UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________

FORM 10-Q

(Mark One)

☒

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

For the quarterly period ended ~~June 28, 2019~~March 27, 2020

☐

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

For the transition period from to

Commission file number 001-15885

MATERION CORPORATION

(Exact name of Registrant as specified in charter)



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

6070 Parkland Blvd., Mayfield Heights, Ohio 44124

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:

(216)-486-4200

Securities registered pursuant to Section 12(b) of the Act:



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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨

Non-accelerated filer ¨ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Number of Shares of Common Stock, without par value, outstanding at ~~June 28, 2019: 20,399,425.~~March 27, 2020: 20,309,846.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

Materion Corporation and Subsidiaries

Consolidated Statements of (Loss) Income

(Unaudited)

Second Quarter Ended Six Months Ended
(Thousands, except per share amounts) June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Net sales $ 297,843
$ 309,085
$ 599,284
$ 612,552
Cost of sales 228,249
247,247
460,378
492,434
Gross margin 69,594
61,838
138,906
120,118
Selling, general, and administrative expense 39,891
38,473
79,955
76,935
Research and development expense 4,062
3,860
7,802
7,503
Other—net 2,891
4,313
7,012
7,237
Operating profit 22,750
15,192
44,137
28,443
Interest expense—net 500
667
966
1,397
Other non-operating expense—net 3,112
437
3,357
879
Income before income taxes 19,138
14,088
39,814
26,167
Income tax expense 3,598
2,944
7,368
4,459
Net income $ 15,540
$ 11,144
$ 32,446
$ 21,708
Basic earnings per share:
Net income per share of common stock $ 0.76
$ 0.55
$ 1.60
$ 1.08
Diluted earnings per share:
Net income per share of common stock $ 0.75
$ 0.54
$ 1.57
$ 1.05
Weighted-average number of shares of common stock outstanding:
Basic 20,383
20,221
20,326
20,178
Diluted 20,666
20,593
20,635
20,583



	First Quarter Ended
(Thousands, except per share amounts)	March 27, 2020			March 29, 2019
Net sales	$	277,946		$	301,441
Cost of sales	232,371			232,129
Gross margin	45,575			69,312
Selling, general, and administrative expense	30,744			40,064
Research and development expense	4,185			3,740
Goodwill impairment charges	9,053			—
Held-for-sale impairment charges	1,713			—
Restructuring expense	2,164			—
Other—net	2,279			4,121
Operating (loss) profit	(4,563		)	21,387
Other non-operating (income) expense—net	(944		)	245
Interest expense—net	246			466
(Loss) Income before income taxes	(3,865		)	20,676
Income tax (benefit) expense	(762		)	3,770
Net (loss) income	$	(3,103	)	$	16,906
Basic earnings per share:
Net (loss) income per share of common stock	$	(0.15	)	$	0.83
Diluted earnings per share:
Net (loss) income per share of common stock	$	(0.15	)	$	0.82
Weighted-average number of shares of common stock outstanding:
Basic	20,384			20,267
Diluted	20,384			20,606

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)


	Second Quarter Ended						Six Months Ended					First Quarter Ended
	June 28,			June 29,			June 28,			June 29,		March 27,			March 29,
(Thousands)	2019			2018			2019			2018		2020			2019
Net income	$	15,540		$	11,144		$	32,446		$	21,708
Other comprehensive income (loss):
Net (loss) income												$	(3,103	)	$	16,906
Other comprehensive (loss) income:
Foreign currency translation adjustment	339			(944		)	(164		)	169		(873		)	(503		)
Derivative and hedging activity, net of tax	(1,000		)	1,763			(73		)	1,088		(854		)	927
Pension and post-employment benefit adjustment, net of tax	13,953			1,296			14,493			2,574		16			540
Other comprehensive income	13,292			2,115			14,256			3,831
Comprehensive income	$	28,832		$	13,259		$	46,702		$	25,539
Other comprehensive (loss) income												(1,711		)	964
Comprehensive (loss) income												$	(4,814	)	$	17,870

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Balance Sheets


	(Unaudited)						(Unaudited)
	June 28,			Dec. 31,			March 27,			Dec. 31,
(Thousands)	2019			2018			2020			2019
Assets
Current assets
Cash and cash equivalents	$	74,856		$	70,645		$	107,576		$	125,007
Accounts receivable	142,327			130,538
Accounts receivable, net							138,803			154,751
Inventories, net	213,329			214,871			204,702			190,390
Prepaid and other current assets	23,904			23,299			20,515			21,839
Assets held for sale							7,188			—
Total current assets	454,416			439,353			478,784			491,987
Deferred income taxes	1,052			5,616			1,648			1,666
Property, plant, and equipment	913,325			898,251			910,050			916,965
Less allowances for depreciation, depletion, and amortization	(669,861		)	(647,233		)	(675,074		)	(684,689		)
Property, plant, and equipment—net	243,464			251,018			234,976			232,276
Operating lease, right-of-use asset	26,788			—
Operating lease, right-of-use assets							36,465			23,413
Intangible assets	5,213			6,461			5,972			6,380
Other assets	15,280			7,236			18,399			17,937
Goodwill	90,633			90,657			69,832			79,011
Total Assets	$	836,846		$	800,341		$	846,076		$	852,670
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt	$	847		$	823		$	877		$	868
Accounts payable	41,658			49,622			54,145			43,206
Salaries and wages	36,250			47,501			18,820			41,167
Other liabilities and accrued items	38,482			33,301			32,920			32,477
Income taxes	1,971			2,615			1,387			1,342
Unearned revenue	5,829			5,918			2,317			3,380
Liabilities held for sale							3,204			—
Total current liabilities	125,037			139,780			113,670			122,440
Other long-term liabilities	11,419			14,764			10,575			11,560
Operating lease liabilities	21,118			—			32,374			18,091
Finance lease liabilities	18,325			15,221			16,652			17,424
Retirement and post-employment benefits	30,663			38,853			31,444			32,466
Unearned income	30,354			32,563			39,091			32,891
Long-term income taxes	3,093			2,993			3,480			3,451
Deferred income taxes	383			195			1,186			2,410
Long-term debt	1,669			2,066			1,126			1,260
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 June 28 and December 31)	245,785			234,704
Common stock (no par value; 60,000 authorized shares, issued shares of 27,148 at March 27 and December 31)							253,967			249,674
Retained earnings	576,211			548,374			584,505			589,888
Common stock in treasury	(187,224		)	(175,426		)	(198,311		)	(186,845		)
Accumulated other comprehensive loss	(43,978		)	(58,234		)	(47,173		)	(45,462		)
Other equity	3,991			4,488			3,490			3,422
Total shareholders' equity	594,785			553,906			596,478			610,677
Total Liabilities and Shareholders’ Equity	$	836,846		$	800,341		$	846,076		$	852,670

See the notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended
June 28, June 29,
(Thousands) 2019 2018
Cash flows from operating activities:
Net income $ 32,446
$ 21,708
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, depletion, and amortization 22,607
18,349
Amortization of deferred financing costs in interest expense 472
514
Stock-based compensation expense (non-cash) 3,541
2,164
Deferred income tax expense 4,578
429
Pension curtailment charge 3,296
—
Changes in assets and liabilities:
Decrease (increase) in accounts receivable

(11,778 ) (12,060 )
Decrease (increase) in inventory 1,306
10,428
Decrease (increase) in prepaid and other current assets (588 ) 4,928
Increase (decrease) in accounts payable and accrued expenses (18,813 ) (14,189 )
Increase (decrease) in unearned revenue (88 ) 2,132
Increase (decrease) in interest and taxes payable

(1,130 ) 2,084
Domestic pension plan contributions (3,000 ) (13,000 )
Other-net (2,803 ) 5,817
Net cash provided by operating activities 30,046
29,304
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment (13,833 ) (17,153 )
Payments for mine development (1,591 ) (3,425 )
Proceeds from sale of property, plant, and equipment 15
27
Net cash used in investing activities (15,409 ) (20,551 )
Cash flows from financing activities:
Repayment of long-term debt (397 ) (383 )
Principal payments under finance lease obligations (599 ) (425 )
Cash dividends paid (4,368 ) (4,137 )
Repurchase of common stock (199 ) —
Payments of withholding taxes for stock-based compensation awards (4,763 ) (2,765 )
Net cash used in financing activities (10,326 ) (7,710 )
Effects of exchange rate changes (100 ) 8
Net change in cash and cash equivalents 4,211
1,051
Cash and cash equivalents at beginning of period 70,645
41,844
Cash and cash equivalents at end of period $ 74,856
$ 42,895



	Three Months Ended
	March 27,			March 29,
(Thousands)	2020			2019
Cash flows from operating activities:
Net (loss) income	$	(3,103	)	$	16,906
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation, depletion, and amortization	14,274			9,067
Amortization of deferred financing costs in interest expense	182			236
Stock-based compensation expense (non-cash)	1,492			1,547
Deferred income tax (benefit) expense	(1,227		)	371
Held-for-sale impairment charges	10,766			—
Changes in assets and liabilities:
Decrease (increase) in accounts receivable	11,049			(14,698		)
Decrease (increase) in inventory	(16,723		)	(9,561		)
Decrease (increase) in prepaid and other current assets	1,127			(556		)
Increase (decrease) in accounts payable and accrued expenses	(13,002		)	(16,030		)
Increase (decrease) in unearned revenue	(938		)	(724		)
Increase (decrease) in interest and taxes payable	368			2,525
Domestic pension plan contributions	—			(1,500		)
Other-net	4,865			(200		)
Net cash provided by (used in) operating activities	9,130			(12,617		)
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment	(14,789		)	(8,027		)
Payments for mine development	—			(1,352		)
Proceeds from sale of property, plant, and equipment	10			58
Net cash used in investing activities	(14,779		)	(9,321		)
Cash flows from financing activities:
Repayment of long-term debt	(142		)	(197		)
Principal payments under finance lease obligations	(233		)	(298		)
Cash dividends paid	(2,245		)	(2,125		)
Repurchase of common stock	(6,766		)	(199		)
Payments of withholding taxes for stock-based compensation awards	(2,015		)	(3,978		)
Net cash used in financing activities	(11,401		)	(6,797		)
Effects of exchange rate changes	(381		)	(46		)
Net change in cash and cash equivalents	(17,431		)	(28,781		)
Cash and cash equivalents at beginning of period	125,007			70,645
Cash and cash equivalents at end of period	$	107,576		$	41,864

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Consolidated Statements of Shareholders' Equity

(Unaudited)


	Common Shares				Shareholders' Equity																	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 Income (Loss)			Other Equity			Total			Common Shares		Common Shares Held in Treasury		Common Stock		Retained Earnings			Common Stock in Treasury			Accumulated Other Comprehensive Income (Loss)			Other Equity		Total
Balance at March 29, 2019	20,354		(6,794	)	$	241,480	$	562,941		$	(184,812	)	$	(57,270	)	$	4,538		$	566,877
Balance at December 31, 2018																						20,242		(6,906	)	$	234,704	$	548,374		$	(175,426	)	$	(58,234	)	$	4,488	$	553,906
Net income	—		—		—		15,540			—			—			—			15,540			—		—		—		16,906			—			—			—		16,906
Other comprehensive income (loss)	—		—		—		—			—			9,996			—			9,996			—		—		—		—			—			964			—		964
Pension curtailment	—		—		—		—			—			3,296			—			3,296
Cumulative effect of accounting change																						—		—		—		(179		)	—			—			—		(179		)
Cash dividends declared ($0.105 per share)																						—		—		—		(2,125		)	—			—			—		(2,125		)
Stock-based compensation activity																						192		192		6,759		(35		)	(5,177		)	—			—		1,547
Payments of withholding taxes for stock-based compensation awards																						(75	)	(75	)	—		—			(3,978		)	—			—		(3,978		)
Repurchase of shares																						(5	)	(5	)	—		—			(199		)	—			—		(199		)
Directors’ deferred compensation																						—		—		17		—			(32		)	—			50		35
Balance at March 29, 2019																						20,354		(6,794	)	$	241,480	$	562,941		$	(184,812	)	$	(57,270	)	$	4,538	$	566,877

