PART I1 - FINANCIAL INFORMATION

~~MATERION CORPORATION AND SUBSIDIARIES~~



~~Item 1.~~	Item 1. Financial Statements

~~The consolidated financial statements of Materion Corporation and its subsidiaries for the third quarter and nine months ended September 29, 2017 are as follows:~~



	~~Consolidated Statements of Income -~~	2
	~~Third quarter and nine months ended September 29, 2017 and September 30, 2016~~

	~~Consolidated Statements of Comprehensive Income -~~	3
	~~Third quarter and nine months ended September 29, 2017 and September 30, 2016~~

	~~Consolidated Balance Sheets -~~	4
	~~September 29, 2017 and December 31, 2016~~

	~~Consolidated Statements of Cash Flows -~~	5
	~~Nine months ended September 29, 2017 and September 30, 2016~~

Materion Corporation and Subsidiaries

Consolidated Statements of Income

(Unaudited)


	Second Quarter Ended				Six Months Ended
(Thousands, except per share amounts)	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Net sales	$	445,295	$	370,999	$	894,340	$	725,385
Cost of sales	357,868		301,418		731,622		589,008
Gross margin	87,427		69,581		162,718		136,377
Selling, general, and administrative expense	42,047		38,060		83,708		74,836
Research and development expense	7,592		6,604		14,666		12,810
Restructuring expense (income)	—		—		1,076		(378)
Other—net	5,928		4,194		11,801		8,668
Operating profit	31,860		20,723		51,467		40,441
Other non-operating income—net	(1,168)		(1,277)		(2,337)		(2,553)
Interest expense—net	4,701		858		8,437		1,619
Income before income taxes	28,327		21,142		45,367		41,375
Income tax expense	5,072		3,274		8,093		6,740
Net income	$	23,255	$	17,868	$	37,274	$	34,635
Basic earnings per share:
Net income per share of common stock	$	1.13	$	0.87	$	1.82	$	1.70
Diluted earnings per share:
Net income per share of common stock	$	1.12	$	0.87	$	1.80	$	1.68
Weighted-average number of shares of common stock outstanding:
Basic	20,517		20,429		20,491		20,402
Diluted	20,723		20,651		20,743		20,647

Third Quarter Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
(Thousands, except per share amounts) 2017 2016 2017 2016
Net sales $ 294,268
$ 249,619
$ 830,779
$ 734,906
Cost of sales 239,065
198,864
678,023
595,488
Gross margin 55,203
50,755
152,756
139,418
Selling, general, and administrative expense 36,415
34,177
108,118
97,101
Research and development expense 3,429
3,237
10,103
9,860
Other—net 3,801
3,190
9,823
8,997
Operating profit 11,558
10,151
24,712
23,460
Interest expense—net 533
490
1,721
1,417
Income before income taxes 11,025
9,661
22,991
22,043
Income tax expense 1,705
1,616
3,308
3,081
Net income $ 9,320
$ 8,045
$ 19,683
$ 18,962
Basic earnings per share:
Net income per share of common stock $ 0.47
$ 0.40
$ 0.98
$ 0.95
Diluted earnings per share:
Net income per share of common stock $ 0.46
$ 0.40
$ 0.97
$ 0.94
Cash dividends per share $ 0.100
$ 0.095
$ 0.295
$ 0.280
Weighted-average number of shares of common stock outstanding:
Basic 20,040
19,957
20,007
19,996
Diluted 20,411
20,192
20,361
20,209

~~The accompanying~~See notes ~~are an integral part of the~~to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)


	Second Quarter Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
(Thousands)	2022		2021		2022		2021
Net income	$	23,255	$	17,868	$	37,274	$	34,635
Other comprehensive income (loss):
Foreign currency translation adjustment	(6,343)		3,193		(8,390)		(5,664)
Derivative and hedging activity, net of tax	1,894		(273)		4,164		972
Pension and post-employment benefit adjustment, net of tax	16		83		(224)		247
Other comprehensive income (loss)	(4,433)		3,003		(4,450)		(4,445)
Comprehensive income	$	18,822	$	20,871	$	32,824	$	30,190

Third Quarter Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
(Thousands) 2017 2016 2017 2016
Net income $ 9,320
$ 8,045
$ 19,683
$ 18,962
Other comprehensive income (loss):
Foreign currency translation adjustment 271
467
1,649
2,918
Derivative and hedging activity, net of tax (120 ) 132
(755 ) (489 )
Pension and post-employment benefit adjustment, net of tax 881
673
2,397
2,923
Other comprehensive income 1,032
1,272
3,291
5,352
Comprehensive income $ 10,352
$ 9,317
$ 22,974
$ 24,314

~~The accompanying~~See notes ~~are an integral part of the~~to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Balance Sheets

(Unaudited)


	July 1,		Dec. 31,
(Thousands)	2022		2021
Assets
Current assets
Cash and cash equivalents	$	32,175	$	14,462
Accounts receivable, net	222,811		223,553
Inventories, net	422,376		361,115
Prepaid and other current assets	29,606		28,122
Total current assets	706,968		627,252
Deferred income taxes	5,018		5,431
Property, plant, and equipment	1,164,273		1,132,223
Less allowances for depreciation, depletion, and amortization	(739,776)		(723,248)
Property, plant, and equipment, net	424,497		408,975
Operating lease, right-of-use assets	68,045		63,096
Intangible assets, net	148,364		156,736
Other assets	30,228		27,369
Goodwill	319,994		318,620
Total Assets	$	1,703,114	$	1,607,479
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt	$	15,333	$	15,359
Accounts payable	113,708		86,243
Salaries and wages	22,239		37,544
Other liabilities and accrued items	49,148		53,388
Income taxes	1,700		4,205
Unearned revenue	8,097		7,770
Total current liabilities	210,225		204,509
Other long-term liabilities	15,846		14,954
Operating lease liabilities	62,474		57,099
Finance lease liabilities	14,360		16,327
Retirement and post-employment benefits	30,992		33,394
Unearned income	108,126		97,962
Long-term income taxes	1,206		1,190
Deferred income taxes	28,766		27,216
Long-term debt	481,965		434,388
Shareholders’ equity
Serial preferred stock (no par value; 5,000 authorized shares, none issued)	—		—
Common stock (no par value; 60,000 authorized shares, issued shares of 27,148 at both July 1st and December 31st)	281,296		271,978
Retained earnings	725,918		693,756
Common stock in treasury	(218,356)		(209,920)
Accumulated other comprehensive loss	(44,619)		(40,169)
Other equity	4,915		4,795
Total shareholders' equity	749,154		720,440
Total Liabilities and Shareholders’ Equity	$	1,703,114	$	1,607,479

(Unaudited)
Sept. 29, Dec. 31,
(Thousands) 2017 2016
Assets
Current assets
Cash and cash equivalents $ 22,486
$ 31,464
Accounts receivable 125,417
100,817
Inventories 220,223
200,865
Prepaid and other current assets 19,115
12,138
Total current assets 387,241
345,284
Long-term deferred income taxes 40,332
39,409
Property, plant, and equipment 877,002
861,267
Less allowances for depreciation, depletion, and amortization (632,435 ) (608,636 )
Property, plant, and equipment—net 244,567
252,631
Intangible assets 10,771
11,074
Other assets 6,312
5,950
Goodwill 89,720
86,950
Total Assets $ 778,943
$ 741,298
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt $ 767
$ 733
Accounts payable 44,678
32,533
Salaries and wages 30,889
29,885
Other liabilities and accrued items 27,950
21,340
Income taxes 2,953
4,781
Unearned revenue 5,859
1,105
Total current liabilities 113,096
90,377
Other long-term liabilities 18,968
17,979
Retirement and post-employment benefits 92,014
91,505
Unearned income 37,991
41,369
Long-term income taxes 1,593
2,100
Deferred income taxes 279
274
Long-term debt 3,010
3,605
Shareholders’ equity
Serial preferred stock —
—
Common stock 219,817
212,702
Retained earnings 531,683
517,903
Common stock in treasury (161,030 ) (154,399 )
Accumulated other comprehensive loss (82,890 ) (86,181 )
Other equity transactions 4,412
4,064
Total shareholders' equity 511,992
494,089
Total Liabilities and Shareholders’ Equity $ 778,943
$ 741,298

~~The accompanying~~

See the notes ~~are an integral part of the~~to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended							Six Months Ended
	Sept. 29,			Sept. 30,				July 1,		July 2,
(Thousands)	2017			2016			(Thousands)	2022		2021
Cash flows from operating activities:							Cash flows from operating activities:
Net income	$	19,683		$	18,962		Net income	$	37,274	$	34,635
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization	33,444			34,379			Depreciation, depletion, and amortization	26,070		19,063
Amortization of deferred financing costs in interest expense	670			417			Amortization of deferred financing costs in interest expense	780		364
Stock-based compensation expense (non-cash)	4,303			2,880			Stock-based compensation expense (non-cash)	3,694		3,512
(Gain) loss on sale of property, plant, and equipment	207			(601		)

Deferred income tax expense (benefit)	1,073			(676		)	Deferred income tax expense (benefit)	1,966		367
Changes in assets and liabilities net of acquired assets and liabilities:
Decrease (increase) in accounts receivable	(21,572		)	(19,781		)
Decrease (increase) in inventory	(9,953		)	3,294
Decrease (increase) in prepaid and other current assets	(6,077		)	(956		)
Increase (decrease) in accounts payable and accrued expenses	17,991			(2,207		)
Increase (decrease) in unearned revenue	4,746			(2,546		)
Increase (decrease) in interest and taxes payable	(2,083		)	898
Increase (decrease) in long-term liabilities	(5,611		)	(9,320		)
Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts receivable							Accounts receivable	(2,566)		(13,941)
Inventory							Inventory	(67,304)		(40,651)
Prepaid and other current assets							Prepaid and other current assets	(2,462)		(1,718)
Accounts payable and accrued expenses							Accounts payable and accrued expenses	8,897		28,403
Unearned revenue							Unearned revenue	(141)		3,246
Interest and taxes payable							Interest and taxes payable	(1,765)		2,868
Unearned income due to customer prepayments							Unearned income due to customer prepayments	13,059		8,043
Other-net	(1,324		)	2,479			Other-net	3,913		(126)
Net cash provided by operating activities	35,497			27,222			Net cash provided by operating activities	21,415		44,065
Cash flows from investing activities:							Cash flows from investing activities:
Payments for purchase of property, plant, and equipment	(17,759		)	(20,052		)	Payments for purchase of property, plant, and equipment	(37,730)		(57,712)
Payments for mine development	(620		)	(8,934		)
Payments for acquisition	(16,504		)	—
Proceeds from sale of property, plant, and equipment	53			1,366			Proceeds from sale of property, plant, and equipment	105		603
Payments for acquisition, net of cash acquired							Payments for acquisition, net of cash acquired	(2,971)		—
Net cash used in investing activities	(34,830		)	(27,620		)	Net cash used in investing activities	(40,596)		(57,109)
Cash flows from financing activities:							Cash flows from financing activities:
Proceeds from issuance of short-term debt, net	—			3,777
Proceeds from borrowings under revolving credit agreement, net							Proceeds from borrowings under revolving credit agreement, net	52,794		22,500
Proceeds from issuance of long-term debt	55,000			10,000			Proceeds from issuance of long-term debt	2,059		—
Repayment of long-term debt	(55,608		)	(10,517		)	Repayment of long-term debt	(7,177)		(1,654)
Principal payments under capital lease obligations	(644		)	(549		)
Principal payments under finance lease obligations							Principal payments under finance lease obligations	(1,334)		(1,512)
Cash dividends paid	(5,903		)	(5,601		)	Cash dividends paid	(5,112)		(4,791)
Deferred financing costs	(300		)	(1,000		)
Common shares withheld for taxes	(2,397		)	(868		)
Repurchase of common stock	(1,086		)	(3,798		)
Net cash used in financing activities	(10,938		)	(8,556		)
Payments of withholding taxes for stock-based compensation awards							Payments of withholding taxes for stock-based compensation awards	(2,812)		(3,021)
Net cash provided by financing activities							Net cash provided by financing activities	38,418		11,522
Effects of exchange rate changes	1,293			524			Effects of exchange rate changes	(1,524)		(11)
Net change in cash and cash equivalents	(8,978		)	(8,430		)	Net change in cash and cash equivalents	17,713		(1,533)
Cash and cash equivalents at beginning of period	31,464			24,236			Cash and cash equivalents at beginning of period	14,462		25,878
Cash and cash equivalents at end of period	$	22,486		$	15,806		Cash and cash equivalents at end of period	$	32,175	$	24,345

~~The accompanying~~See notes ~~are an integral part of the~~to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Shareholders' Equity

(Unaudited)


	Common Shares		Shareholders' Equity
(Thousands, except per share amounts)	Common Shares	Common Shares Held in Treasury	Common Stock		Retained Earnings		Common Stock in Treasury		Accumulated Other Comprehensive Loss		Other Equity		Total
Balance at April 1, 2022	20,511	(6,637)	$	278,589	$	705,255	$	(217,549)	$	(40,186)	$	4,855	$	730,964
Net income	—	—	—		23,255		—		—		—		23,255
Other comprehensive income	—	—	—		—		—		(4,433)		—		(4,433)
Cash dividends declared ($0.125 per share)	—	—	—		(2,592)		—		—		—		(2,592)
Stock-based compensation activity	13	13	2,671		—		(676)		—		—		1,995
Payments of withholding taxes for stock-based compensation awards	(1)	(1)	—		—		(95)		—		—		(95)
Directors’ deferred compensation	—	—	36		—		(36)		—		60		60
Balance at July 1, 2022	20,523	(6,625)	$	281,296	$	725,918	$	(218,356)	$	(44,619)	$	4,915	$	749,154

Balance at April 2, 2021	20,414	(6,734)	$	264,940	$	645,468	$	(206,845)	$	(46,087)	$	3,860	$	661,336
Net income	—	—	—		17,868		—		—		—		17,868
Other comprehensive income	—	—	—		—		—		3,003		—		3,003
Cash dividends declared ($0.120 per share)	—	—	—		(2,453)		—		—		—		(2,453)
Stock-based compensation activity	25	25	3,215		(32)		(1,144)		—		—		2,039
Payments of withholding taxes for stock-based compensation awards	(2)	(2)	—		—		(183)		—		—		(183)
Directors’ deferred compensation	1	1	50		—		(682)		—		723		91
Balance at July 2, 2021	20,438	(6,710)	$	268,205	$	660,851	$	(208,854)	$	(43,084)	$	4,583	$	681,701


	Common Shares		Shareholders' Equity
(Thousands, except per share amounts)	Common Shares	Common Shares Held in Treasury	Common Stock		Retained Earnings		Common Stock in Treasury		Accumulated Other Comprehensive Loss		Other Equity		Total
Balance at December 31, 2021	20,448	(6,700)	$	271,978	$	693,756	$	(209,920)	$	(40,169)	$	4,795	$	720,440
Net income	—	—	—		37,274		—		—		—		37,274
Other comprehensive loss	—	—	—		—		—		(4,450)		—		(4,450)
Cash dividends declared ($0.245 per share)	—	—	—		(5,112)		—		—		—		(5,112)
Stock-based compensation activity	108	108	9,243		—		(5,549)		—		—		3,694
Payments of withholding taxes for stock-based compensation awards	(34)	(34)	—		—		(2,812)		—		—		(2,812)
Directors’ deferred compensation	1	1	75		—		(75)		—		120		120
Balance at July 1, 2022	20,523	(6,625)	$	281,296	$	725,918	$	(218,356)	$	(44,619)	$	4,915	$	749,154

Balance at December 31, 2020	20,328	(6,820)	$	258,642	$	631,058	$	(199,187)	$	(38,639)	$	3,756	$	655,630
Net income	—	—	—		34,635		—		—		—		34,635
Other comprehensive loss	—	—	—		—		—		(4,445)		—		(4,445)
Cash dividends declared ($0.235 per share)	—	—	—		(4,791)		—		—		—		(4,791)
Stock-based compensation activity	152	152	9,474		(51)		(5,911)		—		—		3,512
Payments of withholding taxes for stock-based compensation awards	(45)	(45)	—		—		(3,021)		—		—		(3,021)
Directors’ deferred compensation	3	3	$	89	$	—	$	(735)	$	—	$	827	$	181
Balance at July 2, 2021	20,438	(6,710)	$	268,205	$	660,851	$	(208,854)	$	(43,084)	$	4,583	$	681,701

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note A — Accounting Policies

~~(Dollars in thousands)~~

Basis of Presentation:~~In management’s opinion, the~~

The accompanying consolidated financial statements of Materion Corporation and its subsidiaries (referred to herein as the Company, our, we, or us) contain all of the adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods reported. All adjustments were of a normal and recurring nature. ~~Certain amounts in prior years have been reclassified to conform to the 2017 consolidated financial statement presentation.~~

These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's ~~2016~~2021 Annual Report on Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year.

