UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~April~~July 1, 2011


o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number001-15885

MATERION CORPORATION

(Exact name of Registrant as specified in charter)


Ohio		34-1919973
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6070 Parkland Blvd., Mayfield Hts., Ohio (Address of principal executive offices)		44124 (Zip Code)

Registrant’s telephone number, including area code:
216-486-4200

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes oþ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the ~~definition~~definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ

As of ~~April 25,~~July 29, 2011 there were ~~20,406,929~~20,437,415 common shares, no par value, outstanding.

Consolidated Statements of Income
(Unaudited)

~~(Unaudited)~~


	First Quarter Ended				Second Quarter Ended				First Half Ended
	Apr. 1,		Apr. 2,		July 1,		July 2,		July 1,		July 2,
(Thousands, except per share amounts)	2011		2010
(Thousands except per share amounts)					2011		2010		2011		2010


Net sales	$	374,805	$	295,082	$	424,710	$	325,946	$	799,515	$	621,028
Cost of sales		319,005		245,768		362,039		270,093		681,043		515,861

Gross margin		55,800		49,314		62,671		55,853		118,472		105,167
Selling, general and administrative expense		31,642		30,340		34,048		30,611		65,691		60,950
Research and development expense		2,410		1,685		2,714		1,798		5,124		3,483
Other-net		3,671		4,084		5,064		2,946		8,735		7,031

Operating profit		18,077		13,205		20,845		20,498		38,922		33,703
Interest expense — net		585		619
Interest expense – net						613		691		1,198		1,310

Income before income taxes		17,492		12,586		20,232		19,807		37,724		32,393
Income tax expense		5,674		5,865		6,360		6,088		12,034		11,953

Net income	$	11,818	$	6,721	$	13,872	$	13,719	$	25,690	$	20,440

Net income per share of common stock — basic	$	0.58	$	0.33	$	0.68	$	0.68	$	1.26	$	1.01
Weighted-average number of common shares outstanding — basic		20,356		20,257		20,421		20,323		20,388		20,290
Net income per share of common stock — diluted	$	0.57	$	0.33	$	0.67	$	0.67	$	1.23	$	1.00
Weighted-average number of common shares outstanding — diluted		20,796		20,467		20,832		20,600		20,812		20,534

See Notes to Consolidated Financial Statements.

Consolidated Balance Sheets
(Unaudited)


	Apr. 1,			Dec. 31,			July 1,			Dec. 31,
(Dollars in thousands)	2011			2010
(Thousands)							2011			2010


Assets
Current assets
Cash and cash equivalents	$	12,007		$	16,104		$	9,461		$	16,104
Accounts receivable		153,404			139,374			149,386			139,374
Other receivables		3,030			3,972			2,679			3,972
Inventories		176,378			154,467			182,389			154,467
Prepaid expenses		33,241			31,743			37,468			31,743
Deferred income taxes		10,035			10,065			10,241			10,065

Total current assets		388,095			355,725			391,624			355,725
Related-party notes receivable		90			90			90			90
Long-term deferred income taxes		2,042			2,042			2,042			2,042
Property, plant and equipment		724,188			719,953
Less allowances for depreciation, amortization and depletion		(464,560	)		(454,085	)
Property, plant and equipment — cost								731,727			719,953
Less allowances for depreciation, depletion and amortization								(473,743	)		(454,085	)

Property, plant and equipment — net		259,628			265,868			257,984			265,868
Intangible assets		35,213			36,849			34,207			36,849
Other assets		1,839			1,900			7,831			1,900
Goodwill		72,936			72,936			72,936			72,936

Total Assets	$	759,843		$	735,410
Total assets							$	766,714		$	735,410

Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt	$	56,395		$	47,835		$	39,331		$	47,835
Accounts payable		36,121			33,375			37,912			33,375
Salaries and wages								22,181			34,035
Taxes other than income taxes								256			905
Other liabilities and accrued items		45,572			59,851			26,705			24,911
Unearned revenue		3,029			2,378			2,835			2,378
Income taxes		5,940			3,921			—			3,921

Total current liabilities		147,057			147,360			129,220			147,360
Other long-term liabilities		17,883			17,915			18,092			17,915
Retirement and post-employment benefits		82,032			82,502			81,588			82,502
Unearned income		58,267			57,154			59,724			57,154
Long-term income taxes		2,905			2,906			2,905			2,906
Deferred income taxes		4,166			4,912			4,010			4,912
Long-term debt		48,305			38,305			55,693			38,305
Shareholders’ equity		399,228			384,356			415,482			384,356

Total Liabilities and Shareholders’ Equity	$	759,843		$	735,410
Total liabilities and shareholders’ equity							$	766,714		$	735,410

See Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows
(Unaudited)


	Three Months Ended						First Half Ended
	Apr. 1,			Apr. 2,			July 1,			July 2,
(Dollars in thousands)	2011			2010
(Thousands)							2011			2010


Net income	$	11,818		$	6,721		$	25,690		$	20,440
Adjustments to reconcile net income to net cash
used in operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, depletion and amortization		8,894			8,521			22,425			17,100
Amortization of mine costs		2,999			—
Amortization of deferred financing costs in interest expense		117			153			233			282
Derivative financial instrument ineffectiveness		—			489			—			489
Stock-based compensation expense		990			950			2,191			1,988
Changes in assets and liabilities net of acquired assets
and liabilities:
Changes in assets and liabilities net of acquired assets and liabilities:
Decrease (increase) in accounts receivable		(13,094	)		(26,311	)		(8,627	)		(58,366	)
Decrease (increase) in other receivables		942			5,757			1,293			6,229
Decrease (increase) in inventory		(21,198	)		(10,084	)		(26,805	)		(10,276	)
Decrease (increase) in prepaid and other current assets		(1,280	)		2,607			(5,561	)		(1,147	)
Decrease (increase) in deferred income taxes								(200	)		6,117
Increase (decrease) in accounts payable and accrued expenses		(12,004	)		(896	)		(6,415	)		(1,798	)
Increase (decrease) in unearned revenue		651			174			454			(29	)
Increase (decrease) in interest and taxes payable		2,054			(935	)		(4,346	)		(359	)
Increase (decrease) in long-term liabilities		(1,623	)		(2,754	)		(1,655	)		(1,265	)
Other — net		(20	)		(162	)		(5,814	)		(59	)

Net cash used in operating activities		(20,754	)		(15,770	)		(7,137	)		(20,654	)
Cash flows from investing activities:
Payments for purchase of property, plant and equipment		(3,869	)		(13,349	)		(11,103	)		(24,768	)
Payments for mine development		(127	)		(2,477	)		(183	)		(7,425	)
Reimbursements for capital equipment under government contracts		1,112			5,360			2,570			14,915
Payments for purchase of business net of cash received		—			(22,332	)		—			(20,605	)
Proceeds from transfer of acquired inventory to consignment line		—			3,333			—			5,667
Proceeds from sale of property, plant and equipment		31			76			33			76
Other investments — net								13			14

Net cash used in investing activities		(2,853	)		(29,389	)		(8,670	)		(32,126	)
Cash flows from financing activities:
Proceeds from issuance (repayment) of short-term debt		8,561			(5,697	)
Repayments of short-term debt								(8,522	)		(14,035	)
Proceeds from issuance of long-term debt		20,000			50,000			42,472			70,000
Repayment of long-term debt		(10,000	)		—			(25,083	)		—
Debt issuance costs								(623	)		—
Principal payments under capital lease obligations		(257	)		(55	)		(441	)		(55	)
Issuance of common stock under stock option plans		637			27			698			851
Tax benefit from stock compensation realization		376			2			376			164

Net cash provided from financing activities		19,317			44,277			8,877			56,925
Effects of exchange rate changes		193			(254	)		287			(317	)

Net change in cash and cash equivalents		(4,097	)		(1,136	)		(6,643	)		3,828
Cash and cash equivalents at beginning of period		16,104			12,253			16,104			12,253

Cash and cash equivalents at end of period	$	12,007		$	11,117		$	9,461		$	16,081

See Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements
(Unaudited)


~~Note A —~~	~~Accounting Policies~~

Note A — Accounting Policies

In management’s opinion, the accompanying consolidated financial statements contain all adjustments necessary to present fairly the financial position as of ~~April~~July 1, 2011 and December 31, 2010 and the results of operations for the ~~three month periods~~second quarter and first half ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010. All adjustments were of a normal and recurring nature. Certain amounts in prior years have been reclassified to conform to the 2011 consolidated financial statement presentation.


~~Note B —~~	Note B — Inventories

~~Inventories on the Consolidated Balance Sheets are summarized as follows:~~


	Apr. 1,		Dec. 31,		July 1,		Dec. 31,
(Thousands)	2011		2010		2011		2010


Principally average cost:
Raw materials and supplies	$	50,595	$	43,295	$	57,934	$	43,295
Work in process		154,788		159,081		155,585		159,081
Finished goods		57,021		32,991		59,615		32,991

Gross inventories		262,404		235,367		273,134		235,367
Excess of average cost over LIFO inventory value		86,026		80,900		90,745		80,900

Net inventories	$	176,378	$	154,467	$	182,389	$	154,467


~~Note C —~~	~~Pensions and Other Post-retirement Benefits~~

Note C — Pensions and Other Post-employment Benefits

The following is a summary of the second quarter and first ~~quarter~~half 2011 and 2010 net periodic benefit cost for the domestic defined benefit pension plan and the domestic retiree medical plan.


	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	First Quarter Ended						First Quarter Ended						Second Quarter Ended						Second Quarter Ended
	Apr. 1,			Apr. 2,			Apr. 1,			Apr. 2,			July 1,			July 2,			July 1,			July 2,
(Dollars in thousands)	2011			2010			2011			2010
(Thousands)													2011			2010			2011			2010


Components of net periodic benefit cost
Service cost	$	1,516		$	1,244		$	71		$	68		$	1,516		$	1,244		$	71		$	68
Interest cost		2,309			2,156			399			435			2,309			2,156			399			434
Expected return on plan assets		(2,685	)		(2,536	)		—			—			(2,685	)		(2,536	)		—			—
Amortization of prior service cost		(118	)		(132	)		(9	)		(9	)		(118	)		(132	)		(9	)		(9	)
Amortization of net loss		982			711			—			—			982			711			—			—

Net periodic benefit cost	$	2,004		$	1,443		$	461		$	494		$	2,004		$	1,443		$	461		$	493


	Pension Benefits						Other Benefits
	First Half Ended						First Half Ended
	July 1,			July 2,			July 1,			July 2,
(Thousands)	2011			2010			2011			2010


Components of net periodic benefit cost
Service cost	$	3,033		$	2,488		$	142		$	136
Interest cost		4,618			4,312			798			869
Expected return on plan assets		(5,370	)		(5,072	)		—			—
Amortization of prior service cost		(236	)		(265	)		(18	)		(18	)
Amortization of net loss		1,963			1,422			—			—

Net periodic benefit cost	$	4,008		$	2,885		$	922		$	987

The Company made contributions to the domestic defined benefit pension plan of ~~$1.8~~$3.6 million in the first ~~quarter of~~half 2011.


~~Note D —~~	~~Contingencies~~

Note D — Contingencies

Materion Brush Inc. (formerly known as Brush Wellman Inc.), one of the Company’s wholly owned subsidiaries, ishas been a defendant from time to time in legal proceedings where the plaintiffs allege they have contracted chronic beryllium disease (CBD) or related ailments as a result of exposure to beryllium. Two CBD cases were outstanding as of December 31, 2010. During the first ~~quarter~~half of 2011, one case was dismissed while ~~a settlement agreement was reached in~~ the other case was settled for an amount less than $0.1 ~~million (although the case was not dismissed until early in the second quarter 2011).~~million. There were no new CBD cases ~~filed~~files during the first half of 2011 and no cases were outstanding as of the end of the second quarter 2011.

The Company will record a reserve for CBD or other litigation when a loss from either settlement or verdict is probable and estimable. Claims filed by third-party plaintiffs where the alleged exposure occurred prior to December 31, 2007 may be covered by insurance subject to an annual deductible of $1.0 million. Reserves are recorded for asserted claims only and defense costs are expensed as incurred.

The Company has an active environmental compliance program and records reserves for the probable cost of identified environmental remediation projects. The reserves are established based upon analyses conducted by the Company’s engineers and outside consultants and are adjusted from time to time based upon ongoing studies, the difference between actual and estimated costs and other factors. The reserves may also be affected by rulings and negotiations with regulatory agencies. The undiscounted reserve balance was $5.1 million as of ~~April~~July 1, 2011 and $5.2 million as of December 31, 2010. Environmental projects tend to be long-term and the final actual remediation costs may differ from the amounts currently recorded.


~~Note E —~~	~~Comprehensive Income~~

Note E — Comprehensive Income

The reconciliation between net income and comprehensive income for the ~~three month period~~second quarter and first half ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010 is as follows:

First Quarter Ended
Apr. 1,
Apr. 2,

(Dollars in thousands) 2011 2010

Net income $ 11,818 $ 6,721
Cumulative translation adjustment 1,311 (906 )
Change in the fair value of derivative
financial instruments, net of tax (200 ) 531
Pension and other retirement plan
liability adjustments, net of tax 560 376

Comprehensive income $ 13,489 $ 6,722


	Second Quarter Ended						First Half Ended
	July 1,			July 2,			July 1,			July 2,
(Thousands)	2011			2010			2011			2010


Net income	$	13,872		$	13,719		$	25,690		$	20,440
Cumulative translation adjustment		757			(440	)		2,068			(1,346	)
Change in the fair value of derivative financial instruments, net of tax		(211	)		(85	)		(411	)		447
Pension and other retirement plan liability adjustments, net of tax		560			373			1,120			748

Comprehensive income	$	14,978		$	13,567		$	28,467		$	20,289


~~Note F —~~	~~Segment Reporting~~

Note F — Segment Reporting

In the fourth quarter 2010, the names of the Company’s four reportable segments were changed. Advanced Material Technologies and Services has become Advanced Material Technologies, Specialty Engineered Alloys was revised to Performance Alloys, Beryllium and Beryllium Composites was shortened to Beryllium and Composites and Engineered Material Systems was changed to Technical Materials. These changes only affected

the segment names as the segments’ make up, reporting structures and how they are evaluated remained unchanged from previous periods.