Balance at December 31, 2019																						20,404		(6,744	)	$	249,674	$	589,888		$	(186,845	)	$	(45,462	)	$	3,422	$	610,677
Net loss																						—		—		—		(3,103		)	—			—			—		(3,103		)
Other comprehensive income (loss)																						—		—		—		—			—			(1,711		)	—		(1,711		)
Cash dividends declared ($0.11 per share)	—		—		—		(2,243		)	—			—			—			(2,243		)	—		—		—		(2,245		)	—			—			—		(2,245		)
Stock-based compensation activity	55		55		4,287		(27		)	(2,266		)	—			—			1,994			99		99		4,262		(35		)	(2,643		)	—			—		1,584
Payments of withholding taxes for stock-based compensation awards	(12	)	(12	)	—		—			(785		)	—			—			(785		)	(36	)	(36	)	—		—			(2,015		)	—			—		(2,015		)
Repurchase of shares	—		—		—		—			—			—			—			—			(158	)	(158	)	—		—			(6,766		)	—			—		(6,766		)
Directors’ deferred compensation	2		2		18		—			639			—			(547		)	110			1		1		31		—			(42		)	—			68		57
Balance at June 28, 2019	20,399		(6,749	)	$	245,785	$	576,211		$	(187,224	)	$	(43,978	)	$	3,991		$	594,785

Balance at March 30, 2018	20,191		(6,958	)	$	227,694	$	545,093		$	(171,574	)	$	(101,221	)	$	4,337		$	504,329
Net income	—		—		—		11,144			—			—			—			11,144
Other comprehensive income (loss)	—		—		—		—			—			1,540			—			1,540
Tax Cuts and Jobs Act Reclassification	—		—		—		(575		)	—			575			—			—
Cumulative effect of accounting change	—		—		—		—			—			—			—			—
Cash dividends declared ($0.105 per share)	—		—		—		(2,125		)	—			—			—			(2,125		)
Stock-based compensation activity	55		55		3,020		(14		)	(1,613		)	—			—			1,393
Payments of withholding taxes for stock-based compensation awards	(11	)	(11	)	—		—			(632		)	—			—			(632		)
Directors’ deferred compensation	1		2		49		—			(6		)	—			49			92
Balance at June 29, 2018	20,236		(6,912	)	$	230,763	$	553,523		$	(173,825	)	$	(99,106	)	$	4,386		$	515,741
Balance at March 27, 2020																						20,310		(6,838	)	$	253,967	$	584,505		$	(198,311	)	$	(47,173	)	$	3,490	$	596,478

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
Income (Loss) Other
Equity Total
Balance at December 31, 2018 20,242
(6,906 ) $ 234,704
$ 548,374
$ (175,426 ) $ (58,234 ) $ 4,488
$ 553,906
Net income —
—
—
32,446
—
—
—
32,446
Other comprehensive income (loss) —
—
—
—
—
10,960
—
10,960
Pension curtailment —
—
—
—
—
3,296
—
3,296
Cumulative effect of accounting change —
—
—
(179 ) —
—
—
(179 )
Cash dividends declared ($0.215 per share) —
—
—
(4,368 ) —
—
—
(4,368 )
Stock-based compensation activity 247
247
11,046
(62 ) (7,443 ) —
—
3,541
Payments of withholding taxes for stock-based compensation awards (87 ) (87 ) —
—
(4,763 ) —
—
(4,763 )
Repurchase of shares (5 ) (5 ) —
—
(199 ) —
—
(199 )
Directors’ deferred compensation 2
2
35
—
607
—
(497 ) 145
Balance at June 28, 2019 20,399
(6,749 ) $ 245,785
$ 576,211
$ (187,224 ) $ (43,978 ) $ 3,991
$ 594,785

Balance at December 31, 2017 20,107
(7,042 ) $ 223,484
$ 536,116
$ (166,128 ) $ (102,937 ) $ 4,446
$ 494,981
Net income —
—
—
21,708
—
—
—
21,708
Other comprehensive income (loss) —
—
—
—
—
3,256
—
3,256
Tax Cuts and Jobs Act Reclassification —
—
—
(575 ) —
575
—
—
Cumulative effect of accounting change —
—
—
425
—
—
—
425
Cash dividends declared ($0.205 per share) —
—
—
(4,137 ) —
—
—
(4,137 )
Stock-based compensation activity 181
181
7,220
(14 ) (5,042 ) —
—
2,164
Payments of withholding taxes for stock-based compensation awards (53 ) (53 ) —
—
(2,765 ) —
—
(2,765 )
Directors’ deferred compensation 1
2
59
—
110
—
(60 ) 109
Balance at June 29, 2018 20,236
(6,912 ) $ 230,763
$ 553,523
$ (173,825 ) $ (99,106 ) $ 4,386
$ 515,741

See notes to these consolidated financial statements.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note A — Accounting Policies

Basis of Presentation: In management’s opinion, 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 periods have been reclassified to conform to the ~~2019~~2020 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 ~~2018~~2019 Annual Report on Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year.

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

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

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

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

~~New Pronouncements Issued:~~ ~~In June 2016, the FASB issued ASU~~ 2016-13, Financial Instruments - Credit Losses. This ASU requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. The standard ~~will be~~is effective for fiscal years beginning after December 15, 2019, including interim periods within such fiscal years. Early adoption is permitted. The Company ~~is currently assessing~~adopted this guidance as of January 1, 2020, and the adoption did not have a material effect ~~that this ASU will have~~ on ~~its~~the Company’s consolidated financial ~~position, results of operations, and disclosures.~~statements.

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

Note B — Segment Reporting

The Company has the following reportable segments: Performance Alloys and Composites, Advanced Materials, Precision Coatings, and Other. The Company’s 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, 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, beryllium, and aluminum metal matrix composites, in rod, sheet, foil, and a variety of customized forms, beryllia ceramics, and bulk metallic glass materials.

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

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

The Other reportable segment includes unallocated corporate costs and assets.


(Thousands)	Performance Alloys and Composites		Advanced Materials		Precision Coatings		Other			Total		Performance Alloys and Composites		Advanced Materials		Precision Coatings			Other			Total
Second Quarter 2019
First Quarter 2020
Net sales	$	135,231	$	133,238	$	29,374	$	—		$	297,843	$	99,067	$	160,165	$	18,714		$	—		$	277,946
Intersegment sales	6		19,260		—		—			19,266		215		9,191		—			—			9,406
Operating profit (loss)	19,328		6,139		3,937		(6,654		)	22,750		4,791		4,785		(9,592		)	(4,547		)	(4,563		)
Second Quarter 2018
First Quarter 2019
Net sales	$	129,765	$	150,324	$	28,996	$	—		$	309,085	$	127,113	$	144,025	$	30,303		$	—		$	301,441
Intersegment sales	3		11,400		—		—			11,403		9		17,213		—			—			17,222
Operating profit (loss)	12,309		5,572		2,233		(4,922		)	15,192		18,958		7,080		2,077			(6,728		)	21,387

First Six Months 2019
Net sales	$	262,344	$	277,263	$	59,677	$	—		$	599,284
Intersegment sales	15		36,473		—		—			36,488
Operating profit (loss)	38,286		13,219		6,014		(13,382		)	44,137
First Six Months 2018
Net sales	$	248,001	$	303,869	$	60,682	$	—		$	612,552
Intersegment sales	31		23,052		—		—			23,083
Operating profit (loss)	22,170		11,470		5,608		(10,805		)	28,443

In the second quarter of 2019, the Company recategorized its end markets based on the ongoing refinement of its go-to-market strategy. The changes reflect new processes designed to enable the Company to better serve global customers and growth markets.

The following table disaggregates revenue for each segment by end market for the ~~second~~first quarter of 2020 and ~~first six months of 2019 and 2018, respectively:~~2019:

(Thousands)
Performance Alloys and Composites
Advanced Materials
Precision Coatings
Other
Total
Second Quarter 2019

End Market

Semiconductor
$ 1,303

$ 100,758

$ 93

$ —

$ 102,154
Industrial
28,585

7,704

3,842

—

40,131
Aerospace and Defense
26,046

1,125

4,750

—

31,921
Consumer Electronics
22,663

500

4,430

—

27,593
Automotive
16,564

1,669

365

—

18,598
Energy
11,303

16,027

—

—

27,330
Telecom and Data Center
18,244

713

—

—

18,957
Other
10,523

4,742

15,894

—

31,159
Total
$ 135,231

$ 133,238

$ 29,374

$ —

$ 297,843

Second Quarter 2018

End Market

Semiconductor
$ 1,299

$ 118,525

$ 428

$ —

$ 120,252
Industrial
28,974

7,951

3,171

—

40,096
Aerospace and Defense
25,964

1,010

4,960

—

31,934
Consumer Electronics
16,150

174

5,021

—

21,345
Automotive
23,236

1,804

469

—

25,509
Energy
9,825

12,069

—

—

21,894
Telecom and Data Center
17,784

566

—

—

18,350
Other
6,533

8,225

14,947

—

29,705
Total
$ 129,765

$ 150,324

$ 28,996

$ —

$ 309,085


(Thousands)	Performance Alloys and Composites		Advanced Materials		Precision Coatings		Other		Total		Performance Alloys and Composites		Advanced Materials		Precision Coatings		Other		Total
First Six Months 2019
First Quarter 2020
End Market
Semiconductor	$	3,268	$	205,125	$	205	$	—	$	208,598	$	906	$	120,819	$	11	$	—	$	121,736
Industrial	55,015		15,635		7,992		—		78,642		23,340		8,362		3,097		—		34,799
Aerospace and Defense	53,120		2,618		9,622		—		65,360		14,206		1,426		5,109		—		20,741
Consumer Electronics	36,218		705		7,916		—		44,839		14,695		118		3,541		—		18,354
Automotive	37,277		3,023		587		—		40,887		18,163		2,080		17		—		20,260
Energy	22,397		38,190		—		—		60,587		5,429		23,468		—		—		28,897
Telecom and Data Center	35,836		914		—		—		36,750		9,989		871		—		—		10,860
Other	19,213		11,053		33,355		—		63,621		12,339		3,021		6,939		—		22,299
Total	$	262,344	$	277,263	$	59,677	$	—	$	599,284	$	99,067	$	160,165	$	18,714	$	—	$	277,946

First Six Months 2018
First Quarter 2019
End Market
Semiconductor	$	2,387	$	226,842	$	971	$	—	$	230,200	$	1,965	$	105,090	$	112	$	—	$	107,167
Industrial	58,577		15,416		5,899		—		79,892		26,430		7,928		4,150		—		38,508
Aerospace and Defense	44,246		2,020		9,644		—		55,910		27,074		1,493		4,871		—		33,438
Consumer Electronics	31,455		626		9,291		—		41,372		13,555		205		3,486		—		17,246
Automotive	46,773		4,184		691		—		51,648		20,713		1,353		221		—		22,287
Energy	17,612		33,480		—		—		51,092		11,094		22,197		—		—		33,291
Telecom and Data Center	32,647		1,031		—		—		33,678		17,592		202		—		—		17,794
Other	14,304		20,270		34,186		—		68,760		8,690		5,557		17,463		—		31,710
Total	$	248,001	$	303,869	$	60,682	$	—	$	612,552	$	127,113	$	144,025	$	30,303	$	—	$	301,441

Intersegment sales are eliminated in consolidation.

Note C — Revenue Recognition

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

Transaction Price Allocated to Future Performance Obligations: Accounting Standards Codification (ASC) 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 ~~June 28, 2019.~~March 27, 2020. Remaining performance obligations include ~~noncancelable~~non-cancelable purchase orders and customer contracts. The guidance provides certain practical expedients that limit this requirement. As such, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

After considering the practical expedient at ~~June 28, 2019,~~March 27, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately ~~$19.6~~$37.0 million.

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)	June 28, 2019		December 31, 2018		$ change			% change		March 27, 2020		December 31, 2019		$ change			% change
Accounts receivable, trade	$	132,493	$	124,498	$	7,995		6	%	$	129,139	$	141,168	$	(12,029	)	(9	)%
Unbilled receivables	9,430		4,619		4,811			104	%	9,265		13,583		(4,318		)	(32	)%
Unearned revenue	5,829		5,918		(89		)	(2	)%	2,317		3,380		(1,063		)	(31	)%

Accounts receivable, trade represents payments due from customers relating to the transfer of the Company’s products and services. The Company believes that its receivables are collectible and appropriate allowances for doubtful accounts have been recorded. Impairment losses (bad debt) incurred relating to our receivables were immaterial during the ~~second~~first quarter ~~and first six months~~ of ~~2019.~~2020.

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

Unearned revenue is recorded for consideration received from customers in advance of satisfaction of the related performance obligations. The Company recognized approximately ~~$5.0~~$2.1 million of the unearned amounts as revenue during the first ~~six months~~quarter of ~~2019.~~2020.

