 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 vest in equal
installments annually over three years. SARs expire in seven years.
The following table summarizes the Company's SARs activity during 2022:
(Shares in thousands)
Outstanding at December 31, 2021
Granted
Exercised
Cancelled
Outstanding at December 31, 2022
Vested and expected to vest as of December 31, 2022
Exercisable at December 31, 2022
Number of
SARs
Weighted-
average
Exercise
Price Per
Share
Aggregate
Intrinsic
Value
(thousands)
Weighted-
average
Remaining
Term (Years)
260 $
45
(49)
—
256
256
160
51.55
80.85
42.83
—
58.38 $
58.38
50.56
7,448
7,448
5,928
3.8
3.8
2.8
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, 2021
Granted
Vested
Cancelled
Nonvested as of December 31, 2022
Number of
SARs
Weighted-
average
Grant
Date
Fair Value
100 $
45
(50)
—
95 $
17.98
25.87
17.47
—
21.97
As of December 31, 2022, $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 2022, 2021, and 2020 was
$0.9 million, $0.8 million, and $1.5 million, respectively.
The weighted-average grant date fair value for 2022, 2021, and 2020 was $25.87, $20.66, and $13.67, 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 and continued vesting is approved by the Board of Directors as defined in the Plan. Stock-based
compensation expense relating to SARs was $0.9 million in each of the last three years.
The total intrinsic value of stock options exercised during 2022, 2021 and 2020 was $2.1 million, $1.6 million and $0.5 million,
respectively.
72
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)
2022
2021
2020
1.56 %
0.6 %
38.5 %
4.4
0.57 %
0.7 %
37.6 %
4.6
1.41 %
0.9 %
31.8 %
4.8
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. With the exception of the
2022 annual employee grant, the vesting period is typically three years unless the recipient is retirement eligible and continued
vesting is approved by the Board of Directors. The 2022 annual employee grant vests in three equal annual installments on the
anniversary of the grant date.
The fair value of RSUs settled in stock is based on the closing stock price on the date of grant. The weighted-average grant date
fair value for 2022, 2021, and 2020 was $80.96, $68.62, and $51.55, 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 $3.5 million in 2022, $3.5 million in 2021, and $2.7
million in 2020. The unamortized compensation cost on the outstanding RSUs was $5.5 million as of December 31, 2022 and is
expected to be recognized over a weighted-average period of 23 months. The total fair value of shares that vested during 2022
was $2.8 million, compared to $2.0 million in 2021 and $1.2 million in 2020.
The following table summarizes the stock-settled RSU activity during 2022:
(Shares in thousands)
Outstanding at December 31, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Number of
Shares
Weighted-
average
Grant Date
Fair Value
162 $
61
(49)
(9)
165 $
59.23
80.96
58.29
64.91
67.31
RSUs - Non-Employee Directors. In 2022, 2021, and 2020, 11,120, 9,904, and 15,976 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 was $81.59, $75.77, and $48.42 in 2022, 2021, and 2020, respectively. The Company recognized $0.9 million of expense
related to these awards in 2022, compared to $0.8 million of expense in 2021 and $0.7 million of expense in 2020. At
December 31, 2022, $0.3 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 the 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 2022, 2021, and 2020, 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 will be settled in Materion common
shares and are equity classified. Vesting of performance-based awards is contingent upon the attainment of threshold
performance objectives.
73
The following table summarizes the activity related to performance-based RSUs during 2022:
(Shares in thousands)
Outstanding at December 31, 2021
Granted
Vested
Forfeited
Outstanding at December 31, 2022
Number of
Shares
Weighted-
average
Grant Date
Fair Value
119 $
38
(43)
(3)
111 $
70.77
95.44
69.84
79.01
79.31
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 $3.6
million for 2022, $2.2 million for 2021, and $2.0 million for 2020.
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. At December 31, 2022, shareholders’ equity included 0.1 million shares related to this plan.
Note R — 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.
74
The following table summarizes the financial instruments measured at fair value on the Consolidated Balance Sheets at
December 31, 2022 and 2021:
(Thousands)
December 31, 2022
Financial Assets
Deferred compensation investments
Foreign currency forward contracts
Interest rate swap
Precious metal swaps
Total
Financial Liabilities
Deferred compensation liability
Foreign currency forward contracts
Interest rate swap
Precious metal swaps
Total
December 31, 2021
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
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
$
$
$
$
$
$
$
$
3,001 $
1,291
7,863
118
12,273 $
3,001 $
1,757
—
411
5,169 $
4,246 $
3,368
116
7,730 $
4,246 $
136
24
4,406 $
3,001 $
—
—
3,001 $
3,001 $
—
—
3,001 $
4,246 $
—
—
4,246 $
4,246 $
—
—
4,246 $
— $
1,291
7,863
118
9,272 $
— $
1,757
—
411
2,168 $
— $
3,368
116
3,484 $
— $
136
24
160 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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.
Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company's long-term variable-rate
debt is a reasonable estimate of its fair value. As noted in Note R, the Company entered into a $100.0 million interest rate swap
to hedge the interest rate risk on the fixed rate portion of the Credit Agreement. The fair value of the interest rate swap asset
was $7.9 million as of December 31, 2022, and was determined using level 2 inputs. The total of the outstanding amount on the
fixed rate debt and the fair value of the interest rate swap approximates the total fair value of the fixed rate debt as of December
31, 2022.
The carrying values of the other working capital items in the Consolidated Balance Sheets approximate fair values at
December 31, 2022 and 2021.
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 and interest expense fluctuations. The objectives and strategies for using derivatives in
these areas are as follows:
Interest Rate. On March 4, 2022, the Company entered into a $100.0 million interest rate swap to hedge the interest rate
risk on the Credit Agreement described in Note P. The swap hedges the change in 1-month LIBOR from March 4, 2022
to November 2, 2026. In February 2023 we amended the terms of the interest rate swap to hedge the change in 1-month
75
USD-SOFR. The purpose of this hedge is to manage the risk of changes in the monthly interest payments attributable to
changes in the benchmark interest rate.
Foreign Currency. The Company sells a portion of its products to overseas customers in their local currencies,
primarily in 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 risk 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 product
containing precious metal is fabricated and delivered to the customer, the metal content is purchased out of consignment
based on the current market price. The price paid by the Company for the precious metal forms the basis for the price
charged to the customer for the metal content in the product. This methodology allows for changes in either direction in
the market prices of the precious metals used by the Company to be passed through to the customer and reduces the
impact that changes in prices could have on the Company's margins and operating profit. The consigned metal is owned
by precious metal consignors that charge the Company consignment fees based upon the value of the metal as it
fluctuates while on consignment. Each precious metal consignor retains title to its consigned precious metal until it is
purchased by the Company, and it is the Company’s typical practice to purchase metal out of consignment only after a
product containing that metal has been purchased by one of our customers.
In certain instances, a customer may want to fix the price for the precious metal at the time the sales order is placed
rather than at the time of shipment. Setting the sales price at a different date than when the material would be purchased
out of consignment potentially creates an exposure to movements in the market price of the metal. Therefore, in these
limited situations, the Company may elect to enter into a forward contract to purchase precious metal. The forward
contract allows the Company to purchase metal at a fixed price on a specific future date. The price in the forward
contract serves as the basis for the price to be charged to the customer. By doing so, the selling price and purchase price
are matched, and the Company's price exposure is reduced.
The Company refines precious metal-containing materials for its customers and typically will purchase the refined
metal from the customer at current market prices. In limited circumstances, the customer may want to fix the price to be
paid at the time of the order as opposed to when the material is refined. The customer may also want to fix the price for
a set period of time. The Company may then elect to enter into a hedge contract, either a forward contract or a swap, to
fix the price for the estimated quantity of metal to be refined and purchased, thereby reducing the exposure to adverse
movements in the price of the metal. The Company may also enter into hedges to mitigate the risk relating to the prices
of the metals that we process or refine.
In certain circumstances, the Company also refines metal from the customer and may retain a portion of the refined
metal as payment. The Company may elect to enter into a forward contract to sell precious metal to reduce the
Company's price exposure in these instances.
The Company may from time to time elect to purchase precious metal and hold in inventory rather than on consignment
due to potential consignment line limitations or other factors. These purchases are infrequent and, when made are
typically held for a short duration. A forward contract will be secured at the time of the purchase to fix the price to be
paid when the metal is transferred back to the consignment line, thereby limiting any price exposure during the time
when the metal was owned by the Company.
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.
76
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 and Risk 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, 2022 and 2021:
(Thousands)
Foreign currency forward contracts
Prepaid expenses
Other liabilities and accrued items
December 31, 2022
December 31, 2021
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
$
12,242 $
17,061
791 $
1,048
55,063 $
9,425
2,132
128
These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans. Other-net
included foreign currency gains related to these derivatives of $0.2 million in 2022, compared to $1.2 million of foreign
currency gains in 2021.