	Advanced															Advanced
	Material		Performance		Beryllium and		Technical				All					Material		Performance		Beryllium and		Technical				All
(Dollars in thousands)	Technologies		Alloys		Composites		Materials		Subtotal		Other			Total
(Thousands)																Technologies		Alloys		Composites		Materials		Subtotal		Other			Total


First Quarter 2011
Second Quarter 2011
Sales to external customers																$	287,299	$	96,636	$	17,729	$	22,954	$	424,618	$	92		$	424,710
Intersegment sales																	843		993		32		387		2,255		—			2,255
Operating profit (loss)																	10,664		9,453		1,106		2,366		23,589		(2,744	)		20,845
Second Quarter 2010
Sales to external customers																$	213,897	$	77,852	$	15,738	$	18,413	$	325,900	$	46		$	325,946
Intersegment sales																	467		2,935		144		919		4,465		—			4,465
Operating profit (loss)																	9,246		8,510		2,074		2,033		21,863		(1,365	)		20,498
First Half 2011
Sales to external customers	$	256,626	$	84,449	$	13,958	$	19,661	$	374,694	$	111		$	374,805	$	543,925	$	181,085	$	31,687	$	42,615	$	799,312	$	203		$	799,515
Intersegment sales		681		910		190		318		2,099		—			2,099		1,524		1,903		222		705		4,354		—			4,354
Operating profit (loss)		10,709		8,765		86		2,157		21,717		(3,640	)		18,077		21,373		18,218		1,192		4,523		45,306		(6,384	)		38,922
Assets		336,190		245,569		122,154		25,651		729,564		30,279			759,843		331,673		248,582		123,800		27,554		731,609		35,105			766,714
First Quarter 2010
First Half 2010
Sales to external customers	$	203,010	$	63,388	$	13,095	$	15,462	$	294,955	$	127		$	295,082	$	416,907	$	141,240	$	28,833	$	33,875	$	620,855	$	173		$	621,028
Intersegment sales		394		3,749		33		392		4,568		—			4,568		861		6,684		177		1,311		9,033		—			9,033
Operating profit (loss)		8,464		3,328		2,157		1,041		14,990		(1,785	)		13,205		17,711		11,838		4,231		3,074		36,854		(3,151	)		33,703
Assets		314,864		205,555		91,947		23,049		635,415		42,428			677,843		330,712		219,739		99,135		25,569		675,155		40,313			715,468


~~Note G —~~	~~Stock-based Compensation Expense~~

Note G — Stock-based Compensation Expense

~~Stock-based~~The Company granted approximately 13,000 shares of restricted stock to its non-employee directors in the second quarter 2011 at a fair market value of $39.30 per share. The fair value was determined using the closing price of the Company’s stock on the grant date and will be amortized over the vesting period of one year.

The Company granted approximately 78,000 shares of restricted stock to certain employees in the second quarter 2011 at a fair value of $39.30 per share. Another 5,000 shares of restricted stock was granted to an employee in the second quarter 2011 at a fair value of $36.97 per share. The fair value was determined using the closing price of the Company’s stock on the grant date and will be amortized over the vesting period of three years. The holders of the restricted stock will forfeit their shares should their employment be terminated prior to the end of the vesting period.

The Company granted approximately 148,000 stock appreciation rights (SARs) to certain employees in the second quarter 2011 at a strike price of $39.30 per share. The fair value of the SARs, which was determined on the grant date using a Black-Scholes model, was $21.47 per share and will be amortized over the vesting period of three years. The SARs expire ten years from the date of the grant.

Total stock-based compensation expense for the above and previously existing awards and plans was $1.2 million in the second quarter 2011 and $1.0 million in the second quarter 2010. For the first ~~quarter~~half of the year, the stock-based compensation expense was $2.2 million in 2011 and $2.0 million in 2010.

The Company received ~~$0.6~~$0.7 million for the exercise of approximately ~~49,000 options during~~50,000 shares in the first ~~quarter 2011.~~half of 2011 and $0.9 million for the exercise of approximately 47,000 shares in the first half of 2010. Approximately 7,000 stock appreciation rights were exercised in the first ~~quarter~~half of 2011 as well.


~~Note H —~~	~~Other-net~~

Note H —Other-net

Other-net expense for the second quarter and first ~~quarter of~~half 2011 and 2010 is summarized as follows:


	First Quarter Ended						Second Quarter Ended						First Half Ended
	Apr. 1,			Apr. 2,			July 1,			July 2,			July 1,			July 2,
(Dollars in thousands)	2011			2010
(Thousands)							2011			2010			2011			2010


Foreign currency exchange/translation loss	$	(344	)	$	(553	)
Exchange/translation gain (loss)							$	(674	)	$	246		$	(1,019	)	$	(307	)
Amortization of intangible assets		(1,509	)		(1,485	)		(1,509	)		(1,555	)		(3,019	)		(3,051	)
Metal consignment fees		(2,129	)		(1,174	)		(2,670	)		(1,265	)		(4,799	)		(2,440	)
Derivative ineffectiveness		—			(489	)		—			—			—			(489	)
Other items		311			(383	)		(211	)		(372	)		102			(744	)

Total	$	(3,671	)	$	(4,084	)	$	(5,064	)	$	(2,946	)	$	(8,735	)	$	(7,031	)


~~Note I —~~	~~Income Taxes~~

Note I — Income Taxes

The tax expense of ~~$5.7~~$6.4 million in the ~~first~~second quarter 2011 was calculated by applying a rate of ~~32.4%~~31.4% against income before income taxes while the tax expense of ~~$5.9~~$6.1 million in the ~~first~~second quarter 2010 was calculated by applying a rate of ~~46.6%~~30.7% against the income before income taxes in that period. In the first half of 2011, the tax expense of $12.0 million was calculated by applying a rate of 31.9% against income before income taxes. In the first half of 2010, a rate of 36.9% was applied against income before income taxes to calculate the expense of $12.0 million.

The differences between the statutory and effective rates in ~~both quarters was~~the second quarter and first half of 2011 and 2010 were due to the impact of the production deduction, percentage depletion, foreign source income and deductions, ~~the production deduction,~~ executive compensation, state and local taxes and other factors.

In addition, the tax expense in the first ~~quarter~~half of 2010 included a discrete item of $1.4 million for the reduction in a deferred tax asset. The asset was reduced as a result of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. This legislation eliminates the income tax deduction related to prescription drug benefits provided to retirees and reimbursed under the Medicare Part D retiree drug subsidy program beginning in 2013.

~~There were no material discrete events that affected the~~The tax rate in the second quarter and first half of 2011 was affected by immaterial discrete events.

The effective tax rate was lower in the second quarter 2011 than the first quarter 2011 prior to the impact of any discrete events. This change in the tax rate did not have a material impact on net income or earnings per share in the second quarter 2011.


~~Note J —~~	~~Fair Value of Financial Instruments~~

Note J — Fair Value of Financial Instruments

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

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

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

Level 3 — Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheet as of ~~April~~July 1, 2011:


			Fair Value Measurements									Fair Value Measurements
			Quoted Prices									Quoted Prices
			in Active		Significant							in Active		Significant
			Markets for		Other		Significant					Markets for		Other			Significant
			Identical		Observable		Unobservable					Identical		Observable			Unobservable
			Assets		Inputs		Inputs					Assets		Inputs			Inputs
(Dollars in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
(Thousands)									Total			(Level 1)		(Level 2)			(Level 3)


Financial Assets
Directors’ deferred compensation investments	$	680	$	680	$	—	$	—	$	642		$	642	$	—		$	—
Foreign currency forward contracts		7		—		7		—		—			—		—			—

Total	$	687	$	680	$	7	$	—	$	642		$	642	$	—		$	—

Financial Liabilities
Directors’ deferred compensation liability	$	680	$	680	$	—	$	—	$	(642	)	$	642	$	—		$	—
Foreign currency forward contracts		1,851		—		1,851		—		(2,176	)		—		(2,176	)		—

Total	$	2,531	$	680	$	1,851	$	—	$	(2,818	)	$	642	$	(2,176	)	$	—

The Company uses a market approach to value the assets and liabilities for outstanding derivative contracts in the table above. Foreign currency forward contracts are valued through models that utilize market observable inputs including both spot and forward prices for the same underlying currencies. The carrying values of the other working capital items and debt on the Consolidated Balance Sheet approximate their fair values as of ~~April~~July 1, 2011.


~~Note K —~~	~~Derivative Instruments and Hedging Activity~~

Note K — Derivative Instruments and Hedging Activity

The Company uses derivative contracts to hedge portions of its foreign currency exposures. The objectives and strategies for using foreign currency derivatives are as follows:

The Company sells products to overseas customers in their local currencies, primarily the euro and yen. The Company uses 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 dollar value of the 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 contract may limit the benefits from a weakening U.S. dollar.

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

The use of foreign currency derivative contracts is governed by policies approved by the Board of Directors. A team consisting of senior financial managers reviews the estimated exposure levels, as defined by budgets, forecasts and other internal data, and determines the timing, amounts and instruments to use to hedge that exposure within the confines of the policy. 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. Hedge contracts are typically layered in at different times for a specified exposure period in order to minimize the impact of rate movements.

The Company may also use forward contracts to hedge its precious metal exposures. The Company maintains the majority of its precious metals used in production on a consignment basis. The metal is purchased out of consignment when it is shipped to the customer and the purchase price forms the basis for the price to be charged to the customer. This allows for changes in the market prices of the precious metals in either direction to be passed through to the customer and reduces the impact changes in prices could have on the Company’s margins and operating profit. However, in certain circumstances, the Company may elect to purchase precious metals to meet a portion of its production requirements. The Company may then hedge the price exposure on this inventory by securing a forward contract. The gain or loss on the forward contract from movements in the market price will generally offset the gain or loss on the disposition of the metal. The use of precious metal derivative contracts is also governed by policies approved by the Board of Directors and monitored by a group of senior financial managers.

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

All derivatives are recorded on the balance sheet at their fair values. 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 (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 outstanding foreign currency forward contracts had a notional value of ~~$36.6~~$36.5 million as of ~~April~~July 1, 2011. All of these contracts were designated as and effective as cash flow hedges. There was no ineffectiveness associated with the outstanding currency contracts. The fair value of these contracts was recorded on the balance sheet as of ~~April~~July 1, 2011 as follows (dollars in thousands):


	Fair			Fair
(Asset/liability)	Value
Debit (credit)				Value


Other assets	$	7
Other liabilities and accrued items		(1,770	)	$	(2,059	)
Other long-term liabilities		(81	)		(117	)

Total	$	(1,844	)	$	(2,176	)

910

A summary of the hedging relationships of the outstanding derivative financial instruments designated as cash flow hedges as of ~~April~~July 1, 2011 and ~~April~~July 2, 2010 and the amounts transferred into income for the ~~three month periods~~second quarter and first half then ended is as follows:

Apr. 1,
Apr. 2,

(Dollars in thousands) 2011 2010

Derivative in cash flow hedging relationship Foreign Currency Foreign Currency
Forward Contracts Forward Contracts
Effective portion of hedge:
Gain (loss) recognized in OCI at the end of the period $ (1,844 ) $ 932
Location of gain (loss) reclassified from OCI into income Other-net Other-net
Amount of gain (loss) reclassified from OCI into income $ (610 ) $ (10 )
Ineffective portion of hedge and amounts excluded from
Effectiveness testing:
Location of gain (loss) recognized in income on derivative Other-net Other-net
Amount of gain (loss) recognized in income on derivative $ — $ —


	Second Quarter Ended					First Half Ended
	July 1,			July 2,		July 1,			July 2,
(Thousands)	2011			2010		2011			2010


Derivative in cash flow hedging relationship		Foreign Currency			Foreign Currency		Foreign Currency			Foreign Currency
		Forward Contracts			Forward Contracts		Forward Contracts			Forward Contracts
Effective portion of hedge:
Gain (loss) recognized in OCI at the end of the period	$	(2,176	)	$	803
Location of gain (loss) reclassified from OCI into income		Other-net			Other-net		Other-net			Other-net
Amount of gain (loss) reclassified from OCI into income	$	(625	)	$	398	$	(1,235	)	$	388
Ineffective portion of hedge and amounts excluded from effectiveness testing:
Location of gain (loss) recognized in income on derivative		Other-net			Other-net		Other-net			Other-net
Amount of gain (loss) recognized in income on derivative	$	—		$	—	$	—		$	—

The Company secured a debt obligation with an embedded copper derivative in October 2009. The derivative provided an economic hedge for the Company’s copper inventory against movements in the market price of copper. However, the derivative did not qualify as a hedge for accounting purposes and changes in its fair value were charged against income in the ~~current period.~~period as incurred. In the first quarter 2010, the Company secured forward contracts to reduce the variability of the charges against income due to movements in the derivative’s fair value. The ineffectiveness on the embedded derivative and the forward contract was zero in the second quarter 2010 and a net $0.5 million expense in the first ~~quarter~~half of 2010 and was recorded inother-net on the Consolidated Statements of Income. The forward ~~contracts~~contract and the embedded copper derivative outstanding at the end of the second quarter 2010 matured in ~~subsequent quarters~~the third quarter of 2010. There was no derivative ineffectiveness recorded in the second quarter or first half of 2011.

During the first quarter 2011, the Company secured a forward contract to sell a specified quantity of gold. The contract served as an economic hedge of gold purchased and held in inventory for use in manufacturing products for sale in the normal course of business. No hedge designation was assigned to the contract. The contract matured in the first quarter 2011 and resulted in a loss of $0.2 million that was recorded in cost of sales on the Consolidated Statements of Income.

The Company expects to relieve ~~$1.8~~$2.1 million from OCI and chargeother-net on the Consolidated Statements of Income in the twelve month period beginning ~~April~~July 2, 2011.

1011


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

Overview

We are an integrated producer of high performance advanced engineered materials used in a variety of electrical, electronic, thermal and structural applications. Our products are sold into numerous markets, including consumer electronics, defense and science, industrial components and commercial aerospace, energy, automotive electronics, telecommunications infrastructure, medical and appliance.

Sales of ~~$374.8~~$424.7 million in the ~~first~~second quarter 2011 established a record high, surpassing the ~~previous~~prior record set ~~in the fourth quarter 2010 by 5%. We have set quarterly sales records in four of the five most recent quarters. Sales~~ in the first quarter 2011 by 13%. We have established new quarterly sales records in five of the most recent six quarters. Sales in the second quarter 2011 were also ~~27%~~30% higher than sales in the ~~first~~second quarter 2010.