Business Combinations:

The Company records assets acquired and liabilities assumed at the date of acquisition at their respective fair values. Any intangible assets acquired in a business combination are recognized and reported apart from goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

The amounts reflected in Note B toof the ~~Consolidated Financial Statements~~consolidated financial statements are the results of ~~the~~a preliminary purchase price allocation and will be updated upon completion of the final valuation. The Company is required to complete the purchase price allocation within 12 months of the acquisition date. If such completion of the allocation results in a change in the preliminary values, the measurement period adjustment will be recognized in the period in which the adjustment amount is determined.

New Pronouncements Adopted:

In March ~~2016,~~2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ~~Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09,~~ ~~Improvements~~Reporting. This guidance is intended to ~~Employee Share-Based Payment Accounting, which impacts several aspects of~~provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company has applied this guidance in accounting for ~~share-based payment transactions, including income tax consequences, classification~~the interest rate swap discussed in Note N. Any additional reference rate reform impacts will be accounted for in accordance with ASU 2020-04.

New Accounting Guidance Issued and Not Yet Adopted:

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). ASU 2021-10 is intended to increase transparency related to governmental assistance by requiring entities to disclose the types of ~~awards as either equity or liabilities, and classification on~~government assistance, the ~~statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement,~~entity's accounting for government assistance, and the ~~tax effects~~effect of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. An entity will also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the reporting period. Excess tax benefits will be classified, along with other income tax cash flows, asgovernment assistance on an operating activity. In regard to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The ASU, whichentity's financial statements. This new guidance is ~~required to be applied on a modified retrospective basis, will be~~ effective for ~~fiscal years, including interim~~all entities for annual reporting periods ~~within those fiscal years,~~ beginning after December 15, ~~2016.~~2021. The Company adopted the new guidance during the first quarter of 2017. An impact of adoption was the recognition of excess tax benefits in Income tax expense rather than Shareholders' equity in 2017. As a result, the Company recognized discrete tax benefits of $129 and $503 in Income tax expense during the third quarter and first nine months of 2017, respectively. The cash flow classification requirements of ASU 2016-09 were applied retrospectively. As a result, for the nine months ended September 30, 2016, cash flows from operating activities increased by $868 with a corresponding decrease to cash flows from financing activities. None of the other provisions in this ASU had a material effect on the Company's consolidated financial statements.

~~New Pronouncements Issued:~~ ~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~, which amends and simplifies existing guidance to allow companies to more accurately present the economic effects of risk management activities in the financial statements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,~~ which requires an employer to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. The amendments also allow only the service cost component to be eligible for capitalization. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

those periods, with early adoption permitted. The amendments should be applied retrospectively for the presentation of service cost and other components of net benefit cost on the income statement and prospectively for the capitalization of service cost and net periodic postretirement benefits in assets. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~, which eliminates the off-balance-sheet accounting for leases. The new guidance will require lessees to report their operating leases as both an asset and liability on the balance sheet and disclose key information about leasing arrangements. The ASU, which is required to be applied on a modified retrospective basis, will be effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements.

~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~, which supersedes previous revenue recognition guidance. The new standard requires that a company recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Companies will need to use more judgment and estimates than under the guidance currently in effect, including estimating the amount of variable revenue to recognize over each identified performance obligation. Additional disclosures will be required to help users of financial statements understand the nature, amount, and timing of revenue and cash flows arising from contracts. This ASU is effective beginning in fiscal year 2018 and can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. To evaluate the impact of adopting this new guidance on the consolidated financial statements, the Company established a cross-functional implementation team to assess its revenue streams against the requirements of this ASU. In addition, the Company is in the process of identifying and implementing changes to its processes and controls to meet the standard's updated reporting and disclosure requirements. The Company plans to adopt the standard as of the first quarter of 2018 using the modified retrospective approach and will record a cumulative-effect adjustment to equity for open contracts as of January 1, 2018. The Company continues to update its assessment ofevaluating the impact of the ~~standard and related updates to~~guidance on its ~~consolidated financial statements, and will disclose material impacts, if any.~~annual disclosures.

No other recently issued or effective ASUs had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note B — ~~Acquisitions~~Acquisition

On ~~February 28, 2017,~~November 1, 2021, the Company acquired the ~~target~~industry-leading electronic materials business of H.C. Starck Group GmbH (HCS-Electronic Materials) for a cash purchase price of approximately $398.9 million, on a cash-free, debt-free basis, subject to a customary purchase price adjustment mechanism. During the ~~Heraeus Group (HTB),~~six months ended July 1, 2022, acquisition-related inventory step-up expense was $7.5 million and classified in Cost of ~~Hanau, Germany, for $16.5 million. This business manufactures precious~~Sales and ~~non-precious metal target materials~~transaction and integration costs were $2.6 million and classified in Selling, General and Administrative expenses in the accompanying consolidated statements of income. The Company financed the purchase price for the ~~architectural~~HCS-Electronic Materials acquisition with a new $300 million five-year term loan pursuant to a delayed draw term loan facility executed in October 2021 and ~~automotive glass, electronic display, photovoltaic, and semiconductor markets at facilities in Germany, Taiwan, and~~$103 million of borrowings under its amended revolving credit facility. The maturity date on the ~~United States.~~revolving credit facility was also extended to October 2026. The interest rate for the term loan is based on LIBOR plus a tiered credit spread that is indexed to the Company's quarterly leverage ratio. This acquired business operates within the ~~Advanced~~Performance Materials ~~segment,~~and Electronic Materials segments, and the results of operations are included as of the date of acquisition. The combination of Materion and HCS-Electronic Materials enhances the Company's position as the leading supplier to the high growth semiconductor industry.

The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the HCS-Electronic Materials Acquisition Date). The primary areas of accounting for the HCS Acquisition that are not yet finalized relate to the fair value of contingencies, income tax accruals, and the impact on residual goodwill. The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. While we believe that such preliminary estimates provide a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, we will evaluate any additional information prior to finalization of the fair value. During the measurement period, we will adjust preliminary valuations assigned to assets and liabilities if new information is obtained about facts and circumstances that existed as of the HCS Acquisition Date that, if known, would have resulted in revised values for these items as of that date. The impact of all changes, if any, that do not qualify as measurement period adjustments will be included in current period earnings.

During the period subsequent to the HCS-Electronic Materials acquisition, we made certain measurement period adjustments to the acquired assets and liabilities assumed due to clarification of information utilized to determine fair value during the measurement period. Additionally, we paid a working capital true-up of approximately $3.0 million during the second quarter of 2022 which increased the total purchase price. The preliminary purchase price allocation for the acquisition including these measurement period adjustments is as follows:

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)


(Thousands)	Initial Allocation of Consideration		Measurement Period Adjustments		Updated Allocation
Assets:
Cash and cash equivalents	$	3,685	$	—	$	3,685
Accounts receivable	28,352		—		28,352
Inventories	70,681		—		70,681
Prepaid and other current assets	660		(355)		305
Property, plant, and equipment	44,681		355		45,036
Operating lease, right-of-use assets	6,120		—		6,120
Intangible assets	107,800		—		107,800
Other long-term assets	4,528		—		4,528
Goodwill	178,181		3,688		181,869
Total assets acquired	$	444,688	$	3,688	$	448,376

Liabilities:
Accounts payable	$	12,139	$	—	$	12,139
Salaries and wages	2,516		435		2,951
Other liabilities and accrued items	28		—		28
Income taxes	2,183		79		2,262
Other long-term liabilities	5,543		215		5,758
Operating lease liabilities	6,042		—		6,042
Deferred income taxes	20,300		—		20,300
Total liabilities assumed	$	48,751	$	729	$	49,480
Net assets acquired	$	395,937	$	2,959	$	398,896

~~The Company will make adjustments to the purchase price allocation prior to completion of the measurement period, as necessary. Only items identified~~

Assets acquired and liabilities assumed are recognized at their respective fair values as of the acquisition ~~date will be~~date. The Company engaged specialists to assist in the valuation of inventories, property, plant, and equipment, and intangible assets.

In determining the fair value of the amounts above, inventory is fair valued based on the comparative sales method for work in process and finished goods at the selling price less cost to dispose and remaining manufacturing effort. The remaining working capital accounts' carrying values approximate fair value. For property, plant and equipment and intangible asset values, the Company utilized various forms of the income, cost and market approaches depending on the asset being valued. The Company used a relief from royalty method under the income approach to value its trade names and the developed technology and the multi-period excess earnings method under the income approach to value customer relationships. The significant assumptions used to estimate the fair value of these intangible assets included the discount rate and certain assumptions that form the basis of forecasted future cash flows (including revenue growth rates, royalty rates for trade names and developed technology, and attrition rates for customer relationships). Inputs were generally determined by taking into account independent appraisals and historical data, supplemented by current and anticipated market conditions and are considered ~~for subsequent adjustment. The purchase price allocation for~~Level 3 assets as the ~~acquisition is as follows:~~assumptions are unobservable inputs developed by the Company.

(Thousands) Amount
Assets:
Inventories $ 7,221
Prepaid and other current assets 1,107
Long-term deferred income taxes 1,450
Property, plant, and equipment 7,637
Intangible assets 3,236
Goodwill 2,605
Total assets acquired $ 23,256

Liabilities:
Other liabilities and accrued items $ 1,030
Other long-term liabilities 430
Retirement and post-employment benefits 5,292
Total liabilities assumed $ 6,752

Total purchase price $ 16,504

As part of the acquisition, the Company recorded approximately ~~$2.6~~$181.9 million of ~~goodwill.~~goodwill allocated between its Electronic Materials and Performance Materials segments based on the relative fair values. Goodwill was calculated as the excess of the purchase price over the estimated fair values of the tangible net assets and intangible assets ~~acquired. Also,~~acquired and primarily attributable to the ~~Company acquired approximately $3.2 million of other intangible assets, which will~~synergies expected to arise after the acquisition dates. The goodwill is not expected to be ~~amortized using the straight-line method over an average life of about ten years.~~ deductible for U.S. tax purposes.

The following table reports the intangible assets by asset category ~~and useful life:~~

as of the closing date:

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

(Thousands) Value at Acquisition Useful Life
Customer relationships $ 1,861
15 years
Technology 1,375
3 years
Total $ 3,236

(Thousands)

Value at Acquisition

Useful Life

Customer relationships

50,200

13 years

Technology

35,300

13 years

Trade name

22,300

15 years

Total

107,800

The amounts of revenue and income (loss) before taxes of HCS-Electronic Materials in the second quarter of 2022 consolidated statements are $43.6 million and $7.6 million, respectively. Full year revenue and income before taxes total $86.9 million and $6.0 million, respectively. Income before taxes includes the purchase accounting inventory step-up expense recorded in the first quarter of 2022. Had the HCS-Electronic Materials acquisition occurred as of the beginning of fiscal 2020, the Company's sales and income (loss) before taxes would have been as follows:


	(Unaudited)
	Three months ended		Six months ended
	July 2, 2021		July 2, 2021
Net Sales	$	409,202	$	794,586
Profit income (loss) before taxes	$	22,138	$	41,135

The unaudited pro forma financial information has been calculated after applying our accounting policies and adjusting the historical results with pro forma adjustments that assume the acquisition occurred on January 1, 2020. These unaudited pro forma results do not represent financial results realized, nor are they intended to be a projection of future results. The transaction accounting adjustments and other adjustments are based on available information and assumptions that the Company’s management believes are reasonable. Such adjustments are estimates and actual experience may differ from expectations. The pro forma income (loss) before taxes for the second quarter ended and six months ended July 2, 2021 includes approximately $4.3 million and $7.2 million, respectively, of additional interest expense related to committed financing to fund the acquisition and acquisition-related intangible asset amortization expense of $2.0 million and $4.0 million, respectively, as if the acquisition occurred on January 1, 2020.

Note C — Segment Reporting

The Company ~~has~~changed two segment names during the ~~following operating segments:~~first quarter of 2022: Performance Alloys and Composites became Performance Materials, and Advanced Materials became Electronic Materials. The Company believes these names better represent the markets served and the advanced next-generation product solutions provided to our customers. Other than the name changes, there were no changes in the composition or structure of the Company's reportable segments in the first half of 2022.

The Company has the following reportable segments: Performance Materials, Electronic Materials, Precision ~~Coatings,~~Optics, and Other. The Company’s ~~operating~~reportable segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the Chief Executive Officer, the Company's ~~Chief Operating Decision Maker,~~chief operating decision maker, in determining how to allocate the Company’s resources and evaluate performance.

Performance ~~Alloys and Composites produces strip and bulk form alloy products, strip metal products with clad inlay and overlay metals, beryllium-based metals,~~Materials provides advanced engineered solutions comprised of beryllium and ~~aluminum metal matrix composites,~~non-beryllium containing alloy systems and custom engineered parts in strip, bulk, rod, ~~sheet, foil,~~plate, bar, tube, and ~~a variety of~~other customized ~~forms, beryllia ceramics, and bulk metallic glass materials.~~shapes.

~~Advanced~~

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

Precision ~~Coatings~~Optics produces thin film coatings, optical filter materials, sputter-coated, and precision-converted thin film materials.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The Other reportable segment includes unallocated corporate costs and assets.

Beginning with the first quarter of 2022, the Company began using earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) as the main operating income metric used by management to measure the financial performance of the Company and each segment. The Company made this change because recent acquisitions have resulted in increased purchase accounting amortization expense, which in turn has affected the comparability of results across periods and when compared to other companies. Management believes EBITDA is useful to investors as it better represents the Company's performance excluding the effect of the recent acquisition of significant intangible assets that are now being amortized. EBITDA is not a measurement of financial performance under U.S. GAAP. Although the Company uses EBITDA to assess the performance of its business and for various other purposes, the use of this non-GAAP financial measure as an analytical tool has limitations, and it should not be considered in isolation or as a substitute for analysis of the Company’s results of operations as reported in accordance with U.S. GAAP.

(Thousands)
Performance
Alloys and
Composites
Advanced Materials Precision Coatings Other Total
Third Quarter 2017
Net sales $ 109,393
$ 157,770
$ 27,105
$ —
$ 294,268
Intersegment sales
54
12,814
—
—
12,868
Value-added sales 90,637
60,391
21,896
(1,542 ) 171,382
Operating profit (loss) 6,786
9,756
1,613
(6,597 ) 11,558
Third Quarter 2016
Net sales $ 103,699
$ 107,250
$ 38,670
$ —
$ 249,619
Intersegment sales 47
21,505
—
—
21,552
Value-added sales 87,247
45,960
25,803
(2,009 ) 157,001
Operating profit (loss) 4,357
8,245
3,432
(5,883 ) 10,151

First Nine Months 2017
Net sales $ 310,487
$ 429,550
$ 90,742
$ —
$ 830,779
Intersegment sales
113
42,508
—
—
42,621
Value-added sales 262,534
169,720
67,810
(3,602 ) 496,462
Operating profit (loss) 12,523
24,873
6,145
(18,829 ) 24,712
First Nine Months 2016
Net sales $ 292,024
$ 328,927
$ 113,955
$ —
$ 734,906
Intersegment sales
226
54,110
—
—
54,336
Value-added sales 248,799
135,019
75,548
(4,573 ) 454,793
Operating profit (loss) 6,103
20,748
9,803
(13,194 ) 23,460

The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for the second quarter of 2022 and 2021:

~~Intersegment~~


(Thousands)	Second Quarter 2022		Second Quarter 2021		First Six Months Ended 2022		First Six Months Ended 2021
Net sales:
Performance Materials(1)	$	154,889	$	125,294	$	304,520	$	239,437
Electronic Materials(1)	260,971		213,114		531,807		417,758
Precision Optics	29,435		32,591		58,013		68,190
Other	—		—		—		—
Net sales	445,295		370,999		894,340		725,385
Segment EBITDA:
Performance Materials	$	27,229	$	22,318	$	52,021	$	39,110
Electronic Materials	22,337		10,412		34,484		21,342
Precision Optics	3,544		5,547		5,735		13,018
Other	(7,191)		(5,813)		(12,366)		(11,413)
Total Segment EBITDA	45,919		32,464		79,874		62,057
Income tax expense	5,072		3,274		8,093		6,740
Interest expense - net	4,701		858		8,437		1,619
Depreciation, depletion and amortization	12,891		$	10,464	$	26,070	$	19,063
Net income	$	23,255	$	17,868	$	37,274	$	34,635

(1) Excludes inter-segment sales of $0.2 million for the second quarter of 2022 and $0.5 million for the first six months of 2022 for Performance Materials and $2.7 million for the second quarter of 2022 and $8.2 million for the first six months of 2022 for Electronic Materials. Also excludes inter-segment sales of $3.2 million for the second quarter of 2021 and $5.9 million for the first six months of 2021 for Electronic Materials. Inter-segment sales are eliminated in consolidation.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table disaggregates revenue for each segment by end market for the second quarter and first six months of 2022 and 2021:


