2023
Annual Report
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TO OUR SHAREHOLDERS
We push the boundaries of innovation to enable
breakthrough solutions that move the world forward.
As our world evolves, staying true to our purpose continues to propel Materion to
new heights. Enabling innovations for technological advancements ranging from space
exploration to clean energy to enhanced connectivity, we are facilitating progress
across some of the most revolutionary facets of life. Our pivotal role in these
next-generation solutions has contributed to another year of record
performance, while further solidifying Materion as a global leader in
advanced materials solutions.
In 2023, we continued to deliver growth that outpaced many of the major markets
we serve despite a challenging economic environment. By leveraging our balanced
portfolio and our unique customer partnerships, we created new sales opportunities
that helped offset the expected weakness in the semiconductor market. These wins, coupled with our emphasis on operational
excellence and targeted cost initiatives drove record sales and profitability, while advancing multiple longer-
term organic projects to accelerate our future growth. These achievements required focus, discipline, and
creativity from our talented global team.
Taking care of our people and our communities is fundamental to our success. The safety of our workforce is our overriding
priority, and we continue to make progress toward our goal of zero injuries at our sites. We also took steps
to advance our sustainability goals in 2023, driving energy efficiency and increasing the use of renewable energy at many of our
sites. We are especially proud of our Jena, Germany team for the project they undertook to install solar panels, reducing their
carbon footprint and lowering energy costs. Our people are also giving back to their local communities, with 100 percent
of Materion sites now active in supporting the communities where they live and work.
The global megatrends of connectivity, advanced
mobility and clean energy are leading customers to
reimagine the future and they are turning to Materion
to solve their most complex technical challenges. The
shift toward artificial intelligence (AI) is creating extraordinary
opportunities for us. As a provider of critical materials for the high-
powered chips that enable AI, Materion is a vital contributor to this
rapidly accelerating trend. We continue to expand our portfolio of
semiconductor products and remain ready to serve customers as the
market recovers.
New innovations in automotive are broadening applications for our
products as the market responds to consumer demand for vehicles
that are safe, efficient, and increasingly more connected and automated.
Our optics materials are key enablers for many new automotive
technologies including LiDAR, which is used for sensing capabilities in
autonomous vehicles.
Equally exciting are the developments in clean energy, as our customers seek to find viable solutions that make clean energy
more accessible and cost-effective. In 2023 we announced two new clean energy partnerships, including one with Idaho
National Laboratory to supply materials for nuclear microreactor development that includes the U.S. Department of Energy’s
MARVEL Project.
(Continued on next page)
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COMMERCIAL SPACE CREATING NEW OPPORTUNITIES
FOR MATERION
Increased demand from the commercial space market was
a highlight for Materion in 2023. Our broad portfolio of
optical components and high performing specialty alloys for
harsh environments provide the level of performance and
reliability that are crucial for critical space missions.
As a result of our unique capabilities, Materion
secured four important new orders for materials
that go into space propulsion systems, which,
when combined with new optics space wins and
orders from existing customers, contributed to
approximately $90 Million in new orders in
2023. As demand grows for commercial and military spacecraft for communications, exploration,
and earth observation, Materion is well-positioned to meet the needs of next generation space
applications. We expect this market to continue to be a source of growth in 2024 and beyond.
(Continued from previous page)
We are committed to our long-term strategy
and have maintained our track record of strong
execution as we invest for future growth. Our
customer-funded precision clad strip facility is a wonderful
example, as that project contributed meaningfully to our
results in 2023. We also remain on track to deliver a
successful capacity expansion at this facility in late 2024.
With technical expertise and customer
partnerships at the heart of our success, we
deeply value our people and the role they play
in our strategy. In 2023 we introduced various programs
and opportunities to support the growth and development of
our people while promoting new recognition programs that
foster the continuous celebration of individual contributions.
Our business wins are a direct result of our focus on
commercial excellence and R&D leadership, which are
setting the stage for unique strategic partnerships that
drive innovation and new growth opportunities. In
2023, Materion was awarded two contracts
from separate U.S. government agencies to
develop new advanced capabilities in additive
manufacturing for materials across the aerospace,
defense and energy markets. These projects will enable us
to better serve both new and existing customers as they
require more complex components for next-generation
applications.
Underpinning our success is the continued strong
performance of our manufacturing sites, which are benefiting
from ongoing capital investments and a continued focus on
optimizing efficiency. Digital enhancements are improving
business agility with advancements including improved
analytics and automation. We also continue to
enhance the protection of our digital assets with
world-class cybersecurity tools and processes.
Our new peer-to-peer recognition program
highlights employees who model the Materion
values of safety, ethics, social responsibility,
collaboration and diversity and inclusion. These
programs are helping us build upon the positive culture that
we believe is integral to our long-term success.
Our performance in 2023 gives us optimism and
confidence as we enter 2024. While market softness
is expected to persist in the first half of the year, we believe
the power of our team, the diversity of our portfolio, the
strength of our customer partnerships, and our focus
on operational excellence will continue to drive strong
performance in 2024 and beyond.
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
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2023 STRATEGIC HIGHLIGHTS
• Delivered record financial performance with year-on-year increases across value-added sales, adjusted EBITDA and
earnings-per-share
• Achieved record adjusted EBITDA margin of 19.3%; an expansion of 170 basis points over 2022
• Accelerated growth in exciting new space applications; secured $90M in new business
• Awarded two new investments for additive manufacturing capabilities for beryllium and other advanced materials
• Entered two new additional agreements for the development of clean energy solutions
• Customer-funded precision clad strip facility fully ramped, capacity expansion on track
•
•
Invested ~$110M in capital expenditures to support accelerated organic growth
Increased shareholder dividend for 11th consecutive year
• Closed 2023 with a healthy balance sheet and meaningful available liquidity to support growth initiatives
Value-added1 (VA) Sales
Adjusted EPS2
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1 Non-GAAP, excludes pass-through metal costs
2 Non-GAAP, excludes special items
Operating Cash Flow
Total Shareholder Return (TSR)3
3 Reflects the change in closing price from 3/4/2019 - 3/4/2024 and assumes quarterly
reinvestment of dividends.
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Financial Section Starts Here
(DO NOT PRINT THIS TEXT)
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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, 2023
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 June 30, 2023 was $2,356,718,449.
As of January 31, 2024, there were 20,645,977 common shares, no par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2024 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 1C. Cybersecurity ...................................................................................................................................................
Item 2.
Properties .........................................................................................................................................................
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Legal Proceedings ............................................................................................................................................
Mine Safety Disclosures ..................................................................................................................................
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ..........................................................................................................................................................
[Reserved] ........................................................................................................................................................
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.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .......
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
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
14
14
16
17
17
18
20
21
33
36
77
77
77
77
78
78
79
79
79
80
84
85
Forward-looking Statements: Portions of the narrative set forth in this document that are not statements of historical or
current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by
the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned
elsewhere herein: the global economy, including inflationary pressures, potential future recessionary conditions and the impact
of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns or sequestrations; the condition of the
markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of
customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing
through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the
impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and
integrating such businesses; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial
objectives related to these acquisitions; our success in implementing our strategic plans and the timely and successful start-up
and completion of any capital projects; other financial and economic factors, including the cost and availability of raw
materials (both base and precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates,
interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory
compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the
cost of incentive compensation plans; the uncertainties related to the impact of war, terrorist activities, and acts of God;
changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and
operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material
adverse effects; the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including
the conflict between Russia and Ukraine; realization of financial benefits expected from the Inflation Reduction Act of 2022 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 $1.7 billion in net sales in 2023. 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.
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. In fiscal year 2023, one customer
accounted for approximately ten percent of our net sales. Prior to this, no single customer accounted for ten percent or more of
our net sales.
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, 2023, 2022, and 2021 was $573.4 million, $576.2 million, and $541.1
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, 2023 will be filled over the next 18 months.
Regulatory Matters
We are subject to a variety of laws that regulate the manufacturing, processing, use, handling, storage, transport, treatment,
emission, release, and disposal of substances and wastes used or generated in manufacturing. For decades, we have operated our
facilities under applicable standards of inplant and outplant emissions and releases. The inhalation of airborne beryllium
particulate may present a health hazard to certain individuals.
In 2018, the U.S. Occupational Safety and Health Administration (OSHA) published a final 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-
4
keeping. Materion was a participant in the development of the new standards, which fundamentally represents our current
health and safety operating practices. Other government and standard-setting organizations are also reviewing beryllium-related
worker safety rules and standards, and may 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 3,404
people globally as of December 31, 2023. Approximately 473 were in the Asia–Pacific region, 454 were in the Europe, the
Middle East, and Africa (EMEA) region, and 2,477 were in the North America region. Among our total global employee
population, approximately 2,224 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 based on the ISO 45000 management system. Our future focus is the
integration of human operating performance concepts into our EHS process which is proven to further reduce the risk of serious
injuries. We will be significantly enhancing our training programs through the implementation of a new learning management
system emphasizing increased hazard recognition skills and typical regulatory compliance requirements. We perform self-audits
to ensure sustainability of our processes and systems to create an environment where 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 critically analyzed,
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.
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 both contribute and thrive. 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 authentic selves to work and feel a genuine sense of belonging.
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
5
development of employees. The ERGs provide opportunities for employees to connect, develop, and grow together in a
supportive environment. As of December 31, 2023, 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 create 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.
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.
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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.
For example, we have experienced customers building inventory in anticipation of increased demand, whereas in other periods,
we experienced decreased demand because our customers had excess inventory.
Risks Relating to Our Business and Operations
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 2023, 14% 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.
7
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
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.
8
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, including a security incident such
as a ransomware attack, may interrupt our manufacturing capabilities, increase our capital expenditures and our costs of doing
business, and impair our ability to deliver our products on a timely basis. In addition, many of our manufacturing facilities
depend on one source for electric power and natural gas, which could be interrupted due to equipment failures, terrorism, or
another cause.
If such events occur, we may need to resort to an alternative source of manufacturing or to delay production, which could
increase our costs of doing business and/or result in lost sales. Our property damage and business interruption insurance may
not cover all of our potential losses and may not continue to be available to us on acceptable terms, if at all.