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, 2022 and 2021:
(Thousands)
Foreign currency forward
contracts - yen
Foreign currency forward
contracts - euro
Precious metal swaps
Interest rate swap
Total
$
December 31, 2022
Fair Value
Notional
Amount
Prepaid and other
current assets
Other assets
Other liabilities
and accrued items
Other long-term
liabilities
$
2,985 $
145 $
— $
74 $
25,712
8,758
100,000
137,455 $
355
118
3,114
3,732 $
—
—
4,749
4,749 $
472
411
—
957 $
26
137
—
—
163
December 31, 2021
Fair Value
Notional
Amount
Prepaid and other
current assets
Other assets
Other liabilities
and accrued items
Other long-term
liabilities
Foreign currency forward
contracts - yen
Foreign currency forward
contracts - euro
Precious metal swaps
Total
$
38,575 $
$
3,907 $
131 $
2 $
28,412
6,256
1,102
116
1,349 $
—
—
2 $
77
— $
—
24
24 $
—
8
8
All of these contracts were designated and effective as cash flow hedges. No ineffectiveness expense was recorded in 2022,
2021, or 2020.
The fair value of derivative contracts recorded in accumulated other comprehensive income (loss) totaled $7.4 million and $1.3
million as of December 31, 2022 and December 31, 2021, respectively. Deferred gains of $3.9 million at December 31, 2022
are expected to be reclassified to earnings within the next 18-month period.
The following table summarizes the pre-tax amounts reclassified from accumulated other comprehensive income relating to the
hedging relationship of the Company’s outstanding derivatives designated as cash flow hedges and income statement
classification for years ended December 31, 2022 and 2021:
(Thousands)
Hedging relationship
Foreign currency forward contracts
Precious metal swaps
Interest rate swap
Copper swaps
Total
Line item
Net sales
Cost of sales
Interest expense - net
Cost of sales
$
$
2022
2021
(176) $
(126)
(250)
—
(552) $
123
(193)
—
(3,049)
(3,119)
The derivative activity in the table above is reflected in cash flows from operating activities.
Note S — 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. Defense and
indemnity costs were less than or equal to the deductible in both 2022 and 2021.
As of December 31, 2022, the Company was a defendant in one beryllium litigation cases, which was also outstanding as of
December 31, 2021. The Company does not expect the resolution of this case to have a material impact on its consolidated
financial statements. During 2022, one beryllium litigation case was resolved.
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 collectability 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
78
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. Reserve accruals are based upon their analyses and are established based on the
reasonably estimable loss or range of loss. The accruals are revised for the results of ongoing studies, changes in strategies,
inflation, and for differences between actual and projected costs. The accruals 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. For sites where the investigative work and work plan
development are substantially complete, the Company does not believe that it is reasonably possible that the cost to resolve
environmental matters will be materially different than what has been accrued. For sites that are in the preliminary stages of
investigation, the ultimate loss contingencies 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 over 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,
2022 and 2021 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
2022
2021
$
$
$
4,770 $
180
(480)
4,470 $
440 $
4,030
5,476
185
(891)
4,770
539
4,231
The majority of expenses in both 2022 and 2021 was for various remediation projects at the Elmore, Ohio plant site.
Asset Retirement Obligations
The Company has asset retirement obligations related to its mine in Utah, as well as for certain leased facilities where the
Company is contractually obligated to restore the facility back to its original condition at the end of the lease. The following
represents a roll forward of the Company's asset retirement obligation liabilities for the years ended December 31, 2022 and
2021:
(Thousands)
Asset retirement obligation at beginning of period
Accretion expense
Change in liability
Asset retirement obligation at end of period
2022
2021
$
$
2,231 $
198
—
2,429 $
1,765
134
332
2,231
These obligations are reflected in Other long-term liabilities on the Consolidated Balance Sheet.
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.
79
On October 14, 2020, Garett Lucyk, et al. v. Materion Brush Inc., et. al., case number 20CV0234, a wage and hour purported
collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush
Inc. (collectively, the Company). Plaintiff, a former hourly production employee at the Company's Elmore, Ohio facility,
alleges that he and other similarly situated employees are not paid for all time they spend donning and doffing personal
protective equipment in violation of the Fair Labor Standards Act and Ohio law. Plaintiff filed a motion for conditional
certification, which the Company opposed. On August 2, 2022, the Court conditionally certified a class of employees at the
Company’s Elmore facility only and rejected certification of a class across the Company’s other facilities. In November 2022,
the parties reached a settlement for an immaterial amount. The settlement is pending court approval.