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

Note D — Other-net

Other-net ~~expense~~ for the ~~second~~first quarter of 2020 and ~~first six months of of~~ 2019 ~~and 2018~~ is summarized as follows:


	Second Quarter Ended						Six Months Ended						First Quarter Ended
	June 28,			June 29,			June 28,			June 29,			March 27,			March 29,
(Thousands)	2019			2018			2019			2018			2020			2019
Metal consignment fees	$	2,225		$	2,588		$	5,316		$	5,017		$	2,229		$	3,091
Amortization of intangible assets	368			561			758			1,334			188			390
Foreign currency loss	307			1,230			384			1,219
Net loss (gain) on disposal of fixed assets	118			(3		)	142			23
Rental income	(29		)	(134		)	(58		)	(260		)
Foreign currency (gain) loss													(62		)	77
Net loss on disposal of fixed assets													46			24
Other items	(98		)	71			470			(96		)	(122		)	539
Total	$	2,891		$	4,313		$	7,012		$	7,237		$	2,279		$	4,121

Note E — Restructuring

In the first quarter of 2020, the Company initiated a restructuring plan in its Performance Alloys and Composites (PAC) segment to close its Warren, Michigan and Fremont, California locations. Costs associated with the plan totaled $2.2 million in the first quarter of 2020 and included $0.5 million of severance associated with approximately 63 employees, $1.3 million of facility and other related costs.

Remaining severance payments of $0.5 million and facility costs of $1.3 million related to these initiatives are reflected within Other liabilities and accrued items in the Consolidated Balance Sheets. The Company expects to incur additional costs related to these initiatives of approximately $6 million in the remainder of 2020.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note F — Income Taxes

The Company's effective tax rate for the ~~second~~first quarter of 2020 and 2019 was 19.7% and ~~2018 was 18.8% and 20.9%~~18.2%, ~~respectively, and 18.5% and 17.0% for the first six months of 2019 and 2018,~~ respectively. The effective tax rate for each period is lower than the statutory tax rate primarily due to the impact of percentage depletion and the research and development credit. ~~Additionally, the~~The effective tax rate for the first ~~six months~~quarter of 2020 included discrete income tax expense of $0.2 million, primarily related to $0.7 million of tax expense from an impairment of goodwill and $0.4 million of tax benefit related to excess tax benefits from stock-based compensation awards. The effective tax rate for the first quarter of 2019 included a ~~net~~ discrete income tax benefit of ~~$0.5~~$0.9 million, primarily related to excess tax benefits from stock-based ~~compensation.~~compensation awards.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act. The ~~effective~~CARES Act, among other things, includes provisions relating to refundable payroll tax ~~rate~~credits, deferment of employer social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, and modifications to the net interest deduction limitations. While the Company continues to examine the impacts the CARES Act may have on its business, it does not expect it will have a material impact to its consolidated financial statements.

Note G — (Loss) Earnings Per Share (EPS)

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



	First Quarter Ended
	March 27,			March 29,
(Thousands, except per share amounts)	2020			2019
Numerator for basic and diluted EPS:
Net (loss) income	$	(3,103	)	$	16,906
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding	20,384			20,267
Effect of dilutive securities:
Stock appreciation rights	—			107
Restricted stock units	—			83
Performance-based restricted stock units	—			149
Diluted potential common shares	—			339
Denominator for diluted EPS:
Adjusted weighted-average shares outstanding	20,384			20,606
Basic EPS	$	(0.15	)	$	0.83
Diluted EPS	$	(0.15	)	$	0.82

Adjusted weighted-average shares outstanding - diluted for the ~~first six~~three months ended March 27, 2020 excludes the dilutive effect of ~~2018 included a net discrete income tax benefit of $1.0 million,~~approximately 239,000 shares, primarily related to ~~Staff Accounting Bulletin (SAB) No. 118 adjustments.~~restricted stock units and stock appreciation rights, as their inclusion would have been anti-dilutive due to the Company's net loss.

Additionally, weighted average shares outstanding - diluted exclude securities totaling 302,573 and 201,394 for the quarters ended March 27, 2020 and March 29, 2019, respectively. These securities primarily related to restricted stock units and stock appreciation rights with fair market values and exercise prices less than the average market price of the Company's common shares and were excluded from the dilution calculation as the effect would have been anti-dilutive.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note ~~F — Earnings Per Share (EPS)~~

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

Second Quarter Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Thousands, except per share amounts) 2019 2018 2019 2018
Numerator for basic and diluted EPS:
Net income $ 15,540
$ 11,144
$ 32,446
$ 21,708
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding 20,383
20,221
20,326
20,178
Effect of dilutive securities:
Stock appreciation rights 76
166
92
185
Restricted stock units 76
75
77
85
Performance-based restricted stock units 131
131
140
135
Diluted potential common shares 283
372
309
405
Denominator for diluted EPS:

Adjusted weighted-average shares outstanding 20,666
20,593
20,635
20,583
Basic EPS $ 0.76
$ 0.55
$ 1.60
$ 1.08
Diluted EPS $ 0.75
$ 0.54
$ 1.57
$ 1.05

Securities totaling 84,509 and 65,112 for the quarters ended June 28, 2019 and June 29, 2018, respectively, and 144,154 and 65,112 for the six months ended June 28, 2019 and June 29, 2018, respectively, were excluded from the dilution calculation as their effect would have been anti-dilutive.

~~Note G~~H — Inventories

Inventories on the Consolidated Balance Sheets are summarized as follows:


	June 28,		December 31,		March 27,		December 31,
(Thousands)	2019		2018		2020		2019
Raw materials and supplies	$	38,425	$	33,182	$	46,843	$	35,612
Work in process	190,428		195,879		180,123		177,780
Finished goods	32,062		30,643		26,144		25,506
Subtotal	$	260,915	$	259,704	$	253,110	$	238,898
Less: LIFO reserve balance	47,586		44,833		48,408		48,508
Inventories	$	213,329	$	214,871	$	204,702	$	190,390

The liquidation of last in, first out (LIFO) inventory layers ~~increased~~had 0 impact to cost of sales ~~by $0.1 million~~ in the ~~second~~first quarter ~~and first six months~~ of ~~both 2019 and 2018.~~2020 or 2019.

The Company maintains the majority of the precious metals and copper used in production on a consignment basis in order to reduce our exposure to metal price movements and to reduce our working capital investment. The notional value of off-balance sheet precious metals and copper was ~~$295.7~~$338.5 million as of ~~June 28, 2019~~March 27, 2020 versus ~~$316.1~~$309.3 million as of December 31, ~~2018.~~2019.

Note I — Held for Sale

As of March 27, 2020, the Company committed to a plan to sell its Large Area Coatings (LAC) reporting unit within the Precision Coatings segment and determined that it met the criteria to be classified as held for sale. Therefore, its assets and liabilities have been presented as held for sale in the Consolidated Balance Sheet as of March 27, 2020. Assets and liabilities classified as held for sale are measured at the lower of carrying value or fair value less costs to sell. The Company entered into a letter of intent to sell the LAC reporting unit in March 2020.

Before measuring the fair value less costs to sell of the disposal group as a whole, the Company first reviewed individual assets and liabilities to determine if any fair value adjustments were required. Based on the letter of intent entered into by the Company and the prospective buyer, the Company recorded a goodwill impairment charge of $9.1 million to write-off the remaining balance of goodwill for the LAC reporting unit. The Company determined fair value based on its expected proceeds to be received, which it concluded is most representative of the value of the assets.

The Company then estimated the fair value of the disposal group as a whole, less costs to sell, and compared the fair value to the remaining carrying value. Based on this review, the Company recorded an additional $1.7 million asset impairment loss.

The assets and liabilities of the LAC reporting unit classified as held for sale at March 27, 2020 were as follows:



(Thousands)
Accounts receivable, net	$	3,902
Inventories, net	1,650
Prepaid and other current assets	56
Property, plant, and equipment - net	2,516
Operating lease, right-of-use assets	777
Impairment on carrying value	$	(1,713	)
Assets held for sale	$	7,188

Accounts payable	$	1,528
Salaries and wages	236
Other liabilities and accrued items	808
Operating lease liabilities	588
Other long term liabilities	44
Liabilities held for sale	$	3,204

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

~~Note H — Leases~~The pending transaction is subject to the entry into a definitive agreement and customary closing conditions and is expected to close no later than the third quarter of 2020.

~~The Company leases warehouse~~Excluding the $9.1 million goodwill impairment charge and ~~manufacturing real estate, and manufacturing and computer equipment under~~$1.7 million asset impairment charge recorded in the first quarter of 2020, the operating ~~leases with lease terms ranging up to 25 years. Several operating lease agreements contain options to extend the lease term and/or options for early termination. The lease term consists~~results of the ~~non-cancelable period of the lease, periods covered by options~~LAC reporting unit were not material to ~~extend the lease if~~ the Company is reasonably certain to exercise the option, and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise the option. The weighted average remaining lease term for ~~the Company's operating and finance leases as of June 28, 2019 was 5.09 years and 19.87 years, respectively.~~any period presented.

Note J — Goodwill

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



(Thousands)	Performance Alloys and Composites		Advanced Materials			Precision Coatings			Total
Balance at December 31, 2019	$	1,899	$	50,190		$	26,922		$	79,011
Impairment charge	—		—			(9,053		)	(9,053		)
Other	—		(126		)	—			(126		)
Balance at March 27, 2020	$	1,899	$	50,064		$	17,869		$	69,832

Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The ~~discount rate implicit within~~Company conducts its annual goodwill impairment assessment as of the ~~leases~~first day of the fourth quarter, or more frequently under certain circumstances. Goodwill is ~~generally not determinable, and, therefore,~~assigned to the reporting unit, which is the operating segment level or one level below the operating segment.

To date the Company ~~determines~~has recorded $20.6 million of impairment charges related to goodwill in the ~~discount rate based on its incremental borrowing rate. The incremental borrowing rate~~LAC reporting unit. See Note I for leases is determined based on the lease term in which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure the Company's operating and finance lease liabilities as of June 28, 2019 was 5.55% and 5.31%, respectively.additional information.

Note K — Customer Prepayments

As of the end of the first quarter of 2020, the Company has received $11.8 million of prepayments from a customer to enable the Company to establish a new manufacturing facility to supply product to the customer. The ~~components~~Company expects to finalize a long-term supply agreement later this year. The prepayments from the customer are expected to be applied when commercial production of ~~operating~~the product is sold and ~~finance lease~~delivered to the customer. Accordingly, the $11.8 million of prepayments are classified as Unearned Income in the Consolidated Balance Sheet, and the liability is expected to be settled as commercial shipments are made.

Note L — Pensions and Other Post-employment Benefits

The following is a summary of the net periodic benefit cost for the ~~second~~first quarter of 2020 and ~~first six months of~~ 2019 ~~were as follows:~~for the domestic pension plans (which include the defined benefit pension plan and the supplemental retirement plans) and the domestic retiree medical plan.

Second Quarter Ended Six Months Ended
June 28, June 28,
(Thousands) 2019 2019
Components of lease expense
Operating lease cost $ 2,291
$ 5,003

Finance lease cost
Amortization of right-of-use assets 354
710
Interest on lease liabilities 259
522
Total lease cost $ 2,904
$ 6,235



	Pension Benefits						Other Benefits
	First Quarter Ended						First Quarter Ended
	March 27,			March 29,			March 27,			March 29,
(Thousands)	2020			2019			2020			2019
Components of net periodic benefit cost (benefit)
Service cost	$	—		$	1,340		$	15		$	17
Interest cost	1,215			1,557			53			100
Expected return on plan assets	(2,205		)	(2,123		)	—			—
Amortization of prior service cost (benefit)	—			120			(374		)	(374		)
Amortization of net loss (gain)	284			804			(83		)	(23		)
Net periodic benefit (benefit) cost	$	(706	)	$	1,698		$	(389	)	$	(280	)

Operating lease expense amounted to $2.3 million and $3.0 million during the second quarter of 2019 and 2018, respectively, and $5.0 million and $6.1 million during the first six months of 2019 and 2018, respectively. The Company straight-lines its expense of fixed payments for operating leases over the lease term and expenses the variable lease payments in the period incurred. These variable lease payments are not included in the calculation of right-of-use assets or lease liabilities.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

~~Supplemental balance sheet information related to the Company's operating and finance leases as of June 28, 2019 was as follows:~~

June 28,
(Thousands) 2019
Supplemental balance sheet information

Operating Leases
Operating lease right-of-use assets $ 26,788
Other liabilities and accrued items 6,927
Operating lease liabilities 21,118

Finance Leases
Property, plant, and equipment $ 26,330
Allowances for depreciation, depletion, and amortization (3,140 )
Finance lease assets, net $ 23,190
Other liabilities and accrued items $ 1,238
Finance lease liabilities 18,325
Total principal payable on finance leases $ 19,563

~~Future maturities of the Company's lease liabilities as of June 28, 2019 are as follows:~~

Finance Operating
(Thousands) Leases Leases
2019 $ 1,122
$ 4,201
2020 2,244
7,618
2021 2,244
6,619
2022 2,244
4,727
2023 1,534
3,818
2024 and thereafter 22,414
5,148
Total lease payments 31,802
32,131
Less amount of lease payment representing interest 12,239
4,086
Total present value of lease payments

$ 19,563
$ 28,045

~~Supplemental cash flow information related to leases for the first six months of 2019 was as follows:~~

Six Months Ended
June 28,
(Thousands) 2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 7,710
Operating cash flows from finance leases 522
Financing cash flows from finance leases 599

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Note I — Pensions and Other Post-employment Benefits~~

The following is a summary of the net periodic benefit cost for the second quarter of 2019 and 2018 for the domestic pension plans (which include the defined benefit pension plan and the supplemental retirement plans) and the domestic retiree medical plan.