A security incident impacting customer, employee, supplier, or Company information, or Company systems or
infrastructure, 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 owned by the Company
or hosted by third parties, 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, as
well as those of third parties who we rely on, and risk the confidentiality, availability, and integrity of our data. We protect our
sensitive, confidential, or proprietary information as well as personal data, our facilities, and information technology systems,
but we and third parties upon whom we rely to host or protect our data, facilities, and IT systems may be vulnerable to future
security incidents. Despite our security measures, the IT systems and infrastructure of the Company and third parties who host
or secure our data may be vulnerable to customer viruses, cyber-attacks, security breaches caused by employee error or
malfeasance, and exploitable third-party software vulnerabilities or other disruptions. Any such threat could compromise our
networks and those of third parties and the information stored there could be accessed, publicly disclosed, lost, or stolen.
Attacks impacting our systems or data 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 successful intrusions or attacks, and any intrusions or attacks could pose a risk of undetected data loss or theft that could
later be used to harm the Company.
These security threats exist with respect to the IT systems of our lenders, suppliers, consultants, advisers, and other third parties
with whom we conduct business. Cyber attacks, vulnerabilities, and disruptions impacting those systems could result in the
loss, theft, or disclosure of confidential, proprietary, or personal 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.
The Company is subject to increasingly complex and changing laws and regulations enacted to protect business and personal
information 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 customer, vendor or
employee data. Laws and regulations addressing personal information, including with respect to the European Union’s General
Data Protection Regulation (GDPR), and the California Consumer Privacy Act of 2018 (CCPA) as amended by the California
Privacy Rights Act (CPRA), and other similar United States state privacy laws, and the interpretation and enforcement of these
and similar laws and regulations, are continuously evolving and there is significant uncertainty with respect to how compliance
with these laws and regulations may develop and the costs and complexity of future compliance. The interpretation and
application of data protection laws may be interpreted and applied in a manner that is inconsistent with our data practices. In
addition, as a result of existing or new data protection requirements, we incur and expect to continue to incur significant
ongoing costs as part of our efforts to protect our business data and personal information and comply with applicable law. Any
failure, or perceived failure, to comply with our data protection or privacy-related legal obligations may result in governmental
enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results and financial
condition.
9
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
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 laws 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 laws. Taxes for financial reporting
purposes and cash tax liabilities in the future may be adversely affected by changes in such tax laws. 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.
Our success is dependent upon our relationships with certain key customers.
Although the Company serves a diverse customer base, a portion of our sales is concentrated amongst a limited number of
customers. If we lost one or more of these major customers, or if one or more major customers significantly decreased its orders
for our products, our business, results of operations and financial condition could be materially and adversely impacted. In
fiscal year 2023, one customer accounted for approximately ten percent of our net sales.
Our business may be impacted by external factors that we may not be able to control.
War, civil conflict, terrorism, other geopolitical and diplomatic tensions, natural disasters, climate change and public health
issues including domestic or international pandemics, other outbreaks of contagious diseases (such as the COVID-19 pandemic)
and other adverse public health developments have caused or could cause damage or disruption to domestic or international
commerce by creating economic or political uncertainties. Additionally, the volatility in the financial markets could negatively
impact our business. These events could result in a decrease in demand for our products, affect the availability of credit
facilities to us, our customers or other members of the supply chain necessary to transact business, make it difficult or
impossible to deliver orders to customers or receive materials from suppliers, affect the availability or pricing of energy sources
or result in other severe consequences that may or may not be predictable. As a result, our business, financial condition and
results of operations could be materially adversely affected.
Risks Related to Legal, Compliance and Regulatory Matters
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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 2023, 51% in 2022, and 47% in 2021 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:
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burdens to comply with multiple and potentially conflicting foreign laws and regulations, including export
requirements, tariffs and other barriers, environmental health and safety requirements, increasingly complex
requirements concerning privacy and data security, including the European Union's General Data Protection
Regulation, and unexpected changes in any of these factors;
difficulty in obtaining export licenses from the U.S. Government;
political and economic instability and disruptions, including terrorist attacks;
disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations,
including the Foreign Corrupt Practices Act (FCPA);
potentially adverse tax consequences due to overlapping or differing tax structures;
fluctuations in currency exchange rates; and
disruptions in our business or the businesses of our suppliers or customers due to cyber security incidents, public
health concerns (including viral outbreaks, such as COVID-19), war or other hostilities, 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
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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.
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.
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. In 2018 OHSA issued a
final standard for workplace exposure to beryllium. Materion was a participant in the development of the 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
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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.
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. Additionally, restrictive
covenants contained in our indebtedness may restrict our operations, including our ability to pursue our growth and
acquisition strategies.
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.
Additionally, the terms of the agreements governing our indebtedness 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
13
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 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
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.
Item 1C. CYBERSECURITY
Risk Management and Strategy
We maintain a cybersecurity program designed to protect our company, company data, customer data and personal data within
information systems used by the Company. In order to respond to potential cybersecurity threats, we maintain policies,
14
procedures and systems that provide for controls on detecting and addressing cybersecurity threats, including a formal incident
response plan. We also maintain business continuity and disaster recovery capabilities, which we test regularly.
We have a process designed to address cybersecurity threats at third parties, including service providers, that handle, possess,
process and store our information.
The oversight of our cybersecurity risk is integrated into our enterprise-wide risk management process. We have a dedicated
global cybersecurity team that monitors potential cyber threats and leads our business continuity risk management. We have
business continuity plans that identify our critical business systems, establish recovery objectives and create methods for
implementing such plans within our business. Our business continuity plans encompass disaster recovery at our data centers
such that business operations continue with no or minimal impact. Our business continuity plans will continue to evolve, with
the goal of enabling us to operate and maintain our essential functions in the event of a crisis.
In addition, we engage third-party assessors, consultants and other third parties from time to time to assist us with assessing,
enhancing, implementing, and monitoring our cyber security risk-management programs. We review the results of the
assessments and reviews of these third-parties and determined whether to adjust our cybersecurity policies and processes based
on their recommendations.
We detect frequent attempts by third parties to gain access to our systems and networks, and the frequency of such attempts
could increase in the future. As of the date of the filing of this Form 10-K, we are not aware of and do not believe that any such
attempts that have occurred since the beginning of 2023 that have had a material effect, or are reasonably likely to have a
material effect, on our business, operations, or financial condition. However, there can be no assurance that our protection
efforts will be successful. See “Risks Relating to Our Business and Operations – A security incident impacting customer,
employee, supplier, or Company information, or Company systems or infrastructure, may have a material adverse effect on our
business, financial condition, and results of operations.” in “Risk Factors” on page 9 of this Form 10-K.
Governance
While our Board has the ultimate oversight responsibility for the risk management process, the responsibilities of the Audit and
Risk Committee of our Board include overseeing cybersecurity. As part of its program of regular oversight, all members of the
Audit and Risk Committee are responsible for overseeing cyber, information security, and information technology risk,
including management’s actions to identify, assess, mitigate, and remediate material cyber issues and risks.
The Audit and Risk Committee receives at least quarterly reports from our Chief Information Officer on our information
technology and cyber risk profile, enterprise cyber program, key enterprise cyber initiatives, and significant updates on external
audits of our information security program.
The full Board attends one of the Audit and Risk Committee meetings at which information technology and cyber risk are
discussed. Additionally, at least annually, the full Board attends a cybersecurity training from external experts and reviews and
discusses our technology strategy with the Chief Information Officer and approves our technology strategic plan.
Our senior leadership is responsible for identifying, assessing and managing our exposure to risk, including cybersecurity risks.
Our cybersecurity program is led by our Chief Information Officer, who is responsible for assessing and managing material
risks from cybersecurity threats, including monitoring the prevention, detection, mitigation and remediation of cybersecurity
threats. Our Chief Information Officer reports directly to our Chief Executive Officer.
Pursuant to our formal incident response plan, suspected cybersecurity incidents are first evaluated by our “Initial Incident
Response Team” led by our Chief Information Officer and comprised of representatives from our information technology,
human resources, safety, legal, finance and communications departments, who jointly determine if the incident may result in a
business interruption, require reporting to regulators, employees and/or business partners, have a material financial impact or
cause reputational harm and should be escalated to our executive incident response team, which includes our Chief Executive
Officer, Chief Financial Officer and General Counsel. For all matters that have been escalated, the responsible team executes
specified procedures to contain the incident, implement incident response procedures and implement and document remediation
measures.
Steve Holt is our Chief Information Officer, a role he has had since he joined Materion in November 2017. Mr. Holt has 40
years of experience in the information technology industry. Prior to joining Materion, Mr. Holt served as Chief Information
Officer at Chart Industries as well as other IT-focused positions at TechnOptics, Accuride Corporation and Navistar.
15
Item 2.
PROPERTIES
We operate manufacturing plants, service and distribution centers, and other facilities throughout the world. During 2023, 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, 2023,
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)
Taoyuan City, Taiwan (2)
Tucson, Arizona (1)
Tyngsboro, Massachusetts (3)
Westford, Massachusetts (3)
Wheatfield, New York (2)
Service, Sales, and Distribution Centers
Suzhou, China (2)
Elmhurst, Illinois (1)
Eschborn, Germany (3)
Seoul, Korea (2)
Shanghai, China (1)
Stuttgart, Germany (1)
Tokyo, Japan (1)
(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
102,700
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
32,500
53,000
38,000
78,000
35,000
400
28,000
500
2,200
5,000
49,000
5,400
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
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 2023, 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, 2023 there were no pending beryllium cases.
The Company has insurance coverage, which may respond, subject to an annual deductible.
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.
17
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,
2024, there were 627 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, 2023.
Period
September 30 through November 3, 2023
November 4 through December 1, 2023
December 2 through December 31, 2023
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
—
1,181 $ 113.11
2 $ 114.93
1,183 $ 113.11
(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.
18
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
2019
2020
2021
2022
2023
$
133 $
144 $
207 $
199 $
125
121
119
148
132
144
168
166
169
132
137
155
295
152
156
186
The above graph assumes that the value of our common shares and each index was $100 on December 31, 2018 and that all
applicable dividends were reinvested.
19
DollarsMaterion Common StockRussell 2000S&P SmallCap 600S&P SmallCap 600 - Materials201820192020202120222023050100150200250300350
Item 6.
[RESERVED]
Reserved.