The sales growth in the ~~first~~second quarter 2011 ~~resulted~~was due to a combination of improved demand from ~~the continued strong demand across~~ a number of ~~our key~~ markets ~~including consumer~~(particularly automotive electronics, industrial components and commercial aerospace, ~~automotive electronics~~medical and ~~energy, and the pass-through of~~energy), higher metal ~~prices.~~pass-through prices and pricing initiatives.

Gross margin ~~was $55.8~~of $62.7 million in the ~~first~~second quarter 2011 ~~compared to $49.3~~was a $6.8 million improvement over the second quarter 2010, as a portion of ~~margin in~~ the ~~first quarter 2010. The~~ margin benefits from the higher ~~volumes,~~sales volume and improved pricing ~~and other factors combined to more than~~was offset bystart-up ~~related~~ costs associated with the new beryllium facility, ~~and an increase in~~higher manufacturing overhead ~~costs.~~costs and other factors.

~~The growth~~Various expenses were higher in ~~gross margin netted~~the second quarter 2011 compared to the second quarter 2010, including the legal and marketing costs associated with ~~a modest increase in selling, general and administrative (SG&A) expenses~~the renaming of ~~4% (largely~~the company, metal consignment fees (partially due to the ~~costs associated with changing~~increased market prices of precious metals), retirement plan expenses (driven by the ~~company name to Materion Corporation)~~lower discount rate and other factors) and other items.

Operating profit was a minor net change in other expenses resulted in a $4.9 million improvement in operating profit in the first quarter 2011 over the first quarter 2010. Interest expense was unchanged in the first quarter 2011 from the first quarter 2010 while the tax rate was lower (partially due to an unfavorable discrete event recorded in the first quarter 2010). Net income improved $5.1 million, from $6.7solid $20.8 million in the ~~first~~second quarter ~~2010 to $11.8~~2011, a slight improvement over the operating profit of $20.5 million in the ~~first~~second quarter ~~2011.~~2010. Earnings per share ~~were $0.57 in~~of $0.67 was unchanged between quarters.

During the ~~first~~second quarter 2011, ~~and $0.33 in the first quarter 2010.~~

~~Debt increased $18.6~~we entered into a new $8.0 million ~~in the first quarter 2011 in order~~long-term debt facility that is designed to finance capital expenditures in the state of Ohio. Subsequent to the end of the second quarter, we negotiated a new five-year revolving credit agreement that provides increased borrowing capacity and more flexible terms than the former agreement.

We finalized the settlement of a chronic beryllium disease case early in the second quarter 2011 for an ~~increase in working capital.~~immaterial amount. As a result, we do not have any chronic beryllium disease litigation pending against us as of the end of the second quarter 2011.

Results of Operations


	First Quarter				Second Quarter Ended				First Half Ended
(Millions, except per share amounts)	2011		2010
					July 1,		July 2,		July 1,		July 2,
(Millions, except per share data)					2011		2010		2011		2010


Sales	$	374.8	$	295.1	$	424.7	$	325.9	$	799.5	$	621.0
Operating profit		18.1		13.2		20.8		20.5		38.9		33.7
Income before income taxes		17.5		12.6		20.2		19.8		37.7		32.4
Net income		11.8		6.7		13.9		13.7		25.7		20.4
Diluted earnings per share	$	0.57	$	0.33	$	0.67	$	0.67	$	1.23	$	1.00

Sales~~of $374.8~~were $424.7 million in the ~~first~~second quarter 2011, ~~were $79.7~~an improvement of $98.8 million, or ~~27%~~30%, ~~higher than~~over sales of ~~$295.1~~$325.9 million in the ~~first~~second quarter 2010. For the first six months of the year, sales grew 29% from $621.0 million in 2010 to $799.5 million in 2011. Sales have improved over the corresponding quarter in the prior year for ~~six~~seven consecutive quarters.

~~Domestic sales grew approximately 34%~~Sales to a number of markets were higher in the ~~first~~second quarter 2011 ~~over~~than the ~~first~~second quarter 2010. International sales were $95.1 million in the first quarter 2011, an 11% growth rate over the international sales of $85.6 million in the first quarter 2010. The majority of the international sales growth was in Europe.

~~Sales~~However, shipments to the ~~majority of our key markets grew in the first quarter 2011 over the first quarter 2010.~~

~~The~~consumer electronics market, ~~which accounted for approximately 40% of~~ our ~~total sales~~largest market, were relatively unchanged in the ~~first~~second quarter ~~2011, showed the most growth as a result of improved demand for our materials for smart phones, hand held electronic devices and other applications.~~

1112

2011 from the second quarter 2010 after having grown significantly over the prior five quarters.Defense and scienceshipments were also relatively unchanged between periods.

Sales to theindustrial components and commercial aerospace marketgrew at a double-digit rate in the second quarter 2011 over the second quarter 2010.

Automotive electronics marketsales were approximately 30% higher in the second quarter 2011 than the second quarter 2010 due to continued strong demand from domestic and foreign customers.

Sales to thetelecommunications infrastructuremarket, one of our smaller markets, grew approximately 20% in the second quarter 2011 over the second quarter 2010 on the strength of shipments for undersea applications.

Sales to theenergy, medical and other marketsalso contributed to the sales growth in the ~~first~~second quarter ~~2011. The growth resulted from additional~~2011 over the second quarter 2010.

Total sales ~~for heavy equipment, plastic tooling and other applications. Sales to this market accounted for 11% of~~order entry, while slightly higher than the first quarter 2011, ~~sales.~~was approximately 5% lower than sales in the second quarter 2011. Order entry had exceeded sales for the prior seven consecutive quarters. Order entry in the second quarter and first half of 2011 was higher than the comparable periods of 2010.

Sales ~~to the~~~~energy market~~also grew in the ~~first~~second quarter ~~largely due to the increased demand for our alloys for oil~~2011 and ~~gas applications. Sales for architectural glass and solar energy applications increased by more modest amounts. The energy market represented approximately 8% of sales in~~ the first ~~quarter 2011.~~

~~Sales to the~~~~automotive electronics market~~~~, while only 5%~~half of ~~our total sales, grew in excess of 25% in the first quarter~~ 2011 over the ~~first quarter 2010.~~

~~Medical market~~~~sales, which were approximately 5% of our total first quarter 2011 sales, improved by a minor amount. We believe that this market represents long-term growth potential for our materials.~~

~~Sales to the~~~~defense and science market~~respective periods in the first quarter 2011 were essentially unchanged from the first quarter 2010 although our traditional beryllium-based defense sales were lower. Sales to this market accounted for 10% of our first quarter 2011 sales, which was below the 2010 percentage.

Demand strengthened from the majority of our markets in the first quarter 2010 after being weak during 2009 due to the global economic crisis. We believe that the demand for our products fell further than the decline in end-use consumer spending due to excess inventories in the downstream supply chain in 2009 and that a portion of the growth in demand and sales in the first quarter 2010 may have been due to a replenishment of inventories in the supply chain that were drawn down throughout 2009.

~~In addition to improved demand, sales also grew in the first quarter 2011 over the first quarter 2010~~prior year due to the pass-through of higher metal prices. We use gold, silver, platinum, palladium, copper ~~gold, palladium, platinum,~~and ruthenium ~~and silver~~ in the manufacture of various products. Our sales are affected by the prices for these metals, as changes in our purchase ~~price~~prices are passed on to our customers in the form of higher or lower selling prices. ~~Average~~The net average prices between periods for these metals increased during the second quarter and first half of 2011 over the respective periods in 2010. The net impact of the ~~aggregate were higher~~change in ~~the first quarter 2011 than in the first quarter 2010 and accounted for~~metal prices was an estimated ~~$44.5 million of the $79.7~~$63.0 million increase in sales ~~between periods.~~in the second quarter 2011 from the second quarter 2010 and an estimated $107.5 million increase in sales in the first half of 2011 from the first half of 2010.

~~The~~Domestic sales ~~order entry rate remained firm throughout~~improved 35% in the second quarter 2011 and 34% in the first half of 2011 over the comparable periods in 2010. Domestic sales include the majority of the increase in the metal price pass-through. International sales grew 19% in the second quarter 2011 ~~as orders exceeded shipments~~and 15% in the ~~quarter by approximately 5%.~~first half of 2011 over the same periods in 2010. International sales were 26% of total sales in the first half of 2011 and 29% of total sales in the first half of 2010. European sales grew 35% in the first half of 2011 and accounted for the majority of the international sales growth during that time period. Sales to Asia grew 4% in the first half of 2011 over the first half of 2010.

Gross marginwas ~~$55.8~~$62.7 million, or 15% of sales, in the second quarter 2011 compared to $55.9 million, or 17% of sales, in the second quarter 2010. For the first six months of 2011, gross margin was $118.5 million, an improvement of $13.3 million from the $105.2 million of margin generated in the first ~~quarter 2011, an improvement~~half of ~~$6.5 million over the gross margin of $49.3 million in the first quarter~~ 2010. Gross margin was 15% of sales in the first ~~quarter~~half of 2011 and 17% of sales in the first half of 2010.

Gross margin in the second quarter ~~2010. Despite the increase~~and first half of 2011 benefitted from higher sales volumes, higher selling prices in ~~gross margin dollars, the gross margin as a percent~~portions of ~~sales was lower~~our business and improved operating efficiencies and machine utilization due to the higher ~~metal pass-through~~production volumes. The change in ~~sales in the first quarter 2011.~~

~~The increased margin dollars~~product mix, which had been favorable in the first quarter 2011, ~~resulted from~~had an immaterial impact on the margin contribution from the higher sales, improved pricing in a portion of our business and a favorable change in product mix. In addition, the majority of our facilities continued to run at high production levels which create higher machine utilization rates and operating efficiencies.second quarter 2011 margins. Margins in the first quarter 2010 had been reduced by lower than expected manufacturing yields on welded products at the Elmore, Ohio facility. The causes of the lower yields were identified and resolved in subsequent quarters in 2010.

These margin benefits were partially offset in the second quarter and first half of 2011 by higher costs and inefficiencies associated with thestart-up ~~costs and other inefficiencies with~~of the new beryllium facility. ~~Construction and installation~~While the major pieces of ~~this operation was nearing completion and during the first quarter and into the second quarter we~~equipment were in ~~the process of~~place, we incurred additional costs for testing the equipment and bringing it up on line. Higher scrap rates on certain nickel products also reduced margins in the first half of 2011.

~~Higher material prices~~Manufacturing overhead costs were only 1% higher in the second quarter 2011 than the second quarter 2010 but 7% higher in the first half of 2011 than the first half of 2010. The increase in overhead costs in the first half of 2011 was due to the lag between receipt of an order and the ultimate shipment of that order also had a negative impact on margins in a portion of our business during the first quarter 2011. Manufacturing overhead costs increased 14% in the first quarter 2011 over the first quarter 2010 as a resultcost of investments to support the current and projected growth in the business, ongoing support costs for the new beryllium facility ~~higher utility costs at various facilities~~ and other ~~factors.~~

~~In the first quarter 2010, we recorded an estimated $1.6 million margin benefit resulting from the reduction~~factors offset in ~~the projected year-end 2010 balance in a portion of our inventory subject tolast-in,~~ ~~first-out (LIFO) accounting and~~part by various cost savings.

1213

We recorded a $1.4 million benefit as the ~~associated~~estimated margin impact of the projected depletion of alast-in, first out (LIFO) inventory layer associated with the second quarter 2010. We also recorded a $1.6 million LIFO ~~inventory layer.~~benefit in the first quarter 2010. There was no corresponding benefit recorded in the second quarter or first ~~quarter~~half of 2011.

Selling, general and administrative (SG&A) expensestotaled $34.0 million in the second quarter 2011, an increase of $3.4 million over the total expense of $30.6 million in the second quarter 2010. SG&A expenses in the first six months of 2011 were ~~$31.6~~$65.7 million, or 8% of sales, compared to $61.0 million, or 10% of sales, in the first six months of 2010.

Legal, administrative and marketing costs associated with changing the company’s name totaled $1.1 million in the second quarter 2011 and $2.7 million in the first ~~quarter~~half of 2011. We anticipate that we will incur additional expenses for this program in the second half of 2011, ~~compared~~but not to ~~$30.3 million~~the same extent as in the first ~~quarter 2010. As a percent~~half of ~~sales, SG&A expenses decreased from 10% in~~ the ~~first quarter 2010 to 8% in the first quarter 2011.~~year.

Costs associated with the company name change in the first quarter 2011 totaled $1.6 million. We anticipate that there will be additional administrative and marketing expenses associated with the name change in subsequent quarters in 2011, but those quarterly expenses should be less than the first quarter 2011.

~~The incentive~~Incentive compensation expense under cash-based plans was ~~$1.2~~$0.2 million lower in the second quarter 2011 than the second quarter 2010 and $1.4 million lower in the first ~~quarter~~half of 2011 than the first ~~quarter~~half of 2010 due to differences in the levels of projected ~~level of annual profit and other factors~~profitability relative to the ~~plans’ targets in each year.~~ plan targets.

Stock-based compensation expense was $0.2 million higher in the second quarter and first half of ~~$1.0~~2011 than the comparable periods in 2010.

The expense under the domestic defined benefit pension plan was $0.6 million higher in the second quarter 2011 than the second quarter 2010 and $1.1 million higher in the first half of 2011 than the first half of 2010. The increased cost was due to a change in the discount rate, the performance of the plan assets and other actuarial and demographic factors. The cost increase was divided primarily between SG&A expense and cost of sales. Other fringe benefit costs, including costs associated with the 401(k) savings plan, were higher in the second quarter 2011 ~~was unchanged from~~than the ~~first~~second quarter 2010.

~~Other corporate-directed~~Corporate expenses, including various legal compliance and related costs, information technology costs and the costs of other initiatives designed to improve long-term efficiencies and profitability, ~~added to SG&A~~were higher in the second quarter and first half of 2011 than the corresponding periods in 2010.

Various sales-related expenses ~~during~~increased with the ~~first quarter 2011. Corporate information technology costs increased~~higher sales volume in the first ~~quarter~~half of 2011 over the first quarter 2010 as a result of system development and support efforts. Employment costs within SG&A also increased due to higher domestic pension and 401(k) plan expenses. Various expenses also increased in support of the higher sales level as well.