Pension Benefits
Other Benefits

Second Quarter Ended
Second Quarter Ended

June 28,
June 29,
June 28,
June 29,
(Thousands)
2019
2018
2019
2018
Components of net periodic benefit cost (benefit)

Service cost
$ 1,418

$ 1,674

$ 18

$ 28
Interest cost
1,347

2,397

99

99
Expected return on plan assets
(2,167 )
(3,697 )
—

—
Amortization of prior service benefit
122

(30 )
(375 )
(374 )
Amortization of net loss (gain)
627

1,959

(23 )
—
Pension curtailment charge 3,296
—
—
—
Net periodic benefit cost (benefit)
$ 4,643

$ 2,303

$ (281 )
$ (247 )

Pension Benefits Other Benefits
Six Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(Thousands) 2019 2018 2019 2018
Components of net periodic benefit cost (benefit)
Service cost $ 2,758
$ 3,348
$ 35
$ 56
Interest cost 2,904
4,794
199
198
Expected return on plan assets (4,290 ) (7,394 ) —
—
Amortization of prior service benefit 242
(61 ) (749 ) (749 )
Amortization of net loss (gain) 1,431
3,919
(46 ) —
Pension curtailment charge 3,296
—
—
—
Net periodic benefit cost (benefit) $ 6,341
$ 4,606
$ (561 ) $ (495 )

The Company ~~made~~did not make any contributions to ~~the~~its domestic defined benefit ~~pension~~ plan in the first quarter of ~~$3.0 million~~2020 and ~~$13.0~~made contributions of $1.5 million in the ~~six months~~first quarter of ~~2019 and 2018, respectively.~~2019.

The Company reports the service cost component of net periodic benefit cost in the same line item as other compensation costs in operating expenses and the non-service cost components of net periodic benefit cost in Other non-operating ~~expenses.~~(income) expense.

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

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Note JM — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the ~~second~~first quarter of ~~2019~~2020 and ~~2018 and first six months of~~ 2019 ~~and 2018~~ are as follows:


	Gains and Losses on Cash Flow Hedges																					Gains and Losses on Cash Flow Hedges
(Thousands)	Foreign Currency			Precious Metals			Copper			Total			Pension and Post-Employment Benefits			Foreign Currency Translation			Total			Foreign Currency			Precious Metals			Copper			Total			Pension and Post-Employment Benefits			Foreign Currency Translation			Total
Balance at March 29, 2019	$	1,663		$	(24	)	$	189		$	1,828		$	(54,003	)	$	(5,095	)	$	(57,270	)
Other comprehensive income before reclassifications	(269		)	(563		)	(580		)	(1,412		)	14,224			339			13,151
Balance at December 31, 2019																						$	1,324		$	(452	)	$	25		$	897		$	(41,346	)	$	(5,013	)	$	(45,462	)
Other comprehensive (loss) income before reclassifications																						(142		)	(823		)	(778		)	(1,743		)	—			(873		)	(2,616		)
Amounts reclassified from accumulated other comprehensive income	(46		)	(1		)	163			116			3,781			—			3,897			(1		)	318			321			638			(24		)	—			614
Net current period other comprehensive income (loss) before tax	(315		)	(564		)	(417		)	(1,296		)	18,005			339			17,048			(143		)	(505		)	(457		)	(1,105		)	(24		)	(873		)	(2,002		)
Deferred taxes	(72		)	(130		)	(94		)	(296		)	4,052			—			3,756			(33		)	(116		)	(102		)	(251		)	(40		)	—			(291		)
Net current period other comprehensive income (loss) after tax	(243		)	(434		)	(323		)	(1,000		)	13,953			339			13,292			(110		)	(389		)	(355		)	(854		)	16			(873		)	(1,711		)
Balance at June 28, 2019	$	1,420		$	(458	)	$	(134	)	$	828		$	(40,050	)	$	(4,756	)	$	(43,978	)
Balance at March 27, 2020																						$	1,214		$	(841	)	$	(330	)	$	43		$	(41,330	)	$	(5,886	)	$	(47,173	)

Balance at March 30, 2018	$	326		$	(238	)	$	—		$	88		$	(98,314	)	$	(2,995	)	$	(101,221	)
Balance at December 31, 2018																						$	1,263		$	79		$	(441	)	$	901		$	(54,543	)	$	(4,592	)	$	(58,234	)
Other comprehensive income (loss) before reclassifications	871			635			—			1,506			—			(944		)	562			517			(73		)	884			1,328			—			(503		)	825
Amounts reclassified from accumulated other comprehensive income	42			23			—			65			1,622			—			1,687			2			(61		)	(71		)	(130		)	660			—			530
Net current period other comprehensive income (loss) before tax	913			658			—			1,571			1,622			(944		)	2,249			519			(134		)	813			1,198			660			(503		)	1,355
Deferred taxes	(343		)	151			—			(192		)	326			—			134			119			(31		)	183			271			120			—			391
Net current period other comprehensive income (loss) after tax	1,256			507			—			1,763			1,296			(944		)	2,115			400			(103		)	630			927			540			(503		)	964
Balance at June 29, 2018	$	1,582		$	269		$	—		$	1,851		$	(97,018	)	$	(3,939	)	$	(99,106	)
Balance at March 29, 2019																						$	1,663		$	(24	)	$	189		$	1,828		$	(54,003	)	$	(5,095	)	$	(57,270	)

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

Gains and Losses on Cash Flow Hedges
(Thousands) Foreign Currency Precious Metals Copper Total Pension and Post-Employment Benefits Foreign Currency Translation Total
Balance at December 31, 2018 $ 1,263
$ 79
$ (441 ) $ 901
$ (54,543 ) $ (4,592 ) $ (58,234 )
Other comprehensive income before reclassifications 248
(636 ) 304
(84 ) 14,224
(164 ) 13,976
Amounts reclassified from accumulated other comprehensive income (44 ) (62 ) 92
(14 ) 4,441
—
4,427
Net current period other comprehensive income (loss) before tax 204
(698 ) 396
(98 ) 18,665
(164 ) 18,403
Deferred taxes 47
(161 ) 89
(25 ) 4,172
—
4,147
Net current period other comprehensive income (loss) after tax 157
(537 ) 307
(73 ) 14,493
(164 ) 14,256
Balance at June 28, 2019 $ 1,420
$ (458 ) $ (134 ) $ 828
$ (40,050 ) $ (4,756 ) $ (43,978 )

Balance at December 31, 2017 $ 959
$ (196 ) $ —
$ 763
$ (99,592 ) $ (4,108 ) $ (102,937 )
Other comprehensive income (loss) before reclassifications (327 ) 444
—
117
—
169
286
Amounts reclassified from accumulated other comprehensive income 419
159
—
578
3,248
—
3,826
Net current period other comprehensive income (loss) before tax 92
603
—
695
3,248
169
4,112
Deferred taxes (531 ) 138
—
(393 ) 674
—
281
Net current period other comprehensive income (loss) after tax 623
465
—
1,088
2,574
169
3,831
Balance at June 29, 2018 $ 1,582
$ 269
$ —
$ 1,851
$ (97,018 ) $ (3,939 ) $ (99,106 )

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

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

1613

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Note KN — Stock-based Compensation Expense

Stock-based compensation expense, which includes awards settled in shares and in cash, was ~~$3.5~~$1.0 million and ~~$6.2~~$2.7 million in the ~~second~~first quarter of 2020 and ~~first six months of~~ 2019, ~~respectively, compared to $2.7 million and $5.2 million in same periods of 2018.~~respectively.

The Company granted ~~73,461~~64,636 stock appreciation rights (SARs) to certain employees during the first ~~six~~three months of ~~2019.~~2020. The weighted-average exercise price per share and weighted-average fair value per share of the SARs granted during the ~~six~~three months ended ~~June 28, 2019~~March 27, 2020 were ~~$58.30~~$50.95 and ~~$17.76,~~$13.67, 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	~~2.47~~1.41	%
Dividend yield	~~0.7~~0.9	%
Volatility	~~31.7~~31.8	%
Expected term (in years)	~~5.2~~4.8

The Company granted ~~63,665~~60,652 stock-settled restricted stock units (RSUs) to certain employees ~~and 11,048 stock-settled RSUs to non-employee directors~~ during the first ~~six~~three months of ~~2019.~~2020. 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 ~~$58.30 and $68.79~~$49.53 for stock-settled RSUs granted to employees ~~and non-employee directors, respectively,~~ during the ~~six~~three months ended ~~June 28, 2019~~.March 27, 2020. RSUs are expensed over the vesting period of three ~~years for employees and one year for non-employee directors.~~years.

The Company granted stock-settled performance-based restricted stock units (PRSUs) to certain employees in the first ~~six~~three months of ~~2019.~~2020. The weighted-average fair value of the stock-settled PRSUs was ~~$69.84~~$57.65 per share and will be expensed over the vesting period of three years. The final payout to the employees for all PRSUs will be based upon the Company’s return on invested capital and the total return to shareholders over the vesting period relative to a peer group’s performance over the same period.

At ~~June 28, 2019~~,March 27, 2020, unamortized compensation cost related to the unvested portion of all stock-based awards was approximately ~~$13.6~~$13.7 million, and is expected to be recognized over the remaining vesting period of the respective grants.

Note LO — 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.

1714

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 ~~June 28, 2019~~March 27, 2020 and December 31, ~~2018:~~2019:



(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)				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)	2019		2018		2019		2018		2019		2018		2019		2018		2020		2019		2020		2019		2020		2019		2020		2019
Financial Assets
Deferred compensation investments	$	3,121	$	2,156	$	3,121	$	2,156	$	—	$	—	$	—	$	—	$	2,719	$	3,391	$	2,719	$	3,391	$	—	$	—	$	—	$	—
Foreign currency forward contracts	119		246		—		—		119		246		—		—		175		188		—		—		175		188		—		—
Precious metal swaps	—		237		—		—		—		237		—		—		—		35		—		—		—		35		—		—
Copper swaps	9		—		—		—		9		—		—		—		—		61		—		—		—		61		—		—
Total	$	3,249	$	2,639	$	3,121	$	2,156	$	128	$	483	$	—	$	—	$	2,894	$	3,675	$	2,719	$	3,391	$	175	$	284	$	—	$	—
Financial Liabilities
Deferred compensation liability	$	3,121	$	2,156	$	3,121	$	2,156	$	—	$	—	$	—	$	—	$	2,719	$	3,391	$	2,719	$	3,391	$	—	$	—	$	—	$	—
Foreign currency forward contracts	121		432		—		—		121		432		—		—		438		211		—		—		438		211		—		—
Precious metal swaps	596		135		—		—		596		135		—		—		1,093		623		—		—		1,093		623		—		—
Copper swaps	182		569		—		—		182		569		—		—		424		28		—		—		424		28		—		—
Total	$	4,020	$	3,292	$	3,121	$	2,156	$	899	$	1,136	$	—	$	—	$	4,674	$	4,253	$	2,719	$	3,391	$	1,955	$	862	$	—	$	—

The Company uses a market approach to value the assets and liabilities for financial instruments in the table above. Outstanding contracts are valued through models that utilize market observable inputs, including both spot and forward prices, for the same underlying currencies and metals. The carrying values of the other working capital items and debt in the Consolidated Balance Sheets approximate fair values as of ~~June 28, 2019~~March 27, 2020 and December 31, ~~2018.~~2019. 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 MP — Derivative Instruments and Hedging Activity

The Company uses derivative contracts to hedge portions of its 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:

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 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.

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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,

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

forecasts, and other internal data, and determines the timing, amounts, and 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~~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 precious metal product is fabricated and ready for shipment to the customer, the metal is purchased out of consignment at the current market price. The price paid by the Company forms the basis for the price charged to the customer. This methodology allows for changes in either direction in the market prices of the precious metals used by the Company to be passed through to the customer and reduces the impact changes in prices could have on the Company's margins and operating profit. The consigned metal is owned by financial institutions that charge the Company a financing fee based upon the current value of the metal on hand.

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

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

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.

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

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

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.