20
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
2023
$ 1,665,187
1,127,071
349,042
2022
$ 1,757,109
1,114,411
343,880
2021
$ 1,510,644
829,572
283,762
Gross margin as a % of Value-added sales
31 %
31 %
34 %
Selling, general, and administrative (SG&A) expense
157,911
169,338
163,777
SG&A expense as a % of Value-added sales
Research and development (R&D) expense
R&D expense as a % of Value-added sales
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
14 %
27,540
2 %
3,824
23,323
136,444
(2,710)
31,323
107,831
12,129
95,702
15 %
28,977
3 %
1,573
24,237
119,755
(5,250)
21,905
103,100
17,110
85,990
20 %
26,575
3 %
(438)
16,737
77,111
(5,115)
4,901
77,325
4,851
72,474
Diluted earnings per share
4.58
4.14
3.50
2023 Compared to 2022
Net sales of $1,665.2 million in 2023 decreased $91.9 million from $1,757.1 million in 2022. A decrease in net sales in the
Electronic Materials and Precision Optics segments was partially offset by increased net sales in the Performance Materials
segment. Volume decreases in the semiconductor (17%), industrial (14%) and consumer electronics (19%) end markets were
partially offset by an increase the aerospace and defense (32%) end market, as well as incremental sales from the clad strip
project of $90.7 million. See Note B to the Consolidated Financial Statements for additional details on the year over year
changes in our net sales by segment and market.
The change in precious metal and copper prices, which are passed on to the customer as discussed in the value-added sales
section below, favorably impacted net sales by $6.2 million in 2023 compared to 2022.
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 $1,127.1 million in 2023 increased $12.7
million compared to $1,114.4 million in 2022. Volume decreases in the semiconductor (20%) and industrial (9%) end markets
were offset by an increase in the aerospace and defense end market (36%) and incremental sales from the clad strip project of
$90.7 million.
21
Gross margin was $349.0 million in 2023, a 2% increase from $343.9 million in 2022. Gross margin expressed as a percentage
of value-added sales was 31% in 2023 and 2022, respectively. Although gross margin as a percent of value-added sales
remained consistent with prior year, 2023 gross margin was favorably impacted by the production credit recorded in 2023,
which was partially offset by unfavorable mix as well as the impact of lower volumes, primarily in the Electronic Materials
segment.
The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022. The IRA, among other provisions,
includes a new Advanced Manufacturing Production Credit (“production credit”) effective on January 1, 2023. The production
credit provides an annual cash benefit for a portion of the production costs for the sale of certain critical minerals produced in
the U.S. and sold during the year. On December 15, 2023, the U.S. Treasury Department published proposed regulations on the
production credit that include clarifying guidance regarding the definition of production costs in the computation of the
production credit. Although the proposed guidance is not authoritative and is subject to change in the regulatory review process,
the guidance indicates that the Treasury Department may implement a narrower definition of eligible production costs in the
final regulations. Accordingly, the Company recorded an $8 million benefit to cost of goods sold related to the production
credit. The ultimate amount of the benefit that the Company is entitled to receive in connection with the production credit will
depend on the final regulations issued on the production credit. See Footnote G for further discussion regarding the accounting
for the production credit.
SG&A expense totaled $157.9 million in 2023 as compared to $169.3 million in 2022. The decrease in SG&A expense for
2023 was primarily due to various cost savings initiatives in 2023. Expressed as a percentage of value-added sales, SG&A
expense decreased from 15% in 2022 to 14% in 2023.
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 $27.5 million in 2023, a decrease of 5% compared to 2022. R&D costs as a
percentage of value-added sales decreased from 3% in 2022 to 2% in 2023.
22
Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In 2023, we
recorded a combined total of $3.8 million of restructuring charges across all segments.
Other-net totaled expense of $23.3 million and $24.2 million in 2023 and 2022, respectively. The decrease Other-net was
primarily driven by a decrease in metal consignment fees. 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 $31.3 million in 2023 and $21.9 million in 2022. The increase in interest expense in 2023 compared
to 2022 was primarily due to an increase in interest rates compared to the prior year.
Income tax expense (benefit) for 2023 was $12.1 million of expense compared to $17.1 million of expense in 2022. The
decrease in income tax expense in 2023 compared to 2022 was primarily due to the favorable impacts of the foreign derived
intangible income deduction and the non-taxable production credit, partially offset by the impact of adjustments to
unrecognized tax benefits. 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,
2022 for a discussion of our results for 2022 compared to 2021.
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
2023
2022
2021
$
755,547 $
688,553
174,471
671,525 $
589,531
125,227
511,874
440,432
89,028
2023 Compared to 2022
Net sales from the Performance Materials segment of $755.5 million in 2023 increased 13% compared to 2022. The increase in
net sales was due to incremental sales from the clad strip project of $90.7 million and increased volumes in the aerospace and
defense end market (31%). This increase was offset by decreased volumes in the industrial (11%) and automotive (9%) end
markets.
Value-added sales of $688.6 million in 2023 were 17% higher than value-added sales of $589.5 million in 2022. 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 $174.5 million in 2023 compared to $125.2 million in 2022. The increase
in EBITDA was primarily due to the same factors driving the increase in net sales as well as the benefit from the production
credit and operational efficiencies.
Electronic Materials
(Thousands)
Net sales
Value-added sales
EBITDA
2023 Compared to 2022
2023
2022
2021
$
805,751 $
334,730
45,747
971,902 $
412,783
67,806
866,816
258,991
44,852
Net sales from the Electronic Materials segment of $805.8 million in 2023 were 17% lower than net sales of $971.9 million in
2022. The decrease in net sales was primarily due to lower sales volumes in the semiconductor (18%) end market. This was
partially offset by the impact of pass-through metal price fluctuations, which increased net sales by $10.4 million compared to
2022.
23
Value-added sales of $334.7 million decreased 19% compared to value-added sales of $412.8 million in 2022. The decrease in
value-added sales was due to the same factors driving the decrease in net sales.
EBITDA for the Electronic Materials segment was $45.7 million in 2023 compared to $67.8 million in 2022. The decrease in
EBITDA was due to decreased sales volumes, partially offset by decreases in manufacturing and SG&A expenses as a result of
various targeted cost control initiatives implemented in 2023 as well as lower merger and acquisition costs of $7.4 million
incurred in the prior year period that did not recur in 2023.
Precision Optics
(Thousands)
Net sales
Value-added sales
EBITDA
2023 Compared to 2022
2023
2022
2021
$
103,889 $
103,788
9,860
113,682 $
113,580
13,753
131,954
131,815
25,854
Net sales from the Precision Optics segment were $103.9 million in 2023, a decrease of 9% compared to net sales of $113.7
million in 2022. The decrease was primarily due to lower sales volumes related to COVID-19 PCR testing programs as well as
decreased sales in the consumer electronics end market (33%), which was primarily due to the discontinuation of a consumer
electronic application. These decreases were partially offset by an increase in sales volumes in the aerospace and defense (47%)
end market.
Value-added sales of $103.8 million in 2023 decreased 9% compared to value-added sales of $113.6 million in 2022. 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 $9.9 million in 2023 compared to $13.8 million in 2022. The decrease in
EBITDA was driven by decreased volumes, partially offset by targeted cost control initiatives implemented in 2023.
Other
(Thousands)
Net sales
Value-added sales
EBITDA
2023 Compared to 2022
2023
2022
2021
$
— $
—
(29,280)
— $
(1,483)
(28,345)
—
(1,666)
(33,371)
The Other reportable segment in total includes unallocated corporate costs. Corporate costs of $29.3 million in 2023 increased
$0.9 million as compared to $28.3 million in 2022. Corporate costs were 3% of total Company value-added sales in both 2023
and 2022.
Value-Added Sales - Reconciliation of Non-GAAP Financial Measure
24
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 2023, 2022, and 2021 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
2023
2022
2021
$
755,547 $
805,751
103,889
—
511,874
866,816
131,954
—
$ 1,665,187 $ 1,757,109 $ 1,510,644
671,525 $
971,902
113,682
—
66,994 $
471,021
101
—
538,116 $
81,994 $
559,119
102
1,483
642,698 $
71,442
607,825
139
1,666
681,072
688,553 $
334,730
103,788
—
589,531 $
412,783
113,580
(1,483)
$ 1,127,071 $ 1,114,411 $
440,432
258,991
131,815
(1,666)
829,572
$
$
$
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.
25
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
2023
2022
2021
$
144,414 $
115,958 $
90,241
(119,222)
(79,729)
(494,269)
(24,850)
(35,558)
393,006
(149)
(2,032)
(394)
$
193 $
(1,361) $
(11,416)
Net cash provided by operating activities totaled $144.4 million in 2023 versus $116.0 million in 2022. The increase in net
cash provided by operating activities was driven by an increase in operating income of $16.7 million. Additionally, there was an
increase in cash provided by working capital of $66.8 million. The favorable working capital inflow was driven by the
Company's continued working capital initiatives throughout 2023. This was partially offset by cash outflows due to an increase
in unbilled receivables of $18.6 million, a decrease in unearned revenue of $17.6 million and a decrease in customer
prepayments of $5.3 million.
Net cash used in investing activities was $119.2 million in 2023 compared to $79.7 million in 2022. The increase in cash used
in investing activities is due to increased planned capital expenditures and mine development to support continued business
growth.
Net cash used in financing activities decreased $10.7 million from 2022. The decrease in 2023 compared to 2022 is a result of
an increase in debt repayments in 2023.
Dividends per common share increased 4% to $0.515 per share in 2023. Total dividend payments to common shareholders were
$10.6 million in 2023 and $10.2 million in 2022. In May 2023, the Board of Directors declared an increase in our quarterly
dividend from $0.125 to $0.13 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, 2023, cash and cash equivalents held by our foreign operations totaled $12.6
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, 2023 and December 31, 2022 is as follows:
(Thousands)
Cash and cash equivalents
Total outstanding debt
Net (debt) cash
Available borrowing capacity
December 31,
2023
2022
$
$
13,294 $
426,173
(412,879)
178,734 $
13,101
431,981
(418,880)
185,294
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
borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation and
amortization, and other adjustments.
26
In January 2023, we amended the agreement governing our $375.0 million revolving credit facility and term loan facility
(Credit Agreement).
Pursuant to the amendment, we transitioned U.S. dollar denominated borrowings from LIBOR to SOFR for both the revolving
credit agreement and the term loan and increased the cap on precious metals consignment line from $550 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, 2023 and December 31, 2022. 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 $263.5
million as of December 31, 2023, compared to $241.9 million as of December 31, 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 2022 or 2023. 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,
2023. 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
2024
2025
2026
2027
2028
There-
after
Total
$
$
$
38.6 $
17.6 $
56.2 $
30.4 $ 359.6 $
14.2 $
44.6 $ 370.2 $
0.2 $
10.6 $ — $
0.2 $
0.2 $
— $
0.2 $
0.1 $ 429.1
42.4
— $
0.1 $ 471.5
(1) Refer to Note N to the Consolidated Financial Statements.