Research and development (R&D) expenseswere ~~$2.4~~$2.7 million in the second quarter 2011 compared to $1.8 million in the second quarter 2010. R&D expenses of $5.1 million in the first ~~quarter~~half of 2011 ~~versus $1.7~~were $1.6 million higher than the expense of $3.5 million in the first ~~quarter~~half of 2010. ~~We increased our~~ R&D activities ~~in portions of our business~~have increased in the first ~~quarter 2011.~~half of 2011 in order to help support our growth opportunities.

Other-net expensewas ~~$3.7~~$5.1 million in the ~~first~~second quarter 2011 ~~and $4.1~~compared to $2.9 million for the second quarter 2010. For this first half of the year,other-net expense totaled $8.7 million in ~~the first quarter 2010 as lower exchange~~2011 and ~~translation losses, derivative ineffectiveness and other items more than offset an increase~~$7.0 million in ~~the metal consignment fee.~~2010. See Note H to the Consolidated Financial Statements for the details of the major components ~~within~~ofother-net expense.

The metal consignment fee was ~~$1.0~~$1.4 million higher in the second quarter 2011 and $2.4 million higher in the first ~~quarter~~half of 2011 than in the ~~first quarter~~respective periods in 2010 largely due to the increased value of the ~~consigned~~ precious metal on hand. The additional copper pounds onheld under consignment in ~~the first quarter~~ 2011 contributed to the higher fee as well.

Exchange and translation gains and losses are a function of the movement in the value of the U.S. dollar versus certain other currencies and in relation to the strike prices in currency hedge contracts.

The ~~net exchange~~amortization of intangible assets of $1.5 million in the second quarter 2011 and ~~translation losses were $0.2~~$3.0 million ~~lower~~ in the first ~~quarter~~half of 2011 ~~than~~were relatively unchanged from the ~~first quarter 2010.~~respective periods in the prior year.

The derivative ineffectiveness expense of $0.5 million in the first ~~quarter~~half of 2010 resulted from movements in the fair values of copper derivatives that did not qualify for hedge accounting. These instruments matured in ~~subsequent quarters in~~ 2010 and there was no ineffectiveness associated with the outstanding derivatives in the first ~~quarter~~half of 2011.

~~Amortization of intangible assets of $1.5 million in the first quarter 2011 was unchanged from the first quarter 2010.~~

Other-net ~~expense~~ also includes bad debt expense, gains and losses on the disposal of fixed assets, cash discounts and other ~~non-operating~~miscellaneous items. ~~These items netted~~

Operating profitwas $20.8 million in the second quarter 2011 compared to a$20.5 million in the second quarter 2010 as the margin benefits from the higher sales volumes and other factors were predominately offset by thestart-up costs of the new beryllium facility, the costs associated with the company name change, higher retirement benefit ~~of $0.3~~plan costs, differences in the LIFO inventory benefit and other items. Operating profit was $38.9 million in the first ~~quarter~~half of 2011, ~~versus~~ an ~~expense~~improvement of ~~$0.4~~$5.2 million ~~in the first quarter 2010.~~

~~Operating profit~~~~of $18.1 million in the first quarter 2011 was a $4.9 million improvement~~ over the operating profit of ~~$13.2~~$33.7 million in the first quarter 2010. The improved profitability resulted from the net margin benefit from the higher sales, improved pricing and other factors offset in part by an increase in expenses. Operating profit was 5%half of ~~sales in the first quarter 2011 and 4% of sales in the first quarter~~ 2010.

Interest expense — net~~was~~of $0.6 million in the ~~first~~second quarter 2011 ~~unchanged~~was down slightly from the net expense of $0.7 million in the second quarter 2010. For the first ~~quarter~~half of the year, interestexpense-net was $1.2 million in 2011 and $1.3 million in 2010. Average debt levels were ~~similar in the two periods while outstanding capital leases and the associated interest costs were higher in the first quarter 2011. The average borrowing rate was~~ slightly lower in the ~~first~~second quarter 2011 than the second quarter 2010 and the average effective borrowing rate was lower by a minor amount. Interest on capital leases was higher in the second quarter and first ~~quarter~~half of 2011 than the corresponding periods of 2010.

Theincome before income taxesandthe income tax expensefor the second quarter and first ~~quarter~~half of 2011 and 2010 were as follows:


	First Quarter						Second Quarter Ended						First Half Ended
(Millions)	2011			2010
							July 1,			July 2,			July 1,			July 2,
(Dollars in millions)							2011			2010			2011			2010


Income before income taxes	$	17.5		$	12.6		$	20.2		$	19.8		$	37.7		$	32.4
Income tax expense		5.7			5.9			6.4			6.1			12.0			12.0
Effective tax rate		32.4	%		46.6	%		31.4	%		30.7	%		31.9	%		36.9	%

The effects of ~~percentage depletion,~~ the production deduction, percentage depletion, executive compensation, foreign source income and deductions and other items were major factors for the difference between the effective and statutory rates in ~~both~~ the second quarter and first ~~quarter~~half of 2011 and 2010.

The tax expense of ~~$5.9~~$12.0 million in the first ~~quarter~~six months of 2010 also included a discrete item of $1.4 million recorded in the first quarter 2010 for the reduction of a deferred tax asset as a result of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act. Beginning in 2013, we will no longer be able to claim an income tax deduction for prescription drug benefits provided to our retirees and reimbursed under the Medicare Part D retiree drug subsidy program. While this tax increase does not take effect until 2013, accounting standards require that the carrying value of a deferred ~~income~~ tax asset be adjusted in the period in which legislation changing the applicable tax law is enacted.

There were no material discrete events ~~affecting the tax rate~~recorded in the second quarter or first ~~quarter~~half of 2011.

Net incomewas ~~$11.8~~$13.9 million (or ~~$0.57~~$0.67 per share, diluted) in the second quarter 2011 compared to net income of 13.7 million (or $0.67 per share, diluted) in the second quarter 2010. For the first half of 2011, net income was $25.7 million (or $1.23 per share, diluted) versus net income of $20.4 million (or $1.00 per share, diluted) in the first ~~quarter 2011 versus $6.7 million (or $0.33 per share, diluted) in the first quarter~~half of 2010.

Segment Results

Changing our name from Brush Engineered Materials Inc. to Materion Corporation in the first quarter 2011 did not alter our senior management structure or how the chief operating decision maker evaluates the performance of our businesses. We continue to have the same four reportable segments as we had previously with no change in their make up or reporting structure, although the names of those segments were changed effective with the reporting of the 2010 year-end results. Advanced Material Technologies and Services was renamed Advanced Material Technologies, Specialty Engineered Alloys was changed to Performance Alloys, Beryllium and Beryllium Composites was shortened to Beryllium and Composites, and Engineered Material Systems was changed to Technical Materials.

Results by segment are depicted in Note F to the Consolidated Financial Statements. The results for Materion Services Inc. (formerly known as BEM Services, Inc.), a wholly owned subsidiary that provides administrative and financial services on a cost-plus basis to other units within the organization, and other corporate costs are included in the All Other column of our segment reporting.

The operating loss within All Other was ~~$1.9~~$1.4 million higher in the second quarter 2011 than the second quarter 2010 and $3.2 million higher in the first ~~quarter~~half of 2011 than the first half of 2010. The increased loss in the quarter ~~2010~~and first half of the year was due to ~~the~~a combination of costs ~~incurred to affect~~associated with the company name change in 2011, higher legal compliance costs, increased wages and other ~~corporate initiatives and higher manpower costs~~items offset in part by ~~reductions in~~lower incentive ~~compensation and~~compensation. The comparison for the first half of the year was also affected by the $0.5 million of derivative ineffectiveness ~~expense.~~recorded in the first quarter 2010.

Advanced Material Technologies


					Second Quarter Ended				First Half Ended
	First Quarter				July 1,		July 2,		July 1,		July 2,
(Millions)	2011		2010		2011		2010		2011		2010


Sales	$	256.6	$	203.0	$	287.3	$	213.9	$	543.9	$	416.9
Operating profit		10.7		8.5		10.7		9.2		21.4		17.7

Advanced Material Technologiesmanufactures precious, non-precious and specialty metal products, including vapor deposition targets, frame lid assemblies, clad and precious metal preforms, high temperature braze materials, ultra-fine wire, advanced chemicals, optics, performance coatings and microelectronic packages. These products are used in wireless, semiconductor, photonic, hybrid and other microelectronic applications within the

consumer electronics and telecommunications infrastructure markets. Other key markets for these products include medical, defense and science, energy and industrial components. Advanced Material Technologies also has metal cleaning operations and in-house refineries that allow for the reclaim of precious metals from internally generated or customers’ scrap. This segment has domestic facilities in New York, Connecticut, Wisconsin, New Mexico, Massachusetts and California and international facilities in Asia and Europe.

Sales from Advanced Material Technologies ~~totaled $256.6~~of $287.3 million in the second quarter 2011 were 34% higher than sales of $213.9 million in the second quarter 2010, while sales of $543.9 million in the first ~~quarter~~half of 2011 ~~a 26% improvement over~~were $127.0 million, or 30%, higher than sales of ~~$203.0~~$416.9 million in the first ~~quarter~~half of 2010.

Advanced Material Technologies adjusts its selling prices daily to reflect the current cost of the precious and certain other metals that are sold. The cost of the metal is generally a pass-through to the customer and a margin is generated on the fabrication efforts irrespective of the type or cost of the metal used in a given application. Therefore, the cost and mix of metals sold will affect sales but not necessarily the margins generated by those sales. The prices of gold, silver, platinum and palladium were higher on average in the second quarter and first half of 2011 than the respective periods in 2010. The higher metal price pass-through increased sales by an estimated $57.7 million in the second quarter 2011 ~~than~~and $97.9 million in the first ~~quarter 2010 and increased sales an estimated $40.2 million. Sales growth from all other factors was $13.4 million.~~half of 2011.

Sales of products manufactured at the Buffalo, New York facility, including targets, lids and wire, ~~grew~~were relatively unchanged in the second quarter 2011 from the second quarter 2010 after adjusting for changes in the metal prices. The order entry level, after growing for a number of periods, started to slow down in the second quarter 2011. Sales of these products were higher in the first ~~quarter~~half of 2011 over the first ~~quarter~~half of 2010 with that growth due to the ~~continued~~ increased demand for wireless, handset, semiconductor and other microelectronic applications from the consumer electronics and defense markets. ~~Refine~~

Sales from the Albuquerque, New Mexico facility, which was acquired in the first quarter 2010, showed significant growth in the second quarter 2011 as sales for architectural glass applications within the energy market and sales of other products to the industrial components market improved. This growth was also partially in jewelry and other miscellaneous forms that typically generate lower margins.

Refining revenue ~~also~~ increased in the second quarter and first half of 2011 as a result of additional metal to be reclaimed in the supply chain. Sales for head applications within the data storage sector of the consumer electronics market, ~~showed~~after showing modest improvement in the first quarter 2011, slowed down in the second quarter 2011.

Sales of microelectronic packages, one of this segment’s smaller product offerings, declined in the second quarter and first half of 2011 from very high levels in the comparable periods in 2010. This decline was expected due to changes in technology within the telecommunications infrastructure market.

Advanced chemical sales ~~were higher~~grew at double-digit rates in the second quarter and first ~~quarter~~half of 2011 ~~than~~over the ~~first quarter 2010~~respective periods in the prior year largely due to growth from traditional applications, including ~~semiconductor~~semiconductors and security. These materials are also used in LED, solar energy and other applications. The order entry rate for advanced chemical products remained solid throughout the first half of 2011.

Sales of ~~precision optics declined~~large area specialty coatings, primarily precious metal coated polymer films, showed solid improvement in the ~~first~~second quarter 2011 ~~from~~and first half of 2011 over the ~~first quarter 2010. A portion of this decline~~corresponding periods in the prior year. The growth was largely due to ~~softness~~improved sales to the medical market. We continued to develop new applications for these materials in ~~deep space, science~~the medical, energy and astronomy applications within the defense and science market that are primarily financed by government funding. The traditional precision optic defense business remained firm and was supported by a solid backlog.other markets.

~~Sales of precision polymer films into~~Precision optic sales improved in the ~~medical market, after adjusting for changes in gold prices,~~second quarter 2011 over the second quarter 2010 but were slightly lower in the first ~~quarter~~half of 2011 than the first ~~quarter~~half of 2010. ~~After our product was requalified by a major customer, shipment volumes began to ramp up~~These products are sold into the medical, defense and science and other markets. Demand for traditional science and deep space applications softened in the first ~~quarter~~half of 2011 ~~over the lower volumes~~partially due to reductions and delays in the fourth quarter 2010. We are also in the process of developing additional medical applications for polymer films in conjunction with key customers that we believe may have long-term growth potential.government funding.

~~Sales~~The order entry rate was essentially equal to sales during the first half of ~~microelectronic packages, one~~2011 for this segment.

The gross margin on sales by Advanced Material Technologies was $31.4 million (11% of ~~this segment’s smaller product lines, declined 24%~~sales) in the second quarter 2011 versus $27.4 million (13% of sales) in the second quarter 2010. Gross margin of $60.5 million in the first ~~quarter~~half of 2011 ~~from~~was a $6.0 million improvement over the ~~first quarter 2010. We anticipated that sales~~gross margin of ~~packages would decline in 2011 due to a change in technology within the telecommunications infrastructure market.~~

~~The sales order entry rate for the segment exceeded sales by a minor amount~~$54.5 million generated in the first ~~quarter 2011.~~

~~Advanced Material Technologies generated a~~half of 2010. The gross margin ~~of $29.1 million, or~~was 11% of sales in the first ~~quarter~~half of 2011 ~~compared to a gross margin of $27.1 million, or~~and 13% of sales ~~generated~~ in the first ~~quarter~~half of 2010.

The ~~$2.0 million~~growth in the margin ~~improvement resulted from a combination~~dollars in the second quarter 2011 and the first half of ~~factors.~~2011 was predominately due to the net higher sales volumes. The ~~additional sales volume provided a margin benefit while the~~ change in product mix was slightly favorable in the second quarter 2011 but was slightly unfavorable in the first half of 2011. For the first half of the year, manufacturing overhead costs were $1.7 million higher in 2011 than 2010. The increase in these costs was partially due to the increase in refining revenue. Inventory write-downs and additional yield costs of $0.6 million recorded in the first quarter 2010 did not repeat in the first quarter 2011. Various facilities also made improvements in their operating costs and efficiencies. Thehigher production volumes. Gross margin as a percent of sales was lower in the second quarter and first ~~quarter~~half of 2011 than the ~~first quarter~~comparable periods in 2010 ~~due to the impact~~partially as a result of the ~~higher~~increased metal price ~~pass-through.~~pass-through in sales.