(Thousands)	Performance Materials		Electronic Materials		Precision Optics		Other		Total
Second Quarter 2022
End Market
Semiconductor	$	2,446	$	213,742	$	1,530	$	—	$	217,718
Industrial	41,701		11,957		7,608		—		61,266
Aerospace and defense	27,615		1,284		3,666		—		32,565
Consumer electronics	16,212		280		5,814		—		22,306
Automotive	24,855		1,465		2,708		—		29,028
Energy	10,679		25,361		—		—		36,040
Telecom and data center	16,223		21		—		—		16,244
Other	15,158		6,861		8,109		—		30,128
Total	$	154,889	$	260,971	$	29,435	$	—	$	445,295

Second Quarter 2021
End Market
Semiconductor	$	1,806	$	166,968	$	563	$	—	$	169,337
Industrial	30,264		10,687		7,634		—		48,585
Aerospace and defense	19,250		1,660		5,597		—		26,507
Consumer electronics	10,722		266		6,964		—		17,952
Automotive	25,766		1,757		2,107		—		29,630
Energy	4,880		24,216		—		—		29,096
Telecom and data center	13,025		39		—		—		13,064
Other	19,581		7,521		9,726		—		36,828
Total	$	125,294	$	213,114	$	32,591	$	—	$	370,999

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)


(Thousands)	Performance Materials		Electronic Materials		Precision Optics		Other		Total
First Six Months 2022
End Market
Semiconductor	$	4,246	$	428,664	$	2,857	$	—	$	435,767
Industrial	82,520		27,823		16,041		—		126,384
Aerospace and defense	51,299		3,898		8,812		—		64,009
Consumer electronics	29,215		605		11,126		—		40,946
Automotive	47,091		3,122		5,026		—		55,239
Energy	20,778		54,481		—		—		75,259
Telecom and data center	32,303		65		—		—		32,368
Other	37,068		13,149		14,151		—		64,368
Total	$	304,520	$	531,807	$	58,013	$	—	$	894,340

First Six Months 2021
End Market
Semiconductor	$	2,803	$	322,029	$	1,034	$	—	$	325,866
Industrial	54,294		23,277		15,009		—		92,580
Aerospace and defense	41,092		3,058		12,173		—		56,323
Consumer electronics	20,766		431		16,424		—		37,621
Automotive	49,273		3,426		4,300		—		56,999
Energy	9,017		51,406		—		—		60,423
Telecom and data center	24,368		109		—		—		24,477
Other	37,824		14,022		19,250		—		71,096
Total	$	239,437	$	417,758	$	68,190	$	—	$	725,385

Note D — ~~Other-net~~Revenue Recognition

~~Other-net expense~~

Net sales consist primarily of revenue from the sale of precious and non-precious specialty metals, beryllium and copper-based alloys, beryllium composites, and other products into numerous end markets. The Company requires an agreement with a customer that creates enforceable rights and performance obligations. The Company generally recognizes revenue in an amount that reflects the consideration to which it expects to be entitled upon satisfaction of a performance obligation by transferring control over a product to the customer. Control over a product is generally transferred to the customer when the Company has a present right to payment, the customer has legal title, the customer has physical possession, the customer has the significant risks and rewards of ownership, and/or the customer has accepted the product.

Transaction Price Allocated to Future Performance Obligations: Accounting Standards Codification 606, Revenue from Contracts with Customers, requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied at July 1, 2022. Remaining performance obligations include non-cancelable purchase orders and customer contracts. The guidance provides certain practical expedients that limit this requirement. As such, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

After considering the ~~third quarter and first nine months~~practical expedient at July 1, 2022, the aggregate amount of ~~2017 and 2016 is summarized as follows:~~the transaction price allocated to remaining performance obligations was approximately $76.3 million.

Third Quarter Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
(Thousands) 2017 2016 2017 2016
Metal consignment fees $ 2,436
$ 1,665
$ 6,183
$ 4,851
Amortization of intangible assets 1,179
1,148
3,456
3,444
Foreign currency exchange/translation loss (gain) (201 ) 336
(794 ) 977
Fixed asset impairment 114
—
314
—
Cost reduction initiatives 189
—
189
—
Net loss (gain) on disposal of fixed assets 60
94
207
(601 )
Other items 24
(53 ) 268
326
Total $ 3,801
$ 3,190
$ 9,823
$ 8,997

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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


(Thousands)	July 1, 2022		December 31, 2021		$ change		% change
Accounts receivable, trade	$	213,221	$	213,584	$	(363)	—	%
Unbilled receivables	8,916		7,961		955		12	%
Unearned revenue	8,097		7,770		327		4	%

Accounts receivable, trade represents payments due from customers relating to the transfer of the Company’s products and services. The Company believes that its receivables are collectible and appropriate allowances for doubtful accounts have been recorded. Impairment losses (bad debt) incurred related to our receivables were immaterial during the second quarter of 2022.

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

Unearned revenue is recorded for consideration received from customers in advance of satisfaction of the related performance obligations. The Company recognized approximately $5.6 million of the December 31, 2021 unearned amounts as revenue during the first six months of 2022.

As a practical expedient, the Company does not adjust the promised amount of consideration for the effects of a significant financing component because the period between the transfer of a product or service to a customer and when the customer pays for that product or service will be one year or less. The Company does not include extended payment terms in its contracts with customers.

Note E — ~~Restructuring~~Other-net

~~In 2017,~~

Other-net for the ~~Company completed cost reduction actions in order to align costs with commensurate business levels. These actions were accomplished through elimination~~second quarter and first six months of ~~vacant positions, consolidation of roles,~~2022 and ~~staff reduction. Costs associated with these actions within the Other and Precision Coatings segments included severance associated with approximately twenty-three employees and other related costs.~~

~~In 2016, the Company initiated a plan to close the Fukuya, Japan service center, which~~2021 is ~~a part of the Performance Alloys and Composites segment. Costs associated with the plan included severance associated with approximately twelve employees and related facility exit costs.~~

~~These costs are presented in the Consolidated Statements of Income~~summarized as follows:

Third Quarter Ended Nine Months Ended
(Thousands) Sept. 29, 2017 Sept. 30, 2016 Sept. 29, 2017 Sept. 30, 2016
Cost of sales $ 346
$ —
$ 463
$ —
Selling, general, and administrative (SG&A) expense 127
—
1,259
—
Other-net 189
—
189
—
Total $ 662
$ —
$ 1,911
$ —


	Second Quarter Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
(Thousands)	2022		2021		2022		2021
Amortization of intangible assets	$	3,099	$	1,005	$	6,230	$	2,178
Metal consignment fees	2,871		2,464		5,882		4,614
Foreign currency (gain) loss	28		(33)		(305)		1,216
Net loss (gain) on disposal of fixed assets	29		24		18		(364)
Other items	(99)		734		(24)		1,024
Total	$	5,928	$	4,194	$	11,801	$	8,668

Remaining severance payments related to these initiatives of $0.3 million are reflected within Other liabilities and accrued items in the Consolidated Balance Sheets. The Company does not expect to incur additional costs related to these initiatives.

Note F — Income Taxes

The ~~Company recorded income tax expense of $1.7 million in the third quarter of 2017, an~~Company's effective tax rate for the second quarter of ~~15.5% against income before income taxes,~~2022 and ~~income tax expense of $1.6 million~~2021 was 17.9% and 15.5%, respectively, and 17.8% and 16.3% in the ~~third quarter~~first six months of ~~2016, an~~2022 and 2021, respectively. The effective tax rate ~~of 16.7% against income before income taxes.~~

~~In the first nine months of 2017, the Company recorded income tax expense of $3.3 million, an effective tax rate of 14.4%,~~for each period in 2022 and ~~income tax expense of $3.1 million in the first nine months of 2016, an effective tax rate of 14.0%.~~

The Company recorded discrete benefits of $0.5 million and $1.3 million, respectively, in the third quarter and first nine months of 2017. Of these amounts, $0.4 million related to the reversal of uncertain tax positions due to a lapse in the statute of limitations in the third quarter of 2017. Also, $0.1 million in the third quarter and $0.5 million in the first nine months of 2017 related to the adoption of ASU 2016-09, ~~Improvements to Employee Share-based Payment Accounting.~~

~~The Company recorded discrete items in the first nine months of 2016, resulting in a net tax benefit of~~ ~~$1.0 million, primarily due to international tax planning initiatives.~~

~~Income tax expense in the third quarter and first nine months of both 2017 and 2016~~2021 was lower than the ~~U.S Federal~~ statutory ~~income~~ tax rate ~~of 35%~~ primarily due to the impact of percentage depletion, ~~foreign rate differential,~~ research and development ~~credit,~~credits and the foreign derived intangible income deduction. The effective tax rate for the first six months of 2022 included a net discrete income tax benefit of $0.4 million, primarily related to excess tax benefits ~~and other items.~~from stock-based compensation awards. The effective tax rate for the first six months of 2021 included a net discrete income tax benefit of $0.5 million, primarily related to excess tax benefits from stock-based compensation awards.

1015

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note G — Earnings Per Share (EPS)

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


	Second Quarter Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
(Thousands, except per share amounts)	2022		2021		2022		2021
Numerator for basic and diluted EPS:
Net income	$	23,255	$	17,868	$	37,274	$	34,635
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding	20,517		20,429		20,491		20,402
Effect of dilutive securities:
Stock appreciation rights	81		79		86		75
Restricted stock units	82		93		116		108
Performance-based restricted stock units	43		50		50		62
Diluted potential common shares	206		222		252		245
Denominator for diluted EPS:
Adjusted weighted-average shares outstanding	20,723		20,651		20,743		20,647
Basic EPS	$	1.13	$	0.87	$	1.82	$	1.70
Diluted EPS	$	1.12	$	0.87	$	1.80	$	1.68

Third Quarter Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
(Thousands, except per share amounts) 2017 2016 2017 2016
Numerator for basic and diluted EPS:
Net income $ 9,320
$ 8,045
$ 19,683
$ 18,962
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding 20,040
19,957
20,007
19,996
Effect of dilutive securities:
Stock appreciation rights 149
70
148
66
Restricted stock units 94
82
95
86
Performance-based restricted stock units 128
83
111
61
Diluted potential common shares 371
235
354
213
Denominator for diluted EPS:

Adjusted weighted-average shares outstanding 20,411
20,192
20,361
20,209
Basic EPS $ 0.47
$ 0.40
$ 0.98
$ 0.95
Diluted EPS $ 0.46
$ 0.40
$ 0.97
$ 0.94

~~Stock appreciation rights (SARs)~~Adjusted weighted-average shares outstanding - diluted exclude securities totaling ~~219,292~~119,744 and ~~982,588~~52,709 for the quarters ended ~~September 29, 2017~~July 1, 2022 and ~~September 30, 2016,~~July 2, 2021, respectively, and ~~370,917~~79,949 and ~~993,418~~64,478 for the ~~nine~~six months ended ~~September 29, 2017~~July 1, 2022 and ~~September 30, 2016, respectively,~~July 2, 2021, respectively. These securities are primarily related to restricted stock units and stock appreciation rights with fair market values and exercise prices greater than the average market price of the Company's common shares and were excluded from the dilution calculation as ~~their~~the effect would have been anti-dilutive.

Note H — Inventories

Inventories on the Consolidated Balance Sheets are summarized as follows:


	Sept. 29,		Dec. 31,			July 1,		December 31,
(Thousands)	2017		2016		(Thousands)	2022		2021
Raw materials and supplies	$	44,924	$	36,233	Raw materials and supplies	$	115,970	$	93,518
Work in process	181,553		169,327		Work in process	253,012		221,638
Finished goods	37,671		38,147		Finished goods	53,394		45,959
Subtotal	$	264,148	$	243,707
Less: LIFO reserve balance	43,925		42,842
Inventories	$	220,223	$	200,865
Inventories, net					Inventories, net	$	422,376	$	361,115

The ~~liquidation~~Company maintains the majority of ~~last~~the precious metals and copper used in ~~first out (LIFO) inventory layers did not impact cost~~production on a consignment basis in order to reduce its exposure to metal market price movements and to reduce its working capital investment. The notional value of ~~sales in the third quarter~~off-balance sheet precious metals and copper was $415.0 million and $480.2 million as of ~~2017 or 2016. In the first nine months of 2017, cost of sales were increased by $0.2 million. In the first nine months of 2016, cost of sales were reduced by $3.2 million.~~July 1, 2022 and December 31, 2021, respectively.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note I — Customer Prepayments

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

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

Additionally, during the second quarter of 2022, the Company entered into an amendment to the investment agreement with the same customer to procure additional equipment to manufacture product for the customer. As of July 1, 2022, the Company has received approximately $13.1 million in prepayments under the terms of this agreement.

As of July 1, 2022 and December 31, 2021, $84.6 million and $72.6 million, respectively, of prepayments are classified as Unearned income on the Consolidated Balance Sheets. The prepayments will remain in Unearned income until commercial purchase orders are received for product serviced out of the equipment, at which time a portion of the purchase order value related to prepayments will be reclassified to Unearned revenue. As of July 1, 2022 $1.0 million of the prepayments are classified as Unearned revenue.

Note J — Pensions and Other Post-employment Benefits

The following is a summary of the net periodic benefit cost for the ~~third~~second quarter and first ~~nine~~six months ~~of 2017~~ended July 1, 2022 and ~~2016~~July 2, 2021, respectively, for the ~~domestic~~ pension plans ~~(which include the~~as shown below. The Pension Benefits column aggregates defined benefit pension ~~plan~~plans in the U.S., Germany, Liechtenstein, England, and the U.S. supplemental retirement ~~plans) and~~plans. The Other Benefits column includes the domestic retiree medical and life insurance plan.


	Pension Benefits				Other Benefits
	Second Quarter Ended				Second Quarter Ended
	July 1,		July 2,		July 1,		July 2,
(Thousands)	2022		2021		2022		2021
Components of net periodic benefit (credit) cost
Service cost	$	292	$	436	$	20	$	20
Interest cost	1,213		1,048		39		29
Expected return on plan assets	(2,378)		(2,474)		—		—
Amortization of prior service (benefit) cost	(18)		(21)		(374)		(374)
Amortization of net loss (gain)	420		577		(68)		(69)
Net periodic benefit (credit) cost	$	(471)	$	(434)	$	(383)	$	(394)
Settlements	—		—		—		—
Total net benefit (credit) cost	$	(471)	$	(434)	$	(383)	$	(394)

1117

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)


	Pension Benefits				Other Benefits
	Six Months Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
(Thousands)	2022		2021		2022		2021
Components of net periodic benefit (credit) cost
Service cost	$	610	$	874	$	42	$	40
Interest cost	2,436		2,096		78		58
Expected return on plan assets	(4,778)		(4,948)		—		—
Amortization of prior service (benefit) cost	(38)		(42)		(748)		(748)
Amortization of net loss (gain)	850		1,154		(136)		(138)
Net periodic benefit (credit) cost	$	(920)	$	(866)	$	(764)	$	(788)
Settlements	—		—		—		—
Total net benefit (credit) cost	$	(920)	$	(866)	$	(764)	$	(788)

Pension Benefits
Other Benefits

Third Quarter Ended
Third Quarter Ended

Sept. 29,
Sept. 30,
Sept. 29,
Sept. 30,
(Thousands)
2017
2016
2017
2016
Components of net periodic benefit cost (benefit)

Service cost
$ 2,106

$ 1,946

$ 23

$ 26
Interest cost
2,372

2,595

99

140
Expected return on plan assets
(3,678 )
(3,488 )
—

—
Amortization of prior service benefit
(42 )
(115 )
(374 )
(374 )
Amortization of net loss
1,623

1,431

—

—
Net periodic benefit cost (benefit)
$ 2,381

$ 2,369

$ (252 )
$ (208 )

Pension Benefits Other Benefits
Nine Months Ended Nine Months Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
(Thousands) 2017 2016 2017 2016
Components of net periodic benefit cost (benefit)
Service cost $ 6,188
$ 5,838
$ 69
$ 77
Interest cost 7,098
7,785
297
422
Expected return on plan assets (11,007 ) (10,464 ) —
—
Amortization of prior service benefit (236 ) (345 ) (1,122 ) (1,122 )
Amortization of net loss 4,821
4,292
—
—
Net periodic benefit cost (benefit) $ 6,864
$ 7,106
$ (756 ) $ (623 )

The Company ~~made~~did not make any contributions to ~~the~~its domestic defined benefit ~~pension~~ plan ~~of $8.0 million and $12.0 million~~ in the second quarter or first ~~nine~~six months of ~~2017 and 2016, respectively.~~2022 or 2021.