27
(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 $351.5
million as of December 31, 2023 versus $373.1 million as of December 31, 2022. We were in compliance with all of the
covenants contained in the consignment agreements as of December 31, 2023 and December 31, 2022. 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 was filed as Exhibit 96 to our Annual Report on Form 10-K for the year-ended December 31, 2021 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.
28
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.
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,
2023 and December 31, 2022:
As of December 31, 2023
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
As of December 31, 2022
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, 2023
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
As of December 31, 2022
Tonnage (in thousands)
Grade (% beryllium)
Beryllium pounds (in millions)
Internal Controls Disclosure
Proven
Probable
Total
7,598
0.245 %
37.21
962
0.258 %
4.97
8,560
0.246 %
42.18
7,678
0.245 %
37.57
962
0.258 %
4.97
8,640
0.246 %
42.54
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.
29
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.
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
2023
405
—
405
89 %
362
56 %
2022
382
—
382
90 %
344
53 %
2021
386
—
386
91 %
353
55 %
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires the inherent use of estimates and management’s judgment in establishing those estimates. The following policies are
considered by management to be critical because adherence to these policies relies significantly upon our judgment.
Revenue Recognition
Net sales consist primarily of revenue from the sale of precious and non-precious specialty metals, beryllium and copper-based
alloys, beryllium composites, and other products into numerous end markets. The Company requires an agreement with a
customer that creates enforceable rights and performance obligations. We recognize revenue, in an amount that reflects the
consideration to which the Company expects to be entitled, when we satisfy a performance obligation by transferring control of
a product to the customer. The core principle of the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 606 is supported by five steps which are outlined below with management's judgment in applying each.
1) Identify the contract with a customer
A contract with a customer exists when the Company enters into an enforceable contract with a customer that identifies each
party’s rights regarding the products to be transferred 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.
30
Certain of the Company’s contracts with customers may contain multiple performance obligations. As a result, management
utilizes judgment to determine the appropriate accounting, including whether multiple promised products or services in a
contract should be accounted for separately or as a group, how the consideration should be allocated among the performance
obligations, and when to recognize revenue upon satisfaction of the performance obligations.
3) Determine the transaction price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for
transferring 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.
31
Precious Metal Physical Inventory Counts
We take and record the results of a physical inventory count of our precious metals on a periodic 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
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, 2023. Within the Precision Optics
segment, goodwill totaled $88.0 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.
Due to the recent downturn in the semi-conductor market impacting the Electronic Materials reporting unit and recent results
for the Precision Optics reporting unit, the Company elected to perform a quantitative annual impairment assessment for the
Electronic Materials and Precision Optics reporting units' goodwill as of October 1, 2023 and a qualitative impairment test for
the Performance Materials reporting unit.
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
32
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 2023, 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, 2023. As of October
1, 2023, based on the quantitative assessments for the Electronic Materials reporting unit, the estimated fair value was
substantially in excess of the carrying value. Additionally, for the Performance Materials reporting unit, there were no
indicators of impairment based on the qualitative analysis performed.
Management believes the future sales growth and EBITDA margins in the long range plan and the discount rate used in the
valuations requires significant use of judgment. 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 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, 2023 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, 2023, the additional pre-tax
cost to us as a result of an increase in the consignment fee would be approximately $1.1 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.
33
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, 2023, 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.
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, 2023, the additional pre-tax cost to us as a result of an increase in the consignment fee would be
approximately $0.4 million on an annual basis. This calculation assumes no changes in the quantity of inventory or the
underlying fee and that none of the additional fees are charged to customers.
Lower of cost or net realizable value. In our manufacturing processes, we use various metals that are not widely used by
others or actively traded and, therefore, there is no established efficient market for derivative financial instruments that could be
used to effectively hedge the related price exposures. For certain applications, our pricing practice with respect to these metals
is to establish the selling price based upon our cost to purchase the material, limiting our price exposure. However, the
inventory carrying value may be exposed to market fluctuations. The inventory value is maintained at the lower of cost or net
realizable value and if the market value were to drop below the carrying value, the inventory would have to be reduced
accordingly and a charge recorded against cost of sales. This risk is mainly associated with long manufacturing lead-time items
and with sludges and scrap materials, which generally have longer processing times to be refined or processed into a usable
form for further manufacturing and are typically not covered by specific sales orders from customers. We did not record any
material lower of cost or net realizable value charges in 2023, 2022, or 2021 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, 2023 the net fair value of our interest rate swaps were $5.4 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 $84.8 million as of December 31, 2023. If the dollar weakened 10%
against the currencies we have hedged from the December 31, 2023 exchange rates, the reduced gain and/or increased loss on
the outstanding contracts as of December 31, 2023 would reduce 2023 pre-tax profits by approximately $4.7 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.
34
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, 2023. 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.
35
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, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2023, 2022, and 2021
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts
Page
37
38
42
43
44
45
46
47
86
36
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, 2023. 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, 2023, the Company’s internal control over financial reporting is
effective.
The effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Ernst & Young
LLP, an independent registered public accounting firm, as stated in their report.
37
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, 2023 and 2022, the related consolidated statements of income, comprehensive income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement
schedule listed in the Index at Item 15(a) (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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December
31, 2023, 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, 2023, 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 15, 2024 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.
38
Reconciliation of Precious Metals Consignment Inventory
Description of the matter At December 31, 2023, the notional value of the Company’s off-balance sheet precious
metals was $351.5 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. The Company performs physical inventory
procedures 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.
included, among others, evaluating
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.
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, 2023,
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.
39
Description of the matter At December 31, 2023, the Company had goodwill of $320.9 million, of which, $88.0
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, the Company elected to perform a quantitative
annual impairment assessment of its Precision Optics reporting unit’s goodwill as of
October 1, 2023, and concluded that there was no impairment, but the estimated fair
value of the Precision Optics reporting unit exceeded the carrying value by less than
10%.
Auditing the Company’s Precision Optics reporting unit’s goodwill impairment
assessment was complex and highly judgmental due to the significant estimation
required in determining the fair value of the reporting unit. In particular, the fair value
estimate was sensitive to significant assumptions, such as the discount rate, revenue
growth rates and EBITDA margins, which are affected by expectations about future
market or economic conditions.
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 15, 2024
40
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, 2023,
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, 2023,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Materion Corporation and subsidiaries as of December 31, 2023 and 2022, the
related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item
15(a) and our report dated February 15, 2024 expressed an unqualified opinion thereon.
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 15, 2024
41
Materion Corporation and Subsidiaries
Years Ended December 31, 2023, 2022, & 2021
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
Restructuring expense (income) (Note D)
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
2023
2022
2021
$ 1,665,187 $ 1,757,109 $ 1,510,644
1,316,145
1,413,229
1,226,882
349,042
157,911
27,540
3,824
23,323
343,880
169,338
28,977
1,573
24,237
136,444
119,755
283,762
163,777
26,575
(438)
16,737
77,111
(2,710)
(5,250)
(5,115)
31,323
107,831
12,129
21,905
103,100
17,110
4,901
77,325
4,851
95,702 $
85,990 $
72,474
4.64 $
4.19 $
3.55
4.58 $
4.14 $
3.50
$
$
$
20,619
20,911
20,511
20,760
20,422
20,689
The accompanying notes are an integral part of the consolidated financial statements.
42
Materion Corporation and Subsidiaries
Years Ended December 31, 2023, 2022, and 2021
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 $(543), $1,387,
and $482, respectively
Pension and post-employment benefit adjustment, net of tax expense (benefit)
of $(1,208), $518 and $1,094, respectively
Other comprehensive income (loss)
Comprehensive income
2023
2022
2021
$
95,702 $
85,990 $
72,474
5,208
(5,869)
(6,904)
(1,817)
4,655
1,603
(8,430)
(5,039)
(526)
3,771
(1,740)
(1,530)
$
90,663 $
84,250 $
70,944
The accompanying notes are an integral part of the consolidated financial statements.
43
Materion Corporation and Subsidiaries
Years Ended December 31, 2023, 2022, and 2021
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:
2023
2022
2021
$
95,702 $
85,990 $
72,474
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
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
Payments for mine development
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 credit facilities, net
Proceeds from issuance of debt
Repayment of debt
Principal payments under finance lease obligations
Cash dividends paid
Deferred financing costs
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
61,644
1,712
10,092
(1,318)
20
(7,005)
142
23,359
(18,700)
(22,663)
6,631
(17,361)
3,771
16,676
(8,288)
53,436
1,734
8,813
(146)
14
1,733
(551)
(4,377)
(63,986)
(1,604)
12,860
207
154
21,942
(261)
144,414
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
—
(2,971)
(392,240)
(110,550)
(77,608)
(102,910)
(9,326)
654
—
850
—
881
(119,222)
(79,729)
(494,269)
8,065
—
(15,415)
(1,645)
(10,621)
—
(5,234)
(24,850)
(149)
193
13,101
230
—
(19,299)
(2,736)
(10,160)
—
(3,593)
(35,558)
(2,032)
(1,361)
14,462
$
13,294 $
13,101 $
118,297
300,000
(2,054)
(2,819)
(9,697)
(7,403)
(3,318)
393,006
(394)
(11,416)
25,878
14,462
The accompanying notes are an integral part of the consolidated financial statements.
44
Materion Corporation and Subsidiaries
December 31, 2023 and 2022
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 C)
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 2023 and 2022)
Retained earnings
Common stock in treasury (6,502 shares for 2023 and 6,605 shares for 2022)
Accumulated other comprehensive loss (Note P)
Other equity
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
-
2023
2022
$
13,294 $
192,747
441,597
61,744
709,382
4,908
1,281,622
(766,939)
514,683
57,645
133,571
21,664
320,873
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
$ 1,762,726 $ 1,691,979
$
38,597 $
125,663
25,912
45,773
5,207
13,843
254,995
13,300
53,817
13,744
26,334
103,983
3,815
20,109
387,576
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
—
309,492
854,334
(237,746)
(46,948)
5,921
885,053
—
288,100
769,418
(220,864)
(41,909)
5,245
799,990
$ 1,762,726 $ 1,691,979
The accompanying notes are an integral part of the consolidated financial statements.