~~Total~~ SG&A, R&D andother-net expenses for this segment were ~~$18.4~~$20.7 million in the second quarter 2011 (7% of sales) compared to $18.1 million (8% of sales) in the second quarter 2010. These expenses totaled $39.1 million (7% of sales) in the first ~~quarter~~half of 2011, ~~versus $18.6~~an increase of $2.3 million from expenses of $36.8 million (9% of sales) in the first ~~quarter~~half of 2010. ~~Legal~~

A significant portion of the higher expenses is due to the precious metal consignment fee. These fees were ~~$0.3~~$1.1 million ~~lower~~higher in the second quarter and $1.7 million higher in the first half of 2011 than the respective periods of 2010 mainly due to the increased value of metal on hand. R&D expenses increased throughout 2011 due to higher activity levels. Corporate charges and incentive compensation expense, after being relatively unchanged in the first quarter 2011 ~~than in~~compared to the first quarter 2010, due to activity associated with the acquisition of Academy Corporation (Academy) and the favorable resolution to pending litigation matters during the first quarter of last year. We also recorded $0.2 million

~~of severance costs~~increased in the ~~first quarter 2010 and none in the first quarter 2011. Incentive compensation was lower in the first~~second quarter 2011 ~~than in~~over the ~~first~~second quarter 2010. These savings along with other miscellaneous cost savings and changes in non-operating items were partially offset by an increase in the metal consignment fee and higher marketing expenses in the first quarter 2011.

Operating profit from Advanced Material Technologies ~~totaled~~was $10.7 million in the ~~first~~second quarter 2011 ~~and $8.5~~compared to $9.2 million in the second quarter 2010. Operating profit was $21.4 million in the first ~~quarter~~half of 2011, an improvement of $3.7 million over the operating profit of $17.7 million in the first half of 2010. Operating profit was 4% of sales in ~~both~~ the first ~~quarter~~half of 2011 and 2010.

Performance Alloys


					Second Quarter Ended				First Half Ended
	First Quarter				July 1,		July 2,		July 1,		July 2,
(Millions)	2011		2010		2011		2010		2011		2010


Sales	$	84.4	$	63.4	$	96.6	$	77.9	$	181.1	$	141.2
Operating profit		8.8		3.3		9.5		8.5		18.2		11.8

Performance Alloysmanufactures and sells three main product families:

Strip products, the larger of the product families, include thin gauge precision strip and thin diameter rod and wire. These copper and nickel alloys provide a combination of high conductivity, high reliability and formability for use as connectors, contacts, switches, relays and shielding. Major markets for strip products include consumer electronics, telecommunications infrastructure, automotive electronics, appliance and medical;

Bulk productsare copper and nickel-based alloys manufactured in plate, rod, bar, tube and other customized forms that, depending upon the application, may provide superior strength, corrosion or wear resistance, thermal conductivity or lubricity. While the majority of bulk products contain beryllium, a growing portion of bulk products’ sales is from non-beryllium-containing alloys as a result of product diversification efforts. Applications for bulk products include oil and gas exploration and extraction components, bearings, bushings, welding rods, plastic mold tooling, and undersea telecommunications housing equipment; and,

Beryllium hydroxideis produced at our milling operations in Utah from our bertrandite mine and purchased beryl ore. The hydroxide is used primarily as a raw material input for strip and bulk products and, to a lesser extent, by the Beryllium and Composites segment. Sales of hydroxide are also made on a limited basis.

Strip and bulk products are manufactured at facilities in Ohio and Pennsylvania and are distributed internationally through a network of company-owned service centers and outside distributors and agents.

Sales by Performance Alloys of $96.6 million in the second quarter 2011 were ~~$84.4~~a 24% improvement over sales of $77.9 million in the second quarter 2010. Sales of $181.1 million in the first ~~quarter~~half of 2011 ~~a $21.0~~were $39.9 million, or ~~33%~~28%, ~~improvement over~~higher than sales of ~~$63.4~~$141.2 million in the first ~~quarter~~six months of 2010.

Sales ~~increased domestically and internationally, with~~of both strip and bulk products ~~both growing~~improved in the second quarter and first half of 2011 over the levels in the respective periods of 2010.

Sales to the automotive electronics and industrial components and commercial aerospace markets grew at ~~double digit rates. A portion~~double-digit rates in the second quarter and first half of 2011 over the ~~sales growth was due~~comparable periods in 2010. Sales to ~~improved pricing.~~the telecommunications infrastructure market, including undersea applications, also have grown at double-digit rates in the first half of 2011 over the first half of 2010. Sales ~~have increased~~to the appliance market were relatively flat in the first half of 2011 versus the ~~comparable quarter in the prior year for five consecutive quarters.~~first half of 2010.

~~Improved demand for our materials for applications within~~Sales to the consumer electronics market ~~including~~declined by a modest amount in the second quarter 2011 over the second quarter 2010 and were approximately 4% higher in the first half of 2011 than the first half of 2010. The growth in the first half of the year was fueled in part by solid demand for our strip materials in smart phones and other hand held ~~electronic devices, contributed to the growth in~~devices.

Shipments of strip ~~sales~~products were 4% higher in the second quarter 2011 than the second quarter 2010 and 3% higher in the first half of 2011 than the first half of 2010. Shipments of thin diameter rod and wire have been strong during the first half of 2011, while the higher beryllium-containing strip products improved during the second quarter 2011 over the ~~first~~second quarter ~~2010. Sales of strip products to the automotive electronics market were also higher in the first quarter 2011 than the first quarter 2010.~~

~~The higher bulk product sales in the first quarter 2011 resulted in part from stronger demand from the oil~~2010 and gas sector within the energy market and for undersea telecommunications applications, primarily in Asia. The demand for bulk products from the industrial components and commercial aerospace market, including heavy equipment and plastic tooling applications, also improved in the first quarter 2011.

~~Strip product volumes shipped~~Shipments of bulk products grew 3%13% in the second quarter 2011 over the second quarter 2010 after growing 19% in the first quarter 2011 over the first quarter 2010. The ~~growth was primarily from thin diameter rod and wire products. Bulk product volumes shipped were 19% higher~~non-beryllium-containing bulk products have grown at double-digit rates in the first ~~quarter~~half of 2011 ~~than~~over the first ~~quarter~~half of 2010.

Beryllium hydroxide sales totaled $3.3 million in the second quarter and $4.5 million in the first half of 2011. Sales of beryllium hydroxide ~~totaled $1.2~~were $4.2 million in the first ~~quarter 2011. There were no sales~~half of ~~hydroxide~~2010, all of which occurred in the ~~first~~second quarter ~~2010.~~of that year.

~~Metal prices were~~The pass-through of higher ~~in the first quarter 2011 than the first quarter 2010 and the increased~~ metal ~~pass-through~~prices accounted for an estimated ~~$3.9~~$5.3 million of the ~~$21.0~~$18.7 million ~~increase~~difference in sales between ~~periods.~~the second quarter 2011 and the second quarter 2010 and $9.2 million of the $39.9 million difference in sales between the first six months of 2011 and the first six months of 2010.

The ~~sales~~ order entry rate ~~strengthened~~for Performance Alloys slowed down in the second quarter 2011 from the very high level in the first quarter 2011 and ~~exceeded~~was lower than sales by approximately 17% in the second quarter. Part of this slowdown may be due to an inventory correction in the consumer electronics market.

The gross margin on sales from Performance Alloys was $22.2 million (23% of sales) in the second quarter 2011 compared to $19.5 million (25% of sales) in the second quarter 2010. The gross margin was $41.5 million in the first ~~quarter~~half of 2011, ~~by approximately 11%. Order entry~~an improvement of $6.9 million over the gross margin of $34.6 million generated in the first ~~quarter 2011~~half of 2010. Gross margin was ~~also approximately 35% higher than it was in the fourth quarter 2010.~~

~~Performance Alloys generated a gross margin of $19.4 million, or~~ 23% of sales in the first ~~quarter~~half of 2011 ~~compared to a gross margin of $15.2 million, or 24%~~and 25% of sales in the first ~~quarter~~half of 2010.

The ~~majority~~growth in the gross margin dollars in the second quarter and first half of 2011 over the respective periods of 2010 was mainly due to the higher sales and production volumes. Pricing changes have also contributed to the margin improvement ~~on a dollar basis was due to~~while the additional margin generated by the higher sales volume. The manufacturing facilities continued to operate at high levels of production and therefore they continue to generate operating efficiencies. However, with the increase in order entry, lead times for certain products have extended out. Gross margin in the first quarter 2011 has also benefitted from the improved pricing and a favorable change in product mix ~~including~~was favorable in both the ~~increase~~second quarter and first half of 2011. These margin benefits were partially offset by lower yields and higher scrap rates on nickel-containing

products in ~~shipments~~the first half of ~~rod and wire and various bulk products.~~2011. Improvements were made in the second quarter 2011, but the yield rates remained lower than historical levels. The lower yields negatively impacted costs, but did not affect sales.

The previously discussed ~~$1.6~~LIFO inventory benefit of $1.4 million ~~benefit from a LIFO reserve adjustment flowed through~~in the second quarter and $3.0 million for the first half of 2010 were recorded against Performance Alloys’ gross ~~margin in the first quarter 2010. There was no~~margin. No similar benefit was recorded in the second quarter and first ~~quarter~~half of 2011. The higher copper prices also negatively impacted margins in the first quarter 2011 due to the lag between when an order is received (and priced with the current copper cost) and when it is ultimately shipped.

Total SG&A, R&D andother-net expenses were ~~$10.6~~$12.7 million (13% of sales) in the ~~first~~second quarter 2011 ~~and $11.8~~versus $11.0 million ~~(19%~~(14% of sales) in the second quarter 2010. For the first half of 2011, these expenses totaled $23.3 million (13% of sales) compared to $22.8 million (16% of sales) in the first ~~quarter~~half of 2010. ~~A reduction~~

Differences in ~~the incentive compensation expense resulting from differences in the projected earnings relative to the plan targets for each year~~foreign currency exchange gains and losses accounted for the majority of the ~~lower expense. Cost control efforts continued~~difference in the expense levels in the second quarter and first half of 2011 and the comparable periods in 2010. R&D spending grew throughout the first half of 2011 as well. Incentive compensation was slightly higher in the second quarter 2011 ~~as various reductions in headcount due to retirements were not replaced. Currency exchange losses were~~than the second quarter 2010, but was $0.7 million lower in the first ~~quarter~~half of 2011 than it was in the first ~~quarter~~half of 2010 ~~as well.~~due to differences in actual performance versus the plan targets.

Performance ~~Alloys’~~Alloys generated an operating profit ~~was $8.8~~of $9.5 million in the second quarter 2011 compared to $8.5 million in the second quarter 2010. Operating profit improved from $11.8 million in the first ~~quarter 2011, an improvement~~half of ~~$5.5 million over the operating profit of $3.3~~2010 to $18.2 million in the first ~~quarter 2010.~~half of 2011. The $6.4 million improvement was due to the margin benefit from the higher sales volume and improved pricing offset in part by the lower yields on nickel products and the increase in expenses. Operating profit was 10% of sales in the first ~~quarter~~half of 2011 and 5%8% of sales in the first ~~quarter~~half of 2010.

Beryllium and Composites


					Second Quarter Ended				First Half Ended
	First Quarter				July 1,		July 2,		July 1,		July 2,
(Millions)	2011		2010		2011		2010		2011		2010


Sales	$	14.0	$	13.1	$	17.7	$	15.7	$	31.7	$	28.8
Operating profit		0.1		2.2		1.1		2.1		1.2		4.2

Beryllium and Compositesmanufactures beryllium-based metals and metal matrix composites in rod, sheet, foil and a variety of customized forms at the Elmore, Ohio and Fremont, California facilities. These materials are used in applications that require high stiffnessand/or low density and they tend to be premium-priced due to their unique combination of properties. This segment also manufactures beryllia ceramics produced at the Tucson, Arizona facility. Defense and science is the largest market for Beryllium and Composites, while other markets served include industrial components and commercial aerospace, medical, energy and telecommunications infrastructure. Products are also sold for acoustics and optical scanning applications.

Sales by Beryllium and Composites ~~sales totaled $14.0~~were $17.7 million in the second quarter 2011 versus $15.7 million in the second quarter 2010. Sales of $31.7 million in the first ~~quarter~~half of 2011 ~~an increase of 7% from~~were 10% higher than sales of ~~$13.1~~$28.8 million in the first ~~quarter~~half of 2010.

The majority of the sales growth in the second quarter and first half of the year was ~~largely~~ due to ~~a 49% increase in sales for~~higher shipments to the industrial ~~component applications, which included higher shipment of~~components market, including non-medical x-ray window ~~materials~~applications, from the Fremont facility. Sales ~~of beryllia ceramics improved 13%~~ in the second quarter 2011 for traditional applications within the defense and science market, while up approximately 40% over the first quarter 2011, ~~over~~were still 4% below the second quarter 2010. Sales of beryllia ceramics to the telecommunications infrastructure market improved by minor amounts in the second quarter and first ~~quarter 2010 largely as a result~~half of ~~increased shipments for medical applications. The growth to these two markets was partially offset by a 10% reduction~~2011 versus the comparable periods in ~~sales for traditional defense applications due to changes in government spending patterns.~~2010. Sales to the ~~energy and telecommunications infrastructure markets~~medical market in the first ~~quarter~~half of 2011 were relatively unchanged from the first ~~quarter~~half of 2010.

The order entry ~~level was less~~rate in the second quarter 2011, while higher than ~~sales in~~the second quarter 2010 and the first quarter 2011, ~~reflecting~~was still below the ~~softness~~level of sales in the ~~defense and science market.~~second quarter 2011.

Beryllium and Composites generated a gross margin of ~~$3.1~~$4.4 million ~~or 23%~~(25% of sales) in the second quarter 2011 and $5.1 million (33% of sales) in the second quarter 2010. Segment gross margin of $7.5 million in the first half of 2011 was $1.9 million lower than the gross margin of $9.4 million in the first half of 2010. Gross margin was 24% of sales in the first ~~quarter~~half of 2011 ~~a decline~~and 33% of ~~$1.1 million from the gross margin of $4.2 million, or 32% of~~ sales ~~generated~~ in the first ~~quarter~~half of 2010.