~~Beginning in 2017, the~~The Company ~~has elected to use a spot-rate approach to estimate~~reports the service cost component of net periodic benefit cost in the same line item as other compensation costs in operating expenses and ~~interest~~the non-service cost components of net periodic benefit cost ~~for its defined benefit pension plans. The spot-rate approach applies separate discount rates for each projected benefit payment~~ in ~~the calculation. Historically, the Company used a weighted-average approach~~Other non-operating (income) expense.

Materion Corporation and Subsidiaries

Notes to determine the service and interest cost components. The change is being accounted for as a change in estimate and, accordingly, is being applied prospectively. The reduction in service and interest costs for 2017 associated with this change approximated $0.3 million and $0.8 million during the third quarter and first nine months of 2017, respectively, and is expected to total approximately $1.0 million.Consolidated Financial Statements

(Unaudited)

Note JK — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the ~~third~~second quarter and first ~~nine~~six months of ~~2017~~2022 and ~~2016~~2021 are as follows:


	Gains and Losses on Cash Flow Hedges
(Thousands)	Foreign Currency		Interest Rate		Precious Metals		Copper		Total		Pension and Post-Employment Benefits		Foreign Currency Translation		Total
Balance at April 1, 2022	$	2,451	$	2,485	$	(246)	$	—	$	4,690	$	(39,942)	$	(4,934)	$	(40,186)
Other comprehensive income (loss) before reclassifications	1,117		756		467		—		2,340		—		(6,343)		(4,003)
Amounts reclassified from accumulated other comprehensive income (loss)	(110)		238		(8)		—		120		(10)		—		110
Net current period other comprehensive (loss) income before tax	1,007		994		459		—		2,460		(10)		(6,343)		(3,893)
Deferred taxes	232		229		105		—		566		(26)		—		540
Net current period other comprehensive (loss) income after tax	775		765		354		—		1,894		16		(6,343)		(4,433)
Balance at July 1, 2022	$	3,226	$	3,250	$	108	$	—	$	6,584	$	(39,926)	$	(11,277)	$	(44,619)

Balance at April 2, 2021	$	1,462	$	—	$	320	$	280	$	2,062	$	(43,309)	$	(4,840)	$	(46,087)
Other comprehensive (loss) income before reclassifications	183		—		(239)		1,145		1,089		—		3,193		4,282
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		65		(1,507)		(1,442)		77		—		(1,365)
Net current period other comprehensive (loss) income before tax	183		—		(174)		(362)		(353)		77		3,193		2,917
Deferred taxes	42		0		(40)		(82)		(80)		(6)		—		(86)
Net current period other comprehensive (loss) income after tax	141		—		(134)		(280)		(273)		83		3,193		3,003
Balance at July 2, 2021	$	1,603	$	—	$	186	$	—	$	1,789	$	(43,226)	$	(1,647)	$	(43,084)

Gains and Losses on Cash Flow Hedges
(Thousands) Foreign Currency Precious Metals Total Pension and Post-Employment Benefits Foreign Currency Translation Total
Balance at June 30, 2017
$ 1,109

$ 93

$ 1,202

$ (80,842 )
$ (4,282 )
$ (83,922 )
Other comprehensive income (loss) before reclassifications
(324 )
(205 )
(529 )
—

271

(258 )
Amounts reclassified from accumulated other comprehensive income
433

(94 )
339

1,345

—

1,684

1219

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Gains and Losses on Cash Flow Hedges
(Thousands) Foreign Currency Precious Metals Total Pension and Post-Employment Benefits Foreign Currency Translation Total
Net current period other comprehensive income (loss) before tax
109

(299 )
(190 )
1,345

271

1,426
Deferred taxes on current period activity
41

(111 )
(70 )
464

—

394
Net current period other comprehensive income (loss) after tax
68

(188 )
(120 )
881

271

1,032
Balance at September 29, 2017
$ 1,177

$ (95 )
$ 1,082

$ (79,961 )
$ (4,011 )
$ (82,890 )

Balance at July 1, 2016 $ 958
$ —
$ 958
$ (74,546 ) $ (3,037 ) $ (76,625 )
Other comprehensive income (loss) before reclassifications (126 ) —
(126 ) —
467
341
Amounts reclassified from accumulated other comprehensive income 336
—
336
1,015
—
1,351
Net current period other comprehensive income (loss) before tax 210
—
210
1,015
467
1,692
Deferred taxes on current period activity 78
—
78
342
—
420
Net current period other comprehensive income (loss) after tax 132
—
132
673
467
1,272
Balance at September 30, 2016 $ 1,090
$ —
$ 1,090
$ (73,873 ) $ (2,570 ) $ (75,353 )

Balance at December 31, 2016
$ 1,837

$ —

$ 1,837

$ (82,358 )
$ (5,660 )
$ (86,181 )
Other comprehensive income (loss) before reclassifications
(1,205 )
30

(1,175 )
—

1,649

474
Amounts reclassified from accumulated other comprehensive income
219

(182 )
37

3,655

—

3,692
Net current period other comprehensive income (loss) before tax
(986 )
(152 )
(1,138 )
3,655

1,649

4,166
Deferred taxes on current period activity
(326 )
(57 )
(383 )
1,258

—

875
Net current period other comprehensive income (loss) after tax
(660 )
(95 )
(755 )
2,397

1,649

3,291
Balance at September 29, 2017
$ 1,177

$ (95 )
$ 1,082

$ (79,961 )
$ (4,011 )
$ (82,890 )

Balance at December 31, 2015 $ 1,579
$ —
$ 1,579
$ (76,796 ) $ (5,488 ) $ (80,705 )
Other comprehensive income (loss) before reclassifications (1,571 ) —
(1,571 ) —
2,918
1,347
Amounts reclassified from accumulated other comprehensive income 793
—
793
3,045
—
3,838
Net current period other comprehensive income (loss) before tax (778 ) —
(778 ) 3,045
2,918
5,185
Deferred taxes on current period activity (289 ) —
(289 ) 122
—
(167 )
Net current period other comprehensive income (loss) after tax (489 ) —
(489 ) 2,923
2,918
5,352
Balance at September 30, 2016 $ 1,090
$ —
$ 1,090
$ (73,873 ) $ (2,570 ) $ (75,353 )

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~


	Gains and Losses on Cash Flow Hedges
(Thousands)	Foreign Currency		Interest Rate		Precious Metals		Copper		Total		Pension and Post-Employment Benefits		Foreign Currency Translation		Total
Balance at December 31, 2021	$	2,348	$	—	$	72	$	—	$	2,420	$	(39,702)	$	(2,887)	$	(40,169)
Other comprehensive income (loss) before reclassifications	1,270		3,868		(53)		—		5,085		—		(8,390)		(3,305)
Amounts reclassified from accumulated other comprehensive income (loss)	(130)		353		99		—		322		(1,011)		—		(689)
Net current period other comprehensive (loss) income before tax	1,140		4,221		46		—		5,407		(1,011)		(8,390)		(3,994)
Deferred taxes	262		971		10		—		1,243		(787)		—		456
Net current period other comprehensive (loss) income after tax	878		3,250		36		—		4,164		(224)		(8,390)		(4,450)
Balance at July 1, 2022	$	3,226	$	3,250	$	108	$	—	$	6,584	$	(39,926)	$	(11,277)	$	(44,619)

Balance at December 31, 2020	$	519	$	—	$	(170)	$	468	$	817	$	(43,473)	$	4,017	$	(38,639)
Other comprehensive (loss) income before reclassifications	1,268		—		502		2,436		4,206		—		(5,664)		(1,458)
Amounts reclassified from accumulated other comprehensive income (loss)	140		—		(39)		(3,041)		(2,940)		234		—		(2,706)
Net current period other comprehensive (loss) income before tax	1,408		—		463		(605)		1,266		234		(5,664)		(4,164)
Deferred taxes	324		—		107		(137)		294		(13)		—		281
Net current period other comprehensive (loss) income after tax	1,084		—		356		(468)		972		247		(5,664)		(4,445)
Balance at July 2, 2021	$	1,603	$	—	$	186	$	—	$	1,789	$	(43,226)	$	(1,647)	$	(43,084)

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

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

1421

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note KL — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was ~~$1.5~~$2.0 million and ~~$6.2~~$3.8 million in the ~~third~~second quarter and first ~~nine~~six months of ~~2017,~~2022, respectively, compared to ~~$2.1~~$2.2 million and ~~$4.4~~$3.8 million, respectively, in the same periods of ~~2016.~~2021.

The Company granted ~~97,015 SARs~~45,016 stock appreciation rights (SARs) to certain employees during the first ~~nine~~six months of ~~2017.~~2022. The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the ~~nine~~six months ended ~~September 29, 2017~~July 1, 2022 were ~~$35.26~~$80.85 and ~~$10.89,~~$25.87, respectively. The Company estimated the fair value of the SARs using the following weighted-average assumptions in the Black-Scholes model:



Risk-free interest rate	~~1.92~~1.56	%
Dividend yield	~~1.1~~0.59	%
Volatility	~~34.0~~38.5	%
Expected term (in years)	~~5.6~~		4.4

The Company granted ~~62,185~~59,599 stock-settled restricted stock units (RSUs) ~~and 32,466 cash-settled RSUs~~ to certain employees ~~and non-employee directors~~ during the first ~~nine~~six months of ~~2017.~~2022. The Company measures the fair value of stock-settled RSUs based on the closing market price of a share of Materion common stock on the date of the grant. The weighted-average fair value per share was ~~$34.95~~$80.87 for stock-settled RSUs granted to employees during the ~~nine~~six months ended ~~September 29, 2017. Cash-settled~~July 1, 2022. RSUs are ~~accounted for as liability-based compensation awards and adjusted based on the closing price of Materion’s common stock~~generally expensed over the vesting period of three ~~years.~~years for employees.

The Company granted stock-settled ~~and cash-settled~~ performance-based restricted stock units (PRSUs) to certain employees in the first ~~nine~~six months of ~~2017.~~2022. The weighted-average fair value of the stock-settled PRSUs was ~~$30.28~~$97.79 per share and will be expensed over the vesting period of three years. ~~The liability for cash-settled PRSUs is re-measured at fair value each reporting period, and the adjustment to income is recorded accordingly.~~ The final payout to the employees for all PRSUs will be based upon the Company’s return on invested capital and ~~the~~its total return to shareholders over the vesting period relative to a peer group’s performance over the same period.

At ~~September 29, 2017, unearned~~July 1, 2022, unrecognized compensation cost related to the unvested portion of all stock-based awards was approximately ~~$5.3~~$15.2 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note LM — Fair Value of Financial Instruments

The Company measures and records financial instruments at fair value. 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.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The following table summarizes the financial instruments measured at fair value in the Consolidated Balance Sheets as of ~~September 29, 2017~~July 1, 2022 and December 31, ~~2016:~~2021:



(Thousands)	Total Carrying Value in the Consolidated Balance Sheets				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				(Thousands)	Total Carrying Value in the Consolidated Balance Sheets				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
	2017		2016		2017		2016		2017		2016		2017		2016			2022		2021		2022		2021		2022		2021		2022		2021
Financial Assets																	Financial Assets
Deferred compensation investments	$	2,149	$	1,734	$	2,149	$	1,734	$	—	$	—	$	—	$	—	Deferred compensation investments	$	2,899	$	4,426	$	2,899	$	4,426	$	—	$	—	$	—	$	—
Foreign currency forward contracts	149		691		—		—		149		691		—		—		Foreign currency forward contracts	2,942		3,368		—		—		2,942		3,368		—		—
Interest rate swap																	Interest rate swap	4,221		—		—		—		4,221		—		—		—
Precious metal swaps	45		—		—		—		45		—		—		—		Precious metal swaps	214		116		—		—		214		116		—		—
Total	$	2,343	$	2,425	$	2,149	$	1,734	$	194	$	691	$	—	$	—	Total	$	10,276	$	7,910	$	2,899	$	4,426	$	7,377	$	3,484	$	—	$	—
Financial Liabilities																	Financial Liabilities
Deferred compensation liability	$	2,149	$	1,734	$	2,149	$	1,734	$	—	$	—	$	—	$	—	Deferred compensation liability	$	2,899	$	4,426	$	2,899	$	4,426	$	—	$	—	$	—	$	—
Foreign currency forward contracts	669		1		—		—		669		1		—		—		Foreign currency forward contracts	627		136		—		—		627		136		—		—
Precious metal swaps	197		—		—		—		197		—		—		—		Precious metal swaps	76		24		—		—		76		24		—		—
Total	$	3,015	$	1,735	$	2,149	$	1,734	$	866	$	1	$	—	$	—	Total	$	3,602	$	4,586	$	2,899	$	4,426	$	703	$	160	$	—	$	—

The Company uses a market approach to value the assets and liabilities for financial instruments in the table above. Outstanding contracts are valued through models that utilize market observable inputs, including both spot and forward prices, for the same underlying currencies, metals, and ~~metals.~~interest rates. The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of ~~September 29, 2017~~July 1, 2022 and December 31, ~~2016.~~2021. The Company's deferred compensation investments and liabilities are based on the fair value of the investments corresponding to the employees’ investment selections, primarily in mutual funds, based on quoted prices in active markets for identical assets. Deferred compensation investments are primarily presented in Other assets. Deferred compensation liabilities are primarily presented in Other long-term liabilities.

Note MN — Derivative Instruments and Hedging Activity

The Company uses derivative contracts to hedge ~~portions of its~~exposure to movements in interest rates associated with borrowings, foreign currency exposures, and ~~uses derivatives to hedge a portion of its~~ precious metal and copper exposures. The objectives and strategies for using derivatives in these areas are as follows:

Interest Rate. On March 4, 2022, the Company entered into a $100.0 million interest rate swap to hedge the interest rate risk on the Credit Agreement described in Note P. The swap hedges the change in 1-month LIBOR from March 4, 2022 to November 2, 2026. The purpose of this hedge is to manage the risk of changes in the monthly interest payments attributable to changes in the benchmark interest rate.

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

The use of forward contracts locks in a firm rate and eliminates any downside ~~risk~~ from an adverse rate movement as well as any benefit from a favorable rate movement. The Company may from time to time choose to hedge with options or

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

The use of foreign currency derivative contracts is governed by policies approved by the Audit Committee of the Board of Directors. A team consisting of senior financial managers reviews the estimated exposure levels, as defined by budgets, forecasts, and other internal data, and determines the timing, amounts, and nature of instruments to use to hedge ~~that exposure within the confines of the policy.~~exposures. Management analyzes the effective hedged rates and the actual and projected gains and losses on the hedging transactions against the program objectives, targeted rates, and levels of risk assumed. ~~Hedge~~

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Foreign currency contracts are typically layered in at different times for a specified exposure period in order to minimize the impact of market rate movements.

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

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

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

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

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

The Company will only enter into a derivative contract if there is an underlying identified exposure. Contracts are typically held ~~until~~to 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 and precious metal hedge contracts denominated in the same~~or metal as the underlying exposure.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

All derivatives are recorded on the balance sheet at fair value. If ~~the~~a derivative is designated and effective as a cash flow hedge, changes in the fair value of the derivative are recognized in other comprehensive income (OCI) ~~until~~and reclassified into income in the same period or periods during which the hedged ~~item is recognized in~~transaction affects earnings. The ineffective portion of a ~~derivative’s~~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~~derivative assets and liabilities are classified as short-term or long-term depending upon ~~their~~the contract maturity ~~dates.~~

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

date.

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives not designated as hedging instruments (on a gross basis) and the balance sheet classification as of ~~September 29, 2017~~July 1, 2022 and December 31, ~~2016:~~2021:


	September 29, 2017					December 31, 2016					July 1, 2022				December 31, 2021
(Thousands)	Notional Amount		Fair Value			Notional Amount		Fair Value		(Thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign currency forward contracts										Foreign currency forward contracts
Prepaid and other current assets										Prepaid and other current assets	$	14,020	$	533	$	55,063	$	2,132
Other liabilities and accrued items										Other liabilities and accrued items	13,466		587		9,425		128
Foreign currency forward contracts - euro	$	14,402	$	(11	)	$	—	$	—
Total	$	14,402	$	(11	)	$	—	$	—

These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans. Other-net included less than $0.1 million of foreign currency losses ~~relating~~in the second quarter of 2022 and $0.7 million of foreign currency gains related to ~~these~~ derivatives in the first six months of ~~$0.5~~2022, compared to $0.4 million of foreign currency losses and ~~$1.1~~$1.2 million ~~during~~of foreign currency gains in the ~~third~~second quarter and first ~~nine~~six months of ~~2017,~~2021, respectively.