45
Materion Corporation and Subsidiaries
Years Ended December 31, 2023, 2022, and 2021
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, 2020
20,328
6,820 $ 258,642 $ 631,058 $ (199,187) $
(38,639) $ 3,756 $ 655,630
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
—
—
—
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
—
—
—
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
Balance at December 31, 2022
20,543
6,605 $ 288,100 $ 769,418 $ (220,864) $
(41,909) $ 5,245 $ 799,990
Net income
Other comprehensive income
Cash dividends declared ($0.515 per share)
Stock-based compensation activity
Payments for withholding taxes for stock-based
compensation awards
Directors’ deferred compensation
Balance at December 31, 2023
—
—
—
150
(49)
2
—
—
—
—
—
—
95,702
—
(10,621)
—
—
—
(150)
21,289
(165)
(11,032)
49
(2)
—
103
—
—
(5,234)
(616)
—
—
95,702
(5,039)
—
(5,039)
—
—
—
—
—
—
(10,621)
10,092
—
(5,234)
676
163
20,646
6,502 $ 309,492 $ 854,334 $ (237,746) $
(46,948) $ 5,921 $ 885,053
The accompanying notes are an integral part of the consolidated financial statements.
46
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 B 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.
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, 2023. 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 $0.6 million at
December 31, 2023 and December 31, 2022, 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 $0.2 million and $0.4 million at
December 31, 2023 and 2022, respectively. All of the Company's inventories, 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, 2023 and 2022, except for its bertrandite ore mine which values inventory using a weighted average cost
method.
47
Property, Plant, and Equipment: Property, plant, and equipment is stated on the basis of cost. Depreciation is computed -
principally by the straight-line 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.
The cost of removing overburden and waste materials to access the ore body at an open-pit mine prior to the production phase is
capitalized during the development of an open-pit mine and are capitalized at each pit. These costs are amortized as the ore is
extracted and converted to hydroxide using the units-of-production method based upon total estimated recoverable proven
reserves for the individual pit. 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
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
48
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, 2023 and 2022, are $84.7 million and $85.9 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 2023, 2022,
and 2021.
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 March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting. This guidance is intended to provide temporary optional expedients and exceptions to the
U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the
expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative
reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration
on December 31, 2024. The Company has applied this guidance in accounting for the interest rate swaps discussed in Note R.
Any additional reference rate reform impacts will be accounted for in accordance with ASU 2020-04 and ASU 2022-06.
49
No other recently issued or effective ASUs had, or are expected to have, a material effect on the Company's results of
operations, financial condition, or liquidity.
Note B — Segment Reporting and Geographic Information
The Company has the following operating segments: Performance 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.
The primary measure used in evaluating segment performance is EBITDA. The below table presents financial information for
each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for 2023
and 2022:
(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
2023
2022
$
755,547 $
805,751
103,889
—
671,525
971,902
113,682
—
1,665,187
1,757,109
174,471
45,747
9,860
(29,280)
200,798
12,129
31,323
61,644
$
95,702 $
125,227
67,806
13,753
(28,345)
178,441
17,110
21,905
53,436
85,990
(1) Excludes inter-segment sales $9.2 million for Electronic Materials for 2023. Inter-segment sales for Performance Materials
were less than $0.1 million in 2023. Excludes inter-segment sales of $0.7 million for Performance Materials and $14.0 million
for Electronic Materials for 2022. Inter-segment sales are eliminated in consolidation.
50
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
2023
2022
2021
815,408 $
406,123
422,018
21,638
1,665,187 $
867,053 $
519,395
355,691
14,970
1,757,109 $
794,862
426,303
270,213
19,266
1,510,644
435,296 $
79,387
514,683 $
372,779 $
75,986
448,765 $
327,969
81,006
408,975
$
$
$
$
International sales include sales from international operations and direct exports from our U.S. operations. No individual
country, other than the United States, accounted for 10% or more of the Company’s net sales for the years presented.
In fiscal year 2023, one customer accounted for approximately ten percent of our net sales. Prior to this, no single customer
accounted for ten percent or more of our net sales.
No individual country other than the United States accounted for 10% or more of the Company's net property, plant and
equipment as of December 31, 2023 or December 31, 2022.
The following table disaggregates revenue for each segment by end market for 2023 and 2022:
(Thousands)
2023
End Market
Semiconductor
Industrial
Aerospace and Defense
Consumer Electronics
Automotive
Energy
Telecom and Data Center
Other
Total
2022
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
$
13,734 $ 645,113 $
147,321
144,708
43,640
85,178
49,055
62,456
209,455
33,915
6,198
944
6,653
91,140
80
21,708
$ 755,547 $ 805,751 $ 103,889 $
2,529 $
29,277
25,039
15,296
9,189
—
—
22,559
$
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
— $ 661,376
210,513
—
175,945
—
59,880
—
101,020
—
140,195
—
62,536
—
—
253,722
— $ 1,665,187
— $ 798,290
247,367
—
133,754
—
73,669
—
111,093
—
148,865
—
65,379
—
—
178,692
— $ 1,757,109
51
Note C — Revenue Recognition
Net sales consist primarily of revenue from the sale of precious and non-precious specialty metals, beryllium and copper-based
alloys, beryllium composites, and other products into numerous end markets. The Company requires an agreement with a
customer that creates enforceable rights and performance obligations. The Company generally recognizes revenue, in an
amount that reflects the consideration to which it expects to be entitled, upon satisfaction of a performance obligation by
transferring control over a product to the customer. Control over the product is generally transferred to the customer when the
Company has a present right to payment, the customer has legal title, the customer has physical possession, the customer has
the significant risks and rewards of ownership, and/or the customer has accepted the product.
Shipping and Handling Costs: The Company accounts for shipping and handling activities related to contracts with customers
as costs to fulfill its promise to transfer the associated products. Accordingly, customer payments 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, 2023.
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, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations
was approximately $54.2 million.
Contract Costs: The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the
amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs primarily
relate to sales commissions, which are included in selling, general, and administrative expenses.
Contract Balances: The timing of revenue recognition, billings, and cash collections resulted in the following contract assets
and contract liabilities:
(Thousands)
Accounts receivable, trade
Unbilled receivables
Unearned revenue
December 31,
2023
December 31,
2022
$ change
% change
$
193,345
$
215,726
$ (22,381)
29,524
13,843
10,765
15,496
18,759
(1,653)
(10) %
174 %
(11) %
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 2023.
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 $12.4 million of the December 31, 2022 unearned amounts as revenue
during 2023. The Company recognized approximately $7.1 million of the December 31, 2021 unearned amounts as revenue
during 2022.
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.
52
Note D — Restructuring
During 2023, the Company implemented various restructuring initiatives across the Performance Materials, Electronic
Materials and Precision Optics segments to improve operational efficiency. This resulted in severance and related costs of
approximately $3.8 million during 2023. Approximately $2.7 million of those severance costs were paid as of December 31,
2023.
In 2022, the Company recorded a combined total of $1.6 million of restructuring charges in our Precision Optics, Electronic
Materials and Other segments as a result of cost reduction actions taken in order to reduce our fixed cost structure.
Note E — Other-net
Other-net is summarized for 2023, 2022, and 2021 as follows:
(Thousands)
Metal consignment fees
Amortization of intangible assets
Foreign currency loss (gain)
Other items
Total other-net
Note F — Interest Expense-net
(Income) Expense
2023
2022
2021
$
$
10,596 $
12,876
218
(367)
23,323 $
12,212 $
12,400
(679)
304
24,237 $
9,305
5,973
1,573
(114)
16,737
The following chart summarizes the interest incurred, capitalized, and paid in 2023, 2022, and 2021:
(Thousands)
Interest incurred, net
Less: Capitalized interest
Total net expense
Interest paid
2023
2022
2021
$
$
$
34,366 $
3,043
31,323 $
32,044 $
23,014 $
1,109
21,905 $
21,190 $
5,277
376
4,901
3,652
The increase in interest expense in 2023 versus 2022 was primarily driven by increased interest rates. Amortization of deferred
financing costs within interest expense was $1.7 million in 2023, $1.7 million in 2022, and $1.0 million in 2021.
Note G — Income Taxes
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)
2023
2022
2021
94,589 $
13,242
107,831 $
90,403 $
12,697
103,100 $
54,684
22,641
77,325
12,962 $
6,172
19,134 $
(4,926) $
(2,079)
(7,005) $
12,129 $
12,571 $
2,806
15,377 $
588 $
1,145
1,733 $
17,110 $
14,603
3,205
17,808
(7,953)
(5,004)
(12,957)
4,851
$
$
$
$
$
$
$
53
A reconciliation of the U.S. federal statutory income tax rate to the Company's effective income tax rate is as follows:
2023
2022
2021
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
Research and development tax credit
Impact of foreign operations
Non-deductible transaction costs
Adjustment to unrecognized tax benefits
Equity compensation
Non-deductible officers' compensation
Valuation allowance
Impact of refundable credits
Other items
Effective tax rate
21.0 %
0.7
(3.4)
(8.6)
(0.8)
(0.4)
—
2.7
(1.8)
2.0
0.8
(1.6)
0.7
11.3 %
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 %
The Company’s income tax expense was $12,129, $17,110 and $4,851 and the Company’s effective tax rate was 11.3%, 16.6%
and 6.3% for the years ended December 31, 2023, December 31, 2022 and December 31, 2021, respectively. In 2023, the
effective tax rate is lower than the U.S. statutory tax rate primarily due to a foreign-derived intangible income deduction
optimization project completed, percentage depletion and excess tax benefits for stock compensation. In 2022, the effective tax
rate is below the U.S. statutory tax rate primarily due to percentage depletion, the research and development tax credit and the
foreign-derived intangible income deduction. In 2021, the effective tax rate is below the U.S. statutory tax rate primarily due to
the release of our Germany valuation allowance, percentage depletion and the foreign-derived intangible income deduction.
54
Deferred tax assets and (liabilities) are determined based on temporary differences between the financial reporting and tax basis
of assets and liabilities. Deferred tax assets and (liabilities) recorded in the Consolidated Balance Sheets consist of the
following:
(Thousands)
Asset (liability)
Post-employment benefits other than pensions
Other reserves
Deferred compensation
Environmental reserves
Inventory
Research expenditures
Revenue recognition
Lease liabilities
Interest expense carryforward
Pensions
Accrued compensation expense
Net operating loss, capital loss and credit carryforwards
Subtotal
Valuation allowance
Total deferred tax assets
Depreciation
Lease assets
Amortization
Pensions
Unrealized gains
Total deferred tax liabilities
Net deferred tax (liabilities)/assets
December 31,
2023
2022
1,288 $
831
4,328
1,371
4,868
11,025
13,086
11,334
12,923
2,442
3,317
13,729
80,542
(5,971)
74,571
(47,946)
(9,933)
(30,829)
—
(1,063)
(89,771)
(15,200) $
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)
$
$
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, 2023, for income tax purposes, the Company had foreign net operating loss carryforwards of $37.3 million
that do not expire, and $12.2 million that expire in calendar years 2024 through 2033. The Company had state net operating loss
carryforwards of $14.8 million that expire in calendar years 2024 through 2041 and state tax credits of $4.1 million that expire
in calendar years 2024 through 2038. The Company also had a capital loss carryforward of $7.4 million that expires in 2026. A
valuation allowance of $5.2 million has been provided against certain foreign and state net operating loss carryforwards, a U.S.