~~Margins were~~Gross margin was reduced approximately $1.1 million in the second quarter 2011 and $2.2 million in the first ~~quarter~~half of 2011 as a result of additional costs and inefficiencies ~~totaling approximately $1.2 million~~ associated with thestart-up of the new beryllium ~~facility. Construction~~

facility at the Elmore plant site. Major construction of ~~this~~the facility ~~which is designed to produce pure beryllium metal from beryllium hydroxide, was nearing completion in the first quarter 2011 and~~has been completed, but we incurred additional costs for supplies, maintenance and other items as we worked to bring the equipment on line and resolve otherstart-up challenges. The plant is designed to produce pure beryllium metal from beryllium hydroxide and it did produce a small, non-production level quantity of pure beryllium during the second quarter. Once operational, ~~later this year, this~~the facility will reduce the need to purchase pure beryllium metal from outside suppliers.

The ~~favorable margin benefit~~change in product mix was unfavorable in the second quarter and first half of 2011 from the ~~higher volume~~respective periods in the prior year as the products sold in 2011 generated lower contribution margins.

Manufacturing overhead costs were higher in the second quarter and first ~~quarter~~half of 2011 ~~as compared to~~than the ~~first quarter~~respective periods in 2010, ~~was generally offset by an unfavorable product mix shift (partially~~partially due to ~~the lower traditional defense sales) and higher material input costs. Overhead costs increased in the first quarter 2011 over the first quarter 2010, including~~ ongoing normal support costs for the new facility. ~~The~~

Lower manufacturing yields on welded products also negatively impacted gross margin in the second quarter 2010. However, process improvements were implemented and yields improved in the second quarter 2010 over the first quarter ~~2010 was unfavorably affected by higher manufacturing yield losses on welded products. Yields on these products improved in subsequent quarters of last year.~~2010.

SG&A, R&D andother-net expenses for Beryllium and Composites ~~were $3.1~~totaled $3.3 million ~~or 22% of sales,~~ in the ~~first~~second quarter 2011 compared to ~~$2.1~~$3.1 million ~~or 16% of sales,~~ in the second quarter 2010. For the first ~~quarter~~half of the year, expenses totaled $6.3 million (20% of sales) in 2011 and $5.1 million (18% of sales) in 2010.

R&D ~~costs increased~~expenses were higher in the second quarter and first half of 2011 than the corresponding periods of 2010 due to increased activity. Corporate charges were also higher while incentive compensation expense was lower in the second quarter ~~2011 over the~~and first ~~quarter 2010 as a result~~half of ~~increased activities and project work. Selling and marketing expenses also grew as a result of higher manpower, services and other costs.~~2011. Differences in other ~~income and expense and other~~ non-operating items ~~also~~ contributed to the higher expense level in the first ~~quarter~~half of 2011.

Operating profit for Beryllium and Composites was ~~$0.1~~$1.1 million in the ~~first~~second quarter 2011, ~~versus $2.2~~a decline of $1.0 million from the $2.1 million operating profit earned in the second quarter 2010. For the first half of the year, operating profit was $1.2 million in 2011 and $4.2 million in 2010. Operating profit was 4% of sales in the first half of 2011 and 15% of sales in the first half of 2010. Operating profit was lower in the second quarter ~~2010.~~and first half of 2011 than the corresponding periods in 2010 as the margin benefits from the higher sales volumes were more than offset by the plantstart-up costs, the unfavorable change in product mix impact on margins, higher expenses and other factors.

Technical Materials


					Second Quarter Ended				First Half Ended
	First Quarter				July 1,		July 2,		July 1,		July 2,
(Millions)	2011		2010		2011		2010		2011		2010


Sales	$	19.7	$	15.5	$	23.0	$	18.4	$	42.6	$	33.9
Operating profit		2.2		1.0		2.4		2.0		4.5		3.1

Technical Materialsmanufactures clad inlay and overlay metals, precious and base metal electroplated systems, electron beam welded systems, contour profiled systems and solder-coated metal systems. These specialty strip metal products provide a variety of thermal, electrical or mechanical properties from a surface area or particular section of the material. Our cladding and plating capabilities allow for a precious metal or brazing alloy to be applied to a base metal only where it is needed, reducing the material cost to the customer as well as providing design flexibility. Major applications for these products include connectors, contacts and semiconductors while the largest markets are automotive electronics and consumer electronics. The energy and medical markets are smaller but offer further growth opportunities. Technical Materials’ products are manufactured at the Lincoln, Rhode Island facility.

Sales from Technical Materials ~~were $19.7~~of $23.0 million in the ~~first~~second quarter 2011 ~~an increase of $4.2 million, or 27%,~~were a 25% improvement over sales of ~~$15.5~~$18.4 million in the ~~first~~second quarter 2010. ~~The majority~~For the first half of the ~~increase was due~~year, sales improved $8.7 million, or 26%, from $33.9 million in 2010 to ~~improved sales~~$42.6 million in 2011. Sales have grown over the comparable quarter in the prior year for seven consecutive quarters.

Sales to the automotive electronics ~~market.~~market grew approximately 36% in the second quarter 2011 and 45% in the first half of 2011 over the comparable periods in 2010 and accounted for the majority of the improvement in Technical Materials’ sales. Sales to the consumer electronics market ~~showed modest improvement, largely due to increased~~also grew in the second quarter 2011 over the second quarter 2010, although sales offor disk drive ~~arms. Sales~~arm applications, a large application for ~~emerging applications~~this segment, declined.

Energy market sales softened slightly in the ~~energy~~second quarter 2011, but sales to this emerging market ~~while still relatively small, contributed to the sales growth~~were higher in the first ~~quarter~~half of 2011 ~~as well.~~than the first half of 2010.

The order entry rate ~~was approximately 9% higher than sales~~slowed down in the second quarter 2011 from the high level experienced in the first quarter 2011. ~~The order rate strengthened in the latter~~A portion of the ~~quarter.~~slow down may be due to seasonal factors in the marketplace. For the first half of the year, the order entry rate was 2% less than sales.

Gross margin on Technical ~~Materials generated a gross~~Materials’ sales was $4.9 million, or 21% of sales, in the second quarter 2011 compared to $4.3 million, or 23% of sales, in the second quarter 2010. Gross margin ~~of $4.4~~was $9.3 million in the first ~~quarter~~half of 2011, ~~a $1.4~~an improvement of $2.0 million ~~improvement~~ over the ~~$3.0~~gross margin of $7.3 million ~~of margin generated~~ in the first ~~quarter~~half of 2010. Gross margin ~~also improved to~~was 22% of sales in the first ~~quarter~~half of 2011 ~~from 20% of sales in the first quarter~~and 2010.

The majority of the growth in the gross margin in the second quarter and first ~~quarter~~half of 2011 ~~over the first quarter 2010~~ was due to the ~~benefits of the increased~~higher sales volume. ~~Labor and other direct manufacturing costs were higher~~The change in product mix was slightly unfavorable in the second quarter 2011 but was favorable in the first ~~quarter 2011, but the increase was proportional to the increase in sales.~~half of 2011. Manufacturing overhead costs ~~were essentially unchanged.~~increased $0.2 million in the second quarter and first half of 2011 over the respective periods in 2010.

Total SG&A, R&D andother-net expenses were ~~$2.2~~$2.5 million ~~or 11% of sales,~~ in the ~~first~~second quarter 2011 and ~~$2.0~~$2.2 million ~~or 13% of sales,~~ in the second quarter 2010. For the first ~~quarter~~half of the year, these expenses totaled $4.8 million in 2011 and $4.2 million in 2010. Selling and marketing expenses, ~~were higher, mainly due to~~including commissions and travel, were higher as these expenses ~~which~~ tend to vary with the level of sales. ~~Metal consignment fees~~Fringe benefit costs were ~~higher in the first quarter 2011 than the first quarter 2010 as a result of the increased metal prices. Incentive compensation expense was~~ also higher in the first ~~quarter~~half of 2011 than in the first half of 2010. This segment’s portion of the precious metal consignment fee was higher in the first half of 2011 than the first half of 2010 due to the ~~improved projected annual profitability relative to the plan target.~~increase in metal prices.

Technical ~~Materials’~~Materials generated an operating profit ~~improved from $1.0~~of $2.4 million in the second quarter 2011 compared to $2.0 million in the second quarter 2010. Operating profit of $4.5 million in the first ~~quarter 2010 to $2.2~~half of 2011 was $1.4 million higher than the operating profit of $3.1 million in the first ~~quarter 2011.~~half of 2010. Operating profit was 11% of sales in the first ~~quarter~~half of 2011 and 7%9% of sales in the first half of 2010. Operating profit has improved over the corresponding quarter ~~2010.~~in the prior year for six consecutive quarters.

Legal

One of our subsidiaries, Materion Brush Inc. (formerly known as Brush Wellman Inc.), ishas been a defendant from time to time in proceedings in various state and federal courts brought by plaintiffs alleging that they have contracted chronic beryllium disease or other lung conditions as a result of exposure to beryllium. Plaintiffs in beryllium cases seek recovery under negligence and various other legal theories and seek compensatory and punitive damages, in many cases of an unspecified sum. Spouses, if any, claim loss of consortium.

The following table summarizes the associated activity with beryllium cases.


	Quarter Ended			Year Ended			Quarter Ended			Quarter Ended
	Apr. 1, 2011			Dec. 31, 2010			July 1, 2011			Apr. 1, 2011

Total cases pending		1			2			0			1
Total plaintiffs		3			6			0			3
Number of claims (plaintiffs) filed during period ended		0(0	)		1(1	)		0(0	)		0(0	)
Number of claims (plaintiffs) settled during period ended		0(0	)		2(2	)		1(3	)		0(0	)
Aggregate cost of settlements during period ended (dollars in thousands)	$	43		$	20		$	0		$	43
Number of claims (plaintiffs) otherwise dismissed		1(3	)		1(1	)		0(0	)		1(3	)

Although the parties agreed to settle and dismiss the one case shown as pending as of April 1, 2011 for $43,000 during the first quarter 2011, the court did not approve the settlement and dismiss the case until early in the second quarter 2011. ~~The other case that was pending as of December 31, 2010 was dismissed with no settlement payment during the first quarter 2011.~~

~~Additional~~Should new beryllium claims ~~may arise. Management believes that~~arise, we ~~have substantial defenses in these cases and intends to~~would contest the suits vigorously. Employee cases, in which plaintiffs have a high burden of proof, have historically involved relatively small losses to us. Third-party plaintiffs (typically employees of customers or contractors) face a lower burden of proof than do employees or former employees, but these cases are generally covered by varying levels of insurance.

Although it is not possible to predict the outcome of any litigation, ~~that may be pending against our subsidiaries and us,~~ we provide for costs related to these 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 these actions could be decided unfavorably in amounts exceeding our reserves. An unfavorable outcome or settlement of a beryllium case or additional adverse media coverage could encourage the commencement of additional similar litigation. We are unable to estimate our potential exposure to unasserted claims.

Based upon currently known facts and assuming collectibility of insurance, we do not believe that resolution of future beryllium proceedings will have a material adverse effect on our financial condition or cash flow. However, our results of operations could be materially affected by unfavorable results in ~~one or more of these cases.~~a future case.

Regulatory Matters. Standards for exposure to beryllium are under review by the United States Occupational Safety and Health Administration (OSHA) and by other governmental and private standard-setting organizations. One result of these reviews will likely be more stringent worker safety standards. Some organizations, such as the California Occupational Health and Safety Administration and the American Conference of Governmental Industrial Hygienists, have adopted standards that are more stringent than the current standards of OSHA. The development, proposal or adoption of more stringent standards may affect the buying decisions by the users of beryllium-containing products. If the standards are made more stringentand/or our customers or other downstream users decide to reduce their use of beryllium-containing products, our operating 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.

Financial Position

Net cash used in ~~operations~~operating activitieswas $7.1 million in the first half of 2011 as net income and the effects of depreciation were more than offset by a net increase in working capital items, primarily accounts receivable and inventory. However, cash flow improved in the second quarter 2011 over the first quarter 2011 as we generated $13.7 million of cash from operations in the second quarter 2011 while having used cash in operations of $20.8 million in the first quarter 2011 as the net unfavorable change in working capital, primarily increases to accounts receivable and inventory and a decrease to other liabilities and accrued items, more than offset net income and the benefits of depreciation and amortization.2011.

Cash~~totaled $12.0~~balances were $9.5 million as of the end of the ~~first~~second quarter 2011, a decrease of ~~$4.1~~$6.6 million from ~~the~~ year-end ~~2010 balance of $16.1 million.~~2010.

Accounts receivable~~of $153.4~~totaled $149.4 million ~~as of~~at the end of the ~~first~~second quarter 2011, ~~were $14.0~~a $10.0 million, or ~~10%~~7%, increase over the balance as of December 31, 2010. The growth in receivables was largely due to sales in the second quarter 2011 being approximately 19% higher than ~~the year-end 2010 balance of $139.4 million. Approximately half of this growth was due to the higher~~ sales ~~volume~~ in ~~the first quarter 2011 than~~ the fourth quarter 2010. The ~~remainder~~impact of the ~~growth~~higher sales volume on the receivable balance was ~~due to a slight slow down~~partially offset by an improvement in the average collection period. The days sales outstanding, ~~(DSO),~~ a measure of how quickly receivables are collected, ~~to approximately 37 days. This DSO level, however, is still within~~was 32 days as of the ~~normal range for our operations.~~end of the second quarter 2011, an improvement of three days from year-end 2010.

We continue to aggressively monitor and manage our credit exposures and the collectability of our receivables. ~~The~~Our bad debt experience remained low as the bad debt expense in the first ~~quarter~~half of 2011 was only $0.1 million.

Other receivables~~of $3.0~~totaling $2.7 million at the end of the ~~first~~second quarter 2011 and $4.0 million at the end of 2010 primarily represented ~~the~~ amounts ~~due~~outstanding for ~~billings~~reimbursement of equipment purchased under a government ~~contract to construct the beryllium production facility.~~contract. The balances at the end of both periods also included minor amounts due for other non-trade items.

Inventories~~totaled $176.4~~were $182.4 million as of ~~April~~July 1, 2011 ~~an increase of $21.9 million, or 14%, from the~~compared to $154.5 million ~~balance at~~as of December 31, 2010. While inventories grew 18% in the first half of 2011, the inventory turnover ratio, a measure of how quickly inventory is sold on average, improved during this same time period and inventories have not been restocked at the same rate as the increase in sales.