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives designated as cash flow hedges (on a gross basis) and balance sheet classification as of ~~September 29, 2017~~July 1, 2022 and December 31, ~~2016:~~2021:


	July 1, 2022
			Fair Value
(Thousands)	Notional Amount		Prepaid and other current assets		Other assets		Other liabilities and accrued items		Other long-term liabilities
Foreign currency forward contracts - yen	$	4,091	$	453	$	34	$	40	$	—
Foreign currency forward contracts - euro	31,827		1,827		95		—		—
Precious metal swaps	6,802		199		15		76		—
Interest rate swap	100,000		1,329		2,892		—		—
Total	$	142,720	$	3,808	$	3,036	$	116	$	—

	December 31, 2021
			Fair Value
	Notional Amount		Prepaid and other current assets		Other assets		Other liabilities and accrued items		Other long-term liabilities

Foreign currency forward contracts - yen	$	3,907	$	131	$	2	$	—	$	—
Foreign currency forward contracts - euro	28,412		1,102		—		—		8
Precious metal swaps	6,256		116		—		24		—
Total	$	38,575	$	1,349	$	2	$	24	$	8

September 29, 2017 December 31, 2016
(Thousands)
Notional
Amount

Fair
Value

Notional
Amount

Fair
Value
Prepaid expenses
Foreign currency forward contracts - yen $ 2,000
$ 59
$ 2,418
$ 239
Foreign currency forward contracts - euro 6,829
90
6,493
452
Precious metal swaps 2,148
13
—
—
Total 10,977
162
8,911
691

Other assets
Precious metal swaps 1,932
32
—
—
Total 1,932
32
—
—

Other liabilities and accrued items
Foreign currency forward contracts - euro 12,689
(658 ) 537
(1 )
Precious metal swaps 7,845
(170 ) —
—
Total 20,534
(828 ) 537
(1 )

Other long-term liabilities
Precious metal swaps 1,999
(27 ) —
—
Total $ 35,442
$ (661 ) $ 9,448
$ 690

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

All of ~~these~~the contracts summarized above were designated and effective as cash flow hedges. ~~No ineffectiveness expense was recorded~~We expect to reclassify $3.7 million of net gains into earnings in the ~~third quarter or first nine~~next 12 months contemporaneously with the earnings effects of ~~2017 or 2016.~~the related forecasted transactions. At July 1, 2022, the maximum term of derivative instruments that hedge forecasted transactions was approximately four years. Refer to Note K for further details related to OCI.

~~Changes in~~The following table summarizes the ~~fair value of~~amounts reclassified from accumulated other comprehensive income relating to the Company’s outstanding derivatives designated as cash flow hedges ~~recorded in OCI for~~and associated income statement classification as of the second quarter and first ~~nine~~six months of ~~2017~~2022 and 2016 totaled decreases of $1.2 million and $1.6 million, respectively. The Company expects to relieve substantially the entire balance in OCI as of September 29, 2017 to the Consolidated Statements of Income within the next 18-month period. Refer to Note J for additional OCI details.2021:


		Second Quarter Ended
(Thousands)		July 1, 2022		July 2, 2021
Hedging relationship	Line item
Foreign currency forward contracts	Net sales	$	(110)	$	—
Precious metal swaps	Cost of sales	(8)		65
Interest rate swap	Interest expense - net	238		—
Copper swaps	Cost of sales	—		(1,507)
Total		$	120	$	(1,442)


		Six Months Ended
(Thousands)		July 1, 2022		July 2, 2021
Hedging relationship	Line item
Foreign currency forward contracts	Net sales	$	(130)	$	140
Precious metal swaps	Cost of sales	99		(39)
Interest rate swap	Interest expense - net	353		—
Copper swaps	Cost of sales	—		(3,041)
Total		$	322	$	(2,940)

Note NO — Contingencies

Legal Proceedings. For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims,, refer to Note ~~Q ("Contingencies~~T "Contingencies and Commitments") in the Company's ~~2016~~2021 Annual Report on Form 10-K.

NaN beryllium case was outstanding as of July 1, 2022. The Company does not expect the resolution of this open matter to have a material impact on the consolidated financial statements. As previously reported, a settlement agreement had been reached in one case, and the case was dismissed during the second quarter.

Other Litigation. The Company is party to several pending legal proceedings and claims arising in the normal course of business. The Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

reasonably estimated. In the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosure related to such matters. To the extent there is a reasonable possibility that the losses could exceed any amounts accrued, the Company will adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

On October 14, 2020, Garett Lucyk, et al. v. Materion Brush Inc., et. al., case number 20CV0234, a wage and hour purported collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush Inc. (collectively, the Company). Plaintiff, a former hourly production employee at the Company's Elmore, Ohio facility, alleges, among other things, that he and other similarly situated employees nationwide are not paid for all time they spend donning and doffing personal protective equipment in violation of the Fair Labor Standards Act and Ohio law. Plaintiff filed a motion for conditional certification, which the Company opposed.The motion has been fully briefed, and the parties are awaiting a decision from the court. The Company believes that it has substantive defenses and intends to vigorously defend this suit, absent a negotiated resolution.

Environmental Proceedings. The Company has an active environmental compliance program and records reserves for the probable cost of identified environmental remediation projects. The reserves are established based upon analyses conducted by the Company’s engineers and outside consultants and are adjusted from time to time based upon ongoing studies, the difference between actual and estimated costs, and other factors. The reserves may also be affected by rulings and negotiations with regulatory agencies. The undiscounted reserve balance was ~~$6.1~~$4.3 million and $4.8 million at ~~September 29, 2017~~July 1, 2022 and ~~$6.0 million at~~ December 31, ~~2016.~~2021, respectively, and is included in Other liabilities and accrued items and Other long-term liabilities on the Consolidated Balance Sheet. Environmental projects tend to be long-term, and the final actual remediation costs may differ from the amounts currently recorded.

Note P — Debt


(Thousands)	July 1, 2022		December 31, 2021
Borrowings under Credit Agreement	$	205,091	$	152,296
Borrowings under the Term Loan Facility	292,500		300,000
Foreign debt	4,012		2,252
Total debt outstanding	501,603		454,548
Current portion of long-term debt	(15,333)		(15,359)
Gross long-term debt	486,270		439,189
Unamortized deferred financing fees	(4,305)		(4,801)
Long-term debt	$	481,965	$	434,388

As of July 1, 2022 and December 31, 2021, the Company had $205.1 million outstanding at an average interest rate of 3.56% and $152.3 million outstanding at an average interest rate of 2.12%, respectively, under its revolving credit facility. The available borrowing capacity under the revolving credit facility as of July 1, 2022 was $124.0 million. The Company has the option to repay or borrow additional funds under the revolving credit facility until the maturity date in 2026. The amended and restated credit agreement governing the revolving credit facility (Credit Agreement) includes covenants subject to a maximum leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all of our debt covenants as of July 1, 2022.

The balance outstanding on the term loan facility as of July 1, 2022 and December 31, 2021 was $292.5 million and $300.0 million, respectively.

At July 1, 2022 and December 31, 2021, there was $46.4 million and $46.3 million, respectively, outstanding against the letters of credit sub-facility.



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 end markets, including semiconductor, industrial, aerospace and defense, automotive, consumer electronics, ~~industrial components, defense, medical, automotive electronics, telecommunications infrastructure,~~ energy, ~~commercial aerospace, science, services,~~ and ~~appliance.~~telecom and data center.

Coronavirus (COVID-19) Second Quarter 2022 Update

In March 2020, the World Health Organization characterized a novel strain of the coronavirus, known as COVID-19, as a pandemic. The duration of the COVID-19 pandemic and the long-term impacts on the economy are uncertain and could impact the Company’s estimates. Management continues to manage global macroeconomic impacts on supply chains, inflationary costs, and temporary plant shutdowns, labor availability and costs, all of which impacted the Company during the six months of 2022.

RESULTS OF OPERATIONS

~~Third~~

Second Quarter


	Second Quarter Ended
	July 1,			July 2,			$		%
(Thousands, except per share data)	2022			2021			Change		Change
Net sales	$	445,295		$	370,999		$	74,296	20	%
Value-added sales	277,226			207,887			69,339		33	%
Gross margin	87,427			69,581			17,846		26	%
Gross margin as a % of value-added sales	32		%	33		%
Selling, general, and administrative (SG&A) expense	42,047			38,060			3,987		10	%
SG&A expense as a % of value-added sales	15		%	18		%
Research and development (R&D) expense	7,592			6,604			988		15	%
R&D expense as a % of value-added sales	3		%	3		%
Restructuring expense	—			—			—		—	%
Other—net	5,928			4,194			1,734		41	%
Operating profit	31,860			20,723			11,137		54	%
Other non-operating (income)—net	(1,168)			(1,277)			109		(9)	%
Interest expense—net	4,701			858			3,843		448	%
Income before income taxes	28,327			21,142			7,185		34	%
Income tax expense	5,072			3,274			1,798		55	%
Net income	$	23,255		$	17,868		$	5,387	30	%

Diluted earnings per share	$	1.12		$	0.87		$	0.25	29	%

Third Quarter Ended
Sept. 29, Sept. 30, $ %
(Thousands, except per share data) 2017 2016 Change Change
Net sales $ 294,268
$ 249,619
$ 44,649
18 %
Value-added sales 171,382
157,001
14,381
9 %
Gross margin 55,203
50,755
4,448
9 %
Gross margin as a % of value-added sales 32 % 32 % N/A
N/A
Selling, general, and administrative (SG&A) expense
36,415
34,177
2,238
7 %
SG&A expense as a % of value-added sales 21 % 22 % N/A
N/A
Research and development (R&D) expense 3,429
3,237
192
6 %
R&D expense as a % of value-added sales 2 % 2 % N/A
N/A
Other—net 3,801
3,190
611
19 %
Operating profit 11,558

10,151
1,407
14 %
Interest expense—net 533
490
43
9 %
Income before income taxes 11,025
9,661
1,364
14 %
Income tax expense 1,705
1,616
89
6 %
Net income $ 9,320
$ 8,045
$ 1,275
16 %

Diluted earnings per share $ 0.46
$ 0.40
$ 0.06
15 %

~~N/A = Not Applicable~~

Net sales of ~~$294.3~~$445.3 million in the ~~third~~second quarter of ~~2017 were $44.7~~2022 increased $74.3 million ~~higher than the $249.6~~from $371.0 million ~~recorded~~ in the ~~third~~second quarter of ~~2016. Net~~2021. Increased net sales in the Performance Materials and Electronic Materials segments were partially offset by a net sales decrease in the Precision Optics segment. Volume and price increases drove growth in our semiconductor (29%), industrial (26%), telecom (24%), consumer electronic (24%), energy (24%) and defense (23%) end markets when compared to the same period last year. The acquisition of ~~$38.6 million during~~HCS-Electronic Materials, which was completed in the ~~third~~fourth quarter of ~~2017 were attributable~~2021, accounted for $43.6 million of the net sales increase, most of which are sales into the semiconductor end market. See Note C to the ~~high performance target materials business of~~Consolidated Financial Statements for additional details on the ~~Heraeus Group (HTB). Changes~~year over year changes in our net sales by segment and market.

The change in precious metal and copper prices ~~negatively~~favorably impacted net sales induring the ~~third~~second quarter of ~~2017~~2022 by ~~approximately $2.4~~$1.3 million ~~when~~ compared to ~~the third quarter of 2016.~~prior year.

Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in precious metal ~~prices.~~market prices and changes in mix due to customer-supplied material. Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein. Value-added sales of ~~$171.4~~$277.2 million in the ~~third~~second quarter of ~~2017~~2022 increased ~~$14.4~~$69.3 million, or 9%33%, compared to the ~~third~~second quarter of ~~2016. Value-added sales from the HTB~~2021. The acquisition ~~totaled $11.4 million~~of HCS-Electronic Materials, which was completed in the ~~third~~fourth quarter of ~~2017. Value-added~~2021, accounted for $43.6 million of the increase. The remaining value-added sales increase was driven by increased value-added sales into the energy (43%), semiconductor (23%) and industrial (13%) end markets.

Gross margin in the second quarter of 2022 was $87.4 million, which was up 26% compared to the ~~consumer electronics end market, which accounted for 31% of our total value-added sales during the third~~second quarter of 2017, increased $2.9 million from the prior-year period. Also, value-added sales in the industrial components end market increased $4.2 million from the prior-year period. These increases were offset by weakness in the medical end market, which lowered value-added sales by approximately $6.1 million.

~~Gross margin~~ ~~in the third quarter of 2017 was $55.2 million, or $4.4 million higher than the $50.8 million gross margin recorded during the third quarter of 2016.~~2021. Gross margin expressed as a percentage of value-added sales ~~was~~decreased to 32% in the ~~third~~second quarter of ~~both 2017~~2022 from 33% in the second quarter of 2021. The decrease was driven by higher pre-production costs associated with the production ramp of the new wide area clad facility and ~~2016.~~higher costs due to supply chain pressures.

SG&A expense was ~~$36.4~~$42.0 million in the ~~third~~second quarter of ~~2017, or $2.2~~2022, compared to $38.1 million ~~higher than the $34.2 million recorded~~ in the ~~third~~second quarter of ~~2016.~~2021. The increase in SG&A expense is ~~attributable~~due to ~~$2.1~~higher HCS-Electronic Materials and Optics Balzers integration cost of $1.0 million, ongoing HCS-Electronic Materials cost of ~~HTB expenses.~~$2.4 million and increased business support investment and increased travel. Despite the higher cost, SG&A expense as a percentage of value-added sales decreased from 18% to 15% year over year.

R&D expense consists primarily of direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and ~~applications.~~applications to deliver new high performing advanced materials to our customers. R&D expense ~~was flat as a percentage~~accounted for 3% of value-added sales ~~at approximately 2%~~ in the ~~third~~second quarter of both ~~2017~~2022 and ~~2016.~~2021.

Other-net was ~~$3.8~~$5.9 million of expense in the ~~third~~second quarter of ~~2017,~~2022, or a ~~$0.6~~$1.7 million increase from the ~~third~~second quarter of ~~2016. Other-net in the third quarter~~2021, primarily driven $2.1 million of ~~2017 included higher metal consignment fees of $0.8 million, as compared~~increased intangible asset amortization expense, related to the ~~third quarter~~acquisition of ~~2016.~~HCS-Electronic Materials. Refer to Note DE to the Consolidated Financial Statements for details of the major components within Other-net.

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

Interest expense-net was ~~$0.5~~$4.7 million and $0.9 million in the ~~third~~second quarter of ~~both 2017~~2022 and ~~2016.~~2021, respectively. The increase in interest expense is primarily due to increased borrowings under our revolving credit facility and interest owed on our new term loan, the proceeds of which were used to fund the purchase price for the acquisition of HCS-Electronic Materials.

Income tax expensefor the ~~third~~second quarter of ~~2017~~2022 was ~~$1.7~~$5.1 million, compared to ~~$1.6~~$3.3 million in the ~~third~~second quarter of ~~2016.~~2021. The effective tax rate for the ~~third~~second quarter of ~~2017~~2022 and 2021 was 17.9% and 15.5% ~~compared~~, respectively. The effective tax rate for the second quarter of both 2022 and 2021 was lower than the statutory tax rate primarily due to ~~16.7% in~~ the ~~prior-year period. The effects~~impact of percentage depletion, ~~the foreign rate differential, the~~ research and development ~~credit, discrete benefits,~~credits and ~~other items were~~ the ~~primary factors for the difference between the effective and statutory rates in the third quarter of 2017 and 2016. Refer to~~foreign derived intangible income deduction. See Note F to the Consolidated Financial Statements for ~~further details on income taxes.~~additional discussion.