All derivatives are recorded on the balance sheet at fair value. If the derivative is designated and effective as a cash flow hedge, changes in the fair value of the derivative are recognized in other comprehensive income (OCI) until the hedged item is recognized in earnings. The ineffective portion of a derivative's fair value, if any, is recognized in earnings immediately. If a derivative is not a hedge, changes in the fair value are adjusted through income. The fair values of the outstanding derivatives are recorded

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

on the balance sheet as assets (if the derivatives are in a gain position) or liabilities (if the derivatives are in a loss position). The fair values will also be classified as short-term or long-term depending upon their maturity dates.

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following table summarizes the notional amount and the fair value of the Company’s outstanding derivatives not designated as hedging instruments (on a gross basis) and balance sheet classification as of ~~June 28, 2019~~March 27, 2020 and December 31, ~~2018:~~2019:


	June 28, 2019				December 31, 2018				March 27, 2020				December 31, 2019
(Thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Foreign currency forward contracts - euro
Foreign currency forward contracts
Prepaid expenses	$	2,421	$	27	$	8,767	$	244	$	1,297	$	3	$	13,734	$	95
Other liabilities and accrued items	3,836		52		8,771		249		12,471		21		5,757		16

These outstanding foreign currency derivatives were related to balance sheet hedges and intercompany loans. Other-net included no$0.6 million of foreign currency ~~impact~~gains relating to these derivatives during ~~both the second quarter and~~ the first ~~six months~~quarter of ~~2019~~2020 and included ~~$1.6 million and $1.1 million of~~0 foreign currency ~~gains during~~impact in the ~~second~~first quarter ~~and first six months~~ of ~~2018, respectively.~~2019.

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 ~~June 28, 2019~~March 27, 2020 and December 31, ~~2018:~~2019:


	June 28, 2019				December 31, 2018				March 27, 2020				December 31, 2019
(Thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Prepaid expenses
Foreign currency forward contracts - yen	$	1,465	$	9	$	—	$	—	$	807	$	16	$	1,025	$	10
Foreign currency forward contracts - euro	7,475		83		725		2		12,434		156		3,466		83
Precious metal swaps	—		—		4,533		237		—		—		1,116		34
Copper swaps	977		9		—		—		—		—		1,951		61
Total	9,917		101		5,258		239		13,241		172		7,558		188

Other assets
Precious metal swaps									—		—		157		1

Other liabilities and accrued items
Foreign currency forward contracts - yen	2,065		35		1,264		17		2,780		32		2,355		12
Foreign currency forward contracts - euro	7,459		34		19,158		166		6,956		328		15,686		183
Precious metal swaps	6,828		573		2,864		135		8,441		1,093		7,034		618
Copper swaps	4,359		182		11,170		569		3,140		424		1,266		28
Total	20,711		824		34,456		887		21,317		1,877		26,341		841

Other long-term liabilities
Foreign currency forward contracts - yen									109		4		—		—
Foreign currency forward contracts - euro									1,075		53		—		—
Precious metal swaps	697		23		—		—		—		—		149		5
Total	$	31,325	$	746	$	39,714	$	648	1,184		57		149		5

Total									$	35,742	$	1,762	$	34,205	$	657

Materion Corporation and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

All of these contracts were designated and effective as cash flow hedges. The Company expects to relieve substantially the entire balance in OCI as of ~~June 28, 2019~~March 27, 2020 to the Consolidated Statements of Income within the next 15-month period. Refer to Note JM for additional OCI details.

~~Materion Corporation and Subsidiaries~~

~~Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

The following table summarizes the amounts reclassified from accumulated other comprehensive income relating to the hedging relationship of the Company’s outstanding derivatives designated as cash flow hedges and income statement classification as of the ~~second~~first quarter ~~and first six months~~ of of2020 and 2019:


		Second Quarter Ended			Six Months ended				First Quarter Ended			First Quarter Ended
(Thousands)		June 28, 2019			June 28, 2019				March 27, 2020			March 29, 2019
Hedging relationship	Line item							Line item
Foreign currency forward contracts	Net sales	(46		)	(44		)	Net sales	$	(1	)	$	2
Precious metal swaps	Cost of sales	(1		)	(62		)	Cost of sales	318			(61		)
Copper swaps	Cost of sales	163			92			Cost of sales	321			(71		)
Total		$	116		$	(14	)		$	638		$	(130	)

Note NQ — Contingencies

Legal Proceedings. For general information regarding legal proceedings relating to Chronic Beryllium Disease Claims, refer to Note SR ("Contingencies and Commitments") in the Company's ~~2018~~2019 Annual Report on Form 10-K.

One beryllium case was filed in 2019 and was outstanding as of March 27, 2020. The Company does not expect the resolution of this matter to have a material impact on the consolidated financial statements.

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 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.

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 ~~$6.2~~$5.8 million and ~~$6.5~~$5.9 million at ~~June 28, 2019~~March 27, 2020 and December 31, ~~2018,~~2019, respectively. Environmental projects tend to be long-term, and the final actual remediation costs may differ from the amounts currently recorded.



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, energy, and telecom and data center.

2118

Coronavirus (COVID-19) First Quarter 2020 Update

The significant macroeconomic impact of the ongoing COVID-19 pandemic impacted several of the Company’s end markets beginning in the first quarter of 2020 primarily in the form of reduced demand, particularly in the automotive, energy, aerospace and defense, and industrial end markets. The Company also recorded additional reserves for slow-moving and excess inventory of approximately $1.3 million related to the collapse in demand in the oil and gas industry. The Company also reviewed for any other potential impairment indicators and did not identify any. The Company’s facilities continue to operate with federal and state government approvals due to the qualification of our facilities as essential and critical. However, we may temporarily shut down our facilities in response to reduced demand due to employees being impacted by COVID-19 or changes in government policy. The Company also is not currently experiencing any significant supply chain disruptions. We expect reduced demand to continue at least through the second quarter of 2020, but the extent and timing cannot be reasonably estimated due to the evolving nature of this pandemic.

The impact of the COVID-19 pandemic is fluid and continues to evolve, and therefore, we cannot predict the extent to which our business, results of operations, financial condition, or cash flows will ultimately be impacted.

The Company suspended its share buyback program late in the first quarter of 2020. In addition, the Company is currently evaluating the impact of the CARES Act. See Note F for additional discussion.

From a liquidity perspective, we believe we are well positioned to manage through this global crisis. We ended the first quarter with total cash of $107.6 million, only $2.1 million of total debt, and $345.8 million of available borrowings under our revolving credit facility. In order to ensure we have more than adequate liquidity, we borrowed $150.0 million under the revolving credit facility in April 2020.

RESULTS OF OPERATIONS

~~Second~~First Quarter


	Second Quarter Ended											First Quarter Ended
	June 28,			June 29,			$			%		March 27,			March 29,			$			%
(Thousands, except per share data)	2019			2018			Change			Change		2020			2019			Change			Change
Net sales	$	297,843		$	309,085		$	(11,242	)	(4	)%	$	277,946		$	301,441		$	(23,495	)	(8	)%
Value-added sales	194,896			189,902			4,994			3	%	158,666			187,681			(29,015		)	(15	)%
Gross margin	69,594			61,838			7,756			13	%	45,575			69,312			(23,737		)	(34	)%
Gross margin as a % of value-added sales	36		%	33		%	N/A			N/A		29		%	37		%
Selling, general, and administrative (SG&A) expense	39,891			38,473			1,418			4	%	30,744			40,064			(9,320		)	(23	)%
SG&A expense as a % of value-added sales	20		%	20		%	N/A			N/A		19		%	21		%
Research and development (R&D) expense	4,062			3,860			202			5	%	4,185			3,740			445			12	%
R&D expense as a % of value-added sales	2		%	2		%	N/A			N/A		3		%	2		%
Goodwill impairment charges												9,053			—			9,053			N/A
Held-for-sale impairment charges												1,713			—			1,713			N/A
Restructuring expense												2,164			—			2,164			N/A
Other—net	2,891			4,313			(1,422		)	(33	)%	2,279			4,121			(1,842		)	(45	)%
Operating profit	22,750			15,192			7,558			50	%
Operating (loss) profit												(4,563		)	21,387			(25,950		)	(121	)%
Other non-operating (income) expense—net												(944		)	245			(1,189		)	(485	)%
Interest expense—net	500			667			(167		)	(25	)%	246			466			(220		)	(47	)%
Other non-operating expense—net	3,112			437			2,675			612	%
Income before income taxes	19,138			14,088			5,050			36	%
Income tax expense	3,598			2,944			654			22	%
Net income	$	15,540		$	11,144		$	4,396		39	%
(Loss) Income before income taxes												(3,865		)	20,676			(24,541		)	(119	)%
Income tax (benefit) expense												(762		)	3,770			(4,532		)	(120	)%
Net (loss) income												$	(3,103	)	$	16,906		$	(20,009	)	(118	)%

Diluted earnings per share	$	0.75		$	0.54		$	0.21		39	%	$	(0.15	)	$	0.82		$	(0.97	)	(118	)%

N/A = Not Applicable

Net sales of ~~$297.8~~$277.9 million in the ~~second~~first quarter of ~~2019~~2020 decreased ~~$11.2~~$23.5 million from ~~$309.1~~$301.4 million ~~recorded~~ in the ~~second~~first quarter of ~~2018.~~2019. Net sales growth in our Advanced Materials segment was more than offset by decreased net sales in our Performance Alloys and Composites and Precision Coatings segments ~~was more than offset by decreased net sales in our Advanced Materials segment~~ driven by a lower ~~mix of precious metal-containing products and the mix of customer-supplied material.~~sales volumes. The change in precious metal and copper prices ~~unfavorably~~favorably impacted net sales during the ~~second~~first quarter of ~~2019~~2020 by ~~$0.8~~$19.3 million.

Value-added sales is a non-GAAP financial measure that removes the impact of pass-through metal costs and allows for analysis without the distortion of the movement or volatility in metal prices and changes in mix due to customer-supplied material. Internally, we manage our business on this basis, and a reconciliation of net sales, the most directly comparable GAAP financial measure, to value-added sales is included herein. Value-added sales of ~~$194.9~~$158.7 million in the ~~second~~first quarter of ~~2019 increased $5.0~~2020 decreased $29.0 million, or 3%15%, compared to the ~~second~~first quarter of ~~2018.~~2019. The increase in semiconductor end market sales was more than offset by the decrease in value-added sales ~~was primarily driven by commercial excellence initiatives and stronger~~due to reduced demand in the ~~energy, industrial,~~aerospace and ~~consumer electronics~~defense, telecom and data center, and energy end markets.

Gross margin in the ~~second~~first quarter of ~~2019~~2020 was ~~$69.6~~$45.6 million, ~~or $7.8 million higher than~~which was down 34% compared to the ~~$61.8 million gross margin recorded during the second~~first quarter of ~~2018.~~2019. Gross margin expressed as a percentage of value-added sales ~~increased~~decreased to ~~36%~~29% in the ~~second~~first quarter of ~~2019~~2020 from ~~33%~~37% in the ~~second~~first quarter of ~~2018~~2019. The decrease was primarily ~~due to a combination of higher sales volume and improved~~driven by unfavorable sales mix ~~from both an end market~~ and ~~product perspective~~manufacturing yields, as well as a $1.3 million charge to reserve for slow moving and ~~improved manufacturing performance.~~excess inventory related to the oil and gas industry.

SG&A expense was ~~$39.9~~$30.7 million in the ~~second~~first quarter of ~~2019,~~2020, compared to ~~$38.5~~$40.1 million ~~recorded~~ in the ~~second~~first quarter of ~~2018.~~2019. The ~~increase~~decrease in SG&A expense for the ~~second~~first quarter of ~~2019~~2020 was primarily driven by ~~investments to execute strategic initiatives.~~lower variable compensation expense. Expressed as a percentage of value-added sales, SG&A expense was ~~20%~~19% and 21% in the ~~second~~first quarter of ~~both~~2020 and 2019, ~~and 2018.~~respectively.

R&D expense consists primarily of direct personnel costs for pre-production evaluation and testing of new products, prototypes, and applications. R&D expense ~~was flat as a percentage~~accounted for 3% and 2% of value-added sales ~~at approximately 2%~~ in the ~~second~~first quarter of ~~both~~2020 and 2019, respectively. The increase reflects additional investment in new product and ~~2018.~~application development.

Goodwill and Held-for-sale impairment charges includes non-recurring charges relating to goodwill and other assets in our Precision Coatings segment. Refer to Notes I and J to the Consolidated Financial Statements for additional discussion.

Restructuring expense consists primarily of cost reduction actions taken in order to reduce our fixed cost structure. In the first quarter of 2020, we recorded $2.2 million of restructuring charges in our Performance Alloys and Composites segment related to the closure of our Warren, Michigan and Fremont, California facilities. Refer to Note E to the Consolidated Financial Statements for additional discussion.