The majority of the increase in ~~inventories was~~inventory is in Performance Alloys ~~largely~~ in ~~order~~response to ~~support~~ the ~~growing~~higher level of demand. Performance Alloys’ pounds in inventory increased by ~~13%~~10% during the ~~quarter.~~first half of 2011. The high level of demand on the factories has also led to longer lead times on certain products, which in turn contributed to the increase in inventory levels.

Inventories within Advanced Material Technologies grew approximately 11% in the first half of 2011. The majority of this segment’s metal requirements are maintained through off-balance sheet financing arrangements and the 11% growth is only reflective of the change in the value of owned inventories.

Inventories within Beryllium and Composites ~~also~~ increased 13% in the first half of 2011 partially due to the ~~timing~~ongoingstart-up of ~~shipments~~the new beryllium facility and ~~higher production costs.~~

~~Inventories within Advanced Material Technologies increased by an immaterial amount during~~ the ~~quarter as the majority of this segment’s production requirements are maintained~~related impact on ~~off-balance sheet consignment arrangements.~~material flow.

Technical ~~Materials reduced their~~Materials’ inventories ~~by approximately 10%~~also showed minor increases in order to support the higher business levels. Their inventory turns improved during the first ~~quarter 2011 despite an increase in sales volumes. Their inventory turns, a measure~~half of ~~how efficiently inventory is utilized, improved accordingly.~~2011.

~~The costs of various raw materials increased in the first quarter 2011. However, we~~We use the LIFO method for valuing a large portion of our domestic inventories. By so doing, the most recent cost of various raw materials, including gold, copper and ~~copper,~~nickel, is ~~generally~~ charged to cost of sales in the current period. The older, and often times lower, costs are used to value the inventory on ~~hand under the LIFO method.~~hand. Therefore, current changes in the cost of raw materials subject to the LIFO valuation method have only a minimal impact on changes in the inventory carrying value.

Capital expendituresfor the first ~~quarter~~half of 2011 and 2010 are summarized as follows:


	First Quarter				First Half
(Millions)	2011		2010		2011		2010


Capital expenditures	$	3.9	$	13.3	$	11.1	$	24.8
Mine development		0.1		2.5		0.2		7.4

Subtotal		4.0		15.8		11.3		32.2
Reimbursement for spending under government contract		1.1		5.4		2.6		14.9

Net spending	$	2.9	$	10.4	$	8.7	$	17.3

We have a Title III contract with the U.S. Department of Defense (DoD) for the design and development of a new facility for the production of primary beryllium. As noted, the facility was nearing completion in the first ~~quarter~~half of 2011. The total cost of the project is estimated to be $95.0 million, with the DoD providing approximately 75% of the funding. The final cost of the project and the DoD’s share will be determined based upon the satisfactory completion of the final construction items, resolution of anystart-up issues and other factors. ~~Spending~~Capital spending on this project totaled $1.6 million in the first half of 2011 and was included within the ~~$3.9~~$11.1 million of expenditures in the above ~~table totaled $0.4 million in the first quarter 2011.~~table. The spending and reimbursement received from the government ~~of $1.1 million exceeded the spending in the first quarter 2011~~differed due to athe normal lag between when the spending occurs and the government issues the reimbursement. Reimbursements from the DoD are recorded as unearned income and included in other long-term liabilities on the Consolidated Balance Sheets.

Capital expenditures in the first half of 2011 included $1.5 million for the purchase of a building at the Elmore facility that was previously held under an operating lease.

The remainder of the capital spending was on isolated pieces of ~~new equipment, upgrades to existing~~ equipment and various infrastructure ~~projects. Advanced Material Technologies spent $1.4 million in~~projects across the organization. Major projects undertaken during the first ~~quarter~~half of 2011 ~~and included spending on an~~include a new dross reclamation system in Elmore, expansion of the refine and shield kit cleaning ~~operations. Capital spending within Performance Alloys totaled $1.2 million. Capital spending~~operations in Buffalo, expansion of the ~~first quarter 2011 also included various information technology projects.~~

~~Capital spending was below~~Singapore facility and upgrades to the ~~level of depreciation~~electron beam weld equipment in ~~the first quarter 2011.~~Lincoln.

Intangible assetswere ~~$35.2~~$34.2 million as of ~~April 1, 2011, a~~the end of the second quarter and $36.8 million at year end 2010. The decline ~~of $1.6 million from the December 31, 2010 balance~~was due to the current period ~~amortization. No intangible assets were acquired during the first quarter~~amortization net of minor additions of deferred financing costs associated with new debt agreements signed in 2011.

Other liabilities and accrued items~~were $45.6~~totaled $26.7 million at the end of the ~~first~~second quarter 2011 ~~a decline of $14.3~~compared to $24.9 million ~~from the $59.9 million balance as of~~at year-end 2010. ~~The major cause for the decline was the payment of the 2010 annual incentive compensation to employees during the first quarter 2011. The balances of various liabilities also changed~~This change is due to ~~business levels, seasonal factors or~~an increase in the fair value of derivative financial instruments, higher fringe benefit accruals and other ~~causes.~~items.

Unearned revenue,which is a liability representing products invoiced to customers but not shipped, was ~~$3.0~~$2.8 million ~~at the end~~as of ~~the first quarter~~July 1, 2011 ~~versus~~and $2.4 million as of December 31, 2010. Revenue and the associated margin will be recognized for these transactions when the goods ship, title passes and all other revenue recognition criteria are met. Invoicing in advance of the shipment, which is only done in certain circumstances, allows us to collect cash sooner than we would otherwise.

Other long-term liabilitieswere ~~$17.9~~$18.1 million as of July 1, 2011, a slight increase from the ~~end~~$17.9 million balance as of year-end 2010. There were no material changes to the individual components of other long-term liabilities during the first ~~quarter 2011, unchanged from the year-end 2010 balance. Declines in the outstanding capital lease balance due to payments and the legal reserve due to resolution~~half of ~~two cases were offset by increases in other miscellaneous liabilities.~~2011.

Unearned incomewas ~~$58.3~~$59.7 million at the end of the ~~first~~second quarter 2011 ~~and~~compared to $57.2 million at year-end 2010. This balance represents reimbursements from the government for equipment purchases for the new beryllium

facility made under the Title III program. ~~Once the equipment is placed in service later in 2011, this~~This liability will be reduced and credited to income ratably with the depreciation expense on the equipment.

Theretirement and post-employment benefitbalance ~~was $82.0~~of $81.6 million at the end of the ~~first~~second quarter 2011 ~~a decline of $0.5~~was $0.9 million ~~from~~lower than the $82.5 million balance at December 31, 2010. This balance represents the liability under our domestic defined benefit pension plan, the retiree medical plan and other retirement plans and post-employment obligations.

The liability for the domestic pension plan ~~declined~~decreased a net ~~$0.7~~$1.3 million as a result of the contributions to the plan of ~~$1.8~~$3.6 million and an adjustment to other comprehensive income, a component of shareholders’ equity, of ~~$0.9~~$1.7 million offset in part by ~~a current quarter~~the expense in the first half of ~~$2.0~~2011 of $4.0 million.

The liability for the other retirement plans changed by minor amounts due to differences between the payments made and the ~~quarterly~~ expense recorded during the first half of 2011 and other factors.

Debttotaled ~~$104.7~~$95.0 million as of the end of the second quarter 2011, an increase of $8.9 million from the total debt of $86.1 million at the end of 2010. After increasing $18.6 million in the first quarter 2011, ~~compared to $86.1 million~~largely as a result of ~~year-end 2010. The additional borrowings were used to fund~~financing capital expenditures, the ~~increase~~growth in ~~working capital~~accounts receivable and inventory and the ~~capital expenditures during~~payment of 2010 incentive compensation to employees, debt declined $9.7 million in the ~~quarter.~~second quarter 2011 on the strength of the improved cash flow from operations.

~~Outstanding short-term~~Short-term debt, which included domestic and foreign currency denominated loans, was ~~$56.4~~$39.3 million as of the end of the ~~first~~second quarter 2011. Long-term debt ~~totaled $48.3~~was $55.7 million as of the end of the ~~first~~second quarter ~~2011, none of which was currently payable.~~2011. We were in compliance with all of our debt covenants as of the end of the ~~first~~second quarter 2011.

In the second quarter 2011, we entered into a new $8.0 million debt agreement with the Toledo Port Authority and the Dayton Port Authority to fund capital expenditures at our Ohio facilities. Initially, $1.5 million of the proceeds was used to purchase an existing building at the Elmore plant site that previously was being held under an operating lease. The balance of the proceeds is being held in escrow and will be drawn down as the applicable capital expenditures are incurred. The agreement calls for monthly installment payments and a $1.1 million balloon payment upon maturity in ten years.

Shareholders’ equity~~of $399.2~~was $415.5 million ~~as of~~at the end of the ~~first~~second quarter 2011, ~~was~~ an increase of ~~$14.9~~$31.1 million from the balance of $384.4 million as of year-end ~~2010. The increase was~~2010 primarily due to ~~the~~ comprehensive income of ~~$13.5~~$28.5 million (see Note E to the Consolidated Financial Statements). Equity was also affected by ~~stock~~stock-based compensation expense, the exercise of stock options and other factors.

Prior Year Financial Position

Net cash used in ~~operations~~operating activities was ~~$15.8~~$20.7 million in the first ~~quarter~~half of 2010 as net income and the effects of depreciation were more than offset by a net increase in working capital items, primarily ~~accounts receivable~~receivables and ~~inventory, more than offset the net income and the benefits of depreciation and amortization. Accounts receivable grew $29.4~~inventory. Receivables increased $61.3 million, or ~~35%~~73%, during the first half of 2010 as a result of the higher sales volume and a slowdown in the ~~first~~average collection period. Inventories were $10.2 million, or 8%, higher at the end of the second quarter 2010 than year-end 2009 due to the higher sales volumes offset in part by an improvement in the collection period. Inventories increased $10.4 million, or 8%, in the first quarter 2010, in order to support the higher business levels. Inventorylevels of business. The inventory turnover ratio improved ~~in the first quarter 2010 over the year-end 2009 level. Inventories within each of the four reportable segments grew~~ during the first ~~quarter~~half of 2010. The acquisition of Academy Corporation contributed to the growth in receivables and inventory in the first quarter 2010 over the year-end 2009 levels.

Other liabilities and accrued items ~~increased $2.0~~grew $1.9 million in the first ~~quarter~~half of 2010 due to the current ~~year~~period incentive compensation expense, the ~~acquisition~~change in the fair value of ~~Academy~~outstanding derivatives and other factors. The retirement and post-employment benefit ~~balance declined $2.3~~obligation of $78.6 million ~~from the balance at December 31, 2009, largely~~ as ~~a result~~ of the end of the second quarter 2010 was $3.7 million lower than the year-end 2009 balance due to contributions made to the domestic defined benefit ~~pension~~ plan of ~~$2.9~~$4.5 million ~~offset in part by~~netted against other factors.

Capital expenditures, net of reimbursements from the government for purchases made for the beryllium facility in accordance with the Title III contract, totaled ~~$10.4~~$17.3 million. Spending included ~~$2.5~~$7.4 million on mine development at our Utah site.

We purchased the outstanding capital stock of Academy Corporation for ~~$22.7~~$21.0 million in January 2010. Immediately after the purchase, we transferred ownership of Academy’s precious metal inventory to a financial institution for its fair value and consigned it back under our existing consignment lines.

~~Outstanding~~Total debt ~~totaled $108.8~~stood at $120.5 million at the end of the ~~first~~second quarter 2010, an increase of ~~$44.3~~$56.0 million from ~~the balance as of~~ year-end 2009. The increase in ~~borrowings along with a portion of the excess cash~~debt was used to fund the acquisition of Academy Corporation, capital expenditures and the ~~cash used~~increase in ~~operations.~~working capital. Cash ~~balances totaled $11.1~~on hand of $16.1 million at the end of the ~~first~~second quarter 2010 ~~a decline of $1.1~~was $3.8 million ~~since~~higher than the year-end ~~2009.~~2009 balance.

~~Off-balance~~Off Balance Sheet Arrangements and Contractual Obligations

We maintain the majority of our precious metals that 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. We also maintain a portion of our copper requirements on consignment. The balance outstanding under these off-balance sheet consignment arrangements totaled ~~$270.5~~$310.9 million at the end of the ~~first~~second quarter 2011 compared to $211.8 million outstanding as of year-end 2010. The increase in the outstanding balance was due to higher metal prices, additional metal held in the refine system (which has long processing times) and other factors.

We negotiated an increase to the available capacity under the existing off-balance sheet consignment arrangements during the first ~~quarter~~half of 2011. The available and unused capacity under the metal financing lines totaled approximately ~~$69.5~~$29.1 million as of ~~April~~July 1, 2011.

We were in compliance with the covenants contained in our consignment agreements as of ~~April~~July 1, 2011.

~~While our borrowings under existing lines of credit have increased during the first quarter 2011, we have not entered into any new loan agreements since year-end 2010.~~ For additional information on our contractual obligations, please see page 41 of our Annual Report onForm 10-K for the year ended December 31, 2010.

Liquidity

We believe funds from operations plus the available borrowing capacity and the current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, strategic acquisitions and environmental remediation projects.

The ~~totaldebt-to-debt-plus-equity~~ ratio, a measure of balance sheet leverage, was 21% as of the end of the first quarter 2011, an increase from 18% as of December 31, 2010. The increase in this ratio was largely due to the additional borrowings used to finance the $20.8 million of cash used in operations in the first quarter 2011. It is not unusual for us to consume cash in the first quarter of a given year. In each of the last eight years, we consumed cash in the first quarter and then generated cash from operations over the balance of the year.

~~The~~ available and unused borrowing capacity under the existing lines of credit, which is subject to limitations set forth in the debt covenants, was ~~$152.9~~$154.7 million as of the end of the second quarter 2011.

In July 2011, we negotiated a new five-year $325.0 million revolving credit agreement to replace the former $240.0 million revolving credit agreement that was scheduled to mature in the fourth quarter 2012 by amending and restating the agreement governing the former facility. In addition to the higher borrowing capacity, various provisions relating to allowable unsecured debt, acquisitions and other items were revised in the new agreement to provide increased flexibility. The key financial covenants in the new agreement, including a leverage ratio and fixed charge coverage ratio, are similar to the former agreement.

The outstanding cash balance was $9.5 million at the end of the second quarter 2011.