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 2019, and foreign examinations for tax years before 2018.
We operate under a tax holiday in Malaysia, which is effective through July 31, 2027. The tax holiday is conditional upon our
meeting certain employment, sales, and investment thresholds. The Company did not have a tax benefit from the tax holiday in
2023.
A reconciliation of the Company’s unrecognized tax benefits for the year-to-date periods ended December 31, 2023 and 2022 is
as follows:
55
(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
2023
2022
652 $
—
3,111
—
—
3,763 $
1,142
—
—
(8)
(482)
652
$
$
Included in the balance of unrecognized tax benefits, including interest and penalties, as of December 31, 2023 and December
31, 2022 are $3.8 million and $0.7 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 2023, 2022, and 2021. As of December 31, 2023 and 2022, accrued interest and penalties, net of the
related tax benefit, were immaterial.
Income taxes paid during 2023, 2022, and 2021, were approximately $7.5 million, $14.5 million, and $21.8 million,
respectively.
No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition
tax, or any additional outside basis difference inherent in these entities as, with the exception of a China subsidiary, these
amounts continue to be indefinitely reinvested in foreign operations as of December 31, 2023. The amount of such
unrepatriated earnings totaled $87.3 million as of December 31, 2023. 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.
Government Tax Credits
The Inflation Reduction Act of 2022 (IRA) was signed into law on August 16, 2022. The IRA, among other provisions,
includes a new corporate alternative minimum tax on certain large corporations and new or enhanced federal energy and
manufacturing tax credits effective for tax years beginning in 2023. The Company is not subject to the minimum tax as our
average annual book profits over the prior three-year period were less than $1 billion. The IRA introduced a new Advanced
Manufacturing Production Credit, which provides an annual cash benefit for a portion of production costs for the sale of certain
critical minerals produced in the U.S. and sold during the year.
Pursuant to the IRA, the Company is eligible for the production credit beginning in 2023. The Company records the production
credit as a reduction in cost of goods sold as the applicable items are produced and sold. U.S. GAAP does not address the
accounting for government grants received by a business entity that are outside the scope of ASC 740; our accounting policy is
to analogize to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, under IFRS Accounting
Standards. We recognize the benefit of tax credits accounted for by applying IAS 20 in pretax income on a systematic basis in
line with its recognition of the expenses that the grant is intended to compensate.
Pillar Two
The Organization for Economic Co-operation and Development (OECD) has introduced rules to establish a global minimum
corporate tax rate of 15%, commonly referred to as Pillar Two. Numerous foreign countries have enacted legislation to
implement the Pillar Two rules, effective beginning in 2024, or are expected to enact similar legislation. The Company is
currently evaluating the potential impacts that Pillar Two may have on future periods and will continue to monitor the
implementation of Pillar Two rules in the jurisdictions in which it operates.
56
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:
2023
2022
2021
$
95,702 $
85,990 $
72,474
20,619
20,511
20,422
85
92
115
292
81
102
66
249
78
124
65
267
Adjusted weighted-average shares outstanding
Basic EPS
Diluted EPS
20,911
20,760
$
$
4.64 $
4.58 $
4.19 $
4.14 $
20,689
3.55
3.50
Equity awards covering shares of common stock totaling 39,473 in 2023, 56,636 in 2022, and 55,598 in 2021 were excluded
from the diluted EPS calculation as their effect would have been anti-dilutive.
Note I — Inventories, net
Inventories in the Consolidated Balance Sheets are summarized as follows:
(Thousands)
Raw materials and supplies
Work in process
Finished goods
Inventories, net
December 31,
2023
117,693 $
268,717
55,187
441,597 $
2022
113,694
249,105
60,281
423,080
$
$
Inventory balances are presented net of an excess and obsolete reserve totaling $17.3 million and $19.8 million at December 31,
2023 and December 31, 2022, respectively.
The Company takes and records the results of a physical inventory count of its precious metals on a periodic 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 $351.5 million as of December 31, 2023 versus $373.1 million as of December 31, 2022.
57
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,
2023
26,607 $
215,137
799,551
46,094
147,303
(749,622)
485,070
32,624
(9,006)
23,618
4,980
9,326
(8,311)
5,995
514,683 $
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
$
$
The Company received $63.5 million from the U.S. Department of Defense (DoD), in previous periods, for reimbursement of
the DoD's share of the cost of equipment. This amount was recorded in property, plant, and equipment and the reimbursements
are reflected in Unearned income on the Consolidated Balance Sheets. The equipment was placed in service during 2012, and
its full cost is being depreciated in accordance with Company policy. The unearned income liability is being reduced ratably
with the depreciation expense recorded over the life of the equipment. Unearned income was reduced by $4.6 million in 2023
and 2022 and $4.3 million in 2021 and credited to cost of sales in the Consolidated Statements of Income, offsetting the impact
of the depreciation expense on the associated equipment on the Company's cost of sales and gross margin. The unamortized
unearned income balance was $10.7 million and $15.3 million at December 31, 2023 and December 31, 2022, respectively.
We recorded depreciation and depletion expense of $41.6 million in 2023, $35.2 million in 2022, and $31.4 million in 2021.
Depreciation, depletion, and amortization as shown on the Consolidated Statement of Cash Flows is net of the reduction in the
unearned income liability in 2023, 2022, and 2021. The net carrying value of capitalized software was $4.0 million and $4.6
million at December 31, 2023 and December 31, 2022, respectively. Depreciation expense related to software was $1.8 million
in 2023, 2022, and 2021, respectively.
As of December 31, 2023 and December 31, 2022 capital expenditures in accounts payable were $7.0 million and
$12.1 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, 2023, the
Company has received approximately $38.6 million in prepayments under the terms of this amended agreement.
As of December 31, 2023 and 2022, $84.7 million and $85.9 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, 2023 and 2022, $5.8 million and $4.5 million,
respectively, of prepayments are classified as Unearned revenue.
58
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, 2023, 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 2023 and 2022 were as follows:
(Thousands)
Components of lease expense
Operating lease cost
Finance lease cost
Amortization of right-of-use assets
Interest on lease liabilities
Total lease cost
2023
2022
$
14,648 $
13,381
1,495
760
16,903 $
1,202
819
15,402
$
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, 2023 and
2022 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
59
2023
2022
$
$
$
$
$
57,645 $
6,933
53,817
64,249
8,401
59,055
32,624 $
(9,006)
23,618 $
626 $
13,744
14,370 $
31,662
(7,395)
24,267
1,485
13,876
15,361
11.47
18.34
11.78
17.98
6.15%
5.20%
6.08%
5.11%
Future maturities of the Company's lease liabilities as of December 31, 2023 are as follows:
(Thousands)
2024
2025
2026
2027
2028
2029 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
1,458
1,285
1,255
1,255
1,210
16,070
22,533
8,163
14,370 $
10,464
9,285
7,568
6,096
6,062
46,027
85,502
24,752
60,750
$
2023
2022
$
21,094 $
760
1,645
19,653
818
2,736
1,293
—
9,967
—
The cost and accumulated amortization of intangible assets subject to amortization as of December 31, 2023 and 2022, is as
follows:
(Thousands)
Customer relationships
Technology
Licenses and other
Total
2023
Gross
Carrying
Amount
Accumulated
Amortization
2022
Gross
Carrying
Amount
Accumulated
Amortization
$ 112,682 $
45,154
36,573
$ 194,409 $
Net
77,074 $ 110,347 $
30,953
22,935
(35,608) $
(14,201)
(13,638)
(63,447) $ 130,962 $ 189,533 $
44,886
34,300
Net
81,397
(28,950) $
34,466
(10,420)
23,738
(10,562)
(49,932) $ 139,601
60
Amortization expense for 2023, 2022, and 2021 was $12.9 million, $12.4 million, and $6.0 million, respectively.
Estimated amortization expense for each of the five succeeding years is as follows:
(Thousands)
2024
2025
2026
2027
2028
Amortization
Expense
12,497
11,662
10,585
10,484
10,484
Intangible assets also includes deferred costs relating to the Company's revolving credit and consignments lines of $2.6 million
and $3.6 million at December 31, 2023 and 2022, 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, 2023 and 2022 was $320.9 million and $319.5 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, 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
Acquisition
Impairment charge
Other
—
—
—
—
—
3
—
—
1,372
—
—
1,375
Balance at December 31, 2023
$
26,157
206,673 $
88,043 $
320,873
Due to the recent downturn in the semi-conductor market impacting the Electronic Materials reporting unit and recent results
for the Precision Optics reporting unit, the Company elected to perform a quantitative annual impairment assessment for the
Electronic Materials and Precision Optics reporting units' goodwill as of October 1, 2023 and a qualitative impairment test for
the Performance Materials reporting unit. Based on the testing performed, the Company determined that the estimated fair
values for each of its reporting units exceeded their carrying values; therefore no impairment charges were necessary. The
estimated fair value of the Company's Precision Optics reporting unit exceeded the carrying value by less than 10%.
Management believes the future sales growth and EBITDA margins in the long range plan and the discount rate used in the
valuations requires significant use of judgment. If any of our reporting units do not meet our long range plan estimates or our
discount rate increase significantly, we could be required to perform an interim goodwill impairment analysis or recognize
charges in future periods. Any impairment charges that the Company may take in the future could be material to its
consolidated results of operations and financial condition. The assumptions used for the reporting units with fair values
exceeding carrying values of less than 10% are more sensitive to future performance and will be monitored accordingly.
The Company's accumulated goodwill impairment losses were $20.6 million as of December 31, 2023, 2022 and 2021.
Accumulated impairment losses were from the closure of the LAC reporting unit which was closed as of December 31, 2020.