Other-net was ~~$2.9~~$2.3 million of expense in the ~~second~~first quarter of ~~2019,~~2020, or a ~~$1.4~~$1.8 million decrease from the ~~second~~first quarter of ~~2018. The decrease in Other-net was primarily due to less foreign exchange losses recognized in the second quarter of 2019 compared to the second quarter of 2018.~~2019. Refer to Note D to the Consolidated Financial Statements for details of the major components within Other-net.

~~Interest expense-net~~ ~~was $0.5 million and $0.7 million in the second quarter of 2019 and 2018, respectively.~~

Other non-operating (income) expense-net includes components of pension and post-retirement expense other than service costs and a non-cash pre-tax pension curtailment charge of $3.3 million associated with the pension plan amendment to freeze the pay and service amounts used to calculate pension benefits during the second quarter of 2019.costs. Refer to Note IL to the Consolidated Financial Statements for details of the ~~components~~components.

Interest expense-net was $0.2 million and $0.5 million in the first quarter of ~~net periodic benefit costs.~~2020 and 2019, respectively. The decrease in interest expense in the first quarter of 2020 compared to the first quarter of 2019 is primarily due to interest income on investments held in money market accounts.

Income tax (benefit) expense for the ~~second~~first quarter of ~~2019~~2020 was ~~$3.6~~a benefit of $0.8 million compared to ~~$2.9~~expense of $3.8 million in the ~~second~~first quarter of ~~2018.~~2019. The effective tax rate for the ~~second~~first quarter of ~~2019~~2020 was ~~18.8%~~19.7% compared to ~~an effective tax rate of 20.9%~~18.2% in the prior-year period. The effective tax rate for each period is lower than the statutory tax rate primarily due to the impact of percentage depletion and the research and development credit.

~~Six Months~~

Six Months Ended
June 28, June 29, $ %
(Thousands, except per share data) 2019 2018 Change Change
Net sales $ 599,284
$ 612,552
$ (13,268 ) (2 )%
Value-added sales 382,577
371,215
11,362
3 %
Gross margin 138,906
120,118
18,788
16 %
Gross margin as a % of value-added sales 36 % 32 % N/A
N/A
SG&A expense 79,955
76,935
3,020
4 %
SG&A expense as a % of value-added sales 21 % 21 % N/A
N/A
R&D expense 7,802
7,503
299
4 %
R&D expense as a % of value-added sales 2 % 2 % N/A
N/A
Other—net 7,012
7,237
(225 ) (3 )%
Operating profit 44,137
28,443
15,694
55 %
Interest expense—net 966
1,397
(431 ) (31 )%
Other non-operating expense—net 3,357
879
2,478
282 %
Income before income taxes 39,814
26,167
13,647
52 %
Income tax expense 7,368
4,459
2,909
65 %
Net income $ 32,446
$ 21,708
$ 10,738
49 %

Diluted earnings per share $ 1.57
$ 1.05
$ 0.52
50 %

~~N/A = Not Applicable~~

~~Net sales~~ of $599.3 million in the first six months of 2019 decreased $13.3 million from $612.6 million recorded in the first six months of 2018. Net sales growth in our Performance Alloys and Composites segment was more than offset by decreased net sales in our Advanced Materials and Precision Coatings segments primarily driven by lower mix of precious metal-containing products and the mix of customer-supplied material. The change in precious metal and copper prices unfavorably impacted net sales during the first half of 2019 by $5.0 million.

~~Value-added sales~~ of $382.6 million in the first half of 2019 increased $11.4 million, or 3%, compared to the first half of 2018. The increase in value-added sales was primarily driven by commercial excellence initiatives and stronger demand in the aerospace and defense, energy, telecom and data center, and industrial end markets.

~~Gross margin~~ in the first half of 2019 was $138.9 million, or $18.8 million higher than the $120.1 million gross margin recorded during the first half of 2018. Gross margin expressed as a percentage of value-added sales increased to 36% in the first six months of 2019 from 32% in the first six months of 2018 primarily due to a combination of improved sales mix from both an end market and product perspective and improved manufacturing performance.

~~SG&A expense~~ was $80.0 million in the first six months of 2019, compared to $76.9 million recorded in the first six months of 2018. The increase in SG&A expense for the first half of 2019 was primarily driven by investments to execute strategic initiatives for commercial excellence and variable costs associated with driving top-line and profit growth. Expressed as a percentage of value-added sales, SG&A expense was 21% in the first half of both 2019 and 2018.

~~R&D expense~~ ~~was flat as a percentage of value-added sales at approximately 2% in the first half of both 2019 and 2018.~~

~~Other-net~~ was $7.0 million of expense in the first six months of 2019, or a $0.2 million decrease from the first six months of 2018. Refer to Note D to the Consolidated Financial Statements for details of the major components within Other-net.

~~Interest expense-net~~ ~~was $1.0 million and $1.4 million in the first six months of 2019 and 2018, respectively.~~

~~Other non-operating expense-net~~ includes components of pension and post-retirement expense other than service costs and a non-cash pre-tax pension curtailment charge of $3.3 million associated with the pension plan amendment to freeze the pay and service amounts used to calculate pension benefits. Refer to Note I to the Consolidated Financial Statements for details of the components of net periodic benefit costs.

~~Income tax expensefor the first six months of 2019 was $7.4 million, compared to $4.5 million in the first six months of 2018.~~ The effective tax rate for the first ~~half~~quarter of ~~2019 was 18.5% compared~~2020 included discrete income tax expense of $0.2 million, primarily related to $0.7 million of tax expense from an ~~effective~~impairment of goodwill and $0.4 million of tax ~~rate of 17.0% in the prior-year period.~~benefit related to excess tax benefits from stock-based compensation awards. The effective tax rate for ~~each period is lower than~~ the ~~statutory tax rate primarily due to the impact~~first quarter of ~~percentage depletion and the research and development credit. Additionally, the effective tax rate for~~ 2019 included a ~~net~~ discrete income tax benefit of ~~$0.5~~$0.9 million, primarily related to excess tax benefits from stock-based ~~compensation. The effective tax rate~~compensation awards. Refer to Note F to the Consolidated Financial Statements for ~~2018 included a net discrete~~further details on income ~~tax benefit of $1.0 million, primarily related to Staff Accounting Bulletin No. 118 adjustments.~~taxes.

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~~first quarter of 2020 and ~~first six months of~~ 2019 ~~and 2018~~ is as follows:


	Second Quarter Ended						Six Months Ended						First Quarter Ended
	June 28,			June 29,			June 28,			June 29,			March 27,			March 29,
(Thousands)	2019			2018			2019			2018			2020			2019
Net sales
Performance Alloys and Composites	$	135,231		$	129,765		$	262,344		$	248,001		$	99,067		$	127,113
Advanced Materials	133,238			150,324			277,263			303,869			160,165			144,025
Precision Coatings	29,374			28,996			59,677			60,682			18,714			30,303
Other	—			—			—			—			—			—
Total	$	297,843		$	309,085		$	599,284		$	612,552		$	277,946		$	301,441

Less: pass-through metal costs
Performance Alloys and Composites	$	19,988		$	19,615		$	37,500		$	37,552		$	15,352		$	17,512
Advanced Materials	74,931			93,057			161,449			188,319			100,977			86,518
Precision Coatings	6,285			5,603			14,051			13,648			1,725			7,766
Other	1,743			908			3,707			1,818			1,226			1,964
Total	$	102,947		$	119,183		$	216,707		$	241,337		$	119,280		$	113,760

Value-added sales
Performance Alloys and Composites	$	115,243		$	110,150		$	224,844		$	210,449		$	83,715		$	109,601
Advanced Materials	58,307			57,267			115,814			115,550			59,188			57,507
Precision Coatings	23,089			23,393			45,626			47,034			16,989			22,537
Other	(1,743		)	(908		)	(3,707		)	(1,818		)	(1,226		)	(1,964		)
Total	$	194,896		$	189,902		$	382,577		$	371,215		$	158,666		$	187,681

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

Internally, management reviews net sales on a value-added basis. Value-added sales is a non-GAAP financial measure that deducts the value of the pass-through metal costs from net sales. Value-added sales allow management to assess the impact of differences in net sales between periods, segments, or markets, and analyze the resulting margins and profitability without the distortion of movements in pass-through metal costs. The dollar amount of gross margin and operating profit is not affected by the value-added sales calculation. We sell other metals and materials that are not considered direct pass-throughs, and these costs are not deducted from net sales when calculating value-added sales. 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.

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.

Segment Results

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

Performance Alloys and Composites

~~Second~~First Quarter


	Second Quarter Ended								First Quarter Ended
	June 28,		June 29,		$		%		March 27,		March 29,		$			%
(Thousands)	2019		2018		Change		Change		2020		2019		Change			Change
Net sales	$	135,231	$	129,765	$	5,466	4	%	$	99,067	$	127,113	$	(28,046	)	(22	)%
Value-added sales	115,243		110,150		5,093		5	%	83,715		109,601		(25,886		)	(24	)%
Operating profit	19,328		12,309		7,019		57	%	4,791		18,958		(14,167		)	(75	)%

Net sales from the Performance Alloys and Composites segment of ~~$135.2~~$99.1 million in the ~~second~~first quarter of ~~2019~~2020 were ~~4% higher~~22% lower than net sales of ~~$129.8~~$127.1 million in the ~~second~~first quarter of ~~2018. Improved~~2019. The decrease was due to reduced sales ~~mix more than offset the unfavorable impact of pass-through metal prices of approximately $0.6 million.~~

Value-added sales of $115.2 million in the second quarter of 2019 were 5% higher than value-added sales of $110.2 million in the second quarter of 2018. The increase in value-added sales was driven by performance improvements in commercial execution in theinto all major end markets, ~~of consumer electronics, energy,~~with the largest declines in aerospace and defense and telecom and data center.

Value-added sales of $83.7 million in the first quarter of 2020 were 24% lower than value-added sales of $109.6 million in the first quarter of 2019. The decrease in value-added sales was due to the same factors driving the decrease in net sales.

Performance Alloys and Composites generated operating profit of ~~$19.3~~$4.8 million in the ~~second~~first quarter of ~~2019~~2020 compared to ~~$12.3~~$19.0 million in the ~~second~~first quarter of ~~2018.~~2019. The ~~increase~~decrease in operating profit was primarily due to ~~favorable product mix and improved manufacturing performance.~~

~~Six Months~~

Six Months Ended
June 28, June 29, $ %
(Thousands) 2019 2018 Change Change
Net sales $ 262,344
$ 248,001
$ 14,343
6 %
Value-added sales 224,844
210,449
14,395
7 %
Operating profit 38,286
22,170
16,116
73 %

~~Net~~reduced sales ~~from the Performance Alloys and Composites segment~~volumes as well as restructuring charges of ~~$262.3~~$2.2 million in the first ~~six months~~quarter of ~~2019 were 6% higher than net sales~~2020 related to the closure of ~~$248.0~~our Warren, Michigan and Fremont, California facilities. In addition, we recorded $1.3 million of additional reserves for slow-moving and excess inventory related to the collapse in demand in the ~~first six months of 2018. Improved sales mix more than offset the unfavorable impact of pass-through metal prices of approximately $2.1 million.~~

Value-added sales of $224.8 million in the first six months of 2019 were 7% higher than value-added sales of $210.4 million in the first six months of 2018. The increase in value-added sales was driven by performance improvements in commercial execution in the end markets of aerospaceoil and ~~defense, energy, and telecom and data center.~~

Performance Alloys and Composites generated operating profit of $38.3 million in the first six months of 2019 compared to $22.2 million in the first six months of 2018. The increase in operating profit was primarily due to favorable product mix and improved manufacturing performance.gas industry.

Advanced Materials

~~Second~~First Quarter


	Second Quarter Ended								First Quarter Ended
	June 28,		June 29,		$		%		March 27,		March 29,		$		%
(Thousands)	2019		2018		Change		Change		2020		2019		Change		Change
Net sales	$	133,238	$	150,324	(17,086	)	(11	)%	$	160,165	$	144,025	16,140		11	%
Value-added sales	58,307		57,267		1,040		2	%	59,188		57,507		1,681		3	%
Operating profit	6,139		5,572		567		10	%	4,785		7,080		(2,295	)	(32	)%

Net sales from the Advanced Materials segment of ~~$133.2~~$160.2 million in the ~~second~~first quarter of ~~2019~~2020 were 11% ~~lower~~higher than net sales of ~~$150.3~~$144.0 million in the ~~second~~first quarter of ~~2018.~~2019. The ~~decline~~increase in net sales was primarily due to the impact of higher pass-through metal prices of $18.6 million, partially offset by a lower mix of precious metal-containing products and the mix of customer-supplied ~~material, as well as the impact of unfavorable pass-through metal prices of $1.4 million.~~material.