~~Nine~~Six Months


	Six Months Ended
	July 1,			July 2,			$		%
(Thousands, except per share data)	2022			2021			Change		Change
Net sales	$	894,340		$	725,385		$	168,955	23	%
Value-added sales	543,994			406,469			137,525		34	%
Gross margin	162,718			136,377			26,341		19	%
Gross margin as a % of value-added sales	30		%	34		%
SG&A expense	83,708			74,836			8,872		12	%
SG&A expense as a % of value-added sales	15		%	18		%
R&D expense	14,666			12,810			1,856		14	%
R&D expense as a % of value-added sales	3		%	3		%
Restructuring (income) expense	1,076			(378)			1,454		(385)	%
Other—net	11,801			8,668			3,133		36	%
Operating profit	51,467			40,441			11,026		27	%
Other non-operating (income)—net	(2,337)			(2,553)			216		(8)	%
Interest expense—net	8,437			1,619			6,818		421	%
Income before income taxes	45,367			41,375			3,992		10	%
Income tax expense	8,093			6,740			1,353		20	%
Net income	$	37,274		$	34,635		$	2,639	8	%

Diluted earnings per share	$	1.80		$	1.68		$	0.12	7	%

Nine Months Ended
Sept. 29, Sept. 30, $ %
(Thousands, except per share data) 2017 2016 Change Change
Net sales $ 830,779
$ 734,906
$ 95,873
13 %
Value-added sales 496,462
454,793
41,669
9 %
Gross margin 152,756
139,418
13,338
10 %
Gross margin as a % of value-added sales 31 % 31 % N/A
N/A
SG&A expense
108,118
97,101
11,017
11 %
SG&A expense as a % of value-added sales 22 % 21 % N/A
N/A
R&D expense 10,103
9,860
243
2 %
R&D expense as a % of value-added sales 2 % 2 % N/A
N/A
Other—net 9,823
8,997
826
9 %
Operating profit 24,712
23,460
1,252
5 %
Interest expense—net 1,721
1,417
304
21 %
Income before income taxes 22,991
22,043
948
4 %
Income tax expense 3,308
3,081
227
7 %
Net income $ 19,683
$ 18,962
$ 721
4 %

Diluted earnings per share $ 0.97
$ 0.94
$ 0.03
3 %

~~N/A = Not Applicable~~

Net sales of ~~$830.8~~$894.3 million in the first ~~nine~~six months of ~~2017 were $95.9~~2022 increased $169.0 million ~~higher than the $734.9~~from $725.4 million ~~recorded~~ in the first ~~nine~~six months of ~~2016. Changes~~2021. Increased net sales in the Performance Materials and Electronic Materials segments were partially offset by net sales decrease in the Precision Optics segment. Volume and price increases drove growth in our semiconductor (34%), industrial (37%), telecom (32%) and energy (25%) end markets when compared to the same period last year. The acquisition of HCS-Electronic Materials, which was completed in the fourth quarter of 2021, accounted for $86.9 million of the net sales increase, most of which are sales into the semiconductor end market. See Note C to the Consolidated Financial Statements for additional details on the year over year changes in our net sales by segment and market.

The change in precious metal and copper market prices favorably impacted net sales during the first six months of 2022 by $6.5 million compared to prior year.

Value-added sales of $544.0 million in the first ~~nine~~six months of ~~2017 by approximately $6.0~~2022 increased $137.5 million, ~~when~~or 34%, compared to the first ~~nine~~six months of ~~2016. Net sales~~2021. The acquisition of HCS-Electronic Materials, which was completed in the ~~Performance Alloys~~fourth quarter of 2021, accounted for $86.9 million of the increase. The remaining value-added sales increase was driven by increased value-added sales into the energy (52%), industrial (24%), telecom (24%) and ~~Composites segment increased $18.5 million due to higher sales volume, including shipments of raw material beryllium hydroxide. Net sales of $77.9 million during~~semiconductor (22%) end markets.

Gross margin in the first ~~nine~~half of 2022 was $162.7 million, which was up 19% compared to the first half of 2021. Gross margin expressed as a percentage of value-added sales decreased to 30% in the first six months of ~~2017 were attributable to the HTB acquisition. Excluding the HTB acquisition, net sales~~2022 from 34% in the ~~Advanced Materials segment increased $22.7~~first six months of 2021. The decrease was primarily driven by $7.5 million ~~due to higher sales volume~~of amortization of the inventory step up from the HCS-Electronic Material acquisition made in the ~~consumer electronics~~fourth quarter of 2021, and ~~industrial components end markets. These favorable impacts were offset by lower sales volume in~~pre-production costs associated with the ~~medical end market in~~set-up of the ~~Precision Coatings segment.~~new wide area clad facility.

~~Value-added sales~~ ~~of $496.5~~SG&A expense was $83.7 million in the first ~~nine~~six months of ~~2017 increased $41.7 million, or 9%~~2022, compared to ~~the first nine months of 2016. Value-added sales from the HTB acquisition totaled approximately $24.9~~$74.8 million in the first ~~nine~~six months of ~~2017. Value-added sales~~2021. The increase in SG&A expense for the first six months of 2022 was driven by $2.8 million of integration costs, $4.9 million of HCS-Electronic Materials ongoing spend and the remainder due to ~~the consumer electronics end market, which accounted for 30%~~increased business support investment and increased travel. Expressed as a percentage of ~~our total~~ value-added sales, during the first nine months of 2017, increased $9.7 million from the prior-year period. Also, value-added sales in the industrial components end market increased $10.4 million from the prior-year period.

~~Gross margin~~ SG&A expense was 15% and 18% in the first ~~nine months~~half of ~~2017 was $152.8 million, or $13.4 million higher than the $139.4 million gross margin recorded during the first nine months~~2022 and 2021, respectively.

R&D expense consists primarily of ~~2016. Gross margin was 31%~~direct personnel costs for product innovation including pre-production development, evaluation, and testing of new products, prototypes, and applications to deliver new high performing advanced materials to our customers. R&D expense accounted for 3% of value-added sales in the first ~~nine~~half of both 2022 and 2021.

Restructuring (income) expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In the first six months of ~~both 2017~~2022, we recorded a combined total of $1.1 million of restructuring charges in our Precision Optics, Electronic Materials and ~~2016.~~Other segments.

~~SG&A expense~~ ~~was $108.1 million in~~During the first ~~nine~~six months of ~~2017, or $11.0~~2021, we substantially completed the closure of our Large Area Coatings business and recorded $0.4 million ~~higher~~of income related to lower than ~~the $97.1 million~~expected facility closure costs that were recorded in the first nine months of 2016. The increase related to higher incentive compensation and stock-based compensation expense of $8.1 million, which included $1.4 million due to accelerated stock compensation expense associated with the transition of the Company's CEO. Additionally, the increase is attributable to HTB expenses of $4.2 million.2020.

~~R&D expense~~Other-net was ~~flat as a percentage of value-added sales at approximately 2% in the first nine months of both 2017 and 2016.~~

~~Other-net~~ ~~was $9.8 million and $9.0~~$11.8 million of expense in the first ~~nine~~six months of ~~2017 and 2016, respectively. Other-net in~~2022, or a $3.1 million increase from the first ~~nine~~six months of ~~2017 included higher metal consignment fees~~2021, primarily driven $4.1 million of ~~$1.3 million, as compared~~increased intangible asset amortization expense, related to the ~~first nine months~~acquisition of ~~2016.~~HCS-Electronic Materials. Refer to Note DE to the Consolidated Financial Statements for details of the major components within Other-net.

Interest expense-net was ~~$1.7~~$8.4 million and $1.6 million in the first ~~nine~~six months of ~~2017, or a $0.3~~2022 and 2021, respectively. The increase in interest expense is primarily due to increased borrowings under our revolving credit facility and interest owed on our new term loan, the proceeds of which were used to fund the purchase price for the acquisition of HCS-Electronic Materials.

Income tax expensefor the first half of 2022 was $8.1 million, ~~increase from $1.4~~compared to $6.7 million in the first ~~nine months~~half of ~~2016 due to higher average debt outstanding.~~

~~Income~~2021. The Company's effective tax ~~expense~~rate for the first ~~nine~~six months of ~~2017~~2022 and 2021 was ~~$3.3 million, compared~~17.8% and 16.3%, respectively. The effective tax rate for each period in 2022 and 2021 was lower than the statutory tax rate primarily due to ~~$3.1 million in~~ the ~~first nine months~~impact of ~~2016.~~ percentage depletion, research and development credits and the foreign derived intangible income deduction. The effective tax rate for the first ~~nine~~six months of ~~2017 was 14.4% compared~~2022 included a net discrete income tax benefit of $0.4 million, primarily related to anexcess tax benefits from stock-based compensation awards. The effective tax rate ~~of 14.0% in the prior-year period. The effects of percentage depletion, the foreign rate differential, the research and development credit, discrete benefits, and other items were the primary factors~~ for the ~~difference between the effective and statutory rates in the~~ first ~~nine~~six months of ~~2017 and 2016. Refer~~2021 included a net discrete income tax expense of $0.5 million, primarily related to ~~Note F to the Consolidated Financial Statements for further details on income taxes.~~excess tax benefits from stock-based compensation awards.

2231

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

A reconciliation of net sales to value-added sales, a non-GAAP financial measure, for each reportable segment and for the total Company for the second quarter and first ~~nine~~six months of ~~2017~~2022 and ~~2016~~2021 is as follows:

Third Quarter Ended Nine Months Ended
Sept. 29,
Sept. 30, Sept. 29, Sept. 30,
(Thousands) 2017
2016 2017 2016
Net sales
Performance Alloys and Composites $ 109,393
$ 103,699
$ 310,487
$ 292,024
Advanced Materials 157,770
107,250
429,550
328,927
Precision Coatings 27,105
38,670
90,742
113,955
Other —
—
—
—
Total $ 294,268
$ 249,619
$ 830,779
$ 734,906

Less: pass-through metal costs
Performance Alloys and Composites $ 18,756
$ 16,452
$ 47,953
$ 43,225
Advanced Materials 97,379
61,290
259,830
193,908
Precision Coatings 5,209
12,867
22,932
38,407
Other 1,542
2,009
3,602
4,573
Total $ 122,886
$ 92,618
$ 334,317
$ 280,113

Value-added sales
Performance Alloys and Composites $ 90,637
$ 87,247
$ 262,534
$ 248,799
Advanced Materials 60,391
45,960
169,720
135,019
Precision Coatings 21,896
25,803
67,810
75,548
Other (1,542 ) (2,009 ) (3,602 ) (4,573 )
Total $ 171,382
$ 157,001
$ 496,462
$ 454,793

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


	Second Quarter Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
(Thousands)	2022		2021		2022		2021
Net sales
Performance Materials	$	154,889	$	125,294	$	304,520	$	239,437
Electronic Materials	260,971		213,114		531,807		417,758
Precision Optics	29,435		32,591		58,013		68,190
Other	—		—		—		—
Total	$	445,295	$	370,999	$	894,340	$	725,385

Less: pass-through metal costs
Performance Materials	$	20,923	$	16,696	$	41,436	$	30,007
Electronic Materials	146,779		146,214		307,738		287,909
Precision Optics	18		9		67		43
Other	349		193		1,105		957
Total	$	168,069	$	163,112	$	350,346	$	318,916

Value-added sales
Performance Materials	$	133,966	$	108,598	$	263,084	$	209,430
Electronic Materials	114,192		66,900		224,069		129,849
Precision Optics	29,417		32,582		57,946		68,147
Other	(349)		(193)		(1,105)		(957)
Total	$	277,226	$	207,887	$	543,994	$	406,469

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

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

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

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

2332

Segment Results

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

Performance ~~Alloys and Composites~~Materials

~~Third~~Second Quarter


	Third Quarter Ended									Second Quarter Ended
	Sept. 29,		Sept. 30,		$		%			July 1,		July 2,		$		%
(Thousands)	2017		2016		Change		Change		(Thousands)	2022		2021		Change		Change
Net sales	$	109,393	$	103,699	$	5,694	5	%	Net sales	$	154,889	$	125,294	$	29,595	24	%
Value-added sales	90,637		87,247		3,390		4	%	Value-added sales	133,966		108,598		25,368		23	%
Operating profit	6,786		4,357		2,429		56	%
EBITDA									EBITDA	27,229		22,318		4,911		22	%

Net sales from the Performance ~~Alloys and Composites~~Materials segment of ~~$109.4~~$154.9 million in the ~~third~~second quarter of ~~2017 were 5% higher than~~2022 increased 24% compared to net sales of ~~$103.7~~$125.3 million in the ~~third~~second quarter of ~~2016~~2021. The increase in sales was primarily due to higher ~~sales~~ volume ~~related to the~~in energy, industrial ~~components, consumer electronics,~~ and ~~automotive electronics end~~aerospace markets. In addition, sales attributable to the ~~impact of higher pass-through metal prices favorably impacted net~~HCS-Electronic Materials acquisition increased sales in this segment by ~~approximately $1.8~~$7.9 million.

Value-added sales of ~~$90.6~~$134.0 million in the ~~third~~second quarter of ~~2017~~2022 were 4%23% higher than value-added sales of ~~$87.2~~$108.6 million in the ~~third~~second quarter of ~~2016.~~2021. The increase in value-added sales was ~~driven by stronger demand~~due to the same factors driving the increase in ~~the aforementioned end markets of industrial components, consumer electronics, and automotive electronics, partially offset by a $3.1 million reduction in raw material beryllium hydroxide~~net sales.

EBITDA for the Performance ~~Alloys and Composites generated operating profit of $6.8~~Materials segment was $27.2 million in the ~~third~~second quarter of ~~2017~~2022 compared to ~~$4.4~~$22.3 million in the ~~third~~second quarter of ~~2016.~~2021. The increase in ~~operating profit~~EBITDA was primarily due to ~~higher~~the same factors driving the increase in net sales, ~~volume, favorable product mix,~~partially offset by $4.6 million of incremental start up costs for the new facility and ~~productivity improvements.~~manufacturing inefficiencies.

Six Months

~~Nine Months~~


	Nine Months Ended									Six Months Ended
	Sept. 29,		Sept. 30,		$		%			July 1,		July 2,		$		%
(Thousands)	2017		2016		Change		Change		(Thousands)	2022		2021		Change		Change
Net sales	$	310,487	$	292,024	$	18,463	6	%	Net sales	$	304,520	$	239,437	$	65,083	27	%
Value-added sales	262,534		248,799		13,735		6	%	Value-added sales	263,084		209,430		53,654		26	%
Operating profit	12,523		6,103		6,420		105	%
EBITDA									EBITDA	52,021		39,110		12,911		33	%

Net sales from the Performance ~~Alloys and Composites~~Materials segment of ~~$310.5~~$304.5 million in the first ~~nine~~six months of ~~2017 were 6% higher than~~2022 increased 27% compared to net sales of ~~$292.0~~$239.4 million in the first ~~nine~~six months of ~~2016 primarily~~2021. The increase in sales was due to ~~increased demand~~higher volume in ~~the~~ industrial, ~~components~~defense and ~~consumer electronics~~energy end markets. ~~The impact~~In addition, sales from HCS-Electronic Materials increased sales in this segment by $14.6 million. These impacts were slightly offset by a sale to a defense customer in 2021 that did not repeat in 2022 and a slight decrease in automotive market sales as a result of ~~higher pass-through metal prices favorably impacted net sales by approximately $5.9 million.~~the global chip shortage impacting the timing of demand.

Value-added sales of ~~$262.5~~$263.1 million in the first ~~nine~~six months of 2017 were 6% higher than value-added sales of $248.8 million in the first nine months of 2016. Stronger demand in the consumer electronics and industrial components end markets increased value-added sales by $11.4 million compared to the first nine months of 2016. Also, the increase in value-added sales was driven by higher raw material sales of beryllium hydroxide of $2.0 million.

Performance Alloys and Composites generated operating profit of $12.5 million in the first nine months of 2017 compared to $6.1 million in the first nine months of 2016. The increase in operating profit was primarily due to higher sales volume, favorable product mix, and productivity improvements.

~~Advanced Materials~~

~~Third Quarter~~

Third Quarter Ended

Sept. 29,
Sept. 30, $ %
(Thousands)
2017
2016 Change Change
Net sales
$ 157,770

$ 107,250
50,520
47 %
Value-added sales
60,391

45,960
14,431
31 %
Operating profit
9,756

8,245
1,511
18 %

Net sales from the Advanced Materials segment of $157.8 million in the third quarter of 2017 were 47% higher than net sales of $107.3 million in the third quarter of 2016 due to higher sales volume. Net sales of $38.6 million during the third quarter of 2017 were attributable to our HTB acquisition. Also, net sales increased due to higher sales volume offset by the impact of lower pass-through metal prices of $4.7 million.

Value-added sales of $60.4 million in the third quarter of 2017 were 31% higher than value-added sales of $46.0 million in the third quarter of 2016. This increase included value-added sales of $11.4 million attributable to our HTB acquisition. Also, the increase in value-added sales was driven by higher value-added sales to the consumer electronics end market of $2.2 million due primarily to higher demand.

The Advanced Materials segment generated operating profit of $9.8 million in the third quarter of 2017 compared to $8.3 million in the third quarter of 2016. Operating profit in the third quarter of 2017 was favorably impacted by higher sales volume.

~~Nine Months~~

Nine Months Ended
Sept. 29, Sept. 30, $ %
(Thousands) 2017 2016 Change Change
Net sales $ 429,550
$ 328,927
100,623
31 %
Value-added sales 169,720
135,019
34,701
26 %
Operating profit 24,873
20,748
4,125
20 %

Net sales from the Advanced Materials segment of $429.6 million in the first nine months of 2017 were 31% higher than net sales of $328.9 million in the first nine months of 2016. Net sales of $77.9 million during the first nine months of 2017 were attributable to the HTB acquisition. Also, net sales increased due to a combination of new product sales growth and demand in the consumer electronics and defense end markets.

