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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 September 27, 2024
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             
Commission file number 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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, no par valueMTRNNew 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 September 27, 2024: 20,751,282.



PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

Materion Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)

 Third Quarter EndedNine Months Ended
(Thousands, except per share amounts)September 27, 2024September 29, 2023September 27, 2024September 29, 2023
Net sales$436,715 $403,067 $1,247,868 $1,244,144 
Cost of sales355,777 314,131 1,014,859 974,817 
Gross margin80,938 88,936 233,009 269,327 
Selling, general, and administrative expense35,009 38,806 104,454 118,053 
Research and development expense7,868 6,322 22,712 21,098 
Restructuring expense (income)1,493 1,077 6,161 3,194 
Other—net5,309 6,211 14,112 18,178 
Operating profit 31,259 36,520 85,570 108,804 
Other non-operating (income)—net(642)(685)(1,925)(2,141)
Interest expense—net8,839 7,678 25,920 22,820 
Income before income taxes23,062 29,527 61,575 88,125 
Income tax expense 768 2,963 6,836 11,891 
Net income $22,294 $26,564 $54,739 $76,234 
Basic earnings per share:
Net income per share of common stock$1.07 $1.29 $2.64 $3.70 
Diluted earnings per share:
Net income per share of common stock$1.07 $1.27 $2.61 $3.65 
Weighted-average number of shares of common stock outstanding:
Basic20,749 20,640 20,723 20,611 
Diluted20,920 20,905 20,935 20,891 













See notes to these consolidated financial statements.


2


Materion Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 Third Quarter EndedNine Months Ended
 September 27,September 29,September 27,September 29,
(Thousands)2024202320242023
Net income $22,294 $26,564 $54,739 $76,234 
Other comprehensive income (loss):
Foreign currency translation adjustment7,579 (3,259)2,030 (1,313)
Derivative and hedging activity, net of tax(4,452)2,019 (2,606)2,860 
Pension and post-employment benefit adjustment, net of tax(62)(145)(298)(466)
Other comprehensive loss3,065 (1,385)(874)1,081 
Comprehensive income$25,359 $25,179 $53,865 $77,315 





































See notes to these consolidated financial statements.


3


Materion Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
September 27,December 31,
(Thousands)20242023
Assets
Current assets
Cash and cash equivalents$17,874 $13,294 
Accounts receivable, net214,576 192,747 
Inventories, net476,596 441,597 
Prepaid and other current assets86,314 61,744 
Total current assets795,360 709,382 
Deferred income taxes4,914 4,908 
Property, plant, and equipment1,328,355 1,281,622 
Less allowances for depreciation, depletion, and amortization(802,294)(766,939)
Property, plant, and equipment, net526,061 514,683 
Operating lease, right-of-use assets58,871 57,645 
Intangible assets, net124,281 133,571 
Other assets26,384 21,664 
Goodwill321,147 320,873 
Total Assets$1,857,018 $1,762,726 
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt$37,542 $38,597 
Accounts payable130,310 125,663 
Salaries and wages19,463 25,912 
Other liabilities and accrued items48,850 45,773 
Income taxes1,166 5,207 
Unearned revenue15,497 13,843 
Total current liabilities252,828 254,995 
Other long-term liabilities12,513 13,300 
Operating lease liabilities56,698 53,817 
Finance lease liabilities13,438 13,744 
Retirement and post-employment benefits26,178 26,334 
Unearned income81,553 103,983 
Long-term income taxes4,551 3,815 
Deferred income taxes19,608 20,109 
Long-term debt457,756 387,576 
Shareholders’ equity
Serial preferred stock (no par value; 5,000 authorized shares, none issued)
  
Common stock (no par value; 60,000 authorized shares, issued shares of 27,148 at both September 27th and December 31st)
331,646 309,492 
Retained earnings900,764 854,334 
Common stock in treasury(259,191)(237,746)
Accumulated other comprehensive loss(47,822)(46,948)
Other equity 6,498 5,921 
Total shareholders' equity931,895 885,053 
Total Liabilities and Shareholders’ Equity$1,857,018 $1,762,726 




See the notes to these consolidated financial statements.