Value-added sales of $58.3 million in the second quarter of 2019 were 2% higher than value-added sales of $57.3 million in the second quarter of 2018. Value-added sales into the industrial and energy end markets contributed to the year-over-year increase, and more than offset softer demand in the semiconductor end market.

The Advanced Materials segment generated operating profit of $6.1 million in the second quarter of 2019 compared to $5.6 million in the second quarter of 2018. Increased operating profit in the second quarter of 2019, compared to 2018, was the result of cost savings realized primarily from restructuring actions taken in the fourth quarter of 2018, partially offset by reduced manufacturing yields.

~~Advanced Materials~~

~~Six Months~~

Six Months Ended
June 28, June 29, $ %
(Thousands) 2019 2018 Change Change
Net sales $ 277,263
$ 303,869
(26,606 ) (9 )%
Value-added sales 115,814
115,550
264
— %
Operating profit 13,219
11,470
1,749
15 %

~~Net sales from the Advanced Materials segment of $277.3~~$59.2 million in the first ~~six months~~quarter of 2019 were 9% lower than net sales of $303.9 million in the first six months of 2018. The decline in net sales was due to the lower mix of precious metal-containing products and the mix of customer-supplied material, as well as the impact of unfavorable pass-through metal prices of $5.3 million.

~~Value-added sales of $115.8 million in the first six months of 2019~~2020 were up ~~slightly,~~3% compared to value-added sales of ~~$115.6~~$57.5 million in the first ~~six months~~quarter of ~~2018. Increased value-added sales into the industrial end market were offset~~2019. The increase was primarily driven by ~~decreased~~improved value-added sales into the semiconductor end market.

The Advanced Materials segment generated operating profit of ~~$13.2~~$4.8 million in the first ~~six months~~quarter of ~~2019~~2020 compared to ~~$11.5~~$7.1 million in the first ~~six months~~quarter of ~~2018. Increased~~2019. Decreased operating profit in the first ~~six months~~quarter of ~~2019,~~2020, compared to ~~2018,~~the first quarter of 2019, was the result of ~~cost savings realized primarily from restructuring actions taken in the fourth quarter of 2018, partially offset by~~unfavorable sales mix and reduced manufacturing ~~yields.~~

yields primarily related to new product introductions.

2622

Precision Coatings

~~Second~~First Quarter


(Thousands)	Second Quarter Ended								First Quarter Ended
	June 28,		June 29,		$		%		March 27,			March 29,		$		%
	2019		2018		Change		Change		2020			2019		Change		Change
Net sales	$	29,374	$	28,996	378		1	%	$	18,714		$	30,303	(11,589	)	(38	)%
Value-added sales	23,089		23,393		(304	)	(1	)%	16,989			22,537		(5,548	)	(25	)%
Operating profit	3,937		2,233		1,704		76	%
Operating (loss) profit									(9,592		)	2,077		(11,669	)	(562	)%

Net sales from the Precision Coatings segment of ~~$29.4~~$18.7 million in the ~~second~~first quarter of ~~2019 increased 1%~~2020 decreased 38% compared to net sales of ~~$29.0~~$30.3 million in the ~~second~~first quarter of ~~2018~~2019 primarily due to ~~the favorable impact of pass-through precious metal prices of $1.2 million, partially offset by~~ reduced sales ~~volume.~~volumes and lower mix of precious metal-containing products.

Value-added sales of ~~$23.1~~$17.0 million in the ~~second~~first quarter of ~~2019~~2020 decreased 1%25% compared to value-added sales of ~~$23.4~~$22.5 million in the ~~second~~first quarter of ~~2018. Increased~~2019. The decrease is primarily due to a reduction in value-added sales ~~into the industrial end market of $0.6 million were more than offset by decreased value-added sales into the consumer electronics and semiconductor end markets.~~related to blood glucose test strip products.

The Precision Coatings segment generated an operating ~~profit~~loss of ~~$3.9~~$9.6 million in the ~~second~~first quarter of ~~2019,~~2020, compared to an operating profit of ~~$2.2 million in the second quarter of 2018. The increase in operating profit was driven by favorable mix and improved manufacturing performance, compared to the second quarter last year.~~

~~Six Months~~

(Thousands) Six Months Ended
June 28, June 29, $ %
2019 2018 Change Change
Net sales $ 59,677
$ 60,682
(1,005 ) (2 )%
Value-added sales 45,626
47,034
(1,408 ) (3 )%
Operating profit 6,014
5,608
406
7 %

~~Net sales from the Precision Coatings segment of $59.7~~$2.1 million in the first ~~six months~~quarter of 2019 decreased 2% compared to net sales of $60.7 million in the first six months of 2018 due to decreased sales volume, partially offset by a $2.4 million favorable impact of pass-through precious metal prices.

Value-added sales of $45.6 million in the first six months of 2019 decreased 3% compared to value-added sales of $47.0 million in the first six months of 2018. Value-added sales into the consumer electronics, semiconductor, and other end markets decreased $3.4 million, while sales into the industrial end market increased $2.1 million.

2019. The ~~Precision Coatings segment generated~~ operating ~~profit of $6.0 million in the first six months of 2019, compared to an operating profit of $5.6 million in the first six months of 2018. The increase in operating profit~~loss was driven by ~~favorable mix~~a goodwill impairment charge of $9.1 million and ~~improved manufacturing performance, compared~~a held-for-sale impairment charge of $1.7 million related to our LAC reporting unit, which met the ~~first half~~criteria to be classified as held for sale as of ~~last year.~~

March 27, 2020.

Other

~~Second~~First Quarter


(Thousands)	Second Quarter Ended										First Quarter Ended
	June 28,			June 29,			$		%		March 27,			March 29,			$	%
	2019			2018			Change		Change		2020			2019			Change	Change
Net sales	$	—		$	—		—		—	%	$	—		$	—		—	—	%
Value-added sales	(1,743		)	(908		)	(835	)	92	%	(1,226		)	(1,964		)	738	(38	)%
Operating loss	(6,654		)	(4,922		)	(1,732	)	35	%	(4,547		)	(6,728		)	2,181	(32	)%

The Other reportable segment in total includes unallocated corporate costs.

Corporate costs of ~~$6.6~~$4.5 million in the ~~second~~first quarter of ~~2019 increased $1.7~~2020 decreased $2.2 million as compared to ~~$4.9~~$6.7 million in the ~~second~~first quarter of ~~2018.~~2019. Corporate costs accounted for 3% and 4% of Company value-added sales in the second quarter of both 2019 and 2018. The increase in corporate costs in the second quarter of 2019, compared to the second quarter of 2018, is reflective of investments to execute strategic initiatives and variable costs associated with improved financial performance.

~~Six Months~~

(Thousands) Six Months Ended
June 28, June 29, $ %
2019 2018 Change Change
Net sales $ —
$ —
—
— %
Value-added sales (3,707 ) (1,818 ) (1,889 ) 104 %
Operating loss (13,382 ) (10,805 ) (2,577 ) 24 %

~~Corporate costs of $13.4 million in the first half of 2019 increased $2.6 million as compared to $10.8 million in the first half of 2018. Corporate costs accounted for 3% of Company~~Company-wide value-added sales in the first ~~half~~quarters of ~~both~~2020 and 2019, ~~and 2018.~~respectively. The ~~increase~~decrease in corporate costs in the first ~~half~~quarter of ~~2019,~~2020, compared to the first ~~half~~quarter of ~~2018,~~2019, is ~~reflective of investments~~primarily related to ~~execute strategic initiatives and~~lower variable ~~costs associated with improved financial performance.~~compensation expense.

FINANCIAL POSITION

Cash Flow

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


	Six Months Ended									Three Months Ended
	June 28,			June 29,			$			March 27,			March 29,			$
(Thousands)	2019			2018			Change			2020			2019			Change
Net cash provided by operating activities	$	30,046		$	29,304		$	742
Net cash provided by (used in) operating activities										$	9,130		$	(12,617	)	$	21,747
Net cash used in investing activities	(15,409		)	(20,551		)	5,142			(14,779		)	(9,321		)	(5,458		)
Net cash used in financing activities	(10,326		)	(7,710		)	(2,616		)	(11,401		)	(6,797		)	(4,604		)
Effects of exchange rate changes	(100		)	8			(108		)	(381		)	(46		)	(335		)
Net change in cash and cash equivalents	$	4,211		$	1,051		$	3,160		$	(17,431	)	$	(28,781	)	$	11,350

Net cash provided by operating activities totaled ~~$30.0~~$9.1 million in the first ~~six months~~quarter of ~~2019~~2020 versus ~~$29.3~~$12.6 million used in operating activities in the ~~comparable~~ prior-year period. Working capital requirements used cash of ~~$29.3~~$18.7 million and $40.3 million during the first ~~six~~three months of 2020 and 2019, ~~compared to a use of $15.8 million in the first six months of 2018.~~respectively. Cash flows ~~used for~~provided by accounts receivable were ~~$0.3~~$25.7 million ~~lower~~higher than the

prior-year period. Three-month trailing days sales outstanding was approximately 4345 days at ~~June 28, 2019~~March 27, 2020 and 4147 days at December 31, ~~2018. Inventory reduction initiatives generated a cash flow benefit of $1.3~~2019. Cash flows used for inventory were $16.7 million in the first ~~six months~~quarter of ~~2019~~2020, compared to ~~a benefit of $10.4~~$9.6 million in ~~first six months of 2018, related~~the prior-year period primarily toin our Performance Alloys and Composites ~~business.~~segment. Cash flows used for accounts payable and accrued expenses were ~~$18.8~~$13.0 million compared to the prior-year period use of cash of ~~$14.2~~$16.0 million due to higher ~~incentive compensation payments tied~~accounts payable balances related to ~~improved financial performance.~~increased inventory levels.

Net cash used in investing activities was ~~$15.4~~$14.8 million in the first ~~half~~quarter of ~~2019~~2020 compared to ~~$20.6~~$9.3 million in the prior-year period due to ~~lower~~increased levels of capital spending. The increase in capital expenditures was due to investments in new equipment funded by customer prepayments. See Note K to the Consolidated Financial Statements for additional discussion.

Capital expenditures are made primarily for new product development, replacing and upgrading equipment, infrastructure investments, and implementing information technology initiatives. For the full year ~~2019,~~2020, the Company expects payments for p

~~roperty,~~property, plant, and equipment to be approximately $30.0 million, excluding any capital expenditures related to customer prepayments, and mine development expenditures to be ~~less than $5.0~~approximately $10.0 million.

Net cash used in financing activities totaled ~~$10.3~~$11.4 million in the first ~~half~~quarter of ~~2019~~2020 versus ~~$7.7~~$6.8 million used in financing activities in the comparable prior-year period. The increase in cash used is primarily due to ~~higher payments~~the repurchase of ~~withholding taxes~~158,000 of our common shares for ~~stock-based compensation awards.~~$6.8 million in the first quarter of 2020.

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, and the current dividend ~~and share repurchase~~ program, environmental remediation projects, and strategic acquisitions. At ~~June 28, 2019,~~March 27, 2020, cash and cash equivalents held by our foreign operations totaled ~~$17.8~~$20.3 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, as of ~~June 28, 2019~~March 27, 2020 and December 31, ~~2018~~2019 is as follows:


	June 28,		December 31,		March 27,		December 31,
(Thousands)	2019		2018		2020		2019
Cash and cash equivalents	$	74,856	$	70,645	$	107,576	$	125,007
Total outstanding debt	2,637		3,041		2,077		2,218
Net cash	$	72,219	$	67,604	$	105,499	$	122,789
Available borrowing capacity	$	316,828	$	275,488	$	345,772	$	340,906

Net cash is a non-GAAP financial measure. We are providing this information because we believe it is more indicative of our overall financial position. It is also a measure our management uses to assess financing and other decisions. We believe that based on our typical cash flow generated from operations, we can support a higher leverage ratio in future periods.

The available borrowing capacity in the table above represents the additional amounts that could be borrowed under our revolving credit facility and other secured lines existing as of the end of each 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 and amortization, and other adjustments.

~~The Company's~~In 2019, we amended and restated the agreement governing our $375.0 million revolving credit ~~agreement~~facility (Credit Agreement) ~~expires in~~. The maturity date of the Credit Agreement was extended from 2020 to 2024, and isthe Credit Agreement provides more favorable interest rates under certain circumstances. In addition, the Credit Agreement provides the Company and its subsidiaries with additional capacity to enter into facilities for the consignment, borrowing, or leasing of precious metals and copper, and provides enhanced flexibility to finance acquisitions and other strategic initiatives. Borrowings under the Credit Agreement are secured by substantially all of the assets of the Company and its direct subsidiaries, with the exception of non-mining real property and certain other assets.