~~Value-added sales of $169.7 million in the first nine months of 2017~~2022 were 26% higher than value-added sales of ~~$135.0~~$209.4 million in the first ~~nine~~six months of ~~2016. This increase included value-added sales of $24.9 million attributable to our HTB acquisition.~~2021. The increase in value-added sales was ~~also driven by higher value-added sales~~due to the ~~consumer electronics end market. Value-added sales to~~same factors driving the ~~consumer electronics end market, which represents approximately 49% of total segment value-added sales, increased $7.2 million due primarily to higher demand, excluding~~increase in net sales.

EBITDA for the ~~HTB acquisition.~~

~~The Advanced~~Performance Materials segment ~~generated operating profit of $24.9~~was $52.0 million in the first ~~nine~~six months of ~~2017~~2022 compared to ~~$20.7~~$39.1 million in the first ~~nine~~six months of ~~2016. As a percentage~~2021. The increase in EBITDA was primarily due to the same factors driving the increase in net sales, partially offset by acquisition costs of $2.7 million, primarily related to purchase accounting inventory step up charges, as well as $8.2 million of incremental start up costs for the new facility and manufacturing inefficiencies.

Electronic Materials

Second Quarter


	Second Quarter Ended
	July 1,		July 2,		$	%
(Thousands)	2022		2021		Change	Change
Net sales	$	260,971	$	213,114	47,857	22	%
Value-added sales	114,192		66,900		47,292	71	%
EBITDA	22,337		10,412		11,925	115	%

Net sales from the Electronic Materials segment of $261.0 million in the second quarter of 2022 were 22% higher than net sales of $213.1 million in the second quarter of 2021. The increase in net sales was primarily due to $35.7 million in net sales from the HCS-Electronic Materials acquisition and higher organic sales volumes in the semiconductor, energy and industrial markets. Increase in sales were partially offset by $0.7 million due to lower pass-through metal market prices.

Value-added sales of $114.2 million in the second quarter of 2022 increased 71% compared to value-added sales ~~operating profit~~of $66.9 million in the second quarter of 2021. The increase was ~~15%~~primarily driven by $35.7 million in value-added sales from the HCS-Electronic Materials acquisition as well as higher organic sales volumes into the semiconductor, industrial, energy and other markets.

EBITDA for the Performance Materials segment was $22.3 million in the second quarter of 2022 compared to $10.4 million in the second quarter of 2021. The increase in EBITDA is due to increased sales volumes, partially offset by increases in SG&A expense, mainly driven by R&D expense as the business continues to invest in developing future customer solutions.

Six Months


	Six Months Ended
	July 1,		July 2,		$	%
(Thousands)	2022		2021		Change	Change
Net sales	$	531,807	$	417,758	114,049	27	%
Value-added sales	224,069		129,849		94,220	73	%
EBITDA	34,484		21,342		13,142	62	%

Net sales from the Electronic Materials segment of $531.8 million in the first ~~nine~~six months of ~~both 2017 and 2016. Operating profit~~2022 were 27% higher than net sales of $417.8 million in the first ~~nine~~six months of ~~2017~~2021. The increase in net sales was ~~favorably impacted~~primarily due to $72.3 million from the HCS-Electronic Materials acquisition and higher organic sales volumes in the semiconductor, industrial, energy and other markets, as well as the sales impact of higher pass-through metal prices of $1.4 million.

Value-added sales of $224.1 million in the first half of 2022 increased 73% compared to value-added sales of $129.8 million in the first half of 2021. The increase was primarily driven by $72.3 million in value-added sales from the HCS-Electronic Materials acquisition as well as higher organic sales ~~volume.~~volumes into the semiconductor, industrial, energy and other markets.

EBITDA for the Electronic Materials segment was $34.5 million in the first six months of 2022 compared to $21.3 million in the first six months of 2021. The increase in EBITDA is due to increased sales volumes, partially offset by the amortization of the HCS-Electronic Material inventory step up of $5.0 million.

2534

Precision ~~Coatings~~Optics

~~Third~~Second Quarter


(Thousands)	Third Quarter Ended								(Thousands)	Second Quarter Ended
	Sept. 29,		Sept. 30,		$		%			July 1,		July 2,		$	%
	2017		2016		Change		Change			2022		2021		Change	Change
Net sales	$	27,105	$	38,670	(11,565	)	(30	)%	Net sales	$	29,435	$	32,591	(3,156)	(10)	%
Value-added sales	21,896		25,803		(3,907	)	(15	)%	Value-added sales	29,417		32,582		(3,165)	(10)	%
Operating profit	1,613		3,432		(1,819	)	(53	)%
EBITDA									EBITDA	3,544		5,547		(2,003)	(36)	%

Net sales from the Precision ~~Coatings~~Optics segment of ~~$27.1~~$29.4 million in the ~~third~~second quarter of ~~2017 were 30% lower than~~2022 decreased 10% compared to net sales of ~~$38.7~~$32.6 million in the ~~third~~second quarter of ~~2016~~2021. The change was primarily driven by a reduction in sales related to COVID-19 PCR testing programs, the discontinuation of a consumer electronic application, foreign currency headwinds and the temporary government-mandated shut down of our Shanghai facility due to ~~lower sales volume.~~COVID-19.

Value-added sales of ~~$21.9~~$29.4 million in the ~~third~~second quarter of ~~2017 were 15% lower than~~2022 decreased 10% compared to value-added sales of ~~$25.8~~$32.6 million in the ~~third~~second quarter of ~~2016.~~2021. The ~~defense and industrial components end markets increased $1.3 million primarily~~decrease in value-added sales was due to ~~end market demand. This increase~~the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was ~~more than offset by a decrease of $4.9~~$3.5 million in the ~~medical end market due~~second quarter of 2022 compared to ~~lower volume in the blood glucose test strip segment of the medical end market.~~

~~The Precision Coatings segment generated operating profit of $1.6~~$5.5 million in the ~~third~~second quarter of ~~2017, compared to an operating profit of $3.4 million in the third quarter of 2016.~~2021. The decrease in ~~operating profit~~EBITDA was driven by ~~lower sales volume~~decreased volumes, the temporary shut down of the Shanghai facility, and ~~$0.4 million of cost reduction initiatives, primarily severance, associated with reducing headcount in Asia and North America.~~related unabsorbed costs.

~~Nine~~

Six Months


(Thousands)	Nine Months Ended								(Thousands)	Six Months Ended
	Sept. 29,		Sept. 30,		$		%			July 1,		July 2,		$	%
	2017		2016		Change		Change			2022		2021		Change	Change
Net sales	$	90,742	$	113,955	(23,213	)	(20	)%	Net sales	$	58,013	$	68,190	(10,177)	(15)	%
Value-added sales	67,810		75,548		(7,738	)	(10	)%	Value-added sales	57,946		68,147		(10,201)	(15)	%
Operating profit	6,145		9,803		(3,658	)	(37	)%
EBITDA									EBITDA	5,735		13,018		(7,283)	(56)	%

Net sales from the Precision ~~Coatings~~Optics segment of ~~$90.7~~$58.0 million in the first ~~nine months~~half of ~~2017 were 20% lower than~~2022 decreased 15% compared to net sales of ~~$114.0~~$68.2 million in the first ~~nine months~~half of ~~2016~~2021. The change was primarily driven by a reduction in sales related to COVID-19 PCR testing programs, the discontinuation of a consumer electronic application, foreign currency headwinds and the temporary government-mandated shut down of our Shanghai facility due to ~~lower sales volume.~~COVID-19.

Value-added sales of ~~$67.8~~$57.9 million in the first ~~nine months~~half of ~~2017 were 10% lower than~~2022 decreased 15% compared to value-added sales of ~~$75.5~~$68.1 million in the first ~~nine months~~half of ~~2016.~~2021. The ~~defense and industrial components end markets increased $3.6 million primarily~~decrease in value-added sales was due to ~~stronger end market demand. This increase~~the same factors driving the decrease in net sales.

EBITDA for the Precision Optics segment was ~~more than offset by a decrease of $8.4 million in the medical end market due to lower volume in the blood glucose test strip segment of the medical end market.~~

~~The Precision Coatings segment generated operating profit of $6.1~~$5.7 million in the first ~~nine~~six months of ~~2017~~2022 compared to ~~$9.8~~$13.0 million in the first ~~nine~~six months of ~~2016.~~2021. The decrease in ~~operating profit in~~EBITDA was driven by decreased volumes, the ~~first nine months~~temporary shut down of ~~2017 versus~~ the ~~comparable period of 2016 was due to lower sales volume, cost reduction initiatives of $0.4 million,~~Shanghai facility, related unabsorbed costs and ~~the absence of a gain on the sale of equipment of $0.8 million realized~~restructuring charges incurred during the first ~~nine~~six months of ~~2016.~~2022.

Other

~~Third~~Second Quarter


(Thousands)	Third Quarter Ended										(Thousands)	Second Quarter Ended
	Sept. 29,			Sept. 30,			$		%			July 1,		July 2,		$	%
	2017			2016			Change		Change			2022		2021		Change	Change
Net sales	$	—		$	—		—		—	%	Net sales	$	—	$	—	—	—	%
Value-added sales	(1,542		)	(2,009		)	467		(23	)%	Value-added sales	(349)		(193)		(156)	81	%
Operating loss	(6,597		)	(5,883		)	(714	)	12	%
EBITDA											EBITDA	(7,191)		(5,813)		(1,378)	24	%

The Other reportable segment in total includes unallocated corporate costs.

Corporate costs ~~of $6.6~~were $7.2 million in the ~~third~~second quarter of ~~2017 increased $0.7 million as~~2022 compared to ~~$5.9~~$5.8 million in the ~~third~~second quarter of ~~2016.~~2021. Corporate costs ~~were 4%~~accounted for 3% of ~~total Company~~Company-wide value-added sales in the ~~third~~second quarter of both ~~2017~~2022 and ~~2016.~~2021. The

increase in corporate costs in the second quarter of 2022 compared to the second quarter of 2021 is primarily related to increased employee related costs due to business support investments and HCS-Electronic Materials integration costs.

Six Months


(Thousands)	Six Months Ended
	July 1,		July 2,		$	%
	2022		2021		Change	Change
Net sales	$	—	$	—	—	—	%
Value-added sales	(1,105)		(957)		(148)	15	%
EBITDA	(12,366)		(11,413)		(953)	8	%

Corporate costs were $12.4 million in the first half of 2022 compared to $11.4 million in the first half of 2021. Corporate costs accounted for 2% and 3% of Company-wide value-added sales in the first half of 2022 and 2021, respectively. The increase in corporate costs ~~was primarily due to higher incentive compensation expense associated with value-added sales and profit growth.~~

~~Nine Months~~

(Thousands) Nine Months Ended
Sept. 29, Sept. 30, $ %
2017 2016 Change Change
Net sales $ —
$ —
—
— %
Value-added sales (3,602 ) (4,573 ) 971
(21 )%
Operating loss (18,829 ) (13,194 ) (5,635 ) 43 %

~~Corporate costs of $18.8 million~~ in the first ~~nine months~~half of ~~2017 increased $5.6 million as~~2022 compared to ~~$13.2 million in~~ the first ~~nine months~~half of ~~2016. As a percent of total Company value-added sales, corporate~~2021 is primarily related to HCS-Electronic Material integration costs and increased to 4% in the first nine months of 2017 from 3% in the prior-year. The increase in corporate costs was due to higher incentive compensation and stock-based compensation expense of $5.5 million, which included $1.4 million due to accelerated stock compensation expense associated with the transition of the Company's CEO.business support investments.

FINANCIAL POSITION

Cash Flow

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


	Six Months Ended
	July 1,		July 2,		$
(Thousands)	2022		2021		Change
Net cash provided by operating activities	$	21,415	$	44,065	$	(22,650)
Net cash used in investing activities	(40,596)		(57,109)		16,513
Net cash provided by financing activities	38,418		11,522		26,896
Effects of exchange rate changes	(1,524)		(11)		(1,513)
Net change in cash and cash equivalents	$	17,713	$	(1,533)	$	19,246

Nine Months Ended
Sept. 29, Sept. 30, $
(Thousands) 2017 2016 Change
Net cash provided by operating activities $ 35,497
$ 27,222
$ 8,275
Net cash used in investing activities (34,830 ) (27,620 ) (7,210 )
Net cash used in financing activities (10,938 ) (8,556 ) (2,382 )
Effects of exchange rate changes 1,293
524
769
Net change in cash and cash equivalents $ (8,978 ) $ (8,430 ) $ (548 )

Net cash provided by operating activitiestotaled ~~$35.5~~$21.4 million in the first ~~nine~~six months of ~~2017~~2022 versus ~~$27.2~~$44.1 million in the ~~comparable~~ prior-year period. ~~Working~~The decrease in operating cash flow was primarily due to cash used to fund higher working capital ~~requirements used cash of $13.5 million during~~due to higher inventory to support increasing demand and sales and higher incentive compensation paid out in the first ~~nine months~~quarter, partially offset by a higher net income and an increase in unearned income due to customer prepayments of ~~2017 compared to a use of $18.7~~$13.1 million received in the second quarter.

Net cash used in investing activities was $40.6 million in the first ~~nine~~six months of 2016. Cash flows used for accounts receivable were $1.8 million higher than the prior year-period due to the HTB acquisition. Our three-month trailing days sales outstanding (DSO) was approximately 40 days at September 29, 2017 versus 41 days at December 31, 2016. Cash flows used for inventory increased $13.2 million primarily within the Performance Alloys and Composites and Advanced Materials segments to respond to anticipated orders and demand. Cash flows from accounts payable and accrued expenses provided cash of approximately $18.0 million2022 compared to ~~a use of $2.2~~$57.1 million in the prior-year period ~~primarily~~ due to ~~a higher accounts payable balance due~~decrease in capital expenditures primarily related to investments in new equipment funded by customer prepayments in 2021. See Note I to the ~~timing~~Consolidated Financial Statements for additional discussion. Additionally, the Company paid a working capital true-up of ~~payments and~~approximately $3.0 million during the ~~HTB~~second quarter of 2022 related to the HCS-Electronic Materials acquisition.

~~Net cash used in investing activities~~ ~~was $34.8 million in~~ See Note B to the ~~first nine months of 2017 compared to $27.6 million in the prior-year period, reflecting a $16.5 million payment~~Consolidated Financial Statements for ~~the HTB acquisition offset by lower payments for property, plant, and equipment and mine development of $10.6 million.~~additional discussion.

Capital expenditures are ~~made~~ primarily driven by customer partnerships like the precision clad strip project and investments within our HCS-Electronic Materials acquisition as well as infrastructure for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year ~~2017,~~2022, the Company expects payments for property, plant, and equipment to be ~~less than $30.0 million and mine development expenditures to be less than $3.0~~approximately $100 million.

Net cash ~~used in~~provided by financing activities totaled ~~$10.9~~$38.4 million in the first ~~nine~~six months of ~~2017 versus $8.6~~2022 and $11.5 million in the comparable prior-year ~~period~~period. The increase is primarily due to ~~a higher amount~~increased net borrowings of ~~common shares withheld for taxes~~$52.8 million under our revolving credit facility in ~~2017~~the first half of 2022, compared to ~~2016.~~an increase in borrowings of $22.5 million in the same period in the prior year.

Liquidity

We believe cash flow from operations plus the available borrowing capacity and our current cash balance are adequate to support operating requirements, capital expenditures, projected pension plan contributions, the current dividend ~~and share repurchase programs,~~program, environmental remediation projects, and strategic ~~acquisitions.~~acquisitions for at least the next twelve months and for the foreseeable future thereafter. At ~~September 29, 2017,~~July 1, 2022, cash and cash equivalents held by our foreign operations totaled ~~$11.5~~$29.7 million. We do not expect restrictions on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition, or results of operations for the foreseeable future.

A summary of key data relative to our liquidity, including outstanding debt, cash, and available borrowing capacity, ~~and debt-to-debt-plus-equity ratio,~~ as of ~~September 29, 2017~~July 1, 2022 and December 31, ~~2016~~2021 is as follows:


	July 1,		December 31,
(Thousands)	2022		2021
Cash and cash equivalents	$	32,175	$	14,462
Total outstanding debt	497,298		449,747
Net debt	$	(465,123)	$	(435,285)
Available borrowing capacity	$	124,034	$	176,419

September 29, December 31,
(Thousands) 2017 2016
Total outstanding debt $ 4,007
$ 4,615
Cash 22,486
31,464
Net debt (cash) (18,479 ) (26,849 )
Available borrowing capacity $ 266,405
$ 238,886
Debt-to-debt-plus-equity ratio 1 % 1 %

Net debt ~~(cash)~~ is a non-GAAP financial ~~measure reflecting the Company's current liquidity~~measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods. ~~Non-GAAP financial measures, such as net debt (cash), have inherent limitations and should not be considered in isolation, or as a substitute for GAAP financial measures.~~

~~Total outstanding debt decreased $0.6 million compared to December 31, 2016.~~

The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each period depicted. The applicable debt covenants have been taken into account when determining the available borrowing capacity, including the covenant that restricts the borrowing capacity to a multiple of the twelve-month trailing earnings before interest, income taxes, depreciation, depletion and amortization, and other adjustments. The main cause for the increase in the available borrowing capacity at September 29, 2017 as compared to December 31, 2016 was due to increased earnings before interest, income taxes, depreciation and amortization on a trailing 12-month basis.