4


Materion Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended
 September 27,September 29,
(Thousands)20242023
Cash flows from operating activities:
Net income $54,739 $76,234 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, and amortization51,291 46,524 
Amortization of deferred financing costs in interest expense1,286 1,284 
Stock-based compensation expense (non-cash)7,715 7,578 
Deferred income tax expense (benefit)(9)(149)
Changes in assets and liabilities:
Accounts receivable
(21,921)27,832 
Inventory(34,215)(30,868)
Prepaid and other current assets(24,646)(16,175)
Accounts payable and accrued expenses3,704 (25,533)
Unearned revenue(17,568)(12,398)
Interest and taxes payable
(3,233)(1,730)
Unearned income due to customer prepayments 16,676 
Other-net(5,579)(4,770)
Net cash provided by operating activities11,564 84,505 
Cash flows from investing activities:
Payments for purchase of property, plant, and equipment(50,730)(85,251)
Payments for mine development(10,376)(9,326)
Proceeds from sale of property, plant, and equipment561 417 
Net cash used in investing activities(60,545)(94,160)
Cash flows from financing activities:
Proceeds from borrowings under credit facilities, net91,057 39,649 
Repayment of long-term debt(22,694)(11,579)
Principal payments under finance lease obligations(567)(1,297)
Cash dividends paid(8,295)(7,937)
Payments of withholding taxes for stock-based compensation awards(6,575)(5,101)
Net cash provided by financing activities52,926 13,735 
Effects of exchange rate changes635 (780)
Net change in cash and cash equivalents4,580 3,300 
Cash and cash equivalents at beginning of period13,294 13,101 
Cash and cash equivalents at end of period$17,874 $16,401 

See notes to these consolidated financial statements.


5


Materion Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Unaudited)
Common SharesShareholders' Equity
(Thousands, except per share amounts)Common SharesCommon Shares Held in TreasuryCommon
Stock
Retained
Earnings
Common
Stock in
Treasury
Accumulated Other
Comprehensive
Loss
Other
Equity
Total
Balance at June 28, 202420,747 6,401 $328,836 $881,284 $(258,583)$(50,887)$6,435 $907,085 
Net income— — — 22,294 — — — 22,294 
Other comprehensive income— — — — — 3,065 — 3,065 
Cash dividends declared ($0.135 per share)
— — — (2,802)— — — (2,802)
Stock-based compensation activity5 (5)2,774 (12)(381)— — 2,381 
Payments of withholding taxes for stock-based compensation awards(1)1 — — (173)— — (173)
Directors’ deferred compensation— — 36 — (54)— 63 45 
Balance at September 27, 202420,751 6,397 $331,646 $900,764 $(259,191)$(47,822)$6,498 $931,895 
Balance at June 30, 202320,637 6,511 $303,390 $813,793 $(236,423)$(39,443)$5,806 $847,123 
Net income— — — 26,564 — — — 26,564 
Other comprehensive income— — — — — (1,385)— (1,385)
Cash dividends declared ($0.130 per share)
— — — (2,683)— — — (2,683)
Stock-based compensation activity8 (8)3,174 (76)(562)— — 2,536 
Payments of withholding taxes for stock-based compensation awards(3)3 — — (229)— — (229)
Directors’ deferred compensation— — 29 — (45)— 58 42 
Balance at September 29, 202320,642 6,506 $306,593 $837,598 $(237,259)$(40,828)$5,864 $871,968 



6


Common SharesShareholders' Equity
(Thousands, except per share amounts)Common SharesCommon Shares Held in TreasuryCommon
Stock
Retained
Earnings
Common
Stock in
Treasury
Accumulated Other
Comprehensive
Loss
Other
Equity
Total
Balance at December 31, 202320,646 6,502 $309,492 $854,334 $(237,746)$(46,948)$5,921 $885,053 
Net income— — — 54,739 — — — 54,739 
Other comprehensive loss— — — — — (874)— (874)
Cash dividends declared ($0.400 per share)
— — — (8,295)— — — (8,295)
Stock-based compensation activity154 (154)22,058 (14)(14,329)— — 7,715 
Payments of withholding taxes for stock-based compensation awards(50)50 — — (6,575)— — (6,575)
Directors’ deferred compensation1 (1)96 — (541)— 577 132 
Balance at September 27, 202420,751 6,397 $331,646 $900,764 $(259,191)$(47,822)$6,498 $931,895 
Balance at December 31, 202220,543 6,605 $288,100 $769,418 $(220,864)$(41,909)$5,245 $799,990 
Net income— — — 76,234 — — — 76,234 
Other comprehensive loss— — — — — 1,081 — 1,081 
Cash dividends declared ($0.385 per share)
— — — (7,937)— — — (7,937)
Stock-based compensation activity146 (146)18,416 (117)(10,721)— — 7,578 
Payments of withholding taxes for stock-based compensation awards(48)48 — — (5,101)— — (5,101)
Directors’ deferred compensation1 (1)77 — (573)— 619 $123 
Balance at September 29, 202320,642 6,506 $306,593 $837,598 $(237,259)$(40,828)$5,864 $871,968 
