The Credit Agreement allows usthe Company to borrow money at a premium over LIBOR or prime rate and at varying maturities. The premium resets quarterly according to the terms and conditions available under the agreement. The Credit Agreement includes restrictive covenants relating to restrictions on additional indebtedness, acquisitions, dividends, and stock repurchases. In addition, the Credit Agreement includes covenants subject to a maximum leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all of our debt covenants as of ~~June 28, 2019 and December 31, 2018.~~March 27, 2020. Cash on hand does not affect the covenants or the borrowing capacity under our debt agreements.

In April 2020, we borrowed $150.0 million under our Credit Agreement as a precautionary response to macroeconomic conditions caused by the COVID-19 pandemic.

Portions of our business utilize off-balance sheet consignment arrangements to finance metal requirements. Expansion of business volumes and/or higher metal prices can put pressure on the consignment line limitations from time to time. In 2019, we entered into a precious metals consignment agreement, maturing on August 27, 2022, which replaced the consignment agreement that would have matured on September 30, 2019. The available and unused capacity under the metal financing lines expiring in ~~September 2019~~August 2022 totaled approximately ~~$154.3~~$111.5 million as of ~~June 28, 2019 and $133.9~~March 27, 2020, compared to $140.7 million as of December 31, ~~2018.~~2019. 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 ~~six~~three months of ~~2019,~~2020, we repurchased ~~4,500~~158,000 shares of our common stock for ~~$0.2~~$6.8 million. ~~We did not repurchase any of our common shares during the second quarter of 2019.~~ Since the approval of the repurchase plan, we have purchased ~~1,096,264~~1,254,264 shares at a total cost of ~~$34.9~~$41.7 million. Due to the COVID-19 pandemic, we have temporarily suspended our share repurchase program.

We paid cash dividends of ~~$2.3 million and $4.4~~$2.2 million on our common stock in the ~~second~~first quarter ~~and first six months~~ of ~~2019, respectively.~~2020. 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 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 ~~$295.7~~$338.5 million as of ~~June 28, 2019,~~March 27, 2020, versus ~~$316.1~~$309.3 million as of December 31, ~~2018.~~2019. We were in compliance with all of the covenants contained in the consignment agreements as of ~~June 28, 2019~~March 27, 2020 and December 31, ~~2018.~~2019. For additional information on our contractual obligations, refer to our ~~2018~~2019 Annual Report on Form 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 ~~2018~~2019 Annual Report on Form 10-K.

~~Impairment of Goodwill and Long-Lived Assets~~Held for Sale

~~Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise.~~ The Company ~~conducts its annual goodwill impairment assessment~~records assets and liabilities of a business to be sold as held for sale in the Consolidated Balance Sheet when all the required criteria are met. The held for sale assets and liabilities are initially measured at the lesser of ~~first day~~their carrying value or fair value less cost to sell, with any resulting loss being immediately recognized. In each subsequent reporting period until the business is sold, the Company continues to estimate the fair value less cost to sell of the ~~fourth quarter, which was September 29, 2018.~~

~~Goodwill is assigned~~business and recognizes any additional losses, or any gains to the extent losses were previously recorded on the held for sale assets and liabilities.

As of March 27, 2020, the Company committed to a plan to sell its LAC reporting unit ~~which is the operating segment level or one level below the operating segment. Goodwill~~ within ~~the Advanced Materials segment totaled $50.3 million as of December 31, 2018. Within~~ the Precision Coatings segment ~~goodwill totaled $17.9 million~~ and ~~$20.6 million relating~~determined that it met the criteria to be classified as held for sale. Therefore, its assets and liabilities have been presented as held for sale in the ~~Precision Optics and Large Area Coatings (LAC) reporting units, respectively,~~Consolidated Balance Sheet as of ~~December 31, 2018. The remaining $1.9 million was related to~~March 27, 2020. Assets and liabilities classified as held for sale are measured at the ~~Beryllium reporting unit within the Performance Alloys and Composites segment.~~

~~For the purpose~~lower of the goodwill impairment assessment, we have the option to perform a qualitative assessment (commonly referred to as "step zero") to determine whether further quantitative analysis for impairment of goodwillcarrying value or indefinite-lived intangible assets is necessary. At the September 29, 2018 annual assessment date, we opted to bypass step zero and proceeded to perform a "step one" quantitative assessment for each of our reporting units. The results of the step one indicated that no goodwill impairment existed.

~~As of September 29, 2018, the Company determined that the~~ fair value less costs to sell. The Company entered into a letter of intent to sell the LAC reporting unit exceeded the carrying value by approximately 50 percent, which indicated no impairment at that time. The sales growth assumption for LAC was based on expected future orders. A key input into our valuation analysis is our sales growth assumptions which can be impacted by increased competition, pricing pressures, and contract negotiations with new and existing customers. These factors impact both the timing and magnitude of sales of our products. Precious metal prices, particularly palladium used by our LAC reporting unit and its customer base, have fluctuated significantly in recent years. Palladium price movements have increased competitive pricing pressure in the LAC business. The key risk with the precious metal pricing volatility is the possibility that rising prices could deter our customers from purchasing our products, which would adversely affect our net sales and operating profit. If this sales volume decrease does materialize, and if we are unable to replace this volume with other sales growth, the Company may determine in connection with future impairment tests that some or all the carrying value of LAC's goodwill may be impaired due to our inability to recover from competitive pricing pressures within the medical end market of LAC. Accordingly, based on current market prices, there is an increased risk of impairment related to our LAC reporting unit. An impairment, the amount of the carrying value in excess of fair value, could be material and would reduce the Company's profitability in the period of the impairment charge.

March 2020.

3025

The Company then estimated the fair value of the disposal group as a whole and compared the fair value to the remaining carrying value. Based on this review, the Company recorded an additional $1.7 million held-for-sale impairment charge.

See Note I to the Consolidated Financial Statements for additional information.

Forward-looking Statements

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


▪	Actual net sales, operating rates, and margins for ~~2019;~~2020;


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


▪	The ultimate impact of the COVID-19 pandemic on our business, results of operations, financial condition, and liquidity;


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


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


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


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


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


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


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


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

▪

Other financial and economic factors, including the cost and availability of raw materials (both base and precious metals), physical inventory valuations, metal financing fees, tax rates, exchange rates, interest rates, pension costs and required cash contributions and other employee benefit costs, energy costs, regulatory compliance costs, the cost and availability of insurance, credit availability, and the impact of the Company’s stock price on the cost of incentive compensation plans;


▪	The uncertainties related to the impact of war, terrorist activities, and acts of God;


▪	Changes in government regulatory requirements and the enactment of new legislation that impacts our obligations and operations;


▪	The conclusion of pending litigation matters in accordance with our expectation that there will be no material adverse effects;


▪	Our ability to successfully complete the disposition of our LAC business;


▪	The disruptions on operations from, and other effects of, catastrophic and other extraordinary events including the COVID-19 pandemic; and

The risk factors set forth in Part 1, Item 1A of our ~~2018~~2019 Annual Report on Form 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 ~~2018~~2019 Annual Report on Form 10-K. There have been no material changes in our market risks since the inclusion of this discussion in our ~~2018~~2019 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 ~~June 28, 2019~~March 27, 2020 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 ~~June 28, 2019.~~March 27, 2020.

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 ~~June 28, 2019~~March 27, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

As a result of the adoption of the new lease guidance on January 1, 2019, the Company implemented new processes and controls around its leasing arrangements. These changes included creating new accounting policies, implementing a new software solution, and gathering information necessary for disclosures.

3227

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~~

As of March 27, 2020, our subsidiary, Materion Brush Inc., was a defendant in one beryllium case. In 2019, one new beryllium case was filed. In Ronald Dwayne Manning v. Arconic Inc. et al., case number 19CI000219, filed in the ~~Legal Proceedings section of Note N ("Contingencies")~~Superior Court of the ~~Notes~~State of California, Tehama County, the Company is one of four named defendants and 120 Doe defendants. The plaintiff alleges that he contracted beryllium disease from exposures to ~~Consolidated Financial Statements (Unaudited) is incorporated herein by reference.~~beryllium-containing products during his employment as an auto mechanic, welder, sprinkler installer, and movie projector operator, and asserts claims for negligence, strict liability, fraudulent concealment, and breach of implied warranties. The plaintiff seeks economic damages, non-economic damages, consequential damages, and punitive damages. The Company believes that it has substantive defenses and intends to vigorously defend this suit.

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



Item 1A.	Risk Factors

The information set forth in this quarterly report on Form 10-Q, including, without limitation, the risk factor presented below, updates and should be read in conjunction with, the risk factors and information disclosed in Part 1, Item 1A., “Risk Factors,” in our 2019 Annual Report on Form 10-K.

Our business, results of operations, financial position, and cash flows have been and are expected to continue to be adversely affected by the COVID-19 pandemic.

In December 2019, there was an outbreak of a novel strain of coronavirus (COVID-19) in China that has since spread to the majority of the regions of the world. The outbreak was subsequently declared a pandemic by the World Health Organization in March 2020. To date, the COVID-19 outbreak and preventative measures taken to contain or mitigate the outbreak have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruption in global financial markets. Although we are unable to predict the ultimate impact of the COVID-19 outbreak at this time, the pandemic has adversely affected, and is expected to continue to adversely affect, our business, results of operations, financial position, and cash flows. Such effects may be material and the potential impacts include, but are not limited to:

disruptions to our facilities, including as a result of facility closures, reductions in operating hours, labor shortages, and changes in operating procedures, including additional cleaning and disinfecting procedures;

disruptions in our supply chain due to transportation delays, travel restrictions, raw material cost increases, and closures of businesses or facilities;

reductions in our operating effectiveness due to workforce disruptions resulting from “shelter in place," “stay at home” orders, the need for social distancing, and the unavailability of key personnel necessary to conduct our business activities; and

volatility in the global financial markets, which could have a negative impact on our ability to access capital and additional sources of financing in the future.

In addition, we cannot predict the impact that COVID-19 will have on our customers, employees, suppliers, and distributors, and any adverse impacts on these parties may have a material adverse impact on our business. The impact of COVID-19 may also exacerbate other risks discussed in Part I, Item 1A, “Risk Factors,” in our 2019 Annual Report on Form 10-K, any of which

could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.



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 us during the three months ended ~~June 28, 2019~~March 27, 2020.

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)
March 30 through May 3, 2019

2,542

$ 44.97

—

$ 15,081,991
May 4 through May 31, 2019

9,686

67.54

—

15,081,991
June 1 through June 28, 2019

256

63.81

—

15,081,991
Total
12,484

$ 62.87

—

$ 15,081,991



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)
January 1 through January 31, 2020	—	$	—	—	$	15,081,991
February 1 through February 28, 2020	44,782	49.24		36,000	13,300,234
February 29 through March 27, 2020	149,133	44.09		122,000	8,316,239
Total	193,915	$	45.28	158,000	$	8,316,239



(1)	Includes ~~2,542, 9,686,~~8,782 and ~~256~~27,133 shares surrendered to the Company in ~~April, May,~~February and ~~June,~~March, respectively, by employees to satisfy tax withholding obligations on equity awards issued under the Company's stock incentive plan.

(2)	On January 14, 2014, we announced that our Board of Directors had authorized the repurchase of up to $50.0 million of our common stock. ~~We did not repurchase any~~During the three months ended March 27, 2020, we repurchased 158,000 shares ~~under this program during~~at an average price of $42.82 per share, or $6.8 million in the ~~second quarter of 2019.~~aggregate. As of ~~June 28, 2019, $15.1~~March 27, 2020, $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

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



10.1		Materion and Subsidiaries Management Incentive Plan for the 2020 Plan Year*
10.2		Form of 2020 Performance-Based Restricted Stock Units Agreement under the Materion Corporation 2006 Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2020*
10.3		Form of 2020 Appreciation Rights Agreement under the Materion Corporation 2006 Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2020*
10.4		Form of 2020 Restricted Stock Unit Agreement (Stock-Settled) under the Materion Corporation 2006 Stock Incentive Plan (As Amended and Restated as of May 3, 2017), covering grants made in 2020*
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 ~~June 28, 2019~~March 27, 2020*
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*
101.SCH		Inline XBRL Taxonomy Extension Schema Document*
101.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.

3430

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

Dated: ~~July 25, 2019~~April 23, 2020
				/s/ Joseph P. Kelley
				Joseph P. Kelley
				Vice President, Finance and Chief Financial Officer
				(Principal Financial and Accounting Officer)

3531



	Finance		Operating
(Thousands)	Leases		Leases
2019	$	1,122	$	4,201
2020	2,244		7,618
2021	2,244		6,619
2022	2,244		4,727
2023	1,534		3,818
2024 and thereafter	22,414		5,148
Total lease payments	31,802		32,131
Less amount of lease payment representing interest	12,239		4,086
Total present value of lease payments	$	19,563	$	28,045