At December 31, 2022, the Company had outstanding letters of credit totaling $46.5 million related to workers’ compensation,
consigned precious metal guarantees, environmental remediation issues, and other matters. The majority of the Company's
outstanding letters of credit expire in 2023 and are expected to be renewed.
80
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
a)
Evaluation of Disclosure Controls and Procedures
The Company carried out an evaluation under the supervision and with participation of the Company's management, including
the chief executive officer and chief financial officer, of the effectiveness of the design and operation of disclosure controls and
procedures as of December 31, 2022 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, 2022.
b)
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.
c)
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, 2022 that
have materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
81
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information under “Election of Directors” in Materion Corporation's Proxy Statement for the 2023 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
54
Shelly M. Chadwick
51
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 (November 2020-Present); Vice
President Finance and Chief Accounting Officer at The Timken Company, a world leader in
engineered bearings and power transmission products (November 2016-November 2020)
Gregory R. Chemnitz
65
Vice President, General Counsel and Secretary
The information required by Item 10 with respect to directors, the Audit and Risk Committee of the Board of Directors, and
Audit and Risk Committee financial experts is incorporated herein by reference from the section entitled “Corporate
Governance; Committees of the Board of Directors — Audit and Risk Committee” and “Audit and Risk 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 and Risk, Nominating, Governance, and Corporate Social Responsibility, and Compensation and Human Capital
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 “2022
Compensation of Non-Employee Directors."
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.”
82
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 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference from the section of the Proxy Statement entitled “Ratification of Independent Registered Public
Accounting Firm.”
83
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, 2022, 2021, and 2020 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.
2.1
3.1
3.2
4.1
4.2
4.3
4.4#
10.1
10.2
10.3
Share Purchase Agreement, dated as of September 19, 2021, by and among Materion Corporation, HCST
Hungary Holding Vagyonkezelő Korlátolt Felelősségű Társaság, H.C. Starck Group GmbH and Opus HoldCo
S.à r.l. (filed as Exhibit 2.1 to Materion’s Form 8-K filed on November 1, 2021), incorporated herein by
reference
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 (filed as Exhibit 4.1 to the Company’s Annual Report on
Form 10-K for the year ended December 31, 2019), incorporated herein by reference.
Amendment No. 1, dated September 30, 2021, to Third Amended and Restated Credit Agreement, dated
September 24, 2019, by and among Materion, Materion’s subsidiary, Materion Netherlands B.V., Materion’s
other foreign subsidiaries party thereto from time to time, the financial institutions party thereto from time to
time 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 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31,
2021), incorporated herein by reference.
Fourth Amended and Restated Credit Agreement, by and among Materion Corporation, Materion Netherlands
B.V., the other foreign borrowers party thereto from time to time, the financial institutions party thereto from
time to time 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, KeyBank National Association, as
documentation agent, and JPMorgan Chase Bank, N.A., Wells Fargo Securities, LLC and BofA Securities, Inc.,
as joint bookrunners and joint lead arrangers (filed as Exhibit 10.1 to the Company's 8-K filed on November 1,
2021), incorporated herein by reference.
Amendment No. 1 dated as of January 13, 2023 to Fourth Amended and Restated Credit Agreement dated as of
October 27, 2021, by and among Materion Corporation (the “Company”), Materion Netherlands B.V. (the
“Dutch Borrower” and, together with the Company, the “Borrowers”), the financial institutions listed on the
signature pages hereof and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Administrative Agent”),
under that certain Fourth Amended and Restated Credit Agreement dated as of October 27, 2021 by and among
the Company, the Dutch Borrower, the other Foreign Subsidiary Borrowers from time to time party thereto.
Metals Consignment Agreement, dated as of August 12, 2022, 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 15, 2022),
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.
84
10.4
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
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.
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.
Severance Agreement for Shelly M. Chadwick dated as of December 15, 2020 (filed as Exhibit 10.11 to the
Company's Form 10-K for the year ended December 31, 2020), incorporated herein by reference.
CFO Offer Letter for Shelly M. Chadwick dated as of October 24, 2020 (filed as Exhibit 10.12 to the Company's
Form 10-K for the year ended December 31, 2020), incorporated herein by reference.
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.
2022 Management Incentive Plan (filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended April 1, 2022), incorporated herein by reference.
Materion and Subsidiaries Management Incentive Plan for the 2020 Plan Year (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended March 27, 2020), incorporated herein by
reference.