See notes to these consolidated financial statements.


7


Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)

Note A — Accounting Policies

Basis of Presentation:
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 material adjustments were of a normal and recurring nature.
These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's 2023 Annual Report on Form 10-K. The interim period results are not necessarily indicative of the results to be expected for the full year.
Certain prior year amounts have been reclassified to conform with the current year presentation. These reclassifications had no effect on the reported results of operations, cash flows or financial position. Specifically, the net sales related to the previously disclosed precision clad strip project have been reclassified from the other end market to the consumer electronics end market within Note B.
New Pronouncements Adopted:
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07 “Improvements to Reportable Segment Disclosures (Topic 280)”. This ASU updates current reportable segment disclosure requirements to require disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. This ASU will be effective for the annual period ending December 31, 2024. Adoption of this ASU will result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.
In December 2023, the FASB issued ASU No. 2023-09 “Improvements to Income Tax Disclosures (Topic 740)”. This ASU updates current income tax disclosure requirements to require disclosures of specific categories of information within the effective tax rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. This ASU will be effective for the annual period ending December 31, 2025. Adoption of this ASU will result in additional disclosure, but it will not impact the Company’s consolidated financial position, results of operations or cash flows.

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 Materials, Electronic Materials, Precision Optics, 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 CODM, in determining how to allocate the Company’s resources and evaluate performance.
Performance Materials provides advanced engineered solutions comprised of beryllium and non-beryllium containing alloy systems and custom engineered parts in strip, bulk, rod, plate, bar, tube, and other customized shapes.
Electronic Materials produces advanced chemicals, microelectric packaging, precious metal, non-precious metal, and specialty metal products, including vapor deposition targets, frame lid assemblies, clad and precious metal preforms and high temperature braze materials.
Precision Optics produces thin film coatings, optical filter materials, sputter-coated, and precision-converted thin film materials.
The Other reportable segment includes unallocated corporate costs and assets.
The primary measurement used by management to measure the financial performance of each segment is earnings before interest, taxes, depreciation and amortization (EBITDA).


8

Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
The below table presents financial information for each segment and a reconciliation of EBITDA to Net Income (the most directly comparable GAAP financial measure) for the third quarter and first nine months of 2024 and 2023:

(Thousands)Third Quarter 2024Third Quarter 2023First Nine Months 2024First Nine Months 2023
Net sales:
Performance Materials(1)
$177,376 $184,642 $533,534 $554,427 
Electronic Materials(1)
236,906 192,305 641,564 611,855 
Precision Optics22,433 26,120 72,770 77,862 
Other    
Net sales436,715 403,067 1,247,868 1,244,144 
Segment EBITDA:
Performance Materials$44,802 $46,366 $115,893 $134,061 
Electronic Materials12,309 10,155 40,118 37,504 
Precision Optics(39)3,261 1,297 7,654 
Other(6,578)(7,497)(18,522)(21,750)
Total Segment EBITDA50,494 52,285 138,786 157,469 
Income tax expense768 2,963 6,836 11,891 
Interest expense - net8,839 7,678 25,920 22,820 
Depreciation, depletion and amortization18,593 15,080 51,291 46,524 
Net income$22,294 $26,564 $54,739 $76,234 

(1) Excludes inter-segment sales of $1.6 million for the third quarter of 2024 and $4.8 million for the first nine months of 2024 for Electronic Materials. Excludes inter-segment sales of $3.2 million for the third quarter of 2023 and $7.3 million for the first nine months of 2023 for Electronic Materials. There were no material inter-segment sales for Performance Materials in 2024 or 2023. Inter-segment sales are eliminated in consolidation.