61
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 6.96% at December 31, 2023
and 6.08% at December 31, 2022
Borrowings under the Term Loan Facility
Overdraft Sweep Facility
Foreign debt
Total long-term debt outstanding
Current portion of long-term debt
Gross long-term debt
Unamortized deferred financing fees
Long-term debt
Maturities on long-term debt instruments as of December 31, 2023 are as follows:
(Thousands)
2024
2025
2026
2027
2028
2029 and thereafter
Total
December 31,
2023
2022
$ 149,250 $ 143,250
270,000
285,000
3,825
5,918
—
7,541
428,993
435,791
(38,597)
(21,105)
$ 390,396 $ 414,686
(2,820)
(3,810)
$ 387,576 $ 410,876
38,597
30,351
359,566
213
213
53
$ 428,993
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 $550 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, 2023 and December 31, 2022. Cash on hand up to $25 million can benefit the covenants and may benefit the
borrowing capacity under the Credit Agreement. At December 31, 2023 and 2022, there was $419.3 million and $428.3 million
outstanding under the Credit Agreement, respectively.
62
At December 31, 2023 and 2022 there was $47.0 million and $46.5 million letters of credit outstanding against the credit sub-
facility, respectively. The Company pays a variable commitment fee that may reset quarterly (0.20% as of December 31, 2023)
on the available and unborrowed amounts under the revolving credit line.
The available borrowings under the individual existing credit lines totaled $178.7 million as of December 31, 2023.
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
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
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
2023
2022
2023
2022
$
168,032 $
235,779 $
5,505 $
7,514
842
7,874
(4,350)
11,307
(5,501)
3,384
181,588
164,596
(4,350)
10,946
755
812
(5,605)
2,525
169,679
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
51
273
—
(308)
(621)
—
4,900
—
—
—
—
—
—
—
—
78
156
—
(1,800)
(443)
—
5,505
—
—
—
—
—
—
—
—
$
$
$
(11,909) $
(3,436) $
(4,900) $
(5,505)
9,959 $
11,761 $
— $
(560)
(21,308)
(536)
(14,661)
(630)
(4,270)
(11,909) $
(3,436) $
(4,900) $
—
(754)
(4,751)
(5,505)
The benefit obligation increased in 2023 due to actuarial losses that were driven by decreases in the discount rate.
The following amounts are included within accumulated other comprehensive loss at December 31, 2023:
(Thousands)
Amounts recognized in other comprehensive income (before tax)
consist of:
Pension Benefits
Other Benefits
2023
2022
2023
2022
Net actuarial loss (gain)
Net prior service cost (credit)
Net transition obligation/(asset)
Net amount recognized
$
$
53,024 $
43,039 $
(5,499) $
(533)
—
(617)
—
—
—
52,491 $
42,422 $
(5,499) $
(5,573)
(556)
—
(6,129)
63
The following table provides information regarding the accumulated benefit obligation:
(Thousands)
Additional information
Pension Benefits
Other Benefits
2023
2022
2023
2022
Accumulated benefit obligation for all defined benefit pension plans
$
180,655 $
167,366 $
— $
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
48,056
26,212
47,150
26,212
18,490
3,279
17,833
3,279
—
—
—
—
—
—
—
—
—
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
2023
2022
2021
2023
2022
2021
$
842 $
7,874
(9,685)
(83)
(300)
(1,352)
142
(1,210) $
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) $
51 $
273
—
(556)
(379)
(611)
—
(611) $
78 $
156
—
(1,497)
(272)
(1,535)
—
(1,535) $
80
116
—
(1,497)
(275)
(1,576)
—
(1,576)
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
OCI at end of year
Pension Benefits
Other Benefits
2023
2022
2021
2023
2022
2021
$
42,422 $
42,382 $
48,673 $
(6,129) $
(6,098) $
(7,525)
83
300
—
78
82
(1,701)
(2,344)
—
—
556
379
—
272
—
1,497
1,497
9,828
(142)
1,112
551
(4,553)
(305)
(1,800)
—
—
—
275
—
(345)
—
—
52,491 $
—
42,422 $
524
42,382 $
—
(5,499) $
—
(6,129) $
—
(6,098)
$
64
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
2023
2022
2021
2023
2022
2021
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
1.31% - 5.19%
2.16% - 5.54%
0.22% - 3.02%
5.20 %
5.52 %
2.90 %
1.75% - 3.00%
1.75% - 3.00%
1.50% - 3.00%
3.50 %
3.50 %
3.00 %
2.16% - 5.54%
0.22% - 3.02%
0.03% - 2.76%
5.52 %
2.90 %
2.45 %
1.90% - 5.25%
1.20% - 5.25%
1.20% - 5.75%
N/A
N/A
N/A
1.75% - 3.00%
1.50% - 3.00%
1.50% - 3.00%
3.50 %
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 2023 and 2022, respectively.
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
2023
6.00%
5.00%
2032
2022
6.00%
5.00%
2032
Plan Assets
The following tables present the fair values of the Company’s defined benefit pension plan assets as of December 31, 2023 and
2022 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.
65
(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)
Alternatives
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, 2023
$
732 $
732 $
— $
—
—
—
—
28,118
10,450
3,782
43,082
28,118
10,450
—
3,782
43,082
118,121
4,845
3,553
78
169,679
$
$
$
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
—
—
—
—
—
—
—
—
—
—
(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
66
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 2024.
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)
2024
2025
2026
2027
2028
2029 through 2033
Other Benefit Plans
Other Benefits
Pension Benefits
Gross Benefit
Payment
7,701
8,940
9,311
10,193
11,024
57,511
648
578
497
457
413
1,559
Net of
Medicare
Part D
Subsidy
648
578
497
457
413
1,559
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 $0.4 million at December 31, 2023 and $0.5
million at December 31, 2022, 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 $13.6 million in 2023,
$13.1 million in 2022, and $9.9 million in 2021.
67
Note P — Accumulated Other Comprehensive (Loss) Income
Changes in the components of accumulated other comprehensive (loss) income, including amounts reclassified out, for 2023,
2022, and 2021, and the balances in accumulated other comprehensive (loss) income as of December 31, 2023, 2022, and 2021
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, 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)
Balance at December 31, 2022
$ 1,243 $ 6,055 $
(223) $ — $ 7,075 $
(40,228) $
(8,756) $ (41,909)
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
(19)
2,046
(140)
—
1,887
(8,462)
5,208
(1,367)
(35)
(4,513)
301
—
(4,247)
(1,176)
—
(5,423)
(54)
(12)
(2,467)
(568)
161
37
—
—
(2,360)
(543)
(9,638)
(1,208)
5,208
—
(6,790)
(1,751)
(42)
(1,899)
124
—
(1,817)
(8,430)
5,208
(5,039)
Balance at December 31, 2023
$ 1,201 $ 4,156 $
(99) $ — $ 5,258 $
(48,658) $
(3,548) $ (46,948)
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 interest rate swaps are recorded in interest expense. Refer
to Note F for additional details on interest expense.
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.
68
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 $10.5 million, $9.0 million, and $7.3 million in 2023, 2022, and
2021, respectively. The Company derives a tax deduction measured by the excess of the market value over the grant price at
the date stock-based awards vest or are exercised. The Company recognized $2.0 million, $1.0 million, and $0.9 million of tax
benefits in 2023, 2022, and 2021, 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 2023:
(Shares in thousands)
Outstanding at December 31, 2022
Granted
Exercised
Cancelled
Outstanding at December 31, 2023
Vested and expected to vest as of December 31, 2023
Exercisable at December 31, 2023
Number of
SARs
Weighted-
average
Exercise
Price Per
Share
Aggregate
Intrinsic
Value
(thousands)
Weighted-
average
Remaining
Term (Years)
256 $
47
(57)
—
246 $
246
151
58.38
113.28
41.91
72.73
72.73
58.94
14,101
10,775
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, 2022
Granted
Vested
Cancelled
Nonvested as of December 31, 2023
Number of
SARs
Weighted-
average
Grant
Date
Fair Value
95 $
47
(48)
—
94 $
21.97
42.27
21.19
—
35.73
As of December 31, 2023, $1.9 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 2023, 2022, and 2021 was
$1.0 million, $0.9 million, and $0.8 million, respectively.
The weighted-average grant date fair value for 2023, 2022, and 2021 was $42.27, $25.87, and $20.66, 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 $1.3 million in 2023, and $0.9 million in 2022 and 2021, respectively.
The total intrinsic value of stock options exercised during 2023, 2022, and 2021 was $3.6 million, $2.1 million and
$1.6 million, respectively.
69
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)
2023
2022
2021
4.27 %
0.4 %
39.0 %
4.5
1.56 %
0.6 %
38.5 %
4.4
0.57 %
0.7 %
37.6 %
4.6
The risk-free rate of return was based on U.S. Treasury yields with a maturity equal to the expected life of the award. The
dividend yield was based on the Company's historical dividend rate and stock price. The expected volatility of stock was
derived by referring to changes in the Company's historical common stock prices over a time-frame similar to the expected life
of the award. In addition to considering the vesting period and contractual term of the award for the expected life assumption,
the Company analyzes actual historical exercise experience for previously granted awards.
Restricted Stock Units (RSUs) - Employees. The Company may grant RSUs to employees of the Company. These units
constitute an agreement to deliver shares of common stock to the participant at the end of the vesting period, which is defined at
the date of the grant, and are forfeited should the holder’s employment terminate during the restriction period. The fair market
value of the RSUs is determined on the date of the grant and is amortized over the vesting period. For the 2021 annual
employee grant, the vesting period is three years unless the recipient is retirement eligible and continued vesting is approved by
the Board of Directors. The 2023 and 2022 annual employee grants 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 2023, 2022, and 2021 was $110.14, $80.96, and $68.62, 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 $4.6 million in 2023, $3.5 million in 2022, and $3.5
million in 2021. The unamortized compensation cost on the outstanding RSUs was $7.8 million as of December 31, 2023 and is
expected to be recognized over a weighted-average period of 24 months. The total fair value of shares that vested during 2023
was $3.6 million, compared to $2.8 million in 2021 and $2.0 million in 2020.
The following table summarizes the stock-settled RSU activity during 2023:
(Shares in thousands)
Outstanding at December 31, 2022
Granted
Vested
Forfeited
Outstanding at December 31, 2023
Number of
Shares
Weighted-
average
Grant Date
Fair Value
165 $
71
(63)
(9)
164 $
67.31
109.85
56.73
88.25
88.36
RSUs - Non-Employee Directors. In 2023, 2022, and 2021, 9,184, 11,120, and 9,904 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 $105.54, $81.59, and $75.77 in 2023, 2022, and 2021, respectively. The Company recognized $0.9 million of
expense related to these awards in 2023 and 2022, respectively compared to $0.8 million of expense in 2021. At December 31,
2023, $0.4 million of expense with respect to non-vested RSU awards granted to the Board of Directors has yet to be
recognized and will be amortized into expense over a weighted-average period of approximately five months.