Materion and Subsidiaries Management Incentive Plan for the 2021 Plan Year (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended April 2, 2021), incorporated herein by
reference.
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 2022 Restricted Stock Unit Agreement (Stock-Settled) under the Materion Corporation 2006 Stock
Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2022 (filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2022), incorporated herein
by reference.
Form of 2020 Restricted Stock Unit Agreement (Stock-Settled) under the Materion Corporation 2006 Stock
Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2020 (filed as Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for the period ended March 27, 2020), incorporated
herein by reference.
Form of 2021 Restricted Stock Unit Agreement (Stock-Settled) under the Materion Corporation 2006 Stock
Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2021 (filed as Exhibit
10.4 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2021), incorporated herein
by reference.
Form of 2022 Performance-Based Restricted Stock Unit Agreement under the Materion Corporation 2006 Stock
Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2022 (filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 1, 2022), incorporated herein
by reference.
Form of 2020 Performance-Based Restricted Stock Units Agreement under the Materion Corporation 2006
Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2020 (filed as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 27, 2020),
incorporated herein by reference.
85
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
(21)#
(23.1)#
(24)#
(31.1)#
(31.2)#
(32)#
(95)#
Form of 2021 Performance-Based Restricted Stock Units Agreement under the Materion Corporation 2006
Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2021 (filed as
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended April 2, 2021), 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.
Form of 2020 Appreciation Rights Agreement under the Materion Corporation 2006 Stock Incentive Plan (As
Amended and Restated as of May 3, 2017), covering grants made in 2020 (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended March 27, 2020), incorporated herein by
reference.
Form of 2021 Appreciation Rights Agreement under the Materion Corporation 2006 Stock Incentive Plan (As
Amended and Restated as of May 3, 2017), covering grants made in 2021 (filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period ended April 2, 2021), 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.
Form of 2020 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 26, 2020), 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.
Subsidiaries of the Registrant.
Consent of Ernst & Young LLP.
Powers of Attorney.
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, 2022.
86
(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)#
(101.LAB)# Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
(101.PRE)#
(104)#
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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.
87
Item 16.
FORM 10-K SUMMARY
None.
88
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.
MATERION CORPORATION
SIGNATURES
By:
/s/ Jugal K. Vijayvargiya
Jugal K. Vijayvargiya
President and Chief Executive Officer
Date: February 16, 2023
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/ Shelly M. Chadwick
Shelly M. Chadwick
/s/ John M. Zaranec
John M. Zaranec
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
Officer)
February 16, 2023
February 16, 2023
Chief Accounting Officer
February 16, 2023
Director
Director
Director
Director
Director
Director
Director
Director
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
February 16, 2023
*
Shelly M. Chadwick, by signing her 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 16, 2023
By:
/s/ Shelly M. Chadwick
Shelly M. Chadwick
Attorney-in-Fact
89
Materion Corporation and Subsidiaries
Schedule II—Valuation and Qualifying Accounts
(Thousands)
Valuation allowance on deferred tax assets:
Balance at Beginning of Period
Additions:
Charged to Costs and Expenses (1)
Charged to Other Accounts(3)
Deductions (2)
Balance at End of Period
2022
2021
2020
$
4,957 $
14,134 $
17,676
373
—
(395) $
497
1,019
(10,693) $
884
—
(4,426)
4,935 $
4,957 $
14,134
$
$
(1) Increase in valuation allowance is recorded as a component of the provision for income taxes.
(2) 2021 includes a $6.9 million valuation allowance reversal in the fourth quarter of 2021 and a $3.8 million balance sheet
impact to deferred taxes.
(3) Change in foreign currency exchange rates and acquired reserves. See acquisition footnote B for acquisition details.
90
CORPORATE DATA
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on
Wednesday, May 17, 2023, at 8:00 a.m. EDT at the
Boston Marriott Newton hotel in Newton,
Massachusetts.
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, 2022,
as well as any Securities and Exchange Commission
(SEC) filings.
For such documents, please contact:
Kyle Kelleher
Manager, Investor Relations
(216) 383-4931
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.
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 and Risk Committee, Compensation and
Human Capital Committee, and Nominating, Governance
and Corporate Responsibility Committee 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
Shelly M. Chadwick
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. Soloman , Ph.D. 1, 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
1 Audit and Risk Committee
2 Compensation and Human Capital Committee
3 Executive Committee
4 Nominating, Governance and Corporate Responsibility Committee