The following table disaggregates revenue for each segment by end market for the third quarter and first nine months of 2024 and 2023:


9

Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
 (Thousands)Performance MaterialsElectronic MaterialsPrecision OpticsOtherTotal
Third Quarter 2024
End Market
Semiconductor$2,097 $198,790 $798 $ $201,685 
Industrial33,494 7,352 6,254  47,100 
Aerospace and defense44,940 975 5,126  51,041 
Consumer electronics49,131 172 4,006  53,309 
Automotive18,123 1,724 1,780  21,627 
Energy12,819 20,810   33,629 
Telecom and data center7,929 75   8,004 
Other8,843 7,008 4,469  20,320 
Total$177,376 $236,906 $22,433 $ $436,715 
Third Quarter 2023
End Market
Semiconductor$2,712 $151,388 $624 $ $154,724 
Industrial32,046 7,958 6,954  46,958 
Aerospace and defense30,938 1,102 7,124  39,164 
Consumer electronics59,486 144 4,254  63,884 
Automotive19,447 1,747 2,606  23,800 
Energy13,013 25,179   38,192 
Telecom and data center15,685 10   15,695 
Other11,315 4,777 4,558  20,650 
Total$184,642 $192,305 $26,120 $ $403,067 



10

Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
 (Thousands)Performance MaterialsElectronic MaterialsPrecision OpticsOtherTotal
First Nine Months 2024
End Market
Semiconductor$6,059 $533,312 $1,877 $ $541,248 
Industrial91,765 25,466 19,399  136,630 
Aerospace and defense129,011 4,260 16,980  150,251 
Consumer electronics166,797 309 11,272  178,378 
Automotive54,190 5,367 5,459  65,016 
Energy30,191 53,480   83,671 
Telecom and data center28,913 131   29,044 
Other26,608 19,239 17,783  63,630 
Total$533,534 $641,564 $72,770 $ $1,247,868 
First Nine Months 2023
End Market
Semiconductor$9,713 $487,361 $2,279 $ $499,353 
Industrial111,436 25,102 22,400  158,938 
Aerospace and defense92,734 4,670 17,771  115,175 
Consumer electronics162,180 526 11,075  173,781 
Automotive66,753 4,966 7,090  78,809 
Energy38,597 71,940   110,537 
Telecom and data center49,223 68   49,291 
Other23,791 17,222 17,247  58,260 
Total$554,427 $611,855 $77,862 $ $1,244,144 

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 a product is generally transferred to the customer when the Company has a present right to payment, the customer has legal title, the customer has physical possession, the customer has the significant risks and rewards of ownership, and/or the customer has accepted the product.

Transaction Price Allocated to Future Performance Obligations: Accounting Standards Codification (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 September 27, 2024. Remaining performance obligations include non-cancelable purchase orders and customer contracts. The guidance provides certain practical expedients that limit this requirement. As such, the Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

After considering the practical expedient at September 27, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $39.9 million.



11


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)
September 27, 2024
December 31, 2023
$ change% change
Accounts receivable, trade
$215,420 $193,345 $22,075 11 %
Unbilled receivables
38,098 29,524 8,574 29 %
Unearned revenue
15,497 13,843 1,654 12 %
Accounts receivable, trade represents payments due from customers relating to the transfer of the Company’s products and services. The Company believes that its receivables are collectible and appropriate allowances for doubtful accounts have been recorded. Impairment losses (bad debt) incurred related to our receivables were immaterial during the third quarter of 2024.

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

Unearned revenue is recorded for consideration received from customers in advance of satisfaction of the related performance obligations. The Company recognized approximately $13.5 million of the December 31, 2023 short-term unearned amounts as revenue during the first nine months of 2024.

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 — Restructuring

The Company implemented various restructuring initiatives across the Performance Materials, Electronic Materials, Precision Optics and Other segments to improve operational efficiency during the three and nine months ended September 27, 2024 and the three and nine months ended September 29, 2023. This resulted in severance and related costs of approximately $1.5 million and $6.2 million during the three months and nine months ended September 27, 2024, respectively, and $1.1 million and $3.2 million during the three months and nine months ended September 29, 2023, respectively. Of the $6.2 million incurred in 2024, approximately $4.8 million of those severance costs were paid as of September 27, 2024.