Thedebt-to-debt-plus-equity ratio, a measure of balance sheet leverage, was 19% at the end of the second quarter 2011 compared to 21% at the end of the first quarter ~~2011.~~2011 and 18% at year-end 2010. The movements in debt in the first half of 2011 were partially due to changes in working capital levels. Our normal pattern in recent years is to consume cash in the first quarter and then generate cash over the balance of the year.

While the capacity under the precious metal consignment lines was increased during the first ~~quarter~~half of 2011, should metal requirements increase in future periods because of higher volumesand/or prices, we may use the available capacity under the existing credit lines to purchase ~~rather than consign~~ metaland/or require customers to supply more of their own metal.

Critical Accounting Policies

For additional information regarding critical accounting policies, please refer to pages 43 to 46 of our Annual Report onForm 10-K for the year ended December 31, 2010. There have been no material changes in our critical accounting policies since the inclusion of this discussion in our Annual Report onForm 10-K.

Market Risk Disclosures

For information regarding market risks, please refer to pages 47 to 48 of our Annual Report onForm 10-K for the year ended December 31, 2010. There have been no material changes in our market risks since the inclusion of this discussion in our Annual Report onForm 10-K.

Outlook

~~Order~~The order entry ~~exceeded~~rate, while lower than the ~~record~~ sales level, was still solid in the second quarter 2011 and was higher than the first quarter ~~2011 and~~2011. However, the order ~~entry~~ rate ~~remained at high levels~~slowed down in the latter part of the quarter and into the early portion of the ~~second quarter 2011. Demand from a number~~third quarter. This slow down may be due in part to an inventory correction in the consumer electronics market. Seasonal factors may also have affected the order entry rate as portions of certain markets often slow down in the summer. The overall backlog remains healthy and we are well positioned in the majority of our ~~key~~ markets ~~continues~~for long-term growth. Even though shipments to ~~be solid, including~~our largest market, consumer electronics, industrial components and commercial aerospace, automotive electronics and energy. Shipments to the medical market have improved from the lower levels in the fourth quarter 2010 while portions of our traditional defense business remain soft.

~~Our margins~~were relatively flat in the second quarter 2011, ~~will be affected by~~our total sales grew, demonstrating the ~~ongoing~~benefits of our product and market diversification efforts over recent years.

The negative margin impact from thestart-up of the new beryllium facility should lessen over the balance of 2011, as we ~~continue our efforts~~believe the facility should be operational prior to ~~bring this significant operation on line. Margins should~~year end. Costs associated with the company name change will continue to benefit from the high level of production and the related efficiencies. Steps are being taken to manage the extended lead times caused by the high level of demand on certain operations. Profitability will also be affected in the second ~~quarter by~~half of 2011, but these marketing expenses will be lower than the costs incurred on this program during the first half of the year. We are also undertaking a number of initiatives that are designed to improve profitability in the long term, but will add to our cost structure during 2011. Cost control and cost reduction efforts will be implemented where possible to help offset the cost ~~of various initiatives, including~~pressures from the ~~corporate rebranding effort (although not to the same level as it was in the first quarter 2011).~~

~~We remain cautious over the current high cost of gold, silver, copper~~higher pension expense, metal consignment fees and other ~~key raw materials and the impact these prices may have on our business levels, related operating margins and financing structure.~~items.

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, in particular the outlook provided above.~~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;

	•	The condition of the markets which we serve, whether defined geographically or by segment, with the major market segments ~~being:~~being consumer electronics, defense and science, industrial components and commercial aerospace, automotive electronics, telecommunications infrastructure, ~~appliance,~~ medical, energy and ~~services.~~services;

	•	Changes in product mix and the financial condition of customers;

	•	Actual sales, operating rates and margins for 2011;

	•	Our success in developing and introducing new products and new productramp-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 integrating newly acquired ~~businesses, including the acquisitions of Barr Associates, Inc. and Academy Corporation;~~businesses;

	•	The impact of the results of ~~Barr Associates, Inc. and Academy Corporation~~acquisitions on our ability to achieve fully the strategic and financial objectives related to these acquisitions;

	•	Our success in implementing our strategic plans and the timely and successful completion andstart-up of any capital projects, including the new primary beryllium facility ~~being constructed~~ in Elmore, Ohio;


	•	The availability of adequate lines of credit and the associated interest rates;

	•	Other financial factors, including ~~the~~ cost and availability of raw materials (both base and precious metals), metal financing fees, tax rates, exchange rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance 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, including the recent earthquake and tsunami in Japan;

	•	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 amount and timing of repurchases of our Common Stock, if, any;


	•	The timing and ability to achieve further efficiencies and synergies resulting from our name change and ~~business unit~~product line alignment under the Materion name and Materion brand; and,

	•	The risk factors set forth in Part 1, Item 1A of our Annual Report onForm 10-K for the year ended December 31, 2010.


Item 3.	Quantitative and Qualitative Disclosures about Market Risk

For information about our market risks, please refer to our Annual Report onForm 10-K for the ~~period~~year ended December 31, 2010.


Item 4.	Controls and Procedures

We carried out an evaluation under the supervision and with participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~April~~July 1, 2011 pursuant toRule 13a-15(b) under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the evaluation date.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required byRule 13a-15 under the Securities Exchange Act of 1934, as amended, that occurred during the quarter ended ~~April~~July 1, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2527

PART II OTHER INFORMATION


Item 1.	Legal Proceedings

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

Beryllium Claims

As of ~~April~~July 1, 2011, our subsidiary, Materion Brush Inc., was not a defendant in ~~one proceeding in state court~~any proceedings brought by plaintiffs alleging that they ~~have~~had contracted, or ~~have~~had been placed at risk of contracting, beryllium sensitization or chronic beryllium disease or other lung conditions as a result of exposure to beryllium. Plaintiffs in beryllium cases ~~seek~~sought recovery under negligence and various other legal theories and ~~seek~~sought compensatory and punitive damages, in many cases of an unspecified sum. Spouses of some plaintiffs ~~claim~~claimed loss of consortium.

During the ~~first~~second quarter of 2011, the number of beryllium cases decreased from ~~two cases (involving six plaintiffs) as of December 31, 2010 to~~ one case (involving three plaintiffs) to no pending beryllium cases as of ~~April~~July 1, 2011. ~~One case (involving one plaintiff) was voluntarily dismissed by the plaintiff. In~~As previously reported, one case (involving ~~five~~three plaintiffs)~~, two spouses dismissed their consortium claims, and~~ settled during the ~~three remaining plaintiffs have settled their case,~~first quarter, but the case had not been dismissed by the ~~court at the end of the quarter.~~court. That case has now been dismissed. No cases were filed during the quarter. The Company has no pending beryllium cases.

The Company has some insurance coverage, subject to an annual deductible.


~~Item 4.~~	~~Reserved~~


Item 5.	Other Information

~~Mine Safety and Health Administration Data~~

Materion Natural Resources Inc. (formerly known as Brush Resources Inc.), a wholly owned subsidiary, operates a beryllium mining complex in the State of Utah which is regulated by both the U.S. Mine Safety and Health Administration (“MSHA”) and state regulatory agencies. We endeavor to conduct our mining and other operations in compliance with all applicable federal, state and local laws and regulations. We present information below regarding certain mining safety and health citations which MSHA has levied with respect to our mining operations.

Materion Natural Resources Inc. did not receive any written notice of a pattern of violations under Section 104(e) of the Mine Act, nor the potential to have such a pattern, and they experienced no mining-related fatalities during the ~~current~~ quarter ended ~~April~~July 1, 2011.

For reporting purposes of The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we include the following table that sets forth the total number of specific citations and orders and the total dollar value of the proposed civil penalty assessments that were issued by MSHA during the ~~current~~ quarter ended ~~April~~July 1, 2011, pursuant to the Mine Act, for Materion Natural Resources Inc.:

Additional information follows about MSHA references used in the table.


	•	Section 104(a) Citations: The total number of violations received from MSHA under section 104(a) that are significant and substantial citations which are for alleged violations of a mining safety standard or regulation where there exits a reasonable likelihood that the hazard could result in an injury or illness of a reasonably serious nature.

	•	Section 104(b) Orders: The total number of orders issued by MSHA under section 104(b) of the Mine Act, which represents a failure to abate a citation under section 104(a) within the period of time prescribed by MSHA. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated.


	•	Section 104(d) Citations and Orders: The total number of citations and orders issued by MSHA under section 104(d) of the Mine Act for unwarrantable failure to comply with mandatory health or safety standards.


	•	Section 110(b)(2) Violations: The total number of flagrant violations issued by MSHA under section 110(b)(2) of the Mine Act.

	•	Section 107(a) Orders: The total number of orders issued by MSHA under section 107(a) of the Mine Act for situations in which MSHA determined an imminent danger existed.

~~Mine Act~~

~~Dollar Value~~

~~Section 104(a)~~

~~Mine Act~~

~~(In thousands)~~

~~Significant &~~

~~Mine Act~~

~~Section 104(d)~~

~~Mine Act~~

~~Proposed~~

~~Substantial~~

~~Secton 104(b)~~

~~Citations &~~

~~Section 110(b)(2)~~

~~Section 107(a)~~

~~MSHA~~

~~Mine ID#~~

~~Citations~~

~~Orders~~

~~Violations~~

~~Orders~~

~~Assessments~~

~~4200706~~

—

Mine Act

Dollar Value

Section 104(a)

Mine Act

(In thousands)

Significant &

Mine Act

Section 104(d)

Mine Act

Proposed

Substantial

Secton 104(b)

Citations &

Section 110(b)(2)

Section 107(a)

MSHA

Mine ID#

Citations

Orders

Violations

Orders

Assessments

4200706

—

Pending Legal Actions. The Federal Mine Safety and Health Review Commission is an independent adjudicative agency that provides administrative trial and appellate review of legal disputes arising under the Mine Act. These cases may involve, among other questions, challenges by operators to citations, orders and penalties they have received from MSHA, or complaints of discrimination by miners under Section 105 of the Mine Act. For the quarter ended ~~April~~July 1, 2011, no legal actions are pending.


Item 6.	Exhibits

3 .1 Amendment to Amended and Restated Articles of Incorporation (filed as Exhibit 3(a) to the Company’sForm 8-K (FileNo. 1-15885) on March 8, 2011), incorporated herein by reference.
4 .1 Amendment No. 1 to the Third Amended and Restated Precious Metals Agreement dated March 31, 2011, between Materion Corporation and other borrowers and The Bank of Nova Scotia (filed as Exhibit 10.1 to the Company’sForm 8-K (FileNo. 1-15885) on April 6, 2011), incorporated herein by reference.
10 .1 Amendment No. 5 to the Consignment Agreement dated March 7, 2011 between Brush Engineered Materials Inc. and Canadian Imperial Bank of Commerce and CIBC World Markets Inc.
11 Statement regarding computation of per share earnings.
31 .1 Certification of Chief Executive Officer required byRule 13a-14(a) or 15d-14(a).
31 .2 Certification of Chief Financial Officer required byRule 13a-14(a) or 15d-14(a).
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


3		Amended and Restated Code of Regulations.
10	.1	Amended and Restated Credit Agreement dated July 13, 2011 among Materion Corporation, Materion Advanced Materials Technologies and Services Netherlands B.V., JPMorgan Chase Bank, N.A. and other lenders from time to time party thereto (filed as Exhibit 10.1 to the Registrant’sForm 8-K (FileNo. 1-15885) filed on July 18, 2011), incorporated herein by reference.
10	.2	Amendment No. 1 to Amended and Restated Severance Agreement, dated May 4, 2011.
10	.3	Third Amendment to the Brush Engineered Materials Inc. Amended and Restated Executive Deferred Compensation Plan II, dated July 6, 2011.
10	.4	Amendment No. 3 to the Brush Engineered Materials Inc. Key Employee Share Option Plan dated July 12, 2011.
10	.5	Amended and Restated Materion Corporation 2006 Stock Incentive Plan (as Amended and Restated as of May 4, 2011) (filed as Exhibit 10.1 to the Registrant’sForm 8-K (FileNo. 1-15885) filed on May 5, 2011), incorporated herein by reference.
10	.6	Amended and Restated Materion Corporation 2006 Non-employee Director Equity Plan (as Amended and Restated as of May 4, 2011) (filed as Appendix B to the Registrant’s Proxy Statement (FileNo. 1-15885) filed on March 25, 2011), incorporated herein by reference.
11		Statement regarding computation of per share earnings.
31	.1	Certification of Chief Executive Officer required byRule 13a-14(a) or 15d-14(a).
31	.2	Certification of Chief Financial Officer required byRule 13a-14(a) or 15d-14(a).
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*101	.INS	XBRL Instance Document
*101	.SCH	SBRL Taxonomy Extension Schema Document
*101	.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
*101	.LAB	XBRL Taxonomy Extension Label Linkbase Document
*101	.PRE	XBRL Taxonomy Extension Presentation Linkbase Document


*		XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

2729

SIGNATURES

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

MATERION CORPORATION

/s/ John D. Grampa

John D. Grampa

Senior Vice President Finance and

Chief Financial Officer

Dated: ~~April 29,~~August 9, 2011

2830


Consolidated Statements of Income — ~~First Quarter~~Second quarter and first half ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010		2
Consolidated Balance Sheets — ~~April~~July 1, 2011 and December 31, 2010		3
Consolidated Statements of Cash Flows — First ~~Quarter~~half ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010		4
~~EX-10.1~~EX-3
EX-10.2
EX-10.3
EX-10.4
EX-11
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT


3	.1	Amendment to Amended and Restated Articles of Incorporation (filed as Exhibit 3(a) to the Company’sForm 8-K (FileNo. 1-15885) on March 8, 2011), incorporated herein by reference.
4	.1	Amendment No. 1 to the Third Amended and Restated Precious Metals Agreement dated March 31, 2011, between Materion Corporation and other borrowers and The Bank of Nova Scotia (filed as Exhibit 10.1 to the Company’sForm 8-K (FileNo. 1-15885) on April 6, 2011), incorporated herein by reference.
10	.1	Amendment No. 5 to the Consignment Agreement dated March 7, 2011 between Brush Engineered Materials Inc. and Canadian Imperial Bank of Commerce and CIBC World Markets Inc.
11		Statement regarding computation of per share earnings.
31	.1	Certification of Chief Executive Officer required byRule 13a-14(a) or 15d-14(a).
31	.2	Certification of Chief Financial Officer required byRule 13a-14(a) or 15d-14(a).
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.