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 2023, 2022, and 2021, 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.
70
The following table summarizes the activity related to performance-based RSUs during 2023:
(Shares in thousands)
Outstanding at December 31, 2022
Granted
Vested
Forfeited
Outstanding at December 31, 2023
Number of
Shares
Weighted-
average
Grant Date
Fair Value
111 $
48
(40)
(2)
117 $
79.31
147.17
61.32
112.57
110.19
Compensation expense is based upon the performance projections for the plan period of three years, the percentage of requisite
service rendered, and the fair market value of the Company’s common shares on the date of grant. The offset to the
compensation expense for the portion of the award to be settled in shares is recorded within shareholders’ equity and was $3.3
million for 2023, $3.6 million for 2022, and $2.2 million for 2021.
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, 2023, 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.
71
The following table summarizes the financial instruments measured at fair value on the Consolidated Balance Sheets at
December 31, 2023 and 2022:
(Thousands)
December 31, 2023
Financial Assets
Deferred compensation investments
Foreign currency forward contracts
Interest rate swaps
Precious metal swaps
Total
Financial Liabilities
Deferred compensation liability
Foreign currency forward contracts
Interest rate swaps
Precious metal swaps
Total
December 31, 2022
Financial Assets
Deferred compensation investments
Foreign currency forward contracts
Interest rate swaps
Precious metal swaps
Total
Financial Liabilities
Deferred compensation liability
Foreign currency forward contracts
Interest rate swaps
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
$
$
$
$
$
$
$
$
4,899 $
615
6,492
353
12,359 $
4,899 $
1,500
1,096
485
7,980 $
3,001 $
1,291
7,863
118
12,273 $
3,001 $
1,757
—
411
5,169 $
4,899 $
—
—
4,899 $
4,899 $
—
—
4,899 $
3,001 $
—
—
3,001 $
3,001 $
—
—
3,001 $
— $
615
6,492
353
7,460 $
— $
1,500
1,096
485
3,081 $
— $
1,291
7,863
118
9,272 $
— $
1,757
—
411
2,168 $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
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 below, the Company entered into interest rate swaps to hedge the
interest rate risk on the fixed rate portion of the Credit Agreement. The net fair value of the interest rate swaps were
$5.4 million as of December 31, 2023, and were determined using level 2 inputs. The total of the outstanding amount on the
fixed rate debt and the fair value of the interest rate swaps approximate the total fair value of the fixed rate debt as of
December 31, 2023.
The carrying values of the other working capital items in the Consolidated Balance Sheets approximate fair values at
December 31, 2023 and 2022.
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:
72
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 N. The swap hedges the change in 1-month SOFR from March 4, 2022
to November 2, 2026. On March 21, 2023, the Company entered into two $50.0 million interest rate swaps to hedge the
interest rate risk on the Credit Agreement described in Note N. The swaps hedge the change in 1-month USD-SOFR.
The purpose of these hedges is to manage the risk of changes in the monthly interest payments attributable to changes in
the benchmark interest rate.
Foreign Currency. The Company sells a portion of its products to overseas customers in their local currencies,
primarily 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.
73
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, 2023 and 2022:
(Thousands)
Foreign currency forward contracts
Prepaid expenses
Other liabilities and accrued items
December 31, 2023
December 31, 2022
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
$
23,122 $
25,853
558 $
1,180
12,242 $
17,061
791
1,048
These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans. Other-net
included foreign currency losses related to these derivatives of $1.1 million in 2023, compared to $0.2 million of foreign
currency gains in 2022.
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, 2023 and 2022:
December 31, 2023
Fair Value
Notional
Amount
Prepaid and other
current assets
Other assets
Other liabilities
and accrued items
Other long-term
liabilities
(Thousands)
Foreign currency forward
contracts - yen
Foreign currency forward
contracts - euro
Precious metal swaps
Interest rate swaps
Total
$
$
2,167 $
32 $
— $
20 $
23,064
15,717
200,000
240,948 $
25
353
3,658
4,068 $
—
—
2,834
2,834 $
300
485
—
805 $
Foreign currency forward
contracts - yen
Foreign currency forward
contracts - euro
Precious metal swaps
Interest rate swaps
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 $
74
—
—
—
1,096
1,096
26
137
—
—
163
All of these contracts were designated and effective as cash flow hedges. No ineffectiveness expense was recorded in 2023,
2022, or 2021.
The fair value of derivative contracts recorded in accumulated other comprehensive income (loss) totaled $5.0 million and $7.4
million as of December 31, 2023 and December 31, 2022, respectively. Deferred gains of $4.2 million at December 31, 2023
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, 2023 and 2022:
(Thousands)
Hedging relationship
Foreign currency forward contracts
Precious metal swaps
Interest rate swaps
Total
Line item
Net sales
Cost of sales
Interest expense - net
2023
2022
$
$
(35) $
301
(4,513)
(4,247) $
(176)
(126)
(250)
(552)
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.
Some 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 2023 and 2022.
As of December 31, 2023, there were no pending beryllium litigation cases.
Although it is not possible to predict the outcome of any pending litigation, the Company provides for costs related to litigation
matters when a loss is probable, and the amount is reasonably estimable. 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
any potential future beryllium proceedings will have a material adverse effect on the financial condition or cash flow of the
Company. However, the Company’s results of operations could be materially affected by unfavorable results in one or more
cases.
Environmental Proceedings
The Company has an active program for environmental compliance that includes the identification of environmental projects
and estimating the impact on the Company’s financial performance and available resources. Environmental expenditures that
relate to current operations, such as wastewater treatment and control of airborne emissions, are either expensed or capitalized
as appropriate. The Company records reserves for the probable costs for identified environmental remediation projects. The
Company’s environmental engineers perform routine ongoing analyses of the remediation sites and will use outside consultants
75
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,
2023 and 2022 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
2023
2022
$
$
$
4,470 $
566
(480)
4,556 $
482 $
4,074
4,770
180
(480)
4,470
440
4,030
The majority of expenses in both 2023 and 2022 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, 2023 and
2022:
(Thousands)
Asset retirement obligation at beginning of period
Accretion expense
Change in liability
Asset retirement obligation at end of period
2023
2022
$
$
2,429 $
185
34 $
2,648 $
2,231
198
—
2,429
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.
At December 31, 2023, the Company had outstanding letters of credit totaling $47.0 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.
76
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, 2023 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, 2023.
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, 2023 that
have materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. OTHER INFORMATION
During the quarter ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the
Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term
is defined in Item 408 of Regulation S-K).
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
77
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information under “Election of Directors” in Materion Corporation's Proxy Statement for the 2024 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
55
Shelly M. Chadwick
52
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
66
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 “2023
Compensation of Non-Employee Directors."
78
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required under Item 12 regarding security ownership is incorporated by reference from the section of the Proxy
Statement entitled “Security Ownership of Certain Beneficial Owners and Management." The information required by Item 12
regarding securities authorized for issuance under equity compensation plans is incorporated by reference from the section of
the Proxy Statement entitled "Equity Compensation Plan Information."
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference from the sections of the Proxy Statement entitled “Related Party Transactions” and “Corporate
Governance; Committees of the Board of Directors — Director Independence.”
Item 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference from the section of the Proxy Statement entitled “Ratification of Independent Registered Public
Accounting Firm.”
79
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, 2023, 2022, and 2021 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
10.1
10.2
10.3
10.4
10.5*
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.
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 (filed
as Exhibit 4.4 to the Company's 10-K filed on February 16, 2023) incorporated herein by reference.
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.
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.
80
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*
10.23*
10.24*
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.
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 and Subsidiaries Management Incentive Plan for the 2022 Plan Year (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 2023 Plan Year (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 2023), 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 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 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 2023 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 2023 (filed as Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2023), 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.
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 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.
81
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*
10.40*
10.41*
10.42*
(21)#
(23.1)#
(24)#
(31.1)#
(31.2)#
(32)#
Form of 2023 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 2023 (filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2023), 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.
Form of 2023 Appreciation Rights Agreement under the Materion Corporation 2006 Stock Incentive Plan (As
Amended and Restated as of May 3, 2017), covering grants made in 2023* (filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the period ended March 31, 2023), 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.
82
(95)#
(97)#
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, 2023.
Materion Corporation Compensation Clawback Policy, effective October 2, 2023.
(101.INS)#
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document.
(101.SCH)# Inline XBRL Taxonomy Extension Schema Document.
(101.CAL)# Inline XBRL Taxonomy Extension Calculation Linkbase Document.
(101.DEF)#
Inline XBRL Taxonomy Extension Definition Linkbase Document.
(101.LAB)# Inline XBRL Taxonomy Extension Label Linkbase Document.
(101.PRE)#
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
(104)#
Cover Page Interactive Data File (formatted in Inline XBRL and contained in the Exhibit 101 attachments)
*
#
Denotes a compensatory plan or arrangement.
Filed or furnished herewith.
83
Item 16.
FORM 10-K SUMMARY
None.
84
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 15, 2024
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
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 and Principal Accounting
Officer)
Director
Director
Director
Director
Director
Director
Director
Director
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
*
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 15, 2024
By:
/s/ Shelly M. Chadwick
Shelly M. Chadwick
Attorney-in-Fact
85
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
2023
2022
2021
$
4,935 $
4,957 $
14,134
2,069
56
373
—
497
1,019
$
$
(1,089) $
5,971 $
(395) $
(10,693)
4,935 $
4,957
(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.
86
CORPORATE DATA
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on
Thursday, May 9, 2024, at 8:00 a.m. EDT at the
Renaissance Providence Downtown Hotel in Providence,
Rhode Island.
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, 2023,
as well as any Securities and Exchange Commission
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
(216) 486-4200
Facsimile: (216) 383-4091
WEBSITE
investor information, news and facts about the Company,
its businesses, markets, and products.
Please visit us at www.materion.com.
GOVERNANCE
The Company has adopted corporate governance
guidelines and a Code of Conduct Policy, in compliance
with applicable New York Stock Exchange and SEC
requirements. These materials, along with the charters
of the Audit 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.
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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 1, 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 2, 3, 4
Former Executive
Chairman of the Board
GrafTech International Ltd.
Darlene J. S. Solomon, Ph.D. 2, 4
Former Senior Vice President and
Chief Technology Officer
Agilent Technologies, Inc.
Robert B. Toth 1, 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
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