Note E — Other-net

Other-net for the third quarter and first nine months of 2024 and 2023 is summarized as follows: 
 Third Quarter EndedNine Months Ended
 September 27,September 29,September 27,September 29,
(Thousands)2024202320242023
Amortization of intangible assets$3,217 $3,153 $9,227 $9,403 
Metal consignment fees1,978 2,580 5,896 8,307 
Foreign currency (gain) loss717 609 1,251 571 
Other items(603)(131)(2,262)(103)
Total$5,309 $6,211 $14,112 $18,178 


12


Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note F — Income Taxes

The Company's effective tax rate for the third quarter of 2024 and 2023 was 3.3% and 10.0%, respectively, and 11.1% and 13.5% in the first nine months of 2024 and 2023, respectively. The effective tax rate for 2024 is lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development and production tax credits, and the foreign derived intangible income deduction. The effective tax rate for 2023 was lower than the statutory tax rate primarily due to the impact of percentage depletion, research and development and production tax credits, and the foreign derived intangible income deduction. The effective tax rate for the first nine months of 2024 includes a nominal amount of discrete income tax expense primarily consisting of $1.0 million of excess tax benefits from stock-based compensation awards offset by a $1.1 million valuation allowance recorded against deferred tax assets that are not likely to be realized for one of the Company’s foreign subsidiaries. The effective tax rate for the first nine months of 2023 included a net discrete income tax benefit of $3.4 million, primarily related to an optimization of our foreign-derived intangible income deduction benefit, excess tax benefits from stock-based compensation awards, and return to provision adjustments.

Government Tax Credits
Pursuant to The Inflation Reduction Act of 2022 (IRA), the Company is eligible for the Advanced Manufacturing Production Credit (production credit) beginning in 2023. The production credit provides an annual cash benefit for a portion of the production costs for the sale of certain critical minerals produced in the U.S. and sold during the year. On October 24, 2024, the U.S. Treasury Department published final regulations on the production credit that include clarifying guidance regarding the definition of production costs included in the computation of the production credit. The company is currently in the process of analyzing the final regulations to determine the amount of the production costs eligible for inclusion in the calculation of the production credit for the tax year ended December 31, 2024. The amount of the benefit that the Company is entitled to receive in connection with the production credit will ultimately depend on its analysis of the final regulations.

The Company records the production credit as a reduction in cost of goods sold as the applicable items are produced and sold. U.S. GAAP does not address the accounting for government grants received by a business entity that are outside the scope of ASC 740. Our accounting policy is to analogize to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, under IFRS Accounting Standards. We recognize the benefit of the production credits by applying IAS 20 in pretax income on a systematic basis in line with its recognition of the expenses that the grant is intended to compensate.

Pillar Two
The Organization for Economic Co-operation and Development (OECD) introduced rules to establish a global minimum corporate tax, commonly referred to as Pillar Two. Numerous foreign countries have enacted legislation to implement the Pillar Two rules, effective beginning in 2024, or are expected to enact similar legislation. The Company continues to evaluate the Pillar Two rules but does not expect Pillar Two to have a significant impact on its effective tax rate or consolidated results of operations, financial position, and cash flows.


13


Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note G — Earnings Per Share (EPS)

The following table sets forth the computation of basic and diluted EPS:
Third Quarter EndedNine Months Ended
September 27,September 29,September 27,September 29,
(Thousands, except per share amounts)2024202320242023
Numerator for basic and diluted EPS:
Net income$22,294 $26,564 $54,739 $76,234 
Denominator:
Denominator for basic EPS:
Weighted-average shares outstanding20,749 20,640 20,723 20,611 
Effect of dilutive securities:
Stock appreciation rights75 79 83 87 
Restricted stock units44 84 61 89 
Performance-based restricted stock units52 102 68 104 
Diluted potential common shares171 265 212 280 
Denominator for diluted EPS:
Adjusted weighted-average shares outstanding20,920 20,905 20,935 20,891 
Basic EPS$1.07 $1.29 $2.64 $3.70 
Diluted EPS$1.07 $1.27 $2.61 $3.65 

Adjusted weighted-average shares outstanding - diluted exclude securities totaling 148,038 and 47,250 for the quarters ended September 27, 2024 and September 29, 2023, respectively, and 110,555 and 36,927 for the nine months ended September 27, 2024 and September 29, 2023, respectively. These securities are primarily related to restricted stock units (RSUs) and stock appreciation rights (SARs) with fair market values and exercise prices greater than the average market price of the Company's common shares and were excluded from the dilution calculation as the effect would have been anti-dilutive.