In ~~2015,~~2021, we ~~entered into an amendment to~~amended and restated the agreement governing our $375.0 million revolving credit ~~agreement~~facility (Credit Agreement)~~. The amendment extends~~ in connection with the HCS-Electronic Materials acquisition. A $300.0 million delayed draw term loan facility was added to the Credit Agreement and the maturity date of the Credit Agreement was extended from ~~2018~~2024 to ~~2020 and~~2026. Moreover, the Credit Agreement also provides ~~more favorable pricing~~for an uncommitted incremental facility whereby, under certain ~~circumstances. In addition,~~conditions, the ~~amendment~~Company may be able to borrow additional term loans in an aggregate amount not to exceed $150.0 million. The Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the consignment, borrowing, or leasing of precious metals and copper, and provides enhanced flexibility to finance acquisitions and other strategic initiatives. ~~The~~Borrowings under the Credit Agreement isare secured by substantially all of the assets of the Company and its direct subsidiaries, with the exception of non-mining real property, precious metal, copper and certain other assets.

The Credit Agreement allows usthe Company to borrow money at a premium over LIBOR or ~~the~~ prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions ~~available under~~stipulated in the ~~Credit Agreement.~~

agreement. The Credit Agreement includes restrictive covenants ~~including incurring~~relating to restrictions on additional indebtedness, acquisitions, dividends, and stock repurchases. In addition, the Credit Agreement includes covenants ~~subject~~that limit the Company to a maximum leverage ratio and a ~~minimum fixed charge~~maximum interest coverage ratio. We were in compliance with all of our debt covenants as of ~~September 29, 2017~~July 1, 2022 and December 31, ~~2016.~~2021. Cash on hand ~~does not affect~~up to $25.0 million can benefit the covenants orand may benefit the borrowing capacity under ~~our debt agreements.~~the Credit Agreement.

In November 2021, we completed the acquisition of HCS-Electronic Materials. The Company financed the purchase price for the HCS-Electronic Materials acquisition with a new $300.0 million five-year term loan pursuant to its delayed draw term loan facility under the Credit Agreement and $103.0 million of borrowings under its amended revolving credit facility. The interest rate for the term loan is based on LIBOR plus a tiered rate determined by the Company's quarterly leverage ratio.

Portions of our business utilize off-balance sheet consignment arrangements allowing us to ~~finance~~use bank owned metal ~~requirements.~~as we manufacture product for customers. Metal is purchased from the consignee and sold to our customer at the time of product shipment. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. ~~As a result, we have negotiated increases~~The precious metal consignment agreements, including our largest such agreement entered into in 2019 and maturing on August 27, 2022, were amended in 2021 to be more consistent with the ~~available capacity under existing lines, added additional lines, and extended the maturity dates of existing lines in recent years.~~Credit Agreement. The available and unused capacity under the metal ~~financing~~consignment lines totaled approximately ~~$149.3~~$200.0 million as of ~~September 29, 2017.~~July 1, 2022, compared to $69.8 million as of December 31, 2021. The availability is determined by Board approved levels and actual line capacity.

In January 2014, our Board of Directors approved a plan to repurchase up to $50.0 million of our common stock. The timing of the share repurchases will depend on several factors, including market and business conditions, our cash flow, debt levels, and other investment opportunities. There is no minimum quantity requirement to repurchase our common stock for a given year, and the repurchases may be discontinued at any time. ~~In the first nine months of 2017, we repurchased 32,409 shares at a cost of $1.1 million.~~ We did not repurchase any shares under this program in the ~~third~~second quarter or first six months of ~~2017.~~2022. Since the approval of the repurchase plan, we have purchased ~~1,082,264~~1,254,264 shares at a total cost of ~~$34.3~~$41.7 million.

~~In the third quarter and first nine months of 2017, we~~We paid cash dividends of ~~$2.0~~$2.6 million and ~~$5.9~~$5.1 million ~~respectively,~~ on our common ~~stock.~~stock in the second quarter and first six months of 2022. We intend to pay a quarterly dividend on an ongoing basis, subject to a determination that the dividend remains in the best interest of our shareholders.

OFF-BALANCE SHEET ARRANGEMENTS AND ~~CONTRACTUAL~~CASH OBLIGATIONS

We maintain the majority of the precious metals and portions of the copper we use in production on a consignment basis in order to reduce our exposure to metal price movements and to reduce our working capital investment. The notional value of off-balance sheet precious metals and copper was ~~$300.7~~$415.0 million and $480.2 million as of ~~September 29, 2017, versus $194.8 million as of~~July 1, 2022 and December 31, ~~2016.~~2021, respectively. We were in compliance with all of the covenants contained in the consignment agreements as of ~~September 29, 2017 and December 31, 2016.~~July 1, 2022. For additional information on our ~~contractual~~material cash obligations, refer to our 2021 Annual Report on Form ~~10-K for the year ended December 31, 2016.~~10-K.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the inherent use of estimates and management’s judgment in establishing those estimates. For additional information regarding critical accounting policies, please refer to our ~~Form 10-K for the year ended December 31, 2016. There have been no material changes to our critical accounting policies subsequent to the issuance of our~~2021 Annual Report on Form 10-K.

Forward-looking ~~Statements~~

Statements: Portions of the narrative set forth in this document that are not statements of historical or current facts are forward-looking statements. Our actual future performance may materially differ from that contemplated by the forward-looking statements as a result of a variety of factors. These factors include, in addition to those mentioned elsewhere herein:


▪	~~Actual net sales, operating rates, and margins for 2017;~~


▪	~~Our ability to effectively integrate the HTB acquisition;~~


▪	~~The global economy;~~


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


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

▪

~~Changes~~ the ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity, including shut downs of our facilities; our ability to achieve the strategic and other objectives related to the HCS-Electronic Materials (defined herein) acquisition, including any expected synergies; the global economy, including inflationary pressures, potential future recessionary conditions and the impact of tariffs and trade agreements; the impact of any U.S. Federal Government shutdowns or sequestrations; the condition of the markets which we serve, whether defined geographically or by segment; changes in product mix and the financial condition of customers; our success in developing and introducing new products and new product ramp-up rates; our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values; our success in identifying acquisition candidates and in acquiring and integrating such businesses, including the integration of the HCS-Electronic Materials business; the impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions; our success in implementing our strategic plans and the timely and successful start-up and completion of any capital projects; other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal consignment fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans; the uncertainties related to the impact of war, including the conflict between Russia and Ukraine, terrorist activities, and acts of God; changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations; the conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects; the disruptions in operations from, and other effects of, catastrophic and other extraordinary events including the COVID-19 pandemic; and the ~~financial condition of customers;~~


▪	~~Our success in developing and introducing new products and new product ramp-up rates;~~


▪	~~Our success in passing through the costs of raw materials to customers or otherwise mitigating fluctuating prices for those materials, including the impact of fluctuating prices on inventory values;~~


▪	~~Our success in identifying acquisition candidates and in acquiring and integrating such businesses;~~


▪	~~The impact of the results of acquisitions on our ability to fully achieve the strategic and financial objectives related to these acquisitions;~~


▪	~~Our success in implementing our strategic plans and the timely and successful completion and start-up of any capital projects;~~


▪	~~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), physical inventory valuations, 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;~~


▪	~~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 success of the realignment of our businesses;~~


▪	~~Our ability to strengthen our internal control over financial reporting and disclosure controls and procedures; and~~

~~The~~ risk factors set forth in Part 1, Item 1A of ~~our~~the Company's 2021 Annual Report on Form ~~10-K for the year ended December 31, 2016.~~10-K.



Item 3.			Quantitative and Qualitative Disclosures about Market Risk

For information regarding market risks, refer to Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our 2021 Annual Report on Form ~~10-K for the year ended December 31, 2016.~~10-K. There have been no material changes in our market risks since the inclusion of this discussion in our 2021 Annual Report on Form 10-K.



Item 4.			Controls and Procedures

a)Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and with participation of the Company's management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of disclosure controls and procedures as of ~~September 29, 2017~~July 1, 2022 pursuant to Rule 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as

amended (Exchange Act). Based on that evaluation, management, including the chief executive officer and chief financial officer, concluded that disclosure controls and procedures are effective as of ~~September 29, 2017.~~July 1, 2022.

b)Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal control over financial reporting that occurred during the quarter ended ~~September 29, 2017~~July 1, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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

~~The information presented~~

Beryllium Claims

As of July 1, 2022, our subsidiary, Materion Brush Inc., was a defendant in one beryllium case. As previously reported, a settlement agreement had been reached in one case, and the and the case was dismissed during the second quarter. In Richard Miller v. Dolphin, Inc. et al., case number CV2020-005163, filed in the ~~Legal Proceedings section~~Superior Court of ~~Note N ("Contingencies")~~Arizona, Maricopa County, the Company is one of six named defendants and 100 Doe defendants. The plaintiff alleges that he contracted beryllium disease from exposures to beryllium-containing products supplied to his employer, Karsten Manufacturing Corporation, where he was a production worker, and asserts claims for negligence, strict liability – failure to warn, strict liability – design defect, and fraudulent concealment. The plaintiff seeks general damages, medical expenses, loss of earnings, consequential damages, and punitive damages, and his wife claims loss of consortium. A co-defendant, Dolphin, Inc., filed a cross-claim against the Company for indemnification. On August 12, 2020, the Company moved to dismiss the cross-claim for failure to state a claim upon which relief can be granted. The court denied the motion on October 23, 2020. On December 7, 2020, the Company filed a Petition for Special Action in the Court of Appeals seeking to appeal the denial of the ~~Notes~~motion to ~~Consolidated Financial Statements (Unaudited) is incorporated herein~~dismiss the cross-claim. The Court of Appeals declined to accept jurisdiction on December 30, 2020. The court entered a scheduling order on September 14, 2021 that did not set a date for trial. An amended scheduling order was entered on April 8, 2022, but a date for trial was not set. The Company believes that it has substantive defenses and intends to vigorously defend this suit.

In Ronald Dwayne Manning v. Arconic Inc. et al., case number 19CI000219, filed in the Superior Court of the State of California, Tehama County, and later removed to the United States District Court, Eastern District of California (Sacramento Division), case number 2:19-CV-02202-MCE-DMC, the Company was one of three named defendants and 120 Doe defendants. The plaintiff alleged that he contracted beryllium disease from exposures to beryllium-containing products during his employment as an auto mechanic, welder, sprinkler installer, and movie projector operator, and asserted claims for negligence, strict liability, fraudulent concealment, and breach of implied warranties. The plaintiff sought economic damages, non-economic damages, consequential damages, and punitive damages. A settlement agreement was reached in this case, and a Stipulation of Dismissal was entered by ~~reference.~~the court on June 1, 2022.

No beryllium cases were filed in the second quarter of 2022.

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

Other Claims

On October 14, 2020, Garett Lucyk, et al. v. Materion Brush Inc., et. al., case number 20CV0234, a wage and hour purported collective and class action, was filed in the Northern District of Ohio against the Company and its subsidiary, Materion Brush Inc. (collectively, the Company). Plaintiff, a former hourly production employee at the Company's Elmore, Ohio facility, alleges, among other things, that he and other similarly situated employees nationwide are not paid for all time they spend donning and doffing personal protective equipment in violation of the Fair Labor Standards Act and Ohio law. Plaintiff filed a motion for conditional certification, which the Company opposed. The motion has been fully briefed, and the parties are awaiting a decision from the court. The Company believes that it has substantive defenses and intends to vigorously defend this suit absent a negotiated resolution.



Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information with respect to repurchases of common stock made by usthe Company during the three months ended ~~September 29, 2017~~July 1, 2022.

Period
Total Number of Shares Purchased (1)
Average Price Paid per Share (1)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
July 1 through August 4, 2017
895

$ 38.42

—

$ 15,703,744
August 5 through September 1, 2017
401

38.16

—

15,703,744
September 1 through September 29, 2017
1,062

42.88

—

15,703,744
Total
2,358

$ 40.38

—

$ 15,703,744


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
April 2 through May 6, 2022	—	$	—	—	$	8,316,239
May 7 through June 3, 2022	1,181	80.24		—	8,316,239
June 4 through July 1, 2022	—	—		—	8,316,239
Total	1,181	$	80.24	—	$	8,316,239



(1)			~~Includes 895, 401, and 1,062~~Represents shares surrendered to the Company ~~in July, August, and September, respectively,~~ by employees to satisfy tax withholding obligations on equity awards issued under the Company's stock incentive plan.

(2)			On January 14, 2014, wethe Company announced that ~~our~~its Board of Directors had authorized the repurchase of up to $50.0 million of ~~our~~its common stock. WeDuring the three months ended July 1, 2022, the Company did not repurchase any shares under this ~~program during the third quarter of 2017.~~program. As of ~~September 29, 2017, $15.7~~July 1, 2022, $8.3 million may still be purchased under the program.



Item 4.			Mine Safety Disclosures

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



~~Item 6.~~	~~Exhibits~~



~~31.1~~Item 6.			Exhibits

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


31.1						Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a)*
31.2						Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a)*
32						Certifications of Chief Executive Officer and Chief Financial Officer required by 18 U.S.C. Section 1350*
95						Mine Safety Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act for the period ended September 29, 2017July 1, 2022
101.INS						XBRL Instance DocumentDocument - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH						Inline XBRL Taxonomy Extension Schema Document*
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document*
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document*
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document*
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document*
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Exhibit 101 attachments)

*Submitted electronically herewith.

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

~~MATERION CORPORATION~~

Dated: August 3, 2022

~~Dated: October 26, 2017~~

/s/ ~~Joseph P. Kelley~~ Shelly M. Chadwick

~~Joseph P. Kelley~~Shelly M. Chadwick

Vice President, Finance and Chief Financial Officer

(Principal Financial ~~and Accounting~~ Officer)

3444



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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	MTRN	New York Stock Exchange



~~Large accelerated filer~~ þ			~~Accelerated filer~~ ¨
~~Non-accelerated filer~~ ¨ ~~(Do not check if a smaller reporting company)~~			~~Smaller reporting company~~ ¨
			~~Emerging growth company~~ ¨



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



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



(Thousands)	Amount
Assets:
Inventories	$	7,221
Prepaid and other current assets	1,107
Long-term deferred income taxes	1,450
Property, plant, and equipment	7,637
Intangible assets	3,236
Goodwill	2,605
Total assets acquired	$	23,256

Liabilities:
Other liabilities and accrued items	$	1,030
Other long-term liabilities	430
Retirement and post-employment benefits	5,292
Total liabilities assumed	$	6,752

Total purchase price	$	16,504



(Thousands)	Performance Alloys and Composites		Advanced Materials		Precision Coatings		Other			Total
Third Quarter 2017
Net sales	$	109,393	$	157,770	$	27,105	$	—		$	294,268
Intersegment sales	54		12,814		—		—			12,868
Value-added sales	90,637		60,391		21,896		(1,542		)	171,382
Operating profit (loss)	6,786		9,756		1,613		(6,597		)	11,558
Third Quarter 2016
Net sales	$	103,699	$	107,250	$	38,670	$	—		$	249,619
Intersegment sales	47		21,505		—		—			21,552
Value-added sales	87,247		45,960		25,803		(2,009		)	157,001
Operating profit (loss)	4,357		8,245		3,432		(5,883		)	10,151

First Nine Months 2017
Net sales	$	310,487	$	429,550	$	90,742	$	—		$	830,779
Intersegment sales	113		42,508		—		—			42,621
Value-added sales	262,534		169,720		67,810		(3,602		)	496,462
Operating profit (loss)	12,523		24,873		6,145		(18,829		)	24,712
First Nine Months 2016
Net sales	$	292,024	$	328,927	$	113,955	$	—		$	734,906
Intersegment sales	226		54,110		—		—			54,336
Value-added sales	248,799		135,019		75,548		(4,573		)	454,793
Operating profit (loss)	6,103		20,748		9,803		(13,194		)	23,460



	September 29,			December 31,
(Thousands)	2017			2016
Total outstanding debt	$	4,007		$	4,615
Cash	22,486			31,464
Net debt (cash)	(18,479		)	(26,849		)
Available borrowing capacity	$	266,405		$	238,886
Debt-to-debt-plus-equity ratio	1		%	1		%