Note H — Inventories

Inventories on the Consolidated Balance Sheets are summarized as follows:
September 27,December 31,
(Thousands)20242023
Raw materials and supplies$129,539 $117,693 
Work in process276,998 268,717 
Finished goods70,059 55,187 
Inventories, net$476,596 $441,597 
The Company maintains the majority of the precious metals and copper used in production on a consignment basis in order to reduce its exposure to metal market price movements and to reduce its working capital investment. The notional value of off-balance sheet precious metals and copper was $385.7 million and $351.5 million as of September 27, 2024 and December 31, 2023, respectively.


14


Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
Note I — Customer Prepayments

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

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

Additionally, during the second quarter of 2022, the Company entered into an amendment to the investment agreement with the same customer to procure additional equipment to manufacture product for the customer. In 2023, the Company received the remaining prepayments related to this amendment, the total of which approximated $38.6 million.

As of September 27, 2024 and December 31, 2023, $65.6 million and $84.7 million, respectively, of prepayments are classified as Unearned income on the Consolidated Balance Sheets. The prepayments will remain in Unearned income until commercial purchase orders are received for product serviced out of the equipment, at which time a portion of the purchase order value related to prepayments will be reclassified to Unearned revenue. As of September 27, 2024 $7.0 million of the prepayments are classified as Unearned revenue.

Note J — Pensions and Other Post-employment Benefits

The following is a summary of the net periodic benefit cost for the third quarter and first nine months ended September 27, 2024 and September 29, 2023, respectively, for the pension plans as shown below. The Pension Benefits column aggregates defined benefit pension plans in the U.S., Germany, Liechtenstein, England, and the U.S. supplemental retirement plans. The Other Benefits column includes the domestic retiree medical and life insurance plan.
 Pension BenefitsOther Benefits
 Third Quarter EndedThird Quarter Ended
September 27,September 29,September 27,September 29,
(Thousands)2024202320242023
Components of net periodic benefit (credit) cost
Service cost$279 $209 $12 $13 
Interest cost1,916 1,966 58 68 
Expected return on plan assets(2,541)(2,421)  
Amortization of prior service (benefit) cost(22)(21) (139)
Amortization of net loss (gain)32 (75)(87)(95)
Net periodic benefit (credit) cost$(336)$(342)$(17)$(153)
 Pension BenefitsOther Benefits
 Nine Months EndedNine Months Ended
September 27,September 29,September 27,September 29,
(Thousands)2024202320242023
Components of net periodic benefit (credit) cost
Service cost$813 $642 $37 $38 
Interest cost5,728 5,909 175 205 
Expected return on plan assets(7,600)(7,282)  
Amortization of prior service (benefit) cost(64)(65) (417)
Amortization of net loss (gain)96 (231)(262)(285)
Net periodic benefit (credit) cost$(1,027)$(1,027)$(50)$(459)


15


Materion Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)


The Company did not make any contributions to its domestic defined benefit plan in the third quarter or first nine months of 2024 or 2023.
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 (income) expense.


Note K — Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income, including the amounts reclassified, for the third quarter and first nine months of 2024 and 2023 are as follows:
Gains and Losses on Cash Flow Hedges
(Thousands)Foreign CurrencyInterest RatePrecious MetalsTotalPension and Post-Employment BenefitsForeign Currency TranslationTotal
Balance at June 28, 2024
$1,718 $5,709 $(323)$7,104 $(48,894)$(9,097)$(50,887)
Other comprehensive income (loss) before reclassifications(695)(3,805)(148)(4,648) 7,579 2,931 
Amounts reclassified from accumulated other comprehensive income (loss)(135)(1,294)295 (1,134)(77) (1,211)
Net current period other comprehensive (loss) income before tax(830)(5,099)147 (5,782)(77)7,579 1,720 
Deferred taxes(191)(1,173)34 